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CBO on SS - Another 29' Crash?
The Congressional Budget Office is out with its annual review of Social Security. It's a long report - here's all you need to know:
This result is no surprise. SS's finances deteriorate every year. What I found interesting is the extent of the deterioration. 2013 was the best year since 2008 for the broad economy. We had fairly steady growth in the economy, and the job market improved significantly. But the red ink at SS rose very rapidly.
In 2012 a 'fix' for SS would have required an immediate and permanent tax increase of 1.95%. A year later the cost of the fix has risen to 3.36%. That's a 70% deterioration in twelve months. To right the SS ship a payroll tax increase equal to $180B would be required for 2014, and that higher tax rate would have to be sustained forever. A tax increase of this magnitude would sink the economy into a recession that the country would struggle to get out of.
The deteriorating outlook, and another year of inaction, has brought the blow-up date for SS a bit closer to today. CBO has an interesting time line for when this might happen:
In CBO’s simulations, in which most of the key demographic and economic factors in the analysis were varied on the basis of historical patterns, the trust fund ratio falls to zero in 2029
2029? One hundred years after the last crash and depression we will face a self imposed crisis. When the Trust Fund ratio falls to zero current law requires that all benefits are cut across-the-board by 25%. As it is set up today, there is a huge cliff that the economy will fall over - and that cliff is now just fifteen years away. A chart of the cliff:
When the Trust Fund is running dry in 29' SS will be paying out at a rate equal to 6% of GDP. The 25% drop in benefits would translate into an immediate (and permanent) drop in consumption of 1.5% of GDP. That's a pretty steep cliff to go over.
So we are fifteen years away from a real problem, and no one is doing anything about it. Nothing will be done in 2014 as it is an election year. I doubt that any real fixes to SS will be made until after Obama is out of the White House. The result of inaction will be that the cost of the fix rises. By 2017 it will be damn near impossible to stabilize the system in the then remaining years before the cliff is hit.
Social Security has morphed into an interesting economic stimulus that I don't believe anyone has focused on. For 2013 the amount of the hidden stimulus is $87B (0.5% of GDP) but the size of the annual boost is going to grow very quickly over the remainder of this decade. In the final year before the blow-up it grows to $550B (1.4% of GDP)
In 2013 SS will collect $727B in payroll taxes and pay out $816B in benefits (~$90B difference). Both the taxes and the benefits have a 1-1 consequence on consumer spending. The fact that SS is no longer pay-go on a cash basis means that it has to dip into the Trust Fund to fund the difference. When the TF redeems its IOUs, it forces the Treasury to issue more Debt to the Public (dollar for dollar increase). But Total Debt remains the same, and there is no consequence of this form of deficit spending on the Budget (intergovernmental transfers are not included in the deficit calculation).
A few charts on the Take-or-Pay based on numbers from the 2013 Social Security report to congress:
These are big numbers. If there are no adjustments to SS this hidden stimulus will have a significant consequence. In the years just prior to the 2029 crash the stimulus will be a substantial portion of the YoY GDP grow. But then the music just stops - from one year to the next there will be a huge contraction as the stealth deficit spending ends and benefits are cut by 25%.
Yes, all of these things are still far into the future. And yes, the thought of eliminating the hiding stimulus anytime soon is not politically (or economically) feasible. But the reality is that the SS Cliff is surely going to be realized in the now foreseeable future. D.C. knows that the future is now on a glide path into the side of a mountain, but it 'feels so good' to do nothing, that nothing will be done. The history books will not look kindly on this neglect.
Note: Elizabeth Warren (D -Mass) has been leading a liberal/progressive debate on expanding SS. She wants to increase payouts (a step that would move 2029 to 2025). When the history books do write about this, they will point to the likes of Warren, and say that she led the charge to a disaster. I don't think these people have a clue what SS is doing, and what will surely happen in the relatively near future.
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To "fix" SS just end it NOW. It's a PONZI, always has been, always will. Some people are getting ten times out what they paid in. It is simply another wealth redistribution scam...
obamas ACA is a blueprint for dealing with the problem (how THEY will choose to deal with it, because politicans are partisan birds, but policy hogs, they follow policy) and the ACA policy is to expand the state Medicaid programs, since health costs are very dependent on the state economy. there are savings to be gained by shifting the burden, subsidizing the state medicaid programs, and then handing over responsibility to the states. (GOP doesn't like it because their states are poor and red) the portion of SSN designated for medical purposes far eclipses the retiree benefits. this is a redundancy, and could be partially fixed by ACA type improvements, or handing the cases over to the ACA program completely. basically by 29 half of Americans will be on medicaid, (including disability and medical i would guess) since that's the ultimate purpose of the healthcare plan. the system as it exists allows SSN recipients and their families to access medical care even if the aren't living in the country. the best way to bring this thing under control is to shift those burdens to the states, who already have a means testing program, if you have assets and you need medical help, the bottom line is you will have to sign them over. the wealthier the state the more assets they collect, the richer they get. poor people are a liability but this (suggested interpretation of the) policy at least protects their retiree benefits, and if you are on medicare you can keep those.
