8 ms·

The last paragraph sums it up well: "The Bottom Line Many people believe that much of U.S. debt is owed to foreign countries like China and Japan. The truth is

by amin 5y ago

The last paragraph sums it up well: "The Bottom Line Many people believe that much of U.S. debt is owed to foreign countries like China and Japan. The truth is, most of it is owed to Social Security and pension funds. This means U.S. citizens, through their retirement money, own most of the national debt."

smitty1e 5y ago
That means that I need to pay myself in order to be paid? At the risk of sounding pejorative, and understanding that there are volumes of sophistries in support of the status quo: how is this not effectively a Ponzi scheme?
- loeg 5y ago
  The essential element of a ponzi scheme is that investors are deceived. > A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. The scheme leads victims to believe that profits are coming from legitimate business activity (e.g., product sales or successful investments), and they remain unaware that other investors are the source of funds. In contrast, the Social Security model is pretty transparently a wealth transfer from workers to the elderly and disabled.
  - akoncius 5y ago
    so main difference is kinda transparency? everything else matches. you (old investor) are receiving profits from new investors. and in some countries retirement money is speculative matter for politicians (vote for me I will increase retirement payments).
    - lotsofpulp 5y ago
      Main difference is the profits come from work being performed by members of society that can work, in the form of actual problems being solved. The members of society who are working hope this will help perpetuate the cycle by allowing new members of society to work and solve problems when the previous working members are not able to work.
    - loeg 5y ago
      Some other differences. Ponzis promise high rates of return on investment; Social Security promises vastly below-market returns for most workers. Investors can theoretically redeem from Ponzi investments at any time; SS is completely locked up until you're ~62. Ponzis are voluntary; SS isn't. SS is a mandatory government spending program; ponzis aren't.
    - kmonsen 5y ago
      Ponzi schemes have a fairly specific definition, social security is just a tax that we pretend is going to yourself when you get old. In reality it is just a tax paid by workers and some amount of the government's budget is used to pay retired people money.
  - smitty1e 5y ago
    Another crucial element distinguishing a Ponzi scheme is that whoever runs it doesn't let the marks escape easily.
- putlake 5y ago
  I had this same question when I first learned about social security and saw a non-trivial amount of my paycheck funding the program. So I wrote this comparison (it is about 10 years old but still accurate): https://www.diffen.com/difference/Ponzi_Scheme_vs_Social_Security https://www.diffen.com/difference/Ponzi_Scheme_vs_Social_Sec...
- nostrademons 5y ago
  Any viable large-scale retirement system is going to be a Ponzi scheme, because the "old investors" (retirees) are going to be dead soon and the only way to support them is to recruit "new investors" (working-age people). Tontines, life insurance, bank deposits, the stock market, 401(k)s, pensions, cryptocurrency, whatever - when you unravel them deep enough, they're a Ponzi scheme. This applies to even safe, conventional investments like a bank savings deposit: what's really happening there is that you amass a large credit over your lifetime, and then when you need extra care and support and can't work for it anymore, you transfer that credit over to a working-age nurse/etc so that they can build the same sort of credit for their old age. People who don't budget for this properly grow old destitute and unable to convince anyone to aid them. In this regard, it mimics life itself. At some point the body gives up on repairing all the cellular damage that's accumulated and just hopes that it's made new humans along the way. Civilization is built on all the side-effects of humans chasing Ponzi schemes. The reason governments ban actual Ponzi schemes (in the sense of "Everybody send me a dollar and pass this on, and I'll give you a $0.50 for everyone you recruit") is because it incentivizes the citizenry to do nothing other than create and participate in Ponzi schemes. Meanwhile activities like founding startups or trading stocks - which are every bit as Ponzi as that - are legal because the pursuit of them creates beneficial social effects (like innovation, price discovery, and capital allocation).
  - lmm 5y ago
