Understanding the Social Security scam

[TomCollins]

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Its the same thing as if I loan my money to my friend who will repay me with interest. If you take a loan to yourself and promise to pay yourself back 2x, you aren't making any investment. This is because you would have the 2x ANYWAY.

I am not surprised by Copernicus's direct concealment of the program, but I am pretty surprised you fail to understand the difference.

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And Im not surprised that you let your polictical agenda cloud your reasoning or justify your lying about what you do understand.

"If you take a loan to yourself and promise to pay yourself back 2x, you aren't making any investment. This is because you would have the 2x ANYWAY."

This is obviously true, and has nothing whatsover to do with the prudence of doing just that. If your savings account yields 5% and you have an investment opporunity "guaranteed" to yield 8%, then "borrowing from yourself" makes perfect sense, even though your net worth is unchanged at the moment of the transaction.

If you're an investing savant and your investments are earning 10% (but have exhausted those opportunities), but you can borrow at 6%, then go out and finance the purchase of your guaranteed 8% investment..even though at the moment of your transactions your net worth is unchanged. Its not that hard to understand on a personal level.

When you escalate it to the government level the transaction is fundamentally the same as the first transaction, although the decisions carry fiscal/monetary/risk and intergenerational consequences that in fact make it MORE appropriate for the Government to "borrow from itself".

If a thread starts on deficit spending many of the issues overlap, and of course, there are situations where deficit spending is appropriate and others where it isn't. The conflation of spending and funding discussions only serve to obfuscate the issues, which are totally independent, but are a common tactic in these attempts to disseminate myths about Social Security, so keeping spending out of this discussion can only improve it.

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A real world example of lending money to yourself is borrowing from your 401k and paying yourself back with interest. It's not like that doesn't happen ever, it happens quite frequently. If you're not very dilligent, frugal whatever, probably don't want to do it. If you are though it can be a rational thing to do.

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Ok, I'm glad you and I agree. This is what I have been saying. The question is, you need to pay back that 401k sometime. Eventually, you are going to have to either make more money than you currently do, or cut down your expenses (or a combination of both) in order to pay back the 401k in the future. It also is not any different than just having your money in a single account and not playing accounting shenanigans.

[DVaut1]

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I haven't stated a position on spending, other than that it doesnt belong in this discussion, because (other than the policy decision to have a national retirement system and that spending) spending has nothing to do with Social Security.<font color="red"> Except you called it an investment. You compared it to taking money out of a savings account and putting it in a better investment. Your words, not mine. If you take money out of your savings account and spend it on hookers and blow, but write yourself IOUs, the only way to pay for those IOUs in the future is to increase your revenue to meet your typical obligations along with paying back your IOUs.</font>

On the parenthetical I disagree that spending on a national retirement system is analagous to "hookers and blow", any more than your IRA or 401(k) plan is.<font color="red">I never compared the retirement system to hookers and blow, I compared it to the government spending the money taken frmo the SS Trust Fund to it.</font> (And if youre still spending your money on hookers and blow in retirement age, more power to you!)

With regard to the Government investing, I don't think the Federal Government should have any net financial assets other than short term cash flow needs. Introduction of financial assets to the government of a capitalist country creates a myriad of issues with regard to how to allocate those investments so it doesnt distort the markets, issues with regard to risky assets and the inter-generational transfer of risk, fiscal and monetary issues that overlap with the Federal Reserve policy decisions and may in fact be in conflict with good fiscal and monetary policy etc.<font color="red"> So how is this an investment? You really are claiming its an investment, but its just a way to postpone the repayments that the funds are used for into the future. (Hookers and blow + IOUs)</font>

Of course once you believe that the Government should have no net financial assets, the only way to deal with a cash flow surplus such as Social Security generates is to have Social Security invest in Treasury issues (ie have the government "borrow from itself"). Of course the alternative of making Social Security completely pay as you go, and have no surplus whatsoever would eliminate the investment problems. However that violates basic accounting principles in that you are deferring the entire cost of current worker's benefits to future generations, that are not directly benefiting from those workers' efforts. <font color="red">So the IOUs are an Asset or not? You can't make up your mind. Normally when I buy a bond, I would consider it an asset. But when you buy bonds against yourself, you aren't doing a damn thing.</font>

