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Wednesday, January 9, 2013

Gettin Ugly

 

I got into a bit of an Internet tussle with Marketwatch 666. This was another of those posts from the defenders of Social Security, and like most of these articles, this one fell back on an old tired line. The author quoted Ronnie Reagan: (I wanted to barf)

 

Social Security can’t add to the deficit.

 

mw

 

So I dashed off a comment:

 

Social Security does not add to the deficit. Ronnie was right.

Social Security DOES add to the DEBT of the country.

Both statements are true. Which one is the one to focus on?

In 2013 the answer is that it is the debt that matters, not the deficit, and SS is adding to the debt.

 

The author, R.J Sigmund, comes right back with: (and I’m grabbing for the wastebasket again)

 

Bruce, the debt is not a problem….the world economy is suffering from a shortage of safe assets, and the only way to alleviate the shortfall is to increase the debt

 

Then he goes on to add:

 

you’ve conveniently omitted the fact that it also earned more than $117b in interest on the government bonds in the trust fund….

 

I love it when this happens; folks playing “gotcha”, not even understanding the facts. I come back with my standard response:

 

Careful where you go with that interest income line. Interest is a NON CASH ITEM. SS needs cash to make benefit payments. So SS has to hock its bonds with Treasury to come up with the CASH needed. Treasury, in turn, must borrow from the public to fund the SS shortfall.

 

I told them to go to SSA, and look at the bottom line results at SS for 2011:

 

tf

 

Every penny of the $45.379B cash shortfall had to be borrowed by the Treasury. Treasury did that by issuing more Debt to the Public. I added some numbers about what’s in store for the future with cash deficits at SS:

 

2010 SS deficit = $47B,

2011 SS deficit =$48B,

2012 SS deficit = $60B,

2013- 2023 SS deficit = ~$1T

 

Anyway, I doubt I changed RJ’s views on this too much. This is an emotive topic, and I suspect it is going to become more charged in the weeks to come. It’s very hard to have a debate with someone who starts with, “debt is not a problem”. It’s even harder when the debate is ended with:

 

…so take your ranting back to zero hedge, where you might find some other chicken little types who’ll buy into your theories…

 

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Comments

  1. Very easy solution to the issue you are worried about. Get rid of the 108k cap on FICA taxes.
    Funny how you never mention that in all of your ranting and raving.

    • Unless you also cap the benefit formula, this won’t help keep the system solvent for more than a few years.

      • Prove it.

        • You’ve claimed removing the cap will “solve” the SS debt problem. This seems very unlikely based on numbers, so what’s YOUR proof? Is it somewhat along the same line of wishful thinking that taxing the rich more will also solve the country’s larger debt problem?

    • I dismiss it as it does not work. There is a formula at SS. The more that is put in, the more comes out. For every dollar that goes into SS, 2.5 dollars go out. So raising the cap just increases future liabilities, it does not fix the problem.

      I hate income taxes. I hate regressive income taxes even more. SS taxes are very big, and very regressive. 12.4% of your income goes into a hole every month. To increase this is bad mojo.

      Anyway, it’s not going to happen. This is a tax increase. I don’t see any support from either side on a plan to raise taxes to “fix” Social Security. All of the talk is about benefit cuts.

      • You wouldn’t mind showing us a link to verify that figure of $2.5 going out for evey $1 going in would you? And I mean from the official source, the Social Security Administration, not some other group that doesn’t have referenced data either.

  2. Two deadbeats arguing over how to arrange deck chairs on the Titanic.

  3. Evidence will never convince people like this, Bruce. People who are falling for scams will never admit they were being scammed. It is why people repeatedly fall for Ponzi schemes, and refuse to believe their own lying eyes.

  4. the smartist readers r here,stay in touch

  5. dump FICA and replace it with a VAT on almost everything including food and give EIC to low income elderly to rebate the VAT.

    • Dump FICA and your VAT idea, and slash the federal bureaucracy down to levels it was at during JFK’s time (hardly austerity).

      Cost levels for everyone (including the elderly) would be a lot lower if society didn’t have to carry the enormous dead weight of Uncle Sam — and we would have money left over to pay down some of the debt.

      You are planing on paying back your “debts”, right? You aren’t planning on sticking our kids with all the bills for your stimulus spending? Right Krugman?

  6. Conscience of a Conservative says:

    Great post

  7. You’re never going to win this argument with those who believe that crap. They’ve made up fairy tales (MMT, etc) to rationalize their view of things and just won’t see the truth. And then they accuse those who don’t agree with not being smart and sophisticated enough to understand their arcane theories. It’s UFB.

  8. As I began reading your earlier post on the platinum coin “idea,” I thought you were about to go in the opposite direction: something like trading in the trust fund IOUs for Treasuries, then monetizing in roughly equal size. Unless you truly believe we’re in a “beautiful deleveraging,” isn’t some form of monetization the only end-game? And if so, would it not be more equitable and less chaotic to start soon? Steve Keen has a proposal in the “jubilee” vein, I’ve suggested another version below a different post, but the key principle would be to allow broad repair of household balance sheets with less asset inflation and less vig for the bankers. I understand this is terra incognita for the Fed and our credit-based monetary system, and I gather you’re reluctant to cross that bridge.

  9. However, our situation will very soon resemble that of Japan (minus the social stability, work ethic, etc.), so isn’t it perhaps time to start thinking the unthinkable? [Steering clear of MMT lunacy, of course.]

  10. Bruce,

    I’d suggest reading about the Social Security Trust Fund here:

    http://newsburglar.com/2009/04/07/social-security-trust-fund-balance/

    and here:

    https://www.socialsecurity.gov/OACT/ProgData/assets.html

    The Trust Fund outflows will start to exceed inflows in 2017 if nothing is done to correct the problem. 80 percent of the shortfall can be alleviated by removing the income cap on the FICA tax.

    And yes, I know the Trust Fund is just a bunch of IOU’s, but regular accounting practices says that Social Security is not adding to the deficit until 2017, and maybe not even then if Congress takes steps to fix that problem ahead of time.

    So I think Marketwatch666 may be right here.

  11. okay, I’ll try breaking up my post because it’s flagged (prolly due to links):

    Bruce,

    I’d suggest reading about the Social Security Trust Fund here:

    https://www.socialsecurity.gov/OACT/ProgData/assets.html

    The Trust Fund outflows will start to exceed inflows in 2017 if nothing is done to correct the problem. 80 percent of the shortfall can be alleviated by removing the income cap on the FICA tax.

    And yes, I know the Trust Fund is just a bunch of IOU’s, but regular accounting practices says that Social Security is not adding to the deficit until 2017, and maybe not even then if Congress takes steps to fix that problem ahead of time.

    So I think Marketwatch666 may be right here.

  12. The leaders in congress, the FED, and the executive branch understand that slashing the budget during a credit collapse, to bring it into balance, would put ALOT of people out of work. Standards of living must come down in an orderly fashion. What to do? The easiest solution is to pay everyone less via deficit spending. Deficit spending is effectively a flat tax on everyone since everyone’s money buys less. That has been the plan all along. They’re just not coming out and explaining it that way. Get used to it.

  13. Well, fairly good post, but wrong on one point. Deficits DO matter! The deficit is exactly the amount you are increaseing the debt for the fiscal year. The only way deficits can’t matter is if debt doesn’t matter. And believe me, debt DOES matter. Big time.