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March 08, 2005



Krugman never said the Trust Fund was part of the Ten Commandments. And Rosenbaum was saying honoring the lock box is a moral imperative. Just watch what happens to the GOP if they are able to steal from the lock box on a permanent basis.


When the Social Security Trust Fund goes to cash in their T-bills in order to pay beneficiaries, it will take a T-bill to the capital markets and sell it.

The process is exactly the same for raising money to cover a budget deficit, except the T-bills are newer.

If the federal government burned all the T-bills in the trust fund, noone would ever know.

Old T-bill, new T-bill, what's the difference to the capital markets ? Nothing.


Krugman never said the Trust Fund was part of the Ten Commandments.

Great point! And that totally rebuts my claim that he boils kittens.

(Let me know when you want to comment on what Krugman *did* say - in the link I left, it includes stuff like this:

Privatizers say the trust fund doesn't count because it's invested in U.S. government bonds, which are "meaningless i.o.u.'s." Readers who want a long-form debunking of this sophistry can read my recent article in the online journal The Economists' Voice (www.bepress.com/ev).

The short version is that the bonds in the Social Security trust fund are obligations of the federal government's general fund, the budget outside Social Security. They have the same status as U.S. bonds owned by Japanese pension funds and the government of China. The general fund is legally obliged to pay the interest and principal on those bonds, and Social Security is legally obliged to pay full benefits as long as there is money in the trust fund.

There are only two things that could endanger Social Security's ability to pay benefits before the trust fund runs out. One would be a fiscal crisis that led the U.S. to default on all its debts. The other would be legislation specifically repudiating the general fund's debts to retirees.

I expect the usual Krugman apologists will insist that the *only* possible interpretation anyone could have of that is, a future Congress might choose to cut benefits.

But my position was, is, and shall be - given the prelude about trust fund bonds having the same status as bonds held by foreigners, and the use of the phrase "default on its debts", his concluding construction - "repudiating the general fund's debts to retirees" - was meant to confuse rather than enlighten.

And he was just cute enough about the phrasing that he can't be laughed out of the next economists convention he attends.

Harry Arthur

"And Rosenbaum was saying honoring the lock box is a moral imperative. Just watch what happens to the GOP if they are able to steal from the lock box on a permanent basis."

Did I miss something? There's a lock box now?

Nothing will happen to the GOP, PGL, the "trust fund" is chalk full of US bonds. To my knowledge, every single administration since Johnson, republican and democrat alike, have spent the entire FICA surplus. Of course FICA revenue was used to "buy" US government bonds and the procedes from the sale of those bonds was used for general fund expenses. This both masked the true nature of the deficits, including the actual non-surpluses in the Clinton administration, and created the illusion (in my opinion) that there is a SSA "trust fund."

Regardless of Krugman's and others' assertions to the contrary, in 2018, when SSA benefits exceed receipts, the SSA will begin to cash bonds to pay benefits - there is no other choice short of restructuring. At that point not only will the SSA surplus no longer mask the true extent of the general fund surplus but additionally the general fund will have to make up the difference double much.

When that happens there are only a few potential solutions: cut SS benefits to current and future retirees, increase FICA taxes to current workers or increase federal taxes to reduce the general fund deficits. I do not believe there is another option, short of some level of restructuring to a privatized system such as exists in Chile or Corpus Christi, TX.

The longer we wait, the more painful the results. I wouldn't want to be in the party that chose to do nothing when 2018 rolls around and the reality of the "problem" hits Americans square in the face. The question you have to ask yourself is would you rather own your account - a true lock box - or would you rather give the keys to the government. Seems simple to me.


David Rosenbaum would have better served his reading public by noting that entities like SS, financially separate but owned and controlled by a larger company, are very common in the private sector and they include in their assets claims on the parent firm. There are tens of thousands of such firms. I work for one in the insurance world and regulators accept that our assets include claims on the parent.

But as Delong would say our press crops is not up to the job.

And if Rosenbaum had done his job correctly he would have noted that the same people telling us today that SS is just another part of the government were saying the exact opposite only three years ago when it suited their needs to pass the tax cuts. Heck, to this day you have people claiming at the same time that the money runs out in 2018 and that there is no Trsut Fund, two concepts that are mutually exclusive.

Or Rosenbaum could have noted that this "phony" trust fund was used 11 times in the past to pay for SS benefits when SS revenues were insufficient.

And to think there are people out there still talking of a liberal media!


...financially separate but owned and controlled by a larger company, are very common in the private sector and they include in their assets claims on the parent firm.

The point Rosenbaum made several times (but evidently not often enough) is that the government can elect to change the rules and reduce benefits, regardless of whether there is a trust fund or not.

Lacking specifics, I can not speak to your situation, but as a general rule in the private sector, corporations can not unilaterally reduce accrued/vested pension benefits.

The point that Rosenbaum did *not* make is that the assets are phony, or not creditworthy.

Honestly, GT, try to make your talking points intersect with the article in question.

Oh, and this bit baffles me:

Heck, to this day you have people claiming at the same time that the money runs out in 2018 and that there is no Trsut Fund, two concepts that are mutually exclusive.

If I say that, after 2018, Soc Sec payroll tax receipts are not enough to cover Soc Sec benefits, and therefore we have a problem, how does that contradict (or rely on) the notion of a trust fund? That seems like an obvious statement about a pay as you go system.

That said, folks saying the money runs out after 2042 (or 2052, whoever you like) are relying on a Trust Fund accounting model.

