Is There A Problem Here?

Remember that old take-off on the song sung by the seven dwarfs’ “I owe, I owe, so off to work I go”? Well it seems these days our Federal, State and Local governments are changing the words to the collective, “We owe, we owe, we owe, we owe…
Do we owe? You betcha. We owe foreign governments (not only China). We owe past funding of retirement plans promised to our workers. We owe hospitals that provided our health services based on our promises. We owe big time.
However, in the interest of full accounting; what about the other side of the coin? What are we owed?
Remember those cursed bailouts? Our government bought around $ 1 trillion in mortgages and other debts to hopefully prevent an economic disaster. This is supposed to be paid back to the government with interest. Not all will, of course, but we now own many assets that hopefully one day soon will be subtracted from our debt column.
Then there is the problem with Social Security. Let’s take a closer look.
When those FICA payments are subtracted from your income and sent to the Social Security Trust Fund some believe they are set aside in an account with their name on it, waiting for them to claim when they retire.
Not so!
The money collected is used in two basic ways. First, it is used to cover the checks sent out to those currently retired as well as survivors and those disabled and prevented from working. Up to the present day and forecast to around 2018, the amount collected not only covers these costs, but leaves a healthy surplus to boot.
What does the government do with the “surplus”?
It invests it.
What does it invest in?
By law, it invests in the only thing allowed; government bonds. It hands over the surplus dollars to the general fund to be used however, and in return gets an official IOU (bond). There are no dollars sitting in a box somewhere, just a lot of paper IOUs .
Let’s do some data drilling.
As of January 10, 2011 the U.S. debt was over $14 trillion, and as of that date was the sum of all outstanding debt owed by the Federal Government. Nearly two-thirds of this is public debt, owed to the people, businesses and foreign governments (China included) who bought Treasury bills, bonds etc. The remainder is intragovernmental debt; the amount the government owes to itself, including Social Security. As of February 17, 2011 this totaled four trillion, 632 billion, 883 million, 495 thousand, and ninety dollars and fifteen cents.
Drilling down further we come to $ 2.4 trillion that is supposed to be sitting in the Social Security Trust, but is sitting there in the form of government IOUs.
To return to my original question: Is there a problem here?
Yes, a slight one, but only if we ever expect the Federal Government to make good on their IOUs; for as is being shouted loudly on Capitol Hill these days, “We are broke”.
So what’s a Legislator to do?
A problem, but a small one: make sure that the Social Security Trust never demands payment of its bonds to cover expenses.
How? A slightly larger problem: make sure current expenses always equal current collections.
How? That may be a big problem the solution of which remains to be seen.
Our federal government’s rich and generous uncle, Social Security, is almost tapped out. There are some in Washington who espouse defaulting on their promises (bonds) to American workers thus wiping away a good portion of our national debt.
Here I see a very large problem.