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SS Trust Fund - 2009 Full Year Results - Ugh!
The Social Security Trust Fund issued their November and December
reports today. They also provided the payment data for January 2010. I
think there is some significant information.
From my writings on the Trust Fund I have received many comments from
those who believe that the SS is a bankrupt Ponzi scheme. That is not
correct. The SSTF did an admirable job in a very tough year. They paid
a total of $675 billion in benefits and ended the year with an even
$100 billion surplus. On December 31st they were sitting on $2.5
Trillion of US Treasury IOU’s.
That said there are some very disturbing trends at the Fund. First a Macro Economic thought:
There was a onetime negative COLA adjustment that kicked in January 1.
Rather than the usual increase, beneficiaries are getting smaller
checks. The difference between the December and January payments comes
to $475 million. That re-base means a reduced outlay for the full year
of $6 billion. In the scheme of things that is peanuts. But this is
going to be felt most in the Sunbelt states where the bulk of the
beneficiaries reside. I believe that a significant percentage of SS
payments goes right into consumption. Given that fixed costs are
actually rising for this group of consumers (the hell with COLA) the
65+ set might not be going to the Wal-Mart in Boca as much as they used
to. A year ago we were talking of ‘green shoots’. This ‘shoot’ is
decidedly brown.
On the Fund itself:
I think that the recession of 08 and 09 and the anticipated high
unemployment (low employment) in 2010 has crippled the Fund. Nothing
short of a major overhaul can turn it around at this point. The damage
has been too great.
In the 2009 Trustee Report to Congress (signed by Chairman Tim Geithner) the following information was provided:
Now look at the reports released today. Total tax receipts were less
than the disbursements. This was not supposed to happen until 2016. It
happened last year.
There was a $100 billion surplus for the year. But compare
that to the $190 Billion surplus in 2007. We have lost $90 Billion in
just two years. But this number should be much higher than the 07
surplus. It was assumed that the Fund would have larger and larger
surpluses for years to come. The 2008 Trustee Report (signed by then Chairman Hank Paulson)
provided a set of Intermediate Assumptions for the Fund's surpluses
looking forward. As you can see we missed the 2009 target of a $220b
surplus by a cool $120 billion. As of 12/31/09 the funds assets are
behind that 08 schedule by $155 billion.
In prior years the SSTF has financed up to 50% of the deficit through
their purchases of Treasury paper. In 2009 that ratio fell to a measly 7%
of the total new issuance. It will be a rounding error in a few years.
At some point someone is going to look at this and conclude it is not a
plus for the bond market.
We are in an election year. Any significant legislation on SS changes
will have to be completed by June. After that no one will want to touch
this. Given that Health Care is far from resolved and there is that
thorny problem with the mortgages Agencies I can easily see that the
problems at SS get buried for another year. It will be very difficult
to fix this beast if we wait another year.
The most optimistic scenario is that out of the ether comes a
bi-partisan effort to address the issue head on and make the necessary
fixes. By my calculation that would require a 2% increase in payroll
taxes and as much as a 20% reduction in benefits (over time). Taxes on
benefits would have to increase as well.
Those combined actions are extremely deflationary. It would directly
cut consumer demand. It would be another blow to the head of small
businesses. This would not be a brown shoot. Think of this development
as being Amber Waves of Grain. And that is the optimistic scenario.
My solution has always been a means test. If you have $100k in taxable
income you don’t get paid. Finished. I’m not sure that is legally
possible. But to me it is the only option. The alternative will
impoverish those that are/will be dependent on SS benefits. Raising
taxes on America’s 90 million workers and their employers is just bad
economics. It should not be considered.
I am not the only one looking at these numbers. This issue will have to
come on the table before June. The 2009 results of the Fund are like an
elephant in a room. It's too big to avoid.
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Do you have a link to the page you refer to?
I'd like to look at more of the info.
