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On Senator Ron Johnson Vs Krugman

Bruce Krasting's picture




 

 

rjpk

 

Paul Krugman had another of his nasty moment on TV Sunday (ABC -Link) when he took on Senator Ron Johnson (R, WI). The topic was Social Security. I want to throw my two cents into this fray.

 

Senator Johnson made the comment:

 

Social Security is in danger of “going broke” unless action is taken. “When I hear people saying Social Security is solvent to the year 2035, it’s not.”

 

Krugman fired back with:

 

Your facts are false. The Social Security thing—Social Security, it has a dedicated revenue base, it has a trust fund based on that dedicated revenue base. You can’t change the rules midstream and say, ‘Oh well, suddenly the trust fund doesn’t count.’ ”

 

Is SS going broke as the Senator claims? Or is Krugman right, when he says that SS is solid because it has a big Trust Fund?

 

There is not much 'out-there' on this topic that could could convince either side. You have the vast majority of the conservative thinkers/writers who have concluded that the SSTF is a sham, and you have all of the progressives who see it in precisely the opposite light.

I would like to use two credible sources on this issue in an attempt to determine who's right. The Office and Management and Budget (OMB) has opined on this, so has the Congressional Research Service (CRS). I think these sources are as credible as can be had. The CRE is supposed to be apolitical, while the OMB is decidedly political. The following information from OMB comes from 2010, a period when Peter Orszag was the boss at OMB. Given that Pete was running the show, one would have anticipated a Populist 'spin' from OMB on the question of TFs; not the case at all.

CRS made the following observations regarding the Trust Fund for the Federal Employee Retirement Fund (FERS). I'm not going to spend a 1000 words convincing you that FERS = SS. (But if PK asks me to, I will). They are very similar entities, they collect revenues, they invest surpluses in Special Issue Treasury Securities and they make benefit payments to covered workers.

 

CRE had this to say about the TF for FERS (Link):

 

The assets in private-sector pension funds represent a “store of wealth” that firms can use to meet pension obligations as they come due. The CSRDF, however, is not a store of wealth for the federal government.

 

Got that PK? The CRE says there is no wealth (aka money) in the TF:

 

The OMB provides more clarity on TFs. From the Budget of the United States Government, Fiscal Year 2010: Analytical Perspectives (Link)

 

Balances in the trust fund are available for future benefit payments and other trust fund expenditures, but only in a bookkeeping sense.

 

Ah! There is no money in the TFs. They are bookkeeping entries. OMB concurs with CRE - TFs are not a store of wealth. More:

 

The holdings of the trust funds are not assets of the Government as a whole that can be drawn down in the future to fund benefits.

 

How many ways does OMB have to say this to convince PK? Another:

 
The existence of large trust fund balances, therefore, does not, by itself, increase the Government’s ability to pay benefits.

 

Is this getting through to progressives like PK? This is not the tin hats talking PK. This is your "guys".

 

Senator Johnson made the statement that the SSTF accounting was similar to a person who writes themselves an IOU for $20, and then somehow believes he actually has an asset. PK objected. This is what the OMB has to say about it; no wiggle room for PK with this:

 

These trust fund balances are assets of the program agencies and corresponding liabilities of the Treasury, netting to zero for the Government as a whole.

 

Got that PK? The Senator was correct. Writing an IOU to oneself nets to zero. If the OMB was the arbiter of the TV debate, it would have said that the Senator had the facts, and Krugman was blowing smoke.

Krugman, on the other hand, is claiming victory. He still believes that the SSTF has real fairy dust in it. He maintains that he alone has the facts. In his typically snarky manner:: (Link)

 

I have to say, it’s extremely telling that conservative Republicans don’t seem able to make their case without resorting, right from the beginning, to obviously dumb fallacies.

 

Who's right? PK or the Senator? Which side is suffering from "dumb fallacies?" This is a critically important point to resolve. Either we continue to live in PK's fantasy land, or we recognize that SS is a here-and-now issue. There is no middle ground. One side or the other is "right" on this one. For the US, it's a make-or-break issue.

 

Note:

Where did the 'money' go that PK thinks is available today? It was spent years ago.

The 'economic miracle' of Bill Clinton was bought with money looted from SS. Bill sucked out $565b in his eight years. No one even noticed.

