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While my colleague on Op Ed News, Dave Lindorf, was correct in his recent article:
There's Nothing Wrong with Social Security that Taxing the Rich Fairly Wouldn't Fix
when saying that the SS trust fund has been looted - which was known even by Al Gore, when he was campaigning, however ineptly, to put Social Security in a "lock box" - this is not nearly as bad as it seems. The fact is, almost everything the federal government has spent in the last year, and much before that, has been borrowed anyway, from the Federal Reserve. So, in theory at least, the U.S. government could borrow back the money, though we ought not to.
We ought not to, because, as Stephen Zarlenga and others have pointed out: http://www.monetary.org/index.html, the Federal Government can simply reassert the right granted to it by Article 1, Section 8 of the U.S. Constitution to "coin money" (note the small 'c' in coin; it does NOT mean to simply make physical coins, as scholars have pointed out). We gave up that right early in the Republic, Lincoln took it back to fund the Civil War (when NY bankers wanted up to 35% interest, enough to bankrupt the struggling and divided country and likely split the country into two parts, forever), then lost it, finally, again, in 1913, with the Federal Reserve Act that president Woodrow Wilson called "the greatest mistake of my life."
New U.S. Notes, or Greenbacks - like Lincoln's original Greenbacks - would not cause inflation because you would actually be getting something of tangible value for them, i.e. Social Security . In contrast, failing to fund SS would cause massive deflation as millions of old, and a few million not-so-old, people on SS suddenly found themselves unable to pay for medicine, rent, utilities, or even food. This would yank the rug out from under major portions of the economy, and send us into another Great Depression - the last period of Great Deflation.
Right now, the Federal Reserve tells us there is little to no inflation. While that is not exactly true; there IS inflation in everything but the top 1%'s beloved FIRE sectors, which the Fed is vigorously trying to re-inflate for its rich friends with quantitative easing (QE2) directed specifically at the banks, it is also true we have much more to fear from deflation and social unrest from ending social security than from inflation caused by funding it.
But wait, if we could just print money for the things we need, things without which there would be deflation in those areas, or even in the larger economy, then why wouldn't we do that, in addition to funding most of our needs through taxes, and get off the Central Bank Borrow-and-Spend model altogether? Precisely. The Federal Reserve is neither Federal nor a Reserve . It is a Central Bank, not beholden to the Government, nor listed as an office of it, nor answerable to anyone in Congress, or even best buddy and former head of the NY Fed himself, Treasury Secretary Timothy Geithner - a fact they recently asserted by refusing to open their books at a direct request of the Treasury. The president can fire and re-appoint another Central Banker, but typically chooses not to, to avoid upsetting the markets. When Reagan replaced Paul Volker with Greenspan in 1987, after Volker broke the back of inflation in the early 80s by raising interest rates to 20%, the markets swooned in the 1987 crash. You don't see the president taking on Wall Street since then. That is why you hear nothing about this in the brainwashed Mainstream Media, which has bought the well-crafted image of a steady hand at the Fed guiding monetary policy, when all it really is, is a way to increase our debt, for debt - and not stability or low inflation, is what a banker, including the Central Banker, sells. The dollar has lost some 97% of its value in the 97 year history of the Fed (a neat trick, though it will not become 100% devalued in 100 years, unless the U.S. loses its reserve currency status and becomes worthless by 2013; which is NOT an impossibility).
So, Social Security, and for that matter, infrastructure spending and even Healthcare, could be completely funded by direct creation of money by the U.S. Government. We DO have to worry about inflation, particularly in healthcare, where we already spend too much for too little, but we don't have to worry about being able to actually pay for it, as long as we keep, or regain, our sovereign right to "coin" our own money.