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“First, any value in the balances in the Social Security Trust Fund is derived from dubious government accounting. The trust fund is not a real savings account. From 1983 to 2011, it collected more Social Security taxes than it paid out in Social Security benefits. But the government borrowed all of these surpluses and spent them on other government programs unrelated to Social Security. The Trust Fund holds Treasury securities, but the ability to redeem these securities is completely dependent on the Treasury’s ability to raise money through taxes or borrowing.”
From the Concurrent Resolution on the Budget— Fiscal Year 2013 (p. 104) This document is commonly referred to as “The Paul Ryan Budget.”

Prioritize Your Concerns About Social Security

If you have to fret about the threat to Social Security, the quote above the curlies is where you start.  Don’t dismiss it too quickly. These words aren't as inscrutable as they seemed when they appeared in the “Concurrent Resolution” that was passed in the House of Representatives on March 29, 2012.  These words become alarming with “Debt Ceiling Debacle 2” looming on the horizon.  

Pay attention when you hear the word “default” because it includes the $2.6 trillion in Treasury securities (bonds) held in the Social Security Trust Fund.  Here are the words in Ryan's budget:

The Trust Fund holds Treasury securities, but the ability to redeem these securities is completely dependent on the Treasury’s ability to raise money through taxes or borrowing.
By blocking a rise in the debt ceiling, the Republicans can jeopardize the Social Security Trust Fund's ability to redeem the Treasury securities it holds.  This is the primary threat to Social Security.  It's a real threat.

The Debt Ceiling, Default, and Social Security

The Social Security program has been operating at a surplus.  Revenue collected exceeds benefits paid. Each year, the surpluses have been borrowed to fund general government needs.  The IOUs held by the Social Security Trust Fund are in the form of Treasury securities that were issued with a guarantee against loss. A default caused by freezing the debt limit at the current level puts all Treasury securities in jeopardy, including the $2.6 trillion held by the Social Security Trust Fund.

Freezing the statutory debt limit (debt ceiling) at the current level will have consequences.  They were spelled out in a letter from the Chairman of the Treasury Borrowing Advisory Committee, Matthew E Zames, to Treasury Secretary Tim Geithner in the early stages of “Debt Ceiling Debacle 1.”  It is explicitly clear that Chairman Zames was warning about consequences “that could likely occur if Treasury were to default on its obligations as a result of a failure to raise the debt limit in a timely manner.”  If you choose to minimize the possibility of default, come with notepads, pencils, Excel spreadsheets, and figures that show how principal and interest on the debt will be paid when due from revenue collected.

Where Left and Right Meet

A popular subculture promotes a very understandable rejection of US banking and finance, and its currency and monetary system.  Their chatter about banksters, fiat money, printing money, the worthlessness of our currency, and the zero value of all paper including Treasury securities is everywhere.  Let me translate what they’re saying for you:  the $2.6 trillion in Social Security funds is gone.  You have no IOU. You have a worthless piece of paper.  To me, this sounds exactly like the con that Paul Ryan is trying to pull, as if the left and the right wrap around and meet on common ground on this point.  

If the US is flying on fumes and it's in danger of crashing at any moment when the fumes run out, that's something that should happen by itself.  Instead, what I see is a plan to deliberately cause a crash by cutting the fuel lines.  Unfortunately, when the hated banksters go down, everyone else goes down with them.  Lost in the disaster would be the $2.6 trillion that legally belongs to Social Security beneficiaries.  I'm not going to give those benefits away, based on a Nihilist fantasy about the worthlessness of money.   Discussions about this usually end up in a rabbit hole where reason and logic hold no sway.  

What happened to the $2.6 trillion?

The surpluses were borrowed for decades.  During the Bush administration, about $1.1 trillion from the Social Security Trust Fund helped to pay for lower tax rates on upper incomes, the wars, Medicare Part D, and all other government outlays.  

Didn't the payroll tax cut harm Social Security too?

This is a variation on another popular theme is political discussion.  It boils down to “Aren’t the Democrats just as bad as the Republicans with undermining Social Security?”


The payroll tax cut placed dollars in the hands of consumers who spend them.  The increase in demand adds vigor to the economy.

The payroll tax cut didn't harm Social Security because the short amount was replenished from the General Fund. It shows on the fund's balance sheet and it's visible in the data that the fund makes available online.  

