Social Security to Bernanke – “You’re Killing Us!”

Bruce Krasting's picture

Bernanke has said dozens of times that he wants to boost inflation in his effort to lift stocks. He’s succeeded in pushing up the cost of things over the past year. Everyone is paying a price. Social Security is no exception. As it turns out, Ben’s policies have been hitting SS in a number of negative ways. Ben is driving up the costs over at SS and at the same time he is killing their interest income.

We get inflation numbers for September next week. This is an important data point for some 55 million recipients of Social Security checks. On the assumption that there is no (little) change in the MoM numbers the CPI-W will come in at 223.4. This number is used to calculate the average for the fiscal 4th quarter. The result is then compared to the 2008 fiscal 4th Q. My numbers:


CPI-W 4th Q 2008 = 215.495
CPI-W 4th Q 2011 = 223.110
COLA increase for 2012 = ~3.5%

This is not good news at all for the folks at SSA. The COLA increase will add $25+ billion onto the existing expense base for 2012. On top of that there will be the increase in the total number who receive monthly checks (SS is getting 10,000 new beneficiaries every day). In 2011 the new (minus dead) beneficiaries added $25b to the cost of running the program.

The question to ask is, “What does this do for SS?” The answer is, "Nothing good".

To make an assessment of what 2012 will look like it is necessary to make some assumptions on what will happen in the real economy, and most importantly, what will happen to total employment.

My base case for 2012 is a repeat of 2011. No recession, but anemic growth. Total payrolls will rise (in part due to an increasing population). The number of new jobs will average 100k a month. As a result SS payroll tax income will rise by $24 billion (same as 2010-2011). Note: My Base Case is actually fairly optimistic. We could easily have negative growth (and zero job growth) for a quarter or two next year.

My numbers for the 2012 cash components at SS:

Benefits: $769
R.R Interchange: $5b

Overhead: $7b

Total Out: $781


FICA: $685b

Tax on benefits: $24b

Total In: $709

Net negative cash flow: $72 billion


There is a non-cash component to SS income. They get interest (paid in paper) on their holdings of Special Issue bonds. The SS Trust Fund owns $2.6 Trillion of this script. The % that the TF earns on this hoard is substantially above the current market rates. But there are troubling signs on the interest income line as well.

My number for % at SS in 2012 is still a whopping $112b. But this number is now headed south. (See notes below)

With the % income, the net change at SS will be a 2012 surplus of a lousy +$40b. This is a very important number. It’s dangerously close to zero. I can’t predict what will happen beyond 2012. What will happen with payrolls, the economy, inflation and interest rates is by no means clear. One very possible outcome is that 2013 and 2014 will bring (more or less) what we have in 2011/12. AKA Stagflation.

Ladies and Gentleman that would be an unmitigated disaster. Should we have more years of stagflation, the net surpluses (includes % income) at SS would fall to zero in 2014 and be negative in 2015. Once that line is crossed, it rapidly collapses. It's nearly impossible to reverse.

The current Base Case assumption by SSA is for the TF to “top out” in 2025. The forecast is that the TF balance will continue to grow for another 12-14 years. The SSTF projection is that the Fund will exceed $4 Trillion before it begins to decline.

Should the economy continue as it is, we reach the “top out” in 2015. The TF balance will never exceed $3 trillion. In other words, a critical milestone for SS will come ten years early, and leave the TF short more than $1 trillion. The broad implications of this are hard to fathom. A major restructuring of SS would be required.




To my knowledge, I’m the only one talking about this kind of outcome. So I expect to get flack from the usual suspects that my numbers are not reliable. To that I would respond that my numbers are consistent with the SSTF’s own numbers.

What I think is coming is worst-case outcome (stagflation), but one close to the parameters of what SS considers reasonable. These are the numbers for the key variables from SSA and the ones that I use:

2011 SSTF annual report, High Cost scenario for 2012 Benefits = $769

Krasting Estimate: $769
Variance: $0


FICA Receipts
2011 SSTF annual report, High Cost scenario for 2012 FICA = $711b

Krasting Estimate: $685
Variance - $26B (-3.5%)


My outlook is worse than the SSTF High Cost estimate for revenues. I maintain that this is justified as SSTF has built in a much stronger economic recovery into their model than than I (and Bernanke) consider likely.



