Whose Inflation Is It?

The article below helps me make my point as to why we need better regulation of commercial banking, investment banking, securities information and laws, and investment products sold by the underwriters of securities. I am willing to accept that inflation is a reality in a system where the central bank (monetary policy) and the federal government (fiscal policy) combine to expand the growth rate of the domestic economy. Some things are just too big to change, and the reality is, our economy and its growth are of primary importance to the well being of this nation of 300 million people. But, if inflation is a by product in some years and not in others, seniors are going to have to dip into savings and investments for those years when no increase in the C.O.L.A. is taking place. Unfortunately, many many seniors and soon to be seniors have taken a "bath" in the recent financial crisis. All I have been trying to explain over the last several months, is that given the system of central bank, our Federal Reserve Bank, and our fiscal policy, whose primary concern is the expansion of our domestic economy, should not investors, large and small, be protected by a set of regulations as it pertains to the securities and investment industry? Read the article below and pay particular attention to the fact that a group of trustees are making the decision that no cost of living adjustment will be made over the next two years. This may help the federal government with the deficit, but this is going to make getting by even more difficult for millions of seniors on social security. Read on.

Social Security checks: No cost-of-living increase projected for next 2 years
Payments tied to inflation, which is negative compared with last year.

By Stephen Ohlemacher
Associated Press
August 24, 2009

WASHINGTON - -- Millions of older people face shrinking Social Security checks next year, the first time in a generation that payments would not rise.

The trustees who oversee Social Security are projecting there won't be a cost-of-living adjustment (COLA) for the next two years. That hasn't happened since automatic increases were adopted in 1975.

By law, Social Security benefits cannot go down. Nevertheless, monthly payments would drop for millions of people in the Medicare prescription drug program because the premiums, which often are deducted from Social Security payments, are scheduled to go up slightly.

"I will promise you, they count on that COLA," said Barbara Kennelly, a former Democratic congresswoman from Connecticut who now heads the National Committee to Preserve Social Security and Medicare. "To some people, it might not be a big deal. But to seniors, especially with their health care costs, it is a big deal."

Cost-of-living adjustments are pegged to inflation, which has been negative this year, largely because energy prices are below 2008 levels.

Advocates say older people still face higher prices because they spend a disproportionate amount of their income on health care, where costs rise faster than inflation. Many also have suffered from declining home values and shrinking stock portfolios just as they are relying on those assets for income.

"For many elderly, they don't feel that inflation is low because their expenses are still going up," said David Certner, legislative policy director for AARP. "Anyone who has savings and investments has seen some serious losses."

About 50 million retired and disabled Americans receive Social Security benefits. The average monthly benefit for retirees is $1,153 this year. All beneficiaries received a 5.8 percent increase in January, the largest since 1982.

More than 32 million people are in the Medicare prescription drug program. Average monthly premiums are set to go from $28 this year to $30 next year, though they vary by plan. About 6 million people in the program have premiums deducted from their monthly Social Security payments, according to the Social Security Administration.

Millions of people with Medicare Part B coverage for doctors' visits also have their premiums deducted from Social Security payments. Part B premiums are expected to rise as well. But under the law the increase cannot be larger than the increase in Social Security benefits for most recipients.

There is no such provision for drug premiums.

Kennelly's group wants Congress to increase Social Security benefits next year, even though the formula doesn't call for it. She would like to see either a 1 percent increase in monthly payments or a one-time payment of $150.

The cost of a one-time payment, a little less than $8 billion, could be covered by increasing the amount of income subjected to Social Security taxes, Kennelly said. Workers only pay Social Security taxes on the first $106,800 of income, a limit that rises each year with the average national wage.

But the limit only increases if monthly benefits increase.

Critics argue that Social Security recipients shouldn't get an increase when inflation is negative. They note that recipients got a big increase in January -- after energy prices had started to fall. They also note that Social Security recipients received one-time $250 payments in the spring as part of the government's economic stimulus package.

Consumer prices are down from 2008 levels, giving Social Security recipients more purchasing power, even if their benefits stay the same, said Andrew Biggs, a resident scholar at the American Enterprise Institute, a conservative think tank.

"Seniors may perceive that they are being hurt because there is no COLA, but they are in fact not getting hurt," Biggs said. "Congress has to be able to tell people they are not getting everything they want."

Social Security is also facing long-term financial problems. The retirement program is projected to start paying out more money than it receives in 2016. Without changes, the retirement fund will be depleted in 2037, according to the Social Security trustees' annual report this year.

President Barack Obama has said he would like to tackle Social Security next year.

Copyright © 2009, Chicago Tribune

Inflation may be negative the way the trustees calculate inflation, but for seniors who use more health care services and medicine, perhaps inflation is not negative at all. The Congress eliminated the protective laws that protected the large pension funds and the individual investor for decades. The Congress and Presidents all had a hand in making the financial crisis a reality for millions of Americans. It is time to level the playing field and do the decent thing and put real and meaningful regulation back in place.

Stay tuned.