Stage 4: Blog Critique

The article written by Charles Krauthammer entitled “It’s Still an Empty Lockbox: Accounting tricks versus financial reality” is dealing with the issue of the indebtedness of the United States Treasury and the Social Security trust fund. This article originated because of the recent White House blog posting of President Obama’s budget chief, Jack Lew.  Mr. Lew repeated “his claim that the Social Security trust fund is solvent through 2037. Mr. Krauthammer believes that is false information and that the Social Security trust fund is empty.

According to the article, funds belonging to the Social Security Administration were lent to the Treasury Department, which turned around and spent the funds.  In turn, the “Treasury Department deposited corresponding IOUs, called “special issue” bonds into the Social Security trust fund”.  Mr. Lew claims that these IOUs have monetary value because “these Treasury bonds are backed by the full faith and credit of the U.S. government in the same way that all other U.S. Treasury bonds are.”  Mr. Krauthammer believes that this information is incorrect.  Mr. Krauthammer questions “that if the trust-fund bonds are real, then why are they not included when figuring the national indebtedness of the U.S.?”  Mr. Krauthammer says that the way to measure the national solvency is by the debt/GDP (Gross Domestic Product) ratio. This type of debt is counted as “publicly held debt”, meaning that the bonds held by other countries and citizens of the U.S.  This debt ration does not include this type of “intragovernmental bonds”. 

Mr. Krauthammer believes that these types of bonds are nothing more than a way for the Treasury Department to keep track of how much they owe other government agencies (in this case the Social Security trust fund).   The rest of the world does not really care what agencies owe other agencies because agencies make up whole, other countries only care about what the whole United States owes them.  This is why the publicly held bonds are different from the intragovernmental bonds.  Mr. Krauthammer says that if we were to default on debt we owe another country, then other countries would stop lending money to the United States. If this were to happen, the United States would be bankrupt. Mr. Krauthammer says that if the Treasury Department were to stop honoring these types of bonds, then there would be nothing more than grumbling from these departments.

The bottom-line that Mr. Krauthammer is trying to make is that Mr. Lew is misleading the public and other members of political world to believe that these bonds are good monetarily and that the Social Security trust fund is still able to continue to do what it was designed to do.  Mr. Krauthammer believes that the reality of the situation is that “it is just still an empty lockbox.”

http://www.nationalreview.com/articles/262449/it-s-still-empty-lockbox-charles-krauthammer