As to a liberal media - one swallow does not a springtime make.

For example, Rosenbaum threw in an obligatory paragraph explaining that the White House has contributed to the confusion. I saw no attempt on his part to find examples of Dems (like Krugman) compounding the confusion.

Do you think the Wall Steet Journal would have covered it quite that way?


Rosenbaum made it sound as if the Trust Fund is not real when in fact it is very real. It has real claims on the best obligor in the world. The fact that the government can change it only means it has less legal protection but not that it is phony.

If SS does not have its own money stream separate from the General Fund (the only way one can claim there is no Trust Fund) then it can't very well run out of money in 2018 or ever, for that matter. Just like the DoD can't run out of money. This is a crucial and basic point. Either SS is financially part of the overall government or it isn't. When you say it runs out of money in 2018 you claim it isn't. When you say there is no Trust Fund you claim it is.

As for swallows and spring, a quick look at any liberal site and you will see many, many more examples.

Bill Arnold

I've let to see a good privateer answer to that argument; "trust fund is an illusion" implies "there is no social security crisis." You'll find it here if there is one. :-)

Another point, not sure which side of the argument it aids, is that a form of the reckoning will start when the social security surplus stops increasing and starts declining, in what 2008/9/10? At this point through 2018/2020 we will run a social security surplus but it will decrease each year, and so we'll have to make up the "shortfall", somehow. (My favorite, as a pacifist: tell the military it's $420 billion a year period, not $420 billion "plus expenses".) Since this derivative form of the "crisis" has happened before (as has the redemption of the trust fund form of the "crisis"), it's hard (for me) to see a crisis.

creepy irish dude

Aha! I see how this works. We wait 20 years to confirm Republicans are filthy liars.

Take Ronaldus Maximus-world's foremost tax cutter. Except he raised social security payroll taxes in 1983. But now we are told that apparently this was just a cleverly disguised income tax. The money raised just sank into the general fund and is gone.

My small brain can process that. Actually I agree. But why did then Reagan et al. trumpet the fact that they had stabilized social security in 1983?

Like check this out from a campaign appearance on October 16, 1984:

"Q. I'm Randy Kimmel. And, Mr. President, Mr. Mondale has mentioned that you're going to stop Social Security and Medicare. Is this true?

The President. Not at all. And if there's one thing that makes me angry in this campaign it is that pure political demagoguery for whatever advantage he thinks he can get out of saying those things...

No, we were faced, when we came into office, with a Social Security system that in spite of the biggest tax increase in -- single tax increase in history in the Social Security payroll tax -- it was passed in '77 by the previous administration and the previous Congress -- that Social Security was facing bankruptcy. And we started trying to talk to the opposition about -- that we had to head it off, as -- by November of 1982, they wouldn't, they wouldn't discuss with us anything about it. And by 1982, we had to borrow $17 billion to keep Social Security checks from bouncing. Then when the '82 election was over, finally they agreed to sit down, join with us in bipartisan commission, and find a solution to the financial problems of Social Security. And we did.

And we can look, now, ahead into the future for another half a century, and as far as we can see Social Security is on a solid footing."


So President Reagan was lying. Plain and simple lying.

I see how this works. The President lies. And roughly 20 years later-we all admit it was a lie. Can't wait to see what they about Bush in 2025.

Really this whole thing makes me sick.


You'll need to explain to me, VERY slowly, why you think Reagan was lying.

He made a statement in good faith about a future no one could possibly expect him to control. And now, 20 years later, we are not sure his statement is right. That is a lie?

I guess your point is that his statement was based on a trust fund accounting model. So what? By most common usage, that is appropriate, especialy as of 1984 - it is only a few determined skeptics that have been driving the point that it is meaningless, although we are gaining in numbers. I would say that right now, most folks still think the trust fund accounting model makes sense.

Anyway, Paul Krugman explains his conception of lying right here:

COLMES: How can you prove a lie? Can prove that they lied?

KRUGMAN: Oh, sure. Look, when Bush in his State of Union said 92 million Americans will receive an average tax cut of $1,000, it turns out that half tax payers either received nothing or less than $100. There was a technical sense in which what he said was true but it was designed to mislead.

Hmm, so technically accurate, but misleading, is a lie. That is a rule we can nail him with every week.

GT - I can't read the article out loud to you, and you seem determined not to read it yourself. Rosenbaum explains the trust fund mechanics quite nicely. One excerpt:

But unlike a mirage, the trust fund does exist. The details are on Page 1,112 of the appendix in the president's budget for the 2006 fiscal year. What Mr. Grassley meant was that the significance of the trust fund is limited.

...Here is how the trust fund works:

When the Treasury receives the Social Security taxes paid by workers and their employers, most of the money is placed in the Federal Old-Age and Survivors Insurance Trust Fund. (Some also goes into the Federal Disability Insurance Trust Fund.)

Retirement benefits are paid monthly from the trust fund. Any tax money left over is lent to the federal government. The government issues interest-bearing Treasury bonds to the trust fund and immediately spends the money for other purposes.

When tax receipts are not sufficient to pay benefits, the Treasury is supposed to redeem bonds in the trust fund and use the proceeds to meet the monthly payments.

Now, you summarized that by saying "Rosenbaum made it sound as if the Trust Fund is not real when in fact it is very real. It has real claims on the best obligor in the world. The fact that the government can change it only means it has less legal protection but not that it is phony.

If SS does not have its own money stream separate from the General Fund (the only way one can claim there is no Trust Fund) then it can't very well run out of money in 2018 or ever, for that matter."

