Sunday, March 14, 2010

Social Security to Start Redeeming Trust Fund Bonds

The Associated Press
reports that Social Security is like to run a cash deficit this year – meaning it will collect less in taxes than it pays in benefits, administrative costs and other expenses – and will need to redeem some of the approximately $2.5 trillion in special-issue government bonds held in the Social Security trust fund. Repaying these bonds will require the federal government to produce extra cash, implying higher taxes, lower spending or – most likely by far – increased budget deficits.

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.

A good article with reaction from both sides. Worth taking a look.

One line I particularly liked, from the National Committee to Preserve Social Security and Medicare's Barbara Kennelly: "Those bonds are protected by the full faith and credit of the United States of America," Kennelly said. "They're as solid as what we owe China and Japan." I guess, but that doesn't exactly carry as much weight as it used to.

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