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Well let's start where my last diary ended up: Debt Toolkit: Public, Subject to the Limit, Social Security Trust Fund and put those tools to work starting from the same screen shot from Treasury's Debt to the Penny web application.

To recap: by law since their foundation in 1939 (OAS) and 1956 (DI) the Social Security Trust Funds have been required to hold all income in excess of current cost in the form of financial instruments fully guaranteed as to principal and interest by the federal government, which in practice means Treasuries. The specific Treasuries held by the Trust Funds are called Special Issues and have some unique features but are legal obligations of the U.S. fully backed up by Full Faith and Credit of the United States. As such the $2.6 trillion in the Trust Funds are held on the books at Treasury as just over half of the $4.8 tn of 'Intragovernmental Holdings' in the screen shot and so right on 1/7th of the $16.4 tn of Total Public Debt Outstanding. And importantly, and as shown in the last diary, an equal amount of Debt Subject to the Limit, that same $16.4 tn. Implications of this for the current Debt Limit debate below the cheese eating surrender monkey curve/squiggle.

Since Trust Fund assets are over half of Intragovernmental Holdings and those Holdings are included in Debt Subject to the Limit it follows that ANY increase in Trust Fund assets puts pressure on the Debt Limit. Now Trust Fund assets grow in any year where income from all sources, including interest credited to the existing TF assets, exceeds current cost. For example in 2011 Social Security operations on a combined basis were as shown in this linked Table from the 2012 Social Security Report: Table III.A3.—Operations of the Combined OASI and DI Trust Funds, Calendar Year 2011 The literal top line shows cumulative assets of $2.608 (fixed typo) trillion as of Dec 31, 2010, the bottom line $2.678 trillion on Dec 31, 2011. This difference of $69 billion in assets added directly to Intragovernmental Holdings and so directly into Total Public Debt Outstanding and Debt Subject to the Limit.

Now it is a fact that this increase in assets is net of interest credited, on a cash flow basis Social Security was actually negative as a portion of the $114 billion in interest earned on existing Trust Fund assets had to be paid in the form of cash. Now one can argue whether this is a problem for taxpayers or not, after all the money comes from somewhere, but for the purposes of deficit and debt scoring that cash flow fact is irrelevant. In 2011 Social Security ran a surplus of $69 billion which subtracted directly from the unified budget deficit. At the same time that $69 billion flowed right to the bottom line of Total Public Debt. Meaning that as regards Social Security the common sense idea that debt is simply the sum of deficits is totally reversed. Social Security surpluses add to debt and don't subtract from it.

And of course the reverse is true. If you want to reduce the pressure exerted by Intragovernmental Holdings on Debt Subject to the Limit you would want to REDUCE Trust Fund Assets. And given that growth in those assets is directly the result of income from all sources exceeding cost, the only way to reduce that growth is to either cut income or increase benefits. Which leads to the rather astonishing result that over the short run and in specific regards to Debt Limit calculations proposals to means test Social Security and/or impose a new COLA formula via Chained-CPI are arithmetically COUNTERPRODUCTIVE, they tend to put pressure on the Debt Limit and not relieve it.

Now this doesn't mean that it is totally irresponsible to address long term solvency issues in Social Security, but dragging them into a specific debate over the Debt Limit is pure blackmail, the 'solutions' the Republicans are demanding have literally less than zero to do with the vehicle which they are using to demand them. Now it is not true (as some supporters would have it) that Social Security has no effect on deficits or in our case debt, because it does. But in ways that go against 'common sense'.

Cutting Social Security cost does less than zero to reduce either short term or long term Public Debt, instead any such cuts either increase that Public Debt or in some formulations (which personally I don't agree with, but are pushed by people smarter than me) leave it unchanged on net.

On the other hand Social Security benefit cuts or alternately revenue increases do serve to reduce so called unfunded liability. But unfunded liability is not debt. And for that matter is not legally a liability. Instead it is a purely theoretical calculation of the Present Value of the gap between Scheduled and Payable benefits under Social Security, something I discussed in my diary from Monday Social Security Rashomon: an Actuary, a Defender and a Reformer Meet

Now I am perfectly happy to talk for hours and days about Unfunded Liability over either the 75 year actuarial window or even over the (God Help Us) Infinite Future Horizon. Fun stuff!!! But neither that 'Liability' or that Horizon have any direct relevance to either 10 year budget windows or the current Debt Limit. And only fools or liars will tell you different. Or to summarize: House Republicans.

