What Happened to the $2.6 Trillion Social Security Trust Fund?

Image by DonkeyHotey via FlickrMerrill Matthews
Forbes

Here’s how President Barack Obama answered CBS’s Scott Pelley’s question about whether he could guarantee that Social Security checks would go out on August 3, the day after the government is supposed to reach its debt limit: “I cannot guarantee that those checks [he included veterans and the disabled, in addition to Social Security] go out on August 3rd if we haven’t resolved this issue. Because there may simply not be the money in the coffers to do it.”

And Treasury Secretary Timothy Geithner echoed the president on CBS’s Face the Nation Sunday implying that if a budget deal isn’t reached by August 2, seniors might not get their Social Security checks.

Well, either Obama and Geithner are lying to us now, or they and all defenders of the Social Security status quo have been lying to us for decades. It must be one or the other.

Here’s why: Social Security has a trust fund, and that trust fund is supposed to have $2.6 trillion in it, according to the Social Security trustees. If there are real assets in the trust fund, then Social Security can mail the checks, regardless of what Congress does about the debt limit.

President Obama’s budget director, Jack Lew, explained all this last February in USA Today:

“Social Security benefits are entirely self-financing. They are paid for with payroll taxes collected from workers and their employers throughout their careers. These taxes are placed in a trust fund dedicated to paying benefits owed to current and future beneficiaries. … Even though Social Security began collecting less in taxes than it paid in benefits in 2010, the trust fund will continue to accrue interest and grow until 2025, and will have adequate resources to pay full benefits for the next 26 years.”

Notice that Lew said nothing about raising the debt ceiling, which was already looming, and it shouldn’t matter anyway because Social Security is “entirely self-financing” and off budget. What could be clearer?

Unconvinced, syndicated columnist Charles Krauthammer wrote a subsequent column questioning Lew’s assertions. “This [Lew’s] claim is a breathtaking fraud. The pretense is that a flush trust fund will pay retirees for the next 26 years. Lovely, except for one thing: The Social Security trust fund is a fiction. … In other words, the Social Security trust fund contains—nothing.”

Social Security status-quo defenders have assured us for the past 25 years that Social Security is fully funded—for the next 25 years, or 2036. So if there are real assets in the Social Security Trust Fund—$2.6 trillion allegedly—then how could failure to reach a debt-ceiling agreement possibly threaten seniors’ Social Security checks?

The answer is that the federal government has borrowed all of that trust fund money and spent it, exactly as Krauthammer asserted. And the only way the trust fund can get some cash to pay Social Security benefits is if the federal government draws it from general revenues or borrows the money—which, of course, it can’t do because of the debt ceiling.

Thus, the answer to my initial question is that the president is telling the truth now in the sense that he is conceding there’s no money in the trust fund to pay benefits; but he and other Social Security status-quo defenders have been deceiving the public for decades.

And here’s the real irony: Anytime someone has proposed personal Social Security retirement accounts as a way to ensure that people have real assets in their own account without bankrupting the government or future generations, defenders of the status quo would pounce, calling such a reform, in Al Gore’s words, a “risky scheme.” They have vociferously claimed that those trust fund assets are real and that only by having the government manage and control the accounts would seniors be guaranteed to get their retirement checks.

Well, we have the status quo and seniors may not get their checks. Had we shifted to a system of pre-funded, personal Social Security retirement accounts years ago, this wouldn’t even be an issue—because retirees would have their own money in their own accounts.

Yes, the accounts likely would have declined when the stock market went down, though not if the reform were structured like three Texas counties did 30 years ago (see here). But in case you haven’t noticed, Social Security revenues also declined during the economic downturn—because fewer people were working—so that the government is paying out more in benefits than it is taking in, and hence needing additional federal revenues, a fact admitted by Lew.

If the budget crisis has done nothing else, it has exposed the decades-long lie about the solvency of the Social Security trust fund. The trust fund may be backed by the “full faith and credit of the federal government,” as defenders constantly remind us, but if it had real assets the president wouldn’t be talking about seniors missing their checks.

Dick Fuld made almost half a billion dollars from fraud

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The Automatic Earth
Lehman's CEO Dick Fuld made almost half a billion dollars off the fraud he oversaw, states Dylan Ratigan. Fuld has been walking around free, enjoying his loot, for 18 months, since Lehman collapsed. And that's not because nobody among the US market regulators knew. You know why it is? It's because they DID know. It’s because the SEC and the NY Fed under Geithner and the Treasury under Paulson and the Fed under Greenspan and Bernanke DID know, that Dick Fuld gets to spend his part of the loot. It’s because part of the loot went to all of the above, because they’re all guilty as sin. Oh wait, what does that say about Obama? That he's guilty too, or only that he's not all that savvy? And look in the mirror, what does it say about you?

Yves Smith says Tim Geithner needs to be fired for his involvement in the insane saga of the Lehman demise. Well, that's a nice first reaction, but when you dig a bit, he should maybe also have been fired for his part in the AIG scam. Or Bear Stearns for that matter, which he had the duty to oversee as head of the New York Fed. Tim Geithner will never be brought to justice precisely because Tim Geithner himself should be brought before a jury of his peers, and his peers are as guilty as he is.

Firing Geithner would be letting him off easy. He should be put on temporary leave pending an independent investigation. That's how politics works in other countries, so why not in the US? The investigation should be rapid and thorough, and led by someone who can prove they’re not associated with Wall Street in any given way. Say, Elizabeth Warren or Bill Black. And then there should be a temp replacement as Treasury Secretary, say, let's see, Elizabeth Warren or Bill Black. Or you could give either post to Harry Markopolos. Am I leaving out anyone? There's really only a few good "men", ain't there? It’s much easier to come up with a lost of names of people who should never ever be appointed to these posts than it is to name those who might.

But yeah, I know, I'm only dreaming. This present bag of Al Capones, except for a few carefully selected scapegoats (Dick Fuld: Tar and Feathers!), will never be brought to justice, because Eliott Ness wouldn't stand a chance in today's America, or London, Paris, or Tokyo. We just would like to believe he would, so much so that that very belief is actually aiding and abetting both the crimes and perpetrators. We don’t want real life, we want the hologram. We tell ourselves: "but there's nothing I can do about it", and we use that statement as an excuse to let people like Dick Fuld and Tim Geithner walk all over our children's graves.

There's times when I think that perhaps the best thing that could happen to us is for our lives and dreams to be thrown off a cliff and see what survives the landing, we can't seem to wake up in any other way. You know, the sort of thing that sounds good in theory. But I can clearly see the suffering that would come with it, and I don’t like it. Not one bit. Whatever we do, though, we must make sure of one thing. That we find back our moral fiber, and act on it. More...