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Lew acknowledges that the Social Security surpluses of the last decades were siphoned off to the Treasury Department and spent. He also agrees that Treasury then deposited corresponding IOUs — called "special issue" bonds - in the Social Security trust fund. These have real value, claims Lew. After all, "these Treasury bonds are backed by the full faith and credit of the U.S. government in the same way that all other U.S. Treasury bonds are."
Really? If these trust fund bonds represent anything real, why is it that in calculating national indebtedness they are not even included? We measure national solvency by debt/GDP ratio. As calculated by everyone from the OMB to the CIA, from the Simpson-Bowles to the Domenici-Rivlin commissions, the debt/GDP ratio counts only publicly held debt. This means bonds held by China, Saudi Arabia, you and me. The debt ratio completely ignores the kind of intragovernmental bonds that Lew insists are the equivalent of publicly held bonds.
So loans between government entities are not included in the reported public debt. Only the debt to outside entities are reported.
So if my son owes me $50 - it's different from owing VISA $50.
That's why publicly held bonds are so radically different from intragovernmental bonds. If we default on Chinese-held debt, decades of AAA creditworthiness is destroyed, the world stops lending to us, the dollar collapses, the economy goes into a spiral and we become Argentina. That's why such a default is inconceivable.
On the other hand, what would happen to financial markets if the Treasury stopped honoring the "special issue" bonds in the Social Security trust fund? A lot of angry grumbling at home for sure. But externally? Nothing.
This "default" would simply be the Treasury telling the Social Security Administration that henceforth it would have to fend for itself in covering its annual shortfall. How? By means-testing (cutting the benefits to the rich), changing the inflation formula, raising the retirement age and, if necessary, hiking the cap on income subject to the payroll tax.
So eventually, my son's circumstances will change and he will have to earn the money he owes me. So he will have to cut the grass, wash the car, fix dinner, etc. I don't effect his credit ratings, but I will make his life more difficult.
So when we hear about cost cutting measures regarding Social Security - know that the money is not in the Treasury to pay what they promised, and they are looking at funding issues in the short term because the money is not in the Treasury.
Lew acknowledges that the Social Security surpluses of the last decades were siphoned off to the Treasury Department and spent. He also agrees that Treasury then deposited corresponding IOUs — called "special issue" bonds - in the Social Security trust fund. These have real value, claims Lew. After all, "these Treasury bonds are backed by the full faith and credit of the U.S. government in the same way that all other U.S. Treasury bonds are."
Really? If these trust fund bonds represent anything real, why is it that in calculating national indebtedness they are not even included? We measure national solvency by debt/GDP ratio. As calculated by everyone from the OMB to the CIA, from the Simpson-Bowles to the Domenici-Rivlin commissions, the debt/GDP ratio counts only publicly held debt. This means bonds held by China, Saudi Arabia, you and me. The debt ratio completely ignores the kind of intragovernmental bonds that Lew insists are the equivalent of publicly held bonds.
So loans between government entities are not included in the reported public debt. Only the debt to outside entities are reported.
So if my son owes me $50 - it's different from owing VISA $50.
That's why publicly held bonds are so radically different from intragovernmental bonds. If we default on Chinese-held debt, decades of AAA creditworthiness is destroyed, the world stops lending to us, the dollar collapses, the economy goes into a spiral and we become Argentina. That's why such a default is inconceivable.
On the other hand, what would happen to financial markets if the Treasury stopped honoring the "special issue" bonds in the Social Security trust fund? A lot of angry grumbling at home for sure. But externally? Nothing.
This "default" would simply be the Treasury telling the Social Security Administration that henceforth it would have to fend for itself in covering its annual shortfall. How? By means-testing (cutting the benefits to the rich), changing the inflation formula, raising the retirement age and, if necessary, hiking the cap on income subject to the payroll tax.
So eventually, my son's circumstances will change and he will have to earn the money he owes me. So he will have to cut the grass, wash the car, fix dinner, etc. I don't effect his credit ratings, but I will make his life more difficult.
