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Perspective for the New Year

Monday, January 3, 2011, 7:53 PM

Chris and I spent last week down in Charleston, SC at a gathering of thought leaders. Participants included politicians, scientists, economists, diplomats, astronauts, financiers, media personalities, entrepreneurs, entertainment executives, and others of specialized expertise. It was a humbling group to mingle with.

The general purpose of the event was to share observations about the opportunities and challenges our society faces, and to spark new thinking as to how to address them.

Chris and I spent several days attending and participating in panel discussions (there were hundreds to choose from) as well as in private conversation with many of the luminaries there. Our detailed observations from Day 1 and Day 2 are available for our enrolled members (enrollment required).

The experience was valuable for us: it sharpened our thinking on a number of fronts. We think it will be useful for you to understand how, so you have a sense of where our minds are as we look forward to the year ahead.  What follows are our high-level observations and generalizations.  As always, something gets lost when you reduce a rich experience into a few ideas, but with that caveat in place, here's what we came away with:

  • Peak Oil remains "off radar"
    • Amazingly, among the hundreds of panel discussions, the risk that global oil production is reaching (or has already reached) its maximum was not addressed. Government policymakers are thinking of oil solely in price terms: Rising prices will curtail demand, thus resolving any potential short-term supply issues that may arise. There's no acknowledgment that oil prices are set globally and that, combining demand from other rising economies with falling global production, we're at risk of supply not being able to meet demand at any price the US is willing to pay.
    • There is a widespread intent to lessen our dependence on foreign oil from a national security standpoint. Alternatives are looked to with great hope here, though few seem to appreciate the massive time and natural resource requirements needed to scale those solutions (many of which are still more academic than commercial at this state) to any magnitude that will make a material impact.
    • Interestingly, when approached individually, many of the politicians and energy specialists agreed (to varying degrees) that Peak Oil is a very real threat. In private discussion, none denied the fact that if it indeed hits soon, we don't have a strategy in place to bridge any gap in the BTUs our nation requires to function. One former administration official underscored his fears that, in the panic to find a solution, the environmental safeguards developed over the past few decades will go right out the window.
  • Magical thinking still dominates our economic outlook
    • The general vibe from the Wall Street financiers is that the economy is in recovery and will slowly grind is way north from here. Persistent unemployment, massive commercial and consumer debt burdens, housing and other financial malinvestments that need to be cleared by the market, and a growing corporate competitiveness problem are not seen as threats to 2 to 3+% GDP growth over the next several years. Folks are looking at the Fed-driven liquidity as a cure-all - in fact, the Wall Street & DC crowd advocate for at least another trillion in stimulus to keep the momentum building.
    • Forget about the impact the arrival of Peak Oil would have on the economy. Not on anyone's radar. As are not the many tens of trillions needed for unfunded entitlements like Social Security and Medicare. Apparently the day of reckoning for those is still far enough away for today's incumbents that it's a problem for their successors to deal with. How about the more imminent bankruptcy of state and municipal governments? The answer: bailouts via the Fed's printing press (I wish I were kidding about this). At what point do we start filling up the hole we've dug for ourselves? (through austerity, pension reform, etc.)  No one focused on answering that question.
    • It's quite clear that given the optimism, little has changed in terms of behavior. We still have the same players conducting business largely in the same way. The concerning new element is that the Fed's liquidity has created an environment where too much money is chasing too few opportunities. Asset prices in many areas (e.g., commodities) are zooming as a result and money managers admit they are being forced to get more aggressive in seeking above-market returns, a situation we know from experience will not end well.
  • Concern is growing about America's slipping global prominence
    • The rise of the developing world was noted by all. Economic growth, innovation, infrastructure development, leadership in alternative energy - our national decision-makers are aware of the increasing number of areas in which the US is lagging. There is a lot of talk about what "should" happen to combat this (e.g., Manhattan-type-projects around alternative energy, education reform, infrastructure investment), but actual near-term initiatives to do so are markedly absent. It looked like the older generation there was trying to pass the baton to the younger one in a sort of "Sorry we created this mess, but we're sure you're smart enough to figure out a solution" way. In short, much more hand-wringing than productive guidance.
  • Government is seen as the solution to most problems
    • It was surprising and disappointing to see how many problems folks think our government needs to play the leading role in addressing. As mentioned earlier, the Fed and its printing press are considered the answer to many of the remaining looming economic issues. Same with alternative energy (most of today's "success stories" would not be so, if not for the large subsidies provided by the government). And with food production. And with education. The list goes on and on. Actually, Chris and I agree there's an important role for government to play, specifically in making strategic infrastructure investments too costly for any single corporation to greenfield, but the list of claims on the public coffers seems much too lengthy.  If we don't develop sustainable private solutions in these areas, should we expect the the public ones to be any more successful than Amtrak?
  • There is real hope that innovation will resolve many of the challenges we face. But hope in the near-term is probably unrealistically rosy.
    • We met a number of really smart minds focusing on many of the issues we're concerned about. There are good people making good progress. We're certain there are breakthroughs happening now or in the near future that will unleash unimagined benefits that will address many of the challenges posed by Peak Oil.
    • But implementing solutions in time remains our chief concern. Time, scale, cost and complexity are factors that all need to be accounted for. Since we don't have a clear picture yet of what will close the Peak Oil gap, our confidence remains high that there will be an "in-between" stage of lower energy output. We will continue our info scouting efforts to determine which solutions will ultimately emerge and at what magnitude and timing. One thing we know for sure is that we're still in the early innings of the game...

