"Fool me once; shame on you. Fool me twice; shame on me." - Ancient Proverb
I recently started reading the U.S. Social Security Administration's 2008 OASDI Trustees Report. It pretty much goes without saying that this is not the most interesting reading material in the world, as the report is neither a suspenseful page-turner nor a runaway bestseller. Released to no apparent fanfare on March 28th, so far the report has done a better job of gathering dust than garnering attention.
Short-Range Results
"The OASI Trust Fund and the combined OASI and DI Trust Funds are adequately financed over the next 10 years under the intermediate assumptions. The DI Trust Fund is expected to remain solvent over the next 10 years, but does not satisfy the short-range test of financial adequacy because assets are estimated to fall below 100 percent of annual expenditures before the end of 2017. The combined assets of the OASI and DI Trust Funds are projected to increase from $2, 238 billion at the beginning of 2008, or 359 percent of annual expenditures, to $4, 273 billion at the beginning of 2017, or 385 percent of annual expenditures in that year..."
Long-Range Results
"...Annual cost will exceed tax income starting in 2017, at which time the annual gap will be covered with cash from redemptions of special obligations of the Treasury that make up the trust fund assets until these assets are exhausted in 2041."
To most of us, OASDI (which stands for Old-Age, Survivors, and Disability Insurance) is better known as Social Security. Unfortunately, because the mere mention of Social Security has the ability to illicit spontaneous yawning, we as Americans have been sleeping rather than standing guard. Consequently, our eyes have been closed to a deceit that is robbing us of our future financial security.
With total incoming revenue expected to top $800 billion for the year, Social Security is the largest program in the history of our government. And for the past twenty years, OASDI has been cash flow positive, with surpluses totaling over $190 billion last year alone.
However, over the years, Congress has been continually borrowing these annual surpluses, and has now spent more than $2 trillion of Social Security’s trust fund assets. While referring to this practice as "borrowing" is far too kind, these monies have been taken legally due to the accounting principles (or lack thereof) that now govern the distribution of funds within our federal budget. Under a unified budget, surpluses from one program, such as Social Security, automatically flow into general revenue calculations, where they may then be used to mask deficit spending for any number of other programs or initiatives.
The whole point of starting a trust fund was to set aside money for the future. Because projected program costs were expected to exceed revenue in coming years, tax rates were increased prior to need, and these tax increases were scheduled as prescribed by the 1983 amendments. In other words, if the government were to wait to increase taxes until 2017 when the money will actually be needed to fund retirement benefits for the baby boom generation, it would already be too late. At that point, the program would begin to need cash at a rate far in excess of the ability to raise it through fair and balanced taxation.
This certainly does not have to mean that the Social Security program is destined for insolvency, and the passing of the baby boom generation should be seen as an extended hurdle rather than an insurmountable barrier. Referring to these looming demographic issues as an “extended hurdle” may be a slight understatement given the current lack of foresight and financial discipline exhibited by our government, but with proper planning, we can assuredly meet these challenges with confidence--and success. That said, Social Security will need to draw upon its cash reserves during the effectual time period, and we must ensure that these resources will be ready and available as needed.
As it pertains to the current state of the OASDI trust funds, the money has already been spent and the damage is done. However, Social Security is projected to generate continued operational surpluses between now and 2017, and the total value of the OASDI trust funds is scheduled to grow from last year's assets of $2.238 trillion to a total of $4.486 trillion in assets by the end of 2017.
This means that the Social Security trust fund is projected to double in value over the next 10 years. We as citizens have little hope of recovering the $2 trillion in trust monies that have already been spent, and politicians are largely to blame for this gross negligence. However, if we as citizens allow politicians to continue to spend these incoming surpluses and "borrow" an additional $2 trillion from our trust fund, we will have only ourselves to blame. We must act now to protect and preserve the future of our financial security--for our parents, for ourselves, and for our children.
Looking ahead, the OASDI surplus is expected to total $192 billion for 2008. To put this number in perspective, the Economic Stimulus Act of 2008 has an estimated price tag of $152 billion, with the majority going towards sending stimulus checks to eligible taxpayers. It pretty much goes without saying that a significant percentage of this money will ultimately leave our economy through the purchase of foreign oil and other consumer goods manufactured outside these United States. So if Congress can find a way to spend $152 billion to facilitate consumer spending, then surely it can also find a way to start saving comparable amounts, such as the ongoing Social Security trust fund surpluses.