Thanks
Start here and search around their menu. They have tons of data available.
http://www.ssa.gov/cgi-bin/payment.cgi
So, if SS has been running a net surplus over the past decades, where would that surplus go if it weren't put in "IOUs from the Treasury"? Pets.com? Titanium bars? Miami condos?
I'm not sayin' there isn't a problem, but saying that there's nothing there is disingenuous.
Great comments.
Yes, it is a Ponzi, and an intergenerational one to boot. Now officially bankrupt as the "interest" income is as bogus as the $2.5 Trillion in "Special Treasuries". Originally intended as a vote buying scheme, it morphed into a wealth redistribution scheme - the taxee's wealth transferred to the Federal Government.
SS is a ponzi. It pays current benefits out of incoming receipts. It is not a SWF. The money for 70 years has been spent. It's gone, there is nothing in the "Trust Fund" except IOUs from the government. Yes, the same one that has $12T in other debt, nevermind the FF&C liabilities on the unlimited exposure to FNM/FRE, AIG, and all the rest of this. Also nevermind the losses embedded in the Fed's balance sheet which WILL be transferred to the Treasury.
If someone owed $23k to someone else and they owed you $2k, do you have any faith you're going to get your money? The gov is on the hook for about $23T just in bailout exposure alone. SS won't get TARP'd.
If they raise taxes, they will simply suck more money out of consumption on one hand to give it to another. SS is a relatively efficient operation as far as .gov programs go, in that there is very little parasitic drag loss. The vast majority of the monies intaken go out as benefits. So, consumption will be shifted from the poor working generations to the statistically far richer elderly.
This program was never intended to be retirement security, it was a stealth tax intended to help fund a bankrupt sovereign that had just devalued and seized private assets in a Depression. It's similar to how the Health Care bill imposes taxes this year but any benefits don't show up till 2014 at the earliest. They are desperate for the money.
I had a business partner once that did shit like this...it's a classic sign of end-state desperation. One of them was a general contractor and would take money from clients and throw into a sinking business and basically just hope that when the time came, they could fund the work that needed to be done on the contract paid. And, lo and behold, they could not.
The HC bill is creating a far more massive deficit downstream because the taxes now for it won't go TO it.
People are fond of pointing out there will be
fewer and fewer working people to support retiree
s and how this is going to collapse the SS system.
I think they are looking at the wrong part of the problem
. What really matters is the productivity of those who
do work.
If a "Santa Claus Machine" were invented tomorrow that would
Make Everything and Move Everything"(ME ME machine?) there
would be sufficient output to meet demand. The owners of t
he machine would be pissed when everyone else wanted their share.
Want a world with almost no taxes? Want to go back to swinging
a scythe and chopping wood?
Then reconcile to sharing productivity.
Idiotic.
You revisionists are a hoot.
The US became the richest nation on earth sans income tax, sans central bank, sans debtmoney, basically on a gold standard.
Those who claim we "need" fiat money or taxes or else we'll be in the stone ages are fools and present a grossly incorrect, intellectually bankrupt false dilemma.
Taxes are not what shared productivity, unions were. Get your facts straight.
Once Social Security begins running tax deficits (payroll taxes plus income taxes on benefits)
No, the problem starts appearing before the tax deficits!
Here's a little story:
You've been working for many years and saving for retirement, putting some money each month in a cookie jar. Your uncle has been borrowing from the cookie jar and replacing the money with an IOU. He's borrowed all the money, the jar only contains his IOUs.
Now that your near retirement, you've decided to cut back on work a bit, so you put a bit less in the cookie jar each month. As a result, your uncle has less to spend right now, not at some future date, since there is less money for him to replace with his IOUs.
PS: SS was created to grab the money. The idea of helping people was the cover story. The money's been grabbed, it's gone. Now all that's left is to redefine the story...
There's something I don't understand and maybe someone can explain it to me.
If more SS benefits were paid than were collected in 2009, where did the $100 billion surplus come from? Was it interest on the $2.5 trillion?