Regarding this last point, Chris conducted one-on-one interviews with several participants who had useful insight to bring to bear in addressing the issues we face. We'll be posting podcasts of these over the next several days on this site. They're rich discussions and should expose you to new voices and perspectives you may not have encountered before.

The bottom line for us was that the smart money play is to count on the US sleepwalking into the next crisis. Sure, the US is filled with dynamic and innovative people that will respond to the next crisis (energy? financial?) when it (they?) arrive, but anybody counting on US leadership being out in front of the situation is making a low-probability bet. The power of the status quo to insulate itself from unpleasant realities is quite strong.  

The good news is that there is much that we can individually and collectively do to mitigate key risks and lead enjoyable lives.  

So for 2011, we look at the takeaways above and re-commit to our belief that for most people and companies, defense against the colliding Three E forces will come from their own action. Developing resiliency at the personal and community level is the best investment a concerned individual can make. To that end, we're more focused than ever on developing solutions (more content, services, and community) to help our readers learn about, implement, and share the steps and skills needed to position themselves for the changes of the next 20 years. We'll have a few new ones of these to announce soon - in the mean time, make a New Year's resolution to increase your personal resiliency -- and get started on it!

Happy new year!

Adam & Chris  

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24 Comments

Travlin's picture
Travlin
Status: Diamond Member (Offline)
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Posts: 1322
Re: Perspective for the New Year

Adam wrote:

Magical thinking still dominates our economic outlook.  <snip>

Government is seen as the solution to most problems.  <snip>

The bottom line for us was that the smart money play is to count on the US sleepwalking into the next crisis.

These points confirm my perspective.  Our government won’t even acknowledge what has already happened.  It doesn’t have a clue of what is coming.  Yet the people of power and influence think all worthwhile efforts must be directed by our government.  How’s that for a losing proposition?  We are truly on our own to develop the means to cope with what is coming.  That wouldn’t be so bad if we didn’t have to worry about the impediments government currently imposes, and the potentially huge damage that it can cause in panic reaction to a crisis it helped create.

Adam, was there anything of importance at the meeting that was really positive?  It sounds like they all have their heads up in the clouds.

I really appreciated the reports by you and Chris for enrolled members, and this recap.  I look forward to the podcasts. 

Travlin 

PastTense's picture
PastTense
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Re: Perspective for the New Year

What was the title of this conference (I am interested in reading other perspectives)?

garystamper's picture
garystamper
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Re: Perspective for the New Year

Love the site, but calling Social Security an "unfunded entitlement" is way off base and hurts your credibility. Speaking the truth about how it's been raided and placed in danger by both parties is another matter all together.