George Bush really raided SS. A total of $1.5T leaked out during his years. Who 'paid' for Iraq and Afghanistan? SS did.

If anyone is upset about the status quo, they can point to either a Republican or a Democrat. They're equally to blame. But looking backward, and laying blame, is a fool's game. The fact is the money is gone and SS is Paygo today. It's running big annual deficits. SS will produce $75b of red ink in 2013 (equivalent to 10% of the deficit). The deficits will pass $100b in 2016 and explode from there on. The beast is howling - and Krugman thinks it's his cat purring.

 

Smear

 

The

 

Truth

 

 

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Tue, 03/12/2013 - 09:11 | 3322028 Toolshed
Toolshed's picture

I don't understand the confusion here. The sstf gives the money to the treasury in exchange for what are basically iou's. So, since the treasury is obviously quite short of funds and has to rely on the fed printing, at least, $85 billion a month simply to facilitate government operations, how can the sstf, in reality, have any assets of real value? They do not obviously, because the sstf can't cash in it's iou's at will since the treasury does not have the funds to make good on them. It's simply a paper shuffling exercise. The real money is long spent. This is not new. My micro economics professor who was also a supervisor for the IRS informed my class that the sstf money was gone and the trust was holding worthless iou's back in 1996. Anyone who claims that ss does not add to the deficit is incorrect due to this issue. It wasn't supposed to be a direct drain on the federal budget, but due to the incompetence and corruption of our dear leaders, it has become one. When ss revenue is insufficient to cover benefit payouts they are forced to ask treasury to actually make good on the ious's. When that happens treasury has to borrow more money to cover the iou's thereby adding to the federal governments immediate obligations and thus the federal deficit. What's so hard to grasp?

Mon, 03/11/2013 - 19:29 | 3321030 Kina
Kina's picture

Getting a Nobel prize for economics is kinda like getting a Nobel prize for masturbation.

 

Not surprising PK got one.

Mon, 03/11/2013 - 19:12 | 3320988 hooligan2009
hooligan2009's picture

Krugman reminds me of the "leeching" conducted by quacks in the 19th century and before. he will suck you dry and when you die, he will tell your family that you were going to die anyway.

from here with a few choice edits of my own: http://www.britannica.com/EBchecked/topic/750132/leeching

The Krugman leech ("the Krugman") has proved useful in economics because of its peculiar mouthparts and the pharmacologically active substances present in its salivaKrugman medicinalis has three jaws with approximately 100 sharp teeth on each outer rim. The Krugman feeds by first attaching its sucker onto the skin of dumb-ass polticians and central bankers. The mouth, located in the middle of the sucker, opens to expose the teeth, which cut into the politicians and central bankers skin. The saliva of the Krugman contains substances that anesthetize the wounded economy (rendering the bite virtually painless) and dilate the life-blood of the economy via transmission mechanisms to increase economic haemorrhaging to the site of the bite. Krugman saliva also contains an enzyme that promotes a quick dissipation of substances in the Krugman saliva away from the economy. One of these substances is kool-aid, a naturally occurring polypeptide that inhibits the actions of the economy, one of the enzymes that facilitates economic growth. 

 

Mon, 03/11/2013 - 19:05 | 3320978 Solonsays
Solonsays's picture

There is an easy solution here. Social Security Trust Fund IOUs can be redeemed at any time from the Federal Financing Bank or the Federal Reserve. It is just that no politician wants to walk through this door and convert an IOU into a legal note. Let's just redeem the damn notes and the Social Security cash flow crunch is solved for decades. Let's just reconnect the $60 trillion of hidden wealth lying off balance sheet, the real beneficiaries of the Trust Fund loans, to the tax code and miraculously the notes are paid off.

Mon, 03/11/2013 - 18:07 | 3320811 SmallerGovNow2
SmallerGovNow2's picture

Homerun Bruce.  Keep doing what you do...

Mon, 03/11/2013 - 17:26 | 3320672 MrBoompi
MrBoompi's picture

Saying there's no money in the trust fund is the same thing as saying reserves based on treasury bonds are worthless.  If every piece of paper the government has issued is worthless, there is no reason to single out an important program such as SS and cut it, unless your a Republican who happens to hate paid benefit programs.

I'm wondering why Republicans even created the trust fund, then started spending the money they put into it?  All so that a Republican could say the fund is worthless 35 years later?  Probably.

