“Right. That’s called taxation. It’s how governments fund themselves.”

O.K., but then that sure isn’t any kind of a “trust” fund situation then, is it? And that is kind of the point -> the “trust fund” is a lie. Honestly, read Charles Hugh Smiths breakdown of the entire system linked above. I would be 100% happier if we just stopped lying about it and put it in the general budget where it belongs. Think of it as being very much the same as what they did with the two housing monstrosities – let’s pretend they really aren’t part of the government debt structure so it looks better by spinning them off as “companies” (otherwise known as GSE’s -> Government Sponsored Entities”. You likely know them by their more common names, Fannie Mae and Freddie Mac). It worked for 40 years. Made the books look lots better while they ramped up Vietnam in fact…, now they are back in the Governments hands with trillions in problems and red ink because everyone knew they were government backed no matter how much we said “no they aren’t”. That’s reality VS. theory in finance and Government…. In the current rendition it’s going to be the “trust fund that really didn’t exist” -> why do you think everyone who understands the system is sounding the alarms?

“Those people are going to make sure that the checks are paid in full as long as they have the resources to pay them. They don’t care about the debt in the general fund in the sense that it isn’t their job to fix it.”

Ummmm. With what money? The money Treasury is going to cough up to buy the fake bonds with (fake because they are not marketable -> only our treasury can purchase them…)? Where is treasury going to come up with those dollars? Having the resources to pay is exactly the point Jinchi, and our government doesn’t have anywhere near the resources (read Greenspans’ commentary). Thus one can be assured there will be tax increases and drops in benefits (and I guess for you that would count as staying in the black, for me and everyone else in the financial world, we call it a default…).

“If there aren’t enough tax receipts to pay the bills, they are going to start cashing in the treasury bonds. This isn’t a hypothetical point. If they took it upon themselves to simply send a partial payment when they have resources available”

If you had read any of the links above you would know that the part about having “resources available” is the issue. SS doesn’t have any resources until treasury gives it to them. The “bonds” are only payable by the treasury (they cannot be sold on the market). There are no “real” resources in the trust, just IOU’s for money that has already been spent, and there will be no paying without radical reworking of the system (read way higher taxes, substantially lower benefits or combinations thereof). While this is working itself out there will be ever more strain on the general fund (you know, the one that actually pays for everything, like science research for example…).

“Right. They projected future demographic changes and adapted the policy to cover the bills. That’s how they keep in the black. Again, if the rest of the government was run that way, we wouldn’t have a $14 trillion deficit.”

??? To quote the response to that line of thinking that is actually straight out of one of the above links: “The people who are saying that Social Security is broke are warning the public that we will need to either suffer a payroll tax hike, or deal with a reduction in promised benefits, or both. Dean Baker then comes along and says that’s nonsense, because we’ve been in this situation before, and we solved it — by raising taxes and cutting benefits.” You seem to agree with Dean Baker, except you are failing to acknowledge that raising taxes or lowering benefits was not part of any deal anyone involved thought they were making… I actually like Sweden’s model, and it isn’t a Ponzi.

However, If that is what you mean by staying in the black I suppose you are correct. Most of us consider that something very different. And I should point out, and as explained very well in some of the above links, it isn’t just SS that plays these games, all of which are designed to mislead those who don’t have a financial background.

And just because I am sure student loans are something near and dear to most here, you might want to check this out…:
http://globaleconomicanalysis.blogspot.com/2011/01/budget-deficit-accounting-fraud-and-off.html

Really, read. Everyone has an interest in this for reasons that are far too hard to explain in this blog. But if you think they have budget issues now that threaten “scientific research” funding, wait a couple more years…

Right. That’s called taxation. It’s how governments fund themselves.

But let me put this a different way. There are people at the Social Security Administration who are responsible for sending out checks to retirees every month. Those people are going to make sure that the checks are paid in full as long as they have the resources to pay them. They don’t care about the debt in the general fund in the sense that it isn’t their job to fix it.

If there aren’t enough tax receipts to pay the bills, they are going to start cashing in the treasury bonds. This isn’t a hypothetical point. If they took it upon themselves to simply send a partial payment when they have resources available, they would be fired in the time it takes furious retirees to pick up the phone and yell at their Senator.

