The editorial July 5 serves up a pure'e of long-discredited arguments about the alleged deficiencies of Social Security financing.

The Social Security trust funds collect more money than they pay out. Those excess funds, contrary to the contention of the editorial, do not simply get commingled with all public funds, but do get saved. The editorial implies that true savings would consist of putting the excess dollars in a strong box and holding them until the time came to pay them as benefits. Lawyers and economists and bankers would call that waste. All trust funds -- public and private -- invest any such surplus.

So the Social Security trust funds are invested in U.S. Treasury obligations, much as private savings frequently are. Once borrowed, Treasury uses those funds for all lawful governmental purposes. Only in that sense do they go into defense expenditures and other governmental activities.

The 1983 Social Security amendments require that beginning in 1993 Social Security accounts must be stated separately from the remainder of the U.S. budgets. However, even today it is no big trick to separate the non-Social Security activities of the federal government to see that they exceed tax revenues, nor is it possible to screen general government deficits, attributable primarily to titanic current and past defense expenditures and debt service, with Social Security surpluses. That game, if not already over, soon will be.

It is projected that in the 2020s or 2030s benefits payments will exceed Social Security tax collections. At that time, the Treasury will have to pay off the bonds held for Social Security. It will do so from then-current revenues, just as with any bonds -- public or private.

Meanwhile, the Social Security surplus investments in Treasury bonds will, if Congress is prudent about deficits, force private investors to put their investment funds into private undertakings where (if not squandered in takeovers) they can add to the capacity of the economy to produce goods and services.

As two who have studied the system, we'd have to say the editorial does not illuminate the alternative policy choices about Social Security surpluses that will face us in the 1990s. MERTON C. BERNSTEIN JOAN BRODSHAUG BERNSTEIN St. Louis