A Stitch in Haste

I find this hilarious:

The Social Security trust fund really does exist -- nestled in the bottom drawer of an unremarkable government file cabinet. It's in a pair of white loose-leaf notebooks holding plastic page covers. Each caresses a piece of paper representing a bond worth a staggering amount of money. Say, $8,577,396,000.00 ($8.577 billion), due on June 30, 2013, with 6.5 percent interest.
...
The papers -- signed by Susan Chapman of the Office of Public Debt Accounting -- obligating the "full faith and credit" of the United States to make good on the money owed. "The paper is symbolic," says Pete Hollenbach, spokesman for the U.S. Bureau of Public Debt, the creation of a 1994 law that anticipated the current debate about Social Security's solvency and whether the trust funds held anything more than IOUs.

In an interview, [former Congressman Andy] Jacobs said he wanted to rebut the "disingenuous assertions" that there was no trust fund, even though there was, in fact, no vault stuffed with cash to pay benefits.

So, to review, if I owe you $1,000 next year but keep spending my paycheck every two weeks in the meantime, having a piggy bank full of ever more IOUs from myself to myself is somehow "more real" than a piggy bank that is simply empty. (Remember, you don't get the IOUs -- I keep them myself in a piggy bank in a file cabinet strictly as an accounting device. But, according to the "there is no crisis" crowd, you should sleep better at night knowing that they exist.)

Then we have the "full faith and credit" straw man. The lie goes something like this: The federal government has never defaulted on its securities. The "trust fund" is full of government securities. Therefore, for the "trust fund" to be a fraud requires that the government default on its securities, which simply does not happen. Reductio ad absurdum. Therefore the trust fund exists. QED.

Um, no.

Again, the trust fund securities are obligations from the government to itself -- an accounting entry in a binder in Virginia. The Jacobs maneuver of having "a piece of paper" changes nothing. When it comes time for Social Security (i.e., the government) to redeem those trust fund obligations from the Treasury (i.e., the government), complete with their "full faith and credit" protections of "the government," it simply means that Treasury (i.e., the government) is going to have to find the money somewhere else to give to Social Security (i.e., the government).

And how does the government find money? Two ways: taxes or debt. So the net result of the "trust fund" is to force the government to raise taxes or raise the national debt anyway. Splendid.

Folks, I'm running out of different ways to explain this. The trust fund is a fraud -- it represents nothing more than a promise by the federal government to raise taxes, public debt or both in the future. With or without binders in Virginia, with or without piggy banks, with or without honesty from the opponents of Social Security reform.

The only questions now are: (1) What do we do about it? (2) Why are the politicians and others who oppose reform continuing to lie about this? What is their real agenda?

POST SCRIPT: For the record, there's actually there's a third way to "redeem" the trust fund -- monetizing the debt, a/k/a "cranking up the presses" and just printing more hard currency. But that would lead to pure (and quite high) inflation, which the government, not to mention the American people, won't tolerate.

Related Posts:
NYT Social Security Lie: "Private Accounts Won't be Inheritable"
Rock the Vote's New Scaremongering: Social Security
Who Faces the "Risk" of Social Security Reform?
More on the Social Security Wage Cap
Has Social Security Been a "Success"?