It has been known for some time that the Social Security fund was inadequate to cover the retirement of the baby boomer generation. However, the recent unemployment spike–now at 5.1 million without work–has moved the insolvency of the Social Security fund to next year.
For some time the Social Security fund actually ran a surplus and the US government borrowed this surplus to fund other programs (like military and bailouts). Now that this will be gone, they will have to resort to printing more dollars and selling more US treasuries to not only cover the programs that were funded by the surplus in Social Security, but also to pay for Social Security itself.
So why does this matter? As the recent bailouts–now reaching $13 trillion–show the government can continue just borrowing money and paying it back later, right?
As pointed out by Eric deCarbonnel, covering debt by selling US treasuries will continue to become more difficult as other governments are themselves in the red (many like Saudi Arabia for the first time in history) and are thus offloading US offsets rather than buying them. So this leaves printing more dollars, which leads to the very good possibility of hyperinflation. For a very good explanation of debt in the US I highly recommend documentary IOUSA.
There are many prominent people (Dmitry Orlov, George Soros, Jim Rogers, Peter Schiff, Gerald Celente, Mark Faber) who are predicting a “deindustrialization” of the US economy very soon. The author Richard Heinberg I believe has the most nuanced understanding of the situation:
We will see a few months of fairly gradual economic deterioration (slowed by the mighty efforts of the Bailout Brigade), followed by a truly ugly global economic meltdown. The result will be a general level of economic activity much lower than the world is accustomed to. Efforts to right the ship will include protectionist legislation (that will provoke international confrontations), the convening of world leaders to create a new global currency and financial system (which probably won’t succeed, at least not the first time around), and various populist uprisings that will lead to political instability around the globe. Energy demand will remain low, but energy production will fall dramatically due to lack of investment. Carbon emissions will therefore fall too, so the world’s attention will be diverted from tackling the greenhouse gas issue, even though climate impacts from previous carbon emissions will continue to worsen.
But here’s the crux of the matter: unlike the situation the world faced in the 1970s, there is no prospect for another cheap-energy bounce this time. It’s too late to muddle. We have run out the clock on proactive adaptation. From now on, collective survival will hinge on the strategies we adopt for emergency response. Some strategies will make matters worse, while others will lay the groundwork for better times to come… So what we desperately need to be talking about are ways to manage crisis that will minimize human suffering while preserving the environment and laying the groundwork for a sustainable way of life for future generations.