Funny Money Accounting—-Why Social Security Will Be Bankrupt In 10 Years
by David Stockman •
Except that is not what the report really says. On a cash basis, the OASDI (retirement and disability) funds spent $859 billion during 2014 but took in only $786 billion in tax revenues, thereby generating $73 billion in red ink.
By the trustees’ own reckoning, in fact, the OASDI funds will spew a cumulative cash deficit of $1.6 trillion during the 12-years covering 2015-2026.
Needless to say, this means there will be no general fund surplus to pay the OASDI shortfall.
Uncle Sam will finance the entire $1.6 trillion cash deficit by adding to the public debt. That is, Washington plans to make social security ends meet by burying unborn taxpayers even deeper in public debt in order to fund unaffordable entitlements for the current generation of retirees.
Funny Money Accounting—–Trust Fund “Assets” Are Pure Confetti
By contrast, the funny money aspect comes in on the funding side. The latter starts with the $2.79 trillion of “assets” sitting in the OASDI trust funds at the end of 2014.
In truth, there is nothing there except government accounting confetti. This figure allegedly represents the accumulated excess of trust fund income over outgo historically, but every dime of that was spent long ago on aircraft carriers, cotton subsidies, green energy boondoggles, prison facilities for pot smokers, education grants, NSA’s cellphone snoops, space launches and the rest of Washington’s general government spending machine.
DYI Comments: The last paragraph - hopefully by now - everyone knows that the Social Security Trust Fund is nothing but IOU's earning fictitious interest from day one. And when I say day one, I mean just that. As soon as Franklin Roosevelt signed into law the act(Aug 14, 1935) Congress - BOTH PARTIES - began spending the excess. Once the costs of WWII began to gin up the President and Congress looked with glee and relief for a funding source to prosecute the war. With a positive demographic growth rate - more babies than replacement of Mom & Dad - being accepted as the norm, tax receipts were seen as ever growing. Since this was tax based upon existing dollars in circulation it is non inflationary. A politicians Orwellian dream come true - spending without repercussion.
The Birth Rate Drops
| Country | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| United States | 2.06 | 2.06 | 2.07 | 2.07 | 2.07 | 2.08 | 2.09 | 2.09 | 2.1 | 2.05 | 2.06 | 2.06 | 2.06 | 2.06 | 2.01 |
Spending takes off not just the excess from Social Security along with almost continuous budget deficits. Almost except for Dwight D. Eisenhower - a bright spot for fiscal sanity - had budget surpluses in 1956, 1957, and 1960 the remainder deficits were small by today's standards. But off to the races we go with WWII, Korean War, Vietnam War, Cold War, War on Poverty, Gulf War I & II, Afghanistan. All the while our birth rate has declined from a lofty high peak of 3.5 to below replacement. The gig is up. The cost to fund Social Security at present levels is enormous requiring deficits that add to our ever growing national debt a burden that will be foisted upon generations NOT EVEN BORN YET! Now that is what I call taxation without representation!
The insanity Worsens
Global central bankers, stuck at zero, unite in plea for help from governments
In a lunch address by Princeton University economist Christopher Sims, policymakers were told that it may take a massive program, large enough even to shock taxpayers into a different, inflationary view of the future.
"Fiscal expansion can replace ineffective monetary policy at the zero lower bound," Sims said. "It requires deficits aimed at, and conditioned on, generating inflation. The deficits must be seen as financed by future inflation, not future taxes or spending cuts."
It was not clear whether such ideas will catch on. But there was a broad sense here that the other side of government may need to up its game.
DYI: I've never heard so much talk of inflation being a desired result. Apparently our Princeton University professor Christopher Sims either doesn't know or doesn't care who pays the heavy price for these misguided(incompetent) policies. The poor, working class, along with a portion of the middle class, who have no surplus to invest in an attempt to out run the ravages of inflation. Those who have little or zero surplus will be in his squirrel cage running faster and faster never going any where financially.
Shock the Taxpayers
With policies designed to gin up the engine of inflation will have the taxpayers going for their political pitch forks. Hitting the younger generations with a one - two punch of increasing taxes and ever increasing inflation. Once Baby Boomers begin to exit the workforce in statistically significant numbers but still very much alive and consuming, the 2020's will be known as the roaring 20's. High taxes, high inflation, and a LABOR SHORTAGE. The tipping point demographically is 2023 as Boomer are gone from the work force in significant numbers(at least full time).
That is the Future - This is Now
The second article is an attention grabber. It is an admission of guilt that quantitative easing didn't work nor has zero interest rate policy ZIRP along with our Europeans with negative interest rates. All this has done is distort our financial markets with investors, professional and amateur alike, desperate for yield. In their zeal for yield has pushed or more like forced further out the risk spectrum. The professional knows this; the amateur - John & Jane Doe - are in for a rude awakening the day interest rates normalize.
We are in a Bubble
Stocks and corporate bonds are now priced to the heavens totally out of bounds and devoid of value. The business cycle has not been repealed and when the next recession appears stocks and bonds will come crashing back to earth. Deflation will reign, central banks will pursue aggressive QE along with obese fiscal spending that will shock the taxpayers no matter who is president! DYI is expecting a run of the mill sell off from peak to trough of 45% to 60% for stocks. The reason this is "run of the mill" valuations are staggering high!
PE10 as of 8-30-16 is 27.02
Better Values are Ahead
Updated Monthly
No comments:
Post a Comment