ZIRP, QE the Twist (and other actions) will be with us for years to come. SS (like every other investor) will have to suffer with low yields on investments as a result. Over the next five-years a substantial portion of SS’s high yielding portfolio will run off. It will be reinvested at sub 2% returns. This is my argument for a rapidly declining net % number at SS. A look at the portfolio and what is maturing:




For 2012 SS will run a cash deficit in 9 out of 12 months. SS will have to fund these cash shortfalls by selling a portion of the TF notes. Think of this as having money in a bank CD, but being forced to borrow from a CC to cover a monthly nut (a reverse Repo).

As a result, net interest income gets hit.

Yields on the TF securities are set by a formula that has benefited SS for many years. We have been in a 20-year cyclical decline in interest rates. The SS formula takes an average of prior years long-term fixed rates (it excludes short-term rates in the calculation). As a result, the interest income at SS has been “smoothed” and artificially maintained at higher % rates. That said, time and the formula are catching up with the Fund.

In 2007 the SSTF invested 15-year money at 5.0%. For 2009 it was 3.5%. In 2011 they only got 2.5%, half of what it was just 4 years ago.

There is a part to this that gives me a chuckle. In month where there is a shortfall the Fund must sell bonds. The discount rate used for these routine transactions is also set by the formula. As the formula excludes short-term rates the Repo rate is set at an artificially inflated level. In August the TF had a deficit of $8.4B. They reverse Repo’ed that at a cost of 2.25% for 4 months ($55mm in interest expense for just the August shortfall). This will add up and get bigger.



I love it. Every dirt bag bank in the country is borrowing money from the Fed at ¼%. At the same time the largest holder of USA government securities in the world is borrowing short-term at 8Xs that.


The Fed’s policies are hitting the Social Security Trust Fund two ways. Inflation costs are high and interest income is falling. At the same time, SS can’t finance its inter-month shortfalls at today’s zero interest rates. Three ways a loser.


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PrintButtonMoney's picture

Haven't we known 'social security' is going to collapse before people my age (let's just say the 24-30 block) even come close to seeing benefits, let alone benefits that match up with the costs of living given Ben's stated goal of 2-3% inflation (which will probably manifest as like 4-6% inflation, increasing..)?  It seems like the numbers have been crunched outside this particular community of ours, and even the most optimistic forecasts show the baby boom population decimating social security before 2025...


This is why welfare in general fails.  Government trying to force people to save is a joke.  Especially when government issues fiat currency and then basically falsifies the balances of their own accounts (via paying those various accounts interest income from various others of those accounts in amounts that the market simply doesn't support)..

How about, end social security, give a lump sum to those who have paid into it reflecting how much they've paid in..

I know its more complicated, but damn.



malek's picture

I'm not so sure imaginary interest paid on imaginary SSTF holdings are going to help in any way - today or 'til 2014.

I mean why doesn't gov't just raise the debt ceiling by another $10 T, and add that money to the SSTF? Then SS would be pretty much fixed indefinitely...

technovelist's picture

This is exactly as important as deciding how many angels could fit on the head of a pin.

Bruce, I guess no one has told you that there is no Social Security trust fund. Money owed by one part of the government to another part of the government is not an asset.

Hope that helps.

SwingForce's picture

Nice work Bruce bringing us the Solyndra Scandal first, its building steam:

jhcullen's picture

Will this turn violent already... Im sick of going to class

Hedgetard55's picture

I hope Bernanke burns in hell for eternity.

binky's picture

That's not long enough.

Hedgetard55's picture

" The % that the TF earns on this hoard is substantially above the current market rates."


Meaningless. They could receive zero percent or 100 percent, it would make no difference, the Treasury will always make up the cash flow difference, and no more. Accounting shenanigans, as if I paid myself an above average interest rate out of my own savings. Cash flow is all that counts, and whether the Treasury can make up the shortfall.

PulauHantu29's picture

Ben & Barry are Whacking Seniors pretty hard.  Food, energy, and many of the items they need to survive are soaring as B & B wanted, i.e., to inflate "stuff."

However, Ben & Barry are essentially cutting SS payments due to zero rise in the CPI which is supposed to "protect" seniors from the destructive effects of inflation.

I'm glad Barry declared, "No more Bank Bonuses!" two years ago.

dlmaniac's picture

You cannot find a worse candidate to manage your retirement money than USGovt whose track record is managing everything into insolvency.

Escapeclaws's picture

Krasting on Social Security. Always scary stuff for those of us whose net worth is under seven figures. I can't even read it anymore. He is so smart, you know that whatever he says about SS will be implemented.

The only solution: Increase the Defense budget, Homeland Security budget. We also need more wars--perhaps a long drawn out ground war in Iran. At the same time, make the Bush tax cuts permanent.

Don Levit's picture

The 2% refund from general revenues is the same way the trust fund interest  (and soon to be principal) is redeemed.

