Social Security's Surplus Disappearing Fast in Downturn


B

Beliavsky

Time Magazine, April 9, 2009
by Justin Fox
http://www.time.com/time/business/article/0,8599,1890542,00.html

Federal-budget worrywarts (myself included) have been fretting for
years about the arrival of the Dread Fiscal Year 2017, when Social
Security was projected to start becoming a drag on federal finances.

Well, no need to worry about 2017 anymore. Thanks to the worst
economic downturn since the 1930s, the moment of reckoning is already
almost here: according to both the budget proposed by the White House
in February and projections issued by the Congressional Budget Office
(CBO) in March, Social Security benefits ($659 billion, according to
the CBO) will exceed payroll taxes ($653 billion) in fiscal 2009 for
the first time since 1984. Payroll-tax receipts generally hold up much
better in recessions than do income taxes, but job losses have been so
severe that the CBO expects them to decline slightly from 2008, while
benefits rise almost 9% because of cost-of-living adjustments and the
beginnings of the baby-boomer retirement wave.

If you count the $17 billion in income taxes expected to be paid on
Social Security benefits, the system will still manage to provide a
slight surplus for federal coffers in fiscal 2009. But from 2010
through 2012, there are small projected deficits, and after heading
back into the black from 2013 to 2015, the program will then become a
growing drain on federal finances, projects the CBO.

<rest of article at link>

Social Security is the biggest Ponzi scheme.
 
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H

honda.lioness

Beliavsky said:
Social Security is the biggest Ponzi scheme.
?

The Social Security program's income and expenses depend on the
population demographics. These demographics wax and wither. By
contrast a Ponzi scheme's base only expands.

Calling SS a Ponzi scheme is like calling an insurance company a Ponzi
scheme just because it hit a rough patch of multiple hurricanes.
 
G

Gil Faver

?

The Social Security program's income and expenses depend on the
population demographics. These demographics wax and wither. By
contrast a Ponzi scheme's base only expands.

Calling SS a Ponzi scheme is like calling an insurance company a Ponzi
scheme just because it hit a rough patch of multiple hurricanes.
if an insurance company set up a program like Social Security, they would be
locked up and the key thrown away.
 
H

honda.lioness

Gil Faver said:
if an insurance company set up a program like Social Security, they would be
locked up and the key thrown away.
Do you dispute that population demographics wax and wither? That
eventually, for one, the baby boom generation will die out and the SS
budget yada will again be in the black?
 
D

Douglas Johnson

Gil Faver said:
if an insurance company set up a program like Social Security, they would be
locked up and the key thrown away.
Yeah, and if the corner candy store did their accounting the same way as the
Federal Government, Mom and Pop would be in jail, too.

But we have been running surpluses on Social Security for decades. This was in
preparation for the deficits that demographics made inevitable. Those surpluses
have been invested the safest securities in the world -- US Treasury Bonds. So
far, no problem. Insurance companies do exactly the same thing.

The problem comes in the scale. When an insurance company redeems some Treasury
bonds, even a lot of Treasury bonds, the Treasury hardly notices. When Social
Security starts redeeming its bonds, the Treasury is either going to have to
find a way to raise a lot of money --- tax, borrow elsewhere, or cut spending
elsewhere. Financing that and current deficits is going to be interesting.

-- Doug
 
B

Beliavsky

Yeah, and if the corner candy store did their accounting the same way as the
Federal Government, Mom and Pop would be in jail, too.

But we have been running surpluses on Social Security for decades.  This was in
preparation for the deficits that demographics made inevitable.  Those surpluses
have been invested the safest securities in the world -- US Treasury Bonds.  So
far, no problem.  Insurance companies do exactly  the same thing.

The problem comes in the scale.  When an insurance company redeems some Treasury
bonds, even a lot of Treasury bonds,  the Treasury hardly notices.  When Social
Security starts redeeming its bonds, the Treasury is either going to have to
find a way to raise a lot of money ---  tax, borrow elsewhere, or cut spending
elsewhere.  Financing that and current deficits is going to be interesting.

-- Doug
The existence of a Social Security trust fund that owns Treasury bonds
is meaningless. Suppose there were no trust fund. When Social Security
benefits exceed payroll taxes, and the government runs a deficit, the
benefits are effectively being paid by issuing bonds. If there is a
trust fund owning government bonds, selling those bonds to pay for the
benefits is economically the same as issuing new bonds. There are no
tangible assets in the trust fund, just taxpayer obligations.
 
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D

Don

Those surpluseshave been invested the safest securities in the world --
US Treasury Bonds.
I always thought Iceland Treasury Bonds were the safest.
 
C

catalpa

Don said:
I always thought Iceland Treasury Bonds were the safest.
Only if you are interested in purchasing a lifetime supply of hákarl.
 
