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September - Another Stinker for SSTF
The Social Security Trust Fund ran another deficit in September. This
time it was $4.13 billion. This is the third month in a row that the
Fund has run a deficit. The July –September 2009 shortfall was $10.4
billion. This compares with a surplus for the same period in 08 of $6.8
billion and $12.0 billion in 2007.
The full year 2009 surplus
is, as of 9/30, $85 billion. This compares with $128 billion and $132
billion in 2008 and 2007 respectively. So far this year we are running
40% below 2007.
I anticipate that October and November will also
be deficit months. The total could be an additional $10 billion.
December will be a surplus. Possibly $35 billion. If that pans out the
surplus for the year will be $100-110 billion.
When everything
else is in massive deficit why should we care about Social Security?
After all, they are still running multi-billion dollar surpluses. The
answer is that the rate and direction of these surpluses have
significant implications for the Fund. This is going to dramatically
foreshorten the day of reckoning when annual receipts are less than
disbursements.
There is little hope of a turnaround. We have a
surge of new beneficiaries that are driving up costs. Interest rates
will remain low for a long time to come; this is a drag on the Funds
earnings over time. But the most critical factor is employment. The
Fund is suffering from the recession. They need more workers that
contribute payroll taxes. The prevailing view from most economists is
that unemployment will remain high for another year. There will be no
significant job creation until 2011. That is too far off for the Fund.
By then they will be running deficits, once that starts it is very
difficult to turn around.
There are two significant implications to this. One is social, the other economic. They are interconnected.
-The
only viable solution is significant cutbacks in benefits. There has to
be a long lead-time for this process. There are many people who are
approaching retirement on the assumption that they will receive
specified benefits. We can’t let this process go to the 11th hour and
then drop a bomb on 15 million retirees. It is not fair, and there will
be hell to pay when it happens.
The end result will be that
there will be less money and the age for benefits will be extended. The
people who will be most effected deserve a few years of notice. We are
getting near to the point where that might not be an option. A plan for SS
needs to come on the table sooner versus later. The idea that, “SS
comes after we fix health care,” is wrong. This is all a jumble of
entitlements. Both of these problems are promises that simply can’t be
paid for.
We will commit more riches to health care. That
means the cupboard will be bare when SS sticks its hand out. About 20%
of all our citizens will be 65+ when this happens in a few years. They
are also 30% of the voters.
-Zero Hedge had a piece today that is relevant. There was a letter
to investors from Kyle Bass of Haywood Advisors. The following is from
the letter. The similarities of the US situation to Japan are striking.
We are not far behind them on this time line. Between two and four
years by my calculation.
"Interestingly,
the Government Pension Fund ("GPIF") Japans public pension fund and
historically the biggest individual net buyer of JGB's, said in June
that it may become a net seller of securities this fiscal year (ending
March 2010) in order to pay benefits."
The
SSTF has wracked up surpluses totaling $2.5 trillion. They own the
biggest chunk of America’s IOUs. They have funded the deficits in the
past. Over the next ten years, when we most need them to buy more, they
are going to turn into sellers.
»
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Bruce, check this disaster out.
http://online.wsj.com/article/SB125486796534968995.html?mod=WSJ_hps_LEFT...
Fannie Mae and Freddie Mac are preparing to introduce a program aimed at helping independent mortgage banks acquire the short-term credit they need to make home loans, according to people familiar with the plans.
The two government-backed mortgage companies, the main providers of funding for U.S. home loans, plan to provide advance commitments to purchase home mortgages that meet certain quality standards. The goal is to reduce risks faced by independent mortgage banks so they can obtain short-term credit.
This was all part of the plan...they raised the social security tax in the 80s and stored the extra money in the trust so we'd have it when today rolled around.
Congress and every president since then has used the trust to fund their budgets. Social Security benefits aren't the problem. Allocating funds from the trust to finance wars and tax cuts is what got us here.
All part of another plan...to hand the system over to Wall Street once this day arrived.
Chalk up the situation in the "win" column for Grover Norquist either way.
Anybody still think we have "deflation" in store for us? ROTFL!
Deflation is a fact today. Inflation is a (plausible) hypothesis about the future.
Lets throw the baby boomers under the bus. Those stupid hippies need to pay for their greed.
Most of us are only former hippies.....
"The only viable solution is significant cutbacks in benefits" ... politically impossible. There are only two ways out, either the US repudiates the debt or inflates its way out.
It is impossible to inflate your way out of debt unless you stop borrowing. If you keep borrowing, you have to borrow even more of the devalued dollars at an even higher interest rate.
There is a lot of money in the millitary budget that is completely wasted. The US spends more on its military than the rest of the world combined, more than 10x what Russia spends, almost 10x what China spends. We could cut the military budget in half and still be the world's dominant military.
Of course, even the millitary budget is peanuts, if you're running trillions of year in the red.
Neither of these options helps the SSTF. Repudiating the debt will cause a massive drop in asset values and inflation massively increases liabilities.
The only solution is either to explicitly cut benefits or to create a half-assed solution whereby the inflation adjusted increases somehow fail to match real inflation.
I expect the Inflation Fudge Factor (IFF) to play a major part in how the western governments plan to balance budgets going forward. Anyone under 40 should basically plan for retirement assuming the state will be contributing nothing more than maybe vouchers for free bread, milk, eggs, and painkillers and big bandages for any medical problems.
But remember, if you use private pension plan, most of the money you put in will go on fees and other costs or end up in the p&l of the big banks' trading books...
Evidently, the current political environment assures that inflation takes time (inevitable) whereas deflation is more of a financial shock and awe event (convenient).
Hard to see how inflation is really any different that outright default as a solution. Many people are likely to notice that their benefits are constant but food cost 5 - 10 x as much. The general US population may be this stupid. I just haven't met anyone who is.
I am beginning to consider the possibility that the essential question is whether the military will actually fire upon J6P.