Social Security

[Woapalanne]

Excellent points, Eagle. The only real problem with SS is all the money that has been siphoned off over the years for other purposes, replaced with worthless IOUs. BOTH parties are guilty, but I will leave it up to the reader to check which party had total control of Congress when this started in the 60s - 80s.

 

(Edited to repair a typo.)(This message has been edited by Woapalanne)

[scoutingagain]

"replaced with worthless IOUs."

 

Well they are IOUs, backed by the US government. If one has no faith the government will pay back its bonds, don't let the Chinese know or anyone else that invests in savings bonds, or US treasury notes. Borrowed money is the only thing keeping the govt afloat these days.

 

Back in the early 90's when Soc. Sec. was racking up large surpluses Democrat Patrick Moynihan suggested that the payroll tax be sigificantly reduced to avoid the surpluses and help boost the economy. President Bush pretty muched nixed that idea because it would have made the deficits he was running at the time look that much worse.

 

Both parties have used the former surplus to hedge the governments accouting practices and deceive the electorate. If one expects fiscal responsibility from either one of the two major parties, well hows that been working out for yah in the past 50 years? Why would anyone expect either party to change? It's tax and spend or tax cut and spend. But its spend either way.

 

SA

[JoeBob]

OGE - Thank you for tempering my passion.

I probably should have written it out -

 

"Where's The Funds ?"

 

But I admit that I was playing at double entendre...

 

Sorry.

JoeBob

[Oak Tree]

I agree that the trust fund IOUs are not "worthless". The government will in fact pay them. Exactly how they'll do this will be a matter of some concern.

 

But for people who act like there is really a trust fund there, what are you thinking? That money's been spent. Yes, the government will try to pay it back out of operating revenues, but the idea that we're now working our way through a "trust fund" and only when that runs out will we be in trouble, that idea just strikes me as a remarkable exercise in innumeracy (and sometimes purposeful innumeracy on the part of our elected representatives.)

 

Let's say I had a bunch of money building up in my right pocket that I was saving for retirement. I was going to pay for a car out of my left pocket, but I didn't have enough money there. So I took the money from my right pocket and moved it to my left pocket, and put a note in my right pocket saying that when I needed the money, I'd go get it from my left pocket. Then I spent all the money in my left pocket on a car. The IOU in my right pocket is not a "trust fund".

 

Social Security will continue. It might become means tested. It might have its age eligibility requirements adjusted. It might pay out less than it has in the past. But it's not worthless, and we'll get more than zero.

 

And I agree, it has been pretty effective at eliminating extreme poverty among the elderly. The problem with the other safety nets (family, friends, churches) is that they don't catch everyone. But when the government provides a back-up safety net, it quickly becomes the primary safety net. (I reckon it's possible that the same thing could happen with health care, but that's a whole different topic...)

 

So in answer to the original questions:

Is the trust fund real? No, the trust fund is not real. All it is is an IOU we've written to ourselves. There is no actual "fund" in the trust fund.

 

is Social Security a Ponzi scheme? No, it's not a Ponzi scheme in the sense that all Ponzi schemes eventually suffer a dramatic catastrophic failure to pay. Social security won't do that.

 

[or is it the case that] da money that was contributed is gone, spent on government programs, and da future obligations to an ever-larger group of retirees will be taxed (or inflated) out of an ever-smaller group of working young people[?] So this is really a bit different than an actual Ponzi scheme, but I get the analogy. The money is definitely gone. And yes, the expectations of future retirees are going to have to be reduced - by age, by amount, by inflation - or something. Taxes may or may not go up on the young people - but there's no way they can support the coming vast elderly population at the same level things are happening today. Perhaps robots will help make home health care much cheaper.

 

[is this] thereby impoverishing the nation? Not so sure about this one. Social Security is a wealth transfer program, moving money from the young working people to the older retired folks. If we move less money from the young to the old, I'm not sure how that "impoverishes" us as a nation. If it forces people to work longer - either because they have reduced benefits in old age, or because they have higher taxes as youngsters, wouldn't that actually enrich the nation since more people are producing things? On the other hand, if we just go ahead and borrow all of the money from someone else (e.g., China), and then start transferring our earnings to the bond-holders, that might in fact impoverish us.

[packsaddle]

I get paid a couple of times each month. I never see it. One computer makes some numbers in one place smaller and another computer makes some numbers in another place larger. In the transaction, one of the computers (I couldn't care less which one) takes some of the diminished numbers and puts them in other places. When I check my accounts I see numbers. But I know that there's really nothing there but 1001110101110's and if someone 'pulls the plug' it all goes away. I allow myself the illusion that I have multiple bank accounts and that the funds in them actually exist. The only thing that really exists is the system in which someone else is willing to exchange their work or goods or services for some of my numbers. And on and on. But in essence, I teach some young people and in exchange I get food on the table or my home insured or painted or my car fueled with gasoline. The numbers don't exist but they are the currency of the transaction. It wouldn't matter if I moved 'borrowed' the funds from one account and put them in another, or even spent it. The numbers just shift around. It's all smoke and mirrors. There's nothing really there. It IS a house of cards, though, and it has been for quite a while. The people in charge can just adjust the numbers if they want. The actually did this recently. No need for a printing press...just make the numbers in an account bigger.

