Risk of excessive gov debt/obligations

[MichaelB]

Mod note: the "Hi, I am" forum is for new members to introduce themselves and share details about their financial plans. This thread has become a discussion on gov't debt, so it was moved to the "FIRE related political topics" forum.

[HFWR]

Quote:

Originally Posted by Whisper66 And the Pollyanna's can come up with meaningless statistics like this to explain this absolutely booming economy growth we have today. Don't know why those silly folks in the Feds would have kept interest rates so low and pumped money into the economy through quantitative easing when our economy is so strong as indicated by such meaningful statistics.

Liquidity?

[GTFan]

Quote:

Originally Posted by king smoothie print money and cause excessive inflation

This is where you go off the rails worrying about debt, because we've been printing money to buy back bonds for years now with no impact on inflation. And this will continue to be the case as long as the dollar is the gold standard currency.

I think a lot of folks get way too worked up over the debt because they equate US government funny money with real-world personal debt. The two are completely unrelated, and in fact the economy as a whole would do a lot better if we simply spent more of that Monopoly money on stuff that matters, like rebuilding our crumbling infrastructure. The jobs, consumer spending, and taxes that resulted would pay that back.

[Fedup]

I have a healthy dose of skepticism. But I don't believe in US government is going bankrupt. That said, I store up on seeds, just in case I need to grow my own food to survive like Cuba. Actually, I have been for years buying lots of seeds because I love sprouting them. Not so much because of fear.

[Hamlet]

I'm in the process of buying a large expensive home, so I'm suddenly less concerned about inflation than deflation. Nothing like borrowing 300-400k in long term fixed rate debt to ease inflation concerns.

Inflate away Uncle Sam.

Deflation is now what terrifies me.

[Nords]

Quote:

Originally Posted by king smoothie Not to come off as a nut job, but I am a bit concerned over something I have little control over and I wonder if anyone does anything to mitigate the risk of the federal government overextending itself and needing to limit pension obligations, print money and cause excessive inflation, and increase taxes. I figure owning property outright, having a big buffer or safety margin, and having multiple income streams seems to be about all you can do that is legal and reasonable.

I think your finances are in fine shape, and the political risk to your pension is a lot less than the risk to everyone else's savings/investments.

The military pension fund is an accrued account. In 1984 Congress changed the accounting law and required DoD to set aside personnel funds every year to fund the projected retirement expenses. That money is invested in special-purpose Treasuries which pay a ridiculously low (but very safe) yield. Raising taxes is always an option, but the military's pension fund is already more safely funded than just about any other pension plan in the world. It's certainly better funded than Social Security, Medicare, or Medicaid.

One of the reasons that DoD pushed so hard for the new blended retirement system is to reduce their expenses of funding military pensions. (When your pension fund has such a low yield, you need a lot of principal to grow tomorrow's pensions.) Ironically, shifting some of the retirement savings burden to tomorrow's servicemembers will make the extant pensions even more secure. In other words, you got yours.
Should You Choose The Military's Blended Retirement System? - Military Guide

Between the mechanics of currency inflation and of deficit spending, the U.S. (and other governments) can continue to run deficits of about 2%-3% indefinitely. You can't run family finances this way, but government finances can be run differently because of the power to tax and print money. It would be nice to require the government to have a balanced budget, but government deficit spending (and all the other economic stimulation) was the biggest factor in repairing the damage of the 2008 financial crisis.

Like me on Oahu, if you're planning to spend the rest of your life on Guam then you'll need the shotgun ammunition and MREs for a CAT 5 hurricane before you'll need them for a military pension crisis.

[Senator]

Quote:

Originally Posted by Nords The military pension fund is an accrued account. In 1984 Congress changed the accounting law and required DoD to set aside personnel funds every year to fund the projected retirement expenses. That money is invested in special-purpose Treasuries which pay a ridiculously low (but very safe) yield.

Isn't this the same as any other Government liability? The US borrows from the pension account... Like SS? It will have to be paid with future income.

[Nords]

Quote:

Originally Posted by Senator Isn't this the same as any other Government liability? The US borrows from the pension account... Like SS? It will have to be paid with future income.

I don't know the answer to that one.

