Posted on 07/17/2011 2:49:15 PM PDT by blam
The Real Reason Hitting The Debt Limit May Mean Social Security Checks Stop
July 14th, 2011
By Aaron Krowne Founder, ML-Implode.com
It’s crunch time, and now we’re hearing as part of the hyper-political debt ceiling debate that that Social Security checks may stop.
But interestingly, we’re not just hearing that from Congressional Republicans: Obama has raised that spectre as well.
Many left-leaning critics are shocked, believing Social Security to be… well… secure, and are incensed that Obama would be willing to slaughter this sacred cow. After all, if in the case of default, the government can prioritize payments to various areas, why would Social Security be among the first? Talk about giving Main Street the finger!
Well folks, this one may not be about politics: there is a good legal and economic reason Social Security is put in jeopardy by hitting the debt limit.
As I’ve been ringing the alarm bell about for years (here’s a relatively-recent example), Social Security already has a funding problem, as it has gone “cash flow negative”. The program is supposed to be self-funding (from payroll deductions), but that only holds so long as current benefits do not exceed the total revenue from payrolls.
Now, “liberal” econo-bloggers and pundits will always at this point say “that doesn’t matter, Social Security has a big trust fund”. But it doesn’t. You see, all it has are IOUs from the federal government. These aren’t even Treasury securities that could simply be sold at market — they are bookkeeping entries. This is because the government long ago “restructured” Social Security, taking the accumulated and current savings and spending it on the usual guns-and-butter, leaving the Social Security Trust (and apparently most inside-the-beltway types and pundits) with a bunch of IOUs and warm fuzzies inside.
Technically, these bookkeeping entries are just the federal government keeping track of how much money it is “supposed to” re-allocate to Social Security expenditures… at a later date. Uhm-hmm. It’s exactly like that scene from “Dumb And Dumber”, where Harry and Lloyd have spent nearly $1 million in found money on frivolities, but dutifully replaced each dollar with an “IOU”. They happily present the suitcase full of IOU “Post-It” notes to the rightful owners of the cash when they finally meet them.
That’s Social Security. And to make up for that lack of true savings, the government has (for the past year) quietly been borrowing additional amounts each month to pay SS benefits, in essence, voluntarily exchanging the IOUs for Treasuries (which are immediately both borrowed and sold to pay out benefits).
So now we have this progression of disturbing facts:
1) Social Security is dependent on ongoing borrowing to meet current obligations at the 100% level.
2) Social Security “trust fund” obligations are just intra-governmental IOUs.
3) The government has no external obligation to pay anything back on these IOUs.
4) The government is about to stop being able to borrow.
5) All US Treasury obligations are “senior” to these intra-governmental IOUs (the Treasury obligations are “external” and legal; the internal obligations are internal and extra-legal, or at least of flexible legality). Most notably: no US default is triggered if SS payments are violated, and doing so would help conserve cash to pay down actual, legal Treasury obligations.
CONCLUSION: The FIRST thing the government will HAVE to default on when it hits the debt ceiling is Social Security! This doesn’t mean every single check will stop, but SS will no longer be able to pay out anything above its current revenue, which means there will be some shortfall in benefits.
Further, it is difficult to see how the government could just selectively pay some SS benefits but not others, so the most likely course will be that everyone will get a monthly SS check that has some “haircut,” by some unknown amount (my guess is not more than 5%, though this percentage would naturally go up as time goes on).
Have you heard people in Congress raising the 14th Amendment “debt shall not be questioned” clause, as if it provides some sort of legal protection in the event of default? Well, even if it did, it clearly doesn’t apply to the Social Security “debt,” because those are just internal government bookeeping entries (as discussed above). No debt has ever been issued for this “trust fund”!
This appears to be the “dirty little secret” Obama is acknowledging by raising alarm bells about Social Security payments.
It would all be amusing if it weren’t so sad, for so many people on fixed incomes that are already being absolutely KILLED by the lack of returns on their savings (thank you Ben Bernanke!)
