Social Security IOU's

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Can anyone answer my question? When Al Franken was on the radio he loved to blast George W Bush whenever W said (in promoting the privatization of Social Security) that the SSA didn't have any assets, they just have a drawer full of IOU's. And Al would wail that the SSA didn't have IOU's they had US Treasuries, and W should be prosecuted for making disparaging remarks about the quality of U.S. debt (he cited some provision in the Constitution.) Now, I understand the math: people pay more FICA taxes than SSA pays out in a given year, so there's a ledger that shows that SSA has a surplus. In reality the taxes went to the same general fund as everything else and all the money was spent. Plus more. The government didn't have to borrow AS MUCH from outside sources to fund everything outside of SSA. This is not the same thing as saying SSA actually owned US Treasuries. So my question is this: Does the head of SSA actually go into the marketplace and buy Treasuries? Is there actually an inventory, by bond serial number, of all the Treasuries owned by SSA? I'm guessing there isn't. But then again, if there were, that would be great business for the Wall Street brokers who make money shuffling paper (or digital one's and zero's.)

chilidog
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Jul. 31, 2007 4:01 pm

Comments

Actually, the Social Security and Medicare trust funds are off budget. They are not part of the general funds the rest of the Government uses for operations. Therefore, if the Government wants to spend money from the SS funds, they have to purchase a Treasury bond to replace it. In other words, the SS accounts are full of Treasury bonds instead of cash. So yes, SS actually owns US Treasuries. Around 2016, when SS is no longer taking in more than they pay out, SS will start to cash in those Treasuries and the Government will have to repay the Treasuries with money from the general funds.

"Does the head of SSA actually go into the marketplace and buy Treasuries?" Yes, the Actuary of the SS funds is required to invest the money in the funds and earn income other than direct taxation. Does an accounting of what bonds or certificates the SS owns exist? I certainly hope so. I can't imagine what turmoil would result from finding out the Actuaries handled trillions of SS funds under the table.

Paleo-con
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Jul. 31, 2007 4:01 pm

Actually, 2011 is the first year that SS will be paying out more than it takes in.

This is right about the time Bernie Maddoff realized he was in trouble.

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Cheesebone
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Sep. 1, 2010 9:18 am

Yeah, 2011 is in the worst case scenario, 2012 in the expected scenario, and 2016 in the best case scenario. I was just trying to be rosey and use the best case scenario.

Paleo-con
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Jul. 31, 2007 4:01 pm

It is accurate to describe the trust fund as IOU's, after all that is what a Treasury bill is. When people say that the trust fund means that SS is solvent they are only telling half the story and deliberately misleading people about the seriousness of the problem.

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Mr.Burns
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Dec. 1, 2010 12:48 pm

Not really. I think they are pointing at the fiscal realities about who has borrowed from the trust funds and what Treasury Bonds represent in the rest of the budget where the waste happened.

The big issue behind both SS and Medicare is the rip offs from the health care profiteers. With Single Payer or a sane approach to a universal risk pool like all the other countries use, we could control the excessive costs of health care. It would just confront a lot of established money and entitlement whores. Thom is correct about the health insurance business. It is a scam by its nature.

Rather than deal with the wars and corporate overhead of empire, the deficit hawks want to pick the bones of children and the elderly. They are deeply dishonest or deluded, and they are cowards about waste in government. When we cut the Pentagon down to size and stop paying the predators for screwing the public, any issues about funding healthcare and old age security can be dealt with in an honest discussion. Until then, don't bother trying to scare us.

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DRC
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Jul. 31, 2007 4:01 pm

Lots of partial understandings and misunderstandings, but the important ones are that Senator Franken assumes that America will always pay on its bonds, especially to its own needy, and GWB said that he had no intention of ever paying on those bonds, and laughed at us when we refused to believe him.

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doh1304
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Dec. 6, 2010 10:49 am

When the bonds fail, who do we hold accountable? I think that is the question behind the frame. Either pay the bonds off by borrowing from the wealthy and let them hold the paper, or experience the slave revolt. Your choice.

