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Old 06-30-2010, 09:40 AM   #61
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Has something changed
No - This train wreck has been known about for decades. The late senator Pat Moynihan D-NY talked about this issue at length decades ago and was ignored.

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or are the fixes made by the Greenspan team in 1984 still in effect
The increased FRA is still in effect. The extra SS taxes have been spent instead of saving the money. They just couldn't keep their hands off of it. There is no "trust fund" no "lockbox". The money is gone.

Clinton talked briefly years ago about "generational accounting" but abandoned it when it was deemed too hot to talk about.

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When is the program going to "run out of money"?
It has already run out of money. SS is operating in deficit right now. The big deficits really start as the boomers start to retire. Around 2017 expect a crisis. The bond markets will insure that this will occur as costs of debt become unaffordable.

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What was the famous "lockbox" and what (if anything) happened to it?
Al Gore used that phrase to move away from a "unified" budget. It never happened. The money has been spent.
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Old 06-30-2010, 09:46 AM   #62
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As for your last statement, yes, if they continue to move toward income-based means testing, I fully intend to game the system by amassing assets and engineering a fairly low taxable income.
Maybe "game the system" sounds too judgmental, and that was not my intent. "Respond to the given rules" might be a less "loaded" way of saying it. And, I intend to do just as you are doing as the government changes the rules--shift my financial life around to get as much of the government money as legally possible. Failing to do so is just the same as not taking an available tax deduction, etc. If the rules are written in a particular way, then take full advantage of it. And there's nothing hypocritical about opposing a certain policy (e.g. writing legislators, voting for those who oppose it) and yet taking full advantage of every rule that is on the books.
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I still believe the biggest problem here is finding enough work for everyone up to age 70. I agree that raising the retirement age (among other things) makes economic and demographic sense. But from a practical standpoint the jobs just aren't there, probably won't be for a long time (if ever), and the age discrimination -- already a problem in the 50-64 demographic -- would even be worse for 65-70.
But, of course, there's no fixed basket of jobs. As wages decline, US businesses will become more competitive in the world market and the number of jobs will increase. They won't necessarily be high-paying, "fullfilling", fun jobs. But, they'll put some food on the table, which may be more important.
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Old 06-30-2010, 09:55 AM   #63
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It has already run out of money. SS is operating in deficit right now. The big deficits really start as the boomers start to retire. Around 2017 expect a crisis. The bond markets will insure that this will occur as costs of debt become unaffordable.
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In addition to recommending tax increases to alleviate the short-term funding problem, the Greenspan Commission projected that the system would be solvent for the entirety of its 75-year forecast period.
So were the Greenspan Commission's projections just wrong? What happened? That is a pretty big goof.
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Old 06-30-2010, 09:58 AM   #64
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So were the Greenspan Commission's projections just wrong? What happened? That is a pretty big goof.
They spent our money that wasn't theirs to spend. The boomers weren't paying attention.

The party was fine until the check came around.
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Old 06-30-2010, 10:02 AM   #65
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If the average 65 YO can now expect to live 18 more years, then allowing someone to start taking withdrawals at 50 would mean a monthly check of less than 1/2 of the full retirement amount. For many workers, that will be below the government poverty line, which will mean more transfer payments from the taxpayers for these "can't afford it but want to quit" early retirees. Plus the already mentioned taxpayer subsidies for health insurance for low income folks (who,because they quit work at 50 haven't yet reached 65 and the Medicare eligibility). Once you start piling on the gravy, it's hard to stop.
I think if we want a competitive economy it would be better to encourage work than to encourage people to not work. That's the lesson of Europe.

But if the person is not working anyhow... they can get the subsidies even without getting SS... I don't see the connection...

IOW... if you can not get a job at 50... you qualify for X... just because you now might get SS does not change the fact you qualify...
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Old 06-30-2010, 10:03 AM   #66
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The extra SS taxes have been spent instead of saving the money. They just couldn't keep their hands off of it. There is no "trust fund" no "lockbox". The money is gone.
Yes and no. The government has spent the money, but SS got government bonds in exchange. What did people expect to be done with the money in the "lock box"--piled up as currency in a big vault? Used to buy equities (making the government a stakeholder in American businesses--even more than they already are?). But, yes, now the taxpayers need to pay back those bonds, and that will mean more taxes.
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Old 06-30-2010, 10:06 AM   #67
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Most likely outcome for SS is push back retirement age overtime, lift (or eliminate) the cap on FICA paid by employees a la Medicare, and deal with “means testing” through increased income tax rates which are coming anyway due to outsize deficits (i.e. give “wealthy” SS with one hand and tax it away with another).

To do anything else is to 1) change the nature of SS (insurance to welfare), 2) create societal pressure to not save for your own retirement, and 3) create the need for a bureaucracy to “means-test” which will be more costly to SS than the incremental savings.

