Ok... Anybody Want To Take A Stab At This... And Then Explain It To Me, LOL ???

[WillyT]

Paradox of Sustainable Solvency; Or, Why We Don't Need to Repay the Social Security Trust Fund
by Bruce Webb for Social Security Defenders - DailyKos
WED SEP 07, 2011 AT 08:23 AM PDT

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My starting point is a question: under current law what would a healthy Trust Fund look like under ideal circumstances? And the formal answer is that it would be in Actuarial Balance over the Short Term and Long Term, defined by the Trustees as 10 years and 75 years respectively. In fairly recent years a refinement has been added, pushed in large part by Steve Goss, the current Chief Actuary of Social Security (and so the chief numbers guy) called Sustainable Solvency which effectively extends Actuarial Balance to the indefinite future. In both definitions the key number is called Trust Fund Ratio and in coming to an understanding of TF Ratio we can also grasp a very odd and counter-intuitive result, that Trust Fund balances including the current $2.6 trillion were never intended to be redeemed, and that that result is a very good thing. "But, but, it is OUR money! We paid it in, we want it back!". Well yes you paid it in and for a very good reason, and in real terms will get the value of all that extra money coming back to you, but you won't get it back directly and once you understand why you won't even want it. Repayment of Trust Fund principal being a sign that Social Security was actually in crisis as opposed to the phony one it is stuck in today.

Social Security is set up in a way that has its cost in nominal dollars go up every year. This isn't a bad thing it is the simple product of three factors: demography, inflation, and real wages. The fact is that our population is projected to increase each year overall and this has nothing to do with Boomers as such, as I say God isn't making any more Boomers, they are already with us, and furthermore they are mostly aging out of their child bearing years, whatever you want to blame them for collectively FUTURE population growth isn't it. Secondly even a healthy economy will have SOME amount of inflation, though it is very much a Goldilocks thing, you don't want that particular pot of porridge to be too hot or two cold, and most macro economists would find a permanent warmish 2-3% rate just right. And thirdly as workers we want real wage to increase, because in general that increases standards of living across the board, that is workers should neither desire that the economic productivity stop growing nor that all such gains get retained by capital, instead we want a fair share for us and our children (and for many of us for other peoples children as well-the essence of Social Democracy).

Okay what does this nominal cost increase, in ideal cases totally benign, do for Actuarial Balance and Sustainable Solvency? And the answer is that it raises the bar. Because Actuarial Balance is defined on a next year basis, the Trust Funds are in balance any year in which they end the year with 100% of more or NEXT year's projected cost. Which means that Trust Fund principal has to grow sufficiently to compensate for the triple action of population growth, inflation and real wage as each project to interact with initial and continuing benefit levels at each future year of the respective projection period whether that be Short Term, Long Term or the indefinite period underlying Sustainable Solvency.

Which means that over the long run we neither expect nor should even want to pay down Trust Fund principal to a point that the Trust Fund ratio goes under 100, by official definition Social Security is broken at that point, which gets us to the paradox, while we can and should expect the current Trust Fund ratio of around 350 to be steadily reduced to a target range of just over 100, if this is done in such a way that achieves Long Term Actuarial Balance and Sustainable Solvency actual Trust Fund balances would never decline in nominal terms, or at least not so much that you would notice, which means in the end NEVER PAYING BACK THE TRUST FUND.

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More: http://www.dailykos.com/story/2011/09/07/1014213/-Paradox-of-Sustainable-Solvency;-Or,-Why-We-Dont-Need-to-Repay-the-Social-Security-Trust-Fund?via=spotlight

:shrug:

[librechik]

1. more evidence that the notion of comparing US economy to a family's economy is BS

good read