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Stop the Social Security Solvency Lie

The Anarchist's picture

Stopping the lie. The U.S. is a monetarily sovereign nation. That means it is not constrained by revenue to spend. The U.S. can pay any obligation denominated in dollars because Treasury checks do not bounce.

I challenge anyone to prove that operationally the U.S. needs tax revenue from any source to fund any of America's obligations. As a fiat currency issuer America never faces the risk of insolvency or in any of its Federal, State, or local programs. Payroll taxes and income taxes are levied to manage aggregate demand, not to raise revenue for the government to spend. As the monopoly issuer of the dollar why would the U.S. need to raise revenue. It simply uses a computer to credit checking accounts at the Federal Reserve.

Moreover, if the U.S. really wanted to reduce the growth rate in the National Debt and the accumulation of annual budget deficit it need only eliminate the irrational practice of paying interest on its issue of legal tender.

America abandoned gold standard rubrics (balanced budgets, tax revenues funding government expenditures, convertibility of dollars to gold, fixed exchange rates) on Aug. 15, 1971, after Nixon closed the gold window.

AARP needs to stop the LIE that Social Security and Medicare risk insolvency if benefits are not cut, taxes increased, or some other subversive reason which would further impoverish America's seniors.

Seniors are already 40% short of what benefit payouts ought to be because of AARP's capitulation on COLA. Then there's the theft of full benefits from Americans who worked for benefits under SS and Federal Pension systems.

In a fiat currency nation this amounts to grand theft and subsidizes the rich who receive tax cuts and contribute relatively less to managing inflation.

Just learn how America's bills are really paid and you will appreciate the fact that operationally, there is no funding problem. Your staff economist need to read a great deal more about modern money mechanics after the abandonment of the gold standard.

Stop the lie about the need for revenue to keep SS/M/M from insolvency.

Payroll taxes and income taxes are levied to manage aggregate demand, not to raise revenue for the government to spend. As the monopoly issuer of the dollar why would the U.S. need to raise revenue. It simply uses a computer to credit checking accounts at the Federal Reserve.

America officially, abandoned gold standard rubrics (balanced budgets, tax revenues funding government expenditures, convertibility of dollars to gold, fixed exchange rates) in Aug. 1971, after Nixon closed the gold window. However, cynically subversive politicians refused to inform Americans generally that the dollar was no longer backed by gold and therefore, budgets didn't have to be balanced as long as inflation and unemployment were held in check. Had we been told that in 1971, we would not have to deal with the LIE that Pay Roll taxes fund Social Security and Medicare.

AARP and Congress need to stop the LIE that Social Security and Medicare risk insolvency if benefits are not cut, taxes increased, or some other subversive reason which would further impoverish America's seniors.

Seniors are already 40% short of what benefit payouts ought to be because of AARP's capitulation on COLA manipulation. Then there's the theft of full benefits from Americans who worked for benefits under SS and Federal Pension systems and are forced to take these reduced benefits when in fact there are no operational constraints to funding full benenfits for all recipients.

AARP and the Congress need to have this national conservation on the unfettered ability of the Government to fund Social Security and Medicare. The issue is the affordability of these programs, rather it is the rising cost of private sector inputs which ought to be controlled by legislation rather than allowing the so called free market to operate in an uncompetitive environment.
In a fiat currency nation this amounts to grand theft and subsidizes the rich who receive tax cuts and contribute relatively less to managing inflation.

Just learn how America's bills are really paid and you will appreciate the fact that there is no funding problem. You staff economist need to read a great deal more about modern money mechanics after the abandonment of the gold standard.

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Jay's picture
Submitted by Jay on

If the United States Treasury Bonds held in the Social Security Trust Fund are at risk, and the United States Government is willing to create a credit event by defaulting on its debt obligations to United States Treasury Bond holders, isn't the Pentagon's budget facing insolvency?

Would any U.S. Government debt instrument, including Federal Reserve currency "backed by the full faith and credit of the United States Treasury," i.e., the dollar bill itself, be worth the paper it's written on?

Submitted by lambert on

How is a departmental budget solvent or not solvent?

Jay's picture
Submitted by Jay on

By the same logic that treasury bonds held by the Social Security Trust Fund are just "pieces of paper in a locker somewhere." The idea is to shift the deficit-spending hysteria conversation away from Social Security, which isn't even part of the US budget and contributes not one red cent to US debt, and on to something that is part of annual budgets and accounts for fully half of US government spending: The Pentagon.

