Billion. This is the largest monthly deficit in nineteen years. Base on
recent years data it was not surprising the Fund ran a deficit in
August. But the magnitude of the shortfall was a surprise to me. This
deficit is now the seventh in the past twelve months. That pace has
never been seen before.
We
deal with very big numbers these days. 100rds of billions and trillions
are how we measure things. So a $6b monthly deficit for the Fund would
appear to be a ho-hum. That is not correct. This is an important number.
The
Actuarial analysis of the Fund is misdirected. Their focus is based on the
future value. It should be focused on the here and now. In the June annual report the Trustees concluded that the
Fund would be broke in 2037. This conclusion is so far into the future
that it is easy for everyone involved to say, “this is a next year
problem, health care comes first”. Stephen Goss the Fund’s head honcho
said as much in a recent interview.
While there is a political
case that we have to prioritize health care as an issue, it is wrong on
a purely economic basis to ignore the exploding problems at the Fund.
Every month that the status quo is allowed to continue makes the cost
of the ‘fix’ that much larger. Based on the past twelve months
performance I now estimate that the Net Present Value of future
committed liabilities is in deficit by $7 trillion. To plug this sized
hole would require a significant increase in payroll taxes. That isn’t
going to happen. Raising payroll taxes by 4% would kill the economy. No
White House economist would advocate that. The alternative of cutting
benefits would be very unpopular. There are currently 52 million
beneficiaries of the system. A lot of them vote. To shore up the fund
would require across the board cuts greater than 20%. While that may
not be a hardship for some it most certainly will be for others. The
only way to address this inequity will be a means test.
The August deficit reconfirms that the Funds foundations are wobbly. Some observations:
-In
August the US Treasury had to borrow an additional $6 billion in the
public market to finance the cash shortfall of Social Security. We
already have too much paper for sale to fund the budget deficit. SS
added to the supply problem last month.
-The 2037 Future Value
of the August deficit is -$17b based on a 4% return. What this means is
that there will be a very significant revision in the 2037 drop-dead
date. Based on current trends the go broke date is closer to 2025.
-This
is not just a bad month. The net decline in the Funds assets for
June/July/August comes to $7 billion. In 08 that period was in surplus
by $5 billion, In 07 it was +$7b and in 06 it was +$13b.
-The
decline in payrolls is hurting the Funds’ top line. January-July 2009
payroll tax receipts were down from 2008 by $5 billion or 1%. While the
monthly declines in payrolls will fall over the next six months it is unlikely that there will be much net increase
either. It will be a very long time before we see monthly gains of
250k. Without that kind of growth the Fund will quickly fall into
annual deficits.
-The expense side is exploding. The September monthly benefits cost will be $56.6b up from $51.5 in 2008, a 10% increase.
-In
2007 the SSTF produced a surplus of $191b that it invested in the US
economy. This year it will be closer to $100b. Based on the current
trends that surplus will be gone by 2012. Six years earlier than the
Trustees forecast in June of this year.
SS is the mother of
all systemic risks. Even the debate on this topic brings risk. It will
expose an additional $7trillion unfunded liability. Another reason for
holders of dollars to worry.
There is no fix to this. Raising
taxes is a dead end. Age warfare is a possible social consequence. The
really bad news is that no one will touch this for another year. By
then it might be too late.
In a rational economic nation we would start to cut consumption. Grassley's state that collects $2 for every $1 they contribute to the central government would be first up, then cutting spending to those other off balance sheet special govt projects the wars in south Asia, and considering how well paid the central govt bureaucrats are paid there would be a mean test to limit the bennies.
Between the Reagan Democrats and the Christianist Republicans, ain't gonna happen.
For every problem there is at least one solution, especially when the great name PonZi is involved.
