In two days of grilling about Social Security, Federal Reserve Chairman Alan Greenspan put an important new date on our calendars: 2008.

That's when he believes problems may begin with Social Security.

Not 2052, the date the Congressional Budget Office estimates the Social Security Trust fund will be exhausted and benefits will have to be reduced.

Not 2042, the date the Social Security Trustees estimate for the same event.

Not 2018, the date the Social Security Trustees estimate benefits will exceed revenues and it will be necessary to start redeeming the Treasury obligations in the famed Social Security Trust fund.

All those dates are pretty far off. Some of the legislators questioning Mr. Greenspan felt that the dates were so distant Social Security was a manufactured problem.

But think about his date: 2008 is just three years away. How could Greenspan believe the problem is so close when two major institutions are putting problems decades in the future?

The answer is one word: cash.

Mr. Greenspan is following the cash, not government accounting. He worries that market expectations of excessive new government borrowing will have an impact on interest rates and the economy. He wants to increase the pool of domestic savings so we can sustain investment and reduce our dependence on foreign lenders. Unless we do, he expects higher interest rates.

That's why following the cash is important.

Last year, payroll tax revenue for OASDI (Old Age Security and Disability Income) and HI (Hospital Insurance) was $735 billion, excluding interest on the Social Security Trust Fund. Expenses were expected to be $673 billion, leaving extra cash of $62 billion to contribute to other government spending. In their "intermediate cost" projections, the Trustees estimate a cash surplus until 2020.

Historically, actual costs have run closer to the Trustees' "high cost" estimate. (This is not an evil plot or something to bemoan--- we keep living longer than expected so Social Security costs more.)

The high cost estimate has a smaller cash surplus. It also disappears much faster. The high cost estimate has Social Security and Medicare down to a mere $28 billion surplus in 2008 and $14 billion in 2009.

Pocket change.

It becomes $7 billion of red ink in 2010. If you are reading about this in a daily newspaper in 2005 you can be sure global bond markets will start to take notice before 2010. Try 2008.

OK, you might ask, but what about the interest on the Trust fund? How can it be ignored?

 ¬†Easy.

It isn't cash. The U.S. Treasury doesn't send a check for interest on the $1.6 trillion in the Social Security trust fund. The interest is simply accrued and a new Treasury security representing the interest is added to the fund. The interest accrued has no impact on the ongoing budget or ongoing spending because it never comes out of government cash revenue.

Meanwhile, the continuing cash surplus from excess payroll tax revenue never goes into the Trust fund either. It is simply exchanged for another Treasury obligation (read: IOU) that is added to the Trust fund.

What happens to that cash?

It has been a slush fund for politicians of both parties since 1983. It allows them to spend more because they don't have to borrow it from the public. Had this been done by a corporation it would be the largest fraud in history, now at $1.6 trillion and counting.

The accrual of interest also explains one of the great mysteries of government fiscal reporting--- how politicians of both ilks could crow over a "surplus" when total government debt continued to grow every year.

President Bill Clinton, a Democrat, bragged that his administration had produced a "surplus" in 1998, 1999 and 2000. It also left a "surplus" for incoming President George W. Bush in 2001. During that same period, total government debt rose by $291.7 billion.

Then President George W. Bush, a Republican, used the same fictional surplus to justify tax cuts.

In fact, this is a shell game that both parties play.

In the four years of purported surplus, 1998-2001, the total "On-Budget" surplus (regular budget programs) was a dinky $25.7 billion. Guess where the remainder of the surplus came from?

It came from the "Off-Budget," which is mostly Social Security. The surplus there was a whopping $533.4 billion. Most of that cash was used to reduce publicly held Treasury debt, the stuff that trades around the world, by $401.5 billion.

Unfortunately, gross debt--- which includes obligations in the Social Security Trust fund and other government trust funds, as well as publicly held debt--- increased by $291.7 billion during the same period of reported "surplus."

Mr. Greenspan has his eye on real cash flow, not the fictions of government accounting. He knows that surplus cash from the payroll tax is about to disappear. When that happens, government borrowing on the open market will increase and global attention will be on the cash shortfall for Social Security and Medicare.

That's why he's looking for trouble in 2008.

On the web:

History of OASI and DI Trust Fund Operations

Table VI.F10. ---OASDI and HI Annual Income Excluding Interest, Cost, and Balance in Current Dollars, Calendar Years 2004-2080

Scott Burns, "Bad Guess on Social Security", Sunday, July 25, 2004

Scott Burns, "A New Kind of Deficit Is Coming", Tuesday, August 3, 2004