Thursday, August 9, 2012

Economist: Social Security Is Broke

Gary North writes:
The bureaucrats at Social Security will not admit it. Congress will not admit it. Obama and Romney will not admit it. Social Security is broke.

How do I define “broke”? When you have no assets to pay your bills and you must borrow money to pay old bills, you;re broke.
Bottom line: The Social Security system has gone cash flow negative. The SS trust fund is making more payments to retirees than it has new money coming in. Here's the kicker, the only assets SS has on hand to fund this cash flow deficit is Treasury securities, but the Treasury has no funds on hand to pay off SS liquidations, This means that in addition to raising funds for normal debt funding activities, it will have to raise funds for SS liquidations.

At one point in the not to distant past, SS used to buy nearly 25% of all Treasury securities issued, now it is a seller. That's a huge shift. Sometime around the years 2016-17, the amount the SS will have to start redeeming on an annual basis will get massive. Even the Social Security Trust fund admits this is going to happen, though they do expect things to get bad until 2018:
 Social Security’s expenditures exceeded non-interest income in 2010 and 2011.. 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...

Bottom line: Avoid long-term Treasury securities. The selling pressure on bonds, from a combination of SS liquidations and new Treasury issues to cover deficits, is going to create major down side pressure on these bonds---if price inflation kicks up because of Fed printing to attempt to bailout the Treasury, upside interest rate pressure will be all the greater because of accelerating price inflation.


  1. I can't understanding why the US is not already facing higher inflation .. there has been plenty of borrowing and printing going on for a long time .. is it a because of offsetting credit defaults destroying money as fast as it is created?

  2. The level of denial is epic and global. It's not just the S.S. system that is broke, it's everything. Local, state, federal, and the world. The PTB are using the Zimbabwe debt solution - print till you die - in a futile attempt to forestall the inevitable, after all they have the most to lose when their creation implodes. The whole system is drowning in debt and coming down around our ears - you see it everywhere you look.

    We have now passed the point of no return, where this can be remedied within the system that created it. Politically, it is the third rail - if you touch it you will be vaporized. That is why political leaders around the world have taken the stance that "all is well" - i.e. when all else fails, lie like a son-of-a-bitch.

    Soon we will experience the "Great Global Crash". We all sit here and ponder these things and wonder at the organized insanity around us, but what else can we do? We know in our hearts what's just around the next turn and accelerating in our direction.

    In order to move forward, the existing system must fail and be swept aside. It is that simple. This does not require us to do anything but be aware - watch, understand, prepare, and wait. The current system is unsustainable. It is collapsing under its own weight. This is as it should be, for it has outlived it's usefulness. When it is gone we can truly start anew with "freedom and justice for all".

    I, am Spartacus