What Happened to Grandma’s Trust Fund?

President Obama said yesterday he cannot guarantee Social Security checks will go out on August 3 if there is not a debt-ceiling agreement soon — because “there may simply not be the money in the coffers to do it.” Senator Marco Rubio told Rush Limbaugh there was a concession implicit in the president’s remark that should trouble Americans:

SENATOR RUBIO: What Americans should realize, “Hold on a second, my Social Security check and my Medicare benefits are borrowed? The money that you’re using to pay for my Social Security are borrowed? I thought I paid into a trust fund.  I thought I worked my whole life to pay into some system and now you’re paying my money back and you’re claiming that the money is being borrowed?” That’s what they’re basically conceding when they’re saying this.

What the Social Security “trust fund” contains are IOUs from a government that “borrowed” the money, spent it for other purposes, and left Treasury obligations behind — part of an ever-growing scheme comparable to the one that got Bernie Madoff in trouble.

More than a year ago, John Steele Gordon warned that intragovernmental debt held by the Social Security “trust fund” is “just as real as the public debt and the country is just as burdened by it.” President Obama just confirmed the validity of that observation.