Billion. This is the largest monthly deficit in nineteen years. Base on
recent years data it was not surprising the Fund ran a deficit in
August. But the magnitude of the shortfall was a surprise to me. This
deficit is now the seventh in the past twelve months. That pace has
never been seen before.
We
deal with very big numbers these days. 100rds of billions and trillions
are how we measure things. So a $6b monthly deficit for the Fund would
appear to be a ho-hum. That is not correct. This is an important number.
The
Actuarial analysis of the Fund is misdirected. Their focus is based on the
future value. It should be focused on the here and now. In the June annual report the Trustees concluded that the
Fund would be broke in 2037. This conclusion is so far into the future
that it is easy for everyone involved to say, “this is a next year
problem, health care comes first”. Stephen Goss the Fund’s head honcho
said as much in a recent interview.
While there is a political
case that we have to prioritize health care as an issue, it is wrong on
a purely economic basis to ignore the exploding problems at the Fund.
Every month that the status quo is allowed to continue makes the cost
of the ‘fix’ that much larger. Based on the past twelve months
performance I now estimate that the Net Present Value of future
committed liabilities is in deficit by $7 trillion. To plug this sized
hole would require a significant increase in payroll taxes. That isn’t
going to happen. Raising payroll taxes by 4% would kill the economy. No
White House economist would advocate that. The alternative of cutting
benefits would be very unpopular. There are currently 52 million
beneficiaries of the system. A lot of them vote. To shore up the fund
would require across the board cuts greater than 20%. While that may
not be a hardship for some it most certainly will be for others. The
only way to address this inequity will be a means test.
The August deficit reconfirms that the Funds foundations are wobbly. Some observations:
-In
August the US Treasury had to borrow an additional $6 billion in the
public market to finance the cash shortfall of Social Security. We
already have too much paper for sale to fund the budget deficit. SS
added to the supply problem last month.
-The 2037 Future Value
of the August deficit is -$17b based on a 4% return. What this means is
that there will be a very significant revision in the 2037 drop-dead
date. Based on current trends the go broke date is closer to 2025.
-This
is not just a bad month. The net decline in the Funds assets for
June/July/August comes to $7 billion. In 08 that period was in surplus
by $5 billion, In 07 it was +$7b and in 06 it was +$13b.
-The
decline in payrolls is hurting the Funds’ top line. January-July 2009
payroll tax receipts were down from 2008 by $5 billion or 1%. While the
monthly declines in payrolls will fall over the next six months it is unlikely that there will be much net increase
either. It will be a very long time before we see monthly gains of
250k. Without that kind of growth the Fund will quickly fall into
annual deficits.
-The expense side is exploding. The September monthly benefits cost will be $56.6b up from $51.5 in 2008, a 10% increase.
-In
2007 the SSTF produced a surplus of $191b that it invested in the US
economy. This year it will be closer to $100b. Based on the current
trends that surplus will be gone by 2012. Six years earlier than the
Trustees forecast in June of this year.
SS is the mother of
all systemic risks. Even the debate on this topic brings risk. It will
expose an additional $7trillion unfunded liability. Another reason for
holders of dollars to worry.
There is no fix to this. Raising
taxes is a dead end. Age warfare is a possible social consequence. The
really bad news is that no one will touch this for another year. By
then it might be too late.
your heart is in the right place, but you don't understand that Social Security is an insurance program, the "tax" is really an insurance premium. Making the rich pay a higher premium than can be justified by any possible insurance benefit would turn Social Security into welfare as we knew it. This is political suicide, and not good for workers. citizen watches|tiffany rings
You stated that "In 2007 the SSTF produced a surplus of $191b that it invested in the US economy." My understanding is that when the SSTF has a "surplus" that these funds are spent by the Federal govt and that the SSTF gets an IOU on the U.S. Treasury in the form of Treasury debt. In what way is this any kind of "investment?" Your commentary is valuable, but please clean up your thinkng.
