Last month, we noted that Social Security had delivered its worst performance in decades.  Now, Allen Sloan warns investors at Yahoo Finance that the entire program has gone into the red — and will stay there.  Get ready, Sloan says, for the mother of all bailouts:

Don’t look now. But even as the bank bailout is winding down, another huge bailout is starting, this time for the Social Security system.

A report from the Congressional Budget Office shows that for the first time in 25 years, Social Security is taking in less in taxes than it is spending on benefits.

Instead of helping to finance the rest of the government, as it has done for decades, our nation’s biggest social program needs help from the Treasury to keep benefit checks from bouncing — in other words, a taxpayer bailout.

The only event that might keep this from being the very next bailout would be a faster-than-expected collapse at FHA, which has followed the Fannie Mae/Freddie Mac strategy of buying marginal paper and securitizing it through MBSs.  Otherwise, we’re already beginning to bail out SSA, thanks to a generation-long bailout of the federal government by the SSA in the other direction.

Technically, the fund should receive $120 billion in interest payments from the Treasury, which owes SSA for decades of skim repaid only in IOUs.  However, the interest itself will only be paid in IOUs.  Sloan explains the problem:

The first number is $120 billion, the interest that Social Security will earn on its trust fund in fiscal 2010 (see page 74 of the CBO report). The second is $92 billion, the overall Social Security surplus for fiscal 2010 (see page 116).

This means that without the interest income, Social Security will be $28 billion in the hole this fiscal year, which ends Sept. 30.

Why disregard the interest? Because as people like me have said repeatedly over the years, the interest, which consists of Treasury IOUs that the Social Security trust fund gets on its holdings of government securities, doesn’t provide Social Security with any cash that it can use to pay its bills. The interest is merely an accounting entry with no economic significance.

Just to make clear, that $92 billion surplus includes the nonexistent interest payments from Treasury.  The fund will go into the red for $28 billion, meaning that we will have our first cash-negative year ever in SSA.  It won’t be the last, either.

The crisis in SocSec was supposed to arrive in 2019, according to the CBO in 2008.  Who came up with that figure?  Peter Orszag, the same man who missed the 10-year deficit projection by over $2.2 trillion in the spring of 2009, and who now runs the Office of Management and Budget.  Democrats used that figure, as well as others produced by various sources in the years preceding that analysis, to argue against Social Security reform, and to paint Republicans who warned that the crisis was a lot closer as Chicken Littles or grubby politicians who just wanted to get their hands on Grandma’s Social Security check.

Steve at No Runny Eggs looks at the recalculated projections:

Between this fiscal year and FY2019, instead of a cumulative Social Security primary deficit of $100 billion, we’ll have a cumulative Social Security primary deficit of $157 billion. That is, of course, we actually do get all the economic and tax growth that the CBO seems to hope we will. If we don’t, the chart I put together back in September showing just how easy it was to turn the CBO’s hope into red ink as far as the eye can see will be rosy.

That also doesn’t include Obama’s plan for a second round of $250 checks to every Social Security recipient. That is a drag of another $13 billion on this year, which would make this year’s cash deficit somewhere around $51 billion.

This means that the federal government not only can’t rely on SocSec surpluses, which have been used to paper over budget deficits, it will have to increase the federal deficit to make benefit payments from now on.  George Bush and the GOP saw this coming, while Democrats like Orszag insisted that we had nothing to worry about.  Even if we had a federal government living within its means, this would be a crisis — but with the debt that Obama is accumulating, it’s a fiscal tsunami waiting to crest.