No Runny Eggs

The Associated Press praised the AlGore “lockbox” in its story discussed earlier, and Glenn Reynolds and Andy McCarthy asked where the “lockbox” was, so I figure it’s time to explore what creating said “lockbox” would do for the current cash-negative situation. The very-short version is that while there would be actual money in the “Trust Funds” to pay for the cash shortfall, which still would exist at the same level with or without the “lockbox”, that same money would have already needed to be borrowed on the open Treasury securities market. The longer version is a bit lengthier.

First, let’s take a look at Social Security as it was at the end of January 2001. The Old-Age and Survivors Insurance (OASI) Fund was “worth” $945 billion, with the weighted average interest of the securities held at 6.640% and the average time to maturity at 6.914 years (note; while most of those securities have since matured and been rolled over into new securities, some of those securities don’t mature until 2015). The Disability Insurance (DI) Fund was “worth” $121 billion, with the weighted average interest of the securities held (which included some since-retired public-issue debt) of 6.426% and average time to maturity at 6.828 years.

Since then, the OASI Fund has taken in $630 billion more in cash than it has paid out (i.e. primary surplus) with $776 billion in interest credited to it, giving it a “value” of $2,350 billion. Meanwhile, the DI Fund has had a primary deficit of $10 billion with $93 billion in interest credited to it, giving it a “value” of $203 billion. Between February 2009 and January 2010, the OASI Fund has had a primary surplus of $23,504 billion (down from a $71,637 billion primary deficit between 2/2008 and 1/2009) with $107.901 billion in interest credited to it, while the DI Fund has had a primary deficit of $23.611 billion (up from $10,687 billion primary deficit between 2/2008 and 1/2009) with $10.467 billion in interest credited to it. Signifcantly, that’s an overall 12-month deficit of $13.144 billion for the DI fund.

Now, let’s try to define the “lockbox”. There’s actually several different flavors possible, involving what gets put into the “lockbox” (just the taxes received after creation, the “new” taxes and interest, the entirety of the “Trust Funds” immediately upon creation, the values of the various securities as they mature), and on what interest gets paid (just those items in the “legacy Trust Fund”, everything). Some of those scenarios are beyond my ability to model, so I’ll just take four of the relatively-easy-to-model scenarios, while noting that while economically it makes no sense to credit interest to funds in the “lockbox”, it would also be political suicide even as it would require cash that the Treasury doesn’t have.

First, I’ll take just “future revenues” locked away, with no interest credited to them, and the current “legacy Trust Funds” along with interest credited to them rolled over into fresh Treasury securities as they are now. I’m likely overestimating the interest that would have been credited to the “legacy Trust Funds”, which would get put right back into the Treasury as it is now, but it’s close enough for government work. The “lockbox” amounts would have been the 9-year amounts listed above (+$630 billion for OASI, -$10 billion for DI). That’s right – that DI “lockbox” would have been emptied by this point. Meanwhile, the “legacy funds” would have been about $1,520 billion for OASI and $179 billion for DI, bringing the total nominal OASI fund amount to about $2,150 billion. That would have moved up the fund-exhaustion dates by a couple years. Assuming nothing in the budget would have been cut, the 9-year deficit spending would have increased by $640 billion, or an average of about $71 billion per year.

Next, I’ll add the interest earned by the “legacy funds” to the lockbox as cash. Since it no longer would have compounded, that interest would have been a bit less than in the first option, or about $470 billion for OASI and about $57 billion for DI. However, since it would have been added to the “lockbox”, both OASI and DI “lockboxes” would have been in positive territory (+$1,100 billion for OASI, +$47 billion for DI). However, since the “legacy funds” would have remained at the January 2001 levels, that would have left the total nominal funds at $2,050 billion for OASI and $177 billion for DI. Again, that would have meant the funds would be a bit closer to exhaustion, and it would have increased the 9-year deficit spending by $1,157 billion (or roughly $129 billion per year).

