Primary Effect
The primary effect of Social Security insolvency (when the program is taking in less money than it pays out) is that benefits will be reduced. The first reduction is likely to be on the order of 25%. That will be a huge issue for the oldest retirees whose benefits have been subjected to artificially low Cost of Living Adjustments for the longest time.
Medicare benefits are also likely to be reduced.
Secondary Effects
Contrary to the blathering of politicians, the "excess" funding collected by the Federal Government through the FICA taxes (which funds both Social Security and Medicare) was never put into a "lock box" under Fort Knox. Both programs have been a pay-as-you-go and the Feds skimmed the excess and folded it into the General Fund. That money is gone.
As the demographic pig-in-the-python moves closer to the tail, the wage-based tax revenue will shrink as the percentage of people working shrinks. With less money to skim from FICA overages, the increasing shortfalls in the budget are covered by borrowing larger amounts of money. Since every Developed Nation is in the same pickle, the increased demand for credit (which is purchased via auction-like sales of bonds) causes the credit interest rates to climb.
Soon, private enterprises cannot compete with governments (who can print money) and those enterprises collapse. Customers cannot afford their products without credit and minor glitches in cash-flow force the enterprises into bankruptcy.
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Federal attempts to remedy the problem by printing more money has always resulted in accelerating inflation.
Tertiary effects
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| "Can't afford to fix the old girl. Am selling her for parts." |
If the "promised" benefits cannot be paid for, then they will break their promises. It is not like they have a choice.
That will also impact people who are still working as consumption collapses. If old-farts' lose purchasing power then our consumption will fall and businesses will suffer.
In the public-sector side of the economy, everything will be turned into a blame-game as the tide starts to flow out. The work-place will become cut-throat and more times and energy will be spent on gossiping and paranoia than on providing services.
Degrading standard-of-living will be a constant
Rational people have become increasingly aware of this issue and will take action BEFORE 2034. The psychology of inflation amplifies inflation. Once awake, people rush to buy assets before their money's purchasing power diminishes even more.
We are not going to wake up one morning in 2034 and notice "Hey, the economy turned to crap over-night". Nope. It is not going to be like that. I think we are going to be worn away by the relentless drip-drip-drip of bad news and economic dislocations, and it will happen regardless of who holds political office.
the dollar will fall ... slowly at first, then all at once.
ReplyDeleteThere's never enough money to fund Social Security, but there's ALWAYS enough money to fund WELFARE... Think about that and adjust your belief in what politicians sa accordingly...
ReplyDeletethis whole SS will be insolvent is B.S. SS comes out of and what we pay goes into the General Fund/Treasury. There may an imbalance but it is not a separate account.
ReplyDeletei did not notice any mention of a decrease in the size or scope of . government at any level, local, state, or federal. Did I miss something?
ReplyDeleteInvest in what is valuable. Trusted friends, skills and anti-fragile systems like gardening (a local skillset) solar panels and energy efficiency like better insulation for the home.
ReplyDeleteStuff that makes a lower standard of living partly replaced by your own efforts.
As long as Social Security folks are an important voting block and the media hasn't turned them into useless eaters like non-vaccine folks during COVID hysteria (remember send them to the camps stuff? I DO) the politicians will run a deeper deficit and keep paying that Social Security.