America's Financial Future

[T50_Omaha8]

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First of all do we know what interest rate he based the PV of future obligations on?

[/ QUOTE ] No. He doesn't say anything about that. Instead, he just throws up some shocking figures we're supposed to blindly trust.

Interest rates MUST have been some part of this calculation, however, and the time frame he happened to choose made the effect of interest rates on the present value of our debt obligation about as large as it could have been.

I'm not talking about the Fed's future monetary policies or anything like that. All I'm saying is that he showed a figure that the average American would look at and say, "Gee, our fiscal obligations have DOUBLED in five years! Holy [censored]! We better do something about this right now...at this rate, we'll owe ten times our GDP by 2010!"

I'm a big fan of curbing government spending (esp on welfare) and reducing debt, but I'm a bigger fan of honesty and truth--I don't like incoherent and misleading arguments, whether they support my positions or not..

[natedogg]

Typical scare tactics and the same pattern that is used with every fearmonger such as peak oilers, y2kers, population bombers, etc.

Pick one random data point and show a linear extrapolation into the future. At some point, it turns into disaster so OHMG the sky is falling! Take nothing else into account except that one data point and assume a blind unchanging path that everyone follows to the brink of disaster before they even notice or address the problem.

This is not how anything works in real life, however. Everyone relax, the USA will not suffer a termainal financial meltdown due to social security. (Did you know that the US has NO social security obligation, not one penny?)

natedogg

[mosdef]

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(Did you know that the US has NO social security obligation, not one penny?)

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This is overstating matters. I mean, a company that issues bonds doens't have to pay the money back, they can spend it and just declare bankruptcy. That doesn't mean there is no obligation. Any promise of a future out lay of cash is an obligation.

[maxtower]

First the US will raise the income limit on SS to something greater than $97k. Then they will restrict benefits to those who don't earn a pile of cash in retirement. Probably a few age eligibility increases will be thrown in there too.

I don't think SS will be removed, it will just gradually be changed into a welfare program for broke old people.

[Copernicus]

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First the US will raise the income limit on SS to something greater than $97k. Then they will restrict benefits to those who don't earn a pile of cash in retirement. Probably a few age eligibility increases will be thrown in there too.



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The changes needed to move the projections into surplus are relatively minor. A big step was made last year with the Pension Protection Act permitting private plans to pay benefits starting at age 62 to active employees. That will continue the reversal in early retirement trends and improve the projections signficantly. Another phased 2 year increase in retirement age will be quite sufficient without increasing taxes or putting limits on benefits related to unearned income.


Americans do not save enough for SS to become a more limited "welfare" system for indigent retirees.

[natedogg]

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(Did you know that the US has NO social security obligation, not one penny?)

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This is overstating matters. I mean, a company that issues bonds doens't have to pay the money back, they can spend it and just declare bankruptcy. That doesn't mean there is no obligation. Any promise of a future out lay of cash is an obligation.

[/ QUOTE ]

Even so, the US govt is not bound in any way to pay social security. The entire "promise" amounts to nothing.

And so, when the costs of social security start to overwhelm the budget, the congress will simply modify the costs. It's that simple. There's no looming financial crisis for the US govt, there is a only a looming wave of frustration and disappointment for retirees who were duped by their leaders during their working years.

natedogg

[adios]

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Interest rates MUST have been some part of this calculation, however, and the time frame he happened to choose made the effect of interest rates on the present value of our debt obligation about as large as it could have been.

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We don't know what interest rates he used though. I think it's reasonable to assume where talking about long term U.S. treasury rates like those on the 10 yr. Fed monetary policy does impact these rates significantly and thus the PV is calculated based on those numbers are probably not out of line IMO.

[adios]

Medicare has risen in costs from 2000 to 2006 at a rate of about 9.6% per anum. As a percentage of GDP medicare costs have risen from 2.2% of GDP to 2.9% of GDP, a 32% increase. From 1992 to 2000 (Clinton years) Medicare costs rose from 2.1% of GDP to 2.2% of GDP, not much of an increase at all.

[T50_Omaha8]

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Interest rates MUST have been some part of this calculation, however, and the time frame he happened to choose made the effect of interest rates on the present value of our debt obligation about as large as it could have been.

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We don't know what interest rates he used though.

[/ QUOTE ]Right, but all interest rates tend to change along with one another--home mortgages, savings accounts, bond yields, etc. So it doesn't really matter what interest rates he used; if IRs went down over a 5-year period, it always makes the 5-year increase in PV of a future obligation artificially large.

[mosdef]

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if IRs went down over a 5-year period, it always makes the 5-year increase in PV of a future obligation artificially large.

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Artifically? Are you suggesting that there is a better discount rate on hand than the market rate?