The Trust Fund doesn't exist.

[Kaleva]

In order for money to be drawn from the Trust Fund, the government would have to raise taxes, reduce benefits and/or borrow money just as if the Trust Fund never existed in the first place.

I saw this in another post here in GD and it really struck me.

[CleanGreenFuture]

1. I also suspect that the entire fund has been stolen.

[Kaleva]

And we are going to have to pay for it.

[CleanGreenFuture]

6. I can't believe millions aren't migrating to DC right this minute. What is wrong with

Americans? Are we going to allow this to happen to us and our children and our grandmas and grandpas?

Are we???

[JackRiddler]

27. If "stolen" means spent to pay for wars and "defense" and giving to the rich.

[CleanGreenFuture]

28. As in...yes. The funds were stolen during the bush years and was given

to the members of the club George Carlin spoke of (that you and I aren't a member of) by way of countless no-bid contracts for everything from defense contractors to security contractors to oil and gas contractors to any number of otherwise shady contractors as well as banker ans Wall Street barons.

The largest heist in the history of mankind.

[JackRiddler]

50. Tax cuts for rich, wars and "defense" and homeland, bailout.

This is what they're eyeing now: how not to pay back the $2.6 trillion owed to Social Security.

[CleanGreenFuture]

56. And, really, I think it's gotten out of hand due to the economy and the

trouble they're having reaching a deal is because they are stuck between a demanding public and a demanding elite class as to whose money will be used to pay it back.

At this point, it looks like the public will pay twice - once to fill the fund in the first place, then to replace it after it was stolen.

[Amonester]

2. Where did cheney/bu$h get the trillion to profit from their war in Iraq?

Since that trillion was never appearing in budgets, they had to steal it from elsewhere...

[mmonk]

3. Treasuries are bought and sold to produce the fund and is constant.

Also, you have the payroll collection everytime someone is paid. So the dedicated tax is collected ongoing throughout the year.

[pnwmom]

7. But if we default the treasuries will automatically be worth less --

maybe much less. It's a vicious cycle.

[Lasher]

4. Then my home mortgage loan doesn't exist.

I can't wait to tell my bank tomorrow.

[Kaleva]

19. The bank can take your house. We have no rights to SS benefits.

[Lasher]

31. We have rights to Social Security benefits.

Federal law says so, just like the law says I have to repay my home mortgage loan. But the law can be changed so that I don't have to repay my loan, thereby robbing the bank of what it is owed. Same thing with Social Security.

It's the same thing.

[Kaleva]

39. I'll agree with you there.

My difference is with those who say they are absolutely guaranteed benefits when they retire or become disabled. That is not strictly the case because Congress reserved the right to change and modify SS when they passed the Social Security bill.

I could never take Congress to court if that body decided to change the law in a way that severely reduced or even eliminated my monthly pension. Well, I could try but I wouldn't win.

[Lasher]

55. You are right.

Stop the presses! Two people on DU just agreed about something!

[indurancevile]

32. You just keep saying that, maybe that will make it true. Flemming didn't say beneficiaries

as a class have "no rights" to benefits.

[Kaleva]

40. The only rights we have, in regards to SS, are what Congress gives us.

[kentuck]

5. If the trust fund doesn't exist, then neither do the treasury notes....

to China or any of our debtor nations. Why should we assume that foreign debt take precedence over debt to the American people.

The money in the SS fund is paid by the workers to insure them in their later years or if they become disabled. Just because the government borrowed it does not mean it has disappeared. What other taxes can you think of that are paid into a fund for such specific purposes? Veterans benefits? Defense spending? Catastrophic events? Most everything the government spends is from the general fund. The SS fund does not have to ask for money from the general fund - it has its own fund. It is unique to all other government spending.

[pnwmom]

9. Debt takes precedence by the 14th Amendment.

Social security payments aren't debt in the same way that Treasury notes are.

