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Jul 18, 2011

Why Is It That The Social Security Payments Due To Be Made On August 3 May Not Be Made On Time Or In Full?

Let me try to explain again why there is a threat to the payment of Social Security benefits in August. I'll do it in a Q and A manner. The problem is that the people who want and need to know this sort of thing are unlikely to read through this.

Question: How can there possibly be a threat to the payment of Social Security benefits -- Social Security is taking in enough money each month to pay benefits? 
Answer: Actually, Social Security is no longer taking in quite enough money to cover each month's benefits. Due to the aging of the baby boomer population, the trust funds are actually going down very slightly, although this may vary from month to month depending upon tax receipts. But that is not the real problem. The real problem is that the tax receipts don't arrive at the U.S. Treasury in one big lump sum at the beginning of each month. They come in drips and drabs throughout the month. A big chunk of Social Security payments are due to be made on the 3d of each month and there won't be enough money in the U.S. Treasury to make that payment on the 3rd of August.

Question: What's the Treasury got to do with it?
Answer: By law, the Secretary of the Treasury is the managing trustee of the Social Security trust funds. By law, all Social Security payments are made from the U.S. Treasury.

Question: Why doesn't Social Security just sell to the public some of those U.S. government bonds it is invested in?
Answer: It can't. The law says those bonds can't be sold to the public. They're non-marketable.

Question: If they can't be sold to the public, who can they be sold to?
Answer: They can be sold to the U.S. Treasury but if the debt ceiling isn't raised, the Treasury won't have money to buy back any of the bonds.

Question: Why not just sell some Treasury bonds to the public and use that money to redeem some of Social Security's non-marketable bonds?
Answer: To avoid going over the debt cap, the Treasury would have to redeem Social Security's bonds first and then sell Treasury bonds to the public. There wouldn't be money in the Treasury to redeem Social Security's non-marketable bonds.

Question: Does this mean that no Social Security benefits will be paid if the debt ceiling isn't raised?
Answer: No, it just means that the checks due to be paid on August 3 can't be paid in full, on-time. They can be paid, at least in part, later in the month. However, a failure to raise the debt ceiling would create chaos at the U.S. Treasury.. It is unclear exactly when payments would go out.

Question: You say that Social Security might not be paid in full but why?
Answer: Social Security's cash receipts do not quite cover the payments it needs to make but more importantly, failure to raise the debt ceiling would leave the government without the money to meet many crucial obligations. No one wants Social Security recipients to be left without part of their checks but no one wants to close federal prisons and release all of those prisoners. No one wants to stop Medicare and Medicaid. No one wants to stop paying soldiers in the field. No one wants to send all the air traffic controllers home. No one wants to stop paying those who work in the Border Patrol. Total up all these and many other crucial functions and you've got more money that needs to be paid than the government's cash flow. Something's gotta give. It is possible that Social Security payments would be reduced to help out in this impossible situation.
There's also a possibility that money that should be paid to Social Security beneficiaries would have to go to service the U.S. debt. Some U.S. bonds sold in the past will be coming due in August. Normally, this debt would be rolled over by issuing new bonds. The problem is that because of the debt ceiling, the Treasury won't be able to issue new bonds before paying off the old bonds. Where does the money come from to do that? This would be temporary but a big problem. Of course, the problem would become immense if the U.S. could not sell new bonds because of the chaos at the Treasury, which is a real possibility.

Question: Why are we so worried about the bondholders?
Answer: The U.S. Constitution says that the validity of U.S. bonds may not be "questioned." In any case, trying to stiff the bondholders would make it impossible for the U.S. to borrow money would certainly cause a collapse in world financial markets.

Question: This proves that the Social Security trust funds are a myth, doesn't it?
Answer: The nature of the Social Security trust funds has never been a secret. Most people have misconceptions about the nature of the trust funds. They think, literally, that there is some pot of dollar bills somewhere with their name on it or they think that there is some huge pot of dollar bills somewhere labeled "Social Security trust fund." The fact that there are common misconceptions about the trust funds does not make the trust funds a myth.. The U.S. government bonds in the trust funds are real. The existence of the trust funds is the crucial reason that Americans believe that they "own" their Social Security benefits. We should all agree that this sense of ownership is no myth. It is of crucial political importance. It is why there is almost no chance that those who want to destroy or dramatically alter Social Security will succeed. No other sort of trust fund has ever been a realistic possibility.

12 comments:

  1. The trust funds are not a myth, in that they are oblogations that need to be paid by the U.S. Treasury. You left out the part about why the special Treasuries were issued.
    They were issued only after the Treasury borrowed from the trust fund to pay current exepnses.
    If this had not occurred and the surplus FICA dolllars were left in the fund, they could have earned real interest, if paid in cash out of general revenues. Instead, the interest was paid in Treasury securities, not cash, so the entire trust fund is an unfunded obligation of the federal government.
    This is why the interest is unable to pay for the deficit of outgo over income - it is not liquid.
    And future Social Security and Medicare benefits are on the fourth level of obligations, the weakest obligation of the federal government to fulfill.
    See a paper entitled "Federal Debt, Answers to Frequently Asked Questions, An Upodate"
    pages 65 and 66
    http://www.gao.gov/new.items/d04485sp.pdf
    See also "Fiscal Exposures Improving the Budgetary Focus on Long-Term Costs and Uncertainties."
    Pages 3, 12, 15, and 25.
    http://www.gao.gov/new.items/d03213.pdf.
    Don Levit

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  2. Isn't the trust fund part of the total debt subject to the debt ceiling? If so, then if some of the bonds in the trust fund were redeemed and the Treasury sold the same amount of bonds, then the total debt is unchanged. Therefore, this operation should not violate the ceiling.

