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  #1  
Old 02-10-2011, 07:55 AM
luvrbcs luvrbcs is offline
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Did the government borrow money from SS?

I hear that the government has borrowed money from the Social Security fund. Is that why it is said it is low, and, will it be paid back?

I tried Googling it but it just confused me; the government has always borrowed it, the fund is on T-bills (?), the money borrowed lowered the deficit numbers, etc.

What really happened and is it a bad thing?

I just don't understand this stuff, so if someone can please explain it in simple terms (if possible) I would really appreciate it.
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  #2  
Old 02-10-2011, 08:06 AM
shiftless shiftless is online now
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I'm sure someone will be along with more understanding than me. Never stopped me before.

The government borrows money by issuing Treasury bills. You and I can buy them if we want, sort of. It is one of the safest places on the earth to put your money because they are backed by the US government.

Social Security has a surplus - it takes in more than it spends - right now. They have to save this money somewhere so they put some (or all, I don't know) into T-bills. In that sense the government has "borrowed" the money from the SSA. Or we might say the SSA has invested in US T-bills. Just like when China or Japan or you or me invests in T-bills.

When someone uses this idea to lump together the SS funds and the general federal funds and claims that the budget is balanced, they are playing fast and loose with the truth.
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  #3  
Old 02-10-2011, 08:27 AM
SmartAlecCat SmartAlecCat is offline
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Originally Posted by shiftless View Post
Social Security has a surplus - it takes in more than it spends - right now.
"Right now" means last year, not next year... We've passed the point at which SS was buying general government debt. From now on, they will be redeeming those T-Bills. This will cause a profound and growing change in the general budget.
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Old 02-10-2011, 08:58 AM
Great Antibob Great Antibob is offline
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Originally Posted by SmartAlecCat View Post
"Right now" means last year, not next year... We've passed the point at which SS was buying general government debt. From now on, they will be redeeming those T-Bills. This will cause a profound and growing change in the general budget.
I'm going to have to ask for a cite on this.

This doesn't pass the sniff test. As of last year, the SSA announced that even under pessimistic projections, SS would be taking in more than it would be paying out until 2016.

I can (maybe) see a one year effect of the recession, but I haven't seen anything about that.
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Old 02-10-2011, 09:01 AM
flight flight is offline
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It isn't nearly as bad as people think. You have two situations. First, SS had a surplus, so lets say you have that money in a bank account. Bank accounts do not make much interest, so you will want to invest this somewhere so the money can be doing something useful and growing, but you want to make sure it is an extremely safe investment as people would not take kindly to the money being lost if (when) the market tanks.

Second, you have the government running a deficit, so you need to raise money for that somehow. The government sells monetary devices to fund itself at variable rates.

So, why not combine those two and sell those devices to the SS fund? That way the fund gets its safe investment and the government gets a buyer for its debt. It is sure as hell better than the Chinese funding our debt. Note that it does not "balance the budget" as people say. We are still running a deficit when we do this, we are just using the SS fund to finance it. It is a very reasonable idea.
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Old 02-10-2011, 09:03 AM
Simplicio Simplicio is offline
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Originally Posted by Great Antibob View Post
I can (maybe) see a one year effect of the recession, but I haven't seen anything about that.
This was my understanding. They went into the red for a few years during the recession, but are projected to return to surplus for a few years before they start permanently relying on T-bills.
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Old 02-10-2011, 09:04 AM
flight flight is offline
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Originally Posted by Great Antibob View Post
I'm going to have to ask for a cite on this.

This doesn't pass the sniff test. As of last year, the SSA announced that even under pessimistic projections, SS would be taking in more than it would be paying out until 2016.

I can (maybe) see a one year effect of the recession, but I haven't seen anything about that.
The congressional budget office says it is permanently cash negative now according to NPR.
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  #8  
Old 02-10-2011, 09:10 AM
SmartAlecCat SmartAlecCat is offline
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Originally Posted by Great Antibob View Post
This doesn't pass the sniff test. As of last year, the SSA announced that even under pessimistic projections, SS would be taking in more than it would be paying out until 2016.

I can (maybe) see a one year effect of the recession, but I haven't seen anything about that.
Keep in mind the SS tax was decreased by 2% for 2011 too.

http://cnsnews.com/news/article/cbo-...-billion-defic

Quote:
The Congressional Budget Office (CBO) reports that Social Security will effectively run a $45-billion deficit in 2011 and continue to run deficits totaling $547 billion over the coming decade.

Last edited by SmartAlecCat; 02-10-2011 at 09:13 AM.. Reason: better cite
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  #9  
Old 02-10-2011, 09:23 AM
SmartAlecCat SmartAlecCat is offline
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Originally Posted by flight View Post
It isn't nearly as bad as people think.[...]
We are still running a deficit when we do this, we are just using the SS fund to finance it. It is a very reasonable idea.
I agree with you 100%. My problem is in the reporting.

The budgets/deficits/etc. the presidents and congress are selling to the public at large (who don't read the fine print) don't account for this relationship properly.

They just add the SS revenue to the general revenue and add the SS expenditure to general expenditure, making the deficit seem much nicer than it really has been (or have been for years).
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  #10  
Old 02-10-2011, 09:48 AM
Shodan Shodan is online now
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Quote:
Originally Posted by luvrbcs View Post
I hear that the government has borrowed money from the Social Security fund. Is that why it is said it is low, and, will it be paid back?

