SS and the Beach

Bruce Krasting's picture

Social Security (SS) will race through another milestone in October. For the first time in its history, SS will pay out more than $65 billion in a single month.

 

 

Other than the fact that this is an incredibly big number, there is nothing eye-opening about the payout. SS missed hitting the $65b milestone by a fraction in September. In November, it will be higher again. $70b will be hit by December 2013. The ladder to higher payouts never stops.

 

$65b is a very big number:

 

-The monthly SS payout is bigger than the market cap of some well know companies, including: Amex, 3M, US Bankcorp, Amgen, eBay and Caterpillar. Goldman Sachs is worth a measly $54b. SS could buy the whole thing with just three-weeks worth of payout.

 

-The annual cost for SS is greater than the ridiculous monster market cap for Apple. If SS used its muscle to buy big cap stocks, it could buy up all of the shares of Microsoft, Wal-Mart and Google in less than a year.

 

The annual SS payout is about the same as the GDP of the Netherlands. It is well larger than the output of either Turkey, Switzerland or Saudi Arabia. In 2013 SS will spend more than the GDP of Indonesia, a country of 250m people.

 

The yearly SS checks are now equal to the GDP of Florida. The payout beats the entire economy of Illinois.

 

The monthly SS burn rate is greater than the annual GDP of New Mexico and Hawaii. Vermont, the smallest state (by GDP), has a yearly economic output of only 30B. SS is 26Xs larger than the Green Mountain State.

 

The 2012 bill for SS will exceed the cost of the military, that’s the first time this has happened. The annual tab at SS is four-times greater than all of the military spending by China.

 

I could go on.

 

Of course SS has a dedicated revenue stream from FICA and SECA taxes to cover its big monthly nut. Unfortunately SS will come up a bit short in October; about $16Bn short:

 

 

The good news is that SS has other sources of income. In October 2012 it will rake in about $8bn from seniors who are collecting monthly SS checks and who also are still working (or have passive income).

 

I think of this revenue for SS as, “A tax on a tax”. It’s double taxation, not unlike the double taxation on dividend income. This tax is paid by the seniors who are clipping big coupons down in Boca; it is also paid by those seniors you see stocking the aisles at Wal-Mart (double-dippers).

 

SS needs cash money to back up the checks it sends out. To cover the shortfall in greenbacks, it will be forced to sell a chunk of its Trust Fund (TF) assets. That’s not a problem for SS. The US Treasury is happy to redeem the TF’s special issue bonds at par.

 

The Treasury has no money lying around, so it has to go out and sell an extra $8b to the public to cover the October shortfall. Given that the Federal Reserve is QEing, ZIRPing and TWISTing (all at the same time) the extra Debt Owed to the Pubic is no problem at all.

 

I say that Treasury is “happy” to hock those TF assets at par with good reason. The rules for the TF require it to sell a portion of its high yielding portfolio to cover any monthly shortfall. The TF does not realize a gain from the sale of high-yielding bonds in its portfolio (a win for Treasury). Consider what happened in October 2011; the net cash shortfall was $6.7B.

 

 

To cover the cash miss, SS sold (at par) a total $5B of older, high coupon paper. New investments earned SS only 1.6% in 2011 (1.3% today!). Note: SS must maintain a minimum average life of 7.5 years on its portfolio. This forces them to liquidate “winners” (high coupon) and hold “losers” (low coupon).

 

 

What’s happening with SS is like beach erosion. Every month more grains of sand go out to sea. The waves that keep eroding SS’s beaches include:

 

-The never-ending recession that brings low employment (low payroll tax receipts).

 

-The rapid aging process that the country is now going through (and will for the next fifteen years).

 

-ZIRP, QE and TWIST (and any other silly thing the Fed comes up with) is killing interest income at SS.

Because of the “ZIRP till 2015” commitment by the Fed, coupled with a rate setting formula for SS that looks backward three years, it is now certain that interest income will decline every year for the rest of the decade. It will fall below $50Bn in five years ($114B in 2011).

 

Again, nothing unusual or unexpected will occur at SS in October. All of the things I discuss here are "programed" to happen. Some grains of sand will go out to sea. It won't be noticed. But come back in few years, you'll be surprised by the damage.

 

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boiltherich's picture

Last two COLA's were announced in 2008 = 5.8% for 2009 and announced 2011 3.6% for 2012

The expected COLA this year is 1.3% which will not cover the increased cost of the Medicare premiums.  Premiums rose in the years where the COLA was zero too. 