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Comment Preferences

  •  Tip Jar (17+ / 0-)

    socialsecuritydefender.blogspot.com - SocSec.Defender at gmail.com - founder DK Social Security Defenders group - (hmm is there a theme emerging here?)

    by Bruce Webb on Sat Jan 05, 2013 at 09:05:20 AM PST

  •  They just don't want to pay for 2 unfunded wars (1+ / 0-)
    Recommended by:
    kurious

    and giving tax cuts that the budget and debt didn't really allow for... So after interest piles up there are some serious medicine to take and they want thoe whose contributions they used for thier own purposes to let them scamper away with thier money.  I see someone who is really wealthy and contributes to regressives  I think how many elderly are you planning to starve so you can have another yacht or another mansion on thier money. Predators of the worst sort, the kind who take down prey just t leave it rot.

    Fear is the Mind Killer...

    by boophus on Sat Jan 05, 2013 at 09:21:14 AM PST

    •  Shh...Nobody talks about those unfunded wars... (2+ / 0-)
      Recommended by:
      winsock, Bruce Webb

      Even though one is still ongoing, at a monetary cost that is "Difficult to Evaluate" but significant, especially when there are continued demands for cuts to social programs, but no equally forceful demands for cuts in war spending.

      ...The fact remains, however, that if the CRS and OMB figures for FY2001-FY2013 that follow are totaled for all direct spending on the war, they reach $641.7 billion, of which $198.2 billion – or over 30% – will be spent in FY2012 and FY2013. This is an incredible amount of money to have spent with so few controls, so few plans, so little auditing, and almost no credible measures of effectiveness...

      Last year Brown University calculated the costs for our decade long wars to be at least $3.7 Trillion and Counting.

      Part of the reason it's so "difficult" to calculate the real amount spent on the past and present ongoing war(s) is that in addition to the official direct war spending appropriated by Congress, the Pentagon spent an additional unknown amount  from its $5.2 trillion base budget over that same period.

      That's an insanely huge amount to pay for something that shows "No credible measures of effectiveness..." and for something that is needlessly killing untold numbers of civilians and American and NATO soldiers--(many of the military deaths coming at the hands of our "allies")  Yet, it goes on and on--and few, if any, of our Deficit Hawks utter a word about stopping this totally unnecessary drain on our budget.

      •  Exactly Not one peep from the deficit hawks. (1+ / 0-)
        Recommended by:
        kurious

        Of course these same deficit hawks haven't got a bit of problem with the regressives running up huge debt and taking away from US citizens as long as thier pockets are filling up.

        Fear is the Mind Killer...

        by boophus on Sat Jan 05, 2013 at 01:04:58 PM PST

        [ Parent ]

  •  So what you are saying is that the 2% (0+ / 0-)

    SS tax holiday reduced IG debt and now it's repeal is increasing the IG debt?

    Actually it makes sense from an accounting perspective.

    After all is said and done, a lot more is said than done.

    by Brahman Colorado on Sat Jan 05, 2013 at 09:35:28 AM PST

    •  And if I'm tracking correctly, chained CPI will (2+ / 0-)
      Recommended by:
      Bruce Webb, Gary Norton

      increase the IG debt?

      After all is said and done, a lot more is said than done.

      by Brahman Colorado on Sat Jan 05, 2013 at 09:43:43 AM PST

      [ Parent ]

    •  It increased public debt, (1+ / 0-)
      Recommended by:
      Brahman Colorado

      unless I'm mistaken, because the difference was made up from the general fund.  It did not affect the SS trust fund, however.

      Things work out best for those who make the best of the way things work out.

      by winsock on Sat Jan 05, 2013 at 09:45:15 AM PST

      [ Parent ]

    •  The 2% holiday left IG debt unchanged (3+ / 0-)

      The Treasury transferred funds in the precise amount needed to leave the Trust Funds harmless.

      This should have resulted in increased borrowing from the Public to make up the difference and so added to the Debt Held by the Public component and so on net increased total Public Debt. But the back end accounting and financing is pretty murky and it is unclear to me whether this transfer was actually fully financed.

