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Who Holds The $16.7 Trillion U.S. Debt?
Most folks who scream about the debt don’t realize that we owe most ($9.1 Trillion) of our $16.7 Trillion debt to OURSELVES — not to China. And as this chart shows, we owe about the same amount to Japan as China, so why does the propaganda machine always fixate on “borrowing from China”? Perhaps because they are the “Big Commie” enemy?

Also notice that Social Security — far from adding to the deficit or debt — is America’s largest creditor. Failure to grasp this distinction is like not understanding the difference between your home loan and the bank to whom you owe the money.

For the last few decades, Social Security has generated a surplus every year (in anticipation of the Baby Boomers retiring), so the trustees invest the surplus in U.S. Treasuries that generate interest of about $100 Billion per year, which gets credited back to the Social Security Trust Fund. That makes more fiscal sense than sticking the surplus in the sock drawer (i.e. lock box) where it would earn nothing and get eaten up by inflation.

Originally posted to ConnectTheDotsUSA on Sun May 25, 2014 at 05:51 PM PDT.

Also republished by Social Security Defenders.

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Comment Preferences

  •  Tip Jar (138+ / 0-)
    Recommended by:
    shrike, boran2, Pirogue, JeffW, Toyotabob7, lordcopper, kjoftherock, Catte Nappe, Thinking Fella, thanatokephaloides, DaNang65, arizonablue, Thomas Twinnings, Smoh, kevinpdx, millwood, Karl Rover, jasan, Lujane, The Jester, science nerd, kerflooey, HedwigKos, kaliope, golem, StrayCat, k9disc, marleycat, Book of Hearts, bkamr, anodnhajo, CwV, MartyM, Patango, Preston S, sidnora, ATFILLINOIS, jdmorg, US Blues, Notreadytobenice, Siri, dkmich, ginimck, hazzcon, eagleray, Simplify, citizen dan, Liberal Thinking, onionjim, annominous, NJpeach, ModerateJosh, unclejohn, Snarky McAngus, JDWolverton, fcvaguy, AaronInSanDiego, Rogneid, Betty Pinson, tmservo433, Words In Action, koNko, HeartlandLiberal, zerelda, TX Unmuzzled, Justus, countwebb, tobendaro, Shippo1776, Calfacon, koosah, LookingUp, Colorado is the Shiznit, se portland, jamess, decisivemoment, Bruce Webb, Mother Shipper, charliehall2, Wreck Smurfy, Prognosticator, yoduuuh do or do not, awcomeon, Pat K California, Shockwave, Hey338Too, rat racer, unfangus, thomask, middleagedhousewife, Bluesee, Prav duh, ArthurPoet, GeorgeXVIII, don mikulecky, SamanthaCarter, trkingmomoe, Yosef 52, duhban, Chinton, Terre, cpresley, Powered Grace, muddy boots, Aaa T Tudeattack, revsue, bleeding blue, spacejam, Rosaura, eru, Brian82, ozsea1, sebastianguy99, hwy70scientist, roses, JWR, slowbutsure, antooo, JVolvo, Hohenzollern, sawgrass727, DSC on the Plateau, Byron from Denver, fijiancat, blueoregon, basquebob, BarackStarObama, Showman, Jollie Ollie Orange, jomi, fumie, nirbama, rapala, splashy, Alumbrados, VTCC73, Bluefin, petral
  •  I always hate that "lock box" jargon (15+ / 0-)

    I don't care who came up with it either.  

    "The way to see by faith is to shut the eye of reason." - Thomas Paine

    by shrike on Sun May 25, 2014 at 05:57:34 PM PDT

    •  Or... (9+ / 0-)

      ...that it's just a useless box of IOUs.

      I'm not always political, but when I am I vote Democratic. Stay Democratic, my friends. -The Most Interesting Man in the World

      by boran2 on Sun May 25, 2014 at 05:59:46 PM PDT

      [ Parent ]

      •  IOU's (4+ / 0-)
        Recommended by:
        Smoh, Lujane, MKSinSA, trkingmomoe
        Or....that it's just a useless box of IOUs.
        And that's just the "pure" debt, i.e., the money the US Government openly borrows.

        Let's open another can of worms and consider the portion of our nation's net indebtedness we owe to, and because of, the Federal Reserve System. Every dollar the Fed doesn't own is a dollar the Fed owes, with the United States itself as the co-signer on the loan.

        The result? We're paying interest on every U.S. Dollar now existing. In those same dollars.  (WTF??)

        We ought to be charging that interest to all the other rich nations' governments who use the U.S. Dollar as a reserve currency. (But we don't.)

        "It's high time (and then some) that we put an end to the exceptionalistic nonsense floating around in our culture and face the fact that either the economy works for all, or it doesn't work AT all." -- Sean McCullough (DailyKos user thanatokephaloides)

        by thanatokephaloides on Sun May 25, 2014 at 06:37:53 PM PDT

        [ Parent ]

        •  They have been paying (10+ / 0-)

          See my comment below about exchange rates. Other governments are paying the USA to hold dollars because the value of them in their own currency has gone down. In the case of the UK, the dollar gets you around 11% fewer pounds than it did a year ago (or put another way, this August there will be more British and EU tourists in the USA taking advantage of the cheaper vacations on offer)

          "Come to Sochi, visit the gay clubs and play with the bears" - NOT a Russian advertising slogan.

          by Lib Dem FoP on Sun May 25, 2014 at 08:05:07 PM PDT

          [ Parent ]

        •  Wrong (4+ / 0-)
          Recommended by:
          katiec, trkingmomoe, OllieGarkey, Bluefin

          The IOUs are in fact the backing for every Federal Reserve Note in circulation, which is over 95% of the US currency in circulation. (The remainder are coins; United States Notes, which are IOUs directly from the US Treasury; and some old currencies no longer issued.)

          The alternative would be to return to a metallic standard, which would be catastrophic.

          •  And even in the case of metals, the metal is (2+ / 0-)
            Recommended by:
            trkingmomoe, OllieGarkey

            a commodity.

            The money is the stamp.

            •  See, that's the thing. (3+ / 0-)
              Recommended by:
              katiec, ozsea1, charliehall2

              Gold was valuable because it was:

              A)Rare
              B)Pretty
              C)Completely useless in an industrial sense.
              D)Damnably difficult to get out of the ground and refine.

              Gold was not a commodity, it was pure wealth.

              Now, gold is used in electronics as a major commodity. It has industrial uses as an excellent conductor. It's not really surprising that as the electronic age dawned, everyone abandoned the gold standard.

              There is no useless, pretty, rare substance we can switch to. Everything has some kind of industrial use or industrial value. There's no such thing as a valuable non-commodity anymore.

              Hell, even bitcoins are a commodity, NOT a currency.

              An Fhirinn an aghaidh an t'Saoghail.

              by OllieGarkey on Mon May 26, 2014 at 10:00:01 AM PDT

              [ Parent ]

              •  True, except: The money value of gold (1+ / 0-)
                Recommended by:
                OllieGarkey

                was the stamp.

                Though I think you agree with this.

                I'm not sure what bitcoins are, haven't made up my mind yet.

                If they're money, then their liability side seems to be booked in a computer program which is the bitcoin issuer :)

                •  The money value of gold (1+ / 0-)
                  Recommended by:
                  charliehall2

                  was NOT the stamp. It never was.

                  "The oppressors most powerful weapon is the mind of the oppressed." - Stephen Biko

                  by gjohnsit on Mon May 26, 2014 at 10:35:33 AM PDT

                  [ Parent ]

                  •  Well, except for one thing. (1+ / 0-)
                    Recommended by:
                    boran2

                    If someone handed you a Guinea, or a Florin, or whatever the coin was, you trusted the stamped value of the coin.

                    If someone just had gold bullion, you'd need to weigh it. While the price of gold still fluctuated, a guinea was a guinea, with a set weight. And it was the stamp on the gold that guaranteed it's weight and value.

                    Yeah, the price of gold fluctuated back then just like the value of the dollar fluctuates today.

                    But not as catastrophically as gold does today as an industrial commodity.

                    An Fhirinn an aghaidh an t'Saoghail.

                    by OllieGarkey on Mon May 26, 2014 at 11:41:45 AM PDT

                    [ Parent ]

              •  What is "pure wealth"? That sounds rather like (0+ / 0-)

                neo-Platonic mysticism to me. Gold is and was a commodity like anything else. If you mean that it wasn't consumed in any significant way, then Bitcoins fit that. They are produced at a set rate (which is built into the software and can't be tampered with, at least by design) and there is no obvious incentive to destroy them (though one can). However, the fact that gold did and Bitcoins do tend not to be destroyed or consumed does not alter the fact that they can be, e.g., hoarded then dumped to effectively take money from other Bitcoin/gold holders when this is done in conjunction with other financial instruments. That kind of instability, which unmanaged currencies necessarily facilitate, is why the gold standard was abandoned. It happened well before gold was used routinely and in large quantities for mass-produced electronics, in the 1910s and 30s.

                •  I'll take your points one by one. (0+ / 0-)
                  What is "pure wealth"? That sounds rather like neo-Platonic mysticism to me.
                  It was simply an expression, not a technical term. Please don't read into it like you're doing, because I wasn't making any allusions to platonic theory.

                  I meant to say simply that gold was valuable but useless. Hence, it was a good placeholder for wealth before the creation of fractional reserve banking. (A system which only works well with a tightly controlled, intelligently supervised central bank, and punitively strict regulation, but still works better than wildcat banking of the early modern or cryptocurrency variety.)

                  You and I don't disagree on hoarding. I'll simply say that as a product which is mined rather than issued by a central authority, as a placeholder for wealth which has no backing from an issuing agency, by definition, Bitcoins are a commodity, rather than a currency. They're like wheat which is grown or gold which is mined. That they are useless makes them quite similar to the old gold standard. The problem with them is that they require greater and greater amounts of electricity to create, which would make them naturally deflationary as a currency. They're a good "get rich quick" scheme for the folks who build a mining rig early on and get all the easily accessed coins. But once you reach a certain level of complexity, their energy costs make them an environmentally damaging product.

