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Social Security hits 60
Social Security had its 75th birthday last year. A more important event
will take place in April of 2011. That will be the first month that
Social Security benefit payments hit $60 billion. Think of that.
$60b a month is one hell of a lot of money. This payout (annualized) is
approximately equal to the entire GDP of the Netherlands, Turkey or
Indonesia. It is 50% higher than the entire economy of Switzerland.
SS first hit the $50 billion mark in December of 2007. It took 42 months
to add another $10b to the monthly payout. The next ten billion will
come more quickly. The “base case” assumption by the Social Security
Trust Fund puts that at October of 2013 (31 months). Their more
pessimistic or “high cost” estimate suggests we could hit the $70b mark
as early as March of 2012 (23 months).
Of course this never stops rising. The SSTF expects that the $100
billion a month level will be reached in 2019 (base case) and as early
as 2017 should the ‘high cost’ scenario play out.
Things really look bad for SS when you consider the revenue numbers from
payroll taxes. This chart tracks past and projected pay roll tax
revenue versus benefits (based on the Trust Fund's Base Case)
The High Cost analysis is even worse. For what it is worth, I see almost
no chance that the ‘high cost’ will be achieved. It’s going to be even
worse than this:
The 2011 - 2019 projected cumulative shortfalls between payroll taxes and benefits are as follows:
Base Case Deficit…..411 billion
High Cost Deficit…..972 billion
There is a pretty serious debate going on in Washington about what to do with SS. At 6% of GDP and 20% of the budget SS has to come on the table. There are many in this discussion that hold to the belief that SS can’t be touched.
If the budget deficit
outside of SS was at 3% and the medium-term outlook was for sold GDP
growth (with low inflation) the USA could possibly afford the economic
cost that SS is about the bring to bear. But sadly, that is not the situation we are looking at. Outside of SS, the country will produce deficits of 10% of GDP and will require Trillions of new debt annually.
It is important to remember that every dollar of deficits at SS requires
a dollar of additional debt to be held by the public. The defenders of
SS keep looking at something called a Trust Fund that was supposed to
“pay” for all of the SS red ink. But the defenders fail to understand
that drawing down the Trust Fund just means that we go deeper in the
hole on Debt Held by Public.
The Paul Krugmans and Dean Bakers of this debate have held to the
position that the amount of debt the country issues on an annual basis
is not a metric to seriously consider. They think that the funding
deficit resulting from the real economy and at Social Security doesn’t matter.
I think they are wrong. If we wait 2 or 3 more years to wake up to the realities of funding SS, the cost of addressing the problem will be significantly higher. Failure
to take this beast on today will probably result in substantial cuts in
payouts for all beneficiaries in the not too distant future. That would be the worst possible outcome for the Krugmans and Bakers. For the life of me I can’t understand why these guys don’t see what's coming. The history books may well say that the staunchest defenders of SS were responsible for it’s demise.
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"Those that were on SS when this happens would just curl up and die."
Wages aren't going anywhere. Do you think everyone will "curl up and die"? Not me.
Any politico that touches SS or Medicare is done for.
I expect people will get their checks, but the $900-something dollars for full SSI will maybe allow them to super-size that Kal-Kan. That's plainly the goal - inflate the debt problem away, hopefully boiling the toad slowly enough that it remains complacent.
deleted - under further review no positive contribution added
That "solution" might have worked in the 1970s. Regrettably wages are not increasing, so if inflation is tried as a remedy, I expect old people will have plenty of company at the barricades.
If "they" think that seniors will sit quietly in their rockers while public unions and banksters make off with the swag, then they are simply delusional. Now, if they want to cut SS whilst at the same time clawing back the trillions spent on the banksters AND cutting public union salary and bennies by 20% or more, then they might get those seniors to stay in their rockers.
Do you hear them, DC ?
Anyone who thinks that old people are going to compromise on this for any reason, or will fall for some kind of "three card monte" is crazy. We are not talking about the "greatest generation" anymore. Everyone had their nest egg in their home. How's that working out?
Newsflash: the old people are going to end up getting shafted. Doesn't matter if they will compromise or not - the cuts are coming.
Keep dreaming. You have no idea how many people in this country are receiving checks. Not just for SS retirement. Let's see: SS disability, workers' compensation, private disability, general welfare, corporate welfare, government pensions, food stamps, WIC and on and on.