Third, I’ll look at the full-on “lockbox”, immediately liquidating the entirety of the “Trust Funds”, putting everything in the “lockbox”, and foregoing all future interest payments. Because interest earned in January 2001 would have been paid out, the total amount going into the “lockbox”, would have been about $956 billion for OASI and $122 billion for DI. That would have created a rather massive deficit for 2001, as to create that “lockbox”, the federal government would have needed to come up with $1,078 billion. With only primary surpluses and deficits affecting the “lockbox”, that would have left the balances at $1,586 billion for OASI and $112 billion for DI. That would have really cut into the lifetime of the funds, but they would at least have been fully-funded until exhaustion. Further, the 9-year deficit spending would have further increased by the same $640 billion as the first scenario.

Finally, I’ll take that full-out “lockbox” in scenario three, but still credit the interest. As I noted above, while it would fly politically, it would make no sense economically, as the Treasury, and by extension, we the taxpayers, would be paying for the use of money that we wouldn’t be able to use. The only difference between that scenario and the current scenario is that instead of $2,554 billion in unfunded IOUs, there would be $2,554 billion in cash. Of course, that would also mean the 9-year deficit spending increase would have been that same $2,554 billion.

(H/Ts – Ed Morrissey and Owen)

The Associated Press finally noticed that the cash Social Security is taking in won’t cover its current obligations:

For more than two decades, Social Security collected more money in payroll taxes than it paid out in benefits — billions more each year.

Not anymore. This year, for the first time since the 1980s, when Congress last overhauled Social Security, the retirement program is projected to pay out more in benefits than it collects in taxes — nearly $29 billion more.

Sounds like a good time to start tapping the nest egg. Too bad the federal government already spent that money over the years on other programs, preferring to borrow from Social Security rather than foreign creditors. In return, the Treasury Department issued a stack of IOUs — in the form of Treasury bonds — which are kept in a nondescript office building just down the street from Parkersburg’s municipal offices.

Now the government will have to borrow even more money, much of it abroad, to start paying back the IOUs, and the timing couldn’t be worse. The government is projected to post a record $1.5 trillion budget deficit this year, followed by trillion dollar deficits for years to come.

I give the writer, Stephen Ohlemacher, credit for remembering that even the net interest paid on the bonds is, if it needs to be paid out in cash, something the Treasury Department doesn’t have so much as a penny to pay out. A few points of order:

• Those 12-month primary (or cash, if you prefer) deficits actually began in the February 2009-January 2010 period, when Social Security ran a $114 million primary deficit. An estimation using numbers from the Febraury 2010 Monthly Treasury Statement, which shows a $7.59 billion “gross” deficit (including the interest paid out on securities cashed in February) and a $7.71 billion primary deficit, bumps that 12-month primary deficit to $6.47 billion (between March 2009 and February 2010).
• That nearly-$29 billion cash deficit for FY2010, or $34 billion if one prefers to go with the Office of Budget and Management numbers, tells only half the story. The FY2010 budget counted on $21 billion in primary surpluses from the Social Security “Trust Funds” to spend on other items in the budget, which makes the total amount of unplanned borrowing on the open Treasury market $50 billion-$55 billion.
• Also from the OMB, for at least FY2010, the Old-Age and Survivors Insurance Fund is expected to run a primary deficit. It would join the Disability Fund, which began running primary deficits in 2005 and running gross deficits (i.e. shrinking its “Trust Fund” and entering the final stage of collapse) in 2009.

A quick note about the February 2010 numbers – while they are not the final numbers from Social Security’s Office of the Chief Actuary, they are rather reliable. They also represent, outside of the anomalous month of August 1990, when almost all of September 1990’s benefits were shown as paid out in August, the second-largest primary deficit (behind December 2009’s $11.307 billion primary deficit) and the largest gross deficit since monthly records have been kept in January 1987.

Even if we had taken Al Gore’s suggestion and put it the “Trust Funds” into a “lockbox”, it would, at best, only delay the inevitable. Between March 2001 and February 2010, the funds accumulated $869 billion in interest, and the primary growth was $607 billion, which together masked $1,475 billion in deficit spending over the last 9 years. Given the current problem is converting the “Trust Funds” to cash, and the problems both parties have had in saying no to spending, I don’t see how that “lockbox” would have helped any.

Revisions/extensions (3:19 pm 3/15/2010) - I really need to pay more attention to my feed reader over the weekend – Owen had it up yesterday.