    > Any viable large-scale retirement system is going to be a Ponzi scheme, because the "old investors" (retirees) are going to be dead soon and the only way to support them is to recruit "new investors" (working-age people). Tontines, life insurance, bank deposits, the stock market, 401(k)s, pensions, cryptocurrency, whatever - when you unravel them deep enough, they're a Ponzi scheme. This applies to even safe, conventional investments like a bank savings deposit: what's really happening there is that you amass a large credit over your lifetime, and then when you need extra care and support and can't work for it anymore, you transfer that credit over to a working-age nurse/etc so that they can build the same sort of credit for their old age. Not necessarily. One could imagine an individual storing and preserving enough food for their retirement during their working life, and then eating through that stock in their retirement - or, at a slightly more sophisticated level, a group of people buying a farm and setting aside enough gold to pay labourers to work it for them - or, at a more sophisticated level than that, owning enough valuable stuff through investments to be reasonably assured of a decent retirement. The claim that social security is Ponzi-like is the argument that there is no (or insufficient) pile of valuable stuff matching the liabilities already incurred.
- rtpg 5y ago
  Because unlike in a Ponzi scheme, the US government can simply choose to create more money, thus meeting the obligations of its payments. A Ponzi scheme involves pretending a balance exists when there isn't one. When the gov't says "we will give you dollars later" and they give you dollars later, you might complain in the theoretical universe where the dollars aren't worth much/at all, but they can indefinitely match your bargain. You can choose to opt out of this system! Go into the countryside, barter for everything. But perhaps, perhaps, there is a reason that economies that have fiscal flexibility flourish and economies that are pegged to some other store of value they don't control have bigger problems resolving economic issues.
  - cartoonworld 5y ago
    >Because unlike in a Ponzi scheme, the US government can simply choose to create more money, It sure can, but this doesn't go far enough. The US Govt' can only choose to "print money". It cannot choose otherwise. This is because fractional reserve banking allows financial institutions to lend out the same $1 multiple times. The result of collecting $1 and lending 6 people that $1 with an expected total payment of $2 per debtor results in $1 causing $13 in the economy.
    - snowwrestler 5y ago
      Fractional reserve banking pre-dates the US by hundreds of years. It’s not related to central bank operations.
loeg 5y ago
Yeah, that was also covered in the first (second?) paragraph: > Most headlines focus on how much the United States owes China, one of the largest foreign owners. What many people don’t know is that the Social Security Trust Fund, also known as your retirement money, owns most of the national debt. Kind of repetitive, but at least it's not clickbait.
- caturopath 5y ago
  Calling the Social Security Trust Fund's bonds part of the national debt is meaningless to the point of being intellectually dishonest. It's an internal IOU, not an actual debt owed to some other party. Any time people talk about the national debt and include intragovernmental debt, stop listening to anything they are saying.
  - snowwrestler 5y ago
    Bonds held by the Social Security trust fund have the same legal weight as bonds held by the public: defaulting on them would be a violation of federal law. The Treasury has no option to say “it’s only an internal IOU, we don’t feel like paying.” Bonds held by government programs are real (not optional) demands on future government revenue. When Congress passes a budget each year, that budget has to cover all payments on outstanding debt, including intragovernmental holdings, not just those held by the public. Social Security bonds, when redeemed, fund Social Security benefits, which go to real Americans. Defaulting on bonds held by Social Security would result in real reductions in income outside the government.
    - caturopath 5y ago
      When one party -- a company, a person, a government -- owes itself by its own rules, that does not mean anything externally. https://www.cbpp.org/research/recommendation-that-presidents-fiscal-commission-focus-on-gross-debt-is-misguided https://www.cbpp.org/research/recommendation-that-presidents... notes > Most economists agree that the debt held by the public is what really affects the economy. As the Congressional Budget Office stated in its June 2009 report on the long-term budget outlook, “Long-term projections of federal debt held by the public, measured relative to the size of the economy, provide useful yardsticks for assessing the sustainability of fiscal policies.” In contrast, “gross debt . . . is not useful for assessing how the Treasury’s operations affect the economy.”
