GW said that the US bonds owned by the Social Security Administration are really just IOU’s. Speaking to an audience of supporters (is there any other kind of audience that GW will address?) he said, “There is no trust fund. Just IOUs that I saw first-hand, that future generations will pay … either in higher taxes or reduced benefits or cuts to other critical government programs.”
This, from a President who is selling bonds hand over fist to pay for current Federal deficits. Those bonds will also have to be repaid, or refinanced and the interest on thim will untimately result “either in higher taxes or reduced benefits or cuts to other critical government programs” unless deficits are somehow reduced. Or else, perhaps, the economic surge from the famous tax cuts finally kick in and let us “grow our way out of the deficits.”
I agree with Senate Minority Leader Harry Reid (D-Nev.) and House Minority Leader Nancy Pelosi (D-San Francisco) who sent Bush a letter saying it was “simply wrong to suggest that the Social Security trust fund does not exist, or that the securities held by the trust fund are merely pieces of paper.”
“For a president to even suggest that the federal government might, for the first time, default on a security backed by the full faith and credit of the United States unnecessarily misleads American workers about the health of the Social Security program,” And I think it also might suggest that other US Government obligations are subject to some question.
And if US Government obligations are mere IOU’s what are the investments in private obligations but mere pieces of paper? Or is that an unfair question to ask of GW?
What do the rest of you think about the President casting doubt on the ability or willingness of the US to honor its obligations?
Comparing apples to oranges to compare Bonds (which are guarenteed in writing by the government) to Social Security…which is not (there are, in writing, provisions for decreasing SS benifits if the amount of money for the system decreases IIRC).
The Social Security system ISN’T a ‘trust fund’…its a pay as you go system. They use the money from each fiscal year to pay off those on the system, with the excess going to pay part of the debt. How is that a ‘trust fund’ when there IS no ‘fund’?
Reguardless, there isn’t really any comparison between Bonds (which the government HAS to pay) and SS (which it doens’t).
Central banks are already beginning to “diversify” their holdings to hedge against the dollar dropping more.
I expect that if this sort of thing keep up that the dollar will become less and less attractive.
If that happens, then I’ll make even better returns on my investments. However, I don’t think its a good idea for the USA as a whole.
The cite for the above is the Los Angeles Times Requires registration.
And a side question for Mr. Moto. This speech was given to “several hundred supporters at West Virginia University at Parkersburg.” Should the President’s critics be included when he gives a speech on a national issue such as Social Security, or should he give the “inside dope” only to supporters?
It was my understanding that the SS surpluses being generated in the 1990s were invested by law in treasury bonds. In effect, they went against the debt since fewer bonds needed to be sold to pay off the general budget deficit. From an accounting perspective, the SS has a trust fund consisting of treasury bonds. The govenment has an obligation to make good on these bonds just as if they had sold them to foreign interests.
Yes, it is inappropriate for Mr. Bush to impugn the integrity of US treasury bonds. I think he’s getting desperate. He realizes this dog ain’t gonna hunt.
No one said that the Social Security is a trust fund. However, there are special US bonds indicating that the US owes the SSS a certain number of dollars. That’s all any bond is and to argue that the two are somehow different is a mere quibble.
And, do you think it OK for the US President to say that US obligations are “mere IOU’s?”
So are you saying that for the US it inflate its currency in order to be able to pay off debts is OK so long as you get more return, in dollars, on your investments?
And, do you think it OK for the US President to say that US obligations are “mere IOU’s?”
From the above site: http://www.ssa.gov/history/reports/senate3294.html
“The fear I think the people have is that when, 20 years hence, the Social Security Administrator takes his or her IOU to the Treasury and says, Madam Treasurer, will you please give me some money so I can pay the benefits?'' The Treasurer will say, Give you money? We spent that money 20 years ago. We don’t have any money.’’ That scenario is only true if the U.S. Government reneges on its promise to redeem the bonds. We have never failed to redeem bonds in the 200-plus-year history of this country. And if we were to fail to redeem the Social Security bonds, it is not just Social Security; it is the bonds that Metropolitan Life has, Prudential has, General Motors holds.
They think their money is being spent now and they have nothing in exchange
for security. Indeed, what they do have is still what the world regards
as the single best security in the world–U.S. Government bonds.
If the creation of this administration as an independent administration–and I think it should be–will help make the public aware that, indeed, the Social Security Administration is not holding IOU’s you cannot fine and levy on, but is, indeed, holding a Government bond, they will feel a bit more secure.
You sometimes have to sell your bond at less than what we call par value, but that is the marketplace. You have a $1,000 bond. You want to sell it. You can only get $900 for it. That is not true of Social Security bonds. So the Government has promised to redeem them at least at what they call par value.”
