This page has been archived and commenting is disabled.
What's A Trillion Among Friends?
The Congressional Budget Office (CBO) came out with its latest baseline estimates for Social Security (SS) this week. This is the full report:
As an ex Wall Streeter I always go to the 'Cash Flow' numbers first, as cash flow is what drives most companies to success or ruin. The same rules apply for SS. I was surprised at the results presented by the CBO. They have a line in their report for Net Cash Flow, and I think they have it wrong. The following is a blowup of what CBO presented in the baseline for the fiscal 2013 Actual Net Cash Flow at SS:
CBO's cash flow number for 2013 is a surplus of $38B. But here is how SS presents its fiscal 2013 Net Cash Flow.
The difference between CBO and SS on the critical cash flow numbers is $106B in just fiscal 2013. The reason for this big discrepancy is the accounting treatment for interest. CBO includes interest income as a cash item, SS does not. The SS description of Net Cash Flow:
Should interest be included in the calculation of cash flow for SS? CBO says "yes", I would agree with SS, and say "no". Interest is paid in scrip - not cash. Consider what happens at SS when it receives interest payments (June and December). The December 2013 report from SS:
In December SS received $49B of interest, but the balance of the SS Trust Fund rose by only $36B, the difference is the cash deficit of $13B.
The cash flow numbers are important because they are a measure of how much SS has to borrow from Treasury to get the cash required to make monthly benefit payments. In December the TF got more 'paper' totaling $49b, but it had to immediately hock $13b of the paper, so the net SSTF increase was only $36B.
When SS is short of cash it must redeem some of its assets for the money needed to make benefit payments. When it does this Treasury is force to issue more Debt to the Public to cover the cash shortfall. So in December, SS forced an increase in the all import Debt to Public number of $13.4B.
CBO and SS disagree on the most basic definition of financial health - Net Cash Flow. CBO has projections going out to 2024. This is CBO's forecast of Net Cash Flow as compared to the accounting treatment for interest at SS:
The cummulative difference between CBO and SSA is $1.2 Trillion over the the next decade! Man that is a lot of cash, and it is also a boatload of additional Debt Owed to the Public.
Why does CBO have such a dramatically different assessment of Net Cash Flow for SS? I can't answer that. I did contact CBO for an explanation, I never heard from them. Does it matter that CBO is using an accounting treatment that is flawed, and that it is greatly understating the cash flow deficits at SS? I think it matters a great deal - about $1.2T in Debt Owed to Public in just the next ten-years.
»
- advertisements -
You're good because what you say is true in the minutia of your position. If you don't have a JD or already on the way to one, don't waste the money.
But like an errand boy sent by grocery clerks to collect a bill, the debasement of purchasing power over time is apparent and unavoidable.
101 has always been an errand boy. Perhaps thinking to run out the clock on his own retirement prospects or...something darker...doesn't matter.
He only thinks in terms of immediacy, short term future & present.
Zimbabwe had/has a printing press too, so its simple economics you see...lol.
Most folks still flinch when you remind them of the .90$/ga. in 1998, or 16 years ago.
16 years prior to that in 1982, inflation was a bitch so interest rates were in the double digits. People kill for that type of return these days.
Immediacy indeed.
This is merely your opinion; in the form of an advanced and unlikely conspiracy theory; there's no particular reason to pay any attention to it.
Facts and reality do not require you to pay attention......until they force you to pay attention.
It is proven. They can only satisfy old debt with new debt.
I can only pay my mortgage payments by getting a home improvement loan, based upon a inflated value and increasing smaller equity and credit worthiness requirements.
Sounds perfectly sustainable to me.
Have you ever heard of a concept named "massively underreported inflation"?
Krasting continues his hard on for Social Security and the trillion denomination. I suppose you must give him credit, he really works hard for the Oligarchs. Or maybe not. Lets see how the comments play out. Has Krasting convinced you that your assets don't belong to you?