I tried Googling it but it just confused me; the government has always borrowed it, the fund is on T-bills (?), the money borrowed lowered the deficit numbers, etc.

What really happened and is it a bad thing?

I just don't understand this stuff, so if someone can please explain it in simple terms (if possible) I would really appreciate it.
A simple explanation:
  • Social Security is not a pay-as-you-go. Historically, more money has come in from Social Security tax (which is a separate tax) than is spent on paying benefits to SS retirees.
  • The government puts the extra money into a fund.
  • They then take it back out and spend it on everything else except Social Security benefits.
  • The government promises to put the money back, later, with interest. It is this promise that people are talking about (misleadingly) when they claim that the Social Security fund "holds a surplus".
  • The catch is that all government revenue comes from the taxpayer. Thus, there is no surplus, unless you count the plan of tax-and-spend-and-then-tax-again as a "surplus".
In essence, the government has taken tax money away from the American people, spent it, and promised to take more tax money away in the future and spend that too.

Regards,
Shodan
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  #11  
Old 02-10-2011, 10:01 AM
Simplicio Simplicio is offline
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Originally Posted by Shodan View Post
[*]The catch is that all government revenue comes from the taxpayer. Thus, there is no surplus, unless you count the plan of tax-and-spend-and-then-tax-again as a "surplus".
"The taxpayer" isn't a person though. Different people pay different taxes at different rates, and in general the people that pay a lot of SS tax aren't the same ones that pay a lot of taxes into the general fund. So the revenue that was used to build the fund will come from a different group of people then the ones who will pay it back.

Or put another way, the fund was built up by lower and middle class baby-boomers, and it will be paid back to those same people by the future middle and upper class.
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  #12  
Old 02-10-2011, 10:54 AM
Shodan Shodan is online now
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That's one factor. A few others -
  • Most people age into higher income brackets, so in at least some cases it is going to be the same people.
  • Social Security benefits are taxable. So to some degree you are not only robbing Peter to pay Paul, but robbing Paul too.
Although you are certainly correct that Social Security taxes are about as regressive as can be found in the US tax code.

Regards,
Shodan
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  #13  
Old 02-10-2011, 11:35 AM
mundylion mundylion is offline
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Unfortunately, often the implication of 'Social Security has a trust fund sufficient to pay obligations for umpty ump years" is read to mean that We the People have nothing to worry about re SS for umpty ump years. SS invested in government securities and we have to redeem them and will do so from general revenues or by borrowing from someone else.

To say SS is solvent because of the investments is true, but rather meaningless.
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  #14  
Old 02-10-2011, 11:45 AM
Kearsen Kearsen is offline
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Originally Posted by flight View Post
It isn't nearly as bad as people think. You have two situations. First, SS had a surplus, so lets say you have that money in a bank account. Bank accounts do not make much interest, so you will want to invest this somewhere so the money can be doing something useful and growing, but you want to make sure it is an extremely safe investment as people would not take kindly to the money being lost if (when) the market tanks.

Second, you have the government running a deficit, so you need to raise money for that somehow. The government sells monetary devices to fund itself at variable rates.

So, why not combine those two and sell those devices to the SS fund? That way the fund gets its safe investment and the government gets a buyer for its debt. It is sure as hell better than the Chinese funding our debt. Note that it does not "balance the budget" as people say. We are still running a deficit when we do this, we are just using the SS fund to finance it. It is a very reasonable idea.
What happens to this very "reasonable" approach when the government can't pull the money it 'invested' to pay the people who have entrusted the money to the government?
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  #15  
Old 02-10-2011, 11:52 AM
Dewey Finn Dewey Finn is offline
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What is the alternative to putting the Social Security surplus in government bonds or T-bills? How else can the government stockpile surplus money?
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  #16  
Old 02-10-2011, 12:02 PM
Icarus Icarus is offline
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Originally Posted by Kearsen View Post
What happens to this very "reasonable" approach when the government can't pull the money it 'invested' to pay the people who have entrusted the money to the government?
Well, by definition that is a very bad scenario. Now, how likely is it? - vanishingly small. Worrying about this outcome would be like worrying about 2012 Mayan calendar predictions.
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  #17  
Old 02-10-2011, 12:23 PM
septimus septimus is online now
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Given that this question is very explosive politically, and demagogues love to lie about it, I was pleasantly surprised to see responses that were rational, sober and correct.

But then this showed up:

Quote:
Originally Posted by Shodan View Post
In essence, the government has taken tax money away from the American people, spent it, and promised to take more tax money away in the future and spend that too.
I'm sure the brilliant Mr. Shodan realizes(*) his "point" is completely unresponsive to OP's question, but lest the naive get confused, let me help straighten this out.

One can treat the Social Security as separate from the rest of the Federal Government, or one can treat them as a combined entity, and get meaningful answers either way. What we mustn't do (though demagogues love to do it ) is treat them as separate in one clause, and then combine them for a misleading punchline in the same sentence!

