Err . . . Didn’t follow that, I’m afraid.
You’re saying that the FOMC buys US Treasuries from private holders, and does so, basically, with imaginary money?
So . . . I take it you don’t like the proposal? Why? I think the means testing is a pretty good idea.
Your analogy of the consolidated balance sheet is correct except it leaves out one important detail.
When consolidated, the loans from SSA to the federal government would be cancelled out, but it still leaves the obligation of the SSA, now the federal government, to the taxpayer base which funded it. That debt still remains outstanding, and those funds were put into special series Treasuries.
Now if you want to argue that the whole Social Security system is a sham and essentially a kleptocratic tax, that’s a different argument. But you’re going to have to make that point if you’re going to say that the debt is nonexistent. Otherwise, your two pocket analogy will have run its course.
By that argument we should have never created an SSA and just increased taxes to cover this transfer payment system. But you can’t have it both ways - you can’t argue that SS is going to go bankrupt someday, and then argue that there really isn’t an SSA.
Well, sort of.
The money supply is controlled by the Fed, through the FOMC. Every so often, they decide to increase or decrease the money supply, M1 (I believe), through these operations by which they buy bonds. Right - if the Fed buys bonds it introduces more money into the money supply and manage the Fed Funds rate. Likewise, if it sells bonds its taking money out of circulation. It’s not imaginary money, in the sense that money is never imaginary, but its money that wasn’t in circulation before, and therefore has no real value. If you have $100 and that’s all the money in circulation, and then you introduce $10 more dollars, but haven’t increased the value of goods and services in the economy, then you end up with $110 nominal dollars, but for what used to be $100 in goods. Hence, inflation.
That’s why you see figures in inflation adjusted dollars. I’m not sure if that answers your question, but if you’re trying to link FOMC to the budget and tax dollars, I don’t think they have anything to do with each other, because what the Fed does is not fiscal or an expenditure - its just a manipulation of the monetary system for the purpose of increasing or decreasing liquidity as it sees fit.
I haven’t argued that there is no Social Security program, nor have I argued that there is not a federal government obligation to pay future SS payments. The debt is very real. The distinction is that it is a political debt. Congress could theoretically wipe it out tomorrow. Since that is not going to happen, the debt is as real as these things get.
What I am saying is that the trust fund is not at all real. It doesn’t matter if $4 trillion in bonds is in the trust fund, $15 trillion or none at all. Ultimately, the SS checks will be funded out of future tax receipts or borrowings.
As for the proposal, I haven’t read the whole thing, but it basically boils down to a few things.
I think its nice that the poorest get their benefits retained, but at the same time, everyone else gets a benefit cut. He wasn’t all too clear about that, but that is the net result. If people are cool with that, then its fine.
At the same time, his plan would require immediate and huge amounts of borrowing, despite these cuts.
In addition, his plan still doesn’t cover the shortfall he described. So in the end I’m not sure what exactly he hopes to achieve with this.
The problem with the whole thing, as the cartoon alludes to, is that it’s even debatable whether there is a crisis or not, and even if we make it to 2018 and find that we are about to go negative on our net cash flows, we can make one of several minor adjustments to fix it, including raising the cap on earnings, raising the retirement age, or raising the withholding tax. Some combination would fix it, instead of this rather radical departure he is proposing. And frankly, you can read any pension fund document and realize that the actuarial assumptions in it are subject to a lot of volatility which has meaningful impacts down the road, which is another way of saying I don’t think we’re quite Japan yet - a country which is aging but still blocks immigration. Lowenstein wrote a great article about SS for the NYT magazine a couple of months ago, worth looking up.
My problem is that he is trumping up a crisis in order to forward an ideological agenda whose benefits are kind of puzzling. I’m not sure who this benefits in the end, especially since we’ll be shouldering another $5 to $10 trillion in additional debt to pay for the benefits already promised, but with cash flow diverted to this private accounts.
I don’t know how you call your suggested adjustments minor. From your list, the one that would help the most would be raising the retirement age. That is a benefit cut, but if we can get that passed, sign me up. The others are various forms of tax increases. Sadly, these would have to be very large to fix the problem. Large enough to trash the economy.