I imagine some debt deal will be reached before the events above transpire, because acknowledging the true reality of the government’s finances would probably be too painful for the political establishment. Aside from raising the ire of millions of voting pensioners, haircuts on Social Security checks would show in the bright light of day that Social Security is at its core a scam, not only from the outset, but also when it was “reformed” in the 80s. Frankly, our government has reached the point where it cannot pay even the most meagre of promised benefits to retirees (and the vast majority of them are really going to need that money.)
More than anything, this would show the federal government simply is not omnipotent as has been assumed since the Great Depression; it has just been coasting for decades on raw dollar imperialism, and then when that ran out, a series of macro-financial scams to keep the status quo going and politicians in their cozy dynastic tenures.
See why (in all probability) Bernanke is already hinting about further quantitative easing?
What Congressional Republican has been talking about this? Obama is the one that brought it up.
Guns & Butter?
LBJ raided the SS trust fund to pay for his "war on poverty" and if they can't even cover that, who will believe in ObamaCare?
This whole thing is BS as Mark Levin has been saying. Without touching the debt ceiling at all the country will take in 200B in August of which something like 30B is interest on debt. They could pay debt interest, SS, medicare, medicaid even, and all military costs and then worry about what else to pay for but pain is the name of the game here and putting SS in jeopardy is pure politics. Bork Obunga has a basic and severe problem with priorities.
Beautiful voice, but I’m not cheap, just fed up. The fact of the matter is that the United States is broke, because she has spent money for decades that she didn’t have. The problem now is that the “golden goose” is slaughtered, roasted, eaten and people are still fighting over the next golden egg.
The U.S. can prosper again, and then some, but the free market has to come back, and that means no more socialism AT ALL. Social Security was the camel’s nose in the tent. We either learn from it, and grow, or ignore the lesson and repeat until it’s too late. But, I still liked the song. : D
Slash your wrist kind of song.
“If the U. S. defaults on debt obligations (bonds), then there is no longer any moral obligation for taxpayers to pay taxes.”
Indeed, you will be able to comfort yourself with that in jail after having had any remaining assets seized by the IRS, who will be even MORE humorless than ever in collecting their due.
Why dont We the People take charge of this?
We need to TELL the Government where and where not - to make cuts!
It is OUR money!
I say, give grandma her check and cut off foreign aid. Give grandpa his check and quit supporting illegals!
Where does it say that WE THE PEOPLE don’t have a say in these matters?
I was thinking, you know how everybody was so interested in pouring over Palin's memos to find "something of interest"? Well how about people dig through the annual budget to find examples of wasted taxpayer money?
Here are a couple of suggestions I received in an email today. To this list I would add the Department of Education which I believe is not necessary.
These are all the programs that the new Republican House has proposed cutting.
Corporation for Public Broadcasting Subsidy. $445 million annual savings.
Save America 's Treasures Program. $25 million annual savings.
International Fund for Ireland . $17 million annual savings.
Legal Services Corporation. $420 million annual savings.
National Endowment for the Arts. $167.5 million annual savings.
National Endowment for the Humanities. $167.5 million annual savings.
Hope VI Program.. $250 million annual savings.
Amtrak Subsidies. $1.565 billion annual savings.
Eliminate duplicative education programs. H.R. 2274 (in last Congress), authored by Rep. McKeon, eliminates 68 at a savings of $1.3 billion annually.
U.S. Trade Development Agency. $55 million annual savings.
Woodrow Wilson Center Subsidy. $20 million annual savings.
Cut in half funding for congressional printing and binding. $47 million annual savings.
John C. Stennis Center Subsidy. $430,000 annual savings.
. Community Development Fund. $4.5 billion annual savings.
Heritage Area Grants and Statutory Aid. $24 million annual savings.
Cut Federal Travel Budget in Half. $7.5 billion annual savings.
Trim Federal Vehicle Budget by 20%. $600 million annual savings.
