Social Security is officially broke. Thanks, Washington politicians. You guys make Bernie Madoff look like a piker.
20 thoughts on “The Day Of Reckoning Has Arrived”
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Social Security is officially broke. Thanks, Washington politicians. You guys make Bernie Madoff look like a piker.
Comments are closed.
Land mine city for the Republican party.
Only the beginning…….
“You guys make Bernie Madoff look like a piker.”
Although the Government and Madoff both used the same vehicle – the Ponzi Swindle.
This is a bad situation, but using terms like “broke” and “Ponzi swindle” isn’t helping.
Where we are at now is that Social Security’s expenses now exceeds income, and will begin drawing on the Trust Fund. It will be “broke” when the Trust Fund hits $0, perhaps in 10-15 years at which point Social Security will be “pay as you go” with around a 40% reduction in benefits.
Hypothetically, it’s like if I have a job, and I have savings, but today my expenses are now more than my wages so I am starting to spend my savings. If I don’t do anything to make wages equal to or better than expenses (a better job and/or cutting expenses), I’m going to hit a wall in the future when my savings are gone.
Do I have the will to do something before I hit that wall? Does the Government?
Darkstar, you’re confused. SS doesn’t have any “savings,” except in the sense that it’s owed money by the Treasury. You might have an argument if SS had used its income to buy private investments, e.g. had lent the Chinese money to build high-speed rail, or lent money to Bill Gates to finance the programming of Windows 7, and could now ask those to whom it had lent money to redeem their bonds, with interest.
But that’s not what happened. The SS lent the money to the government, and it was spent on standard Democratic Party shovel-ready shit selling schemes. That is, the government lent money to the government, and now expects to pay itself back, ha ha.
The analogy you want is as if you’ve “saved” a big chunk of your income over the past 20 years by writing yourself an IOU, putting it in the piggy bank, and going out (as your other personality) and spent the dough.
But don’t worry! You have a fat pile of IOUs you can now call in to finance your expenses, now that your income isn’t up to it. The money you collect from paying back yourself will keep you afloat for a while longer. Tee hee.
Darkstar – interesting choice of names. I would say that the US government is a lot like the smart bomb in the movie. It only knows how to do one thing and, by God, it will do it!
Well here’s hoping the amazing economic boom we are going to get from the green economy will create record breaking Social Security revenue’s in the next 10 years…..ha hah…hahahahaha….hahHAHAHAHAHA!!1!111!!!
This is a bad situation, but using terms like “broke” and “Ponzi swindle” isn’t helping.
What? Truth doesn’t help? The Ponzi scheme feature of Social Security has been known since its beginning. It’s only now when the current generations of payees are facing, at best, a modest loss on the money that they put in, that we see the final consequences of a program that doesn’t do anything useful, and what it does, it does poorly.
Once again, here are the many problems with Social Security (the part that goes to retirees):
1) It doesn’t serve a useful role. It’s not big enough to be a pension or “retirement insurance”.
2) The Ponzi scheme aspect. There’s no investment here and the program has been funded, till now, by payment from Social Security tax. Now, the tax isn’t sufficient, so we’ll be paying from general taxes as well.
3) It redistributes income from people who need it to raise families, pay for education or homes, etc to people who don’t need it as much.
4) It makes US labor about 15% more expensive. If Social Security were eliminated, that savings would be split up between employers and employees, both groups who could use the money and the work.
5) It encourages retirees to stop working and workers to stop saving for retirement.
6) It opened the door for a national ID system.
Oh, and
7) It is a regressive tax.
Ok, I’ll stop after this.
8) It allows the US government to consistently overspend the federal budget by hundreds of billions of dollars for at least half a century.
> This is a bad situation, but using terms like “broke” and “Ponzi swindle” isn’t helping.
I would say that failing to use these terms isn’t helping. And criticising the use of these terms really isn’t helping.
Yours,
Tom
@Carl Pham, et. al.: I’m not convinced.
If we have hit the wall, and Social Security is broke, what practical consequences will we be seeing, say, today, or the next year?
what practical consequences will we be seeing, say, today, or the next year?
If nothing changes? The Federal government will start having to include a “pay back SS trust fund” item in the budget, funded by the Federal income tax (not the FICA tax you see on your paycheck). That will require reduced spending elsewhere, a rise in Federal income tax, or an increase in the deficit if the money is borrowed.
Darkstar wrote:
This is a bad situation, but using terms like “broke” and “Ponzi swindle” isn’t helping.
I fully agree with the “Ponzi swindle” tag, as it’s the most visible implementation of a Ponzi scheme in the nation and probably the whole world.
But Darkstar is correct that the Social Security Administration is far from broke. It has trillions of dollars of U. S. Treasury bonds in its possession, an instrument prized by investors the world over. The bonds have, at least until recently, been widely considered the safest investment in the world — safer than cash, safer than gold. When calculating risk for a wide array of investments, institutional investors often assigned U. S. Treasury bonds zero risk.
The agency that has the problem because of this is the Treasury, not the SSA. When the SSA was filling the trust fund with excess tax revenue, the Treasury could count on the SSA to buy tens if not hundreds of billions of dollars of bonds a year. Now, at a time when the Treasury needs to sell $1.5 trillion of bonds a year, not only is the SSA no longer buying new bonds, they’re selling the bonds they already have to investors in direct competition with the U. S. Treasury.
That means that the Treasury is going to have to offer even higher interest rates than they already do, or, more likely, the Fed is going to have to do even more quantitative easing, driving inflation even higher. Inflation will destroy us all if we don’t get a handle on the federal government, but the SSA will be solvent for at least another decade or two.
