Gary North’s Reality Check (Oct. 26, 2012)
I want to talk about the inevitable bankruptcy of the Social Security system. I have made this case publicly for 35 years.
The beginning of the bankruptcy began in fiscal year 2010. Early in that year, I produced a 90-minute video predicting that this would happen before the end of the fiscal year.
There are those who deny that the system is going bust. We find on the Internet articles by people who still believe in the Social Security system. They go to readers and tell them that anyone who says that the Social Security system is going bankrupt is misleading them. They come in the name of truth, justice, and the American way, pointing the finger at those of us who are very specific about the nature of Social Security’s financing, and who are also very specific that the system not only will go bankrupt, it has already begun to go bankrupt statistically, meaning from the point of view of standard economic analysis.
There is a continual stream of these articles. They have four or five points, always the same, and all of them are wrong. They are so blatantly wrong that it astounds me that anybody writing such articles could believe what he is writing.
This leads to a question: Is the writer simply a liar, or is he just an economic ignoramus? There is no middle position on this. Either the person is deliberately attempting to deceive naïve readers, or else he is a man who has himself been deceived by other defenders of Social Security. He understands so little about economics, as well as accounting standards, that he believes the lies that have been told in public by other defenders of the Social Security system.
At the heart of every defensive of Social Security’s actuarial solvency is a series of lies. It is difficult to know who started the lie, but if you follow the lies, you always get back to the truth, and the truth is admitted by the Trustees of the Social Security trust fund.
WHAT DO THE TRUSTEES SAY?
Always demand from the person who tells you that Social Security is not going bankrupt that he show why the Trustees of the program are lying. Because, if what he says is true, then the Trustees are lying. It is always a bad position to be in when you accuse the directors of the program you are attempting to defend as being nothing but systematic liars. Yet that is what defenders of Social Security are implicitly saying, because what they are saying is categorically refuted by what the trustees have said.
So, I begin with the official statements of the Trustees of the Social Security trust fund. You must judge all defenses of Social Security written by journalists in terms of what the Trustees have said about the solvency of the program. Don’t just take my word for it. Take the Trustees’ word for it.
THE TRUST FUND’S DEFICIT
Here is the assessment by the Trustees in their 2012 Annual Report. They tell us that the program is producing a deficit.
In 2011, Social Security’s cost continued to exceed both the program’s tax income and its non-interest income, a trend that the Trustees project to continue throughout the short-range period and beyond. The 2011 deficit of tax income relative to cost was $148 billion, and the projected 2012 deficit is $165 billion. The sizes of these deficits are largely due to a temporary reduction in the Social Security payroll tax for 2011 and 2012. The legislation establishing the payroll tax reduction also provided for transfers from the General Fund of the Treasury to the trust funds to “replicate to the extent possible” revenues that would have occurred in the absence of the payroll tax reduction. Including these general revenue reimbursements, the 2011 deficit of non-interest income relative to cost was $45 billion, and the projected 2012 deficit is $53 billion (page 2).
Where did the money come from to offset the deficit? The Trustees were quite clear: “transfers from the General Fund of the Treasury to the trust funds .”
The Department of the Treasury invests trust fund assets in interest-bearing securities of the U.S. Government. In 2011, the combined trust fund assets earned interest at an effective annual rate of 4.4 percent (pages 6-7).
This means that the U.S. government pays all interest payments received by the trust fund. The trust fund has no other source of income except these: (1) FICA taxes, (2) interest payments from the U.S. government, and (3) sale of government-issued nonmarketable IOU’s in the trust fund back to the government, which alone can legally redeem them, and which then must come up with the money to redeem them.
Again another article that few will bother to read and even fewer will try to understand. Its too deep for them, its not "political" it is not against the king; but what this article underscores is the economic meltdown that is advancing in this nation, all the short way to the economic collapse of this nation.
Social Security was the first "welfare" program that the government started, as ususal with the "taking care of the people" mantra. On its face it "appeared" to be the right thing to do given the crash of 29 and the losses economically at that time. But this was a first step in the plan to bankrupt the nation down the road, a path that we can see the result of coming quickly.
