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A Comment on your Comments: Is Social Security a Fraud?

Comments from readers of our blog and other blogs present a theme that is the topic of this article. Issues of the management, direction, and disclosure by our government of the Social Security Trusts have brought forth many noticeably angry comments. Our Government likes to cloak bad news in vast amount of data, or alternatively, release the information when few are watching. One may ask, is there fraud or lying if the facts are fully disclosed?

An excellent article, although somewhat dated, has described two examples of issues that the author describes as fraudulent (see here). As the article indicates all facts and values used were from Government sources and referred in the article, one could argue by definition there is disclosure and therefore not fraudulent. Whether the reports are fraudulent or not does little to provide comfort on this subject. The issues in the article highlight distressing details that are rarely described in articles or by the media.

The first conclusion is that the securities held as an investment in the Social Security trust fund is a form of double-dipping.  Funds raised by taxes are exchanged for a “special issue” security (see here). This investment is only held by the Social Security trust funds. When cash is needed by the trust, the Treasury redeems the special issue security by selling bills, notes or bonds. Therefore, the Treasury is paying interest to the Social Security Trust and to investors on the issued Treasuries. Although others have defended the use of these investments (see here), the purpose of using these securities is not very clear.

The next point of the article is the “bogus estimates which proclaim a false security that is simply not backed up by facts.”. His observation on this area is equally compelling. Currently the longevity estimate of the combined trust fund is in the 2030’s if there is no corrective action by our fearless leaders. This estimate assumes a rosy economic picture over that period of time. Considering that the economy tends to be cyclical and each cycle lasts seven to ten years, we will probably have at least one economic contraction. Should that occur, the time frame may need to be adjusted.

Hopefully we will see adjustments to the funding of Social Security sooner rather than later.  If not, the dire warnings we are hearing may not be dire enough.

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