Like Nixon to China, It Takes a Democrat to Put the First Knife in Social Security

By Gaius Publius. Cross posted from AmericaBlog

Bottom line first, since this is turning long. For the owners of the country (and their paid national managers), the real emergency associated with Social Security isn’t the day the last dollar will leave the Trust Fund. It’s the day the first dollar will leave. That’s a whole different problem, and a whole different timeline, for them.

How did I come to that conclusion? Read on.

Why are benefit cuts one of Obama’s must-have goals?

In 2010, I started working on a thesis here at La Maison about the Social Security Trust Fund and have decided to both resurrect it and see what the numbers around it look like.

Some background: I’ve written about Obama’s (and neoliberalism’s) four big economic goals for his two tours of duty. For me, they are:

  1. Health care “reform” — a privatized alternative to Medicare expansion [done]
  2. A “grand bargain” in which social insurance benefits are rolled back [in work]
  3. Plentiful oil & gas and passage of the Keystone Sludgepipe (KXL pipeline) [in work]
  4. Passage of the Trans-Pacific Partnership (TPP) trade agreement [in work]

One of them doesn’t look like the others — item 2.

You can see the obvious benefit to billionaires and owners of the political system of a public-private health care “partnership” that enriches insurance and Pharma CEOs (item 1). On the oil front, Keystone will make David Koch and the other carbon lords even wealthier, and plentiful oil will extend the carbon regime from which so much wealth is extracted (“drilled”) out of the economy (item 3). Finally, TPP is just a geo-political wet dream for corps and their CEO owners, a one-stop international treaty that would elevate corporate power above sovereign power everywhere it’s implemented. New World Order indeed (item 4).

But benefit cuts? Why are both parties so hell-bent on eliminating or cutting Social Security benefits? Is there really that much at stake — for them? I’m going to slow-walk the answer in this post, and follow up later with numbers (this is turning into a research project on the numbers side). Let’s start with this …

The push to gut Social Security is real in both parties

First, make no mistake, both parties want to gut or kneecap Social Security. On the right (which is to say, among the rulers of the Republican party, not the voters) the Trust Fund is a big fat fruit, ripe for plucking and eating — $2.7 trillion and counting. That’s a lot of money to divert into the stock market, as Bush II tried to do in 2005. He was beaten back, partly because he was a Republican (keep that part in mind); but he gave it the college try.

On the “left” (as the Neoliberal rulers of the Dems like to brand themselves), the push is no less strong, but with slightly different changes on offer. The Wall Street billionaires would love to steal the Trust Fund outright, but you can’t sell that to Democratic voters, so when the “left” is in power, they don’t try to kill it so much as kneecap it, hobble it, cut its little hamstrings to keep it from walking.

The first Neoliberal president — the man who led the corporatization of the Democratic party — was Bill Clinton. He was also the first Democrat to rule after 12 years of Republican “revolution” that started in 1980, the year when everything changed. (Yes, you could call Carter a proto-neoliberal and be right, but that’s a tweak for this discussion.)

Clinton started the push to “fix” Social Security from the “left.” My earliest pieces written at this site addressed Clinton, Social Security and the Trust Fund. About Clinton, from May 2010:

Like Nixon to China: Obama and Social Security

Just like it takes a Republican to open Communist* China, it takes a Democrat to kill Social Security. … If you thought the corporate gifts in the so-called Health Care bill were bad, just wait till Obama’s so-called Deficit Commission gets its claws into Social Security.

Jane Hamsher put up a must-read article earlier this week that serves as a intro to her online salon with Steven Gillon, author of The Pact: Bill Clinton, Newt Gingrich, and the Rivalry that Defined a Generation.

In her intro, Hamsher discusses how Clinton worked with Newt Gingrich to pass pass a “fix” to Social Security. There were secret meetings and everything. (It almost looks like a club, doesn’t it.) The plan included the usual witches’ brew — cutting benefits, raising the retirement age, and fiddling with the cost of living increase. Even privatization was on the table, according to Gillon.

That effort failed, thanks to Clinton’s wandering mind . . . and Monica Lewinski. According to Gillon, the Monica scandal forced Gingrich back into the loving arms of his base, and killed the deal they were cooking up.

About those attempts, Hamsher wrote (my emphasis):

Clinton had been trying to deal with Social Security for some time. In 1994, HHS Secretary Donna Shalala had appointed the 13-member Danforth Commission to advise on Social Security. She appointed three members from labor (including Richard Trumka), Republican Alan Simpson (appointed by Obama to co-chair his Deficit Commission with Bowles) and Pete Peterson (the hedge-fund billionaire funding much of the current economic work being used to justify dismantling Social Security).

Pete Peterson was a member of the commission Clinton appointed to “fix” Social Security. Let that sink in. This is why Clinton regularly speaks at big-deal Pete Peterson events (well, that and the potentially lucrative speaking fees).

Click through for the details — Erskine Bowles was Clinton’s reach-out man to Gingrich.

Clinton, Peterson, Simpson, Bowles in 1994. Obama, Peterson, Simpson, Bowles in 2010. If the complicit corporate media weren’t so silent (that’s you, MSNBC), this would all be seen as one big push on the Dem side, just like Bush II in 2005 and Paul Ryan privatization today is one big push on the Republican side.

Your must-remember takeaway — Bill Clinton was as eager a benefit-cutter then as Barack Obama is now, and for the same reason. It’s a two-party effort and always has been. But what’s the reason? To answer that, we have to look at the Social Security Trust Fund, created during the Reagan years by the Greenspan Commission.

What’s the real purpose of the Trust Fund?

As a follow-up to the “Nixon to China” piece quoted above, I tried to tease out just what Social Security and the Trust Fund were, from the standpoint of the billionaires (then mere multi-millionaire pups) and their minions in the 1980s (new emphasis and some reparagraphing):

How to kill Social Security: Be ignorant about it

… It seems that despite years of public discussion — from the Bush push of 2005, to Obama’s suspected embrace of a Peterson cat food future — many of us still don’t know what Social Security is and how it’s been used. And that’s how they’ll kill Social Security — by turning our ignorance against us. So in the interest of actual information, a few basics:

1. You don’t contribute to your own retirement. You never did. No one did. Your parents’ money went to your grandparents. Your money goes to your parents. Your kid’s money goes to you. It’s an inter-generational contract. It always was.

This is not a program that’s designed to manage your money for you. It’s a program that’s designed to do “good works” — every generation keeps its parents off of cat food. Period. That’s the whole goal. …

2. You already “fixed” Social Security, in 1983. In that fix, Ronald Reagan and the Greenspan Commission (yep, Alan Greenspan) recommended increasing Social Security taxes on the middle class, but not on the Big Boys, the wealthy. The declared goal was to put tons of cash into the Social Security Trust Fund — create a huge rainy day stash — for when Boomers started retiring. (If you click the Trust Fund link, watch what happens to the last column, the total amount, starting in 1984.) … They robbed you once, so they wouldn’t have to do it twice. … [And they failed to adjust for this, which made things worse for us going forward.]

3. Reagan used that earlier “fix” to hide much of his massive deficit, to make it look smaller. That was the real goal (or if you’re feeling kind, the other real goal) of beefing up the Trust Fund. … [D]o you think either of them cared two twits about fixing … a future in which they themselves would be dead? The facts show just the opposite. What they really cared about was destroying the future — “starving the beast” in politer terms — while making it look like the beast was partially fed. …

The Reagan tax cuts steadily lowered the rate on the top dollars earned (keep that “top dollar” point in mind; mere mortals never saw those rates) from 70% to 50%, then to 28%. Those tax cuts, plus his massive spending, made the deficit rocket skyward. Mission accomplished; beast starving.

But how to make that deficit look smaller to the easily fooled? Simple. Grab a huge pile of cash from the middle class, invest that cash in Treasuries, and declare those Treasuries off-budget. Voilà — beast looks partially fed. …

4. The real goal of [the Clinton, Obama] fix is to hide the looting of the last fix. Just like the last time, the goal isn’t [fixing] Social Security itself. The last fix hid the mounting deficit in off-budget Treasuries. But soon those Trust Fund Treasuries might actually get cashed. Since the government would have to borrow to replace them, that transfers the off-budget numbers back on-budget. Oops. …

[T]he deficit hawks aren’t worried about spending the last dollar of the Trust Fund. They’re worried about spending the first dollar. They’re searching for what they can take from you, the impotent many, so that no dollar of the Trust Fund gets spent [and the powerful few never see another tax increase]. …

And there’s your answer. They used your money to patch and paper a hole. The cover-up of that patch job keeps them all in office; keeps them all from looking like thieves and you from looking like dupes and patsies; keeps the rube wallets open for the next round.

Bottom line

You could answer the headline question above (“What’s the real purpose of the Trust Fund?”) in either of the ways indicated above:

▪ You could be generous and say that someone somewhere in this mess — someone at the decider level — actually cared about Social Security, as well as about the looting, that there were perhaps good and bad goals intermixed. In the 1980s that may have been true; I’m not sure. Is it true today?

▪ Or you could say that no one at the decider level really cares about the program itself. They care about the political effect of having (but not ever spending) the Trust Fund’s $2.7 trillion.

