Every dollar in the world is based on a dollar of debt. If it’s a dollar bill, it’s a liability of the government. If it’s a dollar “in” a checking account, savings account or CD, it’s a liability on a private bank.
Every dollar in the world is created either by the government, or by a US bank. In both cases they create the money by lending it into existence. If B of A lends that dollar to WalMart, it creates the dollar. If it lends a dollar to you (say, for example, when you use your credit card) it creates a dollar. The money is backed by debt - either WalMart’s, or yours.
When the government creates money, it also lends the money into existence; mostly by lending to itself. The Fed lends to the Treasury by buying Treasury bonds. This is an ongoing process, and is the basis of the US financial system. Fed purchases create federal reserves, which banks need to make transactions with each other, and to obtain currency. The reserves, in turn, are backed by US debt. As is US currency itself.
Talk about whether there’s enough “money” to pay off SS debt, or any government debt, is pointless. Government debt and government dollars are ultimately interchangeable. The Fed can buy whatever amount US debt it wants, whenever it wants, and change it into dollars. It’s doing it now, and has been since it existed.
A country like the US cannot run out of money. It can run out of workers, or of skilled workers, or resources. But it can’t run out of money.
We disagree about the nature of Social Security – whether it is an insurance system or not – and I think that that disagreement is animating our differences about the nature of the trust fund, but I understand where you are coming from.
So if I understand you (and please tell me if I have misstated your position) you agree with Shodan, Hellestal, et al. that the Social Security Trust fund is an accounting fiction, but that you like the accounting fiction because it allows politicians to pretend that social security is a different beast than defense, transportation, etc.?
That way when a future congress try to cut SS funding, we can still pretend that “Hey, we have a bountiful trust fund for that! Cut another budget item that isn’t doing so well!”
If so, I think we are all in agreement on the nature of the trust fund: It is a trick to keep social security in a special place for funding debates.
No, it isn’t a fiction at all. I’ve said this repeatedly. It’s currently run like an insurance program that is independent from the government’s general revenues and expenditures, and I think that’s good policy.
So the money that was collected for Social Security but was spent on everything else is independent of the government’s general expenditures? And the money that will be needed to pay Social Security in the future, that will come from revenues other than Social Security, is independent of the government’s general revenues?
That word, I do not think it means what you think.
No, the money collected from FICA was spent on bonds, not other things. There was never a raid on the Social Security Trust Fund, and the rest of your post is moot.
It was spent on bonds and then on other things. That’s the crux of the debate. 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.
I don’t know why there is a reluctance to see this very easy point. If the SS trust fund had, say, parcels of real estate in it, then that would be an asset (without an offsetting debt). 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.
There isn’t a fiction. The law is clear, and it is real, and a bond in the trust fund is as valuable as an equal amount of real estate, gold, Apple stock, or anything else you can name.
Let’s also not forget that the bonds are real because they also financed previous government deficits. Had the trust fund not bought bonds in previous years, the government would have had to issue bonds to the public that would have had to have been repaid in the exact same manner as intragovernmental debt. It is double talk to assert that only bonds issued to the public are real but those in the trust fund are not, when in every single aspect the bonds purchased by the trust fund are just as real as the savings bond you might buy at the bank (with the two exceptions of the amount of interest paid and the fact that they cannot be resold).
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.
That’s besides the point. Germany in the 30s couldn’t run our of money either. However, that money became worthless because the trust that the government was responsibly printing was shattered. The government was irresponsibly printing tons of “money,” and that paper had no value.
Similarly, this discussion is whether the “money” in the SSTF has any actual worth. It’s of no intellectual value to simply say the government can print whatever money it needs. That is no proper way to assess to solvency of the SS system.
Have you read this thread at all? I have stated too many times, but will repeat once more, that an IOU to yourself is unenforcable, but the 14th Amendment to the Constitution requires that every bond issued by law is guaranteed by the full faith and credit of this country.
Frankly, I’m tired of repeating this clearly stated point again and again only to have people respond, “Oh yeah? But what if you wrote an IOU to YOURSELF?!?!?”
Because it doesn’t matter if it is legally enforceable or not. An asset held by the U.S. Government, even though guaranteed to be paid by the 14th amendment, is still a liability of the U.S. Government, making the balance sheet value of that asset (added with its corresponding liability) ultimately $0.
That’s why the “IOU to yourself” argument is compelling. It’s not that Shodan et al. are missing the point that we could somehow refuse to pay ourselves as the reason the IOU is without value. That’s not the reason at all.
Even under guaranteed repayment, the fact remains that when you pay yourself back the asset and liability cancel each other, meaning that there is no real value in that asset.
You want to pretend that the law doesn’t matter, but in this case, the law defines reality. The law literally determines the validity of debt, the validity of bonds, the existence of the trust fund, and so on.
Keep on believing that your opinion trumps the law, just like those people who believe that courts have no authority over them if they print their name in all caps.
Let’s say that there is a law passed tomorrow that establishes legal validity to “IOU to yourself” and makes it legally enforceable. Will the “IOU to yourself” become any less of an absurdity?
Sure. It is an accounting fiction, since they are two branches of same corporation, but it can make a loan. Just like the treasury bonds given to the social security fund are an accounting fiction. Just like an IOU to yourself is an accounting fiction. Glad you’re understanding this.
As I asked, if there was a law that made an IOU to yourself a “legally binding transaction”, requiring you to repay it to yourself later, would it make it less of a fiction?