The US Treasury has issued its 5th issue brief outlining a proposal for reducing the growth of future benefits as a means of assuring the solvency of social security for future generations. You can look at it at http://www.treas.gov/press/releases/reports/ssissuebriefno.%205%20no%20cover.pdf
As with the previous four briefs, it is very detailed and thoughtful, if somewhat difficult to digest. At least they are thinking about the issue.
Saves Social Security Now
Friday, July 25, 2008
Monday, July 21, 2008
Social Security Bonds
Following is a article from Investors Daily from February, 2008. (I just came upon it.) While many say that the Social Security program is funded with government bonds, this is still a huge tax problem waiting for the future.
Entitlement Time Bombs Threaten Uncle Sam's 'Full Faith And Credit'
By TIM PENNY AND CHARLES STENHOLM Posted Tuesday, February 05, 2008 4:30 PM PT
In case you missed it, Moody's Investors Service recently said that the bonds issued by the U.S. government may not be a completely safe bet in the future. Why? Because of the trillions of dollars in unfunded obligations to the Social Security and Medicare programs.
"These two programs are the largest threats to the long-term financial health of the United States and to the governments' AAA rating," Moody's Vice President Steven Hess said in the agency's annual report on the U.S. issued last month.
If this sounds serious, it is.
Moody's, the universally accepted credit rating service, rates corporate and government bonds based on the ability of the borrower to repay the money. Simply put, when our government borrows money, bonds are issued to the lender. These bonds are promises to pay the money back in the future, with interest. Until now, our government's bonds have carried the highest rating quality: triple-A.
As a result, institutions, individuals and foreign governments who want a guaranteed return on their money have turned to U.S. government bonds.
However, there is another kind of U.S. government bond that the public can't purchase. Each year since 1984, Congress has taken the surplus Social Security taxes — tens of billions of dollars — and spent them on other government programs. In exchange, the Social Security Trust Fund is issued government bonds, with interest. When Social Security needs more money to pay the benefits of baby boomers, it will go to the U.S. Treasury to cash in these bonds.
But where will the money come from to repay the Trust Fund?
That nagging question is the reason Moody's is cautioning that the credit rating of U.S. bonds may be reduced.
"We decided to raise the flag," said Tom Lemmon at Moody's, "because the underlying credit rating of the U.S. government faces the risk of downgrading in the next 10 years if solutions are not found to our growing Medicare and Social Security unfunded obligations."
Faced with rising entitlement spending due to baby boomer retirements and surging health care costs, Moody's is rightly reconsidering its confidence in the U.S. government's ability to repay its debts. Tens of trillions of dollars in unfunded Social Security and Medicare obligations mean the government must choose between higher taxes or lower spending on these programs.
For years, however, politicians in Washington have simply failed to make a choice. But failing to choose is, in fact, choosing to increase the implicit debts owed to these programs, which grow by trillions each year.
A downgrade in the ratings on government bonds means higher interest rates — much higher. Higher interest rates will mean massive increases in the cost of servicing the government debt, and thus an even greater squeeze on the federal budget. As bad as things look today, with government actuaries and economists warning of large future budget deficits, things will be even worse if the country's credit rating tanks and its ability to borrow is reduced.
Making matters worse, higher interest rates on government bonds may increase rates elsewhere in the economy, from mortgages to car loans to credit card debts.
Can't Congress and the president do something about this?
Sure, and they should. Unfortunately, partisan politics has so far prevailed. It's easy to attack the other side for proposing solutions, but much harder to come up with solutions yourselves.
And even as the body of evidence has mounted, Congress has repeatedly chosen to ignore the facts. President Bush's attempts to address Social Security went nowhere, and the current batch of presidential candidates is saying little of real substance. One candidate from our party even said that this is "a back-burner issue."
The warning from Moody's shows that runaway entitlement spending isn't a far-off problem with little impact on Americans today. Within a relatively short time, the "full faith and credit" of the U.S. government could come at a much higher cost, and that cost will be passed on to all Americans, today and in the future. The time to act is now.