And of course the cries of "scam, Pyramid scheme, Ponzi scheme" would be even louder, to compensate for the rhetoric of "there is no Social Security Trust Fund". <font color="red">Have they fooled you, or would your consulting business go away if the real way it was run became more well known and it was all accounting shenanigans.</font>

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Okay I honestly didn't read any of the content in here (because who would ever read something so painful to human eye balls) but this is hilarious.

Seriously, I don't want Copernicus banned, but Tom makes an excellent, satirical point here that should be addressed - someone needs to start threatening Copernicus with temp bans if he continues to respond to posts by using red text within a quote box. Can this happen? Iron, someone, anyone, please?

I really don't support banning anyone, and I'm not talking about perma-bans, but I'm willing to violate my own standards and support temp banning Copernicus until he stops.

[iron81]

That type of posting makes my eyes bleed as well, but we're switching software on Sunday so we'll see if he continues to do it and if its still annoying. I never really wanted to moderate that anyway.

Copernicus, if you want us to read your posts, people are much less likely to if the post is hard to follow. The red text is hard to follow.

[Copernicus]

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Its the same thing as if I loan my money to my friend who will repay me with interest. If you take a loan to yourself and promise to pay yourself back 2x, you aren't making any investment. This is because you would have the 2x ANYWAY.

I am not surprised by Copernicus's direct concealment of the program, but I am pretty surprised you fail to understand the difference.

[/ QUOTE ]

And Im not surprised that you let your polictical agenda cloud your reasoning or justify your lying about what you do understand.

"If you take a loan to yourself and promise to pay yourself back 2x, you aren't making any investment. This is because you would have the 2x ANYWAY."

This is obviously true, and has nothing whatsover to do with the prudence of doing just that. If your savings account yields 5% and you have an investment opporunity "guaranteed" to yield 8%, then "borrowing from yourself" makes perfect sense, even though your net worth is unchanged at the moment of the transaction.

If you're an investing savant and your investments are earning 10% (but have exhausted those opportunities), but you can borrow at 6%, then go out and finance the purchase of your guaranteed 8% investment..even though at the moment of your transactions your net worth is unchanged. Its not that hard to understand on a personal level.

When you escalate it to the government level the transaction is fundamentally the same as the first transaction, although the decisions carry fiscal/monetary/risk and intergenerational consequences that in fact make it MORE appropriate for the Government to "borrow from itself".

If a thread starts on deficit spending many of the issues overlap, and of course, there are situations where deficit spending is appropriate and others where it isn't. The conflation of spending and funding discussions only serve to obfuscate the issues, which are totally independent, but are a common tactic in these attempts to disseminate myths about Social Security, so keeping spending out of this discussion can only improve it.

[/ QUOTE ]

A real world example of lending money to yourself is borrowing from your 401k and paying yourself back with interest. It's not like that doesn't happen ever, it happens quite frequently. If you're not very dilligent, frugal whatever, probably don't want to do it. If you are though it can be a rational thing to do.

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Yeah, in a prior thread I used the IRA/401(k) example but then the obfuscators wanted to get into the minutae of it, such as tax effects, instead of the big picture.

[Copernicus]

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....

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Its the same thing as if I loan my money to my friend who will repay me with interest. If you take a loan to yourself and promise to pay yourself back 2x, you aren't making any investment. This is because you would have the 2x ANYWAY.

I am not surprised by Copernicus's direct concealment of the program, but I am pretty surprised you fail to understand the difference.

[/ QUOTE ]

And Im not surprised that you let your polictical agenda cloud your reasoning or justify your lying about what you do understand.

"If you take a loan to yourself and promise to pay yourself back 2x, you aren't making any investment. This is because you would have the 2x ANYWAY."

