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Not to put too fine a point on it but... > In Puerto Rico, for instance, the pension funds are so short of cash that money contributed by working teachers basi

by haroldp 10y ago

Not to put too fine a point on it but... > In Puerto Rico, for instance, the pension funds are so short of cash that money contributed by working teachers basically flows straight out to retirees. ... That is, essentially, a Ponzi scheme. Is that different by anything but degree than the US federal Social Security system? > Puerto Rico... ran off the rails by using debt to spend beyond its means. Year after year, the government could not balance the budget and borrowed instead Is that different by anything but degree than the US federal government?

mikeash 10y ago
SS has a couple of trillion dollars saved. The US federal government controls the currency it uses to borrow, so its debt is qualitatively different from an entity like Puerto Rico.
- drcode 10y ago
  Yes, inflating away currency to become worthless is a time-honored method for countries to tackle their debt obligations.
  - mason240 10y ago
    Which would be equivalent to just seizing the private retirement accounts of the middle class, which is how I foresee the SS shortfall being address (in the form of extra taxes on withdrawl from retirement accounts).
    - drcode 10y ago
      Hmmm... maybe I need to start liquidating my 401k early and just accept the penalty...
- dmm 10y ago
  All of SS savings are in special non-marketable bonds. When SS needs to sell those bonds the only potential customer is the federal govt. So ultimately if SS pays out more than it collects in a year the difference will come from the general federal budget. That's my understanding, right? The federal govt selling bonds to itself is a really strange form of savings.
  - toomuchtodo 10y ago
    Yep, you're entirely correct. But there's a reason those bonds are non-marketable; they're redeemable at face value at any time. They are the safest assets in the world, backed by the full faith and credit of the US government. "By law, income to the trust funds must be invested, on a daily basis, in securities guaranteed as to both principal and interest by the Federal government. All securities held by the trust funds are "special issues" of the United States Treasury. Such securities are available only to the trust funds. In the past, the trust funds have held marketable Treasury securities, which are available to the general public. Unlike marketable securities, special issues can be redeemed at any time at face value. Marketable securities are subject to the forces of the open market and may suffer a loss, or enjoy a gain, if sold before maturity. Investment in special issues gives the trust funds the same flexibility as holding cash." [1] > The federal govt selling bonds to itself is a really strange form of savings. Not at all. If you need something extremely reliable for decades, you essentially self-insure. There are no markets or assets the federal government could invest the Social Security trust fund in without creating market distortions, so it lends the funds to itself (which has the side effect of hopefully growing the economy, reducing the financial burden in the future). If the trust fund runs dry, the federal government will top it up with general revenues. This would not be the end of the world. [1] https://www.ssa.gov/oact/progdata/fundFAQ.html https://www.ssa.gov/oact/progdata/fundFAQ.html EDIT: @ Retric (HN throttling has kicked in on my account, can't reply directly to your reply) Too risky for a retirement trust fund that guarantees payments at nation-state scale.
    - Retric 10y ago
      Investing in foreign markets would diversify the investment so SS has lower risk if the economy tanks.
      - jdmichal 10y ago
        I think the Great Recession has proven this wrong. Globalization is too far progressed at this point to pretend that all the major world players aren't economically interconnected.
GabrielF00 10y ago
Currently, social security takes in $801.6B in revenue and pays out $750.5B a year, and social security has a $2.8 trillion trust fund. After 2022, outflows will exceed inflows, and social security will have to draw down on that trust fund, which will be exhausted by 2035.[1] From the charts in the NYT article, Puerto Rico's fund is taking in <$400M a year and paying out >$600M, and their trust fund is less than $1B, and will be exhausted by 2020. Social security is still running a surplus, and still has a massive trust fund. It definitely seems plausible to make changes that will make it solvent well into the future. https://www.ssa.gov/OACT/TRSUM/index.html https://www.ssa.gov/OACT/TRSUM/index.html
- haroldp 10y ago
  It may or may not have income to cover its obligations, but it's still a "ponzi scheme"[1] in the sense that I will not get out the money I put in. Rather, it counts on new "investors" to meet it's obligations to me. The big threat to such a scheme is fluctuations in the investment stream - for example, people not supplying enough money (as in a recession) or fluctuations in the pool size (as in baby booms). It's a very dangerous scheme and shouldn't be counted on for what is essentially investment. To say that it has a "massive trust fund" is like me saying I am rich because I have a cookie jar full of IOUs that I wrote to myself on top of my fridge. 1. https://en.wikipedia.org/wiki/Ponzi_scheme https://en.wikipedia.org/wiki/Ponzi_scheme
- mason240 10y ago
  > social security has a $2.8 trillion trust fund. That trust fund is in form of IOUs from the general fund of the Federal government - where do you think the money to pay back those IOUs will come from?
  - unclenoriega 10y ago
    Probably taxes, where all SS funds have always come from.
    - mason240 10y ago

by haroldp 10y ago

mikeash 10y ago

SS has a couple of trillion dollars saved. The US federal government controls the currency it uses to borrow, so its debt is qualitatively different from an entity like Puerto Rico.

