I'm No Chicken Little

Bruce Krasting's picture

I wrote a piece
on the 2009 results that were published by the SSTF. Some of my
assumption and many of my conclusions have come under criticism. Mr.
Bruce Webb, a well-respected fellow, suggested that I was “peddling
crap”. He went on to suggest that I was in collusion with two leading
economists, Mr. Briggs and Mr. Hassett of the American Enterprise
Institute (AEI). There is no truth to that. Right or wrong I have come
to my observations on the Fund on my own. I have written a total of 11
pieces (out of 180) on the SSTF in the past year. They have all been
published outside of my blog. I am not that new to this debate.

Dale Coberly (another well respected guy) at Angry Bear did a piece
that discussed all of this. Mr. Coberly took me to task on my views.
Argued with my analysis. Disagreed with all of my conclusions. Fair
enough. I think that is what blogs are for.

I have never met Coberly or Webb. I am not sure why they took the
approach they did. The Angry Bear site has a link to Webb’s blog on the
banner. So they speak as one voice. One says that I am colluding with
people from AEI (in my view he lost any respect he might deserve with
that silly assertion) the other approaches this with a tone and style
that makes me think of a sandbox.Their piece and my thoughts:

The Sky Is Falling Before Schedule. Again.
by Dale Coberly

Bruce Krasting tells us The sky is falling the sky is falling Social
Security has run out of money 30 years before it was supposed to
happen. The words here are mine, the tone is his:

BK-I never said anything of the sort. As you say, you make up words.
Why do you feel it is necessary to do that? I did say the following and
I stand by it:

"I think that the recession of 08 and 09 and the anticipated high
unemployment (low employment) in 2010 has crippled the Fund. Nothing
short of a major overhaul can turn it around at this point. The damage
has been too great."

BK-Yes, a major overhaul is necessary in my opinion. From the SS Trustee’s 2009 report to Congress,


“Under current law, the cost of Social Security will soon begin to
increase faster than the program’s income….. . Based on the Trustees’
best estimate, program cost will exceed tax revenues starting in 2016.”



FICA and SECA taxes were less than benefits paid for the first time
in history in 2009. That is a significant milestone. Mr. Webb points to
adjustments to this basic ratio including tax on benefits and RR
expenses and overhead. His calculation was for this to result in a
surplus of $8b. Fair enough. By that calculation the Fund covered
expenses 1.012X. The ratio I point to is .9924X. These are rounding
errors. The break even point has been functionally achieved. It will be
exceeded in 2010. The Trustees predicted that this would happen in
2016. In will come six years earlier. You see no sense of urgency in
that?

He tells us the Trust Fund has a surplus of 2 and a half trillion
dollars. That's 2,500 billion. Yet he is convinced that a 5 billion
cash shortfall this year "has crippled the Fund." Other things being
equal (they are not), that 5 billion shortfall would take 500 years to
deplete the Fund. The Fund will run out of money long before that for
other reasons... but those other reasons were understood and planned
for a long time ago.

BK: Yes, if you divide 2.5 trillion by 5 billion you get 500. But we
both know that is an irrelevant calculation. You think that math adds
to this debate?

Krasting may be alluding to those other reasons when he argues with
Bruce Webb that the small cash deficit this year will keep on growing,
but he doesn't really say so. The deficit might keep growing or it
might not. The recession could end, and then cash flow would go
positive again, at least for a while.

BK: Yes the recession will end. It already has. But we have 10%
unemployment and few prospects for job creation. If we started getting
increases in NFP of 700k per month, I might back off. But we are still
losing jobs. I think that net of census hiring we will lose jobs for
the full year. I am not alone in that view of employment. What is your
outlook for jobs creation? Are you looking for 10mm net new hires this
year? If not, you might want to consider the implications to the Fund.

The other reasons the Trust Fund will eventually "run out of money"
(almost) will still be with us. Fortunately, they don't matter either.
Social Security will not be "broke." The Trust Fund was designed to
"run out of money" (almost). When it does, Social Security will return
to pay as you go (almost) at perhaps a slightly higher tax rate to pay
for the longer life span of the generation paying the tax.

