Borrow from your left pocket to pay the right

Charles Krauthammer strikes back at White House budget chief Jack Lew over Social Security with "It's still an empty lockbox."

Invoking the “full faith and credit” mantra for those IOUs in the trust fund is empty bluster. It does not change the fact that, as the OMB itself acknowledged, those IOUs “do not consist of real economic assets that can be drawn down in the future to fund benefits.” Yet Lew continues to insist that these “special issue” trinkets will pay off seniors for the next 26 years.

Nonsense. That money is gone with the wind. Those trust fund trinkets are nothing more than a record of past borrowings. They say nothing about the future.

Consider: If Treasury had borrowed twice as much from Social Security in the past — producing twice as many IOUs sitting in the lockbox — would this mean the trust fund is today twice as strong? Solvent for 50-some years instead of just 26? Of course not. The trust fund “balances” are mere historical record-keeping. As the OMB itself admitted, future payouts will have to be met by future taxes and future borrowings — or by Social Security reform that, by reducing benefits, makes such taxing and borrowing unnecessary.

There is no third alternative. There is no free lunch. And there is nothing in the lockbox.

As I've noted for several fruitless years, those "special" Social Security bonds are an accounting trick and they represent claims on the U.S. Treasury that cannot be paid without either finding other sources of revenue and borrowing, or by monetizing the debt by printing money and allowing inflation to run away. Those "special" bonds don't exist in a vacuum: Social Security recipients want money and it has to come from somewhere.