The Myth-ing Logic of Phony IOUs in the Soc Sec Trust Funds
by Bruce Webb
There has been a recent mini-surge of op-eds claiming that the ‘assets’ of the Trust Funds, all $2.6 trillion, are simply mythical. The most recent Scrooge to argue this line may have been Thomas McClanahan of the KC Star in this piece from Christmas: More mythbusting on Social Security ‘money’” in which he informs us how mistaken we are:
Many people believe the trust fund contains securities that have real economic value. So, a few days ago, I wrote an editorial titled “The myth of the trust fund.”
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To turn trust fund bonds into real money, the government must do what it would have to do if the trust fund did not exist: borrow, cut spending somewhere else, or raise taxes. The trust fund bonds may be assets from the point of view of Social Security, but they’re a liability for the government as a whole, and for us as taxpayers
Well the argument is at base nonsense on historical, political, legal and economic grounds, but it also suffers a logical hole big enough to run a Prison Bus through. Because if it is true in 2010 it was equally true in 1993 when the Trust Funds first got back to actuarial balance (per McClanahan another myth presumedly) and more to the point in 1983 when Reagan agreed to the tax increase via the Greenspan Commission. Which would logically make Dutch and the Maestro Greenspan pre-meditated thieves and liars.
And more to the point you would have to add almost everyone in the political, media and academic establishment who didn’t raise this seeming clear objection back in 1993, there being no logical point of separation whereby real assets suddenly turned into mythical ones. True some people have been arguing one version or another of phony IOU for years, but somehow that never got translated into proposals to cut FICA on wage earners, instead they happily collected the money while apparently per Mr. McClanahan never intending to pay it back, the Treasuries never being real to start with.
Sorry this argument cannot be made in good faith, not unless this guy had a Road to Damascus/Could Have Had a V-8 moment in the very recent past. A polite term for this is special pleading, though Conspiracy to Commit a few million Counts of Larceny fits pretty well.
Do the assets in the Trust Fund have economic value? Well since 2006 the DI Trust Fund has been taking first interest and starting last year principle in cash. And the ‘checks’ are clearing, what more proof do you need that Special Treasuries have exchange value beyond the fact they are exchanged for value every workday of the year? Now there are arguments that would plausibly suggest that the strain of this redemption will create a problem at some future date, but those arguments should come with numbers and dates and percentages of GDP attached and not just be advanced via ‘Shazam! Its a Myth! Oh Foolish One!’ No it is a proposal by liars to promote theft. (Which probably blows my opportunity for a party invitation Chez McClanahan).
Bruce,
What’s to prevent the 112th Congress from doing the following:
“As part of the Social Securtiy Obligation Reorganization and Restoration Yadayada Act of 2011 (SSORRY), we declare the Special Treasuries owed to the SSTF to be null and void.”?
The “worthless IOUs” argument is essentially “my money is greener than yours”. The same bonds when held by a big bank or foreign government are “money good” no matter how much our infrastructure may be crumbling or how low our tax revenues are. Rich people holding bonds = solid assets, sound accounting. Poor people holding bonds = reckless, foolish nonsense.
Which would logically make Dutch and the Maestro Greenspan pre-meditated thieves and liars.
This is the standard coberly/Webb explanation. But since most people only lie and steal if they benefit directly, and Dutch and Greenspan don’t benefit directly here, there is another possible explanation: that you don’t understand what they are talking about.
In a loan between two different parties, an “asset” is created for the lender (the note) and a “liability” is created for the borrower (the obligation). If the same party holds both the asset and the liability, like if you loaned your checking acount money from your savings account, they cancel each other out. There is nothing there.
If the public is convinced that the money is not there, it makes it easier for the greedy banksters to steal it.
Well, Don Levit and Bruce Krasting insist that the IOU’s are too, too real. They are sooooo real (How real are they, Johnny?) that to redeem them to the full 2.6 Trillion we owe ourselves will require either borrowing (Oh, Noes! Think of the Vampire Squid Natl Debt!) or an increase in income taxes. (ARRRGGGHHHH! Think of the poor billionaires!) The only thing to do, therefore, is privatize or if that is politically impossible, cut Medicare, SS benefits, and Medicaid to the bone in a spirit of Shared Sacrifice. “Don’t think of yourselves, Boomers! Think of Your Grandchildren!”
But why fool around? The best version of this Urban Myth is the one in which “Congress Has Stolen Your Social Security Trust Fund, All The Taxes You’ve Paid All Your Life, And Left You With Nothing! We Want Our Trust Fund Back!” This myth is the real deal because it has the potential to incite the populace to grab their torches and pitchforks and head to the Capitol. Once there, the enraged patriots will demand action from the cowards in Congress, those feckless morans who have squandered our taxes on jaunts to the Barbados to visit their offshore bank accounts.
If you’re gonna lie, do it right. This stuff is getting old, McClanahan. You’ll have to do a whole lot better to meet the standards of the pros over here on Angry Bear. NancyO
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The trust fund bonds may be assets from the point of view of Social Security, but they’re a liability for the government as a whole, and for us as taxpayers
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If I borrow $100 from my son and refuse to pay him back, the family’s balance sheet as a whole will not be affected.
I’m sure he’d take solace in that fact.
And if the government defaults on all debt held by US citizens, the nation’s balance sheet as a whole would not be affected.
What stops Congress from declaring War on Switzerland?
It is not in the national interest of the United States to arbitrarily abrogate Full Faith and Credit and political suicide for any Congressman that proposes to open attack Social Security. Which is why all of these attacks are conceptual and designed to get Gen-X to cuts its own throat.
Congress can do a lot of things. This particular hypothetical being particularly useless consider the total constituency of Social Security now and in the future.
Sammy as usual you missed the whole point. The whole deal and subsequent legislation that came out of the Greenspan Commission had the assumption built in by all parties that they had done something in the medium term for Social Security by increasing its income rate and decreasing its cost rate. But if the instruments Social Security had relied on since at least 1939, and which had been successful redeemed in more years than not between 1956 and 1982 (SS being cash flow negative in a majority of those years) were just a fraud then clearly Reagan, Greenspan and just about everyone else was arguing in bad faith.
If the Trust Fund is mythical now then it was mythical then.
And if it is not an asset why is DI cashing in on it to the tune of around $32 billion this year?
Of course the easy way out is to just admit that Reagan was telling the truth in 1983 and it is McClanahan and Sloan who are lying in 2010. But unless you can explain how that whole ‘asset’ ‘liability’ thing just came out of nowhere after 6 decades of Presidents faithfully honoring Full Faith and Credit and so only becoming conceptually operative once the cash flow starting drying up I’ll stick with ‘liar and thief’ for at least the 2010 guys.
The whole line of argumentation is ridiculous. Large entities public and private carry internal assets and liabilities all the time. Per the odd logic here Ford Motor doesn’t have to pay for parts as long as they come from a wholly owned subsidiary, after all it is just Ford right? You think the folk as GSA are going to be real happy when agencies inform them they have no intention of paying for government owned space out of their budget because hey everything is just fungable.
I worked for a big public university (Berkeley) and for a largish county government and in both cases all kinds of services were contracted internally. And the Print Shops and the IT Departments would have gotten a little testy if told ‘hey we all work for the Chancellor of Berkeley and the Regents and President of the UC System, what’s the big deal if I don’t transfer those funds?’
What kills me is how these offsetting asset/liability = phony IOU guys patiently slow it down for me each time, “See how simple it is Bruce?”. No I see how simplified and simplistic it is, not the same thing at all.
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Ford Motor doesn’t have to pay for parts as long as they come from a wholly owned subsidiary, after all it is just Ford right?
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Bingo.
Conservatives would rather you not notice that the people that pay SS taxes aren’t the same people that pay taxes for the general fund.
They cling to a mind-numbingly idiotic position, and conservatives rarely lose elections by underestimating the intelligence of the American voter, but they’ll have to content themselves with nibbling at the retirement age and inflation indexing as opposed to wholesale elimination of SS.
