Tag Archives: Social Security

Uncle Sam’s Unfunded Promises, by John Mauldin

John Mauldin gets two articles on SLL tonight, and they’re both excellent. From Mauldin at mauldineconomics.com:

Here’s a surprisingly profound question: What is a promise? Dictionaries offer various definitions. I like this one: “An express assurance on which expectation is to be based.”


Image: Simon James via Flickr

That definition captures the two-sided nature of a promise. One party offers an assurance, which the other converts into an expectation. You deposit money in your checking account, and the bank assures you that you can have it back on demand. You expect that the bank will fulfill its promise when you visit an ATM.

Governments likewise make promises, but those are different. Government is the ultimate enforcer of promises, but we have no recourse if it chooses to break them – except at the ballot box. As we’ve seen in recent weeks regarding public pensions, that’s ineffective when the promises were made long ago by officials who are no longer in office.

The federal government’s keeping its promises is important for everyone in the US, because almost all of us are part of the largest public pension system: Social Security. We pay taxes our whole working lives and expect the government to give us retirement benefits. But what happens if it can’t?

Three weeks ago we visited the problems with local and state pensions. Last week we looked at European pensions. This week we are going to take a hard look at the unfunded liabilities and debt of the US government. And even though the federal unfunded pension liabilities dwarf those of state and local pensions, I want to make it clear that I believe the state and local problems will be far more intractable.

I have to warn you: You may be hopping mad when you finish reading this.

Doubled Debt

In the United States we have two national programs to care for the elderly. Social Security provides a small pension, and Medicare covers medical expenses. All workers pay taxes that supposedly fund the benefits we may someday receive. That’s actually not true, as we will see in a little bit.

To continue reading: Uncle Sam’s Unfunded Promises

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Social Security requires a bailout that’s 60x greater than the 2008 emergency bank bailout, by Simon Black

By official measures Social Security is going broke, and those measures incorporate overly optimistic assumptions. From Simon Black at sovereignman.com:

A few weeks ago the Board of Trustees of Social Security sent a formal letter to the United States Senate and House of Representatives to issue a dire warning: Social Security is running out of money.

Given that tens of millions of Americans depend on this public pension program as their sole source of retirement income, you’d think this would have been front page news…

… and that every newspaper in the country would have reprinted this ominous projection out of a basic journalistic duty to keep the public informed about an issue that will affect nearly everyone.

But that didn’t happen.

The story was hardly picked up.

It’s astonishing how little attention this issue receives considering it will end up being one of the biggest financial crises in US history.

That’s not hyperbole either– the numbers are very clear.

The US government itself calculates that the long-term Social Security shortfall exceeds $46 TRILLION.

In other words, in order to be able to pay the benefits they’ve promised, Social Security needs a $46 trillion bailout.

Fat chance.

That amount is over TWICE the national debt, and nearly THREE times the size of the entire US economy.

Moreover, it’s nearly SIXTY times the size of the bailout that the banking system received back in 2008.

So this is a pretty big deal.

More importantly, even though the Social Security Trustees acknowledge that the fund is running out of money, their projections are still wildly optimistic.

In order to build their long-term financial models, Social Security’s administrators have to make certain assumptions about the future.

What will interest rates be in the future?
What will the population growth rate be?
How high (or low) will inflation be?

These variables can dramatically impact the outcome for Social Security.

To continue reading: Social Security requires a bailout that’s 60x greater than the 2008 emergency bank bailout

 

Social Security Will Be Paying Out More Than It Receives In Just Five Years, by Mac Slavo

One interesting fact: Social Security taxes have been raised more than twenty times since the program’s inception and it’s still going broke. There’s a lesson there for those who think the solution to governments’ fiscal woes is raising taxes. From Mac Slavo at shtfplan.com:

When social security was first implemented in the 1930’s, America was a very different country. Especially in regards to demographics. The average life expectancy was roughly 18 years younger than it is now, and birth rates were a bit higher than they are now. By the 1950’s, the fertility rate was twice as high as it is in the 21st century.

In other words, for the first few decades, social security seemed very sustainable. Most people would only live long enough to benefit from it for a few years, and there was an abundance of young workers who could pay into the system. Those days are long gone. As birth rates plummet and people live longer, (which otherwise should be considered a positive development) social security’s future is looking more and more bleak.

