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Old 8th April 2019, 07:31 PM   #1
Red Baron Farms
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Isn’t the real name of MMT actually “Cheat Code Economics”?

Alexandria Ocasio-Cortez is a fan of a geeky economic theory called MMT: Here's a plain-English guide to what it is and why it's interesting

This can't be good.

Isn't this the just print more money idea? I thought we all got over that one by 3rd grade!
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Old 8th April 2019, 08:23 PM   #2
psionl0
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Originally Posted by Red Baron Farms View Post
Isn't this the just print more money idea? I thought we all got over that one by 3rd grade!
Printing money to increase employment/productivity is not necessarily inflationary if planned properly.

The problem is that politicians would rather use the money to buy votes and they would not stop printing it even if inflation became a serious issue.
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Old 8th April 2019, 08:29 PM   #3
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Let's keep it simple:
if you take out a big loan that you won't be able to take back in your lifetime and spend it on blow and hookers, your heirs will rightly be upset.
If you spend it on protecting your valuable house from the effects of climate change, your heirs might be very thankful for your foresight.

The sense of printing money is dependent on how that money is spend or invested.
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Old 8th April 2019, 08:45 PM   #4
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Since I'm past 60 and I have no heirs, I vote for the "hookers and blow" party.
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Old 8th April 2019, 08:52 PM   #5
The Great Zaganza
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Originally Posted by shemp View Post
Since I'm past 60 and I have no heirs, I vote for the "hookers and blow" party.
debauch responsibly: find drug dealers and hookers who need to money to get through college.
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Old 9th April 2019, 05:01 AM   #6
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Do they advertise with that?!
http://www.internationalskeptics.com...6#post12642646
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Old 9th April 2019, 06:39 AM   #7
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Did the democratics finally come up with an answer to the Laffer-curve?
I guess I will have to read up on MMT after all.
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Old 9th April 2019, 06:45 AM   #8
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Originally Posted by GnaGnaMan View Post
Did the democratics finally come up with an answer to the Laffer-curve?
I guess I will have to read up on MMT after all.
This is the short version:
https://www.cnbc.com/video/2019/03/0...ry-theory.html
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Old 9th April 2019, 06:46 AM   #9
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Originally Posted by psionl0 View Post
Printing money to increase employment/productivity is not necessarily inflationary if planned properly.

The problem is that politicians would rather use the money to buy votes and they would not stop printing it even if inflation became a serious issue.
Like right now?

MMT mostly just describes the way the economy already actually works.
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Old 9th April 2019, 06:55 AM   #10
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Originally Posted by kellyb View Post
Like right now?
The difference "right now" is that the government perpetually borrows money and it is up to the Fed to try to clean up the mess left behind.

Originally Posted by kellyb View Post
MMT mostly just describes the way the economy already actually works.
I don't think so.
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Old 9th April 2019, 07:07 AM   #11
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Quote:
The difference "right now" is that the government perpetually borrows money and it is up to the Fed to try to clean up the mess left behind.
Same deal under MMT. Watch that video I linked to above.

eta: here https://www.cnbc.com/video/2019/03/0...ry-theory.html
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Old 9th April 2019, 09:54 AM   #12
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Originally Posted by kellyb View Post
Same deal under MMT. Watch that video I linked to above.
That video has a lot of factual errors.

The first one is where Stepanie Kelton says, "the US currency comes from the US government. It can't come from anywhere else". This is just plain wrong. The US currency comes only from the Fed (via quantitative easing). The Fed will only create as much currency as it believes is necessary to stop the economy from stagnating. They could even do the reverse in an inflationary environment (sell bonds to mop up the excess currency in the economy).

Comparisons with Japan are invalid because most of the Japanese national debt is owed to its citizens. In the US a significant proportion of the debt is held overseas which means wealth going out of the nation to service this debt.

Debt owed to Social Security is also a time bomb waiting to go off. When the number of retirees reaches a critical mass, not only will the SS tap be turned off but the government will have to find a way to service this debt so that pensions can be paid. The Fed is unlikely to monetize much this debt for fear of creating too much inflation.

