Understanding the Social Security scam

[adanthar]

copernicus,

seriously, it really isn't. at least put some spaces/breaks between the colors - you don't need to break each post up into 37 quotes, but one large block of multicolored text is pretty hard to absorb.

[ConstantineX]

And using blue seems to be a much better color than red.

[Copernicus]

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copernicus,

seriously, it really isn't. at least put some spaces/breaks between the colors - you don't need to break each post up into 37 quotes, but one large block of multicolored text is pretty hard to absorb.

[/ QUOTE ]

coming from almost anyone but you Id ignore this, but I will break them up in the future. thanks for the Cardrunners videos, first rate.

[adanthar]

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[ QUOTE ]
copernicus,

seriously, it really isn't. at least put some spaces/breaks between the colors - you don't need to break each post up into 37 quotes, but one large block of multicolored text is pretty hard to absorb.

[/ QUOTE ]

coming from almost anyone but you Id ignore this, but I will break them up in the future. thanks for the Cardrunners videos, first rate.

[/ QUOTE ]

np. it's a style thing - people are used to [.quote] tags and it's hard to adjust when one guy's not using them.

[Copernicus]

Lets try one more time, TC, since (as opposed to Natedogg) you are actually thinking about these things instead of spouting rhetoric, we just arent communicating. The disconnect seems to be your aggregation of the actions of different branches of the government, so lets expand the personal analogy.

You have $50,000 in the bank earning $250 interest a month, you have $200,000 in your 401(k) plan which you are no longer contributing to and its bond investments are earning 5% a year because youre an extremely conservative investor, and you have utility bonds worth $25k that are throwing off coupon payments of $250 a month...and you are married to a non-working wife who keeps the house clean, helps the kids with homework, and has (ahem) other benefits. She has a funny name too...Congress (pun intended regarding her other benefits).

Unfortunately youve gotten into a position where your salary plus all of your investments exactly equal your monthly expenses, no room for additional savings or investments or 401(k) contributions.

You get the end of the month statement from your bank, and WTF, the 50,000 is gone, and you realize Congress has fallen off the wagon and snorted the 50k. But her Uncle is your boss, and theres no way you can rock that boat, you are dependent on him for paying your salary.

(So far nothing has happened except Congress has spent 50k on blow, and your family net worth has dropped from 275k to 225k).

But you realize that since she paid her dealer at the end of the month that while youre okay this month, next month you are going to be $250 short on your bills.

What to do? Well, heres one solution. Borrow $50k from your 401(k) plan, that you have to repay at $250 per month, amoritizing that loan at 5% interest. Use that $50k to buy more of the same utilities, which will throw off $500 per month. Youve restored the net cash flow you needed.

Your liquid net worth is unchanged from these transactions, but your family has tapped the 401(k) plan to meet its cash flow needs (needs it wouldnt have if wifey didnt have a drug problem).

Whats happened from the point of view of your 401(k) plan? All it knows is that its invested $50,000 in a different asset...ZOMG a different IOU...its net worth is unchanged. That IOU happens to have TC's name on it instead of XYZ company, but its an extremely safe investment. Why? Because if you default on a 401(k) loan you are going to face all kinds of early withdrawal penalties and income taxes, and you arent about to let that happen. Your 401(k) plan doesnt give a damn that your wife had a helluva ride for a month. Its earning 5% in an extremely safe asset. YES, that IOU is an asset, it doesnt matter to your 401(k) plan that the IOU is coming from "within the family".

Whats happened to your liquid finances since you decided to make this transaction? Youve restored the blown 50k in assets, but incurred an equal amount of debt, so "nothing has happened" except you are now able to make your monthly nut because that other part of your family finances had some surplus assets.

Net sum? Congress spent 50k too much money, money you would have to find somewhere. You happened to find it in your personal little Social Security system, and you gave it an IOU. You could have given a 3rd party an IOU, but that effects your credit rating and you wont be able to finance other transactions as cheaply in the future.

Your own personal little Social Security system is in the exact same position it was before this all happened.

There are no "accounting shenanigans", no worth has been created out of thin air, there is no "scam" and your own personal SS system has an IOU for an asset...a very real asset.

