Image: Senior man looking sad © George Doyle, Stockbyte, Getty Images

The headline machine was in overdrive earlier this year with the arrival of the latest Trustees' Report on SocialSecurity and Medicare. And while much of the media continues to herald the coming bankruptcy of Social Security, they do so at the risk of ignoring the real story -- a story that is neither difficult to explain nor hard to understand.

Technically speaking, an entity is deemed bankrupt when its obligations exceed its revenues. Therefore, if the projections are accurate, Social Security will, indeed, be deemed bankrupt in 25 years -- absent modifications to resolve the funding problems.

However, that does not mean that the money will be all gone come 2035. Nor do the headlines explain why we have the projected shortfall.

Subsequent to the projected expiration of the period where the trust can pay out 100% of the promised benefits, the fund will then be in a position to pay out 75% of promised benefits for the foreseeable future -- and that is not OK. Clearly, there need to be some changes made to Social Security so as to make up the 25% annual shortfall in benefits we anticipate will begin a quarter of a century from now.

The cause of the shortfall

But if we are to hope to make these adjustments in a sensible and realistic way, it might not be a terrible idea for the American public to actually understand the real causes of the shortfall in anticipated trust revenues.

We are consistently led to believe that it is the "aging workforce" that rests at the heart of Social Security' funding problems. Tune in to any of the media reports covering the numbers just out and this is what you are going to see and hear.

The claim, while legitimately representing a small piece of the problem, fails to explain the lion's share of the crisis we will experience in the Social Security Trust --and by lion's share, I mean a full 60% of the entitlement's funding shortages. 

The "aging workforce" narrative serves to encourage and support the critics who claim that our problem is too many retirees lining up to collect their entitlements only to find that the government has failed to properly manage the Social Security Trust -- leaving the next generation of beneficiaries to be shortchanged 25 years down the line. As a result, the privatization pushers argue that Americans would be far better off looking out for their own retirement accounts so that government mismanagement will not come between hard-working citizens and their retirement money.

This is the Great American Social Security Lie.

It is a lie concocted by those seeking to fulfill Wall Street's eternal quest to get its sweaty palms on trillions of dollars of our retirement cash, allowing them to expand their casino operations beyond their wildest imaginations -- and Wall Street has a very healthy imagination.

The best-laid plans

However, it is not as if we never saw the baby boomer generation coming or, somehow, forgot to plan for the eventualities.

At the time the boomer generation reached its end in the 1960s, it was clear that the huge birthrate experienced during the post-WWII era would put a strain on Social Security when these folks began to reach the age of retirement. Fortunately -- unlike today's Washington -- government in the early 1980s was actually capable of responding to a projected problem in a reasonable way.

And that is exactly what the 98th United States Congress did.

In 1983, acting on the research and recommendations prepared by the bipartisan Greenspan Commission, Congress enacted a number of modifications to the Social Security program designed to prepare the fund for the day that has now arrived -- the retirement of the baby boomers.

Those changes included raising both the tax rate and the age of retirement.

So, why the shortfalls after it was declared back in 1983 that Social Security was on firm and solvent footing for the foreseeable future? Was this just a miscalculation on Alan Greenspan's part or did something occur that he could not foresee?

It is true that there were some variables that could not be anticipated, such as people living a bit longer than expected. However, as it turns out, any mistaken projections in this regard are not what is causing the bulk of the projected shortfall in contributions to the Social Security Trust.

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