I'm not saying that printing money (eg by borrowing directly from the Fed) is bad but it should not be left in the hands of politicians. They have no will to stop the presses once inflation rears its head.
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Old 10th April 2019, 07:05 AM   #13
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Originally Posted by psionl0 View Post
That video has a lot of factual errors.

The first one is where Stepanie Kelton says, "the US currency comes from the US government. It can't come from anywhere else". This is just plain wrong. The US currency comes only from the Fed (via quantitative easing).
https://www.investopedia.com/ask/ans...t-money-us.asp
Quote:
The U.S. Treasury controls the printing of money in the United States. However, the Federal Reserve Bank has control of the money supply through its power to create credit with interest rates and reserve requirements.
Not to be pedantic, but:

Definition of currency
1a : circulation as a medium of exchange
something (such as coins, treasury notes, and banknotes) that is in circulation as a medium of exchange
b : paper money in circulation
c : a common article for bartering
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Old 10th April 2019, 07:07 AM   #14
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Quote:
US currency comes only from the Fed (via quantitative easing).
Pretty sure QE was just a 2 time event. There was QE1 and QE2, and then they were done.
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Old 10th April 2019, 08:57 AM   #15
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Originally Posted by kellyb View Post
Definition of currency
1a : circulation as a medium of exchange
something (such as coins, treasury notes, and banknotes) that is in circulation as a medium of exchange
b : paper money in circulation
c : a common article for bartering
This is an incomplete definition. Only a small percentage of US currency is in the form of notes and coins. The bulk of it is the balances in individual bank accounts. One can transfer part of their balance to somebody else without anybody touching a note or coin.

You know that this is true - unless you still visit your suppliers and hand over cash to pay your bills.
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Old 10th April 2019, 09:20 AM   #16
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Originally Posted by psionl0 View Post
This is an incomplete definition. Only a small percentage of US currency is in the form of notes and coins. The bulk of it is the balances in individual bank accounts. One can transfer part of their balance to somebody else without anybody touching a note or coin.

You know that this is true - unless you still visit your suppliers and hand over cash to pay your bills.
Do you still stand by this?

Quote:
US currency comes only from the Fed (via quantitative easing).
?
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Old 10th April 2019, 08:17 PM   #17
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Originally Posted by kellyb View Post
Do you still stand by this?

Quote:
US currency comes only from the Fed (via quantitative easing).
?
Yes. The other way that the Fed can create money is to loan reserves to the banks.

The Treasury does print notes and "loans" them to the Fed but theses notes don't go into circulation until the Fed exchanges them for reserve credits with the banks.
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Old 10th April 2019, 10:35 PM   #18
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Originally Posted by psionl0 View Post
Yes. The other way that the Fed can create money is to loan reserves to the banks.
1) how common is quantitative easing compared to loaning money to banks?
2) is money created when the government spends? How is the military funded?
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Old 10th April 2019, 10:47 PM   #19
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Originally Posted by kellyb View Post
Pretty sure QE was just a 2 time event. There was QE1 and QE2, and then they were done.
Correcting myself - there was a QE3, as well, of which I was unaware. I was in "sit back and watch for signs of inflation" mode after QE2, because I was trying to figure out which schools of economic thought were definitely just pseudoscience. I entered this journey into answering the question of "What's going on with economics?" 100% agnostic.

My first question was "Which schools of economic thought saw the magnitude of the housing bubble and predicted an incredibly severe recession in 2006 or before?", and I found this, written in 2006:

https://michael-hudson.com/wp-conten...dToSerfdom.pdf

Quote:
the new
road to serfdom
An illustrated guide to the coming real estate collapse
By Michael Hudson

Even men who were engaged in organizing debt-serf cultivation and debt-serf industrialism in the American cotton districts, in the old rubber plantations, and in the factories of India, China, and South Italy, appeared as generous supporters of and subscribers to the sacred cause of individual liberty.
—H. G. Wells, The Shape of Things to Come

Never before have so many Americans gone so deeply into debt so willingly. Housing prices have swollen to the point that we’ve taken to calling a mortgage—by far the largest debt most of us will ever incur—an “investment.” Sure, the thinking goes, $100,000 borrowed today will cost more than $200,000 to pay back over the next thirty years, but land, which they are not making any more of, will appreciate even faster. In the odd logic of the real estate bubble, debt has come to equal wealth.

