Official Lies

Let's expose presidential prevarication. Earlier this year, President Barack Obama warned that Social Security checks will be delayed if Congress fails to increase the government's borrowing authority by raising the debt ceiling. However, there's an issue with this warning. According to the 2012 Social Security trustees report, assets in Social Security's trust funds totaled $2.7 trillion, and Social Security expenditures totaled $773 billion. Therefore, regardless of what Congress does about the debt limit, Social Security recipients are guaranteed their checks. Just take the money from the $2.7 trillion assets held in trust.

Which is the lie, Social Security checks must be delayed if the debt ceiling is not raised or there's $2.7 trillion in the Social Security trust funds? The fact of the matter is that they are both lies. The Social Security trust funds contain nothing more than IOUs, bonds that have absolutely no market value. In other words, they are worthless bookkeeping entries. Social Security is a pay-as-you-go system, meaning that the taxes paid by today's workers are immediately sent out as payment to today's retirees. Social Security is just another federal program funded out of general revenues.

If the congressional Republicans had one ounce of brains, they could easily thwart the president and his leftist allies' attempt to frighten older Americans about not receiving their Social Security checks and thwart their attempt to frighten other Americans by saying "we are not a deadbeat nation" and suggesting the possibility of default if the debt ceiling is not raised. In 2012, monthly federal tax revenue was about $200 billion. Monthly Social Security expenditures were about $65 billion per month, and the monthly interest payment on our $16 trillion national debt was about $30 billion. The House could simply enact a bill prioritizing how federal tax revenues will be spent. It could mandate that Social Security recipients and interest payments on the national debt be the first priorities and then send the measure to the Senate and the president for concurrence. It might not be a matter of brains as to why the Republican House wouldn't enact such a measure; it likes spending just as the Democrats.

I believe our nation is rapidly approaching our last chance to do something about runaway government before we face the type of economic turmoil seen in Greece and other European nations. Tax revenue has remained constant for the past 50 years, averaging about 18 percent of gross domestic product. During that interval, federal spending has risen from less than 20 percent to more than 25 percent of GDP. What accounts for this growth in federal spending? The liberals like to blame national defense, but in 1962, national defense expenditures were 50 percent of the federal budget; today they are 19 percent. What accounts for most federal spending is the set of programs euphemistically called entitlements. In 1962, entitlement spending was 31 percent of the federal budget; today it is 62 percent. Medicare, Medicaid and Social Security alone take up 44 percent of the federal budget, and worse than that, it's those expenditures that are the most rapidly growing spending areas.

Our federal debt and deficits are unsustainable and are driven by programs under which Congress takes the earnings of one American to give to another, or entitlements. How long can Congress take in $200 billion in revenue per month and spend $360 billion per month? That means roughly 40 cents of every federal dollar spent has to be borrowed. The undeniable fact of business is that a greater number of people are living off government welfare programs than are paying taxes. That's what's driving Europe's economic problems, and it's what's driving ours. The true tragedy is that just to acknowledge that fact is political suicide, as presidential contender Mitt Romney found out. We can't blame politicians. It's the American people who will crucify a politician who even talks about cutting their favorite handout.

He doesn’t have it quite right, and in fact some of it simply wrong.

Any talk about delaying SS checks is indeed a lie, but it is in fact an even bigger lie than he says. The “IOUs, bonds that have absolutely no market value” that SS holds are in fact the very most liquid asset in the world, U.S. Treasury bonds, which by statute would be sold in the open market if necessary.

This was made clear the first time we were treated to this particular performance of kabuki theater back in July 2011.

The future should include downgrading SS to just “A retirement system for minimum wage workers with no other form of retirement, paid for out of their own wages.”

The way to do this is to first, recreate the Bush tax cuts, but as an choice *alternative* to accepting the SS check.

That is, if someone still gets taxable income, they should be offered a tax cut somewhat greater than the amount of money they would get in their SS check, if they refuse to accept that check.

Say, if they get $2200 a year in SS, they could get $2500 a year in actual deduction from their taxes if they *refused* their SS that year. This means that if they needed the SS money, they would still get it; but if they didn’t need it, they would actually “make more money by saving more money on their taxes.”

Having tackled current beneficiaries, then move to people still paying into the system, by offering them a good deal to get out of the system. That is, instead of paying their SS money, their payment would go directly into an IRA that could not be redeemed until they would have otherwise gone on SS. And not just for their current year, but each year they could move *two* years of retirement into their IRA.

Finally, close the front end of SS to all but minimum wage employees. And nail that sucker shut, so Democrats couldn’t put anyone else back into the system.

Thus, within a relatively short period of time, SS would be slashed to a fraction of its size, and paid for by those who need it. And with so much less money in the system, it would be a much less desirable target for looting by congress.

You've got it wrong on the type of bonds the SS holds.

Even wikipedia gets it right: "The trust fjunds have been invested primarily in non-marketable Treasury debt"

The government agrees. See http://www.ssa.gov/history/BudgetTreatment.html. The SS trust fund is composed of 'special obligation bonds', nothing else was bought since the 1960s. They are not marketable.

To redeem one of these bonds, SS gets money from the FedGov. If the FedGov can't pay out of cash or current tax receipts, it would need to issue real Treasury Bonds to get the necessary cash. But that path is currently limited by the debt limit.

The bonds might be backed by the full faith and credit of the USA, but there is no such guarantee on the SS payments to the retired or disabled. That, according to the Supreme Court, is dependent on the weasels in washington DC. Their cowardice in bowing to political reality over financial reality is quite dependable.

The “IOUs, bonds that have absolutely no market value” that SS holds are in fact the very most liquid asset in the world, U.S. Treasury bonds, which by statute would be sold in the open market if necessary.

Your comment on the marketability of SS bonds is contradicted by Wikipedia, SS trust fund:

“When program revenues exceed payments (i.e., the program is in surplus) the extra funds are borrowed and used by the government for other purposes, but a legal obligation to program recipients is created to the extent this occurs. These surpluses add to the Trust Fund. ...The fund is required by law to be invested in non-marketable securities issued and guaranteed by the “full faith and credit” of the federal government.”

Note the adjective: “non-marketable”. Walter Williams was right.

WW and Wikipedia are right, as far as they go. But as in all matters of government spending, there's a work-around that thwarts the original intention in order to facilitate overspending; that shortcut almost certainly became the standard procedure in my memory, what led me to write what I did.

Here's the work-around:

"...the U.S. Treasury issued the Social Security Trust Fund special bonds, which can be redeemed whenever the Social Security system has a current account deficit. ... By law the Treasury is bound to redeem any bonds presented to it by the Social Security Administration. And when the Treasury does, total government debt subject to the debt limit falls by the amount of the redemption—thus freeing up the Treasury's ability to issue new bonds equal in amount to the redeemed Trust Fund bonds. Therefore, meeting Social Security obligations in August, September and all future months in this fashion would add nothing to the gross government debt subject to the debt limit. Not, at least, until the $2.4 trillion Trust Fund is exhausted in 2038."

http://online.wsj.com/article/SB10001424053111903554904576458294273264416.html?mod=opinion_newsreel

In other words, it's the usual dodge: a shell game. SS is holding Social Security Trust Fund special bonds that they can't sell in the open market. But so what -- when they need cash, they just redeem them at the Treasury for cash. That Special Bond is now off the books, SS recipients are paid, there's that much less deficit, and the Treasury is out some cash. Next, Treasury sells some regular, very liquid Treasury Bonds for that same amount, "sterilizing" the SS transfer, and the deficit goes right back to where it was.

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