He claims that there was a negative COLA. There wasn't. He seems to
think the difference between the December and January total outlays
represents a "decline in monthly checks." It doesn't.

BK: This is a valid criticism. It would have been more correct if I had said:

“The December to January benefits number fell by $475mm ($6b
annualized). The first time ever absence of a COLA adjust may have
contributed to this unusual phenomenon. In the past decade there has
not been any years where this has occurred. The percentage change in
the past few years were 06/07 = + 2%, 07/08 = + 1%, 08/09 = + 5% and
09/10 = -1%. A big swing in direction for 2010."



I look for numbers that change from a ‘predictable’ direction. When
that happens there is often consequences. Sometimes those consequences
create opportunities to make and lose money. That is why I watch for
them. Coberly and Webb have unique knowledge of the workings/numbers of
the Fund. They could turn that into an opportunity to make a buck. They
should try it. It is rewarding in many ways. But I doubt that they see
the forest for the trees.

He seems to think that a 100 billion dollar surplus is a deficit
because it's not a 190 billion surplus. Time to run in circles, scream
and shout, because we only came out a 100 billion ahead this year
instead of the 190 billion we predicted before the recession. The whole
point of the Trust Fund is to bridge cash shortfalls due to things like
recessions. What Krasting is screaming about is the Trust Fund doing
what it was designed to do. See, you build up surpluses when times are
good, and you spend them down when times are bad.

BK: That was not a little rain shower we just went through. That was
the storm of the century. Yes we have eaten into the surplus. In 2010
we may start to ‘live off the interest’. And this ship is far from
being turned around.



Yes, I do think a miss of 45% on a basic measure of the Fund’s
performance is material. If a public company missed by 45% on the
bottom line we would take the stock out back and shoot it.

He seems alarmed that Social Security is not able to lend money to the
Treasury. This is like your forty year old son getting mad at you
because you can't afford to "lend" him a hundred bucks this week like
he expected because he has gotten so used to getting it. The purpose of
Social Security is to provide benefit checks to the people who pay the
payroll taxes. The purpose of Social Security is NOT to support
Congress' deficit spending.

BK: You have me right on this point. I am alarmed. While I agree
that this is not an issue for the SSTF, it most certainly is an issue
for the entire fixed income market. In prior years the SSTF acquired
Treasury IOU’s for as much as 50% of the total deficit. In a few years
the Fund will be a seller versus a buyer. Do you really think that is not a
significant development?

So because Social Security has reached the long planned for point where
the surpluses have to be called upon to do the job they were designed
to do, Krasting wants to call a "deficit commission" and steal the
benefits from the people who have paid for them. And subject them to
"means testing," i.e. "welfare," which Social Security was specifically
designed not to be.

BK: The fund has proposed either a 2% increase in payroll taxes or a
13% cut in benefits (or some combination). The 2% solution proposed by
the Fund would increase payroll taxes by $115 billion annually. That
number would rise each year thereafter. Please point me to the
economist, Senator or Congressperson who would sign up for that. I
think the voters in the States that they are from would be anxious to
hear about that. You have my email. Send me the list and I will publish
it.



The Trustees said that ‘creative thinking’ would be required. I
don’t see you two putting anything new on this table. There are 160mm
people paying into the system, there are 55 million getting benefits.
That is two thirds of the population and most of the adults. Not one of
them would support an increase in their taxes and/or a decrease in
benefits. What I offer is politically doable. The alternatives will
create a debate that will make health care and tea parties look like
small beer.



A question. You have two choices, which do you choose?


1) You reduce the check to Bill Gates’s and a widow from Alabama’s by 20%.
2) You eliminate Bill’s check entirely and keep the widow with her old benefits.


Would your really go for #1? If so, I suggest you ask Bill (or me).
We would disagree with you. #1 is not the ‘right thing to do’.



Mr. Coberly has already answered this question. He stated yesterday,
“Bill Gates will get his check” He is correct, under the current law
Mr. Gates will get money he does not need or want. But if it becomes
necessary to cut benefits, Mr. Gates will have his benefits reduced by
the same percent as the widow. In 2010 the mindset of the people is not
in agreement with this thinking.