So vote for Romney and there's HOPE. Or vote for Obama and collapse. Seems like a simple choice to me.
Riiiight, because Romney wants to balance the budget…
Romney doesn't want to phase out SSI, he wants those of us who will never see a penny in benefits to keep paying in until the system catastrophically collapses. He's just planning on not being in office when that happens.
Kick the can, in other words.
Vote for Obama and see what you get. I am prepared.
Are you kidding me? Social Security is not a "welfare" program. It's a social program meant to keep seniors out of poverty once they hit retirement age and stopped working. For a very LONG time, it was completely solvent. Medicare part D started to change that. But hey – there's an easy solution.
Stop limiting social security payroll deductions to the first $105k! If ALL earned income was taxed, or even the first $200k, Social Security would be completely solvent FOREVER.
This entire article is bunk. Gary North, you're a political hack and an economic fraud.
Shane, what are your credentials and what have you published?
Typical idiot response. You did not refute one single thing from the article, nor did you even list what was inaccurate. So I guess you're calling the Trust Fund Directors liars? What an idiot.
Hahaha! His sole answer is "Tax the rich more!!!"
Shane,
Do explain the difference between a "welfare program" and a "social program", please?
Also, it's not the job of the federal government to "keep seniors out of poverty" beyond maintaining the value of the currency. If the government wasn't allowing the reckless printing of money and the fraudulent setting of interest rates then seniors could easily live on their savings.
The social Security program is not a welfare program. Because we pay into it.
We "pay into" all welfare programs through taxes. How is that relevant? And no, as the courts have repeatedly said, Social Security is not any kind of insurance program into which you are paying premiums. They are taking your money and blowing it.
Frank,
The government has stolen your money and spent it. Forcing the next generation(s) at government gunpoint into Social Security Slavery is wrong. The system is going to collapse. Get your house in order now, so you will be prepared then.
It is coming.
If Johnson had left our soc.sec. fund alone it would not be in this shape. He transfered it to the general fund so it stands to reason that the general fund should transfer it back to the people that paid into it over the years.
I don't disagree that you (SSI eligible seniors) deserve to get paid. Where I disagree is that my generation should be forced to pay, that we should be looted because you were looted. And I refuse to pass that on to my son.
the time for if / then excuses is over. The SSI system is about to crash.
NO ONE IS PAYING ATTENTION- OR- PREPARING FOR THE WORSE, THAT IS- CLOSE.
The background and inital structure was the creation of the Federal Reserve, which through borrowing for war and unbridled spending through a "boon cycle" led to the crash; but SS was the step of taking cash from the people ( for their own good of course) and promising to give it back. This also started the first "ID system" of the people, one that would later be increasingly used to subject them to statue laws through a progressive taxing system. All in the hidden attempt to pay back the loans the government took from the Fed.
But more programs "for" the people were introduced and more money needed to support thoses programs; along with more wars that needed to be financed. More borrowing and more taxing in incresed amounts.
But those who should try to understand this article will not attempt to, its not "sexy" enough, or political enough. And because this subject is being ignored by the general citzenery, the economic collapse is now in progress and picking up steam. This will not be a coming depression, it will be 3rd world life. Get ready, you could have stopped it.
It will NOT be a 3rd world life. Many states will simply divorce themselves from the bankrupt Union. Texas, for instance.
And their level of prosperity will be directly proportionate to their level of freedom!
God Bless Texas!
Now they want your health care. Anyone that thinks the government cares isn't paying attention!
The DO care…
Just not about us!
Then they need to be downsized!
our social security system is very sloppy and full of fraud and you can't discount all the section 8 folks who will auto vote for Obama and there are more every day soon America will be a 3rd world country
No, before the "3rd world country" happens, several states will secede.
There IS NO Social Security " Lock Box " and there never WAS, Al Gore ! Soc. Sec. is just another mismanaged Government Program with " good intentions ". The State Department's " Protect Our Embassies Program " was recently " mismanaged " too and we all see just how well that turned out. ObamaCare will be even worse ! Vote Romney and repeal / KILL ObamaCare !
