The Beginning Of The End
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The Silent Entitlements Monster: Social Security, Medicare And Interest On The Debt Will Gobble Up Every Single Tax Dollar By 2020

There is a silent monster that looms menacingly over U.S. government finances.  Every politician knows about it, but very few of them ever want to talk about it.  This silent monster grows larger every year, and yet nobody seems to know quite what to do about it.  Those who have closely analyzed this monster all seem to agree that one day it will create a financial tsunami of a magnitude that is absolutely unprecedented, but there is vast disagreement about how to escape this financial tsunami or if it is even possible to escape it.  The name of this monster is "entitlements" - Social Security, Medicare and other social Ponzi schemes that the U.S. government has locked itself into funding.  It would be hard to understate the seriousness of the problem that entitlements present.  In fact, according to an official U.S. government report, rapidly growing interest costs on the national debt together with spending on major entitlement programs will absorb approximately 92 cents of every dollar of federal revenue by the year 2019.  By 2020, that figure will be up around 100 cents of every dollar of federal revenue.  So that means that interest on the debt and spending on entitlement programs will eat up everything the U.S. government takes in before a penny is spent on anything else.  That is a recipe for national financial suicide.

And unfortunately, the problem is only going to get far, far worse when you project things out beyond the year 2020.  Right now, interest on the debt and spending on entitlement programs like Social Security and Medicare eat up only about 10 percent of GDP.  By 2080, they are projected to eat up approximately 50 percent of GDP.  In fact, things are even more dire than the chart below indicates.  This chart is based on previous government figures that projected that mandatory spending will exceed government revenues at some point between 2030 and 2040, but the latest government figures now project that this will happen right around 2020.  So as mind blowing as this chart is, keep in mind that it actually understates the problem we are facing....

This week, there was news that the Social Security system is in much worse shape than previously projected.  According to the Congressional Budget Office, this year the Social Security system will pay out more in benefits than it receives in payroll taxes.  This was not supposed to happen until at least 2016.

Now it is happening in 2010.

It turns out that the "recession" that we have just been through has hit Social Security revenues really hard.

And unfortunately, as waves of Baby Boomers start retiring, these "Social Security deficits" are going to get even worse.

So where will the money come from to pay the benefits that are owed?

For now, the money will come from the $2.5 trillion Social Security Trust Fund that has been accumulated.

But keep in mind that the $2.5 trillion figure is extremely misleading.

There are not $2.5 trillion dollars sitting around in a bank account somewhere to pay these benefits.

The truth is that the Social Security Trust Fund does not contain any actual assets.

The only assets the Social Security Trust Fund has are IOUs from the U.S. government.

So basically the U.S. government owes the Social Security Trust Fund $2.5 trillion dollars, and now it turns out that the Social Security system is going to start needing that money.

So where will the U.S. government get that money?

Well, they will borrow it of course.

The reality is that the Social Security program is simply not sustainable.

Back in 1950 each retiree's Social Security benefit was paid for by 16 workers.  Today, each retiree's Social Security benefit is paid for by approximately 3.3 workers.  By 2025 it is projected that there will be about two workers for each retiree.

As a society, we simply have not been producing enough new workers to sustain the current system.

Of course the politicians all say the right things to make us think that they are going to do something about this crisis.  For example, Barack Obama recently had the following to say about the massive deficits the U.S. government keeps piling up: "It keeps me awake at night, looking at all that red ink".

But the truth is that neither political party would dare propose a dramatic restructuring of Social Security or Medicare that would significantly reduce benefits.

Why?

Because it would be political suicide.

Say what you want about old people - the truth is that they vote more than the rest of us do.

Anyone who would dare "take away" their Social Security or Medicare would suddenly find hordes of old people voting against them in the next election.

But something has to be done.

The 2009 Financial Report of the U.S. Government was recently released, and it basically says that the U.S. government is facing financial Armageddon if something drastic is not done....

Absent a change in policy, under this scenario, the interest costs on the growing debt together with spending on major entitlement programs could absorb 92 cents of every dollar of federal revenue in 2019.

Keep in mind that this is before anything is spent on defense, health care, education, homeland security, job creation or anything else.

The following chart was pulled right out of the report.  These aren't the projections of some Internet wacko.  These projections are in an official U.S. government report.  The implications of the chart below are absolutely mind blowing....

Keep in mind that the U.S. government and the U.S. economy are already on the verge of financial oblivion in 2010.  So what is going to happen if these projections are anywhere close to accurate?

In addition, the report also admitted that the present value of projected scheduled benefits exceeds earmarked revenues for entitlement programs such as Social Security and Medicare by about $46 trillion over the next 75 years.

$46 trillion!

Either the U.S. government is going to have to radically slash Social Security and Medicare benefits or they will have to come up with tens of trillions of extra dollars from somewhere.