1. Sorry, pals. Retirement age is now modified. No one is allowed to retire until the age of 78.
2. The nature (or is that God) will soon introduce a new, modified version of H5N1.
3. The benefit will now be paid via I.O.U..The receipient can elect to get cash upfront by discounting the IOU at 60% face value. And, finally, an end all for all,
4. It is illegal for anyone not holding a job, no matter how old you are unless you are certified disabled, in the process of dying, totally retarded or you revoke your right to receive benefit. And,
5. The benefit will be paid using worthless old dollars. Conversion rate for old dollar to new dollar is 1000 for one.
6. The federal government can simply declare bankruptcy and wipe out all liabilities under SS.
Don't forget, the H5N1 pandemic will severely effect mostly young health adults, not the aged. Young adults mount a more powerfull immune response which is what kills.
The public is now exhausted from hearing about the billions and trillions of deficit spending and bailouts on a daily basis. They can no longer sort this in their mind... it is now just one big soup of negative cash flow in their minds... they have no control over any of this because the power they used to have has been usurped by the oligarchs... and when they have no control over such a frightening situation their anxiety rises... and when their anxiety rises then they simply detach as a coping mechanism... and once fully detached... then apathy sets in... we are on a train that is going to derail... there is no doubt about it... and this is just one more piece of faulty track.
and they will still be exhausted when they get
the official notice, "and it's gone."
Just to do some silly math here on the second and third derivative of the integral of the derivative. If it took three months for the broke year to change from 2037 to 2025, then it would take an additional five months for the broke date to reach 2010.
This is how my $imple head work$. $$ bankrupt by 2010.
Sorry to post such a silly and light minded response...I am very cynical right now. Everyone knows Social Security for all intents and purposes is broke already. That's why Bush tried to privatize it (sort of), so that the private sector would be fit with the bill. He probably thinks very simply as well.
But its alright here's how it will work. The banks will make bets that eldrly people die faster by using their latest financial instrument of life insurance cdo's, then they will force the government to default on social security by not providing a good enough return on the g-men's tarp investment, and then they'll make boatloads on the death and misery thanks to gramps not getting his check. They got all the angles covered. What a truly twisted system we have here. I'm so deflated that I can't put together an angry enough rant about this stuff.
Good article.
tumbling dice
great thinking. the sort of thinking that got people to worship rocks in desert places. and maybe burn the sinners amongst us who made the gods angry.
there are real numbers, and real connections between numbers. unless you are spoofing us, you are one of those people who will never know that.
but do not feel that you are any stupider than say the phd economists, and even the nobel prize economists, who think that because they are so smart and well educated they don't have to actually know what they are talking about before they give their expert opinion.
"The really bad news is that no one will touch this for another year."
Try another five years. Or a decade. In a country where we ALWAYS wait for crisis before we act, Social Security reform will be the longest wait, until we reach the biggest crisis. (After Medicare, of course, which dwarfs it.)
You know, I like being an American. I like our nation, the culture and people here. But I have to say after paying pretty close attention for my 35 years, that a lot of our high self-regard is undeserved. If America, as a society, ever operated consistently on higher principal and moral ground, it hasn't been since I've been old enough to watch.
From government (whichever party), to business, to non-profits, even to religion in the form of mega-money-churches and the Catholic pedophile factory, Americans are generally self-serving people who refuse to take responsibility for themselves until accountability is forced on them.
I've found that even Americans (and there are many of us) who continually pat themselves on the back for being so personally hard-working, and self sufficient, and honest, and generous and so on, are often deluding themselves, and are much like everyone else. They just have the added vice of pride.
In short, no one will fix Social Security because it is hard to fix it. It will blow up in America's face, and whatever happens then, only one thing will be certain: it will be everyone else's fault.
Anonymous
no. it's not hard to fix. what's hard is getting people to understand the trust fund is not a magic box nor a criminal government conspiracy.
if we are going to live longer, we are going to need to save a little more to buy groceries after we stop working.
the little more amounts to a tax raise of 80 cents per week some but not all years between now and 2085 while wages are going up ten dollars per week every year.
that is not hard. the hard part is explaining it to you.
OUCH! So true. I have come to the conclusion that no matter what happens or when it happens, that ALL Americans are going to be very much poorer, and soon.
Great article.
The big time bomb is medicare, though. You can find the numbers on that at shadowstats.com. Social Security is a big problem, but medicare is an absolute disaster. Forget 20% benefit cuts, this unfunded monster will take down everything in its path (including the USD).
senor
there is a difference between ordinary accounting and fever dreams.
