Tuesday, June 21, 2011

The Trust Fund

The act2 article that states that “as a legal matter” Social Security Trust Fund is in a surplus position is absolutely true. The qualifier – as a legal matter – is the red flag that says “SPIN”.

For over 40 years Social Security taxes have been used to buy US Government Securities. The government issues securities and the Government spends the money. Now the Trust Fund holds $2.5 trillion dollars (2009) in IOUs from the US Government and those 40 years of cash tax receipts are long gone.

You put $100 in an envelope every week for 40 years as your retirement plan. Every week you take out the cash, put an IOU to yourself for $100 in the envelope and spend the cash. At the end of 40 years, how much money did you save? You are also in debt for 8 to 10 times your annual income and borrowing about 40% of your current expenses. But you do have the IOUs which you really, really intended to pay back.

With our borrowings/debt at the current levels, the Trust Fund can realistically be valued at 60% of its face. The Social Security system is in desperate need of corrective changes now but until there is a clear description of what is or is not in the Trust Funds, no progress is possible.

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