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Government Trust Fund Report
- special articles that explain it all
(updated April. 2011)
by Michael Hodges - email
- a chapter of the Grandfather Economic Reports -


with his precious grandchildrenWhile budget surpluses were claimed in the late 1990s,

  • such claims were bogus because total federal debt rose to new record highs, every year.

  • That means there were deficits each year, not surpluses.

  • In the 2000-2010 government admitted to running deficits - huge deficits - - but grossly understated the size as they did not count that which they siphoned from trust funds.

  • For the past 19 years ALL cash surpluses to trust funds were siphoned-off and spent on non-trust items.

  • And they continued to siphon-off every penny of trust fund surplus as fast as it arrived, including all social security surpluses.

  • And spend it on other stuff, while not even budgeting to pay back the trust funds with real marketable assets.

  • Yet all politicians say > "We want to save social security, etc."

(This page is a part of the full Government Trust Fund and Deficit/surplus Report chapter at - - which covers the subject more comprehensively - including a presidential report satire.)

Question: how can one claim a general government surplus when total federal debt increased to another record high? Answer: by siphoning-off and spending trust fund surpluses which don't belong to the general government, just as if  spent retirement savings account on his own consumption while claiming he, himself, is running a surplus and saving her retirement account.

Question #2: if the social security taxes (FICA) workers have with-held from their pay check is not only for paying social security pensions for the elderly but also includes an amount intended to build a surplus in the trust fund for their own retirement, but its all siphoned-off by the general government which consumes it for non-pension activities, how does this 'save social security first?' Answer: it doesn't.

Question #3: how can the general government claim it wants to pay down its debt owed to others when it has no surpluses of its own for the purpose? Answer: siphoning trust fund surpluses, which don't belong to the general government - - just as if your elderly mother's lawyer siphoned-off her retirement savings account to pay down his own credit card debt to others, while bragging that he is paying down his debt.

Question #4: how long has trust fund looting been going on and is it really legal? Answer: for 15 years, and it is not legal because in 1985 it was agreed to loot only once, as an emergency measure at that time to avoid default on interest payments to government bond holders, instead of raising the debt limit for additional borrowing from the public. But, it was so easy to keep looting that this looting continued on and on, until every penny of prior trust fund surplus was spent. As of today, the trust funds do not hold a single marketable asset, not even a marketable T-Bill - - just unmarketable IOUs, with zero plan to replace those IOUs with hard, marketable assets. - - such as officially registered Treasury Bonds the same as issued to private domestic and foreign lenders.

I am concerned about rising debt being passed to our younger generation (now an all-time record high), and siphoning-off social security trust fund surpluses to spend on non-pension stuff. This is not the way to 'save social security first' or protect our younger generation and retirees, and certainly its not the way to improve citizen Trust in Government or Voter Turn-out which continue to decline to new lows.

The following 7 articles tell the full story of trust fund robbery. After you review each you will know more than 99.99% of citizens >
article 1: What happened Last Year? Answer: another debt record high - including $294 billion extra siphoned from trust funds
article 2: Pay down what debt - with whose money ??
article 3: $228 billion siphoned from trust funds in 1999 - instead of saving social security they spend surpluses on other stuff
article 4: How can they claim a surplus when federal debt increased $130 billion in FY 1999 to a new record high ??
article 5: When was trust fund looting started?
article 6: Trust Fund has NO Assets (finally confirmed by a top official, by Treasury Secretary O'Neill - June 2001
article 7: Trust Fund is just an EMPTY IOU - just a piece of paper - - President George Bush - March 2005
article 8: $100 Trillion un-funded Social Security and Medicare contingent liabilities

Article 1: What happened in Fiscal Years 2000 to 2007?
Answer: total debt reached another record high
- each and every year

The Treasury Dept. posted fiscal year-end data that shows during fiscal year 2006 total federal government debt increased again to a new dollar record high. Here's Treasury's  debt data for year end:

Fiscal Year 2007 - 9/29/2007 - $9,007,653,372,262.48. Debt increase over prior year = $501 billion
Fiscal Year 2006 - 9/29/2006 - $8,506,973,899,215.23. Debt increase over prior year = $574 billion
Fiscal Year 2005 - 9/30/2005 - $7,932,709,661,723.50. Debt increase over prior year = $554 billion
Fiscal Year 2004 - 9/30/2004 - $7,379,052,696,330.32. Debt increase over prior year = $596 billion
Fiscal Year 2003 - 9/30/2003 - $6,783,231,062,743.62. Debt increase over prior year = $555 billion
Fiscal Year 2002 - 9/30/2002 - $6,228,235,965,597.16. Debt increase over prior year = $421 billion
Fiscal Year 2001 - 9/28/2001 - $5,807,463,412,200.06. Debt increase over prior year = $133 billion
Fiscal Year 2000 - 9/29/2000 - $5,674,178,209,886.86

