I think you need to read my post and the one Damuri Ajashi quoted again.
But it would be OK if they bought govt bonds of another country, right? How about if we bought each other’s bonds? How about if we decided to shortcut that and buy our own bonds? Money is fungible.
Yes, those are assets. If I loan you 10 bucks, that’s 10 bucks + interest I can expect back in the future.
Nope, then it is just a fiction. If I loan you 10 bucks, while borrowing 10 from you, then my assets balance out my liabilities and the net result is zero.
Nope. Loaning yourself money makes a difference only in accounting books, not in the real world.
No, the best bonds to buy are from institutions of a higher order in the hierarchy. An institution of a higher authority than the USA might be bonds from the Galactic Federation of Planets. Since there is no such thing, the USA writing IOUs to itself is just an accounting trick.
Yes, money is fungible but savings (delayed consumption) is not fungible.
“Savings” is “time-shifted consumption.” That’s not fungible in the same sense as money.
You have a silo of grain. You can use it all up today for baking bread or you can “save” a few tons of it to consume tomorrow. Or maybe deep freeze the grain or seeds to consume next year.
You have some uranium. You can use it all today to generate nuclear power or you can store (save) some of it for later.
A institution writing an IOU to itself does not work like that at all. An IOU does not represent time-shifted consumption since the all of the present tax receipts are used for today’s spending. A institution’s IOU to itself is not “savings” – it is an accounting trick.
You cannot eat the entire stock of grain today (which results in zero savings) and then write an IOU for more grain next year and have it magically appear. For new grain to appear next year, new REAL EFFORT and REAL PRODUCTIVITY from REAL PEOPLE must harvest that grain. A paper IOU is not savings. How can an IOU be real savings if people have to go through the same motions exerting new energy to recreate an item that was supposedly “saved”? Think deeply about that.
Now, on the other hand, if you were to present a “wheat grain voucher” to the Galactic Federation of Planets for redemption and a spaceship beams down tons of grain, that voucher (the Galactic IOU) could then be considered “real” savings. No humans had to do additional work to have the future grain appear, the aliens honored the IOU voucher and beamed it down. The alien’s IOU is “savings” but the USA IOU is not.
If USA bonds are not real “savings”, then what to buy with surplus SS taxes? Well, I guess you could avoid collecting the taxes in the first place in the pretense that it will be “saved” and redistributed later. However, this very mind blowing idea seems to make people’s brain melt 
If we leave out intergalactic aliens, there’s another possible way for a country’s self-issued IOU to be worth something in the future without extracting new productivity from its citizens: the USA conquers another country, enslaves the defeated population, and extracts their work output for our use. (Colonialism?)
Perhaps a USA takeover of Taiwan or Argentina can be done. In that case, the IOUs could be redeemed with Taiwan fishing or electronics. The Taiwanese people would have a lower standard-of-living but that doesn’t matter because they would be our slaves to fulfill the value of USA bonds.
So let’s get this straight. If we privatized social security and people bought govt bonds it’s OK, but if we keep it public and the social security investment board buys bonds it’s an accounting trick.
Seems to me the only problem is if you deliberately loan money to yourself to deceive someone. I do not think that is the case. If Soc Sec did not buy the bonds they would be bought by someone else and then Soc Sec would invest in some other manner.
There’s nothing really wrong with accounting gimmicks provided that you have a long term responsible plan.
For example: If you have $50k sat aside in your 5 year old kid’s college fund, there is nothing wrong with borrowing from that to buy a new SUV. If you make principle and interest payments for the term of the loan to yourself, you will save the interest payments that you would have given the bank. You didn’t “raid your child’s college fund” or “fill it with IOUs”.
The problem is that our government has no plans to deal with our debt. Hell, it can’t even stop borrowing money each year. It can’t even stop borrowing astronomical sums of money each year.
So using the above analogy, those characterizations would be accurate. There would never be those repayments to your kid’s college fund.
Citizens buying their own bonds is a complicated situation, but luckily that hasn’t happened with SS, and no one in this thread has proposed it, so we can safely ignore it.
But that’s exactly what is happening. SS is claiming they are fully funded because they have all these T-Bills.
If SS didn’t buy bonds and invested in some other manner the Federal Government would be trillions of dollars richer. That’s the point.
But that’s exactly what you did. Your kid’s savings account went from 50k to nothing. All that’s left is a promise from yourself to yourself to refund it at a future date. The assets are gone.
So you do trust the government to invest wisely? I mean, the bank bailout and the car bailout aren’t working too bad for things that we didn’t think were ever going to make money, but not only do I not trust the government to beat its own bonds by investing in the private sector, but “small government” types would be screaming socialism when the government decides to invest in corporations. And they’d be right.
Sure, you could set it up so that you gave more control to professional money managers, and made government “hands-off” with regards to corporate control. But then we’d be screwed by the managers and the companies, instead of by political games.
That is all any note receivable is. A promise to pay at a future date. Just because it is from myself doesn’t make it worthless.
Presumably I have an income and have budgeted an ability to repay that amount in a fixed term just like anyone else.
The only difference is that I can’t file suit or hire a collection agency against myself. But so long as I am honest in my payments, those aren’t needed, and it is just like borrowing from someone else.
