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Saturday, October 13, 2012

On the Fall of the PU

 

I followed what Biden and Ryan had to say about Social Security in their debate. My take on their words:

 

Ryan said four times that his plan was to restructure Social Security.  He said his plan would not involve a sacrifice for anyone who is now 55 or older. Ryan has created a new “Red Line”. If you’re 54 or younger, you are below the red line; bend over. If you are above Ryan’s artificial red line, you get a free ride.

 

This is an extremely unfair plan. I can’t imagine how it could be implemented without ripping the country apart.

 

Ryan was referring to a version of the Simpson-Bowles plan for Social Security. A combination of increased taxes, coupled with increased retirement age and lower monthly benefits. There would be delay in implementing these changes, so that those who are now near retirement age would not be hurt.

 

I give Ryan a B+ for honesty. America’s politicians have to fess up to the fact that Social Security (SS) must make significant changes to remain solvent. Higher taxes and lower benefits are necessary if SS is to last another twenty-years. There is no way around that fact. Any politician, who says otherwise, is just lying.

 

But I give Ryan a D- for fairness. The idea that everyone today  aged 54 or younger gets screwed, while those a few days older get off Scott-free is insane to me.

 

America’s problem is the Baby Boomers. Every day there are 10,000 new beneficiaries who are hitting up SS for a monthly check. At that rate, over 40 million Boomers will be getting their full monthly checks by the time Ryan’s “Red Line” comes into effect. After the first SS check is written, the future payouts can’t be reduced. So the Ryan plan creates a carve-out that protects a huge chunk of the Boomers. It does it at the expense of everyone who is today under 55.

 

That’s the plan? Protect the age group that is causing the problem? At the expense of the next few generations? None of the 40 odd million Boomers will suffer at all? None of them? Where’s the fairness in that plan?

 

What Ryan promised for SS is just a political lie. The fact is that all of the folks who are today 55+ probably liked what they heard Ryan saying. And that is a very big block of voters.

 

The Boomers are the problem. They have to be part of the solution. Any plan that gives the Boomer age cohort a free ride at the expense of the rest of the population is a recipe for disaster. The risk is Age Warfare.

 

++

 

Everyone says that Biden is the “smart” debater. Maybe so. His comments on SS were carefully crafted. But if you look through his words, he was just playing politics.

 

Joe went straight to a liberal hot spot on SS. He flat out promised that an Obama/Biden ticket would never, ever privatize SS. This was a very smart move on Joe’s part. It plays to one of the great fears that the lovers of SS have; that one-day, the Republicans will let the evil guys on Wall Street  get their hands on the SS Trust Fund.

 

Ryan rebutted that privatization should be considered for younger workers, but Biden blew him away with one of his now famous chuckles. Biden knew that he had scored points, as he knew that even the mention of the word “privatization” would get a few hundred thousand folks to the voting booth.

 

On this exchange I would give Biden a B+ and Ryan a D-. Ryan is wrong on privatization, he should have known better.

 

Ten years ago SS was running $100+Bn annual cash surpluses. If there ever was a time to consider a partial privatization, that was it. A portion of the surpluses could have been allocated to other investments back then. But not any longer. 

SS is running annual deficits now. They are in the -$50Bn range for 2012, but the red ink will grow rapidly north of $100Bn in just a few years. If any portion of SS’s current cash flow were diverted to other investments, it would mean that there would be a larger drain on the Trust Fund surplus. The fact is, privatization is no longer a policy option. So Ryan was selling sound bites of a policy that has no chance of seeing the light of day.

 

Outside of the attack on the privatization of SS, Biden said nothing about SS that was worth noting. As a debate move, this was brilliant. If you say nothing, have no position and avoid critical issues, you win debates.

 

Here’s the facts Joe Boy:

 

Before 2016 the SS Disability Fund will run dry. They next administration has to confront this reality. A fix is required in less than 36 months. There is a gun to your head for action Joe. You have two choices. Raise taxes or cut DI benefits. Which one is it? You can’t hide under a rock for another four years, so what are you going to do?

 

The retirement side of SS will run off the cliff in 20 years according to the CBO. But that estimate is off the mark. It is not possible to run the SS Trust Fund to zero; a minimum of one-year’s worth of benefits has to be retained as a minimum reserve. Over the next decade there will be at least one recession, when that happens the SS death spiral will be advanced by five or so years (as it was from the 08 blowout). The reality is that the SS drop dead date is closer to ten-years away from today.

