Matt Bai and the editors of the New York Times have printed an article ostensibly about Democratic Congressman Earl Blumenauer and his willingness to cut wasteful spending to reduce the deficit — as though eliminating unhelpful or harmful programs were an unheard of position for Democrats even though they just adopted legislation to cut unjustified payments to health care providers and private education lenders by hundreds of billions. But that misdirection isn’t even the main problem.
With no apparent oversight from the Times’ editors, Bai turns the “news analysis” article into a Republican talking point attacking Social Security and the US Government’s credit worthiness. You can see upcoming “corrections and retractions” written all over this one.
Here is how Matt Bai, who apparently gets his understanding of how Social Security works from Alan Simpson, describes how the Trust Fund works:
The liberal groups that are already speaking out against the debt panel’s unfinished work have chosen to start with Social Security because it is likely to be at the center of any budget compromise. “If there’s a place where it looks like Republicans and Democrats can reach agreement, we’re afraid it’s Social Security,” says Frank Clemente, the director of Strengthen Social Security. (In other words, the two parties might actually work together on something. They must be stopped!)
The coalition bases its case on the idea that Social Security is actually in fine fiscal shape, since it has amassed a pile of Treasury Bills — often referred to as i.o.u.’s — in a dedicated trust fund. This is true enough, except that the only way for the government to actually make good on these i.o.u.’s is to issue mountains of new debt or to take the money from elsewhere in the federal budget, or perhaps impose significant tax increases — none of which seem like especially practical options for the long term. So this is sort of like saying that you’re rich because your friend has promised to give you 10 million bucks just as soon as he wins the lottery.
So ignore Bai’s gratuitous insult that anyone concerned about protecting Social Security is merely worried about an outbreak of bipartisan agreement. Does the New York Times have editors? Surely someone there must know this entire framework is false, misstating how the Trust Fund works and even how bonds and debt are created.
More important, someone at the Times must surely know that a frequent canard of the Republican Party and Social Security opponents is to argue that the Social Security Trust Fund, which has a surplus of $2.5 trillion in US Treasury bonds built up since 1983 by higher payroll taxes paid by future retirees, is just worthless paper. And if it’s worthless paper, future beneficiaries will never be able to rely on the $2.5 trillion they paid into the system to help pay the Social Security benefits to which they’re entitled.
The canard was always designed to convince today’s and tomorrow’s elderly that they cannot rely on the US Government honoring its own Treasury bonds — in effect, arguing the US would be so irresponsible as to engage willy nilly in a sovereign debt default, not to mention breaking a sacred promise to its own people. The goal of the canard is to convince Americans they should not count on Social Security, or government in general, to help in their retirement. Give that money to Wall Street instead.
Social Security is “broke,” they claim; it’s “in crisis,” they continue, and if the Government were forced to pay off those bonds when the system needs to redeem them to pay benefits — just as the government planned — it would create a massive “debt crisis” for the United States. Everything about that story is false and malicious.
The Trust Fund’s bonds are just like other Treasury bonds except they aren’t traded. When the Trust Fund needs to “redeem” a bond to cover ongoing benefit payments, all that happens is that electronic entries reflecting the change appear on the respective governments accounts, and Social Security checks go out, as always, as scheduled. Calling this a “lottery” is stunningly false.
But the perpetrators of this falsehood don’t care about the facts. They hope to convince people that Social Security is in crisis, because the Trust Fund is illusory, and then use those lies to convince Congress and the public to accept cuts in Social Security benefits to “save it.” As Paul Krugman has characterized it, we had to cut future benefits to avoid cutting future benefits.
The hucksters have convinced enough fools or charlatans to believe the lies, and convinced the White House to pander to them, possibly the worst domestic policy blunder possible for a presumably Democratic President (along with not having a plan A or B to put 15 million people back to work). So now we have a phony “fiscal responsibility” commission that has no connection to fiscal responsibility, no regard for the truth, and no protection for Social Security or the public interest.