It also needs to be pointed out that Social Security has nothing to do
with the deficit. Not the current debt nor any future deficit. Social
Security was carefully designed to be paid for by the people expecting
the benefits. It is not paid for by general revenues, taxes on the
rich, or government borrowing.

BK: I want to focus on the statement that, ‘SS has nothing to do
with current debt.’ This is correct. But things are happening now that
affect who owns the debt. On a month to month basis a small portion of
the debt has been shifting back and forth between that held by the
public and that which is intergovernment. I want to demonstrate a
troubling trend that I see. Some data.

The monthly shortfalls are reversed at the end of the quarter
(except Q 3) and we see the annual surplus number. There is no YoY
negative shift in the Public vs. Government holdings. (It continues to
be positive)



However, for the months of Feb., May, July, August, Sept., Oct., and
Nov. the SSTF did reverse repo transactions with Treasury to provide
the liquidity to cover the monthly shortfall. The offset is that for
that month the Treasury has to increase it’s sales of Treasury bills to
the public to generate the cash to cover the deficit. In 2009 those
shortfalls had three affects. 

1) It reduced the amount of investable funds and therefore the ability of the Fund to earn income and,
2) It cost the Fund +/-$125mm in interest to fund the monthly shortfalls. 
3) It caused the Treasury to issue additional short term debt in the
public market. Some of that additional debt extended beyond one
quarter.



I acknowledge that these monthly amounts are negligible in the
scheme of things. But now you have to acknowledge something. In 2008
there were 3 deficit months. In 2009 there were 7 deficit months and
the sum of those was $24.2b. As historians of the Fund’s performance
you will confirm that these negative cash flow months have not been
seen in the Fund’s numbers over the past twenty years. A troubling
development if it were to sustain itself. I believe that it will.



Now consider the 4th Q 2009 surplus of only $13.6 b. Compare that
with the surplus in 2008 of $52.3 b. A YoY decline of 75%. I believe
there is a very real possibility that the 4th Q 2010 number will be a
full quarter deficit number based on the trend from 08 to 09 and the
assumption that there will no meaningful additions to the number of
contributors. I expect the 3rd Q to repeat the 09 performance.



You would say of this development, should it happen, that it is no
big deal and of no lasting significance. From the perspective of the
Fund you might be right. But you have to look ‘outside the box’. There
will be a market consequence to this. And that is what my readers and I
care about. Should the 4th Q 2010 prove to be a net negative you will
get this headline in the Wall Street Journal:

Treasury Forced to Sell More Debt to Public as SSTF Turns Negative for Second Half 0f '10
Bond market spooked, yields rise. Gold rallies, stocks and the dollar down.

You may be experts on the Fund. But I know a thing or two about
markets. A six month deficit for the Fund is not “priced in”. Unless
something is done (or we get extraordinarily lucky and create 8mm new
jobs) this development will take place in the next two years. When it
does it is not going to go over well at all.

Finally, let us suppose that Krasting were right (he is not) and that
we have depleted the Trust Fund. Would this be a catastrophe? Would
Social Security be "broke." Would we see a crippling burden on the
young?No. Social Security would return to pay as you go... as it was
always intended to be.

BK: I never said the Trust Fund was depleted. I said that it needs a
fix ASAP. You say I am wrong about something I never said. Do you think
making these false claims supports your position? There are a lot of
smart folks who read this stuff, they will see through this fog you are
trying to create.

It would continue to pay benefits out of current payroll taxes.Because
of the size of the baby boom, the missing Trust Fund income would have
to be replaced by a small tax raise. That raise would be on the order
of one percent of payroll for each the employee and the employer,
probably phased in over ten years. This was going to happen anyway...
starting in about 2026...because the next generation is going to be
living longer than the last. All an immediate collapse of the trust
fund (not going to happen unless Congress steals it) would do would be
to advance the date of the first one tenth of one percent tax increase.

Krasting does not understand what he is talking about, but he is
getting encouragement from people who do. They know he is wrong, but
they are happy to let him do the "sky is falling" screaming for them.
It accomplishes their purposes, which is to panic the people into
letting them cripple Social Security.

