Social Security redux: a wake-up call

I’m never too tired, though, to rail about lines like this one, from the AP writethrough on Social Security finances:

…….The trust fund, which exists in paper form in a filing cabinet in Parkersburg, W.Va., are bonds backed by the government’s “full faith and credit” but not by any actual assets. That trust fund, currently at $2.5 trillion, has been spent over the years to fund other parts of government.

The authors are trying to make it sound like Social Security is broke or damn likely to get there, since its securities are – the other phrase you’ll hear – just a bunch of IOUs from the government (and we know the promises of a bunch of politicians are worthless). So it’s a great way to run down the financial position of Social Security.

But……..what other government obligation exists only as a piece of paper and an accounting entry, backed by no actual assets, just a government promise to pay? That would be a Treasury bond – the benchmark of a secure investment. The one that your finance text book tells you defines something risk-free.

And a default on Social Security would be the same as a default on a Treasury security. Heck, it would be a default on a Treasury security, because that’s what it is. And the U.S. government hasn’t defaulted since the War of 1812.

As a reminder, since the British burned the White House, we’ve added 32 states. We’ve fought the Mexican War, the Civil War, the Spanish-American War, WWI, WWII, and a few bloody “conflicts” against Native Americans, and in the Philippines, Korea, Vietnam, Iraq and Afghanistan. We’ve freed the slaves, crushed the Nazis and ground down the Commies. We’ve been through the Panic of 1873, the Panic of 1893, the Great Depression and a nasty, nasty downturn in the early 80s that I want to mention because I graduated college in the middle of it.

Anyone – journalist, politician or Uncle Fester – blithely tossing off a line implying the trust fund is a bunch of worthless paper needs to answer these two questions:

  • Do you think the government is going to default on its obligations?
  • If it is going to default, why is it going to default on obligations to its senior citizens before it defaults on the paper held by, oh, Goldman Sachs and the Chinese?

OK, I’m awake now.

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3 thoughts on “Social Security redux: a wake-up call

  1. Lynda says:

    Lack of sleep leads to hypervigilance, or is it the reverse? Time to invest in coffee beans.

  2. Lyle says:

    To find a piece of paper that the government says is worth something look no futher than your wallet, the green pieces of paper only promise that if the go to the government they will give you different ones. There is no other backing to the currency. So US Treasuries are just one of a group of pieces of paper that should any default all are worthless, so the conclusion is I guess to buy old Silver Dollars. (Gold is to expensive after the decline of society to be able to get change, silver comes in smaller pieces.

  3. James says:

    OK, you’ve got a point, but Treasuries are on the US government balance sheet while ultimate social security obligations are not. It’s kind of like putting up appropriate reserves for current business, but treating asbestos losses on a pay as you go basis. Sound familiar?

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