KRASTING and COBERLY in COMPLETE AGREEMENT…well not exactly
by Dale Coberly
I am glad you clarified your position. How you get from “the bond market is in a bad way because of the entirely forseeable payout from the Trust Fund” to… “Social Security needs to be reformed… by turning it into welfare”… is not so clear. It seems to me that if the government doesn’t like the consequences to the bond market of having to pay back Social Security by borrowing from the public, it could raise taxes. Say, back to the economy crippling levels under Clinton.
I don’t have anything to do with the way Angry Bear posts, but I will forward this to those who do. (Rdan…js kit has limits unless you pay a lot more, but send me a doc anytime)
What you are proposing is that the working people of America be hurt badly in order to make life easier for bond traders. I don’t buy the world will come to an end argument if the Bond traders go into a funk. But you would be right that I know nothing about that. I just don’t take kindly to being threatened by rich people. I’ve seen them do it too often.
by Bruce Krasting
Morning. I put a response to this together. You might actually like it. I have trouble posting on your comments page. This is long. I hacked it up to meet yourr requirements, (5k letters) but this makes it look silly.
Is there a better way to post this? I hate to do it a paragraph at a time. Can you over-ride those limits and post this for me? Let me know.
bk
(Rdan…There is almost no editing except to make this post flow in format. I hope it suits. I think this is better as a post and not in comments anyway)
KRASTING and COBERLY in COMPLETE AGREEMENT
Well not exactly. But I think that Coberly has done a good job of making my case. I will go through some of his latest comments to demonstrate how we agree. But first I have to try to insert into this discussion another of those “facts” that I rely on. This “fact” is outside of Coberly and Webb’s understanding, or if they understand it they fail to see the significance of it. In plain language:
If the US bond market becomes unstable all of the lights will go out. Including the lights at SS.
Angry Bear readers may not agree with that statement, they may think it another lunatic assertion by me. But this time I am right. If you disagree you are not well read on the issues of the times and you are living in a cave. There are endless academics that would agree with this and there is a very large chunk of the folks at the Federal Reserve and Treasury that would agree with it. Suspend your disbelief for a moment. Assume that this law of nature is in fact correct.
What might cause the bond market to become unstable? Many factors. Almost all of them are in place today. Crazy excessive deficits that are projected to exceed $1 trillion a year for the next decade are front and center to the problem. The dollar’s status as a reserve currency is another. Sentiment on this critical issue is very fickle, when it goes, it causes problems. There are a host of other issues including America’s cronic current account deficits. But now there is another factor that is not now being considered, and that is the status of the Social Security Trust Fund.
I ask Angry Bear readers to consider the implications of this headline should it ever occur:
“CHINA TO STOP BUYING US TREASURY DEBT. WILL SELL THEIR HOLDINGS OF $1 TRILLION OVER THE NEXT DECADE.”
We will not see that headline. China is not stupid. They know that if they took action like this it would have a devastating affect on the US capital markets. Interest rates would soar. The bond market would become unstable. Our ability to finance ourselves in an orderly way would be impaired. Interest rates would rise and the economy would suffer. China would suffer as well from their actions. Man Bites Dog.
There would be one of two results from this. Either it would precipitate a very rapid collapse or it would result in a slower pace (2-3 years) of collapse. Let me be very clear. The US can’t afford 8% interest rates. The cost of the deficit would eat us alive. We would not be able to sell new debt at a cost we could afford. These conditions would certainly cause a severe recession (or worse). In my opinion a failure of the bond market would be the mother of all systemic risks. Housing would collapse if mortgage rates went to 10%. Banks would be closing left and right as the economy loses jobs. Unemployment would explode. The number of workers contributing to SS would fall by as much as 20%. The ratios of total income (including the tax on benefits) would collapse. Large annual deficits would be the result to the Fund. They would have to sell back to Treasury their IOU’s to raise the necessary cash. But what would Treasury do? At the time this is happening Treasury will be in a desperate battle to sell the debt that is necessary just to avoid a functional default. The result would be that the checks would not go out as planned. Mr. Webb has said that in a worse case situation like this that is exactly what would happen. SS would wait until it has collect sufficient taxes to make the benefit payments. The implication of that is that we would be in a very dark and deep depression.
So if you buy into the consequences of China selling off its Treasury holdings how would you react to this very similar but more significant announcement:
SSTF TO STOP BUYING US TREASURY DEBT. WILL SELL THEIR HOLDINGS OF $2.5 TRILLION OVER THE NEXT DECADE.
I think we will get that headline. I think we are much closer than people think to getting that headline. I think we will get this news sometime in the next three years. When we get this headline it will make a difference, it will destabilize the bond market. It will be more significant than if China stopped buying (and started selling) our bonds.
Mr. Coberly agrees with my assertion that the economics of the Fund have been hit very hard as a result of the 08 and 09 recession. We disagree on what are the implications, and what should be done about it. For example:
Coberly writes:
I made a clear enough case that the cost increasing faster than the income was well understood and predicted a long time ago. that is what the trust fund was designed to take care of. it was always intended to “run out of money” to be replaced either by increasing the tax or cutting benefits.
BK: Yes Dale the Fund was always intended to run out of money. You are 100% correct. But no one anticipated that the ‘tipping point’ for this to happen would be 2009. We thought it was 2016. The recession of 08 has excellerated the time frame dramatically. That has been my point from the get-go.
Coberly writes::
what you are saying here is that the government has to pay back the money it borrowed from Social Security. what is there about paying back money that you borrowed that you don’t understand?
BK: I understand completely. But what you fail to understand is that to do so in the context of the other pressures on the bond market will result in a systemic problem. These are very big numbers we are talking about. Were it not for the other pressures on us fiscally I would not be so concerned about the SSTF become a seller of Bonds versus the traditional buyer. But those other pressures do exist. They are with us today and we can’t shed them. SS is going into deficit at a very inconvenient time.
On the critical issue that I have been trying to make re the bond market and the inter-relationship to the SSTF Coberly says:
You may be right. the Bond market may have put itself into a stupid position. This does not give you the right to cripple Social Security. What you are proposing is theft.
BK: Okay, so finally I am right about something. Coberly is spot on with this observation. Forces far outside of SS have put the bond market (aka the entire economy) in a ‘stupid’ position and this is in no way the fault of the Fund. But unfortunately the Fund will find itself being in the position of contributing to the instability that will follow from their actions. It can’t and won’t be allowed to happen.