BK: Okay. I don’t know what I am talking about and Mr. Webb and Mr. Coberly, are the experts. Mr. Webb has stated his views, “nothing needs to be done, maybe a tweak in twenty years”. I think he is way off on that call.


We shall see who is right or wrong. I say that SS is at a nexus. I
say we should address the issue before it gets to a point where the fix
is more than we can bear. They suggest that we should just sit back and
assume that this is all going to work out fine. Sorry to disappoint
you. You can’t put your head in the sand and hope this goes away. It
will not.



In their posts yesterday Mr. Webb/Coberly went out of their way to
establish that they were in fact the experts on this. The word Hubris
came to mind when I read:



I am an expert on this part of Social Security. Bruce is an
expert on a part of it that is larger than but not entirely overlapping
my part. There are a few other experts around. But in general you
cannot trust people who bill themselves as "non partisan experts."

Dale Coberly



Note:
On November 20, 2007 I was on the FOX “Scoreboard” show with David
Asman. On that show I said, “Fannie and Freddie will go bankrupt. The
stockholders will be wiped out, the bondholders will all be spared”. I
took a lot of criticism for saying that. All the ‘experts’ were saying
it could not happen and guys like me were lunatics. Less than a year
later I was proven correct. I did well with that call.

SS is no Fannie or Freddie. There will be no explosion. But the ins and
outs of SS are equivalent to 13% of GDP. Anything that affects SS will
have an impact on the real economy one-way or the other. When that
happens there will be both risk and reward. My guess is that this is about
nine months off from become an issue that starts to move markets. If
anything, it will be less.

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Anonymous's picture

It wouldn't be the end of the world if the trust fund depleted and the benefits went back to pay as you go, anyway.

A wage earner's Primary Insurance Amount (PIA) is indexed to wage inflation up until age 62, meaning it grows in real terms. After age 62, it is adjusted for COLA increases.

Since 1951, the National Average Wage Indexing series used for calculating the PIA has increased at an annual 4.9% clip while the CPI-U has increased at an average of 3.8% a year. According to the trustees, trust fund depletion would mean that SS would only be able to pay 75% of scheduled benefits. Assuming wage growth and CPI stay on their 50 year trend, one's 2036 benefit would still be an improvement in real terms upon what people are getting in benefits right now.

Anonymous's picture

jesus dear god

most of you seem to spend your time making up nightmare fantasies. i doubt it will do you much good, but read the replies to Krasting on Angry Bear.

Social Security is not broke. It can never be broke. Krating came around to admitting that what he meant to say was that if the government has to borrow from the bond market to pay back the money it borrowed from social security that will affect bond prices and the sky will fall.

apparently raising taxes to balance the budget is a completely irresponsible idea.

coberly

Anonymous's picture

Why is the program being blamed for the misuse of its Trust Fund assets. I use the term misuse in describing each administration's inclination to squander those assets on tax reductions for the wealthiest people and support its profligate spending on a military budget that is wholelly unproductive. The TF assets can be paid back once the government decides to begin representing the 98% majority of the country instead of making life richer for the other 2% of the wealthiest people in the country.

Hammer59's picture

Thankyou, Henry Hub. Reagan---A reverse Robin Hood, steals from the working classes to give to the rich. Trickle down voodoo economics. Then, cocksucker Bush comes along---tax cuts for the wealthy, entitlements for seniors, doubles the National Debt, and involves us in two wars, whilst ruining the economy.

I'm certain that most of you neo-cons hate socialism, organized labor etc.  I have seen the homes of the uber wealthy, and they are not hurting! 

My er witholds @ $400.00 a month for FICA, and I'm gonna get screwed?  No way.

