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Social Security Trust Fund 1st Q 2010 Results - Still Slipping
The Social Security Trust Fund is able to make accurate estimates on
the major components of its monthly cash flows. Therefore the first
quarter operating results for the Fund are in. Only the payroll taxes
and benefits paid numbers are currently available for January, February
and March of 2010. The raw numbers show clear acceleration of the
deterioration in the Funds dynamics. They also give us some insights
into the employment situation in the country. The conclusions are not
good.
This chart summarizes the payroll tax (both FICA and SECA) receipt numbers for 09 and 10.
The 1st Q 2010 YoY top line for the Fund is down by 6%. A very
significant drop. There are 160mm workers that contribute to SS. The
simple math would suggest that there are 9.3mm workers that are no
longer contributing to the system (or are contributing at a much lower
rate). The BLS NFP report, which looks at a different set of numbers
for employment, suggests that the drop in payrolls is only 2.5mm during
the same period. This is not an apples to apples comparison, however, I
have looked at this from every which way and it is my conclusion that
the BLS numbers have to be significantly understating the loss in jobs.
The payroll tax receipt numbers can’t be that badly skewed. They are
hard numbers.
There is no good new for the Fund on the expense side either. While
there has been variations on a month to month basis, the trend line for
benefits is northward at a 5% compounded growth rate. And that percent
number has nowhere to go but up as the boomers get checks. The
following chart looks at the growth in benefits over the past ten
years.
The actual results for the Fund are not available. The reporting for
interest income, income tax receipts (outside of FICA and SECA), the
operating expenses and the costs of the Railroad Retirement are not
available. In 2009 these numbers were +$118b, +$20b, -$6b and -$4b
respectively. It is unlikely that these numbers will vary too much in
2010.
Based on the assumption that these other numbers will remain static and
that payroll receipts will stabilize to the 2009 numbers for the
remainder of the year the following forecasts of the full calendar year
can be made:
Benefits paid will exceed Payroll tax receipts by $40b
(+660b, -700b). In my opinion this is the primary measure of financial
soundness. This number was -$5 billion in 2009.
The Fund uses the ratio of total tax receipts to benefits
paid as its soundness measurement. Based on the 1st Q results it would
appear likely that the full year results of this ratio will be negative
$20b ($700b-680b). Should that happen, it would be the first time in
the Fund’s history. The Trustees of the Fund have suggested that this
significant milestone will not occur until 2017. This party seems to be
starting six years early than was planned.
When I look at the Fund I look at cash flow. All of the experts on this
topic say that is a dumb way to look at it. Annual cash flow is
meaningless when you are looking at something that has $2.5T in assets
and will, under the very worst of conditions, be able to pay the bills
for 15 years or so. I disagree. It’s all well and good to ignore cash
flow when cash flow is positive. But when it goes negative it is the
first gentle step that leads to a very slippery and steep slope.
Interest income for the Fund is a non-cash item. They get credit for
more paper. There is something about this process of automatic money
creation that bothers me. I believe the Fund must ponder this question
as well. In their reports they publish on a monthly basis their net
cash position. The following is their annual summary for 2009. Note
that the net cash flow is a positive $3b.
The
following is a graph of the annual net cash flow of the Fund. You can
see that the surplus is crashing. Based on the 1st Q 2010 results we
will be in the red for the full year. This problem could make health
care look like a walk in the park by comparison.
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sorry to see so much smug ignorance. the trust fund was always supposed to be paid down. six years early is not a crisis. social security can return to full pay as you go the way it was designed to be.
the potential payroll tax raises are not huge... in fact they wouldn't even be felt if phased in "as needed."
Congress may have a problem paying its bills without having the SS surplus to dip into, but that is not Social Security's problem. Congress could raise the taxes back up to the Clinton level... you know, the level that was supposed to destroy the economy but didn't.
sorry to see so much smug ignorance. the trust fund was always supposed to be paid down. six years early is not a crisis. social security can return to full pay as you go the way it was designed to be.
the potential payroll tax raises are not huge... in fact they wouldn't even be felt if phased in "as needed."
Congress may have a problem paying its bills without having the SS surplus to dip into, but that is not Social Security's problem. Congress could raise the taxes back up to the Clinton level... you know, the level that was supposed to destroy the economy but didn't.
