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There is a silent monster that looms menacingly over U.S. government finances. Every politician knows about it, but very few of them ever want to talk about it. This silent monster grows larger every year, and yet nobody seems to know quite what to do about it. Those who have closely analyzed this monster all seem to agree that one day it will create a financial tsunami of a magnitude that is absolutely unprecedented, but there is vast disagreement about how to escape this financial tsunami or if it is even possible to escape it. The name of this monster is "entitlements" - Social Security, Medicare and other social Ponzi schemes that the U.S. government has locked itself into funding. It would be hard to understate the seriousness of the problem that entitlements present. In fact, according to an official U.S. government report, rapidly growing interest costs on the national debt together with spending on major entitlement programs will absorb approximately 92 cents of every dollar of federal revenue by the year 2019. By 2020, that figure will be up around 100 cents of every dollar of federal revenue. So that means that interest on the debt and spending on entitlement programs will eat up everything the U.S. government takes in before a penny is spent on anything else. That is a recipe for national financial suicide.
This week, there was news that the Social Security system is in much worse shape than previously projected. According to the Congressional Budget Office, this year the Social Security system will pay out more in benefits than it receives in payroll taxes. This was not supposed to happen until at least 2016.
Now it is happening in 2010.
It turns out that the "recession" that we have just been through has hit Social Security revenues really hard.
And unfortunately, as waves of Baby Boomers start retiring, these "Social Security deficits" are going to get even worse.
So where will the money come from to pay the benefits that are owed?
For now, the money will come from the $2.5 trillion Social Security Trust Fund that has been accumulated.
But keep in mind that the $2.5 trillion figure is extremely misleading.
There are not $2.5 trillion dollars sitting around in a bank account somewhere to pay these benefits.
The truth is that the Social Security Trust Fund does not contain any actual assets.
The only assets the Social Security Trust Fund has are IOUs from the U.S. government.
So basically the U.S. government owes the Social Security Trust Fund $2.5 trillion dollars, and now it turns out that the Social Security system is going to start needing that money.
So where will the U.S. government get that money?
Well, they will borrow it of course.
The reality is that the Social Security program is simply not sustainable.