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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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She's not an engima, she's just another retarded academic with no grasp on reality. The problem for the rest of us is that she not only thinks she "gets it," but she's trying to "fix" it by accumulating power and control. Mix in the similarly clueless "progressive" dopes who vehemently support her, spittle frothing at the corners of their mouths and all, and she becomes dangerous. Hell, you don't have to look beyond ZH for the breathless masses championing her because she claims to be fighting the big banks and evil corporations.
And the alternative is? She says some foolish and misguided things but I appreciate some of the things she says too. Just isn't willing to fully acknowledge the numbers on retirement programs but then again no one really is because whatever party would try to touch Medicare/SSI (or even the LTC costs hidden in Medicaid and its single biggest expense) would be gutted.
Do you appreciate her "you didn't make that comment"? She said it before BO did. She's a naked socialist, and also a proven fraud.
I am impressed by how many prudent retirement advisors say to delay taking social security benefits because the amount recieved goes up by delaying benefits, which is true. However none of them seen to have the slightest notion of the insolvency of the system. I wonder if these advisors were Drexel Burnham zero coupon bond sellers back in the 80's.
Yep. Two years ago talked about it with my mother. Her financial advisor told her to wait to take social security. I told her take it now, even though u dont need it, and save it OR wait and get nothing. She called and talked to her advisor again and got a bunch of garlbidy gook from her. She hung up the phone, filled out the form, and started collecting immediately. Two plus years later she has a nice nest egg building that remains untouched. Now if i could just get her to BTFD in gold/silver........and fire the advisor.........
Like so much else, when to collect SS depends on additional factors, such as other income. My wife's income, along with other factors, is enough to make my SS subject to income tax almost from the moment I start to take money out of an IRA. 85% of SS can be taxable, meaning not only can one be taxed on the 50% that the employer kicked in, but also on the after-tax SS 'contributions' one pays oneself. Had it been legal, I would have been much better off diverting the SS 'contributions' into physical gold. At least then I'd have a bigger estate to pass along when the death panels get their claws on me.
Your SS payments go in pre-tax hoss... if they don't, then you're doing it wrong
you pay income tax on the money deducted for ssi - those are after-tax dollars.
Lotta non-marketable, digital FRNs in that "SS Trust Fund". (Crickets)
Incomes have collapsed and the job market has been totally annihilated. How that's good for Social Security is beyond me. (Fewer beneficiaries?) I do think if we're in the first stages of a staggering increase in natural gas production that can wind up paying for a lot of things that otherwise would be bankrupt. We have had a payroll tax increase this year. I do think I'm beginning to see your point though. There has to be a major turnaround in hiring to get these revenues flowing.
But the poow oppwessed wich would cwy :(
BECAUSE UNCERTAINTY!1one
hey, you wanna bankrupt a "mere" 50 more municipalities step right up big boy. you can be part of the problem of part of the solution. "the problem" in case you're wondering isn't with "all those poor people" but is the fact that we're tapering now...and we're suppose to in the midst of an economic boom with all that "Fed stimulus"...instead we have ZERO recovery and "all that precious gold" is collapsing in price. I have an idea on how to solve that problem....a very good one i think...but the Fed just made that job a lot harder. You can always go long leverage of course.
What do you mean by "ZERO recovery?
Bruce says: "We had fairly steady growth in the economy, and the job market improved significantly." ... and he's studied it in great detail ... and got spreadsheets and stuff...!
So what did posterity ever do for me?
Screw it, I'll be dead by then.
http://www.deathtimer.com/
That's funny, the inscription on my grave stone says "buried in a solid gold coffin, because I could."
Calculator ignores accelerating progress addressing the 5 principal causes of aging and radical life extension technology. I don't plan on dying, unless my preps fail me in the coming crisis.
Most people who DO plan on dying leave a note.
No...most of those people who die have nothing but Debt. They do not plan and reap the rewards of their dismal Financial State.
