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Invisiblecarbonhoots
old hand

Registered: 09/11/01
Posts: 1,351
Loc: BC Canada
confronting social security
    #3519448 - 12/19/04 04:13 AM (11 years, 11 months ago)

By now, the trust fund has $1.5 trillion in it. By 2018, it will be much higher. Counting the trust fund, Social Security won't run short until 2042; the Congressional Budget Office thinks it won't until 2050.


David Sarasohn: 'When is a U.S. bond not really a bond?'
Posted on Saturday, December 18 @ 07:47:46 EST
--------------------------------------------------------------------------------
By David Sarasohn, The Oregonian

Listening closely to the views of people invited because they agreed with him, President Bush this week explained that "now is the time to confront Social Security."

In fact, to do this, the president already running the biggest deficit in history is ready to borrow hundreds of billions of dollars more a year, flooding the world with U.S. bonds.

This has to be done immediately, goes his reasoning, because people can't count on U.S. bonds.

Even from the president who just awarded gold medals to the people behind his Iraq strategy, this is going to be interesting.

The government has to act quickly, says the president, because Social Security is about to run out of money. "After 2018," White House spokesman Dan Bartlett explains, "the system goes from the black to the red. We have payments going out that we can't afford to make."



And the system will be running out of money.

Except for about $3 trillion in bonds in the Social Security trust fund.

For being broke, it's fairly expansive.

In 1983, facing an imminent problem in Social Security, Congress -- under the close guidance of legendary genius Alan Greenspan -- raised Social Security taxes. In fact, they raised them much more than necessary, in order to pile up a fund for the future when tax revenue wouldn't cover payments.

By now, the trust fund has $1.5 trillion in it. By 2018, it will be much higher. Counting the trust fund, Social Security won't run short until 2042; the Congressional Budget Office thinks it won't until 2050.

By then, of course, all kinds of things might happen. Donald Rumsfeld might even have left the Defense Department.

You'd think nobody would have to explain to someone like George W. Bush how a trust fund works. But the people supporting his Social Security plan argue that the Social Security Trust Fund doesn't exist.

The fund, insists Eric Engen of the American Enterprise Institute, "holds nothing but IOUs that the government owes itself."

Dick Armey, who as Republican House majority leader was happy to collect the extra Social Security payments, now calls the fund "an empty grave. The Social Security Trust Fund is full of meaningless government IOUs -- there are no real assets. . . ."

Now he tells us.

Actually, all government bonds are IOUs, and none of them have real assets. Nobody thinks that a Treasury bondholder could put a lien on Yellowstone Park, or even repossess a Bradley Fighting Vehicle.

What the bondholder has is the United States' promise to pay -- the government's full faith and credit -- which has always been good.

As it says on the special depository notes in the Social Security Trust Fund, "The bond is supported by the full faith and credit of the United States, and the United States is pledged to the payment of the bond with respect to both principal and interest."

But as President Bush suggests, maybe not.

U.S. bonds held by the Social Security Trust Fund, goes the argument, aren't quite the same as U.S. bonds held by, say, foreign investors. In the case of Social Security, "full faith and credit" doesn't actually mean "full faith and credit."

It's a strange position for a faith-based administration.

It might even raise questions among people holding the other kind of U.S. bonds, an alarming development considering that the dollar is sinking and the Bush administration will have to borrow hundreds of billions or more for its own plans.

"Maybe they'll use different wording," suggests Rep. Peter DeFazio, D-Ore., "and say these bonds are really, really the obligation of the federal government."

The administration talks of a plan to take the new borrowing off the books and not count it in the budget deficit. But as Sen. Ron Wyden, D-Ore., now on the Senate Finance Committee, notes, "You can find some mulberry bush to hide it under, but it will still be debt."

And it's not like the feds ever default on a debt. For the United States government, its word is its bond.

Actually, you might want to rephrase that.

David Sarasohn, associate editor of The Oregonian, can be reached at davidsarasohn@news.oregonian.com.

?2004 OregonLive.com.


