The Social Security “Trust” fund

Having now gotten up to speed on the US Government Budget, here is what ot understand about the Federal Debt and the Social Security “Trust Fund” stored away in the “Lock Box” (and smaller trust funds like the Highway and Airport trust funds)

That “Lock Box” contains about $4.5 trillion in special issue US Government Securities issued by the U.S. Treasury. 

The total of all US Treasury Debt outstanding is around $15 trillion.   About $10 Trillion of that is real debt – that the US Treasury has to pay interest on each year – that will cost about $240 billion in 2011 (suggesting the average rate is around 2.4%)   

The $5 Trillion in the trust funds is not “real debt” and requires no payment from the Treasury.   The $140 billion in interest to the “trust fund” is just money the government owes itself.    The US Treasury merely adds another IOU for $140 billion into the trust fund lock box and doesn’t count that in the budget or the deficit – as it isn’t actually an “expenditure” – until of course, the Social Security administration needs more money than it has coming in, at which point Social Security becomes a net expense to the government.

When you hear the politicians saying “Hey, the Social Security trust fund is solvent”, they’re counting those extra IOUs in the trust fund as “income”, even though they aren’t real dollars.   The balance paid in by taxpayers is dropping by about $50 billion a year, being replaced by those new IOUs – almost all of that is a deficit being run by the Disability benefits, which are essentially unfunded and draining out the IOUs of the Retirement fund