Reply #97: ss and the debt ( re-visited from above )

[econoclast]

SS is "off budget". The budget deficit does NOT include SS in any way. ( except perhaps the interest paid to the SSTF on their holdings of US Treasury securities ... I have to check that out ). But if the budget deficit is 500 billion dollars and SS has a 100 billion surplus, that does NOT reduce the deficit to 400 billion dollars. What it DOES do is reduce the amount of the 500 billion deficit that the government has to borrow IN THE MARKET.

Since SS is required by law (and has been since the 1930's) to invest any surplus in US Treasuries, this means that if the deficit is 500 billion dollars and SS has a 100 billion surplus, to finance the 500 billion budget deficit, first the government sells 100 billion in US Treasuries to SSTF and then only has to borrow 400 billion IN THE MARKET. Please note that this is required by law and has been the case since the 1930's. Nobody robbed anything .... the SSTF was not plundered. This is the way the program was DESIGNED to work. You can check for yourself. Go to the SS website. Check out the historian's office. They have one. It is instructive.

FYI. For a period starting in the LBJ administration and ending in the Reagan administration SS WAS "on budget" and SS surpluses WERE put "on the budget" and any SS surplus did reduce the reported budget deficit. They called it the "unified budget". There is a school of thought that thinks LBJ did this to hide the true cost of the Vietnam war. But that stoped in the 1980's and SS was again put "off budget".

OK ... So what about when SS itself has a deficit? IE .... what happens if SS takes in less in taxes than it pays out in benefits. I think this is the first year that will happen. Then, the process works in reverse.

Suppose the government deficit is 300 billion dollars. But suppose SS has to pay out 500 billion in benefits in excess of what they collected on taxes. Where do they get the money? They redeem 50 billion of their treasuries. Ok. Where does the treasury get the money from if the government already has a deficit. They borrow it in the market. So, the budget deficit is 300 billion but they have to go to the market to raise 350 billion dollars. 300 to finance that year's budget deficit and 50 to pay off SS

So, SS doesn't impact the budget deficit per se, but DOES impact how much the government has to raise in the market.

To turn the 2.6 trillion in assets in the SSTF into the cash needed to make future payments, those assets have to be redeemed. Which means that, since the government seems likely to continue running budget deficits, to get that cash the government will have to borrow an additional 2.6 trillion dollars in the market. That is an additional 2.6 trillion on top of what they need to borrow to cover the annual budget deficits.

Question. Can we borrow an additional 2.6 trillion dollars in the market on top of the regular deficits at reasonable interest rates?