Saturday, June 12, 2010

My View on the Current State of Social Security versus the Dean Baker Disneyland View

 Dean Baker takes Marketplace Radio to task for its negative report on Social Security. He writes:
I often think it's too bad that Social Security isn't a private company. If it were, it could sue Marketplace Radio for libel for this sort of reporting. Does Marketplace's host have any idea what she is talking about when she says: "Social Security is in such a sorry state"? According to the Congressional Budget Office the program can pay all benefits for the next 34 years with no changes whatsoever and even after that can pay more than 75 percent of benefits indefinitely.

The program is in much better shape in this respect that it was in the 40s, 50s, 60s, or 70s. So what on earth is this person talking about? Can Marketplace Radio pay all its expenses for the next 34 years?
Oh yeah, Dean?

As of this year, SS goes cash flow negative. This means from here on out, at an escalating rate, SS will have to pay more and more money out than it takes in. Now, if it was completely bankrupt at this point, SS would have to go to the Treasury and get the money from Treasury  to make the payments to retirees. The Treasury would then, on top of the current horrendous deficit money that needs to be raised, have to raise money for SS.

But Dean Baker, doesn't see such a problem with the current SS situation, even though SS doesn't have any cash and only has Treasury securities it will have to sell in competition with the Treasury (or they may redeem some at the Treasury). Redemption or sale, it means more money that needs to be raised in the market on top of the current horrendous deficit money that needs to be raised by the Treasury. It's pretty much the same thing as an SS bankruptcy, more sales of Treasury securities in the market.

Let me repeat. The Treasury IOUs are a receipt with no cash behind them. THERE IS NO CASH!. The Treasury is running a deficit, it has no cash to buy up, or payoff its debt. The Treasury, in one fashion or another, will have to borrow the money, and the SS trust fund will be in competition selling Treasury securities along side the Treasury. With all this paper hitting the market, at some point  there will be no Treasury security buyers at reasonable rates, then the Fed is likely to step in and buy the securities. Super inflation here we come. Those are the facts. A bankrupt system that is likely to result in super inflation, which will screw beneficiaries two ways, through coming government legislated  reduced "benefits", and the reduced benefits will be worth less because of the inflation. Get prepared.

On the other hand, you can go with Dean Baker's view of the world, not worry about your future, not prepare for a world where are you are not going to get much, if anything at all, from SS, not worry about future inflation, and instead go every weekend to Disneyland until the money runs out.

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