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“I just dropped in to see what condition my condition was in.”

So sang Kenny Rogers, in “Just Dropped In (To See What Condition My Condition Was In)” in 1968 when he was part of the group Kenny Rogers and The First Edition.

It’s good to occasionally get a check up on oneself, or to perform – as much as possible – a self-checkup, or as some call it, “a check-up from the neck up.”

Today, the Congressional Budget Office released a report entitled “The Outlook for Major Federal Trust Funds: 2020 to 2030.”

The report may be downloaded free from this site, or from the CBO website.
On this site here:
Congressional Budget Office Report September 2020 – Major Federal Trust Funds Outlook 2020-2030

Or, from the CBO website here:
https://www.cbo.gov/system/files/2020-09/56523-Trust-Funds.pdf

The picture they paint is concerning.

Yet, it’s not as if we didn’t know it was coming… sooner, or later.

Kind of like the COVID-19 pandemic.

We’d been warned for years about the very real, and distinct possibilities of an outbreak of disease, and this POS45 President and his henchmen administration unwisely decided to heed bad advice given to them (most likely, issued at his heavy-handed, micromanaging god-like “expert-in-all-things” direction) and dismantled the offices and organizations, and their budgets, that were designed specifically to effectively mange such problems.

Remember: Unlike the novel coronavirus pademic, the SARS-CoV-2 which causes COVID-19, Ebola was NOT a problem in this nation, nor in the world at large, and its outbreak was contained to the immediate area precisely because of the wise actions of the previous administration. That’d be the Obama administration, in case you’ve developed amnesia, early-onset Alzheimer’s, or old-age dementia in the last 4 years… take your pick.

Just imagine if the coronavirus had been Ebola.

On second thought, don’t.

Be thankful it’s not worse… though it will likely get worse before it gets better.

The CBO report first methodically laid out an explanation about Federal Trust Funds, and then, began to discuss them one-by-one.

Fortunately, the report is easy to read, and to understand.

The report states that one accounting tool the Federal government uses is “earmarked receipts (that is, money designated for a specific purpose)” which are linked with “corresponding expenditures” by using trust funds. “When the receipts designated for trust funds exceed the amounts needed for expenditures, the funds are credited with nonmarketable [NOTE: In this context, “nonmarketable” means that they CANNOT be bought/sold on Wall$treet.] debt instruments known as Government Account Series (GAS) securities, which are issued by the Treasury. At the end of fiscal year 2019, trust funds held $5.2 trillion in such securities.” [NOTE: Think of the GAS securities as an IOU.]

“The federal budget has numerous trust funds, although most of the money credited to them goes to fewer than a dozen. By far the largest trust funds are Social Security’s Old-Age and Survivors Insurance (OASI) trust Fund and the funds dedicated to the government’s retirement programs for its military and civilian personnel (see table 1).

“According to the Congressional budget Office’s current baseline budget projections, the balances held by federal trust funds will fall by $43 billion in fiscal year 2020.3 That amount is $100 billion lower than the $57 billion surplus that the agency estimated in January, when it last published its baseline budget projections for the major trust funds.4 The change in CBO’s estimate was largely driven by an increase in payments made by the Unemployment Trust Fund as the number of beneficiaries increased.

“Spending from the trust funds is projected to exceed income by $18 billion in 2021, a deficit that grows to $502 billion by 2030 (see table 2). Over the 2021–2030 period, CBO projects a cumulative trust fund deficit of $2.3 trillion, on net.5 That amount is $130 billion (or 6 percent) larger than the $2.2 trillion deficit that the agency estimated in January 2020. The projections for deficits were revised upward in part because of the economic disruption stemming from the 2020 coronavirus pandemic, which reduced CBO’s estimates of payroll tax revenues.

“If the Congress did not take action to address the shortfalls, CBO projects, the balances in three trust funds would be exhausted within the next 10 years: the Highway trust Fund (in fiscal year 2021), medicare’s Hospital Insurance (HI) trust Fund (in fiscal year 2024), and Social Security’s Disability Insurance (DI) trust Fund (in fiscal year 2026).6 No provisions in law dictate the funds’ procedures once their balances are depleted. However, if that happened, excise and payroll taxes designated for the funds would continue to be collected, and the funds would continue to make payments, but they would not have the authority to make payments in excess of receipts. Thus they would no longer be able to pay amounts as projected under current law.7

“How Trust Funds Work

“Ordinarily, when a trust fund receives income that is not needed immediately to pay benefits or cover other expenses, the treasury issues GAS securities in that amount to the fund and then uses the extra cash to finance the government’s activities, just as it uses other revenues. As a result, the government borrows less from the public than it would without that extra net income. The reverse happens when a trust fund’s income falls short of its expenses; the fund returns the GAS securities to the treasury, which then must borrow from the public in order to make the necessary payments from the fund.