R&E part 2 (7:00 pm 3/15/2010) - First, thanks to Ed for linking to me. Sorry about the problems that you may have experienced in loading this site; StatCounter had some issues.

Since Glenn Reynolds wanted to know what happened to the “lockbox”, I decided to take a somewhat-quick back-of-the-spreadsheet look at what would have happened had a “lockbox” been in existence the last 9 years. Do note that it would not have affected the primary deficits in the least, but it would have put at least some actual money into the “Trust Funds” for the future.

Revisions/extensions part 2 (10:16 am 3/8/2010) - I originally posted this on February 22 using estimates from the January 2010 Monthly Treasury Report to fill in the numbers for January 2010. The Social Security Office of the Chief Actuary has now released the final numbers for that month, and the news is worse. The original post is below the fold (unless you’re reading just this post, in which case it’s below the update). I decided to append to this and bump it up to today’s date.

Between February 2009 and January 2010, the combined OASDI Social Security “Trust Funds” spent $112 million more than it took in in taxes. As noted in the original post (below), the 12-month primary (or cash) deficit is the first since monthly records were kept in 1987, and likely the first since the “forever” fix of 1983.

The estimate using the Treasury’s numbers was a $91 million primary deficit, which instead of proving too pessimistic based on recent analysis of the difference between the Treasury Monthly Statements and the OACT final numbers, proved to be too optimistic.

To contrast, just last year, the Obama administration expected the FY2010 primary surplus in the combined “Trust Funds” to be $21,028 million (or $21.028 billion – I will use a single base to make sure the numbers hit home) as part of its FY2010 budget. Now, it’s estimated to be a $33,754 million deficit, a shift of $54,782 million to the red. That’s $54,782 million that, thanks to the well-over $1,000,000 million (or $1 trillion) deficit that was already planned for this year, needs to be borrowed by the Treasury on the open market.

The situation is not yet as dire as it was between 1975 and 1981, when the combined funds ran overall yearly deficits, or 1982, when the Old-Age and Survivors Insurance fund borrowed from the Hospital Insurance (Medicare Part A) fund to stay fully-capitalized. However, raising the withholding tax 14% and the self-employment tax 64% isn’t exactly going to play well, and like the previous time, it will only slow the inevitable.

(more…)

(H/T – Dad29)

Last week during his Henderson town hall meeting, Barack Obama floated the idea of getting rid of the cap on the FICA/SECA taxes that go toward Social Security as a way to make it solvent for a bit longer. As Dad29 notes, that would be a significant increase in the marginal tax rate (for those of you in Rio Linda or West Palm Beach, that’s the amount of tax paid on the last dollar made) for those making more than $106,800, which is a lot less than the $250,000 Obama promised would not see a single tax increase, including very-specifically a payroll tax increase. Specifically, it’s a 6.2-point increase for those with an employer (with said employer being dinged that same 6.2 percent), and a 12.4-point increase for the self-employed. Assuming the Bush tax cuts are allowed to expire on schedule, that would make the effective self-employed (i.e. small-business) top federal tax bracket 54.9%, and the employee top federal tax bracket 47.25%.

Item number two, almost thrown away, is an admission that Social Security is now likely to exhaust its combined “Trust Funds” somewhere around 2030, a significant move up from last year’s projection of 2037 (with the OASI fund projected to be exhausted in 2039 as of last year and the DI fund exhausted by the end of this decade). That would match the “high-cost” case from last year’s Trustee Report.

As for Obama’s claim that eliminating the cap would make Social Security solvent long into the future, let’s take a quick look at that. Assuming that it has no effect on on the economy, removing the cap would increase the FICA/SECA tax take by roughly 21%. Some very-back-of-the-envelope number-crunching refreshes my memory of a semi-forgotten study that found that lifting the cap entirely would only delay the inevitable decline and collapse of Social Security by roughly 15 years. Ever-so-conveniently, that would move fund exhaustion barely beyond Obama’s life expectency.

