Is there "money" in the Social Security Trust Fund?

[Ravenman]

@Stratocaster

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”?

Dude, I’m pretty sure we actually agree.

If Chevy loans money to Cadillac, the loan appears on the balance sheets of Chevy, Cadillac, and GM. Just because both the asset and the liability of the loan appears on GM’s reports, does not mean that Chevy and Cadillac can ignore the requirements of the loan. Even though the asset and the liability appear on GM’s register, Cadillac still has the responsibility to pay back Chevy. Do you agree?

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.

But the SSTF has a real asset, and the rest of government has a valid liability. The fact that the on-budget and off-budget numbers balance out doesn’t change the fact that there is both a valid asset and a valid liability. Just because they balance out doesn’t mean that they aren’t valid assets and liabilities - it is because they are valid that they offset each other!

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.

The fact that there is an asset and a liability isn’t hard to grasp - I agree with you. Do you understand that?

But the bond issued by the SSTF has to be repaid. The Constitution requires it. Just because you point out that on a balance sheet (which is really meaningless because the government doesn’t have such things) that the asset and liabilities are of equal value doesn’t mean that a bond is of zero value. The same physical instrument is literally an asset to the TF and a liability to the nation - it cannot be voided under the supreme law of our country.

Explain to me why we are in disagreement.

[Stratocaster]

@Ravenman

But the bond issued by the SSTF has to be repaid. The Constitution requires it. Just because you point out that on a balance sheet (which is really meaningless because the government doesn’t have such things) that the asset and liabilities are of equal value doesn’t mean that a bond is of zero value. The same physical instrument is literally an asset to the TF and a liability to the nation - it cannot be voided under the supreme law of our country.

Explain to me why we are in disagreement.

I have no issue with this post. However, I will point out that in your prior posts you seemed to be trying to establish some sort of difference that…well, I’m not sure what point you were trying to make, especially when you asked if two separate corporations being party to a loan didn’t constitute true debt. But we seem to be in agreement: the SSTF, as it relates to the Feds’ total financials, has a net value of zero.

[Ravenman]

I’m afraid I must have not written that post well, then, because that had nothing to do with the fact that the government (or a corporation) can have obligations that are both assets and liabilities.

What I have tried to explain is that two components of an entity can be legally bound in a contractual or financial relationship with each other, and those obligations aren’t negated simply because they are components of the same entity.

[Shodan]

@Ravenman

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.

In other words, we have pulled that tooth at last. Your answer is the same as mine has been all along - no, there is no money in the SSTF.

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.

The bonds in the SSTF are carried as debt as a matter of law, so it isn’t a question of my world vs. anyone else’s. The reason that it is carried as a debt is because of what you have been dragged to admit at last - there is no money in the SSTF. It is a debt because the money has been spent, and is no longer there.

If you spend money, you don’t have it any more. Money you don’t have any more isn’t an asset. The SSTF is a debt of the government as a whole. The fact that one part of the government borrowed it from another before it spent it doesn’t affect the fact that the government incurred a debt by spending money for one thing that was intended to be spent on another.

If the government hadn’t spent the money, then there would have been a debt and an asset and they would have netted out to zero. But the government did spend the money, so they no longer have the asset.

If you borrow $100 from your right pocket and put it in your left, then your debt and assets net out to zero. If you borrow $100 from your right pocket and put it in your left and put an IOU to yourself, you still net out to zero. If you borrow $100 from your left pocket, put in an IOU, and then spend the money, then you no longer net out to zero and you do not have any offesetting balance.

So your notions about how the national debt ought to be calculated founder on the hard rocks of reality - there is no money in the SSTF. Reality in this case has a well-known conservative bias.

Regards,
Shodan

[Ravenman]

@Shodan

In other words, we have pulled that tooth at last. Your answer is the same as mine has been all along - no, there is no money in the SSTF.

There are assets in the trust fund that aren’t money. I’ve said this a jillion fucking times in each one of these threads. You are denying that they are assets. The money that was raised by FICA bought constitutionally guaranteed bonds which will be redeemed at a later date.

You’ve also ignored the fact that you posited a supremely rediculous definition of IOU: that an IOU can pay for itself because it is an IOU. Let’s not gloss over the fact that you think bonds can literally pay for themselves: a promise to pay is not the same as actual payment, but it is a guarantee of payment.

If the government hadn’t spent the money, then there would have been a debt and an asset and they would have netted out to zero. But the government did spend the money, so they no longer have the asset.

When the public buys bonds, they pay money to the Treasury and receive a piece of paper in return. The money that goes into the Treasury then is spent. It’s gone. It’s turned into a welfare payment for a single mother to go volunteer at ACORN and sign up illegal immigrants to vote and have free Obamacare abortions. Does that mean the public no longer has an asset because the money was spent? No? Well, same thing with the Social Security Trust Fund.

