OK, first a little talk about credit: You love it, I love it, some abuse it, but it is truly what the global economy relies on. Nobody, no state nor nation has, on hand, in cash, the millions or billions that they will need to do what they want (well, OK, some do. Those aristocracies where all the cash belongs to 5 individuals, but most do not) whether that is building roads and schools or paying lobbyists and legislators insane amounts of money to drink lunch and chase their secretaries. They do have future earnings (futures) though. Iraq has oil and the US has a lot of natural resources plus a (rapidly declining) manufacturing value. I want to make it plain here that I am not an economist. I've got some math behind me but that's not really what the argument over Social Security (SS) is about. Believe it or not the numbers aren't all that important. I mean, it's not like any of us can actually understand what a trillion dollars
means.
The major questions about Social Security have to do with where the money goes after it leaves my check. And what is it going to be doing until I call for it again when I'm old? And will it be there then?
Suppose you are a child again (and I am only taking it to this level because that is where it makes most sense. I do not think you all are children or stupid), and you have a paper route or a lemonade concession or a baby-sitting concern or are mowing some lawns for money, and every morning you take a look at what you have vs. what you need (to spend) until more comes in: the difference between the 2, if positive, are your assets, if negative, your deficits (doesn't sound quite so childish now). Suppose that every morning, just after you've finished your accounting, your father or mother sticks his/her head in and says, "For every asset you've got, I would like to borrow that and give it back to you later with interest."
Now, your answer depends, rather deeply upon what you think of the parent. If your parent is trustworthy and thrifty and the rent is always paid on time and there is always food around you will probably say ,"OK". But suppose you're not sure. So, you go nextdoor to Germany and ask what they think of this proposal. They say,"Of course, I have no doubt that your parent will repay. In fact I am so sure that I have lent your parent many millions of dollars." Still not sure you might go to the Japanese, or the Brazilians, or the French, or even the Russians. And they all give you the same response.
So you agree and your parent says, "OK, if by June 30 you still don't need this then we will keep it for 1-15 years with a better rate of interest."
"But, what if I need it before then? What if I need it when winter comes and lawns don't need mowing and lemonade isn't selling?"
"Well then," your parent says, "I will give it back to you with a reduced amount of interest."
"But, what if I need it tomorrow or next week?"
"You will never lose any principal. Your quarter will
always be worth a quarter even if you need it tomorrow. But if you can wait, it will be worth more."
Cute story, huh? Well, that is exactly what the Social Security Administration(SSA) does with your FICA (Federal Insurance Contributions Act). The money that is removed from your check (6.2% matched with 6.2% from your employer) goes into the SSA accounts (certainly not as paper dollars, but as an electronic deposit) and everyday (they claim and I believe them) they look at what they need to pay out and what they have. If they have a surplus(assets) then, as far as I can tell, the law says that they will loan this money to the Treasury in the form of either "special issue" Treasury Bonds or "Certificates of Indebtedness". The former being long-term and the latter being short-term. When June 30 rolls around whatever "Certificates of Indebtedness" they have on hand that are not immediately needed are converted to Treasury Bonds(in this discussion it is from now assumed that the Treasury Bonds purchased by SSA are not the same as such bonds that are publicly available, but just like the latter they are...) backed by the full Faith and Credit of the United States Government.
This is a
very important bit here at the last:...backed by the full Faith and Credit of the United States Government. It is, in fact the crux of the biscuit in that the Government is essentially claiming that SS is broke because the Treasury Bonds(TB's) in the SS Trust Fund (SSTF) are
worthless. But this is the Government telling you that their promises are no good. Now you might say that you knew that, but when it comes to money that's quite a different animal.
If the U.S. Government really believes that its promises are empty even in its financial obligations then we have really, really, big problems. And that may be so. Let's talk about separating SS from the rest of Government spending for a minute.
