Fiscally Impossible?

source
$222 Trillion Unfunded Liabilities

The expert here is Prof. Lawrence Kotlikoff of Boston University. His most recent report says that total unfunded liabilities went from $211 trillion a year ago to $222 trillion this year.
 
The biggest source of future red ink will be Medicare. In second place is Social Security.

How can the government pay off these obligations? It can't. The possibility does not exist. The government needs a spare $222 trillion to invest in private companies. This investment must make a return of at least 5% to provide the money needed to pay meet the government's obligations. There is no $222 trillion available, and no capital markets large enough to absorb $222 trillion.

Conclusion: the U.S. government will default. 

source

Social Security COLA

source

Is Social Security a Ponzi Scheme

source

Is Social Security a Ponzi Scheme?

Yes: Rick Perry and Michael Tanner

No: Jeff Jacoby and Sheldon Richman

Sacred Cows

How to Eliminate Social Security and Medicare

Ralph Raico writes:

How to Eliminate Social Security and Medicare Expenditures under the Social Security and Medicare programs account for approximately one-third of total federal government spending. It is obvious that any major reduction in government spending requires major reductions in spending for these programs. Unfortunately, Social Security and Medicare are generally regarded as sacred and thus virtually untouchable, with the result that few if any proposals have been made that would greatly reduce the spending they entail... This program will undoubtedly seem much too slow for some supporters of individual rights and freedom. Nevertheless, I believe that it is in fact the most rapid means of achieving its ultimate goal that does not entail a revolutionary overthrow of what have come to be established rights in the law, however wrongheaded the law has been in establishing those rights in the first place. Proceeding in this way is an essential aspect of liberalism in its classical sense. Fundamentally, rights to entitlements of any kind, that must be paid for involuntarily by other people, are no more legitimate than the alleged property rights of slave owners in their slaves. Yet to avoid civil war, liberalism would have urged a policy of compensated emancipation rather than one of violent emancipation. Today, in fundamentally similar circumstances, liberalism must limit as far as possible the disturbance that would otherwise be caused by the elimination of illegitimate, perverted rights... If we want to protect the value of individual human life, particularly in old age, when it is most vulnerable, we must reverse direction and start dismantling Social Security and Medicare, two potentially deadly collectivist institutions. We must restore to the individual the responsibility and the power to determine his own future through forethought and saving. The individual must have his own individual property with the freedom to use it for his own well-being, as he sees fit. Government officials must be barred from the process. source

Cartoon: Pyramid Schemes

Social Security: Reality

Jacob Hornberger writes:

All too many Americans simply do not wish to see the reality of Social Security. They’ve lived all their lives under myths, illusions, and delusions, mostly self-imposed. And many of them get furious when you confront them with reality. It’s easier to continue living under the myths, illusions, and delusions.

Reality: There is no Social Security fund. There never has been a fund. There never will be a fund. From the very beginning, Social Security has been just another socialistic welfare program, no different from food stamps or agricultural subsidies.

Reality: The government is not like a private business. It does not create wealth. It is also not a fountain of wealth. It does not have its own money. The only way it gets its money is by taking it away from people in the private sector.

Reality: Social Security is a straight, out-and-out, socialistic program. It’s not a coincidence that the Social Security administration has a bust of Otto von Bismarck on its website. He was known as the Iron Chancellor of Germany. He got the idea of Social Security from German socialists and then introduced it into Germany’s paternalistic, welfare-state way of life.

Reality: Social Security program is one of major factors that are heading America toward bankruptcy.

Reality: Young people are already having a terribly difficult time starting out in life, including buying a home and raising a family. Why in the world would any senior citizen desire to make life more difficult for young people, including their children and grandchildren and their friends by continuing to impose an enormous Social Security tax burden on them?

Seniors have the opportunity to do the right thing before they pass from this life. They have the opportunity to call for the repeal, not the saving, of Social Security. Many seniors don’t need the money anyway. Some will have to continue working, which isn’t necessarily a bad thing. In fact, imagine the economic prosperity and job creation that would result from ending the enormous Social Security tax burden. Others will have to depend on their children or others for help.

What’s wrong with all that? Have Americans lost all their faith in the workings of a free society?

America’s experiment with socialism (as well as its experiment with military empire) has failed. America’s senior citizens should do the right thing and demand the repeal, not the reform, of Social Security. Repealing Social Security, the crown jewel of America’s welfare state, would help lead America out of its statist morass and put our nation back on the road of economic liberty, free markets, prosperity, sound money, voluntary charity, and a constitutionally limited-government republic.

Cartoon: Social Security "Stimulus"

Cost of Living August 2010

The COLA adjustment is based on the increase from Q3 of one year from the highest previous Q3 average. So a 2.3% increase was announced in 2007 for 2008, and a 5.8% increase was announced in 2008 for 2009.

In Q3 2009, CPI-W was lower than in Q3 2008, so there was no change in benefits for 2010.

