Bankruptcy for Social Security?

Weather report: The Economy–Social Security Bankruptcy? & The Dollar Replaced?

Social Security Bankruptcy?: “Social Security goes bankrupt” is the title of Jerry Robinson’s piece posted 5/18/09 at World Net Daily (wnd.com).

This article discusses the potential bankruptcy and status of Social Security and Medicare with references to our current economic conditions and some important demographic influences. Here are a few of the highlights:

• “Last week a new government report was released warning of the deteriorating financial condition of the nation’ two largest social safety nets. Thanks to the deepening global economic crisis, these two entitlement bombs are now set to explode even sooner than originally predicted.”
• “As of last year, the federal government predicted that by 2017, Social Security would begin paying out more in benefits than it generates in revenues. Last weeks report shifts this date back one year, to 2016. Even more startling is the reports finding that the Social Security trust fund will be entirely depleted by 2037. … four years earlier than the last year’s projected depletion date of 2041.
• Medicare’s outlook “…is even more bleak. According to this year’s report, Medicare will spend more on benefits than it takes in from tax revenues in 2009. And 2017, the Medicare trust fund will be entirely depleted – two years earlier than last year’s projection of 2019.
• “… there are about 78 million Baby Boomers alive today. Each of these 78 million Americans have paid large amounts into government entitlement programs … Until now, these 78 million … have been funding the entitlement system for the current retirees.”
• Many are now beginning to become eligible to receive Social Security retirement benefits. This means that they will begin to take from Social Security without any longer paying onto it.
• This also means that many of them will soon be eligible for Medicare benefits as well. “And this first wave is just the beginning.”

The Dollar Replaced?: A telegraph.co.uk post headline today says “China’s yuan ’set to usurp US dollar’ as world’s reserve currency”. This James Quinn (Wall Street Correspondent) article provides some interesting views from Professor Nouriel Roubini (NYU’s Stern Business School) concerning the future of the US dollar as the world’s reserve currency. Here are some highlights:

• “Professor Roubini … believes that while such a major change is some way off, the Chinese government is laying the ground for the Yuan’s ascendance.”
• “… Professor Roubini warns that with the proposal for a new international reserve currency via the International Monetary Fund, Beijing has already begun to take steps to usurp the greenback.”
• “China will soon want to see the yuan included in the International Monetary Fund’s special drawing rights “basket”, he warns, as well as seeing it “used as a means of payment in bilateral trade.”

PrudentHome Note: It is our understanding that China and Brazil have reached agreement on a bilateral exchange of currencies for trade payments. It is also our understanding that China has reached similar agreements with a half-dozen or so other countries. All of these agreements would bypass/exclude the US dollar. It’s probably a safe bet to assume that as US budget deficits grow and US balance of payment shortfalls continue, we’ll see a gradual movement away from the US dollar as the world’s reserve currency.

Until next time; keep your eyes on the horizon as the weathers changing fast.