--------------------
  -I'd rather have a frontal lobotomy than a bottle in front of me

CANADIAN CENTER FOR POLICY ALTERNATIVES


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Offlinephi1618
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Registered: 02/14/04
Posts: 4,102
Last seen: 6 years, 6 months
Re: confronting social security [Re: carbonhoots]
    #3519624 - 12/19/04 07:27 AM (11 years, 11 months ago)

Here is an article that makes the problem we face clear.
I have emphasised some passages as a direct refutation to the implied message of the originally posted article, but I strongly suggest you read the full article as it is a very clear explanation of the accounting behind the Social Security and Medicare trust funds.

It would also be helpful to follow the link so you can see figures.





from: http://www.cbo.gov/showdoc.cfm?index=4624&sequence=0

LONG-RANGE FISCAL POLICY BRIEF
CBO A series of issue summaries from
the Congressional Budget Office
No. 10, October 10, 2003

Comparing Budgetary and Trust Fund Measures of the Outlook for Social Security and Medicare

The most comprehensive view of the financial outlook for Social Security and Medicare comes from estimating the resources that the federal government would need to draw for the programs from the nation's economic output--that is, the share of gross domestic product (GDP) that they would consume. That type of measure is conventionally used for the federal budget as a whole. In contrast, the reports of the Social Security and Medicare trustees are required by law to focus on the status of the trust fund accounts that the Treasury Department maintains for the programs and to indicate whether the Congress has granted them sufficient spending authority to cover their expected payments.

The concepts employed in the trustees' assessments, such as trust fund reserves and actuarial balance, illuminate the programs' accounting, but not the real economic resources they require. First, because the assessments are based on measures of income and spending that are effectively averaged over 75 years, they do not reveal the magnitude of the programs' rising resource requirements. Second, they treat transfers from the government's general fund to the trust funds and the reserves of the funds as resources to pay benefits. However, those transfers and fund reserves are simply the result of credits exchanged between Treasury accounts--and thus reflect the government's commitment to pay the benefits but not necessarily the means to do so.

Although the trustees are required to focus on the status of the trust fund accounts and to base their conclusions on trust fund measures, in recent years they have increasingly brought attention to the growing impact of Social Security and Medicare on the economy. When the future resource requirements of the two programs are shown year by year as a share of GDP, they more than double by 2075, rising from 6.9 percent of GDP today to a projected 16 percent in 2075 (see Figure 1). In contrast, when shown using summarized trust fund measures, taxes for Social Security and the Hospital Insurance (HI) part of Medicare would need to be only one-fourth larger than currently scheduled to restore actuarial balance--an amount less than 2 percent of GDP, on average (see Figure 2). Furthermore, no imbalance is shown for the Supplementary Medical Insurance (SMI) part of Medicare, even though its costs are projected to rise from 1 percent of GDP today to 4 percent in 2075 and three-fourths of its financing is drawn from the Treasury's general fund.(1)


Figure 1.
Projected Social Security and Medicare Spending
(Percentage of GDP)
Graph
Source: Congressional Budget Office based on Social Security Administration, The 2003 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds (March 17, 2003) and Centers for Medicare and Medicaid Services, The 2003 Annual Report of the Board of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds (March 17, 2003).
Note: This figure depicts spending for Social Security and for Medicare's Hospital Insurance and Supplementary Medical Insurance programs.

Figure 2.
Projected Combined Deficits for the Social Security and Hospital Insurance Trust Funds Under Summarized Trust Fund Measures
(Percentage of GDP)
Graph
Source: Congressional Budget Office based on Social Security Administration, The 2003 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds (March 17, 2003) and Centers for Medicare and Medicaid Services, The 2003 Annual Report of the Board of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds (March 17, 2003).
Notes: This figure depicts the average long-range combined deficit for the Social Security trust funds and for the Hospital Insurance trust fund. No long-range deficit is reported for the Supplementary Medical Insurance trust fund.
The trustees present summarized trust fund estimates for Social Security and for Hospital Insurance as percentages of taxable payroll (see The 2003 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds, pp. 168-171). For purposes of comparing this figure to Figure 1, CBO converted those summarized estimates into percentages of GDP.

