Social Security Fun Facts - FB meme

FB friend Klaus shared this: The discussion that ensued is between me and a former member of the House of Representatives.

If you want the government to stop messing with social security, comment yes, share and add your name to our petition: https://actionsprout.io/095C34

Credit: Public Domain. Changes: cropped, resized, text and logo added. Original:http://maxpixel.freegreatpicture.com/Eyes-Man-Portrait-Hand…

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Me: If it's because of a separate column on a spreadsheet that Social Security doesn't add to the debt, then true. However, any money owed by the government, no matter what budget item it is, is debt. 

And SS has nothing but bonds in it, which are debt instruments. There is no surplus. It has been taken out of SS and put in the general budget, and the general budget is where the money to pay off the SS debt will come from. 

So SS DOES add to the national debt.

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 · July 27 at 9:32pm

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Rick: Facts are this: Medicare represents 12% of the federal budget. 41% of the revenues to fund it come from general fund - thus part of the national debt. 38% comes from payroll taxes. And 13% comes from premiums. Rest comes from other sources.

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 · July 28 at 4:37pm

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Rick: Social Security does have a trust fund holding government bonds that pay interest. It's balance is about $2.5T. But the estimated (discounted to present value) liabilities of the social security system exceeds the trust fund AND the anticipated income from present payroll taxes by about $10T.

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 · July 28 at 4:40pm

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Me: These bonds cannot be considered an asset, since they can only be sold to the SS trust fund. Social Security's own website says, "all securities held by the trust funds are 'special issues' of the United States Treasury. Such securities are available only to the trust funds." 

Thus, any interest they pay is a is a gimmick.

A bond is a debt instrument. The trust fund contains bonds, thus is funded by taxpayer debt.

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 · July 28 at 4:47pm

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Rick:  Rich, It is debt. Not marketable. But actually earns interest at a higher rate. The treasury has been redeeming them right along, so I think they are an "asset of the trust fund" but can only be paid of with treasury borrowing the money elsewhere. When you hear the term "public debt" they are excluding the debt to the trust fund.

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 · Reply · July 28 at 5:34pm

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Me: Rick, Public debt or not, it's still debt. And interest paid by the government to the government is as Mr. Frank said, a shell game.

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 · Reply · 15 hrs

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Rick:  It is true. But what other assets would you have the trust fund hold?

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 · Reply · 14 hrs

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Me:  Rick, The assets should be cash. Or actually, SS should be dismantled for deceiving the American public (among other things.). 

Again, the bonds are not assets, they are debt instruments used to fund the spending of the rest of government. They have no value at all, because they are not subject to market forces.

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 · 12 hrs

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Rick: Rich,  So if your premise is true, that debt instruments of the US government are not assets to the party holding them, that means every bank, every insurance company, every money market account and every pension in America is broke. 

If the government held the trust fund in "cash" it would be then holding it in federal reserve notes. A debt of the federal reserve that pays no interest. And to do that the federal reserve would have to increase the number of dollars in circulation. Why? Because there are presently only $1.4T total currency in circulation. Since the trust fund is around $2.5T the money supply would have to be increased by $2.5T. 

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Me: Rick, You persist in holding to a fiction. Apparently you have forgotten that I quoted the SS website: "All securities held by the trust funds are 'special issues' of the United States Treasury. Such securities are available only to the trust funds." Thus there is no comparison between these bonds and other bonds that are actually marketable bonds that are bought and sold on the open market.

These bonds are a fiction. Only the SS trust fund can buy them. The interest is fiction. It is paid by government and borrowed right back government and spent. 

Actual cash would be an asset. It doesn't matter that cash in a can doesn't pay interest, since the bond interest paid by the government is simply moving government money from one ledger to another and then right back again.

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 · 9 hrs

Rick:  Rich, The treasury has been redeeming these bonds every year since 2011. That's when the tax revenues fell short of the costs of benefits. And it will continue to do so. At least so long as it can replace those debts with other debt. Just as it does when other treasury bonds come due. They roll them over. While I agree with your concern that we have far too much debt, I can't agree with the notion that those bonds aren't assets. Because they are assets.

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 · Reply · 3 mins

Me: Let's try it this way. Suppose I live with my parents and they support their deadbeat son. Every time I need money I take my dad's wallet from him and help myself to some money. 

I decide dad could use a vacation, so some of that money I designate "dad's vacation fund," and put it in an envelope. I tell dad I'm helping him put money aside for his vacation, because I care more than those other evil guys on the other side of town who are throwing old people out into the street. 

I spend all the money I took from him, and I also run up a bunch of debt. Then I get a clever idea. Why don't I use the money from dad's vacation fund? It's a ton of money, and it's doing nothing. I've gotten a lot of criticism for running up debt, so if I could figure out how to get that money out of the envelope, I could spend that money instead of borrowing it the usual way. 

First, I will designate the vacation money as off budget so it seems like it's completely separate, and also so it won't actually be labeled as debt. Then, I will simply write dollar figures on little pieces of paper and put those in the envelope to replace the money. 

In addition, I'll tell dad that these slips of paper are investments because they pay interest. It's doubly clever because the interest I pay to the envelope is money I got from dad's wallet. Of course, I immediately take that interest out of the envelope, replace it with another piece of paper, and spend that money too.

I'll try to keep it a secret that because no one is allowed to have these slips of paper except me, they are not really investments. And, every once and a while I will need to cash in some of those slips of paper, again using money I got from my dad's wallet. But of course, every dollar that I put into the envelope I take right back out again. 

It's brilliant. May dad funds the whole thing, I look like a hero, and I get to spend every single dollar. 

Hopefully dad won't actually go on a vacation.

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 · Reply · 3 mins

Not a very good example. But here is one. I deposit money in a bank. It's a CD. I can't sell the CD. It's not liquid. But it's an asset. Now the bank doesn't have the money to redeem all its CDs because its loaned the money to customers to buy cars and other things. The CD is an asset, even though I can't sell it. And the last and to the bank customers are assets, even though they can't pay the loan today. 

The social security trust fund has loaned the money to the federal government. And the federal government has been repaying the trust fund. The problem with social security IS NOT that the trust fund hold treasury obligations. The problem with social security is that it has promised to pay out benefits that EXCEED the combination of the trust fund AND all of the projected revenues. And the amount is staggering. If discounted to present value it amounts to about $10T. 

People THINK social security would be solvent if the treasury hadn't borrowed the money. But it's NOT true. It WAS NEVER true.

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 · Reply · 15 hrs

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Me: Back at you. Not a very good example. 
1) your scenario has two unrelated parties engaging in a mutually beneficial, willing transaction.
2) your scenario is a real transfer of value from one party to another.
3) your scenario specifies benefits and obligations between parties that are enforceable and verifiable.

The problem is much larger than you say, because SS has no money in it, only debt. The obligation to pay off that debt, plus the obligations to be paid to beneficiaries, amounts to $23 trillion. https://www.ssa.gov/OACT/tr/2013/IV_B_LRest.html#267528

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