Time and dishonest policies may deliver to them the victory that honest legislation never could.
OT, but germane if you consider attacks on SS to be yet another example of the war on the middle class:
http://www.foreignaffairs.com/articles/67046/robert-c-lieberman/why-the-rich-are-getting-richer
Thomas McClanahan, KC Star – “The trust fund bonds may be assets from the point of view of Social Security, but they’re a liability for the government as a whole, and for us as taxpayers.”
McClanahan is correct. CBO has stated the same thing, as has U.S. Treasury.
Program assets consisting of legal paper, regardless of its form, may very well be considered program assets, but that paper including special issue treasuries represents a liability to the U.S. Government. The special issue Treasuries held by the Social Security Administration represent a liability that the U.S. Government is obligated to redeem as necessary under current law.
If there are individuals who want to dispute McClanahan’s statement, why not go after CBO, Treasury, or OMB? McClanahan’s statement is very much in alignment with official views expressed by elements of the U.S. Government.
Or send McClanahan an email:
mcclanahan@kcstar.com .
The analogy to a multi subsidiary corporation is an apt and instructive one.
1) In the final accounting for the parent company all the subsidiary intra company sales, profits, and loans are consolidated and netted out as if they do not exist.
2) Sales and profit figures for individual subsidiaries can be arbitrary and manipulated for political or tax purposes. It doesn’t matter, everything will be consolidated and netted anyway.
3) The SSTF can be seen as one relatively healthy subsidiary of the Federal Government. However, other subsidiaries, ie. Medicaid, are hemorhaggng money. so, on a consolidated basis the whole enterprise is going down. In addition, the relative health of the SSTF is also arbitrary because FICA taxes and benefits are in most ways indistinguishable from income taxes and other transfer payments.
Bruce Webb just keeps focusing on the health of this one subsidiary, and ignores the consolidated entity. Because his particular cabin on the Titanic is dry, there is nothing to worry about. They are all just liars and thieves.
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the U.S. Government is obligated to redeem as necessary under current law.
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And since everyone agrees with the current law, there’s no problem, is there?
He says partway down that “the trust fund is full of debts. Social Security is not a pension program as we commonly understand it. It is a pay-as-you-go program. Current recipients must be paid with current tax revenue. Future recipients must be paid with future tax revenue.”
Isn’t this a fair description of an operational bank? (not the sort we have at the moment — the ones that actually lend money.) A functioning bank has gobs of money, but lots of it in the form of big fat mortgages and investments — i.e. debts.
A traditional bank that doesn’t make loans has no income either. It’s just a big building to store money and skim off service charges all the live-long day. But can service charges alone support big bankers? not many of them, I am guessing, unless they go Ponzi.
But of course the SS system is rather like this traditional sort of bank, the one that stores money and then pays it out later, without playing poker with it in between.
What McClanahan is ignoring is that this money already belongs to someone, the people who paid it in. The bank (with help) can be robbed, but the FDIC insures against that sort of robbery. But, SS is “insured” by the USA itself. Trying to plead now that it’s too expensive to pay back is, as Bruce said, theft, pure and simple. It’s mugging America’s defenseless elderly to support the power of the state — not pretty at all.
Noni
Trying to plead now that it’s too expensive to pay back is, as Bruce said, theft, pure and simple.
This “theft” thing is inaccurate as well. For there to be “theft” there has to be “property” and there is no “property” here. This is what Conservative SS reformers have been arguing for years. What we have is a system that younger taxpayers pay for retirees, in return for a promise that future taxpayers will pay for theirs, (if there is the money available). So what we have here is an non specific “obligation,” with a big qualifier in parenthesis.
I think people were hoping you had a more comforting answer.
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This is what Conservative SS reformers have been arguing for years.
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Excellent! Something circa 1983 would do just fine.
You got that handy?
You know, something from Greenspan or Reagan stating that the trust fund was a complete fiction cooked up to help his re-election prospects.
eighty nine,
You got that handy?
Here is the Heritage Foundation 1/18/1983 on partial privatization:
A successful approach to rebuilding -social Security will require division of responsibilities between the government and the private sector, with the government maintaining the welfare aspects of the program (albeit in a more-efficient manner) and increased private sector participation fulfilling the program’s insurance function. http://www.heritage.org/research/reports/1983/01/wrong-rx-for-social-security
BTW, speaking of debts…
The Tea Party folks claim to regret not paying for the wars and prescription coverage under the Bush administration; they claim to have protested mightily, but alas, their complaints went unheeded.
I say give ’em another chance, and by all means let them pay for it now.
Because I don’t for a minute doubt their sincerity in wanting to pay for these things. They would never agree to burdening future generations with a bill that they could, with some sacrifice, pay for themselves.
They are after all, quite honorable and principled, and not given to such shenanigans as we have seen from previous Republican (not Tea Party!) administrations.
Sammy
no. the united states of america is not one person. there is nothing preventing a sovereign nation from agreeing to broker a loan from some of its citizens to other of its citizens. in this case the loan was essentially from the workers who paid the money for their future benefits and in the meanwhile lent it to those taxpayers who wanted to buy nuclear submarines “right now.”
the reason you can’t understand this is because you don’t want to understand it.
when the Trust Fund is paid back, it is not “the taxpayers paying twice for Social Security,” it is the income tax payers paying for the first time for the stuff they bought with money they borrowed FROM Social Security. You would understand the difference if you were honest.
MG
you have observed a standard technique of the Big Liar. That is to state a “fact” in a way which makes it serve as a lie. yes the Trust Fund is a liability to the government… and therefore to the taxpayer… but it is not therefore the same as “the government lending money to itself.”
do you see….. the Trust Fund is NOT a myth. That was Clanahans claim, and he backed it up with a “true” statement that would be misunderstood by his chosen audience.
the technique was invented when the father of lies told Eve she would “come to know good and evil.” she already knew good. she would come to know evil.
I think people were hoping you had stopped drinking Sterno ‘squeezin’s’..
Your question made almost zero sense given any reasonable political probability calculation. Stop sipping g Crazy Juice and get back to U’s.
Sammy
they are liars and thieves and you are a dupe. the United States of America is not sinking, at least it is not sinking because of Social Security. And Medicare is only bleeding because Bush with help from the Democrats created an un funded drug benefit. You are like a man who comes home and finds his wife and kids bleeding on the floor. And the man with the gun in his hand says… well, they were going to die anyway. And you compliment him on telling the truth.
Sammy
SS works because it is not welfare. your friends want to turn it into welfare so they can kill it.
your other friends are too goddam dumb to realize that younger taxpayers paying for retirees is the way people have paid for their parents old age since about two million BC. all Social Security does is recognize that in a modern economy no one “family” can insure itself against all risks, so for the purpose of Social Security we are all in the same “family.”
moreove whenever you buy a stock or a bond… and keep it until you retire… you will be paid by some young person.
again, this is normal money, borrowing and lending, paying in advance, being repaid for previous contributions. there is no mystery about it. only deliberate deception by the Big Liars, and willful ignorance by the Big Fools.
MG before I pit this post up I e-mailed McClanahan three times and her responded almost instantaneously twice, the second time saying be was out the door for a long weekend. While he was polite he didn’t address any of my points. Why did you assume I hadn’t and needed your help with an address?
And you are misrepresenting CBO and Treasury. Neither has ever denied the Treasuries are backed by Full Faith and Credit nor suggested that SSA and Treasury are not obligated to pay out full scheduled benefits while Trust Assets exist. CBO and Treasury are simply doing a statement of current law in light of Flemming v Nestor, they are not suggesting retirees don’t have a valid expectation that benefits will be paid absent direct- and ultimately correctable-Acts of Congress after the next set of midterms. The Conservative argument asserts a degree of uncertainty that in political terms does not exist. Until or unless the liars and thieves at Heritage and elsewhere actually make their case in the political arena. Just because their lips are moving doesn’t mean they are arguing in good faith.
