SS Privatizers Say That The Trust Fund Is Meaningless IOU's

[Strelnikov_]

I just do not see how they can honestly advance this argument.

If the oligarchy reneges on the SS trust fund, it will mean that the wage earners of the U.S. have funded the tax cuts for the rich over the last 30 years.


Stopping the Bum's Rush
By PAUL KRUGMAN
Published: January 4, 2005

http://www.nytimes.com/2005/01/04/opinion/04krugman.html?hp

. . .

"So where's the imminent crisis? Privatizers say the trust fund doesn't count because it's invested in U.S. government bonds, which are "meaningless i.o.u.'s." Readers who want a long-form debunking of this sophistry can read my recent article in the online journal The Economists' Voice (www.bepress.com/ev)"

"The short version is that the bonds in the Social Security trust fund are obligations of the federal government's general fund, the budget outside Social Security. They have the same status as U.S. bonds owned by Japanese pension funds and the government of China. The general fund is legally obliged to pay the interest and principal on those bonds, and Social Security is legally obliged to pay full benefits as long as there is money in the trust fund."

"That is, we can't have a Social Security crisis without a general fiscal crisis - unless Congress declares that debts to foreign bondholders must be honored, but that promises to older Americans, who have spent most of their working lives paying extra payroll taxes to build up the trust fund, don't count."

"Politically, that seems far-fetched. A general fiscal crisis, on the other hand, is a real possibility - but not because of Social Security. In fact, the Bush administration's scaremongering over Social Security is in large part an effort to distract the public from the real fiscal danger.

. . .

[chomskysright]

1. 10 reasons why Bush's plan for SS sucks....

TEN REASONS WHY PRESIDENT BUSH'S PLAN FOR SOCIAL SECURITY IS A BAD IDEA

1. WHO WANTS THE CHANGE? Wall Street wants privatization in order reap a windfall profit. Everyone else should be very suspicious. If the stock market goes down, your benefits go down.

2. WHY DOES WALL STREET WANT THE CHANGE? In the background, beyond private accounts, are various proposals to cut guaranteed Social Security
benefits in the future.

3. BUT WE WILL NEVER HAVE ANOTHER DEPRESSION AS IN 1929: wrong: In 1973-74, the stock
market lost 48 percent of its value. The stock market is a very dangerous place to put money

4. WHO DOES NOT WANT THE CHANGE? AARP, the nation's largest seniors organization, is coming out
strongly against President Bush's plan to allow private individual accounts
within Social Security.

5. HOW MUCH WOULD IT COST TO PRIVATIZE SOCIAL SECURITY? transitioning to private accounts could cost $2 trillion.

6. WHERE WOULD THAT MONEY COME FROM? our taxes will have to be increased to make Bush's proposed plan work.

7. HOW EFFICIENT IS THE SOCIAL SECURITY SYSTEM NOW? More than 99 percent of Social Security's revenues go toward benefits, and less than 1 percent for overhead.

8. OTHER COUNTIES MUST HAVE SOCIAL SECURITY AND MAYBE THOSE ARE BETTER? wrong: Chile's system, management fees are around 20 times as high. A privatized system will take money from your Social Security check.

9. SHOULD YOU BE WORRIED THAT YOU WILL NOT HAVE SOCIAL SECURITY? Nothing is going to change, in terms of benefits, for people near your retirement age.

10. WHO TAXED SOCIAL SECURITY TO BEGIN WITH? Ronald Reagan, a Republican, began the taxation on Social Security in 1983.

There is no Social Security crisis, just as there were no weapons of mass destruction. Social Security has provided a lifeline to millions of Americans with
millions of checks, and in more than 60 years has never missed a payment—and this track record can continue. Social Security is basically a sound system
that can meet 100 percent of its obligations for the next 39 years, and with responsible changes it can continue to do so indefinitely

[marcologico]

3. I'd rather die in a bus station bathroom than let a liberal kill a baby

/end irony

[Eric J in MN]

36. Where is that list from? nt

nt

[Yupster]

41. One Reason Why Bush's Plan to partially privatize

social security Sucks.

1. Because even if you amassed a nice retirement account over your lifespan, a two-three year period of high inflation like we had in the late 70's-early 80's will wipe out more than half of your lifetime of savings power. That will happen again some day for sure and it will cream a whole generation of savers, so it shouldn't be done.

I disagree with most of your ten points. I believe they are more scare tactic than relevant facts.

1. "If the stock market goes down, my benefit goes down." Holy crap! In my 401(k), I have the options of putting my money in bonds, a fixed account or a money market. I'm too scared to put any of my 401(k) money in stocks. You mean this plan I'll HAVE to put my money in the stock market???? No, this plan would have those options just like your 401(k) does. I was just trying to scare ya. Did I get'cha?