      For example Treasury doesn't consider redemptions of Special Issue Treasuries to be 'outlays' as defined. Apparently on the basis that once created those instruments are cash equivalents and an exchange for cash nets out to zero. Basically federal budget accounting is a whole different world and I get headaches every time I visit and try to make sense of the whole thing. But for folk that are brave enough everything is 'explained' in the companion document to the President's Budget available at this link Analytical Perspectives on the Budget. Particularly relevant are the chapters extracted in a separate PDF called Budget Concepts and Budget Process.

      But for those tempted to enter I would advise them to be mindful of the Warning Dante would have us believe was written over the portal to the Inferno:
      "Abandon All Hope Ye Who Would Enter Here".

      I find the Analytical Perspectives kind of interesting (between bouts of headache). Then again i have a masochistic streak.

      socialsecuritydefender.blogspot.com - SocSec.Defender at gmail.com - founder DK Social Security Defenders group - (hmm is there a theme emerging here?)

      by Bruce Webb on Sat Jan 05, 2013 at 09:55:20 AM PST

      [ Parent ]

      •  I would like to know where the 2% went (0+ / 0-)

        on the balance sheet. I have been opposed to the 2 % holiday as I felt it decreased assets and funding to SS. However in light of your comment, it appears that indeed IG debt was decreased by distributing the 2% directly to workers paychecks.

        I'll have to rethink my positions by checking out your link. I like forensic accounting. I should have grown up to be one.

        After all is said and done, a lot more is said than done.

        by Brahman Colorado on Sat Jan 05, 2013 at 10:12:57 AM PST

        [ Parent ]

        •  The 2% was a pure rebate to workers (4+ / 0-)

          ultimately funded by the public at large but leaving the Trust Fund assets unharmed.

          The problem for Social Security was not in any net harm to the funding but the breakage of the worker paid insurance model that has always put the juice in the Third Rail of American Politics. Any change in the funding that has taxpayers at large subsidizing Social Security serves to transform it into welfare and worse gives the now subsidizers a stake and place to insist on changes. "After all we are paying for it".

          This was doubly terrible in that the transfer was partially funded by gutting the Make Work Pay tax credit. Meaning that a lot of the working poor didn't even get to enjoy their 'Holiday' even as people earning near the $110,100 cap pocketed a full $2300 tax cut. The net result was pure pander to the middle class at the expense of the working poor.

          Nice strategy for gaining votes, but not exactly a ticket to the Social Democracy Hall of Fame for President Obama. There was nothing progressive about this move, even though reversing it has a regressive effect in the near term.

          Which is why supporters opposed it in the first place, the 'progressivity' ratchets only one way even as it puts obstacles in the way of achieving revenue based solutions to the actuarial gap (for example the holiday just made any cap increase proposal more difficult).

          socialsecuritydefender.blogspot.com - SocSec.Defender at gmail.com - founder DK Social Security Defenders group - (hmm is there a theme emerging here?)

          by Bruce Webb on Sat Jan 05, 2013 at 10:25:10 AM PST

          [ Parent ]

          •  Excellent. I agree. Perhaps in a few years (0+ / 0-)

            a lot of this nonsense will be behind us and we can look at cap increases as the gap narrows. Though it seems that raising the cap each year captures more assets for SS corresponding to more retirees taking benefits and could continue indefinitely with a few more aggressive upward  tweaks to the cap.

            Greenspan was always worried that overall budget surpluses would ruin the bond market; however if SS increased it's holdings through IG debt, it would appear to be better to have retirees holding debt domestically, than the Chinese or Japanese. Perhaps it doesn't really matter either.

            After all is said and done, a lot more is said than done.

            by Brahman Colorado on Sat Jan 05, 2013 at 11:01:52 AM PST

            [ Parent ]

          •  Exactly as planned by the co-conspirators of (0+ / 0-)

            the overall plot to destroy SS and all the other socially beneficial constructs in the US; both Democrats and Repukes are complicit in this.
            It started long before Obamas' 'Catfood Commission', but,  as noted before, it will take a 'Democrat' to finalize things.

            If I watch or listen to any more of the lies and distortions of this topic on PBS (NH, WW this Friday, and frequently) or NPR and the MSM, my remaining brain cells are going to go critical.
            Like y'all say, TPTB do not want to repay these accumulated debts, they prefer to steal from most of us. And with a lot of help (media, etc.), they seem to be getting away with it.