IF health care costs go up, we will need to pay for them, whether we use Medicare or private insurance.
IF we use Medicare AND costs go up, we would need to raise the Medicare tax from about 3% of wages (shared between boss and worker) to about 12% of wages (shared). This looks like a lot of money and it is. But if it is the cost of staying alive a few more years in relative health, we will WANT to pay it.
The good news is that in the meanwhile wages are projected to go up about 230%. This would mean that AFTER you have paid for Medicare AND Social Security, you would have more than twice as much money to spend every day as you have now.
No horrible burden here. Just a choice of spending on the Medical care to keep you alive long enough to spend more on Social Security, or keep the money and take TWO vacations in Las Vegas every year.
It is true that Medicare is a huge problem. But the cynical side of me says the government is banking on the results. No Medicare, more elderly people die. More elderly people die, fewer people on the Social Security payroll. Fewer people on the payroll, you buy some time.
Healthcare is a priority because the Democrats are seeking sinecure in public office. By securing the support of the SEIU and handing them all healthcare employment, Democrats will have feet on the ground to defeat any challenger in any election.
Here you go from the SEIU bylaws:
We must organize unorganized Healthcare workers, extending to them the gains of unionism while securing control over the Healthcare industry.
http://www.seiuhealthcaremi.org/assets/assetcontent/c30ad09d-58bd-4a88-8...
Wonder how much money will be in the Democrat politician's campaign kitty?
Problem is that the SSTF was supposed to be a lock box not used for any accounting purposes in/against/offset/or fucking borrow from the general debt at all. The fact that congress still does even against the 1990 law against it is now irrelevant. The damn thing would pay for itself if congress would quit stealing the money.
no it would not pay for itself....analysts
have been stating since the late 1970s that
the system would fail....
the funding mechanism is fundamentally flawed
because beneficiaries will outnumber contributors
to the system....demographics are against it
from a logical point of view the law prohibiting
fund raids is a non sequiteur....and technically
they stay within the law because they deposit
bonds as an iou....bonds are regarded as
near cash equivalents....
So let me figure this out...the government doesn't have any money that it hasn't first taken away from someone, correct?
So lets say the SSTF has some money laying around and they invest in a treasury bond. Great investment. AAA rated and all.
The government then taxes your income to get the money to pay the interest and principal on the bond the SSTF owns so that the SSTF can then pay your SS benefits?
That's right...it's a Ponzi. The leading edge boomers leave everyone else a bago'crap.
Anonymous and Anonymous
let me try to explain it to you.
The Baby Boomers paid in their own hard earned money so there would be enough money to pay for their own retirements. Social Security did not need the money at the time so it lent the surplus to the government.
Which used the money to buy war toys (mostly) and give tax cuts to the (mostly) rich.
When the boomers retire, the government will need to repay the money it borrowed, using taxes generated by the rich from the money they made by investing their tax cuts, probably mostly in defense spending. Which may or may not have saved the rest of us from the expenses of having to learn to conduct our business in Russian or something.
There is no magic here, no fraud. Just ordinary business borrowing and lending.
So let me figure this out...the government doesn't have any money that it hasn't first taken away from someone, correct?
So lets say the SSTF has some money laying around and they invest in a treasury bond. Great investment. AAA rated and all.
The government then taxes your income to get the money to pay the interest and principal on the bond the SSTF owns so that the SSTF can then pay your SS benefits?
There is no such thing as an SS Fund. There is a Secret Service. Hitler had an SS. The Impala SS was a great car !!
Welfare for the oldsters is just an inconvenient footnote on a bloated balance sheet of debt. Those witholdings were just another tax. Why would anyone expect an ROI ??
Social Security. No such thing.
Spend all your earnings now = get social security
Save money for retirement = Means test = no social security
THIS SUCS
-JPR
I love it.....And smilin' Charlie Rangle is in charge of the Tax Law and is one of the biggest tax cheats going....
http://waysandmeans.house.gov/
Beyond scaring! Social unrest!!
