The Social Security Lockbox Game Is Over

The Washington Post reports that the recession is having serious impacts on the Social Security Trust Fund. As payroll tax receipts fall, so does the surplus in the Social Security Trust Fund.  The Post is suggesting that surplus is now expected to be gone by next year, well ahead of the 2017 projections from only recently.

What does that mean? Either taxes or inflation are going up. Probably both. And probably by a whole lot.

As quoted in the Post, Andrew Biggs, from the American Enterprise Institute suggests that “the government has gotten used to the fact that Social Security is providing free money to make the rest of the deficit look smaller,”……. now “instead of Social Security subsidizing the rest of the budget, the rest of the budget will have to subsidize Social Security.”

Why? The government “borrows” from the Social Security Trust Fund in order to fund deficit spending in the federal budget. With no surplus, the federal government won’t be able to pretend to borrow money from itself (a crazy pretense in any case). At the same time, signs are that the Chinese, Japanese and our other generous foreign creditors are feeling far less able and inclined to invest in US government debt. So, with sources of both real  and pretend “social security lock box” debt both drying up, the only way those big budgets can possibly get paid for will be through higher taxes or printing more money.

With the recession taking a serious bite from most other forms of taxation too, the only real option the government will have is printing more money out of thin air – by definition inflating away the value of the dollar.

Chris Martenson offers an excellent explanation of the whole mess entitled “Social Security Stunner; Bankruptcy of Nation Moved Up Several Years”. His conclusion from this news:

“The United States government has a date with a fiscal emergency that will not differ appreciably from the current predicament in which GM finds itself. This future crisis will look like, act like, and feel like a bankruptcy. With history as our guide, we can be almost completely certain that political and monetary leaders will prefer a policy of printing over taxation and that this will ultimately result in a crisis of the currency involved.

There’s still time to do the right thing at the policy level, but not very much.

We are only a few years away, at most, from an irretrievable mismatch between our fiscal policies and reality.”

For those counting on the feds repaying the debt on all those IOUs in the Social Security Lockbox to fund their comfortable retirement – good luck with that.

Things seem to be unraveling economically faster than  I would have imagined possible. It is distressing that the government’s only solution seems to be pushing into impossible levels of spending and debt even further and faster.

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