Allan Greenspan, former chairman of the Federal Reserve, said a Social Security Trust Fund does not exist and that the U.S. is “way underestimating” the size of its national debt.
“The notion that we have a trust fund is nonsense – that trust fund has no meaning whatsoever except for the fact as an all private fund to benefit programs, if it runs out of money, you can only pay out in cash flows that come in but the probability that will happen is not particularly high,” Greenspan recently told the Fiscal Summit held by the Peter G. Peterson Foundation, PJ Media reported.
“That means the trust fund is a meaningless instrument that has no function … it’s exactly the same thing as current expenses,” he said.
The United States Social Security Administration collects payroll taxes and uses the money collected to pay Old-Age, Survivors, and Disability Insurance benefits via trust funds.
When the program runs a surplus, there will be excess funding available for the Social Security Administration that year. The excess funds are diverted to one of the trust funds.
The money in the trust fund is used by the treasury in the form of treasury bonds. The treasury bonds provide interest on the money in the trust funds, and if the program sees a deficit, the excess funds from previous years plus any interest earned is used to pay beneficiaries. The trust funds do not represent a legal obligation to Social Security program recipients, and Congress could cut or raise taxes on such benefits if it chooses.
The trust fund that supports Social Security's disability program is projected to run out of money late next year, triggering automatic benefit cuts, unless Congress acts.
And a government watchdog claims Social Security overpaid nearly half the people receiving disability benefits over the past decade, raising questions about the management of the cash-strapped program, the Associated Press reported.
Meanwhile, Greenspan also said the U.S. is “way underestimating” the national debt, which is currently more than $18 trillion.
“Largely because we are not including what I would call contingent liabilities, that is the issue of, which is answered by a question: what is the probability that in today’s environment JP Morgan would be allowed to default? The answer is zero or less,” he said.
“Now, that means that whole balance sheet is a contingent liability. Now to be sure, while it’s contingent, there’s no interest payments but ultimately that overhangs the structure because we have committed in so many different ways to guarantee this, that and the other thing. It’s not only Fannie and Freddie but it’s a whole series of financial institutions and, regrettably, it is also non-financial institutions.” Source