We’re Relying On Phantom Wealth To Fund Our Retirement
In the bogus “Trust Fund,” the cash has been siphoned off and spent on Federal government outlays. The Fund holds no cash. Instead, it has been given IOUs “backed by the full faith and credit of the United States,” the non-marketable securities.
Now what happens when the Social Security system redeems $100 billion of those securities? the Treasury goes out and borrows the $100 billion on the global bond market, and taxpayers are on the hook for the debt and the interest on that freshly issued debt.
In the fraudulent “Trust Fund,” taxpayers’ Social Security taxes have been squandered on other Federal expenses, and they have to pay interest on Treasury debt which is borrowed to pay their SSA benefits. In other words, taxpayers pay twice: once via Social Security taxes, a substantial 12.4% of all wages, and then they pay again to borrow cash on the bond market to actually pay the Social Security benefits.
Medicare is equally unsustainable: please read these for the full story:
The Problem with Social Security and Medicare (July 17, 2013)
The Problem with Pay-As-You-Go Social Programs: They’re Ponzi Schemes (November 5, 2013)
Rather than face up to the reality that we face an impossible dilemma–either workers will be slowly impoverished by taxes that must go up to fund unrealistic retirement/healthcare promises, or those promises will have to be drastically scaled back–we have chosen to believe the happy illusion that inflating asset bubbles will painlessly conjure up enough phantom wealth to pay all those promises.
How can an unprecedented number of people (65 million Baby Boomers) all retire with unprecedented pension payouts and unprecedented healthcare expenses, and do so without raising taxes? Easy–just inflate asset bubbles that create trillions of dollars in magical wealth.
But as I explained in The Happy Story of Boomers Retiring on Their Generational Wealth Is Wrong (June 25, 2014), the assumption that there will be buyers of stocks, bonds and real estate at bubble-level valuations is not based on demographic realities.
The phantom wealth of asset bubbles is based on anomalously low interest rates and equally anomalous central bank intervention in capital markets. The base assumption is that these anomalous conditions are not anomalous but the New Normal: central banks can intervene without any negative consequences forever, interest rates can be suppressed to near-zero without any negative consequences forever, and sovereign debt (government deficits) can rise indefinitely without any negative consequences forever.