And you think that old people who worked all their lives, had 15% of their paycheck taken (and they all know it) and have no other retirement income are going to be first to get cut off? When they are the largest of these groups? LOL.
I have an idea how many are getting checks. The number is 55,000,000. And that number is rising by 10,000 a day.
Sorry bike boy. This is not sustainable.
Bike boy? Bruce, I wasn't going to bring this up, but now I know I have to. This blog is your "house" and I'm a guest here. Among your other guests are would be fascists that like to label people "useless eaters" or "enemies of the people". You've left it to me, a guest, to confront them alone. Frankly I resent it. If you don't know what I'm talking about ask your parents or find the nearest Jewish old folks home. If you're lucky, one of them might show you their tatoo.
When you are a guest in someone else's house . . . Rule #1 is . . . don't goad the host.
Newsflash: the old people are going to end up getting shafted. Doesn't matter if they will compromise or not - the cuts are coming.
Actually, I disagree with you somewhat on this. The senior citizen bloc is the most active voting bloc around in virtually every election and politicians won't touch that issue. It's called the 3rd rail for a reason. I definitely think cuts have to/will happen, and some SS beneficiaries will be affected by it, but I'm skeptical that anyone of retirement age (or close to it when these cuts occur) will see any changes. My best guess is that a solution looks something like the following:
- raise the retirement age to ~70 to reflect that people live/work longer
- anyone over the age of 50 sees no change to their scheduled benefits
- folks under the age of 50 will see a sliding scale of payout reductions in benefits based on some sort of means test based on net worth, average income, etc.
- the FICA cap will be lifted, but not eliminated
- the FICA will be increased modestly
A constructive post. You won't even need to go that far.
Some people here are not interested in an equitable solution. They see a large pile of cash and they want it for one crazy scheme or another. Or they are blinded by some ideology. Or they are just plain ignorant.
This payout (annualized) is approximately equal to the entire GDP of the Netherlands, Turkey or Indonesia. It is 50% higher than the entire economy of Switzerland.
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Is this meant to scare us? These are meaningless comparisons.
If the government had not spent the surpluses SS would be in fine shape. As it is, they could easily cash in a few of those government IOUs sitting in that file cabinet somewhere to cover the shortfalls. SS has not added one penny to the deficit in all these years until now.
And if they wanted a fix, we would just need to raise the withholding salary cap from $106,000 to $200,000.
SS is not the problem Medicare is. Our time would be better spent addressing healthcare costs, which truly are a threat to our budget and our well being. SS is an extrememly important program for our elderly. I don't think most people understand the ramifications of privatizing this program. If they don't care, well, I guess that's what makes them conservatives.
Here is the scary #.
US spends more on weapons (PENTAGON) than
ALL other counties.
The spending cuts will be based upon political clout. Does the pentigon have more clout than the oldsters? To date, yes. In the future, when they are deciding who gets the fewer dollars? Not sure, but the pentigon is a beast and if cornered can drum up a Lybia senerio pretty quickly if then need to.
The key is they are IOUs. People are under the impression the treasury will honor the IOUs, but the time is coming when they will not be able to cover them. Sometimes accountants cant see the forest through the trees.
Then let's have a default and give everyone a haircut. Simple, no?
That is a simple solution, but not the best. But politically it will be more complicated. Things will get cut. Question is, what? I am for sending out SS checks rather than some of those earmarks we hear about. Bottom line, choices will be made.
That's right choices will be made. Choices like SS or another layer of domestic security or another war or 50 bridges to nowhere or windmills that don't return their investment or football stadiums that seat 150,000 or brand new schools every five years or another radical increase in the medicare drug program or any number of transfers of wealth that do nothing to increase the living standard of the people. etc.
This post is full of so much crap, I will limit a response to only one item: "As it is, they could easily cash in a few of those government IOUs sitting in that file cabinet somewhere to cover the shortfalls."
These are Special Purpose Bonds and have NO MARKET VALUE. They can only be purchased by the Treasury. The Treasury has NO MONEY, so must issue Treasury Bonds to raise the cash to purchase the SPBs. Since NO ONE wants to purchase Treasuries, it is left to the criminal/corrupt Federal Reserve. So coming full circle: It is still MONETIZATION by the Federal Reserve.
