patrick.net

This is definitely the most ridiculous thing I've heard from Mish yet.

Clearly, one major difference is the trust fund has nonmarketable IOUs, not marketable bonds.

I responded to Elliot that "You cannot owe yourself money and it's even more ridiculous to put an IOU in a piggy bank and pretend to collect interest on it."

Elliott was not convinced. The discussion with Elliott proves that some people will continue to believe whatever nonsense they want, no matter how carefully facts are presented otherwise.

As far as I can tell, this part is his proof: "You cannot owe yourself money and it's even more ridiculous to put an IOU in a piggy bank and pretend to collect interest on it."

Mish comments on economics and finance. I wonder if he ever took any economics, accounting or finance classes. Or Math or logic for that matter.

If it's even true that the treasury securities in the SS TRust fund are not fungeable with Treasury securities held by investors all over the world, so ? The treasury is the one who can sell bonds and or print money whenever they want.

Those treasury securities in the trust fund are just as real as any others. In fact, if you think about it, in an Ayn Rand sort of way, with regard to the US governments SELF INTEREST, bonds that the US holds for itself would probably be honored at least as well as any other bonds in the world.

What am I missing here ?

I know. IT doesn't account for those who want to paint a picture that we just really need to take these benefits away from the elderly ?

All that are needed for social security is a couple of tweaks like in '83. Raise the level of income that pays in to FICA. Maybe add some means testing for those retirees with income and or net worth above a certain level.

Mish is clearly friends with the most interesting politician in the world.

The bonds that the government holds in the SS Trust fund were never intended to be sold. They are being held to maturity, to receive the coupon and the face value at maturity from the US treasury. Yes, they can be replaced with cash (from selling bonds) at that time or they can be replaced with bonds at that time.

Maybe the bit about "Ramifications of Nonmarketable IOUs" is just to add color to his story ?

There are a lot of ignorant haters out there, that I guess must be Mish's target audience. But I hope he realizes that he continues to lose repect from those who have clue.

I still don't have a sarcasm font, but I think maybe Mish would appreciate this solution:

We need to build more highly secure gated communities, and we need to start thinking about where the shanty towns will be.

It's no nice to mess with 80 million Baby Boomers.

There have been articles that have shown that the perils of social security are largely exaggerated as a political football, usually by one politician to turn the tide of baby boomers against a rival politician. Social Security can't go bankrupt because the government prints the money.

SS is the political hot potato that is tossed from one side to the other mostly for propaganda purposes. If you catch it, jut toss it back, keeps people from paying attention to more important things.

Ceffer says

SS is the political hot potato that is tossed from one side to the other mostly for propaganda purposes.

I think that's right. It needs to be addressed, and the way it is addressed is different with democrats than republicans, but it's not a difficult problem.

Where as I guess medicare is another story.

"You cannot owe yourself money and it's even more ridiculous to put an IOU in a piggy bank and pretend to collect interest on it."

Don't people do this all the time when they borrow from their 401k?

Ceffer says

There have been articles that have shown that the perils of social security are largely exaggerated as a political football, usually by one politician to turn the tide of baby boomers against a rival politician. Social Security can't go bankrupt because the government prints the money.

SS is the political hot potato that is tossed from one side to the other mostly for propaganda purposes. If you catch it, jut toss it back, keeps people from paying attention to more important things.

I don't think it is exaggerated, at least not by looking at the jump in SS contributions of 50% in my paystub.

Mish sez:
I responded to Elliot that "You cannot owe yourself money and it's even more ridiculous to put an IOU in a piggy bank and pretend to collect interest on it."

Clearly Mish is unfamiliar with most of the "tricks" used by business in modern times. Many of the schemes played with money by your favorite banks and megacorporations are far more outlandish.

Mish is destroying whatever credibility he may have had, either to continue to cultivate a reader base of like-minded, low-bandwidth grumps, or, because his biased beliefes cause the twisted logic that he is displaying with increasing frequency.

All of his arguments are bogus, but likely created to be marketing campaigns to rally his unthinking readers.

Example - there is no SS Trust Fund and so, there is no money to pay SS recipients. Of course the witless Mish does not also argue that there is no US Treasuries Trust Fund, and yet folks have every expectation of being paid. There are no Coporate Bond Trust Funds, etc.

Example - you cannot pay yourself. Of course you can. I borrow money from my new car savings account to fund junior's college education. I get a raise. I put the money in the car savings account. I just paid myself.

I work for GE. I get paid by GE, and I buy their bonds. What? Is GE paying itself?

I live in Japan and own US Treasuries. I buy more. What, I am paying myself?

Mish is a moron coming to grips with the fact that anyone can run a blog, and even run one poorly.

Mish is taking an unnecessary pounding here. You folks consider it no big deal for the USG to owe itself since the USG would never renege on itself. That isn't the proper way to appraise the situation. What we have here is the present USG dumping an enormous burden on the future USG and its primary backers, the American taxpayers so that it can operate the mother of all slushfunds. These will prove to be two distinctly different states, not one kumbaya campcircle of altruism.

I predict that future taxpayers will (and should) rebel at this swindle before they are left holding the bag. The present SSTF relies upon the confiscation of 12% of the earnings of most joeblows; this is NOT an inconsiderable sum. When SS pumpers casually toss out solutions that usually include increasing withholding, I can't believe they know much about logic, mathematics, economics, finance or accounting. It is a terrible system and the sooner we are rid of it the better.

fiddy64 says

That isn't the proper way to appraise the situation. What we have here is the present USG dumping an enormous burden on the future USG and its primary backers, the American taxpayers so that it can operate the mother of all slushfunds.

