4 ms·

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 pa

by 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.
    - Retric 10y ago
      They all took a hit, but if you look at actual GDP numbers they did not all take the same hit.
- yummyfajitas 10y ago
  Let me get this straight. SS would be a ponzi scheme if they paid current retirees with money taken from current workers via "SS taxes". But in reality it's not a ponzi scheme because they'll instead pay out current retirees with money taken from current workers via "Income taxes", and routed through strange bond-like structures. Is that about right?
  - deleted 10y ago
    [deleted]
  - toomuchtodo 10y ago
    What next, auto insurance is a ponzi scheme because only some people get money back? Life insurance a ponzi scheme because not everyone dies during their policy term? You don't have to like the system, and you're free to opt out and move to a country with a government more to you're liking.
    - mikeash 10y ago
      "If you don't like it, you can move" is a horrible, horrible, horrible argument.
      - deleted 10y ago
        [deleted]
      - someguydave 10y ago
        >"If you don't like it, you can move" is a horrible, horrible, horrible argument. why?
        mikeash 10y ago
        A couple of reasons: 1. Moving, especially to a different country, takes a huge amount of money and effort. It's reasonable for someone to want to fix a problem with where they are rather than go through that. 2. It's not actually an argument at all. It does nothing to demonstrate any merits of the thing being discussed. It's really just a more polite way to say "shut up." Consider, hypothetically, that every evening, an agent of the state would come into each person's house and punch them in the nose repeatedly. Would you object to this? Would you find "if you don't like it, you can move" to be a good argument in favor of this system?
- mikekchar 10y ago
  I may be incorrect, but it seems to me that the US currency will ultimately back that. If the government does not have the ability to pay, then it will have to print money to cover the difference, devaluing the currency. It's probably a reasonable position, but it seems to me to be vulnerable to poor timing. For example, if there is a debt crisis, you may have to raise interest rates at exactly the time when you don't want to. When I see very high prices for houses (in relation to salaries), an aging population, and a pension system that can demand money from the government at will... it makes me a bit nervous.

by dmm 10y ago

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.
  - Retric 10y ago
    They all took a hit, but if you look at actual GDP numbers they did not all take the same hit.
yummyfajitas 10y ago
Let me get this straight. SS would be a ponzi scheme if they paid current retirees with money taken from current workers via "SS taxes". But in reality it's not a ponzi scheme because they'll instead pay out current retirees with money taken from current workers via "Income taxes", and routed through strange bond-like structures. Is that about right?
- deleted 10y ago
  [deleted]
- toomuchtodo 10y ago
  What next, auto insurance is a ponzi scheme because only some people get money back? Life insurance a ponzi scheme because not everyone dies during their policy term? You don't have to like the system, and you're free to opt out and move to a country with a government more to you're liking.
  - mikeash 10y ago
    "If you don't like it, you can move" is a horrible, horrible, horrible argument.
    - deleted 10y ago
      [deleted]
    - someguydave 10y ago
      >"If you don't like it, you can move" is a horrible, horrible, horrible argument. why?
      - mikeash 10y ago
        A couple of reasons: 1. Moving, especially to a different country, takes a huge amount of money and effort. It's reasonable for someone to want to fix a problem with where they are rather than go through that. 2. It's not actually an argument at all. It does nothing to demonstrate any merits of the thing being discussed. It's really just a more polite way to say "shut up." Consider, hypothetically, that every evening, an agent of the state would come into each person's house and punch them in the nose repeatedly. Would you object to this? Would you find "if you don't like it, you can move" to be a good argument in favor of this system?
mikekchar 10y ago
I may be incorrect, but it seems to me that the US currency will ultimately back that. If the government does not have the ability to pay, then it will have to print money to cover the difference, devaluing the currency. It's probably a reasonable position, but it seems to me to be vulnerable to poor timing. For example, if there is a debt crisis, you may have to raise interest rates at exactly the time when you don't want to. When I see very high prices for houses (in relation to salaries), an aging population, and a pension system that can demand money from the government at will... it makes me a bit nervous.