No, I’m not saying that. I’m just saying that I’m anticipating the nervousness over such a thing happening.
As long aswe treat our IOU’s as serious obligations based on the honor of our nation it seems merely academic. However, if the term is being used to prepare for some sort of a reneging then I find it despicable.
He’s trying to overcome what he believes to be a widespread perception that the money paid into Social Security is paid into a “trust fund” for the holder, a perception which the government itself perpetuates, by law, when it sends out those preposterous annual statements.
He is not questioning the debt, simply pointing out that it has to be repaid by the government, which raises money from the people, as opposed to some other party like a portfolio of stocks’ rising prices or a guarantee from a third party. In fact, in the transcript of his remarks he talks about this:
This is exactly correct. The government will make good on the bonds, but future generations will pay to do so. Imagine if a corporate pension system (one of a company of good credit quality, not GM or something) were funded entirely with interest-paying bonds of that company (which, happily, is illegal[sup]1[/sup]). The CEO of that company couldn’t say simultaneously to the workers that the system was sound and to the stockholders that there’s a huge problem when those bonds start to get redeemed, right? In the case of Social Security it’s even less appropriate to say that since the workers and the stockholders (and the customers and suppliers, for that matter) are one and the same.
This is also correct (or at least the most recent estimate from the Social Security Trustees – the 2017 date will change from time to time with changes in receipts and changes in assumptions; the prior estimate was 2018). This is the time when the government has to start redeeming the bonds. Essentially, the liabilities of the system will start to come from general government revenues (or borrowing) on that date. Now, some people think this is not a big deal – the general revenues pay for lots of entitlement programs, right?. But it would be the first time the government has done so for Social Security in a material way, and it will be the beginning of a large, permanent shift in the funding of Social Security benefits.
The 1983 “fix” to Social Security, which created this large trust fund (it used to be much smaller and was essentially a short-term financing mechanism) is coming to a close beginning in 2017. The IOUs, whether you call them that or bonds or a trust fund or Bob, will have to be repaid from general revenues or from borrowing or from cutting benefits (which changes the actuarial assumptions and allows some of the IOUs to be refinanced rather than redeemed).
[sup]1[/sup]: Companies without the current cash to fund their pension plans get around this requirement by not funding the plan at all and they do so with the cooperation of the tax code, a GRRRR! of mine that is best left to another thread.
True, but how is this different then all of the other bonds that were sold to pay for the deficit spending of the 80’s and 90’s. The government general fund spent whatever it was going to spend during that period, and would have to pay it back regardless of whether that debt was sold to the SS fund or to private holders/other gov’ts. That we will have to redeem all our bonds to pay for the huge deficit spending of the past is certainly a problem, but I think it is somewhat disingenuous to make it look like a SS problem.
Again, these monies will not go directly into SS, the will go into debt payment (along with all the other money that the general fund uses to pay back privately held bonds), which wil be used to redeem bonds held by the SS trust fund which will then be used to pay benefits. This is actually happening now, bonds held by the SS fund mature every year and are added to the SS balance sheet, it’s just that before 2017, more of that money goes into buying new bonds for the fund then is used to pay benefits
The 1983 fix runs into deficits in the next decade by design. The demographic problems of today were easy to see then, so the point of creating a fund was to pay for the deficit in the system that would begin accumilating in 2017 without having to massively rachet up SS taxes. The idea is that the fund will be large enough to get us over the “baby boom hump” when the worker/retiree ratio is unfavorable. This hump will disappear in a few decades, as the boomers die off and the generations coming into retirement are those born during less “fruitiful” times. The problem is that by some current projections, the fund is not adequate to get us over this hump.
I wouldn’t take the word of either of these two. They’re both highly partisan (especially Pelosi), as would be expected of someone in their respective posts.
At the very least you should link to the specific pasage that you find objectionable instead of relying on the analysis of people with an obvious ax to grind.
Err…that should be: “more of this money goes into buying new bonds then is gained in redeeming old ones.” Makes sense that way, you see.
Seems to me that their was a period when GW was poopooing the possiblility that the bonds in the fund would be redeemable at all as part of the general campaign to spread FUD about SS. I think that is what Reid and Pelosi were talking about in thier letter. Bush has since stopped saying this, though, both because it wasn’t selling well and because it was obviously false.
Exactly! You got it! Both the trust fund and the government generally refinance much more of their bonds then they redeem. Even when the government was in surplus and a net decreaser of debt it refinanced a huge multiple of its net paydown.
Now. Here’s the difference between the publicly traded bonds and the ones in the trust fund, which the President refers to IOUs.
