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.
Jesus; the first two charts are horrendous and the rest are not displaying anything "positive" either.
I cant say I actually care about what happens here; but just looking at the rate of deterioration across the board one can not shake the feeling of "Game [soon]Over".
Bruce; I want to thank you for providing this data for two reasons a) informative fiscal picture regarding the economy b) maybe his awakens Leo from his dogmatic slumber and he he liquidates his positions before he starts trading from under a bridge.
As always; most pleasant and informative read.
Good job old chap.