[Kaleva]

16. But China is under no illusion that money it'll earn will come from some special trust fund.

The money paid to China and other debtor nations will come from raising taxes, cutting services and/or borrowing money. The shortfall in SS this year is about 45 billion. Since the govt. hasn't raised taxes or cut benefits, it borrowed the money to make up the difference. Just as it would have if there never was a Trust Fund.

[dkf]

8. I posted this before, but you may see more relevance in it now that you get this...

Most Americans believe that the Social Security trust fund contains a pot of money that is sitting somewhere earning interest to pay their benefits when they retire. On paper this is true; somewhere in a Treasury Department ledger there are $2.4 trillion worth of assets labeled "Social Security trust fund."

The problem is that by law 100% of these "assets" are invested in Treasury securities. Therefore, the trust fund does not have any actual resources with which to pay Social Security benefits. It's as if you wrote an IOU to yourself; no matter how large the IOU is it doesn't increase your net worth.

This fact is documented in the budget, which says on page 345: "The existence of large trust fund balances … does not, by itself, increase the government's ability to pay benefits. Put differently, these trust fund balances are assets of the program agencies and corresponding liabilities of the Treasury, netting to zero for the government as a whole."

Consequently, whether there is $2.4 trillion in the Social Security trust fund or $240 trillion has no bearing on the federal government's ability to pay benefits that have been promised. In a very technical sense, it would lose the ability to pay benefits in excess of current tax revenues once the trust fund is exhausted. But long before that date Congress would simply change the law to explicitly allow general revenues to be used to pay Social Security benefits, something it could easily do in a day.

The trust fund is better thought of as budget authority giving the federal government legal permission to use general revenues to pay Social Security benefits when current Social Security taxes are insufficient to pay current benefits--something that will happen in 2016. Effectively, general revenues will finance Social Security when the trust fund redeems its Treasury bonds for cash to pay benefits.

http://www.forbes.com/2009/05/14/taxes-social-security-opinions-columnists-medicare.html

[pnwmom]

11. And if we default, and Treasury notes are worth less,

won't that mean there is even LESS money to use to pay out Social Security benefits?

[Igel]

14. No.

It doesn't mean that.

The notes held by the SSA are special issue. There are different categories of federal securities. In principle there's nothing to prevent on defaulting on Savings Bonds but not on T-bills, on T-bills but not on the special-issue SS obligations. Even then, because they're issued by the Treasury to only one entity, the SSA, it's not exactly like there's a market for them that would permit them to be valued at anything less than face value.

But since the obligations are held by the government to the government, there's nothing preventing Congress from stepping in. SS is not an agency independent independent of Congress, but a creature of Congress.

Doesn't matter, though, because "default" is only an option if Treasury decides to default. You have a lot of debts and a lot of obligation. If they don't drain the bank accounts on 8/2 for stuff not Constitutionally mandated to be honored then there's going to be money for servicing the interest on the debt. That's about $220 billion a year, and monthly revenues are over $100 billion.

[dkf]

29. Ironically because the treasury bonds in the SS fund are non negotiable, their value

Doesn't fluctuate.

[mmonk]

17. Well I plan to attend a townhall meeting that has Nancy Altman

and other members of Social Security Works Sunday evening. I'll see what they have to say.

[Kaleva]

21. "netting to zero for the government as a whole."

Congress could do away with the Trust Fund next week and in reality, nothing would really change.

[indurancevile]

33. Tell it to ronald reagan's rotting corpse.

[dkf]

38. He pulled a fast one on us

It is beyond disgusting. I get so mad when I think about it.

[pinboy3niner]

53. I'm sure you do

:sarcasm:

You got one thing right: disgusting. But that adjective should be applied to you, and all your attacks on Social Seurity.

To tell you the truth, I don't know why you're still here.

[reformist2]

10. The Social Secuirty surplus was used to cover for the taxes the rich should have been paying.

The only fair thing to do when we start cashing in these treasuries is to have the rich pay for it in the form of increased taxes.

[sabrina 1]

12. But the Govt's guarantee of payment DOES exist.

And we need to make sure they pay.