For 2011, the calculation is not based on Q3 2010 over Q3 2009, but based on the average CPI-W for Q3 2010 over the highest preceding Q3 average - the 215.495 in Q3 2008. This means CPI-W in Q3 2010 has to average above 215.495 for there to be an increase in Social Security benefits in 2011.

source

Social Security: An Analysis

You know all that money you pay in Social Security taxes? Where do you think it goes? Into current expenses and US bonds!

That’s right, the feds just use the money to finance whatever fool scheme they’ve got going at the moment…and give the Social Security Administration a bond in return. In theory, the SSA has assets. In practice, all they’ve got is the hope that the feds can squeeze enough money out of taxpayers to meet their obligations...

In other words, there is no question about whether the US government will default or not. It will default. The only question is how. Will it manage to slip out of its obligations by raising the inflation rate enough to slough them off? Or will it have to officially renounce them? Will it refuse to pay retirees? Or bondholders?

Any way you look at it, the situation is interesting. Retirees, employees, loafers and chiselers – all are stakeholders in the US government. They have something to lose and will fight to hold onto what they’ve been promised. Bondholders have something to lose too.

So far, the bondholders have been largely protected – even enriched. Stakeholders in Greece, Ireland and other countries have begun to feel the pain. In America, the class of stakeholders is actually increasing, as the public sector spends more and the private sector spends less.

Best guess: stakeholders, bondholders, placeholders, cupholders, napkin holders – they’ll all take a loss.

source

Social Security

Seventy-five years ago, in the depths of a depression, with a stroke of a pen, President Roosevelt created programs that would morph into the biggest mandatory spending initiatives of the US federal government.

We like the original name better: Federal Old Age, Survivors and Disability Insurance. In its original form, that’s what it was: An insurance plan – as in, most people might not need it...

“75 years of a fully paid-for insurance plan isn’t bad,” notes our income analyst Jim Nelson. “But frankly, neither the Republicans’ plan to privatize the program or the Democrats’ plan to do nearly nothing will fix the next 75 years.

“That’s why smart investors are looking elsewhere to save for their own retirement."

source

Social Security and COLA

This graph shows CPI-W over the last ten years. The red lines are the Q3 average of CPI-W for each year.

The COLA adjustment is based on the increase from Q3 of one year from the highest previous Q3 average. So a 2.3% increase was announced in 2007 for 2008, and a 5.8% increase was announced in 2008 for 2009.

In Q3 2009, CPI-W was lower than in Q3 2008, so there was no change in benefits for 2010.

Even though there was no increase last year, and there will probably be no increase this year, those receiving benefits are still ahead because of the huge increase in Q3 2008.

For 2011, the calculation is not based on Q3 2010 over Q3 2009, but Q3 2010 over the highest preceding Q3 average ... the 215.495 in Q3 2008. This means CPI-W in Q3 2010 has to average above 215.495 or there will be no increase in Social Security benefits in 2011.

In July 2010, CPI-W was at 213.898, so CPI-W will have to average above 216.294 in August and September for the Q3 average to be at or above Q3 2008. That suggests an increase in COLA is very unlikely right now.

source

Social Security is Broke

The time of reckoning is already upon us: Social Security is right now in deficit, sucking funds out of the general pool. Americans should brace for further tax hikes — in the name of "saving Social Security" — and anyone under 40 should have no illusions about retirement benefits.

read the entire article

Social Security: An Investment Loser

To find the dividing line between net gainers and losers, we created a projection assuming an individual with a salary equaling the top taxable Social Security limit for 45 years (to get an idea of this amount, consider the limit was $3,000 dollars in 1940 and $106,800 in 2010 – both nice salaries). Our test dummy paid the maximum Social Security taxes every year.

On the other hand, upon retirement, he would receive maximum benefits. According to the Social Security Administration, maximum taxation is a prerequisite to maximum payouts. Next, we added Social Security benefits received over 13 years (derived from the average U.S. life expectancy of about 78). Finally, we calculated the difference between taxes paid over 45 years and the payouts received for 13. The results were shocking.

Before 2007, our projected retirees were net gainers from Social Security. 2007 retirees were the first net losers at –$411. By 2011, retirees will be –$40,403 in the red.

source

Cartoon: Social Security

Cartoon: Social Security

Social Security Deficit

This year, the system will pay out more in benefits than it receives in payroll taxes, an important threshold it was not expected to cross until at least 2016, according to the Congressional Budget Office...

Although Social Security is often said to have a “trust fund,” the term really serves as an accounting device, to track the pay-as-you-go program’s revenue and outlays over time. Its so-called balance is, in fact, a history of its vast cash flows: the sum of all of its revenue in the past, minus all of its outlays. The balance is currently about $2.5 trillion because after the early 1980s the program had surplus revenue, year after year.

Now that accumulated revenue will slowly start to shrink, as outlays start to exceed revenue. By law, Social Security cannot pay out more than its balance in any given year.

source

Healthcare Reform

Cartoon: Toyotas and Social Security