Coyote Blog

As I said, typical last act of a collapsing organization. Enron, Worldcomm, and now the Federal Government.

So, any bets on what happens in August when the pension fund is out of money?

You seem to ignore the fact that all federal employees hired in the last 20+ years are under FERS. FERS includes only a tiny defined-benefits pension; the other two-thirds comprises Social Security like everybody else, plus our 401K called the Thrift Savings Plan.

TC

The Social Security system has not been raided and replaced with IOUs. This isn't even a remote possibility.

How can I say this? Simple, the Social Security Trust Fund has never contained anything but IOUs. There is nothing there to raid.

The meme that Social Security has been raided is fuled by two things. People that are starting to see that there is a problem, but haven't yet seen the real problem and polititians that are either trying to distract people from noticing what really happened or are trying to score political points against the other side for "raiding" Social Security.

Social Security has never been an insurance or savings type program where a person's payroll taxes were put away to pay their benifits later. It has always been the case that the payroll taxes of the current workforce pay the benifits of the current recipients. This worked fine when there were many more workers than retirees and in the begining there was no trust fund.

Later, after the baby boom and the following baby bust, the baby boom generation started to realize they had a problem. When they retire there would be more recipients than workers. They demanded congress do something. What congress did was to commit a fraud.

They raised the payroll taxes above what was needed to pay current recipients and created the trust fund. The excess payroll taxes would go into the trust fund. The problem is that from the very first day and very first dollar of the existance of the Trust Fund, they were required by law to invest every dollar in the trust fund in US tresury bonds (a type of treasury bond that is only sold to the trust fund). The trust fund has never contained anything other than these special treasury bonds.

So what happend to the actual money. It went to the same place that the revenues for all other treasury bond sales went, the general fund.

The idea of a government agency holding bonds issued by that very government as savings is a joke. That would be like a coropration trying to raise funds by selling private bonds to itself.

I'm no historian, Matt, but some simple Googling yielded these two gems:

"Social Security Act of 1935." United States Social Security Administration. http://www.ssa.gov/history/35act.html

Section 201(b): "It shall be the duty of the Secretary of the Treasury to invest such portion of the amounts credited to the Account as is not, in his judgment, required to meet current withdrawals. Such investment may be made ONLY in interest-bearing obligations of the United States or in obligations guaranteed as to both principal and interest by the United States."

Public Law 379: "Social Security Act Amendments of 1939." 76th U.S. Congress. Signed into law by Franklin Delano Roosevelt on August 10, 1939. http://www.ssa.gov/history/pdf/1939Act.pdf

Sec. 201. (a) There is hereby created on the books of the Treasury of the United States a trust fund to be known as the 'Federal Old-Age and Survivors Insurance Trust Fund' (hereinafter in this title called the 'Trust Fund'). There is hereby appropriated to the Trust Fund for the fiscal year ending June 30, 1941, and for each fiscal year thereafter, out of any moneys in the Treasury not otherwise appropriated, amounts equivalent to 100 per centum of the taxes (including interest, penalties, and additions to the taxes) received under the Federal Insurance Contributions Act and covered into the Treasury.

From its first days, everything that went into the system over and above its expenses and overhead was BY LAW required to go to the government in the form of government paper debt. In other words, it's been a ponzi scheme since almost Day Zero, and is now reaching the final climax that all ponzi schemes do.

Doug,

What you found more or less confirms what I said.

Matt: my point, poorly stated, was your timeline error. It was FDR's gang of thieves who dictated that all post-expense monies were theirs, and who created the mythical Trust Fund into which it was all supposed to go. Your fourth paragraph from the bottom states that it was the Boomers who were the driving force behind these "changes." Not so.

No criticism intended.

Ed: no, a Ponzi scheme is "a form of fraud in which belief in the success of a nonexistent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors." In my book, that describes both Bernie Madoff and Social Security. Except Social Security's unfunded liabilities are about 3 orders of magnitude higher than Bernie's. And we're not allowed to put Social Security in the same place that Bernie now sits.