Ed Morrissey writes, “For the first time, the Social Security Administration will start cashing in its IOUs from the Treasury in order to meet its benefits obligations”:
We’ve noticed the cash shortfalls at Social Security for more than a year, and now they appear to be permanent. For the first time, the Social Security Administration will start cashing in its IOUs from the Treasury in order to meet its benefits obligations. Unfortunately, the Treasury doesn’t have the cash, either:
The retirement nest egg of an entire generation is stashed away in this small town along the Ohio River: $2.5 trillion in IOUs from the federal government, payable to the Social Security Administration.
It’s time to start cashing them in. … Too bad the federal government already spent that money over the years on other programs, preferring to borrow from Social Security rather than foreign creditors. In return, the Treasury Department issued a stack of IOUs — in the form of Treasury bonds — which are kept in a nondescript office building just down the street from Parkersburg’s municipal offices.
Now the government will have to borrow even more money, much of it abroad, to start paying back the IOUs, and the timing couldn’t be worse. The government is projected to post a record $1.5 trillion budget deficit this year, followed by trillion dollar deficits for years to come.
Social Security’s shortfall will not affect current benefits. As long as the IOUs last, benefits will keep flowing. But experts say it is a warning sign that the program’s finances are deteriorating. Social Security is projected to drain its trust funds by 2037 unless Congress acts, and there’s concern that the looming crisis will lead to reduced benefits.
The IOUs won’t last. Technically, they’re worthless now. The Treasury doesn’t have the cash to reimburse Social Security, and we’ll have to sell more debt on the lending markets in order to finance the benefits in the short run.
And as Ed adds, the Moody’s bond rating service is considering lowing America’s debt rating, which will jack up interest rates and make borrowing more expensive.
Gosh, if only someone had proposed fixing Social Security four or five years ago: