The spit or swallow thread in is IMHO, I believe. 
Do you believe the bonds in the trust fund don’t count as money?
Probably because the question wasn’t directed at people who understand accounting. 
It was a thought experiment for those confused by “self-debt.”
Suppose the U.S. and Canada governments do a debt swap, the SSTF acquiring a terabuck of Canadian debt and Canada acquiring the U.S. debt that SSTF held. Any 2nd-order effects are irrelevant to this thought experiment; I just wondered if those who think the U.S. bonds held by SSTF are worthless would feel the Canadian bonds would, instead, have value.
In a prior thread where the topic came up, one Doper implied that instead of U.S. Treasury bonds, the SSTF should keep “real money” in its vaults – greenbacks!
I did not concede that point, because it’s not true in the slightest.
My post was not in error.
If the explanation ended up looking similar to a thing Shodan said, then I guess that’s just my cross to bear. No one person can be wrong about everything, not even him.
You have missed the underlying meaning of what I said.
The entire point of my post was that the paper pushing involved does not matter. You respond to this with… more empty paper pushing that doesn’t matter.
The same net effect would result regardless of which side won your court case. Your response is more irrelevancies. It literally does not matter whether they use the interest payments on their current bonds to buy more bonds or use that specific flow of cash to pay the benefits. Nothing changes. If I go to the bank and deposit the current bill I’m holding, D37952215D, then the bank will take it. And if I go tomorrow and do a withdraw and they give me a different bill, that doesn’t mean they’re not giving me my money. Money is fungible. There is no inherent difference if they add more bonds, or pay benefits out of the interest on their current bonds, because everything will cancel out. What you’re calling a factual error hinges on the entire point of what I’m saying.
I will now demonstrate that. The following will involve basic arithmetic.
The concern with Social Security is how much people pay in, how much people receive, and how much debt has been released to the public. I can prove that those three items will be exactly the same, even with a wide variety of arbitrarily different government accounting systems. I can prove that they will be the same regardless of which side wins your silly court case. They will all end up being equivalent. Obviously some of them will involve more wasteful bureaucratic foofaraw than others, and there might be legal issues on the side like the debt ceiling, but ultimately the net effect for any observer outside the government will be a perfectly identical result.
I’m going to start with made-up numbers for simplicity. We could shift to real US budgets at any time, but that will be unnecessarily messy to illustrate the basic idea. We start:
Time Period 1
Treasury takes in 100 through regular taxes.
Treasury spends 110 through regular spending. (Treasury net: -10)
SSTF takes in 10 through FICA.
SSTF spends 5 for benefits. (Net: 5, invested in Treasuries)
What’s happened? The Treasury has issued 5 debt to the public and 5 intragovernmental debt. But the more important question is what’s happened from the perspective of those outside the system?
They paid 10 into FICA, received 5 in benefits back, and 5 debt was sold to the public.
Time Period 2 Initial:
Treasury takes in 100 through regular taxes.
Treasury spends 110 through regular spending.
Treasury spends 1 on interest (Treasury net: -11)
SSTF takes in 10 through FICA.
SSTF spends 5 for benefits. (Net: 5)
Here is the set-up for your hypothetical court case. Right now the SSTF is expecting 1 more of income from Treasury for their intragovernmental debt. The Secretary of the Treasury refuses. It goes to court. Now here’s my point again: we can calculate this sumbitch both ways, and it will change nothing. The internal government pissing contest will not affect anything about how taxes are levied and the funds distributed from the public’s perspective.
The first scenario is that the trustees win the case. They use the interest to pay out some of the benefits.
Time Period 2 Trustees Win Case:
Treasury takes in 100 through regular taxes.
Treasury spends 110 through regular spending.
Treasury spends 1 on interest to public.
Treasury spends 1 on interest to SSTF. (Treasury net: -12)
SSTF takes in 10 through FICA.
SSTF takes in 1 from interest
SSTF spends 5 for benefits. (Net: 6, always invested in Treasuries)
The public paid 10 into the system. They received 5 back. 6 debt was released to the public. Total debt held by the public is now 11.
Before we move on, we should look long and hard at those figures. You insisted that it was reaaaaallly important that interest payments to the fund were used to pay benefits. “When the SSTF redeems a bond, the cash does not go in to buying securities again, as I bolded in your post. The bonds are redeemed for cash to pay benefits, not to buy additional securities.” Let’s be clear about this: this comment is totally fucking absurd.
Money is fungible. It does not matter which stream of income goes where. What matters – the only thing that matters – is income minus outgo. What happens if the SSTF decides to use the interest payments to buy bonds instead of paying benefits? Absolutely nothing. If the cash from the interest is used to buy bonds, then the new FICA income will be used to make payments. One dollar is as good as any other. I can use this ten dollar bill to buy lunch, and deposit this other at the bank. Or I can use the second to buy lunch, and deposit the first at the bank. Nothing is different.