There are plenty of briefs and studies and other white papers that describe DoD's funding of the military retirement system, but I've never read anything about anyone (including DoD) borrowing from the account.

Military pension obligations from before 1984 were originally fully funded by Congress and given to the Treasury to manage as part of the switch over to the new accrual system. That legacy money is gradually being drawn down by servicemembers who have been retired for at least three decades. It could go on for another 3-4 decades but I don't know if the Treasury lends out those assets.

I monitor the social media of all of the relatively rational mainstream military supporters and critics, and I've never seen anything about borrowing. If there was any Congressional borrowing from the DoD account, I'd imagine that DoD would be at least as vocally unhappy as the muckracking military media and the vigilant veteran's groups. They're already publicly adamant about issues which have far less financial value than the pension fund, and the "Keep Your Promise" crowd would (appropriately) show up on the steps of Congress with pitchforks & torches.

[Fermion]

Quote:

Originally Posted by Nords They're already publicly adamant about issues which have far less financial value than the pension fund, and the "Keep Your Promise" crowd would (appropriately) show up on the steps of Congress with pitchforks & torches.

That crowd is a fair weather crowd though, and if we get into a situation where SS is cancelled and old people are starving in the street, I imagine the "Keep Your Promise" crowd will grow quite thin.

[CaliforniaMan]

Quote:

Originally Posted by Senator Isn't this the same as any other Government liability? The US borrows from the pension account... Like SS? It will have to be paid with future income.

Everything is paid back with future income, private or public debt as well as private or public investments. In fact, one could say that all value comes from the expectation of future income. Why do your stocks or bonds have value? Because of the expectation of future income. That is all there is folks.

[nash031]

Quote:

Originally Posted by Fermion That crowd is a fair weather crowd though, and if we get into a situation where SS is cancelled and old people are starving in the street, I imagine the "Keep Your Promise" crowd will grow quite thin.

I don't know enough to comment for certain, but defense appropriations are a wholly separate budget line item, and I'd think it'd be difficult to cross those streams from defense to social security without some other major administrative or budgetary action (i.e. a vote). I think the chances of the military pension system becoming unfunded are along the Sharknado lines.

[Fermion]

From SSA.gov things really don't look too bad:

"As a result of changes to Social Security enacted in 1983, benefits are now expected to be payable in full on a timely basis until 2037, when the trust fund reserves are projected to become exhausted.1 At the point where the reserves are used up, continuing taxes are expected to be enough to pay 76 percent of scheduled benefits. Thus, the Congress will need to make changes to the scheduled benefits and revenue sources for the program in the future. The Social Security Board of Trustees project that changes equivalent to an immediate reduction in benefits of about 13 percent, or an immediate increase in the combined payroll tax rate from 12.4 percent to 14.4 percent, or some combination of these changes, would be sufficient to allow full payment of the scheduled benefits for the next 75 years."

[king smoothie]

Ah, but part of the social security tax solution is to increase the tax. Although it wouldn't effect retirement income. The overall trend is government growth and increased spending. And realize if the social security surplus isn't available to be spent (in the form of the government borrowing from itself, smoke and mirrors) then that revenue will need to be made up from somewhere. I'd just like to see a path that doesn't require an unrealistic plan for economic growth or increased taxes. This doesn't keep me up at night, and certainly won't impact my retirement date.

[king smoothie]

Quote:

Originally Posted by Nords Like me on Oahu, if you're planning to spend the rest of your life on Guam then you'll need the shotgun ammunition and MREs for a CAT 5 hurricane before you'll need them for a military pension crisis.

This is Guam, so instead of MRE's it is Spam and rice (and the necessary water). We don't plan on staying that long.

[MasterBlaster]

Social Security is the easy fix.


What's your easy fix for Medicare/Medicaid ?

[Gone4Good]

Quote:

Originally Posted by MasterBlaster What's your easy fix for Medicare/Medicaid ?

Start telling people "no"

Or, more precisely, "Sure you can have that procedure/medication, as long as you pay for it yourself."

And to doctors/hospitals, "sure we'll pay for that procedure/medication, but not at the price you've been charging."

[MichaelB]

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https://www.youtube.com/watch?v=gBzJGckMYO4