This bail out is going to be 60x larger than the banking bailout in 2008, and it is only to ONE PROGRAM

From Simon Black the Sovereign Man

A few weeks ago the Board of Trustees of Social Security sent a formal letter to the United States Senate and House of Representatives to issue a dire warning: Social Security is running out of money.

Given that tens of millions of Americans depend on this public pension program as their sole source of retirement income, you’d think this would have been front page news…

… and that every newspaper in the country would have reprinted this ominous projection out of a basic journalistic duty to keep the public informed about an issue that will affect nearly everyone.

But that didn’t happen.

The story was hardly picked up.

It’s astonishing how little attention this issue receives considering it will end up being one of the biggest financial crises in US history.

That’s not hyperbole either– the numbers are very clear.

The US government itself calculates that the long-term Social Security shortfall exceeds $46 TRILLION.

In other words, in order to be able to pay the benefits they’ve promised, Social Security needs a $46 trillion bailout.

Fat chance.

That amount is over TWICE the national debt, and nearly THREE times the size of the entire US economy.

Moreover, it’s nearly SIXTY times the size of the bailout that the banking system received back in 2008.

So this is a pretty big deal.

More importantly, even though the Social Security Trustees acknowledge that the fund is running out of money, their projections are still wildly optimistic.

In order to build their long-term financial models, Social Security’s administrators have to make certain assumptions about the future.

What will interest rates be in the future?
What will the population growth rate be?
How high (or low) will inflation be?

These variables can dramatically impact the outcome for Social Security.

For example, Social Security assumes that productivity growth in the US economy will average between 1.7% and 2% per year.

This is an important assumption: the higher US productivity growth, the faster the economy will grow. And this ultimately means more tax revenue (and more income) for the program.

But -actual- US productivity growth is WAY below their assumption.

Over the past ten years productivity growth has been about 25% below their expectations.

And in 2016 US productivity growth was actually NEGATIVE.

Here’s another one: Social Security is hoping for a fertility rate in the US of 2.2 children per woman.

This is important, because a higher population growth means more people entering the work force and paying in to the Social Security system.

But the actual fertility rate is nearly 20% lower than what they project.

And if course, the most important assumption for Social Security is interest rates.

100% of Social Security’s investment income is from their ownership of US government bonds.

So if interest rates are high, the program makes more money. If interest rates are low, the program doesn’t make money.

Where are interest rates now? Very low.

In fact, interest rates are still near the lowest levels they’ve been in US history.

Social Security hopes that ‘real’ interest rates, i.e. inflation-adjusted interest rates, will be at least 3.2%.

This means that they need interest rates to be 3.2% ABOVE the rate of inflation.

This is where their projections are WAY OFF… because real interest rates in the US are actually negative.

The 12-month US government bond currently yields 1.2%. Yet the official inflation rate in the Land of the Free is 1.7%.

In other words, the interest rate is LOWER than inflation, i.e. the ‘real’ interest rate is MINUS 0.5%.

Social Security is depending on +3.2%.

So their assumptions are totally wrong.

And it’s not just Social Security either.

According to the Center for Retirement Research at Boston Collage, US public pension funds at the state and local level are also underfunded by an average of 67.9%.

Additionally, most pension funds target an investment return of between 7.5% to 8% in order to stay solvent.

Yet in 2015 the average pension fund’s investment return was just 3.2%. And last year a pitiful 0.6%.

This is a nationwide problem. Social Security is running out of money. State and local pension funds are running out of money.

And even still their assumptions are wildly optimistic. So the problem is much worse than their already dismal forecasts.

Understandably everyone is preoccupied right now with whether or not World War III breaks out in Guam.

(I would respectfully admit that this is one of those times I am grateful to be living on a farm in the southern hemisphere.)

But long-term, these pension shortfalls are truly going to create an epic financial and social crisis.

It’s a ticking time bomb, and one with so much certainty that we can practically circle a date on a calendar for when it will hit.

There are solutions.

Waiting on politicians to fix the problem is not one of them.

The government does not have a spare $45 trillion lying around to re-fund Social Security.

So anyone who expects to retire with comfort and dignity is going to have to take matters into their own hands and start saving now.

Consider options like SEP IRAs and 401(k) plans that have MUCH higher contribution limits, as well as self-directed structures which give you greater influence over how your retirement savings are invested.