To start with, U.S. debt held by the public is less than 9.5 trillion dollars. Sure, that's a lot of money, but much less than the 14.1 trillion dollar scare figure that's increasing and soon to push up to the Congressional-set ceiling. The 4.5 trill difference includes 2.5 trillion of S.S. money and about 2 trillion for other trust funds (e.g. Federal employee retirement). The point is that this debt is treated as a solemn obligation, at least as far as the ceiling is concerned. Oh, and by the way, if S.S. Trust Fund weren't buying T-bills to fund Iraq War and Wall Street bailout, someone else would be. To pretend the Feds spend that money only because "it's there" is silly.

Either treat S.S. separately or don't. Either approach works. But demagogues like to be inconsistent so they can scare citizens with gibberish as in the quote above.

(* - If I'm wrong and shodan thinks his post is responsive, that implies he thinks the S.S. Trust Fund should do something else with the money rather than buy T-bills. If so, shodan, I hope you'll tell us how you think the Trust Fund should invest its surplus? Prop up the stock market temporarily? Buy Canadian T-bills, as L.N. preferred in a recent, similar thread? Banknotes under the mattress? Gold bullion? I'm less interested in your answer than in learning whether you're capable of answering without snark or gibberish.)
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  #18  
Old 02-10-2011, 12:46 PM
shiftless shiftless is online now
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One question I have is, are T-bills the best place for the SSA to put its money? Is this the best return on the investment or are T-bills the only place that can handle the sums in question? Or does the SSA even have a choice?
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Old 02-10-2011, 01:26 PM
ftg ftg is offline
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Originally Posted by shiftless
One question I have is, are T-bills the best place for the SSA to put its money? Is this the best return on the investment or are T-bills the only place that can handle the sums in question? Or does the SSA even have a choice?
No, it's accounting fraud plain and simple.

Let's say you have $100,000 in the bank. You write yourself an IOU for $100,000 and go have a really nice time spending the money.

The IOU is worthless. Saying "I've always paid back every dime I ever borrowed." is a waste of breath. That in no way shape or form matters in the least. People get really hung up on this point but it has no real meaning at all.

The $100,000 is gone. It is no more. It is spent. The IOU is worthless.

Repeat over and over: An IOU from yourself to yourself is always worthless.

This is exactly what has happened with the SS trust fund. The money was spent. It is gone. No more. It was poured in Star Wars, a 600 ship navy, two bomber systems, etc.

The T-notes are worthless for a simple reason: It's an IOU from an entity to itself.

The SSA could have just kept the money in a simple interest-free account. It wouldn't have made money, but then the dollars would still be in the account.

Other investments like stocks, land, etc. would have been possible but subject to all sorts of shady dealings.

Many people of all sorts of political leanings have pointed this out over the years. Daniel Patrick Moynihan crusaded against spending the SS money when he was a senator. Many others since then.

Face facts: Taxes were raised to build the SS fund. The money was spent. Taxes will be raised to put the money back.

If the money is "still there" somewhere why do we have to pay it twice?
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Old 02-10-2011, 01:29 PM
Simplicio Simplicio is offline
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Originally Posted by ftg View Post
No, it's accounting fraud plain and simple.

Let's say you have $100,000 in the bank. You write yourself an IOU for $100,000 and go have a really nice time spending the money.

The IOU is worthless. Saying "I've always paid back every dime I ever borrowed." is a waste of breath. That in no way shape or form matters in the least. People get really hung up on this point but it has no real meaning at all.

The $100,000 is gone. It is no more. It is spent. The IOU is worthless.

Repeat over and over: An IOU from yourself to yourself is always worthless.

This is exactly what has happened with the SS trust fund. The money was spent. It is gone. No more. It was poured in Star Wars, a 600 ship navy, two bomber systems, etc.

The T-notes are worthless for a simple reason: It's an IOU from an entity to itself.

The SSA could have just kept the money in a simple interest-free account. It wouldn't have made money, but then the dollars would still be in the account.

Other investments like stocks, land, etc. would have been possible but subject to all sorts of shady dealings.

Many people of all sorts of political leanings have pointed this out over the years. Daniel Patrick Moynihan crusaded against spending the SS money when he was a senator. Many others since then.

Face facts: Taxes were raised to build the SS fund. The money was spent. Taxes will be raised to put the money back.

If the money is "still there" somewhere why do we have to pay it twice?
See post #11, the "we" who pays the first time is different then the "we" who pays the second time.
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  #21  
Old 02-10-2011, 01:35 PM
shiftless shiftless is online now
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Originally Posted by ftg View Post
No, it's accounting fraud plain and simple.
Look, I'm not going to apologize for the the way the government runs their books. I've called Social Security plenty of names and politicians even more. But, given that SS has collected a surplus, where do you propose they put it until ready to spend?

I've put some of my money in T-bills. The return sucks because there is no more secure place to put it. If the USA can't pay back it's bonds then money itself has started losing its meaning.

EDIT: Sorry, I didn't read carefully enough. So you suggest loaning the money to banks? I like my chances, and return, with T-bills better.