SSTF can not be a welfare program any longer. Get the sick, lame and lazy off the roll call. Next cut the bastards retirement program that created this. If a member of congress has not served 20 yrs or more in the job eliminate his retirement and healthcare. Cut trhe remaining retirements to 50% like the military, after a large adjustment to their salary to establish a "base pay".
Let those most guilty of this program failure and abuse suffer first.
"...no one will touch this for another year. By then it might be too late"
You are more right than you can imagine. At the rate they are pillaging the currency, even the dollar (in its present form) might not exist by then.
Reagan raised SS taxes in order to pay for tax cuts for the rich and now the day of reckoning is getting closer and the rich are worried about the possibility of taxes on the rich may be going up. The other option is to cut benefits, my guess is that the rich will win again since they own "our" political system.
My question: When SS sells its bonds, do they appear in regular Treasury auctions, or to they get sold in the Caymans?
did i mention i was investing in pitchforks?
52 million beneficiaries and maybe 180 million (?) contributors to SS (i.e., 130 million still contributing and waiting to collect their share). SS was designed to provide a minimum level of retirement income for all contributors - not a means tested welfare regime. Hence the salary cap on SS taxes and relatively flat monthly payout to all contributors. No contributions, very little if any payout.
There is no $2+ trillion in the Trust Fund. If you believe there is why not just say there is $10 trillion in the Trust Fund -- no difference when any / all amounts are unfunded.
Those who make more income than the cap subject to SS taxes and think that cap should be raised / eliminated, it is unclear why you are not voluntarily sending additional SS taxes if you truly feel strongly about it. Put your money where your mouth is.....
Anonymous
do you own a savings bond? do you think that real banks and corporations buy government bonds which are "unfunded"?
try to think of the US of America as a Corporation. It's products include National Defense and the General Welfare, and the people are more or less glad to pay for those products, and will be as long as America lasts.
That is how America's debt is "funded." Used to be a time when this was well understood. Before Peter Peterson put out his comic book view of government finance.
The difference between the 2 Trillion and the 10 Trillion is that the 2 Trillion is actually "accounted for." It is money paid in, which is legally owed, together with accrued interest. You'd understand that if you ever borrowed, or lent, money.
Here is everything you need to know, in a quote from the article:
"There are currently 52 million beneficiaries of the system. A lot of them vote."
This is not an economic crisis, this is a political crisis, and it will play out as a political crisis, especially the endgame. Economics is about how things get produced, but politics is about who gets to keep what is produced, who gets to skim from the flow, and who gets turned into a slave. What we must do is ensure that the endgame, when it comes, plays out in our favor.
Edit: I know I harp on this point, but I think it's vital. The "solutions" that are being implemented, those that are being proposed, and those that are yet to be proposed, are political solutions. The Federal Reserve is the most politically important institution in America, because it is the enabler of the welfare / warfare state. Everything else is crap. End the Fed.
Excellent point..political above economics. Personally speaking, i wouldn't care to bank on SS fund being avail to myself for withdrawal in 30-40 years anywho.
Also am thinking there will be a gradual, if not forceful retrenchment in living standards, in very broad terms, for the average US family. Too much indebtedness will wreak havoc on the federal scale, just as it has done on the individual / collective citizenry.
By that, I mean lower consumption levels, more saving and, gasp, deferred gratification (at least in the monetary mall-shopping sense).
No problem. Just load the trust fund w/SPY calls and let it be managed by JPM gunners.
Do you make enough employment income that eliminating the free ride for every dollar earned over $100,000 would increase your personal SS taxes (so that the net rate you pay would be closer to the rate payed by those earning under $100,000)? I do, and I'm sick of hearing how un-American it would be to simply equalize the SS tax rate on every dollar earned (every other kind of flat tax seems to be acceptable to the well-to-do). Trust me, those of us making over $100,000 per year are not below the poverty line and do not need a hardship exemption. This should be the very first step proposed any time SS shortfalls are discussed, yet your first thoughts are raising the rate and/or cutting benefits - no mention at all of collecting SS tax on the revenue over $100,000. All of these should be on the table, but shame on you for intentionally omitting the simplest and fairest step that could make significant progress toward reducing the shortfall.
