The Economy May Well Doom Social Security

The Social Security Fund may not be as well funded, therefore in trouble much sooner, than many believe.

Since it's inception, the intent of Social Security was to provide a modest income to retirees who would otherwise have none. It worked marvelously well for decades, with its surplus being held by US Treasuries, which of course gained interest. Had it been left alone, the Fund would have had enough money to make it through any economic cycles, and provide a small safety umbrella for many generations of retirees.

Over the years, several changes have left the Social Security Fund basically empty. Starting in 1968, the SS Fund surplus was thrown into the congressional general fund to help pay for the escalating costs of Vietnam. That change robbed SS of interest gained on the surplus. In 1972, congress amended SS to include immigrants who had never paid into the system to receive the same benefits as anyone else 65 or older.

The biggest changes came in 1983, when the government began using the bonds within the SS Fund, to balance the national budget, and exchanged them for basic IOU's.

In a report by Tim Iacono, a light is thrown in one dark corner of government mandates;

"Among the plethora of new ills plaguing the U.S. economy as it goes stumbling toward its uncertain future is a problem that, until very recently (meaning two days ago), was believed to be one reserved for the latter half of the next decade - the dwindling social security surplus.'

"The initiative to reform the nation's second largest entitlement program and undo the marvelous mid-1980s accounting change that would make the U.S. budget deficit look deceptively small for decades was a resounding failure and the quacking started long before most had ever dreamed.'

"In any event, word now comes from the CBO (Congressional Budget Office) that yet another fallout of the recent economic tailspin is that payroll taxes have fallen off a cliff along with home values and stock prices leading to the real possibility that the Social Security surplus will turn into a deficit much sooner than originally thought, all but vanishing next year according to the most recent calculations.'

"While this will have no impact on current recipients as incoming funds will about equal the monthly payments to more than 50 million senior citizens, it will have an untoward impact on funding the government's budget deficit, a shortfall that has been masked by these surpluses for years.'

"In what some refer to as the biggest Ponzi scheme of them all, the Treasury Department has been borrowing money from the Social Security trust fund to pay today's bills leaving behind just slips of paper stored in that file cabinet above."

To add, in the comments section of Tim's article, Aaron Krowne, owner of ML-Implode, submitted a comment from one of his readers, which expands the peril Social Security may soon face;

"A reader wrote in with an important clarification to our pickup of this article on ML-Implode. I thought I would relay that here for everyone's benefit. The upshot is the "IOUs" are not, as I had always assumed, run-of-the-mill Treasury's -- they are formally no different than the ad hoc IOU sticky notes from the movie "Dumb and dumber". The reader writes:'

"... there are no accumulated Treasuries in the Trust Fund. The Trust Fund is nothing more than a collection of interdepartmental markers, and is considered non-negotiable debt. It is not part of the national debt, and does not pay interest. If it was negotiable debt (Treasuries) it would be an asset to the fund, and could be sold on the open market to pay for future obligations just like any other retirement plan (and also would have sky rocketed in value during the greatest bond market rally in at least a generation). In 1980 the real change was to place all of the proceeds from Social Security into the general fund, replace it with non-negotiable markers in filing cabinet somewhere and call it unfunded pension liabilities. This has the advantage of making the national debt look lower. If it was funded by Treasuries then no new debt would need to be issued by the Treasury, but since it is not funded with negotiable debt, new debt will need to be issued (or benefit decreases, or increased taxes). Social Security is a pay as you go system, and the massive tax increases in 1980 to save it were nothing more that a middle class tax increase. When suckers will no longer fund the national debt, this program will be under serious pressure for massive change.. "

Serious pressure for massive change... It is truly a sad fact. When the Social Security program was started, it was a natural extension of a truly rich nation taking care of its own. Though born during the Great Depression, it has provided for basic needs among millions that would otherwise have been penniless.

For generations, it has been the one government program that required so little, yet gave so much.

Had no changes ever been made to the Social Security Fund, it would have run forever, benefiting every succeeding generation of retirees for eternity. Due to the governments lack of ability to manage the tax proceeds they collect from us, this magnificent program may well soon meet its demise.