Hacker News Reader

Comment by _uhtu | Hacker News Reader

I don't like just treating trust fund debt as if it doesn't exist. It's not so much that the government owes itself that money, it owes the American people that money via Social Security. So it's as much a public debt as any other. I especially don't like ignoring it like this because it implies the US government simply needs to ignore that obligation to the public, let millions retire with no safety net, and just default on trillions of debt. It's horrible from every financial perspective. What should be mentioned is that Social Security could easily be well in the black with even higher payments to retirees by simply raising the income limit on the social security tax. The biggest problem with funding Social Security is that income inequality has ballooned, so more and more income is exempt from the tax.

View on HN

> What should be mentioned is that Social Security could easily be well in the black with even higher payments to retirees by simply raising the income limit on the social security tax.

Obviously. It could also be in the black if you raised the rate 2x...

> I especially don't like ignoring it like this because it implies the US government simply needs to ignore that obligation to the public, let millions retire with no safety net, and just default on trillions of debt.

The US government might technically default - i.e. miss payments - but the payments will likely be delayed (due to political BS) rather than not paid in full w/ accrued interest.

They've missed payments before. They'll probably miss them again. But they can literally print money. There's zero reason to truly default - and ENORMOUS consequences if they do.

AFAIK, The Treasury at least claimed to be able to pay SS benefits in full even if the US "defaulted" (delayed) Treasury payments.

It's hard for me to imagine a world in which the government just doesn't pay SS Treasuries. With enough political will, anything is possible. But even if political winds change dramatically - there's no way around how enormous the financial consequences would be to everyone in the country.

I guess you can never underestimate how much politicians are willing to destroy this country to get a very small soundbite on TV - but I'm skeptical this is worth worrying about.

Is it possible COLA for SS will be nerfed? That seems within the realm of possibility.

Is it possible the Federal Government just decides to stop paying Treasuries SPECIFICALLY to SS? Super-dooper highly unlikely.

I wonder if the US is going in the same direction as Greece/Italy on this front?

Both of those have lower borrowing costs on their bonds than the US currently does:

* http://investing.com/rates-bonds/greece-government-bonds

* https://investing.com/rates-bonds/italy-government-bonds

* https://investing.com/rates-bonds/usa-government-bonds

* https://www.investing.com/rates-bonds/world-government-bonds

No.

1) The US has real productivity growth

2) The US has population growth

3) The US Central Bank has no reason not to bail out the US Federal Government if needed.

Greece/Italy would be like the US Central Bank (The Fed) not bailing out California. You can see why that might be politically popular. There's not really a politically popular reason not to bail out the US Government.

A default would mean the end of 30-year fixed rate mortgages. Interest rates would be 18% again. House values would drop by 70% - and if you thought 2008 was bad - you better hold onto your butt.

This would make The Great Depression look like a small recession.

Which is all further reason why it WON'T happen. At pretty much any point, politicians could go back and pay back treasury holders in full w/ accrued interest, and then the problems are massively reduced.

There's no political will to drive everyone in the country into a black hole for no reason.

US has complete control over its monetary policy. Eurozone countries don't, they're beholden to germany and the other big EU players.

> The US government might technically default - i.e. miss payments - but the payments will likely be delayed (due to political BS) rather than not paid in full w/ accrued interest.

Which happened in 1979 due to technical (?) issues:

* https://www.reuters.com/article/usa-debt-default-idUSN1E76A0...

I mean it sounds like you're agreeing with me in a complicated way, the trust fund is still money owed to the public so it should be counted when we talk about the debt. Yes?

> I mean it sounds like you're agreeing with me in a complicated way, the trust fund is still money owed to the public so it should be counted when we talk about the debt. Yes?

Yes - the SS Trust Fund holds $2.9T in Treasuries. They matter as much as the other 80% of Treasuries.

The larger issue with SS is that it's not funded to meet its future obligations.

That's a problem regardless of whether the US government defaults.

I don't think it's particularly important to single out SS in this discussion about US debt.

SS was designed that you'd get $x dollars in the future. It didn't mean that $x would buy you a certain lifestyle.

There was no guarantee that ~95% of adults would still be working when you retire, and that you'd be able to get waited on in restaurants for $10.

If the US government spends into oblivion - it affects everyone. Especially when it spends to pay people not to work. I don't think SS beneficiaries get hit particularly hard.

What I think is problematic is people thinking that SS beneficiaries should be the only people immune to the US government overspending.