Sammy that is the same way we pay for the last destroyer or jet fighter under the current contract/production schedule. In the final analysis most of economic life is Pay-Go. The question at hand is why the First Class Passengers are demanding retroactive discounts on what they Paid while telling the rest of us to Go to Hell. What makes you think my cabin is tight and dry?
Heritage is a think tank hostile to the New Deal to start with and that Report came out before Reagan andO’Neill signed off on the deal and so has no authority in any way. Certainly it was not binding on Reagan.
Reagan: Remarks on Signing the Social Security Amendments of 1983
April 20, 1983
http://www.reagan.utexas.edu/archives/speeches/1983/42083a.htm
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In this compromise we have struck the best possible balance between the taxes we pay and the benefits paid back. Any more in taxes would be an unfair burden on working Americans and could seriously weaken our economy. Any less would threaten the commitment already made to this generation of retirees and to their children.
We’re entering an age when average Americans will live longer and live more productive lives. And these amendments adjust to that progress. The changes in this legislation will allow social security to age as gracefully as all of us hope to do ourselves, without becoming an overwhelming burden on generations still to come.
So, today we see an issue that once divided and frightened so many people now uniting us. Our elderly need no longer fear that the checks they depend on will be stopped or reduced. These amendments protect them. Americans of middle age need no longer worry whether their career-long investment will pay off. These amendments guarantee it. And younger people can feel confident that social security will still be around when they need it to cushion their retirement.
These amendments reaffirm the commitment of our government to the performance and stability of social security. It was nearly 50 years ago when, under the leadership of Franklin Delano Roosevelt, the American people reached a great turning point, setting up the social security system. F. D. R. spoke then of an era of startling industrial changes that tended more and more to make life insecure. It was his belief that the system can furnish only a base upon which each one of our citizens may build his individual security through his own individual efforts. Today we reaffirm Franklin Roosevelt’s commitment that social security must always provide a secure and stable base so that older Americans may live in dignity.
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Strangely enough, he made no comments regarding the trust fund being an accounting identity or merely holding worthless IOU’s.
Sammy have you ever worked for a large entity where you or your boss was responsible for a divisional operating budget. do you really think everyone just waits for some reconciliation out of the office of the CFO at the end of the year? You are the one snug in your cabin of unreality at the top of some tower. I don’t think the branch office in Bangladore gets away with saying “hey corporate will figure all this out”
“Which would logically make Dutch and the Maestro Greenspan pre-meditated thieves and liars.”
Ah! The light dawns! 😉
“Do the assets in the Trust Fund have economic value?”
Of course. The same thing that gives the US dollar economic value gives them value.
Bruce,
As was stated in at least one of the Clinton Administration’s official documents, the contents of the SSTF are of no benefit whatever in meeting future SS payout requirements.
If the SSTF contents were zeroed out tomorrow, or if they were multiplied by a factor of a million, in neither case would the future SS benefits paid out be affected by as much as a penny.
Future benefits are mandated by law, and the law does not say that payments must be made only to the extent covered by the SSTF.
So you’re attacking the wrong lies. There will be no problem encountered when/if the SSTF becomes exhausted. It WAS the Greenspan Commission which was the primary source of recent deception, and it was their actions which caused unnecessary economic damage by increasing SS taxes, creating a useless surplus which was borrowed by Congress and overspent by 72%.
To the extent that future SS shortfalls are made up by borrowing, whether the borrowing is used to redeem SSTF bonds or to pay out directly in SS benefits is a distinction without any significance.
The reason that SSTF bonds are different than other bonds is that they can only be used for one thing in one way. That one thing is ‘financing’ SS shortfalls. If you have $1 billion in bonds outside of the SSTF, you can presumably sell them for $1 billion dollars. Inside the SSTF, the bonds can only be redeemed to the extent of a SS shortfall. If next year’s shortfall is only !00 million dollars, then that is all you can redeem. If every following year has a zero surplus/deficit, then the $900 million remaining in the SSTF will acrue interest, but will never be able to be used for any purpose.
Regards, Don
Webb is (of course) right about this. SSA sells off old SI bonds and notes every month. They have been doing that every year for the last 10 or more. The system is working exactly as planned.
But there is an important distiction that the folks at AB have to consider. Look at the debt held by the public. There are bills notes and bonds for this portion of our debt. There are maturities of this debt that come due every day. Literally trillions are due and payable every year. And every one of those obligations are paid in full on time. Just like SSA.
Where does this money come from to pay back old debt? Simple, Treasury issues new debt to someone else. So the mechanics of this are that we don’t pay off any debt, We just borrow more and roll over the maturing debt.
If you look at any (reasonable) chart of expected future public sector debt the lines just keep pointing north as far as the eye can see.
But that is not the case with SSA. They own similar obligations as the public sector in that it is legally parri-passu with the pubic sector paper. But there is no plan to roll this over indefinately. It is exactly the opposite. As Webb will tell you, all of the assets in SSTF have to be liquidated over the next 27 years. The process has actually begun already.
So we are at (or near) the the tipping point where the assets of SSA begin to shrink. There is only one source of repayment for this. That is to issue more public sector debt. We are all in agreement that over the next 25 years or so all 4.6T (and then some) of the TF IOU’s are going to have to be paid in full. That is a much different status then the public sector debt that can be easily rolled over.
You folks only wear a SS hat. You say to the problem I have desribed, “So what? I say to you that you have to wear a different hat. Look at this problem from a level above SSA. What will it take for you to understand that to go down the road that has been planned where the Public sector debt will rise dollar for dollar with the wind down of SSTF is simply not going to work. I tell you again we are on thin ice with this plan. Before we get to 2020 the Treasury will not be able to issue sufficient new debt to pay back ss AND run the country. So SS will get squeezed. To me this is as clear as a bell. It is clear to others. It is not clear to you.
If you look at SS in isolation it looks fine. That is how you see it. Look at it in the context of the broader economy and you will see it differently. If we follow the plan to liquidate the TF holdings it will destroy the real economy. So your baby will live, but the parents die. But then you have a starving child with no one to look after it. So the baby dies anyway. The reality is that our economy can’t afford to keep the promises that have been made in the past.
2011 will (I think) bring this issue to the forefront. Maybe it will take a few more years, but it is coming. When it does, SSA will have to be changed dramatically. Sorry.
Congress cannot declare war on Switzerland. War declaration is now the exclusive province of the executive branches handlers.
A nuclear submarine allows the US to bully and extort, which helps solidify the dollars status as a reserve currency, which in turn creates demand for dollars so the Fed can maintain its charade.
Going forward we are faced with old subs, and less demand for the dollar as a reserve currency. So while those subs might have paid dividends originally. they are not a particullary good investment and it’s is difficult to see how they can generate revenue going forward. So Subs are not a good investment unless you are reverand Sun Moon and you like to smuggle drugs in them.
By your own example you demonstrate that the US has a portfolio of lousy investments.
You might wish the SS was solvent, but it seems you might need some magical silver shoes you can tap togeather a few times like dorathy did in order to make this wish come true. It’s nice that you have that kind of faith, but I don’t think the trust fund has any magic shoes.
Bruce. One of us has a fundemental misunderstanding. In a previous post you argued that government debt was not such a problem because the Treasury department recieves interest payment on that debt.
While the relationship between Goldman sachs and the treasury might appear seamless given how CEO’s and treasury secrataries play musical chairs, Goldman is one of the owners of the Federal reserve bank. When the government pays interest payments the Goldman Sachs / Secratary of treasury credits those interest payments to the Goldman sachs owned federal reserve rather then the Goldman sachs owned government.
One of us is mistaken about a very important issue.
