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Social Security bonds called in [Reprise]

Discussion in 'Off Topic Threads' started by dmarbell, Mar 18, 2010.

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  1. dmarbell

    dmarbell Active Member

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    No one seems to be taking my question from another thread seriously. Here it is.

    _________________________

    I've always had a question about this so-called government ponzi scheme. If the SS Admin took in more than was paid out, it had to invest the money. The safest place to invest is in US Gov't paper. Where else would you have put it?

    Now, I understand there was some shady accounting going on, whereby the budget was manipulated by showing some of these investments as part of the income, and somehow reducing the deficit.

    There is also the issue of refinancing the gov't debt. New issues can be sold, and there are still buyers, and those funds used to liquidate the current debt.

    Don't get me wrong, the problem is much worse today than even a year ago. But this goes back years and years.
    _____________________________

    Where should we have invested the excess SS proceeds? Does anyone understand the debt can be refinanced, if there are current buyers?

    Danny
     
  2. wireguy

    wireguy TS Member

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    "The safest place to invest is in US Gov't paper."

    You can't be serious. Would you invest in a bank, a business, or any other enterprise that handles it's money as the US government has?

    If SS had never invested the money at all, how much would they have today as compared to how much they DO have?

    By the way, SS did NOT "invest" in US gov't paper. The government stold that money, period.
     
  3. dmarbell

    dmarbell Active Member

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    wireguy,

    With all due respect, you really don't seem to understand the question. I suspect it's your condescending attitude towards the current administration and Congress, which opinion I share, by the way. We are being spent into oblivion.

    However, the safest place to invest money, currently, is still in US paper.

    And yes, the SS administration collected more than was being paid out at the time, so the excess had to be "invested." Now I admitted there was some accounting hanky-panky going on. But still, where should the excess collections be placed, accumulated, amassed, saved or invested?

    And as long as there are buyers of 2 trillion dollars worth of US paper next year, it can be sold to "refinance" the current maturities.

    Danny
     
  4. wireguy

    wireguy TS Member

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    I understand the question, I disagree with your use of the word INVESTED. The social security administration had no choice about this "investment." Congress passed legislation which authorised the forcible theft of these monies, leaving behind worthless IOU's entitled BONDS. Giving a worthless IOU a fancy name and some gold scroll doesn't give it real world value. It is a promisory note from a government that is as dis-honest as the day is long. The purchasers of US government paper are of late recognising how shaky the value of the American dollar is, the wild abandon with which this government is spending borrowed money, and the increasing liklihood of a dollar crash and default on the trillions of dollars they have borrowed. Buyers of US paper are demanding higher interest rates to offset the risk, and buyers are harder to find. Even if they sell bonds to repay Social Security, it is the American citizen who has to repay those bonds, so the bottom line is the citizenry was taxed for a specific program which was intended to return that money to the citizens from whom it came, the government stold the money and spent it on programs which had only political, not intrinsic value, and now the citizenry from whom the money was stolen are going to be forced to re-pay, with interest, to themselves, the money that was stolen from them in the first place.

    The word "invested" with respect to the federal government simply has no place in this discussion.

    Where should the money have been invested? Sorry, not my arena, but it ceased to be an investment when the US government forcibly stold it. My take on the whole thing is the money was GOING TO BE STOLEN as soon as a sizable amount was ammassed. Thus, it should never have been taken in the first place.
     
  5. wireguy

    wireguy TS Member

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    In terms of investing this citizen savings money in American paper, if American paper is such a safe investment, why is that? It is because the citizenry is seen by bond purchasers as able to cough up whatever it takes to repay the money borrowed by their government. If the American citizen is such a good bet that bond buyers love our paper, why not invest the money back into American enterprises, enterprises that are surely going to be largely winners, as is indicated by the fact that Americans are seen by US government bond buyers as solvent and capable profit makers. If the American citizen is largely thrifty, hard working, capable, resourceful, imaginative and entrapreneurial, as is indicated by US bond buyer's willingness to buy our paper, why was the money not INVESTED in American enterprise instead of stolen by our government. How much better would it have been to allow the American citizenry to make that money grow than have our government steal it?
    All of this begs however, the question, why was this money taken from Americans, by force, in the first place? Is not the same government that STOLD these monies from social security the same government that stold them from the citizenry in the first place? Is there a lesson here?
     