                  If you mean that it wasn't consumed in any significant way, then Bitcoins fit that.
                  Yes. That's exactly what I meant. But gold did become a consumer product in the gilded age, which led to even more instability. The rise of electronics in the early part of the 20th century was pretty much the death-knell of gold as a stable but industrially useless commodity.
                  It happened well before gold was used routinely and in large quantities for mass-produced electronics, in the 1910s and 30s.
                  Like I said, as the electronic age dawned, we abandoned the gold standard. I didn't say the information age.

                  Punch card systems, cryptography, laboratory instruments, early computers like the ones we put on battleships in the 40's, it was the rise of modern industry that started using gold, which caused those major instabilities. As well as advances in mining technology.

                  An Fhirinn an aghaidh an t'Saoghail.

                  by OllieGarkey on Mon May 26, 2014 at 11:52:57 AM PDT

                  [ Parent ]

      •  Money just IS an IOU. (6+ / 0-)

        It's an accounting record of who owes whom in real terms.

        Dollars are an IOU from the fed gov to you.

        What does the fed gov owe you?

        A tax credit.

        Private bank credit is also IOUs.

        Money is a unit of account, like inches are a unit of measure.

        It's accounting.

        •  Not really. The length of an inch does not vary (0+ / 0-)

          day to day, or get progressively shorter (at varying rates, even) with time. It is more like a story about the size of a fish. Money has value exclusively because people think it does, it is a consensual hallucination. It doesn't have much effect if a few people don't believe in it as everyone else still does. It is a very practical belief in many ways, however, and I believe that it can only be displaced, not eliminated. But the idea that money is some kind of physical property rather than a side-effect of understanding numbers on human brains is pervasive.

          •  Partially incorrect. (1+ / 0-)
            Recommended by:
            katiec

            US Dollars have intrinsic value because the US Government accepts them as legal tender for money owed to the Government, such as taxes.

            They gain additional value due to their status as a reserve currency and other economic factors, which make up the shared illusion/hallucination, but they have intrinsic value because of who accepts them, and the threat of force or imprisonment for not paying that bill.

            Everyday Magic
            Any sufficiently advanced technology is indistinguishable from magic.
            -- Clarke's Third Law

            by The Technomancer on Mon May 26, 2014 at 12:20:46 PM PDT

            [ Parent ]

    •  You made a small error, Lock Box idea is fine (5+ / 0-)

      I don't recall any proposal, ever, that said SS Trust funds in the "lock box" couldn't earn interest.  

      The SS "lock box" concept was simply a way of creating new regulations that prevented the federal government from considering payments to SS investment as part of debt.  

      Let's not make Social Security funds even more vulnerable by suggesting they not be protected.   That's a bad idea.

      Money is property, not speech. Overturn Citizens United.

      by Betty Pinson on Mon May 26, 2014 at 07:12:23 AM PDT

      [ Parent ]

      •  Lock Box was Inchoherent (4+ / 0-)

        Al Gore was just trying to create some rhetorical space between himself and Clinton's "Save Social Security First" but did so by essentially buying into the whole 'Phony IOU' narrative being pushed by the Bad Guys.

        There was and is no mechanism that could protect the Social Security Trust Fund anymore than it is already protected by current law and efforts to say that there are only feed the idea that it was or is vulnerable to start with.

        It wasn't, it isn't. And most of the narratives that have grown up around it are totally bogus once you look at the numbers. For example people say Johnson instituted the Unified Budget to cover up his Vietnam War expenses. Hmm, no. At that point Social Security was actually going into a deficit position. If you look at the numbers. Even more people say Reagan endorsed the 1983 legislation taht came out of the Greenspan Commission as a way of funding his tax cuts and military buildup. Well no. The surpluses between 1984 and 1988 were tiny, in large part because the FICA increases were back loaded. The resultant cash surpluses covered the massive deficits caused by Reagans tax cuts and military buildup just about as well as hiding an elephant behind a palm tree. The numbers just aren't there. And once again it is just a ploy to get progressives to buy into Phony IOU through the back door.

        And Lock Box or not, interest payments on the Trust Funds when not taken directly in cash do directly add to Total Public Debt. They don't add to Debt Held by the Public, which despite its confusingly similar name is not the same at all (see figure in post).

        SocSec dot.Defender at gmail.com - founder DK Social Security Defenders Group

        by Bruce Webb on Mon May 26, 2014 at 08:25:54 AM PDT

        [ Parent ]

      •  America doesn't have something like a household (3+ / 0-)
        Recommended by:
        trkingmomoe, muddy boots, ozsea1

        debt.

        Households are currency   USERS, so must earn dollars and balance a check book.

        The fed gov is a monetarily sovereign currency   ISSUER, it doesn't need to earn dollars, as it creates them out of thin air.

        It's supposed to balance the 3 financial sectors:  Public, Domestic Private and Foreign Trade, which is in deficit:

        Public Sector -1  =  (Domestic + 1/2) - (Foreign Trade + 1/2)

        The fed gov is like the card dealer, issuing cards to players so they can play a game.

        Dealer -1  =  Players +1

        Or like the bowling issuing points.  We never owe the bowling alley the points it issues so we can play the game.

        Dollars are an IOU from the fed gov to you.

        It owes you a tax credit.  

        Thus, it must issue more tax credits than it issues tax liabilities.

        Otherwise:

        Public Sector $0  =  Private Sector $0

        The total deficit ("debt") is merely accounting marks keeping count of how many dollars are in the non-government sector.

        •  So what is the money in offshore accounts? (1+ / 0-)
          Recommended by:
          ozsea1

          I understand corporations are sitting on a boat load of cash that would be taxed if they spent it in the US, and there are trillions of dollars involved.

          Is that private money, foreign trade, or no-mans land?

          And how much of that money is out there?

          And isn't that money at the mercy of the IRS rules on taxation?

          •  It is foreign trade stuck in limbo. More (0+ / 0-)

            specifically, it is hoarding, likely for purposes of market manipulation or tax dodging by some means when the money re-enters the US. If it's all active in those countries it is foreign investment. None of that by itself invalidates katiec's argument that I can see.

            That said, I don't understand the bit about "tax credits" and "tax liabilities". Taxation is an alternative to the direct use of force or reliance on whim to acquire the resources necessary for providing services not otherwise available (such as a value-stable currency). As far as I can make out, if there were such a thing as a "tax credit" (excluding the meaning "refund due to error or exceptional circumstances") it would be the provision of those services.

        •  That doesn't quite work. They money issued by the (0+ / 0-)

          US govt is backed by real assets. Not to give it value, but to protect the value. The points at a bowling alley are maintained by the scoring computers (or by the players, typically by consensus or by a consensually determined method, and by precedent). Similarly in a card game. The US govt cannot arbitrarily issue currency, it only has a wide range of discretion in doing so.

          The discrepancy between assets held and the value of the currency issued should not sensibly be called the debt, though. It should be called the stability sufficiency ratio, or something of that kind. Altering it is consequential, both forcing it to be too small (thus making currency regulation impossible and increasing instability) or too large (thus preventing further issuance to deal with fluctuations).

          It is a form of government power, and as such may be wielded for good or ill. The large debts Reps run up is not just because Republicans are irresponsible (though they are as individual representatives) but that they (including their owners) are keen to exert as much power as possible during their term to achieve their objectives, and to decrease the power of the inevitable incoming administration.

  •  Why would SocSec assets held in trust (9+ / 0-)

    in a "lock box" not earn interest or other financial market returns?

    I would actually have preferred that the SocSec surplus not be lent to the Treasury as it has masked deeper deficits. As the Social Security Trust Fund begins to cash in its Treasury Notes it will require greater federal revenues, or less government spending.

    "let's talk about that" uid 92953

    by VClib on Sun May 25, 2014 at 07:14:53 PM PDT

    •  True. And that's what the whole "solvency" issue (20+ / 0-)

      is really about. Payroll taxes were raised so that they generated far more revenue than was needed to pay SS benefits. This in essence paid for the Reagan tax cuts.
         But TPTB don't want to pay out the money that's in the Trust Fund because that would mean higher income taxes or cuts in government spending.
         So they want to cut Social Security now so that it will always bring in more revenue than it spends, so the Treasury can "borrow" it.

      •  No it didn't. (3+ / 0-)
        Recommended by:
        trkingmomoe, Chinton, ozsea1

        There was not "far more revenue" in the initial years. And the amount actually raised in FICA was tiny compared to those tax cuts and so didn't "essentially" pay for bubkis.

        http://www.ssa.gov/...

        Total Trust Fund balances at the end of 1988 was $109.8 billion, up $41 billion that year, and an amount that was not even reported until March 31, 1989, that is after Reagan was out of office. The Trust Fund Balance in Reagan's last Social Security Report (the 1988) showed a 1987 year end balance of $68.8 billion. Which was up from a year end low of $24.8 billion the year before the 1983 legislation. and of that $44 billion increase right at $20 billion came in the form of taxes on benefits, which hit much the same population that benefited from those tax cuts. At worst the upper middle class retirees were funding a part of tax cuts for the wealthy. But it wasn't coming out of the pockets of workers.

        Please examine the Table cited and compare total costs with revenues from payroll taxation in each year from 1984 to 1988. You just don't find "far more revenue than was needed" and still less cover for those tax cuts.

        Sure "Figures lie, and Liars figure". But not all the time. Sometimes the numbers DO tell the story. And it just isn't the familiar one.

        SocSec dot.Defender at gmail.com - founder DK Social Security Defenders Group

        by Bruce Webb on Mon May 26, 2014 at 08:35:55 AM PDT

        [ Parent ]

        •  Take 1986 (0+ / 0-)

          Total Revenue from "Net Payroll Tax Contributions" (column 3) was $207.4 billion. Total "Cost" was $201.5 bn (column 7)

          We didn't fund Star Wars and a 600 Ship Navy and Tax Cuts for the Wealthy accruing in 1986 with $5.9 billion excess  FICA collections. Even in 1986 dollars.