 

Waterfallsparkles's picture

No Cola increases on SS because Inflation is contained.  Only one cola increase in I think 5 years.

When the FED does not count Food Or Energy costs it skews everything, including what retiree's get paid thru SS.

boiltherich's picture

Off topic, sorry Bruce, but there is a curious thing at CNBS that I have no place to post and want a few of you to go look at it and tell me what you think. 

I was monitoring the RBOB futures Friday and was just blown away at a huge spike in unleaded prices from $2.90 that morning when I got up to a daily high of $3.34.  I was so aghast at this increase I warned friends to be ready for a major leap in gas prices to come at the pumps, and even posted at a now defunct thread here, some of you might have read it. 

But, when I checked later the close for the day was near the high of $2.92 and all other sources I looked at for NYMEX futures for RBOB also say $2.92 (Bloomberg, CME Group, etc.). 

But the flaw is still there, go to CNBC, just under the banner roll over MARKETS, click under that on COMMODITIES, under that click on RBOB GASOLINE, it says close was $2.92, but just blow that in the DETAILED QUOTE section it shows (and has shown since Friday) a low for the day for unleaded at $3.13 and both a high for the day and 52 week high of $3.43.  Which was what inspired my panic over gasoline prices Friday. 

This has to be some kind of glitch, but, even when it spiked in 2008 it never had a daily opening and closing matching this so it cannot be an old graph that somehow got reprinted to the present. 

Hey, I also just went to INDEX MUNDI and it also shows a $3.34 close...  http://www.indexmundi.com/commodities/?commodity=rbob-gasoline

Something is rotten here.  Did they accidentally leak a FUTURE gasoline chart?  If so it would be proof that prices are not only manipulated and charted into the future but already determined to the penny with only the media manipulations and false flags to be revealed later. 

What is up with this boys and girls?

 

onlooker's picture

The “bumpy road” SS problem may be bad to worse. But, you miss the case that it was constructed when most of the payers would die before they qualified. At the git-go it was not a bottomless pit.

 

However, a larger plague looms that is DOA for America before it starts. Obamacare. If SS cant be fixed, Obamacare needs some careful consideration.

 

Vote

Hedgetard55's picture

It never ceases to amaze me how few people can see the Ponzi nature of the SS scam. But it's worse than a Ponzi, at least a normal Ponzi is voluntary, nobody forced anyone to give their money to Madoff. SS forces you at the point of a gun, with the threat of prison, to hand over your money. Thus it is a forced tax, and not a "retirement program". It's sick, a totalitarian system.

Don Levit's picture

LMAOLORI:

You correctly pointed out that the trust fund money was borrowed by the Treasury to pay for current expenses.

You also wrote that the trust fund was self-funded.

Well, if the trust fund money was spent, how can it be self-funded?

You correctly point out the the trust fund is funded with special-issue Treasuries.

You left out the point that these special-issie Treasuries are special, for they were to be used only for SS beneficiaries.

If that was the case, why was the trust fund cash loaned to the Treasury to pay for pther expenses, rather trhan kept intact for SS beneficiaries?

Bruce, the interest rate is irrelevamt, for with higher rates, the life of the trust fuind is extened; with lower rates, it is shortened.

From a cash flow standpoint, however, the life of the trust fund is over.

If that were not the cases, 2 facts would not be rtrue:

1.  the fund could simply be liquidated, without new general revenues needed.

2.  the fund balance would represent equity, not intragovernmental debt.

The trust fund is not exhausted when the numbers go to zero.

It is exhausted, from a cash basis, today, for the same technique will be used at trust fund exhaustion as when the trust fund is tapped to make up for today's cash shortfall:  new general revenues must be raised, the same way we pay all pay-as-you-go expenses, like Medicaid.

Don Levit

kaiserhoff's picture

There is no pay-as-you-go accounting.

There is only FRAUD.

mind_imminst's picture

Nice analysis Bruce, as always. It is not your fault, but this is all getting to be academic. The FED will print money to cover the losses at Social Security. The FED will print money to cover any and all government debt. It is fait acompli. Or maybe, to coin a new tortured cross language term - it is "fiat" acompli.

Hannibal's picture

BK: "$65B SS payout is a big number..."  So what? So is a $trillion for the TBTF bankster, a $trillion something for war games, a $trillion for the "war on drugs",....should I go on BK?

imbtween's picture

obviously the way to fund SS is print money. why should SS go bust when everybody else rakes it in??? lol :)

Moe Howard's picture

Greenspan stated this years ago - SS can be paid, he can print it. Understand the buying power of that money will evaporate.

