10 ms·

An economist thinks US is bankrupt: What it means for retirement

xrd 8y ago
This is a strange article in that probably 5% of the sentences therein are actually dedicated to the meat of the headline and the rest dedicated to promoting his company which helps with the stated problem. I wish I could actually see the article debate his points instead of trying to sell me something.
- jvanderbot 8y ago
  Screams "promoted post".
gricardo99 8y ago
"When a friend on the brink of retirement was planning to take Social Security before drawing money from his 401(k) plan, Kotlikoff persuaded him to reverse his plan. " Advising someone to defer withdrawals so that they have a bigger benefit (unfunded and unable to be paid by a bankrupt government), means maybe he's not so convinced the US is bankrupt.
- village-idiot 8y ago
  Social Security is expected to go bankrupt by 2034. If you've got less than 16 years to live, betting on it is a good idea. More than that, it's a bad idea.
  - mooreds 8y ago
    No bankrupt in 2034, just unable to meet 100% of current obligations: https://blog.ssa.gov/social-security-funded-until-2034-and-about-three-quarters-funded-for-the-long-term-many-options-to-address-the-long-term-shortfall/ https://blog.ssa.gov/social-security-funded-until-2034-and-a...
    - village-idiot 8y ago
      Right. Important distinction.
    - toast0 8y ago
      Isn't that the definition of bankruptcy though? A person, company, or government is unable to meet their current obligations, so they notify all their creditors and go to court to find an equitable solution.
      - village-idiot 8y ago
        I think the point is that revenue streams are guaranteed for SS by law.
        AnimalMuppet 8y ago
        Laws can be changed, though. But changing it would take an act of Congress. Congress currently can't legislate its way out of a paper bag, let alone a crisis. And passing legislation that reduces money going to people who have been promised it... that's going to take courage to take the hit from voters, and that has been conspicuously lacking in Congress for a while. On the other hand, bankrupting SS would be worse. That might concentrate minds.
        geezerjay 8y ago
        > Laws can be changed, though. Being forced to move the goalpost and defraud creditors is hardly a sign that the US's insolvency is a non-issue.
      - rtkwe 8y ago
        > unable to meet their current obligations Things get tricky with governments where it's kind of trivial to raise more money by a) raising taxes, b) simply redefining your obligations (in the case of programs like SS or Medicare/Medicaid) or c) just making more money ex nihilo.
dmm 8y ago
Worst case for social security is that no funding changes are made and payouts stabilize to around 70% of what was promised. Very bad for a lot of people but far from the disaster that is many state's pension systems. Medicare on the other hand...
- village-idiot 8y ago
  The problem is that a large number of unfunded obligations will probably come due at roughly the same time. We all know that our infrastructure is starting to crumble, but the problem is that every single bridge that needs to be rebuilt either represents a future debt to fund the construction, or a willingness to abandon the economic activity that the infrastructure (hopefully) enables. The worst case scenarios is that Social Security, Medicare, some state pensions, and our infrastructure will all hit the breaking point at once. At that point we will need to make some deeply unpopular changes, and it's unclear if our political system has the will or the coherence to pull it off. If we're lucky, these systems will begin failing sequentially within the next few years, rather than all failing together.
  - toomuchtodo 8y ago
    If we're lucky, failures will compel voters and politicians to raise taxes to pay up and stop kicking the can.
    - village-idiot 8y ago
      I think we’re past that point. We can and should raise taxes, but reductions in expenditures is going to have to be on the table too. Our expensive wars come to mind.
      - toomuchtodo 8y ago
        Agree, it's going to require regime change.
        8y ago
legulere 8y ago
Debt is about trust. Japan has the highest debt to gdp ratio, but that’s not a problem because we trust it. With enough trust you can go pretty far. There are a lot of trust factors for the US, like its military or the petrodollar.
- Sutanreyu 8y ago
  Trust, in an economic sense, is how much material is being dedicated towards a corporation's future existence... A corporation can be an individual, or a company of individuals...
  - CamTin 8y ago
    Trust in this context means "If I loan you money, how skeptical am I that you'll pay it back?" I can be skeptical for a number of reasons, from the simple notion that I think you are just a crook and have no intention of paying back, to more directly economic ones like the fact that I know you've got no real prospects to make back enough money going forward to stroke the interest on my loan. There are shades in-between, like if I know you intend to pay back the loan and can technically afford it right now, but your credit is bad all over town and you're one bad break from being totally and irreparably insolvent. If you're family or a close friend, I might loan you money without seriously expecting to get it back (though in these circumstances I personally just recommend just making it a gift). By "how much material is being dedicated toward...[it's]...future existence" you presumably mean how much the firm or individual is investing in relation to their income or some similar measure. That can be part of it, but definitely isn't all of it. All market transactions are, contrary to the technocratic worldview of mainstream political economists, human transactions. The actual underlying human relationships matter, and the balance sheets only matter inasmuch as they facilitate communications between actual people.
- valuearb 8y ago
  Trust can disappear very quickly when you can’t pay the bills. So does the value of the dollar and most of that military.
AndrewKemendo 8y ago
I'm 34 now. I have absolutely no expectation that there will be a social security system to speak of in 2049. Quite frankly it seems insane to me to expect that it would still be around.
- NTDF9 8y ago
  How can you be so sure? You must have read something I haven't. Why can't the US tax more to fund its liabilities? Or, why can't they have the Fed print more money and devalue the dollar?
  - kd5bjo 8y ago
    If Social security´s COLA actually works, devaluing the dollar won’t help much —- the liabilities will stay the same in real terms. If it doesn’t, inflation is really just a blunt tool to cut benefits without politicians needing to make a recorded vote on the issue.
    - dragonwriter 8y ago
      > If Social security´s COLA actually works Social security only has a post-retirement COLA, benefits calculation from point of qualified earnings to retirement is wage indexed. While in normal conditions this is more favorable, in a runaway inflation scenario where wages lag, the wage index will be less than a COLA would be, so rapid devaluation actually works write well to reduce SS real obligations, though it had other adverse consequences.
  - acct1771 8y ago
    Tax who? The Elite class, who have captured the regulatory bodies? Or, well, everyone else, are, frankly, fuckin' broke, and in student debt on top of that?
    - mooreds 8y ago
      Well, we have an overall tax rate of about 26%, which is much less than most comparable countries, so I think we have some room to maneuver: https://www.taxpolicycenter.org/briefing-book/how-do-us-taxes-compare-internationally https://www.taxpolicycenter.org/briefing-book/how-do-us-taxe...
phobosdeimos 8y ago
So long as the rest of the world keeps buying US debt they will keep trucking on. The US is too big to fail: nobody can afford that house of cards to implode.
- mooreds 8y ago
  "When you owe the bank $100, they own you. When you owe the bank $100M, you own them."
  - phobosdeimos 8y ago
    Yep, the EU saved a small country like Greece because the alternative was too horrible to bear.
- claydavisss 8y ago
  Exactly! What is the alternative "safe haven? The only alternative to US debt are hard tangibles like food, water, and weaponry (shelter was once included in the list of hard tangibles but property rights are also a fiat). We basically have no alternative to the system of fiat currency and debt.
dragonwriter 8y ago
> An economist thinks US is bankrupt: What it means [...] What it means is “the economist doesn't know what ‘bankrupt’ means or understand how public finance works for an sovereign entity whose debt is primarily denominated in its own currency and probably shouldn't be taken seriously on anything related to it.” Or, more likely, “the economist knows all this quite well and is engaging in political/commercial propaganda that relies on public ignorance.”

