AP Reporters Act As If Social Security’s Reckoning Is 25 years Away; It’s Not
The opening paragraph of Saturday morning’s Associated Press report by Stephen Ohlemacher and Ricardo Alonso-Zaldivar on the state of Social Security and Medicare and an additional sentence from the third paragraph give away the fact that theirs will not be a missive that should be taken seriously (bold is mine):
The bad economy is worsening the already-shaky finances of Medicare and Social Security, draining the trust funds supporting them faster than expected and intensifying the need for Congress to shore up the massive benefit programs, the government said Friday.
… The Social Security trust funds are projected to be drained in 2036, one year earlier than the last estimate.
This post will concentrate on Social Security. By referring to the idea that its trust fund is being “drained,” the pair are perpetuating the myth that the Social Security system has a stash of cash and investments just sitting there ready to be redeemed and distributed as benefits when needed. This of course is false. What follows are four fundamental truths about Social Security.
First, for years, Social Security collected more in taxes than it paid out in benefits. A normal “trust fund” or investment account would invest these excesses and allow them to grow, so that funds would be there to keep paying benefits in years when taxes are lower than benefits paid (like now, thanks to the retirements of baby boomers).
Second, that is unfortunately not what happened. Since the 1960s, when President Lyndon Baines Johnson decided to present a “unified” budget which included Social Security instead of treating it as a separate, dedicated program, trust fund surpluses were lent to the rest of the government for the rest of its operations. The amounts involved didn’t become significant until the late-1980s. From 1986-2007, the rest of the government wrote over $2.3 trillion in IOUs (i.e., it issued “special bonds” to Social Security, routinely emptying its coffers annually.
Third, the annual surpluses, which peaked in fiscal 2007 and 2008 at about $186 billion each, started to rapidly shrink in 2008 as the recession hit. Now, quoting from this year’s Trustees Report summary, “Social Security expenditures exceeded the program’s non-interest income in 2010 for the first time since 1983.” That means tax collections aren’t covering benefits, meaning that the rest of the government is having to add to its already harrowing deficits to fund the annual shortfalls, which are forecast to continue and grow as far as the eye can see. Somehow, this isn’t considered news by the nation’s gatekeepers at the Associated Press.
Fourth, perhaps the AP pair’s excuse is that the rest of the government should have no problem paying back its IOUs when it has to over the next 25 years until 2036. Anyone even remotely aware of the $1 trillion-plus deficits run up during the past three years would have be asking: “Really?”
As I noted in a column I wrote several weeks ago:
… the nation’s “debt held by the public” — really amounts owed to individuals, corporations, and other countries — … is over $9.6 trillion, an amount that is roughly 65% of the nation’s annual output, or Gross Domestic Product (GDP).
… there is a consensus that a country reaches “a critical insolvency threshold” once its public debt hits 90% of GDP. At that point, lender cutoffs and interest-rate premiums become real possibilities.
How far are we from the 90% … threshold? Not far at all.
The Congressional Budget Office’s latest projections believe that unless there is serious reform, we’ll hit the 90% threshold in just 10 years, in 2021. Economist Larry Kotlikoff, however, noted in an April column that the budget deal made in late 2010, which extended the current tax system for another two years (the leftist press insists on referring to this as “extending the Bush tax cuts,” even though the current system is now in its ninth year mostly unchanged) and which lowered the employee portion of Social Security by two percentage points for calendar 2011, moved the 90% threshold date to 2017, just six years from now. If the economy doesn’t start picking up pretty soon, the government will cross the 90% threshold even sooner. Regardless for the exact crossover date, it’s obvious that the country has serious issues with Social Security right now because of its cash deficits and the rest of the government’s awful condition. Social Security’s deficits are hastening the day when either no one will want to lend to it or will start charging higher interest rates for doing so.
Only someone who is breathtakingly ignorant of Social Security’s and the federal government’s true fiscal situations or is engaged in deliberate deception would try to pretend that it will have no problem paying back its IOUs to the Social Security system for the next 25 years. Someone should ask Stephen Ohlemacher and Ricardo Alonso-Zaldivar a simple question: Which is it, guys?
Cross-posted at NewsBusters.org.
The People vs. Goldman Sachs
Some commentators (particularly the indispensable Karl Denninger) have for years been highlighting the fiduciary irresponsibility (if not outright criminal conduct) of Goldman Sachs prior to and during the current financial crisis. Now Rolling Stone puts it all together in a devastating article. Here’s an extract.
They weren’t murderers or anything; they had merely stolen more money than most people can rationally conceive of, from their own customers, in a few blinks of an eye. But then they went one step further. They came to Washington, took an oath before Congress, and lied about it.
Thanks to an extraordinary investigative effort by a Senate subcommittee that unilaterally decided to take up the burden the criminal justice system has repeatedly refused to shoulder, we now know exactly what Goldman Sachs executives like Lloyd Blankfein and Daniel Sparks lied about. We know exactly how they and other top Goldman executives, including David Viniar and Thomas Montag, defrauded their clients. America has been waiting for a case to bring against Wall Street. Here it is, and the evidence has been gift-wrapped and left at the doorstep of federal prosecutors, evidence that doesn’t leave much doubt: Goldman Sachs should stand trial.
The great and powerful Oz of Wall Street was not the only target of Wall Street and the Financial Crisis: Anatomy of a Financial Collapse, the 650-page report just released by the Senate Subcommittee on Investigations, chaired by Democrat Carl Levin of Michigan, alongside Republican Tom Coburn of Oklahoma. Their unusually scathing bipartisan report also includes case studies of Washington Mutual and Deutsche Bank, providing a panoramic portrait of a bubble era that produced the most destructive crime spree in our history – “a million fraud cases a year” is how one former regulator puts it. But the mountain of evidence collected against Goldman by Levin’s small, 15-desk office of investigators – details of gross, baldfaced fraud delivered up in such quantities as to almost serve as a kind of sarcastic challenge to the curiously impassive Justice Department – stands as the most important symbol of Wall Street’s aristocratic impunity and prosecutorial immunity produced since the crash of 2008.
. . .
… Goldman, as the Levin report makes clear, remains an ascendant company precisely because it used its canny perception of an upcoming disaster (one which it helped create, incidentally) as an opportunity to enrich itself, not only at the expense of clients but ultimately, through the bailouts and the collateral damage of the wrecked economy, at the expense of society. The bank seemed to count on the unwillingness or inability of federal regulators to stop them – and when called to Washington last year to explain their behavior, Goldman executives brazenly misled Congress, apparently confident that their perjury would carry no serious consequences. Thus, while much of the Levin report describes past history, the Goldman section describes an ongoing? crime – a powerful, well-connected firm, with the ear of the president and the Treasury, that appears to have conquered the entire regulatory structure and stands now on the precipice of officially getting away with one of the biggest financial crimes in history.
There’s much more at the link. Essential reading, IMHO.
It boggles my mind that no Goldman Sachs executives have yet been arrested and charged with all sorts of financial crimes. Of course, the fact that the company has its tentacles buried deeply and widely throughout the Obama administration probably has a lot to do with that.
We’ll let Karl Denninger have the last word. (Bold print is my emphasis.)
If we can’t see these guys prosecuted now, before the Statute of Limitations runs [out] (which, incidentally, is exactly what they’re hoping for) then you may as well put a fork in this nation and our ability to actually attract honest capital, from here or elsewhere.
It’s done.
Amen!
Comment by Greg — May 16, 2011 @ 10:51 am