That Ain't No Trust Fund! They's Just Papers in Them Boxes!

President Bush was in my neighborhood the other day, and distinguished himself by his stunning ignorance of government finance.

The President on Tuesday visited the Treasury Department's Bureau of Public Debt in Parkersburg, West Virginia, where the Social Security Administration holds the $1.7 trillion in United States Treasury Bonds which currently constitutes the Social Security Trust Fund. There, as the cameras rolled, he announced that the bonds, backed by the full faith and credit of the United States, are, in fact, worthless "I.O.U.'s." (New York Times)

Having looked into a file cabinet which held some of the bonds, he said, "A lot of people in America think there's a trust, in this sense: that we take your money through payroll taxes and then we hold it for you, and then when you retire, we give it back to you," Mr. Bush said. "But that's not the way it works. There is no 'Trust Fund,' just I.O.U.'s that I saw firsthand."

My brother years ago worked for a small bank in South Jersey. A woman one day came in from the Pines with dirt-encrusted burlap bags full of coins. She had dug up her coins to put them in the bank, overcoming whatever mistrust she had. Someone at the bank (not my brother) set up an account for her, giving her a receipt for the face value of the coins. The next time she came in, she was outraged to find that the bank had not kept her coins for her and wanted her to accept paper money instead. "That's not my money!" she said. They belatedly tried to explain the difference between a savings account and a safe-deposit box.

Apparently the President of the United States needs the same explanation.

Maybe he missed the bank scene in It's a Wonderful Life where Jimmy Stewart explains the concept:

"You... you're thinking of this place all wrong," he says. "As if I had the money back in a safe. The money's not here. Your money is in Joe's house, right next to yours," he says to one of the men, "and in the Kennedy house, and Mrs. Macklin's house, and a hundred others. Why, you're lending them the money to build, and then they're going to pay it back to you."

Treasury bonds give a much more solid guarantee of repayment with interest than Jimmy Stewart could offer, but the idea, which unfortunately many people in government have lost track of, is the same: to pool our resources (the money invested in the bonds) to provide seed money for projects that will bear fruit.

The $1.7 trillion in Treasury bonds held by the very real Trust Fund are backed by the full faith and credit of the United States. They are probably the safest investment in the world, certainly a lot safer than keeping cash in a vault, which would earn no interest and, unless in the form of rare coins, would lose value after years of inflation. If we locked money in a safe for thirty years, it wouldn't buy much by the time we got it. I wish Jimmy Stewart was still around so he could explain this to the President.

And if Jimmy Stewart isn't convincing enough, how about the New Testament?

Matt.25
[14] For the kingdom of heaven is as a man travelling into a far country, who called his own servants, and delivered unto them his goods. [15] And unto one he gave five talents, to another two, and to another one; to every man according to his several ability; and straightway took his journey. [16] Then he that had received the five talents went and traded with the same, and made them other five talents. [17] And likewise he that had received two, he also gained other two.[18] But he that had received one went and digged in the earth, and hid his lord's money. [19] After a long time the lord of those servants cometh, and reckoneth with them. [20] And so he that had received five talents came and brought other five talents, saying, Lord, thou deliveredst unto me five talents: behold, I have gained beside them five talents more. [21] His lord said unto him, Well done, thou good and faithful servant: thou hast been faithful over a few things, I will make thee ruler over many things: enter thou into the joy of thy lord. [22] He also that had received two talents came and said, Lord, thou deliveredst unto me two talents: behold, I have gained two other talents beside them. [23] His lord said unto him, Well done, good and faithful servant; thou hast been faithful over a few things, I will make thee ruler over many things: enter thou into the joy of thy lord. [24] Then he which had received the one talent came and said, Lord, I knew thee that thou art an hard man, reaping where thou hast not sown, and gathering where thou hast not strawed: [25] And I was afraid, and went and hid thy talent in the earth: lo, there thou hast that is thine. [26] His lord answered and said unto him, Thou wicked and slothful servant, thou knewest that I reap where I sowed not, and gather where I have not strawed: [27] Thou oughtest therefore to have put my money to the exchangers, and then at my coming I should have received mine own with usury.