The most disturbing argument to date I heard on Diane Rehm the other day from David Keene of the American Conservative Union. Keene tried to argue that the money in the trust fund was a problem in paying back itself.
Now, this is a significant issue of confusion for most people. The money in the trust fund simply holds the money that is over and above what is being paid out now, but is the safest investment you can make. Make no mistake about it, most of the current expenditures in SS come from current payees into the system. The extra is then invested in government bonds.
Keene suggested that money couldn’t be paid back without deep affect on the federal budget–but that is grossly stupid to say unless one expects the federal government to default on its debt.
Federal bonds are sold to finance federal debt. Bond holders can be the guy down the street or foreign investors who take the bond as a safe investment because no one expects the US Government to default on its debt or devalue its currency so greatly that dollars become worthless. The dollar is now like gold was in years past.
So the extra money in the system is invested in bonds. To recover that money the federal government has to either pay back bonds without reissuing new ones or just issue new ones.
If they federal government cannot pay back bonds or issue new ones for social security, the country would be defaulting on its public debt which would have catastrophic implications for the global economy.
It does mean that when those bonds begin to be used for social security that if they can’t be retired–as a huge deficit has ensured is likely to be the case, then other borrowers must be found. Right now that isn’t a problem and other than having to adjust the rate paid to bondholders to loan the US money, it shouldn’t be a problem in the future.
Keene completely misunderstands or misrepresented this basic idea of how the government pays its debt. If the President is indeed suggesting that debt is not good as Keene did, that would be impeachable. Those who suggest the Trust Fund is illusory are proposing something that is unimaginable to the US economy.
Keene is economically incompetent or purposefully misleading people. Dionne let’s him off the hook too easily in the bit.