Presenting the financial implications of Social Security and Medicare as they are projected to change over time using the broadest financial denominator--their relative share of gross domestic product--allows for a fuller and more transparent view of their growing impact on the economy.


What Trust Fund Measures Show

When the Social Security and Hospital Insurance trust funds' total income over the following 75 years is estimated to be within 5 percent of their total expenditures, the funds are considered to be financially sound--or in close actuarial balance.(2) Having reserves credited to the funds throughout the period is also necessary. Those reserves are the source of authority for the Treasury to write benefit checks; they represent permission to spend. The point at which no reserves remain is technically when benefits can no longer be paid in full or paid on time if income lags behind expenditures.

In presenting assessments of the trust funds' 75-year actuarial status, the trustees' reports show projected income and expenditures as a percentage of the total earnings and self-employment income in the economy that is subject to Social Security or HI taxation, or what is referred to as taxable payroll. In their latest reports, the trustees project that the income of the Social Security trust funds will be 13.78 percent of taxable payroll for the 75-year period as a whole and that the expenditures will be 15.70 percent, leaving a gap, or deficit, of 1.92 percent. The trustees of the HI trust fund project income of 3.37 percent of that fund's (higher) taxable payroll,(3) expenditures of 5.77 percent, and a deficit of 2.40 percent. The combined deficit for the two programs is projected to be 4.32 percent of taxable payroll, resulting in an average actuarial imbalance roughly equal to 25 percent of their combined income.

That combined figure shows the amount by which payroll taxes would have to increase today to cover the gap (or, alternatively, how much of a tax increase could be avoided by altering the programs' benefits). Social Security and HI are funded by $15.30 out of every hundred dollars of the earnings of most workers. As the trustees summarize the problem, if the long-range gap is closed through a payroll tax increase, an additional $4.32 will be required starting today and continuing throughout the 75-year period.

The Medicare trustees project no long-range actuarial imbalance for SMI, even though premiums paid by beneficiaries cover only one-fourth of the program's costs. Current law requires the federal government to annually cover the remaining costs with credits from the Treasury's general fund--a practice that effectively precludes an adverse conclusion from the trustees.


How Budgetary Measures and Trust Fund Measures Differ

Trust fund assessments are the principal means by which the Social Security and Medicare trustees convey to policymakers the adequacy of the programs' future spending authority. But those assessments do not by themselves indicate the programs' budgetary and economic implications.

First, the trustees' focus on a 75-year imbalance of total income and spending does not reveal the long-range draw on workers' earnings that may be required to cover future benefits. Computing the imbalance on the basis of "totals" implies that surpluses projected to occur early in the period will offset later deficits. But crediting surpluses to trust funds is simply a paper transaction. When funds are needed to pay benefits, resources will have to be drawn from the economy. Crediting surpluses to the trust funds will not necessarily create those resources because the surpluses may be used to boost spending on other federal programs or allow other revenues to be lower.(4) If the surpluses do not raise national saving and, thus, increase the size of the economy, the rate of tax on workers' earnings will have to rise to a much higher level than what is shown by the overall imbalance for the 75-year period. For 2003, the trustees project a combined surplus for Social Security and Hospital Insurance of 1.94 percent of taxable payroll; but for 2075, they project a deficit of 14.14 percent of taxable payroll. Moreover, in the calculation of the overall imbalance, the current reserves of the trust funds and future interest that the Treasury Department credits to them are assumed to offset it in part. If, instead, those reserves and interest credits are viewed as spending authority and not as real resources (that is, as money that the government can draw on), the overall 75-year deficit--and the magnitude of the legislative change needed to eliminate it--will be considerably larger.

