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SS Report Due Out This Week
The Social Security Trust Fund annual report to Congress is due out this week. It will be discussed in the Press for a few days. Some of the things that will come up:
- The NPV of the unfunded liability will go up by approximately $2 trillion, to $23 trillion. Every year this horrific number is discussed, and then ignored. What does this number mean? The 2012 increase in new liabilities is double the reported increase in federal debt. If this number were added to the existing debt, it would bring the total nut the country faces to $39T - 250% of GDP.
The problem is that the calculation measures the present cost of the infinite future. Who cares about something that might go wrong 50+ years from now? Hopefully, the scary NPV number to be released will focus attention on SS. The fact is that SS is PayGo. It has a revenue base, it spends more than it takes in, the Treasury makes up any shortfall by issuing more debt. If this reality were the basis of looking at SS (versus goofy TF accounting), then there would be no infinite future issues.
- The date of exhaustion of the OASDI TF will be shortened by 2 years to 2031. This means that anyone 47 or younger is paying "full price" for a benefit that will be worth only 75 cents on the dollar. That is how the law is currently written; I keep wondering when younger workers will wake up to the realities of what they are paying for.
- The SSTF will recommend that either payroll taxes go up by 2.5%, or that all current and future benefits get cut by 2.5% (or some combo). These recommendations would require an immediate change to achieve the desire long term stability of SS.
There is note a chance in hell that anything like that will happen. Washington can't agree to a change in benefits that amounts to .3% a year. There is no way that an across the board cut could be agreed on. More payroll taxes are not going to happen either. They are regressive, so liberals don't like them and conservatives will just say "no" to higher taxes. Either of the options would be a drag on the economy, so nothing will happen.
- The "drop-dead" date for the Disability Fund will be revised to the 4th quarter of 2015. In 30 months all DI benefits will be cut by 30%. Again, that is current law.
I think the TF report will make it clear that a fix for the problem with DI must be addressed ASAP. Nothing will come from that plea; the fix on DI will be resolved a week before the drop dead date.
- There will have to be significant downward YoY adjustments in interest income that the TF will earn. It's the Fed's policy to starve SS. ZIRP and QE will "cost" SS $500b in lost income in the 2008-2018 period. The deterioration at SS in 2012 will largely be attributable to the realities of the Fed's policies.
- The combined OASDI Funds will "top out" in 2017, the peak of the Funds will be ~2.85T. This milestone is coming much sooner than had been anticipated a few years ago. The maximum size of the TF will be smaller than what has been assumed.
The reality is that the Baby-Boomers did not "save" enough to cover their cost. The Boomers will come up 'short' by at least $1T. The day that they will be hitting the principal of that 'savings' is coming 5 years sooner than hoped for.
- The Report will contain all sorts of economic projections. (There might also be changes in mortality rates.) There are dozens of ways to push numbers back and forth. One of the more significant variables is the Labor Force Participation Rate (LFPR). In May of 2013 the USA is facing the lowest LFPR in decades. The SSTF has assumed that this will reverse course and move substantially higher over the next five years, and remain at higher levels forever. If the SSTF does revise downward its assumptions on the LFPR it will have significant consequences to the long term health of SS. I do not think that the necessary changes will be made, an unrealistic assumption will be used again.
I expect an overall "Blue Skies" set of assumptions in the SSTF report to Congress. There will also be an analysis that is referred to as "High Cost". This set of numbers will be ignored by the main stream media, but these numbers will be closer to what is coming for SS.
-There will be ZERO discussion in the TF report to Congress on the most critical short-term issue that SS faces - Immigration Reform. I study these things, and I can't give you an idea what will happen to the economics at SS when there are new immigration laws. There is no data available to draw a definitive conclusion as yet. The TF report should address the uncertainties (or at least provide some numbers that could be studied), but it won't.
The consequences to SS regarding changes in immigration range from good, to neutral, to bad. SS has previously disclosed that it has collected hundreds of billions from illegal SS cards. My estimate on the amount involved is +$300B that has been collected and retained by SS. What will the resolution of this be?
* The new immigration laws could say that any prior contributions are lost - that is the "penalty" that must be paid. This would be a windfall to SS.
* The law could be written in a way that would recognize those prior contributions, and allow them as "credits" to the individual's benefit calculations. This would result in significant additional liabilities for both the DI and the Retirement Funds.