Translation: FedGov can honor the "promise" of SS by paying pennies on the dollar.

Mediocritas's picture

Forget about SS's investments as a source of income. So long as the Fed sits on the bid, Treasury doesn't care about SS blowing out, bolstered by the fact that Treasury pays zero interest on bonds held by the Fed which, in an inflationary environment, is a gain for Treasury.

Sure, the Fed could allow its holdings to run off and force the govt to downsize, but the Fed will not do this so long as the private sector remains dead. A private sector recovery is required that would serve as feedstock for higher taxation revenues to cover a bond run off. Instead, the Fed will just keep on rolling its existing position and growing the position as the private sector continues to contract which, of course, only causes the private sector to collapse even further as government expands operations and allocates funds poorly (eg many SS cases, the worst being Wall St SS).

Meanwhile as more foreign creditors abandon TSYs due to there being little evidence of any economic life that could make good a claim in USDs, the Fed will simply absorb any dumped paper and expand its TSY holdings to defend low yields. Same goes for a failure of increased foreign credit to materialize in the future as a consequence of decreased international trade with the US, again due to a weak private sector. The Fed will absorb the difference.

Eventually, the Fed will find itself buying >50% at every auction and the US private sector will have been largely replaced by government equivalents, which should, in theory, decimate the USD's exchange rate and trigger high inflation as foreign parties lose interest in holding claims to US economic activity. Only this won't materialize because the US will maintain military might in the Middle East, ensuring that the energy every nation needs to function trades in USDs, thereby creating continual foreign demand.

TL;DR version: SS blowouts mean expanded Fed TSY holdings, more private sector collapse and another war in the Middle East. US will direct extreme displeasure at any nation that attempts to trade oil in any currency other than the USD (here's looking at you Iran). If the US military suddenly disappeared, US hyperinflation would occur.

Bear's picture

BK ... What percentage of the TF is the disability payout?

kedi's picture

So a population of about 310 million people, in a 30 day month, have to spend about 7 dollars apiece. 7 bucks doesn't seem so high a price for all that the social security system does. Like any gigantic endeavour like government and big business, there is waste, dead wood. But overall, not so bad a return.

A Middle Child of History's picture

Hope you like the taste of your cat's food. When the ponzi scheme you are so obviously in favor of goes tits up, you can use those checks paid in devalued dollars to purchase your favorite brand of dry catfood. I hear some of them even have real bits of fish and chicken in them. When you get desperate enough there is always your cat as a one time food source.

Arrogant boomer scum. Typical that your type would feel entitled and expect other generations to cough up the funds for your perpetual party. Spend your childrens inheritance and then some, steal the wealth from generations unborn. May you choke to death on your bong.

Waterfallsparkles's picture

The Arrogant Boomer Scum were the ones that paid so much into Social Security that the Government could not keep their hands off the Money.

I believe it was Regan that saw all of that Wealth that he literally paid off the National Debt with the Money and gave us Boomers worthless IOU's.

Earl of Chiswick's picture

as long as you realize that some of those 310m are  babys, and mothers such as the lovely obama phone lady

your 7 dollars rapidly becomes 70 not to mention the SS payments already being made. 

go back to huffpo dink

 

Waterfallsparkles's picture

Do not forget they get Welfare Payments, Child Support Payments, Section 8 housing, Health Care, Free School Breakfast and lunch, Energy Assistance (or payment), free transportation assistance if they are disabled (someone picks them up and takes them where they need to go).  Of course plus the free Cell Phone and 400 miniutes per month.  Plus, most never paid one dime into the system.

Yet, they are trying very hard to take away the Seniors that Paid into Social Security away.

kaiserhoff's picture

So politically incorrect of you, Earl.

 

Some are "involved with the system" as in convicted felons serving life.

Some are well along in 12 step programs.

Some are mouth breathers.

Let's simplify.  Regardless of accounting gimmicks, the burden of social security falls on those working in the private sector, who are unsubsidized by the criminal class in DC.  That group shrinketh as we speaketh.

msjimmied's picture

Enough with the phony phone outrage. Don't regurgitate everything you hear. This is the real story about the lifeline phones.

http://www.salon.com/2012/09/29/conservatives_obama_phone_flip_out/

q99x2's picture

Eliminate the financial racketeering sector of the economy. Force the banksters to the City of London and let their fraud devour the Queen of No World Order.

max2205's picture

The fed is draining our pool and pumping it to the bankers ever draining pool

How fucking smart

duckhook's picture

Some inevitable concepts

1 Social security will be means tested .Tha amount will not be 100,000 or 200,000 but around 15000-20,000.People who have income  from other sources will start to have their benfits reduced  once they exceed that level.

