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|User Info||Did Treasury Just Strategically (Intentionally) Default?; entered at 2011-07-01 20:19:06|
Registered: 2009-03-08 Greenville, SC.
That's the normal ebb and flow of the trust funds. Here's how it works basicall. Every day, billions of dollars flow from taxes, mostly witheld taxes. That lump goes into the general fund at Treasury's account at the Fed. But some of those taxes are income taxes, and others are the payroll taxes, earmarked for SS and Medicare. The money is just spent as needed.
But on the accounting side, they split it up. The payroll tax money will be credited to SS and Medicare in the form of the GAS bonds, the IOUs. Now, when SS and Medicare have to make payments (the former in a big wad at the first of the month, then a trickle later, and Medicare making whopping payments every day), that is deducted from the IOUs. So, taxes in = IOUs issued, and payments out = IOUs redeemed.
So if more payroll taxes come in on a given day than payments go out, the trust funds will increase, and if more payments go out that taxes come in, the trust funds go down.
That difference is actually net, really. In some complicated mess I've never figured out, they are constantly "rolling" some of the IOUs, so on the DTS on a typical day you'll see around $200B rolled (sometimes a lot less, sometimes a lot more). But the net is the difference between taxes in and payments out.
But then, every 6 months on June 30th and Dec 31th, they make a big coupon payment on those IOUs, and that causes a big jump higher.
The thing to appreciate is the only source of funding, the real money that must be paid out for SS and Medicare comes from taxes in and real money borrowed from the bond market. That is the only source of funding. The trust funds are just an accounting fiction. They are not real assets in a sense of the word as they cannot be sold, and can only be "redeemed" by Treasury.
As it is now, SS is running around $40B cash deficits. That is, in a given year the payments out exceed the payroll taxes in by $40B. Previously it was running a cash surplus of around $80B or so. This represents a shift of around $120B to the red. However, because of the coupon payments, the trust fund still increases on paper, even though its running in the red on a cash basis.
Medicare has been in the red since 2006 or 2007 or so.
SS wasn't projected to go in the red until around 2109 or so, but now, thanks to the crash, it's going to stay in the red unless they get the balls to fix it. Which they won't until they're forced to, and forced hard.