2. Well yeah, if I get an added private account, I'd assume the guaranteed part would be reduced. That only makes sense.

3. No doubt - the stock market goes up and down. That's why you diversify in stocks, bonds and cash, and if you don't want the risk, you stay out of the stock options entirely.

4. Well I'm not surprised that the old people don't want anyone messing with social security now that they're getting it.

5. That's why it won't happen. It can't be afforded.

6. Our taxes are going to have to go up either way. When 2018 comes around and we have to pay out more than we take in, the only way to make up the difference will be to raise taxes, so they're going up one way or the other - unless they decide to cut benefits or raise the retirement age instead.

7. Interesting I guess. If I buried $ 1,000 under my porch and dug it up 30 years later, the entire $ 1,000 would still be there with no overhead costs at all. That would be even more efficient than social security. I guess that's true, but I don't know why I would care.

8. It's a good idea to see what other countries are doing. Some European countries are probably going to hit their wall a few years before we do. It makes good sense to see how they're responding to the challenge that we know is ahead.

9. For people near retirement or retired, nothing is going to change regardless of whether anything is done or not.

10 Again interesting. Did you know that Confederate General James Longstreet's chief aide was named Payton Manning? That's an interesting fact too. Doesn't have much to do with whether private accounts are a good idea for social security, but those are two interesting facts anyway.

My point is that Bush's plan will no doubt be a bad one. The only way it can succeed is if the other side offers no alternative other than denying that social security needs to change. Most people, especially young people understand that change will have to come. If we bury our heads in the sand a bad proposal will beat no proposal at all.

This is incidently a beef I have with President Clinton. He knew social security will eventually have to be tweaked just like it's been tweaked 4-5 times throghout our history. He had peace and prosperity for eight years and he never took on this issue which he knew someone will have to take on. His was the perfect chance to do it. It will only get harder each year we wait.

[dogman]

2. And stock certificates were used for wallpaper.

If there is no US, what will private accounts be worth? These are Christian values? Once again the flock will be sheared.

[RoeBear]

4. Are you saying...

...that if the USA disolved the private accounts would be worthless?
So would SS and everything else.

[dogman]

10. Exactly.

So what would be the difference between meaningless IOUs and stocks? This is just more GOP scare tactics to justify looting the Treasury.

[sendero]

5. There is a first time for everything...

... because this time I disagree with Krugman. It is all paper, there is no real money. The fact that we'd have to default on other debts to default on SS is moot IMHO.

That said, I'm totally against the "privatization" scheme, it does zero to address the problem.

[DianeG5385]

8. Yes, it is paper in a sense

But when it is taken from our pockets and committed for a purpose then used by congress as their personal piggy bank, I have an issue!
If you carry your theory to it's extreme, every stock that is enriching the wealthy is just a piece of paper. Once people figure that out, the system will collapse.
Gold standard eliminated back in the early sixties. Now you know why.
This is also the reason I want to own my home free and clear asap, so they can't use a piece of paper to take it away from me if all hell breaks loose. Real estate. Given the way this country is going, we may be an agrarian economy sooner rather than later. Thank the pukes for their "End of Days" short-sidedness.

[sendero]

16. Not true...

..." every stock that is enriching the wealthy is just a piece of paper" - sorry, that is simply not true. Each share of stock represents a fractional ownership of a company. Now it is true that some companies have little in the way of physical, tangible assets, but most do.

When the government buys bonds from itself all it is really doing is laundering the money so they can spend it now, and promise to pay it back later. They will pay it back by raising the money through taxation. It is a workable system, if managed well. It isn't being managed well, and the repukes want to manage it even less well.

"This is also the reason I want to own my home free and clear asap" - a laudable goal, one I (I'm not bragging, really :)) have already achieved. In fact, I hate debt and have not borrowed a cent (except for buying real estate) since 1980, when I got really mad about a small loan I needed to buy a car - the company (Aetna) all but lied about the terms of the deal and it sucked big time. I would rather do without and let others pay me interest than vice versa :)

[DianeG5385]

20. That fractional ownership of stock in a company is ephemeral

Depends on how good the management is doing. A stock certificate is just as much a piece of paper as a dollar, and often, just as worthless. Just ask the Enron folks! Making money depends on the character of the ownership. They were mostly repukes. Need I say more? Buy yourself a piece of dirt before it's all gone. At least you'll have that. Get a few hen laying chickens too. You're going to need them.

[sendero]

24. Well..

... I see you are practicing abstract thinking.

I simply don't see a "promise to borrow in the future" as the same thing as a "deposit of dollars in the bank".

Sure, the dollar can become valueless. We can invent scenarios to justify almost any position. Some of them are possible, some are likely and some are simply absurd.

The simple fact is this - our SS system was poorly designed from the start. The Repugs would like to stick a fork in it. Those of us who have paid into it all their lives would like to get our money back. Its viability in the future depends on the government's ability to tax and the populace's ability to withstand taxation. Since taxes are anathema to Repukes, they are trying to find a silver bullet exit.

