Alan Simpson on Social Security
I have no words for this e-mail to OWL by Alan Simpson on Social Security:
I’ve made some plenty smart cracks about people on Social Security who milk it to the last degree. You know ‘em too. It’s the same with any system in America. We’ve reached a point now where it’s like a milk cow with 310 million tits! Call when you get honest work!
There are plenty who have weighed in, some of them major organized voting groups such as AARP. Alan Simpson also has other views regarding “the federal deficit” not worth exploring except he still is co-chair on the Deficit Commission.
Update: Mr. Simpson’s apology is here… http://library.constantcontact.com/doc209/1102372204926/doc/nP49Pz07tDokfhHd.pdf
“I can see that my remarks have caused you anguish, and that was not my intention.”
Update 2: Ms. Carson’s response is here…www.owl-national.org
apologies are cheap. the fact that he said what he said tells us a good deal about the quality of Simpson’s mind. It’s not as if we had not had other examples. Simpson is reliably wrong as to the facts, and damnably wrong as to the morality.
Note well: I am not a bleeding heart liberal. I do not defend Social Security because it’s a way to be nice to the poor. I defend Social Security from the criminals who are trying to steal it from the poor. The poor pay for it themselves.
Mr Simpson apparently has enough intelligence to “apologize” when he realizes he has said something politically stupid. But let us not imagine he didn’t mean what he said… to the extent that a nasty ignoramus can ever be said to mean what he says.
The issue is simple, Coberly. The current and future cash shortfalls of the Social Security OASDI trust funds place a financial redemption obligation on the U.S. Treasury which in turn will provide the monies necessary to support the mandatory funding obligations of the Social Security Administration. If sufficient cashflow isn’t available from the General Fund, the U.S. Treasury will borrow funding on the open market, incurring obligations which be applied to the General Fund and future budget planning. Technically, the SS OASDI cash shortfalls create funding shortages for the U.S. Government’s discretionary spending programs absent Treasury action to secure more publicly held debt in support of authorized discretionary programs spending approved in the General Fund budget.
The mandatory spending programs’ funding obligations over time crowd out discretionary spending levels not supported by further deficit spending authorizations. There is no question that funding needs driven by cash shortfalls in any mandatory spending programs have a direct impact on future U.S. Government deficit spending levels supported by publicly held debt. Hence, there is a relationship between the cashflow funding needs of Social Security’s OASDI benefit payment obligations, its two trust funds, and, ultimately, the General Fund due to the projected financial redemption obligations that will come to bear on the General Fund and U.S. Treasury.
Your closing remark serves no meaningful purpose in my judgment as the projected budget deficits and Federal debt analyses provided by CBPP are conservative estimates. There is no question that the U.S. Government is presently on an unsustainable financial obligation path. CBPP provided a reasonable presentation of that situation. You might consider reading the reports instead of providing the usual uninformed dismissal of projected Federal revenues and expenditures.
I noticed that John Rother and you have already challenged Eric Schurenberg’s ‘Social Security in 2015: Red Ink Returns for Good’ piece on Social Security funding and benefits. I suggest that Eric’s presentation is reasonably fair considering the demographic changes that are underway. He is probably correct is saying that attitudes will change.
Didn’t we do this one already, or am I just remembering because I was here?
I have read your DoD pieces. Good effort.
There is no likelihood, though, that the DoD and overall national security budgets will be reduced sufficiently to cover the projected General Fund budget shortfalls. Pipe dreaming is fine, but it’s time for a bit of reality to kick in on the Federal revenues and expenditures front. We might see a $300-400 billion reduction, but not the whole nut.
The projected growth in interest payment obligations is rather conservative. That’s the one that troubles me. A strong spike in interest rates down the road may punch a hole in the side of the budget.
Answer to your previous question under another thread: We moved to a new home a few miles up the road, and we’re still unpacking. And I have been reading, thinking, and studying a number of issues in more detail than the blogs pursue. That pretty much covers my absence.
You can believe your nonsense, but the CBPP estimates are conservative. I have reviewed the data. And CBPP employees are not on public payrolls.
It’s not very difficult to spool out projected program costs when the level of discretionary spending isn’t a prime consideration based on current policy. If anything, the projections for mandatory spending are quite conservative and the same applies to the interest payment obligations. My own numbers are far worse for interest obligations.
It appears that you have no experience with CBPP reports and studies or their data sources.
We have discussed the CBO and SSA reports, but not the CBPP reports to the best of my knowledge. Moreover, the CBPP reports I mentioned are targeted directly to the tasking of the Fiscal Commission. I haven’t seen any discussion of their analyses.