And not only wealth but freedom—an even stranger paradox. After all, debt throughout most of history has been little more than a slight variation
on slavery. Debtors were medieval peons or Indians bonded to Spanish plantations or the sharecropping children of slaves in the postbellum South.
Few Americans today would volunteer for such an arrangement, and therefore would-be lords and barons have been forced to develop more sophisticated enticements.
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Old 10th April 2019, 11:32 PM   #20
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Originally Posted by kellyb View Post
1) how common is quantitative easing compared to loaning money to banks?
2) is money created when the government spends? How is the military funded?
Loans to banks tend to be short term so QE is the main vehicle that the Fed uses to increase the money supply. However, this is just "base" money. Most of the money in circulation is created by commercial banks when they make loans.

The government borrows money to fund the shortfall between tax revenue and expenditure (including military expenditure) so the total amount of money isn't changed by the government activities.

As you have discovered most bank loans are for property investments which bumps up property prices. That is where most of the inflation is.
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Old 10th April 2019, 11:33 PM   #21
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Originally Posted by psionl0 View Post
Loans to banks tend to be short term so QE is the main vehicle that the Fed uses to increase the money supply.
Now I request evidence backing that claim. May I see what you have?
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Old 11th April 2019, 01:58 AM   #22
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Originally Posted by kellyb View Post
Now I request evidence backing that claim. May I see what you have?
It is difficult to get exact numbers and most references include bank account balances in the money supply making it more difficult to tell how much base money alone is being produced.

One reference that might help is https://www.investopedia.com/article...-recession.asp:
Quote:
The function of this central bank has grown and today, the Fed primarily manages the growth of bank reserves and money supply to allow a stable expansion of the economy. The Fed uses three main tools to accomplish these goals:
  1. A change in reserve requirements, (the fraction of customer deposits that must be held as reserves)
  2. A change in the discount rate, (the interest the Fed charges banks for loaning reserves to them) and
  3. Open market operations. (quantitative easing)
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Old 11th April 2019, 02:16 AM   #23
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Originally Posted by psionl0 View Post
It is difficult to get exact numbers and most references include bank account balances in the money supply making it more difficult to tell how much base money alone is being produced.

One reference that might help is https://www.investopedia.com/article...-recession.asp:
That reference doesn't back your claim, so no, it doesn't help.

Try again.
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Old 11th April 2019, 02:25 AM   #24
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Quote:
Open market operations. (quantitative easing)
Open markets operations is distinctly DIFFERENT from quantitative easing. It's right there in the hyperlink in the link you gave.

https://www.investopedia.com/article...ive-easing.asp

Quote:
Open Market Operations vs. Quantitative Easing
Quote:
Open Market Operations
OMO consist of the Fed either expanding or contracting its balance sheet by either buying or selling Treasury bonds on the open market.
Vs, as opposed to...

Quote:
Quantitative Easing
The key to understanding QE is in its name. "Easing," similar to the use of "loose" in "loose monetary policy," evokes the idea of easing monetary conditions and making it cheaper to borrow money.
Quote:
While OMO is generally effective at influencing interest rates in normal times, in severe crises it becomes inert. Here is when central banks have desperately turned to the unconventional monetary policy of QE to essentially have a mass injection of reserves into the banking system.
You need to just read the wiki on QE. We've only done it three times ever, and it was during the Great Recession.
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Old 11th April 2019, 03:24 AM   #25
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Originally Posted by kellyb View Post
Open markets operations is distinctly DIFFERENT from quantitative easing. It's right there in the hyperlink in the link you gave.