Gary

Doug's picture
Doug
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Re: Perspective for the New Year

networksofgrace wrote:

Love the site, but calling Social Security an "unfunded entitlement" is way off base and hurts your credibility. Speaking the truth about how it's been raided and placed in danger by both parties is another matter all together.

Gary

Gary,

Welcome to CM.  Its a friendly site with a lot of bright engaged people who are willing to discuss these kinds of topics.

What do you mean when you say that calling Social Security an

Quote:
 "unfunded entitlement" is way off base

?

Social Security benefits have always been a pay as you go proposition.  True, there are accounting entries that show how much the gov't owes the supposed trust funds, but all payroll taxes that haven't gone directly to OASI and DI recipients, have been borrowed by the gov't for normal gov't operations.  We are now at a cross-over point where payroll taxes are insufficient to pay all recipients' benefits, so the gov't's general funds now have to start paying back what is owed. 

This is a Social Security Administration 2010 report on the status of the various Social Security and Medicare trust funds.  It seems rather benign, but I suspect they have made overly optimistic economic assumptions.

http://www.ssa.gov/oact/trsum/index.html

OBTW, the costs of administering the Social Security system, Medicare and supplemental security income (SSI) already come out of general federal and state funds, as do all SSI and Medicaid payments.

Doug

rhare's picture
rhare
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Re: Perspective for the New Year

Hi Gary, and welcome to the group here,

You will find you will be challenged on statements such as this:

networksofgrace wrote:
calling Social Security an "unfunded entitlement" is way off base

Please explain why you don't believe this is true.  I'm guessing you don't have a problem with the word entitlement since it's quite straight forward, from Dictionary.com:

Quote:

en-ti-tle-ment

-noun

  1. the act of entitling
  2. the state of being entitled.
  3. the right to guaranteed benefits under a government program, as Social Security or unemployment compensation.

en-tit-tle

-verb

  1. to give (a person or thing) a title, right, or claim to something; furnish with grounds for laying claim: His excutive position entitled him to certain courtesies rarely accorded others.

So, I'm guessing you have a problem with the "unfunded" part of that statement since you discuss how it has been raided.  If you look at the NPV (net present value) of Social Security and Medicaid they are unfunded to the tune of $100T dollars (also shown in the Crash Course).  The raid you talk about is against the so called "trust fund", which even if real is only  about $2.5T, a far cry from $100T.  But I think the article correctly says this about the trust fund:

Quote:

What about the Trust Funds?  The Social Security and Medicare Trust Funds exist purely for accounting purposes:  to keep track of surpluses and deficits in the inflow and outflow of money.  The accumulated Social Security surplus actually consists of paper certificates (non-negotiable bonds) kept in a filing cabinet in a government office in West Virginia.  These bonds cannot be sold on Wall Street or to foreign investors.  They can only be returned to the Treasury. In essence, they are little more than IOUs the government writes to itself

Most of us here you will find believe Social Security is a Ponzi scheme requiring more and more people to pay for the benefits of those that have come before and when you run out of people to pay, the system will fail. However, even those that don't consider it a Ponzi scheme state that it's because we will have continuing growth. This is one of the clear tenants of the crash course that we will not have growth due to limits of energy and other resources.

Have you watched the crash course yet?  You might also want to read the Martenson Report "The Six Stages of Awareness".  I believe statements like you made represent Stage 1, denial.

Adam Taggart's picture
Adam Taggart
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Re: Perspective for the New Year

Gary - rhare has done a very good job presenting the rationale behind my 'unfunded entitlements' statement (thanks, rhare!)

We're open-minded to other points of view on this site. If you have data that clarifies your position, please present it.

noodlydoo's picture
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Re: Perspective for the New Year

Interesting points. Definately flawed in several areas...but interesting none the less.  The biggest errors are as they relate to industry and then innovation. I'd be happy to share, but I agree with the premise of getting paid for my thoughts and arguments, so I won't write why the thinking is off base.