I have no doubt that there’s some dumb provision in the law that stipulates: THIS PARTICULAR BIT OF MONEY WILL BE USED FOR THIS SPECIFIC PURPOSE. My point – and this has been my point from the beginning, is that when the accounts are totalled up all of this is empty legalistic horseshit. It’s arbitrary government accounting that doesn’t mean anything. And that’s totally obvious when you’ve worked through the figures for more than fifteen minutes. There is no way to get a different result here. However long you’ve worked in Washington, and however much time you’ve poured over budget resolutions, you have not once, not ever, spent fifteen minutes pondering the meaning behind these Trust Fund numbers. You are so singly focused on the empty THIS MONEY MUST GO HERE superficiality, the ostensible names on the accounts, that you haven’t seen the underlying equivalencies. That means you haven’t seen the ultimate irrelevancy of the whole system. And you’re not a dumb guy. If you don’t see this, then I would guess most people in this thread don’t either.
Now, I started a thread about this very issue, using a tax example. You participated in that thread. You were skeptical. I believe I have now demonstrated that your skepticism was unfounded.
Money is fungible. The Trust Fund is going to take in cash from interest and from FICA. It will spend on benefits. In the end, after all the income is received and all the payments are made, all that will matters is the net result. The net result, if positive, will go to purchase more meaningless intragovernmental bonds. No matter what the legislation says, the net effect is equivalent. It does not matter which money is spent where, because all money spends the same, and the underlying responsibilities of the fund haven’t changed. It just doesn’t matter.
We can do more examples. Now let’s assume that Treasury mysteriously wins the court case, even though it shouldn’t. What changes? I bet you can guess at this point, but let’s be thorough.
Time Period 2 Treasury Wins Case:
Treasury takes in 100 through regular taxes.
Treasury spends 110 through regular spending.
Treasury spends 1 on interest to public. (Treasury net: -11)
SSTF takes in 10 through FICA.
SSTF spends 5 for benefits. (Net: 5, always invested in Treasuries)
The public paid 10 into the system. The public received 5 in benefits. Treasury has a deficit of 11, of which 5 is financed with intragovernment debt. Meaning that 6 worth of debt has been released to the public. Total debt held by the public is now 11.
No changes in taxes. No change in benefits. No change in debt held by the public. There is no change in anything that does not involve internal government accounting. Which is what I’ve been saying again and again.
We can do more hypotheticals.
Let’s next assume that there is no such thing as the Social Security Trust Fund. Let’s do both time periods again.
Time Period 1, No Trust Fund:
Treasury takes in 110 through regular taxes. (10 are FICA equivalent taxes)
Treasury spends 115 through regular spending. (5 are benefits payments)
(Treasury net -5)
There is no trust fund earning “interest”. There is just the government taxes and spending. What do we have?
The same net taxes, the same benefits, and the same debt held by the public. We can check the second time period, without any Trust Fund earning “interest” to see the effect here. By this time, our result should not be a surprise.
Time Period 2, No Trust Fund:
Treasury takes in 110 through regular taxes. (10 are FICA equivalent taxes)
Treasury spends 115 through regular spending. (5 are benefits payments)
Treasury spends 1 on interest payments to the public
(Treasury net -6)
Same taxes. Same benefits. Same debt held by the public.
These aren’t the cleanest tables in the world. This is a text-based board, and I can’t quite gussy up my charts all pretty-like. But all it takes – genuinely – is a legal pad and a pen and the ability to do basic arithmetic. We could, if we wanted, proceed from here to examples of how the Trust Fund would “work” if it were losing money instead of taking in money. But again, there would be no difference as long as the government would continue to pay Social Security benefits if the fund emptied out. If necessary, I could work through those examples, too. I could get into even wilder hypotheticals and put actual “money” in the Trust Fund instead of bonds and see how the Fed reacts. Absent any legal complications, it would all end up exactly the same way.
The Fund, as currently instituted, is utterly meaningless.
Now a bit of prolepsis:
This does not mean Social Security is a ponzi scheme. It’s not.
But it does mean that in order to calculate the future health of the program, the “solvency” of the SSTF is not an issue. The only issue is calculating future expected government income receipts against future expected payments. And really? Social Security needs some tinkering but it’s not in terrible shape. It’s Medicare that’s the real bear. (Arguably a Singapore-style system of mandatory saving might work better than transfer payments, but it would take decades to see real positive results and the transition would be a bitch so that’s not a political possibility. Better to tinker with what we got.)
Okay, that’s totally awesome. I have never heard that one before.
With proper Fed intervention, it would change nothing. I might do that example later.
Yes, because we have mechanisms for obtaining the money from Canada; if all else fails we invade and take back a terabuck’s worth of beer to make ourselves whole.
When the bonds are our own, we must take money from ourselves to make it whole.
davida03801’s summary is the accurate one: yes, the bonds will very likely be repaid, because not doing it would require legislative changes that would be politically disastrous.
The issue then is not where the money comes from to replenish SS, but where the money comes from to pay the bonds that were used to replenish SS. And the options are drastically raise taxes, drastically cut spending, or inflate. Or keep borrowing and stick it to our kids.