2.the age to collect security will go up rapidly in the future

3.Tha tax rate for the social security tax will go up

4 All types of incomed ,like capital gains ,duvudend and interest income will be subject to social security tax

5 the Trust  fund will disappear faster than any of the current porjecyions

6. As more and more retirees have to draw down their savings due to the manipulated low interest rates by the FED.A increasingly larger # of retirees will become completely dependent on social security for all of their retirement income

6.The program 's name will be changed to USA welfare program

7.Younger people will revolt and the enitire system will collapse

 

Moe Howard's picture

Point 6 the first and everything before it, very possible. Point 6 the second and Point 7, I disagree. They choose words very carefully, hence War Department became Defense Department [Defense Department has never won a war, ever].

Point 7 - Young people will be busy with mental masturbation devices like iPads and iPhones and Faceplant, and actual masturbation devices like internet pr0n.

They will find themselves total serfs at 40 and wonder what happened.

Estrella's picture

I was with you until point 7.

FleaMarketPete's picture

I wonder how long before Boomers and the AARP demand an "Under 40 Tax".

Seasmoke's picture

where is Ben and Jerry with his Oreo cookie presentation ??

ebworthen's picture

$65 Billion a month?  Is that all?

Hell, they're paying out $40 billion a month in QE3 to buy MBS's to benefit the bankers.

Mind you, QE3 in perpetuity, not to mention the bailouts and QE1 and QE2 that rewarded banker malfeasance.

Must be time for me to file for S.S. Disability and EBT to try and catch up to those sons of bitches.

Seasmoke's picture

they have a very big head start, you could never catch up to them now

LMAOLORI's picture

 

 

Bruce this is the most honest correct article I have seen on Social Security you correctly point out that the program is self funded, is owed to the people who paid it in. You also pointed out how our government is screwing it's own retiree's with payroll tax breaks. The politicians and the main stream media have confused people on this issue for far too long successfully misdirecting the anger from themself's for borrowing from the trust fund and not having the political will to fix it since Ronald Reagon who at least did something about it. It's up to the politician's of today to fix it or dismantle it for future generations but the debt for the money already paid in still won't go away if they do.

"Now let’s look at how that $2.7 trillion Social Security surplus arose. In 1983, President Ronald Reagan sponsored an increase in Social Security taxes, changing the program from pay-as-you-go to collecting much more taxes than it paid in benefits. The idea was to have the Boomers prepay part of their old age benefits."

Talk about brainwashing people now think it's not a debt, they think it's a welfare program and they think there is no trust fund which is not true. There is most definitely a Trust Fund it is just filled with special issue securities as a result of the politicians borrowing from it but make no mistake it is a legally enforceable debt just like any other owed by the U.S. Government. For more see my post here. One thing I wish you would have added is the boomer's were forced to pay into this system that was created before they were born and for the first time in history they will be the generation who will get back less then they were forced to pay in.

The only thing I do not believe is correct in your article is you refer to it as a bill that will exceed the cost of the military, it is not a bill it is a debt owed to Social Security a self funded program that by law cannot tax (nor can it deficit spend).

Thank you Bruce this is a great article!

Joe Davola's picture

...legally enforceable debt...

 

Who writes the laws?  Let's ask the GM bondholders about legally enforceable.

maximin thrax's picture

...they think there is no trust fund which is not true. There is most definitely a Trust Fund it is just filled with special issue securities as a result of the politicians borrowing from it but make no mistake it is a legally enforceable debt just like any other owed by the U.S. Government.

Yes, THERE IS NO TRUST FUND. Losses to contributors = 100%. ALL money ever contributed either went to current retirees OR was put into the general fund and SPENT. The Intergovernmental Treasurys (IOU's) in the "trust fund" have no value. They can only be redeemed form the General Fund WHICH IS ALWAYS IN ARREARS. So ANY money that comes from the General Fund to redeem the Trust Fund IOU's is money that either becomes DEBT that taxpayers must eventually pay back OR becomes a tax increase to fund the redemptions immediately. And of course we generally kick the can and go for the additional debt.