Coberly writes:
Note that Krasting keeps making the same argument. He hasn’t even noticed the argument against him. He keeps arguing that the Trust Fund has gone cash flow negative, and may do so even more in the future. He keeps ignoring that it was designed to do that. It was created as a “rainy day fund.” He is complaining because his bond traders have been counting on it never being used. Because he forgot that’s what it was created for.
BK: Again 100% correct. I have made the case again and again that what was supposed to be happening in a decade or so is happening ‘today’. The Fund is doing EXACTLY what it was designed to do. But it is happening at a very bad time. Again, not the fault of the Fund, they did not cause the recession that has hurt them so badly. But, if as I assert (and I think that Coberly would agree to) that this tipping point is happening in 2010 and 2011 it is a very significant event for the broader economy and the markets.
Coberly writes:
the problems of the fixed income market are it’s own problems. the purpose of the Social Security Trust Fund is NOT to underwrite the fixed income market. if you have been counting on it to do so, you have been making a mistake. bond buyers often do.
BK:This sentence goes right to the heart of this entire discussion. Coberly is 100% correct when he says,” the purpose of the Social Security Trust Fund is NOT to underwrite the fixed income market”. SS was never intended to be the significant factor that is has become in the capital structure of the US. But it has, and that is just a reality. Coberly is equally correct when he says,” if you have been counting on it to do so, you have been making a mistake”. I have not been counting on SS for nearly a year. That is when I first noticed the significant acceleration of the timing for the FUND to go to negative annual cash flow. What I maintain is that this phenomenon that Coberly and I see happening is not priced into the markets. When this reality that we see becomes more broadly understood it will impact markets and the economy. That is all I care about.
Coberly views the Fund in a vacuum. He thinks that what goes on in terms of the ‘aging’ of the Fund is irrelevant to markets/the economy in general. He does not see the connection of a weak economy and the Fund’s ability to perform its obligations. I am surprised at that. To me, the 09 results confirmed that the Fund has turned a significant corner and it is doing it 5-6 years earlier than was thought possible just a short while ago. To me, that is a very significant.
This debate has become tedious. Let’s give it a rest for a while. We need to re-revisit the status of the Fund in six months. By then we will have a new Trustee report, we will also have six months of additional data. I believe that the Report will contain strong language on the need to address the growing imbalances. I believe that the monthly data that will come in will support that conclusion. As far as the Fund is concerned, 2016 has now become 2010.
I feel deeply frustrated at my inability to successfully convey my concerns regarding the Fund. I wish I were a more skilled writer. I wish I had the status of Coberly and Webb who can dismiss what I see and have people therefore ignore my concerns.
No, I am not an expert. I am a hack. But this hack sees trouble brewing on the topic of SS and how it fits into the “Big Picture”. I think it will be in the News and in the Markets before this year is over. We shall just have to wait and see if I am right or not about the market/economic implications of what both Coberly and I see happening in front of our eyes.
BK
So not only will China not buy Treasuries, but they would sell their existing Treasuries? Lets take this in two parts.
First, they will stop buying Treasuries. OK, so either 1) they don’t have any dollars, or 2) they will spend the dollars they receive in trade. If 1) then that means the US is not importing from China – we have either found another trading partner (who is accumulating dollars and will probably buy our debt), or we have decided to manufacture our own stuff – which would probably mean an increase in wages due to higher labor demand. If 2) then the dollars will either be exchanged with another country (who then holds Treasuries and has China’s “problem”) or the dollars will be spent in the US, raising aggregate demand – that’s good as long as aggregate demand does not outstrip capacity, otherwise inflation. Right now, we have excess capacity.
Second, they will sell existing Treasuries. Now, they will either wait until maturity to sell (not rollover), in which case they hand the US back a bond and we give them their principal in dollars (which do not earn interest), this extinguishes the bond, which reduces the debt. Why the Chinese would want a bunch of non-interest generating currency is beyond me. Instead, they would probably sell before maturity to someone else (at a discount), who is going to be in the same situation – do they sell them or get a bunch of currency on maturity. Eventually, the dollars need to return to the US to be spent – again raising internal aggregate demand – and wages. This entire exercise assumes that global trade has drastically restructured and no one wants to sell to the US market in exchange for dollars. Perhaps, but I find that a little far fetched.
You know, we had 8% interest rates and 10% mortgages in the 1980s – it didn’t end the economy, in fact Reagan got a lot of credit because he was in office when interest rates declined from the Volker intervention – and Reagan was running large deficits.
Look at Japan, they have been running huge deficits and issuing debt (primarily to themselves) and interest rates are virtually zero. They have other problems, but bank runs aren’t one of them. You can’t just make assertions and expect people to agree.
So what about Social Security? The government needs to issue debt to redeem the SS Trust Treasuries. At what level? $2.5 trillion over 10 years? $250 billion a year? The bond markets can’t support $250 billion in debt issuance a year? Give me a break. Now, if the banks need another bailout, there might not be enough debt capacity if the SS Trust is being redeemed – but that is a good thing – we don’t need the banks to think they have capacity available in case they fail – maybe they will take less risk. That might get rid of TBTF.
Remember, virtually all of the SS Trust Fund redemption will most likely go to spending, which will increase aggregate demand and hence provide jobs – the baby boomers gift to the next generation.
It does haunt me that Alan Greenspan was one of the architects of the trust and he doesn’t think fraud is something to be concerned about, so when someone wants to pull the rug out from Social Security, I think that was Alan’s intention all along.
Oh, let’s not forget the effect on China’s FX rate once they start selling the Treasuries – might get to par with the USD. That should effectively end global trade. Another reason why I doubt there will be a firesale on UST anytime soon.
What is so disturbing, yet so typical of the “SS in Crisis” purveyors, is Krasting’s persistence in drawing a line from the financial crisis to the ability of the Treasury to honor the TF Special Treasury Bonds as they mature. Then he suggests that this will exacerbate the financial crisis still more so. He admits and reiterates that the financial crisis was not the fault of the SS system nor the TF, but he then reiterates that there’s a crisis so something has to be done about it. Yes, sonething has to be done, but Krasting seems only able to point to the eventual beneficiaries of SS as the source of the corrections reguired to resolve the financial crisis. Why so?? Why not readjust the tax rates on all forms of income so that the government will have the resources to pay the debt it owes. Why stop at the tax rates under Clinton? Why not go back to the rate structure under Eisenhower and at the same time close all the loop holes.