Mike
Darkstar is half correct … it isn’t “broke” … yet. But it is a Ponzi scheme.
@Carl … What do you call the the EE Savings Bonds that I have in a box? Are they not an investment?
The gov’t issued SS bonds with interest. In essence, no different than when I bought the EE Savings Bonds. Now the SSA is starting to cash in the bonds.
Yes, they have file cabinets full of Treasury notes, in Cincinnati I think. But they are not typical Treasury bonds that can be traded. They really are no better than the briefcase full of IOUs that Harold and Lloyd racked up in Dumb and Dumber.
When SSA takes those special notes back to Treasury, Timmay or his replacement will have to print yet more worthless dollars (electronic or paper) to put into SSA’s bank account so that the can transfer those funds out to millions of recipient bank accounts.
If I had a dollar for every time some pro-SS political parasite has claimed that SS would be perfectly secure until at least the 2040s and that we’d be fools to privately manage our own retirment funds, I’d be comfortably retired already.
What do you call the the EE Savings Bonds that I have in a box? Are they not an investment?
Of course it’s an investment. Because you and the government are different entities. But “Social Security” and the “US Treasury” are merely different arms of the government. If one “sells” the other a bond, it’s not an investment, it’s just a shell game.
Look, if I lend you $10, then you have $10 you didn’t have before. But that’s hardly the case if you “lend” yourself $10. That’s just you playing games.
If SS had taken their excess income stream from SS taxes in the 80s and 90s and, say, bought bonds in India or China, i.e. lent the money as capital for building high-speed rail in Shanghai or nuclear power plants in India, then it would’ve been possible for this investment to pay off big time. The high-speed rail lines might have turned a huge profit in China, paid by Chinese peasants, and then when SS cashed in its bonds money would flow from the savings accounts of Chinese peasants into the SS coffers, and thence to American retirees. Since presumably the Chinese peasants can afford this extra burden, because the high-speed rail has enormous raised their productivity and they now make 10x what they did before, it’s possible for this to be win-win.
But that’s not what they did. They bought US Treasuries, which means they “lent” the money to the Federal government, i.e. themselves, and the money was spent fighting the Iraq War or giving block grants to states or sending ag subsidies to Iowa farms. It’s gone. It was all “consumption,” pure spending. There is nothing that can be characterized as “investment” that could direct a stream of money from some other place than American Federal taxpayers in 2011 to repay the loan from…American Social Security taxpayers of 1981.
Honestly, the whole concept of Treasury bonds is stupid and shouldn’t be allowed anyway. Bonds were traditionally issued by government (and still are by business and municipalities) to acquire capital for emergency needs, or massive infrastructure investment — things that could reasonably be expected to so improve productivity that the future economic benefits would more than cover the cost of borrowing. That’s what we do, privately, when we borrow money to start a business: we sell a “bond” (in this case our word of honor) to get capital to start a business that will make so much money we can pay back the “bond” with interest and still come out ahead.
But the entire function of Treasuries now and for the past umpty years is simply to fund current regular spending that isn’t covered by current taxes. It’s exactly the same as paying your rent with your VISA card. It is in no serious sense an “investment” — because paying your rent doesn’t do squat to significantly improve your earning capacity later. All it does is push the bill for your current consumption into the future. That might conceivably make sense if you’re young and your earning power will increase mightily. But there’s no such argument for the United States.
Which means I guess I should modify my answer to your question: your EE Savings Bond looks like an investment — to you. It seems to do the same thing as far as you’re concerned. But it actually isn’t a genuine “investment,” because you’re not lending it to supply seed capital for a profitable venture. You’re just lending it to fund current expenses of government. You’re in the business of lending someone else money to pay his rent. He may pay it back, with interest, but he’ll be the poorer for it. This is not win-win.
Furthermore, since the person to whom you’re lending the rent money is actually yourself, as a taxpayer, this comes close to actually being a shell game you play with yourself. You bought the EE bond ten years ago. You’ll get it paid, with interest, today. But in order to pay it, the government is going to raise your taxes enough to cover the cost of the bond, the interest it pays you, and a little extra to pay for the salaries of the people who shuffle all this money around. On balance, you lose.
The solution to the SS problem is simple. Transfer people to a system that works while keeping those in that want to stay in the current system to continue phasing out (by death or transfer) until it’s gone.
What would work? An example: The new system takes the ten years of payments to a private market annuity plan (lot’s of vendors all ready to go.) After ten years, regardless of age you immediately get the annuities monthly payments. You can then opt for another ten years and get a second annuity. Another ten, get a third. Etc.
You own the annuities. No means testing. No age limits. It’s your money. What’s paid get’s used as Carl suggests like any other annuity.
Whatever they do has to eliminate the current house of lies.
But all those people transfering would hasten the failure of the current system. Well, get over it. It’s already failed. Whatever they do with people already in the system has to be faithful to the lying promise they already made. People dependent of SS now should not be screwed. Perhaps a means testing could remove many now to reduce the burden on the current unsustainable system. It’s a mess but not fixing it is not an option and destroy the lives of people that faithfully paid in and require those small monthly checks to live is not an option either.
Another controversy. Private Ponzi schemes should not be illegal. Caviet Emptor. People are leery. The theoretical flaw in those schemes can never actual occur since people soon learn they will not work for most involved.
Life is a ponzi scheme.
Of course not, you fool! This is politics!