Essential Air Service. $150 million annual savings.
Technology Innovation Program. $70 million annual savings.
Manufacturing Extension Partnership (MEP) Program. $125 million annual savings.
Department of Energy Grants to States for Weatherization. $530 million annual savings.
Beach Replenishment. $95 million annual savings.
New Starts Transit. $2 billion annual savings.
Exchange Programs for Alaska Natives, Native Hawaiians, and Their Historical Trading Partners in Massachusetts . $9 million annual savings.
What the hell is this anyway…?(are we trading Alaskans for Hawaiians?) – Guess so… I think we should trade those two groups for their Hysterical Trading Partners in Massachusetts and throw in the entire population of Vermont to sweeten the pot. (You know what pot I’m talkin about.)
Intercity and High Speed Rail Grants. $2.5 billion annual savings.
Title X Family Planning. $318 million annual savings.
Appalachian Regional Commission. $76 million annual savings.
Economic Development Administration. $293 million annual savings.
Programs under the National and Community Services Act. $1.15 billion annual savings.
Applied Research at Department of Energy. $1.27 billion annual savings.
FreedomCAR and Fuel Partnership. $200 million annual savings.
Energy Star Program. $52 million annual savings.
Economic Assistance to Egypt . $250 million annually.
U.S. Agency for International Development. $1.39 billion annual savings.
General Assistance to District of Columbia . $210 million annual savings.
Subsidy for Washington Metropolitan Area Transit Authority. $150 million annual savings.
Presidential Campaign Fund. $775 million savings over ten years.
No funding for federal office space acquisition. $864 million annual savings.
End prohibitions on competitive sourcing of government services. Repeal the Davis-Bacon Act. More than $1 billion annually.
IRS Direct Deposit: Require the IRS to deposit fees for services it offers (such as processing payment plans for taxpayers) to the Treasury, instead of allowing payments to remain as part of its budget. $1.8 billion savings over ten years.
Require collection of unpaid taxes by federal employees. $1 billion total savings. WHAT THE HELL…!
Prohibit taxpayer funded union activities by federal employees. $1.2 billion savings over ten years. HUH?
Sell excess federal properties the government does not make use of. $15 billion total savings.(What are they? If it's Yosemite, no.)
Eliminate Mohair Subsidies. $1 million annual savings. MOHAIR? REALLY?
Eliminate taxpayer subsidies to the United Nations Intergovernmental Panel on Climate Change. $12.5 million annual savings.(Hell yes!)
Eliminate Market Access Program. $200 million annual savings.
USDA Sugar Program. $14 million annual savings. NEVER NEW THE GOV’T WAS PROMOTING SUGAR.
Subsidy to Organisation for Economic Co-operation and Development (OECD).$93 million annual savings. THIS MUST HAVE BEEN WRITTEN IN BRITAIN. NOTICE THE SPELLING ON ORGANIZATION? NASTY BRITS, ALWAYS MEDALING IN OUR POLITICS.
Eliminate the National Organic Certification Cost-Share Program. $56.2 million annual savings.
Eliminate fund for Obamacare administrative costs. $900 million savings. ABSOLUTELY! ALLEHLUIA!
Ready to Learn TV Program. $27 million savings.
Eliminate death gratuity for Members of Congress. WHAT’S THIS, TO HELP PAY BURIAL FEES? DO THEY HAVE TO BE DEAD?
HUD Ph.D.. Program.
Deficit Reduction Check-Off Act
TOTAL SAVINGS: $2.5 Trillion over Ten Years
My question, what THE Devil is all this doing in the budget in the first place…?
Is there anything listed you cannot do without?
My question, why do we have to wait 10 years? I say get rid of it all now! Makes a person wonder what kind of people have we been electing to office who allow such greed and corruption to fester and grow to this intensity? I bet for every program listed, there’s probably fifty others still out of control.
Thomas J. Jackson
Here something which can be added!
