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Why do large amounts have to be invested? Is it because of inflation or large amounts of money cannot sit around without someone wanting to touch it?

by TGJ 16y ago

jbooth 16y ago
Well, one way to avoid having to invest so much of the money would be to pay retirees directly out of the receipts for a given year. Then you only have to invest the surplus, which shrinks the investment problem considerably. That surplus could be invested in T-bills. The above is roughly how the system works now, makes sense right? Of course, you'll see various peopl with an axe to grind calling it a pyramid scheme for the pass-thru payout. And claim that the government is "raiding" the trust fund by selling it t-bills, or say that the trust fund is backed by quote "worthless IOUs". I didn't know t-bills were so disreputable! But aside from the silly rhetoric, it's a pretty sensible strategy. It shouldn't be a surprise that the people who administer the program 40 hours a week actually kinda know what they're doing. Unless you come to the conversation pre-equipped with ideology and blinders.
philwelch 16y ago
Inflation/time-value of money is a big part of it, actually--not collecting interest on that scale is an opportunity cost of billions of dollars. There's a macroeconomic issue, as well--if you just let that money sit in an account for years on end, the money supply gets fucked up. Money just disappearing into a hole is essentially deflationary, and deflation is catastrophic. Then, when the money comes back out again, you have inflation (possibly hyperinflation if the amount is big enough). Better to hold onto that money somehow while still keeping the money supply relatively constant--in other words, invest the money somehow. For very similar reasons, it's much more difficult for the government to carry reserves of funds from year to year than it is for them to carry a debt.

Why do large amounts have to be invested? Is it because of inflation or large amounts of money cannot sit around without someone wanting to touch it?

by TGJ 16y ago

Why do large amounts have to be invested? Is it because of inflation or large amounts of money cannot sit around without someone wanting to touch it?

jbooth 16y ago

Well, one way to avoid having to invest so much of the money would be to pay retirees directly out of the receipts for a given year. Then you only have to invest the surplus, which shrinks the investment problem considerably. That surplus could be invested in T-bills. The above is roughly how the system works now, makes sense right? Of course, you'll see various peopl with an axe to grind calling it a pyramid scheme for the pass-thru payout. And claim that the government is "raiding" the trust fund by selling it t-bills, or say that the trust fund is backed by quote "worthless IOUs". I didn't know t-bills were so disreputable! But aside from the silly rhetoric, it's a pretty sensible strategy. It shouldn't be a surprise that the people who administer the program 40 hours a week actually kinda know what they're doing. Unless you come to the conversation pre-equipped with ideology and blinders.

philwelch 16y ago

Inflation/time-value of money is a big part of it, actually--not collecting interest on that scale is an opportunity cost of billions of dollars. There's a macroeconomic issue, as well--if you just let that money sit in an account for years on end, the money supply gets fucked up. Money just disappearing into a hole is essentially deflationary, and deflation is catastrophic. Then, when the money comes back out again, you have inflation (possibly hyperinflation if the amount is big enough). Better to hold onto that money somehow while still keeping the money supply relatively constant--in other words, invest the money somehow. For very similar reasons, it's much more difficult for the government to carry reserves of funds from year to year than it is for them to carry a debt.