Moody's: Government Likely to "Default" on Social Security Promises

September 23, 2000

The Social Security subcommittee of the House Ways and Means Committee held a hearing this week on the burdens of an aging society. Among the witnesses were Vincent J. Truglia, Managing Director and Co-Head Sovereign Risk Unit, Moody's Investor Services , who said:

"What we have concluded at Moody's is that almost every country will 'default' on its pensions. What do I mean? When we talk about default on a financial obligation, basically what we are saying is that the obligor does not meet the original terms of the contract. In some way the contract is broken. When we look at present pension promises, it is clear that the promises various governments are making to their people will not be met according to the present terms of the implied contract."

In short, Moody's - whose business is judging the default risk of corporate and government debts - has judged that the true risk of default from implicit government debts like Social Security is far higher than many suspect.

Social Security does not need to be “saved,” it needs to be improved, which can be done by calmly making gradual changes. Panic fueled by opportunistic politicians and investment firms poses the only serious threat to the program.

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