  6. Catpower

    Catpower Molon Labe TS Supporters

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    Yes there is a lesson here, we are screwed
     
  7. dmarbell

    dmarbell Active Member

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    Ignoring the above rant, which implodes upon itself:

    What else was the government to do with the excess collections? Anyone have an idea of a safer place than US Gov't Bonds?

    Danny
     
  8. wireguy

    wireguy TS Member

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    Danny, it would seem you are very good at demanding others answer your questions, not so good at providing answers. I know I come across as hard nosed, which ideologically I am, but I hope I don't come across as a smarmy smart ass.
     
  9. dmarbell

    dmarbell Active Member

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    wireguy,

    You're not coming thru as a smarty ass. You're coming thru as someone with an agenda. For example, the thing that makes US Gov't Paper so credit worthy is the full faith and credit of the US Gov't. Yes, I agree it is backed by taxpayer money. But I can assure you it is the full faith and credit, and not the ability to tax, that attracts investors in our paper. And no, we could not have invested the excess collections into American enterprises, because then we would not have had the ability to pay promised benefits, unless we would have comfiscated assets of those enterprises.

    One point is that the future of our children and grandchildren might or might not be mortgaged. There is an amount of debt that this country can carry and manage. I don't know whether it's the current 12-14 trillion, or only 5 trillion, or whether it's 20 trillion, in the future with modest GDP growth over time.

    The other point is that there was no safer place to "save" the excess SS receipts than in US Gov't Paper. If we could limit the growth of the national debt (which we show no ability to do), then we could manage the future. At 4% growth, the GDP would double in 18 years. The national debt would be half the % of GDP then than it is now.

    Refinancing a portion of the national debt, the portion that must be raised to pay for SS for the next few years, is no different than if you had bought a piece of land for retirement. All you have to do to realize your retirement is for me to want to buy your land. My money, invested in your land, turns into your retirement.

    I'm not a macroeconomist, and I'm sure there is lots I am missing.

    Danny
     
  10. unplugged

    unplugged Active Member

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    Danny,
    You are coming across as someone that does NOT get it! They collected the money and spent it just as fast! Then "promised" to return it when they "could". There is NO invested "excess" SS monies. They were spent when they came in for other things!! There wasn't a SS "account". The Governement has used all the money they "took" in the name of SS.
     
  11. wireguy

    wireguy TS Member

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    http://townhall.com/columnists/MichaelBarone/2010/03/25/bond_markets_reflect_the_true_cost_of_obamacare

    Bond Markets Reflect the True Cost of Obamacare
    by Michael Barone


    Not many people noticed amid the Democrats' struggle to jam their health care bill through the House, but in recent weeks U.S. Treasury bonds have lost their status as the world's safest investment.

    The numbers are pretty clear. In February, Bloomberg News reports, Berkshire Hathaway sold two-year bonds with an interest rate lower than that on two-year Treasuries. A company run by a 79-year-old investor is a better credit risk, the markets are telling us, than the U.S. government.


    Buffett's firm isn't the only one. Procter & Gamble, Johnson & Johnson and Lowe's have been borrowing money at cheaper rates than Uncle Sam.

    Democrats wary of voting for the health care bill may have been soothed by the Congressional Budget Office's report that it would reduce federal deficits over the next 10 years. But bond buyers know that the Democrats gamed the CBO system to get a good score.

    The realities, as former CBO Director Douglas Holtz-Eakin pointed out in The New York Times, are different. The real cost is disguised by the fact that the bill includes 10 years of revenue but only six years of spending. It includes $70 billion in premiums for long-term care that will have to be paid out later. It excludes $114 billion in discretionary spending needed to run the program. It includes nearly half a trillion dollars in unrealistic Medicare savings.

    Holtz-Eakins's bottom line: The bill will not lower deficits, but will raise them by $562 billion over 10 years. Treasury will have to borrow that money -- and probably pay much higher interest than it's paying now.

    Moreover, once the bill is fully in effect, the Cato Institute's Alan Reynolds points out, its expenses are likely to grow at least 7 percent a year -- significantly faster than revenues. At that rate, spending doubles every 10 years.

    No wonder that Moody's declared last week that the Treasury is "substantially" closer to losing its AAA bond rating.

    It's not only the federal government that is heading toward insolvency. State governments will have to spend more under the health care bill -- $735 million in Tennessee alone, according to Democratic Gov. Phil Bredesen.