They won't, and we can't let them.

[DianeG5385]

27. The Fact is That SS was a Masterpiece of social welfare

Anathema to those who believe in the illusion of the so-called free market. It is not free and it has been set up to benefit those who seek to profit on the ignorance of the novice. That is how they have always profited.

The reason they hate social security is that there was no profit built in for them in the system, therefore, no one to rip off. They have spent the better part of 60 years attempting to dismatle it and they are getting close if we don't fight like Jack Russell Terriers denied their chicken bone!

[sendero]

28. On this..

... we agree :)

[TahitiNut]

15. Under the "it's only paper" reasoning ...

There isn't a bank account, pension fund, or insurance reserve that's any different, except that the likelihood of any of them coughing up cash is even less than the Social Security Trust fund.

If the Federal government defaults on the obligations held by the Social Security Trust Fund, there will be an economic meltdown in this country that'll make the Great Depression look like a mere rehearsal. If that happens, I won't even bother to look for a crowd of the like-minded before I go, with shotgun in hand, and hunt federal politicians. Such a default would be far beyond treasonous. The urban riots of the 60's would look like campfire girls in comparison to the many square blocks around any place a corporatist tried to hide.

[sendero]

17. I don't..

.... disagree with a thing you say, but that doesn't change the fact that all the government is doing is buying their own bonds so they can spend the money now.

The fact is, it would be possible to actually save some of that money, just like you and I do in a bank, for the future. That is not happening.

The "privatization" scheme is ostenibly a way to do that - but the catch is that putting it into corporate stocks is no guarantee either.

I suppose if I were king wizard for the day I would save off SOME of the SS payroll deductions in some sort of real, tangible asset, such as precious metals or somesuch.

Don't hold your breath.

[TahitiNut]

31. "just like you and I do in a bank"???

Guess what. That's exactly what they're doing. Anyone that's under the illusion that their savings account with a bank is just sitting there in nice crisp Federal Reserve Notes (aka "IOUs") doesn't know the first thing about banking. Banks are only required, by regulation, to keep an amount of cash (a percentage set by law) on hand to meet their operational needs. The vast majority of deposits are kept in various notes and bonds (i.e. "investments") - just like the Social Security Trust Fund.

Banks invest deposits and earn interest. That's how they can pay interest and cover their operational expenses. Doesn't anyone ever wonder how they pay for those nice expensive buildings and salaries??? :eyes: (They can't do it on free checking accounts, no matter how many they have.)

See http://www.ssa.gov/OACT/ProgData/fundsQuery.html

[Name removed]

42. Deleted message

Message removed by moderator. Click here to review the message board rules.

[hunter]

46. What on earth is a "hard asset?"

Every sort of asset, "real" estate included, has the potential for becoming worthless.

I remember watching the land dissolve under an expensive oceanside home during a storm. That real estate, that "hard asset" suddenly became worthless. I have computers that used to be "hard assets" but now are liabilities because I must pay to have them disposed of as hazardous waste. Here in California it costs me ten bucks to get rid of an old computer monitor or laptop.

There isn't anything humans do, nor anything we own, that has any "intrinsic" monetary value. It is ALL bookkeeping.

Social Security is indeed an IOU, but it's not the sort you make it out to be. It is a promise to take care of those who come before us, and it is achieved by a bookkeeping device that has proven itself over several generations.

[Name removed]

48. Deleted message

Message removed by moderator. Click here to review the message board rules.

[Porcupine]

35. The Gov't. could buy stock in Enron, PG&E and Worldcom....

all companies that were producing dividends and services just fine until Bush's buddies looted them.

They will likewise loot any other large chunk of stock for their own benefit. That's the idea. We take your money, invest it in corporations we control, sell the company a bag of air equal to the value of the company and leave.

Old folks have one bag of air; BFEE gets even more money.

If I meet Ken Lay I would be hard put not to kill him on the spot.

[DianeG5385]

29. Make sure you own your house

That's all you will have if the system collapses and I fear it may if Bush enacts his policies and we don't get tax increases

[TahitiNut]

32. Many would lose even that.

Under a SS default scenario and the resulting chaos, it's highly unlikely any insurance companies would (be able to?) pay off for houses burnt to the ground. The SS default scenario is why people buy gold. And that's one of the reasons people watch the market price of gold - when it starts climbing like a Saturn rocket, run for the hills.

[DianeG5385]

6. It's only meaningless because they spent it on

tax cuts for the rich and famous and their vanity war! It's real money we paid over....we need to ask, where the hell did the money go??? It's only IOU's when you forget that it was backed with real money we forked over. The congress be warned, we will not fall for this crap. Where the hell is MoveOn.Org and AARP? We need to get out ahead of the repuke media campaign before these guys destroy our last bastion of safety and security.