Anonymous's picture

Our Government made this into a ponzi scheme. They looted the fund to turn deficits into surpluses for many years. These surpluses were used for other spending and for lowering taxes. When objected to, they would say: What better guarantee than the full faith and credit of the United States to repay in the future. So now our brain surgeons in DC, who are still spending like hell, should be allowed to default on the fund? The problem isn't SS, it's the Aholes in DC. You guys don't understand. Even if the did away with SS tomorrow, you'll still pay the tax cause it doesn't go into the trust fund. It pays for other shit. I encourage you to go here to read up on how our government is stealing from us. It's a history of SS.

http://www.allbusiness.com/government/employment-regulations/1130813-1.html

Henry Hub's picture

Good explanation. Also Check out "Greenspan's Fraud" a book by Ravi Batra.

"In 1983, President Regan signed the biggest tax rise on payrolls, promising to create a surplus in the Social Security system, while knowing all along that the new revenue would be used to finance the deficit.
The retirement system was looted from the first day the Social Security surplus came into being, because the legislation itself gave the president a free hand to spend the surplus in any way he liked. Thus began a massive transfer of wealth from the poor and the middle class, especially the self-employed small businessman, to the wealthy. The self-employment tax jumped as much as 66 percent.

SEE: http://www.truthout.org/032009R

pros's picture

The idea is to crush social security and seize 401K's and private pension funds to free up more money for wars, Fed Reserve operations and insider bailouts while the U.S. still has access to the capital markets----

after that has run its course the US will renege on its debts in some fashion and entirely eliminate SS and other pensions just as the auto companies, steel, companies, etc. have done---

all of this may be undertaken behind some sort of "national security crisis" smokescreen.

The project is advancing rapidly---your friends at the AEI and Petersen Inst., Concord Coalition, have been at it for years, and now they have Obama's full support.

Anonymous's picture

The idea is to crush social security and seize 401K's and private pension funds to free up more money for wars, Fed Reserve operations and insider bailouts while the U.S. still has access to the capital markets----

after that has run its course the US will renege on its debts in some fashion and entirely eliminate SS and other pensions just as the auto companies, steel, companies, etc. have done---

all of this may be undertaken behind some sort of "national security crisis" smokescreen.

The project is advancing rapidly---your friends at the AEI and Petersen Inst., Concord Coalition, have been at it for years, and now they have Obama's full support.

Trifecta Man's picture

To fix Social Security, we need to balance its income with outflow.  If taxes are not enough income, then Social Security needs to find more income.  Maybe they need to run lotto games or casinos.  Or reduce outflow by increasing age requirements, or capping benefits.

But if you really want to make retirement affordable thru Social Security, you got to get rid of the Federal Reserve and their FRNs, since they keep driving up the costs of everything over the years.  FRNs are the biggest scam in the world.

Anonymous's picture

Extend and pretend...it works forever. Don't wory be happy. This is the best of all possible worlds so this must be a good thing. Pangloss was right.

Henry Hub's picture

Hold everything! The sky is falling, but not because of Social Security which might become pay as you go in 2026 or beyond. It is because the U.S. has an unfunded liability and is on pay as you go from here to eternity. There is no trust fund to save us. It's the unfunded liability that it seems is taboo to mention. It is the military budget which is currently 663 billion a year! Now there something to run around in circles screaming about!

hbjork1's picture

I agree with Henry.  Any analysis that does not include the military expenditures effect is incomplete and hence limited in accuracy.  

The military-industrial complex that Eisenhower warned about a half century ago has become so entrenched that it is simply accepted as part of our way of life. 

In the 50's, "geopolitics" in the USAF ROTC course that I took included the teaching that governments of entities that were not contiguous land masses would be unstable.  The example was Pakistan that, at that time, included Bangladesh.  Although both were Muslim, as predicted, the country split.  I also took from the course the notion that projections of power through military means should only be at the request of the people being defended. 

An analysis, by someone competent for the job, of  the longer term impact of spending shifts, lets say, 25%, 50%, or 75% of our real military expenditures into infrastructure rebuilding and modernization would be very interesting.

 

Anonymous's picture

The intergenerational Ponzi of all Ponzis will go BOOM 20 years earlier than predicted. Printed money won't solve a thing.

pros's picture


Liabilities of SS Trust Fund exceed assets by
$15.1 trillion as of 1-1-2009 Trustees Report, Table IV.B6

http://www.socialsecurity.gov/OACT/TR/2009/IV_LRest.html#254423


That's just a little more than the combined debt of federal govt, state govt and GSE's

it's over 100% of GDP

The U.S.A. debt plus unfunded liabilities exceed 200% of GDP...anything over 100% means insolvency.