It's not as different as you might think.
Quote:
While QE is really just an extension of expansionary OMO, "quantitative" implies that the size or scale of the policy is essentially where the difference lies.
You would have realized this if you had a look at what the Fed does when it does QE (it's right there in my link's hyperlink).

Instead of just fine tuning the money supply, the Fed went for a big expansion of it. Unfortunately, the banks didn't respond by creating more loans so its effect was limited.
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Old 11th April 2019, 05:24 AM   #26
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Originally Posted by psionl0 View Post
It's not as different as you might think.

You would have realized this if you had a look at what the Fed does when it does QE (it's right there in my link's hyperlink).

Instead of just fine tuning the money supply, the Fed went for a big expansion of it. Unfortunately, the banks didn't respond by creating more loans so its effect was limited.
They didn't create more loans because there wasn't any demand for them. Banks don't just "create loans". They need people looking for them. I guess they might have been trying to re-inflate the housing bubble/"market", or they might have known exactly how it was going to go and they were trying to keep what people were calling "zombie banks" afloat and breathe life back into them.
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Old 11th April 2019, 05:57 AM   #27
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Originally Posted by kellyb View Post
They didn't create more loans because there wasn't any demand for them. Banks don't just "create loans". They need people looking for them. I guess they might have been trying to re-inflate the housing bubble/"market", or they might have known exactly how it was going to go and they were trying to keep what people were calling "zombie banks" afloat and breathe life back into them.
I can't argue with any of that. After all, the Fed is a bankers' bank - not a people's bank. So any justification the Fed gave for QE (basically to reflate the economy) comes under the same category as "politician's promise".
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Old 12th April 2019, 12:19 AM   #28
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Originally Posted by psionl0 View Post
That video has a lot of factual errors.

The first one is where Stepanie Kelton says, "the US currency comes from the US government. It can't come from anywhere else". This is just plain wrong. The US currency comes only from the Fed (via quantitative easing). The Fed will only create as much currency as it believes is necessary to stop the economy from stagnating. They could even do the reverse in an inflationary environment (sell bonds to mop up the excess currency in the economy).

Comparisons with Japan are invalid because most of the Japanese national debt is owed to its citizens. In the US a significant proportion of the debt is held overseas which means wealth going out of the nation to service this debt.

Debt owed to Social Security is also a time bomb waiting to go off. When the number of retirees reaches a critical mass, not only will the SS tap be turned off but the government will have to find a way to service this debt so that pensions can be paid. The Fed is unlikely to monetize much this debt for fear of creating too much inflation.

I'm not saying that printing money (eg by borrowing directly from the Fed) is bad but it should not be left in the hands of politicians. They have no will to stop the presses once inflation rears its head.
I suppose it's a matter of perspective whether we should consider foreign holdings of U.S. public debt to be significant? So, of total public debt ($22T) about $6.3T is owed to foreign and international investors, but that is still less than what the combined Fed and intragovernmental holdings are at $8T.

The thing to note here is that even if foreign investors own U.S. bonds, all payments relating to such holdings are still going to stay within the U.S. So when we say that "wealth is going out of the nation", we should keep in mind that the actual money flows involved stay within U.S. borders; it's only the title to such holdings that change.

I'm also not sure if we should consider Social Security to be a "time bomb"? Obviously there's not going to be a funding problem, i.e., as in rolling over such securities. Hence it all depends if the interest on those securities paid is going to cause inflationary havoc … which, in turn, depends on the productive capacity of the whole economy. In Japan they don't even bother to go through the market when redeeming bonds held by the central bank, they just swap maturing bonds for new ones straight away (called the Bank of Japan Switch). The same can probably be applied to SS as well?
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Old 12th April 2019, 12:28 AM   #29
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The "time bomb" thing is a completely false narrative concocted by people who hate the New Deal and SS, and then it's mindlessly echoed by under-informed and misinformed media. That's all there is there.
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Old 12th April 2019, 03:16 AM   #30
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Originally Posted by lupus_in_fabula View Post
The thing to note here is that even if foreign investors own U.S. bonds, all payments relating to such holdings are still going to stay within the U.S. So when we say that "wealth is going out of the nation", we should keep in mind that the actual money flows involved stay within U.S. borders; it's only the title to such holdings that change.
Are you trying to say that there is no net cost to servicing foreign held debt? Even if no USD actually left the country, I can think of heaps of ways that the foreign holders can get their "pound of flesh" - not to mention risks such as bond dumping.