          SocSec dot.Defender at gmail.com - founder DK Social Security Defenders Group

          by Bruce Webb on Mon May 26, 2014 at 11:47:20 AM PDT

          [ Parent ]

    •  How would it earn interest? (2+ / 0-)
      Recommended by:
      trkingmomoe, ConnectTheDotsUSA

      To earn interest it has to be invested somewhere.  If not in government securities, in the private market: perhaps commercial bonds, perhaps index funds.

      All of those options are riskier, historically, than US treasury bonds.

      The important thing to make sure happens is: when the Trust Fund collects on those bonds, they Trust Fund must be paid for from general revenues: including taxes on dividends and capital gains.  The Trust Fund is worker money.

    •  So.. (1+ / 0-)
      Recommended by:
      trkingmomoe

      Is this what Geithner is talking about when he says that SS marginally contributes to the National Debt? If so, where else would we invest it? How about Russian Bonds. WCGW? (Actually, I think that a small portion of surplus SS funds could be invested in conservative U.S. assets. (Not assets of American Conservatives.) But this would be so difficult to keep influence free as to be practically impossible. At least it's not a closet full of dimes ala Michele Bachman.

      If there were a Liberal Media, there wouldn't be a republican party.

      by ComradeAnon on Mon May 26, 2014 at 07:13:33 AM PDT

      [ Parent ]

    •  Social Security funds should never be invested (12+ / 0-)

      outside of the federal government. Ever.  They should never be gambled away on Wall Street or via other kinds of "private" investment.

      Please, if you're a Democrat, have some respect for the brilliant Democrats who built this program.

      Money is property, not speech. Overturn Citizens United.

      by Betty Pinson on Mon May 26, 2014 at 07:14:23 AM PDT

      [ Parent ]

      •  Is it possible to be a Bankster and a Democrat? (1+ / 0-)
        Recommended by:
        trkingmomoe

        I am not at all convinced it is.

        “Poor people have access to American courts in the same sense that Christians thrown to lions had access to the Coliseum.” — Earl Johnson Jr., retired justice,California State Court of Appeal

        by JesseCW on Mon May 26, 2014 at 08:53:53 AM PDT

        [ Parent ]

        •  They're Mostly Democrats (2+ / 0-)
          Recommended by:
          gjohnsit, sebastianguy99

          I think you're engaging in a "No True Scotsman" fallacy about Democrats, based on the Democratic Party you wish existed rather than the one that actually exists.

          Most of the people who designed, implemented and continue to run the banks - private and public - have been and remain Democrats. They are registered members; they are (among the biggest) major donors; they are very public advocates of Democratic candidates and officials; they populate the revolving doors in Democratic governments. They are Democrats. Indeed, their power defines the Democratic Party more than virtually any other Democratic constituency.

          "When the going gets weird, the weird turn pro." - HST

          by DocGonzo on Mon May 26, 2014 at 09:45:21 AM PDT

          [ Parent ]

        •  Some Banksters contribute to Democrats so (0+ / 0-)

          favorable tax treatments (e.g.  carry interest) and subsidies (green energy tax credits, low income housing credits, corn ethanol, etc.) will continue.

          Others contribute so that they or their lobbyists will be able to meet with elected Democrats or their staffs to advocate what is in their interest.  

          This is the basis for Sen Schumer raising massive sums for Democrats from Wall Street.

          What matters from these "Democrats" is not their votes but their cash.

          The most important way to protect the environment is not to have more than one child.

          by nextstep on Tue May 27, 2014 at 12:52:13 PM PDT

          [ Parent ]

      •  Give Us the Certificates (0+ / 0-)

        I think Americans would be a lot better off if we received actual paper certificates from the Treasuries we bought with our SS premiums and other taxes. Every year with a statement of accrued, "guaranteed" (unless we screw it up by electing robber Congresses) SS benefits we can expect upon retirement - and certificates of the Treasury products we bought to back our share when it's repaid.

        Give every American physical evidence of their investment in the Federal government. Let the corporate anarchist trolls fight that hardcopy with their handwaving as if the government and the interest we'll get from it are just monsters under the bed.

        "When the going gets weird, the weird turn pro." - HST

        by DocGonzo on Mon May 26, 2014 at 09:49:23 AM PDT

        [ Parent ]

    •  Good golly. (0+ / 0-)

      Gov spending  =  dollars in the private sector.

      Public -1  =  Private +1 (- foreign trade)

      Why do you think the private sector needs fewer dollars?

      Last I checked we had idle resources.

    •  Where else would you put the money? (2+ / 0-)
      Recommended by:
      katiec, ConnectTheDotsUSA

      Wall Street?

      A lot of mattresses?????

  •  Just a reminder. (4+ / 0-)
    Recommended by:
    Lujane, fcvaguy, sebastianguy99, ozsea1

    That is about 96% of the USA's GDP.

    In France the figure for 2012 was 96.2%, Italy 103%, Spain 71.9% and Greece 155.4%


    BUT

    EU accounting rules mean that these figures have to include debts owed by local government (in US terms states and cities). The USA only declares Federal debt.

    "Come to Sochi, visit the gay clubs and play with the bears" - NOT a Russian advertising slogan.

    by Lib Dem FoP on Sun May 25, 2014 at 07:29:03 PM PDT

    •  It adds less than you might think (7+ / 0-)

      The latest figures show about $2.9 trillion in  debt, divided roughly equally between state and local government. Moreover, most state governments are legally bound by balanced budget requirements.

      http://www.economicpopulist.org

      by ManfromMiddletown on Sun May 25, 2014 at 09:06:52 PM PDT

      [ Parent ]

      •  But even state and local governments that (2+ / 0-)
        Recommended by:
        fcvaguy, sebastianguy99

        are required to have balanced budgets, can usually borrow for capital spending.

        Road projects and school construction is seldom paid from cash.

        Rationality in Washington requires recognizing that distinction.

        •  Quite (4+ / 0-)

          It was a change in the calculation that required the Blair government to introduce measures. Gordon Brown was told that local government spending on building housing could not be "off the books" As a consequence, lending restrictions meant virtually no social housing was built by them for years - leading to a housing crisis for the poor in some areas like London today.

          Instead of allowing local authorities to lend to build, they backed non-profit Housing Associations who did not need to be included. They also had legislation requiring the LAs to upgrade their housing stock to higher standards of insulation etc. That in turn meant the councils had to sell much of their stock to the Housing Associations who could borrow the money to do this.

          In general, capital expenditure is good but revenue expenditure paid for by lending is bad - the US position.

          If you add that $2.9T to the figure in the diary, it takes the US debt/GDP ratio to 112%. That can be manageable with the current historically low interest rates but every 1% rise in interest rates means the US has to pay >1% of its GDP just to service the debt, without paying anything off. Governments have been borrowing at the lower rates in order to buy back their bonds and pay off capital borrowing that was taken out when interest rates were much higher.

          "Balanced" budgets usually mean balancing current revenue expenditure, including interest payments, but not paying back capital borrowing.  The crunch comes when long term borrowing like government bonds matures and you have to re-finance at a much higher rate. That was the stage at which countries like Ireland, France, Italy, Spain and, especially, Greece came near default and some had to be bailed out by the IMF, World Bank and ECB who lent the money at much lower rates than they would had to have paid in the money market.

          "Come to Sochi, visit the gay clubs and play with the bears" - NOT a Russian advertising slogan.

          by Lib Dem FoP on Mon May 26, 2014 at 06:41:56 AM PDT

          [ Parent ]

        •  The big distinction is states are currency (1+ / 0-)
          Recommended by:
          ozsea1

          users, the fed gov is a sovereign currency  ISSUER.

          States must earn, or borrow, dollars.

          The fed gov just creates dollars out of thin air so everyone else can earn them to fund both their net incomes, and their ability to pay taxes or invest in bonds.

      •  States are currency USERS, like (0+ / 0-)

        everyone except the Fed Gov, our sovereign currency   ISSUER.

        The fed gov creates dollars out of thin air so we can use them to fund our incomes, and pay our taxes.

        Public -1  =  Private +1

        Pubic +1  =  Private -1

    •  A husband owes a lifetime of services to a wife. (8+ / 0-)

      How do we quantify that debt? We don't. Our federal corporation owns many millions of acres of land. How do we quantify that asset? We don't. States own many millions of miles of roads and streets. How do we quantify the assets and the maintenance costs? We don't.
      Our national accounts cover only a small sliver of what's being transacted in terms of dollars, certified debts, while the vast majority of our obligations rely on good faith.

      http://hannah.smith-family.com

      by hannah on Mon May 26, 2014 at 03:18:38 AM PDT

      [ Parent ]

    •  Silly. The Euro using countries use what is in (5+ / 0-)

      effect a foreign currency, so must earn Euros - either through taxes or foreign trade surpluses.

      American, in contrast, is a monetary sovereign, and as such is self funding.

      It can't go broke.

      It owns the printing press, and owes all it's obligations in it's own unit of account, which it creates out of thin air.

      Greece etc, are currency  USERS  - like our individual states, and everyone else in the private sector.

      America's fed gov is a currency  ISSUER.

      It merely issues the currency we use.

      Public Sector -1  =  Private Sector +1

      Pubic - 17 T  =  Private + 17 (-foreign trade)

      Dollars are tax credits, and the gov must first spend those  tax credits into the private sector  BEFORE  the private sector can use their tax credits to satisfy it's tax liability.

  •  let's keep up shall we? (3+ / 0-)
    Recommended by:
    Roadbed Guy, RF, Alumbrados

    First this is old news. Second the Fed has been printing money out of whole cloth for 5 years to buy debt and bail out wall street. Quantative Easing ring a bell?  

    Hello?

    Bueller hello?