Mother of all slushfunds ? (You need to elaborate if you have a point here)

fiddy64 says

I can't believe they know much about logic, mathematics, economics, finance or accounting. It is a terrible system and the sooner we are rid of it the better.

Right.

Th fact is that social security has been extremely successful in preventing many elderly people from living in worse than abject poverty.

But there are problems with it.

The biggest problem is that through the big surplus years, when boomers were paying way more in to the SSTF than what was paid out, that money was accounted for incorrectly.

In a year when the SS surplus was say 200 billion, we were told that the deficit for that year was 200 billion less than it was

This allowed taxes to be lower than they should have been, or spending to be higher than it should have been (if you want to view it that way).We were using SS FICA taxes for the general fund, and perpetuating a right wing lie that lower taxes always increase GDP enough to justify the tax cuts.

(even the laffer curve says that there is an optimal level for taxes - and not that lower taxes always increases GDP enough to increase tax revenues as much as the taxes would have - no matter how low taxes already are. That was and is the lie).

Back to the point. We were getting understated deficits, and we had taxes that were too low, relative to spending, and funding current fed govt operations in part with FICA taxes.

IF americans were better informed, they would not have tolerated what was essentially funding tax cuts for the rich with FICA taxes (Social security taxes).

How can I make this clearer ?

There is no problem with treasury securities in the SS trust fund. The problem is that this is debt, and yet it was used to hide deficit spending when the SS surpluses were occurring. We pretended deficits were lower than they were, and that a total budget surplus existed that didn't when Bush initiated the Bush tax cuts, that went mostly to high income bracket tax reductions.

I guess the whole low taxes crowd thought this was pretty nifty, and in a "starve the beast" way (look it up if you aren't familiar), looked forward to the day we are almost at when they could claim that we simply can't afford social security.

So then here we are now, and the boomers are going to be retiring for the next 15 to 20 years, and right wingers want to cry foul ?

Even if there had been an accounting "lock box" that prevented us from using FICA taxes to give lower taxes to the rich, the boomers would be putting a strain on the SSTF, and tweaks would be necessary.

But as all informed people know, this boomer retirement period is a temporary problem that we can deal with.

Right wing wackos want to use the circumstances that they took part in creating to permanently undue a great FDR policy that has been incredibly successful.

Our government borrows from the federal reserve ,private bankers , to pay SS . We are so far in debt to the central bank that they will ultimately decide if the Government has enough borrowed money for SS payments.
Obama has said repeatedly SS payments will not go out without raising the debt limit = more borrowed money.
I am not counting on SS.

Money is just an illusory accounting entry whose value can be changed by the people in charge of the books. The younger person who has to wipe your ass when you're old is more real. Mish will understand this in a few decades.

The real issue with SS is cash flow turning negative. The so-called "trust fund" is just an accounting fiction. Those "trust fund" programs with initially huge demographically determined surpluses were always set up as an excuse to collect more taxes for the general fund, in which the largest item is war making!

It is not a co-incidence that SS was set up by FDR, who used huge surplus at the time to build up for WWII; LBJ set up another trust-funded program Medicare/Medicaid, and got a war chest for Vietnam War; Reagan reformed SS to get another 30 years of demographically determined surplus, which was especially big in the initial years, so he could have money to intensify Cold War and build SDI.

With both SS and Medicare/Medicaid cash flow running negative, new revenue source is needed to pay the outflow. That new source of revenue seems to be the penalty payment in the Obamacare. With all qualifying insurance required to cover pre-existing conditions, it won't be long before premiums rise to a level where most will choose to pay penalty instead.

Negative cash flow, known as deficit spending, is no problem when you have the Bank of Bernank working hard producing QE. As a hedge I recommend buying chicken stock.

taxee says

Negative cash flow, known as deficit spending, is no problem when you have the Bank of Bernank working hard producing QE. As a hedge I recommend buying chicken stock.

Bernanke himself is leaving in early 2014. Normal deficit spending is about rewarding a small circle of cronies with government contracts that are priced way above free market price, then have the taxpayers pay back the creditors, principal plus interest. It's fanciful to think that any wide cross section of the population can be helped by that wealth transfer process.

Reality says

Negative cash flow, known as deficit spending, is no problem when you have the Bank of Bernank working hard producing QE. As a hedge I recommend buying chicken stock.

Bernanke himself is leaving in early 2014. Normal deficit spending is about rewarding a small circle of cronies with government contracts that are priced way above free market price, then have the taxpayers pay back the creditors, principal plus interest. It's fanciful to think that any wide cross section of the population can be helped by that wealth transfer process.

Au contraire. With the growth of the financial sector going from 10% to 40% of the US economy in about the last 40 years and the social security checks and pension funds paying out to retired boomers I would have to argue that the banks and Bernank and friends are doing a fine job of distributing a little bit of the vast wealth they control. Of course they do pay themselves like kings for the service. I just don't think it can last.

One of the features of 'democracy' is that the 'elected officials', 'cabinet members', 'appointees', 'B movie stars', 'cult personalities' or sock puppets usually get to leave office alive and fade away after doing the deed.