When groups of private bankers are allowed to issue currency an unpopular government may be mainitained, because that government no longer has to go hat in hand to it’s citizens. Governments then act as collection agencies for the bankers. Nations under the sway of bankers are thus able to wage war on credit. Those nations attack and prevail against nations which issue there own currencies. The defeated nations are forced to submit and institute a central bank which is then linked to all the other central banks Try applying this rosetta stone to history. It seems a rather nice albiet ugly fit.
Coberly, re “it is the income tax payers paying for the first time for the stuff they bought with money they borrowed FROM Social Security” I agree entirely BUT it’s also true that the people who will be belatedly paying for these things are not the same people who bought them. Moreover, the people who bought them are those who, through their duly elected officials, cut their income taxes while building the SSTF–they loaned money to the government to pay for these things instead of levying/paying taxes to pay for these things. (More precisely, lower wage earners made these SS loans while high-earners got most of the tax cuts.) This is relevant because the issue would be minor had we not allowed such large overall federal deficits while building the SSTF; but as it stands, we didn’t use the SS loans to reduce borrowing from elsewhere as we should have.
Very interesting discussion. The Reagan reforms to OASDI (a.k.a., Social Security) as well as other federal programs did caused he “Trust Fund” to grow rapidly and ended the program as being a simple pass-through account. The difficulty was created when the OASDI fund was rolled into the general fund. That rapdly growing fund offset a larger-and-larger portion of the deficit and supported the usually conservative arguments for more rate-based tax cuts.
Here is where there is a “Myth” — the myth of a balaced federal budget. Even the much ballyhooed Clinton surplus was a myth — if you had backed out the OASDI Trust Fund there would still have been a deficit, albeit smaller than when he took office. But, that did not stop the 43rd Administraion from using the OASDI Trust Fund to further reduce income tax rates and enhance tax expenditures.
So, what is the “Problem?” Simple, there will come the day when the OASDI will have to redeem and not roll over the interest imcome of the bonds in the Trust Fund and that is going to hurt. Then next crisis will come when the OASDI has to redeem but not replace bonds as they mature. (Oh yes, there is an inherent lie in many of the arguments — that none of the Baby Boom generation will die before 2050 — bad news for undertakers.)
We have, as a nation, leveraged the retirement account not to purchase assetes that will yield income, but to fund all sorts and kinds of non-productive exercises largely in the role of the USA as the policeman for the planet.
Yep, we leveraged the rertirement fund, re-mortgaged the prpperty, and sold out our inheritance all in pursuit of creating a hegemony. The sad fact is that other nations have done the same and all come to grief. In that context, the health of OASDI is the least of our problems.
cursed
i didn’t say that nuclear subs were a good investment. i just said that’s the way money works. the US still owes the money to the TF. and the US is still solvent. what makes us look insolvent is the refusal of the people who have money to pay taxes. even to pay for that submarine they bought with your retirement funds.
PJR
i agree with your sentiment, but I think you are wrong as to the finance. IF your father buys a house with a mortgage, then leaves you the house with the mortgage half paid off, did you inherit a debt or did you inherit an asset?
The US is presumably a good house that we owe money on. We can’t really complain in principle that the people who borrowed the money to build the house left us to pay the debt.
Of course that’s only in principle… if dad got drunk and squandered the money he borrowed, we may not have has good an inheritance as we hoped. But that is the risk you take when you choose your parents. It looks to me like our parents have actually left us in pretty good shape. It’s the politicians we are electing today, and their liars, who are going to hurt us.
meanwhile the SSTF is not a big deal. Let them steal it, but keep SS on a pay as you go basis and we will all be much much better off than if we let them “fix” it.
The money is “there” only if future taxpayers agree to pay.
The future will be primarly brown people. who will be asked to reduce there own meager lifestyle to pay for an old over indulgent white generation, who enriched them self by exploiting cheap brown labor, while running up an outrages debt.
yes, and Reagan didn’t quite understand that while those younger workers are “paying for” older workers retirement, they are at the same time paying for their own.
they create “credits” (just the way you pay for anything in advance) that will be honored by a younger generation who will be paying for their own retirement in just the same way… the process is as infinite as anything humans can create.
the only people who want to break the chain are people who hate the fact that humans can cooperate for their mutual benefit.
each generation actually gets back more than they paid in. even with the projected “shortfall” with no raise in the tax at all, the next generation will get back more than they paid in. a higher real value to the monthly benefit and many more months of benefits. the “shortfall” is “merely” a need to raise the payroll “tax” forty cents per week per year to keep the same “replacement rate” over a longer life expectancy at a higher standard of living.
Cursed I stlll hold out hope we will ultimately get back to something called Constitutional Order. I know, that makes me a crazy dreamer. But even the AUMF was not an open ended matter, though Bush certainly treated it that way.
Don
you simply don’t understand SS financing,accounting, law, or the concept of property or paying for what you buy.
the TF keeps track of payments and who paid them and therefore what is legally and morally owed.
you cannot just pay for SS out of general funds without changing SS into welfare, and that would be a disaster for SS and for workers.
I think you are correct that “to go down the road that has been planned where the Public sector debt will rise dollar for dollar with the wind down of SSTF is simply not going to work.” (I agree only because we already have too much public sector debt and large deficits.) I think you are incorrect that “There is only one source of repayment for this. That is to issue more public sector debt.” (I disagree because tax increases and budget cuts are also sources.)
I agree with you that occasionally analysis focuses too heavily on SS in isolation; I’d add that those who look at the larger budget also sometimes show their blind spots, to include intra-budget debt and total budget tax policies. The bottom line–from the broader and narrower perspectives–is that SS is not the problem. Rather, deficit spending outside the SS system has been, is, and will be the problem, and I’d point mostly to low taxation on the wealthy and spiraling health care costs and high defense spending as the biggest sources.
Krasting
when you borrow money, you may have to get a job to repay it. there is no reason that the people who borrowed the money shouldn’t pay a tax to repay it. you seem to have a blank spot when it comes to contemplating paying back money you borrowed.
America is a big big country. We can easily afford to pay our bills. The problem is that people like you have been telling the voters for years that we don’t have to pay taxes and the bills will take care of themselves.
cursed
i think it is you who are mistaken. I can’t imagine Bruce saying the government receives interest on the debt it owes.
and yes the government can maintain its popularity by taxing less than it spends. and at some point this becomes a problem. if we are too stupid to pay the taxes for what we need to spend, it will go hard for us.
but that is not the same thing as saying the TF is “phony iou’s.”
George
maybe so. but we don’t need to invest government funds in some profit making corporation. The United States itself is essentially a profit making corporation. As long as the money we invest in ourselves results in a higher standard of living than we would have had otherwise, the “debt” is justified and presumably repayable.
It need not be a rising per capita GDP, though it usually would be. It can be simply that we have a better standard of living not having to learn to say “yes, boss,” in Russian.
There is plenty of money to pay our debts. So far. Not saying that we are not on a path to so destroy the economy that we not only can’t pay our bills, we can’t pay for our daily bread.
But what will take us down that path is refusing to pay our bills. More tax cuts.
Which is the genius of Social Security. Though people bitch that FICA is regressive, the reality is that the initial benefit formula vastly boosts the replacement rate for lower income workers compared to upper income workers. This is not to say that Social Security is notably generous to those workers, because living on a minimum Social Security check is no joke, but it beats the crap out of any privatization plan out there, most of which have to institute transfers from the GF to make up the difference.
That is comparative to anything else out there those brown people get a pretty good deal. Unless of course the liars tinker with the benefit formula in the way they are proposing. Which is why the fundamental debate is just not honest, ‘reformers’ are asking for give backs from just about everyone while offering nothing but ultimate tax relief for the top 20% or so.
Screw you MG. You were responding directly to me on my thread and clearly accusing me of not having done my due diligence.
And you are just wrong about CBO. Or at best don’t understand what you are reading. Not surprising since you seem to be a lot better at handing out reading assignments than understanding them.
