Reagan, Greenspan and the Social Security Trust Fund

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How Ronald Reagan and Alan Greenspan Pulled off the Greatest Fraud Ever Perpetrated against the American People

David Leonhardt’s article, “Yes, 47% of Households Owe No Taxes. Look Closer,” in Tuesday’s New York Times was excellent, but it just scratches the tip of the iceberg of how the rich have gained at the expense of the working class during the past three decades. When Ronald Reagan became President in 1981, he abandoned the traditional economic policies, under which the United States had operated for the previous 40 years, and launched the nation in a dangerous new direction. As Newsweek magazine put it in its March 2, 1981 issue, “Reagan thus gambled the future — his own, his party’s, and in some measure the nation’s—on a perilous and largely untested new course called supply-side economics.”

Essentially, Reagan switched the federal government from what he critically called, a “tax and spend” policy, to a “borrow and spend” policy, where the government continued its heavy spending, but used borrowed money instead of tax revenue to pay the bills. The results were catastrophic. Although it had taken the United States more than 200 years to accumulate the first $1 trillion of national debt, it took only five years under Reagan to add the second one trillion dollars to the debt. By the end of the 12 years of the Reagan-Bush administrations, the national debt had quadrupled to $4 trillion!

Ronald Reagan and Alan Greenspan pulled off one of the greatest frauds ever perpetrated against the American people in the history of this great nation, and the underlying scam is still alive and well, more than a quarter century later. It represents the very foundation upon which the economic malpractice that led the nation to the great economic collapse of 2008 was built. Ronald Reagan was a cunning politician, but he didn’t know much about economics. Alan Greenspan was an economist, who had no reluctance to work with a politician on a plan that would further the cause of the right-wing goals that both he and President Reagan shared.

Both Reagan and Greenspan saw big government as an evil, and they saw big business as a virtue. They both had despised the progressive policies of Roosevelt, Kennedy and Johnson, and they wanted to turn back the pages of time. They came up with the perfect strategy for the redistribution of income and wealth from the working class to the rich. Since we don’t know the nature of the private conversations that took place between Reagan and Greenspan, as well as between their aides, we cannot be sure whether the events that would follow over the next three decades were specifically planned by Reagan and Greenspan, or whether they were just the natural result of the actions the two men played such a big role in. Either way, both Reagan and Greenspan are revered by most conservatives and hated by most liberals.

If Reagan had campaigned for the presidency by promising big tax cuts for the rich and pledging to make up for the lost revenue by imposing substantial tax increases on the working class, he would probably not have been elected. But that is exactly what Reagan did, with the help of Alan Greenspan. Consider the following sequence of events:

1) President Reagan appointed Greenspan as chairman of the 1982 National Commission on Social Security Reform (aka The Greenspan Commission)

2) The Greenspan Commission recommended a major payroll tax hike to generate Social Security surpluses for the next 30 years, in order to build up a large reserve in the trust fund that could be drawn down during the years after Social Security began running deficits.

3) The 1983 Social Security amendments enacted hefty increases in the payroll tax in order to generate large future surpluses.

4) As soon as the first surpluses began to role in, in 1985, the money was put into the general revenue fund and spent on other government programs. None of the surplus was saved or invested in anything. The surplus Social Security revenue, that was paid by working Americans, was used to replace the lost revenue from Reagan’s big income tax cuts that went primarily to the rich.

5) In 1987, President Reagan nominated Greenspan as the successor to Paul Volker as chairman of the Federal Reserve Board. Greenspan continued as Fed Chairman until January 31, 2006. (One can only speculate on whether the coveted Fed Chairmanship represented, at least in part, a payback for Greenspan’s role in initiating the Social Security surplus revenue.)

6) In 1990, Senator Daniel Patrick Moynihan of New York, a member of the Greenspan Commission, and one of the strongest advocates the the 1983 legislation, became outraged when he learned that first Reagan, and then President George H.W. Bush used the surplus Social Security revenue to pay for other government programs instead of saving and investing it for the baby boomers. Moynihan locked horns with President Bush and proposed repealing the 1983 payroll tax hike. Moynihan’s view was that if the government could not keep its hands out of the Social Security cookie jar, the cookie jar should be emptied, so there would be no surplus Social Security revenue for the government to loot. President Bush would have no part of repealing the payroll tax hike. The “read-my-lips-no-new-taxes” president was not about to give up his huge slush fund.

