Last year, the CBO figured the surplus would be $80 billion this year and next, rising from those levels before falling to zero in about ten years. The most recent projections are for a slim $16 billion surplus this year and just $3 billion next year but, given the rosy predictions that usually come out of Washington, a deficit is certainly within the realm of possibilities.

This is bad. We were supposed to have until 2012 that Social Security would still be in a "surplus" -- meaning more SS taxes were being taken in than outlays. Thus, Social Security would be contributing to the government's general operating revenue until that time (the Social Security money taken in is not segregated in any way -- it is just "tracked" through the holding of Treasury Securities).

Apparently, that "lucky" state of affairs is all but over -- now the fund will have to start selling off its trillion or so of accumulated Treasuries, contributing to the overall funding problem of the Federal Government, at the worst possible time.

The US is bankrupt, folks. Its time to acknowledge it and deal with it.

Update: A reader writes in to point out that the above is, in fact, too optimistic -- the Social Security Trust Fund has no Treasurys to sell. All it has, literally, are inter-departmental, non-negotiable IOUs. Hence:

there are no accumulated Treasuries in the Trust Fund. The Trust Fund is nothing more than a collection of interdepartmental markers, and is considered non-negotiable debt. It is not part of the national debt, and does not pay interest. If it was negotiable debt (Treasuries) it would be an asset to the fund, and could be sold on the open market to pay for future obligations just like any other retirement plan (and also would have sky rocketed in value during the greatest bond market rally in at least a generation). In 1980 the real change was to place all of the proceeds from Social Security into the general fund, replace it with non-negotiable markers in filing cabinet somewhere and call it unfunded pension liabilities. This has the advantage of making the national debt look lower. If it was funded by Treasuries then no new debt would need to be issued by the Treasury, but since it is not funded with negotiable debt, new debt will need to be issued (or benefit decreases, or increased taxes). Social Security is a pay as you go system, and the massive tax increases in 1980 to save it were nothing more that a middle class tax increase. When suckers will no longer fund the national debt, this program will be under serious pressure for massive change..


taps65 at 01:10 2009-04-01 said:
In the past several months as the debate over Social Security reform has taken center stage in the theater of the absurd that is modern American politics, the idea has been floated that the entire pay—as—you—go structure of this system closely resembles a Ponzi scheme, albeit one that is about to collapse. more. Permalink
bdc63 at 08:04 2009-04-01 said:
It doesn't "resemble" a ponzi scheme, it flat out IS a ponzi scheme.

The first people in get paid off with the late comer investments, and the late comers get nothing, zip, nadda.

This will be ugly. Permalink

thetruthfromNC at 10:13 2009-04-01 said:
Yes this IS and always WAS a Ponzi scheme, but a good one. The last people in don't get nada, zip, nothing. They will always get something, just less!

What makes this Ponzi scheme work (thought not very well) is that it's government ordered. What makes a Ponzi scheme go broke is no new money coming in, but since Uncle Sam keeps taking money out of our pay checks it will continue on.

It's just they will either increase the money going in (taxes) or lower the money going out (benefits) to keep the world's greatest Ponzi going. Permalink

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