When I see people talking today about “protecting Social Security” while (a) starting to dismantle it, and (b) ignoring one of the biggest sources of real revenue — removing the income & salary cap — I can only pick the second choice above, certainly for the post-1980s crowd. Heck, if Clinton had looked at wealth inequality and simply raised the salary cap to its original level — to capture 90% of all income, as it did in 1984 — the Trust Fund would have $1.2 trillion more today. But that wasn’t going to be his solution. Pete Peterson and Alan Simpson were on Clinton’s commission for a reason, and we all know what Peterson and Simpson want — dismantlement and benefit cuts. The knife.

It’s one thing to say you need revenue and then misallocate it. It’s another to start cutting the program itself. At the level of the deciders today (and them only, not the great economists and experts lower down), this is not at all about Social Security; it’s about the political effect of having and using the Trust Fund, and only that.

Note that I twice said “political effect” of the Trust Fund. This is not about numbers either; numbers are just the shell game, the fog. It’s about power, staying in power, keeping people who keep them in power happy. It’s about not raising taxes while screaming about the deficit. Manipulating the Trust Fund has a role to play.

The Republican Party’s owners (their donors) want to loot the Fund and will say so. Again, recall the Bush Push of 2005. The present owners of the Democratic Party includes Wall Street, and they too would like to confiscate the Trust Fund (by “investing” it for you and depleting it with fees). But Democrats can’t say they are looting, because “starve the beast” (and feeding on the flesh) has to be sold differently to Democratic voters.

Democratic voters have to be told they’re “helping,” serving the interests of the next generation. So from the “left” the idea that cutting benefits (shrinking the program itself) trumps cashing in any of the Trust Fund … that has to look like “reform,” not just straight theft, or it won’t begin to fly.

So we’re back to the beginning. Like Nixon to China, it takes a Democrat to put the first knife into Social Security and reduce its actual size. That’s why “benefit cuts” is high on the must-have list of each Democrat who takes the post-Reagan princely throne. Each one … including the next one, in case Obama fails.

Next up in this series

This is theory, explanation, and needs to be fleshed out. I’m going to see if I can get some numbers. The size of the Trust Fund is known, but this is also about dates. The Bigs (who love you and want you to be happy) tell you that the care-about date is 2035 (or whenever), the day the Trust Fund runs dry. That deadline induces yawns, one of the problems that its eager promoters have.

But if I’m right, the real deadline is when the first dollar leaves. When is that? Right now, I don’t know. And when that occurs, what’s the rate of decay? What does that graph look like? Again, I don’t know, but it matters. That’s the rate at which the general fund has to make up for the loss, somehow.

I’d love to find out both data pieces, wouldn’t you? Especially the date when the Trust Fund starts cashing those Treasuries. I’d bet money that this is the cause that’s making the Bigs panic and sweat. Stay tuned.

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  1. Bill Smith

    Sounds to me like we need to get Monica Lewinski to give Obama a blowjob, then we’ll be safe for another 4 years, but then we’ll have to figure out what to do with the new President Clinton.

    But on a lighter note, I think the first dollar did leave the trust fund about 3 years ago now, ahead of schedule. That was due to our unbudgeted GD2 or GFC (depending on your preferred terminology) reducing revenue in general, and also causing layoffs which directly reduced FICA revenue. Also, some think older laid off people may have taken early SS, due to chances of re-entry into the workplace being not so good. The SS Admin has been sending annual memos to congress with the drawdown amount. IIRC I’ve seen numbers like $30B annual, but not sure about that.

    For the same reason, the trust fund was projected to be depleted in 2035, but I think they pulled that date in to 2032 or 2033. But the good news is that Greenspan did take demographics into account and much of the boomer generation is supposed to be actuarially dead by then. But Gen Y needs a job. (I donated mine)

    I haven’t seen any graphs where they project the drawdown of the fund and how it “adds to the deficit” [paying back what they owe us] over time. But I think the mid point age of the Boomers is about 58 right now, so it wouldn’t be a sudden jump.

    The harder thing to project is the economy – and those pesky financial crashes, recessions and wars. Remember in the early 2000s when the CBO ten year forecast said the national debt would be down to zero last year.

  2. Jim K

    I love your formulation that it’s the FIRST dollar out of the Trust Fund they’re after. They are, indeed, trying to cover the theft of what’s been collected from the middle class since the Reagan-Greenspan “reforms.” See my analysis at Social Security in the Great Jambalaya, (as well as here, here and here)
    As I said in those posts, “the next Obama administration, claiming to be standing on the high ground of principle, will be, and will be proud to be, the first administration to cut Social Security. Guaranteed. And they’ll sell it as a ‘save.’ Obama and the Democratic Party really think it’s the right thing to do.”

    1. Jim Haygood

      Not only is the author ‘Gaius’ wrong about the Trust Fund being ‘a big fat fruit, ripe for plucking and eating,’ he’s also wrong about ‘the day the first dollar will [future tense] leave the Trust fund.’

      Check your rearview mirror, Gai — that happened in 2010. We’re now in our FOURTH year of Trust Fund withdrawals that are approaching $50 billion a year.

      The Treasury has had no difficulty in borrowing these sums, illustrating that the alleged ‘first dollar emergency’ is nothing but the sensationalist figment of a hack blogger’s fervid imagination. But the need to borrow the 2010-2013 annual shortfalls illustrates that there is no $2.7 trillion pile of assets to be raided. Intergovernmental debt is not an asset; it’s merely pre-authorized borrowing authority.

      With ‘defenders’ like this clueless, uninformed, innumerate amateur, Social Security doesn’t need any enemies. Its own so-called supporters are going to get laughed out of the Congressional hearings. Apparently they think if one is armed with fierce enough ideology, one doesn’t to bother with trivia like math and accounting.

      Math, Gaius — it’s what’s for breakfast.

      1. from Mexico


        Distortions and propaganda, that’s what’s for breakfast, served up in such generous portions by the likes of Jim Haygood and JGordon (see my comment below) so early in the morning.

        It’s a virtual feast! So belly up to the table folks and fill your craw with distortions, half-truths and outright lies.

        And it should come as no surprise that you invoke math as the alpha and the omega of human existence, math being the non-empirical science par exellence.

        1. HighlyTrouted

          Ok, forget math; what about the fact that in 2011, Obama went on national television and said that his administration would not be able to send out social security checks unless the debt ceiling was raised? Was the president lying?

          Heck, from the Wikipedia article referenced in the original article (great sourcing, by the way):

          “When program revenues exceed payments (i.e., the program is in surplus) the extra funds are borrowed and used by the government for other purposes, but a legal obligation to program recipients is created to the extent this occurs.”

          “The trust fund represents a legal obligation to Social Security program recipients and is considered “intra-governmental” debt, a component of the “public” or “national” debt. As of April 2012, the intragovernmental debt was $4.8 trillion of the $15.7 trillion national debt.”

          You don’t have to be a math whiz to know that the money was never put into any “fund”; the “fund” is just an accounting trick, a big number that the government “owes” (or rather, what they stole and already spent). There is nothing there, period. Any senior who plans on relying on the FedGov to fund their retirement deserves what’s coming to them, catfood and all. Hopefully they’ve got some savings, family and personal relationships that will support them while they slowly shuffle off this mortal coil, the way it’s always been done until the government got it’s grubby mitts in on the action. It’s not a “trust fund”; they stole the money from you for decades, and spent it all. Now they promise – promise! – that they’ll pay you back, but of course they are lying just as they lie about everything. The rest of this nonsense is just sophistry, the intellectual class’s equivelant of “But but but… you PROMISED! Waaaah…”

          1. from Mexico

            @ Highly Trouted

            At we speak, the US government is the most reliable counterparty in the world.

            You may want to put your faith in Lehman, Merril Lynch or AIG, or even Bank of America, JPM or Goldman Sachs. But me, I think I’ll stick with the US government.

            How quickly people forget that, if it were not for the United States government backstopping these banks, not a single one of them would even be in existence today.

          2. jrs

            “Any senior who plans on relying on the FedGov to fund their retirement deserves what’s coming to them, catfood and all.”

            What about if they are relying on Wall Street to fund their retirement? Also deserve what’s coming to them if it doesn’t pan out, right? What if the average person concludes it’s all a zero sum game? They should have invested in catfood companies, catfood companies I tell you! Purina!

            “Hopefully they’ve got some savings …”

            yea in banks where they can be the unsecured creditors and the derivatives their money is betting on first in line for that money.

          3. Moneta

            The dependency ratio peaked at 5 workers per retiree and will be going to 2.5/1 over the next couple of decades…

            At calculated risk we can already see a chart that shows us the huge decline in participation rate in the economy…


            If one generation pays for the next and we know that the baby boom was followed by a baby bust generation, isn’t obvious that we have a 10-20 year problem?

          4. HighlyTrouted

            @From Mexico & jrs

            Most reliable counterparty in the world? How do you figure? Have you read this blog? Did you read the original post? THEY ARE GOING TO GUT SOCIAL SECURITY BECAUSE THEY CAN’T KEEP THEIR PROMISES. The same reason they stopped honoring silver certificates, the same reason for the Nixon Shock. Wake up man. Do the (very simple) math and stop relying on faith.

            You also present a false dichotomy between the thieves in the government and the thieves in the banks, as if those were the only two options! Sheesh, the lack of imagination of some people. If you spend 60+ years on this earth and fail to acquire tangible assets that lack counter-party risk, I’m sorry but you are an idiot. Precious (or base) metals, collectibles, productive land, fiat currency, heck AR-15s and 5.56 ammunition would’ve been an excellent investment over the past few years… I am a big fan of the Alpha Strategy, which was written over three decades ago; check it out sometime! Expand your horizons.


