The Next Big Bailout?

This in from one of my favorite financial soothsayers. This guy has been spot on in predicting the financial crisis that has engulfed our nation. Here’s what he has to say about social security.

Social Security crunch coming fast

Here’s a frightening prediction: The public pension system’s trust fund could go into the red in the next year, far sooner than expected. Will it get the next huge bailout?

By Bill Fleckenstein

The debate over health care has captured everyone’s attention, but it appears the next big government program that needs to be addressed will be Social Security. That’s the focus of the July 30 article “The next great bailout: Social Security” by Allan Sloan, Fortune’s senior editor at large.

Those who’ve been paying attention have long known there is no money in the Social Security Trust Fund — it’s all been spent. Thus, former Vice President Al Gore’s famous assessment that Social Security receipts should be placed in a “lockbox” was actually correct. Given that so few people really understand the Ponzi nature of the current Social Security financing scheme — created in 1983 by a commission chaired by none other than the world’s greatest serial blower of bubbles, Alan Greenspan — I decided to reprise Sloan’s article. (The Social Security problem is especially important because it likely will put additional pressure on the dollar and on bonds, and exacerbate the funding crisis down the road.)

The story begins: “In Washington these days, the only topics of discussion seem to be how many trillions to throw at health care and the recession, and whom on Wall Street to pillory next. But watch out. Lurking just below the surface is a bailout candidate that may soon emerge like the great white shark in ‘Jaws‘: Social Security.

“Perhaps as early as this year, Social Security, at $680 billion the nation’s biggest social program, will be transformed from an operation that’s helped finance the rest of the government for 25 years into a cash drain that will need money from the Treasury. In other words, a bailout.”

Could Social Security’s number be up?

As I’ve already noted, there is no money in the Social Security Trust Fund — just IOUs from the government to itself. What is liable to spark debate and grab headlines is that instead of producing its biggest surplus ever in 2009-10, the trust fund could start running deficits in the next year, primarily because the weak economy is generating less tax revenue.That’s years earlier than expected. Social Security wasn’t supposed to go into the red until around 2015.

Past projections were for a cash-flow surplus of about $87 billion this year and $88 billion next year. But new projections show those figures may drop to around $18 billion or $19 billion, which could easily go negative. And once the red ink starts spilling (a temporary bounce into the black in the next couple of years notwithstanding), that deficit will grow for the next 20 or so years unless something is done to halt it.

In order to better illuminate what has transpired and how misleading government accounting is, I would like to use the example from Sloan’s article to explain what has happened: “The cash that Social Security has collected from my wife and me and our employers isn’t sitting at Social Security. It’s gone. Some went to pay benefits, some to fund the rest of the government. Since 1983, when it suffered a cash crisis, Social Security has been collecting more in taxes each year than it has paid out in benefits. It has used the excess to buy the Treasury securities that go into the trust fund, reducing the Treasury’s need to raise money from investors.”

In other words, the government spent it. Throughout all those years in the 1980s and 1990s, when folks worried about the budget deficit, it was reported to be lower than it would have been had the Social Security Trust Fund’s money not been going into government coffers, thereby reducing the size of the deficit. Also untenable is the projected worker-to-retiree ratio, which will jump from 30 Social Security recipients per 100 workers in 1990 to 46 per 100 in the next 20 years.

And Social Security funding isn’t the only time bomb. Sloan notes that “when it comes to problems, Medicare makes Social Security look like a walk in the park, even though at about $510 billion this year, it’s far smaller. Not only are Medicare’s financial woes much larger than Social Security’s, but they’re also much more complicated. . . . Medicare is more convoluted, because the health-care system is much more complex than Social Security. Which, when you think about it, involves only money.”

Summing up, Sloan cautions: “Social Security may not make it onto the agenda until next year. But it’s going to show up sooner or later, and probably sooner, because the numbers are so bad that something’s got to be done.” All of these future funding issues will come under scrutiny in the next couple of years as the budget deficit explodes and worries about how it will all be financed take center stage.

http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/social-security-crunch-coming-fast.aspx?page=1

  • Sammy

    All obama will do is outsource anyways. Just think about the all the lobbyists flocking to Washington DC because of obama’s reckless over-spending of $2 TRILLION in just 6 months, which alone is increasing the National Debt by 20%.

    Politicians take people’s money and reward the large corporations, in this case companies in the health care industry, since they have the money to more effectively lobby politicians. In the end smaller businesses will be hurt.

    Politicians will only reward companies that will be in their best political interest. Honestly, when can you really trust politicians since they are basically professional liars, and being president just means you are the best liar of the time. Why not just give the money directly from the people to the companies and take politicians in government out of the equation?

    obama is going to recklessly spend TRILLIONS of tax payers’ money just to give insurance to about 25% of those who do not have it. Over 50% of people’s income go towards taxes, just imagine how many more people will afford health care insurance if their income is almost doubled because of dramatic tax cuts.

    Competition is what is needed. It lowers prices of products and services, along with developing new innovations. All of which will benefit consumers. You need to remember that monopolistic tendencies can also apply to government.

    The reason why the cost of insurance is high is because politicians in government mandate insurance companies to increase their premiums to pay for ridiculous things. In addition, politicians put up regulations so that Americans are not allowed to get insurance from another state and use the coverage in their own state. This reduces competition making it more expensive for people to get insurance. On top of that medical professionals are not allowed to freely practice their profession in any US state without taking a long and tedious licensing process. This again increases the cost of medical insurance.

    In the end, the problem with most economic issues is too much government intervention of the economy by politicians, who will only tend to do things for political self interest. Just like how obama nationalized GM to pander to its unions. Politicians can barely run government, yet people think they can run a multi-national auto manufacturing company?

    The solution is SMALLER government, LESS spending, and LOWER taxes.

    • Greg L

      So you’re worried about Obama taking from you to give to the “uninsured”. Who do you think is paying for the uninsured now? Guess what? You’re already paying for the uninsured through your insurance premiums. When’s the last time you’ve been to an emergency room and couldn’t get care due to all the uninsured using it as their primary care facility? The fact is that the current system is unsustainable under any scenario. Do you realize that 45% of your taxes are used to support a bloated military budget and I’m not just talking about Iraq and Afghanistan alone. We have weapons development and troops stationed all over the globe that we’re paying for that allows Canada, Europe and a host of other countries to provide health care for their people mainly because they don’t have the same military commentments as the “world’s policeman”. Like Ron Paul says, we just can’t afford the empire any longer and if we cut back on the empire, resolving the issues on healthcare, social security and etc, would be far easier. If you’re concerned about spending, then you need to be concerned about where the biggest portion of your tax dollars are going–defense spending.

      As to market based solutions, recent evidence where he financial markets were “deregulated” got us the financial crisis. The bottom line is that insurance premiums are high because the insurance companies have shareholders to please and if you want competition, then you wouldn’t have any problem with the public option.

      Look, I’m in business myself, so I tend to be symphathetic to the idea of live and let live up to a point, but when you’re looking at a health insurance premium that’s equivalent to a mortgage payment which has gone up 30% over the past 6 years with half of that increase coming in the last year alone, then I’ve got a problem with the existing system. Rather than worry about how the insurance companies are doing, I’m more concerned about me and folks like me. It should not cost a mortgage payment just to have health insurance.

      >>>> The solution is SMALLER government, LESS spending, and LOWER taxes.<<<<<

      This is the mantra the right wing yells like a cheerleader, but has not delivered on in practice. Repulican administrations have given us exactly the opposite of this mantra, yet you guys still continue to say this as if this is actually what you guys did when you had the majority.

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