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by Don Azarias
October 22, 2010
As a prelude to my column, I just found out that there are some people who are not aware that the federal government is using Social Security funds, not currently being used to pay recipients’ benefits, to finance other government spending.
Unlike a typical private pension plan, the Social Security Trust Fund does not hold any marketable assets (very liquid securities that can be converted into cash quickly) to secure workers’ paid-in contributions. Instead, it holds non-negotiable United States Treasury Bonds and U.S. securities backed “by the full faith and credit of the government”. But will this generic guarantee by the United States be enough to ease the concern of the 58.7 million Social Security recipients of a possible government loan default? It’s really quite scary and difficult to answer, to be honest.
The Trust Fund can not resell these government bonds on the secondary bond market, although the interest rate is determined based on market interest rates. Instead, these government bonds can be sold back to the government at face value, which is an advantage when interest rates are rising. Sound one-sided? You bet it is, in favor of the U.S. government.
In short, the government owes the money which is collateralized by non-negotiable U.S. Treasury Securities with different maturity dates as required by law. The government will have to repay the “loan” when the securities come due.
It’s now crystal clear to everyone of us that the U.S. government does not only owe China, Japan and other wealthy countries in the world, trillions of dollars to finance its operations. It also owes us, American taxpayers and Social Security contributors, billions of dollars in “loans”. What gives? Is the retirees’ Social Security Trust Fund that doubles as one of Uncle Sam’s financial arms, safe from risks?
Well, a few years back, I would have confidently said, “Yes!” Just the goodwill alone of the United States as the richest and most powerful country in the world would be more than enough to calm anyone’s or any country’s fear of a default. Those were the good old days when the United States was still a “creditor nation” and not a “debtor nation” as it is now. And, if I were to be asked that question now, my answer would be a resounding, “No!”
American voters have every reason to be angry at the president and those congressional lawmakers this election year. The government just announced that more than 58 million Social Security recipients will go through another year without an increase in their monthly benefits. It is the so-called “cost-of-living adjustments” or COLA . For the readers’ information, it would mark only the second year without an increase since automatic adjustments for inflation were adopted in 1975. The first year was this year.
But before we start to raise hell and shorten the political life span of those political leaders in Washington, D.C., we first have to understand the underlying mechanics of this issue. That would also ensure fairness to President Barack Obama and those congressional Democrats. It’s really not their fault and to put the blame solely on them would be a travesty.
The cost-of-living adjustments (COLA) are automatically set by a measure adopted by Congress in the 1970s that orders raises based on the Consumer Price Index (CPI), which measures inflation. If inflation is negative, as in 2009 and 2010, payments remain unchanged. Based on inflation so far this year, the trustees who oversee Social Security concluded that there will be no COLA for 2011. The conclusion was reached and made officially on Friday, October 15, when the Bureau of Labor Statistics released inflation estimates for September. A week earlier, the same bureau delivered another painful blow to Democrats: “The U.S. lost 95,000 jobs in September while the unemployment rate remained stubbornly stuck at 9.6 percent.” The timing, however, couldn’t be worse for Democrats as they approach an election in which they are in danger of losing their House majority and, possibly, their Senate majority as well.
Most seniors interviewed said they’ll be thinking about the issue when they go to vote, and experts said the news comes at a bad time for Democrats already facing potentially big losses in November. Seniors are the most loyal of voters, and their support is especially important during midterm elections, when turnout is generally lower.
More than 58.7 million people rely on Social Security checks that average $1,072 monthly. It was the primary source of income for 64 percent of retirees who got benefits in 2008; one-third relied on Social Security for at least 90 percent of their income.
Advocates for seniors argue the Consumer Price Index doesn’t adequately weigh the costs that most affect older adults, particularly medical care and housing. “The existing COLA formula does not account for the economic reality of the true costs that most seniors faced,” said Fernando Torres-Gil, director of UCLA’s Center for Policy Research on Aging and the first person appointed to the governmental post of assistant secretary for aging, during the Clinton administration. Still, Torres-Gil said the political reality is different, and many feel seniors are lucky to have their checks determined by the CPI, instead of some new formula that might make it even harder to secure a raise. “We may just be lucky to keep the current index,” he said.
As a taxpayer and a retiree that depends on his monthly Social Security check, I beg to differ. I feel that the United States government can still do better than what it is doing now to protect those seniors and retirees who are too weak to fight back at the White House and Capitol Hill.
Of course, we all know that, as far as politicians in Washington, D.C. are concerned, senior citizens and retirees and even war veterans always have the lowest priority. And like all seniors, I’m deeply saddened by it.