I
was outraged, and I wanted to tell the whole world so they would be outraged too. But nobody wanted to
listen. It just didn’t seem credible that our own government, both Democrats and Republicans, would
engage in such fraud against the American people.
As part of my efforts to alert the public, I began sending material to candidate Al Gore in
early 2000. I sent him advance copies of my book, research findings, and several letters. I urged Gore
to put distance between himself and Clinton on Social Security and take a stand against
the continued use of Social Security money for non-Social Security purposes. I used multiple channels of
commun-ication in sending the material to Gore in order to be sure that at least some of it got to him.
I cannot be sure that I was the source of Gore’s idea to propose the Social Security lockbox,
and to make the raiding of the trust fund a major campaign issue. However, the important point is that
Gore did take a stand against the continued raiding of the trust fund, which resulted in George W. Bush taking
a similar stand. Thus, during the 2000 campaign, both Gore and Bush entered into a new covenant with the
American people on how Social Security revenue would be treated in the future. They both acknowledged that
the trust fund had been raided in the past and pledged to end the raiding.
With both candidates making such a pledge, it appeared that no matter who won the 2000 election, the days of using
Social Security money for non-Social Security purposes were over. But that was not the
case. We will never know whether or not Al Gore would have honored his promise to protect
Social Security if he had become president. But we do know that George W. Bush did not
honor his promise. He continued to raid the Social Security trust fund just like his
father, Ronald Reagan, and Bill Clinton had been doing for years.
I tried very hard to get the Social Security fraud recognized and reported by the media, but my success
was very limited. I had the good fortune of being one of two guests to appear on CNBC on
February 26, 2004, the morning after Greenspan’s first assault on Social Security was launched. And
I used the opportunity to say, “Alan Greenspan should be ashamed of himself for what he is not telling
the American people!” I also had the opportunity to discuss my views on CNNfn and
more than 150 live radio talk shows, but still the public would not buy the notion that Bush was spending the Social Security
surplus.
The
media and the public just would not even entertain the notion that what I was saying could possibly be true. Trying
to convince them that Bush was spending every dollar of the Social Security surplus, in violation of both
federal law and his promise to the American people, was like trying to convince them that I had taken a ride in a UFO.
My suggestions were just rejected out of hand, and no major newspaper would even consider publishing the numerous op-ed
articles I submitted.
Once George W. Bush was inaugurated, it became clear that he planned to abandon the economic policies
of Bill Clinton and return the nation to the policies of his father and Ronald Reagan, the same policies
that had already inflicted so much damage on America. It was unthinkable that the American people would
allow this to happen.
Although my efforts, and the efforts of many other economists, to alert the public to the dangers of Reaganomics, had
failed repeatedly to have any impact, I felt that I had to try to abort another round of Reaganomics. After
all, Bush could not make radical changes without the support of the United States Congress. So I decided
to try to make my case to the United States Senate.
On February 12, 2001, less than a month into the George W. Bush presidency, I mailed a package, via
Priority Mail, to each and every one of the 100 United States Senators. The package included a copy of
my book, “The Alleged Budget Surplus, Social Security, and Voodoo Economics,”
a video of my CNN interview with Lou Waters, and a very long letter. In the letter, I
pleaded with the senators to block Bush’s new program. Below is a copy of the letter I sent to Democratic
senators. I also sent a similar letter to all Republican senators.
February
12, 2001
The Honorable Chris Dodd
448 Russell Senate Office Building
The United
States Senate
Washington, D.C. 20510
Dear Senator Dodd,
I am alarmed by the possibility that this nation could return to another
round of Reaganomics, with all the adverse consequences we suffered the first time around,
by enacting President Bush’s proposed massive tax cut.
I have been battling economic illiteracy in America ever since
my first book, Understanding Inflation and Unemployment was published in 1976. Today, five books and 25 years later, economic illiteracy
is a greater threat to us than ever before. I published two new books last year—Demystifying
Economics in April, and The Alleged Budget Surplus, Social Security, & Voodoo Economics in September—and I have been doing
everything in my power to wake up the public to the danger that economic illiteracy poses for America…
…I have been following the economy and the federal budget closely
for the past 25 years, and I wrote a syndicated newspaper column on the economy during the early 1990s. I
watched in disbelief when the Congress enacted the Reagan economic
proposals, knowing that there was almost an absolute certainty that they would lead to gigantic deficits, skyrocketing growth
in the national debt, and severe damage to the U.S. economy, as they did.