Perhaps this hack should focus on the other trillion. You know, the $23 trillion in private debt that was passed on to the US citizenry since 2008.
Right - I'm working for the Oligarchs 24/7.
Accountingfiction101:
My "assets" would belong to me if the govt hadn't already squandered them.
Repeat after me: There is no Trust Fund, it's just a virtual construct, a bookeeping entry!
Apparently it was easy for Krasting.
I'm waiting for your arguments why and where there are still some non-squandered assets left (from my FICA payments) to which I could hold on to.
Will you read the fucking post! My god man! How dense are you? The assets are not squandered. The Social Security Trust Fund, actually it's a treasury fund account, is being used just as the law intended it to be used. The massive surpluses that are built up in the treasury fund account finance general government operations. Again, just as the goddamn law intended. Nobody is raiding, stealing or other assorted bullshit.
The treasury notes that are being issued to the SS treasury fund account are not worthless paper, not anymore worthless than the treasury notes that China holds. I'm sure you have noticed that nobody ever argues that China's US treasury notes are worthless. No, the Oligarchs have convinced you that your money doesn't belong to you. They put a bet on your stupidity. It was a bet well placed.
I've read many posts like yours before, and every time one pops up again it makes me wonder if the posters are playing dumb or really are that stupid!
Repeat after me once more: There is no Trust Fund with real assets in it, it's just a virtual construct, a bookkeeping entry!
What's "in" that Trust Fund? Mostly some kind of treasuries (the word "non-marketable" has some broad implications too, but let's skip this here).
What are treasuries? It's money lent to the government.
What things of worth does the government have to assure the lender he's going to get paid back?
1. Land, buildings etc.
But most of them will never get sold and if the govt tried to do large-scale sales of those their prices would collapse quickly.
2. Future income flows through taxation of various kinds, literally enforced at gun point - now that's the main bargain.
Is that resource unlimited? No, you can only tax up to 100% of income (yearly) or 100% of property value (once.)
Your "Trust Fund" treasuries are therefore no more then promises to be able to extort tomorrow's citizens -including yet unborn- of their income or property.
Together with the demographic "baby boomers" bulge, it can be easily mathematically shown that currently made promises cannot be kept in current US Dollars.
Oh, and the treasuries China owns are effectively mostly worthless, and I'm sure they are aware of that. And if they're smart they feel they still made a good deal with them, as they've gotten all those brand-new factories in China built by Western companies for free (from a Chinese govt point of view, as their local workforce is effectively free to them.)
"Virtual construct, a bookkeeping entry!" I give you credit. You have memorized the propaganda your radio dispenses to you. Will you please make sure you understand Social Security law, specifically as it relates to the the Social Security treasury account (trust fund), before commenting further?
Listen, I don't blame you for being confused. Very wealthy and powerful interests have a big stake in convincing you that our assets are not real, not ours. But at some point, your ignorance will be your burden to bear.
I don't blame you for being blinded about the SSTF either - you definitely are within the majority in this country.
But try to not make yourself too ridiculous here, by going out on limbs to defend the existence of a virtual contruct, most likely as the source of your perceived "entitlements", while carefully sidestepping any points I'd mentioned earlier on the backing of treasuries.
And it gets completely hilarious when you forecast me some future burden bearing: me, who expects very little to nothing of SS payouts towards me in the distant future - I'm going to be so devastated if it turns out less bad than that!
A law will keep us from going bankrupt? Ha!
No we're not going to repeat after you; because you have a very low level mentality that can't deal with abstractions. The Trust Fund is not empty; it contains Treasury Notes; which will be redeemed in dollars; and whether you like it or not; that's is the currency of the land; and it probably will be for your lifetime and your children's lifetime.
Sure, on abstractions:
And wether you like it or not, our gov't can print or create electronically as much this "currency of the land" as it wishes to, and the plebs like you will be happy to hold piles of bills in their hands like the Zimbabweans, as dollars were promised to you and dollars you will receive.