These flexible structures also allow investments in alternative asset classes like private equity, cashflowing royalties, secured lending, cryptocurrency, etc.

Education is also critical.

Learning how to be a better investor can increase your investment returns and (most importantly) reduce losses.

And increasing the long-term average investment return of your IRA or 401(k) by just 1% per year can have a PROFOUND (six figure) impact on your retirement.

These solutions make sense: there is ZERO downside in saving more money for retirement.

But it’s critical to start now. A little bit of effort and planning right now will pay enormous dividends in the future.

    • Social Security is no more a ponzi scheme than is any insurance policy, stock or bond portfolio, endowment, 401k, REIT, or any other financial scheme. They’re all dependent on future labor making enough of a surplus that they can take a skim. But SS administrative and overhead costs are far less than those of private financial entities. Also, the bulk of the SS’s investments are in US bonds, which means that the integrity of the plan is only as solid as the financial integrity of the nation. If the country has none, then why should any private entity have any?

      Point is, kids, you’re in da middle of The Greater Depression. Why would anyone expect to receive a return premised on a robust, sound economy? All anyone has to do is to look at the number of institutions which have  highest bond ratings now as compared to 40 years ago. The have dropped significantly, meaning there is nowhere to go. This isn’t a crisis of just one economic element, this is a crisis of the entire system that is called capitalism….

    • @AGXIIK

       

      Yes, SS IS a Ponzi scheme, regardless of what else may or may not be Ponzi schemes.  It depends strictly upon funds coming into it to pay out the benefits to retirees.

      My company 401(k) plan kicked the SS program’s financial butt so hard that it went high in the sky.  401(k) plans can be and often are SEVERAL times better performing than the SS program.  That anyone can sell the SS program based on its financial performance or the fiscal acuity of those running it is a true testament to the dumbing down of America, IMO.  It’s an awful program that seeks to do good but ignores basic financial behavior in the hope that future growth will bail out the terrible present.  So far, it has not, the program is bleeding money at a prodigious rate, and every time we hear a date when the program will be completely insolvent, the date is closer than ever.  A national 401(k) plan very likely would be a FAR better program than any version of SS.  That worked in Chile and it could work here as well.

       

    • Ed, you simply don’t have any idea what you’re talking about. A Ponzi scheme doesn’t have any resources nor build of funds that can be managed or mismanaged. It’s nothing but a conduit from old investor to new investor, without any attempt to increase the worth by investing in tangible assets. Because of the fact that SS actually had an asset base that in fact could be traced and assessed, it isn’t a Ponzi scheme. You’re using very sloppy thinking in your analysis.

      Again, any investment plan that’s premised on the productivity of future labor is going to be in trouble when that labor is undervalued. Simple as that…..

  1. “Given that tens of millions of Americans depend on this public pension program as their sole source of retirement income…”

     

    Yes, they do and this in spite of the fact that the US Gov has been telling people for decades that SS is a “supplemental retirement income program”.  The web site of the SS Admin says repeatedly that SS is designed to cover about 1/3 of a person’s retirement income needs.  The other 2/3 has to come from savings, pensions, and investments.  Way too many have taken the helping hand of SS as the be-all and end-all of retirement planning.  It’s simply not that and it never will be.

     

  2. In the old days, the family and the church took care of their elderly… but not so much now.   The Bible tells us that the poor will always be with us… and let’s face it… most seniors need SS.

    I hate taxes, but at least the SS tax could be justified in my mind because it was helping the disabled and seniors.  Considering that employers always had to match the employee’s contribution… and that SS taxable limits were continually raised… the program should have built up ample reserves despite the onset of the baby boomers.  The problem is that the SS fund was mismanaged and repeated raided over the years to pay for unrelated line items.   Of course, the biggest problem today with SS is… It is built upon the same fiat debt based currency that undermines and erodes our whole financial system.

    What is coming is not just going to be ugly… It is going to be heartbreaking.

    • Yup, SS isn’t exempt from the basic mechanics of common sense. If an economy has come to the point where the only way to make s profit is by degrading labor value, then anything dependent on that lessened asset is going to lose value. This isn’t that hard to understand. Workers made higher real wages decades ago than they do now. Just look at the Department of Labor’s forecast of which jobs will be the fastest growing. Low wage, low skill and with no need for a college degree. Of course, any financial scheme is in trouble..,,

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