You will note FY 2007 debt, a new record high, increased $501 billion over FY 2006. Of this added debt, $294 billion additionally is owed to trust funds with no pay-back plan (including $175 billion additionally owed the social security trust fund). They continued to siphon-off surpluses incoming to various trust funds, spending all trust surpluses to both support operational deficits of the general government - - none of which has anything to do with the reasons the trust funds were collecting extra taxes from working families and others in order to supposedly create surpluses for the future.

But when they do that they paper-over that siphon by adding more IOUs in the trust funds, causing the debt owed to trust funds to rise faster than they reduce other debt. Bottom-line: total federal debt increased again, and the trust funds have another added pile of IOUs in exchange for their cash surplus, for which there is zero plan to pay-off with cash or marketable securities.

Some politicians are even claiming that if you elect them they will put a 'lock box' on Trust funds, which of course just confirms at the highest levels that trust fund surpluses are not locked up and that the siphoning of their surpluses continues. Even former Vice President Gore said he would lock the box if you vote for him for President, yet one must wonder why he had not done so before considering he was in that office for 8 years and in the Senate 8 years before that - - which raises the question: how much power must one have to lock the box? By this paragraph I am not picking on the Mr. Gore, as he is not alone in this. Bottom-line: there is no cash in the box, so locking it means zilch. And, lying about it shows a complete lack of trust.

To repeat > In addition to increasing total debt, the Federal Government siphoned-off all $294 billion of new surpluses to the various trust funds in Fiscal Year 2010, spending same on non-trust fund activities. Of this $200 billion amount, $100 billion was siphoned from social security trust fund surpluses - - which represented every penny of the new surpluses paid in by workers with their FICA payroll deductions in Fiscal Year 2007, which was in addition to what they paid in to cover pensions for current retirees. So, all the new $175 billion paid-in social security surplus that year is gone. To cover its tracks, the federal government papered over that action by placing IOUs into the social security trust fund - - with zero plan to pay back the cash taken out.

As of the end of Fiscal Year 2010, federal government's IOUs to the Social Security trust fund to date sum to $2.4 Trillion, representing prior paid-in cash surplus which was siphoned-off and spent by the general government for non-pension purposes. Those IOUs are equivalent to $26,328 of added debt for a family of 4. How are those IOUs to be redeemed in hard cash to cover future retirees, other than by a combination of even more taxes and more debt issued in the future than otherwise would be needed, and/or moving out retirement age even further with possible benefit cuts? (see graphic in next article below).

I'm not proud that my children and grandchildren face this.
Do we need reform? You bet.

(Information contained in this web page is not political rhetoric - - it includes only hard data from U.S. Dept. of Treasury publications, such as included at ).

A listing of trust funds and debt owed to each by the general government is in the trust fund report.

Article 2: Pay down what debt - with whose money ??

During the late 1990s we heard much from politicians how they were going to pay down the debt from budget surpluses. But, few could follow the 'smoke and mirrors' involved in such rhetoric - - especially since in those years the general government did not have a surplus to use to pay down its own created debt. One can always ask: "if you claim a surplus how come total federal debt continued to rise every single year of that period'? The following article should help you cut through the glare - -

Pay down what debt with whose money?

The general federal government does not have a single penny of surplus from its own operations to pay down its own debt with its own money. So, it wants to use surplus money that does not belong to the general government - - but politicians don't tell us that.

There are two prime types of debt (totaling about $9 trillion, as of end fiscal year 2007) created by the general federal government for general spending:

  1. Marketable Debt Owed to the public holders of T-Bonds and T-Bills - About $4.4 trillion of fully marketable, Federal Reserve registered debt created by the general government and held by the public in the form of T-Bonds, T-Notes and T-Bills - each of which has a defined pay-off plan in the budget - and interest on same is paid in hard cash to the holder. Creation of this debt is recognized in the so called 'budget surplus/deficit' calculation.
  2. Non-marketable Debt of $4.6 trillion, of which $4trillion is owed to various trust funds (incl. $2 trillion to the social security trust fund). This is non-marketable, non-Federal Reserve registered debt created by the general government and put in the trust funds in the form of internal IOUs with no repayment plan. Such debt was created when the general government siphons-off surpluses from trust funds (such as social security surpluses) and spends it on non-trust fund activities of the general government. Interest' is not paid in cash; they just add a few more non-marketable IOUs. Politicians like this as such spending/debt creation is not included in their 'budget surplus/deficit' calculations.