    "When you're wounded and left on Afghanistan's plains, And the women come out to cut up what remains, Jest roll to your rifle and blow out your brains An' go to your Gawd like a soldier." Rudyard Kipling

    by EdMass on Sun May 25, 2014 at 07:30:13 PM PDT

    •  You hit the nail on the head (8+ / 0-)

      The only reason the USA is not in the same economic and political state as the EU countries I listed is because the US government is able to print more bills in a reserve currency.

      What YOU forget is that accompanying this has been a devaluation of the dollar against other currencies. A year ago the rate was around £1 = $1.53 - today it is around £1 = $1.698. It has also devalued against even the Euro with 1 Euro buying $1.333 a year ago and $1.363 last week.

      While this is good for tourism and exporters, it means imports would be higher (if it were not for the Chinese taking a hit to try to freeze the Dollar/Yuan rate)

      "Come to Sochi, visit the gay clubs and play with the bears" - NOT a Russian advertising slogan.

      by Lib Dem FoP on Sun May 25, 2014 at 08:00:16 PM PDT

      [ Parent ]

    •  Rubbish (9+ / 0-)

      Money Supply has not been increasing at a rate that is different than historical standards.

      After the Fed purchased troubled assets (TARP) to save the economy, they have since been using proceeds from the natural life of these 'troubled-assets' to purchase Treasuries through the QE program.

      Moreover, it is not about the amount of debt, but ability to pay.  You'd likely be surprised to note that the U.S. pays less to service the debt today than when President Bush was in office.  And since the economy is far larger today, we can better afford our debt.

      Lastly, everyone who complains about the cumulative debt should be asking what is the debt-to-revenue ratio of large corporations.

      The U.S. can afford it's debt.

      •  The US doesn't have debts, it has obligations (3+ / 0-)
        Recommended by:
        JesseCW, ozsea1, Alumbrados

        which it satisfies through creating dollars out of thin air.

        •  Debt = Obligation (0+ / 0-)

          The definition of a debt is an obligation to repay.

          You've said nothing that makes sense of dollars and cents.

          Just to reiterate, Money Supply-GDP ratio today is not vastly outside historical norms and would be far closer to those norms if republicans awarded the same spending tools to President Obama as were afforded to both Presidents Reagan & Bush.

          In other words, the Federal Reserve is doing everything in their power to meet their mandate because republicans in Congress are denying to a democratic president the very tools that have proven to reverse the course of recessions - government spending.  And republican intransigence is even more delusional since it was their policies of deregulation that brought the economies the world over to their collective knees.

           

  •  good diary (3+ / 0-)
    Recommended by:
    Patango, RF, ConnectTheDotsUSA

    attracting flies in the comments. Best to ignore.

    This Rover crossed over.. Willie Nelson, written by Dorothy Fields

    by Karl Rover on Sun May 25, 2014 at 07:47:02 PM PDT

  •  Another inconvenient truth (6+ / 0-)

    The right wing noise machine cannot fathom reality so it makes shit up all the time and you have found another real reality that would not make a good election time campaign poster.  Good find and great diary, thanks.

  •  The myths of Myths. (4+ / 0-)

    Conservatives of course never let facts or reality spoil their tall tales.

  •  A dollar is a certificate of a debt. (7+ / 0-)

    That is, the debt is made certain or guaranteed to be valid. How is that debt to be honored? With goods and services that are accepted as satisfying the expected return or meeting the obligation.
    Perhaps because Cons are not good at symbolic thought, they mistake the record of an obligation for the obligation itself. That, or the concept of obligation itself is anathema to them.

    Not being able to distinguish between the symbol and the act also leads to the misconception that a marital relationship is created by the issuance of a certificate of marriage. It doesn't. A marriage, also a kind of mutual obligation, exists or not regardless of whether it is certified. Certification is useful because communal recognition is helpful. But, the possession of a certificate doesn't make a marriage that isn't.

    A dollar similarly represents an obligation. However, whether that obligation is honored and something of value is given in exchange depends on the good faith of the participants in a transaction. If the U.S. Treasury is to be faulted, it's for issuing certificates of obligation to banksters and financiers who had failed to act honorably with the certificates they collected and issued previously. On the other hand, absent the new regulations in Dodd-Frank, it really wasn't possible for our agents of government to determine the extent or the source of the dishonorable behavior. Self-regulation by the banks had obviously failed.
    What hasn't been settled definitively either in the U.S. or the Euro zone is who's in charge of the certificates of obligation. The U.S. Constitution assigns that responsibility to the Congress, but Congress has been inclined to delegate because the members don't want to be held to account for the management. The Euro is being managed by unelected bankers, as far as I can tell. Switzerland and the UK have opted not to cede responsibility for the currency to the banks.

    The bankers are the modern version of theologians arguing over how many angels can dance on the head of a pin. Since the quality is indisputably ephemeral, they focus on quantity.

    http://hannah.smith-family.com

    by hannah on Mon May 26, 2014 at 03:09:05 AM PDT

    •  Wrong! (1+ / 0-)
      Recommended by:
      ozsea1

      The Bank of England is a separate institution from government - possibly more so than the Fed. It (or rather its economic committee) sets interest rates monthly and controls lending, using Quantative Easing if necessary. It has an overall brief which includes managing the economy and has targets set in the Monetary Policy Framework  

      I'd also point out that the US dollar is being "managed by unelected bankers".

      "Come to Sochi, visit the gay clubs and play with the bears" - NOT a Russian advertising slogan.

      by Lib Dem FoP on Mon May 26, 2014 at 06:52:49 AM PDT

      [ Parent ]

      •  That's a relatively recent development, though. (0+ / 0-)

        And I think it is effectively true: tl;dr skip the next two paragraphs.

        It was one of the first acts of the New Labour (Blair) government in 1997, and was a pretty much direct reaction to the consequences of the mortgage interest rate increase the Conservatives used in 1992 to try to stay in the European Exchange Rate Mechanism (ERM) a precursor to the Euro, or at least an attempt to bring about currency stability in Europe. The BoE is mandated to keep inflation low (at 2%), in line with conventional economic wisdom.

        That is an arrangement which, despite widely-accepted propaganda, benefits investors over workers. Inflation rises well above the limits set for the BoE could be dealt with by wage increases without imposing hardship. And low inflation has hardly brought low unemployment. In so far as there was high(er) employment for a time, it was a side-effect of the personal debt bubbles. That is true in the US and UK, and elsewhere. It looks to me like Germany is expanding one at the moment, which is part of why they are (for the time being) the most influential economy in Europe.

        It should also be mentioned that the BoE is a non-profit institution. It does not have shareholders, and was set up to execute policy. It is not the same as other banks, and in a very different category. In that sense, it is quite true to say that the "UK ha[s] opted not to cede responsibility for the currency to the banks".

        I agree that the Fed is greatly influenced by financial institutions. The degree to which that has been true has varied over time, however, and is a reflection of govt policy.

  •  Of course chances are that we are (3+ / 0-)
    Recommended by:
    Sparhawk, Betty Pinson, JesseCW

    never going to pay "ourselves" back.

    Heck, in the crush even our most recent Dem POTUS seemed OK with diminishing SS payouts, so as to avoid having to do that . . ..

    •  Adopt progressive policies to save SocSec (1+ / 0-)
      Recommended by:
      ozsea1

      and arithmetically we never HAVE to pay back Trust Fund principal.

      No matter which revenue stream you increase, either by Raising the Cap and/or extending FICA to capital income or the more traditional way via raising FICA rates the effect of putting Social Security on a glide path to 'Sustainable Solvency' (as defined by Social Security Chief Actuary Steve Goss) has the odd effect of preserving all SocSec principal even as it requres drawing a PORTION of the interest in cash.

      Shocking but true. Fixing Social Security along progressive lines ends up turning the Trust Fund into a discounted interest only loan. We not only don't have to pay back that principal but true friends of Social Security would insist that we never do. It only seems odd.

      SocSec dot.Defender at gmail.com - founder DK Social Security Defenders Group

      by Bruce Webb on Mon May 26, 2014 at 08:45:09 AM PDT

      [ Parent ]

  •  The real issue is growth and inflation (7+ / 0-)

    Our post WWII debt was about 110% of GDP, about where we are today. That debt was not paid off by austerity, far from it. It was "paid down" by a combination of GDP growth and inflation. That debt did not stop the post WWII economic boom. Neither did the highest 91% tax bracket.

    So where are we today? The economy is still in morbid growth of about 1.75% running average and we have very little inflation, outsourcing of US jobs having removed wage inflation pressures.

    The real challenge is to stimulate growth and allow some inflation. This will never happen with the Austerians in control.

    The largest part of the debt is owed to ourselves, really a misrepresentation. It is owed to the 1% and the .1% of the wealthiest Americans and corporations. This is part of the wealth that they have accumulated over years of unfair income distribution. The broad base of tax payers will have to enrich their coffers even more if we can't generate growth and inflation.

    •  Thanks for pointing out that "we" aren't "us". (2+ / 0-)
      Recommended by:
      The Wizard, trkingmomoe

      To put the torture behind us is, inevitably, to put it in front of us.

      by UntimelyRippd on Mon May 26, 2014 at 06:24:35 AM PDT

      [ Parent ]

    •  Slight disagreement (3+ / 0-)
      The largest part of the debt is owed to ourselves, really a misrepresentation. It is owed to the 1%
      I somewhat agree with you. We borrowed against SS because of inadequate revenues (tax cuts for the rich), but.... the debt owed to Social Security is definitely debt owed to "us".

      KOS: "Mocking partisans focusing on elections? Even less reason to be on Daily Kos."

      by fcvaguy on Mon May 26, 2014 at 07:11:49 AM PDT

      [ Parent ]

    •  How many Americans do you want to starve? (1+ / 0-)
      Recommended by:
      Sparhawk

      Let me start by pointing out that in the post WWII period the USA was about the only proper fully functioning major economy. In addition at that time the USA was making a whole range products the rest of the world wanted to buy and, importantly, could not get elsewhere. US manufacturing and the world are rather different today.