Penny is a former Democratic congressman from Minnesota and current chairman of the national advisory council of For Our Grandchildren (ForOurGrandchildren.org), a bipartisan organization working to fix Social Security. Stenholm is a former congressman from Texas who was the leading Democratic member of the House in drafting and sponsoring Social Security reform legislation. He currently serves as a spokesman and adviser for For Our Grandchildren.
Saves Social Security now.
Entitlement Time Bombs Threaten Uncle Sam's 'Full Faith And Credit'
By TIM PENNY AND CHARLES STENHOLM Posted Tuesday, February 05, 2008 4:30 PM PT
In case you missed it, Moody's Investors Service recently said that the bonds issued by the U.S. government may not be a completely safe bet in the future. Why? Because of the trillions of dollars in unfunded obligations to the Social Security and Medicare programs.
"These two programs are the largest threats to the long-term financial health of the United States and to the governments' AAA rating," Moody's Vice President Steven Hess said in the agency's annual report on the U.S. issued last month.
If this sounds serious, it is.
Moody's, the universally accepted credit rating service, rates corporate and government bonds based on the ability of the borrower to repay the money. Simply put, when our government borrows money, bonds are issued to the lender. These bonds are promises to pay the money back in the future, with interest. Until now, our government's bonds have carried the highest rating quality: triple-A.
As a result, institutions, individuals and foreign governments who want a guaranteed return on their money have turned to U.S. government bonds.
However, there is another kind of U.S. government bond that the public can't purchase. Each year since 1984, Congress has taken the surplus Social Security taxes — tens of billions of dollars — and spent them on other government programs. In exchange, the Social Security Trust Fund is issued government bonds, with interest. When Social Security needs more money to pay the benefits of baby boomers, it will go to the U.S. Treasury to cash in these bonds.
But where will the money come from to repay the Trust Fund?
That nagging question is the reason Moody's is cautioning that the credit rating of U.S. bonds may be reduced.
"We decided to raise the flag," said Tom Lemmon at Moody's, "because the underlying credit rating of the U.S. government faces the risk of downgrading in the next 10 years if solutions are not found to our growing Medicare and Social Security unfunded obligations."
Faced with rising entitlement spending due to baby boomer retirements and surging health care costs, Moody's is rightly reconsidering its confidence in the U.S. government's ability to repay its debts. Tens of trillions of dollars in unfunded Social Security and Medicare obligations mean the government must choose between higher taxes or lower spending on these programs.
For years, however, politicians in Washington have simply failed to make a choice. But failing to choose is, in fact, choosing to increase the implicit debts owed to these programs, which grow by trillions each year.
A downgrade in the ratings on government bonds means higher interest rates — much higher. Higher interest rates will mean massive increases in the cost of servicing the government debt, and thus an even greater squeeze on the federal budget. As bad as things look today, with government actuaries and economists warning of large future budget deficits, things will be even worse if the country's credit rating tanks and its ability to borrow is reduced.
Making matters worse, higher interest rates on government bonds may increase rates elsewhere in the economy, from mortgages to car loans to credit card debts.
Can't Congress and the president do something about this?
Sure, and they should. Unfortunately, partisan politics has so far prevailed. It's easy to attack the other side for proposing solutions, but much harder to come up with solutions yourselves.
And even as the body of evidence has mounted, Congress has repeatedly chosen to ignore the facts. President Bush's attempts to address Social Security went nowhere, and the current batch of presidential candidates is saying little of real substance. One candidate from our party even said that this is "a back-burner issue."
The warning from Moody's shows that runaway entitlement spending isn't a far-off problem with little impact on Americans today. Within a relatively short time, the "full faith and credit" of the U.S. government could come at a much higher cost, and that cost will be passed on to all Americans, today and in the future. The time to act is now.
Penny is a former Democratic congressman from Minnesota and current chairman of the national advisory council of For Our Grandchildren (ForOurGrandchildren.org), a bipartisan organization working to fix Social Security. Stenholm is a former congressman from Texas who was the leading Democratic member of the House in drafting and sponsoring Social Security reform legislation. He currently serves as a spokesman and adviser for For Our Grandchildren.
Saves Social Security now.
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