Last edited by shiftless; 02-10-2011 at 01:37 PM..
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  #22  
Old 02-10-2011, 01:37 PM
Icarus Icarus is offline
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Originally Posted by ftg View Post
The IOU is worthless. Saying "I've always paid back every dime I ever borrowed." is a waste of breath.
All value is based on what the market says it is - the market has decided that these investment instruments are NOT worthless. Quite the contrary.
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Old 02-10-2011, 01:42 PM
Simplicio Simplicio is offline
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All value is based on what the market says it is - the market has decided that these investment instruments are NOT worthless. Quite the contrary.
Plus the fact is the gov't is redeeming SS Treasury bonds right now, so its not like the question is hypothetical. And the result is that peoples SS taxes are lower then they would otherwise be to cover SS payments, and the General Funds will need to have higher taxes in the future to pay off the debt incured paying them off.

So worthless or not, the General Fund seems to be willing to redeem them for real money. And it has a real effect on peoples finances, some are paying less then they would have to otherwise, and some will need to pay more.
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  #24  
Old 02-10-2011, 02:17 PM
Dewey Finn Dewey Finn is offline
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Originally Posted by ftg View Post
The SSA could have just kept the money in a simple interest-free account. It wouldn't have made money, but then the dollars would still be in the account.
How would that work? Would the Social Security Administration head down to the local branch and open a deposit account? What would the bank do with the money? Perhaps it could invest the massive deposits in T-bills.
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  #25  
Old 02-10-2011, 02:43 PM
Voyager Voyager is offline
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Originally Posted by shiftless View Post
One question I have is, are T-bills the best place for the SSA to put its money? Is this the best return on the investment or are T-bills the only place that can handle the sums in question? Or does the SSA even have a choice?
The recent crash should have taught everyone that return on investment is proportional to risk, and anyone who thinks otherwise is cruisin' for a bruisin'. T-bills are about the safest investment on the planet, and that is not my opinion but the opinion of the market. Something you'd think conservatives would respect, right?
Thus, the choice is to go for safety not return. Many state pension funds went for return, and one of the reasons they are hurting now is large investment losses from investing in funds which turned out to be risky. I don't think we'd want this to happen to Social Security.

Individual investors often want higher returns, so they invest their additional retirement funds in higher yield, higher risk, instruments. However, no matter what happens to them, they'll still have Social Security to fall back on.
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Old 02-10-2011, 02:46 PM
Voyager Voyager is offline
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No, it's accounting fraud plain and simple.

Let's say you have $100,000 in the bank. You write yourself an IOU for $100,000 and go have a really nice time spending the money.
Given that this is GQ, I assume you have a reputable cite for these assertions? One that will explain that if T-bills are a fraud as an investment why China buys them and why the market identifies them as low risk by assigning them a low interest rate?
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Old 02-10-2011, 04:16 PM
amarone amarone is online now
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Originally Posted by Voyager View Post
Given that this is GQ, I assume you have a reputable cite for these assertions? One that will explain that if T-bills are a fraud as an investment why China buys them and why the market identifies them as low risk by assigning them a low interest rate?
He isn't saying that T-bills in general are a fraud - only if you buy them from yourself and spend the proceeds.
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  #28  
Old 02-10-2011, 05:08 PM
Dewey Finn Dewey Finn is offline
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Yes, but if you're the Social Security Administration, who else are you going to buy T-bills from?
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Old 02-10-2011, 05:09 PM
Shodan Shodan is online now
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Originally Posted by Dewey Finn View Post
What is the alternative to putting the Social Security surplus in government bonds or T-bills? How else can the government stockpile surplus money?
The surplus is not stockpiled. It has been spent. There is no money in the stockpile. There is only a promise to repay the money, which has been spent, from future taxes. A promise to repay is not an asset to those who have to repay.
Quote:
Originally Posted by septimus
Given that this question is very explosive politically, and demagogues love to lie about it, I was pleasantly surprised to see responses that were rational, sober and correct.

But then this showed up:

Quote:
Originally Posted by Shodan
In essence, the government has taken tax money away from the American people, spent it, and promised to take more tax money away in the future and spend that too.
You seem to be implying that some or all of my response was a lie. This is not the case.
Quote:
I'm sure the brilliant Mr. Shodan realizes(*) his "point" is completely unresponsive to OP's question, but lest the naive get confused, let me help straighten this out.
No, as a matter of fact my post was entirely on point. The OP asked what was going on, and I explained it in accurate detail.
Quote:
The point is that this debt is treated as a solemn obligation, at least as far as the ceiling is concerned.
No, the point is that these are debts incurred by the government which must be repaid with interest by the taxpayer. There is no fund that can be drawn on; only future taxes that must be paid. Perhaps you do not realize it, but f you spend money, it is no longer an asset, or a stockpile, or an investment. It is gone. It has been spent.
Quote:
Either treat S.S. separately or don't. Either approach works. But demagogues like to be inconsistent so they can scare citizens with gibberish as in the quote above.
I am treating the US government as a whole, since they have but one source of taxes, and that the T-bills will have to be repaid with interest by taxes.

ftg's description of the system as an IOU to yourself is reasonably accurate. If I take $100 out of my wallet, spend it, and replace it with a note saying "I promise to put $100 back next payday" only a fraud or an idiot would say that I held $100 in a trust fund that I could use to repay the IOU.