Just one example of the bureaucratic nightmare: if the year you qualify for SS you are means-tested out, what happens the following year if your income drops. Do you now qualify? Is it at the amount of last year? Does it COLA adjust? What happens if you qualify and the following year you have a windfall, does SS now go away? Can you get it back next year if you qualify again?
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Old 06-30-2010, 10:08 AM   #68
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Yes and no. The government has spent the money, but SS got government bonds in exchange. What did people expect to be done with the money in the "lock box"--piled up as currency in a big vault? Used to buy equities (making the government a stakeholder in American businesses--even more than they already are?). But, yes, now the taxpayers need to pay back those bonds, and that will mean more taxes.
The thing is, if there is "nothing" in the SS trust fund, then anyone who owns Treasuries in their own portfolios also has "nothing." So if you believe there is no credit risk in the Treasuries held in your portfolio, there shouldn't be any risk to the Treasuries held by SS.

To the extent the SS program actually holds the "surplus" as Treasuries in its trust fund, there is something of real value there just as it would be if I held Treasuries in my IRA. But there is some funny accounting involved when the federal government owes money to itself.
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Old 06-30-2010, 10:09 AM   #69
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But if the person is not working anyhow... they can get the subsidies even without getting SS... I don't see the connection...

IOW... if you can not get a job at 50... you qualify for X... just because you now might get SS does not change the fact you qualify...
My rationale: For a lot of folks, getting a $1000 a month SS check would let them quit work and start drawing the additional government benefits. Without the SS check, they'd have to stay at the job (and, paying into SS and Medicare).
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Old 06-30-2010, 10:12 AM   #70
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My rationale: For a lot of folks, getting a $1000 a month SS check would let them quit work and start drawing the additional government benefits. Without the SS check, they'd have to stay at the job (and, paying into SS and Medicare).
Offset by the fact that if this person quits work, their job is available to someone else, and that's someone else who is paying taxes instead of taking in unemployment benefits and perhaps other public assistance such as food stamps. It may not be a complete offset, but it is significant.
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Old 06-30-2010, 10:16 AM   #71
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Yes and no. The government has spent the money, but SS got government bonds in exchange. What did people expect to be done with the money in the "lock box"--piled up as currency in a big vault? Used to buy equities (making the government a stakeholder in American businesses--even more than they already are?). But, yes, now the taxpayers need to pay back those bonds, and that will mean more taxes.
So doesn't that mean that the problem really isn't Social Security, but the increased debt accumulated since 1983? Without that increased debt, isn't it true that the government would have no problem in servicing the bonds held by the SSA?
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Old 06-30-2010, 10:25 AM   #72
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The thing is, if there is "nothing" in the SS trust fund, then anyone who owns Treasuries in their own portfolios also has "nothing." So if you believe there is no credit risk in the Treasuries held in your portfolio, there shouldn't be any risk to the Treasuries held by SS.

To the extent the SS program actually holds the "surplus" as Treasuries in its trust fund, there is something of real value there just as it would be if I held Treasuries in my IRA. But there is some funny accounting involved when the federal government owes money to itself.
Which brings us back to the key point that the "security" for the social security system and frankly every retirement fund is the national Economy itself. To use a classic example , Jobs as such don't matter. It doesn't matter how many people are employed it matters if the employment is productive. More crime may create more prison guard jobs but not more productivity. Adam Smith first targeted the problem of unproductive employment, although history has shown that his categores are incorrect. But the issue still exists. Some government investment & job creation is extremely productive for the future economy. (Roads bridges communications infrastructure) some is marginal and some is a dead loss. "Excess" military spending for example (and yes what is excess is debatable) is clearly a dead loss that reduces future productivity.

So the key is not government spending but unproductive government spending. Private investment also has a mix of relatively productive and unproductive spending. Ireland had massive and unproductive private investment in housing, which created an unsustainable boom and bust. So did we, but in a different form.
Most sports stadiums are terribly unproductive public investments.

What we need to do is get away from slogans and do the hard analysis. How do we increase productive employment? How do we divide the fruits of the economy among workers investors and children and the elderly?
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Old 06-30-2010, 10:25 AM   #73
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The thing is, if there is "nothing" in the SS trust fund, then anyone who owns Treasuries in their own portfolios also has "nothing." So if you believe there is no credit risk in the Treasuries held in your portfolio, there shouldn't be any risk to the Treasuries held by SS.