“A strong spike in interest rates down the road may punch a hole in the side of the budget.”
True, and clever try to pin that on SS Trust Fund special treasuries, if you realized you are being clever…but the average duration on the trust fund treasuries is much longer than the average duration on traded treasuries. Can’t remember the exact number for SSTF average duration, but Bruce Webb may have the number. Overall the SSTF is locked in at 4.5%. It is $2.5 Trillion and the money the USG borrowed would be payed out slowly thru 2037 until the fund runs dry shortly after the boomers all kick the bucket. Then echo boomers are free to fend for themselves. It is the 4 year average duration of existing debt held by the public, approaching $9 trillion, that will rapidly be subjected to re-financing at spike rates, whenever that does occur. And it will occur with or without a “fix” in SS, IMO. We also now seem to guarantee F&F and FHA corporate bonds and maybe even MBS. (who knows, don’t ask the USG) Why are we protecting that idiot group of creditors and debtors? That’s 6 or 7 trillion there.
So what they are proposing and you are seemingly supporting is that since the surplus is disappearing in a few years, in accordance with Greenspan’s 1983 design, that benefits be reduced so that the surplus will reappear and they can continue to use that as revenue to pay any other items in the general fund and also not pay back what they borrowed from the SSTF.
We are saying we don’t want them to do that, but if this country is a military-banking dictatorship, then I suppose we would lose the argument.
I haven’t seen a formal proposal from the Fiscal Commission thus far. I don’t think you have, either.
CBPP focused on the impacts on the General Fund and that is my focus in this instance as well. The rollover and growth in publicly held debt instruments along with projected interest rates is the issue. I’ve studied the Treasury data on rollover and new issues; recent rollover has grown significantly and, of course, the new issues have jumped. The bottom line is twofold as presented in the two CBPP graphs. U.S. Government publicly held debt is projected to jump off the chart at 314% of GDP by 2050 absent major changes in policy and resultant revenue and spending streams. Similarly, the percentage of expenditures requiring deficit spending by 2050 are above 50% of the General Fund budget.
I am making no assumptions that the Social Security programs benefit levels will be changed. Rather, I am focused on what will be displaced in the General Fund discretionary programs should all mandatory spending obligations under current laws be fulfilled. If that occurs, discretionary spending takes a number of major hits. On the other hand, it’s clear that projected revenues and expenditures are on a collision course as the budget demands are not sustainable. This isn’t just about the two Social Security programs administered by the SSA, though some individuals have ignored large chunks of the rest of the budget pictures.
The two CBPP graphics present unsustainable paths for growth in Federal debt and fiscal year budget deficit spending. The question is what will the Congress do to resolve the problems. Probably not enough, frankly. Perhaps not never enough.
My personal recommendation is that all of the Bush era tax cuts be eliminated. All of them, thereby avoiding the soak the rich arguments. That approach will provide a projected $3.75 trillion over the first ten years instead of only $695 billion (eliminating many but not all of the tax breaks under the Bush era tax cuts for the wealthy). Moreover, I recommend that all individual and family tax revenues above the 2007 levels be applied directly to cancelling out Federal debt. That effort would significantly reduce the Federal debt, and still force the Congress to address the revenue/expenditure imbalances of projected fiscal year budgets going forward. Now, that is unlikely to occur, but it is what I would do. Simply throwing more revenue in the General Fund doesn’t guarantee that the Congress will stop raising the debt ceiling or undertake any serious efforts to rein in program spending.
So, there you have it. But it will never happen.
We’re not that serious about the Federal debt and fiscal year deficit problems yet. The notion that discretionary spending will be capped at or near current levels is similarly unrealistic. Yet, that is a feature of most go forward General Fund budget discussions. So, that’s probably another source of future budget growth not being taken into consideration.
That’s the holistic view. We have a problem with rapidly expanding National Debt. Debt to GDP levels become too high and it is alarmingly soon. Tax levels have much to do with it. Medicare drug benefit should on your wish hit list too.
The only thing in the whole picture that is almost working to plan, and least deserves it’s participants to take a hit, is SS. (we paid the FICA, what else were we to do? And it’s in a fund good for the boomer payor’s lifetime, just like greenspan calculated and charged us for. Also we don’t get it until age 67 already! Better throw in a couple years of savings for that 65 to 67 unemployed span.)
No one knows the Fiscal Commission proposal yet, but they have been quite vocal in pinning some or all the problems on SS. Should we ignore the threat? Why? Will they screw us anyway? Good chance I think. Will it help the Fiscal Problem? Eliminate 2.5 trillion paid out over 2015 thru 2037? Not a chance. Does the entire country implode because they can’t do what they need to do? Now we have some betting odds!
