The Congressional Budget Office said it was wrong on Wednesday. It now projects that Social Security will run deficits every year for the rest of the fund’s life. In essence, the cbo admits that Social Security is officially insolvent.

Previously, the cbo reassured retirees that although the fund had gone into the red for the last two years, it would shortly return to surplus. The fund wouldn’t permanently start paying out more than it collected until at least 2016, it said.

The cbo apparently underestimated the length and depth of the current economic downturn. And it obviously underestimated the incompetence of Washington politicians. Last December, the Obama administration approved a reduction in Social Security contributions—lowering the Social Security tax from 6.2 to 4.2 percent.

The result is that the Social Security deficit will swell from $45 billion to $130 billion—and will progressively continue to lose money until it runs completely dry in 2037.

Politicians say they will pay back the money. But the federal government already borrows around one third of all the money it spends, so to pay it back the government will probably be forced to go further into debt.

Although Social Security is now disbursing more than it collects, the cbo reports that the fund still has approximately $2.5 trillion in it. But that isn’t accurate. The reality is that the federal government has already spent all the Social Security money. There is no money in the fund. What is there is government treasury bonds—which are simply government promises to pay.

It is true that those government bonds could be sold on the open market to investors in China and elsewhere, but if interest rates were ever to rise, the value of the bonds in the Social Security fund could plummet in value—putting the fund in even worse shape.

The new cbo forecast also reveals that some parts of the Social Security program are in even worse shape. The portion of the fund that provides payments to those with disabilities will be completely out of money in seven years—unless the economy worsens, in which case the fund could go dry sooner.

For the past 30 years, the Social Security fund has generated huge surpluses. If the government had not “borrowed” the money to spend on other programs, there would be enough cash in the fund to purchase ownership of almost every single stock listed on the London Stock Exchange. Conversely, every single company listed on Europe’s Euronext stock exchange could have been owned by Americans. What a missed opportunity.

Over 54 million people receive retirement, disability or survivor benefits from Social Security. As America’s 80 million baby boomers begin to retire en mass, the strains on the system will grow exponentially.

Politicians, however, say people shouldn’t worry. America will be able to borrow enough money to pay the bills for the foreseeable future. The treasury bonds in Social Security are backed by “the faith and credit of the United States government,” says Sen. Bernie Sanders, an Independent from Vermont. “It is the same faith and credit that enables us to borrow from rich people and from China and from other countries. … [I]n the history of this country, the United States has never defaulted on one penny owed to a creditor.”

These are the same politicians that have “officially” indebted America to the tune of more than $14 trillion—and unofficially to the tune of more than $60 trillion when promises made (but not funded) to Medicare and Medicaid are included.

Social Security recipients beware: America’s credit history is also not quite as sterling as Mr. Sanders claims. The first time America defaulted on its debt was in 1790, when it stiffed both domestic and international lenders. In 1841-1842, nine states repudiated their debts. Thirty years later, during another sharp economic downturn, another 10 states defaulted on their debts. Then, most recently and notoriously, America defaulted on its gold debts in 1933. And several states look like they may be getting ready to default on debts during 2011 or 2012.

For more information on the coming economic crisis, read “Pensions Versus Bondholders: Who Will Win?”