No matter how you slice it, it doesn’t seem possible to keep social security funded. In fact, social security is going to start paying out more money than it receives in just a few short years. It may even be insolvent before the baby boomer generation dies off.

According to the Social Security Board of Trustees, the Old-Age and Survivors Insurance, and Disability Insurance (OASDI) Trust Funds will be depleted in 2034.

When this happens, only 77 percent of benefits will be payable. That estimate is no change from last year’s estimate.

In addition, the Disability Insurance trust fund will be depleted in 2028, which is an improvement from last year’s estimate of 2023. Once that fund is depleted, 93 percent of benefits will be paid.

Right now, Social Security continues to take in through revenue more than it pays it through benefits, which is expected to continue until 2022. Once Social Security begins to pay out more than it takes in, it will be forced to liquidate the assets held by the trust funds.

In 2016, Social Security generated $957 billion in income. It only paid out $922 billion including $911 billion in benefits to 61 million beneficiaries.

To continue reading: Social Security Will Be Paying Out More Than It Receives In Just Five Years

 

…And Now For The Bad News, by Simon Black

To think that the federal government can pull a rabbit from its hat and painlessly solve its debt problem is to believe in a fiscal Easter Bunny. From Simon Black at sovereignman.com:

In the late 1760s and early 1770s, the government of France was in a deep panic.

They had recently suffered a disastrous and costly defeat in the Seven Years War, and the national budget was a complete mess.

France had spent most of the previous century as the world’s dominant superpower, and the government budget reflected that status.

From public hospitals to shiny monuments and museums, social programs and public works projects, overseas colonies and a huge military, France had created an enormous cost structure for itself.

Eventually the costs of maintaining the empire vastly exceeded their tax revenue.

And by the late 1760s, France hadn’t had a balanced budget in decades.

Debt was ballooning, interest payments were rising, and the government of Louis XV was desperate to do something about it.

There’s a famous story in which the Comptroller-General of Finances summoned all the government ministers to make deep budget cuts.

But no one could come up with anything substantial.

The overseas colonies were too important to cut.

And they couldn’t cut public hospitals… because too many people were now relying on them. Similarly they couldn’t cut veteran pensions either.

At the end of the session they could hardly find anything to cut that would make a meaningful difference.

All of their fancy programs and benefits had become too ingrained in society at that point; and any cut would have proven politically disastrous.

I thought of this story earlier this week when the US government released a sweeping budget proposal that aims to cut the deficit over the next ten years.

In fairness I’m always happy to see any government cutting spending.

But before uncorking the champagne bottles it’s important to understand some basic realities:

The budget slashes $3.6 trillion in spending through 2028 while proposing zero cuts to Defense, Social Security, and Medicare.

To continue reading: …And Now For The Bad News

Guns or Granny: The Looming Political Battle of the West, by Gary North

Gary North conducts a political analysis of the US’s looming fiscal problems and reaches one conclusion: granny wins. From North at lewrockwell.com:

I begin with a familiar pie chart. It is well named. It is a chart of the political pie.

This chart is from 2015. The right side of this chart is going to expand relentlessly from now on. Every day, 10,000 people go on Medicare. Medicare costs the government over $1,000 a month for each person enrolled. This inflow of eligible recipients is not going to stop for the next 20 years.

Now look at the bottom of the chart: Non-defense Discretionary. It was 16% in 2015, but you can be sure that it is closer to 14% today. This is the political battlefield in Washington: available loot. The rest of the loot is spoken for already. Politics cannot change the rest of the budget. Politics today, in terms of federal spending, is now down to under 14% of the budget, and it is probably heading toward 10% by 2022, when a new President will be in power.

Sometime before the 20’s are over, there will be no more discretionary slice of the budgetary pie. At that point, there is going to be a guerilla war in Washington. It will be a battle over the size of the slices of pie. Political voting blocs that thought the size of their slice was guaranteed will find that it isn’t.

This outcome of battle is going to change the nature of civil government in the United States. A series of battles that parallel ours will take place in Western Europe, where it all began in the 1880’s: Bismarck’s welfare state.