Anonymous
your heart is in the right place, but you don't understand that Social Security is an insurance program, the "tax" is really an insurance premium. Making the rich pay a higher premium than can be justified by any possible insurance benefit would turn Social Security into welfare as we knew it. This is political suicide, and not good for workers.
There is no reason workers cannot pay for their own Social Security. If they in fact live longer than their grandparents they will need to pay a little more (in advance) for their groceries. The "little more" will amount to about 80 cents per week increase in the tax in some years between now and 2085. The first raise would be in about 2026, and the average raise over all that time would amount to 20 cents per week per year, while incomes are rising ten dollars per week per year. And all this is contained in the Trustees Report if you know how to read numbers.
Thank you. If all the income that has gone untaxed for Social Security because such income is "too big to tax" had been taxed from the beginning, all the same people who are now screaming about the SSTF "deficits" "shortfalls" and impending "bankruptcy" would be screaming about the SSTF "massive productivity-draining buildup as far as the eye can see" (productivity-draining because it's out of the hands of the private money-changers so, you know, it's all a Socialist plot). The attacks on Social Security started the day it was proposed and have never stopped - this is just the latest iteration. Then again, maybe we could bring George W. Bush out of retirement (say, as a consultant like Greenspan was on the panel that set up the SSTF in the first place) to solve all these problems by putting all incoming Social Security revenue into the stock market which, as we know, only goes up and will provide unlimited funding for everyone forever. It's gotta be better than those "worthless IOUs".
Krastner.
Would it be too much to expect the people who write about Social Security to know what they are writing about?
The Trust Fund was DESIGNED to bridge periods of low income relative to needed outgo. That is it's function. There are 2 Trillion dollars in reserves in the Trust Fund. That should see us through the current recession. The current recession is very likely the reason the "depletion" date was moved up a few years in the > last Trustees Report.
Meanwhile the depletion date of the Trust Fund has no fundamental significance for Social Security. Social Security is an insurance program for workers paid for by workers. It is not a trust fund left to you by your rich grandpa. IF it happens that in the future less money is coming in than is needed to pay benefits, the obvious solution is to raise the insurance premium. The amount that would be needed is projected to be about an 80 cents per week increase in the tax during some but not all years between now and 2085. This is while incomes are rising about 10 dollars per week every year.
Go to your bank and see if they kept all the deposits in the vault waiting for your withdrawal. IOUs are the same for SS, for China, or for any other lender. The picking of who to default on would be political, not economic.
Krastner.
Would it be too much to expect the people who write about Social Security to know what they are writing about?
The Trust Fund was DESIGNED to bridge periods of low income relative to needed outgo. That is it's function. There are 2 Trillion dollars in reserves in the Trust Fund. That should see us through the current recession. The current recession is very likely the reason the "depletion" date was moved up a few years in the > last Trustees Report.
Meanwhile the depletion date of the Trust Fund has no fundamental significance for Social Security. Social Security is an insurance program for workers paid for by workers. It is not a trust fund left to you by your rich grandpa. IF it happens that in the future less money is coming in than is needed to pay benefits, the obvious solution is to raise the insurance premium. The amount that would be needed is projected to be about an 80 cents per week increase in the tax during some but not all years between now and 2085. This is while incomes are rising about 10 dollars per week every year.
Go to your bank and see if they kept all the deposits in the vault waiting for your withdrawal. IOUs are the same for SS, for China, or for any other lender. The picking of who to default on would be political, not economic.
Krasting
my apologies for getting your name wrong.
Somehow I kinda trust Krastner's facts over yours...