1)  $102.68 billion was transferred from the General Fund to the Trust Fund to replace what wasn’t collected in revenue because of the payroll tax cut.  (At the link refer to the last line of the second table for year 2011.)
2) If there was no payroll tax cut, any surplus would have been borrowed and spent.  Instead, the foregone revenue prompted the partial repayment.
3) The payroll tax cut kept the Social Security surplus from being used to disguise the true amount of the budget deficit as it was used for many years in the past.  

Unify in opposition against any attempt to reduce Social Security benefits or otherwise harm the program.  This is something that all Democrats can share as a baseline progressive position.  

Originally posted to leftreborn on Mon Jan 14, 2013 at 10:12 AM PST.

Also republished by Social Security Defenders.

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Comment Preferences

  •  Tip Jar (15+ / 0-)

    "Democracy is a life; and involves continual struggle." ---'Fighting Bob' LaFollette

    by leftreborn on Mon Jan 14, 2013 at 10:12:45 AM PST

  •  Some don't want to pay it back but tough. You (3+ / 0-)

    borrow it you can't reneg. I understand that the funds can't just sit there either since they have to earn just like pension funds.  

    Many don't like the idea that banks do a service like earning for iinvestors which actually support a lot of our economy... an economy to me which seems to be a ratcheting up in value. "Spread it around" actually causes  an economy to grow and i think that is the important message right now. So many on all sides seem to think it would be better to collapse the whole thing. A total collapse would insure the death of many... Cavalierly tossing many aside is not very progressive to me. Especially when the pain is on someone else... If someone doesn't get thier unemployment check or thier social security check they go without food or housing... Easy to say tough it out but many don't have family to back them up (or savings- on minimum wage yeah sure) and so would just simply become homeless and eat from food lines which are hard pressed... Which is totally unacceptable in one of the richest countries in the world which can somehow find money and will to have a militatry  as large as most others put together (though I understand the MIC is a large economic portion which includes jobs and return on investment)... Take care of our own who are our neighbors, family and friends.

    I can see the drive for investor profits has its place in the whole shebang but becoming self centered will take us down as well. But to me there is nothing progressive about dismissing the suffering of others as necessary hard choices. To me the economy which gives us jobs and allows us to build a more sustaining world  is like a web. Too often people focus on merely one part of it and ignore the costs and downsides of others. There is an economic argument about guns, about the environment, about population with optimum solutions which is really what politics is. The argument about the optimum for all versus the optimum for the most aggressive and selfish.

    I liked your diary.

    Fear is the Mind Killer...

    by boophus on Mon Jan 14, 2013 at 10:52:49 AM PST

    •  I couldn't have said this better. Progressivism (0+ / 0-)

      is founded on collective power.  That's why conservative Republicans are trying to destroy unions, the federal government and any bonds that people can use to combine efforts.  

      "Democracy is a life; and involves continual struggle." ---'Fighting Bob' LaFollette

      by leftreborn on Mon Jan 14, 2013 at 11:07:36 AM PST

      [ Parent ]

      •  You would think so, but based on too many (0+ / 0-)

        comments on dkos, some would consider talk about cuts as all hype,  never gonna happen, don't take the talk personally,  and if it does happen, the president is doing it for the good of the country.

        Unify in opposition against any attempt to reduce Social Security benefits or otherwise harm the program.  

        This is something that all Democrats can share as a baseline progressive position.  

        "Who are these men who really run this land? And why do they run it with such a thoughtless hand?" David Crosby

        by allenjo on Mon Jan 14, 2013 at 01:06:00 PM PST

        [ Parent ]

        •  I have an anecdote about that. (1+ / 0-)
          Recommended by:

          In another diary written by someone else, I responded in agreement with a comment about chained CPI.  For some reason my agreement was misunderstood or misread as the opposite and I was lashed.  There was no way to correct it.  This person just needed to lash.  

          All discussion about political issues, online at Kos, and everywhere else it takes place, falls into two categories.  It's either substantive discussion about ideas or it's lashing.  You can usually tell when it's lashing because it involves changing the subject.  The participants themselves become the subject.  The discussion won't be substantive, productive, or constructive.  

          I have a hunch that the majority of lashings I see on Kos come about because good communication isn't easy.  This is a great community with some of the smartest people I've seen in any internet community.  But darn humans sometimes make mistakes.  The anonymity of the internet invites temptation to behave in a way that most people never would face to face.  Good communication means I mind my manners.   I don't have to agree with everyone 100% of the time.  Disagreements leading to fragmentation is what the opposition wants.   And I'll be damned if I go that way.

