What is the USA federal debt to GDP?

[DSpencer]

Re: What is the USA federal debt to GDP?

I agree there are issues with the entitlement mentality, but getting social security upon retirement shouldn't feed it. You work for a living, you pay in, you retire, you get your check. It is not much, but enough, if you saved, to get you by at a moderate standard of living. There is nothing undignified or wrong with this.

I think there is something wrong with this. Not necessarily on the individual level of the people who pay in and collect, but the system itself. You have already explained part of the reason why in your other posts: the future is uncertain and nobody knows for sure whether there will be any money to collect.

So really they are just taking money from workers now, giving it to retirees, and maybe if today's workers are lucky, there will be new workers with the ability and desire to pay for their retirement. This is not a deal that I would voluntarily agree to. Would you participate in SS if it wasn't mandatory?

The fact that even their own projections show that the system is not sustainable is just insult to injury.

[DRumsfeld2000]

Re: What is the USA federal debt to GDP?

Martin Weiss analysis:-

http://weissratings.com/news/article...-debt-ratings/

[jiimbergin]

Re: What is the USA federal debt to GDP?

Every argument you put forward above applies just as equally to private debt as to public debt.

The fact is the debt right now is owed according to law.

Secondly, while any individual may die, actuarially speaking there is no doubt whatsoever that collectively the projected benefit payments are going to be necessary. If anything, the 2 generation long trend of longer lifetimes will increase the payments needed in the future.

And lastly while certainly the government may choose not to pay, equally so can individuals choose not to repay their debt. Creditors, however, generally don't get to vote out judges in bankruptcy/debt collection cases while individuals absolutely can vote out politicians who dare attack entitlement spending.

As for your comment on 'loan' - the reality is quite simple: every person who paid into Social Security expects to get something back. If the promised payments aren't to the expected benefit from lifetime payments, then there's going to be hell to pay politically.

I'm not saying Social Security is a wonderful program that shouldn't ever be touched, but at the same time it is disingenuous to say that it is a piggy bank which can be broken at any time for any reason - especially when there is such a clear divide in terms of economic gains between the top 10% and the bottom 90%.



As I noted above, while at an individual level there is a great deal of variability, at a demographic level there is not.

Only a change such as raising the retirement age would affect entitlement payouts, or a means test, or similar heavy handed changes. The other method to fix the problem is devaluation of the dollar which is not accompanied by corresponding COLA increases.

I think clearly we're going to see both.

The only non-intrusive, non-stealth inflation/devaluation method by which Social Security will trend back towards solvency is a major fall in American lifespans.

So, eat up everyone.

Fat is good for America.

as a retired actuary, I agree with most of your comments here, however, there can be considerable variability at the demographic level depending on how conservative\liberal the assumptions are.

[goodrich4bk]

Re: What is the USA federal debt to GDP?

"The fact is the debt right now is owed according to law"

No, the government does not own you any SS payments or Medicare unless you are "right now" retired. Do you not see this difference between a present liability that is not yet matured (such as a promisory note due in five years) and the government's "liability" to pay me IF I retire at 65 in five years? The former is a liability, the latter is a contingent liability.

I agree that it is a liability that is likely to come due and, for that reason, we need to address how that liability can be met when the inevitable occurs. But my larger point is that adding the word "unfunded" doesn't help with the analysis. Do you have a separate fund with which to pay off your mortgage, or do you, like most people, assume you will be able to service just the installments when they come do each month? And if we are going to present value all of our future government obligations, why stop with SS and Medicare? Why not present value the size of our defense obligations and then fund them with a huge pile of cash?

This is where I think politics is entering the discussion. You don't see liberals running around shouting that we are bankrupt because we haven't funded our future defense obligations. Don't get me wrong. I believe we have a huge problem that neither party is seriously addressing. But arguing that we should "fund" future obligations when we cannot even agree on funding THIS year's obligations is not seriously addressing the dysfuntion that is our government.

[dcarrigg]

Re: What is the USA federal debt to GDP?

as a retired actuary, I agree with most of your comments here, however, there can be considerable variability at the demographic level depending on how conservative\liberal the assumptions are.

Well, that's exactly the point. I wouldn't call the assumptions 'liberal' or 'conservative,' but they are insane, and they already don't reflect reality. The 'high' estimate for unemployment, even in the 2009 and 2010 reports, is 6.5%. How's that for reality? Any bond investors here?

How about treasury yields at 2.1% with the CPI at 3.8%? That's in there. Let's check history for that one:



Also, it assumes, at the high end, a .8-.9% population increase (net immigration), when over the last 60 years it has been 1.82%.

Here's a chart of the assumptions from 2010:



People need to stop worrying about 2050 and start worrying about 2011-2012. The only reason they have the talking heads going on and on about this is that they want to take something away from you (or more likely your kids). They'll tell you that they love America though, and have to take it away for the country and for your kids.

