Thoughts, essays, and writings on Liberty. Written by the heirs of Patrick Henry.

March 25, 2010

The Social Security Trust Fund In Kindergarten Terms

by Brad Warbiany

Yesterday I had $10 in my right pocket.

I loaned that money to my left pocket, which I like to call my “Right Pocket Trust Fund”. I put an IOU from my left pocket into my right pocket to document the loan.

I then spent that $10 on lunch.

Today my right pocket wants to start collecting on that loan.

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That’s the Social Security Trust Fund. An IOU that requires new taxation, NOT drawing down on savings, to be repaid.

(Inspired by Megan McArdle)

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  • Joe

    Well put…to bad it’s too complex it’s too complicated for most of the left; those who are not deconstructionist dissmebles and double talkers that is…

  • Mike

    But you forgot that your right pocket is richer cause the left pocket owes interest too!

  • Let’s Be Free

    Mike has it right, and some of that interest is from 12 plus percent thirty year bonds issue in the early 1980’s — good luck collecting on that.

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  • j.c. taylor

    I see it in even simpler terms…a big box that is named Social Security… that our children have been paying into for all their working lives, and expect to be able to open one day…but when the box is opened, instead of Social Security funds, all they will find is a box full of I.O.Us that the government has replaced the money with….the money has gone to other things they wanted to spend it on..

  • Jeff

    You forgot to mention that by going to an ATM machine you can continuously repeat the process of filling your right pocket with $10, passing it to your left pocket and receiving an IOU – building incredible (paper) wealth. Oh, did I mentiona the ATM machine was owned by the Chinese?

  • Anthony

    This post is a bit misleading.

    Imagine that Social Security had invested the money instead. Let’s say that SS bought bonds from Microsoft, which gives SS an IOU. What would Microsoft do with the money? It would spend it on it’s business!

    Now that the IOU is due. Microsoft has to come up with the money.

    This is perfectly normal. It’s how your 401(k) works. (Ignoring stocks)

    It turns out that this is actually what SS did, except that SS invested the money in T-bills instead of Microsoft. Now America has to come up with the money to pay SS back.

    But if SS hadn’t loaned America the money, America would have just borrowed it from some other investor – like China. We would still be facing taxes to pay off the IOU, which is now due.

    So left pocket was going to borrow-and-spend from SOMEWHERE, it just chose to borrow from right pocket instead of from Chinese pocket.

  • Let’s Be Free

    Anthony, you have fallen for the lie. I’ve seen the social security trust fund. It’s two columns on a spread sheet that are updated from time to time by a nameless faceless bureaucrat. The money was never invested in T-bills. The interest was never paid. The younger you are the more the joke is on you.

  • Let’s Be Free

    FYI if the loan terms didn’t demand Microsoft come up with the money on an ongoing basis, there would be escrow requirements and/or collateral calls. No fiction would be permitted like what has occured with the social security trust fund, the medicare trust fund and now will happen with socialized health care as well.

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