I’ll guess we’ll keep sticking it to our kids, at least until the baby Boomers die off, and eventually we’ll probably wind up doing all three, as well cutting/capping SS payouts.
Apologies in advance for only skimming the thread. If your definition of “money” includes only currency, there’s only a little over a trillion dollars of US currency in the world, and most of it is overseas. Obviously that’s not nearly enough to pay off the SS trust fund. It’s not even enough to pay off depositors at US banks - which is a number somewhere over ten trillion, I believe.
Fortunately there’s something called the US Federal Reserve, which can create however much money it wants, whenever it wants.
What people like Hannity don’t understand is that money is not “made” by taxpayers. Money is “made” (in the sense of “created”) by the government. It can choose to make more or less than what’s needed, but it can’t be forced to make any particular amount, other than the amount it chooses.
When a lot of people stop working, the question is not whether there’s enough money, the question is whether there’s enough people making enough goods and services to support them. And whether they’re willing to do it.
Imagine if everyone in the world saved up a trillion trillion dollars, and then everyone retired simultaneously.
Have they saved up enough for their retirement?
Stop being melodramatic. The projected gap in SS is between 2-3% of GDP. That’s hardly disastrous, and it’s something we could simply grow our way out of if the economy improves enough.
Even if the economy doesn’t improve enough, we could simply lift the yearly cap on payroll taxes. Yes, it’s a tax increase, but most people wouldn’t be affected by that particular tax increase.
And in the latter case the soldiers can do it without getting snow all over their boots. Much preferable.
I’m not sure if you mean the bonds the SSTF bought when it was in surplus, which will now have to be converted to cash to pay for Baby Boomers, or a future gap when the money runs out if no one is smart enough to modify the program to put it on sound demographic footing.
The latter would be a real problem, since the system would not have an adequate amount of income to meet demands. For the former however, if the SSTF took the money and hid it under their mattress and didn’t buy bonds, and the US sold bonds it would have sold to the SSTF to American investors or to China, how would the situation be any different in terms of the debt?
And this perfectly reasonable step (which the Divine Reagan did) is what is not getting done partially because of the FUD about SS we hear so much of.
Stop being melodramatic by saying I’m being melodramatic.
Considering all federal income tax in any given year is usually about ~18% of GDP, that equates to about a 10-15% across the board tax hike. If you want to make it up by cutting spending, it’s a similar hit. Maybe you don’t see that as “drastic,” but I disagree.
And of course, that’s the current figure. After we kick the can for another decade or three, and given demographic changes, it’ll be much bigger.
Using words like “drastic” is melodramatic. We have no idea if there’s even going to be a gap or a need to raise taxes, because the projected gap is well within range of historic economic growth.
Ok, let’s get a cite of the demographic changes you are projecting in a decade or three, and let us know how they differ from CBO projections.
It’ll just add that during the Reagan administration, we taxed roughly 90% of all wages for Social Security. Now, this has fallen to between 80-83% (depending on whose figures you look at) of all wages. If people are really concerned about shoring up Social Security, then let’s restore the amount of wages taxed back to Reagan administration levels. I’d hardly call reverting to Reagan-era tax levels “drastic.”
[quote=“BrightNShiny, post:53, topic:695391”]
Using words like “drastic” is melodramatic.
[Quote]
We can agree to disagree, then.
The CBO’s projected gap assumes historic economic growth.
The demographics are each generation living longer and longer, but it still being politically impossible for either party to raise the SS eligibility age to keep pace.
And I am skeptical about the ability of the economy of the next 50-100 years to match the growth rates of the last 50-100 years, which is what we think of as “historic economic growth.”. Just MHO. Tyler Cowen’s “The great stagnation” covers a lot of the arguments I would make.
If there’s a shortfall, it will be resolved by (a) limiting benefits, e.g. by raising the retirement age, or (b) raising social security tax or other taxes or © some combination of the two.
The conventional wisdom is that raising taxes is politically impossible. But, if you discount those ideologues who believe a priori that raising taxes for any purpose is verboten regardless of the purpose, it’s not so obvious that the conventional wisdom is correct. If you rephrase the question as “would you rather pay an extra 1% in social security, or have Great Aunt Maud come live with you?” you may find that raising taxes is, in fact, quite feasible.
We may also decide Great Aunt Maud can work another 2 years before getting her benefits, or more realistically that Great Aunt Maud’s kids will have to work longer than Maud did. As a species we’re great at procrastinating but that doesn’t mean we won’t eventually solve the problem when we really have no choice.
Yes. Countries with much stronger traditions of social solidarity than the US have made such decisions already and, while they haven’t been uncontroversial, the sky hasn’t fallen in either.
If you were born in 1960 or later, your retirement age with full benefits is 67.
Obviously, it is.
Here’s what happens. The government collects some taxes and puts that money in the general fund. It then spend it doing government stuff.
The government also collects money to fund social security. Some of it gets paid out in current social security payments. The rest of it is used to buy government bonds. Then the government takes the money it got from selling those bonds and put it in the general fund. Which is then spent on government stuff.