Social Security is Not a Ponzi Scheme, Mr. Perry

[OohPooPahDoo]

The Tea Party wanted us to default?
How is preventing new borrowing equivalent to wanting us to default?
Please spell it out. Thanks.

It wasn't realistically possible for the government to cut spending by 40% overnight, and the market that buys and sells Treasuries knows this.


And of course the Tea Baggers wants default. They want everything to go wrong with the economy. They actually favor deflation.

Reducing spending isn't a better way to prevent default than increasing borrowing?

I'm afraid to see how you handle your own balance sheet.

Its not realistically possible to cut spending 40% overnight and still have a functioning government, and any reasonable bond trader knows that. The market isn't as stupid as you think.

 

[OohPooPahDoo]

The government technically defaulted on the dent when it devalued the dollar from the gold standard because previous dollars were redeemable in gold.

No it didn't default, not technically, not otherwise. You have no idea what you're even talking about

You are the one that tired to argue the Constitution prevents the US from defaulting, why is it I am wrong for pointing out a way that the government already got around that part of the Constitution?

You haven't and you're stupid.

You don't think telling people that their gold certificates are not redeemable for gold is a default? I bet you think we didn't default in 1971 either.

Its not a default, and no, we didn't default in 1971 either. You are a very confused person.

 

[OohPooPahDoo]

It was dinner time earlier, so I rushed my response.

Legally, the Fed cannot actually buy T-bills directly from the Treasury. What happens is the Treasury sells the T-bill to Jon Q. Public, and the Fed buys it from him. John Q., being a smart investor, wants to get a profit off of the T-bill he bough, and he knows that if he waits he will get 4 dollars. The Fed actually pays him something more than what he paid for the bill, but less than the value of the bill if it matured. This has the benefit of transferring the debt from the public to the government, effectively canceling the Treasury debt from the point of view of the taxpayer.

Unfortunately, it does no such thing for the Treasury or the Fed. At some point the Treasury has to buy the T-bill back from the Fed. Let us assume that in doing so they pay $4 dollars in interest, and the Fed, being a non profit, remits $2 back to the Treasury. The Treasury does count this as revenue, and uses it to reduce the deficit.

Does it save the taxpayer money?

Getting cookies on sale for $2 instead of paying $4 doesn't actually save a person money unless they put it in a savings account instead of spending it on something else. The government does not have a savings account, so it will promptly spend that $2 dollars on something else. No net savings to the taxpayer at all.

Yes, the Fed saved the Treasury (and the taxpayer) about $80 billion last year. Some from Treasuries, some from financial services, some from short term loans and some from MBS.
If the government wasted the $80 billion, that's a totally separate issue.

Not from the taxpayer's POV, which is what you asked initially.

If any investors other than the Fed owned those bonds, the Treasury would have to pay full interest on them. Because the Fed owns them, the Treasury only pays expenses of the Fed, saving the rest. Do you not understand basic mathematics?

You are seriously one of the dumbest people I've ever met.

 

[Toddsterpatriot]

It was dinner time earlier, so I rushed my response.

Legally, the Fed cannot actually buy T-bills directly from the Treasury. What happens is the Treasury sells the T-bill to Jon Q. Public, and the Fed buys it from him. John Q., being a smart investor, wants to get a profit off of the T-bill he bough, and he knows that if he waits he will get 4 dollars. The Fed actually pays him something more than what he paid for the bill, but less than the value of the bill if it matured. This has the benefit of transferring the debt from the public to the government, effectively canceling the Treasury debt from the point of view of the taxpayer.

Unfortunately, it does no such thing for the Treasury or the Fed. At some point the Treasury has to buy the T-bill back from the Fed. Let us assume that in doing so they pay $4 dollars in interest, and the Fed, being a non profit, remits $2 back to the Treasury. The Treasury does count this as revenue, and uses it to reduce the deficit.

Does it save the taxpayer money?

Getting cookies on sale for $2 instead of paying $4 doesn't actually save a person money unless they put it in a savings account instead of spending it on something else. The government does not have a savings account, so it will promptly spend that $2 dollars on something else. No net savings to the taxpayer at all.

