Comments on: Another look at the mid-term Social Security crater

By: No Runny Eggs » Blog Archive » The FY2010 Social Security primary deficit now projected to be $34 billion

Tue, 23 Feb 2010 00:38:29 +0000

[…] Last month, the Congressional Budget Office estimated the FY2010 Social Security primary deficit to be $28 billion, with the FY2011 primary deficit at $20 billion. The bad news is the OMB now predicts a primary deficit of $33.754 billion on total revenues of $793 billion, total outlays of $708.35 billion, and $118.404 billion of interest. […]

By: Indy

Indy — Fri, 05 Feb 2010 00:06:31 +0000

In reply to Joe Louderback.

Theoretically, if we had written the statute that way, Social security could either sell its bonds in the open market, or, as an equivalent alternative, it could “redeem” them with the treasury for open-marketable bonds of the same interest rate and maturity date that it could then sell. The headline should be “Treasury to pay Social Security in cash instead of debt only because a pointless law prevents this equivalent payment” and not “Treasury bails out SS”.

I agree that the “trust-fund” concept that distinguishes Social Security from the rest of the government is nothing more than a legal fiction – in the same way that fully owned subsidiaries of parent corporations are only separated through a legal fiction.

My contention is with the use of the term “bail out”. In the same way that you can’t make IOU’s to yourself, you can’t “bail out” yourself.

By: steveegg

steveegg — Thu, 04 Feb 2010 22:23:22 +0000

In reply to Indy.

It is all in the definition of the word of “bailout”, with Allan Sloan beginning the meme, not Ed Morrissey or Matt Drudge. The big problem is that there is no net money, at least as of this fiscal year, budgeted for the conversion of that “interest”, or “principal”, into cash. Given that, the use of “bailout” is, in my humble opinion, fair.

I will note that, even in the flushest of months, the “Trust” Funds redeemed Treasury securities because, by law, it could have no cash at the end of any given business day. However, up until now, on a yearly basis, the OASDI taxes more than covered those redemptions.

Another point of correction – the “Trust” Funds do not hold any securities that can be sold on the open market. All of its securities are of a “special issue” available only to it and other government “trust” funds, and purchasable only by the Department of the Treasury. Of note, Social Security is guaranteed full face value plus any accumulated interest between the last interest distribution and the date of redemption.

Given the larger budget deficits, the only way for the Treasury to provide cash is to convert that “off-budget”, nonmarketable debt, into “on-budget”, marketable debt by selling additional Treasury securities. The “good” news is that would not represent an increase in total government debt. However, it would represent an increase in the publicly-held portion of the debt.

By: Joe Louderback

Joe Louderback — Thu, 04 Feb 2010 22:09:08 +0000

In reply to Indy.

I don’t believe that the bonds SS “owns” can be sold in the open market, but rather must be redeemed by the Treasury. Also, if Treasury issues new debt to redeem the SS bonds, there is no “exchange of value.” The federal government must acquire the cash to redeem the bonds, either by higher taxes or additional federal debt. So general fund inflows will finance the liquidation of the “trust fund,” which is not a trust fund at all.

If you started working 30 years ago and each week put money in a box to provide for your retirement, then stopped putting the money in and instead spent the money and put in IOUs, you would not now be able to sell the IOUs and finance your retirement.

By: Indy

Indy — Thu, 04 Feb 2010 21:26:24 +0000

Drudge and Hotair and others have called this a “bailout”. But it’s not. Here’s how Social Security’s cash-flow works. Money-In = Taxes in cash + Trust Fund Interest in bonds. Money-Out = Payments to beneficiaries + *NET* Purchases of additional Bonds.

In the past, Money-In was greater than Money-Out, and so the Trust Fund bought bonds. Now that the surplus is gone, the way the fund honors its obligation is to sell the bonds it has accumulated. It can either do so in the open-market, or it can sell them to the Treasury for the equivalent amount. Now, if the Treasury does buy the bonds with cash, it just gets that cash by issuing new debt to the open-market. In no sense does that constitute a “bail-out” – it is a simple exchange for value!

This is not to say it won’t have adverse implications for the government. Of course it will. First, the trust fund will start to shrink faster and faster. Second, to the extent that it shrinks, it floods the bond market with even more supply, which will raise interest rates for government borrowing unless the FED buys more with newly-printed cash, which risks future inflation. There are serious problems here, but a “bail-out” is not one of them.

By: Hot Air » Blog Archive » Social Security tipping over into the red

Hot Air » Blog Archive » Social Security tipping over into the red — Thu, 04 Feb 2010 18:29:58 +0000

[…] at No Runny Eggs looks at the recalculated projections: Between this fiscal year and FY2019, instead of a cumulative […]