          "Democracy is a life; and involves continual struggle." ---'Fighting Bob' LaFollette

          by leftreborn on Mon Jan 14, 2013 at 02:56:59 PM PST

          [ Parent ]

    •  But the Rs believe that cutting off all payments (1+ / 0-)
      Recommended by:

      is either a matter free of real life consequences at least as to them and their donors, forget the constituents, or is deserved for their victims' having trusted gummint when it is plain from the Rs own conduct in running it the way they want to do that such trust was misplaced, and the suffering is payback for political stupidity. Basically its all a game to them, the game of power, and fools like Blackburn are rolling in the thought of ALL THAT POWER to do harm if they are not indulged.

  •  Safest investment in the world (5+ / 0-)

    U.S. Treasury bonds are the safest investment in the world.  Still.  People around the world today are paying the U.S. government to hold their money for them.  True.  The current rate of interest paid on Treasuries is lower than the rate of interest for the time period.  This is established by auction, by the buyers, not by some guv'm'nt bureaucrat.  1.89% annual interest rate on a 10 year loan to the U.S. Treasury last Friday.  0.14% for a one year loan.

    The Social Security Trust Fund is invested in Treasuries that pay more interest than this because they were mainly bought during years when the rate was higher.  What would people prefer be done with the SS surplus?...invest in stocks or corporate bonds?   Moldy bundles of hundreds in some warehouse?

    There will not be a long term shut down of the government.  The debts will be paid, perhaps after a short painful, expensive hiatus.

    •  I meant... (1+ / 0-)
      Recommended by:

      "The current rate of interest paid on Treasuries is lower than the rate of inflation...."

    •  There is NO fear that these bonds will... (2+ / 0-)
      Recommended by:
      bleeding blue, Deep Texan

      not be paid, otherwise the whole world's financial system would crash, if some bonds were deemed good and others not. Big picture is that the SS Trust Fund surplus is secure unless we are invaded from outer space.

      Plato's " The Cave" taught me to question reality.

      by CTDemoFarmer on Mon Jan 14, 2013 at 11:21:02 AM PST

      [ Parent ]

      •  Ha! Ok did you bring your pad, pencils, Excel (0+ / 0-)

        spreadsheets and data on revenue and issues maturing so that you can demonstrate how all obligations will be paid on time?  It is precisely because of what's at risk that you don't dismiss the risk.  The US is too big to fail isn't risk mitigation.  

        "Democracy is a life; and involves continual struggle." ---'Fighting Bob' LaFollette

        by leftreborn on Mon Jan 14, 2013 at 11:35:22 AM PST

        [ Parent ]

      •  not exactly true. (0+ / 0-)

        Governments that have defaulted throughout history often choose which creditors to pay and which ones to stiff.

        The treasurys in the trust fund are "special" in that they cannot be sold on the open market. This special class of securities is not fungible with the worldwide market in Treasury bonds and notes. IMHO, the effect of reneging on this special class due to insufficient political will to raise the money to redeem them would be less severe than an actual default on a normal Treasury bond. Still bad, but not catastrophic as you imply.

        We're not generating enough angry white guys to stay in business for the long term. --Sen. Lindsey Graham (R-SC)

        by uffdalib on Mon Jan 14, 2013 at 02:04:43 PM PST

        [ Parent ]

        •  uffda - I used to hear that when I lived in (0+ / 0-)


          I think we agree that like Social Security there isn't room to
          let anything slide when it comes to defaulting.  As you say, the trust funds hold non-marketable issues.  This is to prevent transfer of ownership to any other entity.  Marketable issues can, of course, be transferred between owners when bought and sold.  I don't think there's any implication about seniority.  The Treasuries held by the Social Security Trust Fund are included under the current statutory debt limit just like marketable Treasuries.  If they defaulted the markets wouldn't overlook it.  

          You gave me an idea.  The General Fund is used to borrowing the annual surpluses but freezing the debt ceiling might also have the unintended consequence of prohibiting more of that.

          "Democracy is a life; and involves continual struggle." ---'Fighting Bob' LaFollette

          by leftreborn on Mon Jan 14, 2013 at 03:19:01 PM PST

          [ Parent ]

          •  There are no more annual surpluses (2+ / 0-)
            Recommended by:
            leftreborn, Mother Shipper

            Not borrowable ones anyway.

            Social Security is currently running surpluses for top line budget deficit purposes only because interest accruing on current Trust Fund asset is right around double the amount needed to fund the current gap between SS tax income and total SS cost. While these 'unneeded' interest dollars reduce deficit scores they can't actually subsidize spending the way the cash tax surpluses did in the 90s through around 2006.