THE BUREAUCRATIZATION OF AMERICA

The greatest single threat to liberty in the West is what it has been for at least a century: the expansion of administrative law. This system is extending the power of central governments into every nook and cranny of the West. Bureaucracies have created administrative law courts that have been substituted for civil courts all over the West. Bureaucratic agencies provide their own judges. They serve as their own juries. Then they execute the laws that they have interpreted autonomously. This process is well developed, and it appears to be irresistible. It is the overturning of the Western legal tradition, as described by Harold Berman in his Introduction to Law and Revolution (1983).

This process is relentless. It is not affected by politics. It is protected in the United States by Civil Service rules. All over the West, comparable protections exist. These people are tenured. They cannot be fired. Their word is the law. This system is manifested in the United States by the Federal Register, which publishes over 80,000 pages of fine-print regulations every year.

To continue reading: Guns or Granny: The Looming Political Battle of the West

Taxation is Theft, by Andrew P. Napolitano

Taxation is theft and Social Security is a Ponzi scheme. Both are true statements, but in “conventional” political discourse, saying so will earn one condemnation. Here’s an article that cuts through the BS, from Andrew P. Napolitano at mises.org:

With a tax code that exceeds 72,000 pages in length and consumes more than six billion person hours per year to determine taxpayers’ taxable income, with an IRS that has become a feared law unto itself, and with a government that continues to extract more wealth from every taxpaying American every year, is it any wonder that April 15th is a day of dread in America? Social Security taxes and income taxes have dogged us all since their institution during the last century, and few politicians have been willing to address these ploys for what they are: theft.

During the 2012 election, then-Texas Gov. Rick Perry caused a firestorm among big-government types during the Republican presidential primaries last year when he called Social Security a Ponzi scheme. He was right. It’s been a scam from its inception, and it’s still a scam today.

When Social Security was established in 1935, it was intended to provide minimal financial assistance to those too old to work. It was also intended to cause voters to become dependent on Franklin Delano Roosevelt’s Democrats. FDR copied the idea from a system established in Italy by Mussolini. The plan was to have certain workers and their employers make small contributions to a fund that would be held in trust for the workers by the government. At the time, the average life expectancy of Americans was 61 years of age, but Social Security didn’t kick in until age 65. Thus, the system was geared to take money from the average American worker that he would never see returned.

Over time, life expectancy grew and surpassed 65, the so-called trust fund was raided and spent, and the system was paying out more money than it was taking in – just like a Ponzi scheme. FDR called Social Security an insurance policy. In reality, it has become forced savings. However, the custodian of the funds – Congress – has stolen the savings and spent it. And the value of the savings has been diminished by inflation.

To continue reading: Taxation is Theft

 

Why Social Security Is Doomed: “Birthrate At Lowest Level on Record”… And the Future Is Unfunded, by Mac Slavo

Like any good Ponzi scheme, Social Security needs a steadily expanding pool of new entrants. With the declining birthrate it is getting a shrinking pool. From Mac Slavo at shtfplan.com:

Here’s more evidence that the “recovery” never really happened, and good reason to think that the entire social net structure is doomed to fall apart.

The birthrate, long tied to economic growth, has been dropping to its lowest point in recorded history – both nationally and, in particular, in the state of California.

This demographic shift is bad news for the economy – in terms of housing, consumer markets, and especially for the long-term funding of social security, medicaid, medicare and other obligations that younger generations have typically been expected to pay into.

Whether or not you agree with the system in place, the fact that it is virtually certain to go bankrupt before the generation of baby boomers shift off this mortal coil should be troubling to everyone planning a future in the United States.

Official numbers show that the birthrate began to steadily decline in 2008 when the crisis hit and – unlike even during the Great Depression – hasn’t ever picked back up. 2016 saw the lowest point ever for California, even with higher births from immigrants factored in.

via the L.A. Times:

California’s birthrate dropped to its lowest level ever in 2016, according to data released by the state’s Department of Finance.

Between July 2015 and July of this year, there were 12.42 births per 1,000 Californians, the agency said this week. The last time the birthrate came close to being that low was during the Great Depression, when it hit 12.6 per 1,000 in 1933.

To continue reading: Why Social Security Is Doomed: “Birthrate At Lowest Level on Record”… And the Future Is Unfunded