Accounting presupposes accountability. All the elegant machinations and wonderous beauty of massaged and manipulated figures were designed for us to arrive at a point of clarity; fitting a round peg in a square hole and making it believable. This is the definition of insanity. How about spending no more than what you had to begin with? The government should not be allowed to borrow beyond its means to pay back what it owes.
Treasury notes are IOUs. If one redeems a small amount they will get their payout. If too many come to the window to unload, then there is a problem. If we have written more IOUs that our aging citizens can hope to repay then there is a problem. Most adults have recognized that we have a problem. Some can or will not recognize this problem.
The reason so many of our "leaders" want immigration "reform" may be due to the fact that we have a shrinking percentage of citizens who actually work and produce. I wish our "leaders" could be honest with us in their dealings.
You're confused; the citizens don't repay them; the treasury dept. repays them; with created dollars.
Mr. Krugman, is that you? Citizens will pay one way or the other as T-bills are claims against our wealth. If you print up dollars to cover the chasm created by SS in the future, each of our personal savings held in dollars will approach zero. 20 some years ago the Ruble became worthless and many suffered. Did you get an 800 combined?
But, but, but...I thought that debt was the only real wealth? We Americans are obviously rich beyond belief, given the amount of debt that exists.
Nice job ... I guess this means only one thing, tho .... money printing-4-eva .
Another awesome post, Bruce. Thank you for publicizing yet another example of government accounting shenanigans.
But Bruce, don't you see the sheer genius of the CBO!
They're guiding us to a path to solve all OASDI funding difficulties: simply pass a law that increases the interest paid on those non-marketable treasuries held in the "trust fund" - problem solved!!
/sarc
They are NOT non-marketable; and they do not and will not go to market. they will be redeemed by the Treasury Dept. in Dollars. That is a fact. That is the process that is force; pay attention.
Dollars that come from where? More debt? More IOU's?
Two points of note. First, basically the SS program is nothing more than the equivalent of a stock DRIP (dividend re-investment program). Same concept with SS as its "dividends" or in this case interest earned are reinvested in US Debt. However, I would feel a little more comfortable having my contributions made over the years invested in a DRIP with the largest and best run corporations rather than in US debt that has no security, negative cash flow, and only a promise of future repayment. This is why operating cash flow (as defined by SS) is negative yet the TF's asset balances continue to increase in value.
Second, and of more importance is the spread or widening of the key TF metric between real contributions from payroll withholdings and benefits paid. For 2013, the comparison is $673 billion of inflows compared to $803 billion of outflows (for a difference of $130 billion or spread of 19%). By 2024, the difference is $388 billion for a spread of roughly 35% ($1,114 billion of inflows versus $1,502 billion of outflows). Further, the annual increase which amounts to roughly 4.7% for the next 11 years assumes not one period decrease, at all. So on top of a very rosy 4.7% annual increase (not in-line at all with realistic economic growth expectations), we've been led to believe that the US will not experience a recession or economic downturn during the next decade, at all.
And all this time I thought that Washington hadn't legalized weed yet as it would appear they're smoking some of the highest grade Ganja in the US (or make that world). Really nothing short of complete and total incomptenance at the CBO but why should we be surprised given that they do nothing but continue to "dance for the man" and produce results that have no basis in reality but only what the politicians need the answers to be.
CBO has the best accountants in the world as they can make 2+2 equal damn near any number you need it to be.
"However, I would feel a little more comfortable having my contributions made over the years invested in a DRIP with the largest and best run corporations..."
Especially, the corporations that have been bailed out.
The CBO ho is running 0Care. I'm sure she's as qualified as KS.
Bruce, you are talking about accounting and accountability and .gov again.
There is no accounting or accountability in Washington D.C. or on Wall Street.
This is how accounting works in Mordor on the Potomac, in the New Rome:
That's all there is too it, the rest is just numbers.
If they don't have enough for S.S. they'll make cuts, use chained C.P.I., raise taxes.
If Wall Street needs money they fire up the printers and give them $1 Trillion/year gratis.
