Toro
Diamond Member
I think you know about it but are missing it, the federal government has a legal obligation to "invest" excess SSA revenue into the SSA "trust fund" (under current federal law), it's right there in the PDF you linked. They're just not accounting for that legal obligation when they report a "surplus".
I believe that they are. When you posted the total debt of the US, that comes from the Treasury, which includes both the publicly traded debt and the debt of the trusts. That would be on the "balance sheet" of the Treasury. That's a stock statement, meaning it's a snapshot in time. The budget is a flow statement, meaning it measures the flow of cash in and out of the accounts over a period of time. Companies are no different. When they report earnings, or release income and cash flow statements, on those statements, they don't report the changes in assets and liabilities. They report those changes on the balance sheet. So you wouldn't expect the changes in liabilities to be reported in the budget.
I'm not sure how to put the fact that an excess of debt isn't the same thing as a surplus of cash any more simply than I already have but I'll give it one last shot; the national debt (intra-governmental holdings + public debt) as reported by the treasury increased every year under Clinton which clearly demonstrates a case of the former rather than a case of the latter. In my book reporting that to the public as a "surplus" is an attempt to deceive the public into believing that it's a case of the latter.
... and therein lies the point of contention my friend, that the federal government has redefined the meaning of surplus to include a scenario which involves an increase of outstanding debt, I (along with others more knowledgeable about accounting than I) don't agree with that definition, You apparently do, so we'll have to agree to disagree.
Fair enough. Most people define it as this
Definition of 'Surplus'
The amount of an asset or resource that exceeds the portion that is utilized. A surplus is used to describe many excess assets including income, profits, capital and goods. A surplus often occurs in a budget, when expenses are less than the income taken in, or in inventory when fewer supplies are used than were retained.
Surplus Definition | Investopedia
In our current budget, when more money comes in than is paid out, people define that as a surplus.
No it's not what I'm arguing in my brackets, what I'm pointing out there is the possibility that the federal government utilizes an actual surplus of cash to shore up it's unfunded future liabilities (which aren't limited to SS, since they also include Medicare and the other various federal pension funds), unfortunately federal law makes the "maneuverability" of this rather limited since in most cases it prohibits the federal government from purchasing marketable securities from external entities, I'm just assuming (hoping) there's some wiggle room in there somewhere that would allow for this.
First, to reiterate, I'm not defending the current system. I think it's a poor one. If I were starting from scratch, I would do it much differently. It is very confusing. And the government does nothing to make it any less confusing.
Your point about the government spending and not saving is an example of this confusion. But in the current scheme, the government is saving. This is the logic of how it works.
I gave the example of the budget in this post.
Operating budget
Revenues $2000
Spending $2100
Deficit $-100
Trusts
Revenues $1000
Payments $700
Surplus $300
Consolidated surplus $200
Liabilities before the fiscal year would have looked like this
Publicly traded debt $2000
Liabilities to the trusts $1000
Total liabilities $3000
After the fiscal year, it would have looked like this
Publicly traded debt $1800
Liabilities to the trusts $1300
Total liabilities $3100
Social security is to be invested in the safest assets. The safest assets are considered to be government debt. Thus, the safest portfolio (so it goes) is a portfolio of government debt. Investments in government debt are usually investments in government bonds. A bond is a promise to pay the lender back. When the government issues government bonds, the transaction would look like this
Investor has $100 --> He buys a government bond worth $100 plus interest, say 2% --> Government takes the $100 and spends the money --> At expiration, government pays back the $100 plus 2% interest.
Every single transaction regarding government bonds looks like this.
Let's say that rather than non-marketable liabilities, the trusts invest in government bonds. Each transaction in the trusts would look like this.
Worker pays $100 in FICA taxes which are transferred to the trusts --> The trust buys a government bond worth $100 plus interest, say 2% --> Government takes the $100 and spends the money --> At expiration, government pays the trust back the $100 plus 2% interest. --> The worker is credited with a future claim on the trusts that will be paid when he retires. --> The trusts make payments to those eligible to receive social security payments.
This, in fact, is the mechanics of how any annuity or defined contribution pension plan works.
The mechanics of the trusts work exactly the same, with one difference - they don't go into the bond market and actually buy the bonds. They record credits and debits as if they were buying the bonds, then debiting to the Treasury the liabilities the US government owes to the trusts.
This is how the mechanics of the trusts work
Worker pays $100 in FICA taxes which are transferred to the trusts --> The trusts credit the account at the prevailing interest rate, say 2% --> Government takes the $100 and spends the money --> The worker is credited with a future claim on the trusts that will be paid when he retires. --> The trusts make payments to those eligible to receive social security payments.
Notice that in all cases, the government is spending the money. This is true regardless whether or not
- You buy a government bond
- A portfolio that manages your money buys a government bond, or
- You pay taxes to the SS trusts where you receive credits for your payments
So let's take a look at what the balance sheet of the trusts would look like if they invested the surplus in government bonds.
The current balance sheet at the beginning of the year would look like this.
Non-marketable government liabilities $1000
Total government debt owed to the trusts $1000
Total government debt owed to the trusts $1000
Then, this year, the trusts run a $300 surplus. Under the current system, the balance sheet would look like this
Non-marketable government liabilities $1300
Total government debt owed to the trusts $1300
Total government debt owed to the trusts $1300
But instead of continuing the old system, we use the $300 to invest in government bonds. The balance sheet of the trusts would look like this
Non-marketable government liabilities $1000
Treasury bonds $300
Total government debt owed to the trusts $1300
In each case, whether the FICA taxes are swept directly into the Treasury or the FICA taxes are used to buy government bonds that are then swept into the Treasury, the government spends the money. A government bond is a promise to pay back the money the government spends. The SS trusts are promises to pay back the money the government has spent. As long as the government is crediting the trusts with the market interest rate that would been earned on a portfolio of government bonds, the government is "saving" the money that they are spending because that's exactly how a portfolio of government bonds work.
Whether the government issues a bond or makes a promise to pay social security when you retire, it is a promise to pay money in the future. The only difference in the trusts is that the middle-man is cut out. Rather than issuing bonds, the government credits the accounts as if they were buying government bonds. Again, I get that it's confusing, and it's not the system I would construct, but the mechanics of a government bond portfolio and the trusts are the same.
Anywho, great talking to you and interesting conversation, hope you have an excellent weekend!
You too.
Last edited: