Eurogeddon picking up speed?

[wiggin]

Your representation is largely correct. It just is irrelevant. The trust fund - which is included in headline figures of national debt - doesn't count as debt. It's money the government has decided it owes itself.

Yes, the current way to make up for the SS deficit from payroll taxes is to fund it from general revenue - in this case, deficit spending. That's the same as any other government expenditure. But with other government expenditures we didn't make up an imaginary pile of money and say it was saved for, say, defense procurements. The $5 trillion is not real debt. It roughly represents $5 trillion of general spending over the last several decades (spent on, say, infrastructure, or defense, or whatever) that was surplus to SS/Medicare/etc. needs at the time. That's all. We don't owe $5 trillion to anyone.

Now, we do have a current legal commitment to provide SS benefits to citizens on the basis of enacted law. This is an issue going forward as the program moves permanently into deficit, but it has no bearing on the nature of $5 trillion of intragovernmental debt. It calls for policy action, no question, due to the dire fiscal consequences of ignoring said action. But it doesn't translate into money the government actually has to pay anyone.

edit: Here's a brief explanation that largely matches my thinking: http://www.cbpp.org/cms/index.cfm?fa=view&id=3197

[Enoch the Red]

Your representation is largely correct. It just is irrelevant. The trust fund - which is included in headline figures of national debt - doesn't count as debt. It's money the government has decided it owes itself.

Yes, the current way to make up for the SS deficit from payroll taxes is to fund it from general revenue - in this case, deficit spending. That's the same as any other government expenditure. But with other government expenditures we didn't make up an imaginary pile of money and say it was saved for, say, defense procurements. The $5 trillion is not real debt. It roughly represents $5 trillion of general spending over the last several decades (spent on, say, infrastructure, or defense, or whatever) that was surplus to SS needs at the time. That's all. We don't owe $5 trillion to anyone.

Now, we do have a current legal commitment to provide SS benefits to citizens on the basis of enacted law. This is an issue going forward as the program moves permanently into deficit, but it has no bearing on the nature of $5 trillion of intragovernmental debt. It calls for policy action, no question, due to the dire fiscal consequences of ignoring said action. But it doesn't translate into money the government actually has to pay anyone.

Maybe I'm missing out somewhere, but that money was borrowed and is being paid back with interest, no? Something like 4% annually? You don't generally pay interest on something you don't owe, right? You especially wouldn't want to borrow money to pay back a debt you haven't incurred. Yet that is exactly what we are doing. The Treasury department has to sell real T-Bonds to make up the difference, and those bonds have very real interest payments associated with them. To say that it is irrelevant is ignoring that entirely.

[wiggin]

The government is paying interest to itself. It doesn't need to sell this 'debt' on the market, ever.

Look at the link. From a perspective of looking at our debt levels and the health of the economy, intragovernmental debt is meaningless.

[Steely Glint]

Steely, the way to do this is not to enact a single law that can be easily overturned, but to do it in the context of an overarching reform. By far the biggest concern is Medicare, and much as there were flaws in the PPACA (Obamacare), they did get one thing right - make the law part of one whole, and you can include all sorts of controversial things (e.g. the IPAB) and make it tough to remove one element without getting rid of the whole law.

Also, people get used to a new status quo. I think this may be peculiar to the US' system (as opposed to parliamentary systems), but it's quite challenging to overturn a major reform bill put in place by a previous administration. You can do tinkering on the edges, but it's quite challenging to get the political support to pass another set of reforms so quickly after a previous one. To my knowledge (caveat; I have not looked this up) major reforms to SS and Medicare, once passed, have generally been left alone even if their political opponents have bellyached for years about it. Obamacare is an exception, but there the challenge is not legislative.

In the UK, such decisions would typically be handled in the budget, it's not usual, I don't think, to pass laws which determines the allocation of funding for various programs.

[Enoch the Red]

The government is paying interest to itself. It doesn't need to sell this 'debt' on the market, ever.

Look at the link. From a perspective of looking at our debt levels and the health of the economy, intragovernmental debt is meaningless.

Right, until the SSA stops running a surplus, (like it has) and now must in essence "sell" that debt, (by selling the difference in T-Bills, Notes, and Bonds) in order to make up for the shortfall that has occurred because there isn't really a trust fund.

Are we talking past each other, or am I missing something more fundamental?

[wiggin]

Okay, I think the point is that we agree on the fundamentals of what is happening, but either disagree or aren't arguing about the same thing as to its relevance.

