Saturday, April 26, 2014

CBO Purposely Understating Next Decade's Social Security Deficits by... One Trillion Dollars

Financial blogger Bruce Krasting has discovered a teensy, weensy accounting discrepancy between the Congressional Budget Office and the Social Security Administration. It only amounts to a hidden trillion dollar deficit... over the next 10 years.

As Krasting asks, "What's a trillion among friends?"

The Congressional Budget Office (CBO) came out with its latest baseline estimates for Social Security (SS) this week... As an ex Wall Streeter I always go to the ‘Cash Flow’ numbers first, as cash flow is what drives most companies to success or ruin. The same rules apply for SS. I was surprised at the results presented by the CBO...

...CBO’s cash flow number for 2013 is a surplus of $38 [billion]... The difference between CBO and SS on the critical cash flow numbers is $106B in just fiscal 2013. The reason for this big discrepancy is the accounting treatment for interest. CBO includes interest income as a cash item, SS does not...

...Should interest be included in the calculation of cash flow for SS? CBO says “yes”, I would agree with SS, and say “no”. Interest is paid in scrip [IOUs] – not cash... CBO and SS disagree on the most basic definition of financial health – Net Cash Flow. CBO has projections going out to 2024. This is CBO’s forecast of Net Cash Flow as compared to the accounting treatment for interest at SS:

The cummulative difference between CBO and SSA is $1.2 Trillion over the the next decade! ... Why does CBO have such a dramatically different assessment of Net Cash Flow for SS? I can’t answer that. I did contact CBO for an explanation, I never heard from them.

And you never will, Bruce. You never will.

Hat tip: BadBlue Money News.

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