Social Security (SS) is called the third rail of American Politics; when, in truth, it’s just a third rail period!  Within the next ten years outlays for Social Security will exceed incoming revenue from SS taxes and things get really interesting.  Now, you may be saying, what about all the money in the SS Trust Fund? Well, my friends, it’s time for a little truth about Social Security.

Since its inception, Social Security has generated an annual surplus; this means that after paying out current benefits, there is money left over. What happens to this money?  It goes into the general fund (the same place the rest of your taxes go) and is spent on other programs.  When the government spends the Social Security surplus it prints Treasury bond certificates equal to the amount that went into the general fund.  Normally, Treasury bonds are sold on the open market. Again these are the same instruments that China has purchased, and the same bonds now being swapped for stocks and bonds in the current bailout.  (See “Big Trouble in Little Washington”) The Treasury bonds printed for Social Security however, are quite different. By law they cannot be sold on the open market, they are stored in a vault in West Virginia.  Had these bonds been sold on the market, they would have been inflationary (increasing the money supply) just like regular Treasury bonds.

Well, one might argue that when the time comes, the government can sell these bonds and raise the money needed to cover future benefits. That may sound good in principle but what most people fail to account for is that the program has been raided to the tune of $4.2 trillion, or looking at it another way, of the 10 trillion dollar national debt, Social Security accounts for $4.2 trillion of it.  This is how much the government owes the program.  If you think the numbers for the current bailout are staggering, wait until the Ponzi scheme known as Social Security reaches its breaking point.

The Social Security Trust Fund, like the Highway Trust Fund, and every other government trust fund, is nothing more than a government slush fund that allows them to spend more than they receive in taxes. They stole it! And they were able to steal from it in a way that wasn’t inflationary. You would think raiding the Trust Funds would be enough and they wouldn’t have to borrow additional funds, but they do. They’re turbo-shoppers!

These bonds are glorified I.O.U.’s and the government can’t possibly pay them off.  To make matters worse, the return on Social Security is dismal, and for some, particularly minorities and the poor, the return is negative. Gee, color me with a happy crayon! Not only is this program broken, it’s not worth saving. You can go to an insurance company, today if you wish, and purchase an open ended annuity that begins at age 67, (or any other age that you want), and it will cost you less than you currently pay in SS taxes, while giving you a superior return on your investment, and unlike Social Security, you can transfer this asset to someone else, or cash it in earlier in case of emergency if the need arises. 

Social Security is a crisis waiting to happen, and like the housing crisis, there are plenty of folks sounding the alarm. Is anyone listening?