Typically debt-to-GDP numbers are used as a shorthand for both the solvency of a country and its near-term economic prospects; often once you start pushing about 80% of GDP things get dicey. The government starts to have significant debt servicing costs, debt crowds out other investment, growth is damaged (or inflation is high), and if concerns about solvency raise their ugly head you can get pretty nasty effects on the bond market. Furthermore, debt-to-GDP numbers are relevant in comparing various countries as to their fiscal position.

For none of these purposes is intragovernmental debt relevant. It does not damage growth prospects (the US could decide tomorrow to scrap social security and suddenly it would owe $2.5 trillion less), it has no effect on solvency (again, the US can by fiat ignore those debts without default), and its misleading for country-to-country comparisons (pretty much no other developed country has large intragovernmental debt holdings; they just fund their retirement programs through general revenue).

Please explain to my why and where it is relevant and then we can have a discussion.

FOR THE RECORD, I believe that a full accounting of future liabilities - pensions, healthcare, et al - is very important to understanding the long term fiscal situation of a country. But our intragovernmental debt holdings have essentially no relationship to these future liabilities - they're actually a record of past surpluses, and only a partial one to boot. Every country has a much broader measure of future liabilities-to-GDP which is far higher than their official debt numbers, and it's important for fiscal planning. In plenty of countries, the future liabilities in the next, say, 50 or 100 years are many times GDP. BUT IT DOESN'T AFFECT SOLVENCY OR IMMEDIATE GROWTH.

In the UK, such decisions would typically be handled in the budget, it's not usual, I don't think, to pass laws which determines the allocation of funding for various programs.

Ah, this is your confusion. In the US most spending is not 'discretionary' - it's required by law and Congress does not change the funding in the annual budget. They literally have no choice unless they change the basic law underpinning Medicare, or Social Security, or Medicaid, or whatever. So-called 'discretionary' spending is currently only about a third of budgetary outlays (maybe a bit less? I'd have to look it up). Its main component is defense (about half), and the rest is much smaller programs - things like the departments of state, education, interior, gov't funding for research, etc, etc. These are obviously important items, but much smaller ticket items than the big entitlement programs. This is what Congress wrangles over every year.

[Enoch the Red]

Okay, I think the point is that we agree on the fundamentals of what is happening, but either disagree or aren't arguing about the same thing as to its relevance.

Typically debt-to-GDP numbers are used as a shorthand for both the solvency of a country and its near-term economic prospects; often once you start pushing about 80% of GDP things get dicey. The government starts to have significant debt servicing costs, debt crowds out other investment, growth is damaged (or inflation is high), and if concerns about solvency raise their ugly head you can get pretty nasty effects on the bond market. Furthermore, debt-to-GDP numbers are relevant in comparing various countries as to their fiscal position.

For none of these purposes is intragovernmental debt relevant. It does not damage growth prospects (the US could decide tomorrow to scrap social security and suddenly it would owe $2.5 trillion less), it has no effect on solvency (again, the US can by fiat ignore those debts without default), and its misleading for country-to-country comparisons (pretty much no other developed country has large intragovernmental debt holdings; they just fund their retirement programs through general revenue).

Fair enough. I think we are on the same page here. I think the most pressing of my concerns lie more with the effect that using the social security trust fund as a giant federal slush fund has caused. Instead of having that funding set aside for just such an occasion, (as a real asset in a real lock box) it has been spent, and now we must rely on deficit spending in order to prop up SS, instead of being able to access a multi-trillion dollar fund that should have been set aside for our seniors.

Please explain to my why and where it is relevant and then we can have a discussion.

Well, if you have no problem with increasing the deficit, (which I think you've made fairly clear that you don't, at least not in the short term), then a little extra deficit spending for Social Security payments probably won't cause you to lose that much sleep. If you are more hawkish on debt, (as I freely admit to being) and believe that our current spending is not only unsustainable in the long term, but sets a dangerous and untenable precedent for fiscal behavior. A precedent that is exemplified by a lack of discipline by the federal government, and spending well beyond our means, with little regard for the current financial situation, or the future of our country.

[wiggin]

Fair enough. I think we are on the same page here. I think the most pressing of my concerns lie more with the effect that using the social security trust fund as a giant federal slush fund has caused. Instead of having that funding set aside for just such an occasion, (as a real asset in a real lock box) it has been spent, and now we must rely on deficit spending in order to prop up SS, instead of being able to access a multi-trillion dollar fund that should have been set aside for our seniors.

SS is supposed to be a pay-as-you-go system, not an endowment fund or a sovereign wealth fund. That might be a stupid idea, but that's how it is set up. The idea of having a $2.5 trillion fund (plus another couple trillion for Medicare and other retirement funds) sitting around to fund future SS retirement benefits is nice but probably a poor idea - that much wealth being saved probably crowds out private investment and it could almost certainly be put to better use today. I agree that the SS Trust Fund isn't a real 'lock box', but I'm skeptical that it's a good idea to have a 'lock box' at all.

