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Social Security - January 2012 and Beyond

Bruce Krasting's picture




 

The January 2012 numbers for Social Security (SS) show a mixed picture. The results mirror what is going on in the economy. There is clear evidence that revenues at SS are recovering; there is equally clear evidence that America’s social expenditures are rising at a rate that exceeds the rate of recovery.

The following numbers are adjusted for any consequences of the 2% payroll tax deduction for 2011 and 2012. As a reminder, the Treasury pays into to SS every month an amount equal to the 2% shortfall. The country ends up more indebted, but there is no net consequence to SS. Some YoY comparative data on the key numbers:

 

Clearly, the problem is that benefit payments are increasing more rapidly than revenues. There are two contributing forces pushing up costs, (1) 10,000 additional people sign up for benefits every day of the week and (2) inflation (COLA) is rising. The January 2012 YoY increase in benefit payments was $4.1B. Of that amount, approximately $2.1B is attributable to inflation; the balance of $2B is due to more folks getting checks.

We crossed a big corner at SS in 2010 when the first annual cash flow deficit was reported. SS will never again see a cash surplus. The only question is how rapidly the deficits will rise. It’s a bit early in the year for me to provide a credible 2012 forecast for SS. My read of the January numbers confirms my suspicions. The improvement in the economy will be trumped by increasing benefit costs. Net-net, a modest deterioration in the cash position is my base case. I think SS will produce a $56B cash shortfall in 2012 (2010 = -49B, 2011 – 47B). The changes in the net cash position at SS over the past seven years show the extent of the deterioration:

 

 

The expense side of the SS equation can’t be altered. The only variables that make a difference are interest rates and the economy (jobs).

The interest rate side of the equation is easy to contemplate. SS’s income from interest is going to decline in 2012 and beyond. Ben Bernanke’s ZIRP, QE and Twist have seen to that. Ben has made it clear that interest rates will remain at historical lows for well into the future. SS is America’s biggest saver ($2.6 Trillion), it will therefore pay a price as the low interest rate environment is endlessly extended.

In June of this year, SS will re-invest its maturing bonds (and any cash it has) in a new strip of securities that have maturities from 1 to 15 years. The interest rate for these Special Issue Treasury Securities is set by a (stupid) 60-year old formula. This year, the formula will produce a yield for the new investments that is the lowest in history. Take a look at the historical interest rates that SS has received on its surplus:

 

 

The following shows the maturities and the interest rates on SS's holdings of Treasury securities. Note that in the next few years, all of the high coupon bonds will be rolling off. The old bonds will be replaced with much lower yielding assets.

 

 

This is the expectation for interest income at SS based on its 2011 report to Congress:

 

Here is the forecast on interest rates on which the above interest income forecasts were made.

 

 

This simply does not add up. SS will have to significantly revise downward its projections for interest incomes (there is no way the Fed is going to back off ZIRP anytime soon).

The economy is much harder to ponder. As of today, there is a case than can be made for continued job growth. But for how long? America has a bad habit of slipping into a recession every four years or so. The last one was in 2008, so we’re due. I think that the US will muddle through the first part of 2012 with continued modest job growth. However, a slowdown looks to be in the cards by the end of the year.  As of today, there are a dozen economic headwinds that will kick in as of 1/1/13 - all of the Bush tax cuts, the SS payroll reduction and a substantial cutback in government spending (the sequestered amounts).

If we experience a recession in 2013, and the Fed maintains its low interest rate policies, it will be a very bad year for SS. The cash deficit would explode under these conditions. It could easily exceed $100b. The wheels will come off of SS’s cart. As we are seeing now, it is extremely difficult for SS to bounce back in good times.  it will be impossible if we hit another economic slow patch.

This is precisely the scenario I’m anticipating for 2013. It will be a decisive year. If we end up going down an economic road as I have described, then SS will fall into full deficit (operating cash deficit + interest income). That would happen circa 2015. The Social Security Trust Fund is forecasting this event but it believes it will happen in 2021. When people realize that the Trust Fund has topped out, and the implications are understood, significant changes at SS will follow.

