"Trust fund" is such a comforting term, especially if you're lucky enough to have one. It conjures up pictures of country clubs, prep schools, Paris and Nicky and other super-rich kids reeling out of clubs in the meatpacking district at three in the morning.
And on one level, we've all got a trust fund: the Social Security and Medicare trust funds, which are supposed to ensure a safe retirement for all Americans. You very likely missed it, but the trustees who oversee the two programs put out their annual report this week. In some ways, there's no real news. If you've been paying attention at all, you know that Social Security and Medicare are in long-term trouble. This year, the trustees estimate the Social Security trust fund will hold out until 2041. Medicare is in far worse financial shape because of skyrocketing health care costs, and its trust fund will only cling to life until 2019. On the face of it, this doesn't sound so bad. After all, 2019 is a decade away, and 2041 - that's almost Star Trek territory. Yet the trustees also spoke about the programs in apocalyptic terms, talking about "enormous challenges" and "funding warnings" and "detrimental economic impact."
So what gives? Well, the real problem is what's in the trust funds - or more accurately, what's not in there. The theory behind the funds was that the government would bank all the extra Medicare and Social Security tax revenue that's been coming in while the 78 million baby boomers are in the workforce. Then the government could draw down on the trust funds once the boomers start taking out of the system instead of paying in.
But that's not what happened. For many years now, the federal government has basically used all of its money to pay all of its expenses, and that includes Social Security and Medicare taxes. The government has long been using the "surplus" from these funds to pay its other costs, and giving the funds Treasury bonds in return (actually a special kind of "intergovernmental" bond used when the government owes money to itself). There's nothing secret or illegal about that, and there's nothing wrong with the bonds. Still, it is an accounting maneuver that allows government to shift money from one pocket (Social Security and Medicare) to pay bills in another pocket (the rest of the government). That's a boon for elected officials because then they can avoid pesky political problems like being forced to raise taxes or cut popular programs.
But now the party's almost over. The most frightening part of the trustees report is that Medicare needs to start drawing on its "trust fund" this year, probably to the tune of about $8 billion. Since the government has already borrowed the money for other things, it needs to start paying the Medicare trust fund back. Where will the money come from? From "general revenue" - essentially your tax dollars and mine. Eight billion dollars isn't huge in terms of this year's $3 trillion budget, but this is just the beginning of a much bigger trend. This problem hasn't even started rolling yet -- the first baby boomer won't even start drawing Medicare benefits for another three years.
People often talk about the trust funds as if the nation won't feel the pain until the funds actually run dry, but that's simply not the case. Since there's not that much there there, the government is going to give itself a financial hernia paying back the trust funds and keeping up with demand. The Government Accountability Office estimates we have $53 trillion in liabilities ahead of us over the next 75 years, mostly from Medicare and Social Security. The inevitable logic is that government will have to slash other programs to pay for these entitlements, or we'll have to raise taxes, or we'll have to cut people's benefits. And the longer we wait, the tougher the choices we'll face.
That's why we need to start talking about this now. We can fix these problems - although granted, some options are tougher than others. Some alternatives, like raising the cap on Social Security taxes or pushing back the retirement age, are pretty straightforward, and we can discuss the pros and cons pretty easily. Others, like the kind of major reform of the health care system that will probably be needed to fix Medicare, are going to be confusing, messy and difficult. But we need to start having a national conversation about this problem, and not be lulled into a false sense of security. Because it's absolutely certain that the American public will not allow the government to make major changes to their retirement benefits or their health insurance without their consent. So we'd better get the public in on this debate. Because we're running out of time.
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HOW WOULD THE SAUDI'S CASH OUT OF THE USA BEFORE THE BABY BOOMERS RETIRED?
HOW WOULD THE MILITARY INDUSTRIAL COMPLEX CASH OUT?
WAR IS THE ANSWER MY FRIEND. WAR ALLOWING TRILLIONS TO BE STOLEN WITH LITTLE OR NO OVERSIGHT.
WELFARE MOTHERS HAVE 3 OR 4 AGENCYS WATCHING EVERY DIME THEY GET IN WELFARE.
HAILBOURTON CAN TELL AUDITORS TO "GO TO HELL" LEGALLY AND GET MORE NO BID CONTRACTS.
IT IS SAUDI OWNED.
Oh, you mean right for YOU?
Well, why do you think they have any interest in what YOU want??
