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Steered Straight Thrift

Can’t Rely on the Social Security Credit Card Forever

There’s a little nondescript office in Parkersburg, West Virginia. It’s just down the street from the municipal building. Inside there’s a white metal file cabinet. Locked in the bottom drawer is a three-ring binder that holds the bonds for Social Security. It’s $2.5 trillion in bonds, give or take a few million. This is our collective nest egg. In essence, it’s a three-ring binder full of IOUs.

Long ago, Congress raided Social Security to pay for who knows what. Social Security isn’t the only trust fund they raided. Retirement funds for civil servants and the military are all empty save the IOUs.

They’re treasury bonds, actually, but what does that mean? It means that we, collectively, owe the money. Think of it as putting something on a credit card. Government can pay for items and services it needs with cash on hand from taxes collected or it can issue bonds. That’s getting what they want now and paying for it over time, like you would a car or a house.

Instead of living within their means, our congress has borrowed or stolen the money from every source available. Now we’re in debt to the tune of $12.5 trillion. We borrowed much of it from foreign sources like the Chinese and the Japanese, but $4.5 trillion came from our own trust funds.

Think of it. This is equivalent to making $20,000 a year and owing $120,000 on your credit cards. One of the problems with raiding Social Security and other trust funds is that we not only have to pay ourselves back, we have to pay ourselves back with interest. Social Security money was not meant to be stashed away under a mattress. It was expected to grow as it was invested. Instead of that happening over the course of Social Security’s life, it will have to be paid as the program enters the era of insolvency.

What insolvency basically means is that we’re paying out more than we’re taking in. We entered that era (or error) this year. Experts tell us that we’ll run deficits in Social Security for about three years, run small surpluses for two, then fall into indefinite deficits in 2016.

Now, technically, the experts will tell you that Social Security will be bankrupt in 2037. They like to say that that’s when the fund will run out of money. It’s already out of money. It’s been out of money. Were it not for the money coming in there would be no way to keep it solvent for this long. Now we start combing through those Treasury bonds, the IOUs Congress left in there. Once those are gone in 2037, when there will be far more people drawing benefits than paying in, the whole program begins to spiral out of control.

What we should have done long ago is privatize this program. What that means is the money that’s taken from your paycheck would go into your own IRA or 401(k). It would be there for your retirement and your retirement alone. You could leave whatever’s left over to your heirs.

And imagine what that amount of money invested in the markets would do for the economy. That money is now going into the black hole that is the federal government with no benefit to the economy.

Sure, it’ll be a painful transition. Every year we wait makes it more painful, but it’s like a cancer. We may have to remove it now before it spreads. Congress did this to us over a series of decades. And we’re even thinking about giving them control of our health care?

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About the Author

Phil Valentine is heard each weekday afternoon on SuperTalk 99.7FM in Nashville and online at 997wtn.com. For more of his commentary and articles, visit philvalentine.com.

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