Thursday, December 23, 2010

Social Security

Social Security is not as simple a matter as either the Republicans or Democrats make it out to be.

It is, effectively, a mandatory retirement scheme.

The problem is that it is a mandatory retirement scheme whose investment portfolio amounts to this: Treasuries.  Special treasures with special interest rates.

No, the Democrats didn't raid the trust fund, and neither did the Republicans; the excess funds from Social Security are always spent to buy treasuries, the sale of which funds government activity.  The system is -built- to raid the "trust fund," which is and always has been a big IOU from the Federal Government.

From a certain perspective this makes accounting easier; the Federal debt -includes- its Social Security obligations.

From another perspective, this simultaneously digs and hides a massive hole in Federal accounting; it holds a loan asset against itself on spent money, which can either be held out as an imaginary trust fund, or a massive debt obligation, depending on who is making the claim.

It also means that the Federal government is legally obligated to be in debt.  To itself.  Deficit spending is -required-.

The problem comes in because the Federal government isn't required to hold liquid assets against its debt, and doesn't, and as social security declines into the red, the excess costs are effectively and necessarily coming out of the general budget, which, because we're running a deficit, means our imaginary debt gets transformed into real debt; which is to say, the trust fund -does not exist-.  All of those costs must be paid for.

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