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Source link: http://archive.mises.org/3032/who-looted-the-social-security-trust-fund/

Who Looted the Social Security Trust Fund?

January 25, 2005 by

The Institutional Risk Analyst does an excellent job of exposing the massive financial fraud known as Social Security. By connecting the financial dots, the article demonstrates that the government has effectively invested public pension funds in its own debt – something no private firm is allowed to do. The commingling of Social Security trust funds with the Treasury’s general fund has enabled politicians to “borrow” (spend) the surplus Social Security funds.

“The misappropriation of surplus funds from Social Security and other dedicated federal trust funds is an act of malfeasance that dwarfs the tomfoolery seen with Enron, Fannie Mae or WorldCom, yet it is rarely discussed or even acknowledged.”

{ 11 comments }

charley hardman January 25, 2005 at 8:14 pm

thank you, sir! great post. i’ve been ranting about this lately on my blog, calling what’s going to happen “the perfect storm”. it is surprising how little attention this childish accounting scheme gets, and what a disaster it will be when the already bankrupt federal treasury loses its powerpunch influx at the same time its debt to that same influx falls due. any real company glossing over such a future with its shareholders would be nailed to the cross by the SEC.

who will watch the watchers? who will get blood from a stone?

Max Allen January 25, 2005 at 8:30 pm

There is a flaw to your argument. In my opinion the Social Security system was never really a “trust fund”, but is a tax. It is a hidden tax in the sense that it is promoted as a retirement trust fund. That is a fraud, but just imagine how many millions have and are still deceived by this. You will note that this tax has not been cut yet.

Steven Kane January 25, 2005 at 8:44 pm

Someday they are going to open the Social Security vaults only to find a stash of government IOUs.

Pete Canning January 25, 2005 at 8:55 pm

Clearly you haven’t read Eric Bates’ great interview with Paul KrugmanRolling Stone. Says Paul:

“You’ve been sold a scare story. Right now Social Security has a large and growing trust fund — a surplus that has been collected to pay for the surge in benefits we’ll experience when the baby boomers start to retire. If you’re twenty now, you’ll be hitting retirement around 2052. That’s the year the Congressional Budget Office says the trust fund will run out. In fact, many economists say it may never run out. If the economy continues to grow at an average rate, the trust fund could quite possibly last forever.”

But Paul knows what is really going on,

“It’s politics. Since the days of Barry Goldwater, the Republican right has really wanted to dismantle Social Security. And now they have a degree of political dominance that lets them push it to the top of the agenda — even though no rational analysis of the actual problems facing the U.S. government would say that it belongs there.”

But why or why would the Republicans want to do such a thing?

“It’s hard to understand why anyone would want to return us to the days before the New Deal, when millions of elderly people lived in poverty. But if you really dislike the notion that the government provides a safety net for the poor, then Social Security is the prime target. The U.S. government is a big insurance company, with a side business in national security. Social Security is the biggest social-insurance program that we have. It’s been highly successful, and it’s extremely popular. It’s one of the things that makes people feel somewhat good about government — and so, therefore, it must go.”

And to think, you all were so very misinformed. Lucky we have old Paul around to straighten you out.

Ohhh Henry January 25, 2005 at 9:10 pm

My economist friend was lamenting recently that North Americans’ personal savings rate is now roughly zero. I pointed out that in China the savings rate is supposedly at around 40% right now, and I offered this hypothesis as to why: in China, people have no doubt that their government despises them and will rip them off whenever and wherever it can. But over here, we still believe in the essential goodness of our governments, and cannot bring ourselves to believe that we can be abused and defrauded by a government “of the people, by the people and for the people”. But abused we are. There is hardly any moral difference between a communist government mowing down its citizens with machine guns in a public square, and a western government letting its older citizens die from malnutrition and hypothermia after it inflates away their savings and then reneges on its pension IOUs.

dan miles January 26, 2005 at 9:14 am

Growing up on a farm has shaped my attitude about security. Time was when a piece of land and the ability to sustain oneself on it was security. To have one’s home paid for, a garden, and a case of tuna (or whatever) in the pantry, was security. America and the world are becoming so urbanized that many people don’t have a clue where there food comes from, and less of an idea how to produce it. Self sufficiency, efficiency and conservation are becoming archaic in the “modern” capitalist world, to our peril.

Curt Howland January 26, 2005 at 10:27 am

Dan, that’s the division of labor for you. I don’t have to know where my food comes from, but you don’t have to know how to run a datacenter or smelt steel either.

Governments of all colours and stripes are leaches, who reduce the wealth and creativity of those the govern, and those they prey upon. It’s all just a matter of degree, and a little death is still death.

billwald January 26, 2005 at 11:41 am

Ohhh Henry is correct. The Chinese people have traditionally hated or at least mistrusted their govt. Compare with Japan where the people traditionally love and trust their govt.

That is exactly why I don’t worry about Red China.

Ohhh Henry January 26, 2005 at 12:36 pm

In that case my hypothesis is undercut, because the Japanese have a high savings rate for a people who love and trust their government.

Unless the Japanese people’s behavior is more of a culturally-mandated expression of obedience than a true belief in the goodness of government. If you believe that people vote with their pocketbooks, then it would seem that Japanese (and German) citizens are keeping a little private insurance against another disasterous war.