[Moderator's note:  The forum rules make clear that all posts are to be fact-based and constructive.  Criticism is welcome and encouraged.  But when criticism is given to anybody on this site, it should be accompanied both by reasons and by suggestions for improvement.]

Johnny Oxygen's picture
Johnny Oxygen
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Re: Perspective for the New Year

I'd be happy to share, but I agree with the premise of getting paid for my thoughts and arguments, so I won't write why the thinking is off base.

Seriously?

So you'll be sending a check to Chris then? 

Matt Holbert's picture
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Re: Perspective for the New Year

Nice summary of the State of the Status Quo. I reached the conclusion that government could not provide solutions after attending a government-sponsored sustainable development conference in the early 1990s -- and by working for government as an public pension investment officer for a brief period.

One of the alarming -- to me, at least -- aspects of the underfunded social security system is that it encourages the mainstream to think that the way out of our problems is to grow our population.  If our culture was producing a healthy, active-minded group of young people this might have a bit of merit.  However, this is obviously not the case.

Systemic change is required.

Matt

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rmurfster
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Re: Perspective for the New Year

Adam wrote:
  • Government is seen as the solution to most problems
    • It was surprising and disappointing to see how many problems folks think our government needs to play the leading role in addressing. As mentioned earlier, the Fed and its printing press are considered the answer to many of the remaining looming economic issues. Same with alternative energy (most of today's "success stories" would not be so, if not for the large subsidies provided by the government). And with food production. And with education. The list goes on and on. Actually, Chris and I agree there's an important role for government to play, specifically in making strategic infrastructure investments too costly for any single corporation to greenfield, but the list of claims on the public coffers seems much too lengthy.  If we don't develop sustainable private solutions in these areas, should we expect the the public ones to be any more successful than Amtrak?

Adam wrote:

The bottom line for us was that the smart money play is to count on the US sleepwalking into the next crisis. Sure, the US is filled with dynamic and innovative people that will respond to the next crisis (energy? financial?) when it (they?) arrive, but anybody counting on US leadership being out in front of the situation is making a low-probability bet. The power of the status quo to insulate itself from unpleasant realities is quite strong.  

Adam,

The above 2 paragraphs seem to contradict themselves.  You state that are disappointed that the majority think that government is the solution to the problem, yet in the following paragraph, you seem to be basing your trust on government providing the solution and disappointed that the US government is not going to respond in time.

Am I reading this wrong?

Thanks,

Richard

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Re: Perspective for the New Year

I don't know why someone would choose their first post to pick a fight over an issue that really just boils down to semantics. It also doesn't speak very well for some of the regulars that they jump in to defend the flag over... semantics.

Is SS unfunded? Well, no, it's funded by the SS Trust Fund, which by all rights, and according to prudent fiscal planning, ought to have funds to last for many more years.

Is SS unfunded? Well, yes, the SS Trust Fund has been looted and pillaged by both parties for generations.

rhare's picture
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Re: Perspective for the New Year

green_achers wrote:

Is SS unfunded? Well, no, it's funded by the SS Trust Fund, which by all rights, and according to prudent fiscal planning, ought to have funds to last for many more years.

Is SS unfunded? Well, yes, the SS Trust Fund has been looted and pillaged by both parties for generations.

Neither of these cover the real issue - it's unfunded because there are far more promises than can be fulfilled even if it wasn't looted.  It has been a Ponzi scheme as soon as life span increases caused the number of people able to collect benefits to exceed those paying in.

As far as why some of us jump in was not to "defend the flag" but to point out that a statement was potentially incorrect and why.  If you let these type of statements go how is this site any different than MSM media that propagates the same type of mis-information without any critical analysis?

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Re: Perspective for the New Year

green_achers wrote:

I don't know why someone would choose their first post to pick a fight over an issue that really just boils down to semantics. It also doesn't speak very well for some of the regulars that they jump in to defend the flag over... semantics.

Is SS unfunded? Well, no, it's funded by the SS Trust Fund, which by all rights, and according to prudent fiscal planning, ought to have funds to last for many more years.

Is SS unfunded? Well, yes, the SS Trust Fund has been looted and pillaged by both parties for generations.

