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12/18/2012

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Oliver

If I was a builder adopting the same modus operandi as the government, I would be able to continue constructing a taller and taller building with surprisingly few real materials, by surreptitiously loosening and removing certain bricks at the bottom, so that I could add them to the next layer at the top. The increasing height of this proud edifice would be a marvel to all who beheld it - until the day the whole structure collapsed because the foundations had been raided once too often.

When the dust settles ... just debris for as far as the eye can see.

David P.

There is a good scene from Dumb and Dumber which nicely sums up what happened: http://youtu.be/7GSXbgfKFWg

Don Levit

Dave:
The excess FICA taxes were not invested in Treasuries. They were loaned to the Treasury to pay for current expenses. Treasuries were issued as collateral for these loans.
The interest income of Treasuries in the SS trust fund is credited to the fund with additional debt. From a cash perspective, interest is considered non-cash income.
From a cash perspective, trust fund principal is non-cash income as well, for the excess cash was loaned to the Treasury.
There are basically 2 perspectives on the trust fund balance. One is called the Trust Fund Perspective. The second is called the Budget Perspective (or government-wide perspective).
From a paper entitled "2012 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds," published by the Boards of Trustees, Federal HI And Federal SMI Trust Funds:
Pages 234-235 "One can view the financial operations of Medicare and Social Security in the context of the programs' trust funds or in the context of the overall federal budget. The financial status of the trust funds differs fundamentally from the impact of these programs on the budget, and people often misunderstand the relationship between these two perspectives."
"This trust fund perspective is important because the existence of trust fund assets provides the statutory authority to make such payments without the need for an appropriation from Congress."
"The budget is a comprehensive display of all federal activities, whether financed through trust funds or from the general fund of the Treasury. This broader focus may appropriately be termed the
'budget perspective' or 'government-wide perspective' and is officially presented in the Budget of the U.S. Government and in the Financial Report of the U.S. Government."
"The financial status of a trust fund appropriately considers all sources of financing provided under current law for that fund, including the availability of trust fund assets that Medicare or Social Security can use to meet program expenditures. From a budget perspective, however, general fund transfers, interest payments to the trust funds, and asset redemptions represent a draw on other Federal resources for which there is no earmarked source of revenue from the public."
www.healthreformgps.org/wp-content/uploads/tr2012.pdf.
Don Levit

Ken Barrows

And what will be the trend for interest income? What with rates on newly issued paper I expect a decrease.

Dave Cohen

@Don

And I quote --

"The excess FICA taxes were not invested in Treasuries. They were loaned to the Treasury to pay for current expenses. Treasuries were issued as collateral for these loans. The interest income of Treasuries in the SS trust fund is credited to the fund with additional debt. From a cash perspective, interest is considered non-cash income. From a cash perspective, trust fund principal is non-cash income as well, for the excess cash was loaned to the Treasury."

If I may be blunt, what I said and what you said here amounts to the same thing, doesn't it? Where I was "wrong" was in saying that FICA taxes went toward buying treasuries directly. Mea culpa.

However, there is one difference, which makes the bad situation I described worse -- The interest income of Treasuries in the SS trust fund is credited to the fund with additional debt

Which means, if I am reading this correctly, that interest income is not directly available as cash for payouts.

If I were you, I would not get too lost in the details of the swindle. In fact, that's what humans do. They make it complicated to obscure the theft.

I should have known better.

-- Dave

Alexander Ač

OT, but for interest of readers, "HAPPY" peak farmland is here???

http://www.reuters.com/article/2012/12/17/us-crops-idUSBRE8BG0QH20121217

Alex

Don Levit

Ken:
It matters very little from a cash flow perspective what the interest rates are. Because interest is additional debt, higher or lower interest rates simply extend or lengthen the trust fund's "life."
However, from the budget perspective, the trust fund is empty not in 20 years; it is empty today. The reason is that every dollar of interest and principal redeemed from the trust fund requires new general revenues - the same way we pay all expenses. When the trust fund is exhausted (the numbers go down to zero), the same process is used to make up for the cash shortfall: new general revenues will be needed.
Don Levit

Ben

THANK YOU DAVE! It's just unbelievable man, so some clowns play accounting games, and the most vulnerable people in the nation are ... well you know.

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