            @ Moneta

            The participation will continue to deteriorate as government interference in the economy intensifies, as it always does. The demographic situation, as you point out, is obviously unsustainable, but I think the time horizon is not 10-20 years – the problems are here today. Going forward, more debt will ALWAYS be necessary to fund SS. The game will only last as long as the confidence does (see Mexico’s unshakable faith in the FedGov for an example of this), but every time there’s a Lehman or an MF Global or a Cyprus, we get a bit closer to the day of reckoning. If seniors (or anyone else) are not busy preparing for that inevitable day, then again I say, they deserve what is inevitably coming to them.

          5. HighlyTrouted

            And before Phil or some other MMT zealot starts spounting the whole “But FedGov are SOVREIGN! They can just PRINT the money!”, check out ol’ sugartounge Greenspan himself putting this canard to rest:


            Paraphrased: we can print all the cash we want to pay out benefits, but we cannot gaurantee the purchsing power of that cash.

            Translation: printing money and distributing it to the masses causes price inflation. Econ 101. Dear Leader Clin-Ton and Dear Leader Obama would rather oversee benefit cuts than rampant/hyperinflation. It’s the same any time a government makes promises it can’t keep: cut spending, angering those on the dole, increase taxes, angering those who pay taxes, or print money, risking price inflation and loss of confidence in the currency and angering anyone who holds cash or is on a fixed income. As Phil Collins said, there’s no way out of this dark place for those who make promises they cannot keep and those who foolishly depend on those soon-to-be-broken promises for their sustenance.

          6. Calgacus


            The dependency ratio peaked at 5 workers per retiree and will be going to 2.5/1 over the next couple of decades.

            So What? Whoop-de-doo. Why care?

            If one generation pays for the next and we know that the baby boom was followed by a baby bust generation, isn’t obvious that we have a 10-20 year problem?

            No, it is not obvious at all. It is obviously wrong. 99% of what people are told about SS is a Big Lie. A spectacular insult to your intelligence, on the scale of “water freezes when heated”. But the lies are so familiar, so omnipresent that observing that water boils, not freezes, is met with genuine incomprehension.

            The problem would be if the dependency ratio became 1 to 5 or so or whatever. If there literally were not enough workers to take care of the disabled / retired, even at 100% employment of the ready, willing and able.

            But the “demographic problem” is a complete joke. If a society can afford a generation as children, it can afford them as adults. It is not thought that the dependency ratio will even reach the baby boom heights. Remember those horrible years of 1945-1965 – the endless Great Hyperinflation Depression then? Oh right. Didn’t happen. What happened was unprecedented prosperity. That is what the oligarchs fear – the threat to their beloved Great Stagnation, followed by the wonderful Great Financial Crisis & ensuing Great Recession.

            HighlyTrouted’s Econ 101 and money-printing-will-cause-inflation is of course, innumerate nonsense, that just sounds numerate to people who don’t bother to learn things right – a tall order, considering the library of Babel that is modern economics. Yes, it could. But we’ve net-printed trillions of dollars -that’s what deficit spending is – and no real inflation. Not in any conceivable scenario, say if the government raised SS payments by 50% and drastically cut SS taxes though.

  3. allcoppedout

    In the UK we are seeing farces like the ‘bedroom tax’ – ostensibly to force people under-occupying social housing to smaller properties to let in larger families – and in reality beating up disabled people who need the space for special equipment (in one case a lift is being counted as an extra room).
    It must be obvious now that the real welfare queens are the filthy rich and no one in our societies really earns enough in wages for a decent, secure living. Welfare subsidies are often hidden – everyone in higher education is on this trip in my view. Costs are at least $100,000 for degree courses that could be packaged on line for £5,000.
    It must also be obvious global wage arbitrage rather than actual shortages prevents people being able to earn their own way through decent wages and conditions of employment. The cuts always hit the poorest and least powerful and the rules are always inverted for the professional and rich. We can’t do anything political because of ‘global competition’ (on which there are no convincing arguments made without rendering most of what matters ‘external’) and thus politics becomes manipulation of the same spreadsheet. We are all complicit with this crude ideology of repeated promises.
    I favour a biological explanation of what we are doing to ourselves that gets at why our organisation is so hierarchical – hierarchy is a religious term and economics bears comparison with religious control fraud. The debate has hardly changed since I was a boy. Attempts I’ve seen to shift from rational economic man are crass – O level biology at best. In biology we actually have a great deal of trouble establishing what the individual is rather than assuming the biological individual. I can only over-simplify here. Our economics looks increasingly like the bee hive feeding royal jelly to its queen.

  4. JGordon

    “This is not about numbers either; numbers are just the shell game, the fog. It’s about power, staying in power, keeping people who keep them in power happy.”

    Did I miss something or did the above author not realize that there is no trust fund, aside from an accounting entry on some intergovernmental debt ledger. I mean, since the “trust fund” is currently running negative surpluses (feel free to visit the website to verify this, and has been for several years, before the Treasury can actually pay out the full amount of allotted benefits due everyone it first has to issue additional bonds, i.e, go further into debt.

    Which I am sure the above is not an issue for the MMTers that hang around here–as bizarre and short-sighted as it seems to me–but still, let’s get the meaning behind our words straight here, otherwise we’ll be talking past each other: trust fund = an accounting entry representing currency units the government theoretically owes to itself. Which, extrapolating one step further, only represents some market value of continuously devaluing currency units that the government will at some point expropriate from the real economy, and from foreigner–for the limited period of time that they willing to continue assigning disproportionate value to our fiat currency units anyway.

    1. Bill Smith

      Stop with the “empty accounting entry” crap. By law, the Trust fund must lend surplus FICA funds, which have totaled up to $2.7T, and were deducted from your paycheck, back to the treasury. The treasury accounts for these transactions by issuing a special treasury, bearing the interest rate of the day for a comparable maturity publically traded treasury.

      The total national debt is about $16T. About $11T is called “debt held by the public”. About $5T is called “intergovernmental debt”. The trust fund is part of that and the other big part is federal pensions. As these come due, the government rolls them over with new debt, same as the $11T part. Or they can raise taxes, or cut the war budget, or actually cut healthcare costs (making Medicare cheaper). Whatever trips our trigger.

      If someone told you your bank or broker account was an “empty accounting entry”, I hope you would call it BS.

      1. JGordon

        Well you guessed wrong, didn”t you? I know what money is: money is an accounting entry with nothing but faith in its incorporeal existence. It only comes into existence via the credit expansion (accounting entries only), and its extinguished when debts are repaid or loans are defaulted on. And any MMTer here would say exactly the same thing, although I’m sure they have fancier words to express that than I just did.

        I’m afraid you experiencing some confusion over this whole thing. The Treasury is explicitly stating that they are taking on more debt to finance the SSI “trust fund” that they owe to themselves. Despite everything else you just said, that is one uncontroversial fact that you simply can not argue against–because it’s sitting there in black and white on their website.

        Now where the controversy actually does come in, and I am sure the MMTers here would love to argue about this for hours, is whether the government ought to be expanding credit sufficiently to pay for the nominal value of all these entitlements they’ve been promising to everyone (only a portion of which, a shrinking portion, are funded by the SSI tax on our salaries). Now that is where the real interesting discussions will take place.

        1. Bill Smith

          It’s very simple, and the last thing I would want is an MMT explanation.

          They deducted money from our paychecks and put it in the trust fund. The trust fund loaned it to the treasury. The treasury then has to pay it back TO US, whom they owe it to, not themselves as you like to state, same as all the other money it borrows from treasury bond investors.

          If they did it all at once tomorrow (before the $16T in total debt goes up from the existing deficit), and included the federal pensions too, and did it purely by selling new treasuries to the public, then the $5T in intergovernmental debt goes to zero and the $11T in publicly held debt increases to $16T and total debt remains the same at $16T.

          And sure, banks, brokers and the USG government can all tell us our money and assets went poof into nothingness, and any commitments we thought we had are BS. But then, what next?

          1. harry

            What next is precisely the point. The answer is whatever. It would make little or no difference other than to make it clear to people that they own accounting entries that give them an entitlement to something which is unspecified. At the same time the government has the power to take it all away whenever they want through taxation etc. So ultimately, as a Cypriot depositor would point out, its about what you can protect. Which in most cases is precious little.

          2. jrs

            A MMT explanation might want to handle it through money creation. But frankly it’s totally beside the point, raise taxes on the rich who got a tax cut indirectly paid for by SS in the 80s and 90s, that’s enough, just simple accounting. Simple accounting is what I love about this article regardless of whether the dude has the dates right (the dates are definitely important but the overall argument stands regardless).

            If the SS bonds are to be defaulted on because of the amount of deficits the U.S. government has and so on, ok let’s just assume for the sake of argument the U.S. debt is a horrible horrible problem that must be dealt with, you still can’t answer why don’t we also default on other government debt holders? Why are only SS recipients going to get the short end of the stick and yet all other bond holders expected to be honored in full? No answer. It’s not a pragmatic question about deficits people want to divert it to at all is it? It’s a moral question and a question of who has power. It’s like the Cyprus situation, so the banks were objectively bankrupt and stuff, but why were depositors the ones to pay? Because they could be fleeced …

          3. Bill Smith


            Yup. Really there are three big entities to consider in the case of a Federal default on its debt obligations – the $5 trillion in intergovernmental debt includes “empty accounting entries” for Federal and Military pensions.