This is the big con, folks, maybe the biggest con in an era of big cons, and it’s all designed to take money paid by middle class and seniors and put aside for their retirements, and use it as a cover for tax cuts for the richest people in America. Matt Bai just told us he is a dupe in that con, but what excuse do the New York Times editors have?
More:
Dean Baker has a similar reaction over at the Center for Economic and Policy Research.



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That canard, as you rightly call it, claims that the U.S. government is in imminent danger of falling into the pit the right wing dug for it, and is the assumption that expecting any investment in Treasuries will be a failure. Maybe the wingnuts have something in mind involving a hostile takeover.
The New York Times is a steaming heap of shit. Elected Democrats and Republicans (whores in the employ of the banking cartel) want to default on government obligations to working Americans to appease foreign bond holders. The lies they tell us while ripping us off are transparent to anyone paying attention. The Times is a tool of the Oligarchy. An organ of propaganda like all corporate media.
So their answer is we can’t cut defense because the right wing murder machine won’t stand for any cut and if we bring it up again they may turn the weapons on us.
This country is run by the stupid.
‘This country is run by the stupid.’
I dispute that it is ‘run’ by them, more incline to see it as being ‘gutted’ by them.
Perhaps someone forgot to explain to the twits that counter-coups occur also. Defaulting on sovereign debt by fiat is an excellent way to be invaded, murdered, or thrown in a pit under a large building AKA a dungeon. Do any of these fools understand that they are undermining the very system from which they have attached themselves parasitically? Why has the corpse of Alan Simpson been dug up and re-animated by Obama? Even Bush One who was his friend cut him loose because he was simply too odious for even that old bastard. They are literally playing with fire and appear too stupid to know it.
Good morning, pups. Mr. Kristof is off today, and Ms. Collins details “The Trends of August.” During this silly season she’s got a good idea — maybe the citizenry should demand a Voter Bill of Rights. Article Five: more cat stories in political campaigns. Great idea! Dogs drool, cats rule.
Here she is.
The coffee and tea are ready, the cold drinks are in the fridge, and I’ve got blueberry pancakes this morning. I’m running late this morning, so I’m off to do all those morning things, and grab another cup of tea. Have a great day.
In a just world, the editors and owners of the New York Times would be on trial–for inciting the populace to violence in the build-up to the Iraq invasion.
When will the media notice that all the hours we working folks spent earning our social security ‘entitlements’ are not replicated by the corporate raiders and banksters that they’re so eager to throw our money at?
I love how the word “compromise” is used. As if Social Security benefit cuts would somehow be reasonable. They don’t bother to focus on the fact that Social Security already is a compromise. After all, we pay/overpay into the program in order to get the money back later.
They’re like thieves that “compromise” by only taking your arm rather than taking the standard “arm and a leg”. How nice of them!
About on a par with InsurPharma reform? This WH corporate whore is presiding over the most hypocritical, devious, avaricious administration ever. That he hired a bunch of corporate slags to oversee the destruction of Soc. Sec. is not a surprise it is merely business as usual for these bastards.
In anticipation of David Broder’s impending incapacity,
may I suggest that the sensibility known as “Broderism” be forthwith referred to as “Baiasm”.
Blumenauer’s website on Social Security appears to be out of date, since it uses Social Security analysis from before 2010 — e.g., the estimates of when the Trust Fund will be exhausted. However, none of his explanation expresses the view that the Trust Fund is unreliable or like relying on a lottery.
It will be interesting to see whether Blumenauer “corrects” the article on this point.
http://blumenauer.house.gov/index.php?option=com_content&task=view&id=341&Itemid=209#trustfund
So Wall St goes bust and instead of jail for corruption for the crooks and bankruptcy for the companies, it’s Too Big Too Fail and our taxpayer dollars bail out a bunch of crooked banksters and broke companies. We’re talking tens of trillions of dollars since late 2008.
But the Social Security program I’ve paid into since I was 16 is now a “lottery”. The same Social Security program that pays out 100% till 2027, 70% after that (100% essentially forever if we lift the cap), that hasn’t contributed one cent to the fiscal problems of the federal debt, but will throw millions into poverty if it is cut.