            Failure to increase the debt limit would seem to require that these accrued dollars be retained in holding accounts on the Treasury books until such time as they could be converted into new Special Issues that in turn would be Debt Subject to the (New) Limit. But off the top of my head would still serve to reduce unified budget deficits. The only effect I can see is that these held back funds would not be themselves accruing interest (I.e. interest on interest) but that wouldn't have any effects on anything in the short run, though marginally harming SS solvency in the long run.

            I could be wrong here, because federal budget rules are indeed weird. But I don't see any kind of silver lining here.

   - SocSec.Defender at - founder DK Social Security Defenders group - (hmm is there a theme emerging here?)

            by Bruce Webb on Mon Jan 14, 2013 at 03:44:58 PM PST

            [ Parent ]

            •  Especially not with the payroll tax holiday. What (0+ / 0-)

              was I thinking?  There has to be a hairline fracture somewhere I can jimmy in a crowbar and bust the GOP apart.  Break time.

              "Democracy is a life; and involves continual struggle." ---'Fighting Bob' LaFollette

              by leftreborn on Mon Jan 14, 2013 at 04:05:56 PM PST

              [ Parent ]

        •  And uffda even if possible (0+ / 0-)

          For the Treasury to prioritize debt redemption in a way that put Special Issues behind Regular Treasuries that would seem to be a purely political decision. There being nothing in current law that I know of that legally subordinates one to the other. In fact nothing actually prevents the Trustees from investing cash balances in regulat Treasuries, in fact they have been part of the TF portfolio in some decades past. In which theoretical situation the argument for subordination gets really stretched. And still isn't one of law.

          The question here is whether even an Administration totally in the pocket of Wall Street (as say the Romney one certainly would have been and as many would claim the Obama one is too) would have the balls to openly honor claims made by the Central Chinese Bank and other sovereigns over those of some 200 million current workers and retirees. Without the cover of some law FORCING them to do so? Which is why the Right is pushing these bogus subordinated debt arguments to begin with, hoping to have a fait accompli before people understood it was a truly free choice of a screw job on American workers/retirees/voters.

          That is I don't think the ultimate issue is the reaction of the bond market, which as a whole has the incentive to avert their eyes and take the money, but how this plays out politically.

          I don't think even the blindest Neo-Lib, Third Way, Corporatist Rubinista is THAT blind as to buy in. For that matter the Paulites might not be too happy with a plan that pays off the Fed and big banks on their Treasury holdings while stiffing 95% or so of Americans. Tea Partiers may luv them their billonaire oil and coal barons, but if one thing has always been common to the Populist Right it has been a hatred of East Coast 'Jew York' Bankers. They just don't see the same unified 1% that Progressives tend to. Good rich people give you jobs, bad rich people repossess your car and foreclose on your house.

          Republicans are playing with fire if they think they can win a battle too easily described as the Chinese Central Bank vs Gramma.  Even Bob Rubin has to see that and not let Dems get suckered playing that game.

 - SocSec.Defender at - founder DK Social Security Defenders group - (hmm is there a theme emerging here?)

          by Bruce Webb on Mon Jan 14, 2013 at 04:13:38 PM PST

          [ Parent ]

    •  What would people prefer? (0+ / 0-)

      This people would prefer that the guarantee against loss remains intact.  Everytime an elected official brushes off the risk of default, the safety of Treasuries is eroded.

      “People in the political arena were even talking about a potential default,” said Joydeep Mukherji, senior director at S&P. “That a country even has such voices, albeit a minority, is something notable,” he added. “This kind of rhetoric is not common amongst AAA sovereigns."
      Is this quote from S&P about the previous downgrade unclear?  Yet I still see people like Marsha Blackburn (R-TN) with her wizened double-talk dismissing any risk.  They made provisions for payment of the interest.  How about the principal coming due on issues that will be maturing?  Any idea how much?

      Visit for breaking news, world news, and news about the economy

      "Democracy is a life; and involves continual struggle." ---'Fighting Bob' LaFollette

      by leftreborn on Mon Jan 14, 2013 at 11:30:09 AM PST

      [ Parent ]

      •  Rolled over principal would have no net--- (2+ / 0-)
        Recommended by:
        leftreborn, Deep Texan

        effect on Debt Subject to the Limit. Legally it would seem that the real issue here is Debt Service/Interest and net new borrowing to finance already appropriated spending.