There is no overlap between your comment and the article. The money stream is clearly explained, the separate accounting is clearly explained, etc.

Harry Arthur

I believe we are playing word games again.

First, I don't believe anyone on the privatization side of this debate has ever used the term "run out of money" at any point in any argument.

I submit and have consistently maintained that whether the SS "trust fund" and the SSA are or are not part of the same entity known as the US government is simply an unimportant distraction from the real issue: In 2018 the general fund will have to assume at least some portion of the funding requirements for SS benefits because there won't be enough revenue to cover benefit expenses.

When that occurs I would argue that there will be at least two significant demands on general revenue: 1. General revenue must then compensate for the SS surplus revenue normally used to finance general fund spending but that is no longer available; and 2. General revenue must be applied to the redemption of SS "trust fund" bonds to cover SS benefits. These two demands on general revenue will require either higher income taxes or significant budget cuts in every federal program.

As for SSA being the same as DOD, DOJ or any other government entity, there are several distinct differences, one of which is that those agencies have no essential moral or legal call on the assets of the federal government, nor do they have a large constituency of retired voters, whereas the SS system at least purports to owe benefits to a cohort of retirees, virtually all of whom vote. Secondly, none of these other agencies of the federal government purports to have a "trust fund" with legitimate assets from which future funding will be drawn until at least 2042 or 2052 depending on your imagination.

Furthermore, to compare the SS "retirement" program to private industry is a bit disingenuous in my opinion in that by far the retirement programs in private industry have tended to 401K style programs that are wholly owned by the participant. Most of the defined benefit programs, at least those in the aviation industry in which I work, are quickly becoming dinasaurs because they are simply unaffordable. Additionally, private companies are required at least to some extent to recognize pension benefits on their balance sheets while the federal government is not, to the tune of somewhere around $10 trillion, give or take a few trillion.

Would that we would recognize this situation with SS and restructure it into something more like a very secure 401K. What exactly has Corpus Christi, TX done with their private system that suggests we not emulate it on the national level? Other than, of course, to create a financially sound system, owned by its participants, that provides all that the SS system does and much more in terms of benefits without in any way being a "risky stock scheme" as it is alleged W wants to create.

As for whether Ronald Reagan lied, was mistaken or truly believed that we had fixed SS in the 80s is really irrelevant, CD. I won't begin to argue RR's veracity, trustworthiness, economic acumen or anything else. He's dead, my friend, and even if we grant your assertion that he just woke up one morning and decided to lie about SS in the debate that night, that in no way implies any such intention on the part of anyone else living or dead since, nor is it true simply by your assertion. Bush is a liar too, simply because he's also a republican? Again, why make unsubstantiated alegations and ad hominem arguments? Isn't there any better logical argument against privatization than that RR and W are bad persons who of course will lie to us every chance they get?

Finally, what if we wake up in 20 years when each two or three of our children are paying FICA to support the SS benefits of a single retiree, and find out that ... oops, Bush was right? Gee, that'll be inconvenient, won't it? Will it be a problem then?

creepy irish dude

Well-let's blow past the fact that Reagan was wrong just 20 years ago and now you geniuses are telling me what's going to happen in 2042 or whatever.

That's not what the lie was anyway.

I agree the trust fund accounting is meaningless.
And that's the lie: it was JUST AS meaningless in 1983, but it was used to justify a tax increase.

RR didn't fix SS in 1983. He used it as accounting gimmick to shield the true size of the deficits, and then told the poor slob Kimmel to his face that SS was alive and well for the next 50 years.

Of course the trust fund is meaningless. So why can't you Repubs be honest and just admit you want to end guaranteed government benefits?

But let's get back to Reagan's prediction. There were no baby boomers alive today who weren't alive in 1983.
So what did they get wrong in the 1983 fix that caused Reagan's wrong prediction?

Jim Glass

"If SS does not have its own money stream separate from the General Fund (the only way one can claim there is no Trust Fund) then it can't very well run out of money in 2018 or ever, for that matter. Just like the DoD can't run out of money. This is a crucial and basic point."

When Congress cuts appropriations to the DoD people get laid off from their jobs. This is a crucial and basic point!

I wonder if the laid off then muse, while waiting in the unemployment line, about how "the DoD can't ever run out of money."

Harry Arthur

Thanks, Jim, I seem to keep having this back and forth with GT on this very point but have yet to get through. Good luck.

I do agree with him on one point, though, it certainly is "a crucial and basic point", just not the one he wants to make.

Jim Glass

"...unlike a mirage, the trust fund does exist..."

Whoever said it doesn't exist? Of course it exists! In a very real and physical way too.

The Social Security trust fund really does exist -- nestled in the bottom drawer of an unremarkable government file cabinet. It's in a pair of white loose-leaf notebooks holding plastic page covers.

Each caresses a piece of paper representing a bond worth a staggering amount of money. Say, $8,577,396,000.00 ($8.577 billion), due on June 30, 2013, with 6.5 percent interest...

"The paper is symbolic," says Pete Hollenbach, spokesman for the U.S. Bureau of Public Debt, the creation of a 1994 law that anticipated the current debate about Social Security's solvency and whether the trust funds held anything more than IOUs.

As the computer era flowered, Congress passed legislation requiring the Treasury to create a "physical document in form of bond, note or certificate of indebtedness, rather than accounting entry."

"I viewed it as somewhat Biblical ... like doubting Thomas," says Andy Jacobs, the former Indiana congressman behind the law.