AS for those whom do actually plan on dying, most Wills are ignored, rendered impotent, by the Probate Courts when contested, so a Will does not serve any utility whatsoever.
A "Living Trust" can, as well, easily be as violated.
Karl Marx' Fifth Plank, the "Abolishment of Inheritance", has benn mostly realized at this point.
So what good is your note?
You need to change your handle to "Debbie Downer"
Yeah, that's all we need, more old fuckers who want other people to pay for their SS and their medicare.
According to the deathtime calculator, I am:
living on borrowed time!
I drink too much (lowers life expectancy by 10 years), smoke (lowers life expectancy by 14 years) and am overweight (though not by much). I'm 60. The calculator must have thought my life expectancy was less than my father's, who lived until he was almost 86. I figure on living until I'm 90, at least. Thanks for the link. Yet another reason not to trust statistics and live free and happy.
Fuck you Bernanke!
Do us a favor and take an aspirin a day ...many more years to you I hope
This is an easy one. Raise the annual income threshold to $1M, raise the taxed rate another 1%, and write a constitutional ammendment that forces the legislative body to "Keep their F'ing hands off the fund."
Oh yeah, a constitutional amendment - the legislooters will totally respect that.
OK. Good point. Then sue them. Start a class action suit against congress to pay back the IOU's they owe to the fund, and do something about SS. How many people on regular SS or who pay into it would sign on the bottom line for this type of action. With enough resolve and the right impetus it may work. But something has to be done. SS is a type of Ponzi, but, it was supposed to be regulated for its' integrity, not, as you say, "Looted" for its' wealth.
And again, I'm dreaming, because I have to be asleep to believe it, and I'm beating a dead horse I'm afraid. The American public is way too apathetic and asleep to care one way or another. At least until penniless Gramma and Grampa have to move in with them. Then maybe they'll wake up.
Yes, because printing to make good on the IOUs has no consequences either... Here's the gist, if the program paid out less than what was paid in by retirees, then there would be a surplus... unfortunately, there are more takers than providers... It's just welfare under a different program... and I'm one of the assholes that gets to pay for it without having any chance of getting anything out of it.
If you're advocating to disband the program and repay the remainder of everyone's contributions to them, then that would be just skippy... it might heat up inflation a bit, but so be it... I trust that the contributors will be better stewards of the money than uncle sugar. Of course, these payments will be woefully inadequate to carry them through retirement, but I digress.
This is just one more shit for brains Krasting post on Social Security that treats it as a normal, saveable program; he has never been able to come to grips with it's true nature. Fuck him.
Actually people starting suing when FDR passed it. It's still in the courts today bouncing around. The Progressives control the 1st Circuit Court of Appeals -- the real judicial power since nothing (well almost nothing) can get past them to SCOTUS without their nod. Plus SS was never meant to pay out. Everyone was supposed to die or only live a few after elligibility.
Brave New World except Obamacare doesn't cover SOMA.
Funny thing is the liberals have their president along with the Fed taking care of this lol and they can claim it wasn't their fault when it goes bankrupt to boot. The Fed's policies are helping it go bankrupt since SS reserves are paid interest but can't invest anywhere else.
Obama Is Trying to Fix Inequality by Hiring the Same Hacks Who Caused Ithttp://www.thenation.com/article/177622/obama-trying-fix-inequality-hiring-same-hacks-who-caused-it#
QE: The greatest subsidy to the rich ever?http://www.cnbc.com/id/101283037
Disability is going tits up in two years and not being addressed,now you expect them to deal with problem
not due til '29.
Thats somebody elses hot potato, they hope..
With SS disability rising year over year, the CBO has their head up their ass with a 2029 end date. Its going to be more like 2021. You heard it here first folks!
Zactly what I was going to say to Bruce above.
Just another Ponzi scheme that everyone likes to pretend is real and fixable. Blah, blah.
Social Security is NOT a ponzi scheme -
Rachel Maddow
Rachel Maddow brought to you by Exon Mobil lol
http://freebeacon.com/the-rachel-maddow-show-brought-to-you-by-exxon-mobil/
He is an ugly idiot.