Trillions in unfunded “bow wave” for war profiteers’ pay is far more troublesome than SS.
This authoritative sounding statement is at best ill put:
“The current and future cash shortfalls of the Social Security OASDI trust funds place a financial redemption obligation on the U.S.”
It is better stsated as: The US will “start redeeming special treasuries held by the SSTF to cover growing outlays for the bow wave of retiring baby boomer which were planned to be funded by redemption of special treasuries”. Any other view is planned default.
This is not a problem for the trust fund but for the debtor, in this case the US G.
If there are future cash shortfalls in the “Social Security OASDI trust funds” it will because the USG will be in default.
The SS (OASDI, Medicare, SSI, etc) Trust funds are filled with bonds bonds do not have cash shortfalls. The trust fund is a holder of debt established by the US government. The cash shortfall is the problem of the folks in congress who chose to defer taxes and use SS payroll tax receipts for that deferral.
The proper statement is the deferred tax liabilities created by excessive spending backed by borrowing from off budget suprluses means cash will be raised to pay off the deferred taxes made possible by off budget surpluses.
It is at best ill stated to state that a plan to cash special treasuries rather than raise payroll taxes, which plan would keep several trillion in bond from being cashed is a “cash shortfall”. It is in the future and yes there could be a default, but that is something to be viewed in about 8 years in small measure.
As I said below the issue for CBPP graphs are assumptions that all SS cash will be raised by borrowing and that the wild waste in military and corporate welfare continues unabated. As well as the health insurance cabal keeps plundereing the agre and ill.
CBPP’s dire charts can easily be fixed, either raise federal receipts above 20% of GDP or cut discretionary spending, also known as war profiteering and corporate welfare.
If the US is in default in 2030, it is because the plundering of the tax base for war profits destroyed US productivity so badly that it vcannot meet its promises to its aged and ill.
First priority save SS.
I have been in the business of acquiring stuff for DoD for more than 25 years. I took me 12 years to get where GAO is, and they are hitting on all 8 cylinders.
The GAO assessment of perfectly false “product knowledge” causing overruns, test failures and delays is spot on.
I term it: ‘ignore the lack of connection (no technology knowledge) between the “need” (fanatsies to fight WW II again, developed in JCS and/or service ops tanks) for the stuff and the technical specifications (no design knowledge) the program office put on contract, then ignore the fact that the faulty spec is not met by the design or the product (no product knowledge).’
GAO catches this and the fault is their results are not front page news.
I have been too occupied with family end of life issues the past 14 months to get into this annual assessment until the past few weeks.
The social security trust fund is an accounting gimick that’s dressed up to look like a bond. Its not a bond. It does not trade like a bond. It does not carry a market interest like a bond. Its part of the fiction that the social security system is selling. Like with the financial statements they send out to us each year. The statement our my earning for our entire work history and it makes it look like they have been saving money all these years on our behalf and when we retire they tell us what we’ll be getting. Maybe next year I’ll read the fine print. After putting on their annual show that’s probably where they come clean.
Let’s default on all of it.
The bonds in the trust are as much an obligation of the US G as the US T-Bill and US bonds held by Japan, China and the public.
You may believe differently but then look in your wallet and see what you have and think of that as a US bond.
you seem to be pretty ignorant about what money is. the money that the SSTF has been saving all these years has been lent to the general fund… in the form of something like Savings Bonds.
The only danger that you won’t get your money back is that the people who are fooling you about Social Security will get to change the rules.
At MG’s suggestion, I looked briefly at some current material in the CBPP’s website. Here is a brief quote from one of their pieces.
“The events and policies that have pushed deficits to these high levels in the near term, however, were largely outside the new Administration’s control. If not for the tax cuts enacted during the presidency of George W. Bush that Congress did not pay for, the cost of the wars in Iraq and Afghanistan that were initiated during that period, and the effects of the worst economic slump since the Great Depression (including the cost of steps necessary to combat it), we would not be facing these huge deficits in the near term.”
Judging from this quote, the CPBB does not see SS as contributing to the govts growing short-term deficits and high debt levels. Ilsm points out quite correctly that it would be possible to reduce military outlays greatly merely by eliminating expenditures for the Iraq and Afghan wars. Otherwise, the other unnecessary spending in that sector is another possible source of savings. Seems to me that many here can agree pretty much with this view.
Well, now what? We know that SS doesn’t have anything to contribute to any possible solution of this problem. What is the Catfood gang going to propose to address military and defense spending? And, what about taxes? It’s impossible to solve this problem without raising taxes. I didn’t expect to get out of this alive anyway, so what’s the big deal with raising income taxes the 3% that the Bushies gave away to the upper 1% of income distribution? it’s a little late to complain it’s a rip off now! I paid more taxes on my govt salary when Clinton raised taxes and lived to tell about it. I can do it again.
