Social Security Scam Now Obvious

Socialist governments traditionally do make a financial mess. They always run out of other people’s money.
− Margaret Thatcher

If there is a silver lining to the dark clouds hanging over our economy − and that’s a big if − it is highlighting the sad fact that Social Security is an enormous fraud. This fraud goes beyond even the fact that it is a Ponzi scheme − that it depends on enough new workers joining the workforce to pay for older people retiring.

Yes, Social Security is as much a Ponzi scheme as were the machinations of Bernie Madoff, but this is old news to anyone who has been paying attention. What is new is the official admission by President Obama and Senate Majority Leader Harry Reid that if the debt limit is not raised by the August 2 deadline, Social Security payments to 53 million recipients may cease. This threat may be exaggerated, but it is still a threat.

It may be a bluff to intimidate Republicans, or a real threat. But in either case, it is an open admission by high officials that Social Security depends on continuous borrowing. This admission exposes for all to see that Social Security is based on two colossal lies:

Payments are “guaranteed.”

Over the years, officials − from former Speaker Pelosi to leaders of the AFL-CIO to official statements − declared that Social Security payments are “guaranteed.” The word occurs repeatedly in descriptions of Social Security as it now exists, especially when contrasting it with proposals to privatize it.

But what does “guaranteed” mean? Most retirees assume that it means what it says − that the United States government stands behind its promise to pay benefits. But in fact, “guaranteed” is used here in a very limited sense. Payments are “guaranteed,” but only so long as (1) enough new workers join the workforce; (2) enough money can be raised by taxes or borrowing to cover the payments; and (3) the president feels it is to his political advantage to make the payments, rather than to withhold them and blame Republicans.

If a bank or other business claimed its investments were “guaranteed” in this narrow, deceptive sense, it would be closed down, and its officials subject to prosecution for fraud. But the federal government polices itself − which is impossible. So no one will punish the officials who promised that Social Security payments are “guaranteed.” Few will even point out their false promises.

In part, this is due to the fact that the mainstream media are propaganda outlets for the Democratic Party. But it is also due to the fact that we have become so used to politicians making false promises that we hardly notice. How sad.

Remember how President Bush was called a “fear-monger” for proposing fixes for Social Security six years ago? Remember how Democrats claimed that the system was sound and payments were “guaranteed,” so we shouldn’t change a thing? But now President Obama threatens that payments may stop in two weeks if something isn’t done immediately. So who is the real fear-monger?

In fact, the Supreme Court decided in 1960 that recipients have no right to payments, no matter how many years they have paid into the system. The government can decide to decrease − or stop − the payments at its sole discretion. How’s that for “guaranteed”?

Money is in the “trust fund” or “lock box.”

Obviously, if there were money in the “trust fund” or “lock box,” it would be available to cover Social Security payments − surely for at least a month or two, while the current dispute is resolved. If that were the case, the president’s threat would be seen as empty, and his credibility would sink to even lower levels.

But whether the president’s threat is real or a bluff, what does the threat clearly demonstrate? If there is no money on hand to cover even one month’s payments, there cannot be a “trust fund” or “lock box” in any meaningful sense.

Yet we have been told for decades that there is a “trust fund.” What does it consist of? It consists of U.S. bonds, but of a special type. Most U.S. bonds are negotiable. They can be bought and sold. Otherwise, no one would want them − what good would they be?

But these bonds are non-negotiable. They can be redeemed only by the government, and only at the time they are due. So even if the Social Security Administration has a truckload of these bonds, it can’t sell some to cover even one month’s payments to retirees. It can’t do anything with them.

When I wrote about this subject in the past, some readers castigated me as a fool for not understanding that U.S. government bonds are among the safest investments on earth. But were these readers correct? Are the bonds held by the Social Security Administration really safe? Are they really bonds at all?

Suppose I want to borrow $500 from you. I’m a reliable fellow, so you go to your sock drawer, take out the money, and lend it to me. In return, I give you an IOU. You put it in your sock drawer. You trust me to repay the loan, so you can count my IOU as an asset. If you were to total up your net worth, you could add that $500.

But now suppose you want $500 for a fun weekend. You go to your sock drawer, take out the money, and leave your own IOU. But you see the difference. You can’t count your own IOU as an asset. It isn’t really an IOU. It is merely a memo that you took $500 and spent it. You may put $500 back in the sock drawer some day, or you may not. But in any case, the so-called IOU is just a memo to verify that the money is gone.

If I hold a government bond, it is an asset. I know the government will repay the money. Perhaps it will repay in inflated dollars that are worth much less than what I invested in the first place, but at least the debt will be honored to some degree. On the contrary, if the government holds a government bond − especially one that cannot be sold on the market − it is not really a bond. It is merely a memo to verify that the money is gone. The money went into the general fund, and was spent on whatever the government was spending on.

All this was already clear. But now it is so clear that it is impossible to ignore. There is no “guarantee.” There is no “trust fund” or “lock box.” Monthly Social Security payments depend on the government taking in enough money that month in taxes, or the government borrowing enough money that month, to cover the payments.

In short, the U.S. government is no better than Bernie Madoff. And now President Obama and Senator Reid have openly admitted as much. Madoff is in prison for the rest of his life. All we can do is make sure that lying, thieving bullies are voted out of office for the rest of their lives. All we can do is make sure that when our elected officials use the words “guaranteed” or “trust fund,” they are not fabricating pleasant fantasies to get reelected.

And we can work hard to be sure that noble words like “guarantee,” “trust,” and “security” mean something again. We can work hard to be sure that when our government makes promises − especially to the elderly, the disabled, and the truly needy − its word is good.