Monday, March 15, 2010

We Wouldn't Dare What Congress Did

The next time you hear a politician rail about Social Security and Medicare going broke, you have my permission to throw your shoe at him/her/it.

Since the Reagan administration, both parties in power have robbed the entitlement program trust funds as a kid breaking his piggy bank and paying it back in worthless IOUs. Folks, that's not much of a stretch. Here's why.

If the commissioners who run the trust funds called in the IOUs, the only way they could be paid in part is by borrowing more money from foreign investors and increasing the national debt by trillions of dollars more than we already owe. The treasury IOUs in the trust accounts are worthless on the open market.

Ronald Reagan, despite his god-like worship from Republicans, and Federal Reserve chairman Alan Greenspan, despite his success at keeping inflation under control, started it all by nudging Congress to borrow from the trust funds to pay for new programs rather than borrowing from foreign countries.

In fairness, revenue for the trust funds would have run into deficits without some necessary tweaking but at a much later date than, say, TODAY.

Speaking of today, Moody's Investment Services reported the U.S. is in jeopardy of losing its Triple A ratings because its credit is nearly maxed out. That means higher interest rates for borrowing to meet its debt obligations.

The culture in Washington does not look favorably on politicians who claimed borrowing from the trust funds was a bad idea. At least 2000 Democratic candidate for president Al Gore had the courage of his convictions to place the Social Security trust fund in a "lock box." Everyone laughed at him, especially after he was parodied on Saturday Night Live.

Bloomberg's Business Week reported:

The governments of the U.S. and the U.K. must balance bringing down their debt burdens without damaging growth by removing fiscal stimulus too quickly, Pierre Cailleteau, managing director of sovereign risk at Moody’s in London, said in a telephone interview.
Under the ratings company’s baseline scenario the U.S. will spend more on debt service as a percentage of revenue this year than any other top-rated country except the U.K., and will be the biggest spender from 2011 to 2013, according to Moody’s.

This is the first year since the 1980s when Congress overhauled Social Security that the pension program will spend more money than it takes in, by $29 billion. At the current rate, the trust fund will go broke in 2037. The $2.5 trillion in IOUs are being paid from borrowed money at a time the national deficit is $1.5 trillion this year and will continue to grow for several more years.

Social Security's shortfall will not affect current benefits but will the future 78 million baby boomer retirees.

More than 52 million people receive old age or disability benefits from Social Security. The average benefit for retirees is a little under $1,200 a month. Disabled workers get an average of $1,100 a month.

Social Security is financed by payroll taxes — employers and employees must each pay a 6.2 percent tax on workers' earnings up to $106,800. Retirees can start getting early, reduced benefits at age 62. They get full benefits if they wait until they turn 66. Those born after 1960 will have to wait until they turn 67.

In its 2009 summary conclusion Social Security Online reported:

But despite the difficulties—indeed, because of the difficulties—it is essential that action be taken soon, particularly to control health care costs.

Such pleas fall on deaf ears. Rep. Earl Pommeroy, D-North Dakota, who took over chairmanship of the House subcommittee on Social Security last week, told reporters: "The issues required to address the long-term solvency needs of Social Security can be done in a careful, thoughtful and orderly way and they don't need to be done in the next few months."

The national debt — the amount of money the government owes its creditors — is about $12.5 trillion, or nearly $42,000 for every man, woman and child in the country. About $8 trillion has been borrowed in public debt markets, much of it from foreign creditors. The rest came from various government trust funds, including retirement funds for civil servants and the military.

For complete details, click here for Social Security's online annual report.



My father had an expression for what Congress did to the entitlement trust funds. It was robbing Peter to pay Paul. What Congress accomplished was exactly what unscrupulous lenders did in the subprime mortgage scam -- no money down, no credit check, no payment necessary.

No comments: