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
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
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.
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.
Is a puzzle that involves theft, lies and misdirection the best example when discussing how our budget works? 
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.
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.
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?
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.
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.
Since you accuse me of being correct, let me answer. 
First, an arbitrary guess isn’t needed for S.S. T-bond holdings: I gave this number upthread as about $2.5 trillion. This is found via Wikipedia and a few clicks.
Future Social Security deficits are a problem (though dwarfed by the Rising Healthcare Cost Bomb) and so is the Federal Deficit (Note 1).
All I ask is that these problems not be related to the holding by S.S. of U.S. Treasury debt. The problems would be exactly the same (Note 2) if S.S. invested in Canadian government bonds instead. Yet in a thread some months ago on this same topic, one Doper insisted that the U.S. government would be $1 billion richer for every $1 billion of S.S.-held T-bills which were sold to buy Canadian bonds. :smack: (For anyone to treat the peculiar self-indebtedness as a cause of fiscal problems implies either (a) that person is exceedingly confused, or (b) that person is deliberately confusing others for political ends. I don’t know which explanation is more charitable for He-who-cannot-be-named-outside-BBQ-Pit who is taking the absurdist position in this thread.)
Note 1: While long-term deficits are bad, they are appropriate (as Obama knows) for shortish periods of high unemployment. These are compensated (as Clinton knew) by surpluses during booms.
Note 2: The self-indebtedness gibberish would almost make sense if Congress were saying “We have a big pile of S.S. money; let’s waste it!”. But they don’t. As I mentioned earlier, that debt is counted towards the debt ceiling, and the S.S. surplus does not count as revenue in “pay as you go” thinking.
Very good - we’ve made progress. You agree that the Social Security fund is a net cost to the taxpayer.
Regards,
Shodan
The OP asked about the SS trust fund. The responses have conflated a related, but separate issue.
Tangent: the fiat banking system. Many of the points raised about the disingenious nature of the SS trust fund are actually true, but are created by the fiat banking system. Prior to 1972, the US was on the gold standard. Dollars could be exchanged for a stated amount of gold. This gave solidarity to the value of the US dollar. Anyone, anytime, could trade in their paper for gold.
In a fiat system, there is no such right. The paper dollars we carry in our wallets are valuable only because they are accepted for trade by others. Many of the issues raised allude to the worthless nature of the SS trust fund assets. Others correctly point out they are not worthless today. What they will be worth in the future is unanswerable - but it is not because they are in the SS trust fund. It is because we cannot know how long this fiat banking system can be sustained.
We also see reports about negative cash flow and “SS is bust”. No all right, not all wrong. The medicare portion is most certainly in trouble. The retirement and disability portion is not.
Now on the investments: It is worth recalling that when SS was introduced, there was a lot of debate about what to do with the surplus funds. Everyone knew that when it started up, the cash inflow was going to be more than the cash outflow. A trust fund is nothing new.
An important issue in the debate was "Can we trust public officials to invest the money in anything other than government bonds?"The answer came back “no”.
The concern is corruption. Can we reasonably expect that large amounts of money be directed by low paid government officials without running the high risk that those funds are misinvested. How do you keep them from investing in their brother’s company? In a golf course development adjacent to their uncle’s otherwise worthless piece of desert land in Nevada? The risk was too great. Although the investments could well be deployed to a greater investment return, the risk of fraud outweighed that potential benefit.
I am sceptical that our government officials today are any more reliable than they were in the 1930s. I for one, prefer to avoid that corruption risk.
I have no problem with that. The taxpayer gets his money’s worth, in social stability and humanity. I have no problem if most of government is not making a profit.
Huh? It was only in the 70’s, IIRC, that AMericans were allowed to own gold as an investment. Owning gold was prohibited in the 1930’s. It’s been a LONG time since you could redeem your dollars for gold. Meanwhile, the price was legally fixed at $35/oz. for taking any mine output, making for some interesting market dynamics.
I don’t understand the fuss here. The SS fund buying Treasury Bonds is no different than you putting IOU’s in your kid’s piggy bank (or college account). You can account for each separately, or lump together all the moneys depending on what you want to say, provided - as others have said - you are consistent.
The government MUST account for SS separately, since the monies are collected for just that purpose, and in anticipation that there may come a time when the fund would be paying out more than it took in. The fact the government’s general revenue stream owes that money to SS fund rather than Bear Stearns or AIG does not change the obligation to pay down that bond when due. The SS Fund also has a duty to invest in reliable, solid investments at good market rates; if they bought TB bonds at below the market returns, then they WOULD be doing something unethical, basically giving Treasury a sweetheart deal.
The fact that politicians dither rather than figuring out what to do, when obligations exceed available funds - that’s a separate issue. The dithering is typical political response. When in doubt, do nothing…
(Hmmm… remember GWB’s plan to convert SS into a bunch of stock market funds, just before the crash? I imagine this conversation would be different if he’d pulled that off and everyone’s retirement account was half what it used to be…)
Does everyone think there is an unlimited market for US treasuries? If and when SS stops buying them do you think there will be plenty of buyers to take up the slack?
This analogy would work if, after you took your loan, you decided you could afford to work less and live a better life style. And, what the hell, now you have $10,000 available on your credit card, might as well run it up again.
It’s a very bad idea, because it looks so reasonable to folks like you.
In fact, it’s allowed upper-bracket marginal income taxes to be slashed repeatedly (from 75% to less than 40%), instead throwing the tax base on the working class (& more to the point their employers). So we have had an anti-growth tax on hiring for 25 years to cover Reagan’s income tax cuts. Now that will no longer work, & SS must be repaid. But the richies don’t want to go back to paying marginal income taxes > 50%, so they’re either pushing to borrow more from other sources or trying to institute “austerity.” And if they succeed in the latter, it will be even harder on the economy.
You seem to have forgotten this is General Questions, not General Bull Crap. Now, answer my question, or admit you can’t.
However he has not demonstrated that his stupid little quiz has anything to do with Social Security, or that there is a net cost to taxpayers, whatever that means. I suppose there is, because there is some small amount of overhead in running the program, but since taxpayers put the money in and taxpayers take the money out, aside from this there cannot be any net cost.
I don’t know the details of GWB’s plan, but feeding any substantial portion of $2.5 trillion into the stock market would have propped up prices for long enough to please some people.
Among the flaws of a Soc Sec stock-buying plan is that it would be a Buy High, Sell Low strategy. (The size of the investment activities would ensure that, buying huge amounts now, and then selling continually during the Baby Boom Bust.)
Buy High, Sell Low is an excellent strategy! Not for the people (retirees) adopting the strategy, of course, but for GWB’s real constituents: big stockholders who would be delighted to see a huge influx of unenlightened buying.