[Strelnikov_]

9. Maybe We Should Start A Pre-Emptive Class Action (Shareholder?) Suit

That would shine some unwanted light on their privatization arguments.

[DianeG5385]

12. I like this idea. We need to sue Congress

for misappropriation of funds! We must not take this lying down!

[Strelnikov_]

21. It Would Go Nowhere In Court, But Would Really Get Exposure

and possibly illuminate the scam being foisted on wage earners in this country.

[HuskiesHowls]

11. Remember in the 2000 debates all the talk about the

"Social Security Lockbox" and how moneys put into the Soc Sec trust fund would "never" be used for general fund purposes or anything??

Well, I guess maybe that was just another bunch of bushit

[davekriss]

22. Did you mis-remember?

HuskiesHowls says,

"Social Security Lockbox" and how moneys put into the Soc Sec trust fund would "never" be used for general fund purposes or anything??

Well, I guess maybe that was just another bunch of bushit

The man who proposed the "social security lockbox" and promised the trust fund would never be used for general funds was de-selected by the SCOTUS on December 12 2000 despite winning the election. Instead, bushit (as you rightly call him) was appointed in what amounts to a bloodless coup.

Despite knowing that Bush intended to usher in the "ownership society" (as in, "we own ya' now, suckers!"), enough Americans voted for him to allow a second election to be stolen, this time not requiring SCOTUS intervention (not needed just yet, anyway).

Despite being the first President since Herbert Hoover to lose jobs during his tenure; despite being at very best asleep at the wheel on 9-11; despite letting Osama and Mullah Omar hightail it into hiding; despite bankrupting the nation with two caste-building tax cuts for the rich; despite lies about WMD and yellowcake and radio-controlled buzz bombers about to spray anthrax over Kansas; despite outing Valerie Plame; despite lying us into an illegal, immoral, and unnecessary war, with its 1,300+ military dead and countless maimed, its perhaps 100,000 Iraqi dead, and its hundreds of billions of dollars in lost treasure ... despite all this, the exit polls still showed 47% of the American voting public voting for Gee Dubya. We left it close enough to steal.

How could that many vote for the worst American President ever? Shame!

[HuskiesHowls]

7. Privatization is VERY VERY Bad!!!!

Here are a couple links:
http://www.socsec.org/

http://www.cbpp.org/12-13-04socsec.htm
This link talks about the hocus pocus going on with all the talk about "saving" $10 trillion by "spending" the $2 trillion now....which is all a bunch of....well, honestly...bullshit!!!

And a couple more articles:
http://www.cbpp.org/

[Bozita]

13. Mike Thompson toon on privatization

[dweller]

14. and another cartoon

dp

[leesa]

18. Privatization has been a disaster in every arena it has been applied.

So the privatizers want to put BIGGER IOUs in the pot? I'm pissed because I am going to retire and the money I paid in will go to my seniors and the money from the generation below me will have gone into the pockets of Wall Street thugs.

[ArkDem]

71. You are absolutely right. All property and business should be

owned and controlled by the people!

[Chicago Democrat]

19. My pet theory - THIS IS A DISTRACTION!

A non-starter. Are you kidding? Like the Hydrogen car and the trip to Mars. Smoke and mirrors. A distraction from the real bad news.

[marcologico]

23. baloney, this IS the real bad news! n/t

[bpilgrim]

25. who'd be suprised if the neoCONs have already stolen everyones money?

not me!

peace

[marcologico]

26. Oh hell they already have, remember Clinton's surplus? n/t

[marcologico]

30. They are 100% serious and don't expect to encounter resistance.

This administration exists to transfer wealth upward and the SS raid is only their most blatant Enronization of the U.S. Who do they think is going to stop them?

[Mike Niendorff]

33. Just like a lot of investment portfolios

Funny thing, though, that I don't hear CNBC referring to bond traders as "traders of meaningless IOUs". Go figure.


MDN

[neebob]

34. I was talking to my mom on the phone today

She's a raging wingnut, don'tcha know, but we've been having successful conversations lately. So launches into this longass rant, out of the blue, with no provocation whatsoever, about how she hopes they pass the private account thing and there's no lockbox and blah blah blah. Uh-huh, okay, whatever. Not in the mood. She must have gotten it from Fox.

[Yupster]

37. The trust fund is meaningless IOU's

In fact, let me say two things

1. Privatization is a very bad idea.

2. The trust fund contains meaningless IOU's.

It seems some people here think both of those things can't be true.

Here's how the trust fund bonds will become worthless.

In 2017 the Congress will pass the "Unified Budget." That will make social security part of the general budget. The payments will become obligations of the treasury.

Just with that accounting change the bonds will magically disappear as the budget can't owe money to itself. The asset and liability will cancel themselves out and the bonds will disappear.

Then congress will raise taxes and raise the retirement age like they always do and social security will be fine for another generation.

But the bonds in the trust fund are worthless. They will eventually be ledgered out in an accounting trick.