Leo, can you figure out mathematically how Social Security be doing now if, over the last 8 years, we would put an extra $3-trillion dollars into it, instead of cheering George W. Bush on as he spent that $3-trillion dollars in Iraq?
It's just a tax. No one has any right to benefits, or any specific level of benefits; the courts have ruled on this before. Receipts -- from whom and how much -- as well as payouts -- to whom and how much -- are set by law. Congress is free to make any change to the law they wish in order to make the numbers come out right.
Speaking of "the Fund" is an insult to the intelligence. There is only US government debt there. Debt which has to be serviced via general revenue, i.e. taxes. So regarding payouts, the government is picking both of your pockets -- via the withholding tax and the income tax.
I was going to correct factual errors by Attitude Check and "anonymous" but there were just so many. Let's keep in mind that the SS system as a pay as you go system has been flawed from the start.
As far as federal deficits go, keep in mind that 80% of the federal debt was amassed under presidents named Reagand and Bush. So let's just tone down the hypocrisy from all the right wingers. Reagan and Bushes I and II were nothing more than ponzi financiers through deficit spending. You can blame nearly all the current woes on these three men and their appointees to the Federal Reserve, namely Greenspan and Bernanke. I am thoroughly disgusted that Obama reappointed the latter.
The receipts are skewed downward by the tax cuts enacted in March 2009. They will continue until December 2010. That pretty much accounts for the gap between this jobs data series and the BLS employment series, but not quite all of it. About one million isn't explained.
I'm a little confused. Since March isn't over yet, where do those numbers come from?
And with St Pats on a Wednesday, you'll have even less receipts due to drunks missing work and not getting paid.
As far as Medicare payments as a measure of the economy, think about the 1099er's...they are working but not paying in monthly.
So let's say the XYZ Corporation had a defined benefit pension plan which was closed some years ago fully funded and is now paying out to those enrolled. The plan is 25% in Treasury securities. Well then hold on one minute. If they are not buying more Treasuries and instead are selling them then the Treasury isn't going to pay the principal and interest on their Treasuries anymore.
Let's say China becomes a net seller of Treasuries. Hell let's say they stop buing them entirely. Well in that case Treasury shouldn't pay off the Peoples Banks Treasuries at all.
I didn't know this about Treasury obligations. That only entities who are buyers or net buyers get their held securities redeemed. Thanks for this info.
regarding the decline in receipts vis a vis unemployment i hope you considered the point that unemployment is not uniform across income deciles....i am not sure how this skews the data but some accounting of this fact must be made before drawing any conclusions about gross unemployment numbers.
having said that i believe that the bls is full of cia controlled lying assholes....
Bruce! You killed it! Whats new though. Man ZH is on fire. Pulitzers all around, no joke. S.S. (talk about wordplay!) is at the forefront of MY mind when I think about the future. Unfunded liabilities is the Tiger in the forest right behind us! I am glad there are those, like you, who can warn us so we do not get eaten alive.
Sidenote; after Reagen successfully "borrowed" from the said fund multiple times, each time placing an IOU in it's place, and then "repaying" to it, G.H.W.B. "borrowed" from it, placed an I.O.U. and....thats it. Thats the end of the story. There is still a big phat I.O.U. sitting in that vault. "Pay as we go?" I say "Pay as we...uh oh!!!!"
Krasting, you flaming optimist, you make Pollyanna look like a pessimist. February 2010 Medicare tax witholding receipts were down 10 percent year on year. Check out BLS fully employed numbers, now requiring some arithmetic are down 3 million year on year in February 2010.
http://www.bls.gov/news.release/empsit.t08.htm
From the old table 6, ( don't you love BLS changing the tables ) NSA fully employed 2009 113815 112947 112215 112746 113083 114014 114184 113863 111991 111599 111274 109875.
The February 2009 fully employed table 6 of 112,947K is now the new table 8, employed 140,095k - parttime 28,476K, a 1.5 Million discrepancy.
Anyway, the peak employment was July 2007 at 123 Million full time jobs, While major damage Jan 2008 up to Feb 2009 was 7.4 million full time jobs. And the numbers look better year to year now this month, since Jan 2009 to Feb 2009 loss of 868K NSA is no longer included.
