Sooooo About that Social Security...

Thursday, April 01, 2010 , , , 9 Comments

As just about everyone including my 1st grader already knows, Social Security is broke. Like the FDIC, it was looted by Congress during "the good times" and stuffed with IOUs - aka Treasurys - since few believed the up and out motion of the Fed's latest bubble would ever deflate and head southward.

Well that day has come and our day of reckoning has arrived.

Estimates are that the SS "fund" is owed about $2 trillion and unfortunately, Treasurys won't pay your bills so sending out T-bills instead of checks isn't going to work. That means the government will need to issue more debt into an already jam-packed bond market in the hopes that some sucker foreign government will come along and gobble them up. Robbing Peter to pay Paul? More like robbing Peter to pay Paul's MasterCard with the Visa.

And you thought Obamacare was going to help? Bwhahaha! Just what we need, more unfunded entitlements. It's certainly nothing new:

Senate - October 10, 1990 - Mr. CONRAD. We are looting the Social Security trust fund to pay for the ongoing operations of Government.

Senate - March 30, 2009 - Mr. CONRAD. ...submitted the following concurrent resolution, which was placed on the calendar: - S. Con. Res. 13

(c) Social Security .--The levels assumed in this budget resolution project that $700,000,000,000 of the Social Security surplus will be spent over the 5-year budget window, fiscal years 2010 through 2014, on things other than Social Security

Social Security wants its damn money, now pay up...

See also: and for real fun, check out the Fed's own Richard Fisher in Expressing a Going Concern Doubt on the United States Government, Not According to GAAPDallas Fed's Fisher: Large Deficits Will Be Run For as Far as the Eye Can See and Social Security to start cashing Uncle Sam's IOUs via the AP.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.


Anonymous said...

You need to "take one for the team" and squirt out some more kids - my SS is depending upon it!

Actually the Chinese need to take one for the team and squeeze out another billion brats to cover the Treasury auctions needed to make up the difference.

Better start learning Chinese...

Anonymous said...

I did my three so you know, time to "woman up" there JDA and do "the mom thang"...

You know I'm just poking at you. Accountability needs to be restored but also, retirement age to be pushed further out (as it should) and decreased benefits (as they should be). There will be pissing and moaning and gnashing of teeth but the unwashed masses are going to have to come to understand that something is better than nothing. Many are big babies anyway - I always think of the old Baby Huey comic strip when I think about some of the folks I know on SS. Both sides (accountability and expectation) need to come together for big sloppy wet kiss and make nice nice.

Have a nice weekend.

P.S. I ain't learnin' no fuckin' Chinese.

Now that coverage of health care reform is fading from the news, it is being replaced with increased coverage of Social Security. That is appropriate, but most of the articles, currently being published totally ignore the most urgent problem facing Social Security. That problem is the fact that, every dollar of the $2.5 trillion in surplus Social Security revenue, generated by the 1983 payroll tax hike has already been spent by the government. The trust fund contains no real assets. It is empty!

I have been researching and writing about Social Security for more than a decade, and I have published four books on the subject. The hard fact is that every dime of the $2.5 trillion in surplus Social Security revenue, generated by the 1983 payroll tax hike, has been spent on wars and other government programs. Every month, for the past 25 years, the total receipts from the payroll tax have been split two ways. First, benefits for current retirees are paid from the Social Security revenue. Then, all remaining Social Security revenue, not needed to pay that month’s benefits, are deposited into the general fund and become indistinguishable from other general fund revenue.

Not a single dime of payroll tax revenue has ever been saved and earmarked for the payment of future benefits. To put it bluntly, the government has “borrowed,” “embezzled,” or “stolen” every penny of the $2.5 trillion of surplus revenue that was supposed to be saved and invested. I consider this to be the greatest fraud ever perpetrated on the American people by their government. I have been trying to expose this awful truth for more than a decade, and some courageous people were trying to expose it even before I stumbled onto the scam in 1999.

On October 13, 1989, Senator Ernest Hollings (D-SC) issued the following warning in a speech on the Senate floor.

“…the most reprehensible fraud in this great jambalaya of frauds is the systematic and total ransacking of the Social Security trust fund the next century…the American people will wake up to the reality that those IOUs in the trust fund vault are a 21st century version of Confederate bank notes.”

A year later, on October 9, 1990 Senator Harry Reid (D-NV) made a similar warning in a Senate speech. He said:

“…on that chart in emblazoned red letters is what has been taking place here, embezzlement. During the period of growth we have had during the past 10 years, the growth has been from two sources. One, a large credit card with no limits on it, and, two, we have been stealing money from the Social Security recipients of this country.”