I can believe that GWB has no respect for the revolt of the slaves. I think he thinks the New World Order is firmly cemented and that the Masters of the Universe can create their own realities in politics and economics. As in New Orleans, people either survive, or they die. It all happens way below his view.

The difference with Franken is that he is making the case for what happens to people and confronting the integrity of the paper by "believing in it." If he thought he did not need to address the issue because the bonds would always be paid in the honor of America, nothing would have been said. He is making the hypocrisy of the SS scare mongers clear.

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DRC
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Jul. 31, 2007 4:01 pm

The wealthy won't be stupid enough to give the government money in exchange for bonds. Neither will other countries.

And as the bonds mature, the creditors are goign to want their money back.

This is why I see a severe inflationary scenario coming. I don't think the US government has the stones to admit that they simply can't pay back what they owe. So, they'll "default" in a more insideous manner, by printing up what they need and fulfilling the nominal balances owed with money of lesser value.

SS and Medicare are screwed because of a number of reasons, but the insurance industry is certainly a huge part of the puzzle. The way I see it is pretty simple - insurance is expensive, and getting moreso, because health-care costs are exploding. Health care costs have been allowed to exceed reasonable levels because their primary customers have clients who don't care about costs of health care - they just want to flash an insurance card and get whatever they need for the same low monthly fee. This normally wouldn't be as big of an issue if Government wasn't subsidizing health insurance and pharmaceuticals in the first place.

There's an old saying - you get less of what you tax, and more of what you subsidize.

Can you imagine if government all of a sudden decided to subsidizefull-coverage car insurance? Rates would go through the roof as a result of people not caring as much about their quality of driving, as (aside from the obvious health hazards) the odds of a rate hike would be slim to none, accidents would be much more frequent, and repair facilities would be jacking up labor rates (as well as parts manufacturers increasing prices of parts) due to the new ability of *everyone* with a car to get it repaired with no sweat off their back whatsoever.

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Cheesebone
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Sep. 1, 2010 9:18 am
Quote doh1304:

Lots of partial understandings and misunderstandings, but the important ones are that Senator Franken assumes that America will always pay on its bonds, especially to its own needy, and GWB said that he had no intention of ever paying on those bonds, and laughed at us when we refused to believe him.

So America defaulted on bonds during his administration? I don't remember that...

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Mr.Burns
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Dec. 1, 2010 12:48 pm
Quote Mr.Burns:

It is accurate to describe the trust fund as IOU's, after all that is what a Treasury bill is. When people say that the trust fund means that SS is solvent they are only telling half the story and deliberately misleading people about the seriousness of the problem.

Go to http://www.treasurydirect.gov/NP/BPDLogin?application=np

Notice "Intragovernmental Holdings" of 4.6T. That is your Social Security Trust Fund. Meaning we had 4.6T in there, but found better things to spend the cash on. When SS need to start cashing in those to payout money that exceed inflow, The Government will either need to pull it from general fund surplus (not likely to happen) to pay them off or go out to "Debt Held by the Public" and drive up External Debt.

That is your SS trust fund and how it works

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Elbridge
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Sep. 24, 2010 8:05 am
Quote Elbridge:

Notice "Intragovernmental Holdings" of 4.6T. That is your Social Security Trust Fund.

Is Paleocon wrong? "Intragovermental Holdings" sounds different than "Assets"' or "Investments." I'm inclined to think that Paleocon is wrong, only because I never hear in the news about the deterioration of the value of the Social Security Trust Fund when treasury prices fall, or conversely how much more it's worth when treasury prices rise. I would think it would be a matter of public record, if not the detail by bond serial number, then at least a break down of the total value maturing within one year, and the total value maturing after more than one year (Current and NonCurrent.)

chilidog
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Jul. 31, 2007 4:01 pm
Quote chilidog:

Is Paleocon wrong? "Intragovermental Holdings" sounds different than "Assets"' or "Investments." I'm inclined to think that Paleocon is wrong, only because I never hear in the news about the deterioration of the value of the Social Security Trust Fund when treasury prices fall, or conversely how much more it's worth when treasury prices rise. I would think it would be a matter of public record, if not the detail by bond serial number, then at least a break down of the total value maturing within one year, and the total value maturing after more than one year (Current and NonCurrent.)

