But consider what that means. A debt is an asset to the lender (lien holder), since it generates income to them (the borrower is paying them to use their money). But a debt is a liability to the borrower, since the debt is an expense that must be paid from the borrower's income. In short, the debt makes the lender wealthier, and the borrower poorer. So, if one wants to treat a debt to themselves as an asset, they also have to acknowledge that same debt is a liability, and so they cancel each other out for accounting purposes -- there is no net gain to you from a debt to yourself.
So why not simplify the issue and not try to pretend that you owe yourself something? Why engage in silly delusions, such as, 'I own a valuable asset in the money I'm going to pay myself'?
Saying 'my bank account is empty, but I owe myself One Trillion dollars', is the same as saying, 'my bank account is empty.'
This is the position of the Social Security trust fund. The so-called trust fund holds 'special issue' government bonds, which are not available for purchase or trade by the general public. Since they are not available for trade (at least as of 2014), they are not subject to the normal price fluctuations of the publicly traded government securities, as a result of economic conditions, interest rate changes, etc. Of course, if the government needed to raise cash by selling them on the open market, their price would be determined by the market, and not the government's statement of their value, so this distinction is only a point of information -- it doesn't make the bonds safer to hold, or reduce taxpayer liability for the principle and interest owed on the bonds.
The main point is, ALL government securities are a claim on future tax receipts. This means that U.S. taxpayers owe the value of the government bonds held by the Social Security trust -- the bonds are a liability to U.S. taxpayers, not an asset, since they are an expense that must be paid from their income.
Here's a quote from an unnamed senate aide of Senator Rob Portman (R-OH), from an article by Mike Patton on forbes.com, from 6/12/2013 on the solvency of the Social Security trust. This a clear statement of the point, that people are trying desperately hard to ignore:
http://www.forbes.com/sites/mikepatton/2013/06/12/is-the-social-security-trust-fund-solvent/
“The Social Security Trust Fund represents a bonds-backed promise to finance a certain level of Social Security spending. However, it does not provide economic assets to fulfill that promise. While the trust fund represents an asset to the Social Security program, it represents an equal liability to the Treasury which must come from new taxes, spending cuts, or additional borrowing.”
Many people detest the idea of putting funds from the OASDI payroll deduction into any stock market investment, as part of a plan to transition to private accounts to replace Social Security. But notice how ridiculous this position is, if you keep clearly in mind the actual position of the Social Security trust fund, in that it just contains a promise to tax people to pay its debt.
That is, had all of the surplus payroll deductions been invested in the Dow Industrials over the worst possible time frame in recent years, say from the high of 2007 to the low of 2009, which represents about a 50% loss (terrible), at least the Social Security trust would still have 50% of the original surplus from the payroll contributions -- rather than a total loss, as it currently stands, with government having spent all of the surplus contributions. Had the total of the surplus contributions gone into the stock market over a terrible time frame, the Treasury would only have to re-raise 50% (or whatever the loss was) through taxation, rather than the TOTAL amount.
As much as people view the stock market as a risky investment, it's much less risky than giving the government the money to manage.
Of course, there's no real surprise here -- it would be more shocking if Social Security were not failing, given the perverse incentives in play. Of course, the money was spent by politicians on vote buying activities (rather than held for future beneficiaries), since the real victims are future generations that can have no effect on the careers of current politicians. This is the mother of all moral hazards -- politicians, as well as the public at large, have nothing to lose by pushing this debt onto future generations.
Indeed, how is it even possible to make a convincing case that this was not the point?
No comments:
Post a Comment