One thing I have been wondering about.

It is my understanding that the Social Security is invested in government treasuries and that those treasuries fund the nation and the national debt.  Is that correct?  As such, it is really the problem that the deficit has grown so large, that makes the repayment of those treasuries questionable.  In general circles, US treasuries are considered to be the gold standard for  safe investment.

If the Social Security trust fund had has not been invested in US Treasuries.  It would be billions/trillions '?' of dollars sitting in a bank, or invested into private bonds/stocks.  That would have to be a 'huge' investor, that would drive markets in a way far larger than anything else out there.  Would that even be workable/possible to have a govt program as biggest investor in the market?

John

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Re: Perspective for the New Year

Matt Holbert wrote:

One of the alarming -- to me, at least -- aspects of the underfunded social security system is that it encourages the mainstream to think that the way out of our problems is to grow our population.  If our culture was producing a healthy, active-minded group of young people this might have a bit of merit.  However, this is obviously not the case.

Systemic change is required.

Matt -

Great observation.  I'm wondering what you and others think about how to initiate substantive systemic change given the headwinds and inertia of the status quo?

I am of the opinion that the only way real and meaningful change happens is not as a campaign promise and catchy phrase, but ONLY following systemic shock where everyone is impacted and the average person looks around and says "Holy crap, this is broken and needs to be fixed."

And then they go out and do it. 

Isn't that the mind set and way of thinking we are trying to foster here at CM.com?

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Re: Perspective for the New Year

rhare wrote:

- it's unfunded because there are far more promises than can be fulfilled even if it wasn't looted.  It has been a Ponzi scheme as soon as life span increases caused the number of people able to collect benefits to exceed those paying in.analysis?

Still just semantics.  It's not unfunded by your definition at the present time.  It's been generating a surplus up till recently.  Sure, the demographic shift would require some adjustments, and I'm not arguing tacking on other entitlements such as SSI was a good idea, but calling it unfunded just comes across as kind of shrill.  Now, the economy going down the bowl isn't going to help anything, and there's a good chance SS is going down with everything else, but it's silly to pick on the one progam that has mostly paid its way.

The really astute question is this one:

jturbo68 wrote:
One thing I have been wondering about.

It is my understanding that the Social Security is invested in government treasuries and that those treasuries fund the nation and the national debt.  Is that correct?  As such, it is really the problem that the deficit has grown so large, that makes the repayment of those treasuries questionable.  In general circles, US treasuries are considered to be the gold standard for  safe investment.

If the Social Security trust fund had has not been invested in US Treasuries.  It would be billions/trillions '?' of dollars sitting in a bank, or invested into private bonds/stocks.  That would have to be a 'huge' investor, that would drive markets in a way far larger than anything else out there.  Would that even be workable/possible to have a govt program as biggest investor in the market?

John

Yeah, I wonder that, too.  It brings up the whole question of just what is wealth, and how can it meaningfully be stored for the future.  For most of modern history, a reasonable answer would have been to put surplus funds into what everyone considered a safe, conservative investment.  Now I don't know if anyone really knows what to do with it.  Put it into gold or real estate?  That would have been a poor idea over the last couple of generations.  I'd guess a few million have retired with SS retirement over that time.

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Re: Perspective for the New Year

jturbo68 wrote:

green_achers wrote:

I don't know why someone would choose their first post to pick a fight over an issue that really just boils down to semantics. It also doesn't speak very well for some of the regulars that they jump in to defend the flag over... semantics.

Is SS unfunded? Well, no, it's funded by the SS Trust Fund, which by all rights, and according to prudent fiscal planning, ought to have funds to last for many more years.

Is SS unfunded? Well, yes, the SS Trust Fund has been looted and pillaged by both parties for generations.

One thing I have been wondering about.

It is my understanding that the Social Security is invested in government treasuries and that those treasuries fund the nation and the national debt.  Is that correct?  As such, it is really the problem that the deficit has grown so large, that makes the repayment of those treasuries questionable.  In general circles, US treasuries are considered to be the gold standard for  safe investment.

