James Pethokoukis of Reuters published a chart Tuesday demonstrating exactly why all the hysteria about a debt default or missing Social Security check payments is a bunch of nonsense.
If America's news outlets were actually interested in disseminating the truth rather than fear-mongering, this chart or something like it would be part of every report involving the debt ceiling:
What this chart created by the securities firm Goldman Sachs perfectly demonstrates is that there are ample tax receipts coming to the Treasury in August to pay the interest on our debt, Social Security, Medicare, and "essential" defense costs.
The Goldman report this chart came from also claimed:
Using August 2010 spending and receipts as a proxy, the Treasury will probably take in $5-$10 bn in revenue on August 3, leaving insufficient revenues to make Social Security payments partly unfunded even if all other spending is deferred. Since the Treasury has carried a minimum cash balance of about $20 bn since 2009, and currently carries a balance of $74 bn, Social Security payments might still be made by drawing down the Treasury’s cash balance.
So, the Treasury currently has a cash balance of $74 billion. If it takes in an additional $5-$10 billion, it has ample funds to make the August 3rd Social Security payments quite contrary to what the President said or implied in his interview with CBS's Scott Pelley Tuesday.
But even this might not tell the whole story, for a discussion that happened on the House floor Wednesday tells another side. The Social Security Administrations chief actuary Stephen C. Goss told the House Budget Committee:
GOSS: Whenever we pay any money out of the Social Security trust fund, we must redeem bonds. And when we redeem bonds, that actually lowers the amount of debt subject to ceiling. However, in order to pay the benefits, the Treasury must at the same time then issue bonds to the public which therefore increases the debt subject to the ceiling. So there is in effect kind of an offset between the two.
This is actually something I've been thinking about for weeks: as the Social Security trust fund owns Treasury bonds, why would benefit payments increase the debt unless the fund was exhausted?
As Goss explained it to Congressman Tim Huelskamp (R-Ks.) Wednesday, benefit payments begin with a redemption of bonds which means Treasury issues new bonds to the public to pay Social Security recipients.
In Goss's view, this has absolutely no impact on the debt ceiling because the two transactions offset each other.
What this means is that between cash balances currently at Treasury, incoming revenues, and Goss's explanation of how benefits are paid, Social Security recipients appear to have no risk of not getting checks on August 3rd, and any suggestion to the contrary is false.
As for interest payments, the Goldman report said:
There are two basic reasons that interest payments should not be called into question: First, if the August 2 deadline is missed, it is very difficult to see the debate dragging to August 15, when interest payments are made, since we doubt there will much congressional appetite for a protracted lapse in borrowing authority. … Second, the Treasury is likely to prioritize payments. While the sharp fiscal contraction that would result from prioritization would have negative short-term economic consequences and would be difficult to implement, it nevertheless seems likely if necessary.
Add it all up, and the largest securities firm in this nation is telling its clients there's no risk of a debt default or Social Security recipients getting stiffed next month.
Why are most of America's news outlets telling a completely different tale?