      Inflation is a great way of getting out of debt, provided you are prepared to put up with large numbers of people on fixed incomes being unable to afford the higher food prices.
      I had a great time reducing my personal debt in the 1970s when inflation was hitting 25% in the UK as the government had a "social contract" including a pay agreement. That increased my salary by inflation after a trigger point. I was getting monthly pay rises. Trouble was when they tried to contain wages it led to the "Winter of Discontent"

      "Come to Sochi, visit the gay clubs and play with the bears" - NOT a Russian advertising slogan.

      by Lib Dem FoP on Mon May 26, 2014 at 07:12:14 AM PDT

      [ Parent ]

      •  Our trade surpluses during the 50's ran about (2+ / 0-)
        Recommended by:
        trkingmomoe, RMForbes

        1% of GDP.

        Foreign trade was not the driver of our post-war boom.

        “Poor people have access to American courts in the same sense that Christians thrown to lions had access to the Coliseum.” — Earl Johnson Jr., retired justice,California State Court of Appeal

        by JesseCW on Mon May 26, 2014 at 09:00:49 AM PDT

        [ Parent ]

        •  Look at it sector by sector (1+ / 0-)
          Recommended by:
          trkingmomoe

          If you are importing the raw materials you need to feed your industries, your exports might only just cover them. What happened after WWII was industry was consumer led and production went to the domestic market primarily (followed by the military?). Exports were limited because of the economic state in clients' countries but that domestic consumption drove the rise of GDP.

          Today the USA runs a trade deficit which, although it has reduced from 6% to around 1.5%, this has only been the result of exports and import substitution of petroleum products.

          Most of the boost in exports came from tangible stuff sold abroad: goods, rather than services. The biggest among them were petroleum products refined from all the crude oil the U.S. is producing—unlocked by fracking. Through June, the U.S. has exported an average of 99 million barrels of petroleum each month over the past year. That’s roughly quadruple the amount the U.S. was exporting a decade ago.

          The story of the shrinking U.S. trade deficit is essentially the story of the U.S. oil boom. The last time the U.S. came close to balancing out the trade deficit, at least in terms of its share of GDP, was just after a recession ended in 1991. To feed the broad expansion that followed, U.S. oil imports grew by more than 130 percent over the next 15 years, from 192 million barrels a month in early 1991 to a peak of about 455 million barrels a month in the summer of 2006.

           

          The new US oil-dependent economy raises a problem which is not addressed by those opposed to fracking in the USA (whose reservations I well understand). If you stop fracking, you risk the economy going down the pan. IF Congress would allow, the solution might be to properly control and regulate the practice at least until the US economy can be diversified away from this dependence.

          It used to be said that Americans were addicted to gas consumption. While that remains true, the US economy is now addicted to gas production.

          "Come to Sochi, visit the gay clubs and play with the bears" - NOT a Russian advertising slogan.

          by Lib Dem FoP on Mon May 26, 2014 at 09:30:35 AM PDT

          [ Parent ]

  •  I would like... (1+ / 0-)
    Recommended by:
    katiec

    ...someone with a solid understanding of modern monetary policy to weight in on all of this. Particularly some of the comments re: solvency.

  •  I do not find this diary to be soothing. (9+ / 0-)

    I have run afoul of dKos in the past for my dissatisfaction with the handling of social security funds.

    Don't get me wrong -- the only reasonable thing to do with them is loan them to the government.

    I just don't like what the federal government does with that extra revenue.

    Social security is a promise being made by today's workers to themselves -- but it's a promise that is going to have to be kept by tomorrow's workers. It's going to be difficult for tomorrow's workers to keep that promise, if today's workers insist on blowing the revenue on an extended low-tax orgy of misbegotten imperial adventuring, fossil fuel exploitation (and general resource depredation).

    The federal government should be spending that money on:

    A. Building physical infrastructure to support the work of tomorrow's workers, who will be expected to support their elders. That means: Affordable housing. Mass transit. Hospitals and clinics.

    B. Educating tomorrow's workers so that they will be able to provide the services their elders will require. Primarily, that means health care workers -- nurses, nursing practitioners, physician's assistants, and even actual doctors. We should be doubling the rate at which we produce such workers, and their education should be free, period. You graduate, and you owe nothing (alternatively, you have a denominated debt that it is forgiven over some extended term of practice).

    C. Etc.

    Instead, today's workers insist on electing politicians who have no concern for anybody's future. In 40 years, the result will be a dazed workforce staring at insuperable personal debt, being told that they also owe their forbears the better part of everything they produce, on account of the fact that their forbears signed a note their grandchildren's name, and held a gigantic party with the borrowed money.

    To put the torture behind us is, inevitably, to put it in front of us.

    by UntimelyRippd on Mon May 26, 2014 at 06:39:57 AM PDT

    •  Excellent comment (1+ / 0-)
      Recommended by:
      AntonBursch

      It won't be nominated to Top Comments anytime soon.

      (-5.50,-6.67): Left Libertarian
      Leadership doesn't mean taking a straw poll and then just throwing up your hands. -Jyrinx

      by Sparhawk on Mon May 26, 2014 at 07:22:47 AM PDT

      [ Parent ]

    •  Only one problem with your assesment (0+ / 0-)

      the term worker is slightly skewed.  The money that has been paid into SS has been used to pay for normal Federal Govt operations/obligations.  Now that SS is no longer in surplus, the Govt has to borrow money in the normal US bond market to pay for continuing operations/obligations.  The misconception and problem is workers do not owe the money, any entity that would normally pay general taxes owe the money.  So workers, corporations/businesses, investors, etc.  actually owe the money.  

      The issue comes down to taxes in, obligations out.  When obligations exceed taxes the Govt must issue Bonds to pay the difference.  The entities that hold the bonds are the Questionable part.  Who will continue to buy US bonds.

      The proper way to deal with this issue would be for the US govt to move to a tax policy which creates a surplus each year that would be equal to the deficit in SS benefits.  Not by raising FICA taxes but by raising general revenue to compensate.  So if SS has a $100 Billion deficit, US income taxes and other non FICA revenue should be raised by that $100 Billion.  This would balance the accounts.

      The issue we have now is Income Taxes and other non FICA taxes have been lowered and do not pay for Non SS obligations of the US Govt.

      To sum up Non FICA Tax policy is going to have to be addressed and fixed other wise deficit spending and US Bond borrowing is going to explode.

      "If Tyranny and Oppression come to this land, it will be in the guise of fighting a foreign enemy" James Madison 4th US President

      by padeius on Mon May 26, 2014 at 11:34:22 AM PDT

      [ Parent ]

    •  Agree with your points. (1+ / 0-)
      Recommended by:
      RMForbes

      The money borrowed from Social Security should have been invested in more worthwhile endeavors to create broad prosperity, more bang for the buck. Folks must learn to vote for better economic policies that benefit the many instead of the few.

    •  baby boomers are in for a shock if they think (1+ / 0-)
      Recommended by:
      UntimelyRippd

      that the spoiled brats that they raised are not going to fuck them over in 20 years

      everyone here on daily kos who is fighting the good fight for the future of social security are certainly deserving of admiration

      but they are also in extreme denial

      baby boomers are going to get fucked hard

      or as the old saying goes, they are going to reap what they sowed

  •  It Isn't Quite "Us" (5+ / 0-)

    I don't think many poor people own T-bills (if you exclude their share of Social Security). I suspect the bulk of what we own U.S. investors ultimately is owned by the rich.

    But certainly this chart puts it in perspective. And when you look at our foreign debt you can see what "free" trade has been costing us over the years.

  •  It astounding (4+ / 0-)

    how tough and resilient the American economy has been.

    I would never have thought we could have a weak half hearted recovery after what the banks did to us in the 2000's, followed by the kiss my ass Main St. policy where small businesses can't borrow.

    It seems like the oligarchs idea of a "stress test" is to beat the crap out of us, grab our life savings, throw us into the ditch with no job, and then stand back and wait to see if we crawl out and start living again.

    Americans need to start paying attention and voting for their OWN interests, not voting for anti government criminals. In fact, we should start a meme where any politician who claims that government is a "problem", or "needs to be small", or any talk of getting government "out of the way" should be tagged as not eligible for office and laughed off the stage.

    For one thing, this phoney anti government talk is a lie, they love big government, as long as its no bid military contracts with no accountability and no penalty for not doing the job we paid for. Yes that's really going on.

    A true craftsman will meticulously construct the apparatus of his own demise.

    by onionjim on Mon May 26, 2014 at 07:01:51 AM PDT

    •  Small govt for thee but not for me! (0+ / 0-)

      When the BIG CONservatives are in charge, they balloon govt in all the areas they like — away from kids, workers and seniors and into the military industrial complex; away from Main Street and into Wall Street. Instead of focusing on the size of govt, folks need to always ask “Who is benefiting from govt policies and spending? Cui bono?

  •  Great graphic (1+ / 0-)
    Recommended by:
    duhban

    Just curious.... why wouldn't you consider the $2 T owed to the Federal Reserve as "money we owe to ourselves"?

    KOS: "Mocking partisans focusing on elections? Even less reason to be on Daily Kos."

    by fcvaguy on Mon May 26, 2014 at 07:05:17 AM PDT

    •  It's Not even considered "debt" (1+ / 0-)
      Recommended by:
      Bruce Webb

      Because no interest is paid on it. The Fed refunds all interest on its bonds to the Treasury.

      The whole national "debt" issue is meaningless because we print our own money in unlimited amounts and therefore can pay the "debt" in full at any time.  That is why "safe haven" investors always buy our debt -- they know we will always pay it because why wouldn't we?

      •  Well it scores as Debt (1+ / 0-)
        Recommended by:
        ozsea1

        Current Fed holdings of Treasuries score as all of 'Total Public Debt' 'Debt Held by the Public' and 'Debt Subject to the Limit'.

        What is true that it doesn't cause any real 'Debt Service' because all Fed 'profits' are rebated to Treasury.

