[dartuser]

Compound interest accrues on debt; but not on unfunded liabilities.

True, but can't you (kind of) say that inflation accrues on unfunded liabilities? They take $100 from my check today and give me back less (in inflation adjusted dollars) when I retire.

[USFRIENDINVICTORIA]

Actually, it would be more accurate to say that they'll take $100.00 (adjusted for inflation) from your children, when you retire. These are “unfunded liabilities”, because there's no actual interest-bearing account, to cover the future cost of your retirement. The money you put in today, is paying for the retirement of your parents’ generation.

So long as the ratio of payers to dependents was about equal (and so long as earnings at least kept up with inflation); there was no apparent problem with these pay-as-you-go social programs. Unfortunately, the fuse on the demographic bomb has already been lit. There will soon be many more dependents than payers. At that point, expect the payers to rebel, and the system to collapse.

Meanwhile; you can take some comfort in the fact that these unfunded liabilities aren't accruing compound interest. If they were, the U.S. would have been bankrupt a couple of decades ago.