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  3. money coming in < money going out.

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  4. Mike B:
    The bonds in the trust fund are classified as intragovernmental debt.
    That is debt between one government agency and another. In this case, the debt is between the Treasury and the trust fund.
    If the Treasuries in the trust fund are redeemed, the intragovbernmental debt for that portion "transfoms" into debt held by the public, the other debt classification.
    You are correct, the total debt remains the same (intragovernmental debt is reduced, and debt held by the public is increased).
    There are 2 main differences between debt held by the public and intragovernmental debt.
    The first is in my first comment.
    Debt held by the public is the government's strongest obligation to fulfill, level 1.
    Future Social Security and Medicare payments, which comprise a good portion of intragovernmental debt, is level 4, the lowest level obligation for the federal government to fulfill.
    In addition, debt held by the public incurs interest costs paid from general revenues, an immediate budget expense.
    Interest paid on intragovernmental debt, such as the SS trust find, is paid by issuing more debt, with no immediate budget impact.
    Don Levit

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  5. by Helen Haniotakis
    Instead of threatening to withhold Social Security payments of people who really need the money....Lets hold the paycheck's of all house & senate members, then see how fast it is resolved!!!!! If you agree repost this & keep it going across FB..maybe the higher ups will get the message!!!!!!!!!!!!!!!!!!
    (add Obama's paycheck too!!)..

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  6. "No one wants to stop paying those who work in the Border Patrol."

    I would! Poor seniors and disabled people with NO other source of income should not have to starve to death and end up homeless and destitute with nothing just so that those getting a paycheck to keep this fascist inverted totalitarian regime going can have their nice lives. And yeah, withhold Congress's paychecks, too! Two thirds of Congressmen are millionaires who don't even NEED their salaries anyway. Why should all these sacrifices always come at the expense of the poorest of the poor and those with the least who struggled and worked all their lives who are now old and/or disabled and unable to work? WTF!?!?! Let the rich fat cats in the DC Beltway do without for once before talking to us about "sacrifices that must be made!"

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  7. i always chuckle at people who want to cut congress' pay. that would only further make congress an exclusive club for rich people, and put them further out of touch with reality. i say RAISE congress' pay so good people can actually do this for a living.

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  8. Anonymous,

    Thank you for exposing yourself as an apologist for unearned privilege and maintaining an unjust status quo whereby the budget axe falls solely on the poorest, most vulnerable, most disempowered marginalized and economically excluded just so that those who are comfortably off can "keep theirs." You want a government that is not going to trick out like a gaggle of hookers for the elite? Try scrapping corporate personhood and removing the influence of wealth from the electoral process as a power grab!

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  9. Thanks for sharing the questions and answers on social security. There are various issues discussed here which was under the curtain.

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  10. "Two thirds of Congressmen are millionaires who don't even NEED their salaries anyway"

    Each election,americans(including me)vote for and sometimes help elect rich individuals some of whom may understand the importance of social programs such as Social security but other rich individuals also get elected who want to eliminate the programs.

    That's the problem.

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  11. No, the problem is a self-centered, greedy, self-important middle class who, just like their socio-economic antecedents in Nazi occupied Europe 70 years ago (all those "good Germans" who "didn't know" what was happening, etc.), don't say anything and don't lift a finger to help and don't care so long as they've got their middle class comforts and privileges and their nice lives — to hell with those of us who never got ours.

    America's middle class today is no better than all those "good Germans" 70 years ago who feared more for their middle class jobs and comforts than they did for the fate of their very own neighbors who were systematically excluded and eventually deported to the sealed ghettos from which the only way out was a one-way ticket on the death trains whose final destination was the killing centers of Auschwitz, Belzic, Chelmno, and Treblinka.

    America's middle class today knows that there is a holocaust occurring here. Americans are dying from poverty imposed by oppression and economic terrorism; it’s the biggest open secret because everybody knows.

    Yesterday it was the poor on food stamps, and the long-term unemployed (like me) without any income or hope for a job because long-term jobless middle-aged people need not apply. Today it's the elderly and the disabled. Tomorrow it will be YOU — and there won't be anyone left to speak out. It's the American way, brought to you since 1776.

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  12. Obviously,
    the Q & A is from
    the Democrat Party version of "the sky is falling".

    It is simply a question of Obama and his Treasury minions prioritizing payments - rather than trying to score partisan political points. International bankers interest payments FIRST, RSI & DIB second, 80% payments on armed & civil service salary and retirement, IOUs for government contractors and government building utilities.

    The interpretation of: "The validity of the public debt of the United States, authorized by law, ..., shall not be questioned" is open -- it can be narrowly read in the post civil war context, ..., and should not apply to "questioning" in a First Amendment context, despite the broad wording. We are not talking about "validity", as in legality of the note, but the actual payment -- which are two different thing, as a collection attorney or bill collector will tell you.
    Also, the whole XIV Amendment is dependent on Section 5 delegating enforcement to suitable congressional legislations (only).

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