Wall Street sees Social Security Insurance as a pot of gold they can't get into or manipulate until beneficiaries have access to it themselves. Imagine if they could "manage" that money in the Grand Casino until retirement.

So Congress borrows against the assets in the Social Security Insurance Trust Fund, then turn around and conflate the program itself with the debts they accrued through two unpaid wars, tax breaks for the rich, and failure to address the . . . well you get the point. Why not conflate a real line item with the debt instead of a self-funding social insurance program that pays benefits to Americans who paid into it during a lifetime of hard work?

Social Security IS NOT A LINE ITEM!

The Pentagon is! So are coal and oil subsidies! So are agriculture subsidies! Also, unearned income tax rates of 15 percent for hedge fund managers! And George Bush's tax bill! If people under the age of 55 lose Social Security because our elected officials plug their ears and legislate every unpopular piece of special interest legislation they pay to have stuffed in the legislative sausage, or start more wars, what point is there in paying any taxes?

Besides which, where is it written that some Treasury Bonds are more equal than others? Every one of those Bonds has a serial number on it. Which bond numbers are worthless, I wonder? The ones GS holds are okay, while the ones that Social Security hold aren't? That's the implication. If it really is that arbitrary, it means that no debt issued by the U.S. Government can be taken at face value. Not bonds, not T-bills, and not currency issued by the Federal Reserve. A government can't pick and choose which debt instruments it wants to honor!

Jay's picture
Submitted by Jay on

Put another way--anyone who holds a US bond is a creditor to the U.S. Government. What organization is one of the biggest creditors to the U.S. Government? The Social Security Trust Fund, that's who. Here's what the NY Times headline should read:

PRESIDENT OBAMA HINTS AT DEFAULT OF U.S. CREDITORS

Here's what it does read:

PRESIDENT OBAMA PUTS SOCIAL SECURITY ON GRAND BARGAIN TABLE

letsgetitdone's picture
Submitted by letsgetitdone on

It's nice to welcome another MMT blogger. We've been blogging MMT at Correntewire for some time now. A search of the site on social security solvency gives a goodly number of hits. In addition, Correntewire was instrumental in organizing the 2010 Fiscal Sustainability Teach-In Counter-Conference in reply to Pete Person's Fiscal Summit.

Also, Correntewire has organized a number of "e-books" dealing with MMT subjects. They are: here, here, here, here, and here.

Now, I'll comment extensively on your first blog post.

Stopping the lie. The U.S. is a monetarily sovereign nation. That means it is not constrained by revenue to spend. The U.S. can pay any obligation denominated in dollars because Treasury checks do not bounce.

It's true that the US isn't constrained in its ability to spend. It's also true that the Congress is not constrained in its ability to spend. However, it is not true or at least is very misleading to say that "The U.S. can pay any obligation denominated in dollars because Treasury checks do not bounce." The Treasury cannot issue payments either through checks or electronically without a positive balance in the Treasury General Account at the Fed, because the Fed is currently prohibited from providing credit to the Treasury, and has no authority to make payments using its ability to create reserves out of thin air on behalf of the Treasury. So, even though Treasury checks do not bounce; they also cannot be issued with a positive balance in the TGA covering the amount of its checks or intended payments.

In spite of this it's still true that that the Treasury can pay any US obligation denominated in dollars; if it will do what is necessary to get a positive balance in the TGA. It does this part by getting electronic credits from tax collections, and also by selling bonds. If, however, it hits the debt ceiling, there are still two methods it can use to get a positive balance in the account. The first is that it can get credits by selling interest free consuls. These do not count against the debt limit. Still better it can issue very high value platinum bullion or proof platinum coins, and then use the coin seigniorage profits to get a positive balance. For example it can do this.

I challenge anyone to prove that operationally the U.S. needs tax revenue from any source to fund any of America's obligations. As a fiat currency issuer America never faces the risk of insolvency or in any of its Federal, State, or local programs. Payroll taxes and income taxes are levied to manage aggregate demand, not to raise revenue for the government to spend. As the monopoly issuer of the dollar why would the U.S. need to raise revenue. It simply uses a computer to credit checking accounts at the Federal Reserve.