Good article Bruce
6B is chump change. Bernanke is printing 25B a WEEK to buy MBS.
i agree that the amount is trivial...what is not
trivial is that several years have just been
shaved from the fund exhaustion date when just
months ago a couple of years
were shaved off the current account break-even
date.....
so already the official story of financial
rectitude has been shoved up our rectum....
what a fraud and hoax which has been perpetrated
upon the american people....and yet they have
been so stupid to believe the stories....
i listen to some canadian broadcasters from
time to time who are just baffled at how naive
and gullible americans are....and in europe they
merely contemptuous....
a fool and his money are soon departed....
the current account story could change for the
better should unemployment decline substantially
but that is not such a promising development
at this point...
what's really interesting is that the deficit
is showing up with degree holder unemployment
of only 4.7%....they pay by far the most in taxes
and into the funds so things are very rickety...
Well, in Europe (namely Germany) please be sure that there is absolutely NO sign of being contemptuous.
In fact, the same thing happens to Germany as well (and the people are still electing the same partys). The unemployment statistic numbers are intentionally false (instead of 3.x million we are at 7+ million, more than double the amount), and the cost for SS is also going through the ceiling, especially when the unemployment rate (the official one) will drastically increase after the elections end of this month.
This is a very good post. However, when I read the comments I get the impression that most of the commentators believe that the US is the only country with these big problems.
You're not.
Are you listening to the double digit unemployed Europeans? They've been that way for decades now.
Games we play in the ole USA
US unfunded liabilities now stand at 59 trillion 22 billion
SS unfunded now stand at 10 trillion 717 billion
MedCare unfunded now stand at 39 trillion720 billion
US national debt now stands at 11 trillion 802 billion-current burn rate 2 miilion per minute or 120 million each hour or roughly 3 billion per day-65 more days until breach----whats a poor country to do
GDP cytd stands at 9 trillion 481 billion=sucking hind tit
November 11 2009 is my call for our national debt to breach 12 trillion
Great stuff Bruce
please continue
Soylent Green is people.
(meaning that we'll be eating the elderly long before 2037, either figuratively or literally)
For you Tom
http://www.youtube.com/watch?v=9bUDtTv8rKk
Thanks cowbell!, I hadn't seen that one, Morello is just an amazing talent.
I really like what RATM has done with it, but I think the Springsteen B&W video is my favorite.
http://www.youtube.com/watch?v=1DEtA5fhk4k
this really is a huge story but will be swept under the rug just as it has been since 1980 when ss solvency became a regular topic in think tank literature....that is a management technique taught in universities.....
regarding the statement, "-In 2007 the SSTF produced a surplus of $191b that it invested in the US economy."
i don't believe that this is correct....congress has been taking ss income surplus for use in federal spending....the treasury places a pretty bond in the trust fund shoe box as an iou....government spending is really not an investment in the us economy, especially when those surplus funds are used to buy tanks, missles, and pete stark's salary....
reagan attempted ss reform in his first term but learned from the experience to keep his mouth shut on the topic...and since then it been studiously ignored until it needed to be used as a campaign scare tactic....one month granny will see a line item on checking account statement stating "and it's gone." - no warning no fuck you....
excellent article - just keeps me wondering when the whole thing tanks, what will the average Joe do past retirement?!
They'll be incouraged to attend End of Life seminars.
Possibly an all expense paid sea cruise to the Soylent Green factory?
Maybe a month's vaction to Soylent Green World, where old folks check in, but they don't check out!
The current administration would have you die, of course.
Exactly. Why all the hullabaloo over death panels? O'Bummer knows a real solution when he sees one. I'm mean, they are only Average Joe's, its not like they work in DC or Wall Street.
Good thing our country doesn't just ignore huge problems until they explode in our faces. No, take everything head on and in the open, is our motto.
It's good that you bring this up. No one ever even talks about this anymore as the new big thing is pushing through another unfunded liability, socialized medicine, because somehow another government program will make everything ok.
Your posts are beautifuly crafted and border on financial poetry.
THIS IS NOT A PROBLEM AT ALL. Ben will print 7 trillion and send it to SS by Amtrac.
I cannot say it better than Pizza.....
Excellent work Bruce.