If the Social Security trust fund had has not been invested in US Treasuries.  It would be billions/trillions '?' of dollars sitting in a bank, or invested into private bonds/stocks.  That would have to be a 'huge' investor, that would drive markets in a way far larger than anything else out there.  Would that even be workable/possible to have a govt program as biggest investor in the market?

John

Actually, rhare answered that earlier in this thread.

Quote:

Quote:

What about the Trust Funds?  The Social Security and Medicare Trust Funds exist purely for accounting purposes:  to keep track of surpluses and deficits in the inflow and outflow of money.  The accumulated Social Security surplus actually consists of paper certificates (non-negotiable bonds) kept in a filing cabinet in a government office in West Virginia.  These bonds cannot be sold on Wall Street or to foreign investors.  They can only be returned to the Treasury. In essence, they are little more than IOUs the government writes to itself.

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Re: Perspective for the New Year

"Holy crap, this is broken and needs to be fixed."

Those who study complex systems believe that collapse can lead to either "critical instability" or "dynamic stability."  While everything points to instability, I tend to focus on dynamic stability.  Mostly because I think that almost everything about our current system could stand some improvement anyway.  My sense is that the core CM.com participant is concerned with preserving wealth as a way to ride out the storm.  Maybe because I do not have children, I tend to focus on the natural support system remaining healthy -- to the detriment of wealth preservation.

As things are shaping up at this moment, a couple of million in precious metals and two years of provisions will not prevent one from becoming just another serf.  The goal should be -- and Charles Hugh Smith is one of the few who express this --  keeping civilization intact.  I agree that the average person is going to look around and say "Holy crap."  I just want him or her to have a vision of a dynamic alternative in mind when it happens.

Matt, Integral Research Society

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Re: Perspective for the New Year

There is the truth - Social Security is bankrupt and even had it not been looted, someone's mouth wrote checks that their account can't cash. Think CALPERS.

There is the conventional wisdom - I paid into Social Security my whole life and now I plan to get back what is rightfully mine. (You can never underestimate the average American's mathematical ability or blind faith in its leaders.)

And there is the ugly truth - Social Security is a Ponzi Scheme. If you haven't figured out who's being screwed yet, go take a look in the mirror.

SS

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Re: Perspective for the New Year

SS,

Calling something the Truth because you and all of your buddies think it is doesn't make it so.

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New Year

These points confirm my perspective.  Our government won’t even acknowledge what has already happened.  It doesn’t have a clue of what is coming.  Yet the people of power and influence think all worthwhile efforts must be directed by our government.  How’s that for a losing proposition?  We are truly on our own to develop the means to cope with what is coming.  That wouldn’t be so bad if we didn’t have to worry about the impediments government currently imposes, and the potentially huge damage that it can cause in panic reaction to a crisis it helped create

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SingleSpeak
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Re: Perspective for the New Year

green_achers wrote:

SS,

Calling something the Truth because you and all of your buddies think it is doesn't make it so.

             Most of my "buddies" don't believe it. And only time will tell. But I'm surely not counting on it.

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leweke1
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Re: Perspective for the New Year

OK, I'll take the premise that SS is funded...I just see the pain of providing said funding will become unbearable over time.  Realistically I don't see the funding to be present when I'm eligible after about another 20 years of the current mechanism; I'm "a liability" at that point and I anticipate I'm gonna feel pretty unfunded, but I won't be alone!Wink

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Re: Perspective for the New Year

green_achers wrote:

rhare wrote:

- it's unfunded because there are far more promises than can be fulfilled even if it wasn't looted.  It has been a Ponzi scheme as soon as life span increases caused the number of people able to collect benefits to exceed those paying in.analysis?

Still just semantics.  It's not unfunded by your definition at the present time.  It's been generating a surplus up till recently.  Sure, the demographic shift would require some adjustments, and I'm not arguing tacking on other entitlements such as SSI was a good idea, but calling it unfunded just comes across as kind of shrill.  

No, it's neither a question of semantics nor of being shrill, but rather one of simple accounting.

The definition of "funded" is that funds exist in some amount, somewhere.

