Did the government borrow money from SS?

[flight]

@Anachronism

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.

I will agree with that. This relates to the below post.

@foolsguinea

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.

Borrowing from SS makes economic sense. What doesn’t make sense is counting that borrowing different from other debt. If you treat it the same as the debt owned to foreign nations then it is an excellent idea. If you fudge it to make us look less in debt than we are then you end up with the situation described above. Just because the base financial exchange is sound does not mean that the way it has been accounted for has been done properly.

[Diceman]

The more I read of this thread, the more it looks to me like T-bills are essentially just a really clever way for the government to cook the books. The money that T-bills represent is gone, and ultimately taxpayers are going to be on the hook for it. And now that Social Security is running in the red, the time to put the money back has arrived. Some combination of tax increases and spending cuts will be necessary so the government can keep Social Security solvent. You say that they they’re using the money to redeem Treasury bills if you want to, but ultimately it makes no difference.

[md2000]

@septimus

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.

‘I suggest a strategy called “churning”, where idle savings are turned into productive commissions.’ - Dogbert

The argument would be correct, SS buying T-Bills would be incestuous sleight of hand -

EXCEPT, the SS buys T-Bills on the open market like everyone else, at the same market rates as anyone else. Thus, there is no sweetheart deal. (I will grant a minor distortion because the SS props up demand). The open market is basically an auction - T-Bills sell for what the world thinks they are worth. If the economy is in the toilet and the government deficits are unrealistically large, then the T-Bills will eventually sell only at usurious interest rates that reflect the real fear of default. For now, the US government is not there; it is financially stable and reliable compared to many others.

Keep in mind that a change in economy and circumstances can make a huge difference. The massive deficits of the Reagan years (including paying government money to rescue bankers who got in trouble) turned into the budget surpluses of the Clinton years. This economy might turn around equally quickly and unpredictably given the right circumstances.

[Voyager]

@Diceman

The more I read of this thread, the more it looks to me like T-bills are essentially just a really clever way for the government to cook the books. The money that T-bills represent is gone, and ultimately taxpayers are going to be on the hook for it. And now that Social Security is running in the red, the time to put the money back has arrived. Some combination of tax increases and spending cuts will be necessary so the government can keep Social Security solvent. You say that they they’re using the money to redeem Treasury bills if you want to, but ultimately it makes no difference.

Is the money for municipal bonds gone? Corporate bonds? Given that everyone qualified for Social Security is getting it, the bonds in the system are being cashed in without problems.
And yes, some changes to taxes and benefits will be needed, just as they were during the Reagan Administration. This has nothing to do with cooking any books.

[amarone]

@md2000

EXCEPT, the SS buys T-Bills on the open market like everyone else, at the same market rates as anyone else.

No it doesn’t. From the SSA site:

@SSA

By law, income to the trust funds must be invested, on a daily basis, in securities guaranteed as to both principal and interest by the Federal government. All securities held by the trust funds are “special issues” of the United States Treasury. Such securities are available only to the trust funds.

The SSA used to buy the same government securities as the general public, but this stopped a few years ago. Despite its being mentioned several times in this thread, they did not buy T-bills, but Treasury Bonds (which is just as well, given the miserable interest rate on a T-bill).

[luvrbcs]

So, I’m still confused. Does the US owe SS $2.5 trillion or so? If we get that back (is this the correct way to think of it) does that mean SS will be solvent beyond 2037?

[shiftless]

@luvrbcs

So, I’m still confused. Does the US owe SS $2.5 trillion or so? If we get that back (is this the correct way to think of it) does that mean SS will be solvent beyond 2037?

Yes. That is only part of the money they (we) owe various entities. Do you mean will you and I get our SS checks in 2037? Sure, unless the US government goes under. Will the checks be what we were expecting? Who knows.

25 year from now we could have another baby boom and us old people will be flush and happy or we could have a decline in population and our kids won’t be able to support all of our lazy asses. Or the Chinese may call in all of their loans, making it difficult for the US to raise money, or they could be loaning us even more.

[Voyager]

@luvrbcs

So, I’m still confused. Does the US owe SS $2.5 trillion or so? If we get that back (is this the correct way to think of it) does that mean SS will be solvent beyond 2037?

There are two big issues - demographics and the state of the economy. As shiftless noted, if we have a baby boom with lots of people paying in during 2037, we’ll be fine. If we have a baby bust, the system will be stressed. If we have high unemployment for a lot of years, the amount coming in will be reduced. If we have low unemployment, it will be increased. Life spans count also.
We will be in the red, in that we take more out of the fund than we put in, but that is expected since baby boomers are retiring. If there is a perpetual surplus, that means the SS taxes are too high.
We almost certainly need to adjust payments and benefits to be safe, but not by a lot.
However, none of this has anything at all to do with the type of investment SS is making. If it runs out of money, it will not be because the surplus was invested in T-bonds.