SS is entirely pay-as-yo--go.

The only cash is what Bruce pointed out.

The entire trust fund will be paid with general revenues  -  the same way the government pays all expenses.

The trust fund balance simply provides the draw on the Treasury without an appropriation.

The benefits would be paid the same way - with general revenues - even if the trust fund did not exist!
I can provide governmental excerpts and links for anyone who is interested.

Don Levit

Fake Jim Quinn's picture

Bruce: do you know of anyone who has calculated the loss of purchasing power of savers due to ZIRP? I am going to guess the ChairSatan never ran any numbers comparing the presumed extra borrowing/investment companies would do (and thus spending stimulus), and subtracted the offsetting consumption loss by people who one time could live decently on savings, creating a contra-stimulus. Companies are sitting on hoards of cash and not borrowing, despite ZIRP, but there is most certainly consumption destruction by strangling savers

I wish someone would perform this calculation. Then savers can do their own version of OWS, and hopefully showing the bearded schmuck the door before he can continue his merciless vendetta with elderly and savers

FinalCollapse's picture

Timmay is working on his brand new 9% growth model. Don't you love these Keneysian clowns?

Indirectly they take money of the people's (future) retirements benefits and give it to the moronic banks now. We will worry about in future. Don't you love these Keynesian clowns at Fed and Treasury?

Money Squid's picture

Bruce, The SS surplus chart shows SS in the red beginning 2014 - if I recall incorrectly just before Peter Orszag left the OMB the SS numbers were revised for the previous year (2009?) to show SS was in the red by $25b and that SS would be in the red from 2009 on out increasing exponentially. Although Benernake is causing inflation he is removing the inflation from the CPI via hedonic pricing, so he can have inflation yet allow SS to claim no COLA is needed via the manipulated CPI. If SS is in the red now, then any COLA will have to be funded through borrowing and the deficiet must increase by that amount, correct?

Thanks, really appreciate your work.

edit: Looks like fiat2zero beat me to the same question. Must learn to type faster.

Fiat2Zero's picture

Bruce, social security went cash flow negative last year in March 2010.  How do you square this with your projection of negative in 2014.  Aren't we already there?  More accounting shenanigans?

Bruce Krasting's picture

Two different things. One is cash, the other is accounting. They are both important.

In 2010 SS had a cash deficit of $49b. But the total surplus rose by $69b. This is because % income is not cash but part of the total assets. In 2011 there will be a cash deficit of $55b, but total assets still wil rise by ~59b.

I'm looking at the timing of the next axe to fall. The year at which the SSTF reaches its peak. I think it is much closer that anyone thinks it is.




Money Squid's picture

I am mildy retarded so I may not be following the point. The best I could do is find a brief mention of this on seekig alpha.....

"Two important sources have “explained” this drop. Both the SSTF and the CBO have confirmed that somehow there was a miscount over at Treasury for $25-29 billion.

The explanation from the CBO yesterday:

Receipts from social insurance taxes are also expected to decline this year—by $29 billion (3.2 percent) from last year, mostly because of an adjustment by the Treasury to correct for the allocation of receipts in earlier years.

The explanation from the SSTF in their August report to Congress:

The estimated decline in trust fund income from 2009 to 2010 is due to the economic recession and to an expected $25billion downward adjustment to 2010 income that corrects for excess payroll tax revenue credited to the Trust Funds in earlier years."

It is my slightly retarded understanding that the "receipts" they are talking is Like I said I am slighty retarded and do not work in the financial sector, obviously.

edit: and what is really strange is the position of my post keeps moving around from location to location. hmm.....

edit 2: Oh chit, the seeking alpha peice I stole is written by.........Bruce Krasting.

Marco's picture

Major restructuring? You increase payroll taxes and reduce pensions until you balance the receipts and costs ... done.

FMR Bankster's picture

You can see where this thing will go with Herman Cain's tax plan. Politicians will love it. End the SS tax and replace it with a national sales tax. Write off the SS debt which reduces our stated public debt. (not our real debt of course)That's the main essence of his plan, to substitute a consumption tax for social security tax and widen the base (undergound economy, tax cheats, drug sellers) and don't forget making retires pay for their social security twice. Once while they worked and payed FICA tax and now after they retire and pay a national sales tax.

Thisson's picture

A national sales tax is unconstitutional.

dexter_morgan's picture


Article 1, section 9

No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or enumeration herein before directed to be taken.

Then the banksters and their enablers, the early statists and banker cabals, gave us the 16th fucking amendment ENABLING income tax. 


