Social Security and the Deficit

Great Debates
161

Let’s see…you can’t understand simple concepts and I should brush up on arithmetic.

SS doesn’t “draw on the general fund” anymore than than the IBM pension fund does or Warren Buffett does. You still don’t understand that.

Yes, the general fund has to pay back SS. It has to pay back IBM, the Chinese, Warren Buffett also. What is the difference? Give me an explanation, not a snide remark.

In my simple example, which you can’t understand for some reason, YES the gov’t does borrow 800 billion in both situations. In one case it borrows it from the Chinese or whomever and SS puts the funds in a warehouse. In the other example IT STILL BORROWS 800 BILLION. It borrows 500 from the Chinese and 300 from the SSTF. It actually issues bonds to the SSTF. So that is borrowing. And such borrowing is listed in the total obligations of the gov’t (which is about 16 trillion). I don’t think you know that. You may not be capable of knowing that.

SO IT BORROWS 800 BILLION IN BOTH CASES. From the gov’t point of view, the money to be paid back from the general fund, IS THE SAME. It is the exact same. And the total debt outstanding INCLUDES MONEY OWED TO THE SSTF JUST AS IT DOES TO CHINA AND EVERYWHERE ELSE.

You also can’t square the “what exactly should the SSTF invest in”? Cash in a warehouse? Do other pension funds do that? Does that give you a clue that you have no idea what you’re talking about? IBM pension fund loans money to the gov’t. It’s listed as an obligation of the gov’t. SSTF loans money to the gov’t. That is also listed as an obligation of the gov’t. That’s a scam. Cause it has to be paid back by the taxpayers and its their own money. Right.

A little less snideness and a little more reading comprehension please.

The easiest way for simpletons to understand this is to assume SS is completely separate from the gov’t. That’s how it was designed to be. It’s a little more complicated with the 2% SS tax cut which expired and also the ability of the gov’t to cut or raise benefits, but ASSUME that the SSTF is justorm of forced savings. Just bear with me in a though experiment. SS would then be a forced pension plus disability insurance scheme run by an INDEPENDENT ENTITY. Just assume this for a minute.

Now what would this entity look like? A pension fund. It would stockpile “money” and “invest it” when the people were working and cash in the bonds, etc., when people retired. Some of its investments would be in US treasuries just like the IBM pension funds are. Just like the CA state retirement fund is.

THERE IS NO DIFFERENCE.

The gov’t would not distinguish between money owed to IBM, SSTF, CA Pension, Fidelity investments etc. etc. WHY WOULD IT? Well that is exactly as it is now. The gov’t lists TOTAL obligations. It doesn’t exclude SSTF obligations.

The money the gov’t borrows would be paid back from general taxation and borrowing. WHERE ELSE WOULD IT COME FROM? SS contributors would have to pay back their own assets via taxation. But so would IBM pension fund owners. They own US gov’t bonds too. What is the difference? IBM pension fund contributors think they have an asset…well guess what? The asset is GONE (it’s an IOU to the gov’t!) and to get it back, they have to pay it back in taxation! WHAT IS THE DIFFERENCE?

The money borrowed in any year is INDEPENDENT OF WHETHER SSTF is running a cash flow surplus or deficit. And this is true, just as in my example, which you butchered and then were snide about, theh gov’t borrows an amount to fund itself, INDEPENDENT OF THE SSTF. If the SSTF has a surplus it invests in gov’t bonds. But the total gov’t bonds issued in that year is INDEPENDENT OF THE SSTF. Just like it’s independent of the IBM pension fund.

That’s all there is to it.

Yes, the “taxpayers” are paying back “their own assets” which were spent. But they’d be paying back other debt if those assets hadn’t been lent to the gov’t. Obviously you don’t see that. In my example the gov’t borrows 800 billion IN BOTH SITUATIONS. BOTH cases the people have to pay back 800 billion. In one case, they pay back 300 billion to the SSTF. But it is really irrelevent. They are gonig to pay back 800 billion to someone, whether SSTF, china, or warren buffett.

And the gov’t is not “making money lending money to itself” as someone idiotically put it. SSTF is making interest via their bond purchase. Theh general gov’t is spending interest…just like they do on bonds purchases by the Chinese. NO DIFFERENCE. Net, net, the combination of SSTF and gov’t has no net interest gain.

This stuff really isn’t that complicated. I’m an actuary and have just a little bit of familiarity with financial matters…I also have a little ability to think abstractly, but this stuff isn’t that complicated.

