people accept the fact that there are no real assets in the trust fund with which to pay future benefits, they must ask the
question, “Does the government have the financial resources and the political will to raise enough money to repay the
$2.5 trillion that it owes to Social Security?” The problem is that, as the years go by, the amount
of money that would be required, each year, to repay Social Security just enough to enable it to continue paying full benefits
becomes larger and larger.
According to the 2008 Social Security Trustees Report (Table
VI.F9), in order to pay full benefits in 2020, the government would have to come up with $107 billion to add to the inadequate
payroll tax revenue. In 2025, paying full benefits would require the government to come up with $275 billion,
and for 2030, there would be a need for $471 billion. In 2035, the shortfall is $656 billion, and in 2040
the government would have to add $808 billion to the payroll tax revenue in order to pay full Social Security benefits.
It will not be easy for the government to repay the “borrowed” Social Security money, either
through higher taxes or with borrowed funds, given all the other financial demands resulting from the financial crisis.
If the government is unable to repay the borrowed money, the only other option is for the government to default on
its debt to Social Security and cut benefits.
Although I strongly oppose any effort
by the government to default on its debt to Social Security, as an economist who has followed federal finance for the past
30 years, I think the likelihood of that happening is higher today than ever before. I know that most economists
and other financial experts have long argued that the federal government could never default on any of its debt because of
the catastrophic effect that such action would have on world financial markets. I agree that the government
cannot, and will not, ever default on any of its public issue Treasury bills, notes, and bonds. These instruments
are as good as gold, and they are default proof.
Unfortunately, however, none of the
Social security surplus funds were invested in such instruments. Actually, none of the surplus Social Security
funds were invested in anything. The money was all spent pure and simple just as if it were general fund
revenue. The trust fund holds no real bonds—only non-marketable IOUs. The United
States government could default on these special Social Security IOUs without defaulting on any of its other debt.
Some nations might frown on such action by our government, but, since they would not be directly affected by such a
default, I think most countries would view such action as an internal matter between the United States Government and its
citizens. As long as the United States government continues to honor all public-issue Treasuries , I don’t
think failure to repay its debt to Social Security would have any significant international ramifications.
The sad part of all this is that, in the past, some Social Security funds were invested in these “good-as-gold”
Treasury bonds and every penny of the $2.5 trillion in surplus Social Security revenue, generated by the 1983 payroll tax
increase, could have, and SHOULD HAVE, been invested in such bonds. If that had happened, Social Security
would be in great shape today. The only reason the money was not invested in public-issue Treasuries, is
that, if real bonds had been purchased in the open market, they would have had to be paid for. Thus, there
would have been no money left over for the slush fund.
what was happening to the surplus Social Security money ten years ago while doing research for my book, “The Alleged
Budget Surplus, Social Security, and Voodoo Economics.” I was outraged and wanted to tell the whole
world about it, but nobody wanted to listen. I appeared on CNN on September 27, 2000, and
I did everything within my power to alert the public to the fact that the government was mishandling their Social Security
contributions. During the past ten years I have been obsessed with trying to alert the public that they
are being ripped of by their government. I have published four books on the subject, done 170 talk radio
interviews, and appeared on national TV three times. I feel very much like Harry Markopolos must have felt
during the nine years he tried unsuccessfully to convince the SEC that Bernard Madoff was operating the
world’s biggest Ponzi scheme. If the SEC had listened to Markopolos in 1999, thousands of individuals
and organizations would have avoided being swindled out of billions of dollars.
during the ten years since I first began trying to alert the public to the fact that all surplus Social Security revenue is
being fraudulently spent on other government programs, more than $1.4 trillion of additional Social Security money has been
looted and spent. That money, which belonged to the Social Security trust fund, and to American workers
who had made Social Security contribution through the payroll tax, is gone, and the government continues to loot and spend
more than $500 million of additional Social Security money each and every day!
practice, which has been going on for the past 25 years. could be abruptly halted if President Obama would just issue an executive
order instructing the Secretary of the Treasury that, effective immediately, all surplus Social Security money must be used
to purchase public-issue Treasury bonds in the open market. Each of the past four presidents also had the
authority to end the looting, but they failed to do so.
such an executive order today would prevent any additional looting during the remaining few years that Social Security will
run surpluses. However, it would be like locking the barn door after most of the horses are already out and gone.
The government needs to make some kind of provision for repaying the $2.5 trillion that it has already looted and spent.
Whether or not it will be willing and able to do so, is not at all certain. If you are convinced
that what I am saying is true, please join me in the effort to stop the Social Security fraud. It has been
very lonely for me out there over the past decade, and I would surely like to have some company.