And McClanahan’s claims go far beyond the asset/liability question, look at the title of his original post and this follow-up for God’s sake. He is making the claim that the Trust Fund is mythical and has no economic value. Which in light of the fact that the DI Trust Fund cashed in billions of those bonds this last year is simple polemic bullshit. Christ on a crutch you seem to think you have a copyright on blog aggrievement, always the victim never the perpetrator.
The Trust Fund is not a myth. It has been honored by Presidents of both parties as needed ever since 1935 including the Bush Administration starting in 2006. Those who would deny the simple historical records are liars or fools. Take your choice.
Don sorry you don’t understand what you read. Any bond is just a promise, none of them have any economic value as such except to the degree that they are accepted as exchange value and/or the issuer is considered credit-worthy. The U.S. government redeemed $30.735 billion in principal and interest from the DI Trust Fund last calender year. Obviously they have exchange value, because they were exchanged for value. And I could give a crap what some Rubinista in the Clinton Administration inserted into reporting, the reality of the Trust Funds is validated every time a disability benefit is issued by Treasury and honored by the bank. QED.
Krasting Social Security has never sold off a Treasury. They are not marketable. They are instead redeemed for cash or exchanged for new issues. Now the source of that cash might be in the borrowing markets but equally might simply come from taxation. Or as was the case every year from 1983 to 2006 simply in the form of a credit against future tax collections.
And you have never made a coherent case why Special Treasuries could, should or would take a secondary position to Regular Treasuries or why we shouldn’t redeem the Trust Fund by restoring Clinton era rates.
Cursed I doubt I put the matter in quite the same form as you state. You may be referring to me mentioning that interest payments paid on regular Treasuries held by the Federal Reserve are returned to Treasury. So I think you are simply wrong by saying that the interest actually stays in control of the Fed or its member banks.
Mr. Wells an examination of the actual numbers from 1956-1982 shows that Social Security was more often cash flow negative than not, that is it was never simply a pass through system. And surpluses were invested (or whatever word you like) in Treasuries every year since the establishment of the Trust Fund in 1939, meaning that they were ALWAYS rolled into the General Fund. The changes instituted in 1983 did not change the operations of Social Security in any fundamental way. That they did is ITSELF a widely held myth.
And I am afraid you are wrong about Clinton era surpluses. While the surpluses of 1997 and 1998 were somewhat illusory as simply being the result of Social Security surpluses, those of 2000 and I believe 1999 were not, something that can be seen by comparing Debt Held by the Public year over year: Debt Held by the Public on Sept 30th, 1999 was $3.636 trillion, Intragovernmental Holdings (including Social Security Trust Funds) $2.020 trillion for a total of $5.656 trillion. A year later Debt Held by the Public was $3.405 trillion, while Intragovernmental Holdings were up to $2.268 trillion for a total of $5.673 trillion, but the entirety of the increase to TOTAL Public Debt and more was due to interest on the Trust Funds which while counted for Unified Budget purposes are in a year of cash surpluses from taxation essentially non-economic for that year. The reduction of Debt Held by the Public of $229 billion was larger than $93 cash surplus from Social Security taxes and in fact than the total $153 billion increase in Trust Fund balances once interest was added in.
That is while Total Public Debt went up all of this and more was the result of increases in Intragovernmental Holdings (where surpluses score as debt even as they remain surpluses for Unified Budget calculations). You would have to tinker with these numbers to bring FY and calender year numbers into accord and to account for other Trust Fund operations outside Social Security, but the net was that General Fund surpluses were real at least in the last year of the Clinton Administration..
“I stlll hold out hope we will ultimately get back to something called Constitutional Order”
Amen
When the banker gets your dad drunk and swindles him into hocking his house many times over, the banker is banking on debt peonage.
sammy: “What’s to prevent the 112th Congress from doing the following:
“As part of the Social Securtiy Obligation Reorganization and Restoration Yadayada Act of 2011 (SSORRY), we declare the Special Treasuries owed to the SSTF to be null and void.”?”
Fear of losing their next election. Old people vote. 😉
But so what if they did? That would not eliminate the gov’t’s obligations to SS recipients or future recipients.
Bruce Webb: “then clearly Reagan, Greenspan and just about everyone else was arguing in bad faith.”
Amen, brother, amen!
Webb,
You’re a hopeless paranoid individual who thinks he is the center of attention on a blog that isn’t his blog. My comment was directed at all individuals. Period.
I cited one statement by McClanahan. He is correct. You don’t know what you’re talking about with regard to CBO’s statements on the same issue. U.S. Treasury has provided similar statements in its annual financial reports. There is no mystery here.
Stop faking it, Webb.
cursed: “You might wish the SS was solvent”
Not to worry. It is solvent. We have a fiat currency, something that people seem to forget.
If we can bail out Big Finance at the drop of a hat, we will have no problem with Social Security. 🙂
cursed: “The money is “there” only if future taxpayers agree to pay.”
That’s future voters. Most voters pay taxes, but not all. Old people vote.
MG the difference between me and you is that on my threads I don’t have to put up with your bullshit while you have free access to 99.9999% of the blogosphere. Have a nice day. Somewhere else.
(To everyone else: I just deleted a comment by MG)
Bruce Krasting: “You folks only wear a SS hat. You say to the problem I have desribed, “So what? I say to you that you have to wear a different hat. Look at this problem from a level above SSA.”
OK, sounds good. 🙂
Krasting: “I tell you again we are on thin ice with this plan. Before we get to 2020 the Treasury will not be able to issue sufficient new debt to pay back ss AND run the country. So SS will get squeezed. To me this is as clear as a bell. It is clear to others. It is not clear to you.”
You are forgetting that we have a fiat currency. The US is the source of its money, not the bond market.
The real question is about the real economy. Will we be able to create the goods and services that we consume, including those consumed by Social Security recipients? If so, we can handle the financing. If not, we’re screwed, anyway. 🙂
cursed: “Nations under the sway of bankers are thus able to wage war on credit. Those nations attack and prevail against nations which issue there own currencies. The defeated nations are forced to submit and institute a central bank which is then linked to all the other central banks Try applying this rosetta stone to history. It seems a rather nice albiet ugly fit.”
Interesting historical theory. 😉 Do you have any examples? Thanks. 🙂
“I agree with you that occasionally analysis focuses too heavily on SS in isolation”
PJR you are precisely right. Which raises the question of motive. The only semi-rational answer that ‘reformers’ come up with for starting with Social Security is that ‘it is easy’ and so supposedly establishes a platform for further compromises on the hard parts. Given the intransigence of Republicans on anything that would require tax increases and their recent demagoguery of the savings from Medicare from HCR no one can take this seriously. They hate Social Security and always have because they see no lines between Social Security, Social Democracy, Socialism, and the Road to Serfdom.
The war on Social Security has never been one of economics or deficit accounting, their arguments simply don’t hold up on exposure to numbers, hence their fall back on the laughable “well fixing Social Security is easy” line. If it is that easy it is also unnecessary, particularly since they refuse to even consider fixes totally funded by the current wage base. Coberly and I have put forth a plan that delivers 100% of the scheduled benefit while NOT REQUIRING THE UPPER MIDDLE CLASS OR THE TRULY WEALTHY TO CONTRIBUTE A SINGLE ADDITIONAL PENNY. In fact the Northwest Plan actually REMOVES the need to PAY OFF THE TRUST FUND PRINCIPAL. Hell except for a brief period in 2026 to 2037 it doesn’t even require full cash payment of interest, over the life of the plan the net effect is to discount the interest on the Special Treasuries. Under the NW Plan the WEALTHY GET TO KEEP THE MONEY THEY BORROWED/STOLE AND ONLY PAY A PORTION OF THE INTEREST.
Excuse me for yelling but given all that I can’t see that these people are arguing in good faith. They are liars and thieves even where they don’t need to be. If the question was just one of economics and not of pissing on FDRs grave.