"When the history books do write about this"
They will be promply burned by Warren and her supporters.
Someone please explain to me (in thirty words or less) how knowing all the trickery (economy, ha ha) that goes on today can do anything but continue? The only opposite scenario is Armageddon. The world (yes most if not all countries) has been falling down the rabbit hole (past any point of return) for a good long while now. My point is… it would have all fallen apart (Detroit x 1000) years ago, so why can’t the Ponzi continue as the Sheep (90+ %) continue to drive to and fro, watch some tv, swing through McDonalds as a “treat” ect… continue into the foreseeable future ? The aforementioned diatribe didn’t come out right, but I’m sure you catch the inferences and question??? Ponzi continues to infinity or will the collapse be blamed on horrific war (Iran Nuke kicks it all off, for instance). I remain. Love the comments here at ZH. Love and respect !
'Someone please explain to me (in thirty words or less) how knowing all the trickery (economy, ha ha) that goes on today can do anything but continue?'
Lotka–Volterra equation phase space; we're in the region where the prey is dwindling and the predators haven't quite peaked.
Rather than a direct reply, I'll give you a reference: Read the "Hunger Games" trilogy. I'm not kidding. Pay particular attention to the philosophy of the President Snow character.
"There was a whole chain of separate departments dealing with prole literature, music, drama and entertainment generally. Here were produced rubbishy newspapers containing almost nothing except sport, crime and astrology, sensational novelettes, reality shows, films oozing with sex, and sentimental songs ...” GO 1984
If anyone believes 2029 is the most likely date, you are fooling yourself.
"...simulations, in which most of the key demographic and economic factors in the analysis were varied on the basis of historical patterns."
I can assure you those "historical patterns" of variability do not look anything like the shit storm we are entering. It will be obvious to them that 2025 is a more likely date next year, then 2021 assuming the current structure even makes it to 2016 (which I doubt). If you are in your fifties or younger and you think you are going to get SS in anything other than Weirmar/Zimbabwe dollars, think again.
The thing is that much of the rest of the government debt is being taken care of with Fed purchases, so there will be less problem paying those benefits.
Eventually the Fed will own enough non government debt to cover all interest and principal repayments of the government bonds they own. These non-government bonds will pay double the principal in interest during the time to maturity. Since the Fed is required to return their profits to the Treasury all this govt debt the Fed buys is basically for free. This is why they want you to borrow, so that you can help pay the debt.
I would think the taper was the simple result of their being insufficient MBS to buy. Financings are way down.
While this situation is good for keeping government debt down, it is really the same thing as increased taxation. These cash flows that would normally be going into the economy are now being used to simply keep our government debt from going parabolic. That is why QE is not providing much of a boost.
Slightly Skeptical Except there is this ...
Takeaway from Bernanke Press Conference: Fed May Stop Remittances to Treasury for Years
http://www.economicpolicyjournal.com/2013/12/takeaway-from-bernanke-press-conference.html
My low-tech back-of-napkin calculations indicate 3 years of QE MBS purchases at 85 billion/month just to remove the non-performing loans off the banks balance sheets. There is no shortage of sour MBSs, so this was a political move to set Yellen in the "right" direction.
Maybe your history book but not the history books. not a chance, the facts will be configured to fit the ideaology. Tea party, big corporations,Bush, etc etc etc
And do any of your assumptions (ie the CBO assumptions) factor in any type of recession (yeah, I know, I know) between now and 2029 ?!?!
A nation of part time workers, not to mention continued offshoring, illegal amnesty, Obummer"care", etc, means revenue into the system is going lower and the outtake at the end will be higher than lifetime "contributions".
Yup, totally a recipe for sustainability. Like a 1.9% increase last year would have fixed anything...
Let me get this straight. Zero Hedge and its propaganda writers want to cut social security -now-...because in the future there will be a need to make cuts...?
Huh?!
Did I accurately present the underlying message? Does this sound logical to you?
Are you ZH muppets buying this crap? Really?
Meanwhile, the solution to fix social security for all time is to merely eliminate the top income cap of $113,000.
Zero Hedge...now that you know this push to cut social spending is all just the machinations of the 0.1%, what are you going to do about it?