I am both alarmed and dumbfounded that the nation is about to follow another economically illiterate president down
the same road, and I want to do everything in my power to prevent this from happening.
I believe that the Democratic party is missing a golden opportunity to educate
voters on the terrible results of Reaganomics, and portray themselves as the “guardians
of the American economy” by opposing President Bush’s irresponsible and reckless
economic proposals. I have not heard anyone even mention the catastrophic effect of Reaganomics on working
Americans in terms of massive layoffs and record unemployment rates…
…I would strongly urge the Democratic Party to put forth an alternative
economic package that includes tax cuts that make economic sense. A moderate, short-term tax cut could
serve as a stimulant to consumer spending and thus prevent the economy from going into a deep recession. I
would suggest a one-time tax rebate to every American taxpayer of…
I am enclosing a copy of the video of my eight-minute interview with Lou Waters on
CNN and a copy of my 128-page book, The Alleged Budget Surplus, Social Security, and Voodoo Economics.
Please take the time to view this short interview and read this very short
book. I had no plans to write the book until all candidates for the presidency, from both parties, began
talking about the nonexistent “budget surplus” during the presidential primaries. I felt it
my duty to write the book, and I feel it is my duty to do everything I can to prevent another round of Reaganomics. I would like to have the opportunity to testify before Congressional committees
and do anything else that I can do for the cause of economic literacy.
Sincerely,
Allen W. Smith, Ph.D.
P.S. America very much needs
your help and that of your colleagues in alerting the public to the fact that they have been deceived into believing there
is a budget surplus when, in fact, the government’s long-term finances are the worst they have ever been…Your
staff can verify every statistic in my book with a couple of hours of research. During my interview with
Lou Waters on CNN, he asked me
if I was a voice crying in the wilderness. So far, that is pretty much the case. I feel
like a modern-day Paul Revere trying to warn my fellow Americans of a forthcoming assault on the U.S. Treasury and the American
economy, but because of such widespread economic illiteracy at all levels, almost nobody is hearing the warning. Please check out the economic
facts.
I was really
pumping adrenaline during that project, and, as I took all those Priority Mail packages to the post office so they could start
their journey to Washington, I may have fancied myself as someone like the little Dutch boy who supposedly stuck his thumb
in the hole in the dike to prevent a catastrophe.
I felt good about the effort I had made, and I hoped that at least a few senators would read the book and give some
thought to my warnings. I knew that I would not hear from many of the senators, but, as the days and weeks
passed by without a single reply, I began to feel depressed and a little hopeless. I guess I just wasn’t
prepared to accept the reality that any professional, in any field, could write 100 letters to United States senators, expressing
grave concern about the nation’s future, and give away 100 books and videos of a CNN interview on
the subject, and still not hear a word from even one senator.
I became discouraged and was considering giving up my crusade in the summer of 2001 when I had an epiphany of sorts
while standing in a long line at the post office. I got this crazy idea that maybe if I plastered my 1991
red Oldsmobile Cutlass Supreme car with large signs, warning of impending danger, and drove from city to city, I might get
some news coverage for my message. It was totally contrary to my personality and judgment to resort to
publicity stunts in a desperate attempt to call attention to myself and my message. But I did it anyway.
I placed signs,
warning about budget deficits and Social Security, all over the car. I even attached signs with very large
letters to the top of the car in the hope that news organizations with helicopters might come down for a closer look.
I then began driving my “debtmobile” throughout the state of Florida. I drove up and
down the streets of Miami, Tampa, Tallahassee and other cities.
I was even considering driving the “debtmobile” from Florida to Washington D.C. if early
publicity results indicated that such a venture was warranted, but they did not. I got some publicity,
but not nearly as much as I had hoped for. The most significant news coverage was in the form of an Associated
Press story in early September. Below is a reprint of the AP story.
ECONOMIST WARNED OF BUDGET
SURPLUS
MYTH, NOW VINDICATED
By Vickie Chachere, Associated Press
(Reprinted with permission
of The Associated Press)
TAMPA—A
year ago, economist Allen W. Smith seemed an oddity, a bespectacled Chicken Little with an ominous warning that the nation’s
economic outlook wasn’t as good as it seemed.
He wrote a book about what he believes is a
myth of a federal budget surplus. He even went on CNN to spread his warnings there was no surplus, only a looming national debt.
Still no one seemed to be listening . Smith, a former writer of an economics
column and the author of nine books, pressed on.
The election—with
its candidates making big promises about how they would use the surplus—came and went, and Smith grew frustrated.