This is obviously true, and has nothing whatsover to do with the prudence of doing just that. If your savings account yields 5% and you have an investment opporunity "guaranteed" to yield 8%, then "borrowing from yourself" makes perfect sense, even though your net worth is unchanged at the moment of the transaction.

If you're an investing savant and your investments are earning 10% (but have exhausted those opportunities), but you can borrow at 6%, then go out and finance the purchase of your guaranteed 8% investment..even though at the moment of your transactions your net worth is unchanged. Its not that hard to understand on a personal level.

When you escalate it to the government level the transaction is fundamentally the same as the first transaction, although the decisions carry fiscal/monetary/risk and intergenerational consequences that in fact make it MORE appropriate for the Government to "borrow from itself".

If a thread starts on deficit spending many of the issues overlap, and of course, there are situations where deficit spending is appropriate and others where it isn't. The conflation of spending and funding discussions only serve to obfuscate the issues, which are totally independent, but are a common tactic in these attempts to disseminate myths about Social Security, so keeping spending out of this discussion can only improve it.

[/ QUOTE ]

A real world example of lending money to yourself is borrowing from your 401k and paying yourself back with interest. It's not like that doesn't happen ever, it happens quite frequently. If you're not very dilligent, frugal whatever, probably don't want to do it. If you are though it can be a rational thing to do.

[/ QUOTE ]

Ok, I'm glad you and I agree. This is what I have been saying. The question is, you need to pay back that 401k sometime. Eventually, you are going to have to either make more money than you currently do, or cut down your expenses (or a combination of both) in order to pay back the 401k in the future. It also is not any different than just having your money in a single account and not playing accounting shenanigans.

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You do so well, and then blow it by using inflammatory words like "shenanigans". The accounting is straightfoward, appropriate, and totally visible.

The fact that the Government has something to "pay back" goes back to the spending issue. If they spend $1 trillion more than non-SS tax revenues, that money has to be borrowed from somewhere. The existence of the supply of SS surplus has negligible effect on the spending decisions. When the King of Pork gets one of his projects funded nobody voted yes because SS has an off-budget surplus, and nobody voted yes because of the miniscule interest rate difference that might come from using non-marketable securities for SS instead of marketable securities.

Dont spend the money, then you dont float as much marketable securities. Meanwhile SS surplus is unchanged and the economic/social/political issues inherent with SS holding marketable securities are avoided.

If Slick Willie or some other politician wants to obfuscate by aggregating SS surplus with on-budget deficits, they should be called on it. That again has nothing to do with the appropriate accounting for and investment of the SS surplus.

[Copernicus]

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That type of posting makes my eyes bleed as well, but we're switching software on Sunday so we'll see if he continues to do it and if its still annoying. I never really wanted to moderate that anyway.

Copernicus, if you want us to read your posts, people are much less likely to if the post is hard to follow. The red text is hard to follow.

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And I find layers of embeddded quotes much harder to follow and much longer to write. If someone doesnt want to read it, so be it.

If you don't want the responses, say so and I'll go away, but I'm not going to be told how to format them.

[TomCollins]

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That type of posting makes my eyes bleed as well, but we're switching software on Sunday so we'll see if he continues to do it and if its still annoying. I never really wanted to moderate that anyway.

Copernicus, if you want us to read your posts, people are much less likely to if the post is hard to follow. The red text is hard to follow.

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And I find layers of embeddded quotes much harder to follow and much longer to write. If someone doesnt want to read it, so be it.

If you don't want the responses, say so and I'll go away, but I'm not going to be told how to format them.

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A little known fact is that Copernicus uses the device he grew up with, the telegraph, to make posts. Someone on the other end translates it, which results in the red formatting.

[TomCollins]

Please explain how the surplus is "invested" is different than me "investing" money by promising to save twice as much next year when I spend my money this year on hookers and blow.

I can see it now, the Copernicus Retirement Plan!

Take your retirement money, spend it on hookers and blow, but promise to save next year twice as much to make up for this years expenses!