Well, if you have no problem with increasing the deficit, (which I think you've made fairly clear that you don't, at least not in the short term), then a little extra deficit spending for Social Security payments probably won't cause you to lose that much sleep. If you are more hawkish on debt, (as I freely admit to being) and believe that our current spending is not only unsustainable in the long term, but sets a dangerous and untenable precedent for fiscal behavior. A precedent that is exemplified by a lack of discipline by the federal government, and spending well beyond our means, with little regard for the current financial situation, or the future of our country.

Okay, sounds fine. I don't think that intragovernmental holdings are really representative of anything - they're just a record of past surpluses - but I definitely agree that in general being aware of the realities of future spending on healthcare and retirement can help inform policy today.

[Enoch the Red]

SS is supposed to be a pay-as-you-go system, not an endowment fund or a sovereign wealth fund. That might be a stupid idea, but that's how it is set up. The idea of having a $2.5 trillion fund (plus another couple trillion for Medicare and other retirement funds) sitting around to fund future SS retirement benefits is nice but probably a poor idea - that much wealth being saved probably crowds out private investment and it could almost certainly be put to better use today. I agree that the SS Trust Fund isn't a real 'lock box', but I'm skeptical that it's a good idea to have a 'lock box' at all.

I'll one up you, and say I'm more than skeptical that Social Security is a good idea in the first place.

But I'm more or less in the minority in that regard.

[GGT]

I'll one up you, and say I'm more than skeptical that Social Security is a good idea in the first place.

But I'm more or less in the minority in that regard.

What's your suggestion for an alternative?

[Enoch the Red]

What's your suggestion for an alternative?

Alternative? I know it's radical, but it involves people saving their own money as they see fit, (or not) and families doing what families should do and supporting members that need their support.

[GGT]

Alternative? I know it's radical, but it involves people saving their own money as they see fit, (or not) and families doing what families should do and supporting members that need their support.

So...would you say employers shouldn't offer retirement plans (like 401-Ks) or any type of defined contribution pension plan, either? Theoretically, that would put more money into workers' pockets, and do what they see fit, right? Based on that, you'd probably need to include buying one's own health insurance, life insurance, professional liability/malpractice policies....saving for retirement, etc.

Not to rain on your parade, but long term and extended care (nursing homes) now costs between $75-$90 K/year. Pity the elderly with no family, or family that can't provide 24 hr skilled care for Alzheimer's or .... any of those medical conditions now more common than ever, that require a certain level of skill and labor, as our longevity has increased. Knowing that a majority of people have ZERO savings for retirement, or what they do have saved is inadequate for the real costs of aging in America, and that many families are spread across the country, not even in the same state as Granny....

how long would it take to phase in your proposal, and how would it be done?

[Enoch the Red]

So...would you say employers shouldn't offer retirement plans (like 401-Ks) or any type of defined contribution pension plan, either? Theoretically, that would put more money into workers' pockets, and do what they see fit, right? Based on that, you'd probably need to include buying one's own health insurance, life insurance, professional liability/malpractice policies....saving for retirement, etc.

Employers can do whatever they want. Employment is a choice, and the terms, benefits, perks, and agreements that are a condition of that employment aren't really my business. If an employer wants to match an employee's contribution to their 401K plan, they probably would be able to attract the kind of employee that values that.

Not to rain on your parade, but long term and extended care (nursing homes) now costs between $75-$90 K/year. Pity the elderly with no family, or family that can't provide 24 hr skilled care for Alzheimer's or .... any of those medical conditions now more common than ever, that require a certain level of skill and labor, as our longevity has increased. Knowing that a majority of people have ZERO savings for retirement, or what they do have saved is inadequate for the real costs of aging in America, and that many families are spread across the country, not even in the same state as Granny....

And you think that the average SS benefit of $14,760 a year is somehow going to cover that? Pull the other one.

[GGT]

Employers can do whatever they want. Employment is a choice, and the terms, benefits, perks, and agreements that are a condition of that employment aren't really my business. If an employer wants to match an employee's contribution to their 401K plan, they probably would be able to attract the kind of employee that values that.

That's the point, though. Employers can do whatever they want, and haven't wanted or needed to offer workers any minimal type of retirement assistance/planning/education. Mostly in low-wage, part-time, temporary, seasonal work or physical labor jobs, but also for skilled independent contractors/subcontractors, self-employed, etc. Those are the people who need "assistance" most --- not the highly educated professionals making double middle income salaries, who already know how to maneuver the financial world. That's bassackward.