George N. Well, CPIM: “So, what is the “Problem?” Simple, there will come the day when the OASDI will have to redeem and not roll over the interest imcome of the bonds in the Trust Fund and that is going to hurt.”
Private banking has characteristics like a Ponzi scheme. But the gov’t that has a fiat currency can always roll over its debt or create debt-free money. Ad infinitum. (I. e., as long as the country exists.) 🙂
I never support the privatization of legitamate government functions. I do support the concept of a publically mandated form of socail security. I do not support the current tinkerers.
My point here is that when people are broke and see iniquities in intergenerational transfers they are not conducive to triple digit IQ arguements.
Was not Hitler able to more easily win over the beer hall crowd when he said that the German army was stabbed in the back by clerks and piss poor leadership because of the percieved iniquities of the Versilles treaty?
According to Solzenitsyn the Bolsiviks won the revolution because they appealed to the minorities animus against Russians. Russian and Ukranian nationalism was equated with counter revolutionarys. The Russian elite were largly replaced by non Russians during this time.
Show me a place where there is a free and fair elections today that does not show voting patterns along racial lines. Good luck.
.
“Show me a place where there is a free and fair elections today that does not show voting patterns along racial lines. Good luck.”
Well equally you could show me a place where those racial lines did not largely coincide with class lines.
Plus if you wanted an example you could examine the Populist Movement in the U.S. in the last third of the 19th century where divisions fell more along the lines of Farmer vs Banker/Railroad Owner. Plenty of White Protestants on both sides of that one. So unless you want to stretch ‘race’ so far as to include N. European ethnicity and to a lesser degree various Christian creeds you might have a hard time getting the universality you want here. I suspect Canada and Australia could offer other examples
Krasting you come to Social Security threads, insist that your reading of the evidence means that Social Security HAS to be included in any solution while never having a single thing to say about raising taxes or increasing productivity (which would take care of much of that ‘dollar for dollar’ nonsense, Public Debt did not drop much in nominal terms after WWII even as it shrank as a percentage of GDP until Reagan reversed the trend). And then blame ME for having a Social Security hat on?
Its like going to Lambaugh Field and bitching about all the Packer Gear fans are wearing. The link at the top of this page doesn’t read “Webb’s General Macroeconomic Series” after all.
“I can’t imagine Bruce saying the government receives interest on the debt it owes.”
Well I can because it does, both on regular Treasuries held by the Fed and on the Special Treasuries in the Trust Funds. I fully understand and support the concept of paying interest on the money the General Fund borrows from Social Security, that is a simple matter of equity. But the current practice of crediting that interest for current year ‘Unified Budget’ purposes is conceptually odd and leads to all kinds of misunderstandings. For example most people think a $2.6 trillion Trust Fund means that amount of borrowing when in reality the actual dollar flow was maybe 60% of that.
Krasting is not a total nut, he just lacks a sense of proportionality and equity.
Right, Bruce, the on-budget deficit declined starting in FY 1993 and went into surplus in 1999 and, more-so, in 2000. In both 1998 and 2001, on-budget deficits were quite small and more than offset by SS surpluses, so the unified budget was in surplus for four years FY 1998-2001. Relevant and easy-to-read data are in Table 1.1 in this 2008 OMB pub: http://www.whitehouse.gov/sites/default/files/omb/budget/fy2009/pdf/hist.pdf
“Simple, there will come the day when the OASDI will have to redeem and not roll over the interest imcome of the bonds in the Trust Fund and that is going to hurt.”
Well that day came in 2006 for the DI component of OAS-DI and didn’t seem to hurt much. At least I missed the part where the world bond market crashed under the impact. The problem here is the same it always is, we get concepts like “hurt” with nary a dollar figure or date attached. “Hurt” how much? and When?
The strategy of ‘reformers’ since Day One (which in this case came in June 1983) has been to attempt consensus on ‘Crisis’ and ‘We can’t afford to wait’ and only THEN introduce numbers and plans when the reality is that the discussion should start the other way around. What is the actual cost of “Nothing”? Although I have been specifically asking that question for years now, the responses mostly come in the form of “Everyone agrees that SOMETHING has to be part of the mix, you are in denial.” Well I may be rowing against the stream of De River Nile but I got a boatload of numbers with me. This is an economics site, you would think that quantification would be the start of these discussions. But it doesn’t seem to happen.
“Cursed I doubt I put the matter in quite the same form as you state”
Undoubtably you would have been more lucid, and obviously your spelling would have been much the better.
In the North States the image of male virlity is based upon having a preponderance of tattos to teeth. I fail on this count, however redemption can be found if one excells at producing califonia’s leading cash crop. In testing the efficacy of lighting systems I sometimes make I get confused. My occupational hazard being what it is makes it highly likely, that I might have misinterpreted your remarks, for which I appologize.
“Interesting historical theory. 😉 Do you have any examples? Thanks. :)”
Sure.
A long time ago Joseph Nasi got really pissed of because the king of Spain said either die, convert, or leave but with out the wealth of the house of Mendez. He knew a jewish doctor who was able to introduce him to the sultan. Joseph was able to provide the Sultan with valuable intellegience, he gained by coorosponding with merchants and powerbrokers world wide. From this vantage Joseph was able to carry on his vendeta with both the Spanish state as well as the Catholic church.
William of Orange was a profligate. He needed funding always. Nasi arranged events so that Orange would allow his base to be used for a protestent insurection against both. At the same time the Sultans navey engaged with the spanish in the mediterainian where by Nasi became fabulously wealthy.
Spain eventually suffered an inflationary death and and Catholic Europe suffered a bloody schism, and “new Christians” found sanctuary in holland.
Now lets go to the long Parliament. At that time the position of the Parlilament was. “We aint giving you no more money”. Crises for one is opportunity for another. Ollie Cromwell recieved moneis from the new christians in Holland. As did his New Model army. This was a horrible bloody epidode in english history, that paved the way for the bank of England.
The bank of England would advance the king money, knowing that with the kings athority they could collect their gold from the tears and the sweat of the English people.
The Union Jack made it’s way arround the globe in large part to financing from the city of londen, a few Iraqi trading families, and immoral dip shits like buff and co rev who find war the ultimate blood sport.
Study of the death of Tzarist Russia sheds light on the french as well as the american revolutions. We know that Al Gores daughters husbands grand father gave millions to the Bolshiviks, and we should know, but we don’t that Hitlers book was writen on a type writter loaned to him by a German banker. I find it interesting to note that Neo con propagandist today call refer to Stalin as having gone Bonapartist after Stalin adopted a policy of developing communism in the Soviet Union first rather then world wide revolution.
Napolean was a philo semite who emancapated Jews in areas he controlled. Later however he decided to stick his finger in a hornets nest and call a grand sanhendrin, after that he had difficulty borrowing money and meet his waterloo.
Both post revolutionary France and America had banks connected to the bank of england after the dust settled. When the charter for the first US band expired and was not renewed, America is visited by more English armys. We claim to have won the war of 1812, but the bank charter was renewed, and it took the likes of old hickory kill the next central bank attempt.
The Tzar of Russia would not bend over, and Armemians dominated the ottoman empire. We know how things ended for them. Why else would Lloyd George say the day the Tzar abdicated that he had acheived on of his war aims? After all the Tzar had been Britains ally.
If we can bail out Big Finance at the drop of a hat, we will have no problem with Social Security.
Ole benny boy clicked his magic shoes and schlepped 12.3 trillion dollars that to his buddies it has recently been revealed, but not a dime of it went to either a pensioner or to family in order to save there home. When states cities and municipalities start going belly up later this year, it will be interesting to see if they recieve any of this magical largesse
Webb,
Nothing in my original comment was directed at you. I don’t waste my time talking to you. There are thousands of AB readers each day. My remarks are directed to that audience.
Your abusive behavior on Dan’s blog and Dan’s comment policy is well known.
