The Federal Budget And Why The US Is In Trouble

[Texas Proud]

Sure, so long as the amounts of contributions/taxes and benefits aren't changed. Why should I care whether my payments to the government are called "SS tax", "SS-etc. tax", "income tax", or whatever?

So, I guess it is all right for the government to default on the debt that it incurred with other trust funds....

SS was set up as a separate fund... IOW, it is like a separate entity of the government with its own set of books... since it had a large cash balance it let that money to another entity of the government with the expectation of being paid back when it needed the money...

But the other area is not saying 'wait a minute..... I don't have enough money to pay you back'.... so, that is a default...


Government accounting is different that regular accounting.... SS is supposed to be separate.... so treat it separate... So, the person who said to pay SS on the funds they have is correct... if we have to reduce the payout because the FUND is not solvent, that is fine with me... but defaulting on the debts

 

[ziggy29]

So, I guess it is all right for the government to default on the debt that it incurred with other trust funds....

SS was set up as a separate fund... IOW, it is like a separate entity of the government with its own set of books... since it had a large cash balance it let that money to another entity of the government with the expectation of being paid back when it needed the money...

But the other area is not saying 'wait a minute..... I don't have enough money to pay you back'.... so, that is a default...

Well, the real concern is that the "trust fund" is basically borrowed money, sort of like a shell game.

It would be like me borrowing a million dollars, putting it in my retirement account separate from my other finances, and somehow saying it makes my retirement more secure. The reality is that it's only as secure as my ability to finance the million dollar loan, and if I can no longer service that debt, then the "value" in the retirement account is illusory.

 

[Texas Proud]

I don't know, maybe I am crazy. Here I am hoping the Democrats fight the Ryan plan but in that case the conservatives might refuse to raise the debt ceiling leading to a financial crisis and consequent trashing of my portfolio. On the other hand, if the Ryan plan was simply adopted lock stock and barrel, the conservatives will raise the debt ceiling so no international financial crisis and my portfolio fares well; Medicare and probably Obamacare get trashed, but I can just stick with the Federal health care program; we can forget the Trust fund and cut everybody's Social Security but my Fed pension will undoubtedly be left alone. Everything is good for me just as it was under the Bush tax cuts while DW and I were at our earnings peak. It always seems that I personally do well when I don't get things the way I want.

Of course there are the kids to worry about.

And I do not think the Ryan plan goes far enough... heck, he does not have a balanced budget until something like 2070... and we know that a new congress will come in and trash even that....

All politicians should work toward a balanced budget in 10 years... yes.. TEN... the fight should be on where the money is spent.... so some of your plans get scrapped.... some of my plans get scrapped.... but we actually live within our means as a country.... heck, isn't that what this board is all about... or even better... LBYM

 

[ziggy29]

All politicians should work toward a balanced budget in 10 years... yes.. TEN... the fight should be on where the money is spent.... so some of your plans get scrapped.... some of my plans get scrapped.... but we actually live within our means as a country.... heck, isn't that what this board is all about... or even better... LBYM

I don't think any of us here promote excessive deficit spending or think it's acceptable regardless of political leanings. The problem is that we can't agree on *where* to bring the budget closer to balance and how much we should rely on spending cuts relative to tax increases.

And because we can't agree on these things, we *collectively through our elected representatives) "punt" and kick the can down the road to address another day.

 

[Texas Proud]

Well, the real concern is that the "trust fund" is basically borrowed money, sort of like a shell game.

It would be like me borrowing a million dollars, putting it in my retirement account separate from my other finances, and somehow saying it makes my retirement more secure. The reality is that it's only as secure as my ability to finance the million dollar loan, and if I can no longer service that debt, then the "value" in the retirement account is illusory.

I agree that it is illusionary in a way.... but gvmt/fund accounting is different... think of it like AIG in a way... they have a lot of different corporations... some borrow money from others... now, if the holding company has financial trouble, it does not mean ALL of the corporation have to file for BK.... there were a lot of life insurance companies that had great financial health even though the holding company was having problems...

If the debt is not paid back to that corporation... it has a loss that it recognizes... and the other is in default... or the holding company is in default.... so why would the US not be considered defaulting on its DEBT that it has on its books


Edit... tried to look... but did not find quickly... but it looks like the amount owned to the trust fund is above $2.5 trillion...

 

[Texas Proud]

I don't think any of us here promote excessive deficit spending or think it's acceptable regardless of political leanings. The problem is that we can't agree on *where* to bring the budget closer to balance and how much we should rely on spending cuts relative to tax increases.

And because we can't agree on these things, we *collectively through our elected representatives) "punt" and kick the can down the road to address another day.

Agree completely.... but if they had to work toward a balance budget (like a lot of the states)... it would force the issue... right now it is acceptable to borrow 40% of what we are spending because they can... don't allow them to do it and the fighting begins in ernest..