            So this is a battle over spending priorities. Then anyone can look at a pie chart of the annual federal budget and see that Medicare is a whopping 30% of spending. So if this country were rational at all, there would be an uproar and political action over the cost of DELIVERING healthcare, which a problem if you are under 65 as well.

        2. Dan Kervick

          “Social Security Trust Fund” is just the name of a specific government account. Social Security payments are charged against that account, and FICA revenues are credited to that account. If the account has a surplus, the funds are moved to the Treasury General Account, and in return a Treasury security is deposited in the SSTF. The Treasury security is just a commitment by the Treasury to move the funds back from the Trust Fund at some point in the future.

          Of course, its all one government. And a commitment by the government to move money from one account to another account before spending it has nothing to do with how much the government is spending or can spend. The Trust Fund is like a Christmas account – a special account set up by a depositor psychologically dedicated to a certain purpose. But it doesn’t make you richer or poorer, or affect your overall economic position. In the end if your Christmas spending needs to be higher than what is in your Christmas account, you spend the money from your other accounts.

          1. Dan Kervick

            I wrote:

            The Treasury security is just a commitment by the Treasury to move the funds back from the Trust Fund at some point in the future.

            I meant:

            The Treasury security is just a commitment by the Treasury to move the funds back from the general account to the Trust Fund at some point in the future.

          2. HighlyTrouted

            But Dan, you get that the FedGov spends $1,000,000,000,000 more than is in that “general account” each and every year, right? You get that it, too is empty, right? You get that the FedGov doesn’t have any cash – it’s funded by what it can steal from a hundren million or so people every year? And that until 2008 it made up the difference by borrowing from counterparties, but as more and more lose faith in its ability to repay, it now makes up the difference by printing new cash? You get all that, right? Because it’s kind of important…

      2. Gerard Pierce

        Everything you say is accurate, and it’s equally accurate to say that it’s an empty accounting entry.

        The full faith and credit of the United States backs up that $2.7T in Special T-Bills.

        Unfortuately the full “faith and credit” thingy is determined by the best Congress money can buy – not a solid investment unless you are the one buying (or renting) a congressman.

        “Full faith and credit” means those trust fund dollars have to be repaid. Every dollar repaid is a dollar not available for corporate welfare or defense expenditures, and if there is no monay in the general fund, it’s a dollar that has to come from increased taxes, running the printing press, or borrowing from someone else.

        The challange for our political masters is to figure out how to welsh on repayment without anyone noticing that they are stealing our money.

        1. Ben Johannson

          There is nothing to be repaid. The Fed debits surplus SS reserves and Treasury credits the SS securities accounts. The Fed then credits the Treasury’s reserve accounts to the equivalent of the reserves it debited from the SS reserve account.

          When SS goes into negative balance the procedure is reversed. The Fed debits Treasury reserve accounts and credits the reserve accounts of member banks which disburse SS funds. The Treasury simultaneously debits the SS securities accounts.

          There is not and cannot be a solvency crisis with Social Security, nor is there anything for government to pay back, given it is money literally owed to itself. A Treasury bond is just another kind of dollar.

          1. Gerard Pierce

            As a matter of general ledger bookkeeping you are right.

            “The Fed then credits the Treasury’s reserve accounts to the equivalent of the reserves it debited from the SS reserve account.”

            Translation: The Fed took the surplus social security funds put it in the General Fund and spent it on whatever Congress felt like at the time. (That’s the part left out of your account.)

            The money “borrowed was accounted for by special interest bearing T-Bills. The nominal “owner” of those T-Bills was the social security trust fund and that’s where the “full faith and credit” thingy comes in – when the trust fund needs money it cashes in those T-Bills and the money has to be taken from the General Fund. And if the General Fund is broke because our masters do not want to pay taxes, the General Fund has to come up with the dough from somewhere.

            Once that has been done, the dollars removed from the General Fund CANNOT be spent on whatever wet dream Congress has cooked up with its pet kleptocrats.

            You could say (as you did) that we owe it to ourselves. Or, more accurately, you could say that some of us owe it to the rest of us. And those who do the owing are flailing around figuring out how to welsh on the deal and not pay what is owed.

          2. Gerard Pierce

            Ben Johannson: If we were living in a MMT world, the Republicans would simply plunck their magic twanger and fill to the brim those accounts that represent “entitlements”.

            If these are simply bookkeeping entries, some one needs to talk to the Democratic and Republican leadership. They behave as though it were money owned – and they behave like deadbeats who do not want to pay the bill.

            Per your description, the bill is imaginary, but it is real people who die from lack of medical care.

            We could call this MDT (modern deadbeat theory.)

        2. F. Beard

          If banks create 97% of the money supply then it is reasonable to assume the banks create 97% of price inflation. Therefore a way for the Federal Government to deficit spend with little price inflation risk is to simultaneously reduce the banks’ ability to create credit.

          So, you see, “money printing” can be done without causing price inflation IF the inflation caused thereby if balanced by the net repayment of bank credit.

    2. from Mexico

      Gosh, JGordon, you actually start your comment out by saying something very intelligent. But then your ruin it all by decending into distortions and propaganda.

      For instance, talking unabashed propaganda, when you say “since the ‘trust fund’ is currently running negative surpluses,” that takes some rather fancy wordsmithing, not to mention some extremely contorted logic, to come to such a conclusion. For the only way the trust fund can be said to be “running negative surpluses” is if we assume its $2.5 trillion in assests are drawing ZERO interest. If we figure interest into the equation, then the trust fund ran, for instance in 2011, a $95 billion surplus.

      Now granted, the interest paid to the trust fund has to come from somewhere. But that’s where the rub comes in. The notion that paying interest on the reserves the TBTF banks have deposited at the Fed, which they acquied in the Fed’s generous cash for trash exchange (also known as Quantitative Easing), is deemed by our illustrious ruling class to be the best thing since sliced bread. But the notion of paying interest to the great unwashed on their money in the SSI trust fund? Why that’s a heresy worthy of getting one burned at the stake. You see my friend, it’s all about priorities.

      Now the fact that the Trustees of the Social Security trust fund play the same game of distortions and propaganda that you do should come as no surprise. After all, there it is, right in the second paragraph of the SUMMARY OF THE 2012 ANNUAL REPORTS: “The long-run actuarial deficits of the Social Security…programs worsened in 2012.” Notice that in order to run their fraud on the public, the trustees (is that an oxymoron?) invented a new term — actuarial deficits — that they use instead of the real deficits that the 99% thinks of when they think of, for instance, household finance. Think of a retired person, for instance, who supplements her income with income derived from interest on conservative investments, who is told all of a sudden that that interest income is verboten.

      But like I said, the fact that the Trustees of the SS trust fund play the same rhetorical and logical sleights of hand you do should come as no surprise. As Gasius Publius says, both the Republican and Democratic parties are hell bent on destroying social security, and who do you think appoints the trusteess of the SS trust fund? Their principle mission in life is therefore to spread the one true austerian faith across the land.

  5. jake chase

    Somehow, I think the ‘real reason’ for the attack on Social Security is simpler. To keep people perpetually insecure, politically inert. You can’t simultaneously have retirees living the high life and workers reduced to third world wages. Austerity works best when just about everybody feels it.

    As for covering up previous looting, I doubt anybody involved cares about that. They are too busy engineering the next swindle. Politics is just propaganda and public relations. Who knows what these sociopaths actually think, or if they think about anything other than their next dinner party, their next deal, their next erection, their next golf game?

    1. Chris-Engel

      I don’t know how much of this is a conscious effort by power-players and how much of it is just politicians who really hate the welfare state and have been duped into thinking it needs to be axed.

      But I’m becoming sick and tired of Obama’s crap. He’s disappointing time and time again on key issues of inequality, corporatism, overzealous foreign policy, civil rights at home regarding drug war and NDAA stuff.

      I’m interested in going through a sort of thought experiment of how things would even be different if Romney had been elected. Dems have the Senate, so Romney would have had to compromise on everything anyway, so wouldn’t we have the same outcome in appointments and policy?

      Sure, Obama is articulate and has a much more likeable personality (which makes it that much easier for him to bend everyone over), but how much different would things be under a Republican president? Words can’t express how disappointed I am in a string of his policies.

      1. NotTimothyGeithner

        When did elected Democrats oppose the Bush Administration? The answer is…drum roll please…never. Bush’s privatization scheme wasn’t killed by the Democrats. It was killed by seniors and baby boomers who scared the GOP electeds.

        The Iraq War? Outrage over the Iraq War led to the Democrats allowing the vaunted surge.

        Supreme Court nominees? Harriet Miers was stopped by Republicans, not Democrats who were more than happy to make sure the Roberts and Alito confirmations were smooth affairs.

        The rank and file Democrats would concede to Romney as easily as they did to W.

      2. SóloSéQueNoSéNada

        Well, both parties are financed by the same people, so the policies are naturally have the same policies. Private sector union density in the US is 11%, therefore organized labor cannot finance the Democrats.