The only value they have is in letting congress loot the social security surplus.

If the surplus was kept in CD's or life insurance separate accounts, it would have meaning since it would be away from congress's reach, but as it stands now, it is truly without worth.

[hfojvt]

38. There are only two ways for an IOU to be meaningless

Either the borrower is unwilling to pay them back,
or the borrower is unable to pay them back.
Which of those two scenarios do you think will hold in 2017? How can you be certain of either scenario?
Also, what happens when a borrower becomes unwilling or unable to pay his/her/its debts?
People stop lending money to that borrower, or if they do lend money to that borrower, they demand much higher interest rates to compensate for the increased risk of default. Simply put, the US Government and the world financial system cannot afford to have the US Government default on its debts.

[Yupster]

40. Okay so let's say I have a new car fund

I put $ 100 in my drawer in an envelope labelled "New car fund" each month.

When I have $ 14,500 in there I decide to buy the new car, but I really want air conditioning, so the car costs me $ 19,500.

No problem. I put an IOU for $ 5,000 in my car fund drawer and take the money out of my bank account.

A month later I repay my car fund drawer its first $ 100 so I now only owe it $ 4,900.

As a financial advisor I can truthfully say this is not a bad way to budget though I'd use money markets instead of an envelope in a drawer.

Anyway,

My wife gets mad, calls me an idiot and rips up the IOU. "What are you doing, borrowing money from yourself and paying yourself back. Don't you see what nonsense this is," she opines.

As the pieces of paper hit the ground coffee in the garbage, I moan "Nooooo. Now no banker will ever loan us money. My co-workers will lose their faith and credit in me. What will we do now."

It was only when I was dumping the trash in the dumpster that it hit me. The mortgage would still be paid just like it always had. The other car payment will still be made, and I will still be pre-approved twice a day. No one cares whether I pay myself back or not.

Look, borrowing money from yourself is just an accounting gimmick. It is not real. No one will care whether it's ever paid back or not as long as the social security checks go out and people who want to cash their bonds in are getting their money.

The world will go on just fine except for the fact that hundreds of billions of dollars will have been looted from the social security trust fund by congress and it will never be seen again.

[hfojvt]

47. which part of "will not pay" have you refuted?

The Government is not one person borrowing money from itself. It is borrowing money from the working people of Generation-X and younger Boomers. True, it CAN shaft us perhaps without destabilizing the financial system, but that still does not mean that the IOUs are worthless.
I repeat, they are only worthless if the Government decides not to honor them, or if the Government is unable to honor them. They are not worthless by definition.
Looting the trust fund is not happening in the privacy of a household, it would happen in full view of other creditors. Most of the financial system is "just accounting gimmicks" and its continued operation requires the majority to have faith in it. If too many people start shouting "this isn't real, you are all just a deck of cards" then the system will collapse like a house of cards.

[Yupster]

55. This is frustrating, but I'll keep trying

No the government is not one person borrowing money from itself. It's an organization borrowing money from itself.

When you say "only if the government decides not to honor them," I'd like you to think of "honor what?"

No one cares if the government honors its bonds to itself. People care will the government honor its promise to the seniors to send them social security checks. Isn't that right?

Yes, the government will honor that obligation with some tweaking once a generation or so. The congress will see to it that the checks always go out on time.

But that has nothing to do with any bonds. The bonds are meaningless. The checks will go out because congress wants them to go out. If it means taking money from the general revenue, then that's what will be done. That will happen if there are bonds or if there are not bonds, therefore the bonds are meaningless.

The quote "looting the trust fund would happen in full view of the creditors," is a peach. You act like it's something we need to watch out for in the future. Look, the trust fund is already empty. It's already been looted. There is no money in it. It's not pining for the fields or sleeping. It's a dead parrott.

Jeepers.

[hfojvt]

61. I share your frustration

And it seems like we have very little disagreement really. "Honoring the bonds" is the same thing as "honoring its promise to seniors". Only I would say workers because the promises are being made to people who are not currently seniors.
However, your semantics of calling the bonds "worthless IOUs" is to me the first step down the road of "not honoring the promises made to workers". The bonds are not meaningless, and the money is not coming out of general revenue. It is a repayment of the money that was put into general revenue. It needs to be seen in that light to refute the people who would ratchet taxes up on working people rather than tap into general revenue.
The trust fund is only as empty as the integrity of the Congress and the President. Which as it stands, is pretty empty, but that is not a fact of accounting, it is a result of Republican fiscal policies. The money has been spent or borrowed, but it is not looted until Congress refuses to pay it back. People who ask "pay what back?" are only enabling the theft.
Srepeej.

[Yupster]

62. So in practicallity, the bonds are meaningless, but

they are important as a sort of symbol? Is that what you mean?

I'm trying to understand.

I know the bonds have no relationship at all to what benefits people will or will not get in the future. That depends on the votes of congress and if congress votes to cut the benefit 10 % it won't matter if there are bonds or not bonds, the benefit will be cut 10 %.