They earn interest on their holdings. The ratio is employment tax revenue/Benefits paid. This is a critical ratio of financial soundness. That has been reached way ahead of schedule. The calculation (Taxes + Interest income) minus (Benefits and overhead ($3b/year!)) is the truly critical ratio. That could happen in less than five years unless this is addressed.
Think like this. In 2009 we stopped saving for our retirement, we are now living off of the interest. In a few years we will have to start dipping into the principal to make ends meet.
But I assure you that if we reach this other milestone in the next five years (i.e. there is no 'fix') we will fall off of a cliff faster than you can imagine. The "Present Value" of this problem is skrocketing. Well over $20 TRILLION. About two times GDP.
SS is the mother of all systemic risks. Fannie Mae and Freddie Mac will cost us$400-500 billion. The real cost of TARP will be about the same. Call those disasters together $1 trillion. SS is 10 to 20 times the size of the problem. And we are not even talking about it, except at ZH.
Yes. It was an accounting entry, not real money.
SS functions basically by taking in receipts and paying out benefits.
Any surplus then goes to buy Special Treasuries and the surplus gets spent by the government on whatever they want to spend it on. Those special Treasuries generate paper interest returns which "increase" the balance owed to SS.
Right now we owe SS $2.5T or more. Medicare's balance sheet is even worse.
I think you could combine a means test WITH a big tax cut for seniors. For example, you could make the first $100K tax free after age 62. However, SS payouts would fall by $1 for every $5 of income above $20K. (In effect a 20% tax rate.) So, a $20K SS benefit would peter out at $120K income. People would work longer, and thus be paying payroll taxes, while also qualifying for less and less SS. Problem solved.
Good suggestion. Send it to yr Congressman.
My idea would be to give those who get no benefits (becasue they make more than $100k) a credit on their Estate Taxes when they die.
This would put the fund on a better footing. It would have the impact of rolling more wealth to the next generation. Think of that. A tax idea that solves a current problem and for once does not rob from the next generation to pay for it. That would be unique.
Speaking of a means test, I know a lot of people
on SSI, who are able bodied enough to work(and often do).
Ironically, some states seem to put people on to
get them Socialized Medicine(Medicare). Got some chronic
condition? Drug induced"insanity?" Stick'em on SSI. Don't
look too closely for work on the side.
Of course, the cultural ethic for the value and necessity
for work has vanished.
As long as dead weights can vote, it won't change.
They have draconian limits on income other than benefits each month.
For example. SSDi about 1100 month. Medicare minus 100 or so. Without drug coverage or advantage coverage...
You are allowed to work up to about 1280 to 1400 gross each month before they start to deduct your SSDi. That means part time, not full time.
You also are allowed one vehicle, one place to live and no more than 4000 dollars in assets, resources or cash on hand.
You will be taken care of if disabled from work or other cause but you will NOT be allowed to live a life of luxyury.
If SS isn't bankrupt and they have 100 billion left, then why did Congress have to do this:
"Republicans who helped supply votes to increase the debt ceiling just last year _ unanimously opposed the legislation, which is required to issue new debt to pay for federal operations and deposit up to $50 billion into the Social Security trust funds."
http://rr.com/news/economy/article/rr/9004/9789448/House_approves_290_bi...
And:
"Udall is one of just two remaining Democratic holdouts in the Senate, and Treasury Secretary Timothy Geithner personally called him Friday to explain the serious ramifications if the debt ceiling isn't raised.
Among them, the federal government wouldn't have the money to issue Social Security checks or pay interest on its debt."
http://www.denverpost.com/news/ci_14035185
Sounds to me like it IS a bankrupt Ponzi scheme.
...
Umm..yeah, it IS a Ponzi scheme. Another wealth confiscation scheme is also what it is. Period.
Thanks GG,
I can't believe it took so long for someone to point that out. I'm not surprised it was you.