Regards,
Shodan
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  #30  
Old 02-10-2011, 05:19 PM
amarone amarone is online now
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Originally Posted by Dewey Finn View Post
Yes, but if you're the Social Security Administration, who else are you going to buy T-bills from?
From anyone else (other than the US government) who already owns some and is willing to sell them, e.g. China, Goldman Sachs. That would then be paying back debt rather than creating more.
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Old 02-10-2011, 05:40 PM
Voyager Voyager is offline
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Originally Posted by amarone View Post
He isn't saying that T-bills in general are a fraud - only if you buy them from yourself and spend the proceeds.
But if SS is a fraud if it will never be able to cash in the T-bills it owns, then T-bills sold to everyone else would be equally as worthless.
Now, perhaps you would respond that the government could renege only on the T-bills sold to Social Security. If so, you'd have to explain why this would be politically feasible, and why this would not collapse the world economic system out of fear the US would next renege on the other bonds.

And we still have the problem of where to park the money if not in T-bills.
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  #32  
Old 02-10-2011, 05:49 PM
Voyager Voyager is offline
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Originally Posted by amarone View Post
From anyone else (other than the US government) who already owns some and is willing to sell them, e.g. China, Goldman Sachs. That would then be paying back debt rather than creating more.
Social Security does not issue T-bills. Social Security buying them from China does not make them go away. In fact, if China wanted to park its surplus in T-bills, which it obviously does, it would buy more and the situation would be identical.

Clearly you seem to think that SS and the general treasury are identical, and buying the bonds would cause them to be redeemed and disappear. If true. then SS has no assets to fund it obligations to retirees, and when these obligations come due they would have to be funded from the general revenue, something you seem to doubt will happen. If SS gets cash, the government as a whole is in the same position, and we still have the problem of where to park it. You've solved nothing.
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  #33  
Old 02-10-2011, 05:57 PM
Voyager Voyager is offline
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Originally Posted by Shodan View Post
The surplus is not stockpiled. It has been spent. There is no money in the stockpile. There is only a promise to repay the money, which has been spent, from future taxes. A promise to repay is not an asset to those who have to repay.

Regards,
Shodan
A promise to repay, if credible, is an asset to anyone. If you think the promise to repay T-bills is not credible, you can argue with the market which thinks it is.

Simple test: If the US decided to buy $100 billion in Canadian bonds for SS, and the Canadian equivalent decided to buy $100 billion in US bonds for their SS, is the situation any different than it is today?

ETA: Assuming interest rates and risk are equivalent.

Last edited by Voyager; 02-10-2011 at 05:57 PM..
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  #34  
Old 02-10-2011, 06:28 PM
amarone amarone is online now
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Originally Posted by Voyager View Post
Social Security does not issue T-bills.
I never said it did. I am looking at the debt position of the whole of the US government, of which the SSA is just one part. Having one part (the SSA) buy T-bills from another part, which then spends the money, leaves a net minus for the US government. Having one part (the SSA) buy from a third party, which then does whatever it wants with the money, does not leave the US government at a net minus.

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Social Security buying them from China does not make them go away.
The US government buying them from China does make them go away. The US government is paying off its debt.

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Clearly you seem to think that SS and the general treasury are identical
Then you are clearly confused. They are clearly not identical, but they are clearly part of the whole US government.

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and buying the bonds would cause them to be redeemed and disappear.
The US government buying back its bonds does make them disappear (unless they choose to sell them on, which is really just like retiring some debt and issuing more).

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If true. then SS has no assets to fund it obligations to retirees
Exactly.

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and when these obligations come due they would have to be funded from the general revenue, something you seem to doubt will happen.
I did not say that at all. I very much doubt that there will be substantial changes in SS payments. Contributions will probably go up a bit, benefits may go down a bit, but funding Social Security is not the big deal that some people make it out to be. I am not one of the SS naysayers - I just believe that talk about a "trust fund" or "lock box" is all nonsense. The US government spends all the money it takes in as SS payments and doesn't save/secure/lock any of it. It spends it and issues debt and will pay that debt at a later date using revenue from taxpayers.


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If SS gets cash, the government as a whole is in the same position, and we still have the problem of where to park it. You've solved nothing.
Why is it so difficult to "park"? Spending it and issuing an IOU is not "parking" it anyway - it is "spending it".

Buying another country's bonds would be "parking", as would putting it in the bank, adding to the Federal Reserve, buying gold bullion, "investing" in corrupt investment banks, paying off the national debt (oops - that might involve retiring government bonds, which for reasons I do not understand, do not count).

However, all this "parking/investing" is only relevant if you want to maintain the myth of a social security trust fund/lock box. It doesn't exist. The government gets a bunch of money each year from taxes and social security. It spends a bunch more than that, and issues debt (T-bonds and T-bills) to fund the difference. Let's stop pretending that social security has some special status; it is just part of the total income that is not enough for the total expenditure.
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Old 02-10-2011, 07:02 PM
Polycarp Polycarp is offline
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With respect, Shodan, I do not see it in the szame perspective as you, and in this case, I believe it's one you will see the legitimacy of.

If a banker or a laqwyer conmingles monies he holds in trust with his firm's operating funds, he is duly censured and in fact may be prosecuted. Hew should invest that money in reliable fiscal instruments.

Now, for the SS Trust Fund to buy T-bills is investment in a reliable fiscal instrument, the equating of the SSTF and the US Govt. General Fund as "the government/our tax money" is playing a semantic game that violates fiduciary duty.
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Old 02-10-2011, 07:16 PM
Rumor_Watkins Rumor_Watkins is offline
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Originally Posted by Polycarp View Post
With respect, Shodan, I do not see it in the szame perspective as you, and in this case, I believe it's one you will see the legitimacy of.

