Pension Fund Cashes in Treasury Bonds: AP Screams "Crisis"

Okay, it's not exactly a pension fund, it's the Social Security trust fund that is cashing in some of the government bonds that it holds to pay benefits. This is the way the trust fund was designed to work, but AP somehow cannot find a reporter (or editor) who understands even the most basic facts about Social Security or for that matter Treasury bonds, which get called "IOUs" in the headline and four times in the article. (When GE has its next bond issue, will AP report on the auction of "GE IOUs?")

The whole purpose of building up the trust fund was to help defray the cost of the retirement of the baby boom cohort. This meant that at some point it would be necessary to sell some of the bonds to pay benefits. This has happened somewhat sooner than had previously been predicted due to the economic crisis created by inept policy and Wall Street corruption. It is not clear why anyone should see this as a crisis for Social Security.

The article also includes this non-sequitur:

"Now the government will have to borrow even more money, much of it abroad, to start paying back the IOUs, and the timing couldn't be worse. The government is projected to post a record $1.5 trillion budget deficit this year, followed by trillion dollar deficits for years to come."

Actually, the timing couldn't possibly be better. The government is running a large budget deficit because the economy is in a steep downturn. It is very good that Social Security is continuing to pay benefits without any tax increase. This boosts demand and stimulates the economy. AP reporters should know this.

The article also includes the bizarre assertion that:

"Social Security's financial problems have been looming for years as the nation's 78 million baby boomers approached retirement age. The oldest are already there. As that huge group of people starts collecting benefits — and stops paying payroll taxes — Social Security's trust funds will shrink, running out of money by 2037, according to the latest projection from the trustees who oversee the program."

The fact that the program could face a shortfall in 27 years hardly fits most people's definition of crisis. Social Security also faced a shortfall in 1982. By the AP definition of crisis, it was in crisis at least from 1955. (Actually, it faced shortfalls in earlier years also, so by the AP definition, Social Security has always been in crisis -- giving the term a whole new meaning.)

What a careful reader can glean from this story is that AP doesn't like Social Security. The reality is that Social Security will likely face a modest shortfall in future decades, primarily due to the fact our children are projected to live longer lives than we do. This has been happening throughout the program's existence. There is no reason to believe that AP's Social Security "crisis" will be any more difficult to deal with than shortfalls that arose in prior decades.

--Dean Baker

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