162

Let’s try another thought experiment. This is so basic that a junior high schooler would get it.

Basically if you have two things that have the same net accounting and cash flows, then they are THE SAME.

This is an elementary school math concept.

Situation 1: SSTF does not invest a penny in US gov’t bonds. Nope! That would be a scam. It wants to earn interest though, so it lends money to CANADA. Which for some reason is willing to issue bonds denominated in US dollars. It pays the same interest that the US gov’t would. Which is reasonable, since it’s a similar credit.

The US gov’t owes a total of 16 trillion dollars. However it owes NOTHING to the SSTF. ALL of this must be paid back by TAXPAYERS. But they aren’t paying back their own assets, no siree, their assets are in rock solid Canadien Bonds. Canadien taxpayers will have to pay those back!

Situation 2: The current one. The US gov’t borrows 16 trillion total including 4 trillion from SSTF and 12 trillion elsewhere. It owes 16 trillion total. ALL of this must be paid back by TAXPAYERS. Some of this is owed to their own savings plan the SSTF, but this is IRRELEVENT. They owe 16 trillion, it DOES NOT MATTER TO WHOM.

Both situations have the exact same cash flows. Both cases the SSTF has 4 trillion in assets and both cases the gov’t owes 16 trillion. Both cases the SSTF earns UST rates on its funds. Both cases the US gov’t borrows 16 trillion at UST rates.

THEY ARE THE SAME.

Yet according to various simple minded people, #1 is totally legit, but #2 is “borrowing money from yourself and promising to pay it back and calling it an asset even though there’s no money there cause it’s been spent and thus it’s a total scam”. Yet THEY ARE THE SAME THING.

There is something wrong with your logic if the same thing is legit or a scam depending on how it’s presented.

163

But since the interest goes to SS recipients, it is not an important factor. If for some reason they bought 0 interest bonds, they’d just have to buy more.

One more thing - SS is so big, that if it decided to buy corporate bonds, say, it would bid up the prices of those bonds and thus decrease the effective interest rate. Perhaps you would be willing to share another place to park the money.

If I had the taxing power of the government, sure I would. Corporations roll over bonds all the time. There is nothing odd or unusual about this.

164

When the Job Creators™ do it, it’s Free Market creativity at its finest. When teh eevil guvmint do it, dey doan even wanna spend teh money, dey just ginna rake it into a big pile and burn it outta spite.

165

Half of this is correct.

I have already provided a cite showing that this is not true. Social Security does draw on the general fund, and has for the last couple of years.

IOW, what you said earlier was wrong.

That must be why you “understand” it in the way you do - i.e. you don’t. Social Security is not separate from the government.

Obviously not a very good one. You can’t subtract, your statements about Social Security not drawing from the general fund are wildly wrong, your notion that a pension fund is an IOU to the government is flat-out ridiculous, and the rest of your post is just repeating nonsense.

Regards,
Shodan

166

The bonds held by the SS trust ARE considered debt by the US gov’t.

167

YOu need to learn if A=C and B=C then A = C. Read the Canadien bond example and explain why that is kosher but what the gov’t is doing now is not. Don’t bother on second though, you’ll just dismiss it and come up with snide responses.

And SS is issued bonds, so in my example, the gov’t does issue 800 billion in both years. You can’t understand it, then that means you’re the one who can’t think straight. Look it up. SSTF owns bonds issued by the gov’t. Whether the gov’t issues bonds to the chinese or the chinese and SSTF, the total amount is the SAME. You can’t get your head around it, that’s your problem. It’s borderline hilarious you bill yourself as an intelligent person.

SS is no more “paying your own money back with interest”, then is the IBM pension fund, which has the exact same investments. The IBM pension people are paying back their own bonds!

SS has interacted with the general fund due to the 2% tax cut, andn I mentioned that. But that’s an anamoly.

Yeah, somehow I aced actuarial exams and actually have a high paying job…you can’t understand even the simplest of examples or 4th grade math.

168

People used to write cheques to themselves all the time - withdrawal at a bank remote from the one that has your account. We haven’t needed that since banks got seriously computerised. But how is that different than withdrawing money from an ATM?

Moving money from one place you own (“bank account”) to another (cash in pocket) does not change your net worth (unless you count the ATM fee) but is a real transaction.

169

No, I am completely correct, and you can’t count.