I guess it's just meaningless to me, but if others think the symbol of the IOU is important then that's okay I guess.

[hfojvt]

63. symbolism has its practical uses

I believe the bonds have a direct relationship to what benefits people will or will not get in the future. Those who say "the money has already been spent, and the bonds are meaningless" use that as an excuse to massively cut benefits or massively raise taxes on my nieces and nephews. I say that Xers have a claim on the general fund just as surely as any other bond-holder. As I demonstrated, I will not easily relinquish my claim.

[Yupster]

64. No problem

I'm not one to argue against symbols

[TahitiNut]

44. Uh-huh. Just like a "Federal Reserve Note" is a meaningless IOU.

:eyes:

[Inland]

50. Why, then, social security is fully funded!

As Krugman points out, one can't have it both ways. If Social Security "fund" is just an accounting trick separating fed obligations in a meaningless manner, then the only way for SS to be insolvent is for the entire fed government to be insolvent.

But of course, it isn't meaningless. The intent of the SS fund was to show the agreement to have a dedicated fund for a specific purpose, to show the determination to set aside money for SS. And, as shown above, to limit the amount of total benefits to total receipts.

To use your example, sure, the cigar store doesn't care that you used the family's vacation fund to pay for your new humidor, but your mortgage, but your wife has the right to kill you for taking money you had agreed to be used for a specific purpose and spending it on someothing else..

[Yupster]

52. Correct - the only way for social security to be

insolvent is if the US government went insolvent, because social security is an obligation of the US government. It's a promise. It needs to be adjusted from time to time because sometimes the government overpromises, but the government (congress) will keep its promise to a good extent.

However, don't you see that that makes the bonds meaningless?

The congress will send out the same checks if there is a gazillion dollars in the trust fund or if there is not a penny in the trust fund. It doesn't matter.

The congress will payout what it decides to pay out and from time to time it will change the formula to figure the payouts either by raising taxes or cutting benefits or raising the retirement age.

All that will happen regardless of whether there are bonds or not.

The bonds are meaningless. They are a mirage.

Now if the congress raises the retirement age or raises taxes, we could all go out and boot out all our elected representatives. Maybe we will, but that still has nothing to do with any meaningless IOU's saying one part of the budget owes another part of the budget money. In the end it all comes from the same place anyway.

[Inland]

57. The bonds aren't meaningless--the fund represents the promise of the gov.

the promise when they took the payroll tax from the very poorest of Americans, that they would use it for social security.

You are saying it doesn't matter if social security is fully funded or not, as long as the government decides to default on its promises it made as it reached into my pocket. The government can steal the taxes, steal the bonds, screw us on benefits. That may be true. But the promises aren't meaningless just because they are broken, no matter how many times and how many ways the republicans are telling us they are going to be broken.

The day the bonds and fund is zeroed out by pubbies is the day we know they stole. That has all the meaning in the world.

[Yupster]

65. The formula has changed every single generation

and it will change for yours too. It's a good thing. It means people are living longer.

My grandfather paid 2 % so his father could get a check.
My father paid 8 %
I pay 15.8 %
My kid will pay 22 %

That's just the way the system works and the bonds are immaterial to it.

[Inland]

68. No, the formula changed in 1983.

Prior to that, the payroll tax rate was only enough to pay benefits on a year to year basis.

Then there was a decision made for payroll taxes to increase to an amount well over benefits.

The further decision was to segregate the SS surplus as a fund holding instruments backed by the USG and use that surplus to pay benefits.

If the bonds are not paid, or the proceeds of the bonds used for any other purpose besides the promised SS benefits, the entire exercise of placing a huge tax on the backs of the working poor--so that up to 15.8 percent of the first dollar of their crap wages is taxed, and that the largest tax on lower income americans is social security insurance--is nothing but a huge fraud.

Huge frauds on working Americans is not how the system works. SS has been a promise kept longer than any other program. Bush isn't attempting your everyday fraud. This is the capstone fraud and theft of the conservative movement. Strikes me as meaningful.

[mdhunter]

51. So let's launder them now and the problem is solved, right?

[Yupster]

53. The problem is that starting in 2018

we will collect X dollars each month from payroll taxes and we will have to send out checks of X + billions of dollars.

So the government will have to come up with billions of dollars a year more than they need to come up with today.

So, how can the government get the ratio back into alignment?

Raise taxes?
Cut benefits?
Raise the retirement age?
Raise the income cap?
Force exempt employees to rejoin social security?
Probably 2-3 of the above?

That's the problem. It's not a crisis, but it's a problem. Some president and congress will have to step up to the plate and choose a couple of those options and probably lose some seats in the congress because of it, but that's the problem.

Notice bonds don't appear anywhere in the equation because they're meaningless to the problem and the solution.