An important first step will be to stop including Social Security revenue in the unified budget. That way, politicians will no longer be able to devise new ways to spend this money as part of general revenue, and we can start using OASDI surpluses for their intended purpose--saving for the future.
Furthermore, to best protect this money and the people who actually earned it, the government should start allocating trust resources to individual accounts for each taxpayer instead of lumping it together in a collective lockbox. Creating a sense of individual ownership will allow taxpayers to act as their own trustees, as individuals with a stake in the future success of the program. And managing such a responsibility will help reinforce the fact that we have a truly vested interest in financial sustainability of Social Security, so that we will never again allow its trust fund resources to be squandered away as carelessly as they have been in the past. We the people created this great nation, and we the people are its rightful trustees--for this generation and the next.
Sources:
U.S. Social Security Administration - 2008 OASDI Trustees Report
(Section II.A, Highlights; Short-Range Results, Long-Range Results)
U.S. Social Security Administration - Office of the Chief Actuary
(Time Series: Both Funds; Income, Outgo, and Assets; Calendar Year; All Years)
U.S. Social Security Administration - 2008 OASDI Trustees Report
(Section IV.A, Short-Range Estimates; Table IV.A3, Intermediate Projections)
White House - Press Release, February 13, 2008
(Fact Sheet: Economic Stimulus Act of 2008)
Source: blog.pactamerica.com
LOW (18.93 Delayed Quote): At 1DyHIGH=18.96 (1 Time), ch:+1.0%, phNearHi:BrkPLo+PHi[+5.2%], PrvClGap-:+13%chg, AvgDyV/R=27.41M/0.67[x1.4], PrvClGap-:+13%chg
LOW (18.93 Delayed Quote): At 1DyHIGH=18.96 (1 Time), ch:+1.0%, phNearHi:BrkPLo+PHi[+5.2%], PrvClGap-:+13%chg, AvgDyV/R=27.41M/0.67[x1.4], PrvClGap-:+13%chg
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Registered Trademark
The PACT America logo is now a registered trademark with the United States Patent and Trademark Office. The application for trademark was first submitted last July, and it's an awesome feeling to have finally completed the registration process. I felt that obtaining a trademark was an important step in strengthening the seriousness of this cause, and I will continue to pursue this endeavor with a sincere devotion to help the American people.
Source: blog.pactamerica.com
A Suitable Change
This morning (Saturday) I went down to the bank and purchased $200 worth of paper Series I bonds. Even though I've been doing a good job of saving lately, the amount of this investment is less than I would have liked. That's because I'm anticipating higher expenses for the month, as yesterday the company I work for tasked me with buying a business suit for an important upcoming meeting.
Believe it or not, I've never actually owned, or even worn, a suit before. Though I wear dress shirts on an almost daily basis, I typically roll up the sleeves within minutes of buttoning my shirt, and it's been so long since I've worn a tie that I've forgotten how to tie one.
And so, this week I'll set out to buy my first suit. I'm planning to look at one of the men's clothing stores in downtown Chicago, in search of a suit that fits both my frame and my budget.
Only three years ago, I could scarcely afford the cost of a new pair of jeans, and would stay up late stitching patches to repair the burns received from hot sparks of steel that sprayed upon me as I welded. Now I'm a position to enlist the help of a professional tailor.
Aside from this, I'm still a man working hard to accomplish his goals—that part hasn't changed. And while it's been said that clothes make the man, I believe that men are made by actions, not appearances. The strength of a warrior is found not in the breadth of his arm, but in the depth of his heart.
Source: blog.pactamerica.com
Show Me the Money
The previous post mentioned that Congress has already spent the entire Social Security trust fund, which as of last year, totaled $2.238 trillion. It also mentioned that current intermediate projections made by the U.S. Social Security Administration indicate that this trust fund should continue to increase in value to a total of $4.486 trillion by the year 2017, and that we the people of this great nation would be in dereliction of our duties as citizens and taxpayers if we were to let politicians spend the second half of this trust like they have spent the first.
For calendar year 2007, Social Security brought in a total income of $784.9 billion, which included $656.1 billion in cash from payroll taxes, $18.6 billion in cash from the taxation of benefits, and $110.2 billion in interest earned from the bonds in the Social Security trust fund. The program also had expenses totaling $594.5 billion, of which $584.9 billion was paid out in cash for benefit payments.