Minnesota Nice
if the facts you are trusting less than Krastners are Rdans (aka anonymous) your trust is misplaced. Krastner may or may not have the facts, but he doesn't know how they are connected together. EVERY comment above is based on an understanding of the facts that amounts to a simple reflex (kneejerk) based on a long campaign of think tank lies. I could prove this given a few minutes of your time if you were capable of rational thought. try looking up social security on angry bear, you may need to read more than one before you begin to get the idea. but if you can think at all the answer will gradually appear.
Coberly,
You had a willing listener as to how you were going to connect the dots until I reached "think at all" and am I "capable of rational thought".
Krasting presented a commentary that was thoughtful and well presented... Anon #64295 started his thoughtful comment with "Would it be too much to expect the people who write about Social Security to know what they are writing about?" So if you dish it out then you better be able to take it... imho. And who is Rdan... if he is a well-respected authority on Social Security then perhaps he should come out from under the anon shield.
Minnesota Nice try not to get distracted by my poor political skills. i did not mean to be insulting. only there is a real problem with political/economic discourse which is that the great majority of people don't even know what thinking is. IFF you are capable of rational thought and you give the problem the attention it deserves you will (may) arrive at a good enough understanding.
sorry if that sounds like an insult. it wasn't meant to be. Krastings facts are NOT supported by anything remotely like a careful understanding of all the relevant facts. He does NOT know what he is writing about. You would understand this, and my impatience with politically nice nice forms when it comes to trying to point out to people that they can't knee jerk their way through this. The ONLY way you will understand it is to actually think about it for a few hours or a few days. In a short comment I can only refer you to the Angry Bear Social Security series as a good place to begin.
I don't have the time to explain this again and again to everyone retail.
Again, don't feel insulted. Do your homework.
Thank you... and your sort-of apology is accepted :-) And I will put Angry Bear Social Security Series on my must-read list... I need to understand that topic a little better and this will be my chance.
Minn Nice
it was a real apology. here's another.
Angry Bear series was not written as a textbook. It contains much poor... and insulting... writing. I apologize for that. If you can get far enough into it to suspect we have something to say, I will be glad to try to write more carefully.
Thanks for bearing up.
What affect would having all the illegal workers pay into the social security system?
Same effect it as it has now. Undocumented workers normally pay into social security, as do their employers. They may have problems trying to collect someday, however, in which case they are subsdizing the system. Any employee (whether documented or not) that is not filing W4's (often paid in cash under the table) is neutral to the system - neither paying in nor eligible to collect; however, the employer who fails to file is always a negative drain on the system, since the employer's participation consists only of paying in, not collecting.
Just stop. This analysis is based on a faulty premise.
You can't just track Social Security month by month because of the way Treasury treats accrued interest and tax on benefits. This isn't a shocker at all.
The current Trust Fund balance is around $2.5 trillion and accrues interest at an average rate of around 5% meaning that it will earn some $125 billion in interest this year. That interest like the interest on all 10 year notes is paid out twice a year which for Social Security means June and Dec.
The Treasury also credits Social Security with amounts collected from tax on benefits four times a year, this happening in Jan, April, July, and October. This means that August will always appear to be relatively weak compared to other months.
I know of two places that track SS by month. One is this web program
http://www.ssa.gov/OACT/ProgData/allOps.html
It allows you to look by month quarter or year. For Q2 2009 it shows a total increase in assets of $77 billion or just under $26 billion a month. But if you examine May 2009 in isolation it shows a net decrease of $1.8 billion. August like Feb, May and Nov are just low points in the yearly cycle.
The other place that tracks these numbers by Month is Treasury
http://www.treasurydirect.gov/govt/reports/tfmp/oldins/oldins.htm
They don't have the Report for August up yet but you can see the effect by examining the one for its corresponding month last quarter, i.e. May. If you look at the Fund Balance on page 3 you will see it listed as $2.244 trillion on the other hand if you look at the balance sheet on page 5 you see a balance of $2.289 trillion. The $44 billion dollar difference is in interest receivable.