The ONLY reason for the fraudulent Intergovernmental treasurys (IOU's) siitting in the fabled "lock box" is simply an accounting gimmic that states at the time the last of these IOU's are redeemed there will be automatic cuts to SS benifits. So it simply serves to alert politicians when FICA taxes need to be increased. There is no other legitimate reason for the "lock box" since politicians can vote to make or increase payments into SS whenever outflow exceeds inflow.

I don't know about you, but I've never owned a stock that paid a dividend of X, that as soon as the company announced the dividend of X it requested each stockholder remit X dollars per share to the company so the company could then pay that dividend back to stockholders! That would be fraud. So is stealing money out of a trust fund that you intend to replace with money collected from the very people whom owned the money you robbed from the trust!

So is guaranteeing a "return" on money you borrow from taxpayers when that return is simply money collected from taxpayers, in addition to the taxes already paid, such that benificiaries are receiving a "return" on their "investment" that comes not from putting money to work but from collecting ever more money from new and current contributors. That is a PONZI.

Your head is up your ass, I'm sorry to report.

LMAOLORI's picture

 

 

Hey Maximimum ASS your a pussy poster if you want to post be man enough to post so we can down vote you.  

Social Security will be paid unless the entire government collapses since it is a legally enforceable debt just like any other. Even left as is the only thing that would happen is the benefits would be reduced in the future. The fund does not have the authority to tax,by law it cannot deficit spent.  Social Security is an entirely self funded program ZERO government money goes into Social Security something many don't seem to understand. It has NO EFFECT on the budget period other then when the fund actually cash's in some of it's IOU's like it recently started doing. Even then it isn't adding to the debt it is just collecting what it is owed. Social Security owned 19% of the debt last year far more then China or any foreign creditor. When/if it doesn't have enough funds it will have to cut benefits.

 
It doesn't matter if our government has been borrowing from Social Security for years ($2.7 Trillion so far). Social Security holds more of our debt then China and for the first time in history people will get back less then they were FORCED to pay in.

"According to a 2011 study by the Urban Institute, a married couple retiring last year after both spouses had worked throughout their lifetimes wound up paying about $598,000 in Social Security taxes. If the man lives to 82 and the woman to 85, they can expect to collect about $556,000 in benefits."

The public has been duped with lies about Social Security and obama's reduction in the payroll tax $166 Billion hurt Social Security even more. Many people act like it's the Senior's stealing from them. That claim is ridiculous as Social Security is an entirely self funded program paid for byEmployers/Employee's not the government.

Think about this since it is a legally enforceable debt if anyone actually tried to dismantle the program right now where would they get the money to pay it off remember it was the largest holder of our debt last year.  If you use entitlement in reference to Social Security in the sense that people are entitled to get back the money they were FORCED to pay in you are correct it's the law. Doesn't matter if it was a so called Ponzi Scheme or not the fault lies with the politicians who passed it into law to begin with long before the boomers who are starting to collect now had any say in it. Personally I am all for reform or getting rid of the program since I don't believe it was Constitutional to begin with but that's water over the damn now for the people who already paid into it.  If you want to correctly phrase something as a welfare program obamacare would be the one that's full of taxes that DO affect the budget.

 
Medicare is the real issue right now that's why they are campaigning on it.

For those who WHINE about the Senior's wanting the money back they were forced to pay in you have no moral high ground to do anything less is outright theft. How could anyone complain about a corrupt government if  they themselves are advocating theft from Seniors.  By LAW our government is obligated to pay it back .

"Far from being "worthless IOUs," the investments held by the trust funds are backed by the full faith and credit of the U. S. Government."

In addition our Constitution has this to say...

Sect. 4 of the 14th Amendment. It reads in part:

”… .the validity of the public debt of the United States, authorized by law… shall not be questioned”

I think that threatening to create conditions that may cause the US not to pay the debt owed it's own citizen's falls under questioning the validity of that debt.  A prior ruling by the Supreme Court albeit on an unrelated issue appears to back this up.

And second, there is this Criminal Mischief statute

18 US 1361. Government property or contracts

“Whoever willfully injures or commits any depredation against any property of the United States, or of any department or agency thereof, or any property which has been or is being manufactured or constructed for the United States, or any department or agency thereof, or attempts to commit any of the foregoing offenses, shall be punished as follows:

If the damage or attempted damage to such property exceeds the sum of $1,000, by a fine under this title or imprisonment for not more than ten years, or both; if the damage or attempted damage to such property does not exceed the sum of $1,000, by a fine under this title or by imprisonment for not more than one year, or both.”


