On Sunday, October 30 2016, CNBC decided to allow a guy named Trent Gillies to write an article called, “Solving Social Security woes involve ‘a complex set of tradeoffs’”, unleashing a brief torrent of stupid upon the American public. Social Security insolvency lies have been around for quite a while now, but this particular article is the product of the election season. It is what happens when you put two candidates on television and in the last five minutes, you shamelessly ask both about the non-existent national debt and entitlement crisis. Trump, who merely says whatever he feels like saying at any particular moment, goes on a disconnected rant, and Trump supporters pretend to know what Trump is talking about. Clinton, on the other hand, proudly perpetuates the big lie of an actual national debt and the need to quickly bring entitlements under control before we all die, and liberal Democrats gullibly cheer her nonsense on.
The latest, greatest Social Security privatization scheme that the Clinton camp is eyeing for their Wall Street buddies, is to force Americans to hand over part of their paychecks to investment companies who will bilk the people for billions in profits. Naturally, Clinton will be compensated handsomely.
A few days before the election, CNBC calls Trent Gillies and says, “Hey, the election is almost here. Write a short blurb reminding Americans why Social Security is going broke. Pete Peterson wants to loot Social Security.”:
“For 81 years, it’s been a financial safety net for retirees. But in just 18 years, Social Security could run out of money. Current projections show in 2034, the Social Security trust funds could be broke. While the program is facing a long term funding shortfall, millions of current retirees who rely on Social Security benefits are struggling to stretch those dollars.”
To Mr. Gillies’ credit, the first sentence is honest. Everything after that, with the exception of “millions of current retirees who rely on Social Security benefits are struggling to stretch those dollars”, is a flagrant lie. It is impossible for Social Security to “run out of money”, and no, it has nothing to do with FICA or the federal government’s ability to collect any taxes. Firstly, FICA doesn’t fund Social Security. In other words, you do not pay into Social Security and it’s not your money going to current retirees or your “hard-earned” money being saved for you. At this point, you have only two choices: You can either listen to someone who, through career experience, is familiar with both US Treasury and Federal Reserve operations, or you can listen to a politician who is only familiar with election campaigning, handouts from lobbyists and the locations of the dining areas on Capitol Hill.
The Social Security Trust Fund is not a giant bank account or vault filled with cash from payroll taxes. There are no armored trucks driving from the IRS to a vault dropping off hoards of American taxpayer’s “hard-earned” income.
What the Social Security Trust Fund Is
The Social Security Trust Fund is nothing more than a spreadsheet. I’m certain that you know what a spreadsheet is. Open up Microsoft Excel to see one. Granted, the Social Security Trust Fund is a bit more complex than a simple Excel spreadsheet, but fundamentally, it is the same thing. I will break it down in a simple way.
There are numbers on this spreadsheet that form a record which tells the US government who paid FICA and how much. The Social Security Administration uses this information to determine your future benefits, if you qualify for disability, and how much you will get if you become disabled.
There’s also a record of outflows which are payments to Social Security recipients. When FICA is withheld from your paycheck, the US government notes your payment on the spreadsheet and then destroys the dollars that you paid. End of story. What remains is a record in numerical form of your FICA payment. Then, like the federal government does with anything else that it buys, it creates new US Dollars and pays Social Security beneficiaries their benefits. When benefits payments are made, those payments are then recorded on the spreadsheet, by making the numbers smaller. In short, the US government knows how to add and subtract numbers on a spreadsheet.
When the numbers on the Social Security Trust Fund spreadsheet drop, all that means is that those people who are currently on Social Security are receiving their benefits. So, what happens if the numbers on the trust fund spreadsheet suddenly drop into the negative? It means what I just said – It means that beneficiaries are receiving their benefits. Hence, the Social Security Trust Fund would be running a deficit. So what? It means that it would be the same thing as when the federal government is running a deficit.
When the federal government runs a deficit, it is manufacturing and then spending more US Dollars than it is destroying in taxation. The federal government has always ran deficits except for seven short periods in US history. Last year in 2015, the US government ran a deficit. This year, it’s doing it again. If the Social Security trust fund supposedly “runs out of money” as soon as it goes negative and will no longer be able to pay benefits, or in other words, if Social Security can never run a deficit, then explain why the US government doesn’t go broke at the end of every year that it runs a deficit. Sure, you can argue that the federal government borrows to stay afloat, but you’d be wrong, because the US government cannot and does not “borrow” to fund spending.
Regardless of what politicians tell you, treasury bonds only do two things today. First, bonds do not conduct fiscal policy; they conduct monetary policy. There are people at the US Treasury right now who would tell you this were it within their job description to do so. If you were ever wondering why nobody from the US Treasury stands up in public and tells the people that federal taxes and bonds don’t fund federal spending, that is why – it’s because it’s not their job to do so. In federal service, it’s a thing that we refer to by the term “pay grade”: “I’d be more than happy to go on CNN and tell the American people that federal taxes and bonds don’t fund federal spending, but that’s above my pay grade”. In other words, Congresspersons and the President speak for the people, and are paid, among other things, to conduct public relations campaigns on such topics. If you’d like to see a US Treasury official appear on television and tell the American people that federal taxes and bonds don’t fund federal spending, you’re going to need the President of the United States to hold a press conference and approve it.
