How The National Debt Could Start Spiraling Out Of Control

The national debt of the United States is well over $14 trillion these days. The number is high enough that there is now some actual serious discourse about what to do about it. Unfortunately, we may be moving into a crisis stage that will soon call for draconian changes.

The issue is Social Security. Forget everything you’ve heard about the fund. Most of it is off base. Social Security has been a genuinely good entitlement program. Unfortunately, our beloved politicians took a step a few decades back that has turned the program from a friendly little puppy into a snarling pit bull of debt.

Social Security is out of money, right? Yes, but not because the program is wasteful or anything of that sort. In fact, the program has almost always taken in more money each year than it pays out in benefits. So, how can the fund be running out of money and what happened to the surpluses?

As is often the case, the problem can be traced to Congress. In the 1960s, it passed a law that allowed it to borrow the annual surplus of Social Security. This money was then used to pay the interest on our national debt. Social Security then received a special treasury note that the government would eventually pay off when Social Security needed it. I probably don’t have to tell you that the government doesn’t have money the many trillions of dollars in surpluses it has swiped over the years.

The problem is now coming to a head. As more baby boomers retire, Social Security is being forced to pay out more than it takes in each year. This is a double whammy of sorts. The program can no longer supply the treasury with surpluses to pay the interest on the national debt. It will also soon need money itself to keep running.

This scenario represents a fundamental change to the finances of the government. Whereas we previously had one program essentially paying a good bit of the debt incurred by a second program, we now have two programs that needs major amounts of funding. Instead of having to come up with roughly $200 billion in interest payments when Social Security surpluses were being used, we now need to come up with the full $400 billion in interest plus billions more to keep the entitlement program running. That is a huge hit to the finances of the country.

Politicians are infamous for failing to act until they absolutely have to. This change in finances may be the event that forces them to stop talking and start solving our national debt problem.