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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: CalculatedRisk who wrote (46599)12/5/2005 4:49:39 PM
From: GraceZ   of 110194
 
As far as the $3.7 Trillion figure - I think it is way too high - but I'm willing to use it. Whatever the number is, it is small compared to medicare and the General Fund deficit (the top two long term fiscal problems).


One simply has to project out the various assumptions to see that 3.7 trillion is way too low. The disagreements aren't in projecting how much SS revenues will be because if the law remains the same, the percentage of the GDP that SS payments are now will remain constant. The differences arise in the projected GDP growth as well as the projected outlays even though the life expectancy of the Boomers is fairly easy to predict within a narrow range at this point. Still the difference between the low and high projections are huge for outlays. One can assume that the 77 million Boomers will act similar to retirees before them, in that half will go for the early payout and half will have only SS to support them, a third will have their benefits taxed. That at age 50 we still have a life expectancy of 77-80, etc. But even with modest assumptions for life expectancy the percentage of GDP for outlays rises from 6% to 10% of GDP at least 15 years before half the Boomers will be dead.

SS has no authority to borrow money, no authority to raise the payroll tax. It can dip into the trust fund bonds but obviously that money can only be paid out if it can be collected as revenues or borrowed. Frankly, I'd feel a lot better if it was in regular Treasury bonds that could be sold on the bond market. The interest on the trust funds (which as of 2004 was around 85 billion is simply an entry with no exchange of real money at this point) has to be tapped 13 years from now when the surplus disappears. Consider that the surplus now goes to pay for mandatory spending and payroll taxes are 30% of all Federal revenues, something has to give.

The percentage of the budget which is discretionary is ever shrinking as a percentage of Federal outlays. Direct payments to individuals are 60% of Federal outlays. Back in the year I was born, 1954, they were 10% of Federal outlays. Take that projected trend 25 years into the future and see where it gets us.

I do agree that Medicare is the bigger of the two problems....I think everyone agrees on this. Medicare spending is growing exponentially at a rate that exceeds CPI inflation. There will have to be some sharp reductions in mandatory spending programs in order to fund both. Either that or the Boomers are going to be working a lot longer than their parents did.
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