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Comment by vkou | Hacker News Reader

> 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.

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.

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> Social Security lends the government a trillion dollars.

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.)

Social Security is not funded by the government, it's funded by payroll taxes. Saying that Social Security loaning money to the government is meaningless is like saying that you loaning money to your brother-in-law is meaningless because you both have accounts at the same bank.

Debt is debt.

> Social Security is not funded by the government, it's funded by payroll taxes

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?

Uh, if accounting is a fiction, well, I'm not going to say there isn't a kernel of truth to that, but it doesn't help us answer the question of who has debt responsibilities to whom; the entire enterprise is predicated axiomatically on "accounting fictions".

> Social Security is not funded by the government, it's funded by payroll taxes.

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.

Social Security is a government program like any other. The delineation of tax types is just branding to make people like it more, it isn't economically meaningful. When the payroll tax is higher than the SS spend, the government just spends the money. (These bonds are IOUs for all the times they do that.)

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.”

I fail to see how this debt is "meaningless" given interest is being paid and the solvency of the program is not legally guaranteed.

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.

Both cases are meaningless debt. The interesting information is total amount owed by the government minus total amount owed to the government.

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.

> The interesting information is total amount owed by the government minus total amount owed to the government.

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.

Yes and hit highlights that this is a choice, ie the choice of how to invest the surplus.

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...)

It's the same party. Bob is an outside party. When my left hand owes my right hand it doesn't matter whether I have the intention of forgiving that debt or not, it is an internal matter, one that may show up on my balance sheet but it has no direct effect on my day to day affairs. Because just as it won't be forgiven it also won't be called in overnight or used to manipulate the market against me: I control both sides of that equation.

But with Bob that isn't the case.

the oft touted reason for high debt load being bad is that the gov't would be unable to pay it.

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).

> 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.

If the Treasury defaulted on its obligation to pay the interest and principle on the debt owned by SS, the ratings agencies would downgrade US Treasuries the same way they would if they failed to pay Japan, or any other bondholder.

https://www.cbpp.org/research/recommendation-that-presidents... notes

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