"The Bottom Line Many people believe that much of U.S. debt is owed to foreign countries like China and Japan. The truth is, most of it is owed to Social Security and pension funds. This means U.S. citizens, through their retirement money, own most of the national debt."
Counting Social Security as a holder of the national debt is nonsense. Usually the cited debt excludes intragovernmental debt, since these internal government-internal IOUs are utterly meaningless with respect to the debt the country has outstanding. Most honest brokers will never cite the meaningless number, but rather the "debt held by the public".
Intragovernmental debt isn't what gets you to "most" or anything, but it should not be counted in any situation where we're talking about the fiscal or macroeconomic situation, rather than a political point.
Consider 2 situations.
1. Social Security lends the government a trillion dollars.
2. Bob lends the government a trillion dollars. Bob sells this loan on the public market. Social Security happens to be the organization that buys that loan from Bob.
What makes the former "Utterly meaningless", but the latter not?
It's not like Social Security is... Planning on forgiving that debt.
But with Bob that isn't the case.
So how can it be that on the one hand, it "doesn't matter", but on the other hand, the debt is touted as being unable to be serviced?
The gov't owing it to a department is the same obligation as owing it to a foreign entity (or a domestic, private entity for that matter).
No, it isn't. Sorry, but this just isn't up for debate.
> Most economists agree that the debt held by the public is what really affects the economy. As the Congressional Budget Office stated in its June 2009 report on the long-term budget outlook, “Long-term projections of federal debt held by the public, measured relative to the size of the economy, provide useful yardsticks for assessing the sustainability of fiscal policies.” In contrast, “gross debt . . . is not useful for assessing how the Treasury’s operations affect the economy.”
If I take a loan from the bank for $1000, but also have $1000 in a bank account in another bank, then my debt is 0. Social Security is a bit like the second bank account.
That is correct.
In the case of social security, you also have to account the total amount that social security owes to its contributors.
Because at the end of the day, Social Security has to pay out benefits, this debt isn't just pointless accounting fiction.
"Social security owns government debt" very clearly communicates that the government indiscriminately defaulting on loans will mean that social security beneficiaries will have to take a haircut - just like if I replace the words "Social security" with "XYZ pension fund." Just because the government runs this particular pension fund doesn't mean that it's all that much different, accounting-wise from a private one.
This is a nonsense step. There is no meaning to the social security lending the government any money, as social security is the government
> Bob lends the government a trillion dollars. Bob sells this loan on the public market. Social Security happens to be the organization that buys that loan from Bob.
This scenario is just "The government buys back some of its debt, reducing its outstanding debt." The "Social Security" part is just a random detail that doesn't add anything.
(BTW, Social Security doesn't actually do this. They hold special bonds that are not the same ones available to the public.)
Debt is debt.
This fictional accounting is a silly marketting gimmick, not a meaningful distinction. It's a government program just like all other forms of welfare.
Do you think that there were decades when lots of folks were contributing and no one was collecting?
If it is funded by taxes, it is funded by government.
You could argue that the social security trust funds are loaning money to the general fund, but that’s like saying your savings account and money market account are loaning money to your checking account.
It's like saying that it's meaningless for you to loan yourself money, because it is (except when there is some other, external reason that it carries meaning, not by rules you made yourself.) We constantly ignore these internal self-debts for people and for companies.
https://www.cbpp.org/research/recommendation-that-presidents... notes
> Most economists agree that the debt held by the public is what really affects the economy. As the Congressional Budget Office stated in its June 2009 report on the long-term budget outlook, “Long-term projections of federal debt held by the public, measured relative to the size of the economy, provide useful yardsticks for assessing the sustainability of fiscal policies.” In contrast, “gross debt . . . is not useful for assessing how the Treasury’s operations affect the economy.”
Congress may step in and directly fund certain SS programs through some other means once the ss trust fund fails to cover these expenses, but that outcome is far from guaranteed, so the ability of this fund to generate revenue through lending to other parts of the federal government remains material.
Social Security happens to buy US debt with that surplus, but it could have invested it elsewhere ie stocks if it were allowed to.
(Of course there are pros and cons to this https://www.wsj.com/articles/should-the-social-security-trus...)
At the risk of sounding pejorative, and understanding that there are volumes of sophistries in support of the status quo: how is this not effectively a Ponzi scheme?
> A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. The scheme leads victims to believe that profits are coming from legitimate business activity (e.g., product sales or successful investments), and they remain unaware that other investors are the source of funds.
In contrast, the Social Security model is pretty transparently a wealth transfer from workers to the elderly and disabled.
everything else matches. you (old investor) are receiving profits from new investors. and in some countries retirement money is speculative matter for politicians (vote for me I will increase retirement payments).
In this regard, it mimics life itself. At some point the body gives up on repairing all the cellular damage that's accumulated and just hopes that it's made new humans along the way.
Civilization is built on all the side-effects of humans chasing Ponzi schemes. The reason governments ban actual Ponzi schemes (in the sense of "Everybody send me a dollar and pass this on, and I'll give you a $0.50 for everyone you recruit") is because it incentivizes the citizenry to do nothing other than create and participate in Ponzi schemes. Meanwhile activities like founding startups or trading stocks - which are every bit as Ponzi as that - are legal because the pursuit of them creates beneficial social effects (like innovation, price discovery, and capital allocation).
Not necessarily. One could imagine an individual storing and preserving enough food for their retirement during their working life, and then eating through that stock in their retirement - or, at a slightly more sophisticated level, a group of people buying a farm and setting aside enough gold to pay labourers to work it for them - or, at a more sophisticated level than that, owning enough valuable stuff through investments to be reasonably assured of a decent retirement. The claim that social security is Ponzi-like is the argument that there is no (or insufficient) pile of valuable stuff matching the liabilities already incurred.