[Inland]

69. You just went back to using the fund you said was meaningless

If the SS fund is meaningless, then what is it about 2018 that requires raising the retirement age or cutting benefits?

If the taxes collected for SS aren't really a dedicated fund, SS is just one more liability in a government that runs a half trillion dollars deficit with a payroll tax, a new Medicare drug bill, a war or two, and a military to rebuild. If the benefits are just another cost, and the payroll tax just another way to fund government, then there is nothing about 2018 that is magic at all. Fact is, the shit is already hitting the fan, the government is in crisis, and there is no reason to pick on retirees as the people to be impoverised in order to have another tax cut.

[Inland]

60. That's what Bush is telling you. Message received.

Bush is going to wave his hands, make the promise of Social security disappear and balance the budget on the backs of wage earners and the payroll tax.

[BrotherBuzz]

39. Why do privateers insist on calling it privatization?

I think we should refer to the Bush SS privatization plan as piracy plan because that's exactly what it is. ;)


privateer n.

1.A ship privately owned and crewed but authorized by a government during wartime to attack and capture enemy vessels.
2.The commander or one of the crew of such a ship.

(in this case I think the enemy vessel is us!)

[TahitiNut]

43. I completely agree.

Indeed, any 'privatization' of federal services is virtually identical to the privateers of the 18th and 19th century who were, after all, the "privatization" of the Navy. I would include in this the 'security contractors' in Iraq and the over 80% of the Department of Energy which is composed of contractors. A privateer is someone who engages in acts of war for profit.

The only distinction between a privateer and a pirate is that the privateer was a pirate with a Letter of Marque - a bit like a government contract. In other words, take away Halliburton's contracts and they're still pirates. I would personally like the term "Bushwhacker" to assume new currency to describe the cronyism of this Regime, but piracy serves quite well.

[ThomasJackson]

45. past performance is no guarantee ........

the standard mutual fund disclaimer about prior performance.

just so's everyone on the same page, talking about SS from a "cash flow" rather than an "assets held" point of view is most illuminating. the "treasury securities" in the SS trust fund are not "real" Treasury securities in that the Trust fund can't sell them to raise cash, unlike the Treasuries held by Fannie Mae and Freddie Mac or foreign governments, etc. They are legal obligations of thefederal gov't, but cannor be sold in the market. For those worried about the overall defecit, this is critical, because the ONLY way for the SS trust fund to convert these "assets" into cash money is to redeem them from the US Treasury. If you haven't been keeping up with current events ..... WE DON"T HAVE 3 trillion dollars with which to redeem those securities. Soooooo ..... if you don't like the current 500billion dollar defecit, how will being 3 trillion dollars in the hole feel?

Look, I'm not saying that private accounts are a great idea....BUT doing nothing is not going to fix Jack. And raising taxes only plugs a bit of the hole ..... still lots of room for improvement. So, lets have a rational discussion about how to deal with the issue, not stick our heads in the sand and hope it goes away.

[Inland]

49. So the bonds are worthless IOUs because the republicans won't pay them.

Fact is, and as Krugman points out, we don't have the money to redeem the bonds that have been issued to private holders, either. We are going to service THAT debt with future revenues, and to date, that's been good enough. Nobody has yet to call those bonds worthless.

Yet, the republicans are telling us something. They have no intention of honoring the promise to pay the SS sec benefits, even if that means defaulting on the bonds held by the SS trust or diverting future revenues from benefits.

Frankly, hoping the problem goes away is a better way to deal with the issue than what Repubs are doing, since the issue is a shortful and the Reublican "way to deal" is to further divert revenues from the system.

[Yupster]

54. Congress will honor its promise

to pay the social security recipients, though there's going to be a cut or raise down the road somewhere. Congressmen know their jobs depend on it. They are also mostly decent people who know people's lives depend on it.

Notice that has nothing to do with bonds though.

Congress will send out what they can or decide to and if there's a shortfall from what they take in and have to send out they'll just make up the difference from the general fund.

Bonds has nothing to do with it.

[Inland]

58. No, the bonds and funds are the accounting tools

We already know the deal that was made in 1983 and reaffirmed in every penny taken in payroll taxes that more than tripled in that time.

That fund is for social security benefits. It is going to be repaid. That's the deal.

When republicans say the bonds are meaningless, they are telling us that the day that the benefits stop is right now. They don't care about the thousands of billions collected for the sole purpose of sociat security benefits. For them, the someday is now--they want the payroll tax to be a tax for general operations so that a flat tax on wages supports the government. I don't.

[txaslftist]

56. Exactly... The republicans don't intend to honor the ious...

Won't that come as a surprise to the Chinese who own something like 80% of all outstanding US bonds?

So much for gov't bonds being the safest investment around.

[Inland]

59. Oh, no--they wouldn't screw foreigners. Its Americans who are screwed.

We aren't going to get our social security benefits. Those bonds, bought with payroll taxes, are going to be repaid, with the money not going to benefits but to the general funds as republicans stea; THAT money.

