Bush: There is No Trust!

The BBQ Pit
141

Okay, Hentor. Let me see if I can explain it another way.

Between 1942 and 1945, my grandfather was working at a steel mill in the Pittsburgh area (he was 4-F because of a heart murmur). During that period he, like many others, bought a respectable quantity of war bonds. He did this for several reasons. First, it was a patriotic gesture. Second, wartime rationing left him unable to spend much of his paycheck. Lastly, he wanted to save this money for a down payment on a house after the war, which he in fact did.

Now, the government at the time didn’t take his money and set it aside until he wanted to buy his house. They spent it because they were in dire trouble at the time. They spent it on uniforms and tanks and planes and ships. They built the Pentagon I saw burning three years ago. They built atomic bombs.

When my grandfather took his modest pile of bonds in to be redeemed, the money to do so was drawn out of the general fund and paid for out of current tax revenues and current defecit financing.

Follow me so far?

Now, the government, when it collected the Social Security taxes, has done the same thing. They bought a bond, and the bond revenue was used in a similar fashion to the war bond. They’ve bought uniforms and tanks and planes and ships. They rebuilt the Pentagon, built yet more atomic bombs. They also built interstate highways, subsidized farmers, wrote out Pell grants, block grants, welfare checks. They also gave some pension payments to some old people currently collecting them.

The problem is that the bond is held by the same entity that has to cover it when it is cashed in. So it’s a case where one part of the Treasury has a claim on another part, basically making it a big wash.

When these entitlements come due to be paid, they will need to be paid from current revenues. Whether you think of this as cashing in those bonds and drawing the money from the general fund, or just drawing the money from the fund directly, the result is the same. There is no practical difference. And that is why Bush is correct when he says there is no trust fund.

142

I know I’m correct about this, too, because Scylla isn’t dragging me across the coals. :wink:

143

Your analogy might work, but for the fact that your father cashed his bonds. They had value. They did not go poof.

As I said, I realize that bonds have been sold to the SSA, and they will need to be paid for out of general revenues. But the bonds exist. Just like your fathers’, they have value.

144

[rubs temples]

Nobody’s saying the bonds don’t have value, Hentor. At least I’m not. But if the government pays them off, it will have to write a check to itself for the exact quantity held.

This is different than writing the check to my grandfather, who is a second party.

Do you understand that point, or not?

What do you think the government does with the cash when it issues a bond? Doesn’t it spend it? And if the bond is redeemed, doesn’t the cash have to come from the general fund?

Therefore, isn’t holding that bond and calling it an asset kind of ridiculous if you’re the one who has to cover it?

145

No need for you to go being a dick too, Mr. Moto, although if you like, we can go that way, this being the pit and all.

I do believe that Scylla has been arguing exactly that - that the bonds have no value and went “poof”. (You’ve been fellating him quite thoroughly, so you should have a firm grasp of his argument.) Otherwise, if there are bonds, and they have value, then there is a trust fund.

I realize it has to be paid from the general fund. You do realize that Social Security funds are not typically paid from the general fund, don’t you? Why not? Are they different? By your logic, they aren’t, so there should be no debate about the solvency of Social Security in the first place. We simply fund Social Security out of the general fund, so it will be solvent as long as the government exists.

146

The bonds are fine, Hentor. It’s the trust fund that’s a sham, for the simple reason that the government can’t hold this bond and call it an asset.

You could write a check to someone else, and they would have an asset. You would have a liability. If you were to write the check to yourself you couldn’t really call it either. It would be revenue neutral as far as you were concerned.

147

No, Scylla’s argument is more along these lines:

a) there’s nothing other than the government’s promises to print currency backing the bonds. There’s no, say, stack of gold bars somewhere that the government bought with the trust revenue that it can now sell.
b) the government can’t just print currency willy-nilly, because that’d have wildly undesirable inflationary effects, and the US would turn into banana republic.
c) the government could raise tax rates so that point (b) would not occur, but that would reduce economic growth, due to fiscal drag.
d) if, instead, the government did not raise tax rates, economic growth would be better, and the government will get more in revenue than if it had raised tax rates
e) for some unspecified reason, that still isn’t enough to prevent point (b) from occurring.

Point (a) is arguable, and there’s nothing controversial about points (b), and (c).

The problem with Scylla’s argument is that point (d) is the “voodoo ecnomics” argument that isn’t very highly regarded in the real world, because it’s contradicted by evidence. A second problem is point (e), for which there’s no supporting evidence, and which actually contradicts point (d).

It’s all just Pubbie bullshit.

