Tuesday, June 5, 2012

The Quickly Developing Social Security Crisis

Although mainstream media points to a year somewhere around 2033 as to when Social Security will run into trouble (because they will have no more Treasury securities to sell or redeem), in actuality the crisis went into high gear in 2010, when the Social Security Trust Fund went cash flow negative. What this means is that the SS must start redeeming Treasury securities from the Treasury to make SS payments. BUT, the Treasury has no money stored away for these payments, which means that on top of any budget deficits that will need to be funded, the Treasury will have to borrow money to fund these SS redemptions. Bob Murphy pulled this out of the latest SS trustees report (My bold):
Social Security’s expenditures exceeded non-interest income in 2010 and 2011, the first such occurrences since 1983, and the Trustees estimate that these expenditures will remain greater than non-interest income throughout the 75-year projection period. The deficit of non-interest income relative to expenditures was about $49 billion in 2010 and $45 billion in 2011, and the Trustees project that it will average about $66 billion between 2012 and 2018 before rising steeply as the economy slows after the recovery is complete and the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers. Redemption of trust fund assets from the General Fund of the Treasury will provide the resources needed to offset the annual cash-flow deficits. Since these redemptions will be less than interest earnings through 2020, nominal trust fund balances will continue to grow. The trust fund ratio, which indicates the number of years of program cost that could be financed solely with current trust fund reserves, peaked in 2008, declined through 2011, and is expected to decline further in future years. After 2020, Treasury will redeem trust fund assets in amounts that exceed interest earnings until exhaustion of trust fund reserves in 2033, three years earlier than projected last year. Thereafter, tax income would be sufficient to pay only about three-quarters of scheduled benefits through 2086.
Mark your calendar, 2018 is when the SS negative cash flow starts to get serious, and the Treasury will have to start doing serious borrowing to cover the cash flow gap. At such time, interest rates will be much higher and result in the interest part of the the budget skyrocketing. This is when the U.S. will start to look like Greece.

How big is the SS/Medicare deficit? Murphy answers the question:
If you’re really a hardcore wonk you can look at Table V.F2 in the formal Medicare report to discover that over the next 75 years, Medicare and Social Security’s combined cashflow deficit (i.e. disregarding their stockpile of Treasury IOUs) has a present discounted value of $38.6 trillion.

In other words, if the government needed to (say) levy a one-time, lump sum tax on Americans today, to put a pile of money aside that would earn interest and could be drawn upon to make up for shortfalls for the next 75 years (because payroll “contributions” for Medicare and Social Security wouldn’t cover the benefits to which people were legally entitled under existing law), the government would need to get a pile of $38.6 trillion today.


  1. I wonder how much all the unemployed folks leaving the workforce to start collecting SS disability has/will impact this.

  2. He is discounting by how much to get the 38.6 trillion in present value?

    It is pretty clear that even using the government number, our government will have to print(not borrow, but print) to cover its bills.

  3. Robert are you aware of Mr. Chapmans passing?



  4. "Long ago in a galaxy far away" I was a twenty year old kid, fresh from a two year all expenses paid vacation in the jungles of South East Asia, back in college taking a course in American government. I was fortunate to have a professor that understood economics and had actually worked in the system. He was able to explain the great scam that was the Social Security system. I realized then (at twenty) that I would likely never receive anything back from the monies confiscated during my working life, and that if I did, it would probably end up worthless. I decided then and there to conduct my affairs as if the system did not exist - that way if I did get something back, it was a bonus. I've made a lot of bad decisions over the years, but that one was a stand out winner!

    Fast forward (trust me, you have no idea how fast) forty five years, and we are faced with exactly the outcome that my college professor described so long ago. We will get our checks in the mail, because it would be political suicide to stop payment, but the plan is to inflate away the liability with worthless fiat dollars. I keep several Zimbabwe trillion dollar notes on the wall over my desk to remind me what happens when you are stupid enough trust governments. "Stupid" is disingenuous let's use "gullible" because many folks actually believed that their government cared about them and could be trusted. They still do, which is why they they buy into crap like "Hope and Change" and the sad dog and pony show that is American politics today - as full of lies and deceit as any soap opera. America is about to get a rude wake up call. The sad thing is that many seniors depend on these programs for their survival.

    We may have one last chance to fix this, but it will not happen with the pin heads that are currently in power - they are too busy trying to save their doomed system - doing triage and respiratory support on a corpse. Daily the entire global financial system teeters on the brink of collapse. Soon it will come crashing down. It will be a difficult time. Some say the end of the world. Horse shit!

    The world is filled with people that have unlimited talent and energy. As soon as we can get the dead banks, corporations and governments out of the way, innovation will take over and we will be able move forward at incredible speed. I look forward to that day. Incidentally, I'll tell you who I do trust - the sharp, clear thinking people that regularly show up on this blog. I salute you.

    I, am Spartacus

  5. Yep, when I read the part above about "when the recovery is complete" I raised an eyebrow.... We have been in the early stages of a global economic collapse which was hidden by the production of digital entries that passed for "money" spread far and wide by the international banking cabal and LOTS of lunk headed propaganda about "green shoots" and "turning the corner" economically.

    Europe is in full collapse; you know we're in trouble when you see the headline: "Germany considers the use of military force against Greece". Goldman Sachs has taken over Europe through placement of their representatives everywhere. Actually, most people have no clue when it comes to the details of what is actually transpiring but the memes are out there and the public is pointed in the right direction as it seeks its' enemy; the banksters and the political class owned by them.

    The second phase of the global economic collapse will be much rougher then 2008. The bankster/oligarchy appear to be pulling out all the stops for a last hurrah to keep Obama afloat by widely funding the EU at least until after the "election". Things are moving so fast it really is difficult to keep up with or analyze events however.... I believe as long as the banks are still standing there will be social security payments and, as correctly noted, the value of those payments will be inflated away as the U.S. government attempts to hide its sovereign default by devaluing the dollar.

    More and more countries are going to default on sovereign "debt" as the entire banking system falls; this was intentional as a method for consolidating all banks into one gigantic National Bank controlled by the same freaks who run the system now. Today JPMorgan's derivative book is exploding as they will experience close to $100 billion in credit derivative losses over the next 12 months or so. This kind of thing is going to happen everywhere. The bond bubble is going to blow and with it pension funds, state and city governments and municipalities are going to all go bankrupt. Rather then coping with a gradual reduction in funds, we are going to see grandma and grandpa starving in the streets. How will the public react to that?

    I often despair of my inability to successfully explain to the average person how the Fed operates; how it is simply and accounting firm. The Fed has no "money"; it simply makes a digital entry which costs it nothing, "loans" the "free money" to the "government" at face value PLUS interest and then the "government" tells We The People we "owe" this "debt" to the billionaires who own the Fed. Get it? What a scam! Meanwhile, the IRS is nothing but a collection agency. So why is it the average person cannot grasp this reality and that the personal income tax is the "adjoining" scam; created in the same year at the Federal Reserve Act to funnel money to the owners of this corrupt banking corporation. Note: look at the back of any check you have every sent to pay your "taxes" and see who cashed it.... a federal reserve bank. ALL personal income tax is automatically confiscated by the Fed. It's very disheartening....What King George failed to do has now been accomplished by the Bank of England and the global banksters. Amazing. There has been a coup d'tat in America and the fascists are coming out of the woodwork. We just have to keep plugging away and remember the Great Moral Law of the universe; the law of cause and effect. To every action there will be an equal and opposite reaction. This is inescapable and immutable; the banksters will eventually reap what they have sown; it's the LAW.