Well, fuck them if they think they’re getting away with that bull shit.
Foreign Bondholders who, in fact, are mostly worried that horrible domestic policies like slashing our safety net and off-shoring all of our jobs might cause our economy to catestrophically fail.
The only way Nation-States *ever* default completely on bonds is when governments collapse completely due to coups, or out-right descent into chaos.
2037, GlenJo :)
Hope you’re right, but I doubt it. Ever since JFK’s assassination when the powers that be discovered they can promulgate whoppers and no one says or does anything, things have slid downhill with no one saying or doing much of anything. Unanswered questions about 9/11 remain unanswered.
This is the umpteenth post on what the bastards plan to do with social security. Lots of venting, lots of talk the talk, but no walking the walk. We feel impotent. Maybe we are or maybe someone will discover some social viagra and we do something about it.
Thanks, Scarecrow.
What people seem to forget is that the government continuously sells new bonds to redeem the old bonds as they mature. That, among other things, is what the bond market is for. As Social Security redeems its bonds, which are by the way backed by “the full faith and credit of the United States Government,” the government will sell bonds on the bond market to pay them off. There will be no increase in indebtedness. Those bonds will sell at the prevailing interest rate of the day, which may be higher or lower than that the prevailing rate when the old bond was sold.
This is elementary stuff, but even well-intentioned and very smart progressives sometimes get confused — see Hugh’s diary of last week, “Dean Baker Gets it Wrong.”
IMHO, Baker didn’t get it wrong, but as both Hugh and bobcannuck pointed out, the CBO posts two different sets of numbers. The law is that Social Security is NOT part of the U.S. budget:
But the CBO publishes the real (i.e., legal) budget in normal fond and the “combined budget” in bold:
Where: “Off-budget surpluses comprise surpluses in the Social Security trust funds and the net cash flow of the Postal Service.” That’s a very deceptive practice that encourages exactly this sort of confusion, and I appreciate hugh and bob pointing this out.
The right has now come out with a new canard for SS: Ponzi Scheme.
It seems everyone is falling for the “too much spending” bullshite which will throw US into a Depression we will never get out of.
I’m beginning to think Pelosi saved SS from Bush’s privatization scheme ( he almost got away with it by the way way) only to steal it for the gov itself…for more war or maybe to fund WWIII once they attack Iran.
But the propaganda that it’s broke and that young folks will never see theirs has been going on for years and we all know that this kind of stuff becomes entrenched in the zeitgeist after long enough.
Some fools actually think it will help them! That they will be given a choice on how their FICA is used! I just laugh sadly.
Nobody’s going to say “your FICA taxes are repealed!!!!!” Nope, people will pay into it as before, now actually KNOWING they will never see a dime.
It’s not just the old, disabled and children who will suffer. by ending SS, everyone will simply be paying off the debt our erstwhile dictator ran up, in classic Milton Friedman fashion, and the new debts our current dictator is running up expanding war all over the middle east.
So, punch the weakest and watch the bottom fall out.
Arianna Huffington is doing a series over on HP called “Third World America”. I wonder if she can wake some folks up with this. Probably not
Reading this stuff makes my blood boil. These people (the catfood commission and its fellow travelers) will do anything avoid having the US meet its legal obligations. We should stop calling this a revision of social security and start telling what is in reality: a sovereign default. There are not too classes of Treasury debt: just one.
The thing that pisses me off the most is that this is being kept as secret as possible; few know anything about it at all. And NOBODY knows that Gates is mulling cutting veterans benefits. ( see below)
This Committee to Screw Everyone is illegal at best; unconstitutional at worst. this committee is bypassing our elected Representatives; their recommendations should be just that, not something automatically turned into law in order to sidestep political responsbility
Higher TRICARE premiums on Gates’ cost-cut agenda
The richest man in the world is a huge investor in NY Times, so it is no surprise that the rich have influence over editorial policy.
So, a T-bill in the SS trust fund is a worthless i.o.u. while a T-bill owned by, say China, gets “full faith & credit” from the US treasury? Hmmm, smells like some on the reich favour foreigners to their fellow US citizens yet they call us ‘America-haters’?