Finally, two months ago, Smith a Midwesterner not prone to absurd acts, felt moved to plaster signs on his bright red
car and drive about town in and elaborate “The End is Near” sort of warning.
Smith’s grown children were embarrassed. Some of his neighbors
called him a loon.
Then this
week came vindication with news the government needs to borrow $9 billion from Social Security reserves to make ends meet, says a new Congressional Budget Office estimate.
“I knew this would happen,” said Smith, 63, trying hard not to gloat.
“(CNN’s) Lou Waters said I was a voice crying
in the wilderness, I guess I was. I knew it was just a matter of time.”
If it wasn’t such a serious issue, it might almost be comical,
but for Smith, a professor emeritus at Eastern Illinois University who has long been on a crusade to educate the common folk
about the weighty issues of economics, it’s more proof that what Americans don’t know about economics hurts them.
“It’s a deception they (voters) like to hear,” he said.
“The problem is the economic illiteracy.”
For
Smith, the lack of understanding about budget surpluses and deficits is a double concern.
Not only does he feel politicians have been misleading
people about how such surpluses could be spent on improved health care or education, he worries that people are making poor
choices for themselves based on misinformation. He fears a deep, prolonged economic recession is ahead.
I actually have a very gloomy outlook,” Smith said.
“I’m glad I’m retired and not out in the job market.”
Smith’s
book, The Alleged Budget Surplus, Social Security & Voodoo Economics, calls the budget
surplus a myth that “may go down in history as the greatest deception perpetrated on the American people.”
In
the book, written in early spring last year, Smith argued that the economy was healthy, but the federal budget was not.
The bulk of the budget surplus was Social Security Trust Fund money and it wasn’t the government’s to spend on programs other than paying
benefits to those who have paid into the retirement program, he wrote. The book was published in late September.
Using data gleaned from the U.S. Department of the Treasury and
other government economic reports, Smith argues in his book that the public was duped into believing there was a surplus and
is forgetting $5.7 trillion national debt.
He said the only surpluses were in 1999 and 2000, in the peak of the economic boom, and they were smaller than the
public was led to believe, Smith contends.
Smith took to task both Republicans and Democrats in the book, calling their comments about the economy and their campaign
promises simply irresponsible.
He
does, however, think the recent tax rebates are a good idea for a short-term boost for the economy, if they’re spent
as President Bush intends.
Frustrated
by the lack of interest in the issue, Smith said he was ready to give up earlier this summer when he had an epiphany while
standing in line at a post office.
Soon
thereafter, his cherry red 1991 Oldsmobile Cutlass Supreme was transformed into the debt mobile. Smith
plastered the car with signs warning of the $1 billion-a-day interest and the mythical surplus and began traveling the state…
Vickie Chachere,
the AP correspondent who wrote the above story, told me that she thought it would be picked up by newspapers around the country.
My hopes began to build that my efforts would soon pay off as the budget surplus myth, which Bush was still playing
to the hilt, was exposed. I thought it was just a matter of time until the media and the American public
would learn that they were being deliberately deceived by their government.
I spoke with Vickie by phone just before the story was to be released to the wires, and I said something like, “I
hope there are no major stories that dominate the news and crowd out the other stories.” Vickie said
she thought things would be relatively quiet and that I needn’t worry about the story not receiving wide exposure.
The story appeared
on the Florida wire and was about to go national. But, like so many other stories, it was buried by the
avalanche of news generated by the events of September 11. To my knowledge, the story never made it to
the national wire.
After the terrorist attacks, with the nation at war, support for President Bush surged, and nobody bothered to follow
up on Bush’s pledge that he would not raid the Social Security trust fund. And,
even if he were raiding it in order to pay for the war, most Americans would probably not have had a problem with that. American’s
have always been willing to make sacrifices during times of war.
But Bush began raiding the trust fund even before the September 11, 2001 terrorist attacks. Fiscal
year 2001 ended on September 30, just 19 days after the September 11 attacks, so there was not enough time for any effects
to be reflected in that year’s budget. Thus, the Social Security lockbox was broken
into even before we knew we would be spending a lot of money on war.
Furthermore, in early 2003, at a time when the previous year’s non-Social Security deficit
had been a whopping $317.5 billion, and every dollar of the Social Security surplus was being spent on general
government, Bush called for a second round of tax cuts. Despite a public outcry of protest by economists,
Bush pushed through a $330 billion new tax cut in May 2003.