 

[GregLee]

I don't think any of us here promote excessive deficit spending or think it's acceptable regardless of political leanings.

My idea of "excessive" is "increasing". I tend to think we can continue current deficit levels indefinitely. If we do that, eventually inflation will eat away the real value of deficits and also of SS and medicare benefits, and our future will be rosy. The worrisome prospect is that the deficits will increase too fast.

 

[donheff]

Well, the real concern is that the "trust fund" is basically borrowed money, sort of like a shell game.

I see it exactly the opposite way. The Trust fund is is real money taken out of paychecks specifically to pay SS benefits to the payers. Those very real funds are then borrowed by the Treasury to pay for wars and other unfunded current expenses in the same way that your real dollars invested in T-Bills are used. Treating the SS Trust fund as a fiction seems no different to me than treating the obligation to pay on T-Bills as a fiction.

 

[devans0]

Contrary to GL, my idea of "excessive" is decreasing. As I see it, using inflation to decrease the debt in real purchasing parity is to tax everyone in proportion to dollar wealth. If this is to work, why not buy ink and paper and start running the dollar bill presses until everybody is paid off. The currency needed to be printed is the same, but we haven't inflicted the years of interest on debt payments onto ourselves in the meantime.

The only real losers on such a scheme are those wealthy hoarding fat-cats who saved their money.
There is a true story of runaway inflation in Germany. A person brought a bushel basket full of money to buy some bread. He set the basket down and a thief stole his basket, but left the money. I am not running around yelling "the dollar is falling! The dollar is falling!" I also don't trust our politicians to show any spine and address the problem. Tomorrow, I am moving another of my baskets of money overseas.

 

[GregLee]

Treating the SS Trust fund as a fiction seems no different to me than treating the obligation to pay on T-Bills as a fiction.

I thought that the unexpended funds in the SS Trust Fund were actually held in T-bills. How could the Treasury borrow them?

 

[Texas Proud]

I see it exactly the opposite way. The Trust fund is is real money taken out of paychecks specifically to pay SS benefits to the payers. Those very real funds are then borrowed by the Treasury to pay for wars and other unfunded current expenses in the same way that your real dollars invested in T-Bills are used. Treating the SS Trust fund as a fiction seems no different to me than treating the obligation to pay on T-Bills as a fiction.

My point... but said a lot better than I did...

 

[Texas Proud]

I thought that the unexpended funds in the SS Trust Fund were actually held in T-bills. How could the Treasury borrow them?

A T-bill is the treasury borrowing someones money to fund the gvmt... so your question does not make sense...

There is a difference in T-bills to other parts of the gvmt and to 'people'... 'people' includes China in this respect...

The debt limit that is being talked about does not include any T-bills (or whatever form of debt that is being held by SS) as actual debt of the country.... IOW, like my AIG example... if one corporation borrows money from another corporation that are both owned by AIG.... AIG nets the two together when they consolidate and the asset is offset by the liability... so no 'real' debt exists...


What has happened is over the last few decades, the 'regular' gvmt has been running a much bigger deficiet than they were telling the public... and now they would have to run a SURPLUS in order to pay off those SS T-bills.. since they can not even get to a balance budget.... that is not happening....

PS.... they also could borrow more money from the 'public' to pay off those SS T-bills, but that is not going to happen either as we do not want to get into a lot more debt...


And a lot of people has known this for a long time and complained.... now that it is coming home to roost... they want to say 'it is a big surprise'.....

 

[Midpack]

While I'd prefer to see a balanced budget over the current mess, I think the quest for a "balanced" budget is somewhat overrated. The most important thing is that the debt not keep increasing as a percentage of GDP (or other appropriate measure of national economic activity). Even if the absolute dollar value of the debt keeps rising year after year, ***if*** it rose more slowly than the value of all economic activity then our ability to service and finance it actually improves.

Having said that, we're nowhere near that. We refuse to make the tough decisions on taxes and spending so we kick the can down the road a few years, apparently hoping a new economic era similar to the post-WW2 boom is just around the corner and will magically make everything better. But it doesn't come, and it keeps getting worse as a result. The longer we put off making the hard choices, the worse things will get and the more painful the "fix" will eventually be.

IMO there's a lot to this POV so just reinforcing same with chart below, debt as % of GDP has been increasing for a while and the rate of increase has become troublesome.

Some, NOT ALL, of this is defense spending with two wars. However, defense spending as a % of GDP is still less than it's been any year since WWII thru 1983. Defense outlays should decrease but I'm concerned inflation is going to increase our interest payments markedly.

Tough choices, but kicking the can down the street clearly won't help, we can share the blame for that with the politicians we've elected.