We can never accept them defaulting. Which is what they are trying to do without saying so.

We are creditors, like China and if they outright default it will make their other creditors very nervous.

So, they are pulling all kinds of tricks to try to get out of their debt to the American people.

It's not that they CAN'T pay up, it's that to do so, they will have to make their rich buddies start 'sharing the sacrifice'.

They are figuring it this way, if they can find ways to cut benefits, that sends money into the fund and that can be used to pay out what is due, less than is due maybe, but if they do it in increments, and if they can frighten people badly enough they will be willing to give up a little more, they can buy another yacht, or another mansion somewhere.

They have assets and it's up to Democrats, because we know Republicans are not going to do it, to force them to start pulling up their bootstraps and start using them.

I think by now everyone knows what those assets are.

1) End the Wars, they can't afford them.
2) End the Bush Tax cuts, they have cost over 2 trillion dollars so far.
3) Raise the cap on SS taxes, they can afford it.
4) Most important, start creating jobs
5) Cut the Pentagon Budget in half. There would still be too much going to that organization.

And, imo, they need to get more money out into the economy, and the best way to do that is to RAISE SS BENEFITS. Those people will spend their money, having so little of it already. And it is theirs, they earned it.

But no way, no way should we accept these devious games they are playing and let them off the hook.

[Kaleva]

22. There is no guarantee to us though. We have no legal rights to SS benefits.

[indurancevile]

34. .again?

[Lasher]

35. The hell we don't.

If we don't have a right to the benefits, why does federal law have to be changed to cut them?

[quaker bill]

13. Striking, but also wrong.

The US government is a soveriegn issuer of currency. Therefore there is an alternative. Just like they did with TARP, they can just mouse click money into people's accounts.... There are limits to how much of this they can do at any one time and avoid inflation, but we are well short of that limit.

[Igel]

15. That's another extreme.

One side says that the SS is flush with money, absolutely wrongly asserting that it's of no consequence to anybody if SS needs to redeem the bonds.

The other extreme is to say that the bonds are worthless and the trust fund doesn't exist.

In between are the likely truths. For one thing, there's the interest. It's not to be sneezed at.

For another, if the deficit gets down to the manageable levels of the * administration, or even lower, there's nothing preventing redeeming a $100 billion of the money a year, assuming the markets bear it. But that depends on deficit reduction and getting the deficit down from what many defend, $1.3 to $1.5 trillion, to what many thought unsustainable, $200 billion or so.

[reformist2]

18. The T-bonds held by the trust fund are backed by the "full faith and credit" of the US

They may not be able to sell them on the market, but those assets are as real as the marketable T-bonds held all over the world.

[CleanGreenFuture]

20. I hope you're right. At this point, I don't know what to believe. I do know this,

8 years of bush/cheney.

That's all I need to know to have my suspicions that they found a way to loot that program. They are desperate to alter it now. Something is terribly wrong here.

[Lasher]

37. Yes, something is terribly wrong.

You're on the right track.

[pa28]

23. It's as valid as our other obligations to foreign countries, private investors and institutions.

To convince yourself that you are no longer a creditor in that system is exactly what the enemies of Social Security would like you to believe. Don't buy it.

[Kaleva]

24. The Supreme Court ruled back in 1960 we have no rights to SS benefits so ...

how can we be considered creditors?

[pa28]

26. We can't "cash in" what we've contributed to the system but we are vested.

You are a contributing member of the organization known as Social Security and that organization is owed money in the form of treasury notes by the US government.

It's real money and by making the surplus perpetual instead of spending it down as was originally intended we effectively allow a back-door default. We'll have to pay for that default ourselves in the form of cuts which effectively doubles the burden.

[indurancevile]

36. it didn't, no matter how many times you repeat that right-wing lie.