It was extremely frustrating for me to watch Bush spend the Social Security surplus that
resulted from contributions of American workers, some of them very poor, and at the same time push through tax cuts for some
of the wealthiest Americans. In essence, he was using the Social Security surpluses to fund his tax cuts
for the rich.
I
continued to try to get this information to the media, but it seemed that, in the minds of most journalists, the trust fund
issue had been resolved during the 2000 presidential election campaign. Both Al Gore and
George W. Bush had acknowledged at that time that the trust fund had been raided in the past, but both pledged
that if elected president they would end the practice. The fact that Bush pledged to protect the Social
Security trust fund during speeches, both before and after, becoming president, seemed
sufficient to end the public debate.
But Bush did not keep his promise. He raided the trust fund in each and every year of his presidency.
In total, President George W. Bush spent $1.37 trillion of Social Security surplus revenue
during his eight years as president. In his last year, he spent $192.2 billion, which averages out to more
than $526 million per day!
As
I continued to try to raise public awareness to the Social Security fraud, I kept hoping that some high-ranking
public official would confirm that what I was saying was true. In order to believe my assertion that the
Social Security trust fund was empty, the public had to hear it from somebody with clout.
On January 21, 2005, David Walker, the Comptroller General of the Government Accountability Office
(GAO), gave a speech in Washington in which he said,
“The left hand owes the right hand, and that has legal, political and moral
significance. But it doesn’t have any economic significance whatsoever. There
are no stocks or bonds or real estate in the trust fund. It has nothing of real value to draw down.”
I thought a public statement by the Comptroller General of the GAO, saying the trust fund holds no bonds and has nothing
of real value to draw down, was just what I needed. But, to my amazement, the statement received very little
news coverage. If I hadn’t read about Walker’s statement in the San Francisco Chronicle, I
might have never known about it, because I didn’t see it anywhere else.
On April 5, 2005, President George W. Bush made the following statement during a speech at West Virginia
University at Parkerburg:
“There is no trust fund, just IOUs that I saw firsthand
that future generations will pay—will pay for either in higher taxes, or reduced benefits, or cuts to other critical
government programs.”
Once
Bush began to repeatedly admit that the government had spent all the Social Security money that was supposed
to be in the trust fund, I thought the truth was out for all to see. But even President Bush’s repeated
public statements that the Social Security trust fund was empty didn’t receive much news coverage
despite the fact that what he was saying was just the opposite of what he had said earlier.
In his first State of the Union address, delivered on February 27, 2001, President Bush had said,
“To make sure the retirement
savings of America’s seniors are not diverted in any other program, my budget protects all $2.6 trillion of the Social
Security surplus for
Social Security, and for Social Security alone.”
The
very next day, the Office of Management and Budget had released the following statement,
“None of the Social
Security trust funds and Medicare
trust funds will be used to fund other spending initiatives or tax relief.”
These statements, and several
others made by Bush early in his presidency, are totally contradictory to his contention in 2005 that the trust fund contained
nothing but IOUs. At first, I thought that my efforts to convince the public that the government was spending
the Social Security surplus money just as if it were general revenue, and that the trust
fund was empty, were no longer needed. The President of the United States had just done my job for me.
But it didn’t work out that way. Nobody seemed to take Bush seriously once he began to actually
tell the truth about Social Security. The public still seemed convinced that all the surplus money that
had been paid into the Social Security trust fund was safe and sound.
I began to feel much like Australian physician, Dr. Barry Marshall, must have felt for more than a decade. In the early 1980s, Dr. Marshall discovered
a link between a certain bacteria and peptic ulcers. His early research led him to believe that ulcers
were caused by this bacteria, and that patients with this bacteria were also at significant risk for developing stomach cancer.
If his belief that peptic ulcers were caused by bacteria was correct, this meant that ulcers might be cured with antibiotics.
However, since medical
students had been taught for decades that ulcers were caused by excess stomach acid, and because treatment of stomach acid
had become a big industry, there was much organized resistance to Dr. Marshall’s findings. He was
ridiculed by fellow professionals and by pharmaceutical companies. Among other things, he was called a
“crazy man saying crazy things.” In 1998, by which time his treatment for ulcers had become
almost universally accepted, he was quoted as saying “Everyone was against me, but I knew I was right.”
During the decade it took for the medical profession to accept Dr. Barry Marshall’s
findings, many patients throughout the world suffered needlessly, and some even died, from an ailment for which a cure had
been found.