        But like all MMT persons you have confused HISTORICAL 'Full Faith and Credit' with FUTURE ability to "print our own money in unlimited amounts". The reason why the U.S. Dollar is treated as that "safe haven" is that investors trust that the U.S. won't use "Full Faith and Credit" like a teenager uses his or her first credit card, particularly one paid by Mom and Dad.

        That the U.S.'s 'credit' would score at the top of FICO rates (if that made sense) doesn't mean that it is infinite. This mistake is I think fundamental to all MMT efforts.

        We are Sovereign because our Credit is Good, our Credit is not Good because we are Sovereign. Big difference.

        SocSec dot.Defender at gmail.com - founder DK Social Security Defenders Group

        by Bruce Webb on Mon May 26, 2014 at 08:54:29 AM PDT

        [ Parent ]

        •  If U.S. Credit is not Infinite, then what is it? (0+ / 0-)

          We have added trillions to the U.S. debt over the past 10 years and have "printed" trillions more that have been added to the money supply.  Yet our interest rates are at historic lows and will remain so for a long time.

          The U.S. is hardly a "teenager with a first credit card" despite the vast amounts of money we have created and spent.  Our credit is good because we have a solid economy and government, but our "debt" is meaningless and our money supply expansion does not cause inflation.

          Full faith and credit has nothing to do with our status as the primary safe haven of the world economy.

          •  What is it? Bounded. (0+ / 0-)

            By what? Well we don't know for sure, certainly not any set amount of Debt per GDP a la R-R.

            But it is a far different thing to say that we are far from the bound and that there is no bound at all.

            Look we were equally as much a sovereign in 1981 as we are today. Yet the market was demanding 12.57% on the 10 year Treasury.
            http://www.multpl.com/...

            Our credit is currently good and our economy comparatively 'solid' because our government did not embrace Austerianism with quite the fervor of most of the rest of developed countries, that is we look good by comparison. But elevating this historical contingency into some universal law is to take too narrow a view.

            Look there was a time when "Sound as a Pound" was the opeating principle on which the world economy ran. And then came WWI at which time it was supplanted by "Sound as a Dollar". Which itself came near a cropper in 1933 when incoming Pres Roosevelt declared a Bank Holiday but then revived itself during and after WWII.

            But if you look back in history many, many currencies were issued by Sovereigns and accepted as standards by folks far beyond the walls of that State. Florins and Ducats and Spanish Pieces of Eight (Dollars). And maybe you could add Dirhams. And what were Florence (Florins) or Venice (Ducats) if not the monetary Sovereigns of their days? Of course Goldbugs would tell you that there was a difference, but realistically people were not acid testing each piece of metallic currency each and every time it served as exchange value. Ducats and Florins were as good as the Italian Bankers who issued them and Pounds as solid as the Bank of England.

            Until they weren't. Because of bounds not necesarily visible at the time.

            SocSec dot.Defender at gmail.com - founder DK Social Security Defenders Group

            by Bruce Webb on Tue May 27, 2014 at 12:29:12 AM PDT

            [ Parent ]

            •  How far is the end of the universe? (0+ / 0-)

              "But it is a far different thing to say that we are far from the bound and that there is no bound at all."

              What difference does it make to say there is some bound somewhere?  Imagining the end of the universe or monetary expansion does not inform policy at all, nor does your statement:

              "Pounds as solid as the Bank of England. Until they weren't."

              What is interesting is that you mention FDR and 1933 but fail to discuss FDR's banning of gold in the U.S. economy.  Obviously, that action did not destroy the dollar's value and in fact enabled our economic recovery from the Great Depression until 1937 when FDR made the huge mistake of listening to the bad advice of "bounded" monetarists and tried to balance the federal budget.

              If he had listened to Keynes instead, the Roosevelt Recession would have been avoided.

              The FACTS are that our economy can manage huge federal budget deficits, far beyond the 2% of GDP that now prevails, and the Fed can easily quadruple its balance sheet without any increase of inflation or interest rates.

              Your monetarist view of economics is an abject failure because you cannot predict anything or give any clear answers to obvious questions.

              •  Compare your question with your new response (0+ / 0-)

                "If U.S. Credit is not Infinite, then what is it?"

                "can manage huge federal budget deficits, far beyond the 2% of GDP that now prevails, and the Fed can easily quadruple its balance sheet without any increase of inflation or interest rates"

                Your opening bid was "infinite" which you now revised with the implicit bound "easily quadruple". Can it equally go up 10X? 100X? Can you show me how or why?

                Plus the key issue is not what the Fed Holds, in fact in posts at our Econoblog Angry Bear I have been making the claim that Fed Holdings specifically considered maybe shouldn't be considered as 'debt' at all. Instead as this post shows the 'real debt' burden is that 'Held by the Public' MINUS Fed Holdings.

                But the core of the MMT "sovereign issuer" claim is that there is an infinite appetite for U.S. Debt instruments. As opposed to an as yet not met appetite. I have yet to see a convincing argument that moves from the second to the first.

                Frankly sir (or madam) it is you that is "abject failure because you cannot predict anything or give any clear answers to obvious questions".

                And I am not a monetarist, not at least in the way you are implying. Not surprising, in my experience the lack of nuance in MMTers is only matched by that same lack in the similar personality type of Glibertarians. Each has found a shiny new hammer and imagines the whole world as a set of interchangeable nails.

                Which goes along with a certain contemptousness for those who "just don't get it".

                SocSec dot.Defender at gmail.com - founder DK Social Security Defenders Group

                by Bruce Webb on Tue May 27, 2014 at 08:45:51 AM PDT

                [ Parent ]

                •  Plus it is not 2% of GDP (0+ / 0-)

                  CBO currently puts it at 2.8%. Which to the relatively innumerate may seem like the same thing but which is a 40% error. Also they see this as temporary and the trend pointing upwards over the next to years and back over the 3.1% average from 1974 to 2012:
                  http://www.cbo.gov/...
                  Updated Budget Projections: 2014 to 2024

                  Like I implied: MMT is like a new toy car. Vroom, Vroorm! But in order to understand why it makes that cool noise you have to peek inside and figure out the mechanism. MMTers remind me of those kids who can't figure out why Mom can't buy stuff - because after all there are plenty of blank checks in her checkbook. And the guy at the grocery store accepted the last one, so why NOT a stop at Toys-R-Us?

                  SocSec dot.Defender at gmail.com - founder DK Social Security Defenders Group

                  by Bruce Webb on Tue May 27, 2014 at 08:54:53 AM PDT

                  [ Parent ]

                •  Let me be clear (0+ / 0-)

                  I am not concerned with whether our financial capacity is infinite or limited;  my point is that we are far, far away from that "long-run" issue.  

                  Meanwhile, we cut back spending for the VA so our vets cannot get health care and we cannot find the money to repair our dilapidated roads, bridges and airports.  That is insanity especially given the long-term unemployment that millions of Americans have endured these past 6 years and counting.

                  While you argue about whether the deficit is 2% or 3% of GDP, the economy plods along at less than 2% growth and China roars past us.  Thanks to your obsession with our debt and imaginary inflation, our country is falling to ruin.

      •  Consider (0+ / 0-)

        Even if the Fed refunds interest to the Treasury doesn't mean the interest doesn't exist. It must be paid before it can be refunded. And it most certainly exists, and is then paid. So it must first be collected, regardless of what happens to it later.

        Your view of it would mean that principal of any loan doesn't exist, because it is returned to the lender. Yet of course it does.

        You also ignore the limit that price inflation puts on unlimited money supply. We inflated home prices hugely by inflating the money supply with $TRILLIONS in credit added to the money people buy homes with. And cars. And most other purchases. The biggest problem is that since labor is not paid from credit, its money supply doesn't grow as fast as the prices of capital that people must buy with proceeds from selling their labor. That results in less buying power for most people. Including less power to buy necessities, or to buy discretionary items necessary to improve their material or political lives.

        Economics is much more complicated than "we can do whatever we want", even when we have the power to do whatever we want. There are consequences.

        "When the going gets weird, the weird turn pro." - HST

        by DocGonzo on Mon May 26, 2014 at 10:46:58 AM PDT

        [ Parent ]

        •  I write you a check (0+ / 0-)

          you sign that check back over to me. Has money actually changed hands on net? If I knew you were going to sign that check back to me did I need to worry about 'sufficient funds'?

          As to principal there is a similar confusion on your part. At this point nothing would prevent the Fed from holding those $2 trillion in Notes and Bonds until maturity. At which point Treasury would write a 'check' to redeem the principal which the Fed would 'sign back' to Treasury. If I know that the money I borrowed from the Public once purchased by the Fed will when coming due simply have that debt redemption rebated back to me is it in any real sense 'debt'?

          You are essentially claiming I am equating any relation to debtor vs creditor to the case of the Treasury vs the Fed. Well no, the circumstances are unique.

          And the relation of price inflation and money supply has no bearing at all on my argument. I am ignoring it because it is irrelevant. Plus you seem to have me confused with MMT people.

          SocSec dot.Defender at gmail.com - founder DK Social Security Defenders Group

          by Bruce Webb on Mon May 26, 2014 at 12:11:52 PM PDT

          [ Parent ]

          •  Not On Net (0+ / 0-)

            We're not talking about "on net". We're talking about whether money actually exists or not. The transactions are not netted. The Treasury instruments are actually bought by the Fed with actual cash, actually collected by the Fed from depositors and investors Years later the Treasury actually pays actual cash, the maturity value, of the instruments, to the Fed. There is no netting. The money actually changes hands in its entirety. If the Treasury squandered the money it borrowed so didn't have the principal plus interest from other receipts, and wouldn't inflate the currency by creating more dollars as repayment, it would be in default.

            If there's any "similar confusion" on anyone's part about principal, it's on your part. You are claiming the principal is netted instantaneously, but it is not. That relation between the Treasury and the Fed is the same as between any creditor and debtor. The unusual relation comes after the debt is paid, when interest is repaid to the borrower. But that doesn't change the necessity and actuality of the Treasury coming up with that interest from other sources to pay it to the Fed first - just as in any creditor/debtor transaction.