Ours is a very wealthy country. Our problem stems in large measure from the fact that too few people control too much of that wealth and a proper share is not returning to the government so that the economic system can be maintained. That’s right, the government is responsible for maintaining the system of laws and processes that make the economy function. The banks are a part of that system, they don’t maintain the system. Krasting wants us to think otherwise, as do most of those who cry crisis. The only real crisis is the crisis of responsibility that our government has been subjected to over the past three or four decades. The elected members of the government seem not to understand who they are supposed to be responsible to.
I am sorry my reply to Krasting was printed above his post. It might leave some people thinking I had no answer. My answer is two-fold.
First, Krasting is dishonest… he may not know he is dishonest, but look: he began this whole exchange by yelling “Social Security is broke” (again not his exact words, but what he said anyway) and it needs to be turned into welfare as we knew it by means testing (again not his words, but what he said).
Now he comes back and says “oh coberly was right, it’s not a problem with Social Security, it’s a problem with the bond market (not his words, but what he said.) And the fix, apparently, is still to kill Social Security by turning it into welfare by means testing.
Now I don’t know anything about the bond market. I am more than a little suspicious about Krastings sky is falling claims about the bond market because they sound so familiar. And it seems to me the “fix” for the bond market is to raise the income tax enough to start paying down the debt, including the debt owed to Social Security.
it seems to me that Clinton did something very like that, while every Republican in Congress was screaming it will cause the economy to collapse. It didn’t. Now, the ever flexible Republicans will say, oh that was because of the Information Revolution. But they don’t want you to remember the whole Republican political position is that high taxes will prevent innovation. In other words, Clinton’s taxes should have prevented the Information Revolution according to Republican ideology.
So, I really do hope the politicians will realize they can raise taxes on the people who benefited from borrowing from Social Security…. they got lower taxes and they invested the money in sure things on Wall Street… and can now surely afford to go back to the tax rate that will balance the budget. This should save the bond market without forcing your grandmother to scrub toilets in the executive washroom at [insert bond trader name here] until she is ready for the nursing home.
“There are endless academics that would agree with this and there is a very large chunk of the folks at the Federal Reserve and Treasury that would agree with it”
Yes and we had the “Washington Consensus” about the “Great Moderation” that overlapped with a lot of those same endless academics and large chunk of Fed and Treasury folks. Didn’t make that a law of nature either.
And China does not appear to have $1 trillion in Treasury Debt. http://www.treas.gov/tic/mfh.txt
Now Setser argues that a good part of some offshore debt is really held on behalf of China and you can do what you like with Hong Kong holdings but still China has been maintaining his holdings steady for six months and right at 25% of all foreign holdings. It is interesting that this amount is always erring on the up side.
All through my teen and twenty something years it seemed that every bit of good news for workers was bad news for the bond market and so needed to be stomped out. NAiRU was the Feds God and too many people working for too much wages was reason to stomp the brakes on at the Fed. Worked for the Bond market, not so much for workers. I am getting more than a whiff of that here.
Otherwise what PE Bird said.
Mr Krasting is simply one of the “deficit terrorists” out there trying to badger govts around the world into austerity packages.
I’m certainly no bond market expert but I have learned (and ALL of you should go explore the ideas of Billy Mitchell, Warren Mosler and Randall Wray) much the last few months about what “deficits” and “debt” really measure. In addition I’ve learned that the IMF, the rating agencies and people like Mr Krastings “raison de etre” is scaring people into thinking that currency issuing govts like the US, China, England Japan and Australia can actually go bankrupt if the bond market “turns” on them. The take home message I’ve gotten is that the bond markets need the govts WAY MORE than the govts need the bond markets. Thats pretty much all you need to know. Mr Krasting and his ilk want to scare us into believing otherwise but the currency issuers RULE THE ROOST ………………………(If they have the balls to do it)
It was the China comments which gave him away. China has no ability to starve us of funds, we have all the US$ we want. China has dollars they got from selling us stuff and has two good options 1)Investing it in our stocks or bonds 2) Buying American goods. If they decide that number 1 is bad then they can resort to number 2 and give us a huge export stimulus.
The deficit terrorists need to be ignored
I’m trying to understand why the bond markets have anything to say with this.
Remember, the money got collected from all of us baby boomers and was used to purchase a special issue treasury (redeemable at par at any time – what a deal!). Now, the SS Adminstration takes the bond, walks over to the Treasury Department and asks for the dollars back and uses those to pay the boomers who bought the damn bond in the first place (this is all done electronically of course). And the bond is extinguished, so the debt goes down – and Congress now has more head room in the debt ceiling for deficit financing, if they so choose. The bond market can pound salt – they have no say in the matter. Which is probably why they are making a stink. Too bad.
So, no new debt gets issued when the SS Treasuries are redeemed. In fact – debt is reduced, and interest costs are also reduced (no more paying interest to those lazy dope smoking boomers). The debt will be reduced by $2.5 trillion over 10 years, but my bet is that Congress will find a way to spend an additional $250 billion a year. How about that for a headline: “BABY BOOMERS TO REDUCE FEDERAL DEBT BY $2.5 TRILLION”. Ooooooh – how scary – the bond market must be shaking.
The entire trust fund IS an accounting gimmick – but it IS a useful gimmick – thank god we have it so we can point to the financial assets we have legitimate claim to – the key point is whether our economy has sufficient capacity to provide goods and services to retirees.
SS and Medicare aside (there will be solutions that are painful there), I think we might turn to the topic of crazies in politics. I suppose most have read Limbaugh’s statements on Haiti, as well as Robertson’s. The two are influential people and that is very scary. They are next door to insane. Neither has a shred of Christian feeling and even less in the way of brains. I do hope nobody posting here has any use for either. If anyone does they should be profoundly ashamed of themselves. The fact that such people have influence is, in my view, far more dangerous to the USA than some fiscal problems with benefits. Those can be solved. Insanity is difficult to cure as are people who lack hearts.
After reading Krasting once more, I think I get his confusion. He seems to think that SS will have to sell their Treasuries in the bond market. I can imagine the bond market would like that – since if we were selling we would be taking a haircut and the bond market would get guaranteed income assets.
Unfortunately, the Special Issue Treasuries cannot be sold – but can be redeemed at any time. The SS Trust Fund does have some regular Treasuries – they could sell these I suppose – maybe some have rates at 6% or 9% – so would command a premium, but I believe the bulk of the SS Trust is in Special Treasuries.
At any rate, SS will get the funds to pay beneficiaries by redeeming the Trust Funds assets with the Treasury.
