Social Security is 10 Years Past Retirement

I realize that retirement age is not 65 for everyone, but that’s the number that comes most quickly to mind with reference to Social Security. As of this last week, Social Security had been around for 75 years.

There are those who are still telling us that Social Security is not only alive but doing very well:

South Dakota AARP Director Sarah Jennings says the program is doing fine.
“There’s no crises here, it’s something we can always strengthen, the program and we’ll need to do that,” Jennings said.
Jennings says even with more baby boomers joining the system, the program is doing fine. She says officials prepared for that surge.
“If nothing is done to the program, no changes are made at all, to strengthen it, social security can pay out full benefits until the year 2037,” Jennings said.

Right. And my grandmother will be brought back to life by the same power that is secretly funding Social Security. If Social Security now pays out more than it takes in, it is hard to see how everything is rosy:

Social Security is officially in the red.  The New York Times reports that the system will pay out more than it takes in this year.  Explains the Times:

The bursting of the real estate bubble and the ensuing recession have hurt jobs, home prices and now Social Security.

This year, the system will pay out more in benefits than it receives in payroll taxes, an important threshold it was not expected to cross until at least 2016, according to the Congressional Budget Office.

CATO goes on to say the following:

The crisis is now, since the vaunted “trust fund” is filled with non-recourse government bonds–essentially worthless pieces of paper.  There’s no there there when it comes to financing future benefits.  Either payments have to come down or taxes have to go up, unless we adopt real reform centered around personal accounts.  And the latter course seems ever more distant after Congress voted to expand federal control over every Americans’ health care.

Exactly. The trust fund is neither trustworthy nor a fund, if one might put it in simple terms. The federal government has borrowed Social Security collected monies over the years while promising to pay it back. The bonds which have ended up in the trust fund instead of the money cannot be sold. I believe the correct term is that they are non-marketable securities.

What happens if you hold non-marketable securities from an entity which can’t pay its own bills? You take a fiscal bath. That is precisely what will happen to Social Security–barring tax increases. Now that benefits exceed taxes, the money to pay the benefits will need to come from cashing in some of those bonds. The only way the federal government can pay those bonds at present (given the massive deficit spending) is to increase taxes or to print more money, which leads to monetary devaluation–which tends to particularly damage those on fixed incomes.

Social Security has been promised to many people. That promise ought to be kept. We need to, however, learn from our mistakes and quit making the promise to more people.