Originally Posted by lupus_in_fabula View Post
I'm also not sure if we should consider Social Security to be a "time bomb"? Obviously there's not going to be a funding problem, i.e., as in rolling over such securities. Hence it all depends if the interest on those securities paid is going to cause inflationary havoc … which, in turn, depends on the productive capacity of the whole economy. In Japan they don't even bother to go through the market when redeeming bonds held by the central bank, they just swap maturing bonds for new ones straight away (called the Bank of Japan Switch). The same can probably be applied to SS as well?
As long as more money flows into SS than leaves it, everything is fine and dandy. When that is no longer the case, it will present problems that will require difficult solutions.

Originally Posted by kellyb View Post
The "time bomb" thing is a completely false narrative concocted by people who hate the New Deal and SS, and then it's mindlessly echoed by under-informed and misinformed media. That's all there is there.
Missing the point. It's not that there is a SS or "new deal" but that the government is taking its money.
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Old 12th April 2019, 04:19 AM   #31
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Quote:
As long as more money flows into SS than leaves it, everything is fine and dandy. When that is no longer the case, it will present problems that will require difficult solutions.
Life the cap, and most of the problem is solved.

Quote:
It's not that there is a SS or "new deal" but that the government is taking its money.
I have no idea what you could possibly mean by that. Can you clarify?
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Old 12th April 2019, 04:48 AM   #32
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Originally Posted by kellyb View Post
Life the cap, and most of the problem is solved.
Even if that is a typo, I have no idea what you could possibly mean.

Originally Posted by kellyb View Post
I have no idea what you could possibly mean by that. Can you clarify?
A large part of the government debt is owed to SS. ATM the government can just borrow more from SS to service its debt to SS. Do you think that will go on for ever?
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Old 12th April 2019, 04:55 AM   #33
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Originally Posted by psionl0 View Post
Even if that is a typo, I have no idea what you could possibly mean.
It was a typo, sorry! LIFT the cap. https://www.aft.org/resolution/lift-cap-social-security

Quote:
A large part of the government debt is owed to SS. ATM the government can just borrow more from SS to service its debt to SS. Do you think that will go on for ever?
The SS money is "quarantined" from the rest of the budget. It doesn't borrow. It's not part of the debt. It's not projected to even have a shortfall for a long time (decades?), too. It's a direct payment transfer from the young and working to the older and retired. That's why it's called "the contract between generations". Which is also why wall street wants it privatized so much - so they can take a cut.
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Old 12th April 2019, 05:25 AM   #34
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Originally Posted by kellyb View Post
It was a typo, sorry! LIFT the cap. https://www.aft.org/resolution/lift-cap-social-security
Where will the money come from to lift the cap? Do you think that the Fed will just write a blank check to cover it?


Originally Posted by kellyb View Post
The SS money is "quarantined" from the rest of the budget. It doesn't borrow. It's not part of the debt.
You have it backwards again. SS doesn't borrow money, the government borrows from SS.

Technically it is an "intra-government debt" but in this case millions of future pensions depend on the government being able to service this debt.
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Old 12th April 2019, 08:14 AM   #35
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Originally Posted by psionl0 View Post
Where will the money come from to lift the cap? Do you think that the Fed will just write a blank check to cover it?
The cap which currently exists is on what is paid IN to social security. INcome above a certain threshold is not taxed. That's the cap which can be lifted so social security will not need to be cut in the future.