“The balance of a trust fund at any given time is a measure of the historical relationship between the related program’s receipts and expenditures. That balance (in the form of GAS securities) is an asset for the individual program, such as Social Security, but a liability for the rest of the government. The resources to redeem a trust fund’s securities—and thereby pay for benefits or other spending—in some future year must be generated through taxes, income from other governmental sources, or borrowing from the public in that future year. Trust funds have legal meaning in that their balances are a measure of the amounts that the government has the legal authority to spend for certain purposes under current law, but they have little relevance in an economic or budgetary sense unless the limits of that authority are reached.

“To assess how all federal activities, taken together, affect the economy and financial markets, it is useful to include the cash receipts and expenditures of trust funds in the budget totals, along with the receipts and expenditures of other federal programs. CBO, the Office of management and budget, and other fiscal analysts generally follow that practice.”

Rather than quote more of the report, I’ll explain the scenario using an analogy which I’ve used for years to explain this problem.

At your place of work, there may be a small office metal lock-box which has a small amount of cash in it. That small amount of cash is called “petty cash” (“petty” meaning small), and for the purposes of illustration, let’s say the petty cash fund has $100.

Petty cash can be used for any variety of purposes for which a small amount of cash is needed – paying parking, picking up dry cleaning, paying for lunches for oneself and/or clients, or even buying small incidental office supplies, such as paper clips, staples, paper, etc.

Whenever someone borrows from the petty cash fund, they replace the amount of money borrowed with an IOU, which states the amount borrowed, to whom it was lent, when it was lent, and may list the purpose for which it was lent. Typically, IOUs may be replaced with cash by the borrower the next day, or by the end of the week – maybe even on next payday (typically a 2-week period). But in no case is the petty cash IOU ever held over 30 days. Again, typically, they’re repaid within a week, or two, at the most. And, at all times, the amount of cash on hand + the total amount of IOUs should equal $100. So, the books balance.

But, let’s say that, for whatever reason, the IOUs in the petty cash fund were NOT replaced in a timely manner, or that the petty cash fund suddenly had a run on it by the employees. If the IOUs were totaled, they’d amount to $100 – the total amount in the petty cash fund. But, there’d be a problem, and that problem being, is that there’d be no money, no cash. However, the books would balance (and that’s a good thing), because the IOUs would total $100. But again, in that scenario, the petty cash fund would be effectively depleted, because there’d be no cash.

Now, let’s apply that scenario to Congress.

But, before we do, we need some background in order to help our understanding.

Money is fungible, which means that an IOU, though it is a debt, is considered a form of money. It is called a “future payable” because it’s to be paid in the future. And like cash money, a future payable can be swapped and traded, and sold, precisely because it has the value of money.

When you write a check, you are – in effect – writing a promissory note (a type of IOU, a future payable, on yourself) – which you in turn give to someone when you purchase something. The recipient – the person whom accepts your check (your promissory note) – in turn, presents that check for payment to your financial institution, which cashes it for them. The money, of course, is taken from your account, and the check is destroyed (after a record of it is made). Thus, the transaction is fully finalized, and complete.

If you’ve ever encountered a scenario in which you’d written checks that overdrew your account (a promise to pay, even though you didn’t have the money), and the check was honored (paid), the financial institution lent to you the amount of money necessary to cover the insufficiency, which in turn, made you indebted to them for that amount. And upon the deposit of your next paycheck, they’d take out the amount owed to them, plus any “handling” or “convenience” fees. That’s but one way they make their money.

But what if you didn’t pay them? What if you closed out your account, or were in some other way negligent in handling your financial affairs? What then?

Well… that’s a horse of another color, and for a discussion for another time.

The essence of the reason why, is that the Federal government can PRINT MONEY.

So, now that we’ve had our backgrounder, let’s get back to our topic at hand, that being the IOUs in the petty cash fund in the lockbox at work and how it relates to Congress, and the Trust Funds mentioned by the CBO report.