In an interview, Jacobs said he wanted to rebut the "disingenuous assertions" that there was no trust fund...

Harry Arthur

CD, you connected the dots and you've made my point that a private system is to be preferred over the current pay-go system. I believe it has been a major problem that every administration since Johnson has used the imaginary trust fund to conceal the true nature of the deficit, including about 40 years of democrat congresses and the last 11 years of republican congresses, with a few years of a republican senate thrown in during Reagan's term for good measure.

I think most conservatives would prefer that the people owned their retirement programs so the government, with whichever party in control, could not get its hands on your money without your concurrence.

Jim, thanks again, I feel better already knowing about "the bottom drawer" of that government filing cabinet. I suspose that answers my request for someone to show me "the trust fund room" where my retirement money is kept. :-)

If it wasn't so sad it would be funny.

Steven J.

Harry Arthur:"First, I don't believe anyone on the privatization side of this debate has ever used the term "run out of money" at any point in any argument."

BUSH: … if nothing happens, and we don't start moving on it now, by the time Josh gets to retirement age, the system will be flat broke.

Harry Arthur

Steven, refering of course to the 2042 date when all of the bonds in the trust fund have been redeemed and benefits are paid only from the FICA receipts. If you read my multiple comments in context you will see that I clearly refer to the situation in 2018 where we don't "run out of money" we simply quit running a surplus. I've not found any rhetoric here or elsewhere that suggests that we will "run out of money" in 2018 but my point is that the situation is no less a problem even given that contextual limitation.

The facts are that in 2042 the system does "run out of money" in the sense that the last bond purchased in the surplus years is redeemed to make up for the shortfall in revenue. But that has never been my argument. The real problem occurs much sooner in 2018 when we start creating incredible pressure on the general fund because it has to start picking up some of the SS benefits load by redeeming the SSA investments.

Whether you agree that "the system will be flat broke" as aledged by president Bush, adequately describes the conditions in 2042 when there are NO bonds left to make up for the shortfall caused by 2 point something workers paying for SS benefits for each retiree, is I completely agree, subject to reasonable disagreement by reasonable people. I would submit that if you were talking as a business owner, that would be an adequate description. The government, of course, is not precisely a business.



I thought I was clear but just in case I'll try to explain. When I say that the DoD can't run out of money I did not mean to say that it will always have enough money for anything it wants. Rather what I meant to say and maybe was unclear is that the DoD does not have a dedicated money stream, it gets its money from the General Fund. So one can't predict that it will run out of money in year X unlike SS which you can. SS can have its own separate crisis (but only if it's a separate entity) whereas DoD can't. That's all.


I guess we read it differently. I think Rosenbaum should have been much clearer in pointing out that the Trust Fund is perfectly real like any other Trust Fund in the world. He should have pointed out that SS does not have a problem, it's the General Fund that has problem and that Republicans are trying to conflate the two which makes no sense and for which there is no need.

He should have also pointed out that only three years ago Bush and the GOP told us that SS was very separate which is why payroll taxes could not be cut (which fall proportionatelly more on those making less) yet income taxes could. Yet now they are claiming it's not searate at all.


SS does not have a problem in 2018. The General Fund has a problem in 2018.

Jim Glass

"SS does not have a problem in 2018. The General Fund has a problem in 2018"

Which means, as SS will be funded from the General Fund in ever increasing amounts after 2018, SS has a problem as of 2018.


I think you guys are pikers. Why bother talking about 2018? Congress could vote to cut benefits tomorrow, so by this logic, the Social Security system is already bust. THE CRISIS IS HERE!

Similarly, Jim is being altogether too modest:

"as SS will be funded from the General Fund in ever increasing amounts after 2018, SS has a problem as of 2018"

because this argument too can be taken much further. Since the General Fund is funded entirely, 100%, from tax receipts on the American economy, we can say that the American economy must have a problem as of 2018.


No Jim, it doesn't mean that at all.

SS ONLY has a problem if the General Fund defaults on its debt, something it has never done. Otherwise SS has no problem.


the Trust Fund is perfectly real like any other Trust Fund in the world.

Well, it may be real (I think it is) but it is very different from a normal trust fund.

Let me give an different example of a trust fund. When a municipal entity wants to pre-refund an existing obligation, one technique is to defease it by creating a trust fund which holds Treasuries. The interest and principal receipts of the trust are calculated to be sufficient to make the required payments on the outstanding municipal debt. The trust is irrevocable, and, when the documentation is all in place, accountants and lawyers beathe heavily and declare the outstanding muniucipal debt to have been defeased, and off the books of the issuing municipal entity.

Now, that trust fund is *quite* different from the Treasury trust fund. The obvious difference - neither the municipal entity nor anyone else can unilaterally decide that the underlying obligation of the trust will be altered. E.g., the municipality can not one day announce that they are reducing the interest and principal due on the defeased debt, and using the newly freed up cash from the trust to give firemen a raise.

This is not a subtle difference.

Harry Arthur

"Eyes they have but they see not."

One more time GT ... who cares whether the general fund or SS has a problem in whenever? The problem is mutual as many of us have repeatedly shown. Whether SS IS the problem or merely CREATES the problem is of no consequence to me. It is simply a word game.

Right on, dsquared! Perhaps you can help explain this to GT.

Back to Steven. If you personally spend more than you earn and make up the difference from your savings account, when you spend the last of your savings account I would submit that the term "flat broke" is probably not far from accurate. At the very minimum you, in my example, and "people like Josh" in the president's will sustain a 30-40% cut in lifestyle. Unless, of course you have a rich uncle who will lower his lifestyle so that you can maintain yours, as GT insists will happen.

