[PassedOut]

y66, on 2011-May-19, 10:35, said:

I am such a rétard. I can't believe I revisited this thread thinking the discussion might have taken a more constructive turn. Where's the DIY lobotomy thread?

Sorry for taking the bait. Again.

[luke warm]

y66, on 2011-May-19, 10:35, said:

I am such a rétard. I can't believe I revisited this thread thinking the discussion might have taken a more constructive turn. Where's the DIY lobotomy thread?

me too

[PassedOut]

Foxx, on 2011-May-18, 17:00, said:

On this topic, I'd say that Stephen Colbert absolutely steamrolled Amy Kremer last night...

He's on a roll. The John Lithgow performance on his Thursday show was priceless: John Lithgow performs the Newt Gingrich press release

Quote

The literati sent out their minions to do their bidding. Washington cannot tolerate threats from outsiders who might disrupt their comfortable world. The firefight started when the cowardly sensed weakness. They fired timidly at first, then the sheep not wanting to be dropped from the establishment's cocktail party invite list unloaded their entire clip, firing without taking aim their distortions and falsehoods. Now they are left exposed by their bylines and handles. But surely they had killed him off. This is the way it always worked. A lesser person could not have survived the first few minutes of the onslaught. But out of the billowing smoke and dust of tweets and trivia emerged Gingrich, once again ready to lead those who won't be intimated by the political elite and are ready to take on the challenges America faces.

Vintage Newt, ready to fight the literati on their own battlefield...

[kenberg]

Some thoughts on the budget problems:

As I get it, the current debt is something like 14 trillion. The population of the U.S. is about one-third of a billion. So the debt comes to about 42K per capita, where the capita includes children and people who do not have two dimes to rub together. [Added: I see I have mildly understated this: "The estimated population of the United States is 310,613,367 so each citizen's share of this debt is $46,218.74.", from http://www.brillig.com/debt_clock/] For a husband, wife and two kids that comes to around 168K, which looks like a mortgage on a modest home. Perhaps we should reflect on this analogy.

Roughly summarized, the proposed solutions are:

Boehner: Don't raise the debt ceiling. This is something like an individual announcing that his solution to being over his head in debt is to stop paying his mortgage.

Obama: Cut few if any entitlements. This is something like an individual announcing that his solution to being over his head in debt is to take out a second (or third or fourth) mortgage.

I think that we are entitled to expect better from our leaders.

Arguing about who is to blame is perhaps not entirely pointless, but if we do not do better in the future, perhaps maybe we need to look at ourselves.

I have never been 168K in debt to anyone, including my mortgage debt. Not even close. I guess you could say I am a little pissed that some fools who are supposed to be taking care of the country can put me, as a citizen sharing the wealth and the debts of our country, in far greater debt than I would ever put myself. Past time for these grandstanders to get serious.

[PassedOut]

kenberg, on 2011-May-21, 19:40, said:

I guess you could say I am a little pissed that some fools who are supposed to be taking care of the country can put me, as a citizen sharing the wealth and the debts of our country, in far greater debt than I would ever put myself. Past time for these grandstanders to get serious.

I agree with this except for the word "little."

Tom Coburn's bolting from the Gang of Six reminded me of Chuck Grassley doing the same thing after months of negotiation on health reform: Durbin: Gang of Six was ready to unveil its plan

Quote

Senate Majority Leader Dick Durbin (D-Ill.) said the Senate’s bipartisan Gang of Six was ready to announce a budget deal before its arguably most conservative member, Sen. Tom Coburn (R-Okla.), dropped out on Tuesday.

“We had a deal that cut the deficit by $4 trillion over 10 years and as far as I was concerned we were ready to announce it when [Coburn] left,” Durbin said on “State of the Union.”

Tension between the two had reportedly built over Coburn’s desire for more drastic cuts to Medicare.

I would certainly like to see a lot of the "heroic" and very expensive end-of-life measures cut from Medicare, but when Grassley bolted he talked as though he did so because Obama wanted to kill grandmothers. Coburn says he wants to cut Medicare too, but when push comes to shove, most of his base disagrees. They even want Obama to restore the long-obsolete subsidies to private Advantage plans that first enabled them to compete with Medicare.

The right-wing Newsmax site polled its readers about that very question last week: Newsmax Poll

Quote

What do you believe Congress' top priority should be in 2011?

