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Old 04-23-2012, 08:58 PM   #61
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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?
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.
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Old 04-23-2012, 09:13 PM   #62
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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.
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Old 04-24-2012, 07:11 AM   #63
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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.
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Old 04-24-2012, 07:28 AM   #64
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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.
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Old 04-24-2012, 07:30 AM   #65
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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.
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.
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Old 04-25-2012, 04:37 PM   #66
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Did not the Volker commission suggest ways to shore up SS for the foreseeable future? What happened to that report?
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Old 04-25-2012, 04:39 PM   #67
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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.
Michael what would we do without your encyclopedic knowledge?
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Old 04-25-2012, 05:09 PM   #68
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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.
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.
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Old 04-25-2012, 08:07 PM   #69
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I don't wish to start another argument thread, but the SS "trust fund" is not real, it's only a book-keeping entry, which keeps track of money that one part of the government "owes" to another part of the government. It doesn't represent real assets.

Just like when you borrow money from your "replace the roof" e-fund to replenish your "repair the car" e-fund.
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.
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Old 04-26-2012, 12:42 AM   #70
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The SS trust-fund is only book-keeping entries.
All of the bonds in the world are bookkeeping entries. What else could they be? Paper certificates?
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Old 04-26-2012, 07:18 AM   #71
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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?
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Old 04-26-2012, 07:51 AM   #72
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Michael what would we do without your encyclopedic knowledge?
Google is your friend.
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Old 04-26-2012, 07:56 AM   #73
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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?
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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