I point readers to a raging debate going on in Japan. To cover the growing deficits at Japan’s equivalent of SS, consumption taxes are being increased from 5% to 10% on everything purchased in the country. This massive tax increase is far too low to cover the problem. To bring balance to the system, VAT taxes have to rise to 17%.

 

 

Japan is in a different situation than the US. Its population is even older (and aging more rapidly) than ours. As in many other examples, the US is about ten-years behind Japan. But we are catching up quickly. In just a few years, America will have a similar raging debate on SS. We too will be faced with a dilemma. Either taxes have to raised, or benefits have to come down. The alternative is that the US follows Japan into the land of 200% debt-to-GDP. Unlike Japan, The US can’t survive at that rate. We will blow up before we get to 200%.

We won't see any reforms in America’s entitlement programs in 2012. The election will see to that. The immediate priorities of 2013 will not include SS. The other problems facing the economy will be more pressing. But by 2014, the jig will be up. By then, there will have been so much damage to SS that a very significant set of changes will be required to minimize what will then be seen as a systemic risk.

Note: I get the occasional beef about using graffiti in my articles. "Phooey" is what I say to that. This one by Banksy is perfect for this piece. No?

.

 

 

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Wed, 01/11/2012 - 22:23 | 2057054 linrom
linrom's picture

Where is Marla? If there ever was a farcical blog, this is it. Mr BK is a linear, statist thinker about as informative as a lump of volcanic rock. So you really think that you can save the world for the elites by cutting SS?

Wed, 01/11/2012 - 23:05 | 2057184 covert
covert's picture

ss was made to bankrupt the usa. mission accomplished.

http://expose2.wordpress.com

 

Wed, 01/11/2012 - 22:18 | 2057052 Bicycle Repairman
Bicycle Repairman's picture

"The SS debate" 

Let's move the "debate" off of dusty corners of the internet and into the public arena.  Any politician who takes the wrong side of the debate will get an immediate one-way ticket to obscurity.

Hello, Rick Parry!!

It will be a brief debate.

Wed, 01/11/2012 - 21:11 | 2056838 BlackholeDivestment
BlackholeDivestment's picture

Social Security is defining the Midnight Express... http://www.youtube.com/watch?v=shlBZZ-IQYY 

 

http://www.youtube.com/watch?v=3zZ9awjr4hc

Wed, 01/11/2012 - 20:31 | 2056739 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

So basically the SSTF is fucked.

Wed, 01/11/2012 - 20:21 | 2056711 Larry Dallas
Larry Dallas's picture

Bruce. I find your articles prolific and compelling. Those who give you grief over using graffiti are probably the same armchair warriors who get a big kick out of being able to bully on an - wait for it - anonymous blog.

Pay them no mind. The graffiti is your exclaimation point or punchline. And i enjoy it.

Wed, 01/11/2012 - 20:20 | 2056707 52100
52100's picture

Bruce,

IMO Reagan and the Greenspan commission didn't "save" SS. They stole 2.6 trillion in excess taxes ... and spent it !

 

There are only two ways for the treasury to repay SS trust... 1. new and increased taxes or 2. new and increased borrowing

If new taxes are needed to repay "trust" then what was purpose of collecting excess ?   (Rhetorical question)

If new borrowing is required to repay "trust"... why didn't we just borrow as required... ie  again what was the purpose of collecting excess?

 

So  if we Zero out the trust fund tomorrow ... US Debt is reduced from 15 T to 12.4 trillion...

AND Treasury will need to issue an additional 2.6 trillion UST's to pay SS tab through 2037..

 

If  no change Treasury will STILL have to issue an additional 2.6 trillion in UST's to "REPAY" SS trust...

 

Net difference ZERO... Nada... zip....  The money is gone... Issuing IOU's isn't savings...

 

Tell me where I've gone wrong............

 

FWIW I agree with you... Means test..  

It's an old folks welfare... cut the charade and trust fund BS... Fund it out of General revenues and call it Old Folks Security...