And remember, the $46 trillion figure is just the "present value" of those future payments.

Because of inflation, the "actual value" of those future payments will be far greater.

In a section about Social Security and Medicare, the authors of the report confessed that "it is apparent that these programs are on a fiscally unsustainable path".

Obviously something has got to give.

These programs cannot keep on paying the same level of benefits.

It is financially impossible.

But what are we going to do?  Millions upon millions of elderly Americans rely on these programs.

Are we going to reduce payments to a level where they can only afford dog food to eat and a shack to live in?

As a society, we are really between a rock and hard place.

If we continue on the same path, the United States government is going to go bankrupt.

But any politician who tries to cut benefits or raise taxes will likely face the wrath of the voters at the ballot box.

So for now the U.S. government just continues to spend even more money and continues to go into increasing amounts of debt - apparently hoping that somehow everything will just turn out okay.

But things are not going to turn out okay.  We are headed for a financial mess of horrifying proportions.

The truth is that it doesn't matter how much the U.S. government cuts spending in other areas if it does not get entitlement spending and interest on the national debt under control.  If those expenditures are not addressed, it is absolutely guaranteed that the U.S. government will be swamped in red ink for many years to come.

But until severe financial pain starts happening, a large percentage of the American people are not going to be motivated to do anything about this problem.

But by then it will be too late.

WaterBrick

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  • Lunatic Fringe

    What you have written is the best case scenario. If interest rates rise, things will get much worse. A prolonged recession will exacerbate the problem. Good times! Brought to you by a bunch of self serving politicians that clearly can’t balance a check book…

  • Dr. G

    Good News ! A bankrupt America will no longer be able to afford it’s global military imperialism AKA mass murder of Muslims.

    What goes around comes around. By then the military unification of Russia-China will be complete, and America will be a bankrupt banana republic.

    That;s Karma

    Namaste

  • Pingback: The “R” Word and Socialism « UrbanSurvival

  • Matt

    Dr G, The “bad guys” in Pakistan, Afghanistan, etc, use innocent people, women & children, as “human shields”. The “good guys” are themselves “human shields” protecting innocent people, women & children, behind them in the battlefield. Bankrupt we already are, but so was Russia, and their military has always been top-notch. They have always had the capability to wipe out all life on earth anytime they choose. Once in a while in history situations escalate beyond words & thought – choose sides wisely my friend.

  • Centurion

    The most likely scenario is that the government will continue to spend like a drunken teenager with dad’s Amex card. The Fed will continue to increase the money supply by creating it out of thin air until they can no longer find buyers for their debt. Inflation will hit or top 100% per year for a while and the USA will default on all of its debts. Essentially declaring bankruptcy and hitting the reset button.

    We better keep our military up to snuff for that event as we will be weak and the rest of the world will be pissed. Soon however, the ripples of that default will destroy economies just about everywhere and the rest of the world will fare much worse than we.

    Medicare and Social Security will have to include means testing. Meaning that if you have some money, you won’t get any benefits, and might be wound to a halt by no longer allowing new beneficiaries starting at some age group to allow people to depend on themselves and their savings rather than the nanny-state. At that point we will have a chance to learn from our mistakes and reduce our government to its intended purpose and power.

    In the aftermath we will need to limit government power, keep taxes low, resist state interference in the economy and slowly redevelop the devastated country into a nation to be proud of again. Hopefully we will use term limits and make it a felony to donate money to politicians.

    Hang on. You ain’t seen nothin yet. Its gonna be a wild ride!

  • Ken Howard

    The problem is abortion which has destroyed future tax payers. But like the people lined up to “get theirs”, neither problem will be solved by the politician. Just as Roosevelt pulled the nation out of the depression with WW II, it may come to exactly that to bring us out of this depression.
    As to Dr G, I believe most of the mass murder is being done by Muslims, in their own countries and the western world. At least the majority of terrorism, brutality and slavery/murder of women is being done by Muslims. You are correct in that the US should not be the world policeman. If you like your government cutting off heads, blowing up innocents in aircraft and slaving/murdering women and non believers in your faith, the US should not interfere.
    As to this subject, it is very well written and researched. I wonder how many will get the word.

  • sharonsj

    In 2010 I’ll be 77. In order to picket Washington I’d need an electric wheelchair, which I won’t have unless Washington pays for it….

  • http://www.modularhomechoice.com Bruce

    I am not so sure we can blame the politicians all the time. As the article correctly stated – any politician that would attempt to take or drastically reduce these benefits would be voted out by us, the American people.

    Anyone (Ron Paul and Ross Perot come to mind) that runs on a platform of tackling this does not get many votes. So who really is to blame?

  • Ann

    TEC loves to sneer at “entitlements.” Not a word about the military budget.

    Just another white, rich and stupid POV. Once people get mad, they’ll be the first to feel it.