Yes, the Fed saved the Treasury (and the taxpayer) about $80 billion last year. Some from Treasuries, some from financial services, some from short term loans and some from MBS.
If the government wasted the $80 billion, that's a totally separate issue.

Not from the taxpayer's POV, which is what you asked initially.

From the taxpayer's POV, the Treasury had to sell $80 billion less Treasury securities last year due to the Fed turning over $80 billion to the Treasury.

That's $80 billion less the taxpayer has to repay.
That's $80 billion less taxpayers have to pay interest on this year.

Sounds like some big savings to me.

 

[Toddsterpatriot]

It wasn't realistically possible for the government to cut spending by 40% overnight, and the market that buys and sells Treasuries knows this.


And of course the Tea Baggers wants default. They want everything to go wrong with the economy. They actually favor deflation.

Reducing spending isn't a better way to prevent default than increasing borrowing?

I'm afraid to see how you handle your own balance sheet.

Its not realistically possible to cut spending 40% overnight and still have a functioning government, and any reasonable bond trader knows that. The market isn't as stupid as you think.

And yet, cutting spending isn't the same thing as wishing for default.
The people aren't as stupid as you think.

 

[Quantum Windbag]

Its the M2 money supply that's 9.5 trillion, not the monetary base. Do you know what the hell you're talking about?

Yes I do. M1 is the liquid assets of the government,

No, it isn't. please go educate yourself and stop making yourself look stupid.

M2 is a better measure of the actual money supply because it includes those gold certificates you think back the dollar, and everything else that can actually be exchanged for dollars on demand.

M2 does not include the gold certificates on the Fed's balance sheet. Those are part of the monetary base.

The last time I looked M2 includes M1. If you have an updated source that defines them differently you might want to inform the Federal Reserve they are doing it wrong.

 

[Quantum Windbag]

No it didn't default, not technically, not otherwise. You have no idea what you're even talking about

You haven't and you're stupid.

You don't think telling people that their gold certificates are not redeemable for gold is a default? I bet you think we didn't default in 1971 either.

Its not a default, and no, we didn't default in 1971 either. You are a very confused person.

We did not default, we just informed every foreign government that they would no longer be able to trade their dollars for gold like we had told them for decades.

 

[Quantum Windbag]

Yes, the Fed saved the Treasury (and the taxpayer) about $80 billion last year. Some from Treasuries, some from financial services, some from short term loans and some from MBS.
If the government wasted the $80 billion, that's a totally separate issue.

Not from the taxpayer's POV, which is what you asked initially.

If any investors other than the Fed owned those bonds, the Treasury would have to pay full interest on them. Because the Fed owns them, the Treasury only pays expenses of the Fed, saving the rest. Do you not understand basic mathematics?

You are seriously one of the dumbest people I've ever met.

Do you not understand that spending money on something else is not saving it?

 

[Quantum Windbag]

Yes, the Fed saved the Treasury (and the taxpayer) about $80 billion last year. Some from Treasuries, some from financial services, some from short term loans and some from MBS.
If the government wasted the $80 billion, that's a totally separate issue.

Not from the taxpayer's POV, which is what you asked initially.

From the taxpayer's POV, the Treasury had to sell $80 billion less Treasury securities last year due to the Fed turning over $80 billion to the Treasury.

That's $80 billion less the taxpayer has to repay.
That's $80 billion less taxpayers have to pay interest on this year.

Sounds like some big savings to me.

It certainly sounds like big savings. I just refuse to count them as savings unless the government actually puts that money in an account somewhere and does not spend it. What they actually do is find something else to spend it on. and that does not save the taxpayer one cent.

I would also count it as savings if the government used that money to reduce the actual debt by paying some of it off early. The way they use it to reduce the deficit actually costs us more in the long run, because they spend it, and borrow more.

 

[Toddsterpatriot]

Not from the taxpayer's POV, which is what you asked initially.