    And state governments are already facing a huge problem called pensions. The Pew Charitable Trusts estimates that state government pensions are underfunded by $450 billion. My American Enterprise Institute colleague Andrew Biggs argues in The Wall Street Journal that the real figure is over $3 trillion.

    The reason: State governments set aside cash to invest in pensions, but they typically assume that their investments will rise 8 percent a year indefinitely. They haven't been getting such high returns and are not likely to do so in the future. But they are under legal obligations, which courts won't allow them to escape, to pay the pensions. Retirees get paid off before bondholders, which means that states are going to have to pay more interest when they borrow.

    Back in the 1990s, Clinton adviser James Carville said that if he was reincarnated he would like to come back as the bond market -- "because you can intimidate everybody." Governments, like all organizations, need to borrow routinely. But investors won't lend unless they think they will be paid back. And they will demand higher interest rates as their loans become riskier.

    On Sunday, 219 House Democrats, soothed by their leaders' gaming of the CBO scoring process, voted in reckless disregard of what the bond market has been telling them. Some may share Speaker Nancy Pelosi's optimism that the government's looming fiscal disaster can be avoided by imposing a value-added tax -- in effect, a national sales tax.

    But, as we know from the experience of high-tax Western Europe and relatively low-tax America over the last three decades, higher taxes tend to retard economic growth. Lower economic growth means less revenue for government than in CBO projections. Less revenue means more borrowing -- and at some point lenders are going to call a halt.

    Barack Obama's project of transforming the United States into something like Western Europe is, according to the CBO, raising the national debt burden on the economy to World War II levels. I see train wrecks ahead -- as the bond market forces huge spending cuts or tax increases first on states and then on the federal government. It will make what happened in the House Sunday look pretty.
     
  12. bigdogtx

    bigdogtx Well-Known Member

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    Danny,

    Our paper is not as "credit worthy" as it once was due to the above link. You can see just how much our debt is. The problem with your land example is that the government's credit is in dire straits. Moody's, the rating agency of bonds, is considering reducing our AAA rating due to the amount of debt and NO way to reduce it.

    Look at the "Total National Assets" box and the "Medicare Liability" box. This is huge, especially when borrowing money i.e. selling gov't bonds. Our national assets include the building and other real estate i.e. National Parks. I really don't think you would want us to have to sell some of the assets to pay debts. Your comment, "One point is that the future of our children and grandchildren might or might not be mortgaged." Just who do you think WILL pay off this mortgage?

    SS will take in less than it pays out this year. This is SIX years before they thought it would happen. One reason is the recession and the over 10% unemployment for over a year. When you take in less than you pay out, you cannot continue without relief. This may be increasing debt; you just have to find someone to buy it. Watch the bond auctions; one of the biggest purchasers is the Federal Reserve. Do you understand this won't work to help the problem? It is also called "monetizing the debt".

    This should give you a little study material.
     
  13. jimrich60

    jimrich60 Member

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    Just to try and clarify obvious confusion and misinformation about the "bonds" in the Social Security (non-existent) trust fund, the following article should be helpful. Note that with annual budget deficits running some 1.4 Trillion dollars, this will simply add another 2 Trillion plus to the deficits and the National Debt in the next couple of years (deficits that have not yet been counted in any way), since Social Security, according to the CBO last year, was not supposed to be "broke" until 2018 at least.

    Monday, May 30, 2005 by Charles E. Rounds, Jr.

    "Are those "bonds" in the fictitious social security trust fund real or not? The short answer is that they are not.

    This somewhat esoteric legal issue is important because the popular misconception that there is some kind of "full faith and credit" obligation on the part of future Congresses to honor these "bonds" aids and abets the disinformation campaign of the AARP, the labor unions and others that the current system is a retirement program funded with segregated entrusted assets, the integrity of which is guaranteed and backed by the U.S. government.

    Social Security, of course, is just another federal welfare program that is funded out of general revenues. It may be dismantled at any time at the whim of any Congress.

    The misframed debate about whether there is a social security cash flow crisis in 2018 or 2042 also turns on whether those "bonds" have any economic or intrinsic value. The argument that social security will not cause a serious drain on general revenues until 2042 presupposes that the "bonds" in the fictitious trust fund memorializing the spent surplus somehow have value either for the U.S. or for workers and their families. They do not. It should be noted that each side of the cash flow crisis debate is presupposing that social security is a self-contained retirement program, which legally it is not. That social security has an "actuary" plays into this. Since when did a federal welfare program that takes its funding from general revenues rather than earmarked funds need an actuary?