Simpson is a side-show. What isn’t clear is what’s the main act? Nancy Ortiz
you probably didn’t notice when you descended into mere ad hominem. whether the CBPP projections are conservative i couldn’t say. but the idea that the over spending and under taxing by congress needs to be fixed by killing social security is wrong both as to the facts and the morality.
i asked above for a short argument about what the very long comment you wrote about budget problems had to do with Social Security. you wrote a very long reply that contained no argument whatsoever showing that Social Security has anything to do with the projected deficits.
no one here is ignoring the problem. we are saying that the problem is NOT Social Security.
this fine distinction seems to be lost on you and Krasting.
the main act appears to be to use the projected deficits as an excuse to cut Social Security, which has nothing to do with the deficits.
as you can tell from reading MG and Krasting, logic has nothing to do with the argument.
“look, look, see that smoke on the horizon. we better sacrifice the baby to appease the gods.”
This is a complete non sequiter. or an irresponsible lie.
“ Shrinking the deficit to 3 percent of GDP at the same time that the baby boom generation — the huge cohort born between 1946 and 1964 — will begin to retire in large numbers and swell the Social Security and Medicare rolls will be no easy task.”
SS has nothing to do with the deficit. SS pays for itself. Has 3 Trillion dollars in the bank, and can pay for itself forever with a raise in the payroll tax of twenty cents per week per year to take care of the increase in life expectancy.
There is no reason Medicare can’t be treated the same way… It is not, or should not be, a welfare program coming out of general taxes, but an insurance program through which the people pay the “expected costs” of their own medical care after retirement.
The deficit is entirely a matter of unwarranted tax cuts and unsustainable “on budget” spending.
if you can’t tell lies liek Schurenberg’s there isn’t much hope for you.
your “analysis” of the SS contribution to the deficit problem conveniently overlooks that the problem is not SS, but the fact that the government has over borrowed and will have to raise taxes to repay SS.
suggestions that the solution is to default on SS are criminally irresponsible.
Coberly–I’m afraid you’re right. But, I keep thinking that there has to be some specific function Simpson serves. Or he wouldn’t be there. I’ll keep looking, but right now it’s certainly over my head. NO
Coberly, Just so I am on firm ground here, the special treasuries do count as part of the debt don’t they? So if the National Debt is $11 trillion and the trust fund is $2,5 trillion then if you replace the special treasuries with regular treasuries that you sell to China, you have not increased the federal debt have you? If this right, then converting the trust fund to cash will not increase the debt even if the government borrows the full amount.
IMHO the real 800 pound gorilla–in addition to the military/industrial complex, is health care and the only real solution to that is to change our cultural perception that somehow we can get out of this alive. Understand, I am not suggesting “death panels” or a Soylent Green solution, but for all of the money we spend researching ways to keep folks like Cheney alive, we spend precious little on better pallative care and research into how we can give greater comfort to the dying.
i am told that there is a difference between debt owed to the public and debt owed to Social Security. As far as I can tell the difference is that it is easier to default on the SS debt… by cutting benefits so the debt never actually has to be paid.
Therefore you get a certain amount of dishonest accounting which does not show the special treasuries as part of the debt. I don’t mean to confuse you here. But “they” do mean to confuse you. You are correct that, viewed honestly, the debt to SS is just as real as the debt to “the public.”
What the howling is about is that the debt to SS has not had to be paid for the last 30 years, and now that it is coming due, Congress doesn’t want to pay it. So you get a lot of fast talking, arm waving, obfuscationi, and whatever it is MG and Krasting are contributing to the debate.
I also think you are right about Medicare. Up to a point Medicare is insurance, just us paying for our own “expected” costs of medical care after retirement. These costs are expected to go up. Not the best time for cancelling your insurance.
But if as a culture we embrace the idea that “the government” must pay unlimited amounts to keep us alive as long as possible, we will run into a financial problem. Not to say a moral problem.
Best not to raise this issue in the context of cutting Social Security. Or at least make clear that what you (they) are arguing is for the rich to live and the poor to die. I am not altogther sure the rich will enjoy the kind of life they get by paying for the last drop. But that’s a moral question.
well, we are certainly missing a chance if we don’t take him up on his request for “suggestions” to stabilize Social Security. I think we need to have a big debate between Simpson, and say, Barbara Kenelly about plans to stabilize Social Security. We have ’em. All he has is vapors. But he’s been sniffing the glue so long he doesn’t realize it. A national audience would be able to tell.