Mon, 03/11/2013 - 19:38 | 3321055 Sun and Moon
Sun and Moon's picture

The trust fund was created by Democrats, you idiot. According to the Social Security Administration:

The Old-Age and Survivors Insurance (OASI) Trust Fund was created pursuant to section 201 of the Social Security Act Amendments of 1939. These amendments also established a Board of Trustees. OASI became effective on January 1, 1940, and superseded the old-age reserve account established under the Social Security Act of 1935.

Of course, Republican politicans were perfectly happy to spend the money supposedly going into the trust fund when they were in power.

The trust fund was created to give people the impression that SS was solvent. Even now, most people probably believe that the trust fund contains money when actually it is just one big IOU.

Mon, 03/11/2013 - 17:51 | 3320764 negative rates
negative rates's picture

Here's a new word for your vocabulary, corruption it's also the answer to your question.

Mon, 03/11/2013 - 17:45 | 3320747 Encroaching Darkness
Encroaching Darkness's picture

"Saying there's no money in the trust fund is the same thing as saying reserves based on treasury bonds are worthless. " Well, yes, they are, ultimately. Maybe not totally worthless, just yet, but we're getting there with every new $1 Trillion we borrow / print.

" If every piece of paper the government has issued is worthless, there is no reason to single out an important program such as SS and cut it," Agreed : cut them all, every program; or just discontinue / cut / end the worthless ones, like the DHS, DOEs, DH&HS, ....

"I'm wondering why Republicans even created the trust fund, then started spending the money they put into it? " FDR started it, he was not a Republican (if that even matters). LBJohnson cranked the stealing into high gear (prior to his innovations, the only real SS thieving was in the form of inflation [unless you're Libertarian, in which case all government "taxation" is a form of coercion, so it's all thieving, "all the way down.."]), and LBJohnson was not a Republican. Pointless at this juncture, Rs & Ds both stole from SS over the years.

"unless your a Republican who happens to hate paid benefit programs." "All so that a Republican could say the fund is worthless 35 years later?  Probably." Since you don't seem to recognise historical Democrats from Republicans, let me help you: all politicians steal, all the time. SS turns out to have become just another Ponzi scheme, this one run by the government; the hapless "marks" being taken in by the "con-men" are called "taxpayers" early, and "seniors" or "retirees" later. The "con-men" wear red and blue jerseys, to help confuse the "marks" and keep them unaware of the "con". 

Please try and keep up, or the "con-men" will keep fleecing you even longer than otherwise....

Mon, 03/11/2013 - 18:46 | 3320917 hooligan2009
hooligan2009's picture

well said

Mon, 03/11/2013 - 17:34 | 3320706 Accounting101
Accounting101's picture

Exactly!

Mon, 03/11/2013 - 16:41 | 3320522 Pike Bishop
Pike Bishop's picture

Why don't we just tweak the law a little bit and use the IOUs to buy MBS.

Then Ben can just buy the MBS.

It has already been proven that bad debt/obligations don't exist. There are only "liquidity problems".

And if $2T extra on the Fed balance sheet is a good thing, then wouldn't $4T be twice as good?

Mon, 03/11/2013 - 16:32 | 3320478 JohnGaltsChild
JohnGaltsChild's picture

Money? What money?

Mon, 03/11/2013 - 16:37 | 3320496 spooz
spooz's picture

What, you think there's a stack of currency somewhere or am I missing the sarcasm?  Do you even understand the operations of the federal reserve, the creators and destroyers of money?

http://www.independent.com/news/2012/feb/25/how-us-federal-reserve-creat...

Mon, 03/11/2013 - 16:40 | 3320516 JohnGaltsChild
JohnGaltsChild's picture

You're missing the sarcasm.

Mon, 03/11/2013 - 16:43 | 3320535 spooz
spooz's picture

story of my life

Mon, 03/11/2013 - 16:21 | 3320404 onlooker
onlooker's picture

Krugman fired back with:

 

Your facts are false. The Social Security thing—Social Security, it has a dedicated revenue base, it has a trust fund based on that dedicated revenue base. You can’t change the rules midstream and say, ‘Oh well, suddenly the trust fund doesn’t count.’ ”___________________________

______ THE FACTS THAT ARE TRUE AND QUESTION THE TYRANNY OF THE STATE ARE ALWAYS FALSE.  ____________

Mon, 03/11/2013 - 17:57 | 3320783 SmallerGovNow2
SmallerGovNow2's picture

Krugman is a tool...

