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Comment by haroldp | Hacker News Reader

Not to put too fine a point on it but...

> In Puerto Rico, for instance, the pension funds are so short of cash that money contributed by working teachers basically flows straight out to retirees. ... That is, essentially, a Ponzi scheme.

Is that different by anything but degree than the US federal Social Security system?

> Puerto Rico... ran off the rails by using debt to spend beyond its means. Year after year, the government could not balance the budget and borrowed instead

Is that different by anything but degree than the US federal government?

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Currently, social security takes in $801.6B in revenue and pays out $750.5B a year, and social security has a $2.8 trillion trust fund. After 2022, outflows will exceed inflows, and social security will have to draw down on that trust fund, which will be exhausted by 2035.[1]

From the charts in the NYT article, Puerto Rico's fund is taking in <$400M a year and paying out >$600M, and their trust fund is less than $1B, and will be exhausted by 2020.

Social security is still running a surplus, and still has a massive trust fund. It definitely seems plausible to make changes that will make it solvent well into the future.

https://www.ssa.gov/OACT/TRSUM/index.html

> social security has a $2.8 trillion trust fund.

That trust fund is in form of IOUs from the general fund of the Federal government - where do you think the money to pay back those IOUs will come from?

Probably taxes, where all SS funds have always come from.

That's the point. If the IOUs have to be repaid with extra tax revenues, it is functionally equivalent to a deficit and not really a "trust fund."

Imagine 2 scenarios where social security needs $1B more than it has in revenue.

Situation A, Social security trust fund as exists today-The trust fund redeems a bond from the US treasury. To get the $1B, the Treasury either raises taxes or takes out $1B in its own debt.

Situation B, no trust fund- To get $1B, social security either raises taxes or takes out $1B in its own debt.

The point is that you can call the trust fund an asset (something you have), but you then also need to call the money the federal government owes a liability. But the federal government hasn't accounted for it in this way.

This is equivalent to John Doe writing a check for 2.8T to himself and saying he has a 2.8T asset (he does), but not mentioning he also has a 2.8T liability.

https://www.forbes.com/sites/merrillmatthews/2011/07/13/what...

It may or may not have income to cover its obligations, but it's still a "ponzi scheme"[1] in the sense that I will not get out the money I put in. Rather, it counts on new "investors" to meet it's obligations to me. The big threat to such a scheme is fluctuations in the investment stream - for example, people not supplying enough money (as in a recession) or fluctuations in the pool size (as in baby booms). It's a very dangerous scheme and shouldn't be counted on for what is essentially investment.

To say that it has a "massive trust fund" is like me saying I am rich because I have a cookie jar full of IOUs that I wrote to myself on top of my fridge.

1. https://en.wikipedia.org/wiki/Ponzi_scheme

SS has a couple of trillion dollars saved. The US federal government controls the currency it uses to borrow, so its debt is qualitatively different from an entity like Puerto Rico.

Yes, inflating away currency to become worthless is a time-honored method for countries to tackle their debt obligations.

Which would be equivalent to just seizing the private retirement accounts of the middle class, which is how I foresee the SS shortfall being address (in the form of extra taxes on withdrawl from retirement accounts).

Hmmm... maybe I need to start liquidating my 401k early and just accept the penalty...

All of SS savings are in special non-marketable bonds. When SS needs to sell those bonds the only potential customer is the federal govt. So ultimately if SS pays out more than it collects in a year the difference will come from the general federal budget.

That's my understanding, right?

The federal govt selling bonds to itself is a really strange form of savings.

Yep, you're entirely correct. But there's a reason those bonds are non-marketable; they're redeemable at face value at any time. They are the safest assets in the world, backed by the full faith and credit of the US government.

"By law, income to the trust funds must be invested, on a daily basis, in securities guaranteed as to both principal and interest by the Federal government. All securities held by the trust funds are "special issues" of the United States Treasury. Such securities are available only to the trust funds.