No cause for regret, Hentor. This is one of the “degrees up the wazoo” situations that Muffin mentioned recently in Liberal’s pitting. Scylla’s just belatedly realising that he made the wrong assumption as to which position he was in. I find it pretty funny. :slight_smile:

148

That’s a logical fallacy. Just because A implies B, it does not mean that Not A implies Not B. See denial of the antecedant.

149

“the government can’t just print currency willy-nilly, because that’d have wildly undesirable inflationary effects, and the US would turn into banana republic.”

An amusing aside here. When I was first learning about economics, I began to wonder if there might not be a better way to tax: something far simpler to administer, more equitable, and without dead-weight loss. What is that way? Well, instead of taxing people directly, a country would simply print more money: whatever money it needed. It sounds crazy, but it actually makes a fair bit of sense. By printing money, the government now has cash to spend. But since they haven’t actually created anything of value, this increase in government wealth must be offset by a decrease of equal value in someone else’s wealth. Whose? Why, everyone who currently holds that currency or things demoninated purely in it! So, in a sense, when the government makes itself rich, it is doing so by taking value away from its citizens no different than if it took the money right out of their hands via a tax. The government could even announce exactly how much extra money it would be printing in advance so that the resulting inflation would not be unexpected inflation, but rather well-known and expected.

Now, obviously, my scheme was wrong and impractical in many ways. The first is that it DOES involve some HUGE dead-weight loss. Remember that the dead-weight loss of taxation is caused by people trying to avoid the tax. In my naivete, I had thought that what was essentially a tax on cash would be unavoidble. But of course that’s not true: people can invest in goods like gold or real estate and so forth! And this avoidance: buying things that they might not really want to own, as well as not having much cash on hand to do transactions, that would be terrible for an economy. Society might even be driven back to a barter system simply to avoid using the currency. So in the end: a VERY silly idea. And yet, instructive. Because the reality is that the government, which produces no goods or services for sale, cannot make money any other way than by taking it from somebody, no matter how clever you get, and this taking will aways have regrettable inefficiency associated with it.

Though it does work both ways. If you want to be charitable, and yet spread your largesse as wide as possible, then convert all your hard assets into cash via sale, and then burn the cash. You are poorer, the world is richer, and all is well! Likewise, misers who hide all their cash in a matress will always be better for soceity than spendthrifts. For only misers are giving a gift that does not ask for anything in return: they create goods and services from which they derive their paper claims to wealth… and yet they never lay claim to any of it, leaving more for all.

Economics is funny.

150

No, that is apparently either a misunderstanding of the rule of logic you are referring to, or a semantic dickering that I shouldn’t even be responding to.

The argument is (or may have been) that there is no trust fund because the bonds that make up the trust fund have no value. If the bonds do have value, then …

Be aware that I am not going to follow you down this semantic rabbit hole, but I was surprised at your simple mistake.

151

Government bonds have value when held by other people - they are an asset. If the government itself holds them, they cannot be considered such, since the bond is an instrument of debt of the exact same government.

152

It strikes me in reading this entire thread that once again we have proof of the old adage “There are none so blind as those who will not see”.

153

Let’s keep that thought in mind.

This has been explained to you about 5 times. I’ll try one more.

In the example Mr. Moto provided his father (who is one party) held an obligation to pay principle and interest at given points in time by the government (who is another party.)

What he have here is two distinct parties where one has taken on an obligation to pay another.

Now let’s compare that to the trusts.

Are the trusts and the Federal Government two distinct parties? No. The Trust is a part of the government.

Even though the trusts and the government are one entity, do they hold seperate assets?

No. The assets of the trust have been paid into the General Fund.
Ok, so we don’t have two parties. It is hard to therefore imagine how there is an obligation for the same reason that you can’t be both a slave and your own owner. If you are a slave and you buy ownership of yourself, you are now “free.”

So… no two parties. No obligation. Will principle and interest be paid at some point on the “bonds” owned by the “trust?”

No. The trust will receive neither principle nor interest, nor hold any assets.
Now Hentor,

we don’t have two parties. We don’t have an obligation. Nothing monies will be paid.

In what sense do these bonds have “existence?”

154

I’m not sure what you mean by “poof.”

In 1968 the government took all the assets held by the trust funds. They haven’t held any assets since. If anything went “poof,” it went “poof” in 1968. There hasn’t been anything there to go “poof” with since.

155

In this sense – the SSA is a separate entity from the GAO, or whoever is charged with the management of the General Fund. They are in a quite real sense a fiduciary holding, in that an agency charged with expending funds as stipends to the disabled and elderly is the lender, and has a duty to its beneficiaries to recover on them. The fact that they are both government entities does not matter, or the Iran-Contra scandal of some years back would not have been an issue. The money given the Contras was the governments; never mind that it was specifically denied them by Congress – the Reagan Administration, having been given an appropriation, could do whatever it wanted with it, right? No – it was to be expended in accordance with the Budget passed by Congress. Likewise that money was collected for a purpose and placed in the custody of the SSA, which was told to loan, not give it to the General Fund. To hold that, because they are two government funds, their moneys are conmiglable, is to deny every principle of fiduciary or trust law, and smacks of fiscal prestidigitation, no matter how much you try to explain it away.

