But didn’t Congress spend the money in the trust fund?
Yes, but it would have spent it anyway. Congress spent way more than what it borrowed from the trust fund, which holds roughly one-fifth of federal debt outstanding. There’s a global market for U.S. Treasury securities, which are especially popular during times of economic turmoil. So even if Social Security had no money in the trust fund or the trust fund were invested in other securities, this would have had little impact on the federal government’s borrowing costs or access to funds. In any case, Social Security has always invested the trust fund in U.S. Treasuries and is required by law to do so. So to make this seem like news, as Montgomery does (“the government has borrowed every cent”), is strange to say the least.
Does this mean there’s no connection between the federal deficit and Social Security?
Unfortunately, no. While Social Security has had little influence on Washington’s spendthrift ways, the converse isn’t true. Social Security benefits are on the chopping block as Congress suddenly finds deficit-cutting religion. In this sense, the retiree at an Occupy Palm Beach protest who waved a sign saying “my Social Security paid for these yachts” is on to something, though his verb tense may be off. But it’s probably better to avoid saying politicians looted Social Security because this implies there’s nothing in the piggy bank. The trust fund may be full of “IOUs,” but that’s just a pejorative way to describe government bonds. If they’re worthless, the real chumps are the hedge funds, investment banks, rich individuals and sovereign governments around the world that have ploughed money into Treasuries – and increased their demand in recent years.