I’m not Terr, but yes it can, and no it isn’t.
If the government passes a law making IOUs to yourself legally enforceable, can Otis Elevator loan itself $1000, spend the money on something, and then claim they have $1000 to pay back the IOU?
Regards,
Shodan
I can think of many ways in which this would not be an absurdity. For example, writing a check from your day-to-day checking to deposit in your retirement account. (Sound familiar?)
But if a law were passed, my view of whether it was an absurdity would depend on the reasons for the time shifting of the financial commitment. It probably is absurd, because I can’t readily conceive of any practical reason that you would have separate legal obligations as different incorporations of yourself.
Shodan: are you aware that Otis and Sikorksy are both owned by United Technologies?
But there is no time-shifting in the SS extra $ going into bonds. Those bonds can be redeemed at any time at face value. No time-shifting involved.
Why do you think I am pretending the law doesn’t matter? The law says that the government has an asset in the form of bonds in the trust fund. The law says that the government has a liability for those bonds in an equal amount. Total balance sheet value to the government? $0
Where am I wrong?
No I wasn’t, so if that was a gotcha, well, good for you.
Could you answer this question -
If I take $100 out of my pocket, spend it, and replace it with an IOU to myself, and there is a law making IOUs to yourself legally enforceable, am I right in saying that I have $100 in assets that can be used to repay the IOU?
Regards,
Shodan
It sounds as if you’re unfamiliar with the concept of consolidated financial statements:
It’s an accounting requirement that eliminates any shenanigans that might otherwise occur by shifting assets and liabilities amongst sub-entities. Enron violated these (and other] accounting requirements, if you’re looking for an example:
Consolidated financial statements aggregate assets and liabilities for precisely the reasons Shodan and others are noting: because otherwise sub-entities might appear to be in a financial condition that the government, in toto, is, well, not.
The legislation that commands the government to honor this liability does NOT eliminate the fact that the government has a liability. Your own repeated cite should explain this to you. It’s a liability. Think about it. You think the asset has value. Why? Because the government is obligated to honor the liability that gives the asset value. Pretty circular, right? In the aggregate, the government has…zero, nothing.
It seems like Ravenman and others on his side seem to think it would make a difference if you split yourself into “Shodan 1, Inc” and “Shodan 2, Inc” and passed those IOUs between each corporation.
The time-shifting is of FICA collections that are not spent on current benefits.
I’ve answered these questions in post 2, 27, 73, and 99. Stop asking questions that have been answered multiple times.
Since I’ve answered this so many times, can you please tell me, in your view, what the U.S. national debt is? To be precise, when you said in this post that the national debt at the end of 2008 was $10.7 trillion, do you believe your post was correct?
Actually, I think we’re dead-on in agreement. Any balance sheet (which the government doesn’t actually do, so this is a theoretical exercise) needs to show both the assets and liabilities, of course. Many, many times I’ve stated in no uncertain terms that the trust fund has assets and the non-trust fund rest of government holds a liability. However, back to the OP, that does not mean that the trust fund does not have an asset, and that the instruments are without value.
To use my earlier example, if Otis and Sikorksy make some exchange, it all has to be accounted for in UTC’s books. That doesn’t mean that Sikorsky doesn’t have an asset and Otis doesn’t have a liability. Nor does it mean that no transaction occurred. Are we in agreement here?
Not exactly. In the aggregate, the non-trust fund part of the government has a higher liability (in the form of the national debt) and the trust fund has an asset. The trust fund is not the same as the government, and the government is not the same as the trust fund, because they both have a legal identity that is overlapping in some respects, but certainly not identical in many others. That makes them… wait for it… not the same.
Even the budget of the United States reflects that the Social Security system is not in the government’s budget. They are not the same things.
If there are two corporations, and one makes a loan to the other corporation, in what way are those debts not real?
The thing the moving money from one pocket to another people are missing is that the bonds do not appear out of thin air, but are purchased from money received by payers of the Social Security tax.
When I worked for the Bell System, Western Electric to begin with, we paid real money for our telephone service, even though it went into the same pot. Telcos paid real money to Western for equipment. It might be a wash in a consolidated statement, but the balance sheets of each entity saw these as real costs.
As for Congress passing a law invalidating all the bonds SS owns, that will happen right after they pass a law confiscating all the guns or forcing all children to study and believe in the Communist Manifesto.
No, you didn’t answer the question in any of those posts…
If I take $100 out of my pocket, spend it, and replace it with an IOU to myself, and there is a law making IOUs to yourself legally enforceable, am I right in saying that I have $100 in assets that can be used to repay the IOU?
No, you haven’t answered it.
It’s currently about $17.5T.
Yes, as far as I can tell it was. Cite.
So, if I take $100 out of my pocket, spend it, and replace it with an IOU to myself, and there is a law making IOUs to yourself legally enforceable, am I right in saying that I have $100 in assets that can be used to repay the IOU?
Regards,
Shodan
No, we are not missing anything. The IOU did not appear out of thin air either - I put it there as an absolute, iron-clad guarantee that I will repay the money to myself.