xrd 8y ago

This is a strange article in that probably 5% of the sentences therein are actually dedicated to the meat of the headline and the rest dedicated to promoting his company which helps with the stated problem. I wish I could actually see the article debate his points instead of trying to sell me something.

jvanderbot 8y ago
Screams "promoted post".

gricardo99 8y ago

"When a friend on the brink of retirement was planning to take Social Security before drawing money from his 401(k) plan, Kotlikoff persuaded him to reverse his plan. " Advising someone to defer withdrawals so that they have a bigger benefit (unfunded and unable to be paid by a bankrupt government), means maybe he's not so convinced the US is bankrupt.

village-idiot 8y ago
Social Security is expected to go bankrupt by 2034. If you've got less than 16 years to live, betting on it is a good idea. More than that, it's a bad idea.
- mooreds 8y ago
  No bankrupt in 2034, just unable to meet 100% of current obligations: https://blog.ssa.gov/social-security-funded-until-2034-and-about-three-quarters-funded-for-the-long-term-many-options-to-address-the-long-term-shortfall/ https://blog.ssa.gov/social-security-funded-until-2034-and-a...
  - village-idiot 8y ago
    Right. Important distinction.
  - toast0 8y ago
    Isn't that the definition of bankruptcy though? A person, company, or government is unable to meet their current obligations, so they notify all their creditors and go to court to find an equitable solution.
    - village-idiot 8y ago
      I think the point is that revenue streams are guaranteed for SS by law.
      - AnimalMuppet 8y ago
        Laws can be changed, though. But changing it would take an act of Congress. Congress currently can't legislate its way out of a paper bag, let alone a crisis. And passing legislation that reduces money going to people who have been promised it... that's going to take courage to take the hit from voters, and that has been conspicuously lacking in Congress for a while. On the other hand, bankrupting SS would be worse. That might concentrate minds.
        geezerjay 8y ago
        > Laws can be changed, though. Being forced to move the goalpost and defraud creditors is hardly a sign that the US's insolvency is a non-issue.
    - rtkwe 8y ago
      > unable to meet their current obligations Things get tricky with governments where it's kind of trivial to raise more money by a) raising taxes, b) simply redefining your obligations (in the case of programs like SS or Medicare/Medicaid) or c) just making more money ex nihilo.

dmm 8y ago

Worst case for social security is that no funding changes are made and payouts stabilize to around 70% of what was promised. Very bad for a lot of people but far from the disaster that is many state's pension systems. Medicare on the other hand...