In addition the U.S. has contingent liability for massive debts of the financial sector with implicit guarantees.

 

See you later


Anonymous's picture

Social Security is the easiest fix in the government. Just means test, cut benefit and extend age requirements for those retirees that benefited from American economic strength the last 40 years.

The greatest threat to our government is Health Care, plain and simple. There's no proper funding mechanism and zero ways to contain costs. Next concern is the cost of our military industrial complex.

Problem is we have only cowards in Congress. They'd rather keep our Nation on the brink to score political points, than to actually make the hard decisions/adjustments.

johnny9iron's picture

But as you pointed out, that would require courage and shorting courage in DC is a one sided trade. The great irony of means testing is the very demographics whose ire the politicians fear, are the very ones who would be fine under a means test system EXCEPT---75% of union workers who would probably (depending on the plan) be means tested. And we all know what we are required to do for union workers in this country.

Its too bad that MI and OH have the swing electorals they do because they are literally sinking the ship, from auto and home bailouts to taxpayer backstopped retirements. The administration and his party have to have those states and they will do anything to keep them. 

Anonymous's picture

Actually there are proper funding mechanisms and cost containment for health care. It's called a free market. And we haven't had that in decades.

Government programs can only disrupt markets. They can't streamline anything, nor can they control costs except through a combination of taxation and politically-motivated rationing (which is an apt description of means-testing, by the way).

They cannot make any market competitive because through the very actions of regulation and taxation render those markets hostile to competition and encourages lobbying by the big players for preferential legislation.

These programs are destructive. The only way to control health care costs is to remove the unnatural, disruptive element from the market. You are right however, no one in Washington has the political balls to make the hard decisions that might result in them losing their rotating seats of power in government and the lobbyist industry.

loup garou's picture

Extend-and-pretend…Kick the can down the road…Beat the Street!…Live for today…Ritchie, Ralph, Potsie, and Ponzi…Bridges to Nowhere…IOU’s to Nowhere…

Another “Bruce“, Bruce Bartlett, has the total unfunded indebtedness (in perpetuity) of Social Security and Medicare at $106.4 trillion. (May, 2009) That is calculated from the numbers provided by the  trustees and the actuaries of the programs themselves.

http://www.forbes.com/2009/05/14/taxes-social-security-opinions-columnis...

I think ZH should continue to ignore the healthcare monstrosity about to be foisted upon us. After all, it’s only about trillions of dollars, individual liberties, and life-or-death.

(Not directed at you personally, Bruce.)

Anonymous's picture

when you look at Social Security tax receipts, do you adjust them downwards for the fact that the refundable child tax credit refunds Social Security taxes collected???

johnny9iron's picture

Excellent work. There is definitely an inverse relationship, as long as I can remember, between the weight and depth of the arguments that question the solvency of the SSTF, and the dearth of reporting of the problem. Over the years there is less and less journalism that presents the problem as it is, instead it ends up as a two minute segment on a business channel every once in while as filler.

Anonymouse is correct by pointing out the missed opportunity during the Bush admin. One of the great ironies of the whole mess is that the retirement (death in2003) of a leading liberal senator, Daniel Patrick Moynihan, I believe forever sealed the fate of the SSTF. Without him to lead the left to the table as he did with welfare reform it is doomed.

As Anonymouse said above, they already flushed it when they had the votes in 04'. Man is cold out east this year--Copenhagen my ass.

Hephasteus's picture

One thing you're wrong about. Bill Gates is going to need that social security check. He went into 2009 bragging about having 23 billion in cash and halfway through it was borrowing 3.5 billion on the bond market. He's full of shit.

It's the cash equivalent portion of the entire economy that is going to get raped this year because it's not equivalent.