Surpluses spent from social security trust fundSo far - - the general government has siphoned-off every penny of the $2.4 trillion in cash surplus that workers have paid into the social security trust fund as excess to that needed to cover current retiree pensions. Of that $2.4 Trillion in total social security trust fund surpluses to-date, $1.5 trillion (62% of the total) was siphoned-out of that trust fund in the past 10 years. $100 billion was siphoned out in Fiscal Year 2010 alone. Every penny was spent on non pension related stuff - - like welfare or missiles or foreign aid, and congressional pork barrow stuff to help them get elected. This is not counted when the government says they ran a surplus or deficit. Additionally, the federal government does not even pay hard cash interest on its IOUs to the trust funds, as it likes to just send over a few more IOUs created out of thin air.

If the general government uses some of the future surpluses of trust funds to pay down some of the general government's own debt in category #1, then such proportionately just increases the debt in category #2 - - resulting in zero debt reduction. So, when you hear some say 'let's use surpluses to pay down the debt', you know its smoke and mirrors - - 'robbing peter to pay Paul.' Of course the general government would rather owe internal, non-marketable, non-pay-back IOUs (with interest payable by more IOUs) than to owe public-Federal Reserve-registered marketable T-Bonds which do have a pay-back schedule and for which interest must be paid in hard cash to the holder.

Siphoning-off any trust fund surpluses either for general spending or to pay down debt created by the general government is equivalent to the following:
'the attorney for a woman approaching retirement ages siphons-off surpluses in her retirement account and uses same to pay down his own credit card debt - - and in place of the hard cash removed from her account he puts in a non-marketable IOU, which contains zero pay-back plan and does not pay interest in cash (as required by his credit card firm), but just slips in a few non-cash IOUs - - while telling others that he is a good guy because he is paying off his own debt and at the same time he is saving her retirement account. - but he doesn't think he will have to pay back his client.' Of course it should be just as wrong for a government to self-deal with social security trust funds as it is for a son self-dealing in his mother's retirement account - - especially when the message given is self-serving and one-sided.

The above data graph with more discussion of this subject can be found in another chapter of this series called the Trust Fund Report.


Article 3: there was no surplus in 1999 - $228 billion siphoned from trust funds

Some try to read between lines of those telling us the federal government ran a surplus in 1999 and they want to save social security.

1. the federal govt. ran a $130 billion operational deficit in fiscal year 1999 ending 30 Sept. 1999- - not a surplus. (for the full calendar year ending 12/31/99 total debt increased $162 billion, which means for the full calendar year they ran a $162 billion operational deficit).
2. $228 billion was siphoned from trust fund surpluses that year, an all-time record..
3. there is no surplus to spend, since it has already been spent.
4. AND - - Fiscal Year 2000 Treasury Dept. postings indicate FY2000 shows a total debt increase over FY99 - - to a new, all-time record level of dollar debt as of the end of September 2000. (see article 5 below for the data)

For fiscal year 1999 politicians bragged about a $100 billion plus budget surplus, and many are still fighting over how to spend it. Should they be congratulated? Not so fast - - since, right after they so bragged Treasury Dept. accounts showed total federal debt increased from $5.526 trillion owed end FY98 to $5.656 trillion owed end FY99 - - that's a $130 billion debt increase for 1999. (see ) - and that increase was more than the prior year's when they also claimed a 'surplus.

Some might ask how can officials claim a surplus when total debt increased by $130 billion in order to cover operations. That debt data proves they ran a $130 billion operational deficit.Talk of a surplus is vocal smoke and mirrors.

Since they ran an operating deficit of $130 billion how can they claim a surplus? That is a sneaky claim, since they chose to claim that if there is any surplus in trust funds, such as the social security trust fund for future retirees, its theirs for spending on other stuff - - without telling you or counting that. >>That's equivalent to you spending more than you make but counting your grandma's savings account as your own - so you can say you have a surplus.

If the general federal government had done the correct thing and gone to the open public market to borrow to cover its deficit via issuance of new t-bonds then the politicians could not have claimed a 'surplus'. But, they found another way to paper over their deficit. They took it from trust funds.