Webb – “Screw you MG. You were responding directly to me on my thread and clearly accusing me of not having done my due diligence.“
That’s not true. You just make things up.
True we have a fiat currency. This is not something to abuse as you are suggesting. There is nothing but air behind a fiat currency. When you undermine it long enough with bad policy the value that the money is supposed to “retain” is not retained. And then you have a very big problem.
You folks want to really screw up the future of older people in America then just solve all the problems with your printing money. You think the cat food comission was a threat to older Americans? Abusing our fiat money will starve them much faster than Peterson or Simpson will.
And I suspect you folks actually know this. But it is not a convenient truth for SSA.
Bruce
there seems to be some sort of semantic confusion here. one does not generally collect interest on money one owes. one pays interest on money one owes. if the Trust Fund is collecting interest on money “the government” owes it, that is not the government collecting interest. The Trust Fund is a legally separate entity.
it is worth noting here that being “cash flow negative” is normal condition. happens every time you spend money you have been saving.
Min
probably true. but repaying the Trust Fund does not depend on fiat money. a normal party A repays party B money party A borrowed from party B will do the trick. The United States is not running out of money. It is running out of people willing to pay taxes. After enough years of that, the United States government will indeed run out of money, but at that point fiat currency won’t be worth anything either.
“That’s future voters. Most voters pay taxes, but not all. Old people vote.”
Volenatary compliance is the easiest method of tax farming.
The Republican Party had an immoral wordsmith who observed that a house devided against itself cannot stand yet, just the other day told millions of people “You can either do menial jobs off the books. Go to school or become criminals, but you’ll never be as good as me you stinking spic.” Good luck collecting SS from those guys
You mistake me for having an axe to grind. I don’t.
Restoring Clinton era tax cuts would change everything, as your suggest. Should that happen the debt to public would stabilize. Should that happen it becomes feasable for the market to absorb the SSTF (and the other 2t in TF assets).
But I am a pragmatist. We aren’t going to raise taxes. What do you need to believe that? Your boy Bill got up on a stage recently and told the country that extending the Bush cuts for over $250k and extending the (heinous) break for hedge fundmanagers was “the best deal for the country”. They also blew another 120b or so on a dopey stimulus effort.
If you don’t raise taxes as you are suggesting then the only alternative is to cut expenses. Last I saw SS was about 20% of the budget. A wager? In the State of the Union Obama will recomend cuts in SS.
Once you break the eggs, they are very hard to unscramble, as you know.
The trouble is, saying that Social Security is insolvent just plays into the hands of the SOBs that want to renege on the obligations of the Federal gov’t, who want states, cities, and municipalities to fail.
Say it loud and clear: Social Security is neither broken nor broke. It does not need fixing. Anybody who says that it does is not out to fix it, but to damage it.
Bruce Krasting: “True we have a fiat currency. This is not something to abuse as you are suggesting. There is nothing but air behind a fiat currency.”
Who is talking about abuse? Or even suggesting it? Instead, people are raising false fears of financing that do not exist. It is the real economy that counts.
Bruce Krasting: “There is nothing but air behind a fiat currency.”
Surely you know that that is false. As Thomas Edison pointed out, when the U. S. went off of silver in 1873, the price of silver dropped in half. It was the dollar that gave value to the silver, not the other way around.
coberly: “The United States is not running out of money. It is running out of people willing to pay taxes.”
I am not so pessimistic. There are cycles. The U. S. is still a pragmatic country. We are not addicted to ideology. 🙂
Per Dean Baker interest on regular Treasuries purchased by the Fed is rebated to the Treasury in the form of earnings. Making those purchases cost free to Treasury, but also of course increasing the money supply by the amount of the purchases. Now you can argue that the Fed is independent of the Treasury but if the latter gets the advantage of earnings by the former it becomes a distinction without a lot of difference.
Social Security is more complicated in that cash interest is only paid to the Trust Funds when one or the other is actually cash flow negative with remaining interest really being pretty close to fiat money, a simple claim on future productivity. Which is why it is off-budget for OMB purposes.
And ‘legally separate’ is kind of tricky in that the Social Security Trustees have no legal recourse against the Federal government and the 50% overlap between the Trustees and the President’s Cabinet makes things a lot more murky, particularly when the Secretary of the Treasury is ex officio also the Managing Trustee of the Trust Funds, and so in effect is both disbursing and receiving that interest payment and in surplus years just as a note from himself as Secretary to him as representing the Trustees.
I like populist movements focus on class. An illigitamate upper class will try to diffuse the energies of the mob by promoting racial and religious strife, which is like raw meet to a mob.
You say,”Surely you know that that is false.” Actually I don’t, so enlighten me please. What is the backing that is behind our fiat money? Can you help me and answer this simple question? I can’t wait.
Instead of asking if the Congress can declare the SSTF bonds null and void, ask the opposite question.
Can Congress assess a future liability on current citizens so that the balance of the SSTF is expanded by 10X to $26 trillion?
If it does so, then presumably any supposed problem with the ‘solvency’ of SS becomes a can that is at least kicked pretty far down the road.
This would be perfectly acceptable because the SSTF is neither a true economic asset NOR an economic liability.
If he SSTF Has a large enough balance so that it is never exhausted, then just how large it is of no economic importance at all. It is redeemable for shortfalls and can be used for nothing else. A true economic asset has a value, period.
Paying future benefits and future taxes is a function of law, and not the balance of the SSTF.
Regards, Don
McClanahan is in my local paper. He’s been a conservative hack for years. All you have to know is the Republican position on an issue to know what he’ll write about it. I haven’t seen one sign of an original thought in his head for years now.
Correct, Min, there are some comments here that simply throw in the towel on ever increasing taxes (again) to where they need to be. We won’t see an income tax hike before the 2012 election, as the recent compromise tax legislation recognizes, but all bets are off after the votes are counted. As in read my lips. The primary danger may be that we do something stupid beforehand; the primary hope may be that our polarized and divided government might be incapable of doing a lot that is stupid.
Krasting
but you assume the thieves can do whatever they want. what we are trying to do here is get the people to understand the theft and stop it.
Krasting
teh backing is the same as the backing behind alll money, even gold, the reasonable expectation that you can exchange it for something you want. you are correct that abuse of it would devalue it. you are not correct that “us folks” want to see that.
this folk just wants to raise the payroll tax a tiny amount so SS can continue to pay for itself.
this folk also would like to see the rest of the budget actually paid for. in the short term that means higher taxes. in the long term it means a rational spending/taxing policy, which we have not seen since 2001. this is not to give Bill Clinton “credit” for the 90’s boom… but at least he didn’t cut taxes and increase the deficit while it was going on.
Bruce
i do not understand the operations of the Fed. but as for Social Security, if we keep the concepts clear, the finance is straightforward. it is the business of the bad guys to confuse the concepts.
all debt is a claim on future earnings.
Don
and the current law is that the Trust Fund, being a record of money collected under the guise of paying for Social Security benefits will be used to pay for social security benefits. no more, no less.
a trust fund that lasted forever would indeed have to tax the regular tax payers to pay the interest on the money the government was borrowing from the trust fund. unless the trust fund could be invested in private assets…. alll of which would destroy the very design of social security and create the problems SS was created to prevent.
PJR– You have a good insight into one reason all may not be lost. “Our polarized and divided government might be incapable of doing a lot that is stupid.”
I agree. Why? The great thing about the federal govts vast machinery is that it moves very slowly when it moves at all. This is good because the very last thing you want in a govt is the ability and tendency to adopt radical changes at the drop of a hat. One great problem with the current SS insolvency mania is that there is no evidence of instability in that program or even the govt as a whole at all.
