Part 2: The $2.7 Trillion
Social Security Hoax
Now that “tax day” is over here in the U.S., we’re going to continue our little series on that one mandatory tax everyone has to pay. In the U.S. it’s called Social Security.
In our last episode, we showed you how the U.S. Social Security system is already broke.
(If you missed the story about Jack and Diane and the shoebox full of IOUs, you can read it here)
Today we’d like to offer the proof that story is built on.
But fair warning before you read any further: every time we write about Social Security and expose the flaws in the system, we get lots of impassioned email. Even hate mail.
We don’t expect anything different this time. So if reading about government corruption infuriates you, this article may not help your blood pressure.
But more importantly, we’ll provide a sensible solution you can start using today to secure your own retirement with real assets.
That way you won't have to ever worry if the government has enough money to send you a Social Security check. And it may very well keep your blood pressure in check, too!
Okay, so let’s get back to that fundamental question we asked last time: Is there really $2.7 trillion dollars in the Social Security Trust fund like the government says?
The better question to ask is (borrowing from the movie Jerry Maguire):
“Show Me the Money!”
You see, the money is only there in accounting terms. The books show $2.7 trillion in “assets.”
But it’s unavailable for immediate use. As we saw in the Jack and Diane story, it’s really no more useful than a shoebox full of IOUs.
Here’s why: the money is not “invested” in liquid assets that can be readily converted to cash (more on that in a minute).
So instead of being able to dip into the Social Security Trust fund to pay current retiree benefits, the government needs a steady stream of CURRENT tax revenues.
Some of you have written in to inform us that there is no Social Security “slush fund” or “trust fund.” And you are partially right.
Congress set it up so there COULD be a real trust fund. But in reality it has never worked that way. At least not since the early 1960s.
But before we get into the dark back-room deals that doomed the system, let’s zoom back to the beginning to see exactly how this mess even became possible.
Congress Left the Door Open for the
Social Security Accounting “Voodoo”
In the original Social Security Act of 1936, Congress mandated that the Social Security Administration should invest any excess payroll taxes they collected.
This means they designed Social Security as a pay-as-you-go system.
In other words, current payroll taxes coming in are first used to pay the so-called benefits to retirees. Anything left over is supposed to be put in the trust fund as “savings.”
Initially, more workers paid into the system than there were retirees collecting checks. So the Social Security trust fund had a surplus right from the start.
And it maintained that so-called “surplus” all the way up until 2010.
At least in theory.
And politicians have been quick to show that Social Security “pays for itself” through this trust fund.
For example, Obama’s budget director, Jack Lew, explained it like this:
“Social Security benefits are entirely self-financing. They are paid for with payroll taxes collected from workers and their employers throughout their careers. These taxes are placed in a trust fund dedicated to paying benefits owed to current and future beneficiaries. … Even though Social Security began collecting less in taxes than it paid in benefits in 2010, the trust fund will continue to accrue interest and grow until 2025, and will have adequate resources to pay full benefits for the next 26 years.”
So far all this sounds pretty good, right?
And in a sense it’s all true.
So, what’s the problem?
The Problem Is HOW the Money is Invested
In the 1936 and 1939 laws, Congress mandated that the Social Security trust fund only invest in Treasury securities.
In other words, the Social Security takes the excess Social Security payroll tax and “loans” it to the Federal government. Immediately.
Even the Social Security Administration admits it. On the Social Security Administration (SSA) website, here’s what we found:
“…taxes collected under the Social Security payroll tax are in effect being lent to the federal government to be expended for whatever present purposes the government requires. In this indirect sense, one could say that the Social Security trust funds are being spent for non-Social Security purposes.”
In short …
…the Social Security trust fund is nothing but a shoebox full of IOUs to itself, just like we reported in the story about Jack and Diane in our last segment.
“But wait,” some of you will say, “Isn't the Social Security trust fund ‘invested’ in (historically safe) U.S. Treasuries?”
The answer is “kind of.”
And the “real” answer exposes…
The One Fatal Flaw that Guarantees to Doom the
Retirement Security of Millions of Baby Boomers
Baby boomers are all the 40, 50 and 60 year-olds waiting in the queue to collect their “dues.”
The pool of baby boomers is HUGE. And most of them plan to start collecting their Social Security “dues” in the next several years.
This flood of new retirees has the potential to overwhelm and destroy the entire Social Security system. And expose it as the sham that it is.
So what’s the fatal flaw? The one that’ll leave millions of these Baby Boomers broke and destitute?