The practice of using every dollar of the surplus Social Security revenue for general government spending continues to this day. The 1983 payroll tax hike has generated approximately $2.5 trillion in surplus Social Security revenue which is supposed to be in the trust fund for use in paying for the retirement benefits of the baby boomers. But the trust fund is empty! It contains no real assets. As a result, the government will soon be unable to pay full benefits without a tax increase. Money can be spent or it can be saved. But you can’t do both. Absolutely none of the $2.5 trillion was saved or invested in anything. I have been laboring for more than a decade to expose the great Social Security scam. For more information, please visit my website or contact me.

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jesgrew
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Dec. 2, 2012 5:42 am

Comments

Yep, and now today we are looking at starting to payback the SS money and now the rich and conservatives are screaming about the need to cut SS.

Their agenda was always to kill SS and M/M. They will say or do whatever they can do so.

Anytime conservatives say otherwise they are lying.

Look at the debate today, Republicans racing about demanding to know how much the Democrats propose to cut Medicare. But, I am old enough to remember during the Rmoney campaign and how the Republicans were pledging to not cut Medicare. Of course, one only needs to be 3 weeks old.

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Phaedrus76
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Sep. 14, 2010 8:21 pm

All I see is a democratic party ready to cut Social Security and medicare. The dems currently hold the power in this little debate - lets see how they use their power.

If they simply give away the farm with little progressive policies to show i believe it will point out the nature of the duopoly.

Do just enough to fool the people into thinking there are real differences between the 2 corporate controlled parties. I may be wrong - and I'll be willing to admit that if tax increases on the wealthy equal the pain delivered unto the 99%.

Conversely I hope dem supporters will admit the errors of their 'team blue' if the cuts to the safety net are 3x the new revenue - and that 'new revenue' is from ending the mortgage deduction for low to middle class homeowners or other tax avoidence measures used by the poor and working class.

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Scappoose
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Mar. 30, 2012 7:49 am

I look at things in a simpler light.

The fascist movement raised Social Security taxes, saying that they were saving the money for future retirements. In fact, by raising taxes they lowered the amount of money available for saving. They did not save the tax money, they gave it to the "investor class" - i.e. they stole it. The result of this, combined with anti-labor, pro-unemployment policies, was to make the general population dependent on holding the remaining jobs, while reducing the value of those jobs, thus creating a downward spiral of poverty and dependence. It's not about impoverishment - that is the strategy, not the goal. It's not about the government - that is the tool. It's about the power.

Our conservative friends (those few left who are not fascists or congenital idiots) are right about an important thing - by filling the SS Trust Fund exclusively with treasury bonds it is impossible for the Fund to fulfill its goal. When SS tax revenues become inadequate to fund obligations (a time that will come sooner than expected, since wages and the relative number of taxpayers are declining rather than expanding) general fund taxes will have to be raised to pay for the bonds. In other words, to prevent raising the SS tax we will have to raise general taxes. There were only 3 ways that the Trust Fund could have worked: 1, by investing in tangible assets that could have been drawn on - by buying stock, real estate, etc. 2, by investing in infrastructure - schools and research - thus creating wealth to be taxed in the future. 3, by raising progressive taxes to make up for the shortfall from the regressive SS tax.

None of these were ever intended, in fact, the intention was exactly the opposite. The fascists did not invest in tangible assets, in fact they stole every government property they could and abdicated the government's authority to exert control over private property. They reduced spending on education and innovation, and even reduced spending on essential maintenance. And they made the general tax system regressive.

The goal of modern fascism is not to impoverish the masses - that is the thought process of those trapped in the economic/consumerist mentality the fascists have created to enslave us. The strategy is to deny us the resources to free ourselves. The goal is power, and remember - beyond a certain point power can only be used destructively, and the more destructively you gained power the sooner that certain point is reached.

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doh1304
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Dec. 6, 2010 10:49 am
Quote doh1304:The strategy is to deny us the resources to free ourselves.

Bingo...

The system as exists in the US makes any change towards democracy from working within the system a virtual impossibility. People are left with voting for the lesser evil and perpetuating the illusion of choice, of democracy where there is none. People were told that voting for the lesser evil of Obama was the most important election in the history of the US.... and yet he continues with the same neo-liberal policies of his predecessors with the same... and in many cases worse... devastating results. Torture, drones, indefinite detention, the slaughter of innocents, police state etc. etc. Now people are being told that voting for the lesser evil of Obama wasn't quite enough... people need to vote for the lesser evil of Senators and Congress and in time... if done right... real change and democracy can finally come to the US... Right... That... or the perpetuation of the status quo with small gains and larger erosions thus continuing the illusion of democracy where there is none and never has been will continue on schedual...

