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The Daily Reckoning

Social Security now running in the red

By Guest blogger / March 28, 2010

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Baltimore, Maryland

The US government is going broke.

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An item in The New York Times tells us that for the first time in its history, this year the Social Security program is turning cashflow negative. Social Security “surpluses” were the source of the Clinton administration’s claim to have been running a balanced budget. Well, it was balanced…if you counted the excess Social Security contributions.

But now the Social Security system is running in the red, just like everything else. And now the government is in charge of our health too.

We were considering putting down our drink and going out for a little fresh air this afternoon. But then we realized that the feds have taken charge of our health. We don’t have to worry about it anymore. Let the feds worry about it. So we got out another bottle of wine.

The US government was already more than $50 trillion in the hole before passage of the health care bill. That’s net of assets. The biggest hole in history.

And now the health care program will dig the US in a little deeper…or maybe a lot deeper. No one seems to know exactly what is in the 2,400-page law. Whatever it is will surely cost money. And it will surely cost more and more money as time goes by.

But it’s a nice spring day…so we’re going to think positive. Surely, the debt will increase. But if it ever gets to be too much, well, the country can just change course, right? That is, suppose we get into Greece’s pointy shoes? What’s the big deal? We can always lop off a social program or cut off a war, can’t we?

Well, yes Pilgrim…but maybe not. Let’s imagine that the US budget goes to $5 trillion…and $2 trillion is borrowed (not too far from the facts). And let’s imagine that interest rates go to half their peak in the late ’70s. Well, you can do the math yourself. But what it means is that the feds couldn’t cut expenses fast enough to keep up with the interest payments.

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