 

52100

 

 

 

 

Wed, 01/11/2012 - 18:05 | 2056189 falak pema
falak pema's picture

Its a mystery to me in this day and age that the private banks, who have created this debt tsunami along with the WS political clique who deregulated and made "greed" the motor of the economy since Reaganomics days, pay for the money they borrow O.O1% from Fed. Whereas, a country like Italy, that borrows NOT from central banks like FED/ECB, but from interbanking money market at so called MARKET rates, borrows for its sovereign bonds at 7% interest. We are seeing a cost of money which is 700 times more, if my premise is right, for sovereigns, who have the legal right to raise taxes to balance their expenditures. This is the RULE imposed by the market today and its CRAZY. Banks like Citibank, Bof A and Soc gen, who are at the heart of the ponzi, pay so much less than a sovereign state, whereas they are themselves virtually bankrupt with NO asset back up that a sovereign state has (the tax pump).

What in hell is going on in this crazy manipulated market, and how can the notational firms say that these sovereign spreads are justified as their bonds are OVERVALUED due to non solvent risk! When the ponzi banking sector can borrow at 700 times less. This is a scam of huge gigantic proportions that the MARKET IMPOSES on the cornered sovereigns who have no real clout compared with the money feeding the squid and its PD/HF compadres.

I defy anybody to explain this to me in rational terms. And Merkel had made this golden rule with the ECB. She is one hellava specialist on math. And that economic council around her...well, the less said the better! Saurkraut!!!!

Wed, 01/11/2012 - 18:28 | 2056298 LawsofPhysics
LawsofPhysics's picture

Glad to see you woke up.  The agents of "money" that you mention are really small inter-connected familes of power.  The end game is centralize control, power, and hence true "ownership", always has been.  Read your history, they will suspend gravity for as long as they as the common man labors away to create real value and PAY excessive interest for currency they readily devalue.  All the while they, they collect even more money (gold) and get all that interest (fiat) for doing absolutely NOTHING.

When the game is no longer sustainable, they will pit the common man againast one another around the world in numerous wars until the population decreases enough to make the game managable again.

True "ownership" is power over land, resources and people.  Same as it ever was.  The only thing you need to ask yourself is, who owns you?  Some master's are worse than others.

Wed, 01/11/2012 - 19:07 | 2056453 falak pema
falak pema's picture

I've been awake, but that simple number exercise brings home the size of manipulation. How can anybody even start by saying markets are "sacrosanct" and "free" in this day and age...Those HF shills are as bad as the PDs. And all those arguments of Tobin tax being unfair is just horse shit. They should be taxed to hell and beyond these financial blood suckers.

And the TDs should point this out to all and sundry. The sovereigns are now being extortioned and there is no other word for it. It's pure robbery.

Wed, 01/11/2012 - 17:30 | 2056129 max2205
max2205's picture

HD at 5 year pre housing bust highs so you know all is well

Wed, 01/11/2012 - 16:25 | 2055804 earnyermoney
earnyermoney's picture

surprised there's no response from that Webb arsehole.

 

Thank you for a great article.

Wed, 01/11/2012 - 18:40 | 2056361 Bruce Krasting
Bruce Krasting's picture

I miss Webb. He was an active writer. Knowledgeable. He LOVED SS. Now he is off the radar. Maybe he saw the same numbers as I have, and realized the lights are going out on this story.

I guess it's hard to be a parade leader when you know it's going to rain.

Wed, 01/11/2012 - 16:14 | 2055758 Just Observing
Just Observing's picture

One more year, and I start getting mine back.

Wed, 01/11/2012 - 16:07 | 2055709 moneymutt
moneymutt's picture

Why do you always mention SS cash flow out as a deficit, like there was no savings? Im so tired of mentioning this Bruce. If I'm retired and I start drawing down my retirement savings, the does not mean I'm insolvent today, nor does it mean I'm overspending, I'm simply dipping into my savings. The baby boom is now dipping into their FICA savings.

I appreciate the numbers, but your bias is always in there.