Personally, I don't see much hope for change, at least from within the current, corupt duopoly. The system is rigged and contructed so as to prevent substantial change from taking place. And until the left begins to critique the system, Democratic politicians and the "liberal" media... at least as earnestly and honesty as they used to critique Republicans and the MSM... not much will change at all. Hey... but at least more Democrats will be in office...

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norske
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Jul. 31, 2007 4:01 pm

There is no problem with Social Security. All Congress has to do is keep its promises to pay back the FICA surpluses that it "borrowed" during the 80s and 90s. If Congress breaks its word and reneges on Social Security, the problem isn't the affordability of the pension safety net.

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stuff
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Nov. 24, 2012 4:59 pm

doh wrote: Our conservative friends (those few left who are not fascists or congenital idiots) are right about an important thing - by filling the SS Trust Fund exclusively with treasury bonds it is impossible for the Fund to fulfill its goal.

poly replies: Actually, government can simply stamp out a few trillion dollar coins and extinguish the Treasury Bond debt owed to the Fed. It has the Constitutional authority to do that. It can even issue an extra coin or two to cover Soc. Security or any other expense.

An audit of the Fed shows $11Trillion+ thrown at finance since 2008....created out of thin air. Somehow, it can't pay Soc. Security benefits.

Sovereign nations can simply print/spend money into existence as long as it doesn't exceed the productive capacity of the nation. The notion we can't do that is a scam...and is the limiting area of any Soc. Sec. debate, isn't it?

Retired Monk - "Ideology is a disease"

polycarp2
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Jul. 31, 2007 4:01 pm

Re: "poly replies: Actually, government can simply stamp out a few trillion dollar coins..."

Does the congress have the power to block this?

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pshakkottai
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Jul. 11, 2011 11:27 am
Quote pshakkottai:

Re: "poly replies: Actually, government can simply stamp out a few trillion dollar coins..."

Does the congress have the power to block this?

It can be done by executive order by the Pres. to the Treasury Dept. It could be executed rather quickly.

Congress would have to pass a law passing that authority onto themselves and over-ride a veto if it wanted to block it. The Treasury Dept. operates under the Executive Branch of government.

Chances are, if the Pres. ordered it, it would quickly be a done deal before Congress could react. Proposed legislation can sit on a President's desk for ten days without any action.

When it was proposed to him, he rejected it outright. The financial sector would burn him if he adopted the proposal. The nation would have benefited enormously.

Issuance of coinage doesn't require Congressional approval. Paper currency is another matter...under the auspices of the banksters bank that we call the Fed. It's federal corporate charter that ends next year will probably be renewed. It's shareholders are the 12 private banks that make up the Federal Reserve System.

Retired Monk - "Ideology is a disease"

polycarp2
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Jul. 31, 2007 4:01 pm

That would take a lot of courage, unfortunately for USA.

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pshakkottai
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Jul. 11, 2011 11:27 am

The trick to the trillion dollar coin idea is that it would be a bluff. The reason that the Fed's multi trillion dollar printing spree hasn't caused Zimbabwe level inflation is that the money has only gone 2 places - banks have used it to buy stock and treasury notes. In both cases the money has never actually been anything but numbers on ledgers, and so it has not devalued the dollar. By minting coinage the government would be daring the banks to either accept the coins at face value and bury them in their vaults - effectively forgiving the government's debt - or spend the money, thus inflating it to worthlessness. The banks would either lose the federal debt, or they would lose the federal debt and the value of all of their other assets.

Frankly, it would be better to simply default on the debt. This would force the entire world's economic structure to hit the reset button. There would be fewer iPhones, but it wouldn't take that long for people to figure out a way to get food to market. The trnsition would probably be brutal, but in the long run the status quo is worse.

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doh1304
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Dec. 6, 2010 10:49 am

Nah.

1.Trillion dollar coins would merely cancel debt or create demand for idle productive capacity to produce goods...like steel for bridges, etc.

2. Sovereign nations can simply spend money into existence as long as the expenditures don't exceed the nation's productive capacity. Zimbabwe dismantled its productive capacity....turned it into cash. It doesn't produce anything to buy with the money.