Coberly–Yes! Finally, somebody finally said out loud that when the Treasury borrowed the FICA tax revenues and invested them in special purpose bonds, every dollar borrowed reduced the amount of federal income taxes needed to pay for general government operations. All of them. This made it possible for the US to maintain a very low general income tax rate. As we now know, upper income taxpayers benefitted most from the generally low rates when their modest marginal rates were cut during the Bush II administration. What our tax rates should be is a matter of dispute. But, having benefitted from the use of payroll contributions, it would be helpful if higher income people began to make a more realistic contribution to the federal budget.
Jack:
Exactly and this is what I was trying to draw out of Mr. Krasting in the other Coberly post except he would not answer. The crisis evolved on Wall Street and sucked Main Street into the vortex of it’s malfeance. We were told we had to rescue Wall Street With TARP funds and not told the Fed would act in concert with the Treasury with a multipler of to each TARP dollar infused into Wall Street. The very same people who benefited the most from the 2001/2003 tax breaks, for the most part, are the ones who brought this country to its knees from which businesses have failed, people have lost homes and there jobs, and all face higher taxes in the future.
I didn’t see Mr. Krasting suggest anything about raising capital gains taxes or increasing taxes on those making >$500,000 annually to whom the 2001/2003 tax breaks favored to the tune of ~$1.5 trillon over 10 years. Instead, we hear cut SS benefits or raise taxes on payroll wages. Mr Krasting desires to have his cake and east it too and suggests for the rest of us to eat cake also.
PE:
I once had a 12% VA mortgage and was damn happy to have it. It went higher afterwards in the eighties.
Good analysis. There’s an awful lot of magical thinking out there. The money has to go somewhere. If China doesn’t want interest on the money we lend, we can oblige them. Their big problem is growing the economy without possibly losing political control, and their alternative is not growing their economy and definitely losing political control.
The US can survive just fine with 8% interest rates. We’ll just have to raise taxes on those who can afford them. We’ve done it in the past. We can do it in the future.
The crux of the magical thinking seems to be a bizarre worship of the existing set of financial institutions and their leading employees. The US could survive quite nicely if every last bank and investment firm went under. In fact, it would be an opportunity for the Fed to go retail. Given our collective willingness to indemnify risk, we might as well take risks lending directly to businesses that make and do things, rather than risks associated with those who do allocations.
“Yes! Finally, somebody finally said out loud that when the Treasury borrowed the FICA tax revenues and invested them in special purpose bonds,….” Nancy O.
Actually that analysis has been repeated here and on some other blog sites over the past couple of years. Your statement is correct, however, if it is focused on the mainstream media. The sad reality is that with media control concentrated in so few hands that message isnot likely to be more widely disseminated.
Well, everyone seems to be discussing yesterday’s news. The premise of this discussion, like so many things in this time, is wrong.
Of course bond yields are 2 std dev below what a healthy economy would demand. What were we talling about again ?
Oh yes, how wonderful low priced imported goods are, and how much they save the average American. The Brad DeLong argument.
Oh yea, they’re saving us a bundle.
Sandi:
At what cost . . . not a good topic to go too.
Given the fragil state of the recovery in the US I have consistently apposed raising taxes. I recognize the fiscal problem we face. I am very concerned with the current and out year deficts. But I still think raising taxes is a mistake.
I have not argued for any tax increase on America’s workers. I also think it would be very unfair to cut benefits by 13% across the board. For many, that would be a real hardship. That is not how we should do things in this country.
I have proposed that those who are elligable for benefits ((65+) who have taxable income outside of SS in excess of $100,000 (Bill Gates issue) simply forego their benefits. When they die their estate gets a tax credit equal to the benefits that they lost. This has the effect of stabilizing SS and it creates a reverse Intergenerational Tax.
Coberly and Webb say that is socialism. I am not so sure about that, but maybe they are right. Rather than putting a lable like that on this approach I would just call it, “The right thing to do”.
Read what I said. Please! I said you will never see that headline from China. I said that would hurt the Chinese as much as us. I said that is the same as ‘man bites dog’. I provided the China discussion as an intro to the headline where SSTF announces that it has to start winding down their holdings of Treasury issue IOUs. That is what Coberly thinks we should be doing. Fair enough but where do the chips fall from that? Right in our lap.
Mr. Coberly has said that it does not matter if the Fund sells $2.5t in Goverment paper over the next decade. I think it does. It would imply that public debt issuance would have to be increased by at least 25% each year for the next ten years. You think that does not matter? You are wrong. That is a very big deal should it happen. We will not like the results if that is the way this turns out.
Sorry PE you are wrong. SS redeems its holdings of Special Issue securities all the time. Every month. Very large amounts. More than a Trillion dollars went back and forth between the Fund and Treasury last year.
SS can’t sell its holdings directly to the public. That is a no no. But there is nothing to stop them from putting them back to Treasury under the formual that was agreed to in the 60’s. What the TF does with Treasury forces Treasury to sell (or buy) securities in the public market in equal amounts.
Treasury is the exclusive investment bank for the Fund.
Here is a link from the TF re their purchases and sales for 2009.
http://www.ssa.gov/cgi-bin/transactions.cgi
The bond market may have been able to absorb the extra $250 bil a year where it not for the recession. That screwed everything up. The CBO deficit projections are at least $1 trillion each year for the next 10. I am very concerned that there is simply not enough investors out there to absorb all of this without a significant and damaging rise in rates. And Coberly want to add another $2.5 trillion that has to be absorbed by the Public market. If the assumption here is this can be accomplished without a significant cost I think that is wrong. The US is already at risk of ‘crowding’ itself out of the bond market. Adding another $2.5 t is just going to make the problem worse.
Once again Coberly is spot on. The alternative is to raise taxes or cut benefits. (or a combo). To adress the imbalance the Fund has proposed a 2% increase in Payroll taxes. That sounds small. But it is not. I calculate that a 2% increase would raise taxes by $125b (do you agree Coberly?)
You show me an economist that thinks that raising taxes on the 160mm contributors to the Fund by $125b is a “good” plan. It is such a bad plan that I doubt it will be considered. The idea of offsetting the imbalance by cutting benefits by 13% across the board is also a bad plan. I don’t think that idea will get much considration either. So what is left?
We can debate the merits of any approach. I admit that all options ‘stink’. The question is what appraoch achieves the objective and minimizes the pain. I say take away the benefits of Bill Gates (and me). It should be considered as part of the options in my opinion.
