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The Social Security Scam And Debt Bomb

The Social Security Scam And Debt Bomb

by Michael Hammerschlag

Worried about the depletion of the Social Security Trust Fund, that carefully preserved safety net you’ve been paying into since forever? Don’t. It doesn’t exist . In the early 80’s, Congress, dealing with the consequences of Reagan’s monster deficits, decided to spend what was left of it and replace it with IOU’s in treasury bonds. Paul Solomon of PBS’s Newshour showed the crummy 1 story cinder block building in Parkersburg, WV, where it is now housed-1.4 trillion dollars in bonds in a single file Cabinet. We owe you $11 billion, $9 billion, etc. Social Security is now a revolving program- the funds paid out to the elderly come directly from the FICA payments of current workers via general revenues, and the excess is used to hide the real deficit (and compensated by more bonds). Democrats don’t want to talk about this- afraid it would alarm voters already inundated by the Privateers alarmist propaganda, while the President just did, angling for the same thing.

This is the central lie of the Bush privatization program: they won’t “let you put your money to work”- there is no money in cash- so the Bushmen will have to borrow it from foreigners. The stability and reliability of Social Security is dependent on the stability of general revenues so the real threat to it comes from Bush’s reckless deficits- now maybe $640 billion including all the off-the-book spending and borrowing in SS, debt interest, etc.. In borrowing to pay into these private accounts, Bush will jack up the deficit another $200 billion every year (some estimates are $100 billion more). So to get the supposed 6.5% historic return (after inflation) in stocks, we will borrow at 3-10% and pay forever (10 yr treasuries now pay 4.4%). From the Japanese, Communist Chinese, and old Germans. Instead of making Social Security solvent, that will undermine its foundations, and reduce its benefits. Bush wants to take money out of the SSS at both ends- young and old. Like burning a candle at both ends- it’s not sustainable.

Which is the second problem. The world only buys our treasury bonds because the dollar was stable and strong. With Bush’s conversion of our greatest surplus into our greatest deficit, the dollar is crumbling: A Dollar was worth only .73 Euro at the New Year instead of the E1.19 it was 3 ½ years ago- a 38% drop in the power of our money and the value of the $11 trillion dollars of the American Dream that our creditors hold. All they have to do to provoke a worldwide economic crisis is just buy Eurobonds rather than ours (forget selling ours). That’s started, with the South Korea talking of diversifying their holdings, Putin threatening to switch its trade in oil from dollars to euros, and the Japanese warning of “enormous capital flight” from the dollar. Once the image of American financial invincibility is breached, flight from our bonds could become a flood. To keep countries buying, bond interest rates will have to be jacked way up- causing interest rates to rise across the board, and causing an avalanche of bankruptcies by firms and people bloated by cheap credit. And if the “ full faith and credit of the United States” that backs the bonds that obligate us to pay Social Security isn’t dependable, as Bush keeps implying, why on earth should foreigners buy them?

These bond purchases give China extraordinary power over the US. Like a Las Vegas casino, they hold our markers and can devastate our economy by calling them in at any time. Emboldened by that, they just passed a law that specified an invasion of Taiwan if they declare independence. Clinton sent a task force to patrol the Taiwan Strait when China fired missiles into the ocean only 22 miles from Taiwan’s ports in 1997 (Dragon Rising); but our freedom spewing President has been mute in response to this thuggish escalation.

And the market isn’t any sure thing, despite the long term rises- I’m pretty bright but managed to lose a good bit of money on stocks that became worthless (see Rhythm). It’s still 59% down from its high point in March 2000, and took until 1954 to recover from the crash of 1929; till 1972 to recover from the recession of 1964, according to Newsweek's pithy Allan Sloan.

"I think the $2 trillion [cost of privatization over 10 years] is way way understated. I think the 20 year estimate was $6.5 trillion," [for an average of $325 billion a year]. "Dishonesty and nonsense is what the Bush people are about in the areas I understand--numbers. What they do is ignore the war in their projections, say that things are getting better, which they aren't, then tuck in the war numbers later."

And the management fees will take a chunk out of any profits. Some do think, however, that devaluing the dollar is a good thing, and would help our atrocious balance of trade- now topping $700 billion, though the 38% drop hasn't changed anything so far.

SS Privatization has nothing to do with saving it- it is a scam engineered by people who have long disliked it and want to grant more windfalls to their financial sector friends: management and setup fees and bottomless investment capital. A mild tweak in retirement age, income cutoffs, or benefits is all Social Security needs. Don’t listen to all the Administration’s dire warnings- Social Security isn’t in any trouble for decades except from Bush’s deficits, and the way to deal with that is to cancel the $3 trillion of tax cuts for the wealthy.


Michael Hammerschlag's commentary and articles ( have appeared in Seattle Times, Providence. Journal, Columbia Journalism Review, Hawaii Advertiser, Capital Times, MediaChannel; and Moscow News, Tribune, Times, and Guardian. He's been a TV reporter, foreign correspondent, and produced documentaries over 25 years. He spent 2 years in Russia as the empire collapsed, where he witnessed the total decimation of the economy.

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