Treasury Bond Default: The Evolving Rationalization

From Holden:

Does George Bush plan to default on the Treasury Bonds in which our Social Security Trust Fund is invested? Speaking at the Commerce Department on Wednesday, he clearly went too far with his rhetoric.

Some in our country think that Social Security is a trust fund — in other words, there’s a pile of money being accumulated. That’s just simply not true. The money — payroll taxes going into the Social Security are spent. They’re spent on benefits and they’re spent on government programs. There is no trust. We’re on the ultimate pay-as-you-go system — what goes in comes out. And so, starting in 2018, what’s going in — what’s coming out is greater than what’s going in. It says we’ve got a problem. And we’d better start dealing with it now. The longer we wait, the harder it is to fix the problem.

On Thursday in North Carolina he got the message: Ix-nay on the ust-tray. Those poor deluded souls who on Wednesday mistakely assumed that there was a Social Security Trust Fund now ignorantly assume that there is a Social Security Trust Bank.

Now, some of you probably think there is a kind of — a bank, a Social Security trust bank. But that’s not what’s happened over time. Every dollar that goes into Social Security has been paid out, either to retirees or government programs. It is a pay-as-you-go system; it is a flow-through system. There is no kind of — there are empty promises, but there’s no pile of money that you thought was there when you retired. That’s not the way the system works.

So when the rhetoric moved from Washington to Raleigh the investor-shaking “there is no trust” was transformed into the equally destablizing “there are empty promises”.

On Thursday aftrernoon Chimpy’s lie-a-thon was in Pennsylvania, where the Trust Fund became a “myth” while Treasury Bonds where nothing more than “a pile of IOUs”.

Now, one of the myths about Social Security is there’s a pile of money sitting there accumulating, because you put money in, the government saves it for you, and then when you retire you get it out. That’s not the way the system works. Every dime that goes in from payroll taxes is spent. It’s spent on retirees, and if there’s excess, it’s spent on government programs. The only thing that Social Security has is a pile of IOUs from one part of government to the next. This is a pay-as-you-go system.

The rhetoric still needs some fine-tuning, but is there any question about which direction he’s going with this?