        Unless I am missing something the nominal amount of maturing debt is irrelevant in and of itself. Although there may well be legal barriers against reissuing offsetting debt on a like for like basis Which doesn't change the basic point. - SocSec.Defender at - founder DK Social Security Defenders group - (hmm is there a theme emerging here?)

        by Bruce Webb on Mon Jan 14, 2013 at 11:45:46 AM PST

        [ Parent ]

        •  I agree more borrowing isn't the same as new (0+ / 0-)

          borrowing and vice versa.  In looking at how rollovers would be done with management of the debt to stay under the limit, (yes I'm that wonky), I see that 1) the debt is lumpy and 2) repayment of maturities would have to go ahead of new issues, but the new issues are needed to fund repayment of maturities.  

          Revenue collected could be used as reserves.  The dollar amount of maturing debt is bigger than people might guess.  
          I see $1.7 trillion on the calendar for Q1-2013.   It should be do-able but I have colleagues who are doubtful because revenue is going to be stretched to the limit and beyond too.  

          "Democracy is a life; and involves continual struggle." ---'Fighting Bob' LaFollette

          by leftreborn on Mon Jan 14, 2013 at 12:12:37 PM PST

          [ Parent ]

    •  Special Treasuries. But right. (0+ / 0-)

      FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

      by Roger Fox on Mon Jan 14, 2013 at 01:35:13 PM PST

      [ Parent ]

  •  Republished. And 99% agree. Great post! (9+ / 0-)

    But there is that 1%.

    Due to some quirks in the law the Special Issue Treasuries held in the Trust Fund are not as exposed to the risks of default represented by failure to raise the Debt Limit as regular Treasuries. Ironically it is a feature of those bonds which enemies of Social Security identify as a fatal weakness that actually makes them gold plated as compared to regular Treasuries, themselves generally considered the safest securities on the planet.

    Special Issues are not marketable, they cannot be bought or sold into the market. Which also means they are immune to price changes, their value is always exactly at par with their face value. Moreover they are callable at will, while they have maturities, the Managing Trustee of Social Security who also has ex officio the other day job of Secretary of Treasury can redeem them at any time in any order consistent with his fiduciary duty as a Social Security Trustee. Moreover and more or less a consequence of this non-marketability and ability to be called at any time redemption of Special Issues is not considered by Treasury to be a cash transaction, those 'phony IOUs' are literally the same as cash, and nothing I have seen (and I checked this with among others a former Chief Deputy Commissioner of Social Security, I.e the number 2 and BTW a signatory of the Annual Report as 'Secretary to the Trustees' ) would prevent Managing Trustee/Treasury Secretary Tim G from writing SS benefit checks while simply debiting Trust Fund balances.

    Now this step would on it's face violate the Feds control over monetary supply, but in the context of a default would be the least of our problems. To the extent that it is a problem. Plus in the real world the continuing flow of SS checks might not mean jack in the context of what could be a world wide economic meltdown as regular Treasuries in effect became unredeemable or at a minimum less liquid. Which is why this is only a 1% objection.

    I did say it was a "quirk" in current law. But interesting for a certain type of Social Security finance geek.

    BTW issuance of checks to SS beneficiaries coupled with offsetting debits to Trust Fund balances actually reduces Total Public Debt Subject to the Limit. It turns out that Secretary of Treasury Tim can actually open some breathing room under the Limit simply by putting his Managing Trustee hat on and unlimbering his check writing hand.

    Federal Finance is weird. And any attempts to use the analogy of your typical household budget are bound to backfire. Because while the Fiat Money fanatics of the right and the MMT wonks on the left each go a little overboard both camps are onto something about the true nature of money. Which as Yogi Berra says in the commercial "Is just as good as cash".

    (At the risk of wonkery sliding right over into wankery) - SocSec.Defender at - founder DK Social Security Defenders group - (hmm is there a theme emerging here?)

    by Bruce Webb on Mon Jan 14, 2013 at 11:37:47 AM PST

    •  I stay on Kos because there are people like you (5+ / 0-)

      who are smarter than me.  

      I don't think many people understand what guarantees Treasuries.  'Full faith and credit' sounds like pie in the sky and it leaves room for doubt.  I've had quite a few people ask me where the buck finally stops.  As if a good samaritan would come along and shift the public debt elsewhere.   No such luck.

      Thanks for the republish.

      "Democracy is a life; and involves continual struggle." ---'Fighting Bob' LaFollette

      by leftreborn on Mon Jan 14, 2013 at 12:00:03 PM PST

      [ Parent ]

  •  I am already there, so you don't have (2+ / 0-)
    Recommended by:
    leftreborn, Boppy

    to worry about me. The only thing I want to have happen to SS is to STRENGTHEN it, for the future, NOT end it altogther. Count me in.

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