The August total cited by Krasting doesn't include close to $10 billion in interest receivable for August. And all calculations based on a $6 billion deficit need to be discarded. You are not going to get twelve years of deterioration from 2037 to 2025, Mr. K has simply tried to extrapolate from a data point that is simply not the relevant one to use.
Sorry the whole piece is an oopsie. For example Social Security didn't 'invest $191 billion in the economy' in 2007. The correct figure on actual cash lent to Treasury was $80 billion, Another error in the treatment of accrued interest.
http://www.ssa.gov/OACT/TR/2009/VI_SRfyproj.html#238210
Dude -- there is no $2.5 trillion Trust Fund balance. I understand on paper there is, but there is absolutely no real money sitting there -- they have already spent it. Nor are they depositing cash interest into the fund -- again just a paper entry. Your governmental fund accounting might be close, but you can't be arguing with the general premise of the post that SS is an absolute economic train wreck.
P.S. It seems the year over year declines in August results for the past four years (which eliminates the seasonality you are focused on) tells the story -- things are getting notably worse year by year.
anonymous dude
your analysis is ... well, we are trying to be polite here.
ALL debt... including the dollar bill in your pocket... is "just iou's"
haven't time to explain that to you. try thinking about it.
might also try thinking about where the trust fund came from and what it was created for and why it's running down is not news. not shocking. but the way it was always spozed to wrk. until Peter Peterson found out he could get away with flim flamming the ignorant.
Everyone seems to be watching for when the SS fund runs a deficit, however problems will appear before then.
Here's a little story:
You've been working for many years and saving for retirement, putting some money each month in a cookie jar. Your uncle has been borrowing from the cookie jar and replacing the money with an IOU. He's borrowed all the money, the jar only contains his IOUs.
Now that your near retirement, you've decided to cut back on work a bit, so you put a bit less in the cookie jar each month. As a result, your uncle has less to spend right now, not at some future date, since there is less money for him to replace with his IOUs.
Uncle is in trouble now...
cookie jar
your story is cute but has nothing to do with social security finance. there is no box or cookie jar you put your money into.
what there is is an infinite supply... as long as America lasts... of people who will put their money into an "investment" that guarantees (full faith and credit of the United States of America) that they will get that money back when they need it. This money can then be used to pay the people who put their money in years ago and are now getting their money back...adjusted for inflation plus average growth in the economy. And unlike a Ponzi scheme, there is no reason this arrangement can't go on forever. In fact it is exactly what happens when you invest your money in a corporation you hope will still be profitable when you retire. The difference is that America is a better bet than General Motors.
Glad people are bringing this to light. When are people going to start asking "Why am I paying into this ponzi scheme every $&$&ing month?" (at least the ones who have jobs).
Sad to say...but the government is treating everyone like drones that are too weak, afraid, numb or stupid to fight back.
People need to organize and speak out!
It was beyond amusing the outrage about the Madoff ponzi scheme which is absolutely small change compared to what the government has done with Social Security. Now that's a ponzi scheme worth worrying about, but no.
Means testing will be the ultimate betrayal on those who contributed for decades but will get nothing. The deal was you put in X and get out Y - which is why they called it a trust fund. It is just hilarious the government run healthcare folks point to Medicare and Social Security as government success stories. Folk wake up. March on Washington this Saturday (9/12) - Lincoln Memorial.
Turning SS into welfare for the elderly (which is what means testing is) will not bother this administration - their goal is to smooth outcomes. Take money from sucessful and give it to those not successful (which we already do in a big way, but not nearly big enough for liberals). Take money from the responsible (lived frugally saving money for decades foregoing lots of things along the way) and give it to the irresponsible (those who buy new cars, on multiple cars, go on vacations, have cell phones, cable tv, go out to eat, own big screen TVs, bought a house twice the size they should, etc.)
Means testing social security will encourage folks to spend more now because you don't want to lose your SS benefits in the future.