If you borrow $100 from your right pocket and put it in your left, then your debt and assets net out to zero. If you borrow $100 from your right pocket and put it in your left and put an IOU to yourself, you still net out to zero. If you borrow $100 from your left pocket, put in an IOU, and then spend the money, then you no longer net out to zero and you do not have any offesetting balance.

Is your IOU legally enforcable in this scenario? No? Then it isn’t an asset. If it is legally enforcable, by definition it is an asset.

[Shodan]

@Ravenman

When the public buys bonds, they pay money to the Treasury and receive a piece of paper in return. The money that goes into the Treasury then is spent. It’s gone. It’s turned into a welfare payment for a single mother to go volunteer at ACORN and sign up illegal immigrants to vote and have free Obamacare abortions. Does that mean the public no longer has an asset because the money was spent? No?

It means that the government no longer has an asset because the money was spent.

Well, same thing with the Social Security Trust Fund.

Exactly. After the money is spent, there are no assets anywhere in the government that can be used to repay the bonds in the SSTF. But those bonds must be paid, and therefore very correctly they are carried on the books of the government as a debt. Which demonstrates the absurdity of the claim that they should not be included in the national debt.

Regards,
Shodan

[Evil_Economist]

@Shodan

It means that the government no longer has an asset because the money was spent.
Exactly. After the money is spent, there are no assets anywhere in the government that can be used to repay the bonds in the SSTF. But those bonds must be paid, and therefore very correctly they are carried on the books of the government as a debt. Which demonstrates the absurdity of the claim that they should not be included in the national debt.

Regards,
Shodan

Question for you: suppose you are the only person in the world who can print ShodanBux. You legally commit yourself to paying all ShodanBux IOUs that are presented to you.

One day you write an IOU, saying “I will give 10 ShodanBux to the holder of this IOU.” What is the value of this IOU (measured in ShodanBux)?

Edited to add a question: what is the difference to you between holding ShodanBux directly, versus holding an IOU promising to pay ShodanBux?

[Voyager]

@Shodan

It means that the government no longer has an asset because the money was spent.
Exactly. After the money is spent, there are no assets anywhere in the government that can be used to repay the bonds in the SSTF. But those bonds must be paid, and therefore very correctly they are carried on the books of the government as a debt. Which demonstrates the absurdity of the claim that they should not be included in the national debt.

Regards,
Shodan

The SSTF gets $1,000 from me from my social security tax. It buys a bond. Another part of the government gets money from selling that bond, and spends it. Does the SSTF now have no assets from my $1,000? The other part of the government does indeed have $1,000 more in debt.

The SSTF gets my $1,000 and puts it under a mattress. The other part of the government sells a bond to Bill Gates and spends the money. Does the SSTF now have no assets? Is the total situation of the government any different?

Since any bond is just like the bonds sold to the SSTF. If there are no assets to repay these bonds, then they must be worthless, and then you won’t mind sending me yours.

[Damuri_Ajashi]

@Shodan

You claimed that the securities in the Social Security Trust Fund are not owned by the government at all.

Do you recognize that this statement was false?

Regards,
Shodan

Where did I say that? I said that you can’t pretend that bonds held by the SSTF is the same as bonds held by the government (by government I mean the general treasury, not bonds held by the government in trust for others). Like I said, if the federal government employee pensions fund held (among other things) federal bonds, would that make those bonds worthless? Of course not.

[Damuri_Ajashi]

@Fuzzy_Dunlop

It’s the essence of the issue. The $3 trillion can only come from tax revenue. The only way my social security benefits can be paid is social security redeeming from its trust fund. The only way the trust fund can be redeemed is through tax revenue. The only place to get taxes is from the American people.

This is why people object to the idea of the trust fund. It’s a $3 trillion dollar IOU to the American people that can only be paid by the American people.

So lets say I own a million dollars of treasury bonds. The only way that it can pay me on those bonds is to levy taxes on the American people (including me). Do those bonds have value?

And to comment on your point about the ambivalence of where the money comes from - 1) we’re not selling assets to pay off $3 trillion. That’s so ridiculous I won’t comment on it. 2) All government debt is ultimately backed by tax revenue. Lenders today buy bonds because they know the government will pay them back in the future with either tax revenue or more borrowing. In the future those new borrowers will buy bonds because they know the government will pay them back in the future with either tax revenue or more borrowing. Taken to perpetuity, the only “real” funding source for repaying debt is tax revenue. Borrowing is just delaying the payees of the tax revenue.

So? How does that make the bonds any less valuable?

Absolutely. That’s the only thing that makes any sense. You should do the same thing with respect to social security. We’re talking about the American people’s ability to meet the obligations we’ve made to ourselves. We already spent that $3 trillion. The only way to pay it back is by taxing ourselves. Yes, we can borrow more to avoid taxing ourselves until later. No, we’re not going to sell Nevada to China.