Have a chat with your kid. Tell him he is going to pay sky high taxes in order for you to be able to retire in the manner in which you would like to become accustomed. See what he says.
You can argue one way or the other whether this qualifies as a crisis. You can not plausibly argue that it is not a huge problem.
I guess I’m an unpatriotic selfish bastard then.
If Bush’s proposal goes through, that means that I’m paying the same but can only expect 1/2 in return.
That sucks.
I don’t know if there’s another solution, but I’d sure like to hear it.
**I don’t know if there’s another solution, but I’d sure like to hear it. **
There isn’t. Take a look at trio-jeepy’s suggestions: Raise the benefit age, raise taxes, etc etc. There are no free lunches. When you have more people to support, you either have to lower benefits or raise costs, or both. Or you can say that, hey, this isn’t supposed to be a retirement fund in the first place, it’s supposed to be a social safety net, therefore we’re only going to keep it going at current levels for people who actually need it. I favor the latter approach, myself. But you can take your pick, of course.
It simply is not a huge problem.
According to the SSA, based on fairly conservative actuarial assumptions (decrease in immigration, increase in life expectancy, etc), SS will start to run negative cash flow in 2018. Given that over the last 10 years, the SSA median projections have actually been conservative for reality, and that 13 years is quite a while, this doesn’t seem like a big problem. 23 years after that, the trust fund would be depleted, under these same assumptions. Even after depletion, SS would still be able to pay 74% of benefits.
Now I don’t mean to be pedantic here, but 10 years in actuarial terms is quite a long time, and 33 years is a hell of a long time. There just isn’t any impending crisis. Let’s say that we cross that threshold in 2018. It would take what, a year maybe, to craft a solution to fix the problem, based simply on those changes I described. And by the way, while raising the cap may be a tax increase to the upper income thresholds, it also reverses a regressive tax as well, which at least levels the playing field. So does a pending shortfall with a considerable cushion represent a “crisis”? And given the likelihood of actuarial assumptions changing over time, even less so.
I sort of doubt it.
If the trust fund had real asset claims on the private economy, you might get me to agree. We have something like a $200 billion annual surplus from SS now, and the budget is a disaster. What happens when that turns into a $200 billion dollar annual deficit?
Take Medicare, Medicaid and SS, leave the projected benefit payments the same, and those three programs will take as big a piece of the GDP in a few years as the entire budget does now. That is simply not going to happen. If it does, it will destroy the econonmy.
Hey, if you think paying 74% of benefits is fine in the future, let’s just do it now. Sign me up for that one. I don’t think many will go along though.
We just can’t have only 2 workers per retiree. Play with indexing, trust funds, interest rates and tax rates all you want, in the real economy, that ratio spells disaster.
I held off for a while, but I have to nit pick his statements a little.
In the Q/A section of the event President Bush said “We haven’t had an energy strategy in our country for decades.”
However, the May 16th 2001 “National Energy Policy” states in the intorduction by Vice President Cheney:
“It envisions a comprehensive long-term strategy that uses leading edge technology to produce an integrated energy, environmental and economic policy.”
So, he is knocking his own policy that claims to be a strategy.
Not to nitpick your nitpicking, but that quote from '01 says that National Energy Policy “envisions” a long term strategy. Future tense. Also, a Policy still needs that back-up of Congress in the form of law to actually create a legitimate strategy for doing anything.
Or all three?
On one hand, he says “I propose that one investment option consist entirely of treasury bonds, which are backed by the full faith and credit of the United States government” to allay fears of private accounts losing money in the open market.
On the other hand, he dismisses the current Social Security Trust fund as “And all that’s left behind is file cabinets full of IOUs.”, referring to the Treasury bonds that the Trust fund surplus has purchased. I’m pretty sure these are “backed by the full faith and credit of the United States government”, too.
WTF?
All this talk of treasury bonds and we missed the bigger issue.
Bush’s plan allows for a person to CHOOSE which way they invest in THEIR OWN personal account which can be passed on from generation to generation.
So if a person wants to take the safe route, say they are near retirement or retired, they can CHOOSE to invest in T Bonds and get the same return on THEIR dollar as the current SS fund is supposed to be getting. This should put all the elitist liberals worries to rest that average American is to stupid to know what to do with their own money. Or if they are younger or more aggressive in their investments they can CHOOSE to invest their OWN money in other funds.
