Back in 2010, America's primary retirement vehicle, the Social Security Trust Fund, did something it had not done in three decades done: it went cash negative, meaning that the costs were greater than the payroll tax revenues as a result of both the second great depression which sent the costs soaring, and America's demographic Japanification as baby boomers started retiring by the tens of thousands with every passing day.
This prompted a firestorm of analyses, each framed by the ideological bias of its author and each eager to calculate how much time the Social Security Trust Fund has before it runs out of cash and with it, exposes the lie that is America's welfare dream for current and future generations of workers.
The good news is that with combined grand total of $2.8 trillion in assets as of December 2014 across its various trust funds, a shallow cash burn rate meant that there are probably at least two more decades of funding left in Social Security before the abovementioned dreaded moment arrives.
The bad news is that if one digs a little deeper, something scary emerges: namely, the Social Security Disability Insurance (SSDI) Trust Fund.
For those unfamiliar, here is the official description:
The Disability Insurance Trust Fund is a separate account in the United States Treasury. A fixed proportion (dependent on the allocation of tax rates by trust fund) of the taxes received under the Federal Insurance Contributions Act and the Self-Employment Contributions Act are deposited in the fund to the extent that such taxes are not needed immediately to pay expenses. Taxes are deposited in the fund on every business day.
The trust fund provides automatic spending authority to pay monthly benefits to disabled-worker beneficiaries and their spouses and children. With such spending authority, the Social Security Administration does not need to periodically request money from the Congress to pay benefits.
The problem is that like the broader demographic bust that is plaguing all developed nations, America itself has seen a widely documents surge in disability recipients in recent years, covered extensively here on previous occasions such as in "The Un-Retiring, Increasingly Disabled Non-Working American Dream"
There was also The Number Of "US Citizens On Disability Is Now Larger Than The Population Of Greece", which as the title suggests, there was a startling surge in Americans claiming benefits:
But most importantly, one should read "Two Charts Exposing America's Record Shadow Welfare State", "Meet The Disability-Industrial-Complex: Up To 45% On Disability Insurance Are Frauds" and also "1000s Of Veterans Busted For Massive Benefits Fraud" because sadly there is now extensive evidence that to many, Disability Insurance has become nothing but a piggy bank for millions of unscrupulous, lazy "retirees" who are fraudulently claiming they are entitled to benefits, in the process defrauding those who are truly disabled and have a rightful claim to this rapidly dwindling funding.
The latest data shows that after soaring to a record 9 million in recent months, the number of Americans collecting Disability Insurance has plateaued at just over 8.9 million.
Which, unfortunately, may be a few million too many.
As the following chart shows, after enjoying a period of generous asset inflows in the late 1990s and early 2000s, ever since the Lehman collapse, there has been a surge in capital outflows from the DI Trust Fund, amounting to approximately $30 billion over the past three years.
Here is why this is a problem:
In the chart above the Red line shows the total program expenditures which has soared at a pace far greater than the level of receipts, which has been largely flat over the past decade. How much of that is due to the criminal abuse of the SSDI is unknown but it is surely a sizable amount.
The bigger problem is the black line: it shows that after peaking at $215 billion in 2008, the fund now has only $60 billion left as of the end of 2014, having burnt through nearly three quarters of its assets in 6 years.
The biggest problem: unless the pace of cash burn slows down dramatically in the immediate future, the Disability Insurance trust fund will do something it has never done before in its history: its assets will go negative.
While the obvious response will be clear - to issue more debt and prefund the DI with the receipts - such as "strategy" will merely solidify the Ponzi nature of the Americans welfare state, and confirm that absent a dramatic overhaul of the US retirement system, it is only a matter of time before the US has to issue billions if not trillions in debt just to meet its already accrued retirement obligations.
Then again, with developed nations now relying exclusively on their central banks to buy the majority of the debt they have to issue, an amount that will hit a record in 2015...
... is anyone really surprised that the Pyramid scheme supporting the entire "developed world" is finally being revealed for all to see?