Why cant you talk simply about the situation as you know it, that is bad enough, more than enough drama, about the solvency of SS getting shorter and shorter, moving from 2036 to a closer date, talk about the govt being too broke, too in debt to pay SS back. Yes a small sliver of Soc Sec trust fund is now taken from general fund, but for over two years is was in surplus preparing for these neagtive cash flows as boomers retired.

And you say "SS will never again see a cash surplus"

Really? Interest rates will never go up again? US will never get out of the great recession? Congress will never change FICA taxes, and do some things remove the cap at $100k, put a small FICA tax on dividends or other types of earnings besides wages? Change benefit structure, age requirments?

I know you are old enough to know how close Soc Sec was to being insolvent in the 80s, we were within years of it being broke...we went from that to major surpluses in just a few years. So never say never.

Yes the numbers you show matter, yes policies have to be cahnged to make Soc Sec solvent further into the future, but the way you always write these legit critiques of their accounting, I'd swear you are troll paid to ensure the only solution is drastically cutting benefits.

Wed, 01/11/2012 - 19:04 | 2056460 malek
malek's picture

The terms you are using show you're desperately trying to avoid looking reality in the eye:

FICA "savings"

"solvency" of SS

Rising interest rates / economic growth / higher or removal of cap / FICA on dividends & capital gains ...will save SS.
You missed the real saviors, namely inflation and massively under-reported COLA-indexing

Wed, 01/11/2012 - 20:58 | 2056295 VegasRage
VegasRage's picture

Here is part of the problem:

 

From the GAO.

UNITED STATES GOVERNMENT ACCOUNTABILITY OFFICE SOCIAL SECURITY REFORM Answers to Key Questions - May 2005

On Page 17 http://www.gao.gov/new.items/d05193sp.pdf

17. Do Social Security taxes get spent on other government programs?

Yes. By law, the Social Security trust funds must invest in interest bearing federal government securities. Treasury then uses the cash to pay for other government expenses. In effect, Treasury uses Social Security’s excess revenues to help reduce the amount it must borrow from the public to finance other federal programs. In other words, Social Security’s excess revenues help reduce the overall, or unified, federal budget deficit. If Treasury could not borrow from the trust funds, it would have to borrow more in the private capital market and pay such interest in cash to finance current budget policy. However, Treasury still has to pay the trust funds interest on these securities. When Social Security needs to draw on the trust funds to pay benefits, Treasury provides cash in exchange for redeemed trust fund securities. 

Additional evidence social security is in deep sh** can be found here:
GAO - The Federal Government’s Long-Term Fiscal Outlook January 2011 Update
On page 3 http://www.gao.gov/new.items/d11451sp.pdf Social Security program, which has historically run large cash surpluses that helped reduce the government’s need to borrow from the public to finance other programs, paid more in benefits than it received in tax income in fiscal year 2010 for the first time in more than 25 years. While the near-term shortfall in Social Security is largely due to the economic slowdown, which reduced revenue and increased enrollment for disability benefits, CBO now projects that the program will continue running cash deficits into the future. This will contribute to the government’s borrowing needs, putting additional pressure on the rest of the budget.

 

 

Wed, 01/11/2012 - 17:14 | 2056059 Bruce Krasting
Bruce Krasting's picture

Thanks for this response.

1) Interest is not paid to SS in cash. It is paid in more paper. There is a difference (trust me). This is not me saying this, it is the SSTF who describes interest as non cash. So yes, SS will never ever ever have a cash surplus again.

2) I'm not a troll for anyone. Go to my blog and or just search my name and Social Security. You will find dozens of articles. I HAVE ALWAYS SAID THE SAME THING. Benefits have to be cut for those baby boomers who can afford to lose this benefit.

3) I'm one of the boomers who would not get a check. I don't like that as I paid in a bunch. But I can't see cutting benefits for those who need these checks (70-80% do need them). My plan would take money out of my pocket.