Since there is no easy fix - there won't be one. How can any politician take on this massive problem when the only truly important mater is the next election cycle. Nothing will ever be fixed until there are term limits - all of them get one and only one 6-year term.
Means testing Social Security benefits means ending its status as an "entitlement" and turns it into nothing more or less than a welfare scheme.
This is the reason why the Democrats bellow like ruptured cows whenever the prospect of means testing is brought up.
The demographic numbers, however, don't lie. The SS system is simply unsustainable. Most all "pay-go" entitlement schemes in the world are not viable without a continuously increasing working population to pay into them - which confirms their status as glorified ponzi schemes. As soon as you introduce a demographic bubble (eg, the baby boom) into these schemes, they all go belly up unless means testing is install, or the age of benefit onset is pushed out to past the average life expectancy.
That brings me to a second point: Where the magic number of "65 years of age" came from. When the "retirement" age of 65 was first put into Social Security, the US stats shows that 50% of all men were dead by the age of 65. ie, that meant that a whole lot of people were being excluded from the benefit population after they had paid in. For the US Social Security to achieve this tipping point again, we'd need to move up the onset age of benefit collection to about 74 to 75 with current longevity stats.
The only thing they can't do is nothing. I suspect a cynical solution based mainly around the political rather than economic consequences. Politicians will be too concerned about being reelected to tell the people the sorry truth. They will use creeping inflation, i.e. understate real inflation, with some taxation, though as little as possible, with the possibility of raising the official retirement age. Add to that a few other clever accounting tricks and they will be able to kick the can down the road for a few more years.
To my mind this blows apart the concept of a jobless recovery. Without the jobs and the tax receipts that come with this, there will be no real recovery.
1) Social Security is made mandatory - you pay in whether you want to or not
2) Congress forgets how to spend within budget for the last 50 years
3) SS Administration mishandles fund - can't figure out how to:
(a) Fix sufficient rates to cover actuarial burden
(b) Manage a portfolio - rather, SS has been used to provide Congress with its crack-cocaine
4) Jacka$$ socialists demand the confiscation of other peoples' property
History repeats itself
I can tell you that when I started working after college ~40 years ago, I filled out the w4 or whatever form was used then.
Social Security was something like 4.8% on 7200.
we joked then that there would be no social security for us. Not so funny now!
But over the 40 plus year, no Congress or Administration, regardless liberal or conservative came close to this third rail. They can give away trillions and force us into high debt but they cannot do the tough things they should be doing.
They are all full of it.
But--lets dig deeper (and someone can do the math for this old codger). The tax is what--7.85% on a little over 100k plus medicare goes forever (and lets not forget the employer portion or that the self employed pays 16%)
I bet if you were taxes at the max since 1970 the "inflation" in taxes would be considerably higher than any published rate--but of course--taxes--whether sales , property , income of social security etc--are not figured in when calculating inflation or what is better known as CPI--which is a cost of living index and not even inflation (all that stuff John Williams talks about)
We are so screwed.
Thank you for tracking this.
Excellent work.
I'm not quite sure how SS could not be considered a Ponzi scheme when it's sitting on $2.5 trillion in Treasury IOUs. That right there tells me that even SS administrators are realistic enough to realize that they are eventually going to spend more than they take in and will require a bailout from Uncle Sugar. The unfunded liabilities in this program stand at roughly $15.1 trillion, according to the Sprott study that Tyler Durden posted here on October 27th. That's not even counting what Medicare is going to cost, even if government-funded healthcare never expands beyond its current limits.
Quite frankly, I wish someone would have the guts to propose a bill that would allow people to opt out of the whole damn thing if they wished. I for one would rather spend the money that gets taken out of my check every month on physical gold and silver, and CDs at my credit union, than throwing it into an "account" that I won't be able to draw off of in 32 years.
Bush attempted something along these lines in 2005 and got politically destroyed by it. There's a reason Social Security is called the "Third Rail of Politics"; it's deadly to touch.