3. The Fed pumping 11 trillion into finance is a problem. Nothing was produced to back the money. The globe is being flooded with the stuff.

"Russia, China, Brazil, India, and South Africa intend to conduct trade among themselves in their own currencies without use of the dollar as reserve currency.

The EU countries conduct their trade with one another in euros, and although not reported in the US media, Asian countries are discussing a new common currency for trade among themselves.

The world is abandoning the use of the dollar to settle international accounts, and the demand for dollars is falling as the Federal Reserve increases the supply of dollars.

This means that the price of the dollar is threatened.

Concern over the dollar means concern over dollar-denominated financial instruments such as stocks and bonds. The Chinese hold some $2 trillion in US financial instruments. The Japanese hold about $1 trillion in US Treasuries. The Saudis and the oil emirates also hold large quantities of US dollar financial instruments. At some point the move away from the dollar also means a move away from US financial instruments. The dumping of US stocks and bonds would destabilize US financial markets and wipe out the remainder of US wealth.

No one in the White House and no more than one dozen members of the 535 member US Congress represents the American people. This is the reason that despite obvious remedies nothing can be done. America is going to crash big time.

And the rest of the world will be thankful. America along with Israel is the world’s most hated country. Don’t expect any foreign bailouts of the failed “superpower.” - Roberts

http://www.counterpunch.org/2012/12/03/the-coming-crash-of-america/

Governments can simply spend money into existence equal to national productive capacity. The U.S. has a lot of idle productive capacity. Bailing finance doesn't utilize productive capacity. Nothing is produced to back the money.

Germany led the world out of the Great Depression. They did it by simply spending money into existence equal to the nation's productive capacity.

It had two currencies. One valid only domestically, the other valid only for foreign trade. Both currencies were backed by goods. It quickly became the most stable, sought after currency in the world.

The U.S. will probably experience a sudden and abrupt hyperinflation. Not because of the Fed issuing money...but for the purpose it issued the money for....nothing!

Retired Monk - "Ideology is a disease"

polycarp2
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Jul. 31, 2007 4:01 pm

Poly, the bottom line to this line of thinking seems to be simple: Money is only money while real things and real people have value. The "answer" to this stupid financialism ought to be the failure of their "money" rather than misery and calamity for others to "save" it.

The problem with "economics" is that the thought frame being theoretical and technical, the moral and practical realities of human society and their economies gets short shrift to the "systemic theology." The ethics are discussed within the given frame of finance as if it were reality instead of symbol.

And, as we have noted often, at root there is an economic myth of moral humanity that determines which aspects of actual human behavior and social reality can be allowed into "reality."

Interesting discussion this morning on KBOO about "work" and its appropriate role and meaning in human life. A lot of good monkish wisdom and a feminism that goes beyond equality in the workplace to questioning why "work" should be celebrated instead of avoided when possible. This requires differentiating between value adding activities we do in the normal course of life and "paid work." Being freed from the drudgery and labor arbitrage of "work" to be able to create value we can believe in, even proportionately in our daily lives, would be a good thing.

The Protestant Work Ethic is not theologically valid or rooted. It is the Culture of Greed and the myths of the Industrial Age that made the enclosure of human life into "employment" appear to be modern and liberal. When one looks at the Modern "Welfare" State, what one ought to see is less "work" and more compensation for our human contributions to each other as citizens, neighbors and members of a community. The higher taxes pay for what we share together to provide each other with real human space and opportunity to pursue wealth creating activities both economic and social/cultural.

The ridiculous flap over SS and "entitlements" to decent human lives begin with a very bad self-identity where the curse of work must be embraced, dressed up as morality, and justified by cruelty and coercion as well as spite and stigma for those who "fail." Caring for children and caring for grandparents and the disabled ought to come from our hearts and the money will get printed to pay for it if necessary. Or debts forgiven, or charity extended, all of it if our human priorities are in line.

Like almost all our "issues," they are symptoms of much bigger pathologies.

drc2
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Apr. 26, 2012 12:15 pm

True, true.

Monks have a work ethic, and keep it in its place. When we need something, we work to produce it. When we have enough, we stop. There are better things to do and the living standard remains the same...working or not.

When we run out of stuff, we produce some more. When we have enough, we stop again. The cycle of leisure, better things to do and work is repeated over, and over.

Work for work's sake is a quaint idea from the past. It probably began when some Pharaoh needed a new pyramid built and spotted someone engaged in non-productive conversation with their kid.

