Somebody is Lying

With the “drop dead” date on increasing the debt limit fast approaching, we're hearing more and more dire predictions about all the bad things that will happen if we can't borrow any more money. Perhaps the most alarming scare tactic is that Social Security checks will stop being mailed unless the debt limit is raised. Is that true? I guess that depends.

For a long time, I've spoken out against the ponzi-scheme like funding of Social Security. What some people call “pay-as-you-go”, I call a “pyramid.” Social Security benefits being paid out now are coming from the Social Security taxes being paid now. When today's workers eventually retire, they will have to rely on other people paying into the system to pay the retiring people's benefits.

For many years, there was far more money being paid into Social Security than was being paid out. The difference was set aside in a “Trust Fund” to be available for future demands on the system. On the Social Security website, you can find this quote:

The Social Security Trust Funds are the Old-Age and Survivors Insurance (OASI) and the Disability Insurance(DI) Trust Funds. These funds are accounts managed by the Department of the Treasury. They serve two purposes: (1) they provide an accounting mechanism for tracking all income to and disbursements from the trust funds, and (2) they hold the accumulated assets.

Whew! It's comforting to know they've been holding onto these “accumulated assets” because, just recently, the cost of benefits payments has begun to exceed the total receipts. No worries though, because we should be solvent for many decades to come. Consider this quote from the same website:

In the annual Trustees Report, projections are made under three alternative sets of economic and demographic assumptions. Under one of these sets (labeled "Low Cost") the trust funds remain solvent for the next 75 years. Under the other two sets (the "Intermediate" and "High Cost"), the trust funds become depleted within the next 25 years. The intermediate assumptions reflect the Trustees' best estimate of future experience.

You see then, we should have enough funds in the SS “trust fund” to remain solvent for at least 25 years – maybe even 75 years. So why is Obama saying the SS checks will stop unless we increase the debt limit? Before you answer, keep in mind that people will still continue paying their SS tax even if the debt limit isn't raised so that can't be used for an excuse as to why SS checks might stop.

If SS checks stop, then we know there was never really a trust fund that held all these decades of overpayment into the SS system. On the other hand, Obama certainly is aware of this supposed trust fund. If he believes there's such a fund, then he knows the checks aren't going to stop. Either way, somebody is lying.

Of course, if the debt limit is increased then it will be business as usual. The Social Security Administration will continue promoting the falsehood that it will remain solvent for many years to come. Obama will continue to scare seniors by telling them Republicans want to take away their monthly checks. However, the truth is now out. This budget crisis has shone a light on the fragile Social Security system. It's a house of cards. They're just lying about it.

Social Security Hasn’t Improved With Age

A few years ago, I wrote a short blog about the dire condition of social security. Rather than simply tell people it was in bad shape, I cited a few quotes that I’d taken right off of social security’s website. I suggest that you read my first post but here are the quotes again for your review:

"Social Security is not sustainable over the long term at present benefit and tax rates without large infusions of additional revenue. There will be a massive and growing shortfall over the 75-year period."

"People are living longer, the first baby boomers are nearing retirement, and the birth rate is low. The result is that the worker-to-beneficiary ratio has fallen from 16.5-to-1 in 1950 to 3.3-to-1 today. Within 40 years it will be 2-to-1. At this ratio there will not be enough workers to pay scheduled benefits at current tax rates."

"If Social Security is not changed, payroll taxes will have to be increased, the benefits of today's younger workers will have to be cut, or massive transfers from general revenues will be required."

Now, being the responsible blogger that I am, I linked to social security’s website so that people could check my source. Here’s the link I gave Social Security website’s FAQ. You can click on it now if you’d like but don’t bother because the page has been taken down. Why was it taken down? Could it be because in the three years since I wrote that, social security has been rescued? Hardly! More likely it’s because the truth was a little too dire.

It took a little digging but I found this Board of Trustees’ announcement that was just published last month. Here are some quotes from that announcement (bold added for emphasis):

The combined assets of the Old-Age and Survivors Insurance, and Disability Insurance (OASDI) Trust Funds will be exhausted in 2036, one year sooner than projected last year. The DI Trust Fund, while unchanged from last year, will be exhausted in 2018 and legislative action will be needed soon. At a minimum, a reallocation of the payroll tax rate between OASI and DI would be necessary, as was done in 1994. The Trustees also project that OASDI program costs will exceed non-interest income in 2011 and will remain higher throughout the remainder of the 75-year period.

The point at which non-interest income fell below program costs was 2010. Program costs are projected to exceed non-interest income throughout the remainder of the 75-year period.

Over the 75-year period, the Trust Funds would require additional revenue equivalent to $6.5 trillion in present value dollars to pay all scheduled benefits.

“The current Trustees Report again reflects what we have long known to be true -- we need changes to ensure the long-term solvency of Social Security and to restore younger workers' confidence in the program,” said Michael J. Astrue, Commissioner of Social Security.

There it is again, folks. Anyone who denies it is simply whistling past the graveyard. If you don’t believe me, just click on the link and read the report for yourself. Do it quickly though – I can’t guarantee how long it will be there this time.

What is a “Budget”?

A few years back, I was doing some volunteer work for Junior Achievement. Once each week for 10 weeks, I met with a class of sophomores and discussed “personal economics.” Most of it was basic stuff like balancing a check book or filling out a job application. However, there was one thing which stood out that I still carry with me today.

A couple of the lessons dealt with having a budget. I was trying to figure out a good way to explain the concept of a budget to a group of 10^th graders and I came up with the following analogy. Imagine that, immediately after graduating college, you get a job where you take home $20,000 each year (I said “take home” because I didn't need to get into a discussion about taxes just yet). Anyway, what are some of the things you could do with $20K/year? Well, you could save all your money for six months and buy a nice, used car. You could save your money for a year and buy a new car. You could even save all your money for five years and pay all cash for a modest house.