Again this is somewhat misleading. It is true if applied to the US Government as a whole including the Congress, the Fed, and the Executive Branch taken together. But it is not true of the Treasury alone, which is the part of the Government that fulfills its obligations including its deficit spending.

Moreover, if the U.S. really wanted to reduce the growth rate in the National Debt and the accumulation of annual budget deficit it need only eliminate the irrational practice of paying interest on its issue of legal tender.

Currency and coins are legal tender, but debt instruments are not, and that's where we should eliminate interest, preferably by ceasing to issue debt instruments at all.

America abandoned gold standard rubrics (balanced budgets, tax revenues funding government expenditures, convertibility of dollars to gold, fixed exchange rates) on Aug. 15, 1971, after Nixon closed the gold window.

We abandoned the relevance of all of them. Unfortunately, we still seem to think we should consider balanced budgets as an ideal we should work toward. Balanced budgets are harmful for a nation like ours that imports more than we export. But we still hold to the gold standard idea that they are desirable.

AARP needs to stop the LIE that Social Security and Medicare risk insolvency if benefits are not cut, taxes increased, or some other subversive reason which would further impoverish America's seniors.

Yes we should insist that AARP lobby for better benefits and automatic annual appropriations for all entitlement programs. Spending for these programs should all come out of the general fund.

Seniors are already 40% short of what benefit payouts ought to be because of AARP's capitulation on COLA. Then there's the theft of full benefits from Americans who worked for benefits under SS and Federal Pension systems.

I'm not sure about "theft," because the Government does have the authority to curtail or increase benefits. But it's certainly true that deficit hawk ideology persuaded a generation of politicos and more to require a doubling of FICA taxes and slower growth of cost of living adjustments than is fair. Rather than talking about "theft," I prefer to talk about AARP folding like a cheap suit to the deficit hawks and failing to represent seniors. When the balanced budget Democrats started to take over the part AARP should have conducted a holy war and against them and defeated Democrats like Paul Simon, Bill Bradley, Dick Gephardt, Bill Clinton, and all the other sell-outs on the D side.

In a fiat currency nation this amounts to grand theft and subsidizes the rich who receive tax cuts and contribute relatively less to managing inflation.

I still wouldn't say "theft," but I'd certainly say "class warfare." And that's what's wrong with AARP. It's run by one percenters or close

Just learn how America's bills are really paid and you will appreciate the fact that operationally, there is no funding problem. Your staff economist need to read a great deal more about modern money mechanics after the abandonment of the gold standard.

Yes, people do need to understand how the monetary system works and also the implications of our fiat currency system for funding entitlements.

Stop the lie about the need for revenue to keep SS/M/M from insolvency.

Yes!

Payroll taxes and income taxes are levied to manage aggregate demand, not to raise revenue for the government to spend. As the monopoly issuer of the dollar why would the U.S. need to raise revenue. It simply uses a computer to credit checking accounts at the Federal Reserve.

As I've explained above the Treasury needs to raise revenue because of Congressionally imposed constraints. And the best way it can fill the public purse that is through coin seigniorage.

America officially, abandoned gold standard rubrics (balanced budgets, tax revenues funding government expenditures, convertibility of dollars to gold, fixed exchange rates) in Aug. 1971, after Nixon closed the gold window. However, cynically subversive politicians refused to inform Americans generally that the dollar was no longer backed by gold and therefore, budgets didn't have to be balanced as long as inflation and unemployment were held in check. Had we been told that in 1971, we would not have to deal with the LIE that Pay Roll taxes fund Social Security and Medicare.

To be honest, I'm not sure very many politicians have ever understood the implications of becoming a fiat system. Of course, there are some who do understand and who won't act in accordance with reality, and I think many in the Peterson camp know the reality. But I still think there's great ignorance out there in the media and among politicians, economists, and policy analysts about fiat money.

AARP and Congress need to stop the LIE that Social Security and Medicare risk insolvency if benefits are not cut, taxes increased, or some other subversive reason which would further impoverish America's seniors.

Yes!

AARP and the Congress need to have this national conservation on the unfettered ability of the Government to fund Social Security and Medicare. The issue is the affordability of these programs, rather it is the rising cost of private sector inputs which ought to be controlled by legislation rather than allowing the so called free market to operate in an uncompetitive environment.

Yes!

In a fiat currency nation this amounts to grand theft and subsidizes the rich who receive tax cuts and contribute relatively less to managing inflation.

Yes!

Again, welcome to Correntwire.