A treasury is considered an assets. If you held one, they would have to pay you the value of it when it matured. However, in the case of a Government holding the treasury, Government has both spent the money and still owes on the treasury. So when the debtors come a knockin. Gov doesn't have the cash to pay the Treasury note. So it either has to raise the funds via tax increase or selling more treasury notes to China. It a process that will consume itself.

Treasury notes do not fluctuate with the market values, face value term notes.

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Elbridge
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Sep. 24, 2010 8:05 am

Unless, of couse, government defaults on its bonds. Then they are pretty worthless. The Repugnants are threatening to bring that about by not raising the debt ceiling. Gov.'t won't be able to borrow the money to pay the interest let alone redeem bonds that have come due.

The "safest asset in the world" will become worthless.

That may be a good thing. The rest of the world won't be financing our senseless wars and financing our undermining elected governments any longer.

The world might actually become safe for democracy. While Repugnants capturing the House may be disasterous for the U.S., it could be a blessing for the globe as a whole.

Retired Monk - "Ideology is a disease"

polycarp2
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Jul. 31, 2007 4:01 pm

You know what will happen; The R’s will suggest all kinds of cuts to useless, outdated programs in order to pay for the stuff that is needed. D’s will want to keep everything and continue raising the Debt level. We’ll be inundated with stories of how R’s want to throw grandma in the snow bank or rape and pillage the environment….. It’s still get passed in congress, Obama will then cry some more, have a beer summit, go to a Broadway show, play some more golf and have to make a political decision on veto or not to veto. My guess is… He won’t have the stones to Veto.

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Elbridge
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Sep. 24, 2010 8:05 am
Quote Elbridge:

A treasury is considered an assets.

Treasury notes do not fluctuate with the market values, face value term notes.

Treasuries DO fluctuate. If you bought one a month ago when they were paying less than 3% it is worth less today when it is paying more than 3%. But it's worth much more today than if you bought it 4 years ago. (And I do understand interest amortization.)

Yes, a treasury note is considered an asset. My question is, does the SSA physically hold real treasury notes, in a safe or in a brokerage account or in a filing cabinet? Paleocon answered "yes they do."

chilidog
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Jul. 31, 2007 4:01 pm
Quote chilidog:

My question is, does the SSA physically hold real treasury notes, in a safe or in a brokerage account or in a filing cabinet? Paleocon answered "yes they do."

That would be 1 really LARGE filing cabinet. My guess is that it's all held electronically.

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Elbridge
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Sep. 24, 2010 8:05 am
Quote Elbridge:

You know what will happen; The R’s will suggest all kinds of cuts to useless, outdated programs in order to pay for the stuff that is needed. D’s will want to keep everything and continue raising the Debt level. We’ll be inundated with stories of how R’s want to throw grandma in the snow bank or rape and pillage the environment….. It’s still get passed in congress, Obama will then cry some more, have a beer summit, go to a Broadway show, play some more golf and have to make a political decision on veto or not to veto. My guess is… He won’t have the stones to Veto.

True. The Repugnants consider just about every social program from Soc. Security, to Medicare, to unemployment ins. as useless and outdated. They'll cut or dismantle them all and retire to their pools drinking Martinis while waiting for checks from their favored brokerage firms to arrive.

Their investment banksters will continue playing the Wall St. Casino on their behalf. Ownership of many stocks will remain an unheard of long-term investment of 22 seconds.

http://dealbook.nytimes.com/2010/05/17/speedy-new-traders-make-waves-far-from-wall-st/

Retired Monk - "Ideology is a disease"

polycarp2
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Jul. 31, 2007 4:01 pm
Quote Paleo-con:

So yes, SS actually owns US Treasuries.