The TRUTH About Who Really Owns All Of America's Debt
snip..
Social Security Trust Fund
Percent of US Debt that they own: 19%
China
Percent of US Debt that they own: 8%

It is a DEBT just like any other debt and every debt is someone's elses assets in this case the Seniors. The people who set it up and the politicians who borrowed from it they are the problem yet they have successfully misdirected the anger.

"Here's how it works: For nearly three decades Social Security produced big surpluses, collecting more in taxes than it paid in benefits. The government, however, spent that money on other programs, reducing the amount it had to borrow from the public, including foreign investors. That's why some advocates complain that Congress has "raided" Social Security.In return, the Treasury Department issued special bonds to Social Security. The bonds are now valued at $2.7 trillion."

The bonds pay interest like other Treasury notes and are backed by the full faith and credit of the U.S. government."

I am not saying Social Security is unlike a Ponzi Scheme but that isn't the fault of the people who paid into it, that's the fault of the Politicians who set it up and lack of leadership to either fix it for the coming generations or dismantle it.  

and pss

Helvering v Davis that doesn't apply to what I said either which is the money borrowed from the Social Security trust fund is a Debt owed by the government. You are also wrong about there not being a trust fund there most definitely is it is just filled with IOU's formally known as Special Issue Securities held under the Treasury Dept. Trust Fund Management Program and it was definitely funded by the people and their employers the fact that the politicians borrowed from it doesn't mean squat as long as the U.S. does not completely collapse it has to be paid back. The U.S. debt is guaranteed by the full faith and credit of America is guaranteed by our Constitution and in fact even if the country collapsed the fund being the largest creditor would then have first rights under bankruptcy against government lands, buildings, etc. 

 

Trust Fund Management Program

http://www.treasurydirect.gov/govt/apps/tfp/tfp.htm

 

Trust Fund Data

http://www.ssa.gov/cgi-bin/investheld.cgi

DocinPA's picture

You need some serious remedial legal analysis.  The Supremes ruled in 1937 (Helvering vs. Davis) that SS has no legal duty to pay benefits.  SS is a Treasury account, nothing more.  The second you pay SS taxes, that money is no longer yours.  Ever.  The Supremes also ruled that no citizen has a property interest in SS (Fleming vs. Nestor, 1960).  I'm not even a lawyer.  Get a frickin' clue already.

Moe Howard's picture

Exactly. Bottom line, it's a tax. They even stopped sending out those annual "statements" because it made even more sheeple think they were owed something.

 

I paid in also. I had no choice that would not land me in jail. However, I did not harbor a fantasy that I would get any of it back. I understood that the "greatest generation" would spend my contributions at golf courses in FL and fueling up the $50K RV for some more tourist activity. Simple math told me there would be nothing but scraps for the "baby boomers", and those scraps only for the front end. As I am a middle baby boomer I expect nothing. All that follow me should expect the same.

LMAOLORI's picture

 

 

That's not true we get annual statements and you can look yours up online. It is a dedicated tax btw which means it can only be used for the specific program for which it was enacted that is why the treasury cannot directly steal it they have to borrow from it. 

 

* The Social Security program has an independent budget that is separate from the rest of the federal government.[89]

 

* Social Security's sources of income include its dedicated taxes (payroll taxes and taxes on Social Security benefits), interest on the Social Security Trust Fund, and transfers from the general fund of the Treasury (like those required under the 2011 and 2012 payroll tax holidays).[90] [91]

 

* When Social Security's sources of income exceed its expenses, the resultant surpluses must be loaned to the general fund of the U.S. Treasury. By law, the Treasury must pay this money back to the Social Security program with interest. [92] [93] [94]

 

* The money owed by the Treasury to the Social Security program is referred to as the "Social Security Trust Fund," and at the close of 2011, it had a balance of $2.7 trillion.[95]

 

http://www.justfacts.com/socialsecurity.asp

 

 

 

Moe Howard's picture

Good luck collecting on that "Treasury Debt".

Fred Hayek's picture

Don't ever get yourself in a poker game against accountants. Apparently they can infinitely bluff you.

maximin thrax's picture

"...the Treasury Department issued special bonds to Social Security. The bonds are now valued at $2.7 trillion. The bonds pay interest like other Treasury notes and are backed by the full faith and credit of the U.S. government."