Mon, 03/11/2013 - 16:11 | 3320332 bigkahuna
bigkahuna's picture

Here is the deeper truth:

http://whatreallyhappened.com/WRHARTICLES/ARTICLE2/bankrupt.html?q=ARTIC...

The funding problem is the tip of the iceberg. The SS fund was created not for the elderly and widows to be "secure" in their retirement, it was created to "secure" debt incurred under US bankruptcy to the International Bankers, via the United Nations, the World Bank and the International Monetary Fund.

Thus keeping our society "secure" from the likely violent action taken against us by the international banksters and our own US federal government (federal reserve included here) and HENCEFORTH, YOU HAVE SOCIAL SECURITY!!!

The receivers of the United States Bankruptcy are the International Bankers, via the United Nations, the World Bank and the International Monetary Fund. All United States Offices, Officials, and Departments are now operating within a de facto status in name only under Emergency War Powers. With the Constitutional Republican form of Government now dissolved, the receivers of the Bankruptcy have adopted a new form of government for the United States. This new form of government is known as a Democracy, being an established Socialist/Communist order under a new governor for America. This act was instituted and established by transferring and/or placing the Office of the Secretary of Treasury to that of the Governor of the International Monetary Fund. Public Law 94-564, page 8, Section H.R. 13955 reads in part: 'The U.S. Secretary of Treasury receives no compensation for representing the United States?'

United States Congressional Record May 4, 1992, page H 2891, Senator and Chairman of the House of Representatives Committee on Banking, Finance and Urban Affairs, Senator Henry Gonzalez (Texas) speaking on NATIONAL AND INTERNATIONAL THIEVERY IN HIGH PLACES: 'We are bankrupted. We are insolvent on every level of our national life, whether it is corporate, whether it is just plain you and I out there with the life of debt that we have all piled up, private debt, credit cards and what not or whether it is the government. We are insolvent. How long will it take before that nasty Mega-truth is conveyed?'

 

Bush claimed there was no trust fund. The Ways and Means comittee blocked an investigation:

http://www.buzzflash.com/contributors/05/04/con05150.html

Tue, 03/12/2013 - 03:08 | 3321646 hooligan2009
hooligan2009's picture

as it was in the beginning....

http://www.usgovernmentrevenue.com/yearrev1935_0.html

ad valoren = transaction taxes?

looks like prices were 1,000 times less 78 years ago...cheap as chips! well beans anyway

Mon, 03/11/2013 - 16:41 | 3320526 spooz
spooz's picture

Hard to believe somebody actually gave a thumbs up to such drivel.  Maybe they think the convoluted thinking is beyond their comprehension so it must be right. You touch on a few familiar soundbites to haul them in. Sad.

Mon, 03/11/2013 - 18:35 | 3320874 bigkahuna
bigkahuna's picture

It is what objective research shows. If you have further research that refutes the "drivel" then put your "drivel" out there with your links and let people decide.

Mon, 03/11/2013 - 19:43 | 3321028 spooz
spooz's picture

I'm all about research, but the amount of time it would take to pick apart your pile of crap is more than I am willing to sacrifice.

Your first "research" link is unreadable, it just jumps all over the place with no consistant train of thought, and would take hours to unravel. No idea who the author is, but he says that the Federal Reserve Act, in effect, hypothecated all property of the US to the Board of Governers of the Federal Reserve.  Got anything to back that one up? Here is a quote, which has no basis in reality:

"In return, the Federal Reserve System agreed to extend the federal United States corporation all the credit 'money substitute' it needed. Like any other debtor, the federal United States government had to assign collateral and security to their creditors as a condition of the loan. Since the federal United States didn't have any assets, they assigned the private property of their 'economic slaves', the U.S. citizens as collateral against the unpayable federal debt. They also pledged the unincorporated federal territories, national parks forests, birth certificates, and nonprofit organizations, as collateral against the federal debt. All has already been transferred as payment to the international bankers."

If you have some support for this bit of silliness, please give it.  I really don't have time for the rest, but suffice to say, if that is an example of your "research", you need to find some more "reliable" sources that aren't idiots talking out of their asses.