With 50% of the people not paying any income taxes, you can see the class warfare / government dependency agenda Obama wants is a pretty easy chore at this point.
Great discussion. I know it's lame, but a T-account visual would be very helpful.
[These IOUs are as good as they get.]
I don't think this is the real issue. The issue with the "trust fund" is that it holds nothing more than obligations of future taxpayers. People have to be taxed (i.e. coerced), either via the withholding tax or the general income tax (or some other tax), in order to pay benefits. All benefits. Which means the whole mess is just a Ponzi scheme.
Also, as the courts have previously ruled, no one, repeat NO ONE, has any vested right to social security retirement payments whatsoever, no matter how much or for how long they paid in. Benefit levels are set by law, and the law can be changed at any time.
Anon 6332 The link=http://www.ssa.gov/cgi-bin/transactions.cgi
This is a breakdown of the purchases and sales for August. They sold more notes than they bought. The deficit for the month is the difference between the two. This is an advance read.
63071: For 2009 the Fund will have a net surplus. The August number will be offset by a surplus in September. This is the seasonal cash flow of the Fund. The Fund is not broke. So they had to borrow against future receipts to cover the deficit. They do that by buying and selling IOU's. It is not unusual for the Fund to suffer a monthly shortfall. What is unusual is the size and the the number of months that end up as negative cash flow months.
Anon 62932: We will never make it five years without addressing the problem. We will be dead on this issue in 24 months if we do not address it.
For all those who believe that the IOUs held by the Fund are worthless; I would disagree with you. These notes are Parri-Passu to the Treasury notes and bonds that are held by the public. These IOUs are as good as they get. If they are not money good then Treasury bonds aren't either. The taxpayer obligation to pay the Trust Fund debt is the same as the paper that China or Japan is holding. For one to be no good means the other is no good. If there is a doubt about the SSTF investments and their collectablility it means that our entire system would be in collapse. Who knows, maybe it is.
Exactly. The SSTF loan to the general Fed budget is like any other loan (bond) as an obligation of the government. All the shouting about "worthless IOUs" and Social Security being "broke" is anti-Social Security political bullshit. The function of the SSTF has always been to set money aside for the baby boomer bulge, and that's what it did. If it turns out not enough was set aside (because of excessively generous benefit increases), then less will be paid out until that buldge has passed (the median surviving boomer will be 90 in 2045), or benefits will be reduced, or taxes on those making over $110,00 will be collected for the first time, or all of the above. Big fucking deal. The ones with the real problem are the gov't budgeters who have been given the SSTF money to spend without including it in their regular budget statements. Since this debt can't be refinanced at maturity with the original funder (the SSTF, will need the dough for its own purposes) either federal spending will have to be cut (hahaha) by the amount to be repaid or the gov't will have to go to the open market to borrow at then-current rates to make its repayments (good luck) or - this is my prediction - the Fed will fire up the presses (again) and buy the T-bonds necessary to bail out the Treasury so they can make the repayments. Anyway, it's a gov't general budget issue much more than it is a Social Security issue, if anyone cares.
Do you have a link to the August report for Social Security? The most recent report I see on the SS website is July data (published in August).
You really want to blame today's SS funding problem on Obama and his Administration? There are legitimate reasons to be dissatisfied with Obama, but this is not one of them. You've hearad baout this day coming pretty mcuh your entire adult life, I'll wager. And I think there is no fix outside of the means test that Bruce mentions early on in his analysis: "The only way to address this inequity will be a means test." SS is paid regardless of need, and that is kind of silly, given the other stark choices available. Cuts in benefits to the most needy = diet of cat food, and increases in taxes to pay for SS payments to those who don't really need them are equally dumb. But I'd be curious as how many recipients would actually flunk the means test and be ineligible, believing the income/wealth gap to be much deeper than we might hope.
Blankfein probably only makes 130K on paper lol
The rest goes to family trusts, etc. Think of the children eveyone! Please think of the children.