When Geo. Bush talked about his tax cuts, he spoke of the "surplus" as if we had it laying around in a back room of the White House. But in the Clinton years we had separated SS from the rest of the budget where in BushCo they included it. And spent it in the form of tax cuts that primarily benefited the wealthiest among us. For the moment, let's say we don't have a problem with that except that now they claim that SS is broke BECAUSE THE TREASURY THAT THEY EMPTIED FOR TAX CUTS CAN'T AFFORD TO PAY ITS OBLIGATIONS TO THE SSTF! That is really the crux of their argument, "Whoops, it was here a minute ago! Oh! hehe! that's right I gave away the cash to my friends and now all you have are these IOUs(TBs) that, well, we can't afford to pay right now." This doesn't mean that they aren't
obligated to redeem the bonds. Whether or not the Treasury has the money right now, it is still obligated to buy back its bonds when the SSTF wants to sell them. The understanding that the US Government is good for its obligations is wide spread and fundamental.
So, whether or not you believe that SS is broke depends on whether or not you believe that the US Government will renege on its obligation to redeem the bonds issued to the SSTF in trade for its cash. The second the US Government declines to redeem a TB held by the SSTF is the same second it has declared its intention to decline its obligation everywhere and the world economy will falter. The second the US Government declines to redeem a TB held by the SSTF in favor of redeeming a TB held by any foriegn power is the same second that this government will have declared war on its own citizens. This is the truth and GWB is so simple that he can't see the contradiction. "I'm the leader of the greatest nation on Earth but we can't afford to pay our retirees because we can't cover the bonds in the SSTF. But, I'm still master of the world ,right? Right?" Yes, he is a fool and Karl Rove is a fool as well, but I promised this would be a Response Kit and so it will be.
So, when someone says that there are only IOUs in the SSTF, you don't have to remind them that a dollar bill is an IOU just go
here and
here and show them that the Bonds(IOUs) owned by the SSTF are BACKED BY THE FULL FAITH AND CREDIT OF THE UNITED STATES GOVERNMENT.
If they want to talk about
when SS will go broke(2018?,2042?) go
here to see a nice Think Progress page that tells it straight.
When somebody complains about administrative costs of SSA go
here to see "
SSA's administrative expenses, which are less than 2 percent of total outlays". Which is much less than it would cost to have it run by investment banks or mutual funds.
When somebody claims that they can get a better return in the stock market first explain that nothing is guaranteed and then go
here and
here to see that SSTF bonds are so secure in part because they are outside the economy and thus will follow their own interest curve even when the economy tanks like it has for the last few years. I mean, MY mutual funds haven't been growing very rapidly. Remember, with a TB you have a
guaranteed rate of return.
If someone (G. Gordon Liddy) says that the Supreme Court has declared that the Government is not required to redeem its bonds owned by the SSTF, tell them that its not true. I haven't figured out an easy way to disprove this one, but I can't find evidence of it either. It seems that this rumour springs from a case of someone deported from the US who later sued to get his SS benefits. He was denied.
If someone says that FDR would have wanted to "privatize" SS like GWB wants to go
here to see what FDR really said and
here to get the rundown on how Brit Hume and others in the RWEC have distorted what FDR said.
If there is anyone out there who is still under the unfortunate impression that this BushCo scheme will do
anything for SS solvency take them
here to see what VP Cheney says about how much they will have to
borrow to make this happen.
If, after you have related to them everything you've read here, they still insist that SS is going broke tomorrow (BushCo doesn't even say this anymore), go
here to see the numbers as crunched by SSA actuaries.
If someone comes up with a reason why BushCo's idea is a good one that I haven't rebutted here, let me know and I'll do so tout suite. Remember, this is not a battle over solvency or an "ownership society", but an ideological battle with those who want to destroy SS because they despise FDR and the New Deal and anything else that contributes to the dignity and security of the American people. They ARE the other.
Here is a link to an
Ellen Goodman article on what they are trying to do to FDR's legacy.Here is a link to a
John Berry article about how the SSTF works.