            Any change in the funding that has taxpayers at large subsidizing Social Security serves to transform it into welfare and worse gives the now subsidizers a stake and place to insist on changes. "After all we are paying for it".

            "Double, double, toile and trouble; Fire burne, and Cauldron bubble... By the pricking of my Thumbes, Something wicked this way comes": Republicans!!. . Willkommen im Vierten Reich! Sie haben keine Bedeutung mehr.

            by Bluefin on Sat Jan 05, 2013 at 02:33:51 PM PST

            [ Parent ]

  •  This article is over the heads of all but a few (1+ / 0-)
    Recommended by:
    winsock

    Repubs and their stalwart supporters. I.e. the fools. The other few are mostly liars and they know it. The few among the few who aren't liars are outcasts or choose to remain silent for fear of being outcasts.

    Oh, and then there's the media. Don't get me started on the media and its endless parroting of Heritage Foundation-manufactured talking points about how we have to cut Social Security to "save" or "strengthen" it even though 99% of them don't even know what they're talking about, bless 'em.

    Between the idiocy and the mendacity, I'm starting to worry about the US.

    "Liberty without virtue would be no blessing to us" - Benjamin Rush, 1777

    by kovie on Sat Jan 05, 2013 at 10:08:45 AM PST

    •  And don't forget (0+ / 0-)

      the mendacious idiots.  Plenty of those about.

      Things work out best for those who make the best of the way things work out.

      by winsock on Sat Jan 05, 2013 at 10:24:22 AM PST

      [ Parent ]

    •  (10+-0-)...ARRRRGGG! (0+ / 0-)
      Oh, and then there's the media. Don't get me started on the media and its endless parroting of Heritage Foundation-manufactured talking points about how we have to cut Social Security to "save" or "strengthen" it even though 99% of them don't even know what they're talking about, bless 'em.

      "Double, double, toile and trouble; Fire burne, and Cauldron bubble... By the pricking of my Thumbes, Something wicked this way comes": Republicans!!. . Willkommen im Vierten Reich! Sie haben keine Bedeutung mehr.

      by Bluefin on Sat Jan 05, 2013 at 02:36:49 PM PST

      [ Parent ]

  •  Holy Cow! (1+ / 0-)
    Recommended by:
    Gary Norton

    Recently, I had this very argument with my Republican stock broker brother in law. He brought the subject up at a family gathering at Christmas.  And I said that Social Security had not contributed one penny to the debt but that in fact, the Trust Fund held nearly 1/6 of the total US debt.  He told me that I was absolutely wrong and that I had drunk the liberal Kool Ade.  Now I see where he is getting his contention.  It is simply the way the accounting is done, although it has nothing to do with the revenues and disbursements of the Trust Fund itself.

    In effect, because Social Security is taking in more money than it is disbursing and because it is required to invest those funds in US Treasuries, it is technically contributing to the debt via accounting balance sheet procedures.  So even though Social Security is not drawing from general revenues, it is considered in the broadest possible sense of contributing to the debt through its investments, just as I am because I also hold some savings in T bills.  

    Thanks for the elucidation and education even though I believe it is disingenuous for people such as my BIL to claim that Social Security is a cause of the debt issue.  It is no more a part of the real cause of the debt than my T bills.

    "Growing up is for those who don't have the guts not to. Grow wise, grow loving, grow compassionate, but why grow up?" - Fiddlegirl

    by gulfgal98 on Sat Jan 05, 2013 at 10:53:39 AM PST

    •  Want a whole Holy Herd of Cows? (0+ / 0-)

      Consider this.

      Social Security is considered fully solvent when it ends every year of its actuarial period with assets projected to equal 100% of the next year cost. For 'short term actuarial balance' this means each year in the standard 10 year budget window used by CBO and OMB for almost everything else.

      Now Social Security cost projects to increase every year both in nominal and real terms because of projected growth in beneficiary populations and the effects of adjusting initial benefits to Real Wage and continuing benefits to CPI. This means that the dollar amount of assets needed to maintain a 100% reserve increases every year. And as we have seen asset increases = increased debt.

      The Social Security Trustees project cost under the current scheduled benefit in both current and constant dollars. And in current dollars Social Security cost in 2090 is projected to be $22 trillion a year.
      http://www.ssa.gov/...
      Now that still represents a steady state share of GDP at around 6% from 2040 on but in nominal dollars means a reserve of that same amount.

