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?
Good point. But to do that, we would have to regress to a barter system. Not practical in today’s times.
Wont be much paid in taxes anyway. Unemployment is high and profits for domestic businesses are down significantly. So Obama was lying when he stated.
He is not bluffing. They have not only stolen our retirement savings, but they intend to not return the funds they stole. This government is illegitimate.
All illegal aliens and visa holders should be kicked out of the country. That is what Japan did when they were overwhelmed by the Tsunami. We cannot support the worlds transients anymore because our corrupt government has stolen our money.
Probably alluding to reformist Republicans who have been saying that social security will default if not reformed. Default meaning not paying. The Dimwits were the one saying that default was not possible because the magical fairy prince told them so.
Yep - they left is threatening SS for the same reason that the local school board threatens after-school programs and bus service instead of trimming a few layers of useless administrators whenever they want a tax increase.
“Good point. But to do that, we would have to regress to a barter system. Not practical in today’s times.”
I’m not so sure the IRS will care if certain people they select are forced to barter. I’m sure there will be banking alternatives for some of those people. I think to your point though, once people stop paying - and become scofflaws in the eyes of the government over taxes, it’s awfully hard to imagine them coming back into the fold.
You’ve hit on the Achilles Heel of the modern (last 100 years) political state.
Politicians campaign on giving away Free Stuff, and not surprisingly get elected. They then either don’t fund it because they want to get re-elected, or they raid whatever money is accrued to campaign for yet more Free Stuff.
Eventually though, the bills come, the numbers don’t lie. And here we are.
So that is the reason they squandered the money, because it was unsustainable?
Are you taking inflation into account when you say that?
I remember a nice new house with a big yard could be had for 7 or 8 thousand dollars.
I hate to be the one that breaks it to you, but politicians at the local, state, and federal level stopped caring about public sentiment about a hundred years ago. They’ve done a reasonable job of brainwashing many into thinking all of this nonsense is really what they want, or “it’s for the children” or various other techniques to quash dissent, but the mask will soon come off. It has to, because of what’s likely coming. It was all planned that way, if you can believe that. Unfortunately you are talking of a world that no longer exists.
The IRS looks at barter transactions the same way they do cash transactions.
That was the butter. Guns = Military. Butter = Welfare.
My thinking, and it is IMO, is that if the Fed Gov doesn't meet its DEBT obligation - US Treasuries - then they, too are scofflaws.
It could be an inflection point.
They’re going to have to cut EVERYTHING. It’s bitter medicine, but they need to do it. It’s like an addiction; but not reasonable to not face the hard facts NOW.
Yes. And I am proud to have been a part of it. I'm old enough that I won't reap the "rewards" of this backwards society.
It is my duty to ring the bell, but if the current crop of "I don't give a darns" - don't give a darn...no skin off of my nose.
When I'm dead, no one will care, when this country is dead, they won't even notice.
So maybe I should just STFU.
LBJ didn’t want to raise taxes to help pay for the Vietnam War. He also started a ginormous “War on Poverty” social spending programs.
So, the budget was looking pretty weak. And foreign central banks were demanding gold in exchange for their dollars. Social security receipts and trust fund monies were merged into the general fund and have been ever since the “unified budget”.
At least none of the goof ball politicians are running around saying everything is fine as they were not long ago. And Grandma can sleep well, knowing that foreign bondholders are first in line during our bankruptcy reorg, and getting her check is dependent on borrowing money overseas from those same bondholders.
The US is not so terribly different in this regard from the old USSR. The Soviets coasted for almost half a century on the assets looted from Eastern Europe. When those ran out and Reagan/JohnPaul/Thatcher pushed, the whole thing collapsed. Now our government has been coasting on the assets it has stolen by deflation and regulation from its own citizens and from the rest of the world and has run out of assets. The feet are still running but the cliff edge has been passed and China and Iran and the kenyan are pushing.
That’s part of the scam - they _absolutely_ depend on elimination of folks who “remember how things used to be”, and essentially dumb down whole swaths of the population in order to foist their schemes. A smart, thrifty, god-fearing populace is a lot tougher to swindle. I don’t know where you live but there are plenty of clueless around here!
But, you are not clueless. I am in West Texas. Where are you?
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