You're wasting your time. Our bankster friend, Mr. Krasting thinks working people need to shut up and go eat their cat food. But heaven forbid raising the cap on contributions.
The word "contributions" is laughable: it's theft! That money is being taken and I will never get it back. The bottom line of my paycheck is 50% of the topline. The government is already stealing too much.
Will you get back the other taxes you've paid in?
You sound like the defenders. You sound like a fool. I have 50 articles on SS. I have pushed again and again for a means tax to address the problem.
My solution? Tax rich old people. It won't hurt them a bit. But you know my position on this. You have read and commented on it before.
I want to make sure that those that are at risk to eating cat food are not forced to do so. I have said it that way a hundred times.
I want to fix SS so that it is insurance. If you need it, you got it. If you don't need it, you don't get it.
You defenders just say, "there is nothing wrong". Wake up. There is a problem. Your attitude will be the death of SS. If that were to happen then there would be a cat food problem. But it will be of your making.
Bruce,
Excellent article and it provided an answer to your question about Krugman et al in the form of Bicycle Repairman.
At heart, they believe that money isn't real - it does not equate to anything tangible. If you need more money, just print it!
The belief in fiat money is absolute. Nothng in their life experience - no amount of education in particular - connects them to the idea of bankruptcy as a reality.
I have no problem with means testing. We are, however, far past the point where taxing our way out of this is feasible - your charts prove that point. Promises made by corrupt politicians are going to be broken.
You know my view is far darker than yours - I don't see how the current economic warfare does not end in physical warfare. I don't want the "cat food" solution but find it preferable to the starvation option we seem to be determined to pursue.
barliman
I am not a Krugman fan. I did not say to print the money. I recommended cuts in numerous superfluous programs or the transfer of federal assets (land, gold) directly to all affected citizens.
"You know my view is far darker than yours"
What's that supposed to mean? Oooo scary stuff! If you think a fascist solution is called for, just keep this in mind. Every junior nazi thinks he is going to get to wear the nice uniform with the shiny buttons and someone else is going to play the "Jew". You have no idea who the "Jews" will end up being. If you get to create that world, you're gonna have to live in it.
"Superfluous programs" do not amount to a hill of beans compared to SS, Medicare, Medicaid, Obamacare, etc. If you believe there is - you just drove home Bruce's earlier point about you.
Transfer of federal assets (land - be careful what you ask for, the fed's "own" a LOT of uninhabitable land) is the least likely thing to happen (gold - there isn't enough PM in the inventories ... and if people in desperate times will fight over a bag of rice, what will they do if gold is being handed out?). As far as I know, you are the first to propose something so impractical on ZH, so you get 5 style points.
I have been a member here for coming on two years now. I have expressed my opinion that this doesn't end well over that time period - in detail. I scan and read here daily - this is the first time I have seen a post from you. You are certainly showing the "newbie" behavior of expressing YOUR opinion at every opportunity with an arrogance not supported by any signs of knowledge or experience.
(Caution: if you claim to have been a member here even longer, one of the folks with privileges may post when your account was created.)
Not a nazi wannabe; I grew up in an ethnically diverse location. I knew people whose parents had the concentration camps id number tatooed on their arms. I also know exactly what they meant by "Never again". FYI - my kids went to ethnically diverse public schools so they understood that race, religion, etc are meaningless. They also learned that a lot of people with money are so shallow, a walk through the depths of an "elite's soul" won't get the tops of your toes wet.
And not a survivalist or Democrat or Republican or any other label. I don't advocate violence because I grew up in it and know how just how worthless it is as an approach to life. Not a pacifist either, I will protect the people and values I believe in.
How does this end, for my money? In war, starting on a regional basis and spreading. Wars are born in disputes over money/assets/basic needs. Ben Bernanke is likely to be eventaully convicted as a "war criminal" by the Hague for causing a global economic collapse and the resulting wars with tens of millions of deaths on the low end of the scale and a billion plus on the high end.
Remember the words of Mark Twain, Bicycle Repairman. "It is better to say nothing and be thought a fool than to open your mouth and remove all doubt."
barliman
i doubt many on this board support most spending programs. Just that people are pessimistic about the spending programs being cut. i too believe that the cheques will be mailed out, just that they wont buy anything. which is not any different from cheques being mailed out at smaller amounts at todays purchasing power. How is the effect differnt from your perspective?
