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Friday, March 29, 2024

SS Trust Fund 1st Q 2010 Results – Still Slipping

Courtesy of Bruce Krasting

The Social Security Trust Fund is able to make accurate estimates on the major components of its monthly cash flows. Therefore the first quarter operating results for the Fund are in. Only the payroll taxes and benefits paid numbers are currently available for January, February and March of 2010. The raw numbers show clear acceleration of the deterioration in the Funds dynamics. They also give us some insights into the employment situation in the country. The conclusions are not good.



This chart summarizes the payroll tax (both FICA and SECA) receipt numbers for 09 and 10.






The 1st Q 2010 YoY top line for the Fund is down by 6%. A very significant drop. There are 160mm workers that contribute to SS. The simple math would suggest that there are 9.3mm workers that are no longer contributing to the system (or are contributing at a much lower rate). The BLS NFP report, which looks at a different set of numbers for employment, suggests that the drop in payrolls is only 2.5mm during the same period. This is not an apples to apples comparison, however, I have looked at this from every which way and it is my conclusion that the BLS numbers have to be significantly understating the loss in jobs. The payroll tax receipt numbers can’t be that badly skewed. They are hard numbers.



There is no good new for the Fund on the expense side either. While there has been variations on a month to month basis, the trend line for benefits is northward at a 5% compounded growth rate. And that percent number has nowhere to go but up as the boomers get checks. The following chart looks at the growth in benefits over the past ten years.




The actual results for the Fund are not available. The reporting for interest income, income tax receipts (outside of FICA and SECA), the operating expenses and the costs of the Railroad Retirement are not available. In 2009 these numbers were +$118b, +$20b, -$6b and -$4b respectively. It is unlikely that these numbers will vary too much in 2010.



Based on the assumption that these other numbers will remain static and that payroll receipts will stabilize to the 2009 numbers for the remainder of the year the following forecasts of the full calendar year can be made:



Benefits paid will exceed Payroll tax receipts by $40b (+660b, -700b). In my opinion this is the primary measure of financial soundness. This number was -$5 billion in 2009.

The Fund uses the ratio of total tax receipts to benefits paid as its soundness measurement. Based on the 1st Q results it would appear likely that the full year results of this ratio will be negative $20b ($700b-680b). Should that happen, it would be the first time in the Fund’s history. The Trustees of the Fund have suggested that this significant milestone will not occur until 2017. This party seems to be starting six years early than was planned.


When I look at the Fund I look at cash flow. All of the experts on this topic say that is a dumb way to look at it. Annual cash flow is meaningless when you are looking at something that has $2.5T in assets and will, under the very worst of conditions, be able to pay the bills for 15 years or so. I disagree. It’s all well and good to ignore cash flow when cash flow is positive. But when it goes negative it is the first gentle step that leads to a very slippery and steep slope.



Interest income for the Fund is a non-cash item. They get credit for more paper. There is something about this process of automatic money creation that bothers me. I believe the Fund must ponder this question as well. In their reports they publish on a monthly basis their net cash position. The following is their annual summary for 2009. Note that the net cash flow is a positive $3b.



The following is a graph of the annual net cash flow of the Fund. You can see that the surplus is crashing. Based on the 1st Q 2010 results we will be in the red for the full year. This problem could make health care look like a walk in the park by comparison.










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