The social security surplus doesn't represent assets, it represents funds that were raided

[dkf]

by the Federal Government.

Other countries like Ireland and perhaps France are now raiding their funds that hold stocks and bonds. But at least they had those assets. Now when they take those investments they will be putting their IOUs in there instead.

They call it raiding their funds, we call it an asset that ensures the solvency of social security.

[Statistical]

1. The fund contains Treasury Bonds.

If you feel the govt will be unable to repay Treasury Bonds then we have more problems than just SS insolvency.

The general fund borrowed from SS Trust fund for 30 years and that kept income taxes lower.
Soon the trust fund will need to be repaid by general fund and that will mean 30 years of higher income taxes.

Saying things like SS is "broke" or has been "raided" or lacks "assets" fits right into RWer meme.
If SS is so broke I guess we should just scrap it right? You are helping to contribute to this meme that SS is beyond saving.

[dkf]

2. So the people of Ireland should be fine with the sale of their stocks and bonds and the

Exchange for IOUs instead? Those are assets for the Irish people too. I wonder how much comfort they feel knowing their Government has made a promise to pay those funds.

[Statistical]

3. It depends on a lot of factors.

What are these "IOUs" are they actual sovreign debt bonds or are they merely a "promise" (wink wink) to pay?
Is there any strategic multi-decade plan on how to manage cashflow or is this merely emergency selling because govt lacks other options?

The point is SSA Trust contains Treasury Bonds. If they are repaid they are an asset. If they aren't repaid they aren't. This is no different than any other bond. If the SSA had instead bought Irish Sovreign Debt bonds and Ireland defaulted they would no longer be an asset. You stating SS has no assets = bankrupt; is just a right wing meme. Convince enough people it is true and we might as well scrap SSA (which exactly what Republicans want).

[dkf]

4. The bonds in the social security fund aren't negotiable.

They are physically held in a basement of some building, I think in Philadelphia.

If they were stolen, they would have no value as they do not trade on any market and they pay interest by issuing more bonds. Regardless of their interest rate, they are payable at par.

And social security isn't meant to be a sovereign fund. It is supposed to be a pay through system.

Why would the non-existence of the assets doom the system? If not for the requirement that the system fund itself, we would not have tried to over fund it

[Statistical]

5. So? You think this means what exactly?

[dkf]

6. The surplus does not better enable us to pay for social security.

It is not a source of funds to pay benefits as in the end it will be taxes collected, some from the payroll tax and some from the other federal taxes, that provides the funding.

It will be the ability of the public to pay those taxes that will determine the levels of benefits.

[Statistical]

10. Of course.

Just like is we had instead bought Ireland bonds it would be the ability of Irish taxpayers to repay that determined revenue level.
Thank god we didn't huh (Irish bonds are trading at $0.

Still your hyperbole that SS is "broke" or contains no "assets" is RWer nonsense. You repeating it adds to the belief that SS is actually broke. If SS is broke we should just scrap it.

[dkf]

14. SS wasn't designed to be a sovereign wealth fund. It's supposed to be a pass through system.

It doesn't need any assets to work.

Again, In the end benefit levels will be enabled or constrained by the ability of the workers to pay for the pensioners.

[Statistical]

15. "benefit levels will be enabled or constrained by the ability of the workers to pay pensioners"

Of course. Nobody has claimed otherwise.

The purpose of a surplus is to make it more equitable when boomers retire.

Without a surplus SS taxes would need to rise significantly to pay for boomer's retirement. That in itself is a risk. Most people accept Social Security. It is the ultimate fallback. I plan on funding my own retirement but I like knowing SS is there as a fallback.

To fund boomer retirements without any funding from general fund would require SS rates roughly 50% higher. That is enough to create a risk to the system. More people would rebel, you make get enough votes to significantly scale back SS.

The "solution" was to have SS contribution rates rise moderately. The excess being used to purchase bonds to be used for repayment at the height of the boomer's retirements.

"benefit levels will be enabled or constrained by the ability of the workers to pay pensioners"
Nobody has said this isn't true. The bonds in SSA trust fund are a mechanism to allow equitable repayment via general fund.

