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posted on 16 July 2017

A Guide To Completely Misunderstanding Social Security

by Rodger Malcolm Mitchell,

In the unlikely event you hope to be clueless about Social Security, boy, have I got an article for you.


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Here are some excerpts:

Social Security on track for ‘large, abrupt’ cuts in 17 years unless Congress acts

Ethan Wolff-Mann, Yahoo Finance, July 14, 2017 (Ethan Wolff-Mann is a writer at Yahoo Finance focusing on consumer issues, tech, and personal finance. Follow him on Twitter @ewolffmann. )

The Social Security and Medicare trustees issued their 2017 annual report on Thursday, and it began with an alarm bell.

“Both Social Security and Medicare face long-term financing shortfalls under currently scheduled benefits and financing," the trustees wrote in the summary of the 268-page document. “The Trustees recommend that lawmakers take action sooner rather than later to address these shortfalls."

O.K., that part is true. Under currently scheduled benefits and financing, there won’t be enough money.

Insolvency is on track for 2028 for the disability fund and 2034 for seniors. Insolvent, however, does not mean empty; it means that the funds would not be able to completely fulfill its debts to the public.

You may think of these “funds" as being like money pots, into which your FICA dollars are placed, and Social Security dollars are removed. And when the pots run out of dollars, that is called “insolvency."


The so-called “funds" are nothing more than bookkeeping accounts over which our Monetarily Sovereign federal government has absolute, 100% control.

The federal government owns the “books" and has the unlimited power to enter any numbers it chooses into those accounts.

If a “fund" shows $1 million, and the government wishes to spend $2 million, the federal government simply can change the “1" to a “2." Or a “10." That is what the word “Sovereign" in Monetarily Sovereign means.

If you wonder how it is possible for the federal government arbitrarily to change the dollar value in the “fund," remember that the government has made many such arbitrary changes with our money.

The U.S. government invented the dollar - created it out of thin air - and arbitrarily gave it a value. The Coinage Act of 1792 mandated that a “dollar" be between 371 and 416 grains of silver.

The government could have mandated any value for the dollar. It arbitrarily chose 371-416 grains of silver. It could have chosen three French hens, two turtle doves, or a partridge in a pear tree.

The federal government had, and still retains, absolute power over the dollar, the value of the dollar and the bookkeeping for the dollar.

Since our beginnings, the federal government has exercised absolute power over the value of the dollar, repeatedly, arbitrarily valuing, revaluing and devaluing the dollar relative to gold and to silver.

The most recent value was $35 per ounce of gold until in 1971, President Nixon arbitrarily said the dollar’s value would not be measured against gold.

We describe a corollary to this process here, where we use the game of Monopoly as an example.

A root cause for the financial woes for Medicare and Social Security is the aging baby boomer population, and the trustees estimate the cost jumps will be higher than any GDP growth that could potentially offset things.

Meanwhile, lawmakers have not made progress addressing the difference between these two numbers by raising more money, raising the retirement age or dialing back payments.

The phrase “raising more money" is misleading. The federal government never needs to “raise" money. It creates dollars, ad hoc, every time it pays a bill.

To pay a creditor, the federal government sends instructions (not dollars) to the creditor’s bank, instructing the bank to increase the balance in the creditor’s checking account. These instructions can be in the form of a check or a wire.

The instant the bank obeys those instructions, new dollars are created and added to the money supply.

Thus, to pay all your Social Security benefits, the federal government sends instructions to your bank, telling your bank to increase the balance in your checking account. Because our Monetarily Sovereign government never can run short of instructions, it cannot run short of dollars.

“The gap is getting bigger, and politicians have their heads in the sand," said Marc Goldwein of the Committee for a Responsible Federal Budget.

The CRFB is owned, operated, and financed by the rich, whose goal is to widen the Gap between the rich and the rest. For many years, they continually have tried to cut federal spending on all social benefits.

They promulgate the “Big Lie" that federal taxes fund federal spending. The truth is, the federal government (unlike state and local governments) neither needs nor uses tax dollars. It created brand new dollars, every time it pays a bill.

Politically, the available options are incredibly explosive. Raising taxes is unpopular, and restricting payments to seniors is also unpopular. This leaves both Democrats and Republicans at an impasse.

It is a self-created “impasse," since the federal government has the unlimited power to send instructions to banks, i.e. to create dollars. The government never can run short of instructions or dollars.

Lawmakers have proposed changing how benefits are calculated, raising the payroll tax slightly, or subjecting all wages to payroll taxes (right now, wages up to $127,200 get taxed for Social Security).

For example, raising the payroll tax 0.7% and subjecting all wages to payroll tax would keep the program solvent for another 75 years. However, it would still be on a road to running out.

On the benefit-cutting side, slowing benefit growth for the top 70% of earners, increasing the retirement age, and modifying cost-of-living adjustments would close the funding gap, but also not permanently.

All of these so-called “options" are utter nonsense, based on the ridiculous premise that the federal government can run short of its own sovereign currency.

State and local governments can run short of dollars; businesses can run short of dollars; you and I can run short of dollars.

But the U.S. federal government never has, and never will run short of the currency it originally created from thin air, and still creates simply by sending instructions to banks.

The so-called Social Security “trust fund" is a bookkeeping account, that the federal government can change at will. So, why doesn’t it?

Why doesn’t the federal government simply admit the fact that it can pay any bill of any size at any time? Why doesn’t the federal government admit that neither it, nor any of its agencies, can be “insolvent," unless that is what it wants to happen?

Why doesn’t the federal government provide Social Security to every man, woman, and child in America?

Two reasons:

  1. Some fear that if the public understood the truth, people would make endless demands on the government. The myth of money scarcity provides a rationale for limiting federal benefit payments.
  2. The rich want to widen the Gap between them and the rest. It is the Gap that makes them rich (Without the Gap we all would be the same), and the wider the Gap the richer they are. The rich bribe the politicians with campaign contributions; they bribe the media with advertising dollars and ownership; and they bribe the economists with university contributions and with “think tank" salaries.

In summary, our Monetarily Sovereign federal government has absolute and arbitrary control over the supply of dollars and the value of those dollars (inflation). Even if all federal taxes were $0, the federal government could continue spending forever.

FICA could be eliminated and Social Security benefits could be doubled. The government has that power.

Thus, there is no danger to Social Security other than the false “insolvency" danger arbitrarily and unnecessarily placed on it by the federal government.

All those who do not understand Monetary Sovereignty do not understand Social Security financing.

But now, you no longer misunderstand Social Security.

Pass it on.

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