The Social Security Trust Fund isn’t broke
– it just doesn’t have any money. That is the only conclusion
you can draw from President Obama’s threat not to send out Social
Security checks in August unless there is an increase in the
national debt limit.
The Social Security Trust Fund isn’t broke – it just doesn’t have any money. That is the only conclusion you can draw from President Obama’s threat not to send out Social Security checks in August unless there is an increase in the national debt limit. The president raised the specter of no retirement checks even though the trust fund is valued at $2.6 trillion, which is 43 times what it costs for one month’s payouts. So, why can’t it cover the checks?
Welcome to the world of internal debt where money disappears faster than a campaign promise after an election. This case illustrates the special dangers of internal debt; you can’t pay your bills with promises. Internal debt is money borrowed by one government agency from another and it now equals nearly $5 trillion – or one-third the national debt. Moreover, it’s about to go up again.
The trust fund doesn’t have any money because it loaned $2.5 trillion to the U.S. Treasury in 2010 in exchange for internal government bonds. The treasury spent all that money and a lot more; now they don’t have any money or borrowing power to buy the bonds back. That is why they want to raise the national debt limit; it will allow the treasury to take out more loans to pay off some of the earlier loans plus interest and borrow even more. In other words, it’s a refinance and debt increase with cash out. Now where have we seen that before and what was the result?
A debt counselor would have a field day with this one; we borrowed from Peter to pay Paul, but we are both Peter and Paul; these days we’re selling about 70 percent of the new debt to ourselves. This is the shell game of internal debt – the trading of real dollars for make-believe assets.
The internal bonds are backed by the “full faith and credit” of the U.S. Government, which really means the legal power to collect taxes. The government does not owe the $14.3 trillion of national debt – you do; it comes to $127,000 a household. We have been spending more than we have been taking in for many decades and borrowing money to fill the holes. There have been only eight years with an annual surplus since 1955, all the rest have been deficit years. Even some of the surplus years have been bubble-driven like those fueled by the dot.com frenzy.
Borrowing is a tool for investment and growth but only up to a point, after that the debt service kills the economy. If you have to borrow more and more relative to your income to remain afloat you’re in trouble.
The open market is the control mechanism for external debt; it gives you some idea of where your credit stands. Internal debt is more like borrowing from money you originally put aside for your kid’s college education, there are no controls and you tend not to pay it back; it’s never an issue until the tuition is due.
We could not fix the problem 20 years ago or 10 years ago because it would have been too painful, we cannot fix it now or in the near future because that would also be too painful. I know we won’t fix it in the long-term because it will be even more painful then. Enjoy the ride while you can because the day the tuition payment comes due is going to be hell. Where is Social Security’s missing $2.5 trillion? The truth is we spent it, we spent it all.
Marty Richman is a Hollister resident.
