Wednesday, December 12, 2012

Nobody Raided the Social Security Trust Fund


No, nobody, neither Republican nor Democrat, has "raided" the Social Security Trust Fund.  It is NOT full of worthless IOU's.

Photo found at CBS Money Watch.  Link in article.

When you put money in your bank or credit union, do you assume that the money you have deposited sits in a file somewhere with your name on it?  Is it somehow converted into gold or silver bars with your name impressed on them?  No, of course not.  You assume that the bank or credit union, while crediting your account with the amount of your deposit, has used your money by lending it out to other customers.  If you need it you can withdraw it.

So, in effect, do you have money sitting in a file somewhere?  No, you have an IOU.  The bank owes you whatever you have deposited into it on demand.  (Which is why checking accounts are traditionally called "demand deposit" accounts.)    

Likewise with Social Security.  

You don't have a file with a bunch of dollars (IOU's from the federal reserve, actually) sitting somewhere.  You never had.  Nobody ever had.

The value of the Social Security Trust Fund equals:

  1. The amount that workers and employers have put into the Trust Fund since it started.  PLUS:  
  2. Interest accrued since it started.  MINUS:  
  3. Funds paid out to beneficiaries.  (I do assume that the money to administer the fund comes out of the trust fund, but perhaps I am wrong about that.)  
But NO SOCIAL SECURITY MONEY HAS BEEN BORROWED OR STOLEN by the government, not when Republicans or Democrats have been in power, for anything else.  The value of the trust fund, now about 2.7 trillion dollars, is and always has been the full value of what has been put into the trust fund, PLUS interest, MINUS payments to people.

Worthless IOU's?

The IOU'S that make up the trust fund are only "worthless" if the whole economic system is worthless.  Likewise, the IOU's that make up your checking account are only "worthless" if the bank goes belly up and the Federal Deposit Insurance Corporation somehow ceases to exist.  If you think the "IOU's" in the social security trust fund are "worthless", then the cash "Federal Reserve Notes" that you might have in your wallet are also worthless.  For they are just pieces of paper that say they are worth something:  They are IOU's as well.

Our whole economy is run on trust, for that matter.  

You assume when you get paid that the automatic deposit into your checking account or the check you receive from your employer is worth something.  The retailers, landlords, utility companies, mortgage companies that take your money, whether via check, cash (those federal reserve IOU's), or electronic transfer, also assume that it is worth something.  Online banking and buying is nothing but the transfer of promises, the transfer of trust. NOTHING actually changes hands in terms of stacks of dollar bills, gold, silver, or any other precious commodity.

"Full Faith and Credit" of the United States Government

But all of these transactions, all of these IOU's, are backed by the "full faith and trust of the United States Government".  If these IOU's are worthless, whether dollar bills, funds in the Social Security Trust Fund, or money in banks and credit unions, then the United States is in really deep doo--- All of us, from the richest CEO with money deposited in the United States  to the poorest person receiving General Assistance (if that even still exists.) 



Social Security started to have (future) problems because the number of employed people paying into the Trust Fund started to go down relative to the number of beneficiaries.  This was supposed to have been fixed with the change to Social Security in the 1980's, but the main event that was unforeseen was the Great Recession of 2008.  Fewer and fewer people were working and contributing to the Trust Fund and more people were taking benefits early because they had no other income. 

Don't believe everything you read in one of those mass emails: 


I wrote this post as part of a reply to the following comment which apparently has been spreading via emails all over the Internet:
My Social Security payments, and those of millions of other Americans, were safely tucked away in an interest bearing account for decades until you political pukes decided to raid the account and give OUR money to a bunch of zero ambition losers in return for votes, thus bankrupting the system and turning Social Security into a Ponzi scheme that would have made Bernie Madoff proud.
My reply to this comment:
The Social Security Trust Fund is INTACT.  Your payments are STILL tucked away in that interest bearing account which is called the Social Security Trust Fund.  No, you don't have a specific account with your specific payments in it, but you never did and neither did anybody else. 



Now, when you deposit your money into a bank account, do you think the bank keeps your dollars sitting in a drawer somewhere? No, of course not. It loans them out to people and corporations. If everybody came in and tried to claim their deposits at one time and wanted currency, the bank would not be able to do it. THEY DON'T HAVE CURRENCY SITTING IN A DRAWER.

Likewise, when you pay your FICA tax, it doesn't sit in a drawer, and it never has. The government does not put a stack of currency in some kind of drawer for you. That money goes into the government's accounts, and the trust fund is credited the amount of whatever you put in.  

Right now there are 2.7 trillion bucks in the Social Security Trust Fund and it is earning about 3.9% interest. That 2.7 trillion includes ALL of the money ever deposited to the trust fund, ALL of the interest ever credited to the trust fund, MINUS all benefits ever paid out. NOTHING has been stolen or "raided".  Check out the value of the Social Security Trust Fund yourself HERE. 

It is unclear who the "zero ambition losers" are that you refer to:  People receiving other benefits? Defense contractors? I would assume, from the context, that whoever wrote this thinks that his/her social security funds are going to pay for "welfare queens". Anyone else want to take a guess?
Social Security is a Ponzi scheme.

No.  

Ponzi schemes are fraudulent schemes in which investors think they are getting an increase in their investments, but the money is actually coming from newer investors.  Eventually the whole thing blows up, as it requires a constant influx of new investors.

Social Security is NOT fraudulent.

Everybody KNOWS that we need new workers to help to pay for the benefits of older retirees.  With all of the Baby Boomers retiring, we can certainly use those DREAM workers, working legally, paying money into Social Security legally, can't we?      

2 comments:

  1. Your article misses the point of what "Raided" means. The bonds in the SS trust fund are indeed worth their face value and are there to pay future benefits.
    HOWEVER!!!!!
    In order to put those Bonds into the social security trust fund, NEW DEBT was created and the surplus money in the social security trust fund, every single year, is swapped out for NEW DEBT.

    If the money taken out was then used to pay down existing debt, then no "raiding" would have occurred.
    HOWEVER!!! The money taken out is then placed back into the general fund and is used at the discretion of the Congress.
    Therefore, every single year that NEW debt replace cash in the SS trust fund, and the cash is not used to pay OLD DEBT outside of the fund, THAT IS RAIDING!!!!

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  2. No, no new debt was created, as the SS Trust Fund has been self-supporting for most of its existence, from its earliest years. Now, with the FICA reduction associated with the stimulus (which expired over a year ago), yes, debt was created to put the money that was not gathered due to the decrease in the FICA tax back into the SS Trust Fund. Other programs create debt, but not historically the SS system.

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