You see, even on a modest income of only $20K, you could still afford nearly anything you want: a house, a car, a vacation, nice clothes, etc. The problem, however, is that you can't afford everything you want. You could buy a house OR a car OR take a vacation but not necessarily all three. A budget, then, is a list of your priorities. You have to decide what it is you want the most. If you want to eat dinner out every night you can. But if you would rather save to buy a car, then eating out every night isn't a option. It might be nice to have both, but realistically you can't. You have to prioritize which you're going to spend your money on. That is a budget; it's simply prioritizing your spending.

It was a simple concept and the 10^th graders seemed to catch on quickly. Unfortunately, our elected officials still don't get it. They still think we can have it all. They want to “invest” (i.e. spend money on) education, green jobs, unemployment, social security, health care, infrastructure, foreign aid, defense, corporate bailouts, teachers' pensions, congressional salaries, and pork barrel projects. When we protest the outrageous spending that's going on, they merely answer with the question, “well, what are we going to cut?” as though everything is too important to cut funding for it.

Not only do our elected leaders not understand the concept of a budget, neither do they seem to understand the definition of “priority.” How can everything be a priority? If you want to balance the budget, you've got to decide what is truly a priority, spend your money only on those things, and cut everything else.

Now, I know some decisions are hard to make but we have reached the point where we have to make them. Is congress so weak-willed and indecisive that they can't decide what is a priority? Do I need to remind you that this was a lesson I taught to 10^th graders?

Continuing to spend money on everything we want is no longer an option.

The Biggest Ponzi Scheme Ever – But It’s Not What You Think

OK. So on the heels of a financial crisis, the former chairman of Nasdaq admits to pulling off a $50 billion scam. Reuters is quoted as saying, “Bernard Madoff, a quiet force on Wall Street for decades, was arrested and charged on Thursday with allegedly running a $50 billion "Ponzi scheme" in what may rank among the biggest fraud cases ever.”

Well, I hate to break the news to you but it’s not the biggest scam. It’s not even close. The largest pyramid scheme is hundreds of times bigger – only we don’t call it a ponzi scheme. It’s better known as that “pay as you go” system we like to call Social Security!

Social Security is hurtling toward bankruptcy in only a few short decades. Here’s a quote from the Social Security Administration’s website:

Many people think that the Social Security taxes they pay are held in interest-bearing accounts earmarked for their own future retirement needs. The fact is that Social Security is a pay-as-you-go retirement system—the Social Security taxes paid by today’s workers and their employers are used to pay the benefits for today’s retirees and other beneficiaries.

Social Security is now taking in more money than it pays out in benefits, and the remaining money goes to the program’s trust funds. There are now large “reserves” in the trust funds, but even this money is small compared to future scheduled benefit payments. In 2017 benefits owed will be more than taxes collect­ed, and Social Security will need to begin tapping the trust funds to pay benefits. The trust funds will be exhausted in 2041. At that time, Social Security will not be able to meet all of its benefit obligations if no changes are made.

There you have it folks. The “pay-as-you-go” system of Social Security is a ponzi scheme by definition.

What annoys me is that a lot of the “victims” of Madoff’s crooked dealings thought they were only benefiting from insider trading and not aware they caught up in a pyramid scam. In that case, it’s hard to feel sorry for those people. But we KNOW that Social Security cannot be sustained yet working class Americans are still shelling over 7.5% of every paycheck only to delay the inevitable.

Why is Madoff making headlines while the train wreck of Social Security is continuously ignored? We need to act now and hold those criminals (aka Congressmen) accountable for this economic disaster!

The Elephant in the Room

There’s an elephant in the room and I’m not talking about the GOP mascot. Instead, I’m referring to the social security crisis that is looming on the horizon and I’m dumbfounded about why nothing is being said about it during the presidential primaries.

There are a lot of issues being discussed in this campaign season: global warming, national health care, taxing the "rich", the candidate’s personal beliefs, etc. Most of these would be OK topics in other election years, but as far as I’m concerned, there are only 2 topics this election that are THE issues which need to be addressed: national security and social security.

National security is getting a fair amount of coverage. Democrats want us to surrender in Iraq and Republicans want to press on in the war on terror. But nobody, on either side, is saying a peep about social security. Consider these quotes taken from the Social Security website’s FAQ :

"Social Security is not sustainable over the long term at present benefit and tax rates without large infusions of additional revenue. There will be a massive and growing shortfall over the 75-year period."

"People are living longer, the first baby boomers are nearing retirement, and the birth rate is low. The result is that the worker-to-beneficiary ratio has fallen from 16.5-to-1 in 1950 to 3.3-to-1 today. Within 40 years it will be 2-to-1. At this ratio there will not be enough workers to pay scheduled benefits at current tax rates."

"If Social Security is not changed, payroll taxes will have to be increased, the benefits of today's younger workers will have to be cut, or massive transfers from general revenues will be required."

At present rates, there will be more social security benefits being paid out than revenue coming in by the year 2017. By the year 2040 the social security fund will be completely exhausted. Why is no one is talking about this?

Here’s the fundamental flaw in social security: the benefits being received by retirees now are being paid by those people still working. When the current workers retire, future workers will pay their benefits. This is formally known as a “pay as you go” system. You might know it better as a pyramid scheme. Such a plan is doomed from the start. This is what happens when the government gets involved in “helping people.” And now some people want us to do the same thing with health care?! In 50 years the health care system will be in the same boat.

Ok, so the government shouldn’t be involved in our retirement – but here we are. We’ve got to do something to fix the system. We need to start getting people off this train wreck. We’re on the eve of 2008; in 9 short years the bankruptcy of social security begins!