How? Well, it turns out that the Social Security Trust Fund (SSTF) makes the federal government a no interest loan of the surplus money. Because it is federal revenue and through this method accessible, the budget score does not include it as a loan or debit the amount due against the deficit. OTOH, the SSTF treats it as if it were held in zero interest bonds (it isn't), and therefore claims it is fully funded with a surplus.
My depression does not result from the discovery of yet more federal accounting chicanery. I've reached the point where I will actually admire a clever and elegant swindle by the Office of Management and Budget (OMB) and the Congressional Budget Office (CBO). No, my depression was caused by the realization that the SSTF is the largest subprime lender in the world, holding notes worth $7 Trillion or thereabouts from the fed.
Two more things to note from this:
(a) If Bush had actually succeeded in privatizing Social Security, the federal deficit hole would be much, much worse. The surplus would not be sitting there to be raided by the Federal Government, but would be invested in private capital markets. Whatever other benefits or risks associated with privatization, I can't help but wonder if it was this unspoken factor that prompted so much resistance from the Congressional Rs on the Ways and Means Committees.
(b) We are scheduled -- assuming the demographics hold -- to run out of surplus and shift Social Security into the red in about 15 years (I forget the precise date). At that point, the SSTF will need to call in those notes.
OTOH, the demographics are subject to change. Our population curve is like a diminishing wave rather than an inverted pyramid as in Japan and industrialized European countries (or a pyramid as in Islamic countries and Latin America), so we have a wave of recent college grads entering the job market. Recent data also show that our lack of health care, careless environmental policies, and overall poor eating and health habits are starting to seriously diminish our life expectancy, so the length of time people receive Social Security may diminish. OTOH, Medicare expenses are increasingly rapidly (according to my father, adding Medicare to the national debt projections (it is currently also excluded) would add $30 trillion to the deficit over time).
In happier news, I note this Washington Post article that FDIC is restructuring some of the home mortgages it inherited from IndyMac to livable interest rates to avoid defaults. I had suggested a year ago that the federal government adopt this approach, buying loans secured by a primary residence for 25 cents on the dollar and then renegotiating them down to something that would avoid foreclosure. As always, there is no dearth of people to explain to me that I do not understand economics, which is why my life is so filled with Cassandrafruede. Nevertheless, I'm glad to see FDIC being sensible. Perhaps it will spread to the industry as a whole.