I'll bet my left one that Romney doesn't repeal Obamacare.
Given the depth of the debacale that SS has turned into, asking the government to fix what it has already broken is a rather misplaced adventure.
Claiming that the new savior will also be capable of fixing that what he will not articulate is broken is short sighted; and what type of repair will be acceptable?
But as I stated eariler, if the root cause of the problem never gets addressed, and only the symptom is tinkered with; what really was the cure. Doctors and politicians both "pratice" what they do, and always it cost the patient more than they can afford.
But I was right in my earlier assesment, no one really wants to look at the real problem.
Here's a plan:
Treasury prints up every dollar every contributor every paid into SSI, cuts the checks, sends them out.
All automatic deductions are ended.
There! Done!
Anyone who has ever filled out a W2 to work in the US has had Soc. Sec. taxes withheld from his paycheck whether he liked it or not, and supposedly paid into an account in his name. The money was to be held and wisely invested until the federally mandated retirement age of 65.
But it was entrusted to government, the withholdings went into the general fund instead of into a sequestered off-budget trust fund. What surpluses there were, were raided during Clinton's presidency when he and the Gingrich-led Congress "balanced the budget and produced a surplus".
To say it's "welfare" in that workers who paid into the system are getting "something for nothing" is a falsehood. In the final analysis it was operated and managed like a Ponzi scheme, as is any plan involving huge sums of money and bureaucrats.
It's a welfare program to those who receive but never paid in, or about 1/3 of the SSI recipients.
It's a Ponzi scheme for those who paid in.
SOCIAL SECURITY DIDN'T START OUT AS "WELFARE" BUT WAS "ADJUSTED" TO WELFARE OVER THE YEARS. INITIALLY, EVERYONE'S RATE OF RETURN ON THEIR SS "ANNUITY" WAS THE SAME (SMALL, BUT THE SAME). "ADJUSTMENTS" WERE MADE TO BOOST THE RATE OF RETURN FOR THOSE WHO DID NOT PUT IN VERY MUCH MONEY BECAUSE THEY JUST WERE NOT GETTING ENOUGH TO LIVE ON. THOSE WHO PUT IN MORE MONEY HAD THEIR RATE OF RETURNS REDUCED TO COMPENSATE FOR THE BOOST. EVENTUALLY, THE RATE OF RETURNS FOR HIGH INCOME PEOPLE COULDN'T BE REDUCED ANY MORE SO THE MONEY WAS JUST BORROWED AGAINST THE FUTURE—HENCE THE BANKRUPTCY. I PAID IN (CURRENTLY 15.6%) 36 YEARS OF THE MAXIMUM (3 YEARS ARE A GIFT TO THE FUND) AND I WILL GET $1875/MO AT 62. I PAID IN 14% TO ANOTHER ANNUITY AND WILL GET $7000/MO AT 62.
Remember that social security was NOT designed to be a retirement plan, but rather a supplemental source of income. Far too many people thought that social security would take care of all their retirement financial needs and squandered their earnings over their working lifetime. My own father was one of these people who when retired said, "How do they expect us to live on this?" They don't.
Well said.
Social Security is a direct transfer payment program where current payments come directly from the general fund.
Just like every other "welfare" program run by the feds.
There is NO sequestering of SS taxes paid, nor is there any guarantee of payment to ANY individual worker.
Just an "estimate" of benefits that can change at any time via legislative action.
Such as means testing – e.g. nothing stops the next session of Congress from deciding that no one with total savings of over $250,000 in taxable & tax-deferred accounts receives a SS retirement payment.
What we have here is modern media economics versus the lone voice of reality. No wonder the problems only get bigger.
The only way to fix SSI is to end it. Save your own damned money and never trust the government for anything but war and taxes.
Your Full of BOLOGNA! ALL OF YOU . And How Can You Even Equate Your selfs With the Boston tea party Those People Were Patreots, You People Are A Bunch Of Anarchists And scumbags! PS. DO NOT SEND ANYTHING ELS TO ME !