"Does the head of SSA actually go into the marketplace and buy Treasuries?" Yes, the Actuary of the SS funds is required to invest the money in the funds and earn income other than direct taxation.

From Treasury Direct dot com:

Intragovernmental Holdings are Government Account Series securities held by Government trust funds...

From Wikipedia:

There are several types of non-marketable treasury securities including... Government Account Series debt issued to government-managed trust funds... All of the marketable Treasury securities are very liquid and are heavily traded on the secondary market. The non-marketable securities... are issued to subscribers and cannot be transferred through market sales.

Government Account Series Treasuries are the principal form of intragovernmental debt holdings.[11] Surpluses from the Social Security Trust Fund are invested in this type of security.[citation needed]

chilidog
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Jul. 31, 2007 4:01 pm

Dear Mr. Burns,

Read 19th century Mexican history. The trick is to issue bonds until your creditors will not accept them any more. THEN you default. GWB did not default on his bonds because the Saudis, Chineese, et all were still buying more bonds,, so why default then? I didn't say that he'd announced what he was doing, but what he planned to have happen - preferably after he left office. Gambling addicts, cocaine users, and such always think that they can stay ahead of the bill forever. So do polititians.

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doh1304
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Dec. 6, 2010 10:49 am

I just don't think that China is going to want US debt anymore. Look at the havoc it's creating in China.. they're actually talking about price controls now, thanks to all the inflation they're creating as a result of their currency peg.

China has two choices - continue making things worse for their own citizens (and their currency) by buying up dollars to maintain a low currency.. OR, they simply remove the peg, stop buying US debt, let their currency appreciate, and witness the most explosive economic growth since the USA's industrial revolution.

I'm pretty sure the latter of the two is most likely.

And Polycarp - let's not forget that Obama (not that he's a bastien of Progressive ideals or anything) voted AGAINST raising the debt ceiling back in 2006 when a Republican was in the oval office..

WORD FOR WORD FROM OBAMA:

"The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. … Increasing America’s debt weakens us domestically and internationally. Leadership means that ‘the buck stops here. Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better."

If this logic made sense 4 years ago, what changed? I know Meljomour loves to talk about the hypocricy of the Republican party, it's funny that she never mentions when it happens on the left though.

Cheesebone's picture
Cheesebone
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Sep. 1, 2010 9:18 am

Well this makes it as clear as mud:

From Treas dot gov:

4330.10-Government Account Series Securities

Government Account Series Securities consist of the following:

  • Market-based securities;
  • Special issues;
  • One-day certificates;
  • Inflation-protected securities;

    AND

  • Zero-coupon bonds.

Available market-based securities are bills, notes, and bonds. Treasury issues bills at a discount with a maturity date of 6 months or less. Treasury issues notes and bonds at a discount or premium. Notes and bonds carry a stated rate of interest, payable semiannually. Notes mature in 2 to 10 years, while market-based bonds mature in more than 10 years.

Treasury sells special issues, available in certificates of indebtedness and bonds, at par. Special issues carry a stated interest rate payable semiannually. Treasury redeems special issues at par plus accrued interest. Certificates of indebtedness mature in 1 year or less. Special issue bonds mature in 1 to 15 years.

One-day certificates mature the next business day. These securities earn interest at the daily Federal Reserve repurchase agreement rate.

Treasury issues inflation-protected market-based securities at a discount or premium. These securities carry a stated rate of interest, payable semiannually. Treasury adjusts the par value of the security on a daily basis using the index ratio to reflect inflation compensation.

Treasury issues zero-coupon bonds at a discount. These securities are Treasury fixed-principal bonds having maturities of at least 5 years and on dates that coincide with the maturity dates of marketable Treasury Separate Trading of Registered Interest and Principal Securities (STRIPS).

+++++"Special issues carry a stated interest rate payable semiannually." Who states the interest rate?

chilidog
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Jul. 31, 2007 4:01 pm

The idea that the US government offers inflation-protected securities is a joke, considering they're the people that calculate inflation to base these securitires on. Talk about hiring the pedophile to monitor the playground.