61%: Cutting spending


Should Congress restore $500 billion in Medicare benefits for seniors [the Advantage plan subsidies] that the Obama plan cut?

81%: Yes, restore the Medicare benefits

It's easy to be in favor of cutting spending in general. It's a lot harder to get people to agree to cut even one dime from federal spending that they feel affects them personally.

There are responsible people in congress from both parties who accept the fact that both tough spending cuts and unpopular tax increases will be needed to solve the deficit problem. Negotiations under such conditions are bound to be difficult, but it's much more important for that problem to be solved than for the specific solution to be one that I, or anyone else, is in love with.

And then you have politicians like...

Senator Jon Kyl (R-Ariz.): Tax Increases Are Off the Table

Quote

I want to distinguish the point of rebalancing our Tax Code to get a progrowth kind of Tax Code with the possibility of generating more revenue to deal with our debt situation. Those are two totally different situations. While I would be very much in favor of taking a look at these tax expenditures, various subsidies, for example, to different groups to see whether we could reduce some of those, thereby reduce tax rates in a revenue-neutral manner so our Tax Code would be more conducive to growth, but in a revenue-neutral manner, meaning not in order to raise revenues but in order to have a more sensible Tax Code...

Many of us remember situations where representatives have put the good of the country ahead of their own reelections, and we all benefitted from their political sacrifices. It's time to solve this problem now and let the chips fall where they may.

[Winstonm]

SMU economics professor Ravi Batra looked into the Reagan-Greenspan tax cuts and subsequent changes to Social Security and found in 2004 OASI (Old Age Survivor Insurance) had total assets of $1.36 trillion but only had $216 million in hand as cash - the remainder was held in "special securities", i.e., IOUs, non-marketable Treasure bonds - non-marketable meaning they cannot be sold in the bond market for cash - they are pure IOUs from the government who borrowed the FICA tax money to finance the general budget.

Batra also found the DI (Disability Insurance) trust fund held $182 million with total assets listed of $175 billion.

The totals for the OASDI (Old Age Survivors and Disability Insurance) fund showed a total assets of $1.5 trillion, but less than 1/2 billion dollars was to be found in undisbursed balances, less than 1 day's worth of payable cash benefits.

The missing $1.45 trillion or so had been borrowed to finance the underfunding caused by the Reagan tax cuts for the wealthy and for corporations.

The borrowed funds are based on Treasury bonds that are worthless in the open market, which is ironic in that the free-marketeers were the instigators and recipients of this government largesse that was paid for by the sweat, toil, and taxes of working men and women hoping one day to retire.

It is despicable what the government has been allowed to do to Social Security and its obligations - but what can one person do against the might of the government? The best I can do as a person is abandon this ship as a worthless hunk of rusting junk and simply fend for myself.

The rhetoric about mutual sacrifice and balancing the budget to me is simply white noise - and the system is too corrupted for votes to matter.

To me, the U.S. seems to be a shadow oligarchy, with clowns and jesters obscuring the view of the real powers that be.

Not the brightest outlook, I know, and if someone can talk me down I wouldn't mind that, either.

[Winstonm]

Here's a real shock:

Quote

Defense Secretary Robert Gates conceded that the mounting national debt “could develop into a deep crisis” but insisted that it was vital to maintain spending to ensure that the US military is able to extend its reach globally, and to ensure that the US military is superior to any adversary.

Yes, I've heard the Klingons are itching for a fight.

[awm]

As far as social security and disability funding, all that's going on is this...

Social security has people paying into the system while they work (via payroll tax), then they are paid back when they retire (via social security payments). However, the way the system actually works is that the money that's paid in gets paid out immediately to current retirees, rather than there being a big hoard of cash somewhere waiting to be paid back.

The problem with this is that each generation isn't the same size as the last. In particular, the "baby boom" generation is very large. So the amount they pay into the system via payroll tax (to fund their own retirements) is quite a bit more than the amount that would be needed to pay the current retirees. Of course, when the baby boom generation retires we will have the opposite problem. Rather than let the baby boomers pay a very low payroll tax (covering current retirees) and then hiking up the payroll tax (or cutting benefits) when they retire, the decision was made to let the baby boomers pay a moderate tax now and then cover them in retirement.