I’m sorry to argue with you on this. You may be entirely correct as a matter of fiscal policy and accounting principles, and I don’t question your explanation; I’m speaking of government responsibility and appearance of ethical behavior.

156

You have not made a fair nor intelligent summary of my arguments here. I’m pretty sure this is due to your stupidity and small mindedness.

a) is not true of the SS “Bonds.” They will not be paid, because the government and the trust are the same entity, and a single entity cannot hold debt against itself. Therefore there is no obligation to which money be printed to fulfill, as regards the SS bonds.

b) is more or less ok.

c) Is not my argument nor a statement that I would make. I spent quite a bit of time discussing the relationship between taxation, the money supply and inflation and don’t appreciate being simplistically misrepresented.

d) I have not made this argument, either, though I did explain it. It is a particularly stupid argument to attribute to me seeing as how I went on and on about how managing the money supply, inflation, and taxation were really aspects of the same thing.

e) Haven’t made this argument either.

No, you fucking moron. You’re problem with Scylla’sargument is that you have failed to grasp it. Having done so, you are not qualified to have a meaningful opinion on it.

If you wish to relay my arguments, than quote me. It is simple enough to do. You are too stupid and dishonest to paraphrase my arguments intelligently and in good faith.

157

To be sure I understand your objection, let me attempt to rephrase it, and you can tell me if this is accurate.

You are suggesting that the the trustees of the SS trust funds have a specific fiduciary responsibility to SS benificiaries?

You are further suggesting that this distinguishes it from the Federal Government in that the Federal Government does not share this obligation?

Right. This would be an example of how the Government is one entity. It wouldn’t have mattered whether the money going to the Contras came from the Dept of Agriculture, the Defense Dept, or the Dept. of the interior. It cannot borrow from Peter to pay Paul since it is both Peter and Paul.

You cannot loan money to yourself. There is therefore no loan.

I’m not trying to explain it way. I’m trying to explain how the government explained it. They did commingle the funds.

Please. Argue.

Is this a reasonable summary of your current objection:

Not so fast, Scylla. I am really not so concerned with the interior financial manipulations of the government. If as you say, it is a single entity, than by taking my, and everybody else’s money to a given purpose it is than obligated to fulfill that purpose. It doesn’t really matter whether the trust funds hold an asset, or an obligation or what have you. What matters is that the government is keeping track of this obligation so that it may fulfill it and demonstrate that it has fulfilled it. As long as they do this than I don’t care whether the checks come from the General Fund, the SS trust funds, or the Department of the Interior.
[/quote]

Is that it?

158

I know this “Fred cannot give an IOU to himself” meme is popular in the right wing blogosphere (Google it and see how often you hit on exactly the stuff that Scylla is sagely sharing with us here), and you can say it six times or 20 times, and it will still be as bullshit a response as possible.

The SSA is a separate entity wihtin the federal government, and the bonds expressly state on their face that the government has a legal obligation to pay them back.

Now, someone like Scylla may feel that whether the government must legally pay back the t-bills is a debatable point, but this does not mean that they (and therefore the trust fund) do not exist. I suspect that the “Fred and his IOU” argument just would not cut it when it came time to hash that point out.

Nobody has raised a moral or political argument as to why we should default on the trust fund. Do you think we should default on the trust fund, Scylla? Mr. Moto?

159

Maybe I have misinterpreted your argument, Scylla. What do you think of this restatement:

a) My name is Syclla, and I have a bachelor’s degree in economics (or commerce, or finance, or something). I deal in retail finance products (mortgages, investement funds, etc.).
b) I am a salesman for products that other people have developed.
c) Every day, I deal with people who don’t know anything about economics. I make money from them.
d) The people on this messge board are fools, just like the grandmothers and newly-weds that I regularly deal with.
e) I’m such a fucking expert, it’s inconceivable that someone on this message board might have something more than a bachelor’s degree in economics (or commerce, or finance, or something).
f) I’m selling something. How dare you question me.

How’s that?

160

I don’t know what you mean by “separate entity”, but it is an “independent agency”. At least it is now. It has been back and forth as an independent agency, and a subcabinet agency since its inception. But it doesn’t mean very much anyway. It’s just an organizational designation, and has nothing to do with the allocation of funds or what funds are managed by whom. They are in fact managed by the Department of the Treasury.