village-idiot 8y ago
The problem is that a large number of unfunded obligations will probably come due at roughly the same time. We all know that our infrastructure is starting to crumble, but the problem is that every single bridge that needs to be rebuilt either represents a future debt to fund the construction, or a willingness to abandon the economic activity that the infrastructure (hopefully) enables. The worst case scenarios is that Social Security, Medicare, some state pensions, and our infrastructure will all hit the breaking point at once. At that point we will need to make some deeply unpopular changes, and it's unclear if our political system has the will or the coherence to pull it off. If we're lucky, these systems will begin failing sequentially within the next few years, rather than all failing together.
- toomuchtodo 8y ago
  If we're lucky, failures will compel voters and politicians to raise taxes to pay up and stop kicking the can.
  - village-idiot 8y ago
    I think we’re past that point. We can and should raise taxes, but reductions in expenditures is going to have to be on the table too. Our expensive wars come to mind.
    - toomuchtodo 8y ago
      Agree, it's going to require regime change.
      - 8y ago

legulere 8y ago

Debt is about trust. Japan has the highest debt to gdp ratio, but that’s not a problem because we trust it. With enough trust you can go pretty far. There are a lot of trust factors for the US, like its military or the petrodollar.

Sutanreyu 8y ago
Trust, in an economic sense, is how much material is being dedicated towards a corporation's future existence... A corporation can be an individual, or a company of individuals...
- CamTin 8y ago
  Trust in this context means "If I loan you money, how skeptical am I that you'll pay it back?" I can be skeptical for a number of reasons, from the simple notion that I think you are just a crook and have no intention of paying back, to more directly economic ones like the fact that I know you've got no real prospects to make back enough money going forward to stroke the interest on my loan. There are shades in-between, like if I know you intend to pay back the loan and can technically afford it right now, but your credit is bad all over town and you're one bad break from being totally and irreparably insolvent. If you're family or a close friend, I might loan you money without seriously expecting to get it back (though in these circumstances I personally just recommend just making it a gift). By "how much material is being dedicated toward...[it's]...future existence" you presumably mean how much the firm or individual is investing in relation to their income or some similar measure. That can be part of it, but definitely isn't all of it. All market transactions are, contrary to the technocratic worldview of mainstream political economists, human transactions. The actual underlying human relationships matter, and the balance sheets only matter inasmuch as they facilitate communications between actual people.
valuearb 8y ago
Trust can disappear very quickly when you can’t pay the bills. So does the value of the dollar and most of that military.

AndrewKemendo 8y ago

I'm 34 now. I have absolutely no expectation that there will be a social security system to speak of in 2049. Quite frankly it seems insane to me to expect that it would still be around.

NTDF9 8y ago
How can you be so sure? You must have read something I haven't. Why can't the US tax more to fund its liabilities? Or, why can't they have the Fed print more money and devalue the dollar?
- kd5bjo 8y ago
  If Social security´s COLA actually works, devaluing the dollar won’t help much —- the liabilities will stay the same in real terms. If it doesn’t, inflation is really just a blunt tool to cut benefits without politicians needing to make a recorded vote on the issue.
  - dragonwriter 8y ago
    > If Social security´s COLA actually works Social security only has a post-retirement COLA, benefits calculation from point of qualified earnings to retirement is wage indexed. While in normal conditions this is more favorable, in a runaway inflation scenario where wages lag, the wage index will be less than a COLA would be, so rapid devaluation actually works write well to reduce SS real obligations, though it had other adverse consequences.
- acct1771 8y ago
  Tax who? The Elite class, who have captured the regulatory bodies? Or, well, everyone else, are, frankly, fuckin' broke, and in student debt on top of that?
  - mooreds 8y ago
    Well, we have an overall tax rate of about 26%, which is much less than most comparable countries, so I think we have some room to maneuver: https://www.taxpolicycenter.org/briefing-book/how-do-us-taxes-compare-internationally https://www.taxpolicycenter.org/briefing-book/how-do-us-taxe...

phobosdeimos 8y ago

So long as the rest of the world keeps buying US debt they will keep trucking on. The US is too big to fail: nobody can afford that house of cards to implode.

mooreds 8y ago
"When you owe the bank $100, they own you. When you owe the bank $100M, you own them."
- phobosdeimos 8y ago
  Yep, the EU saved a small country like Greece because the alternative was too horrible to bear.
claydavisss 8y ago
Exactly! What is the alternative "safe haven? The only alternative to US debt are hard tangibles like food, water, and weaponry (shelter was once included in the list of hard tangibles but property rights are also a fiat). We basically have no alternative to the system of fiat currency and debt.

dragonwriter 8y ago

> An economist thinks US is bankrupt: What it means [...] What it means is “the economist doesn't know what ‘bankrupt’ means or understand how public finance works for an sovereign entity whose debt is primarily denominated in its own currency and probably shouldn't be taken seriously on anything related to it.” Or, more likely, “the economist knows all this quite well and is engaging in political/commercial propaganda that relies on public ignorance.”