Earlier this year, news was made when the current cash flow for social security went negative for 2010. This has prompted many politicians to make the statement that Social Security is not in danger because of its “Trust Fund” balance that has been built over the years when it ran a surplus. These statements represent either ignorance in regards to the flow of government funds or deceit on the part of the politicians. (Possibly Both)

The important consideration when talking about the “Trust Fund” is to understand the cash flow and accounting behind government funds. When the social security administration receives taxes, it deposits them into a fund. (Frequently referred to as the “Social Security Trust Fund”) This fund subsequently invests the assets of this fund into government treasuries. Effectively, this results in an I.O.U. being swapped out for the aggregated Social Security Tax Receipts.

In order for the Social Security Trust Fund to cash in its loans to the US government, it would require that same government to go an write new debt to make good on those loans. This is what ultimately dooms the so-called Trust Fund. In order for the government to make good on its entitlement promises, it will need to incur so much debt that it will drive up interest rates and possibly collapse the economy. In effect, the Social Security Trust Fund is a circle that feeds back in on itself.

This reality will not restrain free-spending politicians from attempting to use this fictitious “Trust Fund” as a propaganda tool for avoiding the spending restraint that is necessary for a sustained economic recovery. Understanding the true state of government finances should prompt individuals to understand that they cannot depend on government benefits to finance their retirement. The money has already been spent, and the cupboard is now lying bare. Astute investors should seek to become financially self-sufficient so that the inevitable disruptions in government programs do not drag them into the abyss.

Sincere Thanks,
Douglas J Utberg, MBA

Founder - Business of Life LLC:
http://www.BusinessOfLifeLLC.com/

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