Passed by Congress July 2, 1909. Ratified February 3, 1913.

Note: Article I, section 9, of the Constitution was modified by amendment 16.

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

Thats when all the shit we have happening today started. That combined with the establishment of the Federal Reserve Banking system enabled and protected the banksters and elites and got Uncle Sams hands in all our pockets.Until then the governement revenues came primarily from ad-valorem taxation, i.e. property and or sales taxes.




Marco's picture

What official measure of public debt includes potential future SS payouts?


Not saying that exchanging one regressive tax for another regressive tax isn't just playing dancing chairs ... but as far as I know it won't affect official debt either way.

Georgesblog's picture

The moment that Social Security moved from an annuity trust fund to a tax on wages, it became fraud. The separations that protected the public in both investment and privacy were discontinued.  This is the invasion that is accomplished by government fiat. It doesn't end there. When government seizes property and assets, it seizes life and liberty. This is what is coming.

Marco's picture

When was Social Security ever an annuity trust fund?

Thisson's picture

It's an insurance scheme.  Emphasis on scheme!

Marco's picture

Social Security is pay as you go, not an insurance. Never was either, unlike what Georgesblog suggested.


People look at the trust fund and get a fundamentally wrong idea ... the trust fund is peanuts, just there to smooth over short term variations in receipts, anything beyond that horizon is supposed to be fixed at the political level (increasing taxes or reducing benefits).

pasttense's picture

While Social Security is going to be a problem sometime in the future there are other big problems which are going to hit sooner:

1. Medicare/Medicaid cost explosion

2. the 1.5 trillion dollar/year continuing budget deficit.

High Plains Drifter's picture

wait a damn minute. i paid into that thing all my life. they owe me money. i want my damn money.  let the next bunch worry about that stuff. we want our money and we want it now..........

StychoKiller's picture

"You fscked up -- you trusted us!"

cranky-old-geezer's picture



wait a damn minute. i paid into that thing all my life. they owe me money. i want my damn money

YOUR money?

Boy have they got you buffaloed. 



falun bong's picture

in Australia we have two systems, the basic pension that everyone can get, enough to rent a tiny flat in a bad neighborhood and eat canned dog food. The second is a scheme whereby employers are mandated by law to put 9% of your pay in a separate account that you own and can invest and add to yourself. Great system, and it has been really good for Australian capital and real estate markets.

Thisson's picture

Let's see if your opinion on that changes after Austrialia's real estate market crashes (which I expect it will).

Marco's picture

If the rent collapses too maybe the people on basic pension will be able to upgrade to tv-dinners.

FinalCollapse's picture

Suck it Up - message from your friendly Keynesians. /sarc

topcallingtroll's picture

What hpd is saying is that he paid into it and now he wants money from the younger generation to be given to him. This younger generation having a fucked up econony, lower wages, and lower living standards.

But boomers dont care. They think it is their right to take money from their struggling children and the children of their boomer friends.

James's picture

TCT - That's just not true.

You are projecting your anger to the wrong group.I'm not telling you to do anything.

Your problem for your generation is THE BANKS and THE FEDERAL RESERVE.

As it has been my whole life for me and others.

Look, i've ran my own for 35 years and bitched constantly on these issues.

Your problem, as everybody else, is FRACTIONAL RESERVE BANKING.


Thisson's picture

The younger generation is about 2 steps away from lynching the baby boomers, so I don't think they'll be too smart to keep pressing their demands.  We shall see.

High Plains Drifter's picture

the boomers want our money. its just that simple.   


out of the shade in heat, 


off your ass and on your feet.....


these lazy gen x and gen y pricks have to suck it up and do it now...........we want our damn money.............

Pure Evil's picture

Not to worry, some kleptocrat in D.C. has come up with a solution.

Unemployed Payed $40 Grand/Year

Now the unemployed can continue to pay their fair share of payroll taxes and we'll reduce the number of people collecting SS early.

It's a win-win, now how do I get laid off from my job?

benslawyer's picture

"A "hold-harmless" provision in the law, applicable to most Part B enrollees, limits the premium increase to the dollar amount of the beneficiary’s Social Security COLA increase." Since there were no COLA increases the past 2 years, any increase this year will probably be offset by Part B premium increases. The old in-and-out...

the grateful unemployed's picture

Question is in the new world order, do some old institutions have a place.

The first change of magnitude is jobs, there aren't enough. That doesn't mean people don't work, in fact people work far more than they ever did, (which is reflected in the percentage of employed, or employable people relative to the population. Everyone has a job, or wants one, mom, dad and the kids. This is not your Leave It To Beaver, nuclear family with a single bread winner - SOCIETY.)