A real ponzi scheme is one which is not producing stuff, but requires new investment to pay out old investors.
Stocks are not ponzi schemes, because a stock does not require a new investor, because the company behind the stock is earning profit. A new investor is willing to buy the old stock for a higher price than originally sold, because the company is making more money (and is expected to make even more in the future).
(In reality there's a spectrum of how speculative any given investment is; basic things like food and land are certainly subject to some speculation, and even hyped penny stocks probably have a nonzero fundamentals case for why they're valuable. But that doesn't mean there's no distinction at all)
So it "doesn't matter" where the prices are - because a well planned retirement means you convert some % of your allocation to a more stable asset, like bonds, and live off those bonds. In the mean time, fluctuations of the stocks doesn't affect you as much, and you can strategically sell when the prices are "high".
A Ponzi scheme involves pretending a balance exists when there isn't one. When the gov't says "we will give you dollars later" and they give you dollars later, you might complain in the theoretical universe where the dollars aren't worth much/at all, but they can indefinitely match your bargain.
You can choose to opt out of this system! Go into the countryside, barter for everything. But perhaps, perhaps, there is a reason that economies that have fiscal flexibility flourish and economies that are pegged to some other store of value they don't control have bigger problems resolving economic issues.
It sure can, but this doesn't go far enough.
The US Govt' can only choose to "print money". It cannot choose otherwise. This is because fractional reserve banking allows financial institutions to lend out the same $1 multiple times.
The result of collecting $1 and lending 6 people that $1 with an expected total payment of $2 per debtor results in $1 causing $13 in the economy.
I'm inclined to side with the other comment nearby: cutting payments to foreign creditors is easy, cutting payments to your own citizens is a disaster. Sure, there's this magic pixie dust of MMT, but with inflation already poking it's sharp edge into every day life, I doubt we can print our way back to prosperity.
Uncle Sam could cut payments to China or Japan in a crisis. It’s much harder to cut payments to your own people. It would instantly make any crisis much worse.
> It’s much harder to cut payments to your own people.
also, ive heard its an advantage to japan to have its govt debt owned by its own people as well...
curious to hear counter points!
Keep in mind that debt is a liquid asset. If you were foolish enough to not pay out Chinese debt holders, they would simply sell to Americans. The notion of "lets not pay xyz" has spectacularly bad outcomes because it signals to the world that you are not a serious nation when it comes to debt.
In the long term, the US strategy has clearly paid off.
The US has excellent credit because it has largest military and is the dominant global player. That makes money parked in US T-bills safe. Liquidity and good, healthy economy (but not perfect) helps.
A country with a reputation for stealing people’s money does not attract foreign investment no matter how big the military. Does a robber seem trustworthy to you just because he’s got a big gun?
Maybe the USA is looking for a reason to not pay?
You never have to when you control the actual production of the currency.
A foreign entity might demand to be paid back in actual assets, whereas joe citizen will have to accept any monkey money the USD decides to pay him back with.
If the past 2 decades haven't blown the "deficit/inflation" correlation myth out of the water, just wait until the US goes all Japan and turns up the printers even more and have absolutely nothing of consequence happen to it (especially considering the US is even more isolated from raw resource allocation cuz of all the sheer size and diversity of the economy).
Simply the evolution of the economic output moving from manufacturing driven to what it is now makes the comparison a little less jarring.
It flips the inference the author of that website is pushing on its head if you consider what those numbers are actually indicating with the context of what the definition is. Maybe it means the "Volume of input" has been greatly improved because of technological assistance, maybe it means human elements contributing to economic input have more help from advancement in sciences, maybe there are a lot more complex factors at play here than what we are aware of.
tl;dr: "Productivity" in economics is not the intuitive sense of "productivity" the word in common English usage that indicates human work.
https://economicsfromthetopdown.com/2020/01/17/debunking-the...
> tl;dr: "Productivity" in economics is not the intuitive sense of "productivity" the word in common English usage that indicates human work.
Oh snap. I read your link but not the tl;dr, oops.
> Most headlines focus on how much the United States owes China, one of the largest foreign owners. What many people don’t know is that the Social Security Trust Fund, also known as your retirement money, owns most of the national debt.
Kind of repetitive, but at least it's not clickbait.
Bonds held by government programs are real (not optional) demands on future government revenue. When Congress passes a budget each year, that budget has to cover all payments on outstanding debt, including intragovernmental holdings, not just those held by the public.
Social Security bonds, when redeemed, fund Social Security benefits, which go to real Americans. Defaulting on bonds held by Social Security would result in real reductions in income outside the government.
https://www.cbpp.org/research/recommendation-that-presidents... notes
> Most economists agree that the debt held by the public is what really affects the economy. As the Congressional Budget Office stated in its June 2009 report on the long-term budget outlook, “Long-term projections of federal debt held by the public, measured relative to the size of the economy, provide useful yardsticks for assessing the sustainability of fiscal policies.” In contrast, “gross debt . . . is not useful for assessing how the Treasury’s operations affect the economy.”
https://www.cbpp.org/research/recommendation-that-presidents... notes
> Most economists agree that the debt held by the public is what really affects the economy. As the Congressional Budget Office stated in its June 2009 report on the long-term budget outlook, “Long-term projections of federal debt held by the public, measured relative to the size of the economy, provide useful yardsticks for assessing the sustainability of fiscal policies.” In contrast, “gross debt . . . is not useful for assessing how the Treasury’s operations affect the economy.”
That's not insignificant and will be much harder to write off than paper social security liabilities.