Cash Flow Negative

In anticipation of the trustees’s report Bruce Krasting outlines the status of the Social Security system’s cash flow:

The numbers are going in the wrong direction. Receipts are down across the board while expenses keep rising.

After a graph showing that receipts and outlays have crossed:

These lines were not expected to cross for at least another five years. This is the cost of the protracted recession and the failure of the economy to generate new jobs. The 2008-2009 increase in benefits was at a nosebleed level of 9.5%. That level has collapsed to 3.9% in the 2009-2010 period. This is the result of a “0%” COLA increase for 2010. The flip side is that those receiving checks are getting squeezed as their costs rise and income is stable. In the real world COLA is a joke. As this evolves it will just be a drag on consumption and extend the weak economy.

Hat tip: Clusterstock

Add to the causes FICA max. When, as has been the case over the last couple of decades, an enormous proportion of income growth is on the part of those whose incomes have already exceeded FICA max, more income doesn’t result in increased tax revenues.

Read the whole thing.

I’ve been talking about the federal government’s cash flow issues for some time around here. We are now seeing Social Security instead of being a cash cow that reduces the federal government’s need to borrow transmogrify into an urgent requirement for additional borrowing. Expect borrowing to rise fast even if by some miracle we stem the precipitous increase in discretionary spending.

On June 30th the Medicare Trustees Report is due after having been delayed by three months so that the changes impelled by the passage of health care reform could be incorporated into the report. I anticipate that it will show the same pattern: not only will Medicare be cash flow negative but it’s likely to blow right through its trust fund, if not this year then within the next year or so.