Thanks for the clarification on debt. I need to think more about health care, but no matter how much the rich spend, they die too and I have no reason to believe that their money makes the last 6 months of their lives any more pleasant then the last 6 months of a poor person’s life.
Maybe if they printed “In God We Trust” on the back of Trust Fund special treasuries, then they would be real?
“Therefore you get a certain amount of dishonest accounting which does not show the special treasuries as part of the debt.”
NOT TRUE. You are falling for the semantics trap. Forecasting is suspicious because you have to forecast GDP for the next 75 years and all government spending over that period as well, because they are always talking about total National Debt, which is the scary thing.
The special treasuries and all other intragovernmental debt IS treated as official NATIONAL DEBT and is part of the now eclipsed $13 trillion National Debt figure. That IS the way OMB defines it and IS the figure that creditors of USG debt are supposed to look at.
All the stuff about special treasuries not being real, they are IOUs (like any debt isn’t…hehe) is all BS because the OMG says they are real.
The terms and debt levels look like this.
National Debt ($13T) = Debt Held By The PUBLIC ($8.5T) + Intragovernmental Debt ($4.5T)
SSTF is $2.5T of the Intragovernmental Debt ($4.5T)
I used to have a neat Deficit Clock website…much more detailed than the one in Times Square…and it shows how all the accounting works and how fast the numbers increase. I will look around and see if I can find it again and post the link.
Angry Bear might want to create a SS summary web page of explanations, arguments, Q&A, etc…. because re-hashing all this every time someone new, or not new, comes along is tedious and boring and they could just be passed along to where the answer is typed up already.
On point, Coberly. I’ll add to those thoughts that the last several times someone with a different opinion from his has tried to interview him regarding those differences he, Simpson, reacted like a mean spirited ass. He seems to be inflexible in the face of facts that are contrary to his own point of view. He is a liability to a fair minded review of the budget deficit issue. And let’s not forget that the Social Security program is not a deficit issue beyond the fact that the Trust Fund is just one more of the Treasury’s creditors. Someone should acquaint Mr. Simpson with the concept, don’t borrow what you don’t plan to pay back.
“The current and future cash shortfalls of the Social Security OASDI trust funds place a financial redemption obligation on the U.S. Treasury which in turn will provide the monies necessary to support the mandatory funding obligations of the Social Security Administration. If sufficient cashflow isn’t available from the General Fund, the U.S. Treasury will borrow funding on the open market, incurring obligations which be applied to the General Fund and future budget planning.” MG
I believe that in the bible this is referred to as “borrowing from Peter inorder to pay Paul.” When the Congress of the USA first created the concept of the Trust Fund, (created via legislative action you might recall), it built in the concept of excess FICA collections to be held in said Trust Fund for general system support. You know, collect a little extra for a future “rainy day” economic situation. It required that those excess contributions be held in the form of Treasury notes of a special kind. The Congress enacting that legisaltion did not intend that a future Congress would deem the notes null and void. That would be a violation of the initial legislation and as it currently reads.
How about simply cutting back on discretionary stuff like the war spending in the middle east. Or maybe the Commission could void all current and future congressional pension obligations. Or, the Bush tax cuts couold be left to sunset as was agreed to when they were enacted. Why the need for this Congress to renege on every promise and legislative action of a previous Congress?
And finally, yes, lthe Obama administration is turning out to be a picture of political duplicity. If Simpson is still on the Deficit Commission we’ll all know too well that the Obama is no better than his Chicago political roots should have warned you all about. I still think the country needs a latter day Robespierre, if a bit less extreme. The fact that a significant sector of the political class can continue to support tax cuts for the wealthiest Americans in the current economy is beyond the pale.
You are right about how the debt divides up.
And, Terry, you are correct, when the trust fund redeems securities, that portion of intragovernmental debt becomes debt held by the public, with the total debt staying the same.
The difference between the 2 debts are:
1. Debt held by the public requires an interest expense paid from the current budget; intragovernmental debt “creates” interest through issuing Treasury securities (more debt).
2. Debt held by the Public is the number one priority level of governmental obligations, of which there are 4 levels.
Social Security and Medicare payments are on the lowest level of governmental obligation, level 4.
I provided the link in an earlier blog, and will do so again, if people want to go to it.
Many economists consider debt held by the public to be more important than intragovernmental debt, for debt held by the poublic has a direct, immediate influence on credit markets.
The fact that intragovernmental debt does not have an immediate impact on the budget is what is dangerous, in the long run, for our budget.
Until the Congress considers intragovernmental debt every bit as worthy as debt held by the public, we will continue to misuse the trust fund.