    Fools.

  • O.K. Obama

    Maybe its our turn to go bankrupt, thanks you Goldmans-Sacks, AIG,Lemans Brothers At&t Daddy wars bucks,Blackwater and all the other takers and the congress, money takers of the Senate that make this failure all reality……Oh lets not forget the GOP!!!!

  • O.K. Obama

    The start of this mess was President Regans trickle down policy….waht a moron is was and he died like he lived dumb.

  • http://townhall.com Big Jon

    Hey Dr. G—

    Let America go down in favor of a Russian-Chinese led world and you will have your mouth taped, your religious freedoms stripped and your home taken away at will under that scenario. Since you used some Hindi, I am assuming you are Indian—let me ask you something genius? The closer that Russia and China get, the closer it pushed India and the US closer. China has scores to settle with India and Russians economic interests in China far outweigh the long term ‘relationship’ that Russia and India share.

    Go chew on that geopolitical nugget and if you are so concerned about Muslims dying, why don’t you talk to the waring factions of Islam that kill eachother…is that part of your God’s plan as well?

  • Suetonious

    How long has this been obvious? Certainly was obvious to me even in the 80′s. The demographics just weren’t there to support my generation. But I knew implicitly that we would be the ones stuck with the bill – with the scumbags in DC turning around, right about now, to tell us with feigned shock – “Gee, there’s no money for you guys! How did that happen?”

    I could lay all the blame on these criminals, and most of it DOES lay with them. However, I have also directly and constantly experienced wilful obtuseness and ignorance on the part of Americans, with their fingers in their ears and their tongues flapping about with “LaLaLaLaLa” – every time anyone tries to point out the blatantly obvious regarding the financial End Game.

    Americans are about to get what they have denied as impossible because it was not pleasant. Now there’s some real good thinkin’. Hope they get a clue in a hurry. Americans may be decent people – but that don’t count for much when it’s coupled with voluntary pig-ignorance.

  • Talnik

    Then the Russians and Chinese will be murdering Muslims, and they like them a whole lot less than the Yanks do.

  • Dan

    This piece is rather dismissive in this bland statement: “The truth is that it doesn’t matter how much the U.S. government cuts spending in other areas if it does not get entitlement spending and interest on the national debt under control.”

    Only passing reference is made to ‘other areas’ such as the bloated military budget that outspends military expenditure by all other countries combined, national security apparatus and the trillions used to bail out Wall Street and the banks.

    As for the government and Obama not facing up to the threat of ‘entitlements’ the first major step was just achieved.. the so called health care reform whose main purpose is to cut health care costs for the government (medicare) and US-based business. Other ‘entitlement’ programs are clearly in their sites, which includes SSC. A ‘bi-partison commission’ has already been created by Obama to look into ways to slash spending here.

    In the mean time, continuing bailouts for banks and Wall Street and ever more expenditures for the military are absolutely guaranteed.

    Its a matter of priorities, really, and the banks, Wall Street and big business are calling the shots using both parties and the Obama Administration as their tools.

  • RebeldownSouth

    Hoping-hoping-hoping the country splits apart into smaller republics and the South will rise again!

  • caryn verell

    Pay off all of your personal debt NOW! and have a skill or talent for making or doing something that will be needed by someone else…like sewing, digging a garden, cutting timber, etc… you then have a bartering/bargaining chip to use as well as no debt.

  • Grof

    Hey Dr. G, what mass murder of Muslims? The same Muslims who murder more of their own than anyone else through suicide bombings and infighting in Pakistan, Afghanistan, Iraq, Yemen, Somalia and so on?

    That’s karma indeed.

  • http://www.thefinaleconomiccollapse.com John Bach

    What kinds of jobs can the miltary mother do when we have been relocating often? Looking for something which can be finished to consequence income from home- not the fraud business. we do not have clever offered skills to chase people to buy things we dont privately belive in. Any ideas?

  • http://naturalresonancerevolution.blogspot.com drew hempel

    If only the $60 billion a year military black budget was cut.

  • Operator223

    Thanks to the utterly corrupt lying filthy thieving leeches that are out to only line their own pockets regardless of the cost.

  • jimmy

    I have a feeling the dollar will drop / inflate soon enough. It is a horrible thought. That guy from http://www.forecastfortomorrow.com agrees with me, and he has been spot on with everything that has happend…including called the market collapse of 2008

  • sn

    That was some very interested information you just posted. The state of our economy has really began to interest me. I don’t want to be another idiot throwing a tirade based on illegitimate information. Is there anyway you could post some citations on the information written?

    thanks
    S~

  • http://www.forecastfortomorrow.com Man With All The Answers

    Karma will catch up with these guys. But there is alot worse things to come.

    Expect a market pullback in APRIL / MAY and this could cause fireworks elsewhere.