As a percentage of the economy, the deficit is now lower than the average of the last forty years. Tax cuts work to promote economic growth, and that economic activity brings in higher revenues to the Federal treasury.
The trouble is, the federal debt went up $499 billion! The chief reason that the unified deficit is so much lower is that it didn't count the $187 billion borrowed from Social Security and the $106 billion borrowed from other trust funds. You can see the numbers at http://home.att.net/~rdavis2/def09.html . Hence, as opposed to being healthy, the general fund is actually a deadbeat which will going to have a very tough time paying back all of the money that it's bumming off the trust funds. If politicians stopped misleading the electorate about the state of our finances, they might be able to get their support in fixing it.
Why should we borrow our own money? In this way enough money stays in the system to pay the bills.
We need to fire the private bankers at the Federal Reserve and establish a public central bank.
Ok, but I want every penny I paid in paid back, with interest. Bail me out just like they did Bear Sterns.
For the past 8 years, David Walker and the GAO have declared the Treasury Dept's Financial Reports rubbish. They have "no material support" for their numbers and their accounting procedures completely avoid GAAP. Generally Accepted Accounting Procedures, the standard by which an individual or corporation gets fined and/or goes to jail for breaking the procedures.
Simple example. The Treasury claims the deficit for the US Government in 2007, was approx $280,000,000,000. Hurray! We are lessening the annual deficit! This is while the Fed noted, the official National Debt increased approx $500,000,000,000 in 2007. We don't need a sliderule or calculator for this one.
I have zero hope for a country who's leaders are either sinister liars, or arithmetically challenged. (It's not even Math, it's basic Arithmetic) Because they continually walk around reporting the $280B, and the press prints it as fact.
If you can subtract $280B from $500B and get zero, then you have zero chance for a substantive discussion of anything related to fiscal policy.
Of course it's a very simple thing to solve. For example, in my lifetime I and my employer have and will contributed, with accrued interest, at least $500,000 to social security. If only 5% is paid out to me, only the interest earned on my money, I would receive $25,000/year, and the principal would remain untouched, and be left for others who come after me. Social Security does work. If the Republicans steal my money and give it to their friends, then it doesn't work.
The best way to repay what Bush has stolen is to increase taxes on the wealthy. The social security tax should be assessed on all income. And, as Gore said, that money should never be stolen by the federal government and used to pay for other expenses. It's like parents stealing their kids' college funds and using it to pay for fancy vacations. "Trust" fund means the money must be held for the beneficiaries, and can be used for no purpose other than the designated (retirement) purpose.
The plan was flawed from the begining by, as the authors correctly note, the debt being carried in government bonds, those revenues then being used in lieu of taxes to fund government operations. The cheif benefactors of this were those that benefited from the tax cuts that the funds from SSA and Medicare allowed, namely the rich. If this is allowed to stand, the wealthy will have successfully robbed, over a period of thrity years, 53 trillion dollars from a trusting public.
If the Bush tax cuts are rolled back, the obligations to SSA and Medicare can be covered. Think about this the next time you feel sorry for the taxes of the rich going back up to where they should be.
SS and Medicare are not the same as the national debt. If the country defaults on its Treasury bonds, it will be locked out of the bond market for years to come. We'll either get runaway inflation or a collapse in the economy or both.
If you are a younger baby boomer, expect to get screwed. If you are member of Gen X or Gen Y, expect to be screwed even worse. In the meantime, we have a war to fight in Iraq and eventually, we will get the bills for it.
Blessed are the children, for they shall inherit the national debt.
The natioanl debt is negotiable too. The falling dollar is a part of that negotiation that is unfolding right now. We are telling the foreign debt holders to accept repayment of up to half of what was lent.
T-bill holders are also suffering some degree of devalutaion in the basis of their securities because of the falling dollar, to the extent that inflation in import prices and commodities errode that basis. To keep up, the T-Bill rate would have to be adjustable.
So no, we can't overtly default, but the effect of inflating our way out of debt is tantamount to negotiating a settlement of debt.
The solution is still the same. Repeal Bush tax breaks, screw whichever of the holders of the SSA, Medicare or national debt you feel is politcally easier if you have to, but don't think that the bond market is any more sacrosanct than social obligations owed to Americans.
BRING BACK REGUALTIONS AND BRING BACK SECURITY FOR OUR NATION.
Give the elderly as raise in Social Security and aks them to spend it all. That will create work and jobs.
The broken window effect.