What if Tim took all the money out of his 401k and spent it on his father's health care (which is essentially what SS ends up doing anyway)? Will Tim be assured of his own retirement because he promises to pay himself back with interest?
Of course, there is a big difference between Tim and the federal government. Tim can't force his employer to raise his salary.
You are confusing spending priorities with accounting. If Tim decides to cover his father's health, he needs to figure out financing for it. He could borrow the money from a bank, a loan shark, get an extra job, play the lotto, or plunder his retirement. Which one he chooses to do may reflect his financial planning ability and overall intelligence. If he leaves the money in his 401K, but ends up deep in debt to someone else where does that leave him? In this example, such things as tax laws and bankruptcy laws would play as well, and might affect his choice of funding. He also might decide not to fund his fathers health crisis. To the degree that legal repayment is required, Tim's choice comes down to looking at the NPV of his options, as well as risk issues.
You and Tim are completely confusing funding sources with spending choices. They are not related!
Are treasuries real or fictional?
I'll try this once again using some round numbers.
Lets say SS taxes took in $100B excess (over SS payouts) in 2004. The government runs a $500B spending deficit for the year. Consider these two possibilities:
1) The government places the $100B in CD's with a bunch of banks. The government raises $500B from T-bills to cover the annual deficit. At some point in the future, the $100B is withdrawn from the banks to pay SS payouts when the current SS income falls below current SS payouts. The government also at some point in the future must raise $500B + interest to redeem the T-bills. The source is irrelevant (taxes, rolling it out with more T-bills)
2) The government issues $100B of special treasuries to a SS account, thus borrowing $100B. It then borrows an addition $400 from T-bills sold to investors. It now has $500B to cover the annual deficit. At some point in the future when $100B is needed to cover the current SS payouts, $100B of special treasuries must be redeemed from some source. Again, the source is entirely irrelevant to the discussion at hand. It may be taxes or more T-bills sold to new investors. The government must also redeem the $400B as well.
For some reason, you and Tim think the $100B of the total $500B borrowed is magically different. Why? The only reason I can see, is I members of Congress or the Pres, legislatively make it thus. I suppose the US government might default on some obligations and not others. But I see no specific reason why this should be the case. Could you explain why you think it is the case?
The only difference between these two possibilities is who does the accounting. Which is simply some computer somewhere! |