I'm a lot of things, but not a troll. The only thing in it for me is that my kids would be better off if I was forced to bite this bullet. They are in their twenties. This system is fucking them over. Not fair at all.

bk

Wed, 01/11/2012 - 19:00 | 2056436 NotApplicable
NotApplicable's picture

Fair, the real four-letter F-word.

Although, it is also an acronym: Fuck All Ignoring Reason.

Wed, 01/11/2012 - 16:34 | 2055850 disabledvet
disabledvet's picture

Guess Bernanke's "consistently optimistic growth numbers" can't come soon enough.

Wed, 01/11/2012 - 15:27 | 2055516 juggalo1
juggalo1's picture

I thought Social Security was cash flow negative and was barely staying positive due to "interest payments" on its "trust fund".  It looks like benefits were lower than payroll taxes for 2011.

Wed, 01/11/2012 - 15:04 | 2055401 tempo
tempo's picture

It works out for Obama and socialist and the poor.   Anyone with assets gets screwed.  Thats the plan.

Wed, 01/11/2012 - 14:48 | 2055343 tony bonn
tony bonn's picture

"The alternative is that the US follows Japan into the land of 200% debt-to-GDP"

that is precisely what will happen.....japan is the oligarch's testing ground for economic planning and policy....same is true for micro-economics.....japan gets product before the usa....

Wed, 01/11/2012 - 14:32 | 2055266 Bob Sacamano
Bob Sacamano's picture

And to make it worse, BHO gutted the Social Security Trust Fund revenues by slashing the FICA contributions folks need to pay in.  He must not care about the elderly.   

Wed, 01/11/2012 - 15:02 | 2055394 Amish Hacker
Amish Hacker's picture

Watch something other than Fox Noise, Bob (y sacate la mano de la bragueta).

The payroll tax cut does NOT affect SS. Those funds are replaced from general revenues.

You're just going to have to find some other reason to blame Obama for the plight of the elderly.

Wed, 01/11/2012 - 19:34 | 2056570 Bob Sacamano
Bob Sacamano's picture

"The payroll tax cut does NOT affect SS."

That is just absurd.  Payroll taxes are specifically designated to fund Social Security.  Wow - pretty basic.

That is the problem -- Social Security benefits are too high relative to FICA payroll taxes and BHO decides to make the shortfall worse by cutting FICA payroll taxes.  The elderly are left worse off with less security in Social Security (not that there was much to start with given the Ponzi nature of the system). 

Wed, 01/11/2012 - 20:55 | 2056799 Amish Hacker
Amish Hacker's picture

Relax, Bob (and ATM & Malek). We're talking about an accounting issue here. The legislation that enabled the 2% tax cut specifically addressed this. The losses to SS would be made whole from general tax revenue, government borrowing, and the usual hocus-pocus sources.

That doesn't mean that SS---or the gov't---is solvent. But I think it's intellectually dishonest to claim that Obama has somehow "gutted the Social Security Trust Fund," or that he doesn't care about the elderly.

Thu, 01/12/2012 - 01:01 | 2057384 Bob Sacamano
Bob Sacamano's picture

No.  It is beyond "intellectually dishonest" to believe that the federal government which is $15 trillion in debt, losing $1.5 trillion per year and refuses to even propose a budget for years (in the Senate) has the ability to make things whole.  Delusional.  But you are welcome to believe in "hocus pocus."  Some of us look for more solid economics.

Wed, 01/11/2012 - 18:53 | 2056413 malek
malek's picture

Are you delusional?

The payroll tax cut took away a sixth of payroll tax income -real money- from SS.

What general revenues does the federal government have to replace that? To take on some more deficit, which in effect devalues everbody's dollars, as they will never be repaid at same value?
Hey, why don't we cut the payroll tax to Zero (employee and employer part), everything will be fine!

Wed, 01/11/2012 - 18:45 | 2056382 ATM
ATM's picture

Amish, how can these funds be replaced from general revenues when the government operates with a 1.5 trillion annual deficit?

Those "funds" are replaced by worthless government debt. It's all just accounting bullshit. There is nothing there now and there will be nothing there in the future. All of it is simply debt.

That works really well until someone asks to be paid back thent he house of cards collapses.