Also doesn’t Simpson collect a government pension in addition to his SS?
Bai – bought and paid for…
So, where’s the AARP on all of this. Per the WSJ:
Their opposition will be pivotal if Obama and his Catfood Commission are to be stopped.
.
“The hucksters have convinced enough fools or charlatans to believe the lies, and convinced the White House to pander to them, possibly the worst domestic policy blunder possible for a presumably Democratic President”
i think the HCR bill is the worst domestic policy disaster since reagans election, and though most havent begun to feel the pain of it, we will soon.
Sadly most of the younger generations have bought into the nonsense that’s been promulgated for years: that Soc Sec is “unsustainable” and that there’s simply no way to fix it. I’ve had numerous GenXers tell me that, of course, Soc Sec should be used NOW for their grandparents – who somehow are the only ones who “deserve” it – but for boomers on down, forget it. It’s done! A goner!
Yes, people certainly buy into stuff if it’s repeated often enough. No one ever talks about raising the FICA cap. Sheesh.
No, it is sort of like when I buy a T Note I expect the government to stand behind it.
Baker: ‘The article then includes the bizarre assertion about government bonds that the only way for the government to make good on the bonds it has outstanding: “is to issue mountains of new debt or to take the money from elsewhere in the federal budget, or perhaps impose significant tax increases — none of which seem like especially practical options for the long term.”
Bai’s opinion, it is radically at odds with perceptions in financial markets. These markets view it as almost inconceiable that the government will not honor its bonds, which is why the interest rate on long-term bonds is near its lowest level in the last 60 years.’
I have to say, the rebuttal is as much originating from the arse as the original drivel. Bai is misrepresenting the government obligations to the trust fund, Baker is misrepresenting the implications of these obligations. That the bond market – and who cares? are we all vigilantes now? – has a low interest rate might well mean that everybody thinks the government will cut SS benefits to keep the trust fund cash-flow positive to not have to raise money for repayments.
Because Baker is disingenious: Social Security is not in crisis if the Treasury repays the money mis-appropriated from the trust fund. To do so, the government would have to (a) issue new debt, (b) cut discretionary spending, (c) raise taxes – any combination thereof. We can argue about whether the government can and should reimburse the trust fund instead of cutting payments, but to pretend that this is not an issue is the idiot’s approach to trying to save Social Security. There is a conflict of interest here, it involves movement of money, and it has to be laid bare – for fuck’s sake, the question of where the money will come from and where it will go is the very core motivation of the elites that have been creating the real crisis (and then pretended it is a Social Security “crisis”). The crisis is real, the crash-flow to the trust fund will be net-negative soon, and the government will have to pay back – or, if we let them, will change rules. Deal with it.
I don’t understand. Are you saying the government will not default on its obligation to the Social Security Trust Fund? If not we have no problem and not need to cut benefits.
So why aren’t significant tax increases, say on the very wealthy, practical? The trust fund was built by taxing the working stiffs in this country, was “borrowed” to enable tax cuts for the wealthy, and should be repaid by tax increases on those who did NOT pay payroll taxes in the first place – the wealthy investment class. Workers deserve to receive the pension they have paid for!
I don’t agree. There is no evidence that this “bond market” is on net convinced the US will cut Social Security. One could as easily speculate, and that’s all it is, that the US would sooner default of bonds held by offshore corporations as those held by the Trust Fund whose moneys belong to retirees who vote.
All Baker is saying is that it’s highly unlikely the markets believe the US will effectively default on its own bonds, any US bonds — and if they thought there was a risk of that, interest rates would be much higher. Krugman and DeLong and others have made exactly the same point.
As Krugman notes, if you view the case as a unified budget — see wigwam’s comments — you can understand why the depletion of the Trust Fund is seen as impacting the rest of the budget. Raising taxes or more debt are two solutions, but not the only ones nor the most desirable, necessarily. The need for these “solutions” assumes today’s assumptions about economic growth, employment and the composition/income associated with that employment. But if we put more people to work at better jobs, you get more contributions to the Trust Fund. So a responsible plan to extend the long run Trust Fund could include a major jobs programs, or Govt investment in infrastructure that creates jobs, etc, which just happen to be what the country needs and would be politically astute as well.
