The Future of Social Security and Medicare.


The present unfunded future liabilities of the U.S. government are currently estimated near $222 trillion. This is not the estimated future value of unfunded liabilities; this is the present value of liabilities in the future. That means this number will become much larger.

This number, $222 trillion, means that the U.S. government must raise a surplus of $222 trillion this year to invest in capital markets for 75 years at an annual rate of return of at least 4%, otherwise they will ultimately default on their debt obligations. The U.S. government pays the Social Security trust fund approximately 4.4%, which is why the necessary rate of return needs to be at least near 4%.

Is the U.S. government raising a surplus of $222 trillion this year? **INSERT LAUGH TRACK HERE** No. The U.S. government is running a deficit of at least $1 trillion this year. They are about $223 trillion away from their needed surplus.

The U.S. government is not solvent. They need to borrow at least $1 trillion every year to stay alive. They are financed only by taxes and debt. The U.S. government lives paycheck-to-paycheck, and off of figurative credit cards. The amount of money they need to borrow every year grows. The U.S. government moves further from solvency every year.

The Social Security system and Medicare rely on the U.S. government. The sole debtor of these welfare systems is the U.S. government. The only two sources of finance for these systems are the willingness of the Federal Reserve and foreign banks/governments to loan money to the US government, and on the willingness of taxpayers to continue paying for these programs.

Social Security and Medicare rely on the federal government for solvency. As we already saw, the federal government is not solvent. Therefore, neither is Social Security or Medicare. The trust fund for Social Security is basically worthless. The vaults are filled with government IOUs.

It is no secret to anyone in government that the Social Security system is totally bust. When politicians claim that Social Security is fine, or even that it can be fixed into solvency, they are either lying or they do not understand basic math. Even the Board of Trustees for the Social Security system admits they are going bust. As stated in their 2012 Annual Report:

In 2011, Social Security’s cost continued to exceed both the program’s tax income and its non-interest income, a trend that the Trustees project to continue throughout the short-range period and beyond. The 2011 deficit of tax income relative to cost was $148 billion, and the projected 2012 deficit is $165 billion. The sizes of these deficits are largely due to a temporary reduction in the Social Security payroll tax for 2011 and 2012. The legislation establishing the payroll tax reduction also provided for transfers from the General Fund of the Treasury to the trust funds to “replicate to the extent possible” revenues that would have occurred in the absence of the payroll tax reduction. Including these general revenue reimbursements, the 2011 deficit of non-interest income relative to cost was $45 billion, and the projected 2012 deficit is $53 billion (page 2).

This might seem confusing. The key point to notice is that they are projecting deficits. This means they are losing money. The Trustees are admitting that the system is on an unsustainable trajectory unless taxes go up.

Nevertheless, total trust fund income, including interest income, is more than is necessary to cover costs through 2020, so trust fund assets continue to grow. Beginning in 2021, cost exceeds total income and combined OASI and DI Trust Fund assets diminish until they become exhausted in 2033 (page 10).

Exhausted: What does that mean? It’s a softer word for bankrupt. The Trustees are predicting bankruptcy in 2033.

After trust fund exhaustion, continuing income is sufficient to support expenditures at a level of 75 percent of program cost for the rest of 2033, declining to 73 percent for 2086 (pages 10-11).

They are admitting that the program will not be able to pay out what it owes. This is default; it is bankruptcy. They are saying that they will only be able to afford to pay a fraction of what they have promised us in the future.

It doesn’t end there. This is only the very best case scenario. This does not take the second leviathan into account: Medicare. Whenever Social Security is discussed, Medicare must be involved. Medicare is paid for out of the same funds as Social Security. Medicare will speed the bankruptcy of Social Security. The final result of the default will very likely be much worse than only 75% of returned value by 2033.

The Federal Government will default on their long-term obligations. They will default on Social Security and Medicare obligations in the long-term. You and I will never receive anything from Social Security or Medicare comparable to what we have already paid. We might not even receive anything. If we do, it will be a pittance compared to the overall value of taxes we have already contributed, because they will be unable to afford paying out what they owe us.

I recently had a debate with someone who boldly asserted that Social Security and Medicare were good and necessary programs, and that opposing these programs is a mark of heartlessness and greediness. My general response to him was: “It doesn’t matter if Social Security and Medicare can be morally justified. They’re going bankrupt. Is it morally justifiable that I should be forced to cling to a sinking ship?” I went over the numbers. His response to me basically was: “I choose to have more faith in the system than you.” It was an interesting reply. I believe this viewpoint accurately reflects the attitude of a large percentage of middle-age to young Americans; namely, that somehow Washington D.C. would never dare default on what they’ve promised us, and that they’ll somehow pull through. The individual I argued with refused to even acknowledge the numbers or give me his interpretation of what he thinks they mean. This might be because he does not understand the numbers. He’s not doing himself any favors by keeping himself in the dark.

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