Here is what you claimed -

This is stupid and wrong. If the government were to put $300B away in a warehouse, then that $300B would be available as a source of funds. So the taxpayer would have to pay back $500B, not $800B.

If, however, the government had spent the $300B instead of putting it aside, then it would not be a source of funds. This is what has happened with the SSTF.

So when you claimed that Social Security did not draw from the general fund, you knew you were making a false claim? I wish I could say I was surprised.

Debt is not an investment. So now we are all clear - you are arguing in favor of a position that has already been shown to be false. The SSTF is not an investment. It is a debt. All government debt must eventually be paid by the taxpayer.

IOW, the situation is exactly as I described. The government took money away from the taxpayer, and spent it. It replaced the money with a promise to take money away from the taxpayer again, with interest. IOW, a loan that has to be paid twice.

Regards,
Shodan

170

You left out the bit where you spend the money from your pocket.

You also missed where you replace the money with an IOU to yourself. Is that a “real transaction”? Is it an investment?

Regards,
Shodan

171

Hi Shodan!

Let’s give you the same chance we gave Little Nemo.

SSTF has accumulated a surplus of $2 Trillion over the years and used the funds to buy U.S. Treasury bonds. If finance expert Shodan were advising Congress, would you recommend (or have recommended):
[ul][li] Buying the bonds as they did.[/li][li] Reducing the SS tax collections by $2 Trillion total over the years to keep SSTF neither in surplus nor deficit.[/li][li] Keep the tax as it was, but keep $2 Trillion in banknotes in a vault somewhere instead of buying bonds.[/li][li] Keep the tax as it was, but use the $2 Trillion to buy gold on the open market.[/li][li] Other.[/li][/ul]

Your answer may be interesting (though less interesting than watching you just evade it with more snark.)

Are you willing to share your financial acumen by answering this question? (Or will you adopt Nemo’s copout: refusing to debate “the color of the bridge” until your confused factoid about self-debt is applauded.)

172

Try reading that again. If the $300B were dumped in a warehouse, the government would still have to borrow $800B, from external sources, to cover the non-SS $800B deficit which was a premise of the example. So the taxpayers would still owe $800B. We just would have kept less of it in the family.

I would think that the general fund directly paying SS benefits is different from the general fund paying off SS bonds. Even if SS runs a surplus, I suspect bonds bought in the past mature, and get paid off by the general fund, and this money either goes to paying benefits or buying new bonds.
If SS runs out of bonds, then the general fund would really pay benefits.

173

And this is one reason people call others the “tax and spenders”.

The money is indeed gone, you now not only have to raise taxes in order to pay off what was stolen, you have to raise taxes to pay interest on the money that was stolen.

Ok “stolen” is hyperbolic, I apologize.

174

It’s amazing to me how we can have the same discussion every 6 months, with the same players making the same faulty analogies, and with the same people refusing to answer the simple questions “What should the US Government have done with surplus SS revenue if not purchase Treasury bills?” and “If the Social Security program, both taxes and expenditures, had never existed would the current US debt load be larger or smaller?”.

Fighting ignorance is indeed taking longer than we though…

175

I wasn’t aware of that, but you probably have a good point.

I think it’s time to say to the Glenn Becks/ Rush Limbaughs / Lyndon LaRouches and the certain smug snide people here that they are right. There is no SSTF. The money has been stolen, squandered, LOOTED! They are right after all.

Riddle me this though. Right now the Fed’l gov’t says it owes 16 trillion dollars. One of the largest creditors is something called the “Social Security Trust Fund (SSTF)”, which of course, does not EXIST. It is FICTION.

It would be like saying “I owe my neighbor $100 and my co worker $100 and myself $100, so I guess I owe $300.” NO YOU ONLY OWE $200!!!

So actually the gov’t doesn’t owe 16 trillion. That’s a LIE.

The gov’t owes about 12 trillion or 4 trillion less, due to the fact that one of its creditors is ITSELF! You can’t owe money to yourself! That’s CRAZY.

So the gov’t is OVERSTATING ITS DEBT!! Hooray! The debt counter and debt limit debate can be pushed back 4 trillion! Or 3 trillion or whatever. What was all that debt limit debate fuss about anyway?

I wonder what kind of conspiracy/birther spin the Glenn Becks and Sean Hannitys of the world would put on that. The gov’t has scammed people by overstating its debt? What?

176

Your cite doesn’t support the assertion that the shortfall was paid by the general fund. In fact, the shortfall was paid by cashing in treasury bills held in the SSTF.