This meant that there was, potentially, a big hoard of cash building up somewhere (i.e. the "extra money" that baby boomers paid in, which would be used to cover their retirements). But having a big hoard of cash sitting around is stupid. So the decision was made to invest this money in a very safe way -- US treasury bonds. Thus the social security administration is sitting on a huge pile of US treasuries (and a relatively small pile of cash).

Basically over the last few years, social security has been operating at a massive surplus (invested in US treasuries) while the rest of the government has been running massive deficits. In the future, social security expects to run at a deficit (which it will cover by cashing in its US treasuries). If you just look at the total US government net deficit, this appears to generate a huge problem! Republicans want to use this as an excuse to "restructure" social security (code for cut benefits). Democrats would keep social security separate from the rest of the budget, and claim that social security itself (if you count the US treasury bonds as money) is on a fairly secure footing. They complain about the deficit which excludes the social security administration, a deficit which was mostly blown up by the Bush tax cuts and increased military spending over the last decade.

Anyway, I don't think social security's lack of "cash on hand" is a big deal here. It's just a matter of whether you view social security as essentially a separate organization from the rest of the government (funded solely by payroll tax) or as part of the federal government (thus decoupling payroll tax rate and social security payments).

[Winstonm]

awm, on 2011-May-23, 13:14, said:

As far as social security and disability funding, all that's going on is this...

Social security has people paying into the system while they work (via payroll tax), then they are paid back when they retire (via social security payments). However, the way the system actually works is that the money that's paid in gets paid out immediately to current retirees, rather than there being a big hoard of cash somewhere waiting to be paid back.

Here is the problem, though. The monies generated by payroll FICA taxes are not general revenue and are earmarked in theory for the OASDI, meaning they are not free to be borrowed without paying a return premium, i.e., interest.

Quote

The problem with this is that each generation isn't the same size as the last. In particular, the "baby boom" generation is very large. So the amount they pay into the system via payroll tax (to fund their own retirements) is quite a bit more than the amount that would be needed to pay the current retirees. Of course, when the baby boom generation retires we will have the opposite problem. Rather than let the baby boomers pay a very low payroll tax (covering current retirees) and then hiking up the payroll tax (or cutting benefits) when they retire, the decision was made to let the baby boomers pay a moderate tax now and then cover them in retirement.

The change in FICA occured in April 1983. Between 1984 and 2004 the Trust Fund produced a $1.5 trillion surplus.

Quote

This meant that there was, potentially, a big hoard of cash building up somewhere (i.e. the "extra money" that baby boomers paid in, which would be used to cover their retirements). But having a big hoard of cash sitting around is stupid. So the decision was made to invest this money in a very safe way -- US treasury bonds. Thus the social security administration is sitting on a huge pile of US treasuries (and a relatively small pile of cash).

This is an error often made. The "investment" is not in traditional US treasury bonds that are liquid, but in "special US treasuries" that are illiquid - they cannot be sold in the bond market for cash.

Quote

Basically over the last few years, social security has been operating at a massive surplus (invested in US treasuries) while the rest of the government has been running massive deficits. In the future, social security expects to run at a deficit (which it will cover by cashing in its US treasuries). If you just look at the total US government net deficit, this appears to generate a huge problem! Republicans want to use this as an excuse to "restructure" social security (code for cut benefits). Democrats would keep social security separate from the rest of the budget, and claim that social security itself (if you count the US treasury bonds as money) is on a fairly secure footing. They complain about the deficit which excludes the social security administration, a deficit which was mostly blown up by the Bush tax cuts and increased military spending over the last decade.

Again, this is not entirely accurate. The reform Act of 1883 allowed the government to use the surpluses from the increased Social Security revenue in the general budget from 1984 until 1992.

The same holds true for the idea of "cahing in its US treasuries". Remember, these are "special treasuries" which cannot be sold in the bond markets - the only redemption comes from the U.S. treasury, and as the money has already been spent on the general budget, redeeming these bonds increases the deficit. Keep in mind that the idea of "safe" US treasuries is meant as safe for the investor, not the US treasury. It is quite a bit different than IBM going to the money markets and borrowing to invest in business expansion and then later paying back the money plus interest out of increased profits - the US government has done a poor job of producing profits for itself.

Quote

Anyway, I don't think social security's lack of "cash on hand" is a big deal here. It's just a matter of whether you view social security as essentially a separate organization from the rest of the government (funded solely by payroll tax) or as part of the federal government (thus decoupling payroll tax rate and social security payments).