I could have also titled this Part 2 – I already reported that between February 2009 and January 2010 (or the first full 12 months of the Obama administration), Social Security posted a 12-month primary deficit in its combined OASDI “Trust Funds”. As part of a look into the numbers, I came across the Social Security appendix to the proposed FY2011 budget prepared by the White House Office of Budget and Management.

I draw your attention to the pair of tables titled “Status of Funds”, one found under the “Federal Old-Age and Survivors Insurance Trust Fund” section (pages 1214-1215 of the document) and the other found under the “Federal Disability Insurance Trust Fund” section (page 1216).

Last month, the Congressional Budget Office estimated the FY2010 Social Security primary deficit to be $28 billion, with the FY2011 primary deficit at $20 billion. The bad news is the OMB now predicts a primary deficit of $33.754 billion on total revenues of $793 billion, total outlays of $708.35 billion, and $118.404 billion of interest.

Given that the administration had planned on taking $21.028 billion from the “Trust Funds” to pay for the rest of government for FY2010, that represents a $54.782 billion unplanned addition to the deficit. At least they’re not counting on Social Security to run in the black for FY2011 – they project a $19.136 billion primary deficit in the combined funds, so the first $19 billion or so in deficits next year will be “accounted for”.

The ugly news is that the OASI “Trust Fund”, which has been running 12-month primary surpluses for all except one 12-month period (due to an unexplained crediting of payments to the DI fund in November 1994) since 1988, is expected to run a $2.934 billion deficit in FY2010 before (hopefully) recovering to a $12.152 billion primary surplus in FY2011. The DI fund began running 12-month primary deficits full-time in October 2005, and transitioned to an overall 12-month deficit in February 2009.

(H/Ts – Dad29 and Hot Air Headlines)

Back in September, Ed Morrissey found, and I expanded upon, a dire look at the Social Security “Trust” Funds from the Congressional Budget Office that said the combined OASDI “Trust” funds would start running primary (cash) deficits in FY2010 and run them for much of the decade. Allan Sloan over at Fortune found some worse news in the January 2010 CBO budget outlook:

Instead of helping to finance the rest of the government, as it has done for decades, our nation’s biggest social program needs help from the Treasury to keep benefit checks from bouncing — in other words, a taxpayer bailout.

No one has officially announced that Social Security will be cash-negative this year. But you can figure it out for yourself, as I did, by comparing two numbers in the recent federal budget update that the nonpartisan CBO issued last week.

The first number is $120 billion, the interest that Social Security will earn on its trust fund in fiscal 2010 (see page 74 of the CBO report). The second is $92 billion, the overall Social Security surplus for fiscal 2010 (see page 116).

This means that without the interest income, Social Security will be $28 billion in the hole this fiscal year, which ends Sept. 30….

If you go to the aforementioned pages in the CBO update and consult the tables on them, you see that the budget office projects smaller cash deficits (about $19 billion annually) for fiscal 2011 and 2012. Then the program approaches break-even for a while before the deficits resume….

I did so, and just like in September, I found some rather “curious” claims of economic boom. In fact, the new “boom” is even more unbelievable than the old “boom” (note; the September 2009 CBO GDP estimates come from summer 2009 budget update).

Click for the full-size chart

Between this fiscal year and FY2019, instead of a cumulative Social Security primary deficit of $100 billion, we’ll have a cumulative Social Security primary deficit of $157 billion. That is, of course, if we actually do get all the economic and tax growth that the CBO seems to hope we will. If we don’t, the chart I put together back in September showing just how easy it was to turn the CBO’s hope into red ink as far as the eye can see will be rosy.

That also doesn’t include Obama’s plan for a second round of $250 checks to every Social Security recipient. That is a drag of another $13 billion on this year, which would make this year’s cash deficit somewhere around $51 41 billion.

Revisions/extensions (4:42 pm 2/4/2010) - The internal copy editor failed me, as I made a basic math mistake. Thanks to Hot Air commenter WashJeff for the catch once Ed Morrissey made the news a front page post.

Last month, I explored the very-disappointing preliminary Social Security numbers, using the December Monthly Treasury Statement and the investment holdings report from the Social Security Administration. The time-series report for December 2009 from the SSA’s Office of the Chief Actuary is finally available, and the news is even worse.