      $22 trillion of Trust Fund Reserves = $22 trillion of Intragovernmental Holdings = $22 trillion in Public Debt. Just from Social Security operations.

      But what puts the Holy in the equation is that this would only be true if we adjust income to match cost in ways that allow the Trust Fund to build year over year in a fashion that leads to what the Chief Actuary calls 'Sustainable Solvency'. Which means retaining EVERY DOLLAR of Trust Fund assets and indeed ADDING to that each and every year. Which leads to the mind-blowing conclusion that we would never need to pay Trust Fund principal back at all, even as it amounts to a higher and higher dollar amount of Public Debt.

      This isn't a pure free lunch, a certain amount of the interest accruing on the Trust Funds would have to be taken out in cash each year. But it does mean that a fully solvent Trust Fund never has to be paid back, actually ends up being debt serviced at a discount (because some interest is retained to build assets to meet the new reserve requirement), but is cash flow negative every year.

      Which for the haters translates to "debt goes up every year, and cash flow is negative so its broken". Well no its not, in fact from the perspective of the government it is debt finance at a steep discount to market rates with workers both paying for their own retirement and lowering interest rates for capital.

      Don't hold your breath waiting for the MOTUs to take the revenue steps that would  bring this optimal long term result about and still less waiting for the thanks that logically would follow. You will always be looters and moochers to them no matter what the math shows.

      socialsecuritydefender.blogspot.com - SocSec.Defender at gmail.com - founder DK Social Security Defenders group - (hmm is there a theme emerging here?)

      by Bruce Webb on Sat Jan 05, 2013 at 11:36:11 AM PST

      [ Parent ]

  •  Coming attraction/spoiler (2+ / 0-)
    Recommended by:
    Gary Norton, Egalitare

    Intragovernmental Holdings do NOT include Treasuries held by the Federal Reserve or for that matter any in the Reserve Accounts of the regional Fed Banks. All of that is considered to be a portion of 'Debt Held by the Public'. And while the Fed balance sheet is not fully transparent we know from public sources that as a result of the rounds of QE etc the Fed is holding right around $1.9 trillion of Treasuries directly. That we know of.

    It would be very interesting to see a full breakdown of exactly who is holding what share of so-called 'Debt Held by the Public'. Because while all of it is marketable and in practice fully liquid a whole bunch of it is locked down by either U.S. government entities (the Fed) or in reserves by foreign sovereigns and Central Banks. That is as long as certain foreign currencies are formally or informally pegged to the dollar and/or major world commodities continue to be priced in dollars and/or the U.S. Treasury remains the financial vehicle of choice for 'Flight to Safety' (and all three are true right now) then a substantial fraction of U.S. debt is not actually available to be dumped on the market.

    The Chinese are not the single largest holder of U.S. Public Debt. That list is led by the Social Security Trust Funds and then by the Fed, and then cumulatively by the rest of the Trust Funds which make up the balance of that $4.8 trillion in Intragovernmental Holdings. But they control at least $1.1 trillion either in their own accounts or in funds indirectly controlled by them (for example Hong Kong is listed separately from China in the following link, as are any holdings by government officials or their relatives in off shore banks). http://www.treasury.gov/....

    But whether their holdings are as small as the $1.1 trillion the Major Foreign Holders chart shows (about 8% of Total, 12% of Debt Held by the Public) or something closer to $2 trillion when all is said and done, the reality is that they simply can't dump it all, not even accounting for the haircut they would take on price, U.S. debt instruments serve too many other purposes in the world economy.

    Yet another reason to disregard the debt fanatics, we wouldn't want to pay off all Public Debt even if we could, unless the U.S. wants to abandon its role as effective world currency controller it has to maintain SOME level of debt instruments in circulation. Just to lubricate the world's economic gears.

    socialsecuritydefender.blogspot.com - SocSec.Defender at gmail.com - founder DK Social Security Defenders group - (hmm is there a theme emerging here?)

    by Bruce Webb on Sat Jan 05, 2013 at 10:54:17 AM PST

  •  Thanks for all your work & explanations! NT (0+ / 0-)

    "The true strength of our nation comes not from the might of our arms or the scale of our wealth, but from the enduring power of our ideals." - Barack Obama

    by HeyMikey on Sat Jan 05, 2013 at 06:52:51 PM PST

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