The Trust Funds could be thought of as lock-boxes which contain petty cash – money that moves in and out on a fairly regular, and consistent basis. And because money is fungible, an IOU/promissory note/future payable can be swapped, traded or sold (but in this scenario, it CANNOT be sold OUTSIDE of the government – ONLY within the government).

So, if an IOU and a certain amount of cash is given in exchange for another IOU with another term (“term” being the period of time in which the note is promised to be paid), and then, for whatever reason, there comes a demand (a need to pay) made upon the account for which there are insufficient funds to pay… then what?

Well, once again, the Federal government can print money, and that’s an IMMENSE fiscal power. But, if for whatever reason the Federal government decides NOT to print extra money, they have to come up with it some other way, and while they can borrow it (in the near term by issuing T-bills, and longer term by issuing T-bonds, both a type of promissory note), there’s another mechanism by and through which they can obtain money (called “revenue”), and that’s by using taxes or fees.

Now, without going into too much more detail, suffice it to say that the scenario we have described is happening like this:

Congress is borrowing money from the petty cash fund to pay for their pet projects (whatever they may be), replacing it with IOUs, and in the term stated in the report, there’ll be no cash remaining. Sure, there’ll be the Government Account Series (GAS) securities (the IOUs), but there’ll be no cash.

So the question then becomes “how to resolve the problem?”

The answer is fairly simple:

Confine the payouts from the fund to the purposes for which it was created – period.

No more using Social Security Trust Fund money to pay for roads (though they’re needed), no more using Social Security Trust Fund money to pay for any pet projects.

Use the Social Security Trust Fund EXCLUSIVELY to pay for claims made upon it – period.

The fund would become solvent practically overnight, and into perpetuity.

But Congress is NOT doing that.

In effect, they’re “borrowing from Peter to pay Paul.”

That, in a nutshell, is the scenario in which the Federal government finds itself.

Again, make the Trust Funds HANDS OFF!! accounts, to be used ONLY for paying claims made upon them, and they become solvent practically overnight, and into perpetuity.

Then, and only then, will the shell game of the Federal budget – in conjunction with the asinine preposterous absurdities of tax cuts used like a Wal-Mart philosophy (the powers of scale) to prop it up, including the gross abuses and inequities of the existing tax system – be eliminated.

THIS IS DOABLE!

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FYI: The Congressional Budget Office “CBO is strictly nonpartisan; conducts objective, impartial analysis; and hires its employees solely on the basis of professional competence without regard to political affiliation. CBO does not make policy recommendations, and each report and cost estimate summarizes the methodology underlying the analysis. Learn more about CBO’s commitment to objectivity and transparency.”

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The Social Security Old Age and Survivors Insurance fund, which pays out retirement benefits, is on track to run out in 2031 as the economic fallout from the COVID-19 pandemic takes its toll, according to a Wednesday report by the Congressional Budget Office.

Without congressional action to address the shortfalls, the depletion of the fund would lead to benefit cuts for retirees.

CBO projected that the OASI fund would drop from $2.8 trillion today to $533 billion in 2030, and run out the following year.

Though the retirement fund is the largest and most intently watched of the major government “trust funds” — which have dedicated revenues to fund specific benefits — three other major funds are also on track to run out.

The Highway Trust Fund will be depleted next year, Medicare’s Hospital Insurance Trust Fund will run out in the 2024 fiscal year and the Social Security fund for disability insurance will be empty by 2026.

The pandemic has wreaked havoc on the funds.

Whereas the previous estimate in January expected them to rise by a collective $57 billion this year, instead they are projected to lose a collective $43 billion, a $100 billion difference.

“The change in CBO’s estimate was largely driven by an increase in payments made by the Unemployment Trust Fund as the number of beneficiaries increased,” the report noted.
Congressional action is required to either raise more revenues for the funds, reroute general tax funds to fill them in or modify the benefit structures to avoid across-the-board cuts when the trust funds run out.

Whereas the previous estimate in January expected them to rise by a collective $57 billion this year, instead they are projected to lose a collective $43 billion, a $100 billion difference.

“The change in CBO’s estimate was largely driven by an increase in payments made by the Unemployment Trust Fund as the number of beneficiaries increased,” the report noted.
Congressional action is required to either raise more revenues for the funds, reroute general tax funds to fill them in or modify the benefit structures to avoid across-the-board cuts when the trust funds run out.

CBO: Social Security trust fund to run out by 2031
https://thehill.com/policy/finance/514839-social-security-trust-fund-to-run-out-by-2031-cbo