Second, the fiscal strain could emerge much sooner than the trustees' measures suggest. The trustees project that the Social Security trust funds will have reserves to carry the program until 2042 and that the HI trust fund will have reserves until 2026. However, if those reserves merely represent bookkeeping entries, receipts for Social Security are projected to fall below the program's expenditures not in 2042 but in 2018; and for Hospital Insurance, in 2013 instead of 2026. Furthermore, although Medicare's surpluses are usually discussed only in the context of HI, the taxes and premiums collected for Medicare as a whole are already less than its expenditures (largely because the premiums paid by enrollees in SMI cover only one-fourth of the cost of that program).

From a budgetary perspective, those gaps between what the government receives and spends for Social Security and Medicare can only be filled by increased borrowing, higher taxes, reduced spending, or some combination thereof.

Related CBO Publications: The Impact of Social Security and Medicare on the Federal Budget, Long-Range Fiscal Policy Brief No. 6 (November 14, 2002); Social Security and the Federal Budget: The Necessity of Maintaining a Comprehensive Long-Range Perspective, Long-Range Fiscal Policy Brief No. 3 (August 1, 2002); and Social Security: A Primer (September 2001).

This policy brief was prepared by Dave Koitz.

1. The Medicare program has two parts. Hospital Insurance, or Part A, helps pay for inpatient hospital care, home health care, skilled nursing, and hospice care for the aged and disabled. Supplementary Medical Insurance, or Part B, helps pay for physicians' services, outpatient hospital care, and other services.
2. The Social Security and Medicare trustees employ other tests of actuarial balance, but the 75-year summary measure receives the most attention. They also provide supplementary estimates of the programs' rising share of GDP, but their conclusions about actuarial balance stem primarily from summarized averages of the trust funds' income and expenditures. See Social Security Administration, The 2003 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds (March 17, 2003); and Centers for Medicare and Medicaid Services, The 2003 Annual Report of the Board of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds (March 17, 2003).
3. For Social Security, taxable payroll in 2003 is estimated to be $4.4 trillion; for Medicare's Hospital Insurance, it is estimated to be $5.4 trillion. HI taxes are levied on all earnings, whereas Social Security taxes are levied on earnings up to a maximum level each year, currently $87,000. HI taxes are also paid by certain members of the federal workforce and some state and local government workers who do not participate in the Social Security program.
4. See Congressional Budget Office, Acquiring Financial Assets to Fund Future Entitlements, Long-Range Fiscal Policy Brief No. 8 (June 16, 2003).





Ok, that's the article.

Here's my personal rant:
The article posted top is pure, unadulterated crap. It is half innuendo and half economic stupidity.

I dislike Bush as much as the next guy; I don't like his foreign policy, i don't like his environmental policy, i don't like his police powers policy, and I don't like his tax policy.

But, I see this kind of uninformed Bush or conservative bashing crap on this board every day.
The fact is, 99% of the world's problems are not Bush's fault.

Social security and medicare are facing serious bugetary shortfalls. People are getting old, and the government has committed itself to paying them money that we (young people) are going to have a hard time paying. This is a real problem, not one that Bush made up.


This kind of mindless Bush- and conservative bashing is not helping. It just makes us look like idiots. Please stop it.


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InvisibleGreat_Satan
prophet of God
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Registered: 09/05/04
Posts: 953
Re: confronting social security [Re: phi1618]
    #3519744 - 12/19/04 09:16 AM (11 years, 11 months ago)

I've got a huge pile of money in three IRAs, a 401K and a non-retirement brokerage account. I'll be able to retire early soon without Social Security.


Edited by Great_Satan (12/19/04 09:16 AM)


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InvisibleGreat_Satan
prophet of God
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Registered: 09/05/04
Posts: 953
Re: confronting social security [Re: Great_Satan]
    #3519761 - 12/19/04 09:35 AM (11 years, 11 months ago)

Since you people renounced Christianity, you won't be getting any hand outs anymore.


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Offlinephi1618
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Registered: 02/14/04
Posts: 4,102
Last seen: 6 years, 6 months
Re: confronting social security [Re: Great_Satan]
    #3519762 - 12/19/04 09:36 AM (11 years, 11 months ago)

What the fuck are you talking about?