 

Ryan has a bad plan, Biden has no plan at all. As it turns out, Ryan’s plan of “55 and under get clobbered” is about right.  That is exactly the way this is going to play out. Either there is legislation that screws everyone 55 or under, “the Ryan Plan”, or there is the Biden “Do Nothing Plan”, and in about ten-years SS falls off a cliff. Either way, the same folks get screwed.

 ++

 

I think America needs a new political party. I would call it the Purple Unders Party (PUP). Purple, because it is the color when Blue and Red are mixed equally. Unders, for that group of people who are 55 and under.

 

The funny thing is that the PUs are out there. They will be voting for either a Red or a Blue. One fringe or the other will win, the PUs will all lose. Those PUs make up most of the population, and well more than half of the votes.

 

What a stupid system.

 

 

 

Comments

  1. What is going to happen is as clear as the shnoz on jimmy durante’s face.

    The ss system will sell bonds, and the fed…will …buy ..them.

    What further signal that this will happen does anyone possibly need?

    • Social Security and all other programs will last much longer if our splendid politicians would stop letting people draw from the system that never paid into it, illegal immigrants, etc.

  2. I’ll make you a deal. It’s based on no harm, no foul. That is, for a contract, one way to end it is to restore the parties to their beginning positions. In this case I will give up my claim to SS payments and in return all the money I’ve paid in will be returned.

    • The “no foul” is the weakness of your assumption (I realize you are just making a point). All the money was spent. There is no trust fund, not one penny saved.

  3. At the start of 1932, the US government “promised” that the dollar was good as gold — 1/35th of an ounce. Within a year, FDR cancelled that promise by executive decree, and decided the dollar was worth less than half that. Purchasing power collapsed.

    At the end of WW2, the US government “promised” the dollar was good as gold, sort of — based on Bretton-Woods terms. Various presidents modified or “re-interpreted” that promise, devaluing the dollar each time. Each time, the dollar lost purchasing power.

    At the start of 1972, the US government still “promised” that the dollar was convertible under Bretton-Woods. Richard Nixon formally admitted that promise wasn’t worth sh!t, canceled convertibility, and gave our blog host one of his early jobs trading currency.

    Since then, various US presidents have promised Govt Motors shareholders and bondholders and UAW scamsters that their shares, bonds, pensions were “in writing”. Countless formal and informal bailouts later, none of the 1975 GM shares are worth the paper they were printed on. Pensions have been slashed. Bondholders were given shares after early bankruptcy filings, and flat out defaulted on by Obama in the most recent worthless promise / reorganization.

    What blithering idiot would believe that the US government is going to make good on Social Security promises? The baby boomers may be the only group gullible enough to believe this nonsense. Everyone under 55 didn’t blink when Ryan said we were screwed — we already knew. We already know we are paying extra taxes based on our age, not income. We will remember how we were treated by this government and the boomers. Some day you will need our help just to get to the bathroom, we will remember how you treated us.

    The naive group are the boomers who believe they will be the last group to get paid. Read my lips, I did not have sex with my intern, WMD slam dunk, hope and change… baby boomers are going to be the ones who are going to get screwed twice… first by the government they foolishly created, and then by the children whom they groomed not to care.

    • Medicare sinks everything. The boomers ain’t escaping. However, I tip my hat to the Vietnam Vet boomers who are conservative/libertarian on economics. These are the guys running every power plant, oil refinery, gas plant, mine, ranch, and farm in the USA. In justice, that needs mentioning.

      The trick is to “privatize” anyway and be adult enough to PREVENT this happening again. It is done through a forced 5% savings in a personal retirement account shield from ALL claims including tort, bankruptcy, and even the IRS. Tax free forever. Starts at 18. 18 year old Walmart shelf stuffer has to put away 5%.

      Start climbing out of the hole, even though it is a mile deep.

  4. Dear Social Security “recipients” who think the US government is going to pay you:

    Your increase this year will be 2.2%, or about $30 if you are lucky.

    Your health care bills will rise 11%, and that is off a much bigger number so a few hundred bucks. Also, you will need to learn spanish or hindi (or both) if you need to ask your caregiver to help you get to the bathroom.

    Every year you will fall another 9% behind — compounding for as long as your sorry dumb-@ss manages to live. Its really hard not to smirk like Joe Biden when we think about how much we are screwing you, and you keep voting for us.

    Obama will be cutting your medicare benefits to pay for the “free” care he promised. Can’t believe you fools actually still believe in a free lunch. Guess age does not always bring wisdom.

    As for us government bureaucrats, we will be giving ourselves another raise for successfully lying to you morons yet again. Every year we make you “voters” think you are still in this, is another year we get to collect the spoils. HA HA HA HA!!!!

    xoxoxo
    Uncle Sam and fellow gangsters

  5. Well said, Greg….all of it.
    And Bruce…..HA!…. I’m 54.
    But, I’ve had Plan B in place for awhile.
    So, I’m not too worried.
    Just annoyed by the BS and the dollar suckage from my earnings to DC..