First, a note; while the other reports included an acceleration of some Social Security payments from January into December, the time-series report does not. That allows an “apples-to-apples” comparison of both monthly and yearly changes.

Also, I still don’t have a satisfactory answer why the various numbers given for the trust fund assets don’t reconcile. I don’t expect to be able to give an explanation until the January time-series numbers are released.

Total income, including $58.514 billion in misleadingly-labeled “interest” was $105.475 billion in December, both within the margin of rounding of my earlier numbers. Total outgo was $58.268 billion, which while higher than the margin of rounding than my earlier estimate is still within the margin of estimation. That makes the December primary (cash) deficit a record $11.307 billion (nearly double the previous modern-day record set in November 2009 and more than double the primary deficit in December 2008), and the 2009 calendar-year primary surplus only $3.338 billion, easily the worst modern-day 12-month performance.

Now, the bad news. Unless January and February revenues increase by at least 2.75% over the revenues received in those months in 2009, Social Security will be running 12-month primary deficits by February. Unfortunately, the total tax take doesn’t exactly suggest that level of short-term turnaround is in the cards. The January 29, 2010 Daily Treasury Report (the last business day in January) has January 2010 total tax revenues at $156 billion, down from January 2009’s $168 billion and January 2008’s $181 billion. While the January 2009 Social Security income was about 2.2% higher than the January 2008 income because the recession affected high-income earners disproportionately, this year’s total tax drop is greater than last year’s.

Projecting forward through the rest of 2010, the situation is even more bleak. It will take an over-4% increase in tax revenue each and every month this year for Social Security to be above the break-even line at the end of the year, and that only knocks the underwater point to sometime in 2011.

The ugly is that does not take into account the $250 “makeup” checks Obama wants to hand out to everybody on Social Security because there was no cost-of-living increase this year. That’s a drain of $13.5 billion, or a bit short of a quarter of the monthly outgo.

Earlier this month, I noted that the first set of December numbers for Social Security, the “investment” holdings, commonly called the “Trust Funds”, rose by a very-disappointing $24.153 billion in December. While the December Trust Fund Operations numbers are still not available from the Social Security Office of the Chief Actuary, the December Monthly Treasury Statement from the Department of the Treasury, which forms the basis of those numbers, is available. There is an interesting tidbit on the cover page – “Federal old-age and survivors insurance trust fund and Federal disability insurance trust fund benefit payments for January 3, 2010, were accelerated to December 31, 2009.”

That explanation of what I had hoped to be an anomaly is not entirely satisfying. First, I have to explain how I derived the numbers from the Trust Fund Operation time series – the “total income” and “total outgo” for a given month comes from the “income, outgo and assets” chart, while the “net interest” comes from the “income components” chart. The equivalent numbers on the Monthly Treasury Statement are, respectively, the “receipts” and “outlays” for each fund found in Table 8, and the “Interest Received by Trust Funds” for each fund found in the end of Table 5. While they are not 100% reconciled, the margin of difference is typically well under 1% (keep that statistic in mind).

Including the “accelerated” payments from Social Security, and also including the semi-annual crediting of “interest”, the “total income” was about $105.5 billion (of which about $58.5 billion was “interest”, in line with what was “credited” to the funds in December 2008), and the “total outlays” were about $87.7 billion, which should make the “net increase in assets” about $17.8 billion. Something is massively off, because that does not support the $24.2 billion increase in the “Trust Funds”. However, since I don’t have enough information to say what is off, all I can do until the Office of the Chief Actuary releases its numbers is note it and move on.

The total income estimate, which is 0.443% lower than it was in December 2008, is right in the ballpark of what is expected given the recent year-over-year history of the “Trust Funds”. In 2009, the 11-month average increase had been 0.271%, with the average year-over-year decrease over the prior 5 months being 0.446% and the average year-over-year decrease over the prior 3 months being 0.431%.

Accelerating a significant portion of the January 2010 payments to December 2009, which affects the total outgo of both months, makes apples-to-apples comparisons a bit “problematic”, with the December 2009 monthly change, the January 2010 monthly change, and the 12-month changes featuring only one of those months a challenge to estimate. However, calculating the recent average year-over-year change allows one to estimate what the outgo would have been without the acceleration. The average year-over-year increase in outgo was 9.648% in the first 11 months of 2009, increasing to an average year-over-year increase of 9.939% over the prior 5 months and an average year-over-year increase of 10.529% over the prior 3 months. Given that, my best estimate of the “December-only” version of total outgo is $58.1 billion.

