There is no trust fund. Don't pretend there is.

DR - Of course there's a trust fund. And will be until they somehow liquidate it. How do they do that? I don't know. What do you think?

Joe

DR -- I assume you know there are special US bonds held in the name of the Social Security Admin, and that your point is that you feel the government will not make good on those bonds.

So let me ask you this quiestion:
Now that the government has made good on its IMPLICIT promise to guarantee the Fannie and Freddie bonds held by foreign CB's and other entities for the benefit of powerful/rich people, how can it possibly NOT make good on its EXPLICIT promises to repay its own bonds held by the social security trust fund for the benefit of the US citizens?

Or did I just answer my own question?

Well, I suppose the most important point is that the social security trust fund comprises government bonds. At some point, probably in about 2017, social security payments will exceed social security revenues. At that time the Social Security Administration will be forced to begin redeeming the bonds it holds to raise the cash to make payments.

Just what will the Treasury do when those first bonds are presented? Several option come to mind.

First, the Treasury could apply a portion of the then current Federal Budget Surplus to cover the bond redemption.

Second, if Congress exercises foresight, it will have anticipated the bond redemption and appropriated sufficient funds to cover the redemption.

Third, if the budget is not then in surplus and if the Congress fails to exercise foresight, the Treasury could sell new bonds and use the proceeds of the new bonds to redeem the Social Security bonds presented for redemption. This option, unlike the previous two, requires the participation of investors outside the government. Investors are likely to look at the credit worthiness of the federal government. Depending on the circumstances then prevailing, investors may or may not decide to purchase the new bonds. Perhaps the major purchaser will be China and not the banking institutions who have grown more cautious as a result of today's bailout and subsequent events. In any event, the interest that actually must be paid will affect Federal government budgets for 2018 and later years.

Fourth, the Treasury and Federal Reserve could just print enough money to cover the redemption. That would result in only a tiny increase in the money supply.

I'm sure others may have additional options. But I'm confident that the Federal government has plenty of options and Social Security is solid as a rock.

The Post just pulled 2011 out of the air to try to scare readers.

Do you seriously, sincerely believe that? Do you seriously, sincerely discount the possibility that they simply relied on an errant source/a source you disagree with, rather than just made them up?

I think it's impossible that they "made them up". I think that any professional journalist -- and they, unlike you, are professional journalists -- would find that suggestion abhorrent. Can you defend it? Or is this just one more utterly unsupported "Dean Baker is smarter than everyone, just listen while he tells you so" moment?

I love how people who have seemingly never read the blog and have no idea what was covered in the past come rolling in, off of a Google Alert I imagine, and throwing around the same tired old clichés that have been thrown around since at least the time that I started reading the blog.

People, do your research. Dean did most of it for you, so you just have to go back through his archives and read about it.

For those who really want to get into the weeds of the Social Security trust fund and why it is not going broke any time soon, please check out the blog "Angry Bear." For the Washington Post, Audit, and DR, please explain to me why the Government should default on the bonds in the Social Security trust, while honoring all the other bonds? And yes Audit, they do just make it up on the Washington Post about all the time.

Cannot believe that some dumb comments were able to get some of you all riled up.

If you did rile up, they succeeded.

2011? Hmmm - that's a number Don Luskin onced used. It's when the Soc. Sec. surplus peaks. Yes - when the 2nd derivative of the amount in the Soc. Sec. Trust Fund hits zero, then we're bankrupt! What a hoot!

I think some of the real question also depends on the peaks in the beneficiaries. I saw an article somewhere that VA benefits to WWII vets peaked in like 1991. Can we put a date on when Baby Boomer SS benefits will peak? I have a feeling that even if the Boomers draw down the trust fund when they die off it might come back.

I'm not an economist and crunching the numbers to get anything close to a correct answer is well beyond my abilities, but it seems to me SS could be "fixed" permanently by simply eliminating the cap. Possibilities to make it more palatable could include decreasing the rate to 1% and/or eliminating the employer contribution after the current(and graduating) cap level is exceeded. Although, frankly, I'm not sure the general public wouldn't enthusiastically jump on board a plan to eliminate the cap. I'm personally aware of it partly through my reading and partly by being fortunate enough to exceed it. However, it's been my anecdotal experience that many Americans are unaware that higher wage earners "dodge" SS taxes, a fact that I think professional economists, among whom knowledge of the cap is a given, might mistakenly assume is commonly understood.

When I first read this post, I thought, maybe the WaPo was referring to the negative cash flow as when after the peak in surplus that is adding to the Trust Fund, because I think that is about when it happens. But then I read the whole thing:

-- in 2011, when Social Security's cash flow turns negative, because of the first wave of baby-boom retirements. No longer will the rest of government be able to live off the surplus in Social Security's trust fund.

And I realized they either are lying, or very badly misrepresenting it. It isn't until later that the yearly income from payroll taxes can't meet the benefits expended. But even after that, the Trust Fund will grow for a little while longer as it will make the difference up from the interest on the Trust Fund. But eventually it will have to start cashing out the Trust Fund.

pgl wrote, 2011? Hmmm - that's a number Don Luskin onced used. It's when the Soc. Sec. surplus peaks. Yes - when the 2nd derivative of the amount in the Soc. Sec. Trust Fund hits zero, then we're bankrupt! What a hoot!

Blogger uggabugga pointed out this comment. It's very astute.

Bob wrote, Possibilities to make it more palatable could include decreasing the rate to 1% and/or eliminating the employer contribution after the current(and graduating) cap level is exceeded.

But that's inequitable.

Some of us who make more than the cap really do work for the money.

And if you're going to eliminate the cap, what's the excuse for taxing wages but not capital, or land for that matter? (Landowners are pure parasites, as John Stuart Mill pointed out long ago.)

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