Yes, I know that but I think politically it would be harder to lower payments while there are "funds" still "available" in the "trust fund". On the other hand, once those "funds" are gone then it is politically very simple to say the equivalent of "sorry Charlie"
Surprising "when should we take SS" exercise outcome
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Yes, I know that but I think politically it would be harder to lower payments while there are "funds" still "available" in the "trust fund". On the other hand, once those "funds" are gone then it is politically very simple to say the equivalent of "sorry Charlie"
MasterBlaster
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Yeah, Wouldn't that be a scream if you spent down all your nestegg, and then you didn't get what they said you would !
How can we game the system anyway, If we know that sooner or later the rules really must change for the worse due to our very poor budget situation.
haha
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Look at Europe, all the spoilsports who went along with austerity will soon be gone. The voters are speaking! Hail to the people!
Ha
Independent
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I think that focusing on the politics is correct. My view is that it takes both houses of Congress (including, these days, 60 Senators) plus the President to all agree before any law gets changed. Given the current gridlock, that is a major hurdle. So the current law could be around for a long time.
Under current law, the Secretary is both authorized and required to pay the current formula benefits as long as there is a positive balance on that accounting spreadsheet. When the balance gets too close to zero, he will have to defer a payment, probably just a week, while tax revenue builds the balance back up. We'll end up getting 9 "monthly" checks per year instead of 12.
That's my personal worst case. I'm 64 now, I think if the politicians can ever get together and actually pass a law, it will be somewhat better than that for us oldsters.
Yeah, hah!
Jokes gonna be on them, when the Greek voters go to collect their benefits and discover that the cupboard is empty.
Somehow, reality doesn't change just because you vote it to. (Something I learned in the 7th grade, when our math teacher had us vote on the value of pi.)
gauss
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rayvt,
By analogy, do you feel the same way about all US Treasury securities? (ie the ones owned by private individuals and entities)
Not looking to start a debate--just curious as one who is thinking about putting a good chunk of my funds into TIP$.
M Paquette
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gauss said:
The same thought crossed my mind. Should Congress decide to void one series of Treasury notes (the ones behind the Social Security Trust Funds), who believes that there would be no impact on the valuation of other treasuries held by other parties?
Well, it looks like my earlier posting giving 2036 as the run out of trust funds date was a bit optimistic NBC Politics - Social Security trustees see earlier fund depletion date
Independent
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I own TIPS, I think the prospects are different. Congress doesn't have to "default on the bonds in the SS Trust Fund" to save money. They just reduce SS benefits and let the trust fund go its merry way - no bond default ever.
TIPS are publicly held, the only way to cut interest/maturity costs is default. That hits a different group than cutting SS benefits. I'm thinking the marketable bond holders are far fewer in number, but they have more clout.
I used to think that any default on US gov't debt was unthinkable because it's all measured in dollars (except for the TIPS, which are less than 10% of the total). Any modestly intelligent gov't would simply print currency. The events of last summer have made me rethink that assumption.
MasterBlaster
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The debt issue will show up as a crisis in the bond markets long before that. Just like Greece, the market eventually figured out that they just might not get paid back and stopped lending money at less-than extortionary rates. It wasn't long after that until they were mobs marching in the streets.
The SS trust-fund is only book-keeping entries. As such, there cannot be such as thing as a default. That's like your left-hand pocket owing money to your right-hand pocket.
The players in the bond market are not naive, they know that the same entity (the federal government) is both the lender and the lendee, and as such cannot default to itself.
Look at what's going to happen. When SS cash receipts aren't enough to pay out benefits, they'll go to the Treasury and say "We need $X." Since the Treasury doesn't have $X sitting around in cash, they'll have to go to the bond market and issue notes. Which is *exactly* the same as what would happen if the "trust fund" didn't exist.
Heck, there is no need to even formally "default". By legal definition, SS payments are set by law and the amount is determined by Congress, and that amount can be changed at any time by just changing the law. Just like the way they cut SS benefits in 1986 by subjecting them to income tax. And when they unilaterally increased the full retirement age.