Here you go:
Both the 1935 and the 1939 laws said the government could “invest” excess Social Security taxes in 3 different ways:
1) Buy U.S. Treasuries on original issue at par value;
2) Buy existing U.S. Treasuries at market price; or
3) Issue private “special obligation bonds” exclusive to the Social Security Trust Fund.
The first two were marketable securities. Which meant that if the Social Security Administration ever needed money, they could sell their “investments” on the open market — to other investors like hedge funds or insurance companies. Or to countries like China or Japan or Great Britain.
This would have allowed the “trust fund” to be liquid. Easily converted to cash to pay retirees whenever needed.
The 3rd option — the special obligation bonds — were not to be marketable.
In other words, with option 3, the Social Security Administration loans its trust fund money to the Federal government, and the ONLY way they can get their money back to pay retirees is to wait until the special bond matures…
And cross their fingers that the government has enough current tax revenues to pay it back when that time comes.
For the first 25 years of its existence, the Social Security Trust Funds included a mix of these marketable and non-marketable Treasury securities.
In fact, prior to 1960, the policy was to invest primarily in open-market securities.
But in the 1960s, the government shifted its policy to “invest” almost exclusively in special obligation bonds.
Why? For the most part, it was the easiest way to “raid the fund” to pay for the things they didn’t have money for. Like space programs and wars. In fact…
Social Security Funded the
(Very) Expensive Vietnam War
The politicians of that day exploited this loophole and made back-room deals to raid the Social Security fund.
They did it by converting existing investments into these “special obligation bonds” to pay for the war. They did the same with every new Social Security dollar that came in the door.
The trust fund “money” soon became nothing more than a notation in the books. The Federal government could easily change the terms of these special bonds to suit their needs. Or weasel out of them completely.
Since these were non-marketable bonds, there was no urgency to pay them back. They were just like that box of IOUs that Jack ended up with. Worthless scraps of paper that said “we promise to pay ourselves back sometime in the future, (if we ever have the money).”
This little accounting scam has allowed the Federal government to live beyond its means for more than 50 years now.
And guess what? Since 1980, no marketable securities have been added to the so-called Social Security Trust Fund. (For detailed proof, see the Office of the Actuary's Actuarial Note #142.)
That means the entire so-called Social Security “Trust Fund” is filled with these special-obligation bonds that have no open market value.
And the government keeps rolling these special bonds forward with accrued interest instead of actually paying them.
The reason is simple. They don’t actually HAVE the money to pay these bond obligations. It all depends on future tax revenues.
So the Social Security Administration marks it in their books as an “asset.” On the Federal government side, it’s just part of the ever-growing public debt.
So there you have it…
100% of the Social Security Trust Fund
Is a Big Fat Accounting Scam
It’s all invested in private IOUs to “self.”
This accounting fraud is bad enough. But what’s even more dangerous is the way politicians and big-government economists have duped people into thinking everything is fine and dandy for years to come.
That’s what we’ll tackle in the next installment. We’ll see how average, hard-working Americans are hoodwinked on a daily basis…
…how they’re lulled into a false sense of security every time the Social Security sham gets “legitimized” by the press and clueless politicians.
In the meantime, the big question for you is this:
“Are you going to plan your retirement on nothing more than a big Enron-style accounting sham?”
You don’t have to let that happen to you.
But if you want to avoid it, YOU need to take action on your own. No one else will do it for you.
Steps to Take to Avoid the
Social Security Shakedown
We encourage everyone to prepare an alternative retirement plan for themselves. It’s the only way to protect your family and your loved ones.
There are many ways to accomplish this. Some ways are better than others. And if you already have a plan in place that is working for you – congratulations!
But if you don’t yet have such a plan, we believe the strategies available to you within The Elevation Group will help you achieve your financial goals in a safe, effective way you won’t find in other “mainstream” investment strategies.
After all, EVG provides the same strategies the wealthy have been using for years. These tools have allowed them to build, protect and grow their family fortunes. And enjoy a prosperous retirement.
The Elevation Group is all about providing you with these strategies. You’ll get the same valuable tools the wealthy use – that you can start implementing today – to start securing your own prosperous life.
We’ll provide you with 15 individual wealth strategies that can help you build up and maintain the lifestyle you’ve always dreamed of.
But you don’t have to use all 15 strategies. Some will work for your situation better than others.
All of them can provide peace of mind knowing that your own money is always there for you.
They give you the assurance that your retirement dreams are in YOUR control.
And let me tell you – THAT’S a priceless feeling.
If taking charge of your own financial future sounds intriguing to you …
Your Partner in Prosperity
The EVG Research Team