Wed, 01/11/2012 - 15:25 | 2055507 earnyermoney
earnyermoney's picture

Easy. ZIRP 4 Eva. Ben's following O's orders.

Wed, 01/11/2012 - 15:37 | 2055563 FeralSerf
FeralSerf's picture

The Bernank doesn't follow O's orders. They may, however, have the same puppet masters.

O doesn't make orders besides those like his golf starting time or how his chitlins are to be prepared.  O follows orders and/or reads those orders from the appropriate teleprompter.  O is "Chief Executive" in name only.

Wed, 01/11/2012 - 15:51 | 2055632 earnyermoney
earnyermoney's picture

Either way, O Sux.

 

I'll be writing Ron Paul's name on the ballot this November.

Wed, 01/11/2012 - 14:29 | 2055248 OutLookingIn
OutLookingIn's picture

The only true thing about social security is the word social, in that the socialists in power have stolen all those payroll deductions over the years and pissed them up the wall!

The Treasury department regularly raided the cash box. leaving behind inter-governmental bonds as collateral.

What do you think those bonds are valued at? Certainly not the purchasing power of the dollars taken at the time of theft. No, there is nothing in the vault at social security, except stale air. Anyone who pretends there is, is just fooling themselves.

Move along - nothing to see here.  

Wed, 01/11/2012 - 16:43 | 2055901 goodrich4bk
goodrich4bk's picture

OutlookingIn, you need to read more.  Before the Greenspan Commission recommendations became law, SS had no cash box.  From the beginning it was a pay-as-you-go system.  Workers paid for retiree benefits from workers' present income.  As the number and value of benefits rose, SS taxes were increased to pay for them.

To address the Boomer retirement needs, the Greenspan Commission recommended that SS taxes be increased in an amount much greater than needed to pay current retiree benefits.  This "surplus" is your "cashbox".   You complain that it was "stolen" when, in fact, it was invested by lending it to the government at interest.

What would you recommend the SS Trust do instead?  Invest in stocks?  If it did that, there would be a huge rise in stock prices until the boomers retired, at which time stock prices would likely fall as stock sales would be needed to fund Boomer benefits.  And which stocks would be purchased?  Do you really want the government to pick and choose which companies will receive SS trust funds?  Talk about an opportunity for corruption...

Or are you suggesting that the cash in your cashbox should have been left there, earning no interest at all?  That doesn't sound very prudent to me.

Wed, 01/11/2012 - 18:48 | 2056391 ATM
ATM's picture

If that cash sitting in my cash box had been real money - GOLD - I think that I should be a very rich man, relative to the real value of my expected SSI payments.

 

Wed, 01/11/2012 - 13:58 | 2055111 Commander Cody
Commander Cody's picture

If I were a rich man, then I'd return any SS payment back to Treasury, but I'm not a rich man.

Wed, 01/11/2012 - 14:27 | 2055245 Magnix
Magnix's picture

No, you wont!

Wed, 01/11/2012 - 13:24 | 2054977 Amish Hacker
Amish Hacker's picture

The lifestyle we ALL want has been on back order for a very long time. Unfortunately, our old supplier (known as real production in free markets) has been driven out of business by ZIRP, QE, hedonic adjustments, LSAPs, rehypothecation, and 31 other flavors of dishonesty. 

 

Wed, 01/11/2012 - 13:31 | 2054995 Oliver Jones
Oliver Jones's picture

Baskin' Robbers' 31, to be exact.

Wed, 01/11/2012 - 13:24 | 2054974 Peter Pan
Peter Pan's picture

Bruce you are spot on but you are wasting your time pointing out the bleeding obvious. Bernanke's policies are for the short term and without any regard to the mounting pressure these policies of low interest rates have on the longer term.

What retirees will get in terms of pensions and medical care in the future will make today's handouts look like profligacy.

I fear we will see euthanasia being practised in many subtle ways in the years ahead.