Here’s the Deficit Clock. Surf and weep.
But keep in mind FICA from you and your employer flows in, and flows right back out again.
The Deficit Clock doesn’t really depict the breakdown of USG debt obligations, meaning that it gives a running total for National Debt (13.3T before I started writing this post), but it doesn’t say how much is owed to the Chinese, Japanese, Arabs, SSTF, Federal Pension Funds, etc…
The breakdown between Debt Held by the Public and Intragovernmental debt is roughly this:
National Debt ($13T) = Debt Held By The PUBLIC ($8.5T) + Intragovernmental Debt ($4.5T)
SSTF is $2.5T of the Intragovernmental Debt ($4.5T)
And if anyone wants to tell the military that their pensions, in here… Intragovernmental Debt ($4.5T),
are just phony IOUs and no good, be my guest.
I don’t think that the total cost of the war in the middle east will ever be known in any precise manner, but according to several estimates it comes to about #1+ Trillion so far. How would the budget be if that expenditure hadn’t accrued and weren’t on going? And what of the cost of repairs to the military returning from the middle east? How does this waste of assdets not stand at the top of list of ways to cut the budget?
Simpson, sexist schill, is saying; 310M Americans have to be denied the cow’s milk (fruits of technology and industry) so empire can have its profits from multi-trillion dollar fictions, sold by noble lies, the false sense of US exceptionalism.
Simpson is defending empire and paying with payroll taxes rather than users’ fees.
Need to get past the noble lies and create a nation that beneifts the 310M rather than a few.
Simpson is saying the: ‘cow is for empire and the wealthy, the 310M don’t get any, but what is left over’.
War and empire account for 20% of federal outlays, other federal outlays outside of “entitlements” is also about 20%. This is a larger part of federal spending compared to entitlements than before Bush II when it ran about 66% entitlement.
National security, noble lie for empire, related spending rose as a percent of GDP from less than 3% to nearly 5%, most of it unneeded.
In the currently proposed FY 2011 DoD ‘budget’ occupations add $158B over and above senseless spending for an exorbitant war machine of $528B. Total budget request for DoD: $686B, not including war spending in other discretionary budgets.
China spends roughly $70B according to whose inflated estimate of a rising military power wants to keep the US tossing around 5% of its GDP.
Orwell would call it ministry of peace.
Let’s be thorough in looking at the states of nature before we say we are “prudent”.
In this world advanced nations who have avoided Orwellian dystopia spending for entitlements are a far larger portion of public spending than spending on empire and corporate welfare. In the US discretionary spending is too high, regardless of whether the cash comes from off budget surpluses.
Taxing is necessary but not sufficient to solve the bond vigilantes’ issues. Or deal with the bond vigilantes’ fearsome vengeance.
Who is losing faith in the government paying its obligations? Will the coupon clippers put the Lockheed war profits dividend money in their mattresses? Will the New American Century folk stop lending money for the war machine to provide coupons from Lockheed?
The borrowing of the past decade went to tremendous money pits; empire, nothing to do with the general welfare nor the common defense. That borrowing was leverage for war profits and made nothing to advance US production base outside the war machine and its rent takers.
Our lenders in China are letting the US dig this hole and they will kick the stool out from under US empire unless the US fires sexists liars like Simpson.
Discretionary spending needs to be cut or funded by users’ fee and dedicated taxes, taxes raised and the US become a more productive society.
Which means take the 40% for war profiteers and money borrowed instead of paying users’ fees be put it into productive uses.
Worrying about who pays taxes is a diversion. Worrying about China’s plan to destroy the US economy is a diversion.
Putting the disabled, and elderly into welfare, or more prisons is not going to divert China, bond vigilantes and the their useful idiots in the New American Century crowd from seeing the US destroyed.
Koi the Special Treasuries have fixed interest rate and maturities. The rates are set at an average of bonds maturing in the next four years and so are indirectly set by the market. The fact that the Special Treasuries are not themselves marketable is what makes them in practice superior to Regular Treasuries, Special Treasuries are calleable at any time at par and are not exposed to up and down market movements, which from the perspective of a system designed to maintain steady predictable payments mostly unconnected with day to day, month to month market fluctuations is a good thing.
What you see as bugs are actually protective features.
Jan fair point. On the other hand the people who want to ‘reform’ Social Security insist that even the 75 year projections are not good enough, that instead we need to act NOW NOW NOW on numbers projected over the Infinite Future.
What is good for the goose is good for the gander. If you want to talk medium term fixes to Social Security in terms of the twenty five year probability spread then I would be happy to do that all day long. We can start from the numbers in this table.