caturopath 5y ago
> Social Security Counting Social Security as a holder of the national debt is nonsense. Usually the cited debt excludes intragovernmental debt, since these internal government-internal IOUs are utterly meaningless with respect to the debt the country has outstanding. Most honest brokers will never cite the meaningless number, but rather the "debt held by the public". Intragovernmental debt isn't what gets you to "most" or anything, but it should not be counted in any situation where we're talking about the fiscal or macroeconomic situation, rather than a political point.
- vkou 5y ago
  > Counting Social Security as a holder of the national debt is nonsense. Usually the cited debt excludes intragovernmental debt, since these internal government-internal IOUs are utterly meaningless with respect to the debt the country has outstanding. Consider 2 situations. 1. Social Security lends the government a trillion dollars. 2. Bob lends the government a trillion dollars. Bob sells this loan on the public market. Social Security happens to be the organization that buys that loan from Bob. What makes the former "Utterly meaningless", but the latter not? It's not like Social Security is... Planning on forgiving that debt.
  - jacquesm 5y ago
    It's the same party. Bob is an outside party. When my left hand owes my right hand it doesn't matter whether I have the intention of forgiving that debt or not, it is an internal matter, one that may show up on my balance sheet but it has no direct effect on my day to day affairs. Because just as it won't be forgiven it also won't be called in overnight or used to manipulate the market against me: I control both sides of that equation. But with Bob that isn't the case.
    - chii 5y ago
      the oft touted reason for high debt load being bad is that the gov't would be unable to pay it. So how can it be that on the one hand, it "doesn't matter", but on the other hand, the debt is touted as being unable to be serviced? The gov't owing it to a department is the same obligation as owing it to a foreign entity (or a domestic, private entity for that matter).
nostromo 5y ago
This is worse though, not better. Uncle Sam could cut payments to China or Japan in a crisis. It’s much harder to cut payments to your own people. It would instantly make any crisis much worse.
- andrekandre 5y ago
  > It’s much harder to cut payments to your own people. is it though? wouldn't cutting payments to foreign investors going to hurt your credit rating abroad? also, ive heard its an advantage to japan to have its govt debt owned by its own people as well... curious to hear counter points!
- cjensen 5y ago
  The US has excellent credit because, beginning with Alexander Hamilton, it has never ever cut a payment on debt no matter what crisis it thinks it faces. Treasury notes are as good as money because of this. Keep in mind that debt is a liquid asset. If you were foolish enough to not pay out Chinese debt holders, they would simply sell to Americans. The notion of "lets not pay xyz" has spectacularly bad outcomes because it signals to the world that you are not a serious nation when it comes to debt. In the long term, the US strategy has clearly paid off.
  - chewz 5y ago
    > The US has excellent credit because, The US has excellent credit because it has largest military and is the dominant global player. That makes money parked in US T-bills safe. Liquidity and good, healthy economy (but not perfect) helps.
    - snowwrestler 5y ago
      The big military only works in US’s favor because of the US commitment to pay. A country with a reputation for stealing people’s money does not attract foreign investment no matter how big the military. Does a robber seem trustworthy to you just because he’s got a big gun?
  - 5y ago
deleted 5y ago
[deleted]
forgingahead 5y ago
So if someone owes you money (a "debt" perhaps), but it's pretty clear that same someone won't be able to pay you and everyone else they owe --- what do you do? I'm inclined to side with the other comment nearby: cutting payments to foreign creditors is easy, cutting payments to your own citizens is a disaster. Sure, there's this magic pixie dust of MMT, but with inflation already poking it's sharp edge into every day life, I doubt we can print our way back to prosperity.
oliwarner 5y ago
The truth is much of the debt is owed to other countries! A quarter of the total national debt is public liability to other nations. That's not insignificant and will be much harder to write off than paper social security liabilities.