After subtracting total outgo from total income, Social Security generated a net surplus of $190.4 billion last year, but it is important to note that this surplus was not a huge pile of cold, hard cash locked away in some cavernous vault. In fact, only $80.2 billion was in the form of cash from our tax dollars, and the remaining $110.2 billion was interest earned on the special-issue bonds in the Social Security trust fund.
Each year when Congress raids the surplus, Social Security receives special-issue bonds equal in value to the money that is taken from the cash reserves in its trust fund. Like all government bonds, these special-issue bonds are backed by the full faith and credit of the United States government, and are completely legitimate treasury securities.
Similarly, when I purchase a $100 Series I savings bond at the local bank, I hand over $100 in cold, hard cash, and in return, the government issues me an interest-bearing savings bond by mail. What happens next is that the government spends my $100 in cash, and the national debt increases by another $100. A record of this debt eventually gets included in the monthly statement of the public debt, where totals for United States savings bond transactions are tallied alongside other nonmarketable treasury securities such as the special-issue bonds in the Social Security trust fund.
Like all $36.9 billion in outstanding Series I bonds collectively owned by investors, my bond will continue to earn interest each month for up to 30 years after its purchase, and during this time, the government will not actually send out checks for the accrued interest. Rather, this interest is added back to the value of my bond, and continues to compound monthly.
By comparison, when the Social Security trust fund earned $110.2 billion in interest last year, this interest did not represent a payment of cold, hard cash. Instead, this interest went to purchase more special-issue bonds for the trust fund, and the transaction was merely a mathematical calculation and an accounting entry on the part of the government, with no real money involved.
The danger is that the U.S. Social Security Administration is banking on the fact that real money will be available from the trust fund to help make benefit payments starting in 2017. All the economists, actuaries, and academics take for granted that this money will be readily available when the time comes. But where will the government actually get the cash?
For example, if I finally decide to go to the bank and cash in my $100 Series I bond, I will receive cold, hard cash in the amount of the $100 originally paid for the bond, plus the amount of interest earned over the interest-bearing period. This means that the government will actually need to come up with real money to pay me back, and my bond will no longer be financing a portion of the national debt.
However, more than likely, someone else will go to the bank and buy a savings bond that same day, and this new purchase will help offset the sale of my bond. In other words, new bonds are constantly being purchased by investors to make up for the ones that mature or are retired, and the government does not need to worry too much about replacing the lost source of financing when existing bonds are cashed.
Unfortunately, because the Social Security trust fund has been compounding for so long without its special-issue bonds ever having been refinanced or rolled over on the cash markets, and because the numbers are so very large, there is a substantial risk that existing financing sources such as the bond markets will be unable to secure replacement financing for these bonds. In other words, who will offset the disbursements when Social Security needs to start converting its $4.486 trillion in trust fund bonds to cold, hard cash?
Sources:
U.S. Social Security Administration - 2008 OASDI Trustees Report
(Section II.A, Highlights; Short-Range Results, Long-Range Results)
U.S. Social Security Administration - Office of the Chief Actuary
(Time Series: Both Funds; Income Components; Calendar Year; All Years)
U.S. Social Security Administration - 2008 OASDI Trustees Report
(Section IV.A, Short-Range Estimates; Table IV.A3, Intermediate Projections)
U.S. Treasury - Monthly Statement of the Public Debt, April 30, 2008
(Page 7, Total Outstanding United States Series I Savings Bonds: $36, 948 Million)
Source: blog.pactamerica.com
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PDS (4.40 Delayed Quote): OfrOrdrIMBAL 19x101, MedFlt[205.3M], Gap-:-354%chg[-4.7%], 1MoLo-
PDS [?]: PRECISION DRILL TRST -- Basic Materials / Oil & Gas Equipment & Services
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DWA (28.11 Delayed Quote): At/Below SupTrnd (-1m), PDayGp+, AtPivS2, PotWW:1m+, AvgDyV/R=2.26M/0.76[x0.9], lm:+2
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EJ (15.40 Delayed Quote): At/Above PivotS1[15.13] (Z2Rch:29%, Sup:92%), lm:-4, PrvCHi, AtPivS1, MedFlt[38.4M], PrvClGap-:-435%chg
EJ [?]: E-HOUSE HOLDINGS ADR -- Financial / Property Management
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