From the taxpayer's POV, the Treasury had to sell $80 billion less Treasury securities last year due to the Fed turning over $80 billion to the Treasury.

That's $80 billion less the taxpayer has to repay.
That's $80 billion less taxpayers have to pay interest on this year.

Sounds like some big savings to me.

It certainly sounds like big savings. I just refuse to count them as savings unless the government actually puts that money in an account somewhere and does not spend it. What they actually do is find something else to spend it on. and that does not save the taxpayer one cent.

I would also count it as savings if the government used that money to reduce the actual debt by paying some of it off early. The way they use it to reduce the deficit actually costs us more in the long run, because they spend it, and borrow more.

It's true, they don't put it in a separate account.
That doesn't change the fact that it's $80 billion less they had to borrow last year.

 

[Quantum Windbag]

From the taxpayer's POV, the Treasury had to sell $80 billion less Treasury securities last year due to the Fed turning over $80 billion to the Treasury.

That's $80 billion less the taxpayer has to repay.
That's $80 billion less taxpayers have to pay interest on this year.

Sounds like some big savings to me.

It certainly sounds like big savings. I just refuse to count them as savings unless the government actually puts that money in an account somewhere and does not spend it. What they actually do is find something else to spend it on. and that does not save the taxpayer one cent.

I would also count it as savings if the government used that money to reduce the actual debt by paying some of it off early. The way they use it to reduce the deficit actually costs us more in the long run, because they spend it, and borrow more.

It's true, they don't put it in a separate account.
That doesn't change the fact that it's $80 billion less they had to borrow last year.

Nor does it change the fact that they went ahead and borrowed it anyway. That means that the taxpayer is still on the hook for that $80 billion that the government is claiming it saved.

 

[Neotrotsky]

[ame=http://www.youtube.com/watch?v=1Ge5hB6JLfY]Social Security a Ponzi Scheme?! (CROWDER CALLS THE SEC!) - YouTube[/ame]

 

[Toddsterpatriot]

It certainly sounds like big savings. I just refuse to count them as savings unless the government actually puts that money in an account somewhere and does not spend it. What they actually do is find something else to spend it on. and that does not save the taxpayer one cent.

I would also count it as savings if the government used that money to reduce the actual debt by paying some of it off early. The way they use it to reduce the deficit actually costs us more in the long run, because they spend it, and borrow more.

It's true, they don't put it in a separate account.
That doesn't change the fact that it's $80 billion less they had to borrow last year.

Nor does it change the fact that they went ahead and borrowed it anyway. That means that the taxpayer is still on the hook for that $80 billion that the government is claiming it saved.

The Treasury did not borrow the $80 billion the Fed handed them.

 

[Quantum Windbag]

It's true, they don't put it in a separate account.
That doesn't change the fact that it's $80 billion less they had to borrow last year.

Nor does it change the fact that they went ahead and borrowed it anyway. That means that the taxpayer is still on the hook for that $80 billion that the government is claiming it saved.

The Treasury did not borrow the $80 billion the Fed handed them.

No, they spent it, borrowed $80 billion on top of it, then came back and asked for more credit.

(Yes, I know it was not the Treasuries fault, but I am explaining why I refuse to say that we saved any money last year.)

 

[Toddsterpatriot]

Nor does it change the fact that they went ahead and borrowed it anyway. That means that the taxpayer is still on the hook for that $80 billion that the government is claiming it saved.

The Treasury did not borrow the $80 billion the Fed handed them.

No, they spent it, borrowed $80 billion on top of it, then came back and asked for more credit.

(Yes, I know it was not the Treasuries fault, but I am explaining why I refuse to say that we saved any money last year.)

You have any proof?

 

[OohPooPahDoo]

Reducing spending isn't a better way to prevent default than increasing borrowing?

I'm afraid to see how you handle your own balance sheet.

Its not realistically possible to cut spending 40% overnight and still have a functioning government, and any reasonable bond trader knows that. The market isn't as stupid as you think.

And yet, cutting spending isn't the same thing as wishing for default.
The people aren't as stupid as you think.