To the extent the SS program actually holds the "surplus" as Treasuries in its trust fund, there is something of real value there just as it would be if I held Treasuries in my IRA. But there is some funny accounting involved when the federal government owes money to itself.
Agreed. Seems like the funny accounting just boils down to this. With a fixed debt/GDP ratio, bonds sold to SSA just reduce the amount of money the government can borrow for other purposes. Did we do that, or is the debt/GDP dramatically different now than it was in 1983. If I can muster the energy, I will try to find out.
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Old 06-30-2010, 10:26 AM   #74
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Offset by the fact that if this person quits work, their job is available to someone else, and that's someone else who is paying taxes instead of taking in unemployment benefits and perhaps other public assistance such as food stamps. It may not be a complete offset, but it is significant.
Another offset: The more people who are looking for work (driving down compensation costs), the more jobs there are. Obviously, its not 1:1 (or unemployment wouldn't rise) but it is real.
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Old 06-30-2010, 10:40 AM   #75
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So doesn't that mean that the problem really isn't Social Security, but the increased debt accumulated since 1983? Without that increased debt, isn't it true that the government would have no problem in servicing the bonds held by the SSA?
There's no single "problem." Yes, increased government debt has contributed (if we weren't paying interest on all that debt, the current government revenue straem would more easily pay back the SS bonds). But, you could just as easily blame anything else--after all, if SS payroll taxes were higher (for example), we wouldn't have to start dipping into the SS bonds so early.
All the problems interlink and boil down to this: The government has in the past, and continues to, spend much more than it takes in. This will reduce our standard of living going forward as we pay for last night's party.

To address another point of noise--there's precious little "productive government spending" from an economic viewpoint. Defense spending is vital (at some level), but produces little payback economically. Spending on law enforcement and the courts enables our society and economic system to exist, but I'm not sure how an economist would attribute a value to this ("each $ paid to a cop enhanced economic performance due to elimination of drag caused by crime by XX dollars"). Roads and infrastructure might be an exception--government expenditures enhance economic growth by making the private sector more efficient--to a point. Government-sponsored high-speed rail through high-importance congressional districts is likely not a net winner.
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Old 06-30-2010, 10:43 AM   #76
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Yes and no. The government has spent the money, but SS got government bonds in exchange. What did people expect to be done with the money in the "lock box"--piled up as currency in a big vault? Used to buy equities (making the government a stakeholder in American businesses--even more than they already are?). But, yes, now the taxpayers need to pay back those bonds, and that will mean more taxes.
In leau of your expected SS payment we will issue you some bonds to frame on your wall.

We wouldn't want to cheat you out of what's due you.
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Old 06-30-2010, 10:55 AM   #77
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To address another point of noise--there's precious little "productive government spending" from an economic viewpoint. Defense spending is vital (at some level), but produces little payback economically. Roads and infrastructure might be an exception--government expenditures enhance economic growth by making the private sector more efficient--to a point. Government-sponsored high-speed rail through high-importance congressional districts is likely not a net winner.
Agree on the last point, almost no politically inspired prestige projects are productive. The most important and productive government investment is in human capital. Schools and public health. Courts and the rule of law (yes I know everyone hates lawyers but the alternative is always worse) are extremely productive, since no one will invest in minority interests in private firms without a strong rule of law culture. (look at Russia today) Because of the enduring problem of corruption of one form or another the Russians, the Chinese, the French, Japan and a number of other countries engage in what can be described as a state/corporate model. In this model "profits" from enterprises flow to those with political clout rather than traditional investors. These can be individuals, unions or political parties. Corruption is simply redefined as depriving the politically well connected of their share.

In the USA we are betting that a high rule of law culture and financial transparency can combine with investments in human capital to make a more productive economy and one which can ensure an equitable distribution of the financial benefits. We shall see if it works.
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Old 06-30-2010, 10:56 AM   #78
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Funded with what? What do you define as "money"? Federal reserve notes?
Euros? Pounds sterling ? All are promises based on future economies.
If you have a company pension that is "funded" with AAA US Government bonds how is it any different from the government bonds held by SS?
Shares of stock are pieces of paper that also depend on a functioning economy. It is freshman economics that no asset is "worth" anything without a functioning economy to turn the asset into income. Try taking gold bars to a desert island

The amount of money that SS has in bonds is not enough to pay all current or future liabilities that have already accrued.... in the private sector... they are supposed to have that amount invested.. most private pensions could pay 80ish % of their benefits if the plan stopped... SS (and this is a big guess) could probably pay 5 to 10%... maybe less....

That is what I mean by funded...
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Old 06-30-2010, 10:57 AM   #79
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In leau of your expected SS payment we will issue you some bonds to frame on your wall.

We wouldn't want to cheat you out of what's due you.
Go ahead and send me all your US government bonds. I'll take care of that worthless paper for you for free. If you don't have any bonds, all your US currency will do
It's all paper.
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Old 06-30-2010, 11:00 AM   #80
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According to the neat WolframAlpha knowledge engine Martha recently steered us to:
-- In 1935, the average person reaching 65 in the US could expect to live to be 77.76 years old, thus drawing on SS for 12.76 years.
-- In 2005. the average person reaching 65 in the US could expect to live to be 83.82 years old, thus drawing on SS for 18.82 years.

So, the average senior is drawing checks for about 1/3 longer now than when the program started. Add in all the other benefits that SS didn't have in the beginning (for kids, disability, etc) plus the demographic changes, and it's easy to see why the Ponzi scheme (beloved as it is) is in trouble.
Closer to 1/2 again as long, not 1/3 longer. 47.5% longer to be precise.
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