People are working, they just don't have a paycheck. People work with the sick and elderly, they volunteer. People just don't sit around and watch TV. (even a video game is work though the fruits are dubious, it's not casual or passive entertainment.)

The government chooses to define work in terms of jobs, and that's wrong of course. SSN and the other welfare programs make sense. The economy is just as productive, we just have a problem sharing the wealth, because we believe in rewarding people according to the old rules (see Robber Barons, industrial revolution)

Its unfortunate that the US spends more than it takes in in taxes, but it doesn't need to be that way, but the rich bitch like hell when they have to pay for DOD, public works and public health. Drive on your own toll road! Hire your own security! Pay for your own medical care!

If you believe this new world order is a planet without borders, then we have a problem. People in the US don't want to live according to Chinese living standards. (That's going back 100 years in terms of health and happiness) Unfortunately the previous President was a globalist, (and the one before him) and the current President is me-too. The next President should be about American exceptionalism.

Then let's recognize the truth, Americas are well educated hard working compassionate people. (or would you rather take your chances in Somalia, or Argentina?) Americans are mad because they've been thrown under the bus, and Wall Street has left its hand prints all over their backs.

Now save SSN, if you have to tax everybody and give the money back to them. It evens the playing field.

The other institution is the post office, while UPS and FedEX cherry picked the easy package delivery business away from them, and left them with the crummy mail delivery business. But according to Wall Street government exists to help them.

Right now we have inverse inflation, wages and income falling faster than assets and commodity prices. Thats' relative inflation, and it should also hit the equivalent rent component of CPI. I think TIPS are a great deal but so does the market, and the Fed front runs those auctions anyway to fix prices. Fire all of them and let the market decide.

and if Bernanke is meddling in FISCAL policy he will find himself in over his head.

apberusdisvet's picture

the over/under date for martial law in the US is July 4th, 2012.

Schmuck Raker's picture

The sooner SS collapses the better, IMO.

Then we, as a nation, will(may?) be forced to face reality.

I am Jobe's picture

Ben wants people to fie to save SS and then they can loot what is left of it and see if they can start another war.

Bob Sacamano's picture

I have a great idea to help said BHO.  Why don't we reduce employee SS contribution by say 20% (2% of 7.65% contribution) AND employer contributions by say 20% (2% of 7.65%).  That should help fan the flames of SS crisis and create the need for a bold leftist solution that will need to be done urgently. 

BHO is an idiot.  Or he really is trying to destroy the US.  Seems it can only be either one.

Translational Lift's picture

BHO is an idiot.  Or he purposely is trying to destroy the US.  Seems it can only be either one.

He is NOT an idiot!!

centerline's picture

Social security is toast.  I knew this decades ago.  The writting was on the wall then that it was a ponzi scheme.  Watching the government swell while the private sector slowly collapses was tell tale.    Watching our industrial base disappear spoke only of the dismantling of a nation in the name of greed and power.  Watching it blow bubbles like the housing market and now college debt just shows how desperate it has become to keep the system alive.

The cold, hard reality is the SS is already toast.  So are all the pensions.  Why?  Because it is all based on a system that will collapse once true inflation cannot be maintained, even artificially, across critical segments of the world economy.  What is keeping the system "looking" like it is still alive is nothing more than vapors at this point... government intervention using tools of last resort... artificial inflation.

But, the indebtedness problem is not cured.  Nothing at the core of the problem has been fixed.  In fact, indebtedness has been increased! 


Seer's picture

Living beyond our means...  That is, the planet's means.  Perpetual growth was always going to collide with the finite planet*.  TPTB (who should know this) didn't plan for this (like they want to paint bulls-eyes on their chests/backs?), nor can the do a thing about it (to paraphrase Einstein, those that created the mess aren't likely able to fix it).

* Expecting the producing countries (and those with raw resources) to not apply earned money toward their own "betterment" (increase personal resource consumption) and just funnel it back into the black hole that is US Treasuries, well... at some point reality strikes, that point is clearly becoming NOW.

Marco's picture

Whether they have bullseyes on their chest or are about to own half the country really depends on what happens next ... if the society goes the anarcho capitalist route they're sitting pretty. A decrease in government will remove their surest way of stealing more wealth ... but as half the country defaults they will mop up all the collateral and make do ... their dynasties can live off rent seeking in perpetuity, neofeudalism ahoy.


If we break out the guillotines (real or fiscal) then sure, they're fucked ... but I kind of doubt that will happen.