observations for the first six months of 2010. The data on FICA/SECA
tax receipts and benefit payments: (all amounts in $billions)
The numbers are going in the wrong direction. Receipts are down across
the board while expenses keep rising. This chart looks at the Jan.-June
results for 2008-2010.
These lines were not
expected to cross for at least another five years. This is the cost of
the protracted recession and the failure of the economy to generate new
jobs. The 2008-2009 increase in benefits was at a nosebleed level of
9.5%. That level has collapsed to 3.9% in the 2009-2010 period. This is
the result of a “0%” COLA increase for 2010. The flip side is that those
receiving checks are getting squeezed as their costs rise and income is
stable. In the real world COLA is a joke. As this evolves it will just
be a drag on consumption and extend the weak economy.
Most analysts, the CBO and the SSTF look at the Fund’s results in the
context of a 75-year time horizon. Some point to a date in 2037 as a
point where SS “may have problems”. I leave that discussion to
others. It has been well proven that we can’t look two years into the
future with any degree of accuracy. I prefer to look at the here and now
and focus on cash flow. Consider the changes in the 2009-2010 semi
annual period:
Cash flow has fallen from $63b to $7b from 2008 to 2010. One might take
heart that the number for 2010 is still in the black. But that will not
last long. The seasonality of the Fund produces big cash flow losses in
the second half of a calendar year. For the full year 2009 the net cash
flow was $3.4B. In other words the cash flow fell by $32 billion in the
July-December in 2009. It is certain that cash will evaporate in 2010 as
well. My number for the net cash flow drain in the second half of 2010
is $55b. This translates to a~$50b deficit for the full year.
My thoughts on the SSTF year to date results:
-I am stunned by the continued drop in FICA/SECA tax receipts. There are
many metrics on the overall economy that have shown YoY improvement.
The SS revenue numbers are telling us something different. They measure
the incomes of 160 million workers. This is the broadest definition of
employment we have. My read on the numbers is that we have very
fundamental weakness in employment. The problem is bigger than the
headline numbers from the BLS suggest.
-The payroll tax revenues versus the benefits paid number lines have
crossed. Some, including the CBO, see this as a temporary phenomenon. I
disagree. For there to be a return to a positive result of (payroll tax
revenue – benefits) the economy would have to grow on a sustained basis
at 5% and inflation would have to remain near zero. Those conditions are
unlikely to be met.
-The estimated $50 billion of negative cash flow to be realized in the
second half of the year is just more money that Treasury has to borrow.
It does not, by itself, increase our total indebtedness. It is a shift
between the Intergovernmental and Debt to Public accounts. Does an extra
50 Bil matter when the total the public holds is already 8.6 Tril? No,
not really. Not as of today at least. But when the tables turn and the
markets focus on the US bond/bill calendar it will make a difference.
-All heavily indebted borrowers, whether they be individuals,
corporations or sovereigns are highly dependent on cash flow to service
debt. When cash flow goes negative individuals and corporations go
bankrupt. Most sovereigns do too. The US is in the enviable position of
being able to ignore cash flow. We can simply print our way out of this
problem. At least some people think we can.
-SS is $2.5T of the $4.5T Intergovernmental account. I believe that this
entire group is going cash flow negative. The IG account cost us ~$160
billion in interest last year, but some out there are pretending the IG
account does not exist. An example of this is in the following link.
Sorry,
U.S. Federal Debt Is NOT Approaching 100% Of GDP Anytime Soon
This kind of thinking is not only lunacy; it is dangerous.
Mark it ZERO.
Great article as usual Bruce, I really enjoy your articles..
How TD assembled this dream team I do not know. There is nothing better than now.
Beyond the impact of unemployment, I suspect we're also seeing the influence of more people working parttime instead of fulltime, as well as the impact of pay cuts and workers accepting new jobs at lower pay levels than their previous job.
This can't end well.
Social Security Administration now knows how Bernie Madoff felt when his hedge fund inflow and outflow crossed. Many contributors will be burned, but no one will go to jail.
SSA had no choice...the bigger fish have been stealing its lunch money for decades now. Every administration
Recipients will get their checks, but will they be able to live on them?
The bulk of poor seniors may end up filling up empty college dorm rooms, eating government cheese in the cafeteria and will have to go to university training hospitals for their health care.
The reduction in SS receipts could be showing the growing disparity between high earners and low wage earners (since SS contribution is capped at what, a hundred k?). So, many taxes can be made up by high earners making more and paying more taxes. But SS is really representative of the number of folks paying in, not the total amount of income being made.
Not real positive sign as rich are richer and poor poorer.
Charles Krauthammer covered this in a great article back in 2005. Everyone should read it and pass it along.
http://www.washingtonpost.com/wp-dyn/content/article/2005/05/05/AR2005050501680.html
In simple terms, Congress spends 100% of the SS "surplus". What that means is that, as soon as the surplus begins to decline due to rising benefits, Congress has to find a new source of revenue or cut spending. Krauthammer predicted SS would become a problem in 2009, just by looking at the numbers. It only looks worse today because the tax revenue has plunged and the deficits of $1.X trillion hide the small growing deficit in SS.
