Did the government borrow money from SS?

Factual Questions
21

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.

22

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.

23

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.

24

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.

25

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.

26

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?

27

He isn’t saying that T-bills in general are a fraud - only if you buy them from yourself and spend the proceeds.

28

Yes, but if you’re the Social Security Administration, who else are you going to buy T-bills from?

29

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]
You seem to be implying that some or all of my response was a lie. This is not the case.

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.

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.

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

30

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.

31

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.

32

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.

33

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.

34

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.

The US government buying them from China does make them go away. The US government is paying off its debt.

Then you are clearly confused. They are clearly not identical, but they are clearly part of the whole US government.

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).

Exactly.

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.

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.

35

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.

36

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?

37

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.

38

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. :smiley: )

39

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.

40

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.