It's Still An Empty Lockbox

[Geee]

Human Events:




WASHINGTON -- Last week, President Obama's budget chief, Jack Lew, took to his White House blog to repeat his claim that the Social Security trust fund is solvent through 2037. And to chide me for suggesting otherwise. I had argued in my last column that the trust fund is empty, indeed fictional.

If Lew's claim were just wrong, that would be one thing. But it provides the intellectual justification for precisely the kind of debt denial and entitlement complacency that his boss is now engaged in. Therefore, once more unto the breach.

Lew acknowledges that the Social Security surpluses of the last decades were siphoned off to the Treasury Department and spent. He also agrees that Treasury then deposited corresponding IOUs -- called "special issue" bonds -- in the Social Security trust fund. These have real value, claims Lew. After all, "these Treasury bonds are backed by the full faith and credit of the U.S. government in the same way that all other U.S. Treasury bonds are."

Really? If these trust fund bonds represent anything real, why is it that in calculating national indebtedness they are not even included? We measure national solvency by debt/GDP ratio. As calculated by everyone from the OMB to the CIA, from the Simpson-Bowles to the Domenici-Rivlin commissions, the debt/GDP ratio counts only publicly held debt. This means bonds held by China, Saudi Arabia, you and me. The debt ratio completely ignores the kind of intragovernmental bonds that Lew insists are the equivalent of publicly held bonds.

[Argyle58]

Lew acknowledges that the Social Security surpluses of the last decades were siphoned off to the Treasury Department and spent. He also agrees that Treasury then deposited corresponding IOUs -- called "special issue" bonds -- in the Social Security trust fund. These have real value, claims Lew. After all, "these Treasury bonds are backed by the full faith and credit of the U.S. government in the same way that all other U.S. Treasury bonds are."

 

Geitner tried to make this same argument and got, rightfully, slapped down. Special Issue bonds are unfunded pieces of paper with about as much value as a campaign promise. We would have to borrow additional funds from our creditors around the world to back these bonds before they have any value over and above the paper and ink they are currently comprised of.

Edited March 18, 2011 by Argyle58