  6. Trust funds? There are NO trust funds. Thought experiment: Suppose the government loses the ability to sell bonds. Can the SSA dip into some imaginary trust fund to stay afloat? NO. The government would have to cut some place else. Now suppose the lie of the trust fund didn’t exist, and SS was pay as you go. SS would still get bailed out, either with bond selling or cuts elsewhere. The Trust Fund is just a political tool. It does not exist.

  7. Bruce,
    We all know that SS and Medicare are Ponzi schemes. There is no trust fund for either. The monies have been stolen by our elected officials to spend as they see fit. IMHO, SS should be replaced by an expanded 401K plan so the Government cannot use it as a cash cow. As far as Medicare is concerned a substantial increase in premiums are in order. That being said, those with high risk factors including, high cholesterol, obesity, smoking and a sedentary lifestyle should shoulder the bulk of the increases.
    The immediate question is how to handle the current or soon to be current retirees. The bigger question is fiscal responsibility and its impact on all of us, young or old. I am a current recipient of both SS and Medicare. My wife and I lived a prudent lifestyle and saved a substantial sum before we retired 6 years ago. We never believed the government would or should take care of us through either program. But, we aren’t stupid either. Unless or until there is a clear and inexorable path to balancing the budget, I will not agree to cuts in either program and then have my savings stolen through inflation and ZIRP. Entitlements like Obamacare, the SS disability program, Medicaid and food stamps are an American tragedy that will lead to the bankruptcy of the county. The crony capitalism in D.C. is shocking. We are on the path described in “Atlas Shrugged” where political connections and subsidies are becoming more important than the fruits of free enterprise. Executive power through the agencies is killing businesses through excessive regulation. These unelected bureaucrats have essentially shut down the coal industry, stifled the exploration for oil and gas on federal lands and made it very difficult to start a new business by changing the risk/reward equation. All of this will yield very slow economic growth, outsourcing and chronic high unemployment in America. Believe me, we are headed for a crisis and all of us will suffer.
    I feel very sorry for those who lived an imprudent life and will be relegated to a life of poverty in retirement. But, these folks need only to look into the mirror to see who is really at fault. Anyone who believes that the government has your best interests at heart is a fool or just plain stupid.

    • Well said, Rich. Can we persuade you to come out of retirement to volunteer your services to the, “whatever it takes to get re-elected” congress? They can use a big dose of your straight talk.

    • You don’t mention the elephant in the room, the wars. Their costs are what’s breaking down the country. I am talking not just financial costs but the loss of productive people in the prime of life. More wars, new ones, seem to be forthcoming. War is a tremendous drain on every aspect of life. It enriches the banksters and the defense industry but everyone else is tragically affected. Wars are used as pretexts to strip away our rights and liberties.

    • Well said.

    • It’s all just simple math. You can’t keep giving people raises unless the money is in the system. The only possible way to keep it going is to invest the money into something that makes money for the system instead of letting the politicians dip into it for their pet projects.

  8. carlos martijena says:

    The problem is that we have not more money nor more capacity to take more debt. There is not any “unfair deal”.
    We have all to suffer the consequences, both the Liberals who destroyed this country and the Conservatives who allowed it to happen

  9. These are just choices. Americans can wake up and realize that various expenditures/subsidies/tax breaks are going to cause them serious harm and begin voting/demanding accordingly. I like to think it will happen, but not particularly hopeful.

    The future is deflationary.

  10. That’s right. Grandma & Grandpa are the whole budget problem– not big bank bailouts, corporate welfare, unnecessary wars in the Middle East, or huge tax cuts for the 1%. So let’s stick it to Grandma & Grandpa. Let them be homeless & dumpster dive to get their food. That’s fair, right?

  11. I don’t think I will end up getting back the amount of dollars that I paid into Social Security.

    And what does Romney get? A 10 million dollar bailout from taxpayers. That’s fair, right? Corporate welfare is wonderful. It’s the middle class that shouldn’t get anything & should be made to dumpster dive for food.

    http://www.rollingstone.com/politics/news/the-federal-bailout-that-saved-mitt-romney-20120829

    The Powers That Be have the Divide & Conquer strategy down pat. They have the old and the young fighting each other over the crumbs left over, after their own taxes get hiked & get sent to the likes of Romney to pay for big corporate welfare, and while the 1% gets big tax breaks.

  12. I’ve been reading u for a while Bruce and I am really surprised to find that this is the first article in which you discover the concept of, as you put it, Age warfare.