But then I repeat myself.



I agree with what you say. But I would add the following:

1) I am not sure if the debt owed to SS can be unilaterally changed. I've seen different leagl interpretaions on that. What I know can be unilaterally changed is the payment of benefits which is not the same thing.

2) But even if you are correct this is not what the "There is no Trust Fund" crowd has been saying. The argument has not been that the Trust Fund is real but we can ignore it if we want. The argument is that there never was any Trust Fund at all.

I still think this NYT piece is not very good since it doesn't explain any of this.


Who cares? Well obviously those supporting oir attacking SS care. If the problem is of the General Fund that means that we will have to raise taxes or cut other non-SS spending but that SS can remain as is. On the other hand if SS has no priority claim on General Fund resources it has to be dealt with just like you would deal with claims from the DoD or any other Dept. That's a huge difference and the core of this whole debate.

Harry Arthur

GT, of course the SSA has a priority on GF resources because the "trust fund" holds bonds. My point is simply that it's only academic as to the cause of funding challenges facing us starting in 2018 because our taxes will have to go up significantly and my children will receive pennies on the dollar for their lifelong forced "investment" in SS.

I care nothing about the rest of the nice debating points, nuances or any other aspect of this discussion. My sole concern is the future for my children and grandchildren. If I were 20-something I would be enraged that this sorry excuse for a retirement program is being forced down my throat involuntarily and most politicians are afraid to even try to improve it, primarily because they can score political points now and booti the problems into the future when they'll no longer be in office.

I'm still waiting for a response to my question about why we shouldn't be replacing this system with a system similar to that in Corpus Christi.


I know nothing of Corpus Christi. I do know about Chile and while it has its pluses it also has its minuses.

Patrick R. Sullivan

GT, how about being a good sport and telling us who it is you work for. So we don't make the mistake of investing in it.

"The argument has not been that the Trust Fund is real but we can ignore it if we want. The argument is that there never was any Trust Fund at all."

Absolutely not. We have been trying to drum into your cranium that the bonds in the trust fund are both an asset and a liability of the same economic entity, and thus net to zero.

That they will be of no use in paying future SS benefits. That taxes will have to be raised, or other spending cut, JUST AS IF IT DIDN'T EXIST.

And, as someone else has pointed out, this will become apparent long before 2018. It will start in about 4 years when the first Baby Boomers retire, thus shrinking the SS surplus's contribution to Federal spending. Small at first, but every year it will get larger.


Sorry Patrick, tell that to Tom. He disagrees with you.

Patrick R. Sullivan

So, GT, where do you place Max Sawicky, now that he's agreeing with:

Also, unlike a private company, a government cannot protect its future by saving money in the form of its own reserves for, as we shall see later, such governmental reserves are liabilities rather than assets. In the final analysis a government depends not on reserves but on its credit, which in turn is based upon its ability to tax the people as the needs arise or on its capacity to borrow money."

-- Why Reserves Are Not Applicable to Social Insurance
Insecurity: A Challenge to America
Abraham Epstein
Second Revised Edition, 1938

Harry Arthur

GT, here are a few links you might find interesting:

The first is from congressional testimony by L. Jacobo Rodríguez, assistant director of the Project on Global Economic Liberty at the Cato Institute about Chile's privatized system.

The second is testimony before the President's Commission to Strengthen Social Security by Judge Ray Holbrook who has personal experience with the Corpus Christi retirement system that was privatized just over 21 years ago.


Why would anyone say President Reagan lied when the system doesn't run out of G-bonds till 2042? Thats more than 50 years. Who gets to decide what money is funny anyway?


Long hair, short hair, what's the difference once the head is blowed off ?

Come 2018, a government employee from the Treasury with go to the the capital markets to sell T-bills to fund the Social Security checks going to beneficiaries. Whether this T-bill comes from the "trust fund" or from the "newly borrowed deficit" is unimportant because at that point in time they both will be "borrowed" and either way the American taxpayer will be on the hook for repayment.

The only crisis, if you wish there to be one, is that the "surplus" will continue to shrink between now and 2018, when it disappears. After that, all Social Security benefits will be funded by borrowing (selling T-bills on the capital markets), new taxes and benefit cuts to others.

The 2042 (whatever) date is meaningless because any selling of T-bills on the capital markets is borrowing, whether they are 30 year old T-bills (from the SS stash in WV) or freshly printed by the Treasury is completely unimportant, except perhaps that Congress has already authorized the former and has yet to authorize the later.

Come 2042, all the T-bills will be freshly printed, not a real pivotal point for a crisis.

Harry Arthur

"The only crisis, if you wish there to be one, is that the "surplus" will continue to shrink between now and 2018, when it disappears. After that, all Social Security benefits will be funded by borrowing (selling T-bills on the capital markets), new taxes and benefit cuts to others."

J, your assertions are correct, however, the problem is that we can now spend the SS surplus to mask the true size of the deficit. In 2018 all SS revenue will transfer directly to retirees, requiring a much larger deficit to the tune of several hundred billion dollars. Since I doubt we will cut spending to make up the difference, it is a significant problem.

I'd say it's a bit more serious than you imply. Does it merit the term crisis? Who knows? It certainly ain't been bag that we're looking at significant tax increases and benefit cuts. I can't imagine that will be all that positive for the economy.