The problem now is that the debate focuses far too narrowly on cutting SS, when there is no basis for saying that SS benefits are too small relative to the need they serve. Baker makes that point here:
http://blumenauer.house.gov/index.php?option=com_content&task=view&id=341&Itemid=209#trustfund
Seems perfectly logical.
Top earners still don’t pay extra into the Social Security Fund above their cap. Unemployment is still quite high. Those two realities result in less social security revenue than in better economic times. It also means that tax revenues in general are lower than they should be. We are in two, no three wars (Iraq, Afghanistan, and Yemen), and we are being goaded by one of our allies into starting a fourth war (with Iran). That cost a lot of money. Money that is backed by the full faith and credit of the US Government. Meanwhile, the same people who support those 4 wars are the same people who support keeping tax CUTS for the wealthiest of our nation. They are the same people supporting BENEFIT cuts to Social Security. They are the same people stiff-arming and stonewalling all economic recovery legislation. They are the same people who are congratulating themselves that the Foreclosure crisis is only affecting AMERICAN HOUSEHOLDS and that the damage to the BANKS has been mitigated with TAX DOLLARS they claim they are running out of (because they are being spent on 4 wars and bailouts to Wall Street).
Tax revenues won’t be coming from the wealty. They will have to come from the working poor and diminishing middle class. But if more people lose jobs, lose homes and lose the ability to PAY those taxes, who will pay for the government’s wars?
They will issue T-Bills to CHINA, of course! And they will swear to China and other investors that the FULL FAITH AND CREDIT OF THE UNITED STATES GOVERNMENT is alive and well. That way, with no more tax revenue to rake in (due to high unemployment and mass economic malaise), the government can continue to BORROW to pay for its Bailouts and Wars.
BUT, when it comes to the T-Bills (or like instruments) for BENEFITS in the Social Security Program (funded by our TAX DOLLARS ALREADY), they claim that the same FULL FAITH AND CREDIT OF THE UNITED STATES GOVERNMENT is suddenly not so good.
My solution:
Trade your dollars for Yuan. Then use that Yuan to invest in T-Bills. That way, you can guarantee the FULL FAITH AND CREDIT OF THE UNITED STATES GOVERNMENT.
Why? They are more willing to honor a Nuclear-Armed foreign power Creditor than they are to honor their own taxpaying citizens’ “credit.”
I am not sure that SSI benefits were ever meant to be a “loan” or “credit” to the US GOVERNMENT in the first place, but basically, the entire premise of the Catfood Commission is precisely that – the “loan” from the taxpayers will not be repayable, so instead, they propose some form of CRAMDOWN on the PRINCIPAL that we “loaned.”
(Funny how the same procedure that used to be available for individuals in Chapter 13 or 7 bankruptcies was removed in 2005 under Bush? And how OBama and the Dems have refused to use their majorities to reinstate that Cramdown provision that used to be available to Bankruptcy Judges?). But they are preapred to CRAMDOWN our social security benefits. As if they were a loan in the first place (which they never were, but they treat it as such).
IN reality, these were funds in a TRUST Account, with Uncle Sam being designated as the TRUSTEE of those funds. In any other circumstance, a Fiduciary Action would have been brought by now against the Trustee of an estate that had squandered the trust funds and then claimed they were just an unsecured, unperfected loan to the Trustee all along and that they now have to be liquidated or crammed down in a “workout”!!!!
Uncle Sam hasn’t even declared Bankruptcy yet, and he wants a CRAMDOWN! That is because he doesn’t want to piss of his Chinese and Russian creditors. He wants to instead unilaterally write off his debt to the US Consumers. Except, ITS NOT A DEBT! ITS A FIDUCIARY TRUST ACCOUNT!!!
But when Uncle Sam controls the courts, the politicians, carrying them around in his pocket like so many nickels and dimes, then I guess he can do what he wants in this PROTECTION RACKET called “USA.”