In this society there are some things that are less real than others. The illusion of an association of those numbers with other illusions like 'security' is laughable. But then, most of us seem to accept it when the bald ego (aka Rush Limbaugh) says, "It's all about money."

 

I remember the day when a president not only spoke about the prospect of paying down the debt but actually had that ability. That was our last chance. We made a Faustian bargain. And I doubt that anyone will be clever enough to out-maneuver Mephisto this time.

[acco40]

Some are not happy with just 1s and 0s. Some feel more secure with a shiny metallic substance that will neither feed, cloth or house them. Yes, we do live in a strange world.

 

Social security was not set up as an account for individuals to invest in and then get payouts when they got older. Yes, that may be the way some have sold it but that was never the intent.

 

An extremely easy fix to social security is to do what they did to the medical portion - remove the upper limit. My FICA falls to zero sometime after the summer. I wouldn't necessarily appreciate that move but I'm sure politicians would be able to say it only effects the rich and it would be an easy sell.

[Beavah]

No, it's not a Ponzi scheme in the sense that all Ponzi schemes eventually suffer a dramatic catastrophic failure to pay. Social security won't do that.

 

Sure it will.

 

That's built in to da law when the fictional trust fund runs out. 2016 or so for SS disability payments.

 

Alternately, it'll happen in da form of inflation, where you'll be "paid" but the amount will not allow yeh to purchase anything.

 

Or, da mother of all... the catastrophic crash is when no one shows up to our treasury auctions, eh? We become Greece, lookin' for a bailout from the IMF, and the IMF's condition for bailing us out is that we end or vastly curtail our social welfare programs. Just like the demands da EU and IMF are making on Greece.

 

Already, not enough people are showin' up to our Treasury auctions willing to pay for our bonds, so the Federal Reserve is buyin' the bonds instead. The Fed is essentially creatin' an artificial asset bubble in Treasuries, the way it did in mortgages and before that in stocks. How'd those work out? Bad for stocks, but people knew those were risky. Worse for mortgages, because people thought those weren't risky. What do yeh think the result will be of an asset bubble in an asset that everyone feels is "risk free"?

 

Beavah

 

[scoutingagain]

"That's built in to da law when the fictional trust fund runs out."

 

Keep in mind, when the trust fund runs out,(and that assumes the government makes good on all it's IOUs) if left as is Soc. Security will still be collecting 13% of the national payroll. This will be enought to pay some 70 - 75% of promised benifits. Small changes, like eliminating the cap on earnings as suggested, combined with limiting future increases to some fraction of the CPI and/or raising the retirement age would be enough to put Soc. Sec. back in the black for the foreseeable future. It's not rocket science. All that's needed is leadership. It's simple, take in a little more money, pay out a little less.

 

Now as I said, this assumes the government makes good on it's IOUs. If congress doesn't extend the debt limit that will be reached soon, the government will not have enough money to pay it's current obligations, forget increased spending. It will have to decide who to pay and who not to. In line will be:

 

The Chinese and other foreign govts that loan us $$ and expect it back.

Soc. Security Recipients

Treasury Bond holders

Savings Bond holders

Government contractors(including defense contractors and everyone who works for them.)

Government employees including the military

Medicare providers

etc., etc, etc.

 

And that will happen within weeks, if not days. At that point to get cash to run the government, we will have to pay interest rates probably 2 - 4 times what we're currently paying, increasing our deficits and debt load even more if anyone will even lend the govt. money. Without the ability to borrow money, government expenditures would drop to probably 60% or even half of what it spends now. Cutting that much money out of the economy cold turkey would likely create the kind of economic disaster we all would feel and Soc. Security will be the least of our worries.

 

SA

 

 

[packsaddle]

Beavah, the question I have is what is the threshold that the treasury must cross with those bond purchases to trigger the catastrophe? Considering the element of psychology and human behavior that influences this, I wonder how close we are right now, and what will it take to collapse that house of cards? But man, once it starts...the last thing anyone will worry about is disability payments or some such nonsense. It could be cataclysmic.

 

We can solve all this with the stroke of a pen. The debt commission had decent ideas but they didn't propose implementation as quickly as I would have liked. Remove the income cap for SS now. Means test. Now. Things like this would have almost no effect on the vast majority of Americans and those who were affected would be well-off enough not to be gravely harmed. OR, just let the entitlements run out and then terminate them. The idea of 'running the presses' to buy bonds is perhaps the cruelest management approach, not to mention dishonest.