To prove to me you aren't simply a Doberman punching his master's keyboard, tell us WHERE this "interest" comes from. HINT: It doesn't come from Mars. It doesn't come from SS trustees using surplus contributions to buy AAPL at $200 and sell at $700. It doesn't come from hot dog stands bought and operated by SS trustees at a profit to provide a return to SS contributors.

maximin thrax's picture

Though US debt held by SS is a legally enforceable, Social Security is not a Constitutional guarantee. That is the mistake in your logic; you assume because the government owes SS money, the government must KEEP SS going in order to repay that debt. It exists at the pleasure of Congress. Resolve (close down, get rid of, etc.) Social Security, and all assests revert to the general fund, not to the public as some kind of refund, as the courts have upheld that SS contributions are just a tax.

If all assets at the date of resolution are Intergovernmental Treasurys ("special issue securities" in your brainwash jargon), then that debt is extinguished upon receipt into the General Fund, resulting in no net assets transferred.

Lastly, there is NO legal obligation for Congress to spend SS contributions towards SS recipients. If it ultimately must divert our contributions to pay off existing debt that, as you pointed out, "cannot be questioned" then it shall. Government will cease funding anything extra-constitutional in order to divert money into debt service to avoid default. THAT is what the law is telling you when it states that the debt of the USA shall not be questioned.

 

LMAOLORI's picture

 

 

I never assumed any such thing in fact I spoke to the political will to either fix it or dismantle it.  You are wrong Social Security is it's own program so it's not up to Congress whether or not the money is spent on those who contributed to it all that is laid out by law in the program itself. Furthermore according to our Constitution unless the entire country collapses the debt has to be paid and if the Country collapsed S.S. would be first in line for bankruptcy and would then be able to put a claim on the assets of the U.S., lands, buildings, etc. Not likely to happen either Central Banks and Politicians love debt slaves part of the very reason they borrow from S.S. is to disguise the amount of our debt.

It Is Impossible For The US To Default

snip

We could choose to do so, just as a person trapped in a warehouse full of food could choose to starve, but we could never be forced to. This is not a theory or conjecture, it is cold, hard fact. The reason the US could never be forced to default is that every single bit of the debt is owed in the currency that we and only we can issue: dollars.

http://www.forbes.com/sites/johntharvey/2012/09/10/impossible-to-default/

Fred Hayek's picture

I think a better analogy would be that you're living in a cabin in the woods and need to use 1 cord of wood a month to heat your main room but 2 cords a month to also heat another room and a loft off that other room. You can only bring in 1 cord of wood in stormy winter months. Your advice is to start dismantling the cabin itself to make up the difference in wood supplied to the fire. Others are suggesting to ignore the other room. Others realize that dismantling the cabin will screw you for good. It won't be good to not be able to use that other room but you'll just have to deal with it.

maximin thrax's picture

What is your preferred salad dressing on worthless FRNs? Talk about not understanding the character of money. You can only eat what is actually taken from the fields. Printing money doesn't make more food appear out of thin air. If there is a shortage of food, printing money only makes what food is available more costly, requiring further printing. Not only that, but the resulting inflation discourages investment in growing new foodstock because the meager return on investment to the farmer can easily be swept away by the inflation caused by the "warehouse of infinite dollars" once those dollars circulate. The farmer is better off burying his nut in the backyard than investing it in the next year's crop.

So, yes, the US can avoid default by printing money. But by doing that it destroys both the dollar and the economy. Who will sell us oil for anything close to a price we can afford once we detonate the dollar? You might say we could barter our food for their oil. Well, if you began printing to help people dependent on government handouts to by food that doesn't exist then you've already destroyed the ability of your farms to produce enough for the nation alone, much less a surplus for export.

And Congress can repeal laws it makes on any day of the week. To try to tell me that Congress can't end SS is an exercise in futility. You simply hope government will print our way out of debt, damn the consequences for the future (I'm guessing you are a senior), rather than apply payroll taxes to the debt when the shit hits the fan.

Lastly, there's no way that the Treasurys held by SS are senior to those held by foreign governments (who hold our dollars in reserve) and banks that use USTreasuries as capital against which loans are made. You are delusional, sir. Those treasurys are real and the consequences of default are horrendous.

Understand this one thing: Regardless of whether there are or are not Intergovernmental Treasurys held in a SS Lock Box to be redeemed by Treasury, ANY payment made from the Treasury into SS to cover a shortfall WILL BE NEW DEBT. It will add to both the annual deficit and the National Debt. That is because there are NO REAL ASSETS in that lock box, period. If the government is INCAPABLE of selling new debt then it cannot redeem the IOUs held by SS. That was the plan all along.

akak's picture

That which is impossible to repay will not be repaid.