If I took my kid’s college fund and invested in corporate bonds would you characterize it as “raiding” or “filling with IOUs”?
No, you’re making the false assumption that people would behave exactly the same way whether the 12.5% contribution was a mandatory tax or a voluntary contribution to any personal purpose.
When the 12.5% is not a tax and under the control of the individual citizen, there are a number of different possible outcomes:
[ul][li]he could buy foreign bonds (Euro denominated, China yuan denominated, etc)[]buy title to foreign real estate (Mexico, undeveloped islands, etc)[]accumulate the funds to capitalize his own business[/li][li] buy gold, silver, or preserved copies of Harry Potter novels and bury them in the ground; dig them up 20 years later to sell[/li][li]work less 12.5% less hours to get the same income, and put those personal hours towards personal projects such as planting a garden for food, or erecting a windmill to generate electricity[/li][li]maybe possibly even invest in USA T-Bills (but not $13 trillion)[/li][/ul]
The interactions in the economy of these possible paths would be very complex and impossible to model. Therefore, one can’t say for sure that the net effect will be positive for the country. However, what one can say for sure is that the USA would not have $13 trillion in debt. The voluntary actions of citizens deciding what to do with 12.5% of their money would not collectively buy $13 trillion of USA paper debt.
Calling government bonds mere “IOUs” may be true in a flippant sense, but in terms of security, they are not the same as a scribbled note from a parent to child on the back of a napkin that he will repay some borrowed money at some time, insha’allah.
The gosh-darned Constitution requires that the debt of the United States shall not be questioned. The founding document of our country guarantees that the bonds MUST be repaid.
Again, that’s going to cause some tough fiscal decisions in years ahead… only because the Social Security Trust Fund MUST be repaid as required by the Constitution.
Ha!
They only have to be repaid in “nominal” dollar amounts – not “real” purchasing power. I’m not aware of any country’s paper debt that guarantees repayment in “real purchasing power” indexed to CPI or global commodities (oil, grain, or gold). Is there such a country?
The “nominal” part is easy to do: inflate the currency. Or add new rules and restrictions to the bond redemptions to lessen their value (basically a “debt default” in disguise.)
I don’t have a particularly good solution for a government saving money. My main point is that there is no saved money, despite what SS and others might claim. If I had to suggest something about saving money I’d go with domestic and foreign index funds, as well as blue chip bonds. Obviously there are a ton of problems here, but these would actually count as saved money.
That is a major difference. If you loan money to someone, they can’t unilaterally change the terms of the loan. If you loan it to yourself, you can.
Again, lets do the balance sheet for you (assuming the SUV is worthless):
Before
**Assets** **Liabilities**
50k in savings
After
**Assets** **Liabilities**
50k to be repaid from loan 50k that must be repaid
Before your NW is 50k, and after it is 0.
Now for the corporate bonds:
Before
**Assets** **Liabilities**
50k in savings
After
**Assets** **Liabilities**
50k to be repaid from loan 50k that must be repaid
50k in corporate bonds
Before your NW is 50k, and after it still is. It should be apparent why those situations are different.
The point is that the loaning and borrowing party are the same. Congress could pass a law tomorrow saying that the SS trust fund is returned to the treasury, and the trust fund will simply vanish off the accounting books.
You’re father&son analogy doesn’t quite match what the government does. The “government” doesn’t earn its own money. The citizens earn the money.
Here’s a closer analogy:
Your son runs a lemonade stand for several summers and as a good father, you take his money and put it in the piggy bank.
After he’s collected $50,000, he spends all of it on a SUV, gifts for the mistress, and hair transplants.
The piggy bank now has $0 in it. To make up for it, he writes $50k in IOUs.
Here’s the key: the father himself doesn’t earn $50k in future money to pay it back. He actually forces his son (and his son’s sons (his grandchildren)) to keep running the lemonade to contribute NEW money to fund those IOUs. There are no “savings” because his son has to exert NEW EFFORT and PRODUCE NEW OUTPUT to replenish that $50k. This delusion would actually be somewhat sustainable if the father only blew that $50k that one time or spent a fraction of his son’s piggy bank. In reality, the father is spending ALL THE MONEY PLUS EXTRA MONEY not his son’s piggy bank and then forcing his sons to pay it all back plus interest.
I suppose you could twist words around and say that the father’s “income” is actually his ability to force his sons to work more and extract that future output. That would certainly be an interesting definition of “income.”
The trust fund would only vanish to the extent that the bonds held for Social Security would still have to be repaid. Congress could not legislate the government’s debt of those bonds off the books. The Constitution would not allow it.
Perhaps I’m misunderstanding you. What investments return value to the investor on the basis of real purchasing power? Because it sounds like you’re comparing one investment that exists (a bond that issues a certain percentage in return) with one that I’m not aware that exists (an investment that links returns to investors to the rate of inflation).
But that’s besides the point, because SS payments are linked to CPI.
SS is a Ponzi scheme. Sooner or later, all Ponzi schemes collapse.
Unless, of course, you’re the government and can legalize a Ponzi scheme and force the taxpayers to fund it.
If they say fuck you, we are repealing social security, do you think they are also saying and we’re going to renege on our debt too?
Also the total liability represented by social security exceeds the total assets we expect to collect in the social security trust fund (by at least a generation’s worth of payments).