Bryan Brandenburg

The Social Security Act of 1935 was one of the biggest frauds in American History. It was not sold to the American people as a “pay-as-you-go” program as President George W. Bush purported but setup as a Trust Fund that surpluses were paid into, the difference between receipts and payouts. In every Treasury Report since the legislation was enacted the following text appears in the report:

“The only purposes for which these trust funds can be used are to pay benefits and program administrative costs.

The trust funds hold money not needed in the current year to pay benefits and administrative costs and, by law, invest it in special Treasury bonds that are guaranteed by the U. S. Government. A market rate of interest is paid to the trust funds on the bonds, and when those bonds reach maturity or are needed to pay benefits, the Treasury redeems them.”

The text from the legislation reads as follows:

Section 201. (a)  There is hereby created an account in the Treasury of the United States to be known as the Old-Age Reserve Account  hereinafter in this title called the Account.  There is hereby authorized to be appropriated to the Account for each fiscal year, beginning with the fiscal year ending June 30, 1937, an amount sufficient as an annual premium to provide for the payments required under this title, such amount to be determined on a reserve basis in accordance with accepted actuarial principles, and based upon such tables of mortality as the Secretary of the Treasury shall from time to time adopt, and upon an interest rate of 3 per centum per annum compounded annually.  The Secretary of the Treasury shall submit annually to the Bureau of the Budget an estimate of the appropriations to be made to the Account.

(b)  It shall be the duty of the Secretary of the Treasury to invest such portion of the amounts credited to the Account as is not, in his judgment, required to meet current withdrawals.  Such investment may be made only in interest-bearing obligations of the United States or in obligations guaranteed as to both principal and interest by the United States.  For such purpose such obligations may be acquired

(1) on original issue at par, or

(2) by purchase of outstanding obligations at the market price.  The purposes for which obligations of the United States may be issued under the Second Liberty Bond Act, as amended, are hereby extended to authorize the issuance at par of special obligations exclusively to the Account.  Such special obligations shall bear interest at the rate of 3 per centum per annum.  Obligations other than such special obligations may be acquired for the Account only on such terms as to provide an investment yield of not less than 3 per centum per annum.  

(c)  Any obligations acquired by the Account (except special obligations issued exclusively to the Account) may be sold at the market price, and such special obligations may be redeemed at par plus accrued interest. 

(d)  The interest on, and the proceeds from the sale or redemption of, any obligations held in the Account shall be credited to and form a part of the Account. 

(e) All amounts credited to the Account shall be available for making payments required under this title.  

(f)  The Secretary of the Treasury shall include in his annual report the actuarial status of the Account.

The problem with the Act is identified above in Section 201. (b).  By requiring the surplus to only be invested in United States debt instruments, i.e. Treasury Bills, the legislation was really using the surplus to subsidize the National Debt.

Let’s examine the same scenario for an individual family; A family decides to start a savings plan, say for, retirement. They budget a certain percentage of their income to take care of them in old age. But they also have a problem with spending more each month than they make, so they borrow their retirement savings to pay for their deficit spending and each month accumulate an IOU to themselves. The money is gone forever and the only thing that remains is an IOU + Interest.

So it is with the Social Security Trust Fund. The only difference is that supposedly the Treasury Bills are secure because they are backed by the Government (Tax Payers). But the way the Act was designed was that the Tax Payers were responsible for paying interest to themselves on IOUs to themselves.  But the American public really didn’t pay attention to the details of the bill because after all, they had let Congress create Income Tax and the Central Banks that secured their slavery as tax monkeys.

But the problem took a more dramatic turn for the worse in 1968 during the Lyndon Johnson administration.  This change grew out of the Presidential Commission on Budget presentation appointed by President Johnson. The change included adding the Social Security and all other Trust Funds into one “Unified Budget”.

Getting back to the family budget analogy, this would be like adding the IOUs the family’s list of assets, resulting in paper IOUs eliminating the budget deficits of the family, resulting in no retirement funds. Or the family can work longer to pay itself back or just make more income. Or the family can require its children to begin working to provide for the parent’s retirement assuring them that they can have their children do the same thing.

But the fraud perpetrated on the American people in 1935 and 1968 wasn’t enough. When George W. Bush became President, he wanted to privatize Social Security. The Unified Budget of 1968 was a cover-up for the fraud perpetrated in 1935, but that wasn’t enough.

The week after his State of the Union speech, Bush downplayed the importance of the Trust Fund:

“Some in our country think that Social Security is a trust fund — in other words, there’s a pile of money being accumulated. That’s just simply not true. The money — payroll taxes going into the Social Security are spent. They’re spent on benefits and they’re spent on government programs. There is no trust.”

“…There is no trust.”

Reform proposals began to circulate with some urgency, due to a long-term funding challenge faced by the program. Starting in 2017, program expenses begin to exceed revenues. This is due to the aging of the baby-boom generation (resulting in a lower ratio of paying workers to retirees), expected continuing low fertility (compared to the baby-boom period), and increasing life expectancy. Further, the government has borrowed and spent the accumulated surplus funds, called the Social Security Trust Fund. During 2007, the Fund held $2.2 trillion in government bonds—essentially “IOU’s” or claims on the government’s general fund or tax revenues. This amount is part of the total national debt of $9.6 trillion as of August 20, 2008.

Diverting funds to private accounts would reduce available funds to pay current retirees, requiring significant borrowing (from private Central Banks). Federal Reserve Chairman Ben Bernanke said on October 4, 2006 “Reform of our unsustainable entitlement programs should be a priority.” He added, “the imperative to undertake reform earlier rather than later is great.”

In the family analogy, Bush as head of household says, “Let’s borrow money from the bank in our children’s name so we can retire.” And the child says, “I thought you had been making deposits into retirement every month?” And Bush says, “I have but I borrowed it too pay the bills over the years, but I did write an IOU every time I borrowed from the fund.” And the child says, “But Daddy if you owe yourself, why do you want me to pay for your retirement?”

So to summarize:

1.       The Social Security Act of 1935 was designed as a way of increasing taxes on Americans, as if the Income Tax Legislation of 1916 wasn’t enough. It was architected from the beginning to be a “Pyramid Scheme”, just like Medicare and Medicaid.

2.       In 1968 the “IOUs to oneself” were hidden in the Unified Budget and the National Debt took a surprising drop.

3.       Bush wanted to solve the problem by once again going to the PRIVATE Central Banks to borrow the money that had been squandered in Government spending since 1935.

These Trust Fund and Income Tax Pyramid Schemes guarantee that a bigger and bigger slice of the Personal Income pie goes to the United States budget that is controlled by Congressional Central Bank Lap Poodles. And when you examine the relationship between the length of pay out for poor people relative to contributions over a lifetime, it makes sense that the Central Banks prefer that they just die early, and that’s where prescription drugs come in, but that’s another article in itself.

And rather than investing in debt instruments that actual paid the American tax payers interest for the privilege of borrowing its money, the tax payers themselves paid the interest to private Central Banks, in the form of future taxes, ensuring an endless interest revenue stream. So not only is there no compounded interest over the working life of a future Social Security recipient or a cash payout opportunity, but the “system” of Government’s only incentive is to have a retired person, especially the “little people”, die as early as possible.