On January 21, 2005, David Walker, the Comptroller General of the GAO, tried to make it clear to everyone that the trust fund contained no real assets. He said:

“There are no stocks or bonds or real estate in the trust fund. It has nothing of real value to draw down.”

If anyone has any remaining doubts about whether or not the trust fund contains real assets, those doubts should be removed by the following statement from the 2009 Social Security Trustees Report:

“Neither the redemption of trust fund bonds, nor interest paid on those bonds, provides any new net income to the Treasury, which must finance redemptions and interest payments through some combination of increased taxation, reductions in other government spending, or additional borrowing from the public.”

I urge everyone who cares about the future of Social Security to please visit my website at to learn more about Social Security and my efforts to expose the scam. Excerpts from my latest book, “THE BIG LIE: How Our Government Hoodwinked the Public, Emptied the S.S. Trust Fund, and caused The Great Economic Collapse,” are posted on the site. Please feel free to download them.

Allen W. Smith, Ph.D.
Professor of Economics Emeritus
Eastern Illinois University

In order to provide readers with more information than I could include in my earlier post, I am reproducing excerpts from an article that I recently published.

It’s official. The Social Security trust fund has no assets. It was declared empty by the Social Security Trustees in the 2009 Social Security Trustees Report, which was signed by Treasury Secretary Timothy Geithner and the other Social Security Trustees. The acknowledgement was in the form of a single sentence, buried deeply in the report. That sentence reads:

“Neither the redemption of trust fund bonds, nor interest paid on those bonds, provides any new net income to the Treasury, which must finance redemptions and interest payments through some combination of increased taxation, reductions in other government spending, or additional borrowing from the public.”

I appeared on CNN with Lou Waters on September 27, 2000 and tried to convince him that the government was spending all the surplus Social Security revenue. He looked at me in disbelief and asked, “Are you a voice crying in the wilderness?” As it turned out, I was a voice crying in the wilderness in 2000, and I continue to be such a voice a decade later. I have been trying to expose the Social Security scam for as long as Harry Markopolos tried to expose Madoff’s Ponzie scheme.

People, who are in a position to know the truth, have been stating the above fact publicly for years. But nobody has been willing to listen. Some examples:

“I come to you as a managing trustee of Social Security. Today we have no assets in the trust fund. We have promises of the good faith and credit of the United States government that benefits will flow.”—Paul O’neill, Secretary of the Treasury, June 19, 2001

“There are no stocks or bonds or real estate in the trust fund. It has nothing of real value to draw down.”—David Walker, Comptroller General of the Government Accountability Office (GAO), Speech in Washington DC, January 21, 2005

“There is no trust fund, just IOUs that I saw firsthand that future generations will pay—will pay for either in higher taxes, or reduced benefits, or cuts to other critical government programs.”—President George W. Bush, Speech at West Virginia University at Parkersburg, April 5, 2005

Such public statements have been rare, and they have not received much news coverage. On the other hand, the AARP and the NCPSSM have no difficulty in getting media exposure for the misinformation they dispense. They bombard their members and the public with the message that Social Security is very solvent and can pay full benefits until at least 2037 without any action. That simply is not true.

The sad fact is that, in just six or seven years, the cost of Social Security benefits will begin to permanently exceed payroll tax revenue, and the government will have to cut benefits or raise taxes. The public just seems to be incapable of accepting the harsh reality that for the past 25 years, our government has spent all of the $2.5 trillion in surplus Social Security revenue that was intended to be used for funding the retirement of the baby boomers.

Allen W. Smith, is Professor of Economics, Emeritus, Eastern Illinois University. The author of seven books, Smith has been researching and writing about Social Security financing for the past ten years. Visit his website at

The AARP and the NCPSSM have been two of the biggest obstacles to exposing the Social Security scam that has resulted in an empty trust fund. When my book, “THE LOOTING OF SOCIAL SECURITY: How The Government is Draining America’s Retirement Account,” was released by New York publisher Carroll & Graf in 2004, multiple review copies were sent to both organizations by the publisher. I followed this up with numerous letters and emails to various staff members, requesting the opportunity to meet with officials, or at least the opportunity to discuss the issue and the book by phone. Officials from both organizations refused to have any contact with me. My book and I were like an untouchable leper. Since my message was not consistent with the information these organizations were bombarding their members and the public with, I can understand why they did not embrace me, or the book, with open arms. However, since I have been a dues paying member of both organizations for years, I was baffled by their refusal to communicate with me in any way.