If a banker or a laqwyer conmingles monies he holds in trust with his firm's operating funds, he is duly censured and in fact may be prosecuted. Hew should invest that money in reliable fiscal instruments.

Now, for the SS Trust Fund to buy T-bills is investment in a reliable fiscal instrument, the equating of the SSTF and the US Govt. General Fund as "the government/our tax money" is playing a semantic game that violates fiduciary duty.
why do you think the SSA owes you a fiduciary duty?

and, if present, how is the SSA breaching a fiduciary duty to you by investing in the most stable, low-risk, interest-bearing products it can find?
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  #37  
Old 02-10-2011, 07:25 PM
Voyager Voyager is offline
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Originally Posted by amarone View Post
I never said it did. I am looking at the debt position of the whole of the US government, of which the SSA is just one part. Having one part (the SSA) buy T-bills from another part, which then spends the money, leaves a net minus for the US government. Having one part (the SSA) buy from a third party, which then does whatever it wants with the money, does not leave the US government at a net minus.
Here is the problem. You are ignoring the obligation incurred from taking SS contribution. (And we are talking here only of the contributions in excess of SS payments. It is true that a person's contributions do not go into a lockbox, but neither do money paid for any bonds or annuities.) That obligation, which is that of the government as a whole, is the same whether it is in the form of a T-bill or an accounting entry.

Say we have an IOU for $200, and get a $100 advance which will have to be paid back next month. Clearly we owe $200 net before and after the $100 arrives. If we use that $100 to pay off $100 of the IOU, we still owe $200, $100 for the remainder of the IOU and $100 to the person who advanced us the $100. If we don't pay off the IOU and stash the money under our mattress, we still owe $200 net. If we pay off $100 of the IOU and write ourselves an IOU for $100 we are still in the same boat, since we can't renege on our personal IOU (and thus the advance) without getting our kneecaps shot off.

If we feel like being stupid and spending another $100 we don't have, we do increase our debt - but using the $100 advance we get or getting someone to lend us another $100 all cause our net indebtedness to increase to $300. That is not the case in SS, since there is no evidence that the ability of SS to purchase T-bills increases the willingness of the government to spend money.


I think this analogy pretty much covers all your points. We incur an obligation from SS payments. Where to put the surplus so that we have the greatest chance of being able to pay it back? T-bills are the safest investment by far. Using the money to pay down debt to China does not eliminate the net obligation.
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  #38  
Old 02-10-2011, 10:31 PM
septimus septimus is online now
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Originally Posted by Shodan View Post
You seem to be implying that some or all of my response was a lie. This is not the case.
No. I implied that your post was irrational, unsober and unresponsive. Most of it was true, but only trivially so.

Rereading your post, and stripping it of its least essential details, your point seems to be that the government spends money, obtains that money through taxes and/or borrowing, and that if and when it repays the borrowing, it also obtains those funds through taxes and/or borrowing. These are astute and correct points, but OP already them. OP was asking a question that you didn't answer.

Now one can argue that taxes and/or borrowing is/are "bad" (one guesses from your post you have a bigger problem with taxes than with borrowing), but OP didn't ask whether taxes/borrowing is/are "bad." He asked to clarify the relationship between S.S. surplus and Treasury debt, and your response obfuscates rather than clarifies.

In my response, I asked you to state what S.S. investment you'd prefer over T-bills (stocks?, Canadian T-bills?, gold bullion? -- I assume you'll agree with the Bushists and give the rich a quick jolt of capital gains by opting for stock, but do please write this in your own words so we know you've understood the question.) I'll also ask whether you realize that if S.S. sells its 2.5 trill of T-bills on the open market, total government debt either won't change, or will increase by 2.5 trill (depending on which accounting model you use). Stated more explicitly, S.S. buying T-bills is not "the" problem.

Finally, I'd ask you if you can solve the Missing Dollar Riddle. I've always wondered what people confused by the S.S. T-bills can make of that! (Honour system now: No peeking at the answer. )

Last edited by septimus; 02-10-2011 at 10:34 PM..
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  #39  
Old 02-11-2011, 01:14 AM
Jeff Lichtman Jeff Lichtman is online now
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The U.S. treasury does not have to collect taxes nor borrow money to pay the interest on T-bills. It simply issues the money. For example, if you bought a T-bill from the treasury for $100, and sometime later cashed it in at a mature value of $125, the $25 interest would be money that didn't exist before. The power to create new money is something that national governments have that no one else does (except counterfeiters, perhaps).

Creating too much new money can cause inflation. You could view this as a kind of hidden tax, I suppose. I don't know whether the SS trust fund is big enough that the interest on its T-bills will cause significant inflation.