    This is what the last two decades have been all about, and you only just found out?

    This will continue for some time until the younger generation wakes up and regains some kind of political consciousness … and then it might become ugly.

  13. Obama bin Biden says:

    So, let me get this straight. It’s not going to be a Left versus Right issue? It’s going to be young versus old? How American!

  14. There is no stinking trust fund. Therefore, the pain is going to come faster than people realize as the myth of the trust fund puts the problem out many years from now.
    The inter governmental debt part of the national debt is more dangerous than the external debt. The external debt can be rolled over without increasing the debt. The inter governmental debt , when called, has to result in NEW borrowings (or increase an increase in tax).
    What is really wrong is that people with the kind of money Bruce K. has are drawing social security payments. They justify it saying I put the money in so it is mine. And these same people re-elected the same politicians year after year, decade after decade even knowing the government was stealing the trust funds.
    We need to start refurbishing the shut down barracks on moth balled army posts. We put the old people in need there. They get three meals a day at the mess hall. There is sick call in the morning.

  15. “There is no trust fund”.

    Sure there is. Enronesque accounting gimmicks magically conjured it out of thin air. It’s protected by Obama’s rainbow farting unicorns. Trust funders are true believers in the power of DC magic. Stroke of a pen law of reality.

  16. They all act like they didn’t create the problem. I have been paying for years into the Social Security system while the government raids the funds for other things. Now they want to suggest that if I am over 55 I would get a free ride? There is nothing free about it! I don’t have any choice but to pay the taxes. The choice was theirs when they raided the funds over and over again. This is so ludacris. The government is overspending the taxes it collects, and somehow they want us to believe it is our problem! I will never understand why people believe privatizing social security is a bad idea. The government has proven ill-equipped to handle it.

  17. Excuse me for reacting here. I will have worked and contributed close to 50 years and I don’t feel I am the cause of the social security crisis because I am part of the so-called baby boomer group. I won’t be filing for benefits until 2017 unless I get coaxed in retirement by job.because of downsizing again. Stop blame the people who actually worked and paid taxes for the current problem. I never spent millions of dollars on things I couldn’t pay for. Problem is that pay today is lower than it was. Most jobs are only minimum wage jobs or no benefits with job pay. Most people today have to work 3 jobs to pay for necessities. That is one up from what I had to work to cover my bills. They need to create better paying jobs to get those who don’t contribute in taxes to work. Cut down on the fraud 1-5% abuse the system while 95% of taxpayers pay for it. This so-called overhaul of the social security should have been in place from its start with all the checks and balances in place with no interference from government debiting the system

  18. “The idea that everyone today aged 54 or younger gets screwed, while those a few days older get off Scott-free is insane to me.” That is not Ryan’s plan. He has discussed this issue with actuaries who don’t think that way. The 54-year olds would be very slightly disadvantaged, the 53-year olds slightly more so, etc. What’s wrong with that approach and is there another way that’s better?

  19. End all of the government’s insurance programs ASAP. A bunch of elected lawyers should be trusted with as little power/responsibility as possible. Basing benefits and premiums on politics rather than reality is ludicrous. Seniors bear the most responsibility for this mess since they have voted the longest. Seniors should have realized that Medicare was a trap. Seniors should have seen Social Security automatic cost of living adjustments as a bribe. Better to stick it to seniors than our kids. Seniors are our richest demographic. There is no time like the present to do the right thing.

  20. No one bothered to mention that in the presidential debate#1, Romney claimed the cutoff age would be 60! That alone tells me that they really haven’t worked this thing out at all, and are simply trying to appease voters.

  21. I am surprised by the tone of this article.Most people at 55 plus have no chance to fix the fact that they believed what t hey are promised. Mr krasting when you get older you can not work as hard! And Obama care and other oBAMA POLICIES ARE AIMED AT HELPING THE YOUNG AT OLD PEOPLES EXPENSE THROUGH MEDICARE AND OTHER CUTS. wha about all the people I see at the ER who aren’tt remotely old or even sick who have no intention of working or paying food stamps disability free cell phones rent assistance etc. It is not the old wasting our money they are a proud generation who the govt cheated into taking what hey should have been putting into private plan. While we’re at it lets discuss that about 10 years ago Bush tried to privatise,he was right but gets no credit. I am guessing all will sacrifice and probably alot worse than we think. we need to slowly ease down benefits starting at an age where people aren’t too olde to make up the difference. !