Remember when they told us they want to 'save social security' and were determined not to siphon off trust fund surpluses? But they happily found trust funds were taking in $228 billion more this year than the trusts needed to cover current retirees, etc. (Other Treasury Dept. data show the amount the general govt. owes various trust funds for surpluses siphoned-off to-date increased from $1.777 trillion to $2.005 trillion - - which means they siphoned off another $228 billion of trust fund surpluses in 1999 - a new, all-time record).

Of that $228 trillion siphoned from various trust funds in 1999, $178 bill (78%) came out of three trusts (social security - $109 bill, fed employee retirement fund - $34 bill and federal hospital fund - $35 bill). And, what did they put in the trust fund cookie jars to cover that $228 billion siphoned-off? Answer: non-marketable IOUs, which the Federal Reserve doesn't even count as official debt, and also the fed govt. does not book the interest since they don't pay cash interest on IOUs (just use a few more IOUs).

Since the general govt. ran an operating deficit for 1999, the first $130 billion (of the $228 billion) siphoned from trust fund surpluses was consumed to cover that deficit - - a deficit having zero to do with trust funds. (that's equivalent to you siphoning off cash from your grandmother's retirement savings account so you can keep up your own personal life style deficit spending via credit cards - - while you cover your tracks by giving grandma a few IOUs for which you don't give a repayment plan, or even pay interest in cash as you will cover that, too, with a few more IOUs. Its neater to use grandma's money and a few IOUs to cover your spending than use your VISA card since VISA would demand cash, on time).

But they didn't stop there. After taking out $130 billion from trust funds to cover general deficit spending they noticed the trust funds still had $98 billion ($228-130) in new surpluses left. Can't allow that. Did the trust funds use that to invest direct (registered in the name of the trust fund) some marketable assets such as registered T-bonds from the open market which they could cash out when they want and in the meantime collect cash interest? No - - the general govt. took it all and used it to pay down $98 billion of debt it owes to others (T-bonds, etc.). They would rather owe non-marketable IOUs to trust funds (on which they can 'pay' interest with a few more IOUs) than owe hard T-bonds to others, especially since they have to pay cash interest to those registered T-bond holders as well as meet specific repayment schedules..They used trust money to pay down their own debt. The trust funds should do the buying of marketable assets registered to the trust funds with their own surplus money, not let the general government use it for its own purposes.

(this is equivalent to you siphoning off retirement funds from grandma's retirement savings account and using it to pay down your own home mortgage debt - - which is nice because you just give her a few IOUs without payment plan, which is a neater deal for you since your mortgage company would have wanted cash from you for principal and interest on a specified schedule. If you were grandma would you prefer to own in your retirement account the marketable mortgage registered to herself with cash income, or should she be happier with non-marketable IOUs and no plan?).

Wonder what would happen if a company spent all its employee pension money on its own operations and/or paying down its own debt - - all having zero to do with pensions. And what about grandma, who doesn't know what's happening to her trust fund?

And - - all this goes on during so-called boom times with more people paying more taxes than ever before. I suppose its still not enough. But since the federal govt. continues to run operational deficits during boom times, while looting trust funds faster and faster than during slower years, maybe the boom needs to be a lot, lot bigger - - or something.

For more on this subject see the Trust and Deficit Report at . Thanks for reading.

Michael Hodges
The Grandfather Economic Report
Graphic presentation reviewing economic issues facing today's generation compared to prior periods, on: Family Income, debt, savings; government spending and size, education quality, social security, regulations, taxes, inflation, foreign trade and exchange, voter turnout, trust, celebration, and health care/life expectancy.


Article #4: How could they claim a surplus when debt increased another $130 billion in 1999??

Can you believe this?

During the first week of October 1999 major media reported the President at a chart bragging about a $115 billion surplus for the fiscal year (FY99) just ending. Yet on the same day the Treasury Dept. of Debt's web site reported at the end of fiscal year 1999 (as of 30 Sept. 1999) total federal debt was $5.656.3 trillion, compared to $5.526.2 trillion exactly one year ago - - that's a $130.1 billion debt increase in 12 months. (that's the fiscal year result - - the full calendar year result was a $162 billion debt increase).

Question: how can the general federal government claim a $115 billion surplus when their total debt increased another $130 billion in the same period??