As a side note, I'll point out that the SS trust fund is invested in special T-bills that cannot be traded on the bond market - they can be redeemed by the treasury when they mature, but that's it. The reason for this is to prevent the value of the trust fund from fluctuating with the financial markets.
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  #40  
Old 02-11-2011, 06:30 AM
Fear Itself Fear Itself is online now
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Quote:
Originally Posted by Jeff Lichtman View Post
The U.S. treasury does not have to collect taxes nor borrow money to pay the interest on T-bills. It simply issues the money. For example, if you bought a T-bill from the treasury for $100, and sometime later cashed it in at a mature value of $125, the $25 interest would be money that didn't exist before.
I guess the IRS isn't collecting taxes anymore, right? While it is true that the government can increase the money supply, it is false to suggest that all interest on government debt is paid by printing more money. Most of it comes from existing money in the form of collected taxes.
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  #41  
Old 02-11-2011, 07:25 AM
Shodan Shodan is online now
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Originally Posted by Polycarp View Post
With respect, Shodan, I do not see it in the szame perspective as you, and in this case, I believe it's one you will see the legitimacy of.

If a banker or a laqwyer conmingles monies he holds in trust with his firm's operating funds, he is duly censured and in fact may be prosecuted. Hew should invest that money in reliable fiscal instruments.
The government has "invested" the money in the same sense that someone who takes a twenty out of his wallet and spends it and replaces it with a note to put $21 back next week has "invested" $20 in a fiscal instrument.

Regards,
Shodan
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  #42  
Old 02-11-2011, 07:30 AM
Shodan Shodan is online now
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Originally Posted by Voyager View Post
A promise to repay, if credible, is an asset to anyone.
It is not an asset to the one who has to make the repayment.

The same deal I've offered several times before. If you sent me $100 this year, I will send you $150 next year if you send me $200 next year. Do you agree that you have $200 in assets out of which the $150 can be repaid?

Regards,
Shodan
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  #43  
Old 02-11-2011, 08:12 AM
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Originally Posted by Shodan View Post
The government has "invested" the money in the same sense that someone who takes a twenty out of his wallet and spends it and replaces it with a note to put $21 back next week has "invested" $20 in a fiscal instrument.
Still gibberish, and you didn't answer my questions.

I'll review the basics for you very slowly.

(1) At present the U.S. Government spends more than it takes in. This may be a problem but it has nothing to do with whether the S.S. invests its surplus in T-bills, pork belly futures or baseball trading cards.

(2) The S.S. Trust Fund will soon begin depletion due to the Baby Boom Demographic Bomb. This may be a problem but it has nothing to do with whether the S.S. invests its surplus in T-bills, pork belly futures or baseball trading cards.

(3) We can agree to disagree on whether the deficit reduction ideas proposed by your ilk (lay off regulators, cut taxes on the rich) make sense. In any event that has nothing to do with whether the S.S. invests its surplus in T-bills, pork belly futures or baseball trading cards.

To believe (or pretend to believe?) that the very piece of paper widely regarded as a highly secure investment loses all value when it is the S.S. Trust Fund that possesses it shows unusual confusion (or deliberate hypocritic obfuscation).

Hope this helps.
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  #44  
Old 02-11-2011, 08:34 AM
shiftless shiftless is online now
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In the end, every dollar any of us has is an IOU. The whole thing is built on smoke, mirrors and the promise we all make to each other that we will honor that piece of green paper.

I agree that the US Government is overspending (except on the programs I like) and is, perhaps, using accounting principles meant to dazzle and distract me from that overspending. But SS is separate from the federal budget in the same way my banking is separate from that of my brother who borrowed a lot of money from me. We are both better off as long has he can keep up his end of the deal. We both have a strong interest is keeping him afloat but if he collapses we both go down.

If you believe that the US government is really going to fail to meet it obligations then your SS check shouldn't be your biggest worry. That would mean the whole system is collapsing around our ears and money has lost its meaning. It could happen if we don't straighten out but I don't think we're there yet.
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  #45  
Old 02-11-2011, 08:54 AM
shiftless shiftless is online now
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Originally Posted by septimus View Post
Finally, I'd ask you if you can solve the Missing Dollar Riddle. I've always wondered what people confused by the S.S. T-bills can make of that! (Honour system now: No peeking at the answer. )
Is a puzzle that involves theft, lies and misdirection the best example when discussing how our budget works?
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  #46  
Old 02-11-2011, 09:17 AM
Polycarp Polycarp is offline
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Originally Posted by Rumor_Watkins View Post
why do you think the SSA owes you a fiduciary duty?

and, if present, how is the SSA breaching a fiduciary duty to you by investing in the most stable, low-risk, interest-bearing products it can find?
You mistake my point. I wasz objecting to Shodan's characterization of "the government" (qua monolithic entity) acting with regard to SSA funds.

I consider that the SSA (not "the government" as a whole) owes a fiduciary duty to those who are taxed and those who are beneficiaries of its programs. I do not believe that to have been breached by the purchase of T-bills; to the contrary, I think them a wise investment.

I object to the fiscal handwaving that characterizes "the government" finances by verbally conmingling the two funds, in the same way as I would object to a personally bankrupt but honest banker's being described as fiscally sound because he manages a portfolio for his clients that is still asset-laden and liquid. He can't mix them with his personal finances -- and neither can the government.
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  #47  
Old 02-11-2011, 11:01 AM
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Originally Posted by ftg View Post
No, it's accounting fraud plain and simple.

Let's say you have $100,000 in the bank. You write yourself an IOU for $100,000 and go have a really nice time spending the money.

