SSA Losing Billions Every Year With Renewal of Bonds –

July 26, 2013 08:16
SSA Losing Billions Every Year With Renewal of Bonds –

The loss of income from the redemptions comes to a cool $3.3Bn a year. That is chump change at SSA – but it will happen again next June when another chunk of high coupon paper rolls off the books. – Bruce Krasting


By Bruce Krasting


Social Security is sitting on a $2.8Tn portfolio of T Bills and Notes.


$600 Billion! 22% of the nut went back in forth in a single day.


SS’s holdings of all that paper is part of part of the “debt we owe ourselves”. Actually it is just debt that is owed, it’s no different than the IOUs out to China. There are a total of 230 Trust Funds (SS is the largest), the total of this debt is now $4.8Tn.


SSA “bought” $178 BILLION of bonds due in 2028 at measly 1.75%. This return is going to be less than inflation. The market yield for 15-year Treasury paper is 3%. SSA is underwater on this bond by 1.25%, that comes to a revenue loss of $2.3Bn every year. Blame this result on a 50-year old formula and Bernanke’s endless squeeze on interest rates.

SSA_reduced bond income

The pollution of interest income for savers like SS is well understood by Bernanke and his cohorts at the Fed. But they never talk about this ‘cost’ to the country’s future. They just harp on all of the benefits that low interest rates deliver, like renewed housing bubbles in places like Vegas and ever higher stock prices. I estimate that the cost to just SS of the Fed’s actions will add up to over $300Bn before the Fed folds its cards and ends QE and ZIRP.


One of Bruce Krasting’s readers responded thus:

“Actually, Don, the Social Security Trust Fund doesn’t work that way at all. ALL payroll taxes are converted into special treasury notes as the taxes are paid, 100% of them. There are no payroll taxes held by the Trust Fund that are used to pay benefits. Benefits are paid 100% by liquidations of the special treasuries. The transactions above clearly show this. So, Congress ‘borrows’ (steals) our payroll taxes, then forces future generations of taxpayers to pay the theft back, at interest. But the money is gone….spent.

By the way, they are called ‘special treasuries’ because they can be liquidated at any time without penalty.

Furthermore, the treasuries held by the Trust Fund are NOT assets to the US taxpayer, they are, in fact, debt instruments upon which the taxpayer is paying interest. As such, they comprise a component of the national debt. A quick gander at the GAO’s Components of National Debt chart shows the Trust Fund as a component of the debt.

Thus, there is NO MONEY in the Trust Fund, only debt…debt that must be paid back, at interest. In point of fact, our benefits are paid-for at least twice: once when we pay our payroll taxes (stolen and spent by Congress), and the second time by the future generation of taxpayers that has to actually pay to repay the treasury from which the benefits are paid. If one calculates the interest paid over a working lifetime, it could very well be three times over. Keep in mind, this is interest the taxpayer is paying on his/her own money…

The system has functioned this way since it started collecting taxes in 1936. No one started ‘raiding’ the fund after the fact, It was designed this way from the beginning. Why? Because the Social Security system is a mechanism for taxation whose basic mechanics operate more like those of a Ponzi Scheme, than a retirement program. How many retirement programs take the investors’ money and convert it into a debt instrument upon which the investor pays interest? None, that I’ve ever heard of…but that is precisely how the Trust Fund works.

There is nothing hidden or mysterious about this, either. The lies are in plain sight on the Social Security website:

(Social Security Administration-Trust Fund FAQ)

Jimmy Jack Jingo”

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