by amin 5y ago

smitty1e 5y ago

That means that I need to pay myself in order to be paid? At the risk of sounding pejorative, and understanding that there are volumes of sophistries in support of the status quo: how is this not effectively a Ponzi scheme?

loeg 5y ago
The essential element of a ponzi scheme is that investors are deceived. > A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. The scheme leads victims to believe that profits are coming from legitimate business activity (e.g., product sales or successful investments), and they remain unaware that other investors are the source of funds. In contrast, the Social Security model is pretty transparently a wealth transfer from workers to the elderly and disabled.
- akoncius 5y ago
  so main difference is kinda transparency? everything else matches. you (old investor) are receiving profits from new investors. and in some countries retirement money is speculative matter for politicians (vote for me I will increase retirement payments).
  - lotsofpulp 5y ago
    Main difference is the profits come from work being performed by members of society that can work, in the form of actual problems being solved. The members of society who are working hope this will help perpetuate the cycle by allowing new members of society to work and solve problems when the previous working members are not able to work.
  - loeg 5y ago
    Some other differences. Ponzis promise high rates of return on investment; Social Security promises vastly below-market returns for most workers. Investors can theoretically redeem from Ponzi investments at any time; SS is completely locked up until you're ~62. Ponzis are voluntary; SS isn't. SS is a mandatory government spending program; ponzis aren't.
  - kmonsen 5y ago
    Ponzi schemes have a fairly specific definition, social security is just a tax that we pretend is going to yourself when you get old. In reality it is just a tax paid by workers and some amount of the government's budget is used to pay retired people money.
- smitty1e 5y ago
  Another crucial element distinguishing a Ponzi scheme is that whoever runs it doesn't let the marks escape easily.
putlake 5y ago
I had this same question when I first learned about social security and saw a non-trivial amount of my paycheck funding the program. So I wrote this comparison (it is about 10 years old but still accurate): https://www.diffen.com/difference/Ponzi_Scheme_vs_Social_Security https://www.diffen.com/difference/Ponzi_Scheme_vs_Social_Sec...
nostrademons 5y ago
Any viable large-scale retirement system is going to be a Ponzi scheme, because the "old investors" (retirees) are going to be dead soon and the only way to support them is to recruit "new investors" (working-age people). Tontines, life insurance, bank deposits, the stock market, 401(k)s, pensions, cryptocurrency, whatever - when you unravel them deep enough, they're a Ponzi scheme. This applies to even safe, conventional investments like a bank savings deposit: what's really happening there is that you amass a large credit over your lifetime, and then when you need extra care and support and can't work for it anymore, you transfer that credit over to a working-age nurse/etc so that they can build the same sort of credit for their old age. People who don't budget for this properly grow old destitute and unable to convince anyone to aid them. In this regard, it mimics life itself. At some point the body gives up on repairing all the cellular damage that's accumulated and just hopes that it's made new humans along the way. Civilization is built on all the side-effects of humans chasing Ponzi schemes. The reason governments ban actual Ponzi schemes (in the sense of "Everybody send me a dollar and pass this on, and I'll give you a $0.50 for everyone you recruit") is because it incentivizes the citizenry to do nothing other than create and participate in Ponzi schemes. Meanwhile activities like founding startups or trading stocks - which are every bit as Ponzi as that - are legal because the pursuit of them creates beneficial social effects (like innovation, price discovery, and capital allocation).
- lmm 5y ago
  > Any viable large-scale retirement system is going to be a Ponzi scheme, because the "old investors" (retirees) are going to be dead soon and the only way to support them is to recruit "new investors" (working-age people). Tontines, life insurance, bank deposits, the stock market, 401(k)s, pensions, cryptocurrency, whatever - when you unravel them deep enough, they're a Ponzi scheme. This applies to even safe, conventional investments like a bank savings deposit: what's really happening there is that you amass a large credit over your lifetime, and then when you need extra care and support and can't work for it anymore, you transfer that credit over to a working-age nurse/etc so that they can build the same sort of credit for their old age. Not necessarily. One could imagine an individual storing and preserving enough food for their retirement during their working life, and then eating through that stock in their retirement - or, at a slightly more sophisticated level, a group of people buying a farm and setting aside enough gold to pay labourers to work it for them - or, at a more sophisticated level than that, owning enough valuable stuff through investments to be reasonably assured of a decent retirement. The claim that social security is Ponzi-like is the argument that there is no (or insufficient) pile of valuable stuff matching the liabilities already incurred.
rtpg 5y ago
Because unlike in a Ponzi scheme, the US government can simply choose to create more money, thus meeting the obligations of its payments. A Ponzi scheme involves pretending a balance exists when there isn't one. When the gov't says "we will give you dollars later" and they give you dollars later, you might complain in the theoretical universe where the dollars aren't worth much/at all, but they can indefinitely match your bargain. You can choose to opt out of this system! Go into the countryside, barter for everything. But perhaps, perhaps, there is a reason that economies that have fiscal flexibility flourish and economies that are pegged to some other store of value they don't control have bigger problems resolving economic issues.
- cartoonworld 5y ago
  >Because unlike in a Ponzi scheme, the US government can simply choose to create more money, It sure can, but this doesn't go far enough. The US Govt' can only choose to "print money". It cannot choose otherwise. This is because fractional reserve banking allows financial institutions to lend out the same $1 multiple times. The result of collecting $1 and lending 6 people that $1 with an expected total payment of $2 per debtor results in $1 causing $13 in the economy.
  - snowwrestler 5y ago
    Fractional reserve banking pre-dates the US by hundreds of years. It’s not related to central bank operations.

loeg 5y ago

Yeah, that was also covered in the first (second?) paragraph: > Most headlines focus on how much the United States owes China, one of the largest foreign owners. What many people don’t know is that the Social Security Trust Fund, also known as your retirement money, owns most of the national debt. Kind of repetitive, but at least it's not clickbait.