drcode 10y ago
Yes, inflating away currency to become worthless is a time-honored method for countries to tackle their debt obligations.
- mason240 10y ago
  Which would be equivalent to just seizing the private retirement accounts of the middle class, which is how I foresee the SS shortfall being address (in the form of extra taxes on withdrawl from retirement accounts).
  - drcode 10y ago
    Hmmm... maybe I need to start liquidating my 401k early and just accept the penalty...
dmm 10y ago
All of SS savings are in special non-marketable bonds. When SS needs to sell those bonds the only potential customer is the federal govt. So ultimately if SS pays out more than it collects in a year the difference will come from the general federal budget. That's my understanding, right? The federal govt selling bonds to itself is a really strange form of savings.
- toomuchtodo 10y ago
  Yep, you're entirely correct. But there's a reason those bonds are non-marketable; they're redeemable at face value at any time. They are the safest assets in the world, backed by the full faith and credit of the US government. "By law, income to the trust funds must be invested, on a daily basis, in securities guaranteed as to both principal and interest by the Federal government. All securities held by the trust funds are "special issues" of the United States Treasury. Such securities are available only to the trust funds. In the past, the trust funds have held marketable Treasury securities, which are available to the general public. Unlike marketable securities, special issues can be redeemed at any time at face value. Marketable securities are subject to the forces of the open market and may suffer a loss, or enjoy a gain, if sold before maturity. Investment in special issues gives the trust funds the same flexibility as holding cash." [1] > The federal govt selling bonds to itself is a really strange form of savings. Not at all. If you need something extremely reliable for decades, you essentially self-insure. There are no markets or assets the federal government could invest the Social Security trust fund in without creating market distortions, so it lends the funds to itself (which has the side effect of hopefully growing the economy, reducing the financial burden in the future). If the trust fund runs dry, the federal government will top it up with general revenues. This would not be the end of the world. [1] https://www.ssa.gov/oact/progdata/fundFAQ.html https://www.ssa.gov/oact/progdata/fundFAQ.html EDIT: @ Retric (HN throttling has kicked in on my account, can't reply directly to your reply) Too risky for a retirement trust fund that guarantees payments at nation-state scale.
  - Retric 10y ago
    Investing in foreign markets would diversify the investment so SS has lower risk if the economy tanks.
    - jdmichal 10y ago
      I think the Great Recession has proven this wrong. Globalization is too far progressed at this point to pretend that all the major world players aren't economically interconnected.

GabrielF00 10y ago

Currently, social security takes in $801.6B in revenue and pays out $750.5B a year, and social security has a $2.8 trillion trust fund. After 2022, outflows will exceed inflows, and social security will have to draw down on that trust fund, which will be exhausted by 2035.[1] From the charts in the NYT article, Puerto Rico's fund is taking in <$400M a year and paying out >$600M, and their trust fund is less than $1B, and will be exhausted by 2020. Social security is still running a surplus, and still has a massive trust fund. It definitely seems plausible to make changes that will make it solvent well into the future. https://www.ssa.gov/OACT/TRSUM/index.html https://www.ssa.gov/OACT/TRSUM/index.html

haroldp 10y ago
It may or may not have income to cover its obligations, but it's still a "ponzi scheme"[1] in the sense that I will not get out the money I put in. Rather, it counts on new "investors" to meet it's obligations to me. The big threat to such a scheme is fluctuations in the investment stream - for example, people not supplying enough money (as in a recession) or fluctuations in the pool size (as in baby booms). It's a very dangerous scheme and shouldn't be counted on for what is essentially investment. To say that it has a "massive trust fund" is like me saying I am rich because I have a cookie jar full of IOUs that I wrote to myself on top of my fridge. 1. https://en.wikipedia.org/wiki/Ponzi_scheme https://en.wikipedia.org/wiki/Ponzi_scheme
mason240 10y ago
> social security has a $2.8 trillion trust fund. That trust fund is in form of IOUs from the general fund of the Federal government - where do you think the money to pay back those IOUs will come from?
- unclenoriega 10y ago
  Probably taxes, where all SS funds have always come from.
  - mason240 10y ago