Answer: Some might call it camouflage - - since the general government actually ran a $130 billion deficit last year in its own operations, not a surplus - - as evidenced by total debt increase - - to a new all-time record high.

The difference between claimed surplus of $115 billion and the actual deficit (debt increase) of $130 billion is $245 billion - - which means the general government siphoned-off $245 billion of surpluses from various trust funds (most from the Social Security Trust fund, the Federal Employee Pension Trust, etc.) and spent those trust fund surpluses as if it was money belonging to the general government - - spending it all on non-trust related stuff.
In other words, they siphon trust funds to camouflage operational deficits and tell us they ran a surplus as if they had reduced general spending. What the trusts have to show for their hard cash surpluses that were siphoned-off are a few more non-marketable, non-registered IOUs carrying no fixed pay-back plan.

Additionally - - the $130 billion of added new debt during the past 12 months (FY99) was even higher than the $113 billion new debt
increase reported by Treasury for the prior fiscal year (FY98), when they also bragged about a surplus.

This sounds the same as if a son, while siphoning off his mother's savings which she had labored to put aside in her own retirement account, spent her surplus on his own consumption while claiming he is siphoning her money to save her retirement account and also bragging he had a surplus of his own. That son also likes to brag he may use some of her retirement funds to pay-down debt he owes to others, such as his credit cards. Whose surplus savings was it - - his or his mothers? What should be done about that son?

It doesn't matter whether the general government siphons trust fund surpluses and consumes it on non-pension things (such as for foreign aid, welfare, bombing Serbia or loaning to Russia - - or its used to pay down some of the debt the general government owes to others in the public for past non-pension spending it has done from trust fund surpluses siphoned-off - - as those trust funds do not belong to the general government. If they want to spend and/or pay down their debt then they should do it with general government funds - - not funds siphoned from trust funds intended for other uses like pensions.

Just as it doesn't matter what a son wants to do with his mother's retirement account, its not his, and he should keep his hands off, and come up with his own money for spending and paying off his debt to others, such as the credit card companies he owes. So, if one hears talk of using surpluses to cover general programs, or using them to 'pay-down' general government debt - - now you know 'the rest of the story' - - as some tell others whatever to camouflage intent to siphon trust funds for non-trust fund business. The government should be required to treat trust funds just as a son should be required to treat his mother's retirement account and a business firm should treat its employee pension accounts - - keep their hands off!!

Note - I call this 'siphoning' the trusts, while others call it 'raiding' the trusts. Take your pick.

Question #2 - - how does spending social security surpluses on non-pension things 'save social security first?' And, how does a son spending his mother's retirement savings for his own use save her retirement account? What would happen to officers of a company if they siphoned-off funds in an employee's pension trust account and spent it on their own things including some to reduce the firm's own debt to others? Answer: that's against the law in every state.

Its good the two major political parties and the President are still wrestling over next year's budget and extending its deadline. They have some real work to do - - without camouflage. Not only should they not exceed their bipartisan budget spending cap agreement of 1997, but also should further reduce general spending so they can stop siphoning-off trust fund money for their own operations while creating more IOUs - - and start paying back that siphoned-off to date on a specific schedule - - just as that son must come clean with his mother. If they can't keep their hands out of the social security and other trust fund 'cookie jars' while writing up new IOUs like pop corn to later face our younger generation, then perhaps FICA and other tax rates feeding those trusts should be reduced accordingly to give some relief to those doing the paying by letting them keep the surpluses in their own pockets plus less future debt off the backs of their children.

I don't think many parents and grandparents want today's youngsters saddled with more IOUs and camouflage.

- - for those interested in learning how trust funds are siphoned and spent , and how general government operational deficits are called surpluses, see the full
Trust Fund and Deficit Report at

- - for those interested in graphic pictures of federal debt, see the Federal Government Debt Report at

Thanks for reading.

Michael Hodges
The Grandfather Economic Report at
Graphic presentation reviewing economic issues facing today's generation compared to prior periods,
on: Family Income, debt, savings; government spending and size, education quality, social security, regulations, taxes, inflation, foreign trade and exchange, voter turnout, trust, celebration, and health care/life expectancy.


Article 5: When was trust fund looting started?

To answer this question, Tom Smith (, on September 22, 2000, researched government archives, and presents the following findings -

Dear Mike,
Got your message and it took me a while to dig up the records. In my opinion the first real step in looting the Social Security Trust Fund was in 1985, when President Reagan was in a battle with Congress over raising the National Debt limit. The increase was badly needed to avoid going into default on Treasury Securities interest payments. So Treasury Secretary announced that he would sell Treasury Securities in the Social Security trust Fund to raise the cash until Congress raised the debt limit.

