Saturday, March 12, 2005


When is a Surplus really a Debt?

When you're the federal government and you do your social security bookkeeping. The social security "surplus" isn't money. As explained HERE, it's government IOU's:

Three-quarters of the money that’s collected in Social Security taxes goes right out the door again in the form of benefits to Social Security recipients. The surplus that isn’t needed to pay benefits is loaned to the federal government to pay for other programs.In return for this loan, the trust fund gets IOUs in the form of special-issue, interest-paying Treasury bonds. The interest isn’t paid in cash, however; the Treasury department issues the fund additional bonds for the interest amount. Last year, the fund was credited with $80 billion in interest; the total value of the securities is about $1.5 trillion.

So there's the "two trillion dollar surplus" we hear about. It only exists on paper, and then only if you engage in the bookkeeping fiction that social security somehow exists totally separate and apart from the rest of the government financial picture...which is nonsense. In reality, the "two trillion dollar social security surplus" is a good chunk of the seven trillion dollar total national debt.

The problem, of course, is that the government now owes the trust fund so much money -- and relies on its surplus so heavily -- that real problems will be created when it comes time to cash in those IOUs. Uncle Sam is going to need to find another source of income to replace the surplus (or cut spending, or borrow money from somewhere else), plus come up with cash to pay the bonds it’s already issued.

Ummmm. Yeah. I'd say that's a problem.

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