Now it becomes possible to run a preliminary apples-to-apples comparison, with the caveat that at least one of these numbers may well be off. $105.5 billion in income (including “interest”) less $58.1 billion of “December-only” outgo and less $58.5 billion in “interest” leaves a primary “December-only” (or “unaccelerated”) monthly deficit of $11.1 billion, almost double the previous record of $5.9 billion last month. It also makes the “unaccelerated” Calendar Year 2009 primary surplus only about $3.5 billion.

Since I don’t have the usual numbers, I will not go further into analysis at this point. However, don’t be surprised if the panic button is pressed before April.

The Social Security Administration’s Office of the Chief Actuary finally got around to posting the detailed November numbers for Social Security, and things have only gotten worse:

• The combined OASDI (Old-Age Survivors and Disability Insurance) “Trust” Funds posted a $5.858 billion primary (cash, non-“interest”) deficit for November, the worst monthly performance since monthly records began in 1987.
• The 12-month OASDI primary surplus was only $9.598 billion, also the worst 12-month performance since monthly records began.

Since there won’t be an cost-of-living increase in Social Security benefits, the combined funds may yet avoid a 12-month primary deficit in 2010 by the skin of its teeth. However, that is dependent on an improvement in the wage situation, and specifically an improvement in the job prospects of those between 62 and 67 years old. Somehow I don’t see the trend of older and higher-earning workers losing their jobs disproportionately reversing.

If you think that’s bad, the DI (Disability Insurance) portion is even worse. I had not taken a very close look at it before, but perhaps I should have because it has entered the last stage of a fund collapse – cannibalization of principal:

• For the 50th straight month, going back to October 2005, the DI Fund ran a 12-month primary deficit, this time hitting a new high of $21.399 billion.
• Outside of the “double tax-collection” months of January and April (when it recieves both the quarterly estimated income tax payments, also received in June and September and the quarterly tax on benefits, also received in July and October), the last time the DI Fund posted a monthly primary surplus was September 2007 (which itself is a “tax-collection” month, specifically of the quarterly estimated income tax payments). One would have to go back to March 2007 to find a month outside of a “tax-collection” month with a monthly primary surplus, and all the way back to May 2003 to find a month outside both the “tax-collection” and “tax-season” months (January through April) with a monthly primary surplus.
• A similar monthly situation with the overall DI Fund exists – outside of the “double tax-collection” months and the semi-annual interest-crediting months (June and December), the last time it posted an overall monthly surplus was September 2007; and outside of tax or interest “enhancements”, the last overall monthly surplus was posted in July 2003.
• All that has led to the DI Fund entering a 12-month overall (which includes the effects of “interest”) deficit beginning in February 2009, which means it is redeeming more US Treasuries than it is buying. That 12-month overall deficit, which has existed since then, has now hit $10.525 billion, the first time it topped the $10 billion mark.

Allow me to repeat that – the DI Fund is now in the final stage of a fund collapse – the exhaustion of principal. In this case, that principal, as of November 30, 2009, was $202.265 billion.

If one thinks that December, and specifically the semi-annual interest crediting that happened last month, is going to be the saving grace, the OACT has bad news. While the detailed December numbers are not available, the investment holdings for December are. I cannot explain why the investment total in that time series is consistently somewhat higher than the time series of trust fund operations linked to above, but it is close enough for government work.

The first item of note is the DI Fund investment balance. It dipped from $202.531 billion in November to $199.760 billion in December. That would be the first overall monthly deficit in December for the DI Fund since 1993, just before a change in the percentage of the payroll/self-employment tax designed to prop up the DI Fund took effect.

