Economy Watch: Social Security Faces Shortfalls Sooner Than Expected

A new report from the Treasury shows that Social Security will run dry in 2033, three years sooner than 2011's estimate. Home values, while not collapsing, are still on the decline. And, based on news from France, Spain and the Netherlands, investors are worried about Europe once again.

By Dees Stribling, Contributing Editor

Image courtesy Flickr user Fabricator of Useless Articles

The good news about the not-too-distant future of Social Security and Medicare, at least the good news implied by the report issued on Monday by the U.S. Department of the Treasury, is that there’s still time to shore up the systems, though not as much time as previously thought. The bad news, also implied by the report, is that it’s up to a seriously dysfunctional Congress to do it.

According to Treasury’s latest calculations, the Social Security trust fund will go negative in 2033, or three years sooner than estimated last year, meaning that tax receipts would only be able to pay about 75 percent of the promised benefits after that year. As for Medicare, the insurance fund will go negative in 2024 at the current rate of health-care spending for the elderly, which is the same year as the government estimated in 2011. The main reason for the deterioration of Social Security is the lingering impact of the Great Recession, which lowered average real earnings for U.S. workers paying into the system, an effect that may never be rectified. Medicare, of course, is bedeviled by rising costs for an aging population.

Without missing a beat, the Congressional Republicans blamed the administration for the problems. Simultaneously, Congressional Democrats accused Republicans of obstructionism in general, and wanting to destroy Medicare in particular. The lack of concord between the parties would, it seems, render action on entitlement problems unlikely until at least after this year’s election, but even then all bets are off.

FNC Residential Price Index Down

The Case-Shiller home-price indexes will be out on Tuesday, but they aren’t the only game in town when it comes to measuring U.S. residential real estate values. And yet the various measurements seem to be returning similar results: Residential prices are still declining nationwide. Not collapsing, but still experiencing a steady, gnawing decline.

The most recent FNC Residential Price Index, released late last week, affirmed the slow downward trajectory for home prices, reporting that they lost 0.8 percent for the month of February, and 3 percent year-over-year. The index is notable because it gauges prices on non-distressed sales, leaving out the likes of foreclosure sales, REO transactions and short sales. But distressed properties are having an impact: According to FNC, in the seven months up to and including February, the steady price declines on non-distressed properties coincided with a rising share of distressed properties, which climbed from 22.8 percent of total sales last July to 27 percent in February,

The three composites of the FNC Residential Price Index, which include a national index, 30 MSA index and a 10 MSA index, all lost ground. FNC bases the index and its components on its database of roughly 78 million appraisal records and other public data.

Investors Nervous About Europe Again

Wall Street had a case of the jitters on Monday, probably because of the possibility of a change in the French government that might make the euro zone unsettled once again, along with more chronic worries about Spain. And for good measure, the Netherlands hasn’t been able to form a government lately, and its previously upstanding debt might be downgraded by rating agencies.

Wal-Mart Stores Inc. — which is as important as many countries, in terms of economic impact — also had its share of problems on Monday, after The New York Times reported on allegations of widespread bribery in Mexico to smooth the path to that company’s phenomenal growth in that country. For the day, Wal-Mart shares were down 4.7 percent, or about $10 billion in market value.

Overall, the Dow Jones Industrial Average declined to the tune of 102.09 points, or 0.78 percent. The S&P 500 lost 0.84 percent and the Nasdaq was off exactly 1 percent.