Crossed the Rubicon.
Game Over.
The End.
He's using insider information on the health care and ss issues.
Endeed. +1 (and the little and somewhat immature hope that a global revolt/enlightment could happend).
SS is independent, therefore SS should be counting the interest payments. AFter all, the American public has been paying for SS and built up a huge balance for the baby boomers to draw down upon for their retirement. That balance is owed "return".
The CBO should be showing a greater general budget deficit to pay return on the balance at the actuarially, relatively sound, SS fund.
It is the general budget that is out of whack with "cashflow analysis", not SS.
Sarcasm?
If SS were really independent, Congress couldn't ever cut benefits, or force it to buy special treasury bonds. So, your assertion is wrong right at the start. However, you do have a point about the accounting, but it isn't a problem that the CBO is treating the general budget wrong necessarily, but that the accounting for the general budget and the Social Security Trust Fund aren't consistent with one another- if the CBO is going to treat the interest as an asset to SS, then it needs to count it as a liability against the general fund.
Oh, so an asset on one side of the ledger is a liability on the other???? Let's remember that for the national debt conversation.
Some of you are on incredibly thin intellectual ice.
Most of them don't have any intellectual ice; and they're dog-paddling in the frozen lake.
Dumbass, CBO counts interest on the SS bonds as an asset to the fund, but then doesn't count it as a liability against the general fund's debt. You can't do that in accounting. You pick one- either the SS fund is independent in an accounting sense, or it is not. You can't pick both. However, as it turns out, CBO picks both, and for the same reason- political appearances.
You obviously haven't read Krugmen! There's absolutely no problem with debt because every debt is someone else's asset. Thsi is why the Keynesians ignore it in their models.
SS being "independent" doesn't preclude benefit changes. I agree with the rest of your comments.
What is not being addressed is that Johnson created a nightmare of an accounting system for the general budget when he counted SS cash flows against general expenditures. This now permits current day politicians to point at SS as the "bad" program, when in fact it is the general budget accounting that is fraudulent. The SS fund is going through the normal, expected unwinding of the builtup SS retirement balances for retiring baby boomers which is near to the actuarial forecasts (although longevity may increase more and cause some heartburn, but not an acute situation).
SS isn't independent, that is the whole point. It isn't building up assets- it is building up accounting surpluses only. The very point that Congress can zero out those surpluses with a stroke of a pen is proof that those aren't really bonds of any kind. In the real world, the general fund accounting done by the CBO is the more realistic- it basically counts cash in and cash out, and it does so because SS is just one pocket of the general fund.
The stability of SS payments is based on the amounts of cash the payroll taxes brings in, and the willingness of Congress to make up the difference from the general fund, in cash. It has nothing to do with the "bonds" in the trust fund, or the "interest" paid on those "bonds". If those were really bonds without scare quotes, the trust fund could practice portfolio management on the open market. Congress explicitly prohibits this because it doesn't want to have to sell any more debt to the public than it already has.
It isn't building up assets---it is building up surpluses only---" surpluses of what ? of assets. treasury obligations are assets. DUUH ! Are you really this stupid ?
deficits don't matter. - Dick Cheney
As always, nice catch Bruce, you just proved that the (CBO) pen is mightier than the sword...
Yeah, fuck those old geezers. We could be putting those SS 'benefits' to better use.
Like for installing US puppet governments around the world...and stirring up wars in Ukraine or Syria.
Oh yeah, the Pentagon's looking a little pinched lately as well. Better throw them a bigger bone.
Eastside Club Med needs more help too...
I have a better idea, lets just do none of those things. Lets not take any of that money from the people in The first place. People can keep their money and plan their own retirement like responsible adults are supposed to. At the same time, we stop taking money from the populace to fund unnecessary and imoral overseas adventures. That would truly be putting that money to better use.
Except that the average person will be dead in a ditch as a result of their own personal 'responsibility.'
We need these ditches kept clear for drainage.