Slamming CBPP for using 40 year numbers when all they are doing is pushing back at Cato/AEI/Concord projections over 75 years and God Help Us ‘Infinite Future’ is at best special pleading. If they want to move the discussion back into time frames where we actually have some reasonable projections than great. But since the 25 year actuarial gap is only -0.25% of payroll (with a probability spread from +1.12 to -1.86) the opponents might have a hard time whipping up the same level of hysteria as their TRILLIONS AND TRILLIONS rhetoric would have it.
Terry the equation is as follows: Debt Held by the Public + Intragovernmental Holdings = Public Debt. You can see up to close of business Weds numbers for all three here:
Under textbook assumptions any increase in Intragovernmental Holdings (ie. SS surpluses) increase Public Debt. On the other hand any cash SS surpluses in principle reduce the need by increases in Debt Held by the Public, other things being equal the text books tell us total Public Debt would go up the same either way.
On the flip side paying down Intragovernmental Holdings per the textbooks increases the need for borrowing and so increases Debt Held by the Public, which once again offsets the decrease in Intragovernmental Holdings.
Well that is textbook, and I have had some pretty famous guys (including a top guy at CBPP) lecture me on it, but I am not sure how it works in the real world, there being feedback psychological effects that the simple textbook models dont’ take into effect.
In reading through the responses from CR I see I may just be repeating his points, but reinforcement is always good.
As to the share of debt held by foreign entities, Treasury tracks it with about a month and a half lag in this Report
http://www.treas.gov/tic/mfh.txt at the end of June the total was S4.009 tn out of that $8.5 tn in Debt Held by the Public
Simpson was head of the Social Security Sub-Committee back in the day and a prominant member of the 1994 Kerrey-Danforth Entitlements Commission. To that degree he is the Republicans go to guy on this issue. That doesn’t tell the whole story about why he was picked but it wasn’t entirely out of left field.
From Don: “Jack, did the Congress expect those Treasury notes to be held or to be spent on other government expenses, and have them replenished other than through higher taxes, lower expenses, or borrowing from the public?”
Don think. You give money to Treasury. They give you a Treasury note. They spend the money on other government expenses. That is what buying a Treasury note IS. Those Special Treasuries were held, in fact in that filing cabinet ridiculed by President Bush. So yes Treasury did exactly what Congress mandated they do in regards to the Trust Fund in the 1935 Act, to hold all surpluses in ‘instruments guaranteed as to principal and interest by the Federal Government’. You seem to be confusing Treasury notes with old time Gold Certificates. Which BTW didn’t earn interest.
Jack it seems Don is economist shopping much as Brooks ended up doing.
I advised Don at EconoSpeak to go take some lessons from Andrew Biggs at Notes on Social Security Reform. At least Biggs knows what the hell he is talking about while pushing this line of attack, he doesn’t embarrass himself in crafting his argument, the word ‘worthy opponent’ comes to mind.
Don on the other hand is just one of those legions of fighters the Kung Fu hero mows through on way to the final confrontation with the villain. Here the word is ‘hapless’.
you are undoubtedly right, but this is the sort of thing i was trying to warn terry about. trying to explain the debt in the same terms that the professionals “explain” it, is to be suckered into their game… which is to obfuscate what is going on.
the government owes (debt) what it has borrowed,,, from the public and from Social Security.
the “fact” that for “budget purposes” the money borrowed from Social Security reduces the need to borrow from the public and so can be counted as “income” instead of debt, is either a cute technical detail of no interest to anyone except those responsible for managing the “borrowed from the public” debt, and perhaps bond traders, or it is a dodge designed to confuse the press and the public, and the congressmen themselves.
if we had time, we might be able to explain this to people, but trying to explain it to them in short comments merely distracts from the theft that is going on. and if we are not incredibly careful, we end up sounding just like the sky-is-falling liars…. to the people who don’t take the time to count on their fingers.
While I understand concern, I can’t follow your connections on the CBPP reports and your reasoning involving Social Security.
You are correct. The balances of the trust finds for Parts B and D can never go to zero, because general revenues are covering the 75% balance.
From the Trust Fund Perspective, then, these accounts are fully funded.
However, from the Budget Perspective, these costs are not fully funded, for 75% of the liabilities are paid from general revenues. They are unfunded liabilities, which help swell the deficit.
I would also consider the “paybacks” for Social Security as liabilities that are owed to them , but they are unfunded liabilities.
There is a big difference between a liability that is funded, and one that is unfunded, wouldn’t you agree?
in other words, “closed group” assumes that SS is terminated. with no one not currently paying in ever paying in, or collecting benefits. this would leave, all the people currently working and paying in without anyone to “pay as you go” for them when they retire.
it’s a concept worth contemplating.