I'll respond to issues of substance and accounting for these transactions, not minutiae like interest rate differentials, the length of time it takes to pay back your SS system etc.

[TomCollins]

Amazingly I think we are on the same page and I don't think there are any contradictions between what you said here, what I've said, or what nate has said.

You claimed that you made as much money as your expenses and were not saving anything. Where are you going to get the extra $250/month to pay off the loan? You are going to have to cut expenses or get more money somehow. And if you keep getting more and more IOUs, eventually you are going to have to pay the piper. Getting more money is going to mean increased tax revenues.

[ConstantineX]

So the crux is that because the IOUs are safe Treasury bills, and there would be larger financial implications if the United States defaulted on THOSE, there's no shenanigans going on. Am I right?

[Copernicus]

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Amazingly I think we are on the same page and I don't think there are any contradictions between what you said here, what I've said, or what nate has said.

You claimed that you made as much money as your expenses and were not saving anything. Where are you going to get the extra $250/month to pay off the loan? You are going to have to cut expenses or get more money somehow. And if you keep getting more and more IOUs, eventually you are going to have to pay the piper. Getting more money is going to mean increased tax revenues.

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Theres may not be any differences in the understanding of the transactions but there are huge differences in interpretration of those transactions and you and natedogg have said:

"Scam, pyramid scheme, ponzi scheme" No it isnt
"There is no Social Security trust fund" Yes there is
"Treasury investments by SS aren't assets" Yes they are
"Accounting shenanigans" no, there are none

If the prior nauseatingly detailed analogy isnt enough to convince you of the "no, yes, yes, no", theres nothing else I can do. Others of reasonable financial understanding and without anti-government agendas should be able to see past the rhetoric, Iron included.


Its a nit I said I wouldnt respond to but to make it clear, there are no additional loans to take or income needed, the new cash flow exactly replaces the $250 cash flow lost from the savings account. Yes there are underlying policy changes and interest rate differentials (eg why werent all of the assets invested in the utilities the whole time and more income generated) that result in that increse cash flow, just as there are policy decisions that were made regarding where Social Security funds get invested, but that doesnt change the essence of the transactions.

[vulturesrow]

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Amazingly I think we are on the same page and I don't think there are any contradictions between what you said here, what I've said, or what nate has said.

You claimed that you made as much money as your expenses and were not saving anything. Where are you going to get the extra $250/month to pay off the loan? You are going to have to cut expenses or get more money somehow. And if you keep getting more and more IOUs, eventually you are going to have to pay the piper. Getting more money is going to mean increased tax revenues.

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He never said otherwise. Nate is criticizing SS when he should be saving his fire and brimstone for Congress spending like drunken sailors (and I know a bit about drunken sailors. [img]/images/graemlins/smile.gif[/img] )I know natedogg probably does hate the way the Congress spends. There are some legit criticims (the regressive nature of the taxes being most legitimate in my eyes)

[Copernicus]

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[ QUOTE ]
Amazingly I think we are on the same page and I don't think there are any contradictions between what you said here, what I've said, or what nate has said.

You claimed that you made as much money as your expenses and were not saving anything. Where are you going to get the extra $250/month to pay off the loan? You are going to have to cut expenses or get more money somehow. And if you keep getting more and more IOUs, eventually you are going to have to pay the piper. Getting more money is going to mean increased tax revenues.

[/ QUOTE ]

He never said otherwise. Nate is criticizing SS when he should be saving his fire and brimstone for Congress spending like drunken sailors (and I know a bit about drunken sailors. [img]/images/graemlins/smile.gif[/img] )I know natedogg probably does hate the way the Congress spends. There are some legit criticims (the regressive nature of the taxes being most legitimate in my eyes)

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Why would you focus on the regressive nature of the taxes, when the net system of benefits and taxes is not regressive, and is in fact slightly progressive?

If you believe that the net system should be even more progressive, eg a needs test to receive benefits, then that is social policy that can be debated.

However, that definitely moves you further away from a relatively pure and self-supporting retirement system to another wealth transfer program. With the boomers retirement a rational retirement policy needs to continue to focus on its main purpose, and not become just another welfare program.