The Greatest Story Ever Told:

[I AM NOT THAT GUY 5,715]

Et tu, Jack Lew?

By Charles Krauthammer

Everyone knows that the U.S. budget is being devoured by entitlements. Everyone also knows that of the Big Three - Medicare, Medicaid and Social Security - Social Security is the most solvable.

Back-of-an-envelope solvable: Raise the retirement age, tweak the indexing formula (from wage inflation to price inflation) and means-test so that Warren Buffett's check gets redirected to a senior in need.

The relative ease of the fix is what makes the Obama administration's Social Security strategy so shocking. The new line from the White House is: no need to fix it because there is no problem. As Office of Management and Budget Director Jack Lew wrote in USA Today just a few weeks ago, the trust fund is solvent until 2037. Therefore, Social Security is now off the table in debt-reduction talks.

This claim is a breathtaking fraud.

The pretense is that a flush trust fund will pay retirees for the next 26 years. Lovely, except for one thing: The Social Security trust fund is a fiction.

If you don't believe me, listen to the OMB's own explanation (in the Clinton administration budget for fiscal 2000 under then-Director Jack Lew, the very same). The OMB explained that these trust fund "balances" are nothing more than a "bookkeeping" device. "They do not consist of real economic assets that can be drawn down in the future to fund benefits."

In other words, the Social Security trust fund contains - nothing.

Here's why. When your FICA tax is taken out of your paycheck, it does not get squirreled away in some lockbox in West Virginia where it's kept until you and your contemporaries retire. Most goes out immediately to pay current retirees, and the rest (say, $100) goes to the U.S. Treasury - and is spent. On roads, bridges, national defense, public television, whatever - spent, gone.

In return for that $100, the Treasury sends the Social Security Administration a piece of paper that says: IOU $100. There are countless such pieces of paper in the lockbox. They are called "special issue" bonds.

Special they are: They are worthless. As the OMB explained, they are nothing more than "claims on the Treasury [i.e., promises] that, when redeemed [when you retire and are awaiting your check], will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures." That's what it means to have a so-called trust fund with no "real economic assets." When you retire, the "trust fund" will have to go to the Treasury for the money for your Social Security check.

Bottom line? The OMB again: "The existence of large trust fund balances, therefore, does not, by itself, have any impact on the government's ability to pay benefits." No impact: The lockbox, the balances, the little pieces of paper, amount to nothing.

So that when Jack Lew tells you that there are trillions in this lockbox that keep the system solvent until 2037, he is perpetrating a fiction certified as such by his own OMB. What happens when you retire? Your Social Security will come out of the taxes and borrowing of that fiscal year.

Why is this a problem? Because as of 2010, the pay-as-you-go Social Security system is in the red. For decades it had been in the black, taking in more in FICA taxes than it sent out in Social Security benefits. The surplus, scooped up by the Treasury, reduced the federal debt by tens of billions. But demography is destiny. The ratio of workers to retirees is shrinking year by year. Instead of Social Security producing annual surpluses that reduce the federal deficit, it is now producing shortfalls that increase the federal deficit - $37 billion in 2010. It will only get worse as the baby boomers retire.

That's what makes this administration's claim that Social Security is solvent so cynical. The Republicans have said that their April budget will contain real entitlement reform. President Obama is preparing the ground to demagogue Social Security right through the 2012 elections. The ad writes itself: Those heartless Republicans don't just want to throw granny in the snow, they want to throw granny in the snow to solve a problem that doesn't even exist! Vote Obama.

On Tuesday, Democratic Sen. Joe Manchin of West Virginia denounced Obama for lack of leadership on the debt. It's worse than that. Obama is showing leadership. With Lew's preposterous claim that Social Security is solvent for 26 years, Obama is preparing to lead the charge against entitlement reform as his ticket to reelection.

http://www.washingtonpost.com/wp-dyn/content/article/2011/03/10/AR2011031004683.html

Edited March 12, 2011 by Some Old Guy

[Mr. Big Dog 10,747]

So, Krauthammer is saying that the treasuries bought with SS excess contributions aren't worth anything. Which means that they need not be repaid. Ever. It's okay to shaft the US population just as long as we honor those that purchased US treasuries as an investment - both private and public (except for SS, of course) and both home (as long as not public) and abroad. Brilliant. Well, it would be if it wasn't incorrect.

Edited March 12, 2011 by Mr. Big Dog

[I AM NOT THAT GUY 5,715]

So, Krauthammer is saying that the treasuries bought with SS excess contributions aren't worth anything. Which means that they need not be repaid. Ever. It's okay to shaft the US population just as long as we honor those that purchased US treasuries as an investment - both private and public (except for SS, of course) and both home (as long as not public) and abroad. Brilliant. Well, it would be if it wasn't incorrect.

I guess you miss the point: All those IOU's have to be redeemed from the general fund. That means as each of those notes are redeemed, they add to the deficit, just like when they were written, they reduced the deficit.

So, either the government acquires more revenue from taxes, fees, through asset sales, or by borrowing the money, or it has to pay out less to social security beneficiaries.

[Mr. Big Dog 10,747]

I guess you miss the point: All those IOU's have to be redeemed from the general fund. That means as each of those notes are redeemed, they add to the deficit, just like when they were written, they reduced the deficit.

Of course, just like funding needs to be provided for any other treasuries that have coupons due or are maturing. That's what borrowing money entails. A fifth grader could tell you that. Why is this a surprise all of a sudden over there on the right? Was the expectation that SS will always be collecting more than paying out? That there will be a mountain of money the government can just spend without having to repay it? Are these Republicans really that stupid?

