URGENT: Social Security checks WILL go out August 3

Your retirement money is safe and sound in that Social Security Trust Fund lockbox. Right? Right?

Washington, July 13, 2011 – Ratcheting up the budget rhetoric yesterday, President Obama terrified America’s Social Security retirees yesterday with the following observation: “I cannot guarantee that those checks 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.” Veterans and the disabled might also be in a precarious situation, according to online Forbes commentator Merrill Matthews.

Fear and outrage have been building among Social Security recipients in recent weeks that many of them might lose what amounts to their only source of retirement income. Others, however, aren’t worried at all.

In a letter to the editor of the Morgan Messenger, one stalwart, confident West Virginian explains why he’s not concerned. “I am living on Social Security,” he writes in the July 8 edition of the paper. “My cash inflow is not coming out of any largesse of the government or of the taxpayers. The funds I receive were bought and paid for over the entire span of my working life by my contributions into the Social Security Trust Fund.” Well, that’s what we’re told, anyway.

“I am simply withdrawing now what I previously deposited,” our citizen continues, “with both processes mediated by the rules of the program. Call it a pension plan or an annuity or a Ponzie [sic] scheme if you li[k]e, but you cannot in honesty call it government spending. It was never the government’s money to spend. So I am puzzled, as to why Social Security should be on the deficit reduction table at all.”

If you examine each of these responses carefully, the President’s and the citizen’s, you can logically arrive at only one conclusion: either the President or this citizen is misinformed.

At first blush, at least, figures generated by the Social Security Trustees themselves would seem to favor our West Virginia citizen as the winner in this round of Double Federal Jeopardy. By simply linking to the Trustees’ May 2011 report, you can download a PDF file that provides the system’s accounting through year-end 2010. On page 29 of this document, you can easily see that there’s a substantial balance of approximately $2.6 trillion in that Social Security lockbox that Al Gore once made famous.

Empty Box.

Artist’s rendition of the Social Security lockbox. (That’s right. There isn’t one.)

Since the Social Security Administration is, currently at least, paying out–or appears to be paying out–less than it’s taking in, that $2.6 trillion ought to be considerably more than we’ll need to pay out those August 3, 2011 checks no matter what Congress and the White House do about raising the debt limit. Because, as we all know, Social Security is a separate entity and not really part of the Federal budget both parties and the President are jousting over, correct?

President Obama’s current OMB Director Jacob Lew seemed to back this up a few months back in a piece he wrote that appeared in USA Today editorial section. “Social Security benefits are entirely self-financing,” he asserts. “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.”

So far, so good. But what do these funds do next before they’re spent? Just sit there? Nope. They’re “invested” in U.S. Treasury securities, according to Mr. Lew: “When more taxes are collected than are needed to pay benefits, funds are converted to Treasury bonds — backed with the full faith and credit of the U.S. government — and are held in reserve for when revenue collected is not enough to pay the benefits due.”

But here is where things get interesting. In an attempt to score a few shopworn Obama Administration talking points about “the wealthy” and the Bush prescription drug benefit, Mr. Lew actually blunders into making a big-time mistake. He inadvertently tells the truth about what’s really going on with that Social Security lockbox where all those citizen funds are safely kept.

For years, the surpluses in the Social Security trust fund have helped to mask our deficits elsewhere,” he writes. [Italics mine.] “Now that we are paying Social Security back, the problem is not with Social Security, but with the rest of the budget. In 2001 and 2003, Washington cut taxes for the wealthiest Americans and later expanded Medicare without paying for it. Blaming Social Security for our fiscal woes is like blaming you for not saving enough in your checking account because the bank lost all depositors’ money.”

Now hold on thar, Baba Looey!

If you’re thinking this sounds like we’ve been borrowing Social Security funds to pay for the “rest of the budget,” you just might be onto something. While endeavoring to sidetrack us into hating Bush and the evil rich, Mr. Lew opens up a Pandora’s box of deceit, the extent of which neither party really wants us to know.

By “investing” Social Security funds in Treasuries, the Federal government is, in fact, funding current payouts with borrowed money. That’s what Treasury securities are. Bonds. I.e., debt instruments.

