A Loss of “Trust”- Literally!

By: Richard H. Frank

All Americans, but especially senior citizens, are extremely concerned about the longevity of our Social Security system as we know it today. The questions most often asked by seniors are, “Does a Social Security trust fund actually exist”? and “If it does are our retirement funds really secure”?

The legal answer to the first question is “yes”. Social Security was officially designated as a “Trust Fund” in 1939. However, the law allowed for the Secretary of the Treasury to invest surplus contributions ( defined as receipts less payouts ) in marketable securities. Since 1960 the surplus funds collected were used to purchase “Treasury Securities”, which in effect was the practice of lending Social Security funds to the Federal government to be expended for whatever purpose Congress deemed appropriate. The famous, but mythical, lock box holds bonds payable to the “Trust” at a point when receipts ( your social security taxes) fall short of payments to retirees. In other words the fund has no money, but just a pile of IOU’s issued by the treasury.

By the end of 2008 our Federal government had spent $2.4 trillon of the surplus paid into the trust. Some financial experts have described our social security system as the greatest “Ponzi Scheme” ever created in the history of the world. Bernie Madoff was convicted and sentenced to 120 years in prison for running such a scheme. In comparison to what congress has done, through irresponsible spending, Madoff can best be described as an amateur with his scheme amounting to “small potatoes”. Should the same laws and logic be applied to our Congressional Representatives and the string of Presidents responsible to administer the Social Security Trust they could be considered guilty of “High Crimes and Misdemeanors” and subject to impeachment.

Since this cannot ever happen, nor can we hold any specific politician guilty of conspiracy to commit a crime, or criminal facilitation, we can at least demand truthful accountability on the part of the government. This sounds easy enough, doesn’t it? Well our government has “Cooked the Books” over the past forty-one years whenever it was politically advantageous to do so. They were able to either include , or exclude social security revenues and expenditures from the Federal budget. For example:

  • 1935 – 1968 Social security was off-budget.
  • 1969 – 1985 Social security was on budget.
  • 1986 – 1990 Social security was off budget except for computing the national deficit.
  • 1990 – Onward Social security was off budget for all purposes

Gosh, if only I could use these “Creative Accounting” principles when preparing my personal family budget. Life would be much less stressful. As for the highly touted FY 2000 surplus left by the Clinton administration for the Bush presidency to squander, it never really existed. Once again it materialized using government “Creative Accounting” methods, ie including the surpluses derived from social security receipts. This practice is like taking money from your savings account for deposit into your checking account to be used to pay your bills. It only works so long as your savings account has money left to transfer. When your savings account reaches zero and all your credit cards are maxed-out you are left with only two alternatives.

  1. Stop spending!
  2. Stop spending and declare bankruptcy.

 Average Americans have no magic accounting tricks we can use, and if we were to attempt to print our own money the government would put us in jail. Yet the Washington elites in Congress and the White House continue to treat us as children who can’t understand the complexities of government finance and can not possibly know what is best for us as individuals and the country as a whole.  

No matter how politicians from either political party may attempt to justify our country’s current financial situation, and specifically that of social security, the real problem comes down to 50 years of uncontrolled government spending. Congress has spent our seniors retirement and selfishly passed the obligation to pay for their gluttonous appetite to spend on to our children and grandchildren.

The message that the American people must send to Congress as well as to our present and future administrations is that there is “No such thing as too big to fail”. Repayment of funds from the TARP program must be used to reduce the deficit as mandated in the law. Any stimulus monies not currently appropriated should be used to further reduce the deficit. Future bailouts for Banks, Insurance companies and the Auto Industry must be prohibited and repayment of any loans made with interest. Let our Free Enterprise System work to weed out the weak and strengthen the successful contributors to our economy.

The “Pay Go” sham needs to be exposed for the lie it really is. If a revenue stream cannot be confirmed for any new legislation either through new taxes or spending reductions, that proposed legislation must be defeated. Moreover, should Congress not be able to curb their appetite for spending it may be time for a Constitutional Amendment to demand a balanced Federal Budget as a solution to the problem.

In the interim, proposed legislation such as Healthcare Reform, Cap and Trade, Immigration Reform and all other budget busting programs must be scrapped. Additionally, government bureaucrats and employees are not immune from economic cycles experienced in the private sector. When a downturn occurs government must curtail spending and adjust employment levels accordingly, the same as within the private sector. Policies that extend and grow government during such times only add to the deficit.

“We the People” bear the responsibility along with government for not heeding the signs of approaching economic collapse and demanding our elected representatives respond to these signs in our interests and not that of special groups and above all not for their own personal gains.