2015 August 02 Sunday
Social Security Trust Fund Depletion Rate Has Sped Up
In 2009 the Social Security Trust Fund estimated it would have to cut benefits by 2041. In 2014 the estimated date for benefit cut was pulled in to 2033 with benefits being cut almost a quarter. Since the US economy continues to have slow growth I think even 2033 is optimistic.
I think slow economic growth is going to continue. This is why the trust fund exhaustion date is getting pulled in. James Pethokoukis reports: Lost Decade? The US is about to have its first 10-year period since World War II without at least one year of 3% growth.
The average skill level of the American workforce is declining. America's very large numbers of lower class immigrants aren't accumulating skills at the levels of old stock Americans, aren't paying as much in taxes, and getting more in welfare benefits. They too will retire but having paid much less in than natives. This does not end well.
By Randall Parker at 2015 August 02 01:48 PM
The SS Trust Fund isn't real money - it's just a budgetary device that allows Congress to use general revenues to pay benefits. Where did it come from? From its earliest days until just a couple of years ago, SS, helped considerably by favorable demographics, took in more than it paid out. What happened to the extra money? What a silly question! Congress spent it! Democrats spent it, and Republicans spent it - a real bipartisan success story. This excess money that was not paid to beneficiaries is the so-called Trust Fund. Yeah, sometime in the misty future it will run out, but Congress will just pass another law allowing SS to be supported by general tax revenues - problem solved. There may be some sort of pious provision that says the money will be repaid when income again exceeds expenditures, but don't hold your breath on that one. The Baby Boom petered out in the early 1960's, which means people from that demographic will be becoming eligible for SS for the next fifteen years or so. Their numerical clout at the polls will prevent the cowardly politicians from actually doing anything about the problem.
Yes, I get that the Trust Fund isn't real money. But that means the general fund is going to be starved of cash when old folks insist on no decrease in Social Security payments. There will be a battle royale between old folks and the growing lower classes. Har to say how this will turn out. I think we will see further increases in retirement age, maybe means-testing for benefits, and probably higher taxes.
The point is, the general fund isn't starved for revenue when the 'fund' runs out. It's starved for revenue when the cash flow goes negative. IOW, the crisis isn't 30 years from now. It's TODAY.
Do you see a Greece-style debt crisis emerging within the next 5 years?
Social Security will be means tested, IOW if you have a positive net worth (excluding, possibly, the equity in your home) you'll be out of luck: you will be declared ineligible for benefits. Then there is always the possibility that everyone's 401K will be "annuitized," i.e. seized and in its place you'll be given a "guaranteed" government pension. If that happens, turn out the lights, the party's over. People will correctly understand that there are no longer any private property rights or protections against the government seizing ANY asset you own. The result will be chaos as millions of people rush to liquidate their holdings and move them to places that are considered safer before the next inevitable step, which would be currency and capital controls.
Currency and Capital controls are already here.
They are imposed indirectly making extremely dangerous for other countries' banks to give US residents and citizens any type of banking accounts.
No bank would touch a US resident or citizen money, so US citizens and residents can only export cash, in limited quantities and use other means to internationalize their assets.
The government will increase the requirements to access the SS money. And will not increase the checks.
James Pethokoukis reports: Lost Decade? The US is about to have its first 10-year period since World War II without at least one year of 3% growth.
but compared to the rest of the world and adjusted for inflation, US GDP growth is actually pretty good.
I think the most interesting thing about these "end of the road" situations that these entitlements are in currently is how quickly it has come. I remember reading pre-financial crisis that our pension and entitlement systems were going to start running into trouble in the 2030s and 2040s. The financial crisis has brought all of this forward basically by 15-20 years before the baby boomers have started retiring in large numbers.
In America I expect Social Security checks to continue to be paid for the next 5 years and probably the next 10 years. Some European countries will hit the wall before we do because they no longer have their own currency. I think some other countries will have Greece-style debt crises come the next deep recession.
Sgt. Joe Friday,
Agreed on means testing. I am not counting on Social Security at all in my own planning. I think I can save enough to support myself in my old age. I'm more worried about medical. I'm expecting various forms of cuts to Medicare where treatment access gets restricted. I figure I'll be better off if I can pay cash for medical, at least for some of it. Pay an expert specialist to diagnose a problem or recommend between treatments..
Bringing stuff forward thru financial crisis: My biggest economic worry is we will see a repeat of the last crisis. Check out this chart of sovereign debt levels of OECD countries from 2008 to 2015. Note the 2008 and 2015 amounts. Add a new crisis. Those countries will enter the next recession starting with much worse debt level, slower GDP growth rates, even more aged populations. A lot of Euro zone countries would default if we had a repeat of 2008. Add 20-30-40% of GDP to each country's sovereign debt load. Even a normal recession will push Italy, Portugal, and Ireland close to the Greece zone.
You can buy stock in companies in foreign countries. Its not too hard to diversify your risks.
Suppose a society where each year the citizens, on average, are dumber. Continue for 20 years.
Will this country be dumber and poorer or smarter and richer?
How many Mexicans and Central Americans have jumped into America?
Is this country better or worse, richer or poorer, dumber or smarter?