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How default could affect Social Security

By Jennie L. Phipps · Bankrate.com
Sunday, July 31, 2011
Posted: 7 am ET

What will happen to Social Security if the country defaults?

One answer: "We don't really know for sure. We've never done this before and I hope we don't," says Timothy McBride associate dean for public health at Washington University in St. Louis, and one of the nation's experts on Social Security and Medicare.

McBride thinks that if push comes to shove in this debt ceiling fiasco that the U.S. would continue to pay the debt on U.S. Treasuries and other public instruments. Then it would keep the military up and running. And Social Security and Medicare obligations are likely to be met. The cuts, he believes, will come in payments to government contractors -- big companies like Boeing that can probably afford to wait, as well as physicians and hospitals. It's also likely, he thinks, that federal employees won't be paid.

He believes that the Obama administration already has a plan in place for handling what will happen if  Congress doesn't vote to raise the debt ceiling by the end of July. But he's certain that's top secret, because just announcing it would create more controversy and stress.

McBride speculates that one strategy could be to freeze Social Security and Medicare for a few days -- just to make a point and to save some interest. "But you are really putting a lot of people at risk. If you took away Social Security, tens of millions of people would fall into poverty overnight.

"It could be calamitous," he says. "When people can't pay their bills -- even for a short period of time -- they stop having electricity, so they don't have air conditioning and they can't store or cook food. It wouldn't take long for some of them to die."

In other words, all retirement planning bets are off for many people who are financing their  retirement with little or no resources.

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2 Comments
Jim Howell
July 31, 2011 at 1:34 pm

If Lyndon B Johnson (a Democrat) had not raided the SS trust fund moving the money to the General fund, just possibly Social Security would not be in the mess that it is now in. The democrats love the term spend baby spend. You cannot be a Patriot and a Democrat.