Thursday, March 28, 2013


Initially, the income from the payroll tax was to be credited to a Social Security "account," according to the Social Security Act of 1935. Note that no Trust Fund was created. Benefits were to be paid against this account.

The initial payroll taxes were first collected in January 1937, and monthly benefits were to be paid starting in January 1942. That was amended to January 1940 as the starting date because there were so many elderly in need coming out of the Great Depression. Essentially that created a book keeping nightmare for the accountants who were tasked with recording the debits and credits in the system that was supposed to be drawing interest from investments.

That is right! The money was supposed to be invested according to the 1935 Act.

The 1935 Act stated: "It shall be the duty of the Secretary of the Treasury to invest such portion of the amounts credited to the Account as is not, in his judgment, required to meet current withdrawals. Such investment may be made only in interest-bearing obligations of the United States or in obligations guaranteed as to both principal and interest by the United States." (See Title II, Section 201 of the 1935 law)

Note that there was exact specificity to the law.

There were several amendments to the Social Security Act in 1939. The most important was that a Formal Trust Fund was established and strict requirement was put in place for annual reports on the actuarial status of the fund, just like you would expect from any investment fund.

The law provided: "There is hereby created on the books of the Treasury of the United States a trust fund to be known as the 'Federal Old-Age and Survivors Insurance Trust Fund'. . . . The Trust Fund shall consist of the securities held by the Secretary of the Treasury for the Old Age Reserve Account on the books of the Treasury on January 1, 1940, which securities and amount the Secretary of the Treasury is authorized and directed to transfer to the Trust Fund, and, in addition, such amounts as may be appropriated to the Trust Fund as herein under provided." (Title II, Section 201a)

In plain English that amendment provided for the money already collected to be placed in a fund that was drawing steady interest from Government Bonds or any investment papers that the Government totally backed. That was the law!

There have been no changes in the way the Social Security funds are collected or invested, but there have been lots of changes in the way the funds have been recorded in the Federal Budget over the years. Basically it consists of a lot of legal buffoonery on the part of various administrations that allowed them to their budgets were more close to being balanced.

Legal Buffoonery?

Yep, they had laws passed to make their accounting legal. A good example would be Nixon's budget in Fiscal Year 1969. Under the then current unified budget rules, the government reported a surplus of $3.2 billion for the Fiscal Year.

But, if you removed the "off-budget" items (Mostly the Social Security numbers for income and outgo) from the calculation the result would be a net deficit of $507 million. Thus, Nixon looked brilliant in continuing his expensive Vietnam War while maintaining a surplus. So, to sum up this buffoonery:

1- Social Security was Off-budget from 1935-1968;
2- Social Security was On-budget from 1969-1985;
3- Social Security was Off-budget from 1986-1990, for all purposes except computing the deficit;
4- Social Security was Off-budget for all purposes since 1990, basically the way it was originally intended to be.

Now, about those annual reports on the status of the fund. They are available at this site:

From that site, here are some numbers that will show you how the fund grew:

Total Assets in the fund at the end of Dec. 1939 were $1,724,397,289.64 ($1.7 Billion)
Total Assets in the fund at the end of June 1949 were $11,309,949,287.58 ($11.4 Billion)
Total Assets in the fund at the end of June 1959 were $21,541,424,332.49 ($21.5 Billion)
Total Assets in the fund at the end of June 1969 were $28,190,938,974.73 ($28.2 Billion)
Total Assets in the fund at the end of Sep. 1979 were $27,742,846,000.00 ($27.7 Billion)
Total Assets in the fund at the end of Sep. 1989 were $148,318,904,000.00 ($148.3 Billion)
Total Assets in the fund at the end of Sep. 1999 were $762,170,038,000.00 ($762.2 Billion)
Total Assets in the fund at the end of Sep. 2011 were $2,677,900,000,000.00 ($2.677 Trillion)

The growth in the fund is impressive, BUT, it appeared that there was something wrong when our President back in July 2011 said, "I cannot guarantee that those checks go out on August 3rd if we haven't resolved this issue,” (when talking about raising the cap on Federal Debt.) because there may simply not be the money in the coffers to do it."

I mean, “What the Hell!” If there was over 2.67 Trillion Dollars in the Social Security Trust Fund in 2011, how is it that the Social Security Administration could not send out checks on time as they always do?

Why? Simple! They do not have any money! The interest bearing Bonds that were supposed to be in the Safe were not there as required by law. So, for Obama to send out the checks, Congress would have to borrow the money, but they had a cap on borrowing and were stalling for dramatic effect. Don't you just hate it when Congressmen act like Grade B actors?

Here is the reason why. Way back in a far more honest world when crooks robbed banks instead of the US Treasury, the Trust Fund bought actual marketable Treasury Bonds that paid interest and added to the Fund, but along the many years from birth of Social Security to the present, the main paper the Fund “bought” became non-marketable “Special Obligation Bonds” which were effectively IOU’s from the Treasury. Since 1981 when Reagan was President, no marketable securities have been added to the Trust Funds, just those Special Obligation Bonds that did not actually pay interest. They were just useless pieces of paper. The Calculation of the interest accrued that regularly added Billions to the Social Security Trust Fund’s annual report were just entries that accounted for a stipulated interest rate. There was no actual money transferred over from the Treasury to the Fund. In other words, the Trust Fund since 1981 has officially been a book keeping sham and scam. It did not start out that way, but that is how it ended up.

So, where is the money? Congress spent it over the years. There is also the fact that money spent on Social Security buildings and staff and other costs came out of the fund, when they should have come out of the Federal Budget. If we had not taken that money out of the Social Security Fund for all of those expenses, I’d estimate that the Fund would presently be way over Five Trillion Dollars. That Five Trillion Dollars added to our national debt comes up almost exactly to the 21 Trillion Dollars we spent on wars in the past 60 years.

OMG! It just dawned on me. Did it dawn on you, too, that without the wars, Social Security would be fully funded and we would have no national debt. If we did not have any deficit spending, we never would have had to steal all that money from the Social Security Fund. OMG! OMG! OMG!

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Born Chicago. Lived: Palos Heights Chicago, Illinois; American Samoa; Mexico; Escondido and San Diego, California; and then I finally graduated from High School. Subsequently, 12 years in the Navy took me all over the world.