[dkf]

17. I think we are in agreement over the mechanics of it.

You just think the surplus gives more leverage to the likelihood of payout than I do.

[Statistical]

20. Would no trust fund give more or less leverage?

Imagine 4 scenarios:

a) SSA funded via general fund. No payroll tax but everyone income taxes roughly 20% higher.
b) SSA funded to be only pay go. The contribution rates set exactly to what is needed to match revenue w/ current year expenses
c) SSA funded via current situation. It generates surpluses and deficits (eventually in the future) but over the lifetime of the program it is self funding (payroll contributions + interest = benefit payments).
d) some alternative I haven't thought of.

In every scenario SSA ability to pay is based on future tax revenue. Both the ability and willingness of future generations to continue repayment. I personally think c is the best mechanism to create pressure to ensure that repayment.

[dkf]

23. I just think that the situation will be dire enough that leverage won't matter.

I do agree that in a rosier picture the leverage would ensure payments. I'm just not as hopeful that this country will continue the dominance necessary to keep our standard of living so far above the rest of the world.

[Statistical]

26. Which is why I am trying to hard save enough so I won't be reliant on SS.

Maybe that is a better picture about what my gut tells me than any theories I can proclaim on DU. I want to think it will be there or any cuts in benefits won't be too severe but the risk as an individual is if it happens I can't go back and change anything, I can't suddenly magic up the hundreds of thousands necessary to provide an offset.

I figure I need about $1.4 million in assets (excluding residence) in 2010 dollars. That would be about $3.3 om 2045 dollars. Having that would allow me to maintain current standard of living without any assistance from SSA.

[dkf]

28. Yup. $2 million is the standard goal.

It's actually scary how vulnerable you still feel at $2 million in assets. That level isn't something at which you can splurge unless you own a house free and clear and then you need to consider health care costs.

It is scary to not have a Government pension and health benefits. I would place those at a value of $2 million easy.

[Statistical]

29. Healtcare is the largest obstacle.

I think that even IF I had the funds I need to work until 65 and get Medicare. Likely it will be a moot point but it would simply ravage any retirement savings to pay for private health insurance for say ages 60 to 65.

[dkf]

30. Exactly. Just think of how amazing single payer would have been.

But I'm not sure the Government is up to it with all these debts.

[muriel_volestrangler]

9. What do you mean when you say Ireland is 'selling its stock and bonds'?

Some kind of link to what you've heard might help us, and you, to understand your point.

[dkf]

12. Ireland must find €17.5bn from its pension fund and reserves for bailout

EU ministers tonight spelt out the terms of Ireland's €85bn international financial rescue package, and revealed the Dublin government will have to raid its national pension fund and other cash reserves for €17.5bn as a condition of the deal to bail out its banks and debt-laden economy.

http://m.guardian.co.uk/business/2010/nov/28/ireland-bailout-contribution-pensions?cat=business&type=article

[muriel_volestrangler]

21. Thank you; this appears to be the reserve fund told to buy stock in the Irish banks

after selling some other stocks or bonds:

In Ireland, meanwhile, the National Pension Reserve Fund is providing €12.5bn ($16.5bn) – about half of its current assets – towards the country’s International Monetary Fund/European Union bail-out, through the purchase of substantial stakes in Ireland’s banks. While commandeering the fund’s investment decisions is arguably not as drastic as transferring ownership of the assets, such political interference is surprising in an IMF/EU-backed rescue package.

http://www.ft.com/cms/s/0/02dfa378-048f-11e0-a99c-00144feabdc0.html

At the end of September, it had assets under management of €24.5bn. Under the original legislation, the government assigns the equivalent of 1 per cent of GDP to the fund every year. Until the onset of the financial crisis, it was not envisaged that money would be drawn down until after 2025.
...
The move required legislation which allowed the minister to use the fund “to remedy a serious disturbance in the economy” and to prevent potential serious damage to the financial system.” The NPRF now holds just under 19 per cent of Bank of Ireland, after the bank was stopped by its bondholders from paying a coupon to the government and took shares instead.