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InvisibleRandalFlagg
Stranger
Registered: 06/15/02
Posts: 15,608
Re: confronting social security [Re: phi1618]
    #3520244 - 12/19/04 01:45 PM (11 years, 11 months ago)

The shit is going to hit the fan with Social Security. If all of that excess money that has been paid into social security had been saved, instead of investing it in government bonds, we would be much better off. There is no way that we can pay all of that borrowed money back to Social Security; or to any bond holder for that matter.

So, the American people find themselves saddled with an immense federal government debt, a social program that will become insolvent and that is heavily invested in our government's debt, and we face the real possibility of economic calamity when we can't pay the interest or principal on all of this debt.


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Offlinezappaisgod
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Registered: 02/11/04
Posts: 81,741
Loc: Fractallife's gym
Last seen: 6 months, 1 day
Re: confronting social security [Re: carbonhoots]
    #3520311 - 12/19/04 02:07 PM (11 years, 11 months ago)

Quote:

carbonhoots said:
[url=http://www.smirkingchimp.com/article.php?sid=19141&mode=nested&order=0]

The fund, insists Eric Engen of the American Enterprise Institute, "holds nothing but IOUs that the government owes itself."

Dick Armey, who as Republican House majority leader was happy to collect the extra Social Security payments, now calls the fund "an empty grave. The Social Security Trust Fund is full of meaningless government IOUs -- there are no real assets. . . ."


Now he tells us.

Actually, all government bonds are IOUs, and none of them have real assets. Nobody thinks that a Treasury bondholder could put a lien on Yellowstone Park, or even repossess a Bradley Fighting Vehicle.

What the bondholder has is the United States' promise to pay -- the government's full faith and credit -- which has always been good.

As it says on the special depository notes in the Social Security Trust Fund, "The bond is supported by the full faith and credit of the United States, and the United States is pledged to the payment of the bond with respect to both principal and interest."

But as President Bush suggests, maybe not.

U.S. bonds held by the Social Security Trust Fund, goes the argument, aren't quite the same as U.S. bonds held by, say, foreign investors. In the case of Social Security, "full faith and credit" doesn't actually mean "full faith and credit."

It's a strange position for a faith-based administration.

It might even raise questions among people holding the other kind of U.S. bonds, an alarming development considering that the dollar is sinking and the Bush administration will have to borrow hundreds of billions or more for its own plans.

"Maybe they'll use different wording," suggests Rep. Peter DeFazio, D-Ore., "and say these bonds are really, really the obligation of the federal government."

The administration talks of a plan to take the new borrowing off the books and not count it in the budget deficit. But as Sen. Ron Wyden, D-Ore., now on the Senate Finance Committee, notes, "You can find some mulberry bush to hide it under, but it will still be debt."

And it's not like the feds ever default on a debt. For the United States government, its word is its bond.

Actually, you might want to rephrase that.

David Sarasohn, associate editor of The Oregonian, can be reached at [Email]davidsarasohn@news.oregonian.com.[/Email]

?2004 OregonLive.com.




These alleged assets are simply money the government issued to lend itself. These bonds were not purchased with cash that was loaned to one entity with the promise that that entity would pay it back with interest and secured with collateral. They are "junk" bonds in the classic sense of the word. When the proceeds of the loan are used as collateral for the loan they are called "junk". Once again, Ponzi scheme is the operative decription here. Simply put, you list the loan as an asset and then, through creative accounting bullshit, avoid listing the liability to repay it on the other side of the ledger. This cannot continue.

The horror of SS was initiated in the 40s, I believe when the average life span was around 65 yrs and there were 30 workers for each retiree. Now the average life span is around 78 yrs and there are far fewer workers for each retiree. If you don't think this is a recipe for disaster you are crazy. Further, given the age of most of the people here, I can't believe anybody would oppose privatization. I'm almost 50 and I'll give up any rights to a cat food future benefit if they'll just stop taking more. You guys have to be nuts to oppose privatization, unless you're planning a future on the dole.


--------------------


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