Quote:
You have it backwards again. SS doesn't borrow money, the government borrows from SS.

Technically it is an "intra-government debt" but in this case millions of future pensions depend on the government being able to service this debt.
The government does not borrow from social security. You pay social security taxes into the social security trust fund. The trust fund is where the retiree's money comes from. There is no debt. Social security is its own, self-sustaining financial ecosystem separate from the rest of the government's budget.
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Old 12th April 2019, 09:17 AM   #36
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Originally Posted by kellyb View Post
The cap which currently exists is on what is paid IN to social security. INcome above a certain threshold is not taxed. That's the cap which can be lifted so social security will not need to be cut in the future.
Maybe I misread your link:
"RESOLVED, that the American Federation of Teachers will support the augmentation of the Social Security Trust Fund by calling upon Congress to eliminate the cap on Social Security wages, currently at $128,400, and urges its locals to do the same."
Originally Posted by kellyb View Post
The government does not borrow from social security. You pay social security taxes into the social security trust fund. The trust fund is where the retiree's money comes from. There is no debt. Social security is its own, self-sustaining financial ecosystem separate from the rest of the government's budget.


Social Security does not sit on a pile of cash. It is required by law to invest any surplus in government securities:
Quote:
At the end of 2014, the Trust Fund contained (or alternatively, was owed) $2.79 trillion, up $25 billion from 2013.[4] The Trust Fund is required by law to be invested in non-marketable securities issued and guaranteed by the "full faith and credit" of the federal government. These securities earn a market rate of interest.
https://en.wikipedia.org/wiki/Social...ity_Trust_Fund
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Old 12th April 2019, 09:32 AM   #37
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Originally Posted by psionl0 View Post
Maybe I misread your link:
"RESOLVED, that the American Federation of Teachers will support the augmentation of the Social Security Trust Fund by calling upon Congress to eliminate the cap on Social Security wages, currently at $128,400, and urges its locals to do the same."
Yeah, this is more clear:

Quote:
Starting Jan. 1, 2019, the maximum earnings that will be subject to the Social Security payroll tax will increase by $4,500 to $132,900—up from the $128,400 maximum for 2018, the Social Security Administration (SSA) announced Oct. 11.Oct 12, 2018
(the above is news to me, by the way. I had no idea Trump and co. had ever so slightly lifted the cap.)

Quote:
Social Security does not sit on a pile of cash. It is required by law to invest any surplus in government securities:

https://en.wikipedia.org/wiki/Social...ity_Trust_Fund
My point was that there is no debt with SS, and SS is "quarantined" from the rest of the budget. It's more of a direct transfer from the young to the old. I would also say surplus money invested kinda is a pile of cash. It's just invested as opposed to having been stuffed under a mattress.
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Old 12th April 2019, 10:31 AM   #38
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Originally Posted by kellyb View Post
My point was that there is no debt with SS, and SS is "quarantined" from the rest of the budget.
This is simply not true. The government borrows money by selling securities. If it sell securities to SS then it is borrowing from SS (and has to pay interest to SS).

Far from being "quarantined", the government has already spent this money.
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Old 12th April 2019, 10:41 AM   #39
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Originally Posted by psionl0 View Post
This is simply not true. The government borrows money by selling securities. If it sell securities to SS then it is borrowing from SS (and has to pay interest to SS).

Far from being "quarantined", the government has already spent this money.
Huh. I guess I do see what you mean about the excess fund which get invested. That part is not strictly quarantined. Most of the cash flowing is more like a direct transfer from the young to the old, though.
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Old 12th April 2019, 11:06 AM   #40
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Originally Posted by kellyb View Post
Most of the cash flowing is more like a direct transfer from the young to the old, though.
That part is true. In my research of SS I found a number of web sites that said that the SS trust fund is or will be insufficient to meet its obligations to retirees (meaning that the tax payer will have to pick up the slack). And that is assuming that the government will always be able to service its debt to SS.

I couldn't find any consistent numbers though so I haven't included any links.
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