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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: el_gaviero who wrote (25963)	2/7/2005 6:02:09 PM
From: Larry S.	Read Replies (4) of 110194

el graviero, Your comment, "The trouble is, those extra billions of dollars of overpayment are treated like ordinary tax income by the US Government, and HAVE ALREADY BEEN SPENT." is NOT true. It is the most despicable misrepresentation of SS being spread. The surplus dollars are borrowed by our Government and the "special treasuries" in the fund pay interest at a rate equal to the average of the 4- and greater-year Treasury Notes. Of course, the interest is paid with more special treasuries. Dollars don't draw interest. They are backed by the same full faith and credit of the United States as treasuries traded on the markets. If you go to the Monthly Treasury Statements you will see the interest recorded. The special treasuries have the advantage over securities traded on the open market that they do not fluctuate in value with changes in interest rates. They are an ideal instrument in which to invest the surplus revenues. And Mr. Hodges knows all of this but choses to ignore it. From the point of view of the Government, it makes sense to borrow from SS instead of the public or foreigners. Why should we pay interest to others if we don't have to? It was not until Reagan decided to raise the SS tax rate to provide a surplus to take care of the increase in benefits that would be required when the Baby Boomers retired that the SS Trust Fund started to carry a substantial balance. The rate was raised further under Bush Sr. with the total increase during those years being nearly 25 percent. The increases made sense as the Baby Boomers represent a bubble in the normal scheme of things resulting from the depressionof the 30s and WWII. (Though, in hind sight, I wonder if Reagan's objective was simply to hide the impact to his tax cuts.) And, if you look at the projections of the CBO and the SS Trustees, you will see that the balance in the Fund created to take care of the bubble will run out at about the time the last Boomer will have passed on. The problem with their projections is that none of those making them seem to have been around when the Boomers were being born. They haven't taken into account the abnormal nature of those times. (However, Greenscam and and the Administrations of the last 20+ years seem to have set us up so that you all will learn what it was like the 30s but that is another subject.) The problem with with our Government's accounting is not the special treasuries but rather the Unified Budget, created by Johnson and used by every Administration since to create the illusion of a lower deficit. Our deficit last year is quoted as 412 billion but it actually close to 700 billion. And this ignores the debt held in Trust Funds not associated with the payroll tax. These Trust Funds are effectively accounting gimmicks. It is probably the knowledge that the surplus in payroll revenues will disappear in a few years and will no longer help hide the real deficit that is stimulating Bush to talk about SS as a problem. In about 18 years, the redemption of special treasuries will start and amplify the deficit. You can be sure that before that day comes, Congress will discover the fraudulent nature the Unified Budget and it will be eliminated. Larry

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