Congress called a Hearing on the subject. on 30 Sept 1985, "Hearing on Disinvestment of the Social Security Trust Fund to Finance the Public Debt." OK, so that meant (at that time) there were actual saleable securities being held in the trust fund or he could not have sold them. You can't sell an unmarketable IOU (which is all the trusts now hold). Congress was upset at the idea of selling securities which belonged to a trust fund. That would be illegal. So they held the meeting (declared a temporary emergency, and away they went). I got a copy by going to the archives at a local University Library. The 49 pages were in very fine print, and were on microfiche. The minutes show how shocked Congressmen were at the thought of doing something like this. Treas. Sec Baker's representative said that he was just using good management judgment and protecting the honor of the United States in paying the current debts of the country. This was the most expedient way to do it (unless they raised the debt limit for more outside borrowing, which politically they were afraid to do with Reagan as President). After hours of pros and cons, they all finally agreed that this was a temporary measure in an unusual case, and that when the emergency was over, the Treasury Securities would be replaced by buying them back. So they approved what Baker wanted to do.

I guess they saw a good thing, the emergency was never declared over, even when the debt level was raised, so they looted all of the trust funds, all 150 of them. And that is the way it has been ever since.

In some prior years, they had borrowed a little here and a little there. Changed laws to cover the allotment of FICA funds between SS /Medicare/ and Disability Ins. But that was generally all done in a legal manner. This activity since 1985 is a FRAUD pure and simple. Hope this is clear enough.

Editor's note: More on the Reagan Era can be found in the Reagan Era Report - - which shows President Reagan was trying to rein in run-away federal government spending but Congress would not cooperate. The president decided that if Congress would not cut spending then the only way he knew to force that would be to reduce their revenue. He proposed implementing a popular tax cut. But, Congress wanted to appear popular by continuing spending AND not fighting the popular tax cut - which, of course, would have created a budget deficit when in turn required raising the debt limit for more borrowing to do so. Congress was afraid of the political heat of raising the debt limit. So, Congress agreed to loot trust fund surpluses and issuing non-marketable IOUs, instead of borrowing on the open market by issuing official registered t-bills and t-notes, as a way to 'have your cake and eat it too.' Congress decided to continue deficit spending, regardless of the source of funds- - even if that meant looting trust funds of their marketable assets. Of course, as the article above reports, Congress called that just a temporary emergency action in 1985, implying this was a one-time-only action and they would soon replace all which they looted with fully marketable assets and not loot the trust fund in the future. But, as history has shown time and again, once politician discover the 'fun' of looting trust funds the 'temporary emergency' continued forever, and to this day not a single marketable security is in any trust fund to secure past paid-in surpluses received from the public for surplus purposes - and, not even a penny of cash interest payments has been paid to trust funds - - unlike that required on official government bonds sold to the public and foreign interests.

Article 6: Trust Fund has NO Assets
(June 2001, Treasury Secretary O'Neill)

NOTE: For many years The Grandfather Economic Report series has reported the siphoning-off of trust fund surpluses as fast as they arrive to finance non-trust fund activity of the general government, calling for such to stop and for all prior siphoned funds to be paid back in marketable assets. Finally, on 10 July 2001, the new top financial officer of the Treasury Dept., Secretary Paul O'Neill, confirmed the accuracy of these claims - - following is the AP report -

"Treasury Secretary: Social Security Has 'no Assets' By Jeannine Aversa Associated Press Writer Published: Jul 10, 2001
WASHINGTON (AP) - Treasury Secretary Paul O'Neill, responding to Democratic critics in Congress, said anew Tuesday the Social Security retirement program has no real assets and must be strengthened.

O'Neill's comments were similar to remarks he made in a June 19 speech to Wall Street and corporate executives in New York that promoted President Bush's plan to add private investment accounts to > Social Security. In that speech, O'Neill said "we have no assets" presently in the > Social Security trust fund.

Those remarks prompted a stinging response from Rep. Charles Rangel of New York, senior Democrat on the tax-writing House Ways and Means Committee, and Robert Matsui of California, the top Democrat on the committee's Social Security subcommittee. They asserted the trust fund has billions of assets invested in the form of Treasury bonds. In letters to the lawmakers Tuesday, O'Neill acknowledged that > Treasury securities are issued to the trust fund.