Wow, you really think that buying a treasury bond extinguishes the distinction between me and the federal government because I would only be paying myself with my own tax dollars? I guess there’s nothing more to be said.

[Damuri_Ajashi]

@treis

You know, posts don’t disappear here:

Yeah, so? SSTF is not owned by the government despite the fact that it is held by the government. You do understand how a trust works right?

[Damuri_Ajashi]

@jtgain

It was spent on bonds and then on other things. That’s the crux of the debate.

Wait, I thought the crux of the debate was the notion that the SSTF didn’t hold anything of value. Your response seems to be that because the beneficiaries of the trust are Americans and the people who would have to pay on the assets held by the trust are also Americans we can ignore the distinctions and pretend that the SSTF doesn’t actually hold something of value.

Since the money was spent on other things anyways, why the need for the intermediate fiction of the bonds? What practical difference does it make? That the trust fund has pieces of paper saying that the government must pay from future taxes or borrowing? It would have to do that without the bonds to keep SS afloat.

Because those bonds don’t belong to the government, they belong to the trust fund.

I don’t know why there is a reluctance to see this very easy point.

I could say the same thing.

If the SS trust fund had, say, parcels of real estate in it, then that would be an asset (without an offsetting debt).

And what offsetting debt does the SSTF have in the present situation that it wouldn’t have in that situation? The SSTF has an SS benefit obligation in both cases.

When people retire, we sell some of the real estate and send them a check. When we have a Treasury bond, we have to fund it from future taxes or borrowing. IOW, we have to raise more money. There is no difference between that and not having a trust fund at all.

When people retire we redeem those bonds and use the money to pay the beneficiaries. Having the trust fund makes social security self funded. That money doesn’t belong to the government it belongs to the benficiaries and it is held in trust by the government.

[Damuri_Ajashi]

@jtgain

It is a fiction. If I have $100 worth of Apple stock, that is a real and tangible asset. At some time in the future when I need money, I have a legal claim against Apple to send me a $100 check. That $100 will come not from my own savings or work. It comes from me doing nothing but claiming what is rightfully mine.

Let’s also assume that I have a jtgain bond worth $100. Lets also assume that I am AAA+ rated and will never default on the bond. It still doesn’t matter. This bond has no value to me because in order to redeem it, I will have to pay it from future earnings or savings: which is exactly what I would have to do to get my next $100 anyways.

Any debt you owe yourself is an asset with an equal offsetting liability, making the total value $0. Please explain why this doesn’t apply to T-bonds held in the trust fund.

Do you know what a trust is?

[Damuri_Ajashi]

@jtgain

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.

I think it would make a difference if Shodan 1 Inc created a trust to fund its employees pensions and funded it with Shodan 1 Inc bonds. It does not own the bonds held in trust even if they are the trustees and the debt would not be extinguished despite the fact that Shodan 1 inc is the trustee of the pension fund trust.

[Damuri_Ajashi]

@Shodan

It means that the government no longer has an asset because the money was spent.

Yes, but the SSTF does.

Am I totally off base or are the normal concepts of trust relationships not applicable in this case? Can the government dip into the trust and use those bonds to pay for hookers and blow? No? Then how are they owners and not trustees?

[Shodan]

@Damuri_Ajashi

Yes, but the SSTF does.

The Social Security Trust Fund is part of the government. Therefore statements like yours are meaningless.

Am I totally off base or are the normal concepts of trust relationships not applicable in this case? Can the government dip into the trust and use those bonds to pay for hookers and blow? No? Then how are they owners and not trustees?

The government has dipped into the SSTF and spent the money.

On preview, never mind the rest of it. It is kind of exhausting to debate someone who will claim that black is white with such facility.

Regards,
Shodan

[Ravenman]

No kidding.

[treis]

@Damuri_Ajashi

Can the government dip into the trust and use those bonds to pay for hookers and blow?

Absolutely. The trust fund is a creation of Federal law, and the government can change the law anytime they want.

[Ravenman]

Does this view apply to all political matters?

“The government is free to murder people on the streets of Manhattan for any reason it wants. All it has to do is change the law.”

[UltraVires]

@Damuri_Ajashi

I think it would make a difference if Shodan 1 Inc created a trust to fund its employees pensions and funded it with Shodan 1 Inc bonds. It does not own the bonds held in trust even if they are the trustees and the debt would not be extinguished despite the fact that Shodan 1 inc is the trustee of the pension fund trust.

Well, you are changing the hypo to add third parties (employees) so lets pretend that Shodan 1, Inc. has legislative authority and can eliminate his trustee duties by law. Is there any functional difference between:

1. Shodan 1, Inc. not funding itself with self-issued bonds but simply promising to pay its employees’ pensions. or

2. Continuing with this little Shodan 1, Inc. bond fiction?

Can anyone not see that #1 and #2 are exactly, and I mean exactly the same thing? What is a bond if not a promise to repay?