It wouldn't be a big deal if the cash were truly in negotiable and liquid US treasuries that bear interest or in municipal bonds or any number of other liguid investment options - that it is in IOUs redeemable only by the government is a problem.

[Winstonm]

Here is a bit more on Social Security funding from Wikipedia: (emphasis added)

Quote

Current year expenses are paid from current Social Security tax revenues. When revenues exceed expenditures, as they have in most years, the excess is invested in special series, non-marketable U.S. Government bonds, thus the Social Security Trust Fund indirectly finances the federal government's general purpose deficit spending. In 2007, the cumulative excess of Social Security taxes and interest received over benefits paid out stood at $2.2 trillion.[80] The Trust Fund is regarded by some as an accounting trick which holds no economic significance. Others argue that it has specific legal significance because the Treasury securities it holds are backed by the "full faith and credit" of the U.S. government, which has an obligation to repay its debt.

The Social Security Administration's authority to make benefit payments as granted by Congress extends only to its current revenues and existing Trust Fund balance, i.e., redemption of its holdings of Treasury securities. Therefore, Social Security's ability to make full payments once annual benefits exceed revenues depends in part on the federal government's ability to make good on the bonds that it has issued to the Social Security trust funds.

[awm]

Winstonm, on 2011-May-23, 17:06, said:

It wouldn't be a big deal if the cash were truly in negotiable and liquid US treasuries that bear interest or in municipal bonds or any number of other liguid investment options - that it is in IOUs redeemable only by the government is a problem.

I don't see why this is necessarily a problem. Either the US government will default on its fiscal obligations, or it will not. If the US defaults, then "negotiable and liquid" US treasuries will be next to worthless too. Social security will be in trouble, but that may be the least of our worries as interest on the debt will also skyrocket, private companies will potentially stop doing business with the government rather than being stiffed on their contracts, etc. If the US doesn't default, then even the "special" US treasuries are as good as money.

The main issue here is how the debate is framed. A big part of how social security passed in the first place (and how it's so popular) is that it's a retirement benefit program for all Americans. The payroll tax is regressive, and liberals would not support it except that it is used only to fund social security. Similarly, if social security was a welfare program designed only to help poor retirees, then conservatives would not support it. Recently the Republicans have been trying very hard to make social security "just another government welfare program" -- calling it such, suggesting "means testing" for it, cutting the payroll tax for a year, and so forth. The concern is that this will eventually lead to massive cuts or even elimination of social security as a program, and a decoupling of the payroll tax from social security. I think this is a bigger concern than the special US treasuries "becoming worthless" since that would only happen in the context of a broader collapse of the US economy.

[mike777]

Just a side note. A default does not mean that Tres. are worthless. You can default on your house but that does not mean your house is worthless. Also note you can default on your home but still have cashflow coming in. Govt work the same way.

In fact Tres. notes have a market value and that value in fact could increase during default proceedings and in fact decrease during normal times.


BTW taxes cover our debt payments, just not our other spending.

Also at least in theory these notes are backed by the full faith and credit so holders couldhave a claim on the assets of the USA. Of course collecting is another matter but if we are not paying the soldiers or the energy bill and there are riots in the streets well....

[kenberg]

Quote

A default does not mean that Tres. are worthless.

True enough. And a heart attack doesn't mean that I am about to die. But I would say that it's not an encouraging sign.

[Winstonm]

O.K., let me try this once again regarding the special treasuries issued to SS.

First, FICA is paid in cash. The government then borrows the excess cash and places special treasuries in their place.

Problem #1: These issues are illiquid. They cannot be sold in the bond market. It is somewhat like having equity in a house that has a lien against it. You have to eliminate the lien before you can access the cash in any fashion.

Problem #2: In order to covert the bonds back to cash, the government must get more cash. Where does that come from? Either more taxes or by more borrowing.

The issue has nothing to do with US solvency - it is about the government's method of repayment of the borrowed funds plus the loss of interest to the SS fund due to lack on investement of those funds.

[Winstonm]

Quote

In fact Tres. notes have a market value and that value in fact could increase during default proceedings and in fact decrease during normal times.

Mike,

The issues held by the SS Trust fund are not simple US treasuries but "special treasuries". They are not liquid, and they have no market value as they are non-marketable securities.

