Social Security Wants Its Money Back

With the Boomers poised to retire, it's time for Uncle Sam to settle up two trillion in bonds to the Social Security Administration. The bad news? Uncle's broke.

Everyone knew this day had to come eventually.

The government, way back in the nineties, needed to balance its budget, and seeing that raising taxes is a political move akin to volunteering to drink bleach, decided that the best way to get access to quick cash was to incorporate Social Security's funds into the general budget. The government, for its part, took this new obligation seriously and, as such, issued a huge pile of bonds to denote that it did indeed owe Social Security a whole potload of cash. About two trillion dollars worth, in fact.

This was generally taken as okay because Social Security was taking in more cash through tax receipts than it was putting out via payments, but now, that ratio is changing. So Social Security's got to cash in some of those IOUs that the Feds left behind. The problem is that the government's actually more broke now than it was then.

What does that mean, you wonder? It means about what we were figuring it means--Social Security's in wicked bad shape, because it's counting on IOUs issued by an organization that's already maxed out virtually every credit card in its wallet. But Social Security's response to this is what will be interesting--hiked minimum ages to enter? Reduced payouts to those already in the system? How will they react?

The key thing here is, there's a cash shortage. How will they get around that? Chances are this is going to mean pain for somebody--but just who gets the sharp end remains to be seen.

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Comments

  • Gen Xer

    March 18, 2010

    I never expected to see a dime of my social security. It's gone, spent to support the boomers. They'll raise the max retirement age to 75 and reduce the cost of living adjustment. One reason they adjusted the CPI in the 90s was to slow the social security payout. Look for further gimmicks like that.

  • SteveAnderson

    March 18, 2010

    Gen Xer--You and me both, man. If you're not getting your own retirement in order you're probably out of luck. But then that's why you come here!

  • Mike

    March 18, 2010

    Actually it was in 1968 under LBJ.

    In early 1968 President Lyndon Johnson made a change in the budget presentation by including Social Security and all other trust funds in a"unified budget." (www.ssa.gov/history/BudgetTreatment.html)

    But any surplus has ALWAYS been "invested" in government debt, it just made his Vietnam war budget deficit into a surplus. And the games continue today.

    Senate - October 10, 1990 - Mr. CONRAD. We are looting the Social Security trust fund to pay for the ongoing operations of Government.

    Senate - March 30, 2009 - Mr. CONRAD. ...submitted the following concurrent resolution, which was placed on the calendar: - S. Con. Res. 13

    SEC. 316. DEBT DISCLOSURES.
    (c) Social Security .--The levels assumed in this budget resolution project that $700,000,000,000 of the Social Security surplus will be spent over the 5-year budget window, fiscal years 2010 through 2014, on things other than Social Security

    Have a nice day!!!


  • disinterested spectator

    March 18, 2010

    The pieces of paper with one kind of ink and design (the bonds in the trust fund) will merely be exchanged for pieces of paper with a different kind of ink and design (dollars). After all these years of living in fiscal sin, why suppose we are going to get religion now?

  • Allen W. Smith, Ph.D.

    March 18, 2010

    The Social Security Scam

    I have been trying to expose the Social Security scam for more than a decade, but nobody would listen. I appeared on CNN Today, with anchor Lou Waters, on September 27, 2000 to discuss my then newly published book, “The Alleged Budget Surplus, Social Security, and Voodoo Economics.” I tried to convince Waters that the government was spending Social Security money on other government programs. He just looked at me in disbelief and asked, “Are you a voice crying in the wilderness?” As it turned out I was a voice crying in the wilderness in 2000, and I have continued to be such a voice ever since. During that ten-year period, I have published four books on Social Security, the latest being “THE BIG LIE: How Our Government Hoodwinked the Public, Emptied the Social Security Trust Fund, and caused The Great Economic Collapse.” In addition, I have appeared on The Dolans (CNNfn), on CNBC, and on more than 170 radio talk shows in my crusade to expose the scam. I made extensive efforts in 2000 to persuade Al Gore to break ranks with Bill Clinton and pledge to end the raiding of the trust fund.