If we're going to borrow in any case, and we are, I'd rather borrow enough to privatize the system at least partially. That would at the very least begin to bring the unfunded liabilities onto the balance sheet and at least the $1-2 trillion transition costs would be borrowed for the purpose of saving as opposed to spending.



I'll gladly accept that there is no Trust Fund if Bush and his supporters will publicly acknowledge the consequences of that, including that the 2018 date is meaningless and tha the 2001 tax cuts were built on the lie that we couldn't cut payroll taxes because they had a specific purpose.

When do you think Bush will admit this?


gt: 2018 is the only date with any meaning.

In 2018 the Social Security Trust Fund (administered by the Tresury Dept.) will start to compete with budget deficit borrowers (administed by the Tresury Dept.) in the capital markets for cash. Both will come to market with T-bills.

The Treasury will be selling T-bills. Some might say Treasury will be re-selling the SSTF T-bills. That is the crux of the existence/nonexistence of the SSTF argument. So be it.

The significance here is that SSTF which hasn't really been selling it's T-bills, except to rollover old T-bills, will start selling and selling. After that the numbers just trend.

The Soros, Picken et al crowd of the world know SS has lots (I hear $2 to $11 trillion) to dump .. er .. sell in 2042-2018=24 years. There isn't an infinite amount of cash (or liquidity) in the capital markets or the world, so the bargining will be fierce. They will be ready to pick Treasury dry. We will all pay. That is a crisis.

Just how super of a superpower will the US be when the Chinese own a few trillion dollars of T-bills. They could dump them and put the US (and the world) in a Depression that would make 1929 look like an economic "bubble".

Steven J.

HARRY ARTHUR: "I would submit that the term "flat broke" is probably not far from accurate."

I submit this is another scare tactic, just like the lies about WMD.

Steven J.


GAO: Personal accounts could hasten Social Security shortfall
By STEVEN THOMMA Posted on Wed, Mar. 09, 2005
Knight Ridder Newspapers

Harry Arthur

Steven, as I indicated above, I'm willing to agree to disagree on whether the description that system is "flat broke" in 2042 is accurate. I can see the arguments on both sides of that statement, and depending on your viewpoint, some aspects of both arguments make sense. I think we've already beat to death the horse about whether Bush lied about WMD, and what constitutes a lie, so I won't address that now.

Thanks for the article. Here's the Paul Harvey version:

"WASHINGTON - Private investment accounts such as those President Bush endorses not only will not save Social Security, but they also could accelerate the retirement system's financial problems, a nonpartisan government official told Congress Wednesday." So far, so good ...

"The testimony by Comptroller General David Walker, head of the Government Accountability Office - a congressional watchdog agency - encouraged Democrats, who want Bush to drop his proposal for new personal accounts before they negotiate any plan to fix Social Security's long-term solvency shortfall." Again, so far so good.

"But Walker also said that the impact that private accounts would have on Social Security would depend entirely on how they're funded and what other steps are taken - such as pension-benefit cuts or tax increases - to shore up the system's long-term solvency." So really everything depends on the funding plan and other steps, yet to be specified, although admittedly the president has indicated that he will not raise taxes. A little context there.

"The GAO chief also said that action is needed soon to address the system's solvency problem before it worsens." Exactly the point several of us have been making in various posts on this site for some time. I take it, therefore, that Walker would not agree with the "do nothing, everything is OK" solution.

"Social Security does not face an immediate crisis, but it does face a large and growing problem," Walker told the House Ways and Means Committee in its first hearing this year on problems facing the national pension system."


"Meanwhile, Social Security's financial problems will get harder to solve as the baby boom generation - those born from 1946-64 - starts retiring and as the government confronts other, larger problems, such as finding ways to pay for Medicare. "It would be prudent to act sooner rather than later," Walker said."

It seems to me Walker's conclusion as stated in the preceding sentence is pretty much in agreement with most of what I've seen on this site by several of us arguing that there is an impending problem with SS funding.

On the other hand, please see my link above to Judge Holbrook's statement to the Moynahan commission regarding the total success of the Corpus Christi privatization effort and the fact that the returns far exceed those from SS; and this proposal from Cato.

Jane Galt

GT, using a private company model for SS just makes anti-reform advocates look worse, not better. At what company are you allowed to accrue pension benefits without accruing the liabilities?


AT the risk of hijacking this thread, I owe Jane an apology. I said (in a different post) that she did a good job with her post on the bankruptcy bill.

My mistake - the more I look around, the more I think that she wrote hands down the best post out there, with lots of useful links.

We are now determined to raise the bar...


At the risk of boring TM to death, as I repeat myself from past threads, the Social Security system is a Ponzi scheme (current benefit recipients (as former FICA tax payors) receive proceeds from moneys contributed by current FICA tax payors/future benefit recipients). It is a fraud perpetrated on the American public.

No tweaking, in the form of tax increases or benefit reductions, will ever fix such a system--it only postpones the reckoning day. A postponement of the reckoning of these tax liabilities onto future, and unborn, generations is an irresponsibility, if not immorality, of epic proportions.

The anti-reform crowd simply believes in the socialist economic model which looks kindly of income redistribution--even if it means redistribution from the young with modest incomes, to the old with accumulated wealth. Such a collectivist mindset naturally frowns on private property, or such private accounts as the reform crowd advocates. Their proffered solutions to social and economic issues of the day always revolve around the one-size-fits-all devised by the philosopher king in Washington, thereby cementing the power and authority of a central government, and limiting individual freedom (choice) and liberty (the right to the fruits of one's labor).