Taking 2012 as an example, SS ran at a deficit of ~$50 billion. However, this just means the amount paid out exceeded the amount collected in the payroll tax by $50 billion; it does NOT mean SS contributed $50 billion to the federal budget deficit (a sleight of hand you often see from conservative critics). This is because of the SSTF–the $50 billion was accounted for by depleting the fund (actually, depleting only a portion of the interest earned on the fund; since the trust fund hovers around $4 trillion, the capital itself was untouched).

When SS cashes in bonds from the trust fund, new publicly-held debt is issued to replace it–there is no payout from the general fund to cover these bonds. Thus, the total debt (~$16 trillion) is unchanged, although the percentage of that which is intra-governmental (~$4 trillion) is reduced.

[QUOTE=Jas09]
It’s amazing to me how we can have the same discussion every 6 months, with the same players making the same faulty analogies, and with the same people refusing to answer the simple questions “What should the US Government have done with surplus SS revenue if not purchase Treasury bills?” and “If the Social Security program, both taxes and expenditures, had never existed would the current US debt load be larger or smaller?”.
[/quote]

This is 100% correct, but IMO the problem isn’t ignorance, it’s a willful disregard of fact in service of a hidden agenda. Many conservatives have hated SS since its inception because it is the defining program of what they consider to be the transformation of the US into a welfare state. It doesn’t really matter to them if SS is fiscally solvent or socially helpful because it is incompatible with their notion of what the government should do–they just want it gone, and if false or misleading arguments gin up enough public support to move it closer toward elimination (or simply convince a president longing to “fix” it; Chained CPI anyone?), you’ll see those arguments continuously recycled.

177

Actually I think it matters quite a bit that SS is solvent and helpful and efficient - because it is a contradiction to their claim that the government can’t do anything right. Even worse, people love it. They’d be more honest if they admitted it works but shouldn’t be done - but then they’d have to come up with an alternative.

178

Yes, it does.

And where exactly did the cash come from that paid off the treasury bill? Answer: it came from the taxpayer’s pocket, or was borrowed and will have to come from the taxpayer’s pocket later, with even more interest.

IOW, everything happened exactly as I described. The government took money away from the taxpayer that was supposed to go for Social Security. Instead of going to Social Security, the government spent it on other things, and filled out an IOU to itself. Then, some time later, the government took more money away from the taxpayer, paid off the IOU, and spent the money on Social Security.

You are correct, but it is not conservatives who are doing it.

Regards,
Shodan

179

You and I have a very different understanding of what the “general fund” is. I take it to be reveune raised through taxation that is not automatically earmarked for a specific purpose. “Cashing in treasury bills held in the SSTF” is not the same as levying a current tax. Your argument seems to be that the issuance of any government debt is equivalent to a tax, which is like saying that borowing from the bank is the same as earning an income; it debases the terms to such an extent that they will support any assertion.

Right, more of the usual claptrap about IOU’s (why use “IOU” when the exact term is “treasury bill”? Do conservatves call the bonds they hold “IOU’s”? Oh right, the point isn’t to analyze the situation, it’s to scare people). The fatal flaw is that the government did not have to take “more money away from the taxpayer” to tap the SSTF; they simply issued new public debt while retiring the equivalent amount of intragovernmental debt in the SSTF;the net debt doesn’t increase at all. I’m sure it would make things easier to understand if the excess revenue collected by SS over the past 30 years were just stuffed under a giant matress; fortunately we have people who actually understand finance and the dynamics of sovereign debt in charge of the SSTF rather than right-wing demagogues who really don’t care about any of this except as a means of duping Americans out of a stable (if inadequate) government benefit.

The muddled argument in your post seems to show that they are.

180

No, we have exactly the same definition. This is why you were incorrect when you alleged that the SSTF was not going to draw on the general fund to replace the previously spent tax money.

It isn’t claptrap. A bond is an IOU.

Then the situation is exactly as I described. Either the money to pay off the bill came from the taxpayer’s pocket today, or it will come from the taxpayer’s pocket later, with interest. I corrected a previous post about this.

You cannot pay off a debt by using your Mastercard to pay off your Visa bill.

No, everything I have stated is exactly correct.

The government took money from the taxpayer in the form of Social Security taxes. Instead of spending that money on Social Security, they spent it on other things, and issued an IOU that promised they would take the same amount away from the taxpayer again and pay Social Security benefits with it.

You do not retire a debt by paying it with borrowed money.

Regards,
Shodan