      3. HighlyTrouted

        Do you expect that changing the hood ornament on a car will have any chance of changing it’s direction? Look my friend, I hate to be the one to break it to you, but “government” is just the velvet glove over the iron first that robs you blind and throws you in a cage for saying the wrong thing or having the wrong piece of vegetation in your pocket.

        If you dig deep and are really, really honest with yourself, you’d be able to acknowledge that the only reason you or anybody else pay your “taxes” is because there’s a gun in your ribs. If you, say, acting on your conscience, decided that you would and could not morally justify paying the percentage of your “tax” that would go to the programs that you find morally reprehensible (say, the wars, for example), you would get a letter and then another letter and if you did not respond to those letters a man in a costume would come to your house and tell you to come with him to be locked in a cage. If you did not want to go with the man, he would point a gun at you. If you chose to defend yourself against this man, you would be murdered.

        This is the reason you pay your taxes and no other, especially not the sweet lies that you likely tell yourself (of course if you donate to charity voluntarily, that’s a different story). Politics is just the PR division of the organization that robs you day in and day out. People accept this obviously false propaganda because to do otherwise is to confront a very stark and freightening reality, starting with the fact that this evil machine has largely managed to take over the vitally important role that has historically and rightly been the responsibility of parents, that of educating children. How many among us can truly comprehend or acknowledge how spending a decade forced into “public” institutions has affected our biases and our reasoning?

        This is the reason that you will always be disappointed by politics and politicians; a fundamental misunderstanding of what the system is and how it works. I don’t begrudge people their illusions, and so do not expect many here to have the ability to objectively see the system for what it is. To quote Freud, “Illusions commend themselves to us because they save us pain and allow us to enjoy pleasure instead. We must therefore accept it without complaint when they sometimes collide with a bit of reality against which they are dashed to pieces.” If you continue to have faith in politics and politicians, be prepared to have your illusions regularly dashed.

  6. Middle Seaman

    The wet dream of the pretend left was to elect the famous lefty Obama and blame everything the goes wrong on Bill Clinton. Similarly to the Tea Party of the GOP, the left’s Tea Party has successed first; they elected the ambassador from Wall Street to president.

    Obama turned out to be a Republican, which many of us knew in early 2008, to the huge disappointment of the left Tea Party. Well, what was left is blaming Clinton for everything starting with the murder of Julius Cesar.

    Many snows melted since I could actually sort out the lies from the facts. I simply don’t know what happened in the 90 under Clinton. One thing seems sure, the Republicans were right to impeach Clinton. Clinton eight years presidency were the darkest time since Hitler. Or so, they want us to think.

    1. neo-realist

      I would give the Bush/Cheney junta the edge in darkness: Let 9/11 happen on their watch; Got thousands of Americans killed in Iraq and Afghanistan on false pretenses and many more maimed and mentally/psychologically damaged by PTSD. Ushered in the defacto martial law of the patriot act; Tightened the police state surveillance noose around main street america; fueled the flames of wild west financial sector theft; Gave us virtually no net job growth; and appointed Roberts and Alito–reactionaries whose impact will be felt for at least a generation.

      Granted Clinton facilitated the departure of manufacturing with NAFTA and enabled the financial sector banditry with signing away Glass Stegall, but he gave us a few jobs even if done on the false profits of the bubble and a few sane if not great SC appointments. His degree of darkness was not quite up to the administration that followed.

  7. Bruce Krasting

    The author wonders when the first dollar of the OASDI Trust Fund will be spent.

    The answer is 2016 – CBO Report:

    I study these things and believe the TR will top out in June or July of 2016. The TF will reach a maximum balance of 2.8T.

    Does that answer the question?

    The author should study what happens with a TF. I belive he thinks that the TF is a store of wealth. It is not. It is just an accounting entry. Want proof? Assume that the TF disappeared tomorrow. Would it make a difference? Not at all.

    SS is paygo. The shorfall of tax receipts is funded by Treasury. The shortfall in 2013 will be $70b. The TF has nothing to do with this.

    1. from Mexico

      Now that Bruce Krasting has arrived, the triumvirate is complete.

      Let the orgy of distortions, half-truths and outright lies begin.

          1. harry

            Is there any chance we could generate some light with all the heat?

            Just to check, and I like to visit Mr. Krasting’s blog, he hasnt made a statement in his comment that I disagree with. SSTF is an accounting entity. The Entity starts to shrink in 2016 (that I can believe although I havnt verified). And its sort of irrelevant cos SS is paid for out of whatever economic surplus the current generation generates. If there aint nothing spare after the aircraft carriers and the banker subsidies, then the old people will eat catfood, regardless of their “entitlements”.

        1. from Mexico

          @ AbyNormal

          Thanks for the link.

          I see Krasting trots out the the typical neoclassical fare — the loanable funds model — when he says:

          Then he goes on to add:

          you’ve conveniently omitted the fact that it also earned more than $117b in interest on the government bonds in the trust fund….

          I love it when this happens; folks playing “gotcha”, not even understanding the facts. I come back with my standard response:

          Careful where you go with that interest income line. Interest is a NON CASH ITEM. SS needs cash to make benefit payments. So SS has to hock its bonds with Treasury to come up with the CASH needed. Treasury, in turn, must borrow from the public to fund the SS shortfall.

          Folks like Krasting castigating others for “not even understanding the facts” carries hypocrisy to an entirely new level.

          Notice also that when Krasting speaks of money that hard-working Americans deposited in the SS trust fund, then money is nothing but an abstraction, a mere “empty thought-thing” as Kant put it. But then when it comes to paying that money back, suddenly it becomes something visible, tangible and palpable.

          It’s not really possible to argue with “logic” and “factuality” like that, other than to call it out.

      1. Bruce Krasting

        Ronnie was right. SS has nothing to do with the deficit.

        It has everything to do with the debt. SS will run a $70b cash deficit in 2013. It will run a $1T cash deficit over the next decade.

        Every penny of that cash deficit must result in an increase in the Debt Owed to the Public.

        The TF debt/assets is an accounting fiction. The public debt that will come from SS is far from a fiction. It will hurt. We are talking ~$3.5T over 18 years. Ignore this reality at your risk.

          1. AbyNormal

            still waiting on this link Brucie…

            Chmee says:
            Friday, January 11, 2013 at 8:19 am

            You wouldn’t mind showing us a link to verify that figure of $2.5 going out for evey $1 going in would you? And I mean from the official source, the Social Security Administration, not some other group that doesn’t have referenced data either.

        1. Calgacus

          Bruce Krasting: The public debt that will come from SS is far from a fiction. It will hurt. We are talking ~$3.5T over 18 years. Ignore this reality at your risk.

          Ignore it? I & many millions of other hope for this reality, would celebrate this reality! Basically, government debt is money. Sure, yes, ceteris paribus, in fairy tale reality, tis better to have less government debt outstanding, But not in a real world, unstable economy. God bless the child that gots its own. (T-bonds that is) I think it would be a great thing if the gubmint kept its real promise to retirees and gave them an even better SS retirement payment, and if the National Debt rose a bit because of this.

          For the projected amounts of government debt are chump change. The current record debt/GDP ratio records are under 300% of GDP. But for Lerner, who eventually convinced Keynes, and who others like Domar & Harris and maybe not enough others understood, a National Debt of 3000+% ? – ten times the world record? – No biggie. The only conceivable Bad Thing would be inflation, and the genuine inflationary effects of a large stock of government debt are so small they would only be felt around then, perhaps. You’re exaggerating a pinprick of possible National Debt highly indirect “pain” into an imaginary Mack Truck hitting you. And the pinprick will in all likelihood help nudge the economy to avoid the real, painful Mack Truck of unemployment. In other words, you mistake a benefit for a cost.

          For where did those dollars you are so afraid of being put back into the economy pretend-come-from? Were they such a horrible reality when they were in the hands of workers who grossly overpaid their SS taxes for 30 years? Apparently so, to the Reagan / Greenspan-led scum who made SS into a destructive, pointless forced-saving scheme during non-inflationary times. While preventing this from causing rampant unemployment by stupendous welfare-for-the-rich. But to ordinary people, those dollars of their salary weren’t causing any inflationary harm when they were in workers’ hands, and would have helped them and the real economy a lot. And the dollars they “descend from”, that the workers would be paid back in, that would be the publicly held debt scaremongered about would be just as innocuous – indeed beneficial – as they were when they were “in” (withheld from) workers hands in the 80s 90s & 00s. (Yes, I am going along with the story that SS tax dollars sit in the fund and are then paid out, as I criticize From Mexico above.) But I am doing it right, doing it consistently. Really bad economics works by mixing several bad stories together in an incoherent mess. If you just stick to one bad story – Austrian econ say – you might actually achieve some insight, and par abus de langage, might even do better at lampooning a really bad mess.

    2. petridish

      If SS were truly pay as you go, wouldn’t the SS withholding amounts change over time as the needs changed?

      Are you really saying that the amounts withheld in the 80’s and 90’s weren’t in excess of the needs at the time?

      This really doesn’t seem that complicated to me. More money was withheld over the last several decades than was needed (OVERPAY as you go.) This was sold to the public as a savings account or trust fund or whatever you want to call it. Your money would be held for you and returned when you reached a certain age. But the money was spent and now, when it’s needed, it’s gone and someone’s financial ox will need to be gored in order to pay it back. So, let’s blame the victim or the program.

      All this “there is no trust fund” or “you don’t know how trust funds work” is just gasbag crap. They took the money and promised to pay you later, spent it and now don’t want to pay you. The American people were robbed and all this blah, blah blah is just noise.

