Social Security Deficit Serves As Latest Blow To Dollar

Written by Chris Marcus for the Miles Franklin blog

Not the best of times for the dollar.

China has launched a PetroYuan, they’re considering a Yuan-denominated precious metals contract, and are now holding meetings to discuss making the Yuan the reserve currency of 14 nations. All while interest rates are rising in the U.S. and putting the stock, bond, and real estate bubbles at risk of finally popping.

But now the latest news is that the Wall Street Journal is reporting that the cost of Social Security has just reached the point where it’s greater than the amount that’s being received.

The Social Security program’s cost will exceed its income this year for the first time since 1982, forcing the program to dip into its nearly $3 trillion trust fund to cover benefits. By 2034, those reserves will be depleted and Social Security will no longer be able to send it its full scheduled benefits, according to the latest annual report by the trustees of Social Security and Medicare released Tuesday.

The report also said that Medicare’s hospital insurance fund would be depleted in 2026, three years earlier than anticipated in last year’s report.

Lower-than-expected wages last year and legislative changes reduced anticipated revenue for the program. Spending, on the other hand, rose more than expected last year.

Economist Laurence Kotlikoff estimates the true value of the unfunded liabilities of Social Security and Medicare to be $222 trillion. Which is incredible to think about, given that the U.S. GDP is approximately $20 trillion (and even more stunning when you consider that Argentina is experiencing yet another currency crisis with a debt to gdp ratio of 39%).

Keep in mind that with interest rates rising, the interest expense on the debt is also set to increase as well. Where the money is going to come from remains a mystery, as amazingly there are virtually no signs to point to that indicate there is any sort of political will to do anything about it. The system in Washington continues to be more divisive than ever, and even with the debt already in historic territory, outside of Ron Paul I can’t think of any other politicians who are even talking about the deficits.

Maybe the plan is to hope that Dick Cheney was right and that “deficits don’t matter”. Although I did recently hear a YouTube commentator suggest that perhaps the plan is to just run up the tab as much as possible before defaulting. Similar to the way that someone who knows they can’t pay their credit card might max it out before eventually losing access. And given everything I’ve seen the government do in my lifetime, as an analyst I really can’t rule out that possibility.

Which is unfortunate, as it’s not difficult to see where all of this is ultimately headed. Yet at least options are available as to how people can respond on a personal financial level.

What’s happening now is not entirely different from what’s happened to every other empire in history. In that eventually the cost of constant expansion and foreign intervention becomes too expensive, and once the currencies are inflated enough, eventually the scheme collapses.

So while the government may be losing its ability to fund itself, that doesn’t mean that we have to do the same on a personal level. Which is why gold and silver serve as insurance for what seems to be inevitable at this point. With the deficit in Social Security representing just the latest evidence that the paper financing system has passed the point of no return.

So while the timing might still be unclear as to exactly when the market properly prices in the growing default risk, until someone can explain where the money is going to come from, the case for gold and silver remains stronger than ever.

–Chris Marcus

To buy or sell gold and silver call Miles Franklin today at (1-800-822-8080).