Kratthammer on Social Security:
Last week, President Obama's budget chief, Jack Lew, took to his White House blog to repeat his claim that the Social Security trust fund is solvent through 2037; and to chide me for suggesting otherwise. I had argued in my last column that the trust fund is empty, indeed fictional.
If Lew's claim were just wrong, that would be one thing. But it provides the intellectual justification for precisely the kind of debt denial and entitlement complacency that his boss is now engaged in. Therefore, once more unto the breach.
Lew acknowledges that the Social Security surpluses of the last decades were siphoned off to the Treasury Department and spent. He also agrees that Treasury then deposited corresponding IOUs – called "special issue" bonds – in the Social Security trust fund. These have real value, claims Lew. After all, "these Treasury bonds are backed by the full faith and credit of the U.S. government in the same way that all other U.S. Treasury bonds are."
Really? If these trust fund bonds represent anything real, why is it that in calculating national indebtedness they are not even included?
That's why publicly held bonds are so radically different from intragovernmental bonds. If we default on Chinese-held debt, decades of AAA creditworthiness is destroyed, the world stops lending to us, the dollar collapses, the economy goes into a spiral and we become Argentina. That's why such a default is inconceivable.
On the other hand, what would happen to financial markets if the Treasury stopped honoring the "special issue" bonds in the Social Security trust fund? A lot of angry grumbling at home for sure. But externally? Nothing.
Cafe Hayek amplifies:
The question is whether or not Uncle Sam will have enough assets in the future to pay all of his obligations under Social Security. When sensible people such as Charles Krauthammer and Robert Samuelson note that these obligations are so massive that honoring them in full will require drastic tax hikes or spending reductions, accounting-challenged defenders of the status quo exclaim “Not to worry! The Social Security trust fund holds lots of U.S. Treasury bonds. Those bonds are assets. So Social Security’s obligations are covered!”
But those bonds are held by the same party that issued them, namely, Uncle Sam; the creditor here is one with the debtor.
Last week, President Obama's budget chief, Jack Lew, took to his White House blog to repeat his claim that the Social Security trust fund is solvent through 2037; and to chide me for suggesting otherwise. I had argued in my last column that the trust fund is empty, indeed fictional.
If Lew's claim were just wrong, that would be one thing. But it provides the intellectual justification for precisely the kind of debt denial and entitlement complacency that his boss is now engaged in. Therefore, once more unto the breach.
Lew acknowledges that the Social Security surpluses of the last decades were siphoned off to the Treasury Department and spent. He also agrees that Treasury then deposited corresponding IOUs – called "special issue" bonds – in the Social Security trust fund. These have real value, claims Lew. After all, "these Treasury bonds are backed by the full faith and credit of the U.S. government in the same way that all other U.S. Treasury bonds are."
Really? If these trust fund bonds represent anything real, why is it that in calculating national indebtedness they are not even included?
That's why publicly held bonds are so radically different from intragovernmental bonds. If we default on Chinese-held debt, decades of AAA creditworthiness is destroyed, the world stops lending to us, the dollar collapses, the economy goes into a spiral and we become Argentina. That's why such a default is inconceivable.
On the other hand, what would happen to financial markets if the Treasury stopped honoring the "special issue" bonds in the Social Security trust fund? A lot of angry grumbling at home for sure. But externally? Nothing.
Cafe Hayek amplifies:
The question is whether or not Uncle Sam will have enough assets in the future to pay all of his obligations under Social Security. When sensible people such as Charles Krauthammer and Robert Samuelson note that these obligations are so massive that honoring them in full will require drastic tax hikes or spending reductions, accounting-challenged defenders of the status quo exclaim “Not to worry! The Social Security trust fund holds lots of U.S. Treasury bonds. Those bonds are assets. So Social Security’s obligations are covered!”
But those bonds are held by the same party that issued them, namely, Uncle Sam; the creditor here is one with the debtor.
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