Do away with this agency and save over 20 billion! Them let the states manage its fossil fuel in their boards
and off their coast. This act would increase supply and lower your cost!
History The Department of Energy was formed after the oil crisis on August 8, 1977 by President Jimmy Carter's signing of legislation,
The Department of Energy Organization Act of 1977 (P.L. 95-91, 91 Stat. 565).
Department overview
Formed August 4, 1977
Preceding agencies Energy Research and Development
Administration
Federal Energy Administration
Employees 16,000 federal (2009)[1]
93,094 contract (2008)
Annual budget $24.1 billion (2009)
Department executives Steven Chu, Secretary
Daniel Poneman, Deputy Secretary.
Website
energy.gov
Department of Energy - Fossil Fuels
Fossil Fuels
Fossil fuels - coal, oil and natural gas -- provide more than 85% of all the energy used in the United States. They are also used to create nearly two-thirds of our electricity and almost all of our transportation fuels. It is likely that our reliance on fossil fuels will increase over the next two decades, even with aggressive development and use of new renewable and nuclear technologies. DOE's Office of Fossil Energy (FE) has a key role in helping America meet its growing need for secure, fairly priced, and environmentally sound fossil energy supplies. FE's main goal is to ensure the U.S. can continue to rely on fossil fuels for clean, affordable energy. This is accomplished through two major efforts: Emergency stockpiles of crude oil and heating oil
The Department is in charge of maintaining the Strategic Petroleum Reserve and the Northeast Home Heating Oil Reserve. In the event of a major supply interruption, the President can release oil from these reserves into the market.
Research and development of future fossil energy technologies
New technologies can make the future production and use of fossil fuels more efficient and environmentally cleaner. Coal-based power plants, due to FE's cutting edge R&D, can now produce electricity while creating almost no emissions. Carbon Capture and Storage (CCS) reduces carbon dioxide (CO2) emissions from both existing and new coal-based power plants. The U.S. is now the world's leader in CCS science. FE is also working to diversify domestic natural gas supplies to meet the needs of American consumers. This includes making it safer and cleaner to produce gas from methane hydrate, shale, as well as from deepwater regions. For statistical information relating to oil, natural gas, coal, and the electricity it produces, visit the Energy Information Administration
Notice I said moral obligations, not legal. But once their ability to shame people into paying taxes goes away, then seizure becomes all the more difficult.
Make no mistake, tax collections are essentially voluntary. If enough people say “no” to paying taxes, there is simply nothing government can do about it.
You just haven't been paying attention. You know full well, which one he will fund.
Communism = Death.
This is a twofer!~!
That’s what I’m saying.
And until they make the proper cuts, we shuld withhold our financial support.
Unless, we are too skeerded...
Yep, but I doubt Aaron Krowne is clueless. When an article starts out with a clearly fallacious premise, such as the one you quoted in your post, it is more likely that he just stated it to build a political polemic on.
Bush?
Where’s the media graphics of grandma being pushed down the stairs by the evil RATS?
“Stopped right there. The author is clearly clueless.”
You got that impression also? I read that and went “huh?”
The SSTF is part of the $14.3 trillion national debt. It is included under "Intragovernmental Holdings," as distinct from the publicly held debt. But it is still debt and counts against the debt ceiling.
Every elected official from the President on down should take a pass on their salaries until SS, the military, and the VA checks are written. If that is not enough money, throw in the judicial branch and all the czars, and all the bureaucrats.
Even if the SSTF had real assets, the program is structurally unsustainable.
“But once their ability to shame people into paying taxes goes away, then seizure becomes all the more difficult.”
The real problem comes when people decide to stop using banks - either because they’ve lost all their money, or it has become worthless.
When there is no electronic, automated way to harass people, freeze or seize their assets, there is no leverage.
They won’t do it face-to-face, they’ll just take it from you electronically - just like they create money.
That’s what’s new here. They used to have to take everything you own in person with possible consequences along the way. Now it’s easier.
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