On the other hand, if you wish to explore historical precedents then the last time North Americans had savings rate this low was in the depth of the Great Depression. Back then I suppose that the motivation was not an abiding trust in their government, but desperation pure and simple.

Which do you think is the strongest factor influencing the low savings rate: trust in government pensions, desperation to maintain the current standard of living, or … ?

D. Saul Weiner January 27, 2005 at 2:59 pm

It’s good that the Institutional Risk Analyst has exposed the Trust Fund for the fraud that it is.

Unfortunately, only a week ago on this very blog, was the following comment:

From David Gordon’s review of John Attarian’s book on Social Security, in 1/21/05 Post labeled John Attarian, RIP

“Readers of the Mises Review will not be surprised to learn that the Old Right stalwart John T. Flynn identified the basic problem of the trust fund so long ago as 1939. In an article for Harper’s which appeared in that year, Flynn noted that any “investment beyond strict cash hoarding is a claim against the entity whose investment instrument one purchases. The Treasury bonds in the reserve, then, are just the government’s claims against itself, hence have no real value. . . . Moreover, the interest on the reserve in the out years would have to be paid from taxes levied in those years. Besides the payroll tax, then, there would be a growing tax burden just to pay the interest on the reserve” (pp. 124–25).1″

Only 65 years for the rest of the world to start to catch on???

maged taman February 21, 2005 at 1:13 am

Americans’ Future In One Plan
I know that most of you are busy to read my book. As I explained previously that Taman Health Plan (www.trafford.com) takes care of all the health care, Medicare, Medicaid and social security. It will threw away all bureaucracies out of window. Let me explain shortly how it works:
1- there will be no more health care insurance companies, no Medicare, Medicaid or Social Security. My plan will take care of all.
2- Basically will be only one Big Health care organization (Taman Health Plan or THP).
3- The center of the plan will be in Washington while the health departments in every state will be the branches.
4- One organized body will be taking care of the Health Care and long term care of all Americans replacing 1500 insurance companies, Medicare, Medicaid and Social Security.
5- This will allow us to provide a uniform service to all Americans every where in both inpatients, outpatients and long term care.
6- As you go to any Duncan Donuts branch your expectation is to have a fresh coffee and a donut with no long wait. We will try to provide a similar predictable service everywhere as Duncan Donuts. With having only one body will be able to do that.
7- The Capital of the plan will be the funds of Medicare and Social Security (before the bankruptcy of both systems). The maintenance will be a yearly tax from each of us (will replace our yearly social security and Medicare holding taxes). A percent of each of us go to his account cards and a percent go to THP itself. The money of the plan will be invested by the investing sector of the plan very likely in Wall Street.
8- We will have 5 ATM cards with a corresponding accounts. Card A (children), Card B (working group 18-65years old), Card C (Medicare card >65 years old), Card D (Medicaid card), Card E ( expensive medicines or investigations).We will have the health cards devoted to health care and long term care thus we will have: health cards, banks with accounts to each card and credit card machines in outpatients care and hotelling part of hospitals and nursing homes.
9- Cards pay for the outpatient medical care including doctors, emergency room visits, investigations, medical supplies, pharmacies and the hotelling part of hospitals and nursing homes. While the medical part of hospitals and nursing homes will be budget by the plan itself.
10- In the first year of issuing cards: Card B and C (most of people) will have a bonus it could be a percent of their Medicare and social security withholding (70 % or so). We will try to be fair to every one but every one has to now that most of us already lost a lot of money with the HMO’s. For next year new comers to card B when first issued will have a bonus of 50,000 dollars. It will change every year by a percent a according to inflation.
11- every one of us will get a statement every one or two months of his card account. Card B account will phase in card C at the age of 65. If card C account is vanished Card D will be issued (hoteling part will be less luxurious). Only few of Card B will have card D if there account vanish most likely those with severe medical problems.
12- So basically most of us will have our own account Card B then card C. Say you are 45 and you have now in your account 200,000 you can take one or more years out of work, you Can retire early if you like and with you card you control all the medical services and its prices.
13- With this card system we will end all bureaucracies of health care, Medicare and Medicaid. No one will stand between you and any medical or long term service (only you card). Shop around with you card, have early health care security and responsibility and invest in your health.
14- We will not need Social Security since after age of 65 we will be able to use our cards to stay in any nursing home each according to our account in card C or card D. So when you invest well in your health you will be able to enjoy a nicer nursing home when you get old (actually it will be also a kind of tourism).
15- The money in cards do not get inherited when we pass away but recycle in the plan to support the next generations.
16- The plan will have very positive effects not only in simplifying our care, save a lot of wast in health care, give early health care security and responsibility to Americans it will also have a positive effect on the economy, saving billions of dollars to Americans, creating jobs in health care and cutting outsourcing.
Very like you figure it by now I could have sold the plan to one of the presidential candidate before the 2004 election for millions of dollars ( they already spent 2 billion dollars). It is my gift to the American people (it will help the healing process of the two worlds America and the Muslim/Arabs).

Maged Taman.
2/20/05

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