Coberly and Bruce:
I am not referring to a closed or open group.
I am simply saying are the liabilities funded or unfunded?
Because the liability must be paid from more revenues, lower expenses, or borrowing from the public (the most likely) , the liability owed to the trust fund is unfunded.
It would be more advantageous to have liabilities that are funded like regular insurance plans.
But Social Security is not an insurance plan, as stated by the Supreme Court and the FASAB.
Now, who am I to believe: those 2 entities or you 2 guys?
Well Coberly, I disagree with you that the Social Securuiry trust fund is funded.
In order to redeem he Treasury securities, taxes could be raised to pay, not just for the projected expenditures, but for the current expenditures, for the outgo exceeds the income.
Now, if Congress decides not to raise taxes, it can issue additional debt, which is a form of deferred taxes whuich will need to be raised.
The Social Security trust fund would be funded, like any other pension plan, of which Social Security is not, by liquidating principal and interest.
I don’t consider issuing more debt to the public “liquidagting ndedeferred, and based on our long history of faith and credit, all Treasury obligations are funded, that is your prerogative to think so.
But, that type of thinking seems to believe that the U.S. is immune to hyperinflation due to persistent, unsustainable deficits.
I have papers frpm the CBO. GAO, and the Treasury which points out these concerns.
Now, if the people on this blog trust Coberly more than those government agencies, that is also their prerogative.
Don you are not a truth seeker, instead you are a Truth seeker.
I have posted previously about St. Anselm’s and Rene Descarte’s attempts at an Ontological Proof of the Existence of God. And on the whole those proofs are very strong. Not determinative to my thinking bit strong. But it is not like either was going to come to a different conclusion, they were working backwards and not forwards. And so are you. On the other hand Anselm and Descartes were perhaps the transendesent philosophers of their respective millennia. You? Not so mich
“And while I am here, let me say again… you are quite right that the Congress has the power to renege on the Trust Fund, or to shut down Social Security. And while that would be “legal”… because Congress would pass a law making it so… it would still be theft. “
Does anyone remember if the thing about not stealing is in the US Constitution, or am I confusing that with the Ten Commandments?
I think Bush was the only one that thought our FICA was being used to fill up massive filing cabinets in Washington DC with Brooklyn Bridge Deeds, Cracker Jack prizes, Yugo cars and their assembly line tooling, 8-track tapes and the Complete Anthology of the Culture Club.
Of course, this stuff all sounds so subordinate to the really good treasury bonds that Greenspan likes, but we should at least double check if that is true or not before just writing off our bad investment.
It would be rather embarrassing for Congress, I would think, if Congress needed a 2/3 vote for a Constitutional Amendment. Something like “Free the SSTF Money” or whatever they would call it. Especially if the FICA deduction still shows up on everyone’s paycheck because they need the money for deficit reduction.
I am taking Don’s idea of owning an insurance company under consideration as a place for my personal funds in case SS goes south on us. AIG comes to mind, but the markets don’t open till tomorrow, so I’ll have to wait a while on that.
I don’t know if I’m speaking for everyone, but Don’s criticism that we don’t understand his true quirks as well as he does can be easily rectified if Don would delineate them in detail (signed off on by a third party certifier of course) and post them so we can all get to know Don better!
The money borrowed from SS reduces the need to borrow from the public and so can be counted as income instead of debt – is a dodge designed to confuse the press and the public and the congressmen themselves.
Absolutely correct. Actually, the money borrowed from Social Security is considered as income to the trust fund and a liability to the Teasury, so it is a “wash.”
The liability portion is very subtle, and thus, dangerous, in my opinion, over the long run.
When it comes to cash in the Treasury securities, that is the debt portion that has been deferred (the income portion was used immediately to pay current expenses).
This debt is backmed by the U.S.government, and wouldn’t be of such c oncern to me, if it weren’t for all the other debt the U.S. owes. MG pointed this out quite well.
The lack of transparency in issuing debt and income at the same time, the “dodge designed to confuse the public,” is the mishandling of Social Security that I asume Roosevelt did not envision.
As such it (SMI) can never be insolvent because actual delivery of benefits are not tied to its bottom line balance.
You are correct, from the “Trust Fund Perspective,” SMI is fully funded,which assumes the Treasury has an infinite amount of cash available.
However, from the Budget Perspective, as I pointed out through a citation, this is a tremendous drain on the Treasury, as well as the public debt that will need to be issued.
‘The other part, the 25% paid by the beneficiaries, can also be a severe drain on their budgets, which are finite.