BK is hardly a 'propaganda writer'. as for you, however, 15 weeks is a bit early to be throwing any kind of weight around.
Speaking strictly for myself as a 99%er, you can go to hell. I am tired of people like you reaching into my pockets and and taking my money so you can pay for people who lived during the supposed best economic times in history and who absolutely failed to save a dime to take care of themselves. You and they are screwing me and mine. Go to hell. Drive off a cliff and die. Shoot yourself in the head with that socialist bullshit you spout.
In case I wasn't clear, we don't need to cut benefits at all. We need you and the worthless boomers to just die. Please die. Please die now.
Questions?
Yeah, what's your phone number and maybe your home address.
You're a fucking idiot. The Oligarchs just love tools like you. You are so god damn dumb and an oligarch bitch, that you have no idea who is actually screwing you. Your parents and grandparents were not the ones bailed out in the amount of $23 trillion since 2008. They are not responsible for the economic depression.
I suppose its your god given right to be a dumb fuck, but your idiocy is not allowed to be projected on the rest of us.
Give us the choice to withdraw... simple as that. They can't because they need our backs and hands and know exactly what we would do if given the choice... run the fuck away.
If you look me up on ZH pages and search for SS articles you will read that I have said for the last 5 years that we have to have a means test. I have advocated a kick ass means test that limits SS benefits based on income AND assets. I don't want Warren Buffet (or me) to get paid.
I do not advocte raising taxes to 'fix' any problem. I think the idea of raising the cap will only add to future liabilities at SS as benefits are tied to contributions. That will not work - sorry.
If we do no do something, then all benefits get cut by 25% accross the board. Half of all seniors desperately need their checks, so across the board cuts is just cruel. You happy with that outcome? I'm not.
Long cul de sacs.
argh. I agree with this. The worst part is we've never been wealthier...but like a game of pac man all our wealth has been eaten by out of control spending and a truly staggering amount of largesse. Turn Detroit into a Free City...live there tax free but no welfare. From the Fed's, State...zippo. no business will have to pay any taxes whatsover...payroll or otherwise...nor will anyone who works there be paying into any trust fund or "social security program." anything you make will have to bought at a real market place...with only the money you make and nothing more. no deposit insurance on any bank located within the City...doctors paid only through private insurance and in cash.
Means testing is fine as long as SS gets re-labeled for what it is then -- WELFARE for the elderly.
Just more punishment of the prudent and responsible.
It is redistribution from the young (poor, especially today's lot) to the old (rich).
Just like that other thing...what's that called......Obama-something-or-other.
Let me guess. You're a producer right? Can't fix stupid.
Don't be silly, Bruce. Politicians know the fed is printing the deficit, and will continue to do so. So the SS problem in 15 years, is MUCH LESS TIMELY than the $1 trillion current-year issue now.
Why distinguish between the two, except you like doom porn and can't even make a logical argument.
The logic of the right wing is insane. They say we have a deficit problem now, so obviously the solution is to cut the benefits I would recieve in 2040. I can't afford the Corvette I'm driving today but it'll be alright if we just ban everybody's grandchildren from buying any car at all. If there's any proof that the GOP is controlled by old people with money, it's right there in their refusal to eliminate the payroll deduction versus future benefits. Oh they love redistribution when I get to pay and they get to take. But if this so-called Ponzi scheme were killed for real, their taking would have to stop shortly after my paying did and we absolutely can't have that! Why, without money for nothing from the Republicans, that bloc (bragging of their integrity and personal responsibility all the way) would surely sell their votes to the Democrats. And, afterall, isn't that what's really important? Partisan idiocy uber alles. That and making sure that the entitled rich arisoctracy that controls the government is insulated from all of the costs and consequences of that government.
Jesus, dude, turn off MSNBC already. As long as you cling to the red team - blue team narrative you are part of the problem.
You kidding right? Haven't you heard of money printing?
Where you've been ?...... Was afraid you got stuck on a long, slow moving soup line.
He just got abducted by some two bit backwoods country yahoo's. He's fine now.
"[C]urrent law requires" means this is a non-issue. The SSTF will start issuing bonds before this becomes an issue and the Fed will buy them.
"So we are fifteen years away from a real problem, and no one is doing anything about it."
WE ARE ZEREO YEARS AWAY FROM A REAL PROBLEM.
The other day i saw an undated clip of Obama saying that the debt is not a problem for 10 years.
FALSE. IT IS A PROBLEM HERE AND NOW TO PRETEND IT CAN BE IGNORED FOR 10 YEARS.
Bruce,
You are missed- you don't write nearly enough anymore.