    But back to those "bonds." A bond is just a contract. A contract is an agreement between two or more parties that creates an obligation to do or not do a particular thing, such as pay out interest at a certain rate. Thus, one may not enter into an enforceable contract with oneself, which is exactly what the U.S. is pretending to do with those social security "bonds."

    All the U.S. is actually doing is engaging in non-binding musings with itself about paying itself back for certain monies it has spent out of general revenues for purposes other than social security. The closest thing that a social security "bond" resembles to anything legitimate is the "bond" of a corporation that has been reacquired by the corporation, or more accurately the "bond" of a corporation that has yet to be issued, i.e. sold, to a third party by the corporation. In either case, the "bond" is neither the property of the corporation's stockholders nor of the investing public.

    Yes, the social security statute provides that on the face of the "bonds" memorializing the spent surplus there shall be a notation that they are "supported by the full faith and credit of the United States." But this provision can only kick in if the bonds are actually issued by the U.S. to another party. The statute, however, does not provide for this. In other words, the "full faith and credit" language is illusory.

    As mentioned, for a bond to be a real bond, there needs to be at least two parties, for example, the U.S. and a citizen who owns a U.S. treasury bond, or the U.S. as owner of a German bond and Germany. The U.S. cannot issue "bonds" to itself and have their terms bind future Congresses. Bottom line: These social security "bonds" are neither assets of the U.S. nor property of workers and their families.

    Whichever side one is on in the social security personal account debate, or whether one advocates abolishing social security altogether, there needs to be a common understanding of how the current system is structured, to include an appreciation that the social security "bonds" are not real bonds. As long as general confusion reigns about the law and facts currently applicable to social security, advocates of the status quo will have the upper hand over the reformers and the abolitionists."
     
  14. wireguy

    wireguy TS Member

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    So in other words, our government stold these monies from the people, "borrowed" and spent them, leaving behind promisory notes that have no legally binding demand for re-payment.

    Hmm. Sounds amazingly like what I said in the first place, but even I didn't realise just how worthless they are. Da system goina collapse.
     
  15. crusha

    crusha TS Member

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    The originator of the thread states at 4:44:


    "But I can assure you it is the full faith and credit, and not the ability to tax, that attracts investors in our paper."


    Then goes on to state:


    "At 4% growth, the GDP would double in 18 years. The national debt would be half the % of GDP then than it is now."



    How can the size of our GDP in relation to the debt possibly have any relevance upon our ability to pay back that debt - unless we're talking about the ability of the government to TAX against that GDP?



    When a bank extends you credit, they do so against your assets and your income. For the government, does not "Full Faith and Credit" essentially means things like Public Lands and the Ability to Tax?



    What? Are we going to sell our Universities? How much will that get us?


    No - I think the ability to TAX is what it's all about. The government _has_ nothing else. Without that, all the gold in Kentucky won't keep our motor running long.


    Health Care Reform = NEW TAX REVENUE STREAM.


    Cap'n Trade = NEW TAX REVENUE STREAM.


    ...see the pattern?
     
  16. jimrich60

    jimrich60 Member

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    From comments on this forum, it seems apparent that many do not really understand what Social Security is, and how it actually works. I see references to the government “stealing” our money from social security which is not really otally inaccurate. The government cannot “steal” from itself. What actually happened (is happening) is that the government is simply spending tax revenues (including the so-called social security tax) as they see fit. They have simply covered themselves over the years when levying additional taxes by calling some of them social security when in fact, they were being used for whatever things Congress wanted to spend them on, including social security. The problem is, there is simply too much spending for the amount of tax collectible.


    When created in 1935, “Social Security” was simply a tax on working people which was then “redistributed” to retired people. Congress levied this tax with popular approval because, in exchange for these additional taxes, the government “agreed” that those being taxed to support retirees would in turn, be supported in retirement by the next generation of workers. In essence, Social Security is simply more income taxes, taken from those who are working, and given to those who are retired. It is not a personal, government maintained “savings account” nor is there any sum of money accumulating in your name. Nor, in any legal sense, is there any separate pile of money in some “social security agency” within the government. It is all just “taxes” collected by the government. Boiled down, all social security means is that you are paying taxes to help support your parents and grandparents in retirement in return for a government promise that the government will tax your children and grandchildren to help support you in retirement. This government Ponzi scheme actually worked fairly well for some time, as long as the number of workers greatly exceeded the number of retirees at any given time.