Perhaps you’d like to answer -
If I take $100 out of my pocket, spend it, and replace it with an IOU to myself, and there is a law making IOUs to yourself legally enforceable, am I right in saying that I have $100 in assets that can be used to repay the IOU?
Regards,
Shodan
Is he permitted to print money to meet his obligations? Is this debt only enforceable in **Voyagerbux **™?
Say I get $100 and put it in my pocket. I want to use this to buy a car next year. However I need $100 in cash right now to pay the doctor. If I know for sure I’ll make good on my IOU, I’m still ahead. Why? Because if I deposited the $100 in a savings account for the car, I’d have to go into debt to others to gave $100 for the doctor. Writing the IOU to myself allows me to avoid this external debt.
So, you can look at it in two ways. First, from the point of view from my car fund. Instead of $100 in cash in my car fund, I have the IOU from myself, which under the scenario is as good as cash. Same difference.
From my entire budget, I have $100 in income and $100 expense, so I net at 0. Whether the debit is to myself or to the credit card company also makes no difference.
If I didn’t get any money in, and still spent $100, I’d be poorer no matter what, since my IOU plus the money in the savings would add up to the savings as before, while my non-savings accounting includes a $100 debt to my savings account. Same as if I didn’t write the IOU to me but wrote one to the credit card company instead.
Hmm. My kids were under the impression that I could print money…
Just to be absolutely clear of the reason for my question: the primary mistake people make when trying to understand government finances is that they use household finances as a starting point. Governments aren’t households–they can print money, and when you can print money the rules change. So, for instance, the US government can write itself an IOU and that IOU can be valued in dollars because the government can (and in fact is required to) print dollars to make good on that liability.
So the answer to **Shodan’s **question is: If you write a Voyagerbux IOU to yourself which you legally require yourself to pay, then you have an asset which can be measured in Voyagerbux, and similarly the US government has an asset that can be measured in dollars.
This is a curious argument. The Chevrolet division of GM is not the same as the Cadillac division. But guess what. They’re both aggregated in GM’s consolidated financial statements. If Chevy loaned money to Cadillac, the net impact to the consolidated financials would be…zero. Why do you suppose that entities need to be identical to assign them to the same “parent”?
You’re drawing distinctions re: the SSTF and “the government” that aren’t meaningful (emphasis added):
You see the part bolded? SSTF is considered intra-governmental debt. Why? Because it is. It’s part of the overall liability the government owes called the national debt. And if you’re a Latin scholar, you know that “intra” means that this debt is between two sub-entities of the same overall “government.”
That portion of the national debt attributable to the SSTF is offset by the asset in the SSTF. It is effectively, by any accepted accounting convention, zero in total, and that doesn’t change if you point out that the Treasury’s cafeteria has pizza on Monday’s but the SS Administration’s has cheeseburgers, and not only that but they have different addresses. They may be…wait for it…different in any of a billion aspects you might want to focus on. But that doesn’t change the fact that the government, in toto, has zero value as a function of the SSTF.
I cannot fathom why this is so difficult to grasp. One could argue that it doesn’t matter because of one’s confidence in the Feds’ ability to raise the cash they’ll need when they need it. You could be insanely optimistic and project a surplus that will cover this liability when it comes due. But the undisputed fact is that the Feds spent the money, and promised to pay it back. That promise is both an asset and a liability. Period.
Government bonds come due all the time. Do you think a surplus is required to pay them? Why are bonds the SSTF owns any different?
The real liability here is to SS recipients in the future. That is where the money ultimately will go. Which pocket the money goes in before that is just a matter of where it is stored. I still haven’t heard anyone suggest a better place than government bonds.
Hope you didn’t think my little joke implied I didn’t understand that.
One serious problem with conflating the government with a household is this. When times are bad, households cut back on spending out of fear, and increase savings. Individually this is a good policy but over the entire economy it reduces consumption and makes things worse. Households with relatively poor credit can suffer if they go into debt for too long. The government, on the other hand, can go into considerably more debt than a household, and make up for the reduction in consumption, since it has the best credit of all as measured by interest rates. Eventually you can have inflation issues, but in this kind of situation where deflation is more the problem they are unlikely. We of course have some who have predicted a massive increase in inflation in to years for the past 6 years.
Apologies, I misread the slight twist on the question you’ve asked too many times already.
Yes, in this case the IOU is a legally enforceable asset. No, you cannot repay an IOU with the exact same IOU. That’s nonsensical - an IOU is a promise to pay, it isn’t payment itself. Just like a bond is a promise to pay, not payment in itself, which is the entire point that bonds get redeemed for cash.
This doesn’t make sense. If the bonds in the SSTF have no value, then they also can’t be counted as part of the national debt. In which case, the national debt is about $4 or $5 trillion lower than the figures you quoted.
In your world, it appears that intragovernmental debt counts as national debt, but the same debt doesn’t appear as an asset. That makes no sense. Please explain.
Sorry, I quoted you but I was trying to answer **Shodan’s **question.