So when we hear about cost cutting measures regarding Social Security - know that the money is not in the Treasury to pay what they promised, and they are looking at funding issues in the short term because the money is not in the Treasury.
While all of the above is true, it is no great task to determine the amount of Intragovernmental Debt that is held by the feds.
Publically Held Portion of the National Debt = $9,605,322,000,000
Intragovernment Held Portion of the National Debt = $4,608,808,000,000
Total National Debt = $14,214,130,000,000 (as of March 18, 2011)
Which gives the US a Total National Debt to GDP ratio of 95.6%. Only those who are being dishonest use the publically held portion of the National Debt to calculate the Debt to GDP ratio (which is 64.6%). In order to be honest, the entire National Debt must be used. Also, about 67% of that intragovernment held portion of the National Debt belongs to Social Security, or about $3 trillion dollars.
By the way, the revenues from Social Security taxes have been included in the General Fund to be spent by Congress since 1968. In 1968 the Democrat controlled Congress wanted to fund LBJ's "Great Society" and "War on Poverty", so they used the Social Security funds to do it. Since 1968 both Democrats and Republicans alike have had absolutely no problem spending every penny they received from Social Security taxes.
Then banks are insolvent too because the money you deposited was actually lent out. Go to the safe and you will find only a fraction of the funds on deposit.
On the other hand, what would happen to financial markets if the Treasury stopped honoring the "special issue" bonds in the Social Security trust fund? A lot of angry grumbling at home for sure. But externally? Nothing.
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The very next day elections would be called to impeach most govt officials and install candidates that would repay the SS trust and stop paying on the debt to China and others.
People will not tolerate a govt that surrenders tax money that they EXPECT to be spent on current programs and instead use it to pay down debt that was incurred before many were even born.
Which gives the US a Total National Debt to GDP ratio of 95.6%. Only those who are being dishonest use the publically held portion of the National Debt to calculate the Debt to GDP ration (which is 64.6%). In order to be honest, the entire National Debt must be used. Also, about 67% of that intragovernment held portion of the National Debt belongs to Social Security, or about $3 trillion dollars.
By the way, the revenues from Social Security taxes have been included in the General Fund to be spent by Congress since 1968. In 1968 the Democrat controlled Congress wanted to fund LBJ's "Great Society" and "War on Poverty", so they used the Social Security funds to do it. Since 1968 both Democrats and Republicans alike have had absolutely no problem spending every penny they received from Social Security taxes.
I have heard that the Fed is not including the Social Security debt in the intragovernmental data.
Look at the Federal Z.1 numbers and see if you can find Social Security.
I see "government social insurance" or "government social benefits". If these are indicative of SS - then I see the outgo as over two times as much as the income.
Flow of Funds Accounts for the United States
Location: In a Galaxy far, far away called Germany
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All of us in our 40's that paid into it (and have yet to use it) will not see a penny of that. This whole "Pie-in-the-sky" scheme was predicated on politicians protecting our money. We elected the Foxes to guard the Hen House.
then banks are insolvent too because the money you deposited was actually lent out. Go to the safe and you will find only a fraction of the funds on deposit.
I have heard that the Fed is not including the Social Security debt in the intragovernmental data.
Look at the Federal Z.1 numbers and see if you can find Social Security.
I see "government social insurance" or "government social benefits". If these are indicative of SS - then I see the outgo as over two times as much as the income.
Flow of Funds Accounts for the United States
Then banks are insolvent too because the money you deposited was actually lent out. Go to the safe and you will find only a fraction of the funds on deposit.
The difference here is the banks dont loan money out to themself to buy nothing..
The federal government loans money out to itself, which it spends, and replaces with IOU's, payable by itself..
To use a real life scenario.. This is like my wife loaning me money, me using the money to buy crack, then writing my wife an IOU and then we get to claim we arent insolvent because we have IOU's payable by ourself..
The flaw in your comparison is banks loan money out to others, and have assets as collateral. Property, cars, etc.. The government gets NOTHING but more debt.
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Originally Posted by EinsteinsGhost
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