I have been an active and vocal critic of Government’s handling of the trust funds earmarked for special purposes such as Social Security, the Highway Trust Fund and 168 others. In my 1996 book, The Secret World of Money, I opined that the trust funds were lakes of debt, out of sight but destined to flood into the broad money supply. This debt was hidden from public view by the use of what the bureaucrats called Non-Marketable US Government securities. Or as I termed them, “worthless paper”. You may remember the admission in a previous issue that in many cases paper was not even involved. Enough din has been raised and now finally some response is forthcoming in the form of a report from the Federal Government’s General Accounting Office or GAO. The report, GAO-01-199SP, confirms The World of Money’s previous contention that the Federal Government’s Trust Fund balances are virtually fictitious, effectively double booked. Here is what the GAO said: “Treasury accounts for earmarked monies by crediting these collections to the appropriate funds. Any surpluses resulting from these collections are then lent to the general fund of the Treasury and the funds in most cases are given special, nonmarketable Treasury securities in return.” In fact, when a payment comes into a trust fund account, it can be used for any other purpose as long as an entry is made. Quoting from the FY 1996 Budget document entitled: Analytical Perspectives pg. 251 "These balances are available to finance future benefit payments and other trust fund expenditures — but only in a bookkeeping sense.” A bookkeeping sense indeed! The money is gone friends, the minute it is sent in. What a way to treat a Trust Fund. If you are holding money in trust for a specific purpose you are not supposed to borrow it and spend the money on something else. But the response of the GAO on this point just floored me: "The Federal budget meaning of the term trust differs significantly from its private sector usage. In the private sector, the beneficiary of a trust owns the income generated by the trust and usually its assets. In contrast, the Federal Government owns the assets and earnings of Federal trust funds, and it can raise or lower future trust fund collections and payments, or change the purpose for which the collections are used." So to summarize, a trust is a trust except when the government is the trustee. If a lawyer spent your trust fund, but put his own nonmarketable IOUs in the file, all you could do is make him pay it back under this scheme. Why bother to call it a trust at all? The Treasury’s response: “Although the special Treasury securities are nonmarketable, like other Treasury securities they are backed by the full faith and credit of the United States government. However, if sufficient surpluses are not available to redeem the securities, the government would either need to increase borrowing from the public or raise future taxes.” Allow me to translate: Okay, your parents gave us money to save for their retirement but we spent it on “other purposes”. Now we need to tax you to pay them. But don’t worry. When you retire, we promise we will tax your children to pay for you! Thanks but no thanks! If all of this potential debt is monetized at once, our children will probably want to lynch us.