            And I don't know how you can claim that your ignoring the inflationary prices that result from inflated money supply are irrelevant to your argument. The larger part of your post said:

            The whole national "debt" issue is meaningless because we print our own money in unlimited amounts and therefore can pay the "debt" in full at any time.  That is why "safe haven" investors always buy our debt -- they know we will always pay it because why wouldn't we?

            We cannot actually print our own money in unlimited amounts, and therefore can't repay the debt in full at any time, because we cannot wreak that inflation havoc on prices. You argue we can, because you ignore inflation. I bring it up because it is real.

            The actual payments are real; netting is not. Inflation is real; unlimited money supply is not.

            "When the going gets weird, the weird turn pro." - HST

            by DocGonzo on Mon May 26, 2014 at 12:50:03 PM PDT

            [ Parent ]

            •  Your blockquote is from ThinkFirst (0+ / 0-)

              not me. Like I said you seem to have me confused with MMT folk.

              Plus the whole concept of Treasury paying "cash" to the Fed is a little confused. It is not like they load up a train in DC with currency and drop it off at the front door of the New York Fed (which manages the Feds SOMA).

              SocSec dot.Defender at gmail.com - founder DK Social Security Defenders Group

              by Bruce Webb on Mon May 26, 2014 at 02:28:02 PM PDT

              [ Parent ]

              •  Cash (0+ / 0-)

                Of course "cash" doesn't mean only physical currency notes. I paid cash down on my house to my mortgage lender, but it was by check. A numerical value was subtracted from the computer records of my bank account and the equl numerical value was immediately added to the computer records of the lender's bank account. Calling that "cash" isn't confused; it's one of the well understood meanings of the term, all of which mean "liquid financial asset of national currency in the local denomination". Whether currency notes, or a personal check, or other cash instrument like a bank check etc.

                OK, the blockquote is from ThinkFirst, not Bruce Webb. But your first post in this subthread, in response to my first post in it, said

                You are essentially claiming I am equating any relation [...]

                If you are not ThinkFirst, nor are identifying with their post, then how can you say that I am claiming you are doing anything? Until you wrote that sentence, I said nothing about anything you said.

                Look, if all you've got in response to my last post is a meaningless semantic quibble about "cash", without responding to my rejection of your notions about netting debt payments, then you're not really disagreeing. I'm not going to bother having a conversation like that.

                "When the going gets weird, the weird turn pro." - HST

                by DocGonzo on Mon May 26, 2014 at 03:02:45 PM PDT

                [ Parent ]

        •  Hyper Inflation is Just around the Corner? (0+ / 0-)

          "You also ignore the limit that price inflation puts on unlimited money supply."

          We have been hearing about the inflation boogy man for over 5 years now.  Where is he?

          Face the facts:  expanding the money supply DOES NOT cause inflation.  You and Milton Friedman are dead wrong.

  •  Great point, but you need to fix your graphic (2+ / 0-)
    Recommended by:
    NWTerriD, Bruce Webb

    I'm a stickler for accuracy in charts and graphs. the heights don't reflect the actual numbers.

    “Judge: Are you trying to show contempt for this court? Mae West: I was doin' my best to hide it.” ― Mae West

    by Rogneid on Mon May 26, 2014 at 07:05:47 AM PDT

    •  I did try to draw everything carefully to scale. (0+ / 0-)

      Each light blue tick mark on the left vertical scale equals $100 Billion. Please let me know if you see a bar that is amiss so I can fix that. For layout and fit reasons, I put the middle green section above the light blue (Fed Reserve) block. But I clearly labeled the $4.3 Trillion and the $2 Trillion (= $6.3 Trillion in the middle). If the middle column being taller is the source of confusion, I will try to design a way to put Fed Reserve in its own fourth column. I too am a stickler for accuracy so please give me more details. Thank you!

  •  Sure. Has been the case for years. (3+ / 0-)

    But hysteria about China/whomever makes a better headline or rhetorical device.

    I never believed:

    - China owns the USA
    - Chinese are overlords of Americans

    But read that countless times here.

    Anyway, now that people are tired of that there is a new meme:

    - China is hacking all our computers and stealing all our IP

    Ha! Dems beat GOP to the punch this time around!

    No one is coming to save us, the future is in our hands.

    by koNko on Mon May 26, 2014 at 07:29:27 AM PDT

    •  The NSA beat the Chinese to the punch (1+ / 0-)
      Recommended by:
      ConnectTheDotsUSA

      Then again, Google and Yahoo help the Chinese lock down their own Internet access, so choose your poison.

      And God said, "Let there be light"; and with a Big Bang, there was light. And God said "Ow! Ow My eyes!" and in a flash God separated light from darkness. "Whew! Now that's better. Now where was I. Oh yea . . ."

      by Pale Jenova on Mon May 26, 2014 at 07:39:18 AM PDT

      [ Parent ]

  •  Our Debt Has NEVER Caused Us Any Problems (5+ / 0-)

    The massive debt that we incurred to fight WWII resulted in the U.S. becoming the world's only superpower with the largest economy in the history of the world.

    On the other hand, over the past 60 years in the United States, EVERY TIME the federal budget has been balanced or in surplus, we have then had a recession.

    The recessions of 1957, 1960, 1969 and 2001 were all immediately preceded by budget surpluses and the recessions of 1954, 1974 and 2008 were all immediately preceded by budgets that were nearly balanced - deficits of 1% of GDP or less.

    The Great Depression was immediately preceded by record budget surpluses and the “Roosevelt Recession” of 1937 was caused by FDR’s misguided attempt to balance the federal budget while the economy was still very weak.

    •  Because we became a monetary sovereign (1+ / 0-)
      Recommended by:
      ozsea1

      for domestic funding purposes in 1934, when we went off the gold standard for national settlement.

      And became domestically self funding.

      Thus no longer had debts, but obligations, which we satisfied by creating dollars out of thin air.

    •  Hook, Line and Sinker (0+ / 0-)

      At this point in time the best thing that could happen to the US economy from a lowly 90%'s point of view would be a 20 year 1% per year deflationary cycle.  By deflationary cycle I mean the cost of goods and services declining by 1% per year as opposed to the inflationary cycle of the last 80 years.  Inflation reduces the purchasing power of the dollars you make/earn/spend.  Deflation increases the purchasing power of the dollars you make/earn/spend.

      The part of this that we need to understand is Japan.  They have been in a deflationary cycle with low unemployment and very little GDP growth for 20 years.  The workers/retirees/spenders in their economy are getting a great deal while the savers/hoarders of capital as well as borrowers have been getting screwed as the value of the yen internally has risen.  

      The terms recession/depression reflect a sudden lowering of GDP as reflected by a stoppage of demand.  If demand is maintained at a constant or slightly rising level while productivity increases at a faster level with out an inflationary monetary policy, prices fall but the reduction in those prices do not create unemployment or a sudden reduction in spending.  What it creates is a higher internal monetary value as compared to last year which increases the buying power of the normal 90%'s who do not have vast savings or large amounts of money.

      "If Tyranny and Oppression come to this land, it will be in the guise of fighting a foreign enemy" James Madison 4th US President

      by padeius on Mon May 26, 2014 at 11:54:07 AM PDT

      [ Parent ]

  •  No longer the case..... (2+ / 0-)
    Recommended by:
    Bruce Webb, ConnectTheDotsUSA
    For the last few decades, Social Security has generated a surplus every year
    Since 2010 SS has run a cash deficit. The "cash borrowing" that has occurred over the last 2 decades is over with. I quote the 2013 Trustee's report summary:
    Social Security’s total expenditures have exceeded non-interest income of its combined trust funds since 2010, and the Trustees estimate that Social Security cost will exceed non-interest income throughout the 75-year projection period.
    http://www.ssa.gov/...

    In practical terms, the SS cash deficit can only be met with non-SS tax revenue or borrowing (as is the case).

    •  Under the standard definition of 'surplus' (2+ / 0-)
      Recommended by:
      ozsea1, ConnectTheDotsUSA

      as used by CBO Social Security is still generating one.

      The Right just luvs them an appeal to "non-interest income" but never advances a coherent explanation as to why Trust Fund assets, built up from real cash contributions shouldn't earn interest. And by excluding it have essentially discounted the actual cash transfers from workers pockets to the Trust Fund over the last three decades to zero.

      CBO's topline 'deficit' number, the one used in ALL MSM reporting INCLUDES ALL Social Security revenues and outlays and certainly includes interest. The simple appeal to cash flows inherent in adopting "non interest income" is just to build some silent pro-capital and anti-worker assumptions into the argument.

      The Treasury and CBO treat Trust Fund interest as Revenue for Budget deficit calculations. Too bad if that doesn't fit the narrative of Biggs and Hassett of AEI (the source of most of this "negative cash flow" narrative since 2010).

      SocSec dot.Defender at gmail.com - founder DK Social Security Defenders Group

      by Bruce Webb on Mon May 26, 2014 at 09:01:31 AM PDT

      [ Parent ]

      •  The term "non-interest income" (0+ / 0-)

        is adopted by the Trustees, and is presented as a meaningful concept in their summary.

        Of course money borrowed by the government should earn interest.

        •  Yes as a secondary metric (1+ / 0-)
          Recommended by:
          Mother Shipper

          Check the table again:
          http://www.ssa.gov/...

          Does 'Total' 'Revenue' (Column 2) include Interest?
          Yes it does.
          Does 'Net increase during the Year' (Column 11) in turn simply sum 'Total Revenue' (including interest) and 'Cost'.
          Well yes it does
          How about 'Amount at End of Year' and 'Trust Fund Ratio'?
          Yeah, it just follows through from 2 through 11 to 12 and 13.

          Plus is that interest included in the ONLY 'federal budget deficit' number typically reported by the MSM (e.g. $680 billion for FY2012)? Well yes it is.

