I have witnessed the actuarial profession stand idly by while some leaders cozied up to politicians, and told them not to worry — things would be fine.

But, the other reason I don’t think it will work is what I will publish probably late Saturday evening — part two of this series.

Very well put, David, and a spot-on analysis that I saw nowhere in all of the hand-wringing over the SSI/Medicare report. The problem starts *now*–and is really subsumed in the larger problem, which is determining when the ability of the US government to monetize debt (print, create money out of thin air, sell Treasuries, however you want to put it) will become constrained. At this point not even wage tax increases will really help (although they may provide cosmetic relief), but the powers-that-be are preparing for a SSI/Medicare tax increase in the next year in the name of “stabilizing” the system. I saw that Obama gave a speech saying that the federal deficit was too large and threatened “our” ability to borrow money. Better to shove a tax increase down the voters’ throats early in his term.

Sometimes I think that the only reason for keeping SSI/Medicare separate from the Federal budget is so that taxes can be raised on the former with fewer objections from hoi polloi.

Our nation is depraved, but I hope we never go there. That said, I considered tossing that out as a joke in my article, but felt it was in bad taste.

David

“There are no “Trust Funds,” only nonmarketable bit of US debt, that will get repaid through higher taxes, or further borrowings.”

Even this is an overstatement of the significance of the Trust Funds. The ‘debt’ that the Trust Funds contain is not only nonmarketable, but also effectively irredeemable. Redemption is only possible to the degree that a given future year has a shortfall of taxes relative to mandated benefits. Therefore, the only difference between a Trust Fund with a positive balance, and an exhausted one, is that Congress will have to specially authorize the Treasury to tax or borrow to directly make up the shortfall even if no TF balance remains to be redeemed. The resulting economic burden is identical, and equal to the shortfall, whether a positive TF balance exists or not. It is nearly unthinkable for Congress to fail to make such an authorization as that would immediately cut benefits for no economic advantage.

All that matters is the future taxes and mandated benefits. If the TF were zeroed out next week, or alternately increased by three orders of magnitude, the economic effect in either case would be the same, i.e. nil.

The TF is neither an asset nor a liability, but effectively merely a blanket pre-authorization for the Treasury to make up a shortfall as long as the TF balance remains positive. But a year to year direct authorization would just as effective, and cost no maore.

Regards, Don