Mon, 03/11/2013 - 19:55 | 3321090 bigkahuna
bigkahuna's picture

You have not put forth your information supporting the Social Security "Trust Fund" and what you believe it really is - being that you don't prefer my drivel.

Mon, 03/11/2013 - 20:03 | 3321131 spooz
spooz's picture

Here ya go, Ace.  Maybe you should comment in the Talk section here with some of your "original" ideas:

http://en.wikipedia.org/wiki/Social_Security_Trust_Fund

Mon, 03/11/2013 - 21:30 | 3321325 bigkahuna
bigkahuna's picture

From Wikipedia: The week after his State of the Union speech, Bush downplayed the importance of the Trust Fund: "Some in our country think that Social Security is a trust fund – in other words, there's a pile of money being accumulated. That's just simply not true. The money – payroll taxes going into the Social Security are spent. They're spent on benefits and they're spent on government programs. There is no trust." These comments were criticized as "lay[ing] the groundwork for defaulting on almost two trillion dollars worth of US Treasury bonds". The $ goes to benefits and government programs according to Bush. Not sure I would just take dubya's answer at face value.

Mon, 03/11/2013 - 21:46 | 3321336 spooz
spooz's picture

dubya is a chimp. More dubya quotes:

 

"This is an impressive crowd -- the haves and the have mores. Some people call you the elite -- I call you my base."(2000 Al Smith dinner)

 

 "I know what I believe. I will continue to articulate what I believe and what I believe -- I believe what I believe is right." 

 

 "See, in my line of work you got to keep repeating things over and over and over again for the truth to sink in, to kind of catapult the propaganda." --Greece, N.Y., May 24, 2005

 

 "The most important thing is for us to find Osama bin Laden. It is our number one priority and we will not rest until we find him." --Washington, D.C., Sept. 13, 2001

 

"I don't know where bin Laden is. I have no idea and really don't care. It's not that important. It's not our priority." --Washington, D.C., March 13, 2002

"We found the weapons of mass destruction. We found biological laboratories ... And we'll find more weapons as time goes on. But for those who say we haven't found the banned manufacturing devices or banned weapons, they're wrong, we found them." --Washington, D.C., May 30, 2003

"There's an old saying in Tennessee -- I know it's in Texas, probably in Tennessee -- that says, fool me once, shame on --shame on you. Fool me -- you can't get fooled again." --Nashville, Tenn., Sept. 17, 2002 

 "Our enemies are innovative and resourceful, and so are we. They never stop thinking about new ways to harm our country and our people, and neither do we."  --Washington, D.C., Aug. 5, 2004

http://politicalhumor.about.com/od/bushquotes/a/dumbbushquotes_2.htm

Mon, 03/11/2013 - 16:43 | 3320197 poggi
poggi's picture

I don't understand the problem.  All of us probably have bank or MF statement that says we've got some money.  Do we?  We really won't know until we try to withdraw it.  Just like SSTF.  So just keep drawing it out 'til there ain't no more.

Mon, 03/11/2013 - 17:00 | 3320590 machineh
machineh's picture

The bank is a third party, separate from you, who is liable to you for your account balance.

SSTF is a wholly-owned subsidiary of the US government, which is owed money by the US government. In other words, the government owes money to itself.

If you write yourself a promissory note for $1 million and then claim to be a millionaire, you will have the correct analogy.

But good luck with cashing your million-dollar IOU from yourself.

In technical terms, the problem is recursiveness. In accounting terms, parent-subsidiary debt disappears in consolidation.

Mon, 03/11/2013 - 17:41 | 3320737 spooz
spooz's picture

The fact that the gov administers the trust fund doesn't mean its investments in US Treasury securities are worth any less than those held by Carribean Banking Centers, Insurance companies, oil exporters, commercial banks, state and local governments, mutual funds, pension funds, investors, etc.  Just because the gov chose the SSTF to play off balance sheet accounting games with doesn't mean its debts should be ignored.

http://www.cnbc.com/id/29880401

 

Mon, 03/11/2013 - 15:24 | 3320139 Abrick
Abrick's picture

Writing an IOU to oneself nets to zero. The figures on your bank balance, or the paper in your wallet are IOU's. It's all net zero in the end.