Coberly objects on ideological grounds. So do I. I wish that Iraq and Afghanistan and the 08 recession never happened. But they did. And we are a poorer country as a result. We can stick our heads in the sand and pretend that is not true. Or we can do what every other generation has done when faced with a big challange. Suck it up and do what is necessary and right.
PE, Krasting is correct. Redeeming the SSTF treasuries will almost surely (int today’s economy) result in new Fed borrowing. His fallacy is in assuming the 10 year window.
In Nov 2008 Treasuy was predicting 2009 borrowing to be $1.4T. Adding another $250B annually (using his estimate) to this amount is not so devastating as Krasting predicts.
Why is a $250B annual increase in borrowing a problem when $787B and the other 2009 deficit spending not so frightening?
I don’t think the word ‘terrorist’ should be used in this context. That word has a special and ugly meaning. It should not be part of this discussion at all.
The more traditional description would be, ‘Deficit hawk’, the one I like is ‘Bond market vigilante’.
Call me a hawk, call me a vigilante. I like those lables. That is what I think of my self.
But calling me a terrorist is just stupid. It just makes the detractors of my views look collectively ugly.
Save that word for the real ‘bad guys’. I am not one of them and I don’t like being called one of them.
By putting that word here and in the prior post makes it certain that a few computers at CIA/NSA are on this link. I hope they monitor the ISN numbers so they can see who is talking this trash.
$787b is incredibly frightening. At least it is to me. Add in the ‘Coberly Plan’ and it becomes 30% more frightening.
I like the label “snake oil salesman.” It has the ring of the truth. Selling snake oil requires that one takes facts and figures and misrepresents their likely results. You keep complimenting Coberly while at the same time saying that his facts may be right , but his conclusions are wrong, but he’s saying the same thing that you are saying, but your interpretations are better than his, but you both agree on all the substantive points and we agree to disagree. Your’s is an excellent effort ot obfuscate the issue. I suspect that you learned well from Mr. Milken, but you should keep in mind that even he was finally shown to be selling a silk purse made from a pig’s hide. That’s what you’ve been doing here and on your own blog and else where. If the bond market can’t take the weight of Treasury borrowing then maybe the tax laws of the late Clinton period need to be reinstalled.
Bruce,
Call me a hawk, call me a vigilante. I like those lables. That is what I think of my self.
How about if I call you a pigeon for agreeing with Coberly. These guys don’t want any changes to the system and feel any criticism puts us on a sliperly slope to maybe going to private accounts, means testing, or cutting benefits. They’re against all these things and feel FDR’s legacy is sacrosanct. That’s why they tracked you down and jumped all over your ass (they also did it because the rowdy and like a good fight).
And don’t worry about Jack[ass] since he’s a sanctioned troll.
Bruce,
Call me a hawk, call me a vigilante. I like those lables. That is what I think of my self.
How about if I call you a pigeon for agreeing with Coberly. These guys don’t want any changes to the system and feel any criticism puts us on a sliperly slope to maybe going to private accounts, means testing, or cutting benefits. They’re against all these things and feel FDR’s legacy is sacrosanct. That’s why they tracked you down and jumped all over your ass (they also did it because they’re rowdy that like a good fight).
Krasting
you continue to ignore the “pay our damn bills” option.
coberly
coberly doesn’t say anything about socialism. he says that means testing social security would be a huge mistake. it would turn social security into welfare as we knew it.
what you are saying is that a small tax raise on the people who borrowed the money would be more unfair than stiffing the people who lent it.
this “we can never raise taxes” is the insanity that has brought us the “great recession” and will kill this country if we can’t cure ourselves of it.
coberly
coberly here
i have no idea what 125 billion dollars is. a tax increase of 20 cents per week this year, and next year, and the year after that, would make social security solvent forever. i hate to talk about the ultimate increase because most people are too damn dumn to understand that a large amount of money 75, or 40 years in the future is not the same as a large amount of money right now, or that they will need a large amount of money if they want to retire.
say it again: the ultimate tax raise would be 2% for the worker and for his employer. that would come at a time when wages will have increased by 100%. the worker will have twice as much money AFTER taxes, AND he will have paid for his longer life expectancy after retirement.
this won’t help Krasting because he keeps chasing his own ideological tail and no light can enter his universe from outside. my position is not ideolgical. i am just talking about what the average worker needs to save for his own retirement, and observing that Social Security is the safest way anyone has ever devised for average workers to save their own money for retirement.
me and Eisenhower, a noted ideolgue, agreed about this.
coberly here
\Krasting can’t read. he keeps hearing his own voice echoing back to him and thinking it is coberly’s.
i never said that paying back the 2.5 Trillion won’t matter. I said Social Security is not going broke. I also said that I thought that raising taxes on the people who benefitted from borrowing the money from social security… about 1%… would be a more honest fix than borrowing the money from the public, or even raising the payroll tax now… which would also work.
But Krasting will settle for nothing except destroying Social Security to “save the Bond Market from the sky is falling.”
Krasting keeps it up. The coberly plan does not require borrowing from the public.
When a person persists in being stupid, i start to think he is just trying to confuse the masses.
Krasting
you are so sensitive. you come into the room shouting that you have to strip search my grandmother and force her to work until she drops. and then you complain that we are so mean to you by calling you a terrorist. sorry. killing a hundred people with a bomb is much kinder than sentencing 200 million people a generation to work to death.
BK, you and any other rational American know that the only solution to this is getting folks working. Something this administration has deemed less important than its political gains. More wage earners makes nearly all this go away or delays it to a potentially better economic time.
Where’s the proof that a 30% increase in Fed treasuries is a bad thing? Continued increased spending with the 30% increase might be bad, but at this juncture it is all conjecture. Even this administration can learn. Slowly, but they do appear to be learning and leaning toward implementing what has actually worked in the past.
Economists and bond traders? I’m not quite so sanquine.
Cantab
you are a well known idiot. i have proposed a change to the system: a tax trigger in the law that would adjust the payroll tax rate to reflect the reality of the cost of the insured event. i have shown that current predictions by SSA indicate such a tax trigger would result in a one tenth of one percent increase in the payroll tax about once in four years over the next seventy five years, with every reason to believe that no more increases would be needed after that. in any case we don’t need to be making policiy two or three generations ahead of our time.
Guest,
get lost until you learn how to log in.
Jack
Maybe you’re right. We should have a big tax increase. I think not, but there are lots of opinions on what is right or wrong.