In the past, the trust funds have held marketable Treasury securities, which are available to the general public. Unlike marketable securities, special issues can be redeemed at any time at face value. Marketable securities are subject to the forces of the open market and may suffer a loss, or enjoy a gain, if sold before maturity. Investment in special issues gives the trust funds the same flexibility as holding cash." [1]

> The federal govt selling bonds to itself is a really strange form of savings.

Not at all. If you need something extremely reliable for decades, you essentially self-insure. There are no markets or assets the federal government could invest the Social Security trust fund in without creating market distortions, so it lends the funds to itself (which has the side effect of hopefully growing the economy, reducing the financial burden in the future).

If the trust fund runs dry, the federal government will top it up with general revenues. This would not be the end of the world.

[1] https://www.ssa.gov/oact/progdata/fundFAQ.html

EDIT: @ Retric (HN throttling has kicked in on my account, can't reply directly to your reply)

Too risky for a retirement trust fund that guarantees payments at nation-state scale.

Investing in foreign markets would diversify the investment so SS has lower risk if the economy tanks.

I think the Great Recession has proven this wrong. Globalization is too far progressed at this point to pretend that all the major world players aren't economically interconnected.

They all took a hit, but if you look at actual GDP numbers they did not all take the same hit.

Let me get this straight.

SS would be a ponzi scheme if they paid current retirees with money taken from current workers via "SS taxes".

But in reality it's not a ponzi scheme because they'll instead pay out current retirees with money taken from current workers via "Income taxes", and routed through strange bond-like structures.

Is that about right?

USG even throws in its "full faith and credit" for free!

What next, auto insurance is a ponzi scheme because only some people get money back? Life insurance a ponzi scheme because not everyone dies during their policy term?

You don't have to like the system, and you're free to opt out and move to a country with a government more to you're liking.

"If you don't like it, you can move" is a horrible, horrible, horrible argument.

>"If you don't like it, you can move" is a horrible, horrible, horrible argument.

why?

A couple of reasons:

1. Moving, especially to a different country, takes a huge amount of money and effort. It's reasonable for someone to want to fix a problem with where they are rather than go through that.

2. It's not actually an argument at all. It does nothing to demonstrate any merits of the thing being discussed. It's really just a more polite way to say "shut up."

Consider, hypothetically, that every evening, an agent of the state would come into each person's house and punch them in the nose repeatedly. Would you object to this? Would you find "if you don't like it, you can move" to be a good argument in favor of this system?

> Consider, hypothetically, that every evening, an agent of the state would come into each person's house and punch them in the nose repeatedly. Would you object to this? Would you find "if you don't like it, you can move" to be a good argument in favor of this system?

Are you prepared to spend years, possibly decades, of your life to fix the problem? If not, yes, moving is a good argument.

Although, I don't find social safety nets to be something that you'd find against, regardless of the amount of time involved, but that's just me.

How is it a good argument? It might be a good idea to get out of such a place, but that's an entirely different thing.

You can use it to justify anything, besides maybe preventing exit.

Don't like the risk of being murdered by cops for being black? Move! Don't like laws against homosexuality? Move!

I am mainly interested in promoting exit. It is often too quickly dismissed as solution to social problems.

Do you believe Ponzi schemes exist at all? What, in your mind, distinguishes SS from Madoff, or Madoff from auto insurance?

Reading hacker news comments for awhile has convinced me that most folks can't distinguish insurance, cost sharing, subsidies, or ponzi schemes.

I may be incorrect, but it seems to me that the US currency will ultimately back that. If the government does not have the ability to pay, then it will have to print money to cover the difference, devaluing the currency. It's probably a reasonable position, but it seems to me to be vulnerable to poor timing. For example, if there is a debt crisis, you may have to raise interest rates at exactly the time when you don't want to. When I see very high prices for houses (in relation to salaries), an aging population, and a pension system that can demand money from the government at will... it makes me a bit nervous.

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