[Copernicus]

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I haven't stated a position on spending, other than that it doesnt belong in this discussion, because (other than the policy decision to have a national retirement system and that spending) spending has nothing to do with Social Security.<font color="red"> Except you called it an investment. <font color="blue">I did no such thing. I called the purchase of Treasuries an investment, which it undeniably is. I never said that the spending by Congress on hookers and blow is an investment, and have specifically stated numerous times that spending is a totally different issue than investment. </font> You compared it to taking money out of a savings account and putting it in a better investment. Your words, not mine. If you take money out of your savings account and spend it on hookers and blow, but write yourself IOUs, the only way to pay for those IOUs in the future is to increase your revenue to meet your typical obligations along with paying back your IOUs.</font> <font color="blue">Correct, but it is not the SS system that has to increase its revenues its the other branches of the Government that SPENT BORROWED MONEY. THE SOURCE OF THAT MONEY IS IRRELEVANT. </font>

On the parenthetical I disagree that spending on a national retirement system is analagous to "hookers and blow", any more than your IRA or 401(k) plan is.<font color="red">I never compared the retirement system to hookers and blow, I compared it to the government spending the money taken frmo the SS Trust Fund to it.</font> <font color="blue"> Where the money comes from doesnt matter, its the spending that matters. I can't believe your this gd dense. </font> (And if youre still spending your money on hookers and blow in retirement age, more power to you!)

With regard to the Government investing, I don't think the Federal Government should have any net financial assets other than short term cash flow needs. Introduction of financial assets to the government of a capitalist country creates a myriad of issues with regard to how to allocate those investments so it doesnt distort the markets, issues with regard to risky assets and the inter-generational transfer of risk, fiscal and monetary issues that overlap with the Federal Reserve policy decisions and may in fact be in conflict with good fiscal and monetary policy etc.<font color="red"> So how is this an investment? You really are claiming its an investment, but its just a way to postpone the repayments that the funds are used for into the future. (Hookers and blow + IOUs)</font> <font color="blue"> the Treasuries are an investment of the SS system, not an investment of other branches of the government. On the Social Security books its (Taxes + interest income - benefit payments minus expenses = surplus cash) (Surplus cash - purchase of new Treasuries = 0 Cash) (existing Treasuries + new Treasuries = total investments) Straightforward, visible, approriate accounting</font>

Of course once you believe that the Government should have no net financial assets, the only way to deal with a cash flow surplus such as Social Security generates is to have Social Security invest in Treasury issues (ie have the government "borrow from itself"). Of course the alternative of making Social Security completely pay as you go, and have no surplus whatsoever would eliminate the investment problems. However that violates basic accounting principles in that you are deferring the entire cost of current worker's benefits to future generations, that are not directly benefiting from those workers' efforts. <font color="red">So the IOUs are an Asset or not? You can't make up your mind. <font color="blue">horse manure. I have consitently said that Treasuries are an asset of the SS system, and they are. </font> Normally when I buy a bond, I would consider it an asset. But when you buy bonds against yourself, you aren't doing a damn thing.</font> <font color="blue">You are doing something or you wouldnt be doing it. Your current net worth is unchanged but that isnt the same as doing nothing. You have avoided transactions costs, youve improved your net return on your investments, youve accessed money when you may have had no other source, whatever. You have done something. What the Social Security system does is invest in the safest asset available. </font>

And of course the cries of "scam, Pyramid scheme, Ponzi scheme" would be even louder, to compensate for the rhetoric of "there is no Social Security Trust Fund". <font color="red">Have they fooled you, or would your consulting business go away if the real way it was run became more well known and it was all accounting shenanigans.</font>

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[/ QUOTE ] <font color="blue">My business has nothing to do with SS and isnt effected in the least. You are the one who has been fooled into thinking that one government agency borrowing surplus cash from another agency is somehow worse than borrowing on the open market. </font>

[vulturesrow]

Very patriotic! [img]/images/graemlins/grin.gif[/img]