First the regular bonds. Say I’m an insurance company (“manny’s an insurance company”) and 30 years ago I bought a government bond maturing April 15, 2005. It matures. They send me the money. How did they get the money? They sold bonds. In fact, they probably sold bonds to me. If they didn’t, they sold them to some other guy. But either way, the government is engaged in a rolling refinancing of the bonds. Everyone gets paid but the debt doesn’t get paid, if you see what I’m saying. But at least the government has to find a buyer in order to be a seller.
Now the Social Security bonds: Here, the government is both buyer and seller. This creates the opportunity for mischief. Say I’m Social Security (“no”) and I’ve got a package of government bonds totalling $1.5 Trillion which matures at various times from now through 2019 (which is what they have). Everyone knows that the government isn’t going to give me cash for those bonds as they mature. Heck, I don’t even want them to give me cash, as I have no use for it. I’m going to want, and they’re going to give me, new bonds which mature later. Once again, Social Security gets paid but the debt doesn’t get paid. In fact, it’s increasing on account of Social Security still has more money coming in than out.
In 2017, that starts to change under current assumptions. Social Security is going to want cash for some of those bonds. Not much at first, but it really starts growing fast.
Where does the government get that money? Well, it can raise taxes. Or it can raise the Social Security tax (which is still raising taxes of course) so the system doesn’t need the cash and the government can go on refinancing. Or it can borrow it from those insurance companies, decreasing the Social Security debt but increasing the general debt. Or it can cut spending programs.
Or, and here’s the really sticky part, it can change assumptions. Let’s take an extreme example. A future congress could, for example, pass a law that says the following: “Social Security benefits are cut by a formula such that the drain on the general treasury is not to exceed $10 Billion per year.” Well, now instead of a quickly declining trust fund with bonds which have to be refinanced from 2017 to 2041 (when the assets run out entirely and currently scheduled benefits will have to drop by a quarter absent some reform), we’ve got a very, very slowly declining trust fund which can be refinanced over the next 300 years (the trust fund will grow to about $3 trillion by 2017). There’s no default, just refinancing like they’ve always done, right? But the beneficiaries will sure feel like somebody defaulted them.
And that’s the difference. A current President and Congress can’t prevent future ones from playing with the trust fund in whatever manner they see fit, even absent a default. Those future Congresses can string those IOUs out as long as they want. This flexibility means that for all practical purposes the assets are not there for people paying into the system. They are there for whatever Congress wants them to be there for. And this is what the President is trying to say.
I’ll answer, but extended debate on this subject should go back to the thread I started on the subject. I wouldn’t want to hijack this too much.
I have stated that I’m not happy with Bush’s exclusion of dissenting voices from these events. I stand by that.
However, I think letting them in should be conditioned on civil behavior, and this hasn’t been displayed in the past. The most recent example that caught a lot of attention was of three people who were asked to leave, ostensibly because of a bumper sticker on their car. Not reported much in the media was the fact that the people in question had protest T-shirts on and had been planning to disrupt the event.
While it is possible that these individuals had a genuine come-to-Jesus moment in their car on the way to the event, it is also possible that they’re just covering their asses, so to speak, because people have little sympathy for activists who disrupt events.
I’m in this camp, myself.
The solution, of course, is for there to be ground rules for speaking, for signs, and for behavior, and then let everyone in. Anyone who acts up is not only a disruption, but a potential security problem for the public and any officials present.
If you can’t live by this, you always have the right to stage your own rally and get word out in that way.
Which has absolutely nothing to do with the jist of this thread. Look, I specifically said that anyone in the posts would be expected to be partisan. But that doesn’t make those two any LESS partisan, nor does it address the point of my post-- the OP is relying on hearsay for his thesis, instead of going to the source (which should be easy to do since this is a recent event).
I asked this question of you once before, and I’ll ask again: when was the last time you actually posted something of substance in GD?
manhatten, I don’t understand what the difference is. If the insurance company in your example cashs out it’s bonds, then the gov’t has to find another buyer. If Social Security does the same thing, then once again the gov’t will have to find another buyer of that debt. In 2017, the government will start to loose a buyer for a chunk of its deficit, but again, I think that’s a problem with deficit spending in this country, not with SS.
Publically held debt is still counted as part of the general debt, at least by the guy at the national debt clock. So if the government sells bonds to the insurance companys to pay off those held by the SS fund, the total general debt will remain the same, it will just be in the hands of private individuals instead of SS.
I don’t think that’s a difference. A future congress could decide to default on publically owned debt as well (or say they’d only pay it back very slowly). The gov’t of Argentina just did something similar to it’s creditors.