You're right, it isn't....

but threatening to not raise the debt ceiling at a time when expenditures exceed revenues by a ratio of 5:3 is the same thing as wishing for default. At least to anyone who isn't a moron.

 

[OohPooPahDoo]

You don't think telling people that their gold certificates are not redeemable for gold is a default? I bet you think we didn't default in 1971 either.

Its not a default, and no, we didn't default in 1971 either. You are a very confused person.

We did not default, we just informed every foreign government that they would no longer be able to trade their dollars for gold like we had told them for decades.

We're a sovereign nation, we can do that. The question of default rests on whether or not the Treasury pays its debts.

 

[OohPooPahDoo]

Not from the taxpayer's POV, which is what you asked initially.

If any investors other than the Fed owned those bonds, the Treasury would have to pay full interest on them. Because the Fed owns them, the Treasury only pays expenses of the Fed, saving the rest. Do you not understand basic mathematics?

You are seriously one of the dumbest people I've ever met.

Do you not understand that spending money on something else is not saving it?

Do you understand that interest in excess of Fed expenses isn't actually spent on something else - or anything?

Look, its simple jackass. Say you buy a 5 year $1000 note that pays 1% interest. Now the Treasury has to pay you $10 a year for 5 years, then $1000 at the end.

Say you sell that note to the Federal Reserve before the principal comes due. Now the Treasury has to only pay enough of that $10 per year to cover the Fed's expenses - that's typically about 10%, so they only pay the Fed $1 a year. So they pay the Fed $1 a year instead of $10, and $1000 at the end - saving the taxpayers $9 a year.

Its really simple.

 

[Toddsterpatriot]

Its not realistically possible to cut spending 40% overnight and still have a functioning government, and any reasonable bond trader knows that. The market isn't as stupid as you think.

And yet, cutting spending isn't the same thing as wishing for default.
The people aren't as stupid as you think.

You're right, it isn't....

but threatening to not raise the debt ceiling at a time when expenditures exceed revenues by a ratio of 5:3 is the same thing as wishing for default. At least to anyone who isn't a moron.

Not defaulting simply requires interest and principal be paid when due.
I thought everyone understood that, at least everyone who isn't a moron.

 

[Neotrotsky]

Ida Fuller, the first person to collect a SS check, paid just $44 in Social Security taxes, but Fuller lived long enough to collect $20,993 in benefits.
No doubt, the young workers of today will be lucky if they break even when they retire as the number of new contributors dries up.
In fact they will receive less than what could have been provided by private investments.

Fundamentally, it depends on a growing and growing number of contributors to keep those who pay more than those who collect.
We have about 3 working for each retired. In 30 years from now that ratio will almost be reversed.


There is no doubt Social Security has fundamental flaws in it that
make it "Ponzi like".

Indeed, some Nobel Prize economists have called it such

Paul Samuelson

Social Security is a Ponzi Scheme that Works

The beauty of social insurance is that it is actuarially unsound. Everyone who reaches retirement age is given benefit privileges that far exceed anything he has paid in — exceed his payments by more than ten times (or five times counting employer payments)!

How is it possible? It stems from the fact that the national product is growing at a compound interest rate and can be expected to do so for as far ahead as the eye cannot see. Always there are more youths than old folks in a growing population. More important, with real income going up at 3% per year, the taxable base on which benefits rest is always much greater than the taxes paid historically by the generation now retired.

…A growing nation is the greatest Ponzi game ever contrive​

(notice when he wrote that in 1967, he assumed a growing population and a national product rate that would keep it afloat)


Milton Friedman

He called it The Biggest Ponzi Scheme on Earth ​

Paul Krugman

Social Security is structured from the point of view of the recipients as if it were an ordinary retirement plan: what you get out depends on what you put in. So it does not look like a redistributionist scheme. In practice it has turned out to be strongly redistributionist, but only because of its Ponzi game aspect, in which each generation takes more out than it put in. Well, the Ponzi game will soon be over, thanks to changing demographics, so that the typical recipient henceforth will get only about as much as he or she put in (and today’s young may well get less than they put in).
​