      This article is just telling you how it’s being done.

      1. F. Beard

        The money is not gone because it was never there in the first place – Federal Taxation destroys money. But what FICA taxes did do was help control price inflation in the dollar which is the ONLY real constraint on Federal spending.

        So unless price inflation in the dollar is a problem the Federal Government can always create new money by spending it into existence.

        1. petridish

          Pardon me, F. Beard. I know you are a thoughtful commenter here, but what does THIS comment even mean?

          It was money when I earned it, it was money when I used it to pay my FICA and it was money when the government paid it to someone else as a SS benefit or bought a drone or whatever they bought with it.

          As long as the government spends MORE “money” than it takes in, the claim that “Federal taxation destroys money” makes absolutely no sense.

          1. LifelongLib

            For a government that controls its own currency, taxing and spending are independent operations. The government can tax at any level it wants (removing money from the non-government part of the economy) and spend at any level it wants (adding money to the non-government part of the economy). Taxing = removing money = destroying money. Spending = adding money = creating money.

          2. Jsn

            If you add “to me” at the end of your statement, it might be true. Like it or not, our money is fiat money so what Beard says is true. But don’t let anyone tell you fiat money is backed by nothing, it is backed by the trade denominated in it. In the dollars case, that makes its backed by the largest system humans have thus far created.

          3. from Mexico

            @ petridish

            I’m siding with you on this one.

            I think F. Beard, LifelongLib are mistaken.

            All money is created as debt, as a promise to pay. So currency is government money. Treasuries are government money. Private bank promisary notes and privately issued bonds are money, but not government money. Insurance and derivatives are a type of meta-money, but again not government money. If I give you an IOU, that’s money, but again not government money.

            The FICA tax is no normal tax. A normal tax is paid to the government and there is nothing promised in return. It goes into the general fund and you have no future claim on it. Your money is gone.

            FICA taxes, on the other hand, even though they are called taxes, are paid with a promise to pay you something back at some future date. There are very specific formulas worked out which determine what your future payment will be. In this, paying FICA taxes is similar to buying a treasury, but in the form of a life annuity. Your money does not go into the general fund, but into the SS trust fund, where it is held in trust for you. If the trustees decide to buy treasuries with your money, then those treasuries are yours, but held in trust. The fact that the trust fund lends your money to the government is irrelevant. The money is still yours, until whatever the government promised to pay is fulfilled, or until the government defaults.

          4. F. Beard

            As long as the government spends MORE “money” than it takes in, the claim that “Federal taxation destroys money” makes absolutely no sense. petridish

            Be very glad when (if?!) the Federal Government deficit spends since bank loans DO NOT create the interest required EXCEPT as even more debt. Nor is not borrowing an option for most people/businesses because those who do borrow or even the banks themselves drive up prices so that their neighbors must borrow too!

            So deficit spending by the monetary sovereign prevents the banks from rapidly owning all real collateral via their filthy money (so-callled “credit”) creation privileges.

          5. Calgacus

            petridish: As long as the government spends MORE “money” than it takes in, the claim that “Federal taxation destroys money” makes absolutely no sense.

            No, it makes complete sense. It has nothing to do with spending more or less money than you take in, unless you are strangely take “Federal taxation destroys money” to mean “Federal Taxation decreases the total of money out there.” Of course Federal Taxation will only decrease the total if there is more taxation than spending. But that is not what is meant by “taxation destroys money”.

            A does a favor for B – he does something nice for B. Now B owes A. B then does a favor for A. He repays A’s favor.

            Now A & B are quits. They owe each other nothing. B’s favor repaid the debt B owed A.

            “The debt B owed A” (a tax, say) “destroyed” “B’s favor” ( money, say). Taxation destroys money. It’s just a special case of something everybody, everywhere understands practically from birth.

            It has absolutely nothing to do with deficit or surplus spending.


            From Mexico: The FICA tax is no normal tax.

            No, it is a perfectly ordinary tax.

            A normal tax is paid to the government and there is nothing promised in return. No, there is always something promised in return, for any tax. Why would anyone pay something to the government if he didn’t trust the government’s promise to give something in return? What is usually promised in return is that the gubmint won’t put you in jail, seize your property, etc.

            It goes into the general fund and you have no future claim on it. Your money is gone. No, it doesn’t go into the general fund. It is destroyed, cancelled, aufgehoben. Just the same as with SS or any other tax. The SS trust fund is just an internal government accounting record, which Congress has every power to modify. But its “unreality” is not because it is an accounting record, which is true of all money, all finance, but because it is one pocket of the same entity, Uncle Sam, saying it owes another pocket. If you want to have an SS Trust Fund, the best imaginary fix for an imaginary problem is Bill Clinton’s prof Robert Eisner’s: Congress declares that the SSTF bonds are supercalifragilisticexpialadocious bonds that pay 10% interest.

            FICA taxes, on the other hand, even though they are called taxes, are paid with a promise to pay you something back at some future date. No, they are not, if you mean “something specific” as suggested in the rest of the comment. There are Supreme Court cases about this. Your SS benefits are not considered property. What you get when you pay an SS tax is the right to get SS benefits in the future, in amounts determined by Congress in the future. You’re kind of making the opposite subtle mistake to Bruce Kasting’s.

            So what is the upshot?: You pay your SS taxes. You get non-financial liabilities from the government, which the government extinguishes when it pays you your SS checks. But what did the government get when it got your SS tax? Nothing. It just disinflated the dollar, particularly the dollars of other government spending, and tended to create unemployment and make working people poorer too. For an oligarch recipient of the multitude of welfare-for-the-rich schemes, these are all good. Especially if the government doesn’t balance its taxation with sufficient spending on retirees. So tax workers more and spend less on SS retirees – the Greenspan – Obama 1983-2013 scam.

            And l’audace, toujours l’audace with the Big Lies : that we can’t pay for the the average American’s retirement, that there is a demographic problem, that the 1983 scam was necessary or good, that SS is going broke, that SS taxes pay for SS.

      2. jurisV


        Thank you so much for that passionate and clear explanation of what the post was actually about. And especially the deft putdown of the Triumvirate of Krasting, JGordon and Jim Haywood.

        I will cherish this last paragraph of yours:

        >>All this “there is no trust fund” or “you don’t know how trust funds work” is just gasbag crap. They took the money and promised to pay you later, spent it and now don’t want to pay you. The American people were robbed and all this blah, blah blah is just noise.<<

    3. allcoppedout

      The eristic component of argument is often neglected Mexico. Personal conflict leads to personal attack to reveal deep conflict. Generally neglected as much of the base of argument in informal logic and defeasible reasoning tends to be. I don’t presume to pour oil on troubled waters – these days I’d be inclined to see that as yet another incident in the long line of keeping the price up!
      The problem, once we start to use figures on welfare, is the trap of what we define welfare as, carried away in apparent quantification. The logic we apply is not applied elsewhere. I can’t think of anything more definitional of welfare than our treatment of the rich. In the UK we are about to start re-assessing people on disability benefits even if they have degenerative illness. At the same time we have caught a major energy company using long-term fraud and mis-selling but show no sign of taking their thieving bonuses off them. Ideally we should recognise we are swimming in definitional custard and drain the pool. Even then we might find ourselves arguing around a massive structure labelled ‘suction plug’.
      I’m not sure any of us knows much about what’s going on. I’ve even been thinking of an interminable article on the lack of the biological individual in economics, but one wonders whether what we should really do is collaborate on a video game that demonstrates the trail of all money. Where would we take our figures from? Damn, we’re back squabbling with each other!

  8. Timothy Gawne

    It’s like Joseph Heller’s “Catch 22B”: they can do anything you can’t (or won’t) stop them from doing.

    This will accelerate. Each new outrage left unopposed will only spawn greater outrages to come.

    And really, it’s our fault. We continue to fall for this “good cop/bad cop” political theater. We (at least the public in general) continue to let mass propaganda convince us to sneer at decent honorable people like Ralph Nader and Jill Stein and Cindy Sheehan and Julian Assange etc., and vote for corporate shills like Obama. Even now, if I tell my ‘liberal’ friends that Obama is a corporate toady, they froth at the mouth and accuse me of not being sane.

    We are long past the point of being able to pretend that Obama is a decent man in over his head. I imagine that in private he has utter contempt for us (I’ve heard that the internet scammers in Nigeria have similar contempt for the Americans they defraud).

    As the old saying goes, the problem with a democracy is that the people get the government they deserve…

    1. Chris

      Im not sure Obama has “utter contempt” for Americans. My theory is that he thinks he’s doing the “responsible thing” that also happens to vastly increase the wealth of his corporate overlords and his future earnings.
      Aaah what the heck maybe he knows exactly what he’s doing will screw most Americans(and people around the world, mind yoU!) and he doesn’t care

      1. Brooklin Bridge

        No, the discrepancy between Obama’s campaign promises and what he actually does leaves no room for doubt. He knows full well what his agenda means to the country and is utterly contemptuous of the results. He really is a, “let them eat cake” human being. It’s not you. His type of illusions are that the despicable American middle class doesn’t really feel pain any more than a herd of cows. People who are born aristocrats – they are the ones who go to Harvard – have every right and obligation to feed off the herd. Being a good president to him simply means raising the herd humanely in his campaign promises, and being proud that as a result, they do not stampede. And to a degree, he is convinced he is humane. After all, for a brief time, before being led off to the slaughter of foreclosure, or deposit tax, or safety-net plundering, are not these ill smelling, ungrateful, beasts of burden given copious pleasures such as cars, MacDonalds and Wal-Mart?

