by Frank Thomas
Social Security Trust funds are invested in Federal Government 'special-issue securities.' Our government spends this borrowed cash in various ways. Like U.S. Savings bonds, these special-issue interest-bearing bonds (or IOUs) are U.S. government backed. Money needed to make monthly benefit payments to pensioners is raised by redeeming the special-issues held in the trust funds. In practice, the securities sold plus interest matches periodical expenditures, i.e., benefit payments. In 2009, the funds brought into the Trust funds and invested were $1,049 billion and the obligations sold or redeemed were $950 billion.
The increase in Trust fund assets accumulated in the form of Federal government IOUs are an obligation that must of course be met in the future. This accumulated Federal debt obligation, accounting-wise,is referred to as Intragovernmental Debt in Federal Budget reports and is not included in the National Debt to GDP ratio.
The concern is whether the Federal government can meet this future obligation. Notwithstanding an acccumulated surplus of $2.5 Trillion in the Trust funds to date, some are saying that, without new legislation to strengthen Trust fund solvency, the long-term special-issue bonds (Federal government IOUs or Intragovernmental Debt) will have to be redeemed before maturity to meet future benefit payments ... given the longer living age trend.
Many, many times on Robert Reich's blog, when I was examining all our annual Federal Budgets in numerous ways since Johnson's administration, I raised the question why is our National Debt as a percentage of GDP reported at the relatively low range of 60% knowing that an account called Intragovernmental Debt brings this ratio to the +80% range. I know that Robert Reich and Paul Krugman have always used the lower ratio but I have never found or received a simple answer, WHY?
As far as I know, Intercompany Debt among a holding corporation's legal subsidiaries is still real Debt? Likewise, Intragovernmental Debt is real Federal Government Debt to the Social Security Trust Fund. Why shouldn't it be counted as National Debt? The funds would have been borrowed externally by the Fed if the Social Security surpluses were not there for easy exploitation. I bet taxpayers over the years have never had a clue what has been going on here with their paid contributions for a future basic pension coverage.
The Intragovernmental Debt figure represents borrowings by the Federal Government from the Social Security Trust fund over the years to cover DEFICITS ... although Alan Simpson in the video with the journalist white washes this action by saying the borrowed funds helped build U.S. highways and other infrastructure the past 40-50 years .... suuuure! What bullshit, to borrow Simpson's often used arrogant epithet to all those naive people out there, including the journalist trying to question the facts with him.
So Simpson seems to say that Social Security pension fund contributors, the American public, should be thankful about how our Federal Government has borrowed their funds for God knows what -- even though there appears to be a contribution-in, benefit payment-out negative balance recently according to Simpson. For a long time, I've been very upset about this whole affair as all my readings have confirmed that Social Security has been in a consistent annual surplus and placed in a trust fund for over 3 decades. Paul Krugman, in an August 17 IHT article entitled "Attacking Social Security" confirmed this fact and went on to say that the successful Trust Fund has a $2.5 Trillion surplus!
Now, after watching Alan Simpson's circuitous explanation of the situation, I learn Krugman's $2.5 Trillion surplus figure accumulated over the years refers to government bonds issued to the Trust Fund for loans from the trust fund now totaling, yes, $2.5 Trillion to cover noteworthy (Simpson's suggestion) Federal Government expenditures (e.g.,defense?) or is it shortfalls? Alan Simpson, whom I've generally always held in high regard for his straight common sense, seemed like a typically polished double-talk salesman as he tried to rationalize the government's borrowings from the Trust Fund as normal business we should all be happy about ... even though Republicans are hyperventilating for political effect about the need to CUT benefits tomorrow. When is the deception and outright lying engulfing our government system ever going to come down to at least "making lies that are on the level."