Tree trunk of a neck.
I'm betting you are the kind of person one should park their a$$ next to at parties.
P.S. Love the handle and picture with it.
He reminds me of my long lost linebacker German father.
2029 is to far away to care. Music is on..keep dancing...bitchez !!!
Yes, why worry about something so far away?
By 2017 this thing will be so far off the track that it wil not be fixable without some gutting. So in my book we have less than five years to address this. After that it is on autopilot - headed straight into a mountain.
Good stuff as usual Bruce, but as others have said, I think you’re being optimistic here (see the absurd baseline assumptions baked into these reports).
We’ll most definitely get a recession or 2 in the next few years (likely next year), and if TSRHTF it could get ugly fast.
God forbid, we get President Hillary and a Dumbasscrat House & Senate, I could easily see the drop-dead date move from 2029 to 2025, then 2020 no problem.
And irrespective of who is in office, this country no longer possesses the political will to change course, or even recognize there’s an enormous problem. The time to “fix” Socialist Insecurity was 10 years ago.
This whole program is fucked up, and cannot be fixed. Sorry, but that’s the only accurate description.
"This whole program is fucked up, and cannot be fixed. Sorry, but that’s the only accurate description."
It is not just the program. It is the entire Financial Architechture of the United States that has run the course and is completely FUBAR.
How many times must I write???
THERE IS NO POLITICAL SOLUTION.
Our Goose is cooked. Divest out of US Dollar holdings.
If a Hyperinflation happens then the US Dollar is worthless. Now that is widely understood.
What is not as widely understood is that if a Hyperdeflation happens then the US Dollar is WORTHLESS.
The United States, because of her LARGE DEBTS will be INSOLVENT, will not be able to pay her bills, will be forced into LIQUIDATION, and become BANKRUPT. At that point the United States will DISSOLVE.
With NO SOVEREIGN GOVERNMENT to back the Currency the US Dollar will DIE. People do NOT PLACE their Full Faith and Confidence in a BANKRUPT GOVERNMENT or its Currency. Thus the LACK OF CONFIDENCE KILLS THE DOLLAR.
Countries can survive DEFLATIONARY DEPRESSIONS when they have NOT ACCRUED MASSIVE DEBTS. But Countries FAIL if they have DEFLATION compounded with UNPAYABLE DEBT.
As I wrote this is not as widely understood.
In either development the DEATH OF THE US DOLLAR will be REALIZED.
By the govenments standards..............it is fixable.
Solution: Steal everyone's 401k and IRA money and use that to buttress SS.
How will they steal it, by forcing everyone with a 401K and/or IRA to invest a large percentage in government mandated Treasury funds.
I think you're being too optimistic. It's already too late. Nobody in DC has the guts to do anything about it, and that certainly isn't going to change in the next 5 years.
If the Bush Part D giveaway to Big Pharma is eliminated how long do we have?
If the Fed interest rate giveaway to FIRE is eliminated how long do we have?
There's no way the world as we currently know it survives that long.
Sure, the fact that "they" are not doing anything about it tells you everything you need to know about it's and your future. If it makes it to 2016 I will be shocked, and if it does it's paying out in spoonfuls of gruel to toothless hoards.
I like your brand of Parmesan........this epic fuck-over has a time date stamp on it, have no idea when that may be, but sure as hell is gonna be before 2029. I think the date coincides with a sufficiently controlled population willing and wanting to become bullet stoppers for the woar to end all woars, Dark Ages 2.0 to follow. The entire SS debate is a complete red herring, the debate assumes we haven't gone completely off the rails sometime in the first half of the 21st century....LOL
we're so completely FUCKED as a species, who gives one shit about retirement. 2/3's of us will be BBQ'd anyway LOFL
@ Prains:
I fully agree. If we make it past 2015, I will be amazed, for so much reminds me of the lead up to WWI.