        1. harry

          I take it that you are one of the “little people”?

          What the little people dont understand is that all the “splendour” they see around them is paid for out of their labour. But if we didnt expropriate their labout then we wouldnt have the splendour. It has ever been this. Dont you think the ruins of Rome are splendid? Imagine in its prime. How many slaves do you think it took to build? Do you really begrudge the Emperor Tiberius his palace? Dont you realise what he had to do to remain Emperor.

          So how can you begrudge Jamie Dimon his golden bathtaps? He is better than you. He manipulated the system and now he is a patrician. You are a pleb.

          If you can change it then you are not a pleb. Can you change it? Can you even influence what happens? Who gets what? Who is crowned emperor? Well Jamie can. He can write a big cheque. Thats influence and thats what counts.

          Shut up your whinging and get back to work, lest they confiscate your iphone.

        2. Doug Terpstra

          Agreed, Obama really is a “let them eat [sh*t]” human being, and this is all about animal-farm husbandry—getting the utmost from the flock before slaughter. The problem is they’ve so thoroughly screwed up the husbandry and stewardship, so badly over-grazed the commons, that the entire farm is now failing like an Okie homestead. It seems that they are now in crisis-panic mode, but though their very lives depend on it, they are utterly incapable of changing their imperial mindset.

    2. Brooklin Bridge

      Even now, if I tell my ‘liberal’ friends that Obama is a corporate toady, they froth at the mouth and accuse me of not being sane.

      You put your finger on a huge problem. What ever the cause; fear, timidity, tribal loyalty, a weak and curiously spoiled and starved to obesity public at the mercy of modern propaganda, any remnants of representative government that still remain (corruption like rust in a pipe from the party on down to the lever you pull) are moot when no one has any idea who is robbing them blind. And it’s not just the media and not just the poor or the stupid or the far right whackos. Very educated people are insisting the lessor of two evils is the only way. They have pre-packaged insults to keep any wake-ups in line; you’re purity trolls unless you vote for the free fall for one more cycle and then one more and one more…

  9. Susan the other

    I believe the accounting is just a serving suggestion. It could be more or less accurate. All the assets get shuffled around on the plate all the time. And it’s not the money; we, the government, can pay out all the SS money as necessary. The problem is power. Military power. Who actually believes that we have only spent 2+ trillion on “the war” since 2002? The only reason that figure is even out there is because Obama promised he would do up-front accounting of military expenses. The real figure is certainly much higher. And we have all been surreptitiously taxed, via SS/FICA and other tricks to put up the money to go to war. Those facts can be fudged forever if we are willing to make war a priority. But everyone with vested interest in war – international corporations – must now be careful because when it is known how much of our money is actually spent on war we will make it a point to stop the whole thing. When a government pays directly into the economy, or a war, it accounts for it under MMT. The decision must be made to spend the money in certain ways. Under the system we now have, nothing is on the table except SS. Kinda looks like SS has funded all our wars since FDR. That’s the power that is threatened when everyone retires and wants their money. It is about power.

    1. Brooklin Bridge

      That Wall Street is panting to raid this two trillion dollar cookie-jar doesn’t contradict your point. It just means there is a little in-house conflict over how to achieve both objectives. Obama’s aristocratic upbringing, his superior education and intellect, that which allows his chief of staff to explicitly call the masses supporting him “fu*king retards”, is at the ready to solve the problem, or at least to flash a smile and punt and throw a bone to the spell checkers by letting them brilliantize his latest kick in the balls.

  10. Wolverine

    When he gets comprehensive immigration reform the US will have 11 million illegal immigrants plus all their relatives piling into Federal benefits.
    So what if retired Americans die from starvation or disease because the money is spent on illegals and social security is bankrupted . Most of the current retirees are only ‘White people’ anyway!
    As Jay Leno correctly opined this is an amnesty for 11 million ‘undocumented Democrats’.

    1. harry

      Yeah, Im sure the people bussing your restaurant table are the cause of the economic problems.

      1. Brooklin Bridge

        Simply because Wolverine sees the problem in the typical scum-bag way, doesn’t mean that immigration policy is not specifically designed by both parties to be a huge hit against labor. Wolverine simply is to solid block wood dumb to notice that Leno is delighted to have cheap labor AND is doing his part to obscure the issue by blameing it on the ‘other party’ in the usual tribal ritual perfectly suited for the likes of Wolverine and his pathetic petty paranoias to consume hook line and sinker.

          1. harry

            Cant argue with that. Im impressed with the total focus on increasing and extending their economic rents while undermining everyone elses. You have to give it to the US elites. They know how to f*ck the little people while feeding their own faces. But I am most impressed by their ability to do this and to still believe themselves morally superior. Turns out the hypocrites will inherit the earth.

  11. Brooklin Bridge

    One of the first subtitles of this article is, Why are benefit cuts one of Obama’s must-have goals?, What does, “slow walk the answer” mean? Reveal a complex answer over several articles? Not a criticism, just a question. I did not feel an answer was provided in this “installment” – if that’s the case – or if it was, I missed it.

    Would Obama feel his Presidency was a failure, or seriously diminished if he fails to achieve that goal? Wouldn’t he receive the same pay-off anyway (‘A’ for effort?)? What I mean is, does he have some personal motive (get even with the bastards) or some weird belief that stealing from the old and the poor is good for them? Or does he really give a shit whether he succeeds or fails as long as he convinces the master his donors that he did all he could?

    1. Brooklin Bridge

      The following answer seems incomplete or circular,

      So we’re back to the beginning. Like Nixon to China, it takes a Democrat to put the first knife into Social Security and reduce its actual size. That’s why “benefit cuts” is high on the must-have list of each Democrat who takes the post-Reagan princely throne. Each one … including the next one, in case Obama fails.

      It sounds like, “destroying the safety net is high on Obama’s list because the size needs to be reduced or if one president doesn’t succeed, the next will try again”

    2. Gaius Publius

      No, Brooklyn, this is complete. Sorry it didn’t seem like it to you. Of the four goals, three have a big payday at the end. So what’s the payday for benefit cuts? Slow-walk the answer means taking the logic one step at a time. The payday: not exposing the actual size of the deficit by cashing in the Trust Fund.

      At some point the country’s going to have to raise taxes appropriately on Big Money, or crumble to completely dust with the Bigs repatriated elsewhere. Keeping the Trust Fund large and growing forestalls that day. (Forestalling that day is consuming a lot of cycles by our “leaders” these days, isn’t it?)

      Anyway, HTH.


    1. Brooklin Bridge

      Yes, aristocratic upbringing, at least in Obama’s eye. He would refer to it, however, as a meritocracy.

    2. Brooklin Bridge

      Oh yes, and you might check your snark-O-meter from time to time when reading comments.

    3. Yves Smith Post author

      He attended what I understand is the most exclusive private school in Hawaii. And in my era, I would assume you had a smaller % of kids at the Ivies from private schools than now. The private school kids were most assuredly seen as “different” when I was at college: more polished and assumed to be better educated (unless the student had gone to the handful of public schools that were on a par with private schools, like Beverly HIlls High or New Trier).

  12. Hugh

    The Trust Fund was only ever a regressive backdoor tax on American workers. The 1983 Social Security reform made Alan Greenspan a legend and had the dubious distinction of being the greatest financial fraud in human history until it was displaced by the real estate bubbles and derivative scandals of the 2000s.

    The first thing you have to understand is that the Trust Fund never existed except on paper. Social Security surpluses were added to general revenues and spent like any other monies, the government collected, like income taxes for example. Needless to say, the prospect of trillions of dollars of extra money to spend has always had wide bipartisan support.

    And all it cost was a promise. You see the second thing to understand is that Greenspan’s plan covered 60 years, but it envisioned only fully funding, indeed overfunding, the first 35 years until 2018, if memory serves. For the following 25 years until 2043, it only partially funded the system. The promise was to make up these shortfalls out of general revenues. And here’s the important part, that promise, the commitment to making sure the Social Security system was fully funded, could have been made regardless of whether the Trust Fund with its “surpluses” ever existed.

    The scam was that taxpayers would be stuck paying for the 2018-2043 shortfalls twice, once as part of the Trust Fund and a second time (paying the Trust Fund back) out of general revenues.

    The current attacks on Social Security are attempts to welch on that promise. Cut benefits and you reduce the shortfalls and the amount that needs to be paid back. This is an important goal for the rich and our political classes for two reasons. First, if less money is leaving general revenues to pay for Social Security, that leaves more money for their projects, like tax cuts for the rich, bailouts for the rich, and wars. The second is that, as I said at the beginning, the pay roll taxes that created the fictive surpluses were a regressive tax on workers. (Remember the income caps on Social Security.) But because of the massive wealth inequality in the country, and even with the low tax rates on the rich, general revenue money comes disproportionately from the rich. So covering the shortfalls whether as a payback of the surpluses or not would amount to a progressive tax on the rich, a clearly intolerable situation from their, and hence their servants’ (the elites) point of view.

