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View Diary: Should Americans Forgive the $2.5 Trillion Borrowed From Social Security? (181 comments)

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  •  The upshot --- (2+ / 0-)
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    FindingMyVoice, DvCM

    Thanks for your comments on here, btw, and I think you could educate me.  

    The monetary system is apolitical. It just intersects with politics but partisans try to adopt it and use it for their own purposes.  Among conservatives there's a growing chorus about the Social Security funds that were borrowed and spent.  (A panelist who appeared on Chris Hayes over the weekend is one of them.  De Rugy is her name.)  

    The tale they tell is money borrowed, money spent, all gone, whoever wants more will have to borrow it.  You can see this in the context of modern monetary theory and you can also see it as a high-stakes version of an old-time grift.
    The grifter relied on good looks, charm, a $20 bill and a well rehearsed routine at the cash register of any little shop.  In modern monetary theory you know that the money isn't 'gone.'  Money isn't so much created as it is circulated.  I'm careful about referring to monetary policies as creation unless there really is creation.  Before that I think about circulation.  What disappears here, shows up there.

    I think I saw accounting in a comment of yours.  Whenever anyone asks me about modern monetary theory I start with very basic accounting principles.  The credit and debit ledger which must always balance to zero.  There must be offset or there will be problems.

    Let's say the US needs the money that was borrowed and spent to pay beneficiaries because the revenue collected is no longer sufficient.  The Treasury just prints money each month to cover benefit payments. At each printing, there must be a new entry on the ledger.  The entries never pair off to close out the "position" and the balance is never zeroed out.  The creation of new money circulated into economy eventually has an effect of its own unless there is something else to offset it.  

    When you talk about the upshot, the Treasury borrowed $2.5 trillion and its on the ledger.  It must be balanced by an offsetting entry eventually by repaying the amount.  How it happens isn't as important as the need for it to happen.  

    If the Fed got involved in it, which is a very remote possibility, maybe too remote to even suggest.  But if it's necessary to prepare for all contingencies maybe it's worth exploring.  There's no precedent for it.  It would involve a three-way transaction between the Treasury, the trust fund, and the Fed.  

    You can picture this as a spreadsheet with 6 columns, two each for the three participants.  There would be a series of steps, one on each row.  All you do is move the debits and credits around to where they need to be.  The tricky part is rememberiing that the Fed will not dispense any money to pay for its involvement in any transaction.  Instead, it will always rely on positions closing themselves based on the full faith and credit of the United States of America.  When its bond holdings reach maturity it won't be paid the principal due either.  That's how its ledger would finally balance.

    "Those who deny freedom to others, deserve it not for themselves." - Abraham Lincoln

    by leftreborn on Mon Dec 03, 2012 at 10:01:00 AM PST

    [ Parent ]

    •  Thanks for your reply, I have to think on it, I (0+ / 0-)

      have lots of questions floating around my head.

      When I have time, I'll try to articulate some of them.

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