Best of all, social security paid out over 9 Billion more than was withheld in February.
http://www.fms.treas.gov/mts/mts0210.pdf says February, 49 Billion in Social security pension and disability receipts, and 58.5 Billion in outlays.
You can find the Treasury payments in non publicly held debt to the social security lock box elsewhere. We have really crossed the threshold where SS and SS disability have more outflow than inflow, when we ignore lock-box interest, even considering the 28 day month.
"February 2010 Medicare tax withholding receipts were down 10 percent year on year" This is all one needs to know ... Medicare is collected on every dollar of every employee ... if it is down 10%, GDP is down 10%.
Truth has a funny way of seeping out of cracks like this.
" Annual cash flow is meaningless when you are looking at something that has $2.5T in assets and will, under the very worst of conditions, be able to pay the bills for 15 years or so."
Hahahahahahaha... How fucking stupid can people be? "Assets" my ass! Toxic assets is more like it.
I'm sure when the SS goes to the US Treasury with their letters of credit they bought with the previous surpluses, the UST, will go back to the vault and pull out a fist-full of $'s -- NOT. These promissory notes are worth bupkis. How is the UST going to honor these promises, we are already running over a $1T annual deficit. This is going to go wonky VERY quickly.
double post
This, of course, is the key to everything.
I'm sure when the SS goes to the US Treasury with their letters of credit they bought with the previous surpluses, the UST, will go back to the vault and pull out a fist-full of $'s -- NOT. These promissory notes are worth bupkis. How is the UST going to honor these promises, we are already running over a $1T annual deficit. This is going to go wonky VERY quickly.
Let me think about this while dropping off the printer ink just ordered by the Federal Reserve. They said something like "Hurry, Granny needs new shoes."
Madoff looks like St. Peter compared to whats going on at SSTF. thanks Bruce for following this up. I am giving the fund 3 more months b4 they start painting walls of White House RED !!
Glad to see Madoff mentioned in the first post... because that big-talkin small-fry was exactly who I thought of first. He must be smiling in prison right now. "Yeah, I know what the guys at Treasury are going through" he's braggin to his celly.
America is broke and will never repay their debts.
We will not do any business with the US until we see a regime change !
Right now its a rogue state, nothing more.
The axis of evil goes right through Washington.
america is being raped by the plutocrats who are
soulless transnational parasites bleeding dry
their foolish host who cannot rise up to destroy
them....
So, is this something the Markets care about? Maybe just another can kicked down the road but it didn't go very far. Someone's kicking it back!
This afternoon Air American, a national left wing talk radio station, said repeatedly that SS was running a surplus and used it to justify the new healthcare program. Lies, lies, and more lies. Can you imagine what would happen if the 11 million unemployed did not recieved they extend unemployment compensation checks which costs the Govt. $10 billion/month? I bet the time limit for payments will be extended from 99 months to 150 months sometime this year. Also I bet mortgage interest rates will drop below 4.5% by June to spur home sales this summer. Its all in time baby
Including interest on SS there is a surplus in 09. There will be one in 10,11,12. After that I believe the whole ball of wax goes negative.
So in that sense AA is correct. But I do not think there is any justification to the idea that the temporary surplus at the Fund has anything to do with healthcare. No connection.
Does this mean I won't get my social Security ck next year when I retire-Oh darn what a surprise that would be.
All they have to do is remove the cap and the fund will be fine!
Sorry, that is not correct. It will take much more than that to right this ship. That said and increase in the cap is a good idea and will be part of the "solution" that will come next year. The problem is, all of the solutions outthere suck.
I'd rather see the elderly starve than pay more taxes into the ponzi scheme. Tell you what: I'll take care of my parents, you take care of yours.
the fund may be fine but another tax of 7.5% on the business sector.. may bring more job losses..
so just tax are way to retirement ,, how bought just bringing the troops home from all 800 odd over seas bases. do away with a battle ship ot two.
couple wars lied into by bogus means ..
a trillion here a trillion their could shore up the system
seems like the taxes are way to high..
.
The empire is the cart that drags the horse. That'll never happen.
Thanks Bruce for the timely and insightful post.
You are right about cash flow being the thing, especially when the debt to SSF is held by treasury. Clearly UST can raise the money needed since it is a small fraction of the 1.5T needed in FY2010, but the orange light must be turned on soon.
Jurassic Madoff.