The IOU is worthless. Saying "I've always paid back every dime I ever borrowed." is a waste of breath. That in no way shape or form matters in the least. People get really hung up on this point but it has no real meaning at all.

The $100,000 is gone. It is no more. It is spent. The IOU is worthless.

Repeat over and over: An IOU from yourself to yourself is always worthless.

This is exactly what has happened with the SS trust fund. The money was spent. It is gone. No more. It was poured in Star Wars, a 600 ship navy, two bomber systems, etc.
If you want a personal finance analogy to what happens in SS I will give you one that is actually accurate.

You are planning for retirement and have a retirement savings account. You are not normally allowed to use the money until you retire. You also lived a bit beyond your means and now have some hefty credit card debt. Your credit cards are charging you 18% interest on the debt and you are making 5% interest on your retirement account.

You decide to take a loan out from your retirement account (a perfectly legal thing to do with some restrictions). You are taking a loan from yourself. You pay yourself 3% interest on that loan and use the money to pay down your credit card bills. Now, you have a sum of money, lets say $10,000, that was being charged 18% that was going away from you to the credit card company in debt and $10,000 that was earning you 5% interest for retirement. You use one to pay off the other, so you lose the 5% but you don't lose the 18% any more. You, as a whole, are now saving 13% on that money (it doesn't work out exactly like that, but close). You can clearly see that you do better financially this way. You can actually ignore the 3% you pay to yourself when you consider yourself as a whole.

When you look at just your retirement fund, you went from 5% to 3%, so it will not grow as well as it might, but it will ALWAYS grow. It is no longer dependent upon a market that might actually make it lose money. In fact, if you had done this right before the big crash we had, you would be doing much better than someone who left their money in the regular market. You are the safe investment here.

This is exactly what the government is doing. The government as a whole loses a good bit less tax payer money handling it this way, meaning less taxes you will need to pay in the future (or more services they can keep, whichever), and your SS money held by the government is not in danger from the fluctuations of the market. It will not grow as fast as it might otherwise, but that is the price for safety.

There is absolutely no reason to say that a T-bill taken out by SS is worthless. It is just as worthwhile as the loan you made to yourself in the above example. Both are legally required to be payed back.
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Old 02-11-2011, 02:53 PM
Voyager Voyager is offline
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Originally Posted by Shodan View Post
It is not an asset to the one who has to make the repayment.

The same deal I've offered several times before. If you sent me $100 this year, I will send you $150 next year if you send me $200 next year. Do you agree that you have $200 in assets out of which the $150 can be repaid?

Regards,
Shodan
You have a net cost of $150. You can get this in two ways. First add up the payments to you ($300) and subtract the payments to me ($150) giving a net payment of $150. The second way is by time - the first year I spend $100, the second year I spend an additional $50 ($200 - 150) leaving $150 total. Is this hard for the people you run with? If so, I advise you to get new friends. And it has nothing to do with Social Security, which should be designed to get income to pay current benefits with enough of a reserve to pay future benefits when income goes below that needed for current benefits.

Now, want to answer my question about Canada?

I know you don't see this because of your hatred of our government, but the SS reserves in T-bills are backed by the full faith and credit of our government, and default on them would happen only in the worst of disasters. When I was a kid the Times listed Bell System Bonds right under treasury bonds as a secure investment. We know what happened to them, while T-bills are as secure as ever. So, the question remains, if we don't put the reserve in T-bills where do we put it?
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  #49  
Old 02-11-2011, 09:58 PM
iamthewalrus(:3= iamthewalrus(:3= is offline
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I'm always amazed by how both sides of this argument think that their side is so clearly obvious, and no one seems to be able to make any headway. And I say that as someone who thinks my interpretation is just as clearly obvious. Here's my take:

Arguing that government bonds are valuable because the government is going to pay them back is missing the point. I'm not sure how many bonds the SSA holds, but let's pick an arbitrary number and say it's $1 trillion. As the SSA has to pay out more than SS taxes take in, those bonds will be paid back by taxing the US populace and the money will be given to SS recipients.

Now, let's imagine that the SSA doesn't hold any government bonds. $0. As the SSA has to pay out more than the SS taxes take in, the money will be raised by taxing the US populace and the money will be given to SS recipients.

Since the results to the taxpayer are identical in both cases, I conclude that it's disingenuous to suggest that government bonds are an asset to the SSA. It doesn't matter how much the SSA has in bonds, because all the costs are paid by current taxpayers either way.

I'm not saying that US government bonds are "worthless" in the sense that the government won't pay them back. I'm claiming that they're worthless because they don't make a difference in how we pay for future Social Security.

septimus is right: the problem is that we're spending more than we're taking in, and without structural changes, we're going to continue to do so. Those changes are going to be painful.
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  #50  
Old 02-11-2011, 10:10 PM
Fear Itself Fear Itself is online now
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Originally Posted by iamthewalrus(:3= View Post
septimus is right: the problem is that we're spending more than we're taking in, and without structural changes, we're going to continue to do so. Those changes are going to be painful.
The question is, will the pain be borne proportionally by the poor, the middle-class and the wealthy? We could reduce the debt equally well by raisng taxes as by cutting spending. The debate is not whether the debt should be reduced, but who should bear the pain.

Last edited by Fear Itself; 02-11-2011 at 10:11 PM..
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