Key Points
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Reserves for Social Security benefits are on track to be depleted by 2034.
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Druckenmiller thinks major changes are needed to preserve Social Security in the long run.
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Rising interest costs on the U.S. debt are fueling the deficit, and bond markets are taking notice.
Social Security feels like a bedrock promise to most Americans. Unfortunately, the numbers behind that promise are getting uglier, and the bond market is starting to notice. The combined Social Security and Disability Insurance trust funds are projected to run dry by 2034. This does not mean retirement benefits will vanish overnight. However, it does imply that incoming payroll taxes can only cover about 83% of scheduled Social Security checks after reserve funds deplete.
Unless Congress acts, retirees are going to get an automatic haircut to their benefits. While a number of fixes exist, none of them are politically easy to implement. This is precisely the backdrop for legendary investor Stanley Druckenmiller, who laid out his blunt case for retirement benefits in a recent op-ed in The Wall Street Journal.
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How Treasury Secretary Scott Bessent is trying to manage debt
Yields on 30-year Treasury bonds are hovering around 5.3%, their highest levels in nearly two decades. To manage this, Treasury Secretary Scott Bessent announced that the Treasury will double liquidity support buyback operations for longer-term bonds — increasing from $2 billion per operation to $4 billion.
The motive behind these actions is obvious: Inflation has remained sticky, and the government’s debt is mounting, having recently crossed $40 trillion. Interest payments alone are now running $2.8 billion per day. Over the course of a year, this amounts to more than $1 trillion. Running debt and the interest payments that come with it have pushed the fiscal deficit close to $2 trillion — or roughly 6% of GDP.
Trying to control bond yields by force has a catch. Once markets figure out the Treasury is focused on defending a certain price rather than managing cash, every uptick in yields becomes another stress test. In this sense, the Treasury’s credibility is being set up to take a hit because the underlying problem — too much borrowing — remains unaddressed.
What does Stanley Druckenmiller think of the Treasury’s strategy?
Perhaps ironically, Druckenmiller, who once mentored Bessent, does not like the Treasury’s plan. Instead of seeing the buybacks as liquidity support, he called them “price management,” and argued that “every basis point of artificial yield suppression is a subsidy to procrastination.”
According to Druckenmiller, the long-term Treasury yield is “the most important price in the world.” In his view, if the 30-year Treasury bond has to trade over 5%, he wrote, “that isn’t a crisis. It is an invoice.”
What happens if Congress doesn’t act?
For nearly 71 million Americans, Social Security benefits are the difference between getting by and falling behind each month. Druckenmiller’s blunt prescription is to restructure entitlement promises on our own terms: raising payroll-tax caps, tweaking the cost-of-living (COLA) formula, gradually lifting retirement age, or means-testing for people who already have a sizable nest egg. Critics of this approach will say that it is a harsh betrayal of those who paid into Social Security for years and that a cleaner path is implementing higher taxes on the wealthy.
In my eyes, the least painful route to change is a combination: applying some of Druckenmiller’s gradual, targeted trims alongside an increase in tax revenue from those who can most afford it. Waiting until 2034 hands the decision to the market, and smart investors know that markets are not priced for nuance.
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26 Comments
When does Congress start paying Social Security back for all the funds it has “borrowed” from SS over the last 70+ years? And stop paying benefits to people who have never paid into the system. Those are just 2 sources to exploit to protect the SS funds for the seniors it was designed to assist. Then there are all the super perks that Congress has given itself from the SS funds over the decades for being such “good guardians” of those funds they promised to protect.
Do we start DOGEing Congress again and gain? They spend our tax dollars on personal projects like it was free, but then turn round and say that we don’t have enough $$$ to pay for the obligations that we already have for the people that have been paying into the system for all those years. When citizens pull that kind of crap it is called a crime and people are sent to jail. When govt pulls that kind of “stuff”, it creates a committee to investigte. A committee that never comes to a conclusion, but never runs out of $$$ to continue the investigating. The crookedness goes on…
Jail the Ba$tard$! and Save our Social Security!
If you’re going to replace workers with robotics or AI then tax the robots like human workers and AI also.
If we stopped goving any money to other countries there would be more than enough to fund social security for eternity.
Funny, you don’t hear anything about how the congressional retirement fund is expecting a shortfall.
All congressional retirement should be eliminated, that can be included in a term limits bill.
How about ending this war, that is sucking billions out of our country that could more than fund Social Security. We are owed it since SS has been raided many times over the years and is now going bankrupt because of it. We paid into it in good faith, and now that we depend on it, it is gone.
Ponzi scheme pure an simple. As my dad used to say about politicians, “When they die you’ll have to dig their grave with a corkscrew because most are that crooked”.
Save Social Security? Hell, where do I sign up to kill it? If MY MONEY had been invested in the S&P 500 instead of this massive Ponzi scheme I’d have well over a million dollars and could sustainably double or even triple my monthly check in retirement. And if I should drop dead the day after I retire MY MONEY would go to my heirs instead of being smuggled to Somalia in cash stuffed suitcases. Social Security is nothing but an obscene ripoff. It’s disgusting!