    That this was all and always a scam is made manifest by the existence of numerous alternatives. Greenspan could have fixed the Social Security with its full funding for the first 35 years and then left it to politicians in the twenty-teens to decide how they wanted to fund it for the next decades. He could have fully funded Social Security for the full 60 years, either by gradually increasing the payroll tax or by gradually increasing/eliminating the income caps.

    If you are an MMTer, you could fund the shortfalls and even increase payouts by creating the money for them, with or without a payroll tax.

    Or if you are a resources/social purpose person like me, you make the social commitment to seeing that our retired and elders have incomes so that their old age can be lived without fear, that is you commit the resources needed for that to happen. You find those resources, as for so many other of our society’s needs, by doing away with the vast concentrations of wealth which separate our needs as a society from our society’s resources.

    As it is, we have a great theft, and now efforts to make that theft good out of the hides of our retired and elders.

    1. from Mexico

      @ Hugh

      Here are a couple of graphs you might find useful as illustration.

      The first is “Federal Receipts by Source as Share of Total Receipts”

      The trend is unmistakable. When I was born corporate income taxes constituted 33% of federal receipts and employment taxes 10%. By 2009, corporate income taxes had dropped from 33% to only 5% of federal receipts, whereas employment taxes had increased from 10% to 41% of total federal government receipts.

      Of course federal expenditures which are not paid for by taxes are paid for by borrowing:

      So the cost to run the federal government is paid for:

      1) Decreasingly by corporate income taxes
      2) Increasingly by employment taxes
      3) Increasingly by borrowing

  13. Squeeky Fromm, Girl Reporter

    Well, I think that Global Warming has reduced the One Percent’s options in dealing with all the old folks on Social Security, sooo here is an Irish Poem I just wrote to explain my reasoning:

    Cash Floes

    As the numbers of Seniors just grows,
    The One Percent hollers “Oh Noes!”
    “This ain’t very nice,
    We’re all out of ice!”
    “Climate change has done melted the floes.”

    Squeeky Fromm, Girl Reporter

    1. Gaius Publius

      Love this poem, Squeeky, and you’re right.

      In fact, sometime in the next ten years, the window on climate fix will close for good AND people will know it (both will be true). At that point no one will worry about the Trust Fund. They’ll be talking about the fact that most governments will be “forced” (by unwillingness) to not save large segments of their own populations, to abandon them.

      Guess who gets to be first in line for gov’t help? That’s a prescription for rolling and mounting chaos.

      I say that not to depress — we do have a 5-10 year window.


  14. Lord Koos

    What’s all the worry about funding SS? Just print some more money to cover it. Of course, a loaf of bread will then cost $40, but hey that’s not their problem, that’ll be your problem.

        1. F. Beard

          Not necessarily. Banks, through credit creation (“loans create deposits”), create 97% of the money supply. A ban on further credit creation would thus create a huge deflationary hole as existing credit was repaid with no new credit to replace it. That deflationary hole would need to be filled with huge amounts of deficit spending by the monetary sovereign.

          So deficit spending can be done without debasement of the currency IF the banks are reigned in at the same time.

          What? You think only government money creation should be on the table? That money creation by the banks (“credit creation”) is sacrosanct?

          1. skippy

            Loans create deposits – False

            Credit creates derivatives – True

            Skippy… when you understand the function of the later and it implications… get a big bucket… you’ll need it…

    1. LifelongLib

      Or more people buying bread encourages the production of more bread, and the price stays the same until for some real reason (not just lack of money) it is not possible to produce more bread.

      Most economic activity in our society (and other modern ones) is limited by lack of money, not lack of real resources. Since a government that controls its own currency can create any amount of money at any time, there is no excuse for lack of money being the limiting factor in economic activity.

  15. Wolverine

    @Brooklyn Bridge

    ”Wolverine simply is to solid block wood dumb to notice that Leno is delighted to have cheap labor AND is doing his part to obscure the issue by blameing it on the ‘other party’ in the usual tribal ritual perfectly suited for the likes of Wolverine and his pathetic petty paranoias to consume hook line and sinker……”

    So only certain subjects are approved for discussion.!Illegal immigration and social security is one of the forbidden topics then !
    Too many cultural marxists on this site who try to ridicule genuine public concerns.
    Or can you absolutely prove that 11 million illegal immigrants will have a neglible effect on social security thereby ending my concern?.

    1. jrs

      Isn’t illegal immigrants impact on social security still that of net contributors into the system at present? Sure it might not always be that way, but I was under the impression it was now.

    1. Bill Smith

      United States Chamber of Commerce

      This article is about the American lobbying group. For trade organisations globally, see Chamber of commerce.


      The United States Chamber of Commerce (USCC) is an American lobbying group representing the interests of many businesses and trade associations. It is not an agency of the United States government.

      The Chamber is staffed with policy specialists, lobbyists and lawyers. Politically, the Chamber is generally considered to be a conservative organization. It usually supports Republican political candidates, though it has occasionally supported conservative Democrats.[1][2] The Chamber is one of the largest lobbying groups in the U.S., spending more money than any other lobbying organization on a yearly basis.[3][4]

    2. Gaius Publius

      Thanks. I’ve actually got a post coming about this at Americablog. I’m getting the data from the 2012 Social Security Report itself (with a ton of help interpreting it).

      Bottom line, a lot depends on which set of assumptions you make in forecasting (the Report has three parallel models), but (1) the net drawdown hasn’t started yet, and (2) the best answer to when is “soon” (by some definition). More when the post goes live. Thanks for offering the information.


  16. mrtmbrnmn

    If selling out Social Security (and destroying the Democratic Party in the process) is The Trickerator’s “Nixon to China” moment, is it too much to hope that he will meet the same fate as the original Nixon? If not impeached at least run out of office on a rail…

    Likewise, doesn’t the absurd concept of having to “fix” Social Security in order to “save” it sound a lot like that old Vietnam War alibi: “we had to destroy the village in order to save it”…?

    1. LifelongLib

      If in 1972 you’d told be I’d be nostalgic for Nixon I would have thought you were crazy. But Tricky Dick tried to get a guaranteed annual income for families, and a health care system a good deal more universal than Obama’s. A Presidential candidate advocating similar ideas today would be considered a leftist. How far we have fallen.

  17. ltr

    April 3, 2013

    Public Misperception of Government Benefits Makes Trimming Them Harder

    WASHINGTON — President Obama had Senate Republicans nodding in agreement during a recent ice-breaking dinner as he described a basic problem for the nation’s fiscal future: For each dollar in taxes that Americans pay for Medicare, they ultimately draw about $3 in benefits. What’s more, he added, most people do not understand that.

    By his point that evening, the president was referring to the widespread and incorrect view, especially among older Americans, that Medicare recipients get only what they have paid for through taxes, premiums and medical co-payments. Now that misperception is making it all the harder for politicians to consider trimming those benefits or raising out-of-pocket expenses as they seek to restrain Medicare spending that is rising unsustainably while baby boomers age and medical prices increase….

    1. LifelongLib

      Medicare itself is very efficient (3% overhead compared to about 30% for private health insurance). It is the cost of health care itself that is driving the money spent on Medicare. Most of that money ends up in the hands of people who vote Republican, so don’t expect the Republicans’ help in dealing with the real problem. Rather, expect them to advocate solutions that cut even more Republican voters in on the action.

  18. ltr

    President Obama wants to cut Medicare benefits and is looking for a way to do so as the New york times clearly shows.

  19. Ep3

    “the real emergency associated with Social Security isn’t the day the last dollar will leave the Trust Fund. It’s the day the first dollar will leave. That’s a whole different problem, and a whole different timeline, for them.”

    YYYEEESSSS!!!! Finally yves! I have been saying this all along. For every dollar they cut from people’s SS, add another dollar to that that won’t have to be put into the trust fund, $2 that they can waste on wars or whatever.

  20. Paul P

    Say, what trust fund covers war spending, military spending or bank subsidies? Be upsetting if the government ran out of money for these items.

  21. Jeff

    Jesus, this site used to have good and thorough research. Now this swill is what makes it through? It isn’t even pretending to be unbiased.

    Yves, please take back control of your blog.


  22. b2020

    “For elites, the real emergency associated with Social Security isn’t the day the last dollar will leave the Trust Fund. It’s the day the first dollar leaves.”

    Excellent way to phrase it. That is really the core of the issue, and everything else just follows – or distracts.

    As long as the Trust Fund grows (net inflow), it is a subsidy for government spending, yet not fully counted as debt. As soon as the Trust Fund neither grows nor shrinks, that subsidy goes missing – now, the regressive payroll tax funds Social Security and not other, unrelated spending. Once the Trust Fund starts to shrink significantly – as it was, officially, always intended to – not only is the payroll tax no longer a subsidy to unrelated spending, but now general tax revenue has to be diverted to pay back the trillion dollar loan taken from the Trust Fund.

    *That* is the incentive behind the decade-long effort to “fix” Social Security. If you cut payouts, the Trust Fund will shrink less, or, if we really “save” it for “generations to come”, it will show a net inflow “forever” and start to grow again – keeping us more secure the less we draw on it.

    The Greenscam comissioned by the oligarchs could run its course as long as the Trust Fund grew. Now that the Trust Fund no longer grows – partially due to Obama payroll tax holidays, and mostly due to an elective Great Recession and enormous unemployment – the Trust Fund is no longer enabling spending on behalf of elites, but in fact would require taxing elites to repay the loans.

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