Well it’s not as though everyone hasn’t known this was coming but until now, the day of reckoning was always estimated to be at least a few decades away and therefore completely off politicians’ radar. Now insolvency seems to have arrived early. Henry Bloget spells out the consequences for those who have ignored all this until now:
This, of course, will have implications far beyond the Social Security system.
The Social Security “trust fund,” you’ll recall, isn’t a trust fund at all. It’s just another source of annual government financing and a future liability. Today’s receipts are used to pay current payments to retirees and, in the case of a surplus, whatever else the government is spending money on. As the Social Security surplus shrinks, therefore, the government loses a source of funding. If it wants to keep spending at its planned rate, it therefore has to borrow the difference.
When Social Security goes into deficit, meanwhile, the government will have to borrow even more money to pay current SS recipients. Chris Martenson:
From a budget-busting perspective, last year where the US government had a $73 billion Social Security surplus to spend, this year it will be a paltry $16 billion and next year it will be a number indistinguishable from zero. It is hard to overstate the importance of this shift.
This means several things. Instead of $703 billion coming in over the next 10 years, the current (overly optimistic) projection calls for only $83 billion. This means at least another $620 billion in fresh borrowing will have to occur.
More importantly, this means that the United States eventual date with bankruptcy has been moved forward by about 8 years or so. It also means that instead of being some future problem, a few administrations down the road, it is a near certainty that the current administration will have to confront some very difficult funding decisions that will be forced by the inability to borrow enough to pay for everything.