...well, I guess the rulers beat us fair and square. All that money they withheld for us and our " security " went straight out their bureaucratic asses.
Hard to swallow that gubmint is running a different version of bucket shop.
Also, does anyone know the total amount the government has "borrowed" from SS over the years?
reminds me of the "Dumb and Dumber" movie at the end when Harry and Lyod return the briefcase of randsom money, only to discover the case is full of handwritten IOU's.
"$180,000 for a lamborghini....might want to keep that one!!"
Hilarious, we were just talking about that exact scene an hour or so ago.
Not in terms of SS, but in terms of cost cutting and spending our way to prosperity...
With interest the tab is currently $2.5T. That is T as in Trillion.....
I probably shouldn't post so early in the morning, but I always try to bring things down to simple real life situations.
Money is fungible.
So, if my spouse needs a car, I have 20k in savings and they have none, what would I do?
Give the money and charge interest, give the money at no interest, say no and have the spouse get a loan at 10%.
What is in my best interest?
Another idea, why in the hell should anyone have to pay interest on a 401k loan, I know it's very low. It's bullshit. If anything, according to the govt, people should be paying interest to themselves. People should be allowed to borrow their own money interest free.
Why is interest even charged on the money borrowed from SS?
Who has to pay this interest? The people.
Borrowing from SS has provided the US will an illusionary source of funds which has helped to lower the overall funding costs of the US. It appears this is coming to an end.
The banksters make Dr. Evil look like a wench.
Yup - he is right there is no "SS fund". The government has been using SS taxes to fund the federal government expenditures on an ongoing basis. The point raised above is, while the rest of the government has not been paying for itself on an ongoing basis, at least SS taxes provided a surplus over its expenses to be used to try and balance the budget.
Unfortunately that surplus has disappeared seven years before it was budgeted to, and now what we have is another entitlement program that is operating at a negative cash flow.
Welcome to the future!
"When the Grey Hair is dead, Magua will eat his heart."
Yours is my new favorite ZH avatar. Kudos.
Love the Movie
Nice.
You implying those IOUs aren't good? LOL
Social Security IOUs, the next fiat currency.
Will trade at par with California IOUs.
All of it.
Ex-fucking-actly.
Every damn penny.
The chart pattern where the "Payroll Tax" line crosses the "Benefits" line, is that referred to as the "Golden Cross" or perhaps, is this case the "Lead Cross"?!?!
For all the rhetoric about the "true" unemployment rate and the "true participation of the population in the labor force, the "Total Tax Receipts" table tells all one needs to know about the employment situation in this country as almost everyone collecting a check pays these taxes. The self-employed make payments into this account throuigh their estimated tax payments but their payments may not be segregated. However, the gap is too great to be explained by the exclusion of the self-employed.
Total SS receipts combine with State receipts, both income and sales, to paint a VASTLY different picture than the official headline numbers.
Combined with SS's problems with receipts is that we are now at 1945 + 65, meaning that the baby boom tidal wave is about to swamp the beach. My dad was a 1945er and he took election at 62 as a lot of people have. If some hold out till the full age, that puts us in 2012 for the meat of only the first wave of the postwar boom entitled.
The greatest scam ever . Purposely cause a national (world ) depression , to instill insecurity and fear in the boomers , so they do not retire ( those still working ). And help keep the file drawer IOU's from defaulting. Kick the can , extend . pretend . et al ad nauseum
Self employed is SECA. That is included in these numbers.
Doozies all around. Fs and Fy are generally ignoring these kind of emails from me anyway. Bruce, thanks for continuing to provide part of ZH community's daily balanced diet.
Bruce would you say that this is a good indicator that unemployment is worse than is being told to us?
Also, this is kind of scary since I thought I had heard that this was not to occur until 2017. IE outputs to SS were more than inputs.
Thanks for the info!
re: is unemployment worse?
Ans: No. The several million shovel-ready jobs saved/created with stimulus spending will soon kick in. Which is a relief since otherwise we'd all be wondering, where did the money go?
By "shovel-ready", are you referring to the Department of Education grants? Because that's where the vast majority of the funds (and the supposed "jobs created or saved") have gone for the period of February 2009 (start of tracking) through the end of March. Check Recovery.gov if you need to verify.
"SFSF - Education State Grants Recovery Act funds were provided to help stabilize State and local budgets in order to mitigate and avoid reductions in education and other essential services"
In other words, this was basically just a bailout of the states. Which, as we all know, has been grossly insufficient to cover their collective asses.
No , no ,you have it all wrong . Its BHB's shovel leaning corp , doing the slowest , poorest job ever on Americas roads and highways . Talk about a waste . In two years the roads will look the same . Poor work , poorer materials . But m hey , you get 25$ an hour on taxpayer paid shovel leaning and loitering
Education grants were just the crown jewel of ingenuity contained in the recovery plan. The fullness of its demonstrably well-documented and powerful economic engineness is chronicled here:
http://en.wikipedia.org/wiki/American_Recovery_and_Reinvestment_Act_of_2009
I am not smart enough to answer that. The BLS numbers capture a fraction of the work force on a month basis. So the error rate is big. Then there is the birth death issue. That is statistical BS in my opinion.