For wonks like me, the annual report is something to look forward to. For the 99.0% of Americans who have no idea what is at stake, it will be another ho-hum. SS is the largest source of government spending and the biggest source of tax revenue. It's not financially sound - the report will reconfirm that. The upcoming report will make for some splashy headlines for a few days, and then it will be forgotten. D.C. has neither the guts nor the desire to take on what is America's biggest economic problem.
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The NPV of the unfunded liability will go up by approximately $2 trillion, to $23 trillion
US debt clock has the unfunded liability of Social Security at only $16.3 trillion while Prescription Drug liability is $21.6 trillion and Medicare liabilities are $85.9 trillion. So Social Security liability is only 13% of the total unfunded liabilities of $123.8 trillion.
Moreover, these unfunded liabilities grow at $7 trillion a year. Or at 45% of the US GDP.
http://www.usdebtclock.org/
Even if you cut out all the other Federal spending the GAAP deficit is still $3.4 tn. pa.
Get to work Mr.Chairman.Not even sure that hyperinflation can solve this problem.
Liability reduction via war seems the only answer, after they have finished looting,
that is.
I thought that fighting wars was to help the other side of the ledger. You know...increasing your asset base at some pathetic thirld world country's expense. On incurs liabilities in the form of labor to build bullets and bombs, etc. If your seizings don't exceed your increased liabilities, then you screwed the pooch. "W" demonstrated this as the oil revenues from Iraq would pay the US back - only for its war costs.
And it has worked so well. How are things in Iraq anyway? You won't find out in the US press. Have to go to AlJazeera (sp?) or Russia Today. I hear they aren't so rosy. Two thousand years of civil interracial hate were made better because we parked troops there for ten years.
Those scumbags pols and crats of the elites were told in 2002/2003 that the invasion would go "swell" the occupation would be a nightmare, post invasion/occupation would turn to civil war and that the only "winners" would be Iran and the Kurds. Things are right on track I see. hujel
Sprott stated that the Treasury Department’s 2012 GAAP budget deficit report was an astonishing $6.9 Trillion
http://silverdoctors.com/eric-sprott-real-2012-us-defecit-6-9-trillion-not-reported-anywhere-by-the-public-press/
Right. And that assumes that future economic conditions remain essentially as they are now. The truth is we have a divergent equation with several important variables, that if treated properly as a differential equation with reasonable assumptions based on past observations, would provide compelling evidence that the near future isn't going to look like the past. So, if we lost two years back to 2031 this year, and some how the current conditions did not deteriorate (disconnecting a feed back from important deteriorating equations) and we lost 2 years from now on, 2013+(2031-2013)/(1(time)+2(loss)) =~2019 will be they year it goes belly up. But any sensible person knows that the rate of deterioration will only accelerate, and the likelihood of a recession in the near term will be the catalyst of this deterioration, both on the revenue and bennefits side.
I'm sorry to say but any expectation that a once Great Society will take care of you in the future are pipe dreams.
but we have all these new people in the country doing services like landscaping and busing tables to pick up the slack..
right?
Someone help me out here!
I find these 'unfunded liabilities' figures puzzling, particularly when contrasted with GDP.
GDP is an annual figure, whereas the liabilities are everything that falls due henceforward, forever, are they not?
Surely when we compare these things to GDP what's important is how much of those unfunded liabilities fall due each year?
Real simple Jim.
Unfunded liabilities are growing at a rate of 7 trillion per year.
GDP grows at a rate of less than 1 trillion per year.
Currently yearly deficit between the two is 6 Trillion.
No way in hell that the GDP is going to suddenly start doubling without hyperinflation coming home to roost
Thanks.
In the context of cash flow, yes... in the context of prudent financial planning, not so much. In other words, if you're solely worried about what portion of the unfunded liabilities will be due in the next year, then you'll be impotent to dodge the tidal wave coming in three years. [unless you're trying to say gdp is going to keep up with or surpass the rate of increase in unfunded liabilities :-)]
In short, if you're planning on defining when default occurs, then cash flow is probably a metric you'll want to know... if you're simply interested in general financial health or how financial pressure will accumulate and affect policy decisions, then the aggregate liabilities are incredibly important.
As an aside, gdp shouldn't be used for cash flow analysis... instead, tax collections/government revenue should be used.
That's about right. In a buy now, pay later society few care about paying their share based on the cost of the benefits they receive. Part of the issue is the numbers are so large. In 1969 nominal GDP was about $800 billion. Now it's 20 times higher. (around $16 trillion)If the same thing occurs over the next 44 years annual GDP will be $320 trillion in 2057. So the numbers just get confusing for average people. And human nature comes into play as well. Most people would never think of stealing their neighbors lawnmower, but if the government picks their neighbors pocket and gives them the money it's OK.