[awm]

The special US treasury is essentially a loan from the social security administration to the government. The fact that these can't be sold on the bond market just means the social security administration can't give ownership of the loan to someone else in exchange for cash (or other loans, or stocks, or whatever). As long as the government is paying back the loan in a timely manner, the fact that social security administration can't diversify is not a big deal.

The problem is what if the US government decides not to pay back its loans (defaults on its obligations). Now social security administration is screwed because they didn't (couldn't, legally) diversify their holdings. But anyone else who is sitting on a large pile of treasury bonds at the moment the US government defaults is also screwed. Perhaps this could be viewed as a reason not to put all your money into US treasury bonds, but the fact is that if the US government defaults the whole economy is in pretty big trouble...

As for "getting cash" -- that is never a problem for the government, which can print its own money. Obviously it might be better to acquire this cash through taxes or by cutting spending, since printing lots of cash causes inflation and hurts investor confidence.

Again, there is certainly a problem if the government decides to stop paying money it owes. There is potentially also a problem if the government tries to pay the money it owes by taking more huge loans, or by printing huge amounts of money. And it's true that social security will suffer if these things happen. But so will everyone else. Hopefully responsible people will prevail.

[phil_20686]

I think winston's point was that special treasury bonds are no more than a book keeping device. In essence the government really has spent all the money that was paid in in excess in the social security fund, and will now have to stump up the cash on a day to day basis to pay social security when there is a deficit.

Of course, that was probably a reasonable strategy if your aim was to equalise wealth across generations, since even with higher taxes this generation will certainly be wealthier than any previous one. Thus, we should easily be able to afford our increased number of pensioners. And we could, if they wanted a 1980's standard of living.

In reality, pensioners want a 2010 standard of living, and in general therefore every pension needs to have a value that is related to current wages. Thus, although investing the money did make us all richer (probably), the result of being richer is that each pensioner is more expensive. Therefore, probably the only important ratio is that of workers to pensioners. Thus, in retrospect, it seems like it it would have been a good idea to save some money, although if we had done that we would probably all be a little poorer, and probably would be in roughly the same place now.

Tbh, if you think america is going to have a social security problem, just look at the demographics of western europe. It looks roughly like financial Armageddon

[Winstonm]

Quote

I think winston's point was that special treasury bonds are no more than a book keeping device

Thanks, Phil, as that is exactly right. Further, had this excess been allowed to be invested in something like municipal bonds then that excess could have almost doubled over 20 years instead of contributing to the deficit.

[Winstonm]

Quote

that is never a problem for the government, which can print its own money. Obviously it might be better to acquire this cash through taxes or by cutting spending, since printing lots of cash causes inflation and hurts investor confidence.

Right - the solutions are raise taxes, cut spending, or print money. If a solution offers only negative consequences, the reason for the need of a solution is a problem.

Hence, Problem #2 is still a problem.

Quote

As long as the government is paying back the loan in a timely manner, the fact that social security administration can't diversify is not a big deal.

What about the prospects of investment of the excess outside of government? FICA is supposed to be earmarked only for the OASDI fund, and therefore should have been maintained by an outside agency and bipartisan commission that allowed investment in safe low-yield bonds.

The excesses are being usurped for the general budget deficit, and that action does not allow a return on investment that a real retirement account should receive when its money is borrowed.

Again, this is a problem with the illiquidity of the "special treasuries". Normal treasuries could have been invested.

Instead of receiving interest on the investment, the FICA payers have been required to fund by overpayment to their retirement account the deficits created by the Reagan and Bush tax cuts.

It is the Randian version of Robin Hood - the poor sponsoring the rich - sold to the American people as necessary by Ali Greenspan and his 40 thieves.

[mike777]

Winston you assume a static economy.

The other choice is to try and grow the economy thus growing tax revenues and decreasing the need or rate of increase for social spending.


"Right - the solutions are raise taxes, cut spending, or print money. If a solution offers only negative consequences, the reason for the need of a solution is a problem.

Hence, Problem #2 is still a problem."
------


IF you think the most important issue is social justice and some might say the "greater good" and what should govt do to achieve it ok but that is a different discussion than govt role in growing the economy.

Social Security is really much more about the focus on fairness and social justice then it is a discussion oh how best to grow the economy.

I mean do we want to throw grandma over the cliff so the rich can get even richer is the debate.

But then Budget battles often pit these two issues against each other.