Why Social Security Must Fail

I think the greatest threat domestically to the country is this $21 trillion debt hanging over the cloud of America and future generations.

– Outgoing Starbucks Chairman Howard Schultz on CNBC

POITOU, FRANCE – Uh oh.

The “social welfare” systems that are responsible for 40% of federal spending are going broke. A headline from The Wall Street Journal:

Social Security Expected to Dip Into Its Reserves This Year.

What reserves? Ah… the “Trust Fund.” But what’s in the trust fund?

What else? U.S. Treasuries.

In other words, the people’s favorite pension plan will depend on U.S. Treasury bonds… IOUs from the deepest debt hole in the world… the same IOUs that the world’s biggest central bank – the Fed – is unloading through “quantitative tightening.”

And these are the same IOUs that the federal government is selling, too – in record number. Deficits must be covered by borrowing (selling bonds). And in fiscal year 2019, the feds are going to need to sell $1.2 trillion worth of them.

Dangerous Ratio

Meanwhile, corporate America has some $7 trillion worth of bonds maturing over the next seven years. It will have to roll them over… by issuing new debt.

Who’s going to buy all this debt? At what price?

We’ll come back to those questions another day.

Meanwhile, Medicare is looking a little peaked, too. Its “trust fund” is expected to be depleted by 2026 – three years sooner than the last estimate.

And here’s the important number, says The Fiscal Times: 2.2.

That’s the ratio of workers to Social Security beneficiaries. In 1968, when America really was great, there were about five workers for every one beneficiary. By 2035, that ratio will have fallen to 2.2.

We know what you’re thinking: 2035 is a long time from now. Heck, many of us reading this (or writing it!) will not see it.

And that gives Congress and the administration plenty of time to correct any problems, right?

The U.S. government now consumes about a quarter of our national output… and directs, controls, or strongly influences another quarter. How does it make its decisions about when to spend… and when to cut back?

If it works the way they teach you in Civics class, we have nothing to worry about.

If their finances begin to go bad, our elected representatives – paragons of virtue and intelligence, every one of them – will take action to set things straight.

They’re smart people. Many of them have law degrees. Some have even been in business. In a pinch, they’ll sharpen their pencils, tighten spending, raise taxes, and put their house in order.

But this isn’t Civics class.

Murder by Drone

The other big drain on federal finances is the military. U.S. troops are now engaged in dozens of different countries. From Niger to Nincompoopia, no swallow falls unless it has been droned by the U.S.

Obama authorized 10 times more drone strikes than Bush, even though reports suggested that 90% of the victims were not the intended targets. Now, Trump has increased drone attacks five times more.

And he’s given the go-ahead to the CIA to get into the murder-by-drone business, too.

According to the textbooks, this is strictly illegal. The feds, outside of the military, are not supposed to kill anyone without due process of the law.

And as for war… as Voltaire put it, killing is unlawful unless it is done in large numbers and to the sound of trumpets.

And in America, the people’s representatives are supposed to deliberate… debate… and carefully and solemnly weigh the pros against the cons before the trumpets sound.

They’re supposed to balance the expense against the benefits… with the grave warning of George Washington ringing in their ears – “avoid foreign entanglements” – before putting American lives or American treasure in jeopardy.

Enlightened Feds

Obviously, it doesn’t work exactly as the Founding Fathers imagined. Still, if either the spending or the military gets too far out of line, we can depend on “the system” to put things right… no?

And even if the system doesn’t work exactly the way it used to, we can still count on our policymakers’ basic sense of right and wrong, good and bad, and true and false to – perhaps when other options are exhausted – do the right thing.

Can’t we?

In short, we can still sleep the sleep of the innocent, confident that the enlightened feds have our backs.

But what if the feds have turned against us? What if the system of “checks and balances” has become unbalanced?

What if the separated powers have gotten back together? What if the majority doesn’t rule… and the minority’s rights are not respected?

What if the government of, by, and for the people has been hijacked by a self-serving minority?

What if these insiders benefit… even as the great mass of Americans does not?

And what if it is not an accident? What if these elite insiders get stronger and richer… at our expense?

What if neither domestic spending… nor military misadventures… can be stopped – because it’s not in the interests of the insiders to do so?

And here we leave you with an important word: vernacular.

The laws on the books may not change. The Constitution is still in its glass case. Congress still meets. Elections are still held.

But the political “vernacular” evolves… and nothing is the same.

(Be prepared… We are using the term in an important new way…)

More to come…

Regards,

Bill Bonner's Signature

Bill

Category: Economics

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