[Kaleva]

41. Another way to look at it.

"To engraft upon the Social Security System a concept of "accrued property rights" would deprive it of the flexibility and <363 U.S. 603, 604> boldness in adjustment to ever-changing conditions which it demands and which Congress probably had in mind when it expressly reserved the right to alter, amend or repeal any provision of the Act. Pp. 610–611. "

http://en.wikipedia.org/wiki/Social_Security_%28United_States%29#The_Supreme_Court_and_the_evolution_of_Social_Security

In the past, the Supreme Court has struck down many laws passed by Congress as being unconstitutional but in Fleming, the Supreme Court upheld the right of Congress to modify, change or do whatever with Social Security. We have no inherent right, under the Constitution, to social security benefits.

[indurancevile]

47. it's "flemming". and your statement "the court ruled we have no rights to social security benefits"

is a false accounting of the sc decision.

[customerserviceguy]

25. The trust fund

is a bunch of IOU's (Bernie Sanders' words, not mine) that do NOT have the same substance as freely traded Treasury bonds and notes. Perhaps they should be replaced with fully negotiable T-bills, that would add liquidity to the system.

It wouldn't affect the debt ceiling as the SS trust fund borrowings are already part of the current ceiling. Trading one security for another wouldn't change that.

[indurancevile]

30. That in no way means the Trust Fund doesn't exist, or never existed.

It's existed since the inception of Social Security.

Yes, to pay it off the government will have to take money from general revenues, just like it always has when it redeemed social security bonds -- which it does on a regular basis, btw.

[girl gone mad]

42. A sovereign currency government can always meet its debt obligations.

This includes Social Security. The Trust Fund is just an accounting device that the government uses in relation to the payment of future retirement benefits. In reality, the Trust Fund is completely unnecessary and irrelevant to the equation. You need to try and understand how our monetary system actually functions.

[Kaleva]

43. In 2002, Argentina defaulted on 1 billion owed to the World Bank.

In 1998, Russia defaulted on its internal debt.

[girl gone mad]

44. After the breakdown of the Soviet Union...

Russia pegged the ruble to the US dollar, thereby surrendering their currency sovereignty.

Argentina also had a fixed exchange rate currency in 2002.

These are not examples of sovereign currency regimes.

[Kaleva]

45. I can find nothing that says the ruble was once pegged to the dollar.

[girl gone mad]

46. ...

http://www.nytimes.com/2010/05/12/business/global/12iht-ruble.html

"Mr. Nash, in his investor note, wrote that bond investors analyzing the situation in Greece and the other weak southern European economies may be doing what bond investors did during the Russia crisis — sizing up underlying negative financial forces so potent that many investors bet against even the bigger bailout package.

Back then, as now, a global economic crisis had rendered local economies uncompetitive at the existing exchange rates. Russia at the time had pegged the ruble to the dollar, Greece today is locked into the euro zone.

In Russia’s case, the prices for the country’s mainstay petroleum exports had plummeted the previous year because the economic contraction in Asia in 1997 had diminished demand. The ruble was under pressure to follow this trend downward. For many months, though, the Russian central bank kept the ruble pegged to the dollar — a dollar that was gaining strength as global investors sought a safe harbor. "

http://www.douban.com/note/130440681

"A $22.6 billion, the International Monetary Fund and World Bank financial package was approved on July 13 to support reforms and stabilize the Russian market by swapping out an enormous volume of the quickly maturing GKO short-term bills into long-term Eurobonds. This had started to be implemented with some success by July 24, yet the Russian government decided to keep the exchange rate of the ruble within a narrow band, although many economists, including Andrei Illarionov and George Soros, urged the government to abandon its support of the ruble.

On May 12, 1998 Coal miners went on strike over unpaid wages, blocking the Trans-Siberian Railway. By August 1, 1998 there were approximately $12.5 billion in unpaid wages owed to Russian workers.

On August 14 the exchange rate of the Russian ruble to the US dollar was still 6.29. Despite the bailout, July monthly interest payments on Russia's debt rose to a figure 40 percent greater than its monthly tax collections.