I think the employment situation is very weak. Worse than the number we are getting.
Bruce,
Thank you for the data.
You said,
"I think the employment situation is very weak. Worse than the number we are getting".
I think you just made a very generous UNDERSTATEMENT.
...Bruce respondeth:
I know U-3 is reported ~9+%, but yes, it's far worse. It should be several percent higher than that. Further, I know the U-6 is ~16-18%, but it should similarly be quite a few points higher (probably around 25%). So, in this most excellent piece by Bruce, the low SS collections suggesting lower-than-expected employment was absolutely not a surprise to me (although I was surprised the monthly outgo passed the monthly collections line -- wow.)
Recap: Social Security has been drawing from "money owed" to it by the US Treasury since 2009. Now that Bruce shows the monthly curves crossed, the Treasury has to issue bonds *each* *week* to cover (1) money borrowed from Social Security in the past, and (2) money to subsidize the negative in the fund this month. Don't forget that (2) is a "double-whammy" ... the Treasury in the past could use the SS "surplus" to help "balance" its books each month, and now can't do that (because there is no monthly surplus), but the Treasury now *also* must come up with extra money to subsidize a monthly net-negative program.
I like Bruce's estimate on ~$50B net negative in receipts for this year. It won't be lower.
The unemployment rate has got to be one of the most "doctored" (unreal) numbers in existence right now. Yes, the birth/death model is insane, but so are the surveys, the fact that it doesn't account for people dropping off "emergency" benefits, does not count people no longer working, doesn't count part time/temp workers, doesn't count under-employed workers (e.g., high salary people now in minimum-wage-no-benefits positions), and doesn't consider the HOST of self-employed realtors, brokers, and contractors that earn no money but are technically not "unemployed". They look for any way possible to *not* count any given person that no longer has a paycheck.
Further, based on demographics (55-year old baby boomers "forced" into early retirement, now drawing Social Security), there's no scenario by which the economy can grow to lower even U-3 below 8% in the next five to six years. The US will sovereign default before then, so that means the US will never see unemployment below 8% again.
Great piece, Bruce. This is fascinating stuff. I knew it would be an accelerated decline (unemployed baby boomers move to Social Security when they exhaust emergency unemployment, because Social Security is the "ultimate" unemployment benefit), but I didn't know the rate of that decline. Great charts. Would love to see them going forward -- it will get worse at an increasing rate for years.
You can lie about all kinds of things, but you can't lie about Social Security receipts to the system. A business owner would be absolutely insane to hire staff in our current tax/health-care environment, including the tax increases for 2011 (expiration of the past tax cuts), so this will continue to get worse ... not a chance it will get better.
Ooops. Double tap.
Boring? No. Hell no.
Cash flow is extremely important. This because "we pay as we go". This because George Herbert Walker Bush pulled the fund during his rule and left an IOU in the vault. That IOU is still there.
Bush was just doing what Reagan did, and no one minded then. You see, Ronnie pulled the fund several times, each time placing an IOU in its place. The difference was that Ronnie repaid it each time. Bush never did.
So thats where we are. If we can not pay as we go, we have no funds backing up the ponzi. This is a dire situation. No more powder.
LBJ in 1968 took the revenues the revenues from the SS Trust fund and put them in general revenues to reduce the budget deficit, with approval of a democratic Congress.
+1
Other than the one-sided, rabidly partisan, biased view, naming only republicans as perps, of what benefit is this comment?
Do you know who the Walkers were? How about the Herberts? I tell you what, the Delanos were drug runners and money makers. And the Harrimans were the founders of the Democratic party. Also check the Pierce/Forbes lineage. I believe they are both Fem Dems and Replubs. Have at it Hoss.
Other than the one-sided, rabidly partisan, biased view, naming only republicans as perps, of what benefit is this comment?
You jest. Calm down. Here, for you, a poem.
"Democrats, are bad, too." said the blind mouse.
"Why???" Cried the little girl.
"Because they lie!" Quipped the pelican.
"Republicans, are idiots." Sighed the mouse.
"How dare you!" Blurted the overweight, herpe faced, truckdriver.
HAHAhaha HA@! +1.6795
Mr Lennon Hendrix
Dude a little too late. FDR started tapping that bitch.
http://wiki.answers.com/Q/Did_President_Kennedy_use_Social_Security_assets_to_fund_NASA
Did President Kennedy use Social Security assets to fund NASA?
Roosevelt used SS funds to build the Atomic Bomb, Truman used SS Funds, Eisenhower used SS to build the Interstate and Kennedy and every President since has used SS Funds. The so called Social Security Trust Fund exists in name only, and they are comingled with the general fund.
Gulley,
Au Contraire, it exists separately, just rows of cabinet,after cabinet, in alphabetical order, with IOU's in them.
The Gen Fund, (Unca) yet once again, shat itself,used it for everything BUT the intended purpose, and WE the sheeple get fooked...............
touche.