Government is doing everything they can to make inflation look less severe than it actually is - these securities are going to be based on manipulated information created by the same people issuing the securities.

Cheesebone's picture
Cheesebone
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Sep. 1, 2010 9:18 am

If we are still only talking about SS, they only hold one type of security. The question about who sets the interest rate is a very good question. The SS funds are managed by the Bureau of Public Dept, is it safe to assume they set the rates? I know that if I were lending myself money, I would charge a very low rate.

The trust funds now hold only special issues, but they have held public issues in the past.

Paleo-con
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Jul. 31, 2007 4:01 pm

Cheesebone wrote: "China has two choices - continue making things worse for their own citizens (and their currency) by buying up dollars to maintain a low currency.. OR, they simply remove the peg, stop buying US debt, let their currency appreciate, and witness the most explosive economic growth since the USA's industrial revolution."

poly replies:

And just exactly what is it that China should do with all the dollars we use to buy their trinkets? There are so many dollars flooding world currency markets, there isn't much to do with them except buy U.S. debt.. That's why Brazil recently imposed a 6% tax on them. They aren't wanted.

Cheesebone wrote;

If this logic made sense 4 years ago, what changed? I know Meljomour loves to talk about the hypocricy of the Republican party, it's funny that she never mentions when it happens on the left though.

poly replies:

The left was dismantled many years ago in this country though I know some consider a return to the 60s as leftist. Leftists of the 60's would consider that regressive rather than progressive.

Using traditional definitions of left, Obama is pretty far to the right.

Retired Monk - "Ideology is a disease"

polycarp2
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Jul. 31, 2007 4:01 pm
Quote doh1304:

Dear Mr. Burns,

Read 19th century Mexican history. The trick is to issue bonds until your creditors will not accept them any more. THEN you default. GWB did not default on his bonds because the Saudis, Chineese, et all were still buying more bonds,, so why default then? I didn't say that he'd announced what he was doing, but what he planned to have happen - preferably after he left office. Gambling addicts, cocaine users, and such always think that they can stay ahead of the bill forever. So do polititians.

These are lonnnggg term structural issues we are talking about that existed before he took office and will be with us long after Obama leaves office. We are not going to default. It is just a matter of a combination of spending "cuts", tax increases and inflation.

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Mr.Burns
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Dec. 1, 2010 12:48 pm

As long as other nations accept our currency as quickly as we can print it, we won't default...unless the Repugnants cap the debt ceiling so we can't borrow the money to pay the interest..

If they chose to turn their bonds in for cash, exactly how would you pay for it without making the dollar as worthless as the Mark of the German Weimar Republic? New $100,000 bank notes would flow like water.

Save your "forever stamps". A billion bucks to mail a letter as in pre-war Germany could be a bit excessive.

Retired Monk - "Ideology is a disease".

polycarp2
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Jul. 31, 2007 4:01 pm

When you reify financial instruments, you obfuscate the underlying social relationships and interpersonal tensions that they represent. The social contract of society gets lost in the process. The public may not be geniuses, but sooner or later, they are bound to realize that their interests are not being served.

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Robindell
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Jul. 31, 2007 4:01 pm
Quote polycarp2:

unless the Repugnants cap the debt ceiling so we can't borrow the money to pay the interest..

Bernanke's got your back.

chilidog
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Jul. 31, 2007 4:01 pm

I would like to reiterate that when someone tells you, as Sen Sanders did this morning, that SS is fully funded they are being less then honest.

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Mr.Burns
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Dec. 1, 2010 12:48 pm

Probably the best way to assure Soc. Security is underfunded is to cut contributions by a third...as Obama recently did. It opens the way to privatize it. Wall Street is already licking its chops.

What Bush couldn't do up front, Obama is doing through the back door.

Core policies of the parties of Tweedle Dee and Tweedle Dum are the same. The only difference is in implimentation. Fortunately, one wears blue and the other wears red so we can tell them apart.