At the time, Russia employed a "floating peg" policy toward the ruble, meaning that the Central Bank at any given time committed that the ruble-to-dollar (or RUR/USD) exchange rate would stay within a particular range. If the ruble threatened to devalue outside of that range (or "band"), the Central Bank would intervene by spending foreign reserves to buy rubles.

The inability of the Russian government to implement a coherent set of economic reforms led to a severe erosion in investor confidence and a chain-reaction that can be likened to a run on the Central Bank. Investors fled the market by selling rubles and Russian assets (such as securities), which also put downward pressure on the ruble. This forced the Central Bank to spend its foreign reserves to defend the ruble, which in turn further eroded investor confidence and undermined the ruble. It is estimated that between October 1, 1997 and August 17, 1998, the Central Bank expended approximately $27 billion of its U.S. dollar reserves to maintain the floating peg."

[indurancevile]

48. i found something in 30 seconds by submitting "ruble dollar peg"

CB Ends Ruble Peg to Dollar
07 February 2005

Read more: http://www.themoscowtimes.com/business/article/cb-ends-ruble-peg-to-dollar/225362.html#ixzz1SoRVyB00
The Moscow Times

[hfojvt]

49. except it is simply not true

Look at 2009, which is the most recent year of data in the SAUS

2009 - total debt was $11.876 trillion
trust funds were $4.33 trillion
and debt held by the public was $7.545 trillion

Now, change nothing except to wipe out the trust fund. Bang, it is gone. Total debt IS the same, but now instead of having a trust fund the Government would already be borrowing another $4.33 trillion from the public.

Now, in either scenario, if Social Security falls short by a few hundred billion, the government will have to borrow those few hundred billions, BUT

there is a clear difference between borrowing a few hundred billion when you already owe $7.5 trillion and borrowing a few hundred billion when you already owe $11.9 trillion. That is the huge difference that the trust fund makes.

[Kaleva]

51. Why borrow 4.3 trillion when the shortfall this year for SS is about 45 billion

The US will pay about 116 billion in interest to the Trust Fund which covers the revenue shortfall and makes it appear there is the surplus. The surplus interest is then used to buy the special bonds from the Treasury which increases the amount in the Trust Fund and the govt. spends the money gained from the special bonds. But then we have to pay that back at some point plus pay interest again on it.

Wouldn't it be simpiliar to do away with the Trust Fund and return to the "pay as you go" system we had before? Change the law so that general revenue can be used to make up for future shortfalls in SS revenue which is really what's going to happen anyways. The Trust Fund is just a middle man who makes it appear that general funds are not being used to finance SS.

[hfojvt]

54. without the trust fund, we would have had to borrow that $4.33 trillion

and why not take it off the books? Because it is owed. It is owed to me. It is owed to my brother and my sistsrs and my in-laws. Change the law to pay SS and medicare from general revenues just makes them more vulnerable to cuts from future rightwing Congresses. One reason they can even talk about cuts now is because they have already convinced my generation that it's bankrupt and not gonna pay anything.

The only thing that becomes simpler when you do away with the trust fund, is that it becomes simpler to not pay back what is owed to boomers and Xers.

[Kaleva]

57. We're going to have to borrow it anyways.

There's no 4.33 trillion sitting in a bank somewhere.

[pinboy3niner]

52. Doesn't exist? Total BS

It DOES exist--at least for now.

[dawg]

58. Money doesn't "exist".

Money is just an accounting fiction we use to facilitate transfers of goods and services. It doesn't actually exist, except for ones and zeroes coded into electronic records. Oh, well, I guess you've got that dirty green paper stuff, too.

But all money, including the trust fund, including your life's savings, including government bonds, is just an accounting gimmick.

That doesn't mean we should start defaulting on our agreements, though. The Social Security trust fund is just as valid and "real" as the twenties in your wallet.

[Uncle Joe]

59. If money exists so does the Social Security Trust Fund,

Money = IOU

Bonds = IOU

Treasury Bills = IOU

Treasury Notes = IOU

When or if the government decides to default on their obligations to the fund then all of those IOUs will become worthless.

Thanks for the thread, Kaleva.