Wed, 01/11/2012 - 20:09 | 2056682 John_Coltrane
John_Coltrane's picture

Yes, people will have to take responsibility for their parents will being for a change-as was done long before SS was esstablished.  Responsibility, unlike entitlement, isn't an American strong trait anymore.

If you believe in individual responsilitiy and freedom your last chance is to support Ron Paul in 2012.

 

 

Wed, 01/11/2012 - 12:51 | 2054871 piceridu
piceridu's picture

It's a little more frightening that the SS ponzi is so easy to follow when you lay it all out and wrap with a bow.

Thank again BK...thanks for all the heavy lifting.

Wed, 01/11/2012 - 12:47 | 2054855 NotApplicable
NotApplicable's picture

In addition to all of this, seemingly everyone I know is applying for (or already receiving) SS disability benefits. I swear, every time the subject comes up at a gathering (always discussing the legal process), someone else speaks up to add their personal insight.

I wonder if the actuaries have priced that in?

Wed, 01/11/2012 - 16:49 | 2055931 goodrich4bk
goodrich4bk's picture

Bingo.  I have a cousin who has been on SDI for over 20 years.  Her alleged injury was "neck pain" from a horse fall, but I know she continued riding horses after the fall.  And I always wondered how she could afford a horse in the first place.  Anyway, sfter her mother died, she called me asking for money to replace the SSI her elderly mother had been receiving.  I told her I and other taxpayers had already paid her all we were going to pay.  She didn't get it and hung up on me.

Wed, 01/11/2012 - 16:13 | 2055754 moneymutt
moneymutt's picture

people talk about black moms on welfare, and food stamps, but SDI is a huge source of welfare, it seems to mostly fairly well-off white people who hire the lawyers and such. Got a kid that cant function well or is just spoiled, get paid to have them live with you via an Asperger diagnosis etc...

Its strange how conservative politicians that rail about waste fraud abuse and welfare, make racist comments, never attack this low hanging fruit of Soc Sec Disability fraud.

The other thing that is driving it, when jobs with good wages were plentiful, who would bother with small sum from governement. But now when people are unelmployed for years, can only find min wage job, a guaranteed source of income from Soc Sec is suddenly very very appealing.

Wed, 01/11/2012 - 12:37 | 2054821 FeralSerf
FeralSerf's picture

The new Medicare rules should ensure that many SS recipients don't live as long.  That should help.

Wed, 01/11/2012 - 12:30 | 2054783 Don Levit
Don Levit's picture

Bruce:

You wrote that if the interest rate was 10%, the on budget interest expense would increase to $250 billion per year.

As you know, interest credited to the trust fund is considered an aset to the government.

The interest owed to the trust fund by the Treasury is considered a liability.  So, in reconciliation, for accounting purposes, this is neither an asset or a liability, but a "wash."

I agree that intragovernmental debt would rise by $250 billion, but this has no immediate cash impact on the budget.

Agree or disagree?

Don Levit

Wed, 01/11/2012 - 12:45 | 2054853 Libertarian777
Libertarian777's picture

uhnn.. you have to look at rolling maturity schedules of 3,6 and 9 month T-bills. These are in the hundreds of billions , any interest rise would have a near-instantaneous increase in interest expense, not on the full national debt instantly, but very rapidly. As it stands they have to roll over something on teh order of $2(?) trillion a year, interest rates going from 0 to 10% just on the short end alone would raise interest expense by $200bn IN THE FIRST YEAR

 

Wed, 01/11/2012 - 11:53 | 2054619 dogboy12
dogboy12's picture

As long as interest rates stay low and inflation is under control, there is little reason to think the US can't handle 200+% debt to GDP.  I'm not smart enough to know but it seems to me the problem only develops when inflation picks up.  In Europe people think the treashold to affording their debt is 6% yields on debt.  If we hit 6% (because of real inflation), how will that impact the value of the dollar and demand for debt?  As an example, 6% interest rates on 200% debt to GDP results in selling MORE debt and a faster growing debt to GDP ratio or producing more and more currency.  Eventually you have either hyper-depreciation of currency or you default on your obligaton.  Choose your poison.

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