COLA is the acronym for “cost of living adjustment.” Because the CPI was up by only 1.5%, summer to summer, there will not be much of a Social Security increase this year.
The CPI barely moves these days. This means that the Federal Reserve can counterfeit $1 trillion a year, which it uses to buy federal debt, yet no one complains. Bankers refuse to lend most of this new money to the public, so the rate of M1 money creation is low. This lets the Federal Reserve get away with its policies at no risk to the FED. This guarantees the extension of the so-called QE3 policy through 2014 and well into 2015, as the Federal Reserve has publicly admitted.
Low price inflation holds down expenses for the federal government. Over half a trillion dollars per year of newly created money flows into the bond market. Almost this much subsidizes the mortgage market. This is great for politicians for as long as prices do not rise much. The public is subdued.
If the FED ever stops this increase, there could be a recession, depending on what commercial bankers do with the $2.4 trillion in excess reserves held at the FED.
Any reduction of the FED’s easy money policies would raise interest rates on mortgages. The housing recovery would end. The voters would not like that.
Until then, the present arrangement keeps Washington happy. It’s almost free money. The FED inflates, but prices are close to stable. The COLA stays flat. Social Security recipients learn to live on less. They get almost nothing on their bank savings accounts. They do not get significant increases in Social Security payments. They dip into their savings to make ends meet.
Unlike the U.S. government, they do not have endless inflows of money from the Federal Reserve.