Speaking of which, here is the new article posted on FDL:
http://news.firedoglake.com/2010/08/26/rating-agency-puts-gun-to-governments-head-threatens-debt-downgrade/
It appears that our arguments as to the absurdity of the “TBills no good in SS, but TBILLS ARE good for China” argument of the Catfood Commission have been noticed.
The solution? Go ahead and force a sovereign default anyway. If the US actually has to gut Social Security, the only politically “Feasible” way to do it is for the government itself to collapse with the economy. (Well, the “main street” economy. Wall Street has already diversified out of this economy and have hedged and swapped their bets in other economies and other financial plays to benefit from an American collapse).
When the ratings agencies go this far, it means they truly intend to force a general default across the board. Folks, this is not just about social security anymore. That is the canary in the coal mine. I truly think the play here is to short the United States itself.
If you think that’s not likely, just check your financial history. Its been done before. ITs been going on for at least 200 years. England had a massive short against it 200 plus years ago. And since then, Financial Wizards have been pretty good at manipulating sovereign debt to their financial gain. This is the post-American century. And that means we are expendable. Social Security is just one small piece of that expendability.
Moderator
I think it was on this thread that Tinman1967 posted a rant or two and I asked him where he was coming from (feeding the troll?) Anyhow Tinman’s posts seem to have been removed as has mine. It is not necessary to post this, but I’d like to know what happened. Please email me an explanation at eekunin at gmail.com
This may not be my kind of place after all.
[Mod Note: Since your comments are on the thread you left them on, you might want to find the proper post before complaining about something that did not happen]
Sorry
2037 – even better.
Thanks!
“Top earners still don’t pay
extrawhat should be their fair share into the Social Security Fund . . . ” because of Congress’ refusal to deal with the “cap” which forbids SS tax on any earnings above $106,800. Why do we small people continue to subsidize so many others? Let them pay, too! It’s only fair.Hope you don’t mind, marsdragon, but I just couldn’t restrain myself.
Bravo and thank you. Good catch! I would even argue that this whole “let them eat catfood” bullshit would evaporate overnight if they would lift that cap on earnings for social security. They could raise some serious revenue with that removed. Cutting benefits would not be the debate. IT would more revolve around WHO got those benefits.
And let me say this. I think I would even support allowing people to take their fair share of percentage of benefits back out too at retirement age. Those who paid 10x more into the system would get a pro rata percent more back at retirement. I used to not like that idea. But I see a good reason to allow it: It would encourage high income individuals to REPORT those earnings more readily, instead of offshoring it. If they feel that they can get their share back at retirement age, then I think it lifts all boats.
OBbma campaigned with an economic concept that I really liked, but which obviously meant nothing to him. But it is a good one. I first heard it when he was talking to Joe the Plumber (remember that fool?). He said that instead of “trickle down” we should invest in the bottom on up. In other words, invest in the fundamentals – education, training, economic opportunity zones, community development, etc. Create the infrastructure for success, seed it with workers and entrepreneurial avenues that are more likely to blossom, and create the support networks to help ensure success.
Retool the corporate subsidies to assist in those creating domestic jobs. Provide the funding and assitance to those entrepreneurs who create value IN THE COMMUNITY FOR THE COMMUNITY.
That was a great idea. I have no clue where it went once he swore his oath, but the concept was truly refreshing in light of the failed 30 years of “Trickle Down” economics.
Henry Ford realized this. He knew that he needed to pay his workers a decent wage so they could go out and BUY the cars he was making. But in today’s world economy, you don’t need your workers to be able to afford the goods they make. The Financial Wizards have discovered a way to break every link in the value chain, and to commodotize every aspect of the process, and then diversify and hedge each component. That lines their pockets with profit. But it doesn’t create value for anyone else. It merely ensures that someone in Thailand makes it as cheaply as possible, while someone else in the Phillipines is able to ship it as cheaply as possible, and then someone in the US or elsewhere would buy it. The workers who make it will never be able to buy it. But that system only works or so long. It eventually will fail. But long after the Financial Wizards who made their short term profit are gone.