A question for you? Do you think a tax increase in doable in the current enviroment? Do you think the President or Congress is going to recommend that? No chance. It would be suicide.
If you agree with this as being the reality (versus what is right or wrong) what would you propose to do?
krasting
not a big tax increase. a small one. it’s doable if 50% of the congress has enough intelligence to do it. the other 49% will holler bloody murder, and the people will grumble. but it will fix the problem.
you are a spoiled child. you have the one fix that will fix them all: kill social security. you won’t hear any other fix. and you won’t even allow us to use words like normal human beings. have you been a psychopath long?
Cantab
i am keeping my name secret in case i run into you in a bar somewhere.
Of course redemption and purchase goes on all the time – the point is when planned NET redemption occurs. Sorry was not more clear. Note, I also see that regular Treasuries are no longer part of the SSTF.
Realize that no additional federal debt is required – it is a rollover which changes the debt composition. The debt ceiling does not have to be raised. To the extent that the economy demostrates that it can function with the then current debt load when net redemption occurs, there is little reason to see any problems rolling over the debt.
My point was that in contrast to the headline “SSTF TO STOP BUYING US TREASURY DEBT. WILL SELL THEIR HOLDINGS OF $2.5 TRILLION OVER THE NEXT DECADE.”, you also need the headline “BOOMERS TO EXTINGUISH $2.5 TRILLION OVER 10 YEARS”.
BTW, if we are going to be in this kind of economy for 10 years, then Social Security is the least of our problems.
And I agree, the 10-year timeframe is completely unrealistic – but even so, $250 billion a year rollover is not a big deal, but we will be looking at something much smaller anyway.
Of course, to the extent that there is no longer an annual SS surplus, then Congress will need adjust their budget accordingly – either raising revenues, cutting spending, issuing additional debt or some combination. Big deal.
Just as an aside, the $250 billion number being thrown around represents, if paid by only the top 1% of income earners, an additional 12.4% income tax – bringing their total fed income tax rate to 34.9%. This is based on 2007 IRS data.
Now, I am not suggesting this as policy but just to illustrate that $250 billion sounds huge, but this is not unmanagable – I think we have more serious economic problems elsewhere.
DC is recognizable from the clarity of his presentations and the lucidity of his thinking. You having no such similar characteristics would be unable to recognize them in others.
actually,
i think i can guess how much 125B is. its about 400 dollars per taxpayer. somehow i think most of us could afford 400 dollars to secure our retirement. and i sure as hell think the people who borrowed it could afford to repay it.
I don’t want to interrupt the thread of this discussion, but I just want to say “thanks” to the host of this blog for posting this and the discussion thread. I’m a Ph.D. scientist, full professor and associate dean, and therefore know well my strengths and limitations. I keep returning to this blog because it continues to teach me.
A final thought:
Coberly rules!
Guest,
i am keeping my name secret in case i run into you in a bar somewhere.
I’ll buy you a drink if we do, I think you need one.
I’m sorry. What about this am I missing? This is a wealth distribution issue. This is not an armageddon issue. The only people wanting to make this an armageddon issue are those with the wealth trying to protect every last dollar of it. Krasting’s comments are simply absurd. The idea that the redistribution effects of social security alone are going to crater the economy and the bond markets is absurd. This is a highly interconnected system and pointing to social security as the one demon that “if tamed, everything would be OK” is preposterous. There are many other things that could be corrected to counterbalance any deleterious effects of social security spiraling out of control. “OMG! No economist thinks higher taxes is a good idea for the economy!” FAIL. Depends on perspective.
I understand Coberly wants to make it a moral issue because “people paid into the system.” Whatever. Though I’m sympathetic to the ultimate results of what Coberly proposes, I’m going to go all cliche on you with “you eat what you kill” and “you ain’t promised tomorrow.” I think we should have a social insurance system (disagree? fine, vote that way), and I’m happy masking it in this “I paid my FICA taxes, dammit, and I’m getting all my money” collective delusion (which of course makes it not really insurance, but again, whatever), and I’m fine with you imagining that there is such a thing as the moral high ground, but I’m not fooled by it and lots of others aren’t either. I’d rather live in a world with social insurance, I’m going to continue to vote that way, and I’m not going to be threatened by the wealthy elites like Krasting crying that sky is falling when his policy promotion just “happens” to coincide with his private interests.
Jack,
DC is recognizable from the clarity of his presentations and the lucidity of his thinking.
Do you take drugs?
I think the term terrorist applies. Advocating austerity measures is equivalent to shooting random people in the face. It’s especially evil when it isn’t necessary.
I second PEbird’s suggestion to read MMT / Chartalist literature from Warren Mosler, Bill Mitchell and L Randall Wray.
http://bilbo.economicoutlook.net/blog/?p=332
http://moslereconomics.com/2009/12/10/7-deadly-innocent-frauds/
Those doubting the bond market vigilante’s power over the USG are correct and reading the pieces above will explain why.
guest
thanks, i guess. i don’t know what would qualify as a “moral issue” for you. if you deposited your money in the bank and then when to get it out and the bank said, no can do. the board of directors needs it for their annual trip to vegas, would that offend you morally?
if you “ain’t promsed tomorrow” then the whole banking system and everything that depends on it collapes. even that goddam dollar in your pocket is a promise to pay tomorrow. you could give up on dollars and just carry around a bag of gold dust, but experience showed, i think, that that was not the most efficient way to grow the economy.
thanks joel
Krasting:
It is a nice thought; but, what you are proposing would impact ~400,000 taxpayers making greater than $1 million if that was the number you were using as a cutoff. If it in the Bill Gates income the numbers of tapayers will be far smaller and would have little impact on the total bill.
It you really wish to fix the problem change the way capital gains are taxed.
Krasting(?)/Guest:
It is a nice thought; but, what you are proposing would impact ~400,000 taxpayers making greater than $1 million if that was the number you were using as a cutoff. If it in the Bill Gates income the numbers of taxpayers will be far smaller and would have little impact on the total bill.
It you really wish to fix the problem change the way capital gains are taxed.
Since the enactment of the tax cuts during the early Bush II administration the wealthiest Americans have enjoyed a bonanza of additional income. That coming on top of the increasing share of the income pie that they have been enjoying during the past three decades. Yes, there needs to be a rebalancing and the wealthiest Americans have to start to give some back to the government that has made their lives sweet at the expense of the rest of the country.
You are a knave in the most severe sense of the term. You are tolerated to the discredit of the blog. You talk and think like an immature adolescent. The only good thing that I can say in your regard is that you have no influence on the discussion though you do waste a lot of space.