Unfortunately, our public schools haven't been teaching those things, either. In fact, a course on "Life Skills" is more likely to be cut in today's budgetary quagmire, leaving huge numbers of students ignorant and uniformed. Many low-income parents don't have a checking account and rely on pay-day lenders. Many middle-income parents have racked up huge credit debt, and don't the difference between an IRA and a HSA. Not all families have the skills to teach their children well, ya know.

And you think that the average SS benefit of $14,760 a year is somehow going to cover that? Pull the other one.

Cute It's still probably thousands more than a good chunk of today's seniors have in savings or investments. As more Baby Boomers age and die, there are less with defined-contribution or defined-benefit employee benefits. That's why many still need Medicare or Medicaid, Meals On Wheels, subsidized heating or Section 8 housing, ParaTransit...and try to buy their medications on-line from other countries.

To practically apply your ideology, you'd have to square the real costs today's retirees face, and how to move it forward. (This is where the fear-mongerers inserted Death Panels as a policy blowback. ) I appreciate what you and wiggin discussed regarding the SS Trust Fund and intra-government spending, debt and deficit spending. But your "radical" and ideal proposal has some logistical gaps.

The Libertarian view has NEVER managed to take their Ideal and apply it in practical terms, for real people, and what the hell the Transition would look like. If you don't feel like taking that on right now, or I'm rambling too much, just say so.

[Ominous Gamer]

Spains part of Europe...

[GGT]

Classic Love Triangle. Forget Keynes, or even Hanlon's razor. Dressing up balance sheets is like winning the World Cup! Or maybe it's like taking a vacation and using a credit card, while in-between jobs, and assuming...quite optimistically...the next job is right around the corner?

[RandBlade]

Well, what alternatives do the Greek have? Their state is alive only due to the massive influx of money from the EU.

If those guys think it's bad now, they'll be shocked to see what a bankruptcy will do to them.

Going back to this, the Greeks already are bankrupt. They've already defaulted on privately held debt, just not on EMU debt. Though the ECB is lending money in order for the Greeks to repay slightly less back to the ECB.

If Germany wants to bailout Greece then fine, charitably gift whatever is required. Further loans are not the solution to bankruptcy.

I believe that the Greeks should declare bankruptcy AND have proper austerity. Yes it'll be painful, but it's reality. Sooner they face up to reality, the sooner they can move on.

Seems like a new election may be on the cards soon in Greece, and if it happens I expect the anti-austerity parties to benefit.

[RandBlade]

The Greeks have again failed to form any government and it looks increasingly like a new election will have to be called after the failure of this one to elect a government.

In the 2012 Prediction game I voted that all nations in the Euro would still be in it by the end of the year, looking increasingly likely that I was wrong on that count. I'd call it no more than 50-50 now on the Greeks staying in the euro.

[Khendraja'aro]

Might be even worse odds than that. Which would mean, by the way, that with Greece getting out of the Euro-zone, all EU member countries would be called upon to shoulder future financial support. Including GB

[wiggin]

Why would Greece need support if they dropped out of the euro and defaulted? They'd have some years of high inflation and zero access to debt markets, yes, but I doubt they'd need the scale of assistance they're currently getting from the rescue fund et al.

[RandBlade]

Might be even worse odds than that. Which would mean, by the way, that with Greece getting out of the Euro-zone, all EU member countries would be called upon to shoulder future financial support. Including GB

wiggins already made the point for me, but to add to that why would the UK agree to/volunteer any support in that situation where Greece has defaulted? We're not by any means obliged to.

[Loki]

Why would Greece need support if they dropped out of the euro and defaulted? They'd have some years of high inflation and zero access to debt markets, yes, but I doubt they'd need the scale of assistance they're currently getting from the rescue fund et al.

How would they pay for their imports? How would they pay for their EU obligations? How would they keep their banks afloat?

[RandBlade]

How would they pay for their imports? How would they pay for their EU obligations? How would they keep their banks afloat?

By only spending that which they can afford, a la Argentina or other recent examples. It will be painful, but necessary and ultimately will be better off for facing reality.

[Loki]

By only spending that which they can afford, a la Argentina or other recent examples. It will be painful, but necessary and ultimately will be better off for facing reality.

I don't think you'd want a country on Europe's periphery to have hyper-inflation. Besides, they'd ask for an IMF loan, and Britain contributes about as much to the IMF as it does to the EU.

[RandBlade]

http://www.thedailymash.co.uk/news/i...-2012051527146

[agamemnus]

Choo choo, this train is loaded with dangerous chemicals and only Denzel Washington can stop its derailment!