"The Democrats were laughing all the way to the funeral of Social Security modernization" -- White House spokesman Trent Duffy
How about letting me opt of the system with a onetime cash payout for a fraction of what I put in over the years.
It's time people learned self reliance again instead of relying on government to make their decisions and take care of them.
A pension fund takes in money from beneficiaries, invests that money in productive assets, and later pays back the beneficiaries from the funds invested.
A Ponzi scheme takes in money from beneficiaries, immediately returns some of those funds to said beneficiaries, and claims said returns are the results of its savvy investments. Then it goes on to draw in an ever increasing amount of money from future beneficiaries, based solely on its past returns. But the monies received by the Ponzi scheme are never invested, they are simply paid out to earlier beneficiaries. A Ponzi scheme, for its continued existence, depends on an ever-increasing inflow of monies; but the law of exponential growth condemns every Ponzi scheme to collapse, because eventually the pool of potential beneficiaries (suckers) has been exhausted.
Clearly, the Social Security system is a Ponzi scheme. It has never invested the monies it receives in anything other than US Treasuries. But given that Social Security is an obligation of the US government, investing in its own obligations is nothing more than writing an IOU to itself.
What Mr. Krasting describes above is simply a technical description of how the inevitable collapse of this particular Ponzi scheme is playing out. That Social Security should collapse in 2020 instead of 2050 might be unexpected; that Social Security will eventually collapse, at some point in time, cannot be a surprise to anyone with half of a brain.
A few years before Social Security was established, FDR abrogated all contracts requiring payment in gold. Four decades later, Tricky Dick abrogated America's promise to redeem its currency in gold. There should be nothing surprising in any of these developments, because that's what politicians in the modern era do: they lie, cheat, and make promises that can never be fulfilled.
I truly feel sorry for old people who are going to get the shaft when Social Security collapses. But the fact of the matter is that they did it to themselves. They voted for all these bastards because they thought they were going to get something for nothing. And within a few years, they are going to discover that they're getting nothing after having paid something substantial. What goes around comes around, and unfortunately the flip side can get really ugly.
+1, especially the last paragraph.
Great post.
is this why the MMF rules are changing and metals are popping?
it's four days old and already an interesting year...
popcorn and stop-losses...
"we're friggin' doomed" - tMG
Bruce, thank you for posting the bad news.
Yes. Once we all get our financial butt kicked we may learn where our roots are . Perhaps the resulting humility will persuade us to be more inclusive of others in our lives who we feel now are not part of us. When the word" we" and" us" gets used more than" me,mine and more" we can begin laying the foundation of a new way of life where BEING is more important than HAVING.
Structurally society must change to a have less, be more individual who is not measured by what he/she owns or wears, but the attitude , honesty and reliability of a person.
We are not equal, nor is the world fair and should not have foolish expectations of anything being free. Everything is a trade of. We have not had the balls to challenge the politicians outright at the time they lied. Our bad, now we pay. Having paid into the fund since i was 16 I am grateful i did not count on any return. 7 years more before i can file, by then it will be gone.
Your humanistic approach to weather this storm is bang on. In the end we are all each other's liability and it will be difficult for caring people to turn our backs to our friends and neighbours when TSHTF. Either we accept that we need to act cooperatively to forge a better life for us all or we unabashedly accept human suffering.
Thank you for the confirmation Winisk. I assume that risk now by preparing to feed my neighbors who do not perceive the present , much less the future.
Karma should be heavy on those who led the sheep astray
Good post but really there is no logic and/or answer to a ponzi scheme. We could have sat down and analyzed Madoff's book the same way. When it's over, it's over. Until then, more taxes on the affluent and excuses why fewer in need will receive the funds.
+1
"My solution has always been a means test. If you have $100k in taxable income you don’t get paid. Finished."
"Raising taxes on America’s 90 million workers and their employers is just bad economics. It should not be considered."
The fact that you could put these two sentences in the same paragraph leads me to believe you are either drunk, or Canadian.