People still lend us money. Interest rates are still low on short-term bonds. Mortgages are still being flogged at very low rates of interest. And, mom and pop are still getting their checks every month. Those SS checks amount to more than $50billion USD a month, without fail. In bad times like these, that sure source of food and rent money for millions of retired/disabled people and their families is a big part of what keeps the economy going. My advice to the bond and stock market guys dreaming dreams of getting their hands on FICA revenues is fahgeddaboudit. You have to come up with something equal to or better than SS in doing that before anyone with a mind will listen to you. NancyO
Nancy
they cut the payroll tax at the drop of a hat.
nancy
“anyone with a mind.”
ah, there’s the rub.
“What is the backing that is behind our fiat money? Can you help me and answer this simple question? I can’t wait. “
Uhhhhh how about a quarter of the worlds economic output. Its in the trillions. Its all denominated in that “backed by nothing but air” fiat currency you deride. Will you work for these dollars? Will you take the interest checks you get and put them in your account and then go spend them?
You need to figure out what the difference between a gold backed currency and a fiat currency is and then figure out why a gold backed currency SUCKS! One clue as to what would happen in a fixed exchange rate world….. THE EURO!!
The United States govt will only “run out of money” when there is no longer a United States govt.
Well, you know, Dale, neither the President nor the Republicans asked the public what they thought about the idea of whacking FICA two percent. I think that the result would have been different if anyone outside that priviledged group knew what was going on. But, we’ll see how well my modest optimism fares when the Pres releases his budget proposal next month. I suspect I’ll be disappointed with any SS proposals made. NancyO
“Can Congress assess a future liability on current citizens so that the balance of the SSTF is expanded by 10X to $26 trillion?”
Don the short answers to this question are “Of course not!” and “Of course it can and has in the past!”
The excess contributions from FICA collected since 1983 plus the tax on benefits did represent real dollars extracted from the real economy and in invested in any other asset class would clearly be true economic assets as would any earnings on them. The argument that Special Treasuries are different is more akin to the debate at the Council of Trent about how many Angels can Dance on the Head of a Pin than anything. People laugh now, but that question was theologically important, the summary making it seem silly. The Phony IOU argument is similar, at the abstract level of economic theory it has some importance, but as a guide to policy is just as useless as Trent was to pin makers. The U.S. borrowed real dollars from real workers real pay checks in exchange for a promise to bay real benefits in the future, a promise that has never been abrogated in the past and in regards to DI is being honored as we speak. To claim that these ‘assets’ are not ‘real’ because they have nothing backing them ignores the fact that those assets are being exchanged for value right now, suggesting your theology may have to be adjusted to current political economic reality.
As to whether the U.S. could simply apply a liability well it certainly could in two different ways. First Congress could change the law and make scheduled benefits the legal mandate rather than then current income. In point of fact the whole ‘unfunded liability’ argument deployed by opponents implicitly assumes that is already true, that there really is some ‘liability’ there. Which undercuts your argument on the front end. A second method would be much like that actually adopted in 1983, Congress could change income rates (raise taxes) in a way that would mathematically exceed projected costs and phase those increases in in a way that would increase tax burdens year over year. That would impose future liabilities on current taxpayers and do so in a way that changed PROJECTED Trust Fund balances and ratios. But that would not in itself actually change CURRENT Trust Fund balances and ratios which are instead derived from actual collections and actual accrued interest.
But understanding this requires stopping dancing and jumping off the Head of that Pin
Well he did respond to his e-mail right away, so some props there. On the other hand he mentioned he was leaving town so maybe he was just clearing his desk/in box.
Who knows. He sure didn’t seem interested in entering an argument about economic theory.
@Krasting:
All money, including commodity money, is a social construct. It is backed by the “full faith and credit” of the people who use it. If you are paranoid, or anti-social, then maybe that is hot air. At the very least, modern gov’ts back their money by accepting it in payment for taxes. Before the Revolution, Pennsylvania backed its fiat currency by accepting it in payment for loans. During the Revolution, Benjamin Franklin advised the Continental Congress to back the Continental Dollar by taxation, and a bill was introduced to do that. But the states did not want to give the Congress the right to tax, nor were they willing to accept Continentals in payment for their taxes. As a result, the Continental was practically worthless by the end of the war.
Almost all the world has had fiat currencies for almost 40 years. Recently some European prominent in finance proposed returning to a gold standard, but his proposal was greeted with horror and condemnation by central bankers and world leaders. They realize the value of having fiat currencies. 🙂
PJR: “ the primary hope may be that our polarized and divided government might be incapable of doing a lot that is stupid.”
😉
eightnine….
Assume there is no Trust Fund. The FICA tax has just been hiding a huge deficit problem in the General Fund since the mid 1980’s. Going forward, we are obligated to pay for the Social Security payouts by law. So tell us all when did you climb on the bandwagon advocating breaking government promises? Or when did you begin advocating a flat tax…because that is what we have.
But no matter. I can’t wait for you to show up at future Treasury bond auctions screaming to buyers, “Don’t buy that tranche! Those are merely those fake Social Security obligations!” Pray tell, sir, how would you know the difference from any other obligation of the government? You won’t.
You might want to take some time and actually find out how government accounting works in a system of freely traded fiat currency.
oops…sorry for double post. please remove one.
There is the small problem that we’ve collected this $2.6 trillion of excess social security contributions while the theory that running deficits, the larger the better, will more than make up for the lost tax revenue with higher future economic growth.
Now the people whose tax rates were cut the most will fight like weasels to buy their way out of the obligations incurred, and judging by the ubiquity of opinions shown by the 4th estate as fact, the weasels have bought a lot of mouthpieces.
GOP seems to want to force cuts in near term future SS and medicare benefits in exchange for raising the debt ceiling. The bluff is that they’ll hope less people care about these ‘future’ cuts, or something like that, but perhaps it is best to simply let the GOP force the government to shut down for a few weeks to find out what it feels like for current SS beneficiaries to miss a payment, electorally speaking.
Everyone:
First, thanks for the addition information on the history of the “Trust Fund.” I learned that I was misinformed about some aspects of the fund in relation to the general fund.
Next: My comment on “Pain” was to say that those who have used and planned on continuing to use the Trust Fund’s increasing balances to justify more-and-more marginal rate tax cuts are going to slam headlong into the brick wall of a Trust Fund that stays the same and then shrinks. That transates into having to raise taxes.
Of course, they will argue that reducing or eliminating benefits is the “only” solution. Hence this is why I insist on calling Social Security by it’s proper OASDI name and FICA is a preimum not a tax. When people realize that this is actually a government adminstered insurance program that puts a whole new light on the program.
Of course, like many fly-by-night insurance companies, some elected officials are trying to find reasons not to pay out paid for benefits and keep the money for their own purposes. That, in my opinion, is the root cause of the whole problem — now that they have the cash they simply want to keep it.
Hey fellas, I’m beginning to get that Yogi Berra feeling about this thread. It sure sounds familiar and the usual trolls are out there shoveling their pile of horse shit high to the sky. How many times is this argument to be entertained, that the Trust Fund assets are some how subject to renegotiation by the Congress at some time when the Congress decides to not pay one class of its Treaury notes? The same such legislation aimed at privately held T-Bills or foreign sovereignty owned T-Bills can be voted into law at any time. Given that the Trust Fund is just one of many holders of US Treasury debt, where from comes the conclusion that it is the one most likely to be reneged? More equitable than rejecting any T-Bill holder is to simply raise taxes and pay down the debt.
“..and judging by the ubiquity of opinions shown by the 4th estate as fact, the weasels have bought a lot of mouthpieces.”
That’s what one famous historical reformer once referred to as “the rich and the government bribing treacherous pens and tongues to deceive them(the people).”
“but perhaps it is best to simply let the GOP force the government to shut down for a few weeks to find out what it feels like for current SS beneficiaries to miss a payment, electorally speaking.”
An excellent idea that worked very well against Gingrich not too long past. Let the public see first hand how much they and/or their parents rely on Social Security and how little good effect such a plan will have on the general budget deficit. And then remind them that Afghanistan is costing us more than $100Billion a year right now.