As is typical in this country - no one wants to solve hard problems - they just want to make sure no problems affect them.

SS is mostly pay-as-you-go (~93% of income). You don't pay into SS, and they buy treasuries, and hold them for you as some terrible investment portfolio.

The amount of revenue SS gets from Treasury payments (~7%) is tiny compared to how much is paid into it annually.

You're not technically paying for YOUR retirement. You're paying for someone else's retirement, and at any point it can become popular to reduce or increase SS payments.

The Treasury piece is not particularly important to the conversation about total US debt.

The question is, is Social Security's Old Age, Survivors, and Disability Insurance program insurance, or is it a government welfare program.

If it's insurance, than removing the cap on income charges without removing the cap on benefits is fundamentally unfair.

If it's a social welfare program, having a trust fund doesn't make a whole lot of sense. As well as quite some other things like paying people more benefits when they've had a higher historic income; that's the opposite of what I'd expect from a welfare program.

IMHO, it's a social welfare program that pretends to be an insurance scheme with wacky rules. Maintaining the fiction of an insurance scheme is clearly important to acceptance. There's also lots of features to encourage behaviors... Be sure to stay married for at least ten years to qualify for spousal benefits. Be sure to save up so you can delay claiming, and wink take advantage of our outdated actuarial tables. Don't forget to earn more money now (and pay more taxes now) so you can get higher benefits later.

Isn't the trust fund a fake concept? Benefits are always going to be paid from current year tax or borrowing. You can't actually "invest" trillions for the future if you're a government. At least that's what my Economist mother told me.

If that's the case, then that's my point made exactly, it's public debt as much as any other.

The USA is probably too large to invest it into stuff, but Canada does invest its public pension money into stocks, bonds, airports, etc. The Canada Pension Plan is a full fledged investment firm.

Illustration: country A and B both see an upcoming demographic crisis and decide to get ahead of it.

Country A ensures they don't run deficits and pay off their debts to prepare.

Country B prepares by incurring a debt to build hospitals and train nurses.

20 years later the demographic crisis hits. Country A cannot build hospitals and train nurses fast enough to meet the need so the price of both skyrocket and the piles of money they "saved" is inflating away to almost nothing.

Meanwhile country B is fine.

How does this address the question "Isn't the trust fund a fake concept?"

Don't forget the maintenance costs and related expenses that Country B incurs. Not to mention that Country B has to guess the right amount of infrastructure to build.

The costs Country A incurs are plowed back into Country A's economy during the "building boom".

Don't know which country ends up better off, but there are many more variables than you imply.

Exactly! It's a lot more complicated than "deficits bad".

The core problem with trust fund debt is that if the government maintained assets for the social security trust fund the way vanguard or fidelity did, the underlying assets would be so high that the government would start to own and control a large part of the American economy.

Do we really want all our company's to be majority owned by the government?

The practical answer from the government's perspective was to just the loan the money to itself. Except the problem now is that the government owes itself a lot of money.

Reality is that there is not trust fund and current payers simply have to pay the benefits for existing retirees. That's the way it has always been and that's the way it's always will be.

There will be economic problems no matter how the government handles such a large amount of money.

I believe that whenever there is a crisis or issue they will simply raise the income limits to correct it, and that's largely been happening as the income limit is going up and up and up every year. Way more than it did 20 years ago.

> Do we really want all our company's to be majority owned by the government?

Not sure I’d want them to have voting shares, but actually—yeah, that sounds pretty good.

But this is the problem they grappled with when they created social security directly after the great depression market crash.

It's important to understand that they invested in risk free assets ie government bonds, because it was a social safety net in reaction to problems in the market.

Except it was much smaller then, the problem is that now they've created so many bonds that the bonds are the problem. Anyway you look at it, creating a giant government program like this is. going to be a problem.

They have raised the social security income tax limit dramatically over the last 5 years.

I don't understand the problem with Social Security. The Federal Reserve has already willed hundreds of billions into existence for COVID relief and wars in the last few years. What's another few hundred billion more for Social Security in a few years?

You're off a little. From Dec 2022

https://www.wsj.com/articles/how-much-washington-really-owes...

"That brings us to the alarming milestone. Add the net position of $29.9 trillion to the social insurance net expenditures of $71 trillion, and you find that they topped $100 trillion—the first time they have ever done so."

Our unfunded social security tab is crazy.

It's vastly more money than that.

Reply on news.ycombinator.com