On Tuesday, February 22nd, Charles Krauthammer, the syndicated columnist and editorial writer for the Washington Post, published a fantastic article on Social Security. I strongly recommend that you read his article.

Mr. Krauthammer said that the year “2042 is a fictional date for the fictional bankruptcy of a fictional trust fund.”  He’s correct on all counts.

First, the Congressional Budget Office recently decided that the Social Security trust fund will not be exhausted until 2052. Second, it’s next to impossible for the supplemental retirement system to go broke unless every other insurance company in the country goes bust first. And third, the trust fund has been a deception from the start.

Later in the article, Mr. Krauthammer said; “The Social Security system has no trust fund. No lock box. When you pay your payroll tax every year, the money is not converted into gold bars and shipped to some desert island, ready for retrieval when you turn 65.” How I wish I could write like that.

He continues with; “The money goes to support that year’s Social Security recipients. What’s left over is ‘loaned’ to the federal Treasury. And gets entirely spent. It vanishes. In return, a piece of paper gets deposited in a vault in West Virginia saying that the left hand of government owes money to the right hand of government.” This is where some details are missing.

Here’s a little trivia for you. There’s a secretary in Parkersburg , West Virginia , the home of the Treasury’s Bureau of Public Debt, who keeps these "pieces of paper” in a file cabinet, not a vault. After all, these are non-negotiable so what good would they be to anyone?

Years ago, Congress worried about electronic transfers. Like many older guys who fear those newfangled computer contraptions, they thought these devices could crash or their grandchildren could hack into them, the stuff movies are made of. These politicians insisted actual “paper” nonmarketable bonds be deposited somewhere to back up the Treasury’s electronics. The Parkersburg Papers are the result of a law Congress passed.

Continuing, Krauthammer says; “These pieces of paper might be useful for rolling cigars. They will not fund your retirement. Your Leisure World greens fees will be coming from the payroll taxes of young people during the years you grow old.”

He might have added “like any good insurance company” since every successful insurance or pension business pays the retired from the premiums of new and long term policy holders not yet collecting benefits and whatever is left over after deducting overhead is profit. Thankfully, Social Security doesn’t depend on sales.

The main point of Mr. Krauthammer’s article is to show that President Bush’s talk of the system “going broke” or “bust” in 2042 is not an immediate concern. The year 2018 is much more important even though it too lies 13 years in the future and “even 2011, the first boomer retirement year, has a Stanley Kubrick feel; 2042 lies somewhere in the Matrix.”

Hey, we’re making some progress. When a writer the stature of Charles Krauthammer clears some of the garbage out of the way, we might have a chance for meaningful dialog and debate. This hasn’t happened since the summer of 2001. And it might get buried again by some war, freak event, or natural disaster. Even the girls at Hooters are sporting T-shirts with “weapon of mass distraction” on their backs.

What’s missing from Mr. Krauthammer’s article is, of course, the fact that these pieces of paper, electronic recordings, and whatever you want to call the accounts, are very important to the government. They’re useless to you and me, but the government uses them to swindle us.

The so-called Social Security “trust fund” may be phony as hell, but it’s still there and very real. It’s an account full of markers recording how much was “borrowed” from Social Security surpluses over the years with interest added. (See statements)

This fund is currently recorded as 22.3 percent of the $7.6 trillion national debt and presently holds $1.7 trillion in markers. That’s real, although it shouldn’t be. The government is just pretending that it owes this amount of money to the Treasury and can do the impossible by taking care of it themselves without using taxpayer money.

When the time comes, the government will use these markers to raise money without legislation. In other words, the pirates will turn to their standard financial fund raising operations and either (1) raise taxes (2) borrow honestly (3) rob Peter to pay Paul by cutting programs, or any combination thereof, in order to “make good” on these “pieces of paper.” That’s the real problem.

When that happens, workers will still be paying payroll taxes just the way they do now but they will also be paying to fund options one-two-three, where the tax increases are just as liable to be raises in personal income tax as raises in payroll taxes. Honest borrowing from foreign nations, organizations, and so forth, is just a tax on your future.

Right now, today, as you read this, it’s already happening with “trust funds” other than Social Security. These are all listed under the “Intragovernmental Holdings” section of the national debt where the pirates want you to believe that the government owes itself, one department owes another, or that somehow the politicians and bureaucrats will settle this debt without using taxpayer money. Something they couldn’t do if they were all John D. Rockefeller clones.

For example, in June of 2001 the Unemployment trust fund held almost $92 billion in recorded debt. In January of this year, 2005, it’s down to $41.6 billion. Where do you suppose the money came from to pay the unemployed? Did you see or hear of any legislation to raise the money? Or that there was even a shortfall in unemployment taxes paid by employers. Like Social Security, this entitlement was once in surplus, receiving more money than was needed.

Why do you think the national debt is skyrocketing? Why do you think Bush’s budget proposal cuts domestic spending? It’s not all for invasions, occupations, and security.

We must STOP THE BLEEDING and we must stop it now.

Almost half of the national debt, currently standing at $3.2 trillion, is a scam. Social Security is just the tip of the iceberg. The federal government has been malappropriating surpluses for a long time.

When Mr. Krauthammer speaks of "fictional pieces of paper" in the Social Security trust funds, he's only speaking of the largest amount of debt recorded in "Intragovernmental Holdings," currently 53% of these IH holdings. This side of the national debt is completely separate from the honest and contractural side labeled "Debt Held by the Public" which is composed of real treasuries in more flavors than Baskin Robbins.

The dishonest side of our national debt, represented by IH, is composed of more than 141 trust funds, all holding nothing but nonmarketable non-negotiable "pieces of paper." These could be completely eliminated without ill effect on anyone but the Beltway Bandits. In fact, it would be doing the taxpaying public a great favor.

We already have central banks from nations like Japan , China , Germany , Malaysia , and others warning us to get our financial house in order. What these countries hold in honest treasuries, cashable on demand, could bankrupt us tomorrow should they tire of our expansionist policies and interventions. Only taxpayer money will cover any part of the national debt. Are you ready to cough up?

If we simply erased all nonmarketable bonds, except Savings Bonds that are not listed in the same category, we would be showing some financial responsibility. Years ago, I proposed this to one of my Congress critters. He trembled and said; “what if the bond market (honest Treasury holders) panicked and cashed-in?” My response was to do it gradually starting with Social Security.

Each month as the payroll tax surpluses roll in, the government could turn that cash over to a real fiduciary trust fund (preferably in the private sector where trustees are not above the law) and the IH holdings could be reduced monthly by that amount until they were gone. The government would appear fiscally responsible for a change.

Think about it

Where would we be if there were no fictional trust funds? What would the government do if Social Security then had a shortfall? The answer is that they would do their normal revenue raising thing (1) raise taxes (2) borrow (3) cut other programs, or any combination thereof. The same thing they do when "drawing down" on these fictional funds. Wouldn’t you rather take the chance that Social Security can’t fail unless the actuaries screw up? We could even cut payroll taxes to break-even and we wouldn’t be waiting for 2042, 2052, or even 2011.