Then, in the very unique 21st century American fashion, they'll get on the TV and do this:

And people will believe...

[c1ue]

Re: What is the USA federal debt to GDP?

No, the government does not own you any SS payments or Medicare unless you are "right now" retired. Do you not see this difference between a present liability that is not yet matured (such as a promisory note due in five years) and the government's "liability" to pay me IF I retire at 65 in five years? The former is a liability, the latter is a contingent liability.

You clearly wrote this before reading that 'you' only applies for a specific individual. 'You' in terms of a population is without doubt.

But my larger point is that adding the word "unfunded" doesn't help with the analysis. Do you have a separate fund with which to pay off your mortgage, or do you, like most people, assume you will be able to service just the installments when they come do each month? And if we are going to present value all of our future government obligations, why stop with SS and Medicare? Why not present value the size of our defense obligations and then fund them with a huge pile of cash?

Unfunded is precisely a correct term. The obligations are known and will occur barring a major change in Social Security and/or a presently unlikely demographic shift, and the funds to pay said obligations do not exist.

The incorrect portion is excluding future Social Security revenues as well as extrapolating beyond the present generation's lifespan.

What really matters is the size of the deficit and the time scale in question. If we use Social Security's own calculations up to the year 2040 (end of the line for the average Baby Boomer), every single one of the SS trust funds will have gone empty by that point under present trends and assets.

However, a look at the 2009 SS income statement shows the real problem:

Source (in billions)	OASI	DI	HI	SMI
Payroll taxes	$570.4	$96.9	$190.9	—
General fund revenue	—	—	1.9	$209.8
Interest earnings	107.9	10.5	15.3	3.0
Beneficiary premiums	—	—	2.9	62.3
Taxes on benefits	19.9	2.0	12.4	—
Other	*	—	2.1	7.7
Total	698.2	109.3	225.4	282.8

* Less than $50 million.

Social Security is already taking in over $130 billion/year just in interest. Couple this with a SS' balance sheet shortfall, and the result is a significant cash outlay the federal government must put out.

This balance sheet shortfall is supposed to reverse soon, but again makes a large number of very optimistic assumptions:

ESTIMATED OPERATIONS OF TRUST FUNDS
(In billions—totals may not add due to rounding)

	Income					Expenditures					Change in fund
				SMI					SMI
Year	OASI	DI	HI	B	D	OASI	DI	HI	B	D	OASI	DI	HI
2010	$686	$105	$218	$204	$61	$586	$128	$249	$220	$62	$100	-$23	-$32
2011	742	113	241	235	71	608	134	259	215	71	134	-21	-18
2012	790	118	254	264	78	638	141	271	226	78	151	-23	-17
2013	845	124	277	287	86	680	147	283	242	86	165	-23	-6
2014	902	131	297	312	93	728	153	296	260	93	174	-23	1
2015	959	137	316	364	103	780	160	305	276	102	179	-23	11
2016	1,019	144	337	333	113	836	167	321	293	112	183	-23	15
2017	1,078	150	357	395	124	897	174	338	314	123	181	-24	19
2018	1,137	a	378	436	136	962	182	358	338	136	175	a	20
2019	1,193	a	398	477	150	1,032	190	380	365	150	161	a	18

^aThe DI Trust Fund is projected to be exhausted in 2018 under the intermediate assumptions. Certain trust fund operation values from 2018 forward are not meaningful under current law and are not shown in this table.

Note the 15%+ jump in anticipated OASI revenue from 2010 to 2012.

Note also that Social Security book entry Treasuries are rolling over into ZIRP - the interest income is certainly going to drop over time as existing 6% to 9% (pre 1997) switches to 4.25%(today) to 5.94% (2000).

I do agree that the more breathless numbers being projected ($100 trillion etc etc) are exaggerated, but the cash flow issues are not.

[jiimbergin]

Re: What is the USA federal debt to GDP?

Well, that's exactly the point. I wouldn't call the assumptions 'liberal' or 'conservative,' but they are insane, and they already don't reflect reality. The 'high' estimate for unemployment, even in the 2009 and 2010 reports, is 6.5%. How's that for reality? Any bond investors here?

How about treasury yields at 2.1% with the CPI at 3.8%? That's in there. Let's check history for that one:



Also, it assumes, at the high end, a .8-.9% population increase (net immigration), when over the last 60 years it has been 1.82%.

Here's a chart of the assumptions from 2010:



People need to stop worrying about 2050 and start worrying about 2011-2012. The only reason they have the talking heads going on and on about this is that they want to take something away from you (or more likely your kids). They'll tell you that they love America though, and have to take it away for the country and for your kids.

Then, in the very unique 21st century American fashion, they'll get on the TV and do this:

And people will believe...

Yes, I would never use the assumptions shown here.