Another
example of the preventable suffering of thousands of people resulted from the now infamous Bernard Madoff Ponzi scheme. Madoff, a former chairman of the Nasdaq Stock Market, and a widely respected Wall Street trader, was arrested by federal agents after admitting
that he had swindled clients out of approximately $50 billion. Over a period of many years, Madoff had ripped off investors
from around the world including many large charitable organizations.
It was only after Madoff’s arrest that the public learned that a man named Harry Markopolos had been trying to expose Madoff’s fraud for nine years. Markopolos,
with the help of a mathematician, concluded in 1999 that Madoff’s operation could not be legitimate. Using
data that Madoff’s firm distributed to prospective investors, Markopolos and the mathematician concluded within hours
that it was impossible for Madoff to get the returns he reported while using the strategy he said he used. Markopolos
informed the SEC’s Boston office in May 1999 that it was impossible for the kind of
profit Madoff was reporting to have been gained legally. But the SEC was not interested in Markopolos’s
theory. Madoff continued to thrive, and Markopolos continued to pursue the case.
In 2005, Markopolos submitted
a report to the SEC saying it was “highly likely” that Madoff
securities is the world’s largest Ponzi scheme.” But the report was not taken seriously.
Markopolos continued to pursue the case for a total of nine years up until the time Madoff was arrested.
Had the SEC listened to Markopolos in 1999, thousands of individuals
and organizations would have avoided being swindled out of billions of dollars.
Coincidentally, nine years is how long I have been persistently trying to alert the public to the Social Security fraud. During the nine 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 $1.37 trillion has been looted and spent. That money, which belonged to the Social Security trust
fund, and to American workers who had made Social Security contributions 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.
Why has it been so difficult to alert the public to the fact that the Social Security trust
fund contains no real assets? Why is it so hard for
the public to accept the fact that the government has looted the trust fund of every penny of the surplus Social Security
tax revenue and spent the money on other things?
I think that part of the problem is the fact that conservative organizations, such as the Cato Institute and the Heritage Foundation, have been trying for
decades to destroy the current Social Security system and replace it with
a private system. As we saw in Chapter Five, the Bush privatization campaign was based on the strategy
set forth in 1983 by this movement.
The strategy of the privatizers is to convince the public that the current Social Security system is unsustainable in the long run and that it should be replaced with a system of private
accounts. Among the many arguments of this group has been that the Social Security trust fund contains no real assets—only IOUs.
Therefore, when anyone suggests that the trust fund is empty, the ardent defenders of the current system automatically
assume that the critic is a privatizer who is trying to destroy the current Social Security system.
I am not such a person.
I am strongly opposed to any attempt to privatize Social Security. What
I have been trying to do is to save the current Social Security system by exposing the fraudulent raiding of the trust fund
by the government.
I believe that Social Security is the most successful and most
popular program ever created by the United States government. It has lifted millions of Americans out of
poverty and made their final years tolerable, if not golden. Social Security has worked well for the past
70 years, and it can work well for the next 70 years and beyond, if it is put on, and kept on, a solid foundation.
Those people who dislike Social Security do so for ideological and political reasons—not because the program
is unworkable or unsustainable.
There is nothing fundamentally wrong with the current structure of the Social Security program.
The short-term funding problems with Social Security are the result of the government’s “borrowing”
and spending the Social Security surplus funds for more than two decades.
Despite the claims and counter claims of various groups and individuals, President Bush was correct when he said there
are no real assets in the trust fund. He was also correct when he said that, beginning in 2017, when Social Security begins
to run annual deficits, it will not be able to pay full benefits unless the government raises taxes, borrows additional amounts
from the public, or cuts government spending.
As we saw in Chapter 3, the main
point of confusion on this whole matter seems to be that most people don’t understand that public issue, marketable
Treasury bonds are something very different from the non-marketable special issue government IOUs that are held by the Social Security trust fund.
The key to understanding what is going
on is to keep your eye on the money. If the government bought public- issue bonds in the open market, the
money would go to the party selling the bonds, and none of it would be available for the government to spend.
This would be a true investment. However, the special issue certificates allow the government to
keep and spend all the money. Since the money is all spent, there is nothing left to invest. But the government
has met the letter of the law by printing up a certificate that says “backed by the full faith and credit of the United
States government.”
In addition to the role that conservative organizations have played in blocking my message, the 35-million-member AARP has made my task of informing the public about the Social Security fraud much more difficult. They have continued to insist that the Social Security
trust fund holds bonds that are just like the ones held by private pension
funds, insurance companies and most other investors, “because they are the safest investment in the world.”
