090414_Will_Social_Security_Go_Bankrupt_in_2010_economic

Will Social Security Go Bankrupt in 2010?

April 14, 2009 | From theTrumpet.com

Government estimates were grossly optimistic. And now your pocketbook will reap the consequences. BY ROBERT MORLEY

Social Security could be bankrupt in two years. A demographic and financial landslide of mass wasting proportions is about to slam into the fragile government piggy bank. The consequences for the economy and on the standard of living for millions will be severe. Politicians looted hundreds of billions of dollars—and planned to loot hundreds of billions more—from the fund. Now it will be you and your children who will be forced to pay.

The current recession is wreaking havoc on the Social Security trust fund. But the real blame lies with irresponsible politicians. Instead of planning for the future—of which they had literally a generation in advance warning—politicians acted as if a severe recession would never come. Now, instead of a trust fund filled with the accumulated dollars of previous generations to cover distributions to those taxpayers, the government is left with an empty bag of holes.

The trust fund’s annual surplus will all but vanish next year according to the Congressional Budget Office’s (cbo’s) most recent report. With unemployment rising, there are 5.1 million fewer workers paying into Social Security than when the recession began in December 2007.

The end of the Social Security surplus could have enormous consequences.

For the government, it means not only will it need money to somehow pay those Social Security entitlements, but it will also need to find a new source of off-budget money to “borrow” from for other expenditures that were previously funded by stealing from Social Security. The government was planning to borrow $30 billion this year and billions more over future years from Social Security. Now those surpluses have disappeared. The cbo predicts only a $16 billion surplus this year and $3 billion for next. After that, if the economy doesn’t improve, one of the government’s very few surpluses will be gone.

The Social Security collapse couldn’t have come at much worse of a time for Washington. Already the government is seeking to borrow record amounts of debt from the rest of the world to finance its unprecedented stimulus packages and banking bailouts. Now, not only is the Social Security tap shutting off, but it is transforming into a major drain.

“Over the past 25 years, the government has gotten used to the fact that Social Security is providing free money to make the rest of the deficit look smaller,” said Andrew Biggs, a resident scholar at the American Enterprise Institute. “Instead of Social Security subsidizing the rest of the budget, the rest of the budget will have to subsidize Social Security.”

That is not good news for the 51 million retirees who depend on Social Security.

Already in massive debt, the government has limited options for financing Social Security. The first two options—cutting benefits for retirees, and/or raising taxes on current workers—are probably politically impractical, especially since America is only in the early stages of the “Greater Recession.”

Borrowing more money is the next option. But the government is already pushing its ability to find lenders to the max. This means the government might be forced to raise interest rates to attract lenders. Higher interest rates for the government mean that consumers could be hit with higher borrowing costs too.

Since borrowing from foreigners will most likely become more difficult in the near future, that leaves the government with one last-ditch option: to just create more money. But this option comes with its own set of side effects, which may include discrediting the dollar, destroying America’s purchasing power and severe international consequences. The Federal Reserve Bank has already announced that it has started down this path. Inflation will almost inevitably result.

America is facing some tough choices, none of them easy: reduced benefits, higher taxes, more borrowing, higher inflation, a damaged dollar. The consequences of big government and even bigger spending are about to slam home with landslide force. The Social Security debacle is just one more should-have-been-avoidable financial crisis to add to the growing list.

It is becoming increasingly evident that America’s economic system is broken beyond repair. We need a new system. •