... and, unless outright default happens before then (perhaps more than once), debt and unfunded liabilities will be measured in the 10's of quadrillions (thats 16 zeros).
Get Bernanke, while he is at it, to print up a bundle for Social Security. What's the problem? That man can print faster than any rising debt.
I have a better idea - let me opt out of Social Security and Medicare. To a certain degree it doesn't matter to me what the liabilities are. What really matters to me is that I don't have the freedom to opt out of the Ponzi, er, program. Personally I don't factor SS into my retirement plans because I don't think it will be around. And what's more, the very nature of it make it generational theft. Even the SCOTUS in their Helvering v. Davis decision made it clear that SS is a "pay as you go social welfare program." Politicians may call it an insurance plan / program but it doesn't have any of the characteristics of an insurance plan. Namely, a contract. Even SS's own website acknowledges this. However, at the risk of being repetitive - let me opt out of Social Security and Medicare. Absent that, everything else is moot.
Giving money to seniors that way will result in the money getting into circulation. More demand, more price inflation. Giving money to TPTB for injection into the stock market keeps the money out of circulation.
That's the problem.
Interesting analysis, thanks. Probably not much different for most EU countries, especially the EUR currency zone. I believe Norway is one of the few countries anywhere that has a fully funded state pension scheme, due to the oil revenues and their reluctance to invest their sovereign wealth fund in EU debt.
SSTF.... meet.... SHTF.
Chuckle of the day! Thanks.
My Uncle was a school Teacher. Taught English. Retired at 55 with a nice pension.
He and spouse now get Social Security too on top of their Pension.
Both are traveling the world and are right now on a cruise of 10 countries.
My generation is unemployed!!! When we came to the party all that was left was Zimas and cocktail weenies.
"To some generations...much is given...to others much is asked"?
FUCK YOU FDR!!!...I aint storming no beaches for YOUR Empire.
Let the Baby Boomers do it!!...or dig up Ida May Fuller and send her to the front lines!!
There are no guarantees in life -- plan accordingly. It's hardly the fault of the New Deal programs that the USA has been looted blind in the last few decades.
Nothing like a government pension to help out during retirement.
My father was in a NJ fire department for several decades, then retired to work in private industry so he could also collect Social Security. When he died some 30-odd years later, his government pension exceeded his highest yearly salary as a fireman. He always told me and my sister to get government jobs, but we ignored his advice because back then said jobs paid below private industry wages.
As for your mini-rant about Boomers, let me assure you that much was taken from us before we ever began to get a cent back. I really wish they would have forced us to put our SS taxes (and our employers') into ounces of gold. That said, I do feel badly for anyone under 55...no, make that 95...if they're not part of the elite.
I have an aquaintance (not a friend) who was a Physical Ed teacher in my school district. He retired at 55 due to his pension allowed him to take zero paycut at retirement.
I recently paid my property tax and vomited.
If he's not a friend, you should have run him over and did the taxpayers a favor.
FDR ran against Hoover on a platform of fiscal discipline.. he was an opportunist and a lying POS but he was the most successful candidate in presidential (small “p” intended) politics.
oh.. and of course everybody is already aware of all that because of our great education system.
+500
Yes indeed....f*&# FDR.
I can still remember Bill and Hillary waltzing with glee inside the then new FDR Memorial on the Mallin Washington...celebrating FDR's legacy.
I know a bunch of “public servants” who now have the public at their service for life.
I also know someone with a defined pension who put +35 years at a private company that went bust.
The bad news is that the pension was busted too (unlike Obamas’ GM) and the reason for that was the government allowed the company to ignore its obligations and dramatically underfund the pension .
The good news was that the pension was picked up by PBGC and although reduced substantially, there is something left from a de facto branch of the federal government which controls a printing press.
The other bad news is that it is so obvious that if you support the government, you lose.. if you work for the government you win.
This does not portend good stuff for the future.
I expect the situation would be similar in all the oil-rich states
Including Alaska. I don't know if any of the lower 48 share revenues with their citizens.
Oh sure, blame it on the boomers instead of the lying thieving politicians.
http://www.fedsmith.com/2011/09/30/looting-social-security-pretaxing-baby-boomers/
In 1934 FDR promised the American people that the SS card / Number would never be used as a national identity card. Since I'm an "old guy" at the bottom of my original card it says (paraphrased), for SS purposes only - not to be used for identification. What does yours say???? For those too lazy or asleep to look: They took it off.