Low Inflation = Social Security projected to have no COLA's for next 3 years

[shotgunner]

I thought we had hyperinflation coming?

http://finance.yahoo.com/focus-retir...vingretirement

[ziggy29]

All of the money being printed will eventually be inflationary.

But until that money has "velocity," it won't be inflationary.

The example I've used in the past is this: I could have a "magic printing press" which could produce $100 bills which are undistinguishable from real currency and which would pass in commerce as real. I could print $3 trillion in these bills, effectively adding $3 trillion to the "money supply."

Is this inflationary?

Not if I stash it in my (theoretical huge) closet or bury it in the back yard. The money has no velocity, it doesn't enter commerce, and it doesn't stoke inflation at all.

If, on the other hand, I inject it into the economy and it starts exchanging hands in economic activity -- if the $3 trillion has "velocity" -- then yes, it WILL be inflationary.

In the current environment, money is having little velocity -- consumers, businesses and banks are hoarding cash. People aren't borrowing or spending much and banks aren't lending much. As long as these entities hoard cash, it's like burying the money until they start spending it again. But until these entities start unleashing some of the hoarded cash, the extra printed money isn't going to be inflationary.

So it may take a while before confidence returns and these entities are ready to start considerably reducing their stash of hoarded cash. And when that happens, when money starts serioiusly regaining velocity in commerce -- be it a few months, a year or two, whatever -- THAT is when all this printed and borrowed money will probably turn inflationary.

[cashflo2u2]

I don't understand this comment from the article linked:

"The Congressional Budget Office says in its latest budget estimates that inflation will dip so low that Social Security recipients will not qualify for annual increases in 2010, or for two years after that."

Is there threshhold under which the CPI-W will not trigger a cola increase? I thought as long as there was ANY inflation the the COLA would be equal to it.

[MasterBlaster]

As I understand things, SS sets the next years increase based on the cumulative year-over year CPI change in the summer. So since last summer was marked by massive increases in fuel and commodity prices the increase for the year was relatively high. Since those price increases from last summer have now backed off, some estimate that the relative measurements of inflation won't exceed last summers numbers for a few (one, or three) years. Therefore some are now predicting flat increases in SS for a few years.

They try to measure a large "basket of goods" and keep track of relative price increases in that basket. SS increases are based on that basket. The basket was up last summer, now it is down somewhat. It will be (perhaps) a few years before the basket catches up with what they gave you.

It's all an artifact of the way they do their measurements and their SS increases.

Anyway that is my understanding. The article didn't give the background.

[jdw_fire]

hmmmmmm

Quote:

Originally Posted by ziggy29 All of the money being printed will eventually be inflationary.

the CBO doesnt seem to think so for the next decade

Quote:

The Congressional Budget Office says in its latest budget estimates that inflation will dip so low that Social Security recipients will not qualify for annual increases in 2010, or for two years after that. In 2013 through 2019 -- when projections are less reliable -- CBO estimates annual increases of 2 percent each year, which would be among the lowest.

and when it comes to

Quote:

Originally Posted by MasterBlaster Since those price increases from last summer have now backed off, some estimate that the relative measurements of inflation won't exceed last summers numbers for a few (one, or three) years... The basket was up last summer, now it is down somewhat. It will be (perhaps) a few years before the basket catches up with what they gave you.

for each year's increase the CPI just has to be higher than the previous year (and it is calculated for the fed gov's FY which runs oct to sep). so granted this years CPI number at the end of sep may be lower then last years sep number but for there to be no increase in 2011 the sep 2010 CPI number would have to be less than the sep 2009 CPI number, not the 2008 CPI number. and so on.

[mickeyd]

Without checking carefully, I just started another thread on this same subject. My apologies to all.

[ziggy29]

Quote:

Originally Posted by mickeyd Without checking carefully, I just started another thread on this same subject. My apologies to all.

No problem. I'll lock that thread and direct discussion to here.

[FIRE'd@51]

Quote:

Originally Posted by jdw_fire for each year's increase the CPI just has to be higher than the previous year (and it is calculated for the fed gov's FY which runs oct to sep). so granted this years CPI number at the end of sep may be lower then last years sep number but for there to be no increase in 2011 the sep 2010 CPI number would have to be less than the sep 2009 CPI number, not the 2008 CPI number. and so on.

Actually, the SS COLA adjustment is calculated from the average of the third quarter (Jul, Aug, Sep) 2008 CPI-W to the same quarter's average for 2009, and so on. However, as you point out, since the COLA is never negative, each year is a new ballgame. My guess is there will be positive inflation from the third quarter of this year to the third quarter of 2010, and that SS recipients will see their monthly checks increase in Jan 2011.

Oh, and BTW, if there is no COLA increase to SS next year, the Medicare part B premium can't be increased (except for those whose part B premiums are means-tested).