Social security is welfare. Why don’t we just make that explicit by means testing it.
The whole program was a big lie designed to win votes anyway.
“Social security is welfare.”
Uh, no. Social security is insurance. If you don’t understand the difference, you need to be quiet and learn.
pebird,
Can you e-mail me??
taxpayer:
If it was designed to win votes, it certainly did as a part of the much larger New Deal for US citizens. His vote against Landon was ~22 million votes and in the later election, it was 27 million votes. Of course this came after doing what he said he would do.
Social Security is not welfare and far from it as anyone who works for “payroll wages” contributes to it. This includes the poorest of the poor who may be exempt from federal and state income tax. That the poor must contribute eliminates the welfare statement you made. Anyone who lives solely from the proceeds of capital gains may escape the SS Withholding taxes applied to payroll wages. If anyone was thinking of a way to enhance SS, Medicare, and Medicaid revenues . . .
As far as Social Security being a lie? I am not sure what you mean there as it is fiscally viable contrary to what the naysayers proclaim on Social Security.
I’ve read and enjoyed both AB & BK’s blog before, and have just waded thru the entire (multi-day) exchange & reader comments to form my own view (yes, I’ve too much time on my hands). I’m certainly no expert and lack any qualifications beyond a bachelors, macroeconomic self-study, and interest as a citizen, but here’s my question on the issue and thoughts on the blog debate.
Question:
1) somewhere in the crossfire the point was raised that the SSTF actually earns a return from holding Treasuries, hence allowing it to pay back to recipients more than was collected from them. Undoubtedly, within a narrow perspective of the SS program this is a good thing … yet as those same recipients are taxpayers and must (admittedly: “ought”, but Fed gov’t general fund is a separate argument) pay more in taxes to cover that interest … that strikes me as a wash (left hand paying the right hand). Thoughts?
I’ve read and enjoyed both AB & BK’s blog before, and have just waded thru the entire (multi-day) exchange & reader comments to form my own view (yes, I’ve too much time on my hands). I’m certainly no expert and lack any qualifications beyond a bachelors, macroeconomic self-study, and interest as a citizen, but here’s my question on the issue and thoughts on the blog debate.
Question:
1) somewhere in the crossfire the point was raised that the SSTF actually earns a return from holding Treasuries, hence allowing it to pay back to recipients more than was collected from them. Undoubtedly, within a narrow perspective of the SS program this is a good thing … yet as those same recipients are taxpayers and must (admittedly: “ought”, but Fed gov’t general fund is a separate argument) pay more in taxes to cover that interest … that strikes me as a wash (left hand paying the right hand). Thoughts?
Thoughts:
1) Sorry AB writers, but in your zeal to defend the SSTF you have:
a) failed to recognize Krasting’s blog & arguments as a “forest” view instead of your focused “tree” view
b) consistently put words in Krasting’s mouth and criticized them
c) failed to address his concerns of the long-term implications from reduced SS revenue (“just raise payroll taxes 2% 10 years earlier” is the type of implication he is concerned about, and yes, these have larger macro implications)
d) been over-the-top snarky and come off as extremely arrogant
2) I understand Angry Bear’s underlying philosophy regarding SS payments (don’t fail to deliver on promises – no “means testing” or benefit % reductions), and hence their motivation in confronting Krasting’s initial post … but their view strikes me as simplistic. Yes, the gov’t can find a way to pay back every single $ owed to the SS program … but, perhaps, by undermining the value of that $. I’d rather receive $.80 value on a stable value dollar than receive $1.03 (interest, ya’ know) on a dollar devalued by 50%. This issue is inextricably linked to the entire fiscal condition of the US gov’t, and is one reason why Krasting is so worried … but Angry Bear fails to recognize it. Dismissing this issue as “Bond Traders can be unhappy, so what” utterly fails to address the fact that the Bond OWNERS are the ones who’ll take the hit and make things uncomfortable for the gov’t to finance debt… and perhaps lead to more printing & hence devaluation?
Thoughts:
1) Sorry AB writers, but in your zeal to defend the SSTF you have:
a) failed to recognize Krasting’s blog & arguments as a “forest” view instead of your focused “tree” view
b) consistently put words in Krasting’s mouth and criticized them
c) failed to address his concerns of the long-term implications from reduced SS revenue (“just raise payroll taxes 2% 10 years earlier” is the type of implication he is concerned about, and yes, these have larger macro implications)
d) been over-the-top snarky and come off as extremely arrogant
2) I understand Angry Bear’s underlying philosophy regarding SS payments (don’t fail to deliver on promises – no “means testing” or benefit % reductions), and hence their motivation in confronting Krasting’s initial post … but their view strikes me as simplistic. Yes, the gov’t can find a way to pay back every single $ owed to the SS program … but, perhaps, by undermining the value of that $. I’d rather receive $.80 value on a stable value dollar than receive $1.03 (interest, ya’ know) on a dollar devalued by 50%. This issue is inextricably linked to the entire fiscal condition of the US gov’t, and is one reason why Krasting is so worried … but Angry Bear fails to recognize it. Dismissing this issue as “Bond Traders can be unhappy, so what” utterly fails to address the fact that the Bond OWNERS are the ones who’ll take the hit and make things uncomfortable for the gov’t to finance debt… and perhaps lead to more printing & hence devaluation?
Thoughts:
1) Sorry AB writers, but in your zeal to defend the SSTF you have:
a) failed to recognize Krasting’s blog & arguments as a “forest” view instead of your focused “tree” view
b) consistently put words in Krasting’s mouth and criticized them
c) failed to address his concerns of the long-term implications from reduced SS revenue (“just raise payroll taxes 2% 10 years earlier” is the type of implication he is concerned about, and yes, these have larger macro implications)
d) been over-the-top snarky and come off as extremely arrogant
2) I understand Angry Bear’s underlying philosophy regarding SS payments (don’t fail to deliver on promises – no “means testing” or benefit % reductions), and hence their motivation in confronting Krasting’s initial post … but their view strikes me as simplistic. Yes, the gov’t can find a way to pay back every single $ owed to the SS program … but, perhaps, by undermining the value of that $. I’d rather receive $.80 value on a stable value dollar than receive $1.03 (interest, ya’ know) on a dollar devalued by 50%. This issue is inextricably linked to the entire fiscal condition of the US gov’t, and is one reason why Krasting is so worried … but Angry Bear fails to recognize it. Dismissing this issue as “Bond Traders can be unhappy, so what” utterly fails to address the fact that the Bond OWNERS are the ones who’ll take the hit and make things uncomfortable for the gov’t to finance debt… and perhaps lead to more printing & hence devaluation?