America is well around 300 million people. Looks like one is producing to feed more that 2 other people, who are only consume. How do YOU think this can be fixed? This is current problem in all of the so called "developed world".
Part of the problem is that the SS program has traditionally been sold to the public as a retirement program where everyone contributes and everyone benefits (although not quite in proportion to contributions).
The government has gone to some lengths to sustain this illusion -- taxing the benefits rather than limiting the benefits based on income, for instance.
If the benefits become means-tested, then the mask will be ripped away, and the already low popularity of this program will fall off a cliff -- which can lead to gloves-off intergenerational warfare.
Danger Will Robinson!
Is there a fix to this systemic problem?
NO
Bruce did offer this:
Problem is, there'll be a lot less reported incomes over $100k. Just another reason to transact in cash, barter or not transact at all. Only the third option is considered legal, though the first two are fairly commonplace in America. Moral hazard, writ large.
There are more and more people aging to begin getting SS with each year.
Consider this. If the United States can hold interest to zero or very close to zero, they dont have to pay out any additional money increases each year.
If the people die off faster and less are on the rolls of SS then we are saved.
If there are no jobs for the young (18 and over) then the payroll tax will matter not.
Our Military are increasing in VA visits. I think our VA downtown is seeing approx 400 per day versus 120 10 years ago per day... based on the very unscientific counts of travel pay and medicine waiting/take number tickers...
Those on SS who are smart are getting out of debt very quickly and trying to live free and clear in a home. It is easier to go to walmart in Boca for food and needful things when there is money left over to pay the bills for that month.
The rest? Well, they go to walmart waving credit cards and will be consumed.
There is a large number of SS people also double dipping Military Benefits as well as state, federal benefits or large pensions etc. Take away SS, and they will make it ok. Lose the Pensions and they will make it ok. Take away the VA and the Military disability they will march upon you.
SS is larger than the total Military Budget. But I think Medicare and other associated care has to be larger than Social security.
With that in mind, the Debt interest must be way larger than anything else on the United States annual budget for the year.
If the interest climbs because it will regardless of the Fed standing waist deep in the incoming tide and commanding it to go away... the last sound will be the gurgle of the old guard drowning as they insist that everything is in order.
Give another 40 years or so... the young folks we are raising today will someday have to decide what you, me and others can or cannot do with what little money we are allowed to have.
It's something to consider. We tell the youngster not to spend thier allowance at the mall partying and that youngster will grow up, become elected to the US Government just in time to tell YOU what you can do with YOUR money.
I for one intend to be debt free and beholden to no one when that day comes.
Once the pain of cutting back is too great, these retirees (who hold the bulk of USA assets) will seek to downsize their retirement homes to move to more modest digs. This, just as their earlier, more imprudent children and grandchildren find their incomes diminished and their habitations underwater--they will default with paltry savings. Demographics demonstrate that the nation also cannot absorb the number of assets the retirees will need to dispose of, too much redundancy, not enough bodies. This slipping sovereign will be awash in large, unsellable, energy inefficient McMansions with huge tax and maintenance fees.
Then the MBS QE will somehow fail, interest rates on long bond will jump, mortgage financing will shadow that, and the standard 30 year fixed will be unobtainable except by rest home entreprenuers and hedge fund managers.
I see grandpa, son, and grandson with their hosts of hungry mouths, moving in together to that retirement condo while the banks foreclose en masse and mothball swathes of America's former glory.
Or the gov't will become so tyrannical by then that rationed shelter assignments will fill the structures but inhabitant will have no ownership rights.
And we used to laugh up our sleeves at the Japanese for "their rabbit hutches". They will laugh up theirs as the USA nationwide becomes a "section 8 gulag".
Yay for us!
Since when is collecting SS plus a pension double dipping?
Also, you do realize that many pensions, private and public deduct 1/2 of a recipients SS payment from the payout.
Needless to say NOTHING will be done about this !!
wow..thanks for the detailed analysis. I was blown away!!!