    I have been outraged ever since I stumbled onto the scam more than ten years ago, and I have wanted to tell the whole world so everybody would be outraged. The fact that our government has “borrowed,” “embezzled,” or “stolen” $2.5 trillion of workers’ contributions to Social Security has to be “the greatest fraud ever perpetrated on the American people by their government.” Like Harry Markopolis, who unsuccessfully tried to expose Bernie Madoff for nine years, I have been trying to expose the Social Security scam for more than a decade, but nobody would believe me. I urge everyone who cares about the future of Social Security to visit my website at www.thebiglie.net and learn the rest of the story.

    Allen W. Smith, Ph.D.
    Professor of Economics Emeritus
    Eastern Illinois University

  • Allen W. Smith, Ph.D.

    March 18, 2010

    Excerpt from article appearing in "Dissident Voice," 3/18/10 by Allen W. Smith, Ph.D.


    It has been clear for quite some time that the trust fund contained no real assets. David Walker, Comptroller General of the GAO, stated on January 21, 2005, “There are no stocks or bonds or real estate in the trust fund. It has nothing of real value to draw down.” On April 5, 2005, President George W. Bush finally acknowledged the empty trust fund by saying, “There is no trust fund, just IOUs that I saw firsthand that future generations will pay—will pay for either in higher taxes, or reduced benefits, or cuts to other critical government programs.”

    If there was any doubt remaining, with regard to whether or not the trust fund contains any real assets, that doubt should have been removed by the following words in the 2009 Social Security Trustees Report:

    “Neither the redemption of trust fund bonds, nor interest paid on those bonds, provides any new net income to the Treasury, which must finance redemptions and interest payments through some combination of increased taxation, reductions in other government spending, or additional borrowing from the public.”

    There is nothing ambiguous about the above words. They make it clear that the government does not receive any cash income from the alleged interest payments on the trust fund IOUs. The interest payments are made in the form of additional worthless IOUs. The government cannot sell the IOUs because they are not marketable and have no cash value. The IOUs simply represent a debt of one branch of the government (the Treasury Department) to another branch of government (Social Security). They cancel each other out.

    The Social Security surplus revenue should have been saved and invested in public-issue, marketable Treasury bonds. These bonds are “good as gold” and default-proof. They are the kind of U.S. Treasury bonds that are owned by China and Japan, Bill Gates, pension funds, and every other serious investor that owns Treasuries. If the Social Security surplus had been invested in public-issue marketable Treasury bonds, as it could have been, and should have been, Barbara Kennelly would be correct in saying that the Social Security holdings are “as solid as what we owe China and Japan.” Unfortunately not a single dollar of the surplus Social Security revenue was saved or invested in anything. It was all spent, and, once money is spent, there is nothing left to invest.

    The government cannot and will not ever default on any of its public issue, marketable Treasury bonds because of the panic it would create in world markets and the damage it would do to the nation’s worldwide credibility. But Congress has the legal authority to default on its debt to Social Security, and, if it should do so, the outside world would probably view it primarily as an internal matter between the United States Government and its citizens. One of the least known facts about Social Security is that, although the government does have a moral obligation to pay Social Security benefits to those who have earned them, the government does not have a legal obligation to do so.

    In a 1960 ruling by the United States Supreme Court, the court ruled that nobody has a “contractual earned right“ to Social Security benefits. Section 1104 of the 1935 Social Security Act specifically states, “The right to alter, amend, or repeal any provision of this Act is hereby reserved to the Congress.” According to the above strong language, Congress could do whatever it wanted to do with regard to changing or even eliminating Social Security. Early on, some did not take the language seriously because they thought it was probably unconstitutional. However, in 1960, in the case of Fleming v. Nestor, the Supreme Court upheld the denial of benefits to Nestor, even though he had contributed to the program for 19 years and was already receiving benefits In its ruling, the Supreme Court established the principle that entitlement to Social Security benefits “is not a contractual right.” As a result of the 1960 Supreme Court ruling, the future of Social Security is totally in the hands of Congress and the President. They have the legal authority to amend any and all parts of the Social Security Act, as well as the authority to either increase or decrease Social Security benefits.

    Allen W. Smith, is Professor of Economics, Emeritus, Eastern Illinois University. The author of seven books, Smith has been researching and writing about Social Security financing for the past ten years. Visit his website at www.thebiglie.net.





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