I dont expect to recieve any of it back. I dont even expect to recieve any of my 401k back, so i plan to make an early withdrawal with a prewithdrawal penalty to buy a house in cash so the govt doesnt get much when they decide the pool the 401ks with SS.
I would not support mixing SS and 401-Ks. I support the status quo for both. I do not support privatizing SS unless the assets were given directly to the individual citizens. I do not support forcing 401-Ks into liberty bonds.
If you want to buy a home without a mortgage using a 401-K, lay it all out in a spreadsheet, it might make sense cashflow-wise in addition to protecting your nest egg. I've never done the calculation myself.
Taking your money out of your 401K and sinking it into a house is probably not the wisest choice for the use of those funds.
Just remember, your government can raise your property taxes to infinity, and if you do not pay up, they will throw you out of your house and take it for themselves. And then where will you be?
"You sound like a fool."
I don't think so. You'd have to be an actuary to understand this.
You got your exams, yet Bruce?
I was an actuarial student many years ago, but you don't need to be an expert to understand that the money collected via the FICA tax has already been spent. It's not there any more.
Is that simple enough for you?
The government issues treasuries and then spends the money immediately. The money is, as you would say, gone. But the treasury holders still expect to get paid and (so far anyway) they do.
Read the SS actuary's report. He's the expert.
Is this Bruce Webb in disguise? It sounds like Webb. Nasty, defensive. Webb doesn't have that degree either. But he writes about SS all the time.
No, I'm no actuary. But my forecasts for the rapid deterioration at SS have been on the money. I have been ahead of this curve. Webb (and other SS cheerleaders), have been well behind it.
"Nasty, defensive"
I'm not the one who is name calling.
SS is not playing out all that much differently than projected. While SS was kicking in extra cash, politicans loved it. Now that the cashflow has reversed, they hate it. Politicians couldn't care less if SS was completely bankrupt in 40 years (which it won't be). They are upset that the cashflow has reversed and SS is now eating in to their little "honey pot". Too bad. Start cutting.
"You're wasting your time."
This debate needs to be confronted at all times and everywhere, until our political class finds another hobby horse to ride.
Oh, look over there, Japan is melting down!
The only way you get rid of these shills is to send the lot to Siberia. We must use the same tactics that they use to terrorize us with lies. "Worthless eaters" at the top, need to be put in their place---prison.
Careful with the threats my little fascist friend. Try this on for size. Old people raise the contribution level and put the IRS on your ass. Which scenario is more realistic: siberia or IRS? You'd better smarten up.
Sorry but you miss the sarcasm in my post! The argument against Social Security has one main goal: to condition the public to accept large cuts in benefits with threats and propaganda. My point is why not use the same tactics: let's scare the elites so that they leave the Trust Fund alone.
OK. Sorry. Try using /sarc at the end so I know it's sarcasm. Welcome to the fight.
When it comes to this issue old people are not liberals or conservatives. They are not Dempublicans or Repocrats. They are old people waiting by the mail box for the check that they have already paid for.
Old people vote and have plenty of time to agitate. That's how democracy or a republic, works. In order to end SS, you'll have to end the republic. Clear enough?
Now you're starting to understand: This is the end of the Republic!
LOL. I do have to agree there. But if the common people don't find common ground, things will only get worse.
There is no Republic or Democracy.
We have a Kleptocratic Oligarchy.
It won't be reformed because they will get their checks Bruce. I have no doubt that SS beneficiaries will get their checks. Even if they have to print ever single dollar they send out.
They can see the problem, they know what is happening. You still think they want to save it. Seems to me they are planning and implmenting a full scale loot down, and then burn the place on the way out the door to cover their tracks. Goodfellas is an example to follow. Just busting the country out.
"they will get their checks"
"They" will include "you" at some point.
Nope, to young. This ponzi won't roll another 40+ year, we'll be well under way in the next ponzi by then. Project this ponzi forward 40+ years, simply no way. Only chance would be to force citizenship the world and release the IRS as a global extortion force aka WW3.
So I'm paying in with full knowledge I'll never get anything. It's as if Charles Ponzi had a gun. So next time you see a young person with a job, go over and thank them. We are funding your retirement and know we will never get ours. Shame the Boomers decided to just let everything rot around them, but I'm sure they were to busy with having fun, or something equally as important.