          I am fully aware that the Trustees use 'non-interest income' as a "meaningful concept" and indeed have entire Tables that use it exclusively. Just as CBO has the essentially identical concept of 'primary deficit/surplus' in their reporting.

          But in neither case is that used for the top-line numbers. Those always include that Interest as Revenue.

          SocSec dot.Defender at gmail.com - founder DK Social Security Defenders Group

          by Bruce Webb on Mon May 26, 2014 at 12:20:43 PM PDT

          [ Parent ]

      •  Good point. Except the Soc Sec Disability Fund is (0+ / 0-)

        in negative territory and will run out of Trust fund assets in 2016 if nothing is changed. At that point under current law, Disability Insurance will only be able to pay out 80% of benefits due.
        See my graphic Soc Sec: A Look At The Books here:
        http://www.connectthedotsusa.com/...

        •  Yes indeed. And will be earning (0+ / 0-)

          interest on its rapidly depleting principal right on down to zero. Which interest at some point becomes di minimis as regards total program cost and in real terms is swamped by the scope of the negative cash flow. Still even that last penny scores as revenue.

          SocSec dot.Defender at gmail.com - founder DK Social Security Defenders Group

          by Bruce Webb on Mon May 26, 2014 at 02:37:10 PM PDT

          [ Parent ]

    •  Spending comes before either taxes or (1+ / 0-)
      Recommended by:
      ozsea1

      the ability to the private sector to invest in a bond.

      America has been fully sovereign in it's own currency since 1972, when we went off the gold standard for international settlement, after already having done so for national settlement in 1934.

      In 1946 The President of The Fed, Rumle, wrote a paper called "Taxes Are Obsolete" for domestic funding.

      http://mikenormaneconomics.blogspot.com/...

      America does not rely upon either taxes or borrowing to fund it's spending.

      Rather, the fed gov spends dollars into the private sector so the private sector has dollars to fund our incomes, out of which we pay taxes, and can choose to invest in bonds.

  •  China is not our bank, and neither are (1+ / 0-)
    Recommended by:
    ozsea1

    American tax payers.

    Taxes do not fund a monetary sovereign such as America.

    Rather, the fed gov issues it's own IOUs out of thin air.

    What does the fed gov owe you?  A tax credit.

    Dollars are tax credits.  And tax credits must first be issued into the private sector  --  before  --  the private sector can earn dollars to satisfy their tax liabilities.

    As Pres of The Fed, Beardsly Ruml noted back in 1946, when the US went off the gold standard for national settlement in 1934, taxes became obsolete for funding fed gov spending.

    http://mikenormaneconomics.blogspot.com/...

    Bonds used to be issued against our gold holdings, but since 1972 when the world went off gold and fixed exchange rates, bonds are now merely safe savings vehicles which pay interest.

    Bonds are securities accounts at the Central Bank.

    We only ever owe interest payments on those bonds.

    China must first earn dollars before it has dollars.

    It earns them when it sell us stuff and gets paid in dollars.  At that moment, China is paid in full.  Nothing is owed.  Now China can invest in any dollar denominated asset:  Saudi Oil, American real estate, or bonds.

    China has 2 accounts at The Fed - a reserve (checking) account and a securities (savings) account.

    When it earns dollars, their checking account gets marked up.

    When it invests in a bond, their checking account is marked down, and their savings account is marked up.

    When their bonds mature, the process is reversed.

    We owe higher interest on bonds than on reserves.

    We pay this interest the same way we pay for anything:  By creating dollars out of thin air.

  •  A basket of IOUs (0+ / 0-)

    This is like putting aside $200/month in a basket for your child's college costs, then each month taking the cash out to meet current expenses, and replacing it with an IOU.

    Come college time you child will have a basket of IOUs and be totally dependent on your ability to pay them.

  •  Here's the National Assets Clock to go along (2+ / 0-)
    Recommended by:
    ozsea1, ConnectTheDotsUSA

    with the National "Debt" Clock, which is really accounting marks keeping count of how many dollars are in the private sector, to a penny:

    Public Sector - 17 T =  Private Sector +17 T

    Worrying about the total deficit is like worrying about there be too many dollars in the private sector, even while we have idle resources.

    anyway.......

    http://mikenormaneconomics.blogspot.com/...

  •  Not "Ourselves" (1+ / 0-)
    Recommended by:
    ConnectTheDotsUSA

    The money the Federal government (through Treasury debts) owes to Social Security is not "owed to ourselves". That sounds like we could choose not to pay it, or to pay more slowly, or less interest. The debtor (Treasury) is not the same entity as the creditor (Social Security Administration). As a debt it is the same as owing it to China or Japan: it must be paid.

    Since the US economy depends on increasing the debt, since otherwise the Treasury doesn't have the money for its expenses - and Social Security doesn't have the money for its expenses without the interest, it also must be borrowed.

    Saying "we owe it to ourselves" is a false "we". You could as easily include banks and homeowners in a false "we" together.

    However, there is a difference between owing Treasury debt to "China" (specifically the Chinese government, which is the large buyer of Treasuries) vs to the SSA. Since the SSA is under control of Congress, the SSA purchases are under control of the same government that sells SSA the debt. Which means threats from that debt are purely economic: can the US afford to repay the debt in the time specified up front? Can the SSA afford to buy it with the SSA budget? Is the interest enough to support SSA expenses, or else are enough other SSA revenues available?

    Debt owed China (or Japan etc) is different. Not because China could change the terms of the debt they bought ("call in the debt early"), which is not possible. It is possible that China could decline to buy more debt later at the rate we expected. Or China could even sell the debt it already owns, which would compete with further Treasury debt sales at that time (and with debt sales of every kind). China is not under control of the US government, so the risks of those threats are real, while they are not real for SSA.

    Debt to China is also different than debt to Japan and other countries for those same reasons. Japan is considered to have its interests aligned with the US, both economic and political, to a much larger degree than China's interests are. China is considered a powerful rival to US interests, even an enemy. Japan is considered "safer" than China due to decades of actual track record. Though indeed Japan, a sovereign nation, could act on its different interests exactly the way China could.

    Though each of them are bound by the economic and even political necessities of the status quo. They buy Treasuries because that's how they get dollars to operate global trade in the official global currency. They need to invest in the asset that is most reliable for growth (and not collapse), as tested in every economic event for the past century and more. The damage that disrupting the predicted (and widely expected) purchase of US debt would cause themselves and the global economic networks they depend upon is unacceptable - by design. They are reliable debt purchasers and holders.

    A much more serious threat from foreign debt buyers is "Caribbean Banking Centers", which are about a quarter the size of either China or Japan as US creditors. Those are banks, mostly secret in ownership and true identity, either privately held or secretly part of a foreign government. They are centers for money laundering of large illegal trades in drugs (ie. cocaine, heroin, speed), weapons (ie. supplying terrorists and embargoed governments), and human slaves. They are far from US government control (by design). And they are the most risky in terms of continuing to buy US debt. They could disappear tomorrow - especially if prosecuted by the US government. Or they could change their investment model, buying something else instead of US debt - even if that's a bad strategy, even putting them out of business. They do not have the "will to live", and hard to unwind dependency on the complex global economy, that a large country like China or Japan has, to say nothing of the lack of diplomatic influence on them.

    America has been sold into debt based on reasons other than economic, and masked by misdirection from that fact, since it was founded. That was the design that Alexander Hamilton implemented - the man who came to the US from Caribbean colonies that never joind the Union, which has been a haven for pirates, smugglers and exploiters of the US for centuries. He started implementing it as General Washington's wartime Chief of Staff, and then as NY representative to Congress, then as founder of the Bank of NY, then President Washington's Treasury Secretary, then the founder of the Federalist Party. Debt is now our defacto economic basis, replacing gold and even oil as backing our currency. We have to be clear about how that debt works. Or else we'll surrender even our intellectual grip on the system that actually rules us and the world.

    "When the going gets weird, the weird turn pro." - HST

    by DocGonzo on Mon May 26, 2014 at 09:40:50 AM PDT

  •  Who do you think "ourselves" is? (1+ / 0-)
    Recommended by:
    ConnectTheDotsUSA

    It ain't me, that's for sure. It also ain't any of my friends.

      To just write in "ourselves" means you are missing a very big point about the 1% and the 99%.

    "The oppressors most powerful weapon is the mind of the oppressed." - Stephen Biko

    by gjohnsit on Mon May 26, 2014 at 10:33:25 AM PDT

  •   another point: look how big the fed's piece is.. (1+ / 0-)
    Recommended by:
    ConnectTheDotsUSA

    they've been buying bonds in the open market for a long time now... that's called "QE".... and while they are "tapering", they are still increasing their ownership of US paper..

    That has kept interest rates unreasonably low.. hurting seniors who might be depending on decent interest rates, and lifting paper assets (stocks & bonds)..

    How will they even unwind that?.. who in the world will want to buy so much of our paper when the Fed sells...and, at some point the SS admin will have to do the same..

    when that happens.. all I can say to those 1%ers heavy in financial assets...

    "look out below"

    •  the 2 or 3 trillion owed to the fed (1+ / 0-)
      Recommended by:
      ConnectTheDotsUSA

      will be retired over time by a reduction in the overall money supply.  

      Currently the Federal reserve has been lending money to the primary dealers of US Bonds at .5% or less, the primary dealers buy the US bonds then give them to the Fed to hold as collateral for the next US Bond sale.  

      Mean while the primary dealers collect the 2.5% or so margin on the US treasuries they have purchased.  This is how the Banks have been re-inflated from all the loses that were incurred in 2008.  

      The interesting part will be when the Fed actually quits "buying" the bonds and starts to remove the 2 or 3 trillion of liquidity they have loaned into the market nearly all of which is held by the primary dealers as a balance sheet amount ( money borrowed = money loaned).

      "If Tyranny and Oppression come to this land, it will be in the guise of fighting a foreign enemy" James Madison 4th US President

      by padeius on Mon May 26, 2014 at 12:17:19 PM PDT

      [ Parent ]

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