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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Larry S. who wrote (25970)	2/7/2005 6:30:44 PM
From: Tommaso	Read Replies (4) \| Respond to of 110194

It sounds to me as if you have a better grasp of the Social Security System than anyone I have read comments by anywhere. Am I correct that if the cap on wages (set at $90,000 for 2005) that are subject to SS tax were eliminated, the whole underfunding problem would immediately disappear? The best I can tell, it's not a very pressing problem anyway, since if nothing at all were changed, there would be no reduction of benefits until the year 2042, anyway. I see no reason why people with huge salaries should be exempted from paying the same percentage of Social Seucurity taxes as everyone who makes less money. Why should Ken Lay (and Enron) have been paying less than 1% on his income while your legendary burger flipper's income is reduced by over 12%. Bush better shut his trap unless he wants his higher-income friends paying more SS tax, or so it seems to me.

To: Larry S. who wrote (25970)	2/7/2005 9:30:00 PM
From: redfrecknj	Read Replies (5) \| Respond to of 110194

Beginning in 2018, the U.S. government will be required to start redeeming the S.S. trust fund bonds, just like they currently are required to pay the interest on treasury bonds held by foreign countries every year. This is the key point. Starting in 2018 FICA payments will no longer cover the benefits owed to retirees. That means the U.S. government will have to begin honoring the treasury bonds held in the trust fund. The ringer is that what the Social Security Trust Fund holds are intragovernmental holdings. They are not savings bonds, T-Bills or T-Bonds but simply an accounting entry for the funds that the general fund borrowed and accounting entries for funds and interest repaid. The bonds in the trust fund are issued by the government to itself. So if one counts them as assets of the government, one must also count them as liabilities of the government in an identical amount. And since assets and liabilities of equal amount net to $0, that is the liquidation value of the bonds for financing Social Security: $0. To grasp this simply, imagine that your IRA or 401(k) holds not stocks or bonds but only IOUs written by you to yourself. Go ahead and write yourself an IOU (or IO-ME) for $100,000 ... or $1 million. How much of your retirement expenses will it pay? If only it were that easy! When that IOU to yourself matures what you collect from yourself on it will of course be exactly offset by what you pay to yourself on it, net: $0. Thus, you will end up continuing to be entirely dependent on your salary and other income to meet your expenses, just as before, as if the IOU never existed. The situation is no different with the government's IOUs-to-itself in the trust fund. When it goes to liquidate the bonds for cash it will have to collect the bond proceeds from itself, net: $0. Thus, it will continue to be entirely dependent on raising taxes and increasing borrowing to finance its growing Social Security obligations, just as before, exactly as if the bonds never existed. Two points: * Without the Social Security trust fund the government would have to cover this shortfall using funds obtained from other general revenue sources (income taxes, new borrowing, cuts in other programs, etc.) in the amount $D. * With the Social Security trust fund the government will cover the shortfall by redeeming bonds in the trust fund in exchange for cash in the amount of $D -- and to obtain this cash needed to redeem the bonds, it will have to use funds obtained from other general revenue sources (income taxes, new borrowing, cuts in other programs, etc.) in the amount $D. Since $D = $D it is clear the trust fund makes no difference whatsoever in the funding of Social Security. The government doesn't pretend anything different. To quote its Analytical Perspectives on the 2005 Budget (.pdf) on the subject of the trust fund bonds.... "At the time Social Security ... redeems these instruments to pay future benefits not covered by future income, the Treasury will have to turn to the public capital markets to raise the funds to finance the benefits just as if the trust funds had never existed. From the standpoint of overall Government finances, the trust funds do not reduce the future burden of financing Social Security." [p. 199, my emphasis] Those are the government's own words and they couldn't be plainer. What the government is attempting to accomplish is essentially default on the promise to honor the bonds in the trust fund. The government is telling us that that all that extra FICA money that we sent them is spent, and they are not going to raise taxes to repay it. "America only does 4 things well anymore: music, movies, software and high-speed pizza delivery"

To: Larry S. who wrote (25970)	2/7/2005 9:56:52 PM
From: el_gaviero	Read Replies (2) \| Respond to of 110194

Larry, You acknowledge that the Social Security Administration’s “surplus dollars are borrowed by our government.” And then you go on to say: “and the ‘special treasuries’ in the fund pay interest...” You seemed to have left out a step here, but your meaning is clear: you are saying that our government gives ‘special treasuries’ to our Social Security Administration in exchange for surplus dollars. “Of course, the interest is paid with more special treasuries....” Of course. IOUs are not involved. No, ‘special treasures’ are. They are exchanged for surplus dollars, and those self-same ‘special treasuries’ are used to pay interest, too. “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.” One question Larry: when an old man out there in fly-over land needs some dog food for supper, he’s going to need money of the sort that our government makes --- real money, or at least, real fiat money. This is because our government doesn’t make dog food for free, and the people who do never heard of a ‘special treasury’ and won’t take one as payment. So our Social Security Administration is going to have to take one of those ‘special treasuries’ to our government and say to our government, hey, our government, give me money so the geezer can buy dog food. And what is our government going to do? Not many choices here. It can take money out of the tax money jar and get it transferred to the geezer,or it can borrow money --- but, you understand, Larry, really borrow it, with a piece of paper that exists and can be sold on a market and has an interest rate, and a principal value and every thing is fluctuating all over the place. I can’t quite see where what I said is much different from what you said, Larry, which I guess means that you’ve sent in a pretty darn despicable post.

To: Larry S. who wrote (25970)	2/7/2005 11:25:39 PM
From: jackjc	Read Replies (1) \| Respond to of 110194

That is just a play on words. The SS surplus is actual earnings of Americans that have been taken and spent, and replaced by pieces of paper. To redeem the pieces of paper when needed will require selling them for real savings (additional cash to be raised) over and above what would otherwise be needed. Or just printed and therefore stolen from all savers at the time. Sure we can borrow from ourselves, live better now and pay back later. Its in everyone's interest to do this except for those who will pay for it some day. I used to pay 1.00 per wk into SS when starting work. I have collected for 11 yrs so far and am very healthy.