An old friend from school days adds his comment, re: my last post, that in his opinion the budgetary Ponzi scheme commenced when Congress began systematically raiding the Social Security surplus and using FICA payments as simply another general budgetary revenue source. While meticulously earmarking the surpluses as "Special Issue Treasury Bonds," stuffing them into a file cabinet in West Virginia, and waiting for the day when they would need to be "redeemed." The reset of FICA rates in 1983 has relentlessly produced an overpayment in Social Security payments, so that the sigma of overpayments currently = $2.5 trillion. This is the "Trust Fund:" a file cabinet full of Blue Ridge Mountain air.
This is an excellent point my faithful reader makes. The telltale mark of a Ponzi scheme is the acceptance of "investment," with payments to early investors made from revenue from later investors, and with inadequate reserves to repay the principal of the investors because of ongoing embezzlement of the money. What Congress has done with FICA overpayments meets the definitional criteria almost perfectly. Madoff got 150 years for operating this way; Congress calls it its "budgetary process."
So in the last post, I admit that I gave a somewhat misleading picture of the overall gravity of the U.S. revenue shortfall in the sense that one month is only a snapshot of a year-long process; however, the year-over-year decline in income is serious indeed, 18% in one year. Still, the deficit added up to $1.4 trillion, exclusive of the $163 billion described in the next paragraph.
The Social Security theft continues unabated, necessarily so (you could say) since FICA payments are nearly equal to the total amount of income tax paid by all Americans. For fiscal year 2009, $890 billion in FICA payments were received, and $727 billion paid out. The difference of $163 billion was transmuted into those magical Special Issue Treasury Bonds and stuffed in the file cabinet over there in Almost Heaven land. The cash was just spent, of course, as part of (inter alia) our ongoing efforts to provide a good life for Iraqis and Afghanis. These embezzled funds add up nearly to 10% of the revenue available (on a cash basis) to the U.S. government.
The most ominous problem relates to demographics. It's one thing to swipe the excess FICA payments in 1983, when the Baby Boomers are all in their prime earning years. Quite another when they're undergoing cataract and hip replacement surgery and getting ready to receive those monthly stipends. The leading edge of Boomer retirement now enters the pay-out zone. How realistic is it to keep pretending that those West Virginia IOUs will get the job done for much longer? Divide $163 billion by 12, and you get $13 billion per month. That's the cushion for FY 2009. But note on the chart from the last blog that FICA inflows in October 2009 had dropped to $61.5 billion per month. On a 12-month basis, that's $738 billion, or $11 billion more than the amounts paid out in fiscal 2009. Extrapolated out, that means the cushion has shrunk to less than $1 billion per month. Meanwhile, the Boomers start collecting (or try to), the income shrinks and the outgoes increase.
Where is Congress going to steal 10% of its operating budget if FICA income matches outgoes? Where are they going to find the money to pay Social Security when the income is less than the outlay? That was supposed to happen in 2017. It doesn't look to me that we'll have to wait that long for the "break-even" point. The American unemployment Depression will probably guarantee its arrival much sooner.
Which is why, despite my credentials as a Liberal and everything, I think that the advocates of huge deficit spending must be smoking something very powerful and deranging. Unless you can more or less guarantee that the stimulus trillion or so (maybe taking the yearly deficit to $2 trillion, so that the deficit itself becomes larger than all income received by the Treasury) will absolutely, positively produce all those jobs and increase income and, thus, increase tax receipts, it seems like something akin to financial suicide to undertake it. I think what we have is a huge structural problem with the economy in this country that no feasible amount of government spending is going to fix. This is the result of waiting way too long to look at the problems of offshoring good jobs, running huge current account deficits and playing GloboCop with our gargantuan military budgets. Reality's a mean mo'fo', and it always bats last.
Paul Krugman at the New York Times is convinced that Stimulus II, the Sequel, could do the trick and get Americans spending again, which highlights the problem. That's what the moribund U.S. economy was based upon before it crashed. He calls deficit reduction "bad economics," because stimulus spending will lead the way, eventually, to a balanced budget. Yet if a system is far enough along in insolvency and unemployment, that promised day of equilibrium may arrive too late to avert sovereign debt repudiation, that bugaboo of countries such as Argentina and Zimbabwe. Maybe it's better to live within our means and work our way out of this problem instead of attempting to borrow the money and then hoping that John Maynard Keynes was not only right, but psychic enough to think his prescriptions would apply to modern day America.
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