However, "because the Social Security trust fund does not consist of real economic assets, we are left to rely on the federal government's future decisions to either raise taxes, reduce spending > or increase borrowing from the public to finance fully Social Security's promised benefits," O'Neill said.

O'Neill's stark description of a Social Security trust that has no "real economic assets," gets to the heart of the politically charged debate over how to fix Social Security. Currently, Social Security payroll taxes far exceed what the program needs to pay benefits to current retirees. The excess money is being > used to reduce the publicly held national debt, while also being credited as an asset held by the Social Security trust fund.

These trust fund assets are invested in a non-marketable Treasury securities with the government bonds credited with interest earnings as well. O'Neill and other critics of the current system say this entire process is a bookkeeping fiction because the assets do not exist in any form the government can use to pay benefits. Once the number of retirees exceeds Social Security's ability to pay benefits out of payroll taxes, which is expected to occur in 15 years, the government must decide whether to make up the shortfall by getting money from general revenue sources or income tax receipts now going to fund other government programs. It also could borrow money by issuing marketable Treasury securities in which investors give the government money in return for government bonds.

While supporters of the Social Security system agree the government will be faced with coming up with actual money to redeem the non-marketable securities, they argue that those securities represent real obligations of the federal government and a failure to redeem the bonds would constitute a default by the government on its obligations. The administration is pushing a program to partially privatize the Social Security system by allowing workers to keep part of their Social Security payroll tax deduction and investing it in personal accounts. In that way, supporters of this approach say, the non-marketable securities now in the Social Security trust fund would be converted into real assets. However, since the system is a pay-as-you-go system, the diversion of Social Security taxes into personal accounts would force the government to come up with other ways to pay current retirees. O'Neill, in Tuesday's letters, suggested that he, Rangel and Matsui get together to discuss various issues related to the retirement program."

While we are at it, here's another confirming statement by Economics Professor W. Williams >
"The Enron case made headlines because fraud and deception of such magnitude is fairly unusual in the corporate world. Washington fraud and deception of a much greater magnitude doesn't make the headlines because fraud and deception in government is standard practice....Washington politicians have for decades been doing precisely what Enron has been accused of doing -- concealing debt with accounting tricks. Congressmen tell us that our Social Security taxes go into a trust fund to pay for future retirement pensions. That is a boldface lie. The Social Security trust fund has no money in it." Walter Williams, Professor of Economics, George Mason University in an article published by the Washington Times April 17, 2002.

NOTE on above by Michael Hodges, author Grandfather Economic Report series:
The Treasury secretary's statement confirms the accuracy of the other articles on this page, and his statement is correct - - there are no marketable assets in the SS trust fund (nor in the other trust funds), since the trust funds have been siphoned of every penny of cash surpluses and trust funds only contain non-marketable, non-Federal Reserve-registered IOUs for which the general budget contains NO plan to pay off these IOUs in cash and no entry to pay cash interest. The claim by above congressmen that the non-marketable IOUs in the trust funds are obligations of the general government is in error, and they should know it - - since they know the Federal Reserve does not include said IOUs in their definitive recording of official federal government debt obligations, and since they know the general government has not included the means of paying off those IOUs in cash (and paying interest in cash) in any budget they voted for. Why have those congressmen not insisted the trust fund not be allowed to hold non-marketable IOUs and instead only hold official Federal Reserve-registered and marketable T-Bonds of the same definition as sold to the public, and why have those congressmen also not insisted that the general budget include specific and scheduled payments from general tax revenue to pay off those bonds and interest in cash? The reason not to is clear - - as to do so would reveal their shell game of keeping federal spending and political power higher than it should be and also reveal to workers that part of their FICA withholding tax they thought was being saved to support their retirement is consumed as fast as it arrives on other stuff instead of saved as hard, marketable assets for the future. The treasury secretary's honest statements are most welcome - - and now the political finger-pointing will move out. The public must demand that every non-marketable IOU in every trust fund be replaced with fully marketable, Federal Reserve-registered T-Bonds, and the cash pay back (and their interest) is included in every budget - - NOW, or with-holding taxes of workers should be reduced to allow them to keep new surpluses for themselves.