I believe it is chiefly this economic philosophic difference which causes such discussion to devolve to hair-splitting arguments as the structure of a trust fund, or the mechanics of the flows of federal taxes and their expenditure. Disagreements, while having the appearance of people talking past one another, merely mask disagreements over the role of collectivism in our political system.

Despite the utter moral and economic bankruptcy of communism, the left still waxes romantic about the soviet system, believing that if only some smart Americans were running it...

It's simple, really. The Left believes in equal outcomes--as if to engineer a tie among all the entrants in a race--no matter the immorality of taxing the young and poor to pay benefits to the old and wealthy.

The Right believes in equal opportunity--all lining up together with a toe on the start line, tortoise and hare, alike. (And since the Left "knows" the outcome, they would give the hare a headstart!)

Harry Arthur

Forbes, as is usually the case when you post, you've certainly hit the nail on the head vis-a-vis world views informing the argument. That is, why am I so dense that I can't see GT's or Steven's argument? (for example) and vice-versa? ending in the appearance of "talking past one another." As a conservative I will always side with self-determination, self-responsibility and private ownership of assets such as retirement accounts.

That's why I've suggested ad nauseum that everyone take a hard look at success stories like Corpus Christi's totally privatized system, Chile's totally privatized system or even Cato's proposed system. Corpus Christi's, for example, employs very conservative banking-based investments - no stocks at all - and private insurance, including disability insurance, while exceeding the SS returns two to five times and far exceeding the SS death benefit. I've provided a link to the Moynahan commission testimony several times for those interested in something other than ponification.

The day of reckoning has been coming for some time. All we did in 1983 was delay it by several years by cutting benefits and increasing taxes. As I said above, my primary beef with W is that he and the republicans won't go far enough and privatize the whole thing like Chile and Corpus Christi have done.

Stay the course. History is on our side.

Harry Arthur

Actually spelled pontification ... something I arguably know a thing or two about. :-)

Have never been able to figure out how to make the spell checker work in this environment.

TM, thanks for hijacking the thread ever so slightly. Enjoyed the link to Jane's site and totally agree with your assessment. Of course that adds her to the long list ... so much to read, so little time ... then there's my real job and all those "honey dos".

Steven J.


You claimed that no one on the privatization side ever said that SS would run out of money. I responded with a quote from Bush, the head privatizer, that shows otherwise.

Your subsequent responses were dishonest.

Steven J.

HARRY:"My sole concern is the future for my children and grandchildren."

The Bush scheme to destroy Social Security will add
#15 Trillion to the National debt by 2050. (CBO)

Who will pay that?

Steven J.

FORBES:"Despite the utter moral and economic bankruptcy of communism, the left still waxes romantic about the soviet system"

This is a hate radio lie.

Steven J.

If it ain't broke, don't fix it
Commentary: Social Security 'cure' isn't a good idea
By Dr. Irwin Kellner, MarketWatch
Last Update: 12:01 AM ET Feb. 8, 2005
The actuaries assume that the U.S. economy will grow by an annual rate of 1.9 percent per year over the next 75 years. This is far below the 3.6 percent average of the past 75 years -- a period that includes the Great Depression.
The system's actuaries have a somewhat more optimistic projection. It assumes, among other things, a slightly faster rate of growth of 2.7 percent per year over the same period.
While this, too, is below the economy's 75-year average, it shows that the system never runs out of money. That's right, never.

Harry Arthur

Steven, I believe I explained why someone could use the terminology "flat broke" to describe SSA's financial position in simple terms that most would find fairly easy to understand.

I also believe I was charitable in allowing for honest disagreement on what "flat broke" might mean to different people, but to describe by "subsequent responses" as dishonest is, I think, more than a bit shrill.

We simply disagree on the problem and the solution. Your use of "dishonest" to describe any portion of my argument really belongs on the playground not in an intelligent civil discussion about an issue that is extremely important to my children's and my country's future.

Harry Arthur

"Meanwhile, Social Security's financial problems will get harder to solve as the baby boom generation - those born from 1946-64 - starts retiring and as the government confronts other, larger problems, such as finding ways to pay for Medicare. "It would be prudent to act sooner rather than later," Walker said."


"If it ain't broke, don't fix it
Commentary: Social Security 'cure' isn't a good idea
By Dr. Irwin Kellner, MarketWatch"

"While this, too, is below the economy's 75-year average, it shows that the system never runs out of money. That's right, never."

It seems you are arguing with yourself or at least your references are arguing with themselves. Is there or is there not a problem? And, BTW just because the system "never runs out of money" doesn't mean that it can fund benefits at the currently projected rates. What Dr. Keller does not appear to say is that while it's true that the system never runs out of money, because there are always workers providing an income stream, there is no way the system can sustain the currently projected level of benefits. The system at the very least does run out of what GT would refer to as "assets", i.e., those rooms and rooms currently full of T-Bills.

"The Bush scheme to destroy Social Security will add
#15 Trillion to the National debt by 2050. (CBO)" Care to cite the source for the alleged CBO numbers? I guess I'm wondering how they got to these numbers since the president has yet to produce a "scheme to destroy SS" that could actually be evaluated by CBO. As I understand the politics currently, we are still in the discussing and arguing stage on this issue - don't believe we've gotten to a "plan" yet.

A note on honesty: if you quote an article in support of your position it really isn't fair to chose one that states the opposite to your position in the full text as you did above with the headline on the GAO testimony. I have this problem with actually reading articles people quote to me.