Whenever SS is talked about, I think it is always worthy to note that there are NO MARKETABLE ASSETS in the fund, only IOUs. That there was a June/July/August deficit of $7 billion may seem important, but given the total US gov budget is in deficit and it has only 1 source of income the number is arbitrary.
Overall it was a worthy read, but the conclusion is incomplete.
You point out that there are 52 million beneficiaries; they will dominate the ballots should payments decline on an inflation adjusted basis. So there will be age warfare, but it will be the old on the young.
Inflation won't solve this, it will come from taxes. Maybe not tax increases, it could be reallocated from social investments. Whatever it is, it will be deflationary. Strong dollar vs. weak dollar is a tough call; either is plausible.
I can buy all this. You responded to my post earlier... Thanks for the link. But if the assets in the fund are non-marketable, doesn't that mean they're illiquid?
So say I had a balance sheet of the SSTF within the Treasury. I have these intergovernmental IOUs on the asset side of the SSTF sheet and on the liability side of the Treasury book. The Treasury is committed to paying the interest on the IOUs, but if the interest on those IOUs doesn't cover my monthly expenses for the SSTF, where does the delta come from? Treasury has to raise additional funds, right? So they either take it from the general tax receipts or issue bonds (which eventually tax revenues from the general fund will pay). In effect, because the Treasury has to draw funds from either the general tax fund or issue bonds, the SS tax is just a surtax to other federal taxes. And if that's the case, there's really no difference between SS and any other gov't program.
I doubt the SSTF will go bankrupt any more than the Department of Defense will go bankrupt. So long as the government has the ability to pay it's debts with newly printed money, there's not a risk of the Treasury being able satisfy its cash payment demands.
You are exactly right.
But unlike other gov programs, SS is inflexible with respect to its payments given the bulge of baby boomers (with a propensity to vote) about to enter the program.
Simplified: SS will not be cut as long as any other program can be cut.
Raise the cap on social security tax above the $110,000 or so in income. Why should all my income be taxed at that 5+% rate and not Blankfein's?
On a long enough timeline, the survival rate for money drops to 0.
-u4yeah4
and you think the market will crash?
on the contrary it will rally to new highs (sigh)
Perhaps I don't understand accounting, but if the SSTF is drawing money from the Treasury, doesn't that mean it's already broke? Why not pay expenses out of the fund? Why draw from the Treasury?
anonymous
if you own a savings bond, or have a dollar bill in your pocket, you own an asset which is a liability on the treasury.
The Social Security Trust Fund holds bonds, assets, which are liabilities on the treasury. In order to cash those bonds to pay benefits, the Trust Fund would call on the Treasury to replace it's bonds with cash (checks).
SSTF is not broke. It has about 2 Trillion in assets... iou's for the money the treasury has borrowed and which it has spent... that's what borrowing means...and which it has to repay... out of taxes on the people who benefitted from the borrowing. note the taxes are to cover the repayment of money borrowed plus interest. the taxes are NOT going to "pay for" Social Security, which pays for itself with the premiums (payroll taxes) that workers pay in order to pre-pay for their own retirements.
This is not dishonest, or magic. It's ordinary business. No one is being robbed. No one is broke. Or ever will be broke. The beauty of the pay as you go system is that it funds itself forever. The people pay in their money while they are working and take it out when they retire. Who was the last person to touch the dollar is no more important to Social Security than the fact that when you put your money in the bank it is lent the same day to someone else who uses it for his own purposes. All you care about is that the bank repay you when you need the money. Social Security is the best system every invented to GUARANTEE that happens.
Read http://www.ssa.gov/OACT/ProgData/fundFAQ.html
All holdings are non-marketable IOUs. They contain no value. Should they be redemed, the Treasury sells actual debt to generate the money.
Any previous surplus has been returned to the Treasury and replaced with IOUs.
And no, this is NOT how other countries do it. Ever hear of a sovereign wealth fund?