Wednesday, February 09, 2005

Full Faith and Credit

This is as about a clear cut an example of Bush lying as you can find (either that or he is so willfully misinformed as to be scary):

“Some in our country think that Social Security is a trust fund—in other words, there’s a pile of money being accumulated. That’s just simply not true. The money—payroll taxes going into the Social Security are spent. They’re spent on benefits and they’re spent on government programs. There is no trust. We’re on the ultimate pay-as-you-go system—what goes in comes out. And so, starting in 2018, what’s going in—what’s coming out is greater than what’s going in. It says we’ve got a problem. And we’d better start dealing with it now. The longer we wait, the harder it is to fix the problem.”

In Personal Finance 101 you learn that the only "piles of money" lying around are those in people's mattresses and in Scrooge McDucks money vault. The balance on an account of any kind is not a measure of how much cash is actually in that account but is instead a measure of the holder of the account is obliged to pay the owner when the owner comes asking for his money. The money in all accounts are always invested somewhere. It never just sits around.

For Bush to imply that the Social Security trust fund is somehow unreal because there isn't an actual pile of trillions of dollars in a vault some where is equivalent to saying that all accounts are mere illusions and can be treated as if they were unreal.

Try making that argument the next time you get a bill for your credit card.

Now, assuming that Bush is not a total moron (and I know for some of you that's a pretty big assumption), he should know this. Therefore, in making this argument, he is deliberately trying to fool the American people into believing that our bedrock financial institutions are built on nothing but air and can therefore be simply ignored.

Here's the truth: the Social Security trust fund is invested in United States Treasury Bills. At around 2018, the amount of money coming into Social Security from the payroll tax will be less than the money that is owed to retirees. That means that, in order to meet that obligation, the Social Security Administration will have to start cashing in some of those T-Bills. That means the Treasury will have to find the money to meet that obligation. Most likely by selling more T-Bills to other investors or, if we have a sensible administration by then, by raising revenue through additional taxation.

There is a "crisis" in 2018 only if the Treasury cannot pay the Social Security Administration for its T-Bills. But that is not a problem of the Social Security Administration. That is a problem of the Treasury. Or, more generally, it is a problem of the entire U.S. government! For, if Treasury can't return money to the SSA then the U.S. government will have defaulted on its debt.

Let's be clear on this: in the entire history of the United States, through civil war, depression, and two world wars, the United States has never defaulted on its debt. This stellar record of rock solid financing is the reason why U.S. T-Bills are considered the safest investment you can make today.

Bush, in order to scare people into supporting his privatization plan, is threatening to default on the good faith and credit of the United States. If he is not then he is lying about the danger to Social Security. If he is not then he really is a moron and as such is a clear and imminent danger to the safety of the republic and should therefore be removed from power.

It really is that simple.


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