I don’t know whether the AARP leadership is so naïve
that they actually believe what they are saying, or whether they have other motives for helping to hide the Social Security fraud from the public. What I do know is that they have rejected
my extensive efforts to get them involved in helping to alert the public about the fact that the Social Security surplus money has all been spent and there are no real assets in the trust fund. Even though
I was a member of the AARP for many years, the leadership seemed to view me and my message as a threat to their agenda.
I am not sure why.
On
July 18, 2004 the St. Petersburg Times published an article entitled “Social Security Assessments
Clash” written by personal finance editor, Helen Huntley. Ms. Huntley
had submitted four questions on Social Security to both AARP Chief Executive,
William Novelli and to me. The first question was about
the trust fund. That portion of the article is presented below as it appeared in the Times.
Q: Is the Social Security trust fund a fraud? Smith: The concept of the Social Security trust fund is not a fraud, but the looting of the fund by the government is,
in my opinion, the greatest fraud ever perpetrated on the American people by their government.
Prior to 1983, Social
Security operated on a pay-as-you-go principle with an
approximately balanced budget most years. However, in 1982 a presidential commission headed by Alan Greenspan was given the task of studying the long-term solvency of the program
and making recommendations for the future. The commission concluded that the only way Social Security would
be able to fund the retirement of the baby boom generation, beginning in about 2010, would be to raise taxes and build up
a reserve in advance of retirement. In 1983 Congress passed, and the president signed, the legislation
recommended by the Greenspan commission. Taxes were
raised and the money was supposed to be specifically earmarked for the funding of the baby boomers’ retirement. Approximately $1.5 trillion of Social Security revenue has been
generated by the tax increase so far and should be available when the baby boomers retire.
Here is where the
fraud begins. Every dollar of that surplus has been borrowed, embezzled, stolen by the government and used
for other spending programs and to finance tax cuts. The money from the trust fund has been replaced with
essentially worthless government IOUs that are not marketable
and cannot be used to pay benefits.
Novelli: Absolutely
not! Social Security has always had
a trust fund in which all revenues (tax receipts and interest) to pay Social Security benefits are deposited and from which
all benefits are paid. The law requires that any surplus revenues not immediately needed to pay benefits
have to be invested in U.S. Treasury bonds. Currently, the Social Security trust fund holds more than $1.5 trillion of Treasury bonds that earn interest. These
bonds are like the ones bought by private pension funds, insurance companies and individuals because they are the safest investment
in the world.
Some people claim that the Treasury bonds owned by Social Security are
worthless IOUs and that the Social Security trust fund is in trouble. But they are wrong.
Investors worldwide know that the U.S. government has always paid every penny of interest and principal on Treasury
bonds when they are due and will continue to do so. Just as Social Security has never missed a single monthly
benefit payment, Treasury bonds have always been paid in full and on time. © Copyright 2004 St. Petersburg Times. All rights reserved
When Novelli said, “These bonds are like the ones bought by private pension funds, insurance companies and individuals
because they are the safest investment in the world,” he was totally wrong. Novelli appeared to be
talking about public-issue Treasury bonds which are probably the safest investment in the world. These
are the type of bonds that the Social Security surplus should have been invested in because they are good-as-gold, default-proof, securities.
Unfortunately, not a
single dollar of the Social Security surplus is invested in public-issue Treasury bonds. The special-issue IOUs that the trust fund holds were created specifically for the trust funds, and they
are held only by the trust funds.
Private pension funds and other investors could not invest in the special-issue IOUs,
even if they wanted to. However, no outside investor would touch these IOU’s with a ten-foot pole
because they are worthless.
As I have stated many times in this book, the Social Security surplus funds were not invested in anything. All of the money was spent
by the government on other programs, so there was nothing left to invest. What the Treasury does when it
spends Social Security money on other programs is to create IOU’s to serve as accounting records of the money “borrowed”
from Social Security.
Prior to 1994, the IOUs consisted only of accounting entries recorded
in government ledgers or stored on computers. However, some members of Congress began to worry that someone
might want to actually see the IOUs, so legislation was passed that required the physical
printing of documents to serve as certificates of indebtedness, in addition to the accounting entry. Today,
when a new IOU is issued, it is printed on a laser printer located at the Bureau of the Public Debt office in Parkersburg,
West Virginia. Once printed, the document is carried across the room and placed in a fireproof filing cabinet.
That filing cabinet is the closest thing to the mythical Social Security trust
fund that exists.