There are no funds int the SS "trust fund," something that is extremely well documented in articles here, in the Crash Course,and in numerous other places that are easily found on the web.  

What does exist in the "trust fund" are slips of paper that represent IOU's from the government to itself for all the past excess funds that were removed from the trust fund and spent.

As I am fond of saying, it is not possible to owe yourself money and claim the debt as an asset, which is exactly what proponents of the "funded SS trust fund" idea are doing.  It is completely and utterly wrong from an accounting standpoint and, more importantly, its is not representative of what we might call truth or reality.

Here's how the OMB itself describes the situation (pay special attention to the last sentence):

“These (trust fund) balances are available to finance future benefit payments and other trust fund expenditures, but only in a bookkeeping sense. These funds are not set up to be pension funds, like the funds of private pension plans.

The holdings of the trust funds are not assets of the Government as a whole that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury.”

Let's do this as a Q&A:

Q:  How many dolalrs are in the SS trust fund?

A:  On any given day very close to zero. Money flows in from FICA taxes and money flows out to SS recipients and any remaining excess flows into the general obligation fund where it is spent by the government.  

Q: So what is in the trust fund?  

A:  Currently there are roughly $2.5 trillion in non-negotiable United States Treasury bonds and U.S. securities backed by "the full faith and credit of the government."   

Q:  How will those get paid off?

A:  Someday the US Treasury will have to come up with cash to buy those bonds back.  Here you may note that if one branch of the government claims an asset with a value of $2.5 trillion but another has an offsetting liability of $2.5 trillion, that these cancel out and equal zero. From an accounting perspective, the only correct value to assign to the SS Trust Fund would be zero.  Anything different is an accounting fiction.

Q:  Can you be a little more clear?  Who exactly will pay those bonds off?

A:  The taxpayer.  Either by direct taxation or by inflation if the bonds are monetized by the Fed.  Either way, the taxpayer pays.

Q:  What is the total current net present value of the SS Trust fund?  

A:  While $2.5 trillion seems like a lot, under current law the payouts (retirement age and benefits, etc) will be a lot higher over time.  Estimates vary but the SS Trust Fund itself estimates that even after including the $2.5 trillion in the calculations, that an additional $5.4 trillion would need to be held by the trust fund, today, in order for it to be solvent over  the long haul (75 years).

Q:  Are you saying that the combined shortfall of the SS Trust Fund (all by itself!) that must be paid by taxpayers is a stunning 54% of GDP?

A:  Yes.

jpitre's picture
jpitre
Status: Gold Member (Offline)
Joined: Mar 3 2009
Posts: 366
Re: Perspective for the New Year

Chris

I agree with all that you say, however I'd like to add that as somebody else said on this site "If something can't be paid, it won't be paid". Perhaps it will morph into more af a safety net rather than an entitlement. I think that much is made of projections that forecast doom for SS - yes - but I think a more reasonable reality is that the plan can/will be modified to a level that is reasonably sound when the bell finally rings. Changes such as moving the retirement age to later in life, lowering of benefits (especially with those having higher net worth) can make large changes in the longer term. Of course, this kind of scenario will only work if the S (doesn't) HTF in a major way and we have a slower stair step spiral down. I know that everyone that paid into SS (myself included) thinks we are owed what was promised, however given the reality we are facing, many of our expectations will need to be reduced. The idea that in a few years there will be nothing for anybody is IMHO unrealistic unless we have a major collapse - and while I personally am planning for the collapse scenario, I can also see the possibility of a softer landing provided enough of our leadership  changes course soon.

Similarly, Medicare can survive if more realistic premiums are charged and the bloat/inefficiency  in our present healthcare system is reduced. The majority of Medicare recipients can come up with 2 or 3 times the premium amount they currently pay, and while that would cause an uproar, if it were phased in over several years, I think it would make a tremndous difference. I'm no expert exactly what these changes would do for the system, however, it seems reasonable that a workable plan is available if we have the strength to face reality. if we get our leadership to  realistically deal with our overall healthcare system and we can stop the bickering over death panels, we have a chance

Jim

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