caturopath 5y ago
Calling the Social Security Trust Fund's bonds part of the national debt is meaningless to the point of being intellectually dishonest. It's an internal IOU, not an actual debt owed to some other party. Any time people talk about the national debt and include intragovernmental debt, stop listening to anything they are saying.
- snowwrestler 5y ago
  Bonds held by the Social Security trust fund have the same legal weight as bonds held by the public: defaulting on them would be a violation of federal law. The Treasury has no option to say “it’s only an internal IOU, we don’t feel like paying.” Bonds held by government programs are real (not optional) demands on future government revenue. When Congress passes a budget each year, that budget has to cover all payments on outstanding debt, including intragovernmental holdings, not just those held by the public. Social Security bonds, when redeemed, fund Social Security benefits, which go to real Americans. Defaulting on bonds held by Social Security would result in real reductions in income outside the government.
  - caturopath 5y ago
    When one party -- a company, a person, a government -- owes itself by its own rules, that does not mean anything externally. https://www.cbpp.org/research/recommendation-that-presidents-fiscal-commission-focus-on-gross-debt-is-misguided https://www.cbpp.org/research/recommendation-that-presidents... notes > Most economists agree that the debt held by the public is what really affects the economy. As the Congressional Budget Office stated in its June 2009 report on the long-term budget outlook, “Long-term projections of federal debt held by the public, measured relative to the size of the economy, provide useful yardsticks for assessing the sustainability of fiscal policies.” In contrast, “gross debt . . . is not useful for assessing how the Treasury’s operations affect the economy.”

caturopath 5y ago

> Social Security Counting Social Security as a holder of the national debt is nonsense. Usually the cited debt excludes intragovernmental debt, since these internal government-internal IOUs are utterly meaningless with respect to the debt the country has outstanding. Most honest brokers will never cite the meaningless number, but rather the "debt held by the public". Intragovernmental debt isn't what gets you to "most" or anything, but it should not be counted in any situation where we're talking about the fiscal or macroeconomic situation, rather than a political point.

vkou 5y ago
> Counting Social Security as a holder of the national debt is nonsense. Usually the cited debt excludes intragovernmental debt, since these internal government-internal IOUs are utterly meaningless with respect to the debt the country has outstanding. Consider 2 situations. 1. Social Security lends the government a trillion dollars. 2. Bob lends the government a trillion dollars. Bob sells this loan on the public market. Social Security happens to be the organization that buys that loan from Bob. What makes the former "Utterly meaningless", but the latter not? It's not like Social Security is... Planning on forgiving that debt.
- jacquesm 5y ago
  It's the same party. Bob is an outside party. When my left hand owes my right hand it doesn't matter whether I have the intention of forgiving that debt or not, it is an internal matter, one that may show up on my balance sheet but it has no direct effect on my day to day affairs. Because just as it won't be forgiven it also won't be called in overnight or used to manipulate the market against me: I control both sides of that equation. But with Bob that isn't the case.
  - chii 5y ago
    the oft touted reason for high debt load being bad is that the gov't would be unable to pay it. So how can it be that on the one hand, it "doesn't matter", but on the other hand, the debt is touted as being unable to be serviced? The gov't owing it to a department is the same obligation as owing it to a foreign entity (or a domestic, private entity for that matter).

nostromo 5y ago

This is worse though, not better. Uncle Sam could cut payments to China or Japan in a crisis. It’s much harder to cut payments to your own people. It would instantly make any crisis much worse.

andrekandre 5y ago
> It’s much harder to cut payments to your own people. is it though? wouldn't cutting payments to foreign investors going to hurt your credit rating abroad? also, ive heard its an advantage to japan to have its govt debt owned by its own people as well... curious to hear counter points!
cjensen 5y ago
The US has excellent credit because, beginning with Alexander Hamilton, it has never ever cut a payment on debt no matter what crisis it thinks it faces. Treasury notes are as good as money because of this. Keep in mind that debt is a liquid asset. If you were foolish enough to not pay out Chinese debt holders, they would simply sell to Americans. The notion of "lets not pay xyz" has spectacularly bad outcomes because it signals to the world that you are not a serious nation when it comes to debt. In the long term, the US strategy has clearly paid off.
- chewz 5y ago
  > The US has excellent credit because, The US has excellent credit because it has largest military and is the dominant global player. That makes money parked in US T-bills safe. Liquidity and good, healthy economy (but not perfect) helps.
  - snowwrestler 5y ago
    The big military only works in US’s favor because of the US commitment to pay. A country with a reputation for stealing people’s money does not attract foreign investment no matter how big the military. Does a robber seem trustworthy to you just because he’s got a big gun?
- 5y ago

deleted 5y ago

[deleted]

forgingahead 5y ago

So if someone owes you money (a "debt" perhaps), but it's pretty clear that same someone won't be able to pay you and everyone else they owe --- what do you do? I'm inclined to side with the other comment nearby: cutting payments to foreign creditors is easy, cutting payments to your own citizens is a disaster. Sure, there's this magic pixie dust of MMT, but with inflation already poking it's sharp edge into every day life, I doubt we can print our way back to prosperity.

oliwarner 5y ago

The truth is much of the debt is owed to other countries! A quarter of the total national debt is public liability to other nations. That's not insignificant and will be much harder to write off than paper social security liabilities.