Actually, when they go to tap the trust fund, the game will be up. It will be clearly obvious to everybody that the trust fund is just paper, when they have to issue T-bills to pay out SS benefits -- just like they do for every other Federal expenditure.
gauss
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Ok - I think we are all basically on the same page here.
Nominal Treasury Securities are contracts and need to be paid or defaulted.
Since there is no contractual or legal ownership of Social Security payments by individuals, the Government can legally (but maybe not politically) change the terms at any time. We therefore are comparing apples and oranges.
I think the confusion comes in when people dwell on the intermediate relationship between SS trust fund and the US Government as opposed to between the individual and the SS system.
Basically a conflict of interest where one party (US Government) is responsible for both repaying the trust fund while at the same time able to change the rules which will effect the need for the trust fund.
Nominal Treasury Securities are contracts and need to be paid or defaulted.
Since there is no contractual or legal ownership of Social Security payments by individuals, the Government can legally (but maybe not politically) change the terms at any time. We therefore are comparing apples and oranges.
I think the confusion comes in when people dwell on the intermediate relationship between SS trust fund and the US Government as opposed to between the individual and the SS system.
Basically a conflict of interest where one party (US Government) is responsible for both repaying the trust fund while at the same time able to change the rules which will effect the need for the trust fund.
misanman
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When the government "borrows" from the trust fund is there any interest accrued? Or is it interest free? Not that it would appear to mean anything either way - just curious.
There is a nominal interest on the trust fund notes. But again, it's meaningless. It's like when your repair-the-car fund borrows from your replace-the-roof at 6% interest. Since the same entity is on both sides of the deal, it's a sham transaction.
Hmmmm. Since you own income tax on interest received, but don't get a deduction for interest paid, you'd better not charge yourself interest or the IRS might come after you. Guess I'd better stop charging my wife interest when she borrows money from me.
Hmmmm. Since you own income tax on interest received, but don't get a deduction for interest paid, you'd better not charge yourself interest or the IRS might come after you. Guess I'd better stop charging my wife interest when she borrows money from me.
All the funds are invested in a special class of US Treasuries that pay the same rate of interest as other treasuries with the same maturity.
Chuckanut
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Did not the Volker commission suggest ways to shore up SS for the foreseeable future? What happened to that report?
Chuckanut
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MichaelB said:
Michael what would we do without your encyclopedic knowledge?
Mulligan
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MichaelB said:
If my memory is correct, a few of those bonds have been cashed already. There have been a few odd months in the past couple years of the recession whether receipts were actually smaller than payouts and they were cashed to cover the system due to people just retiring instead of looking for jobs. It was temporary blips however.
Brett_Cameron
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Yes, but it has been this way since January 1, 1940 when the trust fund superseded the old-age reserve account that was created on January 1, 1937.
Read more here: Social Security Online History, Trust Fund Reports
This is the first Social Security Trustees report.
You can see that the trust fund has been around from nearly the beginning of SS. Reading other Trustee reports over the 70+ years that SS has been around that the monitoring of the trust fund along with disbursements, receipts and interest on investments is a continual activity and action has been required many times to keep the cash flow going.
SS has never been a set and forget thing. Our times are no different.
All of the bonds in the world are bookkeeping entries. What else could they be? Paper certificates?
Look past the form to the substance.
A book-keeping entry that says the government has borrowed money from itself and promises to pay it back to itself with interest. Since the same entity is both the lender and the lendee, it's a sham transaction.
Why is this so difficult to understand?
A book-keeping entry that says the government has borrowed money from itself and promises to pay it back to itself with interest. Since the same entity is both the lender and the lendee, it's a sham transaction.
Why is this so difficult to understand?
Google is your friend.
Repeating it does not make it so. We will know if the SS Trust is really a trust or just bookkeeping if the fund becomes insolvent. If its liabilities are then paid from general taxes, then it is just bookkeeping. If the fund is made solvent again through payroll taxes then it would really be a separate trust. Until then, we don't really know for sure.
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