  22. He’s not giving a free ride to all the baby boomers. The baby boomer era ended in 1964. So the last 7 years of boomers will be helping to pay for the rest. I have a Plan B, and C in progress so I’m not worried, but don’t blame all the boomers…. Just the old ones. ;-)

  23. There is no Red Line, but a Choice to go private or public. That is how I understand the plan. I know I would be much better off today at 72 if I had that choice when young and so would be my grandchildren. It seems there is a war on grandchildren on, for they have to pay the bills these administrations are leaving for them.

  24. There is no fund for SS, it is an appropriation, SS already has had changes implemented, if not it would be closer to failure than it is now. If you or anyone thinks that Medicare or SS can continue without major reform then you don’t know what you are talking about. When a system is broke because of misuse of funds, “borrowing” of funds and allowing ILLEGAL ALIENS access to these funds then it cannot continue without vast changes. Of course most liberals are ready to fault any change but both programs will no longer exist in any form if nothing is done! What is your solution to keeping both programs solvent?????

  25. “The problem is the Baby Boomers…” Really? Didn’t the ‘Baby Boomers” give birth to, sacrifice for, educate, and spend the best years of their lives for all you glorious young Turks? Social Security is the contract Baby Boomers paid into their entire working lives. The great majority of Boomers didn’t collect unemployment, accept government aid dollars to feed/house their children, demand free medical and dental care for their children, expect to be taken care of cradle-to-grave… that’s the kids, the “brilliantines” who voted in the current administration. Boomers, generally, have self esteem (which comes from making your own way), ethics, morals, prize privacy, value decency, etc… and have had to watch while the younger generation has allowed the America they knew to be raped, looted, and disrespected. Boomers are not the problem; but, keep your chins up. There’s hope for you – life-saving treatments and surgeries are already being denied to Americans who are over 70. As a result, many/most of them will be off of the ‘payroll’ soon enough. As for the younger generation – I predict that, within 10 years, the age for denial of medical treatment will be down to 55. Utopia, at last!! No pesky old folks to deal with… Shame on you, Bruce (Have you kissed your Momma and Daddy “Goodbye”, yet? Better get to it, before it’s too late!). Whiner!

    • First IPAD then Solylent Green!! When we become “unproductive” our remains will be devoured by the masses. This is what Progressives call “shared prosperity”

    • “Already denied to Americans”? Denied by who? If you want treatment go to the hospital and PAY for it. A Doctor will treat you. What you mean is that the LOOT is being denied. Well, that’s a good start. What is needed is to completely get the government out of the medical industry, eliminate cost shifting and monopolies (EMTALA and CON laws). Drops the price of treatment to 20% on a cash basis. See Oklahoma Surgical Center. A CASH ONLY center that charges 20% the going rate. Large customer base is Canadian. You do that, then medical costs are paid out of your pocket. Maybe some true catastrophic insurance thrown in that you can purchase across state line (competition). Besides that, get life insurance.

  26. I am 54, have been working at least part time since I was 15, and have probably maxed out on my social security contributions annually for at least the last 20 years. I’ll be happy to have all that money back (heck, even with inflation, and without interest) rather than take liar Ryan’s word for it. The situation is a mess, but handing over our retirement funds to the banksters on Wall Street to engage in more of their rent seeking, thievery with it boggles the imagination. Why would we ever, ever, ever as a nation or as individuals trust another stealing Wall Streeter with anything? Talk about the fox in the hen house. They should be in jail (too good for them actually; they deserve their very own Lord of the Flies scenario). My husband however is 55 – guess I am lucky one of us is. The situation is the same for health care by the way; the most cost effective care in the country is Medicare, but since insurance companies don’t make any money on it we have to screw the under 55s.

  27. Why would you be against having control of your own retirement? Instead of contributing 7% in SS taxes and your employer contributing 7%, allow individuals and their employers to contribute to an IRA (up to 7% of your gross) in your name at any financial institution you choose. You choose how to invest. Buy treasuries if you choose, invest in the market or fixed income securities.
    The Government has shown it can’t be trusted with your money. There is no “trust” fund. The money has been spent and the Government will have to come up with the cash when you retire. Do you really trust those idiots in Washington?

  28. What planet are you from??? There has been no money in the SS Trust Fund for years. Congress spends ALL of that money as soon as it is collected. Lyndon Johnson started that in the 60′s and the fund was wrung dry a long time ago. We have been on a pay as you go basis for decades….the only thing keeping it afloat is the fact that until last year there was more money coming in monthly that there was going out. We were screwed years ago and neither party has done a thing about it…but the Dems made it all happen.

  29. The trust fund exists on paper. the elephant in the room is that SS funds can only be invested in US Treasuries. Thanks to QE, those rates are so low that SS insolvency is coming sooner.