The second item is the OASDI Fund investment balance. It rose only $24.153 billion between November and December to $2,518.541 billion, less than half of last year’s November-to-December increase of $52.37 billion and the lowest November-to-December increase since 1997, when the OASDI Fund investment balance was $655.449 billion. I hope for this country’s sake that it’s just an anomaly. If not, then it is almost certain that the combined funds have gone into a 12-month cash deficit mode because the “interest”, which is credited on both the redeemed securities and the ending balance, should be somewhere north of $58 billion.

Revisions/extensions (7:45 am 1/7/2010) - Added the significance of the very-disappointing December OASDI Fund increase.

R&E part 2 (3:04 pm 1/7/2010) - Thanks again for the link, Ed. For those of you not coming here from Hot Air, Ed reposted charts of the last 23 months’ performance of both the OASDI and the DI “Trust” Funds.

For those of you coming here from there, stick around and enjoy the hospitality.

R&E part 3 (9:16 pm 1/15/2010) - I found at least a partial explanation of the December “anomaly” courtesy the Treasury Department – the January 3, 2010 Social Security payments were “acclerated” into 2009. A longer explanation is over here.

Ever since Ed Morrissey figured out that Social Security had started to run monthly deficits back in May, I’ve been on it on-and-off. There’s some bad news, and some REALLY bad news over the last couple months:

• The FY2009 primary (cash) surplus of the combined funds was $19.356 billion. While that is slightly higher than the summer 2009 Congressional Budget Office estimate thanks to slightly-higher-than-projected revenues, it does not represent any meaningful improvement in the ugly projections for the future. That also was the worst 12-month performance since January 1993-December 1993, and the worst fiscal-year performance since monthly records were kept starting in 1987.
• The $4.377 billion primary deficit for September 2009 and the $4.829 billion primary deficit for October 2009 were, excepting the anomalous August 1990 performance, the 4th- and 3rd-worst monthly performance (respectively), trailing only 2nd-worst December 2008 and worst-ever August 2009.
• For the third straight month, both halves of the Social Security “trust fund”, the Old-Age Insurance Fund and the Disability Insurance Fund, ran monthly primary deficits. That stretch has never happened before. Moreover, the prior two times that happened were in December 2008 and November 1993.
• But wait, it gets worse. That $4.8 billion primary deficit for October made the September 2008-October 2009 12-month primary surplus only $14.902 billion, the worst 12-month performance since monthly records were kept starting in 1987.

Do remember that there is not a single penny set aside in the federal budget to pay cash to either the interest or principal owed to the Social Security “trust fund”.

Revisions/extensions (1:51 pm 12/8/2009) - With a tip of the hat to Ed Morrissey, Chuck Blahous provides some more bad news:

• October marked the 6th straight month of red ink for Social Security, yet another record-bad performance.
• Before the CBO’s summer 2009 projection that the fiscal-year cash deficits will begin in 2010, neither the CBO nor the Social Security Trustees had predicted this situation to begin prior to 2012 since 1983.
• Since 1987, November has been a negative month 11 of the 22 years, and all 6 years following a negative October.

Chuck also explains why this situation is a bad thing far better than I can:

The rising debt that the Trust Fund holds can perhaps best be understood by conceptualizing it as being like a mortgage owed by the federal government, albeit an unusual kind of mortgage in which no cash payments are made by the borrower (the federal government) until the lender (Social Security) needs money. As long as Social Security’s own incoming tax revenue is sufficient to fund its benefit payments, the government is not required make any payments on the mortgage. When Social Security’s incoming tax revenue falls short, however, the government needs to produce extra cash and start paying that mortgage off. The mortgage debt will continue to grow, however, as long as the interest on the debt is greater than the monthly cash payments being made.

An individual analogy may help to make this clearer. If an individual homeowner took out a mortgage and then paid only $1770 on it over six months, when the mortgage’s interest costs alone over that period were $5930, then at the end of those six months that person would owe a further $4160 on the mortgage despite having made several payments. Paying down just a portion of the interest and none of the principal on a mortgage parallels what is happening here. The money obligated to the Social Security Trust Fund continues to rise as the fund accrues interest; but our cash-strapped government now has to deliver additional money to support benefit payments, and has had to do so for half a year.

Revisions/extensions (12:16 am 1/7/2010) – I don’t know how I missed the various typos confusing “billions” and “trillions”. Sorry about that.