Social security is completely unfunded. Running any deficit on it is the same situation as the FDIC. They don't have the money. They can make it and create it out of thin air but it's going to cause massive disruptions as it leaks into the real economy. Investment fractional reserve based economies eventually settle into a "payment" reality not an asset-liability reality because the asset liability reality loses all meaning. The system is only interested in cash on hand, cash in bank, cash cash cash. It's out of cash and it has to print everything it uses to pay. The goldsmiths were not concerned with the "liabilities" of the gold they vaulted. They only concerned themselves with keeping enough gold on hand to handle normal "flows". This mindset and Method of Operation is completely impregnated into all of the government.

Anonymous's picture

The entitlement world we live in sucks.

Catullus's picture

I will say this: SS is as likely to go broke as the Defense Department is to go broke.  The Treasury and the Fed simply won't allow it.  Now that has nothing to do with inflation or the willingness of government to create money out of thin air, but that's a different issue entirely.

I think a great analysis would be the COLA inbedded in SS benefits and whether they are consistent with the actual cost of living increases year to year.  COLA and CPI have been a method of reducing SS payouts since 1996.  It may be worth investigating.

Anonymouse's picture

You are right in the sense that SS is a general obligation just like DOD.  Politically, they have no choice but to fund it, as they are cowards.

But that's the whole point.  It is as likely as the DOD to go broke.  They both will, as SS and Medicare, etc. are going to wreck the country.  Unfunded liabilities (present value) are between $50 and $75 trillion, depending on whose figures you use.

Anonymous's picture

Actually, Richard Fisher of the Dallas fed put the number at 100 trillion. It's in a speech on youtube.

Anonymous's picture

Social Security - still the biggest ponzi scheme in the world. Madoff was a 2 bit poser.

Anonymous's picture

We will just tax the rich and all is okay! I dont know any rich people but there is lots of them right? It will take care of itself, dont worry, the man in the tv says so.

Anonymous's picture

Golly, and nobody ever thought of this before! Monster coupe! Well, when arthritis and incontinence stop the Baby Boomers from working, guess they'll just have to move in with their Gen Xers, since they spent their SS on Middle Eastern Wars to practice their Computer Gaming Skills. It will be fun! It is in most of the Third World.

Anonymouse's picture

The one chance the US had to fix the Socialist Security problem was under Bush's proposal to partially privatize the system.  Unfortunately that was demagogued by the Democrats, and undermined by the GOP's lack of a spine.  It was hurt further by the fact that Bush couldn't sell ice water in Hell.  Since Bush couldn't sell it, the GOP tucked its tail between its legs and went home.

Of course the political class read this as SS being impossible to change.  They will never take the political risk of bringing up privatization again (esp. after the crash).  They might however, raise the idea of the SSTF investing in the market (a trial balloon floated by the Clinton Administration), which fits in well with the fascist ideology of many in DC.

The unfunded liabilities of SS, Medicare, Medicaid, Prescription Drugs, and (soon) national health care will be the death of the US (if hyperinflation doesn't get us first)

A Nanny Moose's picture

Bush used the wrong terminology. He should have said "individualize" rather than "privatize" and sought the individualized account path.

 

 

Ned Zeppelin's picture

Bush was simply following Wall street's instructions to get another pile of cash pointed their way to loot.  SS was never meant as a "private account." I would agree that rational citizens could devise a meaningful solution, but don't count on your favorite politician to do anything other than enrich his or her Wall Street friends. By the way, Barry is as bad or worse.

Anonymouse's picture

Not a bad idea.  Just one mistake among many.  One of the Bush Administration's biggest flaws is they had no concept of PR.

Anonymous's picture

I used to think SS privatization was a good idea. But are we really going to trust the same entity that SPENT billions of dollars of surplus, leaving a smoking hole of unsold T-Bills in its place, to invest it in the retail market?

We see malinvestment and looting of pension funds at the state and county levels, what makes you think we can make it successful at the federal level, where there's even more money to tempt the politicians even and less transparency?

No, Social Security (and Medicare) have to be phased out, period. Cutoff age is 40. If you're older than that you still get your benefits. If you're younger...well, you won't get what you've put in but you also get to see those Medicare and SS withholdings eliminated. That is economic stimulus, my friend.