Even before Sunday’s bail-out terms emerged, the NPRF was set to increase its stake in AIB to as high as 99 per cent as a result of underwriting its €6.6bn fundraising with the bank ordered by the regulator to bolster its capital position.

The fund is invested in quoted equities, eurozone government bonds, and financial assets such as property, commodities, and private equity. It also has approximately €4.1bn cash, which in the first instance is likely to be deployed to support the banks.

http://www.ft.com/cms/s/0/adb04460-fb3e-11df-b576-00144feab49a.htm

So it's somewhat different to any American situation; effectively, they're nationalising the banks, using the money in the pension reserve fund. And the fund had been quite different, since it already invested in assets other than the Irish government (or even eurozone government bonds). You have to hope that they will be able to sell their stakes in the banks at some time, if that's money that meant to be supporting future pensions.

[elocs]

7. China holds billion$ in U.S. Treasury Bonds.

If the U.S. can't or won't honor the Treasury Bonds owed to its own citizens in SS, then why should China believe we would ultimately honor the bonds owed to them?

[dkf]

13. They are holding shorter term bonds that mature in several years.

They will get their funds back sooner than when we need to really use the surplus in the SS system.

[Statistical]

16. Not true. China purchases a variety of Treasury Bonds.

Everything from 3 month note to 30 yr long bond.

The average maturity of bonds held by SSA is 7.5 years.
http://aging.senate.gov/crs/ss5.pdf

The average maturity of all federal debt is 70 months, and average maturity of new debt is 80 months.

[dkf]

18. We don't receive cash when the bonds in the SS fund mature you know.

They just reissue new ones and do a paper transaction to show a use of the funds when we don't have enough incoming from workers. I guess it wouldn't even matter if we paid out cash to the fund would it? Heck we could even print money to technically throw cash into the fund.

[Statistical]

22. What do you think China does with their interest payments?

For that matter what do you think most banks, pension funds, etc do.

There is no reason to hold cash. Cash loses value at the rate of inflation each year.

So if you have a $1 mil bond and it pays $50K in interest. Now assume you don't need that $50K this year but will need it in the future. Why would you keep the $50K as cash? Assuming 3% inflation it will be worth $48,500 next year, and only $36,871 in 10 years (in real terms).

Nobody would. If you don't need money that year (or the portion you don't need that year) you purchase new bonds to provide a hedge against inflation.


There is nothing special about SSA. Soon it will start needing some and then all of the interest to balance revenue (via payroll taxes) with expenses (benefit payments) when that happens it will start getting some and then all of it's interest in cash.

Some time after that even 100% of the annual interest in cash + payroll contributions won't be enough so it will start "cashing in" bonds. That is to say when a bond matures instead of using that revenue to purchase new bonds it will keep the cash to finance current year obligations.

[dkf]

24. Yes. I'm just commenting on the irony that nothing the fund is allowed to hold gives me any

Confidence in the fund. If it held stocks and corporate bonds I would feel better about it which is contrary to most here I imagine, but at least we would have claim to assets other than a claim on our tax revenue which we are so reluctant to increase.

[Statistical]

25. Well that is one sentiment I share.

Watch out for the flames but I think a portion (say 10%) of SSA fund should be diversified into high grade sovreign and corporation debt, another portion should be diversified into a basket of blue chip stocks (say 200 stocks of each stock represents less than 1/20 of 1% of total fund value).

I would say we are not only in the minority but the extreme minority. If you posted a poll it likely would be 99%+ against.

[dkf]

27. Yeah I know it.

[SDuderstadt]

8. It's very misleading to claim...

the funds were "raided".

Where would you expect surplus to be? Just sitting there? If I am not mistaken, federal law requires them to be invested in treasury securities.

[dkf]

11. I'm saying that Ireland considers their funds raided when they had to take billions in stocks and

Bonds from their plan which I assume were replaced with some sort of IOU.

My state of Hawaii used to take anything above 8% to fund the general budget. They said it was okay because the tax payers would have to come up with the funds anyway. A defacto IOU in effect.

[SDuderstadt]

19. Except you made the claim I addressed...

about the United States.