Report on Social Security and Medicare could be bleaker (Lock-box surplus down 95%)

You understand I didn’t want you to continue through life being surprised by Andre. Most everybody else knows he’s telling lies because his mouth opens and closes.

Clearly impossible. Nancy, Barney, and Teddy have spent the last five years telling me the Social Security crisis was just an invention of the Bush administration.

“SS will start going into the red in 2017.

I believe today’s report will show this has moved up to 2012 or so because during this recession, payroll tax revenues have been smaller than were projected last year at this time.

“The funny part is that the smaller SS surplus is actually making the national debt increase at a slower pace than would be the case if the revenues were not decreasing.”

Huh? On the contrary, so long as the government keeps spending the SS surplus every year (as it does), this masks the true size of the deficit. Thus, the faster the surplus is wiped out, the sooner this day of reckoning comes.

Because we’ve been stealing from the Trust Fund for 40+ years, we have to pay back what we borrowed. But because those “borrowed” (”stolen”, if you prefer) funds were NOT placed in assets we could sell, we will either have to borrow more (from the Chinese!) to cover the shortfall between expenditures and payroll taxes or we will have to use federal general funds. We’ve taken SO much from the Trust Fund that it will take until about 2040 to pay it all back. But at that point, the Trust Fund is officially broke and BY LAW, Congress at that point either has to drastically cut benefits (about 40% IIRC) or increase payroll taxes to restore fiscal balance. It ain’t a pretty picture. This is why adding trillions to our fiscal woes at this juncture rather than resolve this looming fiscal crisis is so flagrantly irresponsible. See http://www.iousathemovie.com/

Huh? On the contrary, so long as the government keeps spending the SS surplus every year (as it does), this masks the true size of the deficit. Thus, the faster the surplus is wiped out, the sooner this day of reckoning comes.

Here is how it works. After all the SS benefits are paid out to the 55 million or so who receive them, the "surplus" is deposited into the General Fund. In return, the Treausry deposits that same amount in the form of non-market T-bills into the SS Trust Fund. These T-bills accrue interest as well. The SS Trust fund is included in our now $12 trillion national debt under under "Intra-governmental holdings" as distinct from the publically held portion of the debt. Ironically, the smaller the surplus, the less money there is to put into the general fund, which thus slows down the amount of Intragovernmental holdings. Of course, the general fund must find this money from somewhere else, i.e., it must borrow more or spend less.

When payouts exceed revenue, as they did in the early 1980s, then these non-market T-bills need to be redeemed by the federal government so SS pay out the benefits. If the date is moved up to 2012 then that just speeds up this process. SS will then have to continue using its T-bills to fund benefits and by 2042 [or earlier], it will use up all of its T-bills and be able to pay about 75% of the benefits.

Because we’ve been stealing from the Trust Fund for 40+ years, we have to pay back what we borrowed. But because those “borrowed” (”stolen”, if you prefer) funds were NOT placed in assets we could sell, we will either have to borrow more (from the Chinese!) to cover the shortfall between expenditures and payroll taxes or we will have to use federal general funds. We’ve taken SO much from the Trust Fund that it will take until about 2040 to pay it all back. But at that point, the Trust Fund is officially broke and BY LAW, Congress at that point either has to drastically cut benefits (about 40% IIRC) or increase payroll taxes to restore fiscal balance. It ain’t a pretty picture. This is why adding trillions to our fiscal woes at this juncture rather than resolve this looming fiscal crisis is so flagrantly irresponsible.

True enough on what will happen by 2040 or so. I would not term it stealing since the SSTF was provided with interest bearing T-bills in return for the "surplus." The argument could be made that it is better for the General Fund to borrow money from ourselves (SS) than the Chinese. Of course, we could also cut spending. I spoke to a member of the SS Trust Fund Board (Tom Savings) who said it would be far better to eliminate the SSTF and just make SS a line item in the federal budget.

The real problem with SS is that it is structurally unsound. In 1950 there were 16 workers for every retiree, today it is 3.3 workers, and by 2030 it will be two. And SS is on automatic pilot with a formula being used to increase benefits each year [COLA] that bears no relation to revenue. They are not linked like Medicare B is.

SS is unsustainable. The status quo is not an option. We can reform it by using personal accounts or we can kick the can down the road like we did in 1983 by raising taxes and reducing benefits including raising the retirement age again. The 1983 fix was supposed to make SS solvent for the next 75 years. It took just 29 years if the new date is now 2012 when SS goes into the red.

SS is far easier to fix than Medicare/Medicaid. We are headed for a huge fiscal train wreck. The Train Wreck Ahead Medicare is rolling toward disaster, and there is no easy way to fix it.

"Either that, or he was including social security receipts in the general fund."

There is also the matter of the GOP Class of 1994 standing up to him for just long enough to get the government shut down and pass welfare reform. Does anyone want to guess what kind of fiscal shape we would have been in if Clinton and the Democratic majority were not thwarted during his first two years and a GOP legislative majority elected in 1994?

According to those that follow Austrian economics theory this is a depression which are caused by the boom and bust of a huge credit expansion.

2017 - just in time for there to be nothing for any generations after the Boomers.