How dare you accuse the US of wanting to screw the Chinese. They have bonds, bombs and clout. Bush will screw poor old Americans. So there.

[Yupster]

66. The Chinese don't care

whether we send out sicial security checks from the general fund or the trust fund.

Why would they care?

[Inland]

67. I guess you missed my little joke.

The USG will pay the bonds held by the Chinese. It is the Americans who will get screwed by Bush ending benefits.

[ThomasJackson]

70. god help us ... what idiots.

nobody here seems to get it. we all bemoan the size of the defecit.... "putting our children in debt" yadda yadda.

yet nobody seems concerned that by DOING NOTHING we are going to saddle our grandchildren with 3 trillion dollars in additional debt just to redeem these bonds in the SS trust fund. AND ... after doing that, the fund is solvent only till 2040 after which benefits would have to be reduced to 75 or 80 % of what's scheduled.

the bonds in question don't mature until begining in 2018 so "the republicans won't pay them" is crap ..... unless you are predicting that they will still hold the white house and congress in 2018.

[Inland]

72. No, it is no additional debt at all

There isn't any "additional debt to redeem these bonds in the SS trust fund." The debt already exists--the bonds represent borrowing by the USG to cover this years' deficit and prior years deficits. If the SS system didn't own these bonds, somebody else would, because Bush has turned a surplus into a huge deficit, to be made larger by more spending and further tax cuts.

Fact is, all the USG is going to do is pay off the SS bonds by borrowing from another source, that is, by selling a different set of bonds. It isn't the best plan--the best plan would have been to continue on the Clinton vision. But Bush is going to run half-trillion dollar deficits every year forever.

The only ADDITIONAL debt would be incurred if the benefits weren't cut if, and it is only an if, the SS fund runs out. So cut the benefits in 2050. I'd rather take a chance that my pension will be three quarters of a pension than any of the harebrained schemes and outright frauds suggested by the "reformers."

[ThomasJackson]

74. think cash flow not assets held

we had cash - 3 trillion bucks fron SSI taxes - and we spent it. that is to say used it to reduce the size of this year's and past year's current budget defecits. we replaced the cash with a chit - the quasi-bonds. quasi because the trust fund can't sell them in the market to raise the cash. this borrowing was not in the credit markets, but rather, was "internal" taking money from one pocket and putting it in another. that's why the current defecit isn't bigger than it is .... it's been "padded" with SSI $. ( as have past years back to '83 i think )

in 2018, the SS trust fund is going to need cash money, greenback dollars to pay benefits due. it has no $ and needs to redeem these q-bonds. where does the treasury get the $? they sell --IN THE MARKET - real treasuries. that is to say , that borrowing will show up i that year's current budget. and it's not easy to float that much paper. can you say "crowding out"? high interest rates etc.

my point is that borrowing from the credit markets is "real" borrowing up to now it has been a kind of accounting artifact.

lastly, a question. does the debt owed to SS even show up as part of the "national debt" figures ... i don't know.

[Inland]

75. I don't think we disagree

Perhaps the government isn't undergoing any "real" borrowing of SS funds, but it is still borrowing--IF the funds are committed to paying a long term liability, THEN the deficit in the general fund is just as great and the real debt is just as great if the bonds were borrowed elsewhere and the SS funds invested in German instruments.

The accounting of the federal government for deficits does not account for, unfortunately, the SS surplus or the SS debt. But it isn't hard to back it out for purposes of discussion.

On the date that the SS system pays out more than it takes in (now estimated 2018, as the date that keeps moving back as the worst case scenario keeps failing to occur), there is a change if and only if you never considered the SS funds dedicated to SS benefits. That is, if you treat SS as a separate fund, and therefore as if it were a separate entity lending money, then all that is happening is that the government has to sell bonds to someone else to pay the bonds coming to maturity. Since this occurs every day, one has to wonder why this refinancing suddenly becomes a problem. And the reason is, that the republicans, in thought and deed, have already ended the benefits and have no intention of using what little purchasing there is left in the world for US debt for that purpose. Whatever purchases of debt are left are going to go to tax cuts, not SS. SS isn't the problem. Refinancing the bonds aren't the problem. It is the resistance to paying the benefits that's the problem, and the resistance only comes because republicans want to renege on the promises made when a huge tax burden was added on the working man and woman. The republicans are the problem.

2018 only becomes a "change" if in your mind you have already considered the payroll tax as just another deposit into the general fund and don't want the benefits paid. Or, the accounting has fooled you and you don't realize just how badly the USG's finances have been mishandled by Bush, and then the "change" is less about 2018 and more about a hard slap of reality changing your perceptions.

[nadinbrzezinski]

73. Frame the debate

privatization sounds good, destruction does not... use the term social security dismantlin gor ss destruction.