It makes one wonder how they coped with the accompanying delinquency problem when the inter-actions ceased.. Probably put the kids to work making mud bricks rather than spending their time in an unproductive school learning how to play an unproductive sistrum, drum or menit.

Activities that feed the human spirit rather than the wallet are considered a waste of time. Pity. Probably he who dies with the most toys loses...he wasted his life acquiring them rather than playing.

Probably if everyone in the nation worked 2 or 3 hours a day, everyone could be well fed, clothed, and housed...with ample time/resources to do things a lot more interesting and considerably more valuable than work. Of course that would mean some couldn't suck up an extra 5-6 hours of labor from everyone for themselves. The nation couldn't afford yaughts and butter anymore than it can afford guns and butter...but everyone would have ample butter and a lot less work.

Retired Monk - "Ideology is a disease"

polycarp2
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Jul. 31, 2007 4:01 pm

Thom mentions an article some years ago, I think it's "Toward a Society of Leisure" by Joffre Dumazedier from 1967, about how we ought to be working fewer hours by now. Pity it didn;t work out that way. Not that workaholics would stop working, but they would have more choice about what to do with their excess time, same as the rest of us.

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

Thom mentions an article some years ago, I think it's "Toward a Society of Leisure" by Joffre Dumazedier from 1967, about how we ought to be working fewer hours by now. Pity it didn;t work out that way. Not that workaholics would stop working, but they would have more choice about what to do with their excess time, same as the rest of us.

That's a great read and one that has held my interest for many years. In my 20s and 30s, working 6-8 hours a day was just about right... depending on what work I was doing at the time. Working in Crisis Intervention, 4-6 hours was quite enough. Doing ranch work working 8 hours or more was a breeze and usually a lot of fun. These days volunteering with vets and Hospice it's down to 2-4 hours a day a few times a week. 4 hours doing ranch work is just about perfect unless we are really getting into it and lose track of time... then I pay for it the next day. Trying to pay workers the same amount of money for ranch work whether they work 4 hours or 8 hours is what we aim for. Making the work as enjoyable as possible is the goal... On the other hand my buddy works 90 hours a week and has difficulty sitting still. Different strokes for different folks....

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norske
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Jul. 31, 2007 4:01 pm

Down in Chile, post pinochet and before the latest iteration in the chicago boys experiment I noticed a lot of what we would call inefficiencies. In Vina del Mar, Santiago, and suburbs I would ask for the product I sought and an employee would retrieve it, then another employee would ring it up and make change. A third would then hand over my purchase graciously. They were all youngsters, but were keeping time punctually. and hygiene, and social skils were being honed. I thought it was a good idea, and I saw no street beggars, [machine guns might be a deterrant, too].

EITC is a good policy, similar to the Chilean model. Wages that some stores pay are not enough to live on, but are low enough to allow the store to conduct business. Even better would be the AEITC that comes in the employee's paycheck as it is earned instead of an annual apr 15th bonus.

Contrary to foxhead notions of welfare, no one gets AEITC unless they are working. The work the recipients do are lessons in team work, punctuality, honesty, observation, self esteem, sense of accomplishment, contacts, social transactions, record keeping.... and on and on.

Subsidizing the small stores can also be an opportunity for fraud and abuse. There are two sets of books, one with profit and another without.court-upholds-319m-verdict-millionaire-case-

All the TV shows never made a profit, ever. The actors had to get a contract based on the gross, or they would be screwed.

btw, SS will always be solvent if 6% of GDP is earmarked, whether from FICA or general revenue, or combination. I think currently the fund is 4.5% and covering the next 20 years. It also makes no difference how many workers pay in per how many collect. 2 to 1 is the ratio now and it is solvent. This ratio came from 15 to 1 a few years back. Did the sky fall?

Instead of parking FICA 100% in t-bills [non negotiable t-bills] some of it could be invested in other equities, international or within the US. North Dakota is probably paying a higher return than USA. By the same token the SS administrator could short Mississippi. I think there are some bookmakers tallying which state will be bankrupt first. [a ploy to trash any union positions left, illegal yes, but the south has laws unwritten]

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douglaslee
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Jul. 31, 2007 4:01 pm

How the GOP Is Going After ObamaCare Now

With House Republicans reportedly putting the finishing touches on a compromise deal, the GOP healthcare plan is officially back from the dead.

But don't get your hopes up - the new Trumpcare is just as bad as the old Trumpcare.

In fact - it might even be worse.

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