Other testimonials confirming the above can be found at >

Article 7: The Trust Fund is just an EMPTY IOU - just a piece of paper
(March 21, 2005, President George Bush - in Denver, Colorado)

The White House posted on its Website a speech that the president made in Denver on March 21, 2005 in regard to Social Security, and more specifically the trust fund.  The following is a paragraph from the speech >

“Now, you probably think -- some of you may think there's what they call a Social Security trust: the government collects the money for you, we hold it for you, and when you retire, we pay it to you. But that's not how it works. You pay your payroll tax; we pay for the people who have retired, and if there's any money left over, we spend it on government. That's how it works. And what's left is an empty IOU, a piece of paper. Because it's a pay-as-you-go system, when more retirees start retiring, who are living longer, getting paid more, more money starts going out than coming in.”

Author's Note > Interesting that this admission by the President comes nearly 4 years after Treasury Secretary Paul O'neill said the same thing (see article 6 above), that the trust fund has zero assets - - nothing marketable. Interesting that soon after this statement Mr. O'Neill 'resigned.'

Article 8: $100 Trillion un-funded Social Security & Medicare liabilities

$44 Trillion shortfall > In a Fortune March 2004 article titled “The $44 Trillion Abyss”, Boston University Professor Larry Kotlikoff refers to America’s massive under-funded entitlement liabilities as ”the great Treasury cover-up.” According to the professor, the government doesn't’t really know what it owes, which makes the situation even more frightening. What’s more our politicians refuse to level with voters and tell them the truth. How do you level with a voter and tell him all of the surpluses have been spent as politicians from both parties have persistently raided the trust fund and spent all of the surpluses? Here's a break-down of that $44 trillion > $7 Trillion under-funded social security and $37 Trillion under-funded Medicare based on a Treasury Dept. study (Summer 2003 by Kent Smetters, U.S. Treasury Deputy Secretary of Economic Policy, and Jagadeesh Gokhale, senior economist at the Federal Reserve Bank of Cleveland) and  based, based on current revenue and spending. In their study they asked would the present value of future revenues cover the present value of  future expenditures? Their answer: a shortfall of $44 trillion. They then asked how much taxes would have to be raised, or expenditures cut on an immediate and permanent basis to generate, in present value, the shortfall? Answer: either, starting today, raise income taxes 69%, raise payroll taxes (FICA) 95%, or cut social security and Medicare benefits by 56%, or cut federal government discretionary spending 100%. And, far from being worse-case scenario the study was based on what are arguably optimistic official assumptions about future growth in Medicare spending and longevity. (reported 15 March 2004 in

BUT - that data is from 2004. UPDATE > As of Jan 2008 the present value of un-funded Social Security and Medicare spending has risen to $99.2 Trillion (see debt summary report).


Question #1: when someone says we are going to use surpluses to pay down debt - - then, you should say whose surplus funds are you using - - your own (of which you have zero), or trust fund surpluses funds that are not yours?
Answer: trust funds.

Question #2: And then ask, where is the budgeted plan to repay the trust funds for $2 trillion siphoned-off to date to help save social security, etc.?
Answer: there is none, and they have no intention of paying if off since they don't even budget the repayment of one penny.

Question #3: Lastly ask, what is the true surplus of the general government if you don't count trust funds as if they belonged to the general government?
Answer: the general government has no surplus - - its still running a big deficit.

The federal government should treat trust funds the same as a son should treat his mother's retirement account - - keep their hands out of cookie jars that do not belong to them. The general government should cut spending to generate its own surplus, and then start paying back the trust funds for all that cash it has siphoned off. That's my view. What's yours?

I don't think many parents and grandparents want today's youngsters saddled with more worthless IOUs and camouflage.

- - for those interested in learning how trust funds are siphoned and spent , and how general government operational deficits are called surpluses, see the full Trust Fund and Deficit Report at

- - for those interested in graphic pictures of federal debt, see the Federal Government Debt Report at
- - also see the Social Security Report (with data trend graphics and recommendations regarding the trust fund).

Thanks for reading.

Michael Hodges' email

go to the home page of The Grandfather Economic Report at
Graphic presentation reviewing economic issues facing today's generation compared to prior periods,
on: Family Income, debt, savings; government spending and size, education quality, social security, regulations, taxes, inflation, foreign trade and exchange, voter turnout, trust, celebration, and health care/life expectancy


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Copyright 1997-2011 Michael W. Hodges. The Grandfather Economic Report series is the intellectual property of its author; all rights reserved under Copyright Conventions. Permission to redistribute all or part of this series for non commercial purposes is granted by the author, provided the associated web page address is included and full credit given to the Grandfather Economic Report and the author, Michael Hodges. Notice appreciated via email.