It really is as simple as that.

Face it, LMAOLORI, the money IS NOT THERE, nor will it ever be, all legalisms and promises surrounding Social Security notwithstanding.  Most current SS recipients have been significantly screwed, in REAL terms, by their participation in this massive Ponzi scheme --- future recipients (to the extent that they will even exist) will only be much more screwed. 

FeralSerf's picture

And besides that, the criminal Zionist Koch brothers have decided that SS must be abolished and they intend to see that it is, even if it costs them millions.

I wonder how many people here are Koch shills.

Fred Hayek's picture

Way to fixate on irrelevancies. It doesn't particularly matter what the Koch brothers think about SS. It's a comparatively minor problem now. It's becoming a bigger problem. But the fixes to make it not too big of a problem are pretty straightforward. Means testing.

What I'm curious about and I haven't seen addressed in the article or comments is whether the SSI disability payments are taken from the trust fund or are separate. Does anyone know?

Itinerant's picture

What do you mean the money IS NOT THERE? Would it be there any more if they had turned it all into billiions of chests filled with quarters? This belies a ludicrous idea of what money is.

And where did the money go? It was used to untax the returns to financial speculation (capital gains, interest, and dividends). That money is not really there either, is it, as we learned in 2008? And all the money put in treasuries and bonds -- it isn't really there either and can be cancelled at a whim of congress in the same way that SS could be cancelled -- it's all a matter of who you decide should get the money. What if the government had loaned $T13 of new credit to SS instead of to the financial sector in the wake of 2008? And how about the BANKS where everybody keeps their money? If we should have learned anything by now, it should surely be that IT's NOT WHERE THE MONEY IS.

maximin thrax's picture

Yes, the money is not there. It's rather a simple concept. Money comes in and then it all goes out. You pay a tax to keep the program going and the government is under no obligation to keep the program going on forever. If the surplus had been "converted to quarters" then it would be there as quarters, which can be spent anywhere. But it was converted instead to debt, and though the debt is money good it is only repaid by the same taxpayers who gave the money to SS in the first place BECAUSE unlike normal treasurys it cannot be liquidated on the open market so is really worthless. Thus the only sorce of revenue to replace the raided surplus will be the pocket of the same person who put it there in the first place - the taxpayer.

It's like you put a Million dollars into a trust for your grandchildren. I come along as manager of the trust and take that Million and spend it any way I chose. I then ask you to pay me $20,000 per month for 100 months as a management fee to insure the trust will be executed, which I use to repay the trust. Lo and behold, after 100 months I have paid back ALL the money I took from your grandson's trust PLUS I've doubled it, which is better than a 9% annual return! I'm awesome! And it only cost you Three Million Dollars! Sucker!

The argument over the SS trust fund is every bit as stupid. You pay the FICA tax, ostensibly towards a retirement fund. The government spends every bit of it, not on your retirement in any way, and the portion that was surplus is taken and markered with Gov IOUs. These IOUs say they Gov will pay back SS, with interest. YOU then pay taxes to the Gov to repay YOURSELF the money you've already paid that government took, plus you pay yourself the interest. And people think that's a great system.

And, no, the government can't simply decide to not honor its debt by not redeeming treasurys, unless it is going to default. But as has been noted, the cdebt of the USA cannot be questioned, meaning Constitutionally our elected representatives must repay debt in some fashion. To do so, it CAN and WILL renig on promised social spending if it must divert revenue such as payroll taxes into debt service, because that which the Constitution dictates takes precident over whatever social program politicians have promised us to buy our votes.

Moe Howard's picture

[maximum this is not directed at you] Social Security is a tax, it is not a "defined benefit program" or any other nonsense people want to believe about it. The Supremes gave that decision many decades ago. Google it.

All the "trust fund" talk and the bs about high yeild coupons etc that Bruce babbled about doesn't matter. It's all one budget, one wallet if you like, one wad of debit and one wad of cash. HUD and the DoEn and the DoEd and every other waste department borrowed the money. The money was moved from one pants pocket to another, leaving the IOU behind. When HUD pays back an IOU to Social Security, where the fuck do you think that money comes from? Somewhere else in the universe besides the very same budget? If they don't tax you to get it, they print it, which is really just a tax as well.

The government can end Social Security at any time, they have no real obligation. If it was in the Constitution, it still would not be an obligation, they choose not to follow that document daily.