[I AM NOT THAT GUY 5,715]

Of course, just like funding needs to be provided for any other treasuries that have coupons due or are maturing. That's what borrowing money entails. A fifth grader could tell you that. Why is this a surprise all of a sudden over there on the left? Was the expectation that SS will always be collecting more than paying out? That there will be a mountain of money the government can just spend without having to repay it? Are these Democrats really that stupid?

Fixed that for ya. You really should have bought a program so that you know who the players are.

[Mr. Big Dog 10,747]

Fixed that for ya. You really should have bought a program so that you know who the players are.

Oh, so it's not the Republicans that have happily sold treasuries to the SS trust fund and spent that money. The Republicans wouldn't ever think of any such thing. Maybe you need to go back and look more closely at the fiscal conservatism practiced - not preached - over there on the right.

[I AM NOT THAT GUY 5,715]

Oh, so it's not the Republicans that have happily sold treasuries to the SS trust fund and spent that money. The Republicans wouldn't ever think of any such thing. Maybe you need to go back and look more closely at the fiscal conservatism practiced - not preached - over there on the right.

Actually, it's the Treasury that does it all by themselves. What, you thought there was a pile of money laying around with your name on that says,"Don't touch until this guy turns 67!" ?

[Mr. Big Dog 10,747]

Actually, it's the Treasury that does it all by themselves. What, you thought there was a pile of money laying around with your name on that says,"Don't touch until this guy turns 67!" ?

No, that is not how SS is designed to work. The $2.6 trillion trust fund, however, is not some worthless pile of IOU's as Krauthammer would have you believe. It's a pile of treasuries that are guaranteed with the full faith and credit of the US government just like any other treasuries that any other investor - private or public, domestic or foreign - has acquired. It is still the safest investment in the world. The idea pushed by the right here is that the excess funds weren't actually borrowed from SS and are hence not due to ever be repaid. That, my friend, is the wrong idea.

[I AM NOT THAT GUY 5,715]

It's a pile of treasuries that are guaranteed with the full faith and credit of the US government just like any other treasuries that any other investor - private or public, domestic or foreign - has acquired. It is still the safest investment in the world.

OMFG! You really don't understand, do you?

Trust funds are nothing more than chit sheets, and you know what happens on poker night when you try and cash all them chits in, after your buddies have been buying beer and pizza out of the cigar box, dontcha? When the government borrows from itself, who do you think repays those securities? We the suckers.

[JohnSmith2007 353]

OMFG! You really don't understand, do you?

Trust funds are nothing more than chit sheets, and you know what happens on poker night when you try and cash all them chits in, after your buddies have been buying beer and pizza out of the cigar box, dontcha? When the government borrows from itself, who do you think repays those securities? We the suckers.

He doesn't want to understand. He will not give up his idea of a government controlled utopia.

[Mr. Big Dog 10,747]

OMFG! You really don't understand, do you?

Trust funds are nothing more than chit sheets, and you know what happens on poker night when you try and cash all them chits in, after your buddies have been buying beer and pizza out of the cigar box, dontcha? When the government borrows from itself, who do you think repays those securities? We the suckers.

That's false. Plain and simple. The treasuries held by the SS trust fund are no different in value than those held by anyone else. While there is obviously a cash flow issue with SS no longer being a provider of cash but becoming a receiver of cash, the way out of this cannot be for the US government to default on these obligations. All that Krauthammer is doing here is prepping the population for precisely that. It is to suggest that somehow the SS trust fund is a lesser investor in US treasuries that need not to be paid. That those 2.6 trillion dollars was a gift rather than an investment. Sure, it's been considered as such for far too long and providing justification for the massive tax cuts that have been dished out benefitting the most a very small portion of the population. If you go along with Krauthammer, then you are making yourself the sucker that he and those like him would like you to be.

[I AM NOT THAT GUY 5,715]

That's false. Plain and simple. The treasuries held by the SS trust fund are no different in value than those held by anyone else. While there is obviously a cash flow issue with SS no longer being a provider of cash but becoming a receiver of cash, the way out of this cannot be for the US government to default on these obligations. All that Krauthammer is doing here is prepping the population for precisely that. It is to suggest that somehow the SS trust fund is a lesser investor in US treasuries that need not to be paid. That those 2.6 trillion dollars was a gift rather than an investment. Sure, it's been considered as such for far too long and providing justification for the massive tax cuts that have been dished out benefitting the most a very small portion of the population. If you go along with Krauthammer, then you are making yourself the sucker that he and those like him would like you to be.

Honestly, where do you think the money is going to come from? You can't be that dense.

[Mr. Big Dog 10,747]

Honestly, where do you think the money is going to come from? You can't be that dense.

Well, preferrably from the same source it was previously given to. That's what this push-back is all about. Are you that dense?

[I AM NOT THAT GUY 5,715]

Well, preferrably from the same source it was previously given to. That's what this push-back is all about. Are you that dense?

Who was it "given" to?

[Mr. Big Dog 10,747]

Who was it "given" to?

Think about that for awhile. Your argument is essentially that SS excess contributions went into general revenue - i.e. they were used to boost federal revenues. Think back 10 years when these revenues suddenly came in line with the expenditures. What happened? Yes, other revenues were decreased and that decrease was very top-heavy. Naturally, as these excesses dry up and actually turn into a funding requirement, rather than saying that the funds are not recoverable (which is what Krauthammer suggests here), I'd say what was true then ought to be true now. They need to be recovered with other revenues and I'd like to see those revenues being raised in the very same manner as they were decreased a decade ago.