Mon, 03/11/2013 - 18:45 | 3320914 Oldwood
Oldwood's picture

Are you saying that the IOU I wrote myself will not work as collateral for another loan from the bank? That just sucks! Hey I'm going to pay myself back just as soon as I can get a loan man.

Mon, 03/11/2013 - 15:58 | 3320258 spooz
spooz's picture

As are the payroll taxes paid into the SSTF.  If they were federal reserve notes stuffed into a mattress, would they be any more real than if they are invested in treasury securities?

Mon, 03/11/2013 - 18:03 | 3320797 SmallerGovNow2
SmallerGovNow2's picture

The FRN's are more real when you buy gold or other tangible assets with them.  Your castle of paper is going down.  Prep accordingly...

Mon, 03/11/2013 - 18:23 | 3320846 spooz
spooz's picture

Okay, you go all in on gold and "tangible assets". I think I'll hold on to some of those FRNs for the time being, since I need them for my living expenses.  

Mon, 03/11/2013 - 15:24 | 3320136 spooz
spooz's picture

Why should only the treasury securities in the SSTF get a haircut? If you think the US should default on its debt, why are you picking winners and losers?

Mon, 03/11/2013 - 19:20 | 3321019 Bruce Krasting
Bruce Krasting's picture

Hi Spooz. Good question.

 

The TF IOUs will not be defaulted on. That would create a whole host of problems. But the redemption of those IOUs can be stretched out over a long period of time. That can be done by reducing benefit payments.

Reducing payments is not hard to do. There are many proposals being considered (Changes to COLA, Means testing, extending the age for benefits etc.)

 

As of today there are $2.7T of SSTF IOUs coming due in an average of 7.5 years. That maturity schedule is too hard to achieve, so the payments have to be stretched out over a longer period - 20 years?

 

Does the debt we owe to China ever get paid back? No. It is rolled over, it is never paid back, 0nly the interest is due. But the principal on SS IOUs has to be paid back in full. It is a very different form of debt. Much more problematic.

Mon, 03/11/2013 - 19:58 | 3321112 One eyed man
One eyed man's picture

Does the debt we owe to China ever get paid back? No. It is rolled over, it is never paid back, 0nly the interest is due. But the principal on SS IOUs has to be paid back in full. It is a very different form of debt. Much more problematic.

That assumes that the Chinese will be happy to leave their money forever in US Treasury bonds which are currently paying negative real interest rates. Maybe one day the Chinese will wise-up and stop rolling over their USTs.

Mon, 03/11/2013 - 20:28 | 3321098 spooz
spooz's picture

Thanks for responding, Bruce.

I guess my problem is, since the trust fund has plenty of assets to meet its current needs and is in no danger of immediate insolvency, why does it get dragged into the budget deficit issue?  Certainly the program will need some tweaking to be viable 20 years down the road, but the political slight of hand games stink like propaganda.

I mean, what's so hard to achieve?  The fed issues FRNs for cashed in securities as needed.  We still need to work on the long term funding, but it shouldn't be part of the deficit debate.

Tue, 03/12/2013 - 00:07 | 3321539 Bruce Krasting
Bruce Krasting's picture

I say it it a here and now problem. It is causing big increases in Debt to Public today. The trajectory is scarry.

And remember, those assets are just debts. The sum is zero.

Tue, 03/12/2013 - 02:35 | 3321611 spooz
spooz's picture

How is it causing big increases in public debt today?  Because of accounting tricks played by the federal government? Sounds like a lot of smoke and mirrors to me, but I'm just a lowly beancounter. Is it just too wonkish for an accountant to understand? 

 Also, I don't think you answered my question on why the federal reserve can't just issue FRNs for cashed in SSTF treasuries. Regardless whether the assets are debts of the US, the federal reserve should be able to honor them.  

I like the idea of cutting the banks out of the money creation business and putting currency issue under the Treasury, as The Chicago Plan suggested.

Mon, 03/11/2013 - 16:54 | 3320579 machineh
machineh's picture

Let's repeat: they are non-marketable

SSTF's Treasuries are the ONLY example of non-marketable Treasuries. Everyone else's Treasuries can be sold on to third parties for cash.

A non-marketable asset by definition has impaired value.

Mon, 03/11/2013 - 17:53 | 3320773 spooz
spooz's picture

Still an obligation of the US Treasury, marketable or not. 