2029? It will will not make that far- CBO is still overestimating the lifetime of the trust fund.
I have to pile onto Yancey's sentiments -- Bruce, your perspective is unique and impossible to find in any other form of media. Please make it part of your 2014 New Year's resolution to share your observations with us on a consistent (and frequent) basis. You are greatly appreciated.
Bruce- Ditto to above. Glad to hear your thoughts.
Funny, when looking @ this report, the CBO assumptions upon which they base their analysis are just ludicrous. Everything based on modeling the past 50 yrs into the coming 25 yrs. Trends that got us here continuing on. Simply really bad data in meaning bad data out. Would be great to put some realistic scenarios into the system and get some realistic dates for SS to go tits up. It's way before '29...could be closer to '20. This thing is tipping over far faster than advertised.
Some of the quick assumptions all based on previous CBO fantasy reports
- no recession or economic slowdown through 2024
- US regains trendline of potential GDP it was on prior to '07 by '18 ("normalizes" back to '07 economic trends)
- pretty much everything that has happened since '07 was a one off...no structural issues.
Seems one big implication will be SS selling off it's intra-gov Treasuries far faster and sooner than anticipated...this previous tail wind of $200 to $400 B in annual Treasury purchasing will become an additional headwind maybe adding another $100 B annual new debt on top of the deficits for the Fed and Foreigners to pick up
^^^ What he said. Happy Holidays Bruce!
Indeed, we long time ZHer's are always interested in your articles. Please keep the contributions coming. They are indeed unique in this subject area.
And, of course, its a Ponzi!
We'll get to see what really happens in a couple of years when the disability fund goes to zero. They better start working on getting the fraudsters in that one kickec out right now so that the minority who are actually disabled (fat and lazy doesn't count) can continue collecting.
Thanks for this - made my day.
I had two weddings (kids) and a funeral. I also had a very big boiler blow. Add in a law suit, some issues with the boys at the IRS, and I got off the writing thing.
But it was more than that stuff. I was the the 'crisis' story writer. And for years there was something that was a crisis damn near every day. But that is not the case of late.
I can't write the 'good news' story. It's not in my blood. Think of it. What would you say if I wrote these blogs? (You'ed hate it)
Bernanke - Man of the Decade
Why Ocare Will Work!
15 Dividend Stocks To Own For Life
Yellen - A great Choice
Greece Will Make It Afterall
Hands Off the NSA!
Abeonomics is Succeeding
Write those stories Bruce and see how quickly your 'issues' with the IRS disappear!
Fair tax, abolish the irs!
Bullish on cemetary plots.
Nah, too expensive. Grind 'em up into Soylent.
And a Merry Xmas and happy New Year to you Bruce. BTW does you calculation include the far more immediate impact of the SSDI fund? Think Washington is going to let the 'walking wounded' suffer a 25% benefit reduction or will they raid the SS Trust fund to keep the bad backs and bi polars happy?
Everybody deserves to live free and easy, and no one has to pay for it.
FORWARD!
"What I found interesting is the extent of the deterioration. 2013 was the best year since 2008 for the broad economy. We had fairly steady growth in the economy, and the job market improved significantly."
Really?
yeah. i raised an eyebrow on that statement also. WTF?!!
Its all a mirage.
The CIA and NSA will create a fake bank out in timbucktoo called sovereign security savings (SSS) before QE tapers too much. Money will be funnelled to SS through these channels . 75 bilion a month for several years. I dont put any criminality beyond the PTB menu. In fact they dont need to call it QE they can just slowly ut the fiat there with a click of a mouse The economic statistics will be layed to explain the extra funds in SS.
QE, medicare, welfare etc.. are going to bring the whole thing down eventually; till then the middle class will continued to get raped and retend that everything is ok.
Thus it will continue on and on and on to infinity and beyond
Elizabeth Warren is an enigma. She wants to hang bankers by the nads - or so she says - but then she wants to continue the government give aways and make sure that poor people have equal access to credit cards bearing say.....18% interest. You know - aggressive banking - fradulent inducement - is bad when thebankers do it, but when the federal government does it (borrowing via the Fed) - using even more force - then it is OK. Twisted sister. Or would that be twisted Pocohantas?
SS is a joke and always has been. There was a commission to fix it every by-election since Clinton in '94. Twenty years ago. The latest was Simpson Bowels. How far did that get. And then we had the testerone challenged Paul Ryan kick the can down the road for two years.
It might be better that things blow up earlier rather than later.
Elizabeth Warren is the Fraud of all Frauds. She talks tough in sound bites on C-SPAN, but when it comes time to vote she kicks the can down the road with the best of them.