    The problems began in the 1950s, when the number of retirees was rapidly growing in relation to the number of workers, since life expectancies were increasing and thus the ratio of retirees was increasing. So the Government was continually forced to increase the amount of social security taxes on workers. In addition, by the 1960s, government spending (including the Vietnam War) was increasing dramatically, and the government needed to increase taxes to help pay for this. But general tax increases were not popular (remember the “guns and butter” slogan from the Vietnam era?) so the government, with a bit of deceptive propaganda, also increased social security taxes well beyond that needed to pay immediate social security “benefits” . This so-called social security “surplus” was then used to help pay for general government expenditures, keeping the deficits down, and helping keep the national debt lower than it would have been. To maintain the fiction that had by then arisen (that social security was somehow a savings or retirement program run by government for workers) the government issued itself (via the social security administration) a series of bonds for the “surpluses”. Of course bonds or any other promise to pay issued to you are no more than giving yourself an IOU and are essentially meaningless in any legal terms.


    This practice of increasing social security taxes on a regular basis, and spending any monies over and above that actually paid out to retirees has continued right up to the present. The problem, of course, has been, and is, that the number of retirees has been constantly increasing in relation to the number of workers supporting them. By the early 2000s, this problem had become acute, and the government was finding it more and more difficult (politically) to keep increasing taxes sufficiently to meet payout needs, as well as having funds to use for otherl expenditures. (This, of course, is exactly what eventually happens in any ponzi scheme). So we were seeing lots of warnings that social security would be “broken” by 2025 or dates around there, and more recently (2005) CBO predicted that social security would be broke by 2018. These predictions were upset by the crash of 2007-8, and the subsequent unemployment rate of nearly 10 percent since then. This has greatly reduced the predicted amount of social security taxes being taken in, and the result is that that social security will be “broke” (that is, payouts will exceed ”social security tax” income) this year (2010).


    Now we are seeing talk of social security having to “cash in” the bonds “they” hold in order to have enough money to meet required retirement and Medicare benefits. But this is merely cover for the reality that these “bonds” are simply government IOUs to itself. Since annual deficits are already around 1.5 trillion dollars, in order to keep paying out promised social security benefits “due”, the government will have to simply increase deficit spending (by borrowing more money from China, Japan, etc) or raise taxes (whether they are called social security taxes, income taxes, a value added tax (VAT) or some other tax),by simply printing more money (can you spell hyperinflation?)or some combination thereof. This will, in turn, raise deficits (and the national debt) to even more astronomical levels or place a near catastrophic additional tax burden or workers at a time of decreasing wages. This entire problem could have been at least postponed, if the government had actually “saved” in some form, the so-called social security surpluses of the last 30 years or so, but given that the tax increases were only meant in reality to provide additional government income for other purposes, and that there is, in reality, no social security account or entity, that was never an option. And in any case, there really is no mechanism or way for the government to “invest” or save money in a bank account, or stocks, etc, so it really is a moot point. (One way this could have been done, at least in theory, would have been for Congress to pass a law allowing the Social Security Administration to “invest” their “surpluses” in foreign bonds of some sort (not U.S. bonds) which could now be cashed in, but this was, of course, never done, nor was that ever the real point in raising taxes in the first place)

    .
    The only other practical way for the government to deal with the now very real social security crisis is to cut benefits by significant amounts. But this route would very likely result in major upheavals. Another possible way is to devalue the dollar significantly. Again, major ramifications and adverse impacts elsewhere. So sooner rather than later, this entire scheme will inevitably collapse of its own weight unless the number of retirees versus the number of workers supporting them can be drastically reduced. I believe this is one purpose (although not the only one) of the so-called health reform moves this past year.
     
  17. crusha

    crusha TS Member

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    jim,


    I'm with you, man...but paragraphs aren't part of the conspiracy...
     
  18. jimrich60

    jimrich60 Member

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    Sorry. When I typed it in, it was properly paragraphed. Don't know why it dropped the paragraphing when I submitted it. I went back and edited it. It still appeared paragraphed, but had to double space to get the text to appear properly when submitted. Hope it helps in reading.

    Jim R
     
  19. crusha

    crusha TS Member

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    Ah...much better!
     
  20. wireguy

    wireguy TS Member

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    So there really IS a reason for those death panels!
     
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