Ergo, “paying Social Security back” is just a fiction. Freshly borrowed money is being dumped into the Social Security checkbook and checks are being written to expend that money to recipients as fast as it’s coming in, even as more money is being borrowed.

In a March 11 WaPo op-ed column addressing Mr. Lew’s assertions, Charles Krauthammer put things a bit more bluntly. “The new line from the White House is: no need to fix [Social Security] because there is no problem…. Therefore, Social Security is now off the table in debt-reduction talks…. This claim is a breathtaking fraud.”

Going back a bit in history, Mr. Krauthammer dug up an earlier article where Mr. Lew also inadvertently told the truth, back when he was, believe it or not, Bill Clinton’s OMB director. According to Mr. Krauthammer, Mr. Lew explained that the positive “balances” in the Social Security trust fund “are nothing more than a ‘bookkeeping’ device.” To the contrary, they “do not consist of real economic assets that can be drawn down in the future to fund benefits.”

Mr. Krauthammer concluded: “In other words, the Social Security trust fund contains - nothing.”

Game, set, and match to President Obama! Social Security is a part of the Federal budget after all because the Federal government has already spent the money. (Read the rest of the Krauthammer link above to discover why.) Oops. Social Security retirees will have to be concerned about August 3, after all. (Sorry about that attention-getting headline, guys.)

Unfortunately, it also looks like our West Virginia citizen’s confidence in the honesty and integrity of the Federal government may be sadly misplaced. Indeed, a bit later in his lengthy letter, he shows clear signs of having already quaffed a bit of the socialist Kool-Aid both President Obama and the Senate Democrats have lately been serving up.

“Now there are apparently many people — Republicans mainly, I suspect — who seem to think Social Security contributions are actually another form of income tax and benefits a Bread & Circuses government handout,” he writes. His observation is actually quite perspicacious. Problem is, he’s identified the wrong party as the culprit, as Mr. Lew and Mr. Krauthammer have already taken great pains to prove.

Our citizen is no doubt confident his Social Security payments were and are held for him in trust and “it was never the government’s money to spend.” Granted, that’s the way it was supposed to be. But the Democrats, whom our friend seems to greatly admire, clearly never looked at that tempting pile of Social Security money quite that way. As a result, they spent all his money a long time ago, likely beginning with the Great Society and ending, abruptly, with the housing crash and the Great Recession of recent years. One more illusion comes crashing down around us all.

It’s now perfectly clear to all who will see that the Emperors of Social Security have no clothes, and indeed have lacked a wardrobe of any kind for quite some time. Social Security checks issued today are issued with borrowed money from younger Boomers, Gen Xers, and beyond-devious accounting tricks have long concealed this inconvenient truth from the Unwashed Masses that politicians, academicians, and the MSM love to despise. God help us when the kids finally figure this out.

As to that now-legendary Social Security lockbox—it’s empty, raided and pillaged long ago, primarily by radical Democrats eager to buy successive elections with increasingly reckless giveaways to their favored constituencies. (Although George W. Bush owns the Medicare Part D debacle.) Truth be told, we could confiscate every last dime from “the rich” today and still not even come close to paying for the Biblical flood-tide of red ink we now confront.

Obama scare tactics to the contrary, it’s entirely possible that additional accounting tricks can be deployed to keep Social Security checks coming in August, even if Congress and the President fail to achieve a budget accord by what is probably a faux deadline anyway. Meanwhile, the investment climate, increasingly manic-depressive over the last week or so, will grow ever more treacherous and volatile.

Folks, this is no way to live. We are going to need to replace a lot of legislative—and executive—adolescents in this town with grown-ups in the upcoming election. If we don’t, Social Security may end up being the least of our worries.

Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate in Virginia, West Virginia, and Maryland.

Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.

References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any article under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.

Read more of Terry’s news and reviews at Curtain Up! in the Entertain Us neighborhood of the Washington Times Communities. For Terry’s investing insights, visit his WT Communities column, The Prudent Man in Politics.

Follow Terry on Twitter @terryp17

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Terry Ponick

Now writing on investing, politics, music, movies and theater for the Washington Times Communities, Terry was formerly the longtime music and culture critic for the Washington Times print edition (1994-2009) before moving online with Communities in 2010.  



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