R

Ron Peterson

The existence of a Social Security trust fund that owns Treasury bonds
is meaningless.
It's not meaningless if a corporation owns Treasury bonds. Those bonds
are considered long term investments which are distinct from tangible
and intangible assets.
... There are no
tangible assets in the trust fund, just taxpayer obligations.
The alternative would be for the trust fund to hold stock and
corporate bonds. I have advocated that, but the market collapse makes
it a difficult point to argue.

People need to make provisions for the future and just not rely on SS,
but isn't that well known?
 
R

rick++

This wasnt supposed to happen until 2018 according to the
trustees report. But we may see for a few years.
The Trustees report is very modest about future
economic growth and doesnt model sudden lurches
like bubbles and great recessions.
We could return to the main demographic trend when
the recession ends.
 
R

rick++

A Ponzi scheme is when you lie about how money is to be
invested and paid out. SS has been up front about how it
operates (except before WWII when it used insurance terms
like premiums and annuities to describe its methods.)
 
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B

Bill Woessner

It's not meaningless if a corporation owns Treasury bonds. Those bonds
are considered long term investments which are distinct from tangible
and intangible assets.
Correct. If a corporation owns Treasury bonds, they are an asset. If
a corporation owns corporate bonds from another corporation, they are
an asset. But if a corporation owns its OWN bonds... are they an
asset? That's exactly the situation with the Social Security Trust
Fund. The federal government has issued itself its own bonds and is
calling them an asset. I'm not an economist or an accountant or
anything of the sort, but that sounds like Enron-style accounting to
me.

--Bill
 
H

honda.lioness

Augustine said:
it's a Ponzi scheme because it squandered its funds and now
depends on those getting in the mandatory scheme to keep its
liabilities funded.
Overextending in the short term on the bet that this will prove a good
investment in the long term is typical of many businesses.
Happy Easter!
You forgot: Happy Passover and spring solstice.
 
D

Don

Only if you are interested in purchasing a lifetime supply of hákarl.
I'll skip the hakarl. I've been told it smells like the cleaning fluid
used to get dirt out of bathtubs. I am going back to USA bonds after
all. Of course, there are Pakistani, Iranian, and, Somali bonds. They
could be good solid investments too. I'll think it over.
 
T

Thumper

Correct. If a corporation owns Treasury bonds, they are an asset. If
a corporation owns corporate bonds from another corporation, they are
an asset. But if a corporation owns its OWN bonds... are they an
asset? That's exactly the situation with the Social Security Trust
Fund. The federal government has issued itself its own bonds and is
calling them an asset. I'm not an economist or an accountant or
anything of the sort, but that sounds like Enron-style accounting to
me.

--Bill
Y can't compare it to private accounting.
Thumper
 
C

Chip

I am going back to USA bonds after
all. Of course, there are Pakistani, Iranian, and, Somali bonds. They
could be good solid investments too. I'll think it over.
I hear that since piracy is becoming quite stable and lucrative in
Somali, their bonds should do very well.

Chip
 
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H

honda.lioness

Augustine said:
The Passover is not today
Passover is a multi-day event, and we are in fact in the midst of it.
Anyone posting happy Easter greetings in a forum open to all cultures
and religions is fair game for being reminded that more than
Christians read here.
 
R

Ron Peterson

Correct.  If a corporation owns Treasury bonds, they are an asset.  If
a corporation owns corporate bonds from another corporation, they are
an asset.
 But if a corporation owns its OWN bonds... are they an
asset?  
They are both an asset and a liability for accounting purposes. They
cancel themselves out for the whole organization. But if a corporation
owns bonds in a subsidiary, the subsidiary counts the bonds as a
liability and the owning corporation counts the bonds as an asset. The
subsidiary is then treated as having a lower book value than if it
hadn't issued bonds.
That's exactly the situation with the Social Security Trust
Fund.  The federal government has issued itself its own bonds and is
calling them an asset.  
The SS Trust Fund bonds are an asset for SS, but a liability against
the government. The government guarantees those bonds through general
taxation, something SS can't do without Congressional approval.

Many of us don't like that situation because it may mean rising taxes
when SS starts to redeem the bonds in the Trust Fund.
 
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B

Bill Woessner

They are both an asset and a liability for accounting purposes. They
cancel themselves out for the whole organization. But if a corporation
owns bonds in a subsidiary, the subsidiary counts the bonds as a
liability and the owning corporation counts the bonds as an asset.
OK. But that's the converse of the situation with the federal
government and Social Security. Social Security is the "subsidiary"
and the federal government is the "corporation" (I think). So in this
case, the subsidiary holds bonds in the corporation. How does that
work?

--Bill
 

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