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I'm not an economist, but doesn't this just amount to increasing the money supply in a way that makes the government responsible for more direct investment decisions? The government (and Federal Reserve) already control the size of the money supply, what makes it better than increasing investment some other way like lowering interest rates or qualitative easing? The linked article talks about higher returns, but money doesn't create wealth, investment of actual resources creates wealth and money decides where those resources go. Right now the money is forcibly invested in government treasuries, which seems identical to the money ceasing to exist for a period of some decades. Since the money is simultaneously collected and paid out, and the amount paid is currently larger, this represents money creation, as well as obviously trasfer to the elderly. If in between it was also invested, this would constitute a lot more money creation, which in general can be done in other ways and right now does not seem like what the economy needs. I guess the main other thing it would do is change the ratio of investment and consumer spending, is that currently desirable in the U.S.? The linked article doesn't say, instead it talks about monetary "returns" to the entity that already prints the money.
I think this is the right concern but, just intuitively, isn't it less distortionary to do what a rational individual who wanted to save money for decades would do, invest it in stocks, rather than disappear the money for a few decades and then reappear it? Other policies might need to be adjusted in response of course.
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They're actually paid out of reserves that we had built up in prior decades right now, we're just running out of those reserves.
The "reserves" are treasury bills. The money that was collected was spent immediately.
I can't tell whether you're making a pedantic point about the payroll tax money is invested or are arguing against us having financial reserves to tap. In 1983 we reached a similar place where the trust funds were facing (much more) imminent deficits. Congress worked together and responded by both cutting benefits and raising contributions; in the years that followed we fixed the shortfall and built up accumulated surpluses (page 36) from all the boomers in the workforce. We've been currently spending down those surpluses for SS payouts but we aren't printing money or borrowing from elsewhere in the general fund (except for the marginal SSI fund).
Hey, we fixed it once, no reason we can't do it again.
A treasury is a reserve to entities other than the government, but it's not to the government itself. Another government's debt would be a reserve.
Everyone including the SSA themself refers to the trust fund's accumulated surpluses as reserves.
I can cut the tusk off a narwhal and call it a unicorn horn but that doesn't actually make it a unicorn horn.
If Apple Computer buys a US government bond or a Germand Bund it will receive money at some point in the future without any further action from itself. This is an actual reserve.
If Apple Computer issues a bond to Beats Audio (a company Apple Computer wholly owns), Beats will receive cash from Apple (conditional on the creditworthiness of the parent). So, when we consolidate these, they net to nothing. Apple owes just as much as Beats will recieve. From an outside perspective they fully cancel each other out and can be ignored. Apple will need to get the money elsewhere that pays Beats.
When the US government issues a bond to Social Security Administration. The US government owes just as much as Social Security will receive. So, when we consolidate these, they net to nothing. The US owes just as much as Social Security will recieve. From an outside perspective they fully cancel each other out and can be ignored. The US doesn't get to claim that it has a reserve via SSA. The US will still need to borrow (or tax) the money needed by Social Seurity in order to repay their debt.
If Social Security owned bonds issued by a non-US Government entity, those would be real reserves, since they should be able to expect the third party to give them money without any required action from another US government entity.
Everyone understands this, they're clearly talking about earmarked tax payments plus interest exceeding defined tax outlays. If you want to be precise and call it accumulated payroll tax receipts plus 6% of money the US government will pay on treasuries, you can, but who cares? This is a semantic argument that doesn't have implications for the fiscal operations of the trust funds.
It has a pretty important implication on the US governments fiscal operations as the balance declines though. That's a healthy amount of extra borrowing the US governemnt needs to do over the next decade or so.
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