Retired Monk - "Ideology is a disease"

polycarp2
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Jul. 31, 2007 4:01 pm

It is only for two years and is a drop in the bucket compared to the longer term structural issues. What will need to happen is a raising of the retirement age and a slow down in the colas.

Mr.Burns's picture
Mr.Burns
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Dec. 1, 2010 12:48 pm

Probably what needs to happen is to tax all income with FICA taxes rather than just the first pittance of upper incomes.

I do understand that the nation only produces $47,000 annually for every man, woman and child (including the retired) or $188,000 per every family of four and can't afford paying retirees $12,000 a year out of their share of the national pie. Cut retiree's shares to zero. It's probably best spent on bailing banksters and guaranteeing the payouts of derivative players and such.

The $11.4 Trillion to make less than $80 billion in sub-prime mortgages whole was absolutely essential. We have the assurances of the banksters including the Head Bankster, Bernanke, that it was so.

The Soc. Sec. Trust Fund should be replaced with a Bankster Trust Fund. They seem to have the greatest need from time to time. We wouldn't want banksters eating out of dumpsters. It would have a bad effect on our national prestige.

Retired Monk - "Ideology is a disease"

polycarp2
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Jul. 31, 2007 4:01 pm

If the cap ($104,000) on social security contributions were removed, you could nearly eliminate all payroll taxes and raise the benefits. At present, if you make $5 million, you would only pay the social security tax on the first $104,000.

In truth, social security keeps the US economy afloat since the private sector will not invest in jobs when there is weak purchasing power. Creating jobs in Malaysia is a slight-of-hand like Enron counting future profits as present earnings.

Bernie Sanders is right. The battle over social security is an ideological battle, not a financial battle.

Truth and hope like immigrants often seem like foreign words in down-is-up America! The Repugnacrats who shouted "Country first!" during the election campaign equate corporate profits with community health and decry the poor, the young, the disabled and seniors as "special interests"!

demandside's picture
demandside
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Jul. 31, 2007 4:01 pm

If the system was solvent then there wouldn't be any need to keep raising the cap, though. That's my point. It doesn't matter how far you push the inevitable down the line.. it's still an inevitable collapse of the system.

Cheesebone's picture
Cheesebone
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Sep. 1, 2010 9:18 am

As the vaby boomers die off, in the next several decades, Soc. Sec. payouts will drop..

It all comes down to national wealth production anyway. $47,000 per each man, woman child,..... working or not. The U.S. ought to be able to afford $12,000 a year out of the $47,000 produced for that person.

$188,000 produced for each family of 4 is a lot of money..

Retired Monk - "Ideology is a disease"

polycarp2
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Jul. 31, 2007 4:01 pm

You're using GDP figures to back that argument up, I'm assuming.

If that's the case, then you should also take into account that our GDP is currently over 70% consumption based - only about 30% of it is legitimately "production" based.

Cheesebone's picture
Cheesebone
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Sep. 1, 2010 9:18 am

Note the GDP is based on the amount of goods and services "produced" each year. A haircut is a service.

How those goods and services are distributed is another matter, isn't it?

$47,000 is produced in the U.S. for every man, woman and child. Probably, a Soc. Sec. recipient isn't utilizing $47,000 in goods and services. Most families of 4 aren't utilizing $188,000 in goods and services.

I think you'll find the bulk of the wealth created from the production of goods and services extracted and residing in financial paper. Interest extractions alone are a huge chunk.

The poor get hit hardest. They can obtain an emergency 6 month loan from a "payday" outfit. Interest and charges nearly equal the amount of the loan. A huge extraction from whatever wealth they generate that ultimately ends up in financial paper. Mini-banksters.

An emergency loan to extract an abcessed tooth can bankrupt a poor family. Of course, funeral costs would be even more. Their minimal share of the national pie resides in Wall Street. Even an amount to cover a dental extraction is considered excessive. Universal Health Care is off the table even though the dental "service" would increase the GDP, save a life and keep food on the family table.

That's an example of how austerity reduces the GDP, isn't it?

Retired Monk - "Ideology is a disease"

polycarp2
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