Obnoxio's picture

Social Security can not be phased out in my opinion. It is the bedrock of society functioning in the USA. You may as well disolve the USA. Privatization would  wipe out countless workers funds by letting them gamble against the squid and other market insiders. Medical programs are the real problem as Medicare, Medicaid and drug program costs are unable to be contained. Rationing of medical services has to happen unless an individual can pay the full costs themselves.

 

SWRichmond's picture

I'm sorry, the debates over funding social security, medicare, medicaid, national health care, etc are all just silly. There is no goddamned money for any of this crap.  A government entity is printing sovereign currency and lending it to the host sovereign government so the government can spend some and make interest payments with the rest.  This is the definition of bankrupt; how can it possibly be anything else?

WE'RE PRINTING MONEY AND LENDING IT TO OURSELVES, AT INTEREST.  There are only two ways this can end: 1), the magical productivity fairy shows up and we grow our way out of debt; 2) massive printing is accompanied by massive currency devaluation, the real Japan scenario, not the stupid lost decade Japan scenario spoken of so reverently by deflationists.

Anonymous's picture

"WE'RE PRINTING MONEY AND LENDING IT TO OURSELVES, AT INTEREST."

+1

If Social Security was solvent in any way, it wouldn't need to rely on Treasury IOUs as a hedge to pay off future obligations. Why the hell would a sound financial scheme need to rely on inflated taxpayer-funded debt? It defies all reason.

And politicians are too scared to do something really radical like making SS merely an option, because we'd see the same shitstorm that happened at the healthcare townhalls when seniors got hot about Medicare funds being reallocated (not that expanding Medicare to people 55 and over would lower the actual cost of healthcare). People are under the delusion that they "paid into" the system for "their retirement fund" and now deserve to reap the rewards of that. It's hogwash--the system has been robbing Peter to pay Paul at least since the Great Society kicked into gear. So why should anyone under 40 who sees the evidence right in front of them think that they are going to see any benefit from this system down the road?

I get $300 a month taken out of my paycheck for Social Security. I'd be better off buying gold, silver, and CDs in my local credit union every month than flushing that money down the SS toilet.

baserunr's picture

You dont' need to worry about getting paid all your SS money.  BB can print as much as is necessary.  As a bonus, they will "re-evaluate the basket of goods" that makes up the CPI, thereby ensuring that COLA's are less than the real inflation rate.  To top it all off, they'll "re-evaluate" your health care needs, and do  cost-benefit analyses to determine when its no longer worth paying to keep you around.  In this way, the solvency of SS can be guaranteed.  It just sucks if SS is ANY PART of your retirement strategy.  It shouldn't be.

ghostfaceinvestah's picture

Kyle Bass said it well in an interview this morning, to paraphrase:

the bad news is we are screwed if we stay on this path.

the good news is Japan will lead us, so maybe we will learn from them and change our path.

SWRichmond's picture

...maybe we will learn from them and change our path.

I'd really like to believe that is possible, but I don't.  Changing course requires an admission that government is not omnipotent and omniscient, and that central banking is a fraud and a failure.  Such an admission is simply impossible.  Complete and utter failure is the only available option, and it is one that government is actively preparing for through the constabularization of the military and the militarization of the police.  They will not cede power easily.

Anonymous's picture

So we'll just raise taxes and be pay as you go. And I guess we'll raise taxes to replace the SS funds that were previously gobbled up by the general fund. Wow! Who knew this government stuff was so easy!

Anonymous's picture

A 0.3% increase in FICA and devoted to DI will put combined OAS & DI into actuarial balance until 2026. Per the Trustees' numbers in May based on a combined projected gap of 2.0%. over 75 years. While this number may have deteriorated over the course of 2009, it was double the number projected by CBO in 2008 and was set by CBO at 1.3% in August 2009.
Directors Blog: http://cboblog.cbo.gov/?p=342
Coberly and I will be updating all the numbers after the release of the next Report due in late spring. The numbers are available for inspection here:
http://spreadsheets.google.com/pub?key=r49_nOHQG4QdHuwcbMGmP0Q

The common claim that we can't tax our way out are just silly, a 0.3% increase translates to $1.50/week for the median income household.