It has already been forced to “re-organize” if you will a couple times

Right. They projected future demographic changes and adapted the policy to cover the bills. That’s how they keep in the black. Again, if the rest of the government was run that way, we wouldn’t have a $14 trillion deficit.

http://www.oftwominds.com/blogjan11/Social-Security-fraud01-11.html

I’m not sure how that response was actually a counter point, but here’s another take leading to the same conclusion by one who would generally be in political alignment with most on this blog…

Who knew?

Here is some reading. The points made by Greenspan are worth thinking hard on before you try to answer this question.

“real- terms” as in economic real – nominal and how they differ… :

http://blog.mises.org/3260/greenspan-talk-social-security-cant-pay-up-in-real-terms/

“The National Commission on Social Security Reform (informally known as the Greenspan Commission after its Chairman) was appointed by the Congress and the President in 1981 to study and make recommendations regarding the short-term financing crisis that Social Security faced at that time. Estimates were that the Old-Age and Survivors Insurance Trust Fund would run out of money possibly as early as August 1983.”

So sorry, I *DO NOT* agree that it has been in the black for 75 years. It has already been forced to “re-organize” if you will a couple times, this being one of them…

http://mises.org/daily/4528

To be clear, even Megan McArdle realizes that Social Security has been running in the black for the first 75 years of it’s existence. It’s been run so well that it can cover 100% of it’s obligations through the next 25 to 35 years, even if we do nothing at all. It’s been the only part of the government in the black for most of the last 30 years. In fact, it’s been propping up everything else.

And you think Social Security is the problem? Social Security didn’t give us our current deficit. If the rest of the government was run as well as this “Ponzi scheme” we’d be in great shape.

SS is a tax that has been running at a surplus for years if you really think what the government collects in one hand and spends with the other is somehow disconnected. There never was a “surplus”, there was however another income stream that allowed higher spending without seemingly higher taxes (cause as it was put above “they invested it”… in our General Fund, but accounting allows for lots of strange arrangements).

It’s based on so many workers per retired beneficiary. It’s a classic Ponzi actually, but we’ll even ignore that. Unless you believe in perma forever growth it is unsustainable, as over time the number of workers per beneficiary will drop forcing either an increase in age (so less gets collected due to mortality) or an increase in taxes (as the percent paid per worker increases as their numbers drop). Even then there are only so many such adjustments you can make before you hit the failure to grow enough issue. We’ve already done those and are about to do them again. That will “fix” it for another 20 or 30 years (maybe), and then we have the same issue, only even larger numbers. The classic “kick the can” situation.

And a situation where basically we regularly lie to ourselves about things and regularly change the rules well after many are already part of the system (as in they aren’t going to get what they were promised when they started…).

I’m missing the part where my math is faulty, but maybe you can clarify something. Do you expect the treasury to default on all it’s debts or just the bonds in the Social Security account?

Because it seems to me that you’re making two arguments. One is that Social Security is a system based on a dedicated tax which has been running a surplus for decades. From that perspective, Social Security is not running a deficit, because those surpluses were invested and those investments will bear out for another several decades. In fact, there is no point in running a surplus unless you intend to cash it in at a future date.

Your second argument is that Social Security is really just part of the general fund and the taxes dedicated to it are really just another revenue stream, like the income tax, licensing fees, tariffs etc. By this logic, Social Security is not “running a deficit”, any more the Defense Department or the Highway fund is running a deficit. We attribute deficits in the general fund to the whole not to individual pieces of it.

In my opinion, one of the leading “explainers” of the modern human condition is Richard Heinberg. Known especially for “The Party’s Over: Oil, War, and the Fate of Industrial Societies,” he has turned his attention to the economy, resources, and the environment. This newest book, slated for publication later this year, is appearing online in serial form on his website.

I highly recommend reading the first 3 chapters so far:

http://richardheinberg.com/221-economics-for-the-hurried

http://richardheinberg.com/222-the-end-of-growth

http://richardheinberg.com/224-the-sound-of-air-escaping

I would be interested to hear what others think. Since the health of the economy is central to our energy future (and vice versa), maybe Chris would care to provide commentary or link the articles in a future post to promote further discussion.