"In the past, the trust funds have held marketable Treasury securities, which are available to the general public. Unlike marketable securities, special issues can be redeemed at any time at face value. Marketable securities are subject to the forces of the open market and may suffer a loss, or enjoy a gain, if sold before maturity. Investment in special issues gives the trust funds the same flexibility as holding cash"(ssa.gov)

So, would it have made any difference if the funds were federal reserve notes stuffed in a mattress?  Same thing, basically.

Mon, 03/11/2013 - 15:10 | 3320079 Shizzmoney
Shizzmoney's picture

Both of these old turds are clowns.

Mon, 03/11/2013 - 15:10 | 3320072 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

SS is not insolvent and will not go broke but like anything there is always a rub.

It is pay as you go. The excess was supposed to be to held in a trust fund to payed out against future obligations.

Here is the first rub the govt. raided all the SS surplus through the years (Clinton WH, Gingrich CG, balanced budgets were a prime example of this). Hence that trust fund has no money in it, they use the excess to buy special Treasury Bonds (I.O.U.'s). I don't know if those bonds pay interest when they come due. It is an IOU trust fund with no real money in it.

With that said as long as they keep pulling in more than they pay out you don't see a cut in benefits. The fact the B.S. aka B.L.S. misrepresents CPI and other inflation numbers to keep down C.O.L.A. on SS payments helps keep the ratio net inflow.

The second rub is when outflow exceeds inflow. That is starting to happen now, I believe last year that was the first time it happened ever (also coincides with 4.2% FICA rate). With that said it doesn't go bankrupt as long as money flows in on FICA. The issue is how do they deal with the reduced inflow and increased outflow (more baby boomers retiring). They either do something like cut the payments equally across the board for everyone and in essence concede they stole the surplus and have no intentions of paying it back or the FED has to step in to backstop the difference to keep up the illusion they didn't steal the surplus money. Either way it doesn't go bankrupt as long as money flows in on the FICA tax.

Mon, 03/11/2013 - 16:51 | 3320571 Encroaching Darkness
Encroaching Darkness's picture

"SS is not insolvent and will not go broke but like anything there is always a rub."  No Ponzi scheme has ever been insolvent - until it fails, spectacularly, losing the participants all their "contributions".

"Here is the first rub the govt. raided all the SS surplus through the years (Clinton WH, Gingrich CG, balanced budgets were a prime example of this)." Right idea, but as pointed out earlier, LBJohnson was probably the first to start the thieving; Clinton et. al. merely improved and continued it.

"With that said as long as they keep pulling in more than they pay out you don't see a cut in benefits." But you do, immediately! As a result of the inflation they ignore / undercount / misstate, the benefits paid are less over time; does $1000 / month in 2013 buy as much as it did in 2000?

"Either way it doesn't go bankrupt as long as money flows in on the FICA tax." So when eggs cost $50 / dozen and gasoline $10.00 / gallon, you aren't actually bankrupt, as long as your $1000 / month is still rolling in? That should comfort seniors immensely.

" It is an IOU trust fund with no real money in it." Yes, and no obvious solution to restore it.

Mon, 03/11/2013 - 18:22 | 3320839 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

From a simple inflow vs outflow position no it never does go bankrupt as long as there is inflow. But you brought up another rub one that seems to get missed in all these discussion which is the social cost of decreased payments and general trust in the system and adminstrators of that system. Me personally I've already given up on the notion of having anything resembling a retirement safety net from SS.

Mon, 03/11/2013 - 16:01 | 3320301 marathonman
marathonman's picture

The Fed will print the money as long as it has some credibility.  The dollar will buy less and less.  The inflation created by the Fed will do the heavy lifting much as it did in Weimar Germany.  The Germans really screwed the French on their bond payments but ignited social conditions from Hell that were paid in blood just 10-15 years later.  SS, Medicare, Obamacare, Municipal bonds, government pensions, student loans are all collectively going to crater the economy.  There is too much debt.  Printing the money to pay for it has always ended badly.  Always.  The Fed will not have different results. 

Mon, 03/11/2013 - 18:27 | 3320858 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

The end result is going to be odious debt forgiveness negotiated at the end of the barrel of a gun or a police state consolidating enough power to force perptual debt servitude in the name of social equality.

Mon, 03/11/2013 - 15:04 | 3320050 Never One Roach
Never One Roach's picture

5 Stars, Bruce!

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