I simply wrote off the AARP as a lost cause with regard to my new book, “The Big Lie,” but I still had hopes that I could get the support of the NCPSSM. One of the first people to receive review copies of “The Big Lie,” was Barbara Kennelly, president of the NCPSSM. I sent her a long letter explaining that I wanted her to have a copy of the book before it was released to the public. I asked her to please read the book and then give me the opportunity to discuss the issue with her, either in a face to face meeting, or at least by phone. I was still so naïve that I actually thought Ms. Kennelly might invite me to her Washington office and openly discuss the empty trust fund issue with me. I explained that her efforts to continue to hide the big lie about the empty trust fund from the public would do nothing to save Social Security in the long run. I urged her to help me expose the truth, so we could then work together to get Congress to make provisions for repaying the looted money.

Months have passed since I sent copies of the book to Ms. Kennelly, along with the lengthy letter in which I pleaded with her to read the book with an open mind and then discuss the issue with me. I have sent numerous follow-up emails to her, as well as faxes. I have heard nothing from her. In her defense, I must say that I think Barbara Kennelly is one of the most committed people in America when it comes to protecting Social Security and Medicare. I admire her dedicated efforts and suspect that she does not really know the truth (or at least does not allow herself to acknowledge the truth) about the trust fund. From her public statements, it appears that she truly believes that the $2.5 trillion of surplus Social Security revenue, generated by the 1983 payroll tax hike, was actually saved and invested in real Treasury bonds, as it was supposed to be. But that did not happen. None of the surplus money was saved. It was all spent on wars and other government programs. Since it was all spent, none of it was saved, and there was no money to invest.

In the hope that this public message might somehow get to Barbara Kennelly, I want to address her directly through this public forum.

Dear Barbara Kennelly:

Please look at budget receipts and outlays for every year since 1985 when Social Security surpluses first appeared. Look at the total revenue, including Social Security revenue, for each year and then compare that number with the government’s total expenditures. If you do so, you will find that in each year, except for 1999 and 2000, total government expenditures exceeded the total revenue of the federal government, including Social Security revenue. In other words, the government spent all of its general fund revenue, plus all of the Social Security revenue, and still ran deficits in all years except 1999 and 2000.

When you say that Social Security has enough money to pay full benefits until at least 2037, you are mistaken. Social Security does not even have the $29 billion that it will need to pay full benefits for 2010. The Treasury will have to borrow that money to replace some of the Social Security money that it has previously spent on other things.

When you say that the trust fund IOUs are just as solid as the debt that we owe to China and Japan, you are wrong. China and Japan own public-issue, marketable Treasury bonds that are as good as gold. They can sell them at any time in the open market. The government cannot and will not default on any of its public issue, marketable Treasury bonds because of the panic it would create in world markets and the damage it would do to the nation’s worldwide credibility. But Congress has the legal authority to default on its debt to Social Security, and, if it should do so, the outside world would probably view it primarily as an internal matter between the United States Government and its citizens.

Section 1104 of the 1935 Social Security Act specifically states, “The right to alter, amend, or repeal any provision of this Act is hereby reserved to the Congress.” This provision was upheld in the 1960 ruling by the United State Supreme Court, in the case of Fleming v. Nestor. In its ruling, the Supreme Court established the principle that entitlement to Social Security benefits “is not a contractual right.” As a result of the 1960 Supreme Court ruling, the future of Social Security is totally in the hands of Congress and the President. They have the legal authority to amend any and all parts of the Social Security Act, as well as the authority to either increase or decrease Social Security benefits.

You may not like to hear any of these facts, but they are indeed facts. Instead of pretending that Social Security is fine and does not need to be fixed, I believe the NCPSSM has an obligation to its members to seize the moment and push for legislation that will truly fix Social Security. As of now, we have a Social Security friendly President and Congress. We need to push through reform legislation that will guarantee that Social Security will be solvent in the future.

Ms. Kennelly, please abandon your efforts to convince the public that Social Security is in good shape just as it is. The great Social Security scam of the past 25 years must be exposed, and you have the power to do that. Please acknowledge the truth and then let us push for Social Security legislation that will strengthen Social Security. (P.S. I would still like to meet with you to discuss this issue.)


Allen W. Smith, Ph.D.
Professor of Economics Emeritus
Eastern Illinois University
Phone: 800-840-6812

Note: If anyone who reads this has access to Barbara Kennelly, please see that she gets this message. THANK YOU!

Anonymous said...

Holy Frijoles, Batman!

Anonymous said...

uh, Allen, all kidding aside... sometimes less is more, dude... know what I'm sayin'?

Think Led Zep - 12 albums over 34 years.

remember, we are talking about John Q. Public here (like me!) I tried reading this because it looked important but shit, I got through part of it and then glazed over... Don't hate me for being stupid - hate me for being beautiful. Mass media uses soundbites because sound bites work.