I'm not kidding myself, after decades of do-nothing management, we're not going to turn away from so many years of successful self-deceit. Party on!

 

SA, we might even have to cut defense spending. Wow. We spend as much as the entire rest of the planet combined.

http://www.globalfirepower.com/defense-spending-budget.asp

And we might have to cut it. Nope. That's a political third rail, like social security, right?(This message has been edited by packsaddle)

[Beavah]

Beavah, the question I have is what is the threshold that the treasury must cross with those bond purchases to trigger the catastrophe?

 

Nobody knows, eh? Could be ten years, could be ten weeks. My guess is one likely trigger will be one of the rating agencies downgrading U.S. debt, perhaps coupled with an oil price run-up. The rating agencies have signaled the potential for downgrade already. If U.S. debt gets downgraded, that triggers an automatic sell-off by many large pension funds and institutions worldwide that are required by the terms of their charter to hold only highest-grade instruments. That would either be a really big hit or da rock that triggers the avalanche.

 

Good time to start diversifyin' out of dollars. One of da wonders of the modern world is how easy it's become for the average person to hold international currency accounts.

 

Beavah

 

[scoutingagain]

Unless congress extends the debt limit the issue will come forward in a manner of weeks. Even a partial shut down of government payments could result in the kind of rating change on US debt Beavah describes causing the house of cards to come down.

 

 

 

SA

 

 

[vol_scouter]

Packsaddle,

 

I would suggest immediate withdrawal of troops in the middle east. We should never enter into another war unless we have the will to win which we do not with political correct thinking. Case in point, soldiers are getting killed by suicide bombers. Many of those suicide bombers can easily be defeated by making them strip at a safe distance. However, we do not want to offend the sensibilities of the people. If we are fighting a war, we should have more concern for the welfare of our troops and winning. If we cannot do that, then pull the troops out. Also, Europe has been largely defended by our troops since WWII and they can do that themselves so we should pull out of Europe as well. That would allow one to cut the absolute dollars spent and to increase the amount invested on R&D for better weapons and protection for our soldiers.

 

I agree with removing the cap from social security taxes and the SS fund should be taken out of the budget immediately (I believe that President Reagan did that with improvement in the fund only to have a later congress and president rob it again). Get the goverments out of the medical care business and ask the states to enact insurance reforms so that basic policies would be available to all. The states can probably require medical insurance of their citizens unlike that the federal government where it is not a constitutionally enumerated power.

 

So I essentially agree with you and it needs to happen soon.

[packsaddle]

Vol, I think the political inertia is going against removing the troops. When Reagan created Central Command (and Bush later created Africa Command) the underlying motivations for doing this were with regard to the relationship between energy (oil) and national security (as it was all the way back to FDR and every President since has continued the strategy). Therefore, until we become energy-independent (and that's not going to happen within my children's lifetime) we're going to be mired in that tarbaby (this analogy has a nice literal component to it). And the troops, I fear, are going to be called to make even greater sacrifices. It's a Faustian bargain that we made when we agreed to protect 'the kingdom' back in 1945, in return for access to oil, when we adopted the Shah as our surrogate to provide security and then lost him to the Ayatollah, and when we sealed the deal in Desert Storm when we went into Kuwait to protect that same access to oil. There's just too much of this in order to remove the troops. I wonder sometimes, if there might even be an element of the Military Industrialist Complex that actually wants us NOT to 'get' bin Laden, as his presence and actions tend to guarantee more and more spending on the war machinery. Sometimes, I wonder if the ham-handed incompetence of the Bush administration, who knows, might actually have been carefully planned. We may never know for sure.

But like I said before, I doubt we'll be able to outwit Mephisto in this version of the tale.

[vol_scouter]

PackSaddle,

 

I agree with your assessment of our strategy but it seems to me to have been a mistake. We end up supporting dictators and not democracy which makes us disliked in the rest of the world. Perhaps, if oil prices were to rise, we would throught the market place develop other energy sources and finally become less dependent upon foreign oil. We would force an easing on regulations that are too stringent on oil exploration and would start new nuclear plants. So if you can propose things that have a low likelihood of success, so can I. As to your competence remarks, it depends on your viewpoint. Obama had overwhelming majorities in both houses and only got medical care reform passed. I would aver that record makes President Bush several orders of magnitude more capable than Obama.

[Woapalanne]

When I said the SS IOUs were worthless, I mean in this way: If I have some cash, and someone takes that cash from me and replaces it with IOUs that I have to pay, then they are of no value in replacing my money. No value = "worthless".

 

Second point: Eliminating the upper limit will not have any positive effect on the solvency of SS. Why? Your payout is directly based on your pay-in. If the upper limit is removed, the high wage earners will certainly pay in more. But they will receive proportionally more in return. Net long term effect? Zero.