3) Compliments to Bruce Krasting for his civility in the face of all that, as well as his calm request to avoid out-of-bounds name-calling (i.e, terrorist). Angry Bear and many of its commenters would benefit from a larger dose of maturity. We’re all in this together, people.
P.S. — Sorry about the multiple posts above. JS-Kit was telling me it wasn’t posting, so I clicked it a few times too often…
There is no NEED to raise public debt, now or in the future, so your fear that debt issuance will go up 25% each year for the next ten is misplaced. The tying of govt spending to govt debt is a political NOT an economic reality. We could change that right now if we wanted to and it would have very little affect. Yes there would be some angry bond traders but letting a group of bond traders determine our monetary policy is not smart monetary policy. Bond traders are self serving capitalists, AS THEY SHOULD BE, but they should be responding to govt spendind decisions not DICTATING them.
You are correct Mr Krasting, terrorist is an ugly word and should be used sparingly.
The deficit “hawks” you seem to like associating yourself with openly “terrorize” currency issuing entities with threats of eminent defaults, poor credit ratings (from the same guys who rated subprime mortgage CDO’s AAA) and lack of IMF support if they dont start adhering to their IDEOLOGICALLY preferred austerity packages.. Of course this is after they have been openly derided as “profligate spenders” then socialists or communists and free market adversaries.
The question I have is why? Why is it ‘better’ to listen to the deficit hawks and not spend on Job Guarantee programs or massive infrastructure and education/ health care improvement?
If your answer is anything similar to “Well I dont necessarily oppose those things but we have to figure out how to fund it” then I am going to have to call BS. It is not necessary for currency issuers to “fund” anything in the manner you suggest. We have placed those ideological/political constraints on ourselves but the nature of our system does NOT require it.
Jeff Rosenberg:
The USG does not have to issue debt to finance it’s spending. Despite the conventional wisdom saying otherwise, I think we have seen plenty of evidence that the bond owners don’t have much influence. If war and TARP spending haven’t pushed the bond owners over the edge, I think the onus should be on the deficit terrorists to prove that funding SS will be the last straw. Just re-asserting the conventional wisdom isn’t going to cut it.
And to hyper-inflation terrorists, Zimbabwe’s situation started with a huge collapse in SUPPLY. Plus there are simple and fool proof ways to soak up excess dollars when necessary – they’re called TAXES.
Jeff
Bond owners NEED not make it uncomfortable for the govt to finance anything. The choice to match govt spending $for$ with bond issuance is NOT a necessity. It is a needless constraint placed on ourselves a remnant of our gold standard days. I realize old paradigms are hard to revise but the reality is we are NOT required to permit bond traders to act as currency issuers.
If all the things you are fretting about are sure to doom our currency why has Japans currency remained strong in spite of twenty years of increasing govt debt, higher than we had during WWII?
Jeff65
You’ve been spending time at Billy Mitchells site havent you?
Jeff Rosenberg
but your analysis is like an impressionist painting. you haven’t a clue what you are talking about but you know it’s big and scary.
paying the debt to social security is simply the legal and moral thing to do. hollering oh we are so poor we just can’t raise our taxes 1% is simply a bunch of crap. sometimes snarky and arrogant is what you have to resort to when people persist in being stupid and dishonest.
i never put words in Krastings mouth. i summarized what he said in colorful language. if you have never seen that before you are illiterate.
paying your bills will not undermine the dollar.
Rosenberg
your analysis is simply hand waving. you don’t know what you are talking about but you know it is big and scary. raising your taxes 1% to pay the debt to social security will not cause you any material discomfort whatsoever.
i did not put words in krastings mouth. i summarized what he said. if you have never seen that before, you are illiterate.
sometimes you have to be snarky and arrogant when the guy you are talking to insists upon being stupid and dishonest.
How old are you, 14?
Pay roll taxes are capped. This means, that relative to their income poor and middle class people pay a higher share of their income in payroll taxes. Subsidizing the general budget – items like military or infrastructure spending – from the pay roll taxes therefore amounts to a regressive tax.
For the “tax payer” as such it is a left pocket/right pocket issue. For the individual tax payer it has influences on the amount he pays.
Jack,
You’re a run-of-the-mill jack-ass.
1a) You are wrong. It was addressed by saying, the general budget has to come up with something. There are a million ways to do so. To name just a few: increase income taxes, increase capital gains taxes, issue more public debt, decrease military spending, increase taxes on corporations, etc.
It is not the issue of the discussion to define what exactly should be done, as social security doesn’t depend on it.
b) the main authors summarized Krasting’s word correctly, some other commentors made outlandish claims, so what?
c) you are wrong, in the long run (not in the next few years) to increase the payroll taxes somewhat has no big macro effects. The macro effects from the changed incentives from 2% additional taxes are very minor. The most negative macro contribution comes from the increased marginal tax rate. Think again 2%!
The proposed health care reform would add >20% to the marginal tax rate for people with less than 400% the federal poverty level.
If the 2% have a measurable effect you don’t need to worry. Long before the increase in the payroll taxes the health care reform will have killed your economy.
d) In the face of extreme stupidity by Bruce Krasting, you basically either take him as the clown he is, or you will become somewhat insulting. Such is live.
2
Your assumptions are completely unrealistic. Reduced payments from SS are basically the same as a tax special to elderly people with > 100k income. To put such a tax not only on elderly, but as well on younger people will not change the short term economic outlook dramatically, actually it will improve it.
The US is currently facing a lack of demand, not supply. The additional unsecurity produced by making SS subject to arbitrary changes will make people saving more money. Especially those, who are subject to the supposed change.
You fail to understand the importance of SS being insurance and not welfare. This is not just a moral or philosophical issue. It has hard economic results if people take SS payments for the time when they will retire for sure, or are unsure, if they will get something. Introducing means testing is equal to say it is just a gov’t programm as any other is equal to say, it may be abolished in the future.
Where do the $ that Treasury uses to pay the redemption come from? Oh, they are printed by that Treasury (currency issuers rule the roost after all). The Boomer generation has never “Suck it up and do what is necessary and right.” so my bet is on continued gridlock on fiscal policy. This leaves only one tool to balance out accounts – inflation. Just looking for the right signal………