Finally, did you get a chance to read any of the articles I linked to about Corpus Christi, Cato's plan, or Chile's experience? I'd like to hear your critique, especially since I went to the effort of providing you with easy access to the other side of the debate.

Steve Selengut

Investment Politics: Jobs, The Economy, and Social Security

Who wants to be a president; the President of the United States? Social Security reform is the winning ticket. Research supports the thesis that Social Security reform would provide all the lubrication necessary to get our economic ball bearings rolling in the right direction. Economies do not grow, or increase employment, when job providers are taxed and regulated unmercifully, throttling their energy, creativity, and profitability. Consumer spending pushes the economy; we need to do more than hand out a few hundred bucks.

The objective of the exercise, Barack, is to permanently place more disposable income in consumers' wallets while providing incentives for employers to hire more workers. There are three areas where the impact of reforms would be beneficial to all, irrespective of political sentiment. Social Security reform would benefit the most people, most quickly. Next on the list, Hillary, would be elimination of income taxes (federal, state, and local) on: (a) all forms of retirement income, and then, (b) all forms of investment income. Third, and particularly important for job creation, John, would be the elimination of all income taxes and nuisance fees on businesses. Who wants to be President?

Social Security will be the easiest to implement quickly while producing unprecedented increases in disposable income, business cost reductions, and job growth. Here's a rough outline of a brainstorming plan. Throw out the politics and focus on the program--- phase one deadline, January 1,2010. Change Social Security funding to a mandatory, private program, for all employed persons, and add a voluntary program for those who are not employed. All employees would contribute to deferred fixed annuities, purchased from new divisions of qualified financial institutions. Existing Social Security credits would be the initial deposit to the contracts for all participants under age 60.

Employer matching contributions would be eliminated and participant contributions would be cut to a mandatory 3% of total compensation (including deferred comp, stock options, etc.). Both changes would be phased into the system by participant age group over a five-year period, youngest first. The five age groups would be 13-year periods starting at zero to thirteen (obviously for voluntary accounts) and ending with ages fifty-two through sixty-five.

Phase one would involve qualifying providers, assignment of workers, issuance of contracts, elimination of employer matching contributions, and elimination of income taxes on social security payments. Employers would be required to appoint at least one person to coordinate the transition. Contributions to the annuity contracts would begin upon issue; the Social Security Administration (SSA) would have five years to move credits to participants, starting with the youngest group, and would be responsible for shortfalls to retirees for five years.

Under the new system, there would be no penalties for early retirement, but tax free annuity payments would begin at age sixty-five whether or not the person continued to work. Participants could voluntarily establish retirement accounts for non-working spouses and children, and could elect to deduct an additional 1% of salary for each account. A new Federal Administration for Social Security (ASS) will select, qualify, and monitor provider companies and their investment portfolios to assure that only high quality, income-generating securities are used to fund benefits. Companies showing a surplus would be able to invest up to 25% of the surplus in stocks that qualify for the Investment Grade Value Stock Index (IGVSI).

Only fixed life annuities would be available, but there would be 50% of cash value, family-only, death benefits up until the time of retirement. After age 65, the death benefit would be reduced 10% per year for four years. There would be no loans, withdrawal privileges, etc.

The ASS would be represented on provider company boards, would monitor annual audits of firm financial statements, and would supervise the selection of all non-company directors (60% of the board). Each provider company would be encouraged to use non-market value portfolio assessment techniques, such as The Working Capital Model, to monitor income portfolios. Retiree associations would also be represented on company boards of directors, and board member compensation would be capped at a reasonable number, plus 45% of ASS related expenses.

Annuity providers would be assigned a fair share of the huge Social Security Retirement Income Account (SSRIA) participant pool; every dollar contributed would be invested. All providers would use the same mortality tables and base interest rate guarantees in their calculations and would be precluded from any form of advertising. Companies would be required to focus 100% of their efforts on the SSRIA.

Annuity providers would be allowed a .5% investment management fee so long as the Annuity Investment Portfolio generated no less than the 3.5% income level needed to fund a guaranteed 3% contractual cash value growth rate. 50% of any excess realized income would be added to retirement accounts in the form of dividends. The remaining 50% would be apportioned between three separately managed accounts for: retirement benefit support contingencies (20%), universal health care and disability benefits for annuitants (50%), and post retirement death benefits (10%). Half of the remaining 20% would become "surplus". The balance would accrue equally to the employees of the insurance company--- the mailroom staff receiving the same dollar amount as the CEO.

These changes would produce: a whole new sub-industry of jobs, increase disposable income, reduce the Federal budget deficit, provide universal retirement benefit eligibility, stabilize the market for plain vanilla corporate and government debt securities, reduce corporate expenses and product price levels, and subsidize health care for senior citizens. Annuity providers would have significant incentives to minimize costs, but their investment portfolios would be closely supervised to prevent excessive risk.

Politicians at all levels just love for us to hate big business, and have no compunctions about taxing and regulating employers in every manner imaginable. The impact is higher prices, lower job creation rates, and the need to move many operations to lower cost environments. Many small businesses simply refuse to hire additional employees. Regulatory procedures and company defense measures add billions to the costs of goods and services.

Social Security benefits are grossly inadequate yet we continue to tax all forms of retirement benefits. Politicians ignore the simple solutions to these problems and no one seems to care about Social Security reform. It's just too big an issue to be so shockingly ignored, but the last politician with any courage--- well, I can't remember who that was either.

Steve Selengut
Professional Portfolio Management since 1979
Author of: "The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read", and "A Millionaire's Secret Investment Strategy"

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