The big issue is that it is your money and the Gov cant touch it unless you let them by investing in gov bonds.
I’m screwed.
http://www.businessweek.com/bwdaily/dnflash/apr2005/nf20050429_8282_db045.htm?campaign_id=rss_daily
Boiled down to its essence, it would mean workers who earn a lifetime average of $25,000 a year or less in today’s dollars would continue to get the benefits they’ve been promised by Social Security. A 25-year-old making the average U.S. wage of $36,000 would have scheduled benefits cut by about 16%. Those making more than $100,000 would see their basic Social Security benefit cut in half. By 2075, basic benefits for high-wage workers would effectively disappear. This plan would fix about two-thirds of the system’s funding shortfall.
Only a liberal can call a reduction in the rate of increase a cut in benefits.
What will happen in Bushes plan is that todays rate of increase in benefits will be reduced for higher income individuals. For lower income individuals the rate of increase will remain the same. There will not be a 50% cut in the basic SS benefit, as a matter of fact the benefit for all SS recipeints will continue to grow, but at a slower rate as you income goes up.
All this talk of treasury bonds and we missed the bigger issue.
Bush’s plan allows for a person to CHOOSE which way they invest in THEIR OWN personal account which can be passed on from generation to generation.
So if a person wants to take the safe route, say they are near retirement or retired, they can CHOOSE to invest in T Bonds and get the same return on THEIR dollar as the current SS fund is supposed to be getting. This should put all the elitist liberals worries to rest that average American is to stupid to know what to do with their own money. Or if they are younger or more aggressive in their investments they can CHOOSE to invest their OWN money in other funds.
The big issue is that it is your money and the Gov cant touch it unless you let them by investing in gov bonds.
It’s my understanding that workers entering the system for the first time won’t have that option. It’s also my understanding that, upon retirement, the person will be required to purchase an annuity at a value high enough to provide income equivalent to what Social Security would have provided. This annuity (like all annuities?) cannot be passed from generation to generation. Only those with high incomes or who have done very well (3% better than the market?) will have any extra to pass on. If this program is an add-on to Social Security, what you say is true. It has not been put forward like that, so it is not your money.
and bush was very specific in stating that it was not your money and is part of the reason he changed the soundbite from “private accounts” to “personal accounts”.
if i have been getting $500 increases per year for years and years, then suddenly that “increase” is halved, that’s a cut.
only a conservative would call a substantial decrease to my cost of living adjustments an increase…
It’s my understanding that workers entering the system for the first time won’t have that option. It’s also my understanding that, upon retirement, the person will be required to purchase an annuity at a value high enough to provide income equivalent to what Social Security would have provided. This annuity (like all annuities?) cannot be passed from generation to generation. Only those with high incomes or who have done very well (3% better than the market?) will have any extra to pass on. If this program is an add-on to Social Security, what you say is true. It has not been put forward like that, so it is not your money.
Where did you get this information? It is my understanding that no formal plan has been laid out with specifics? The Presidient has said over and over that all options are on the table. What he laid out on the 28th was nothing more than a general outline. I have gone to several SS websites and have seen nothing about any of the three items you bring up, please let me know where you got this info.
“Where did you get this information? It is my understanding that no formal plan has been laid out with specifics? The Presidient has said over and over that all options are on the table. What he laid out on the 28th was nothing more than a general outline. I have gone to several SS websites and have seen nothing about any of the three items you bring up, please let me know where you got this info.”
http://www.msnbc.msn.com/id/6914807/, for one. This is information apparently provided by a “senior administration official”, who has been cited in a bunch of stories. True? Who knows. But it makes sense.
The idea behind the annuity is that the private account can’t be drained by the “owner” too quickly, or the owner would then be forced into abject poverty, and we’d be back where we started (Social Security benefits). So they require an annuity purchase to ensure that there is a minimum income stream from the private account.
(edit: here’s the transcript of the briefing by the administration official: http://www.washingtonpost.com/wp-dyn/articles/A56848-2005Feb2.html. I haven’t read it)