  • Johnny

    I don’t know. Nature ALWAYS has a way of correcting these kind of imbalances. Think about it : If SS is going bankrupt and they have to cut benefits and increase the retirement age to 70, that means a less healthy senior population. Not enough to eat / more stress, etc. Furthermore, once Obarma’s health-care kicks in, there will be loooooooooooooooooooooooooooooooooooooooooong lines to see incompetent govt doctors (Think quacks). Once again, the health of the senior population will deteriorate. Pretty soon the average life-span will fall below the “official” retirement age of 70. Then see – the problem fixes itself. Of course, by then USA is as poor as any country in the world. Think Zimbabwe, Haiti, Bangladesh.

  • Lunatic Fringe

    From the edge, a brief explanation…

    Anyway that’s the problem. USA debt has the same problem. At 100% debt to GDP, the Fed manufactures money out of debt. The problem is supply. When the world’s greatest economy starts to crater it takes the collective action of every nation in the world to prop us up. So far, Japan, China, and Great Britain have done so. If their economies continue to deteriorate, they won’t be able to. Japan and China are in a death dance with us. To save their existing treasury investments they must continue to invest in us or lose what is on deposit. The USA has an ungodly pipeline debt of 60 trillion coming due and payable in the form of Social Security and Medicare payments. California it seems, is a petri dish, a sneak preview of our coming collapse.

    That’s why expressing debt to GDP is really a pretty antiquated way of seeing the problem, although that has been a universally accepted practice. Can we survive at 125% or 150% debt to GDP? Sure. As long as the Fed isn’t audited.

    If that audit ever occurs, and TRUST ME IT NEVER WILL, the world will suffer a complete and total collapse. What we don’t know, it seems, isn’t hurting us yet.

  • http://crisismaven.wordpress.com CrisisMaven

    Good of you to try and hammer it home. What I can’t understand is that these developments were foreseeable back in, say, the sixties – for anyone who knows how growth curves and exponential functions work, added in the general insecurity of projections (meaning you need to err on the safe side). It is understandable that politicians want to dole out money during their tenure as the aftereffects don’t concern them afterwards and they even have enough money to make their offspring rich enough to shield them from the fall-out of their policies. However, already academically trained civil servants who also have children that are not equally shielded and who don’t always become civil servants themselves, those civil servants should have raised the alarm “a hundred years ago” so to speak as they are affected in the long run and often hold their country dear to their heart. And they are the first to be affected by the likely sovereign default (see furloughs in California, and “we ain’t seen nothin’ yet!”) so holding back for fear of losing jobs or stifling careers is not a full explanation for that lethargy in my opinion.

  • Mr Pike

    I would like to request an article by The Economic Collapse Blog about the recent events relating to the March 25th public hearing at the CFTC concerning the accusations made by Andrew McGuire and GATA about JP Morgan and HSBC suppressing the price of gold and silver, mainly silver at the request of the U.S. Government (Western Banking Cartel). The story is not being allowed in the American Media and it is a huge story because it is the biggest ponzi scheme fraud by far in dollar amount in history. It is a crime by our government and the people who control it and many people will suffer greatly in the future because of it.

  • Joel W

    Anybody with a decent brain and without a political agenda can accurately point fingers at what caused this mess. But a little finger pointing to the most proximal point, ourselves, collectively, as to how the hell we allowed ourselves to be marketed to, sold, bamboozled and brainwashed into thinking we really HAD TO HAVE all the material crap now made in China for ourselves. Why did we tolerate the “Blob” of huge corporate food operations blessed and protected by palm greased politicians to grow to the point where most healthy small operation farms were wiped out leaving the majority of Americans not even knowing where food comes from and what the hell’s inside the loud packaging designed to bamboozle you into buying the crap. Lotsa people going to be hungry pretty soon.

  • rodney rondeau

    Unfortunately, getting rid of the programs will not solve the problem. The problem is the ration of workers to retirees is shrinking. It will be down to 2 to 1 if I’m not mistaken. This is NOT a monetary problem. If we cut all the seniors off social security and make them save their pennies or whatever it will not matter. There will still be two productive people producing sutff for every one unproductive person. The real question is do we have enough people and resources to care for our elderly.

  • http://www.tax-freedom.com Thomas Freed

    Social Security is a tax program, not an entitlement, and thus the promise to pay any benefits at all can be terminated at any time by the politicians, who will do so because there will be no money to pay with. The promised benefits will simply be cancelled, thus “swindling” all of the foolish participants who actually believed in this fraudulent Ponzi pyramid scheme. They collected all the money, and now that it has all disappeared, they will cancel the promise to pay. So you don’t need to worry about the age going up to 70 or the payment amount going down, because there isn’t going to be any, and even if there is, the fiat paper they pay with will be nearly worthless. It would be better to admit reality and start buying silver coin now.

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