Sunday, July 24, 2011

My explanation as to why Social Security Checks WILL go out regardless of what happens with the debt limit. Man, we are gullible!!.

When you (and all other workers subjected to payroll taxes) work, 12.40% of whatever you earn goes to the Social Security Trust Fund (you pay 6.2% and your employer pays 6.2%). For years this amount has exceeded what was needed to pay retirees Social Security checks. The difference in what was brought in and paid out was the then "borrowed" by Congress to spend on wars, bridges, tax breaks, whatever...The S.S. Trust Fund took US Treasury Bonds ("IOU's) in exchange for loaning the surplus money to Congress. This is known as an "Intergovernmental Transfer"--government borrowing from itself. The Trust fund has lots of these bonds, roughly $2.5 Trillion (yes, that is right) worth. They can redeem them as needed.

Assume the debt limit of $14.3 Trillion is met with no extension.  There have been threats that granny may not receive her Social Security check next month.  Let me show you how this is not possible, unless political leaders "choose" (not forced) to do so.

This $2.5T owed to the SS Trust fund is part of the $14.3T national debt accumulated by Congress. If a deal is not reached, EXCLUSIVE of any decision about what to spend or not spend on out of the Federal budget this is what the SS Trust fund can do.

Little less than $60 Billion is paid out in Social Security checks each month.  The SS Trust fund CAN "cash in" $60 Billion of the $2.5T in bonds they hold. The US Treasury is required to take those bonds and credit the SS Trust fund with the proceeds.  The Trust Fund can now cut checks and granny can go to the bingo parlor with no worries...Because the those bonds have been paid off and they were a part of the $14.3T national debt, the national debt DECREASES by $60 Billion BELOW the debt limit.  Now, Congress can borrow $60 billion MORE to meet other obligations and NOT be over the legal debt limit...Rinse and repeat next month...

This is not a long term solution.  The first question that comes to mind is WHERE did the US Treasury get the money (or electronic credits) to pay off the bonds?  Well, they printed/pressed a button.  Inflationary, you say? Perhaps, but inflation is not the biggest problem we face right now.  (Yes, this is kicking a can down the road, but just a DIFFERENT can...)...

The Federal budget problems have to be addressed, but they don't have to be at granny's expense. 

So, when you hear a politician or a talking head on TV tell you Social Security checks won't go out, they are either not informed or they assume you are not and will believe anything...Don't let it be the latter...

Please read this editorial by Thomas Saving that I base this blog entry on...He is not responsible for any of my misinterpretations of his work... :)
View My Stats