Getting fired from a federal position is a tad hard to accomplish, especially if you are high up the ladder. But one way to easily and quickly lose your job is to go on CNN, and in the capacity of a US Treasury employee announce officially that both Congress and the President are lying: federal taxes and bonds don’t fund federal spending.
So, in summary, it is the job of Congress and the President to tell you this stuff, not US Treasury employees and officials.
The US Treasury issues bonds because Congress says that it must, and also, Congress forbids treasury from selling directly to the Federal Reserve. Given these two ridiculous directives, in order for treasury to get the bonds to the Fed so the Fed can do its job, both treasury and the Fed must jump through hoops. Treasury auctions the bonds and the private sector purchases them. The Federal Reserve then obtains the bonds through open market operations and uses the bonds to conduct monetary policy.
It’s all of this hoop-jumping that makes you think that the US government is actually borrowing money from the private sector to fund deficit spending when, in fact, it is doing no such thing.
Look, it’s all very simple really. Since the Federal Reserve needs the bonds to conduct monetary policy and only the US Treasury issues them, then if Congress won’t allow the US Treasury to give them to the Fed directly, the US Treasury has no choice but to auction them off to the private sector, so the Fed can get its hands on them. Simply put, in the context of monetary policy, auctioning bonds off to the private sector is nothing more than the US Treasury taking an inefficient and round-about way to get treasury bonds into the hands of the central bank, because Congress won’t allow it to be done any other way. But, then again, there is another reason why the US Treasury auctions bonds to the private sector.
Second, the reason why Congress demands that treasury issue bonds, is to satisfy the market’s demand for bonds. In other words, the US government issues bonds to provide people with risk-free, interest-paying savings accounts. If you first have enough US Dollars, then you can buy a treasury bond and the government shifts the dollars you used to purchase the bond with from a reserve account to a securities account at the Federal Reserve where your dollars will sit, unspent, earning interest.
That’s it. So then, back to the question: “why doesn’t the US government go broke at the end of every year that it runs a deficit?” According to the mainstream, the US government should have been broke and completely unable to operate for all eternity at the end of fiscal year 2015, and 2014, and 2013, and 2012, and 2011, and 2010, and 2009, and 2008, and… But no, the federal government came back deficit spending again. No bankruptcy. No financial Armageddon. In 2008, it conjured up $6 trillion for bailouts. Funny how an entity that’s broke can find that many US Dollars lying around. The federal government conjured up $1.5 trillion for the F-35. Funny how an entity that’s broke can find that many US Dollars lying around. Like the military, Social Security is operated by the federal government too. But, supposedly, when it comes to Social Security, if the trust fund goes into deficit, Social Security is “broke”. I’ve said the following at least a million times over the years, and I’m going to say it again, so you might as well come to terms with it:
The US government is the exclusive, monopoly, one and only issuer of all US Dollars in existence. All federal spending is the manufacturing and spending of new US Dollars. All federal spending is “money creation”. How else can I be more clear? US Dollars don’t come from the private sector or China or the moon. US Dollars come from the US government and nowhere else in the world.
I’m about to go against my principles here, but if this is the only way to drive the reality home to you, then I must.
All federal spending is the “printing” of money. Yuck. I said “printing”.
If the federal government wants to pay $1.5 trillion for a junk jet fighter, then it “prints” the money to buy it. If the federal government wants to buy a case of Froot Loops, then it “prints” the money to buy it. If the federal government owes you a $5,000 tax refund, then it “prints” the money to pay you.
There. Now I feel dirty and gross because I was forced to use the ridiculous term “printing money” just to explain something. I feel like I have to take a shower now to wash the stupid off. The truth is that the federal government doesn’t “print the money” to fund spending. It can’t. That’s the gold standard days of the 1920’s. Today, the government simply enters a bank account, and with keystrokes, credits an account with US Dollars. In other words, it just types US Dollars into existence every time it spends. Look, pretend that I’m the US government. Do you want $4,000? Ok, here:
There. I just created $4,000 for you. That’s how I spend for everything, from pencils, to jet fighters, to Social Security benefits.
Federal taxation deletes US Dollars from existence. Again, pretend that I’m the US government. I’m going to tax $1,000 of the $4,000 I just created for you:
There. I just taxed you $1,000. Now, you don’t have $1,000 and neither do I, the US government. Why? Because I deleted it from the banking system. It’s gone forever. Federal taxation is a black hole from which all federally taxed US Dollars cannot escape.
Now then, if the federal government taxes away (deletes) too many US Dollars in any given fiscal year, there aren’t enough US Dollars in the economy to achieve much of anything. Get it? And no, bank lending is not the lending of US Dollars, so forget it. Don’t start talking about the Clinton years, a booming economy, and low unemployment, because I will point to expanding private debt; bank loans and credit cards used to increase consumer spending which increased job creation, and the recession in 2002 as a result of that madness. Job creation through bank lending is highly unstable when the US government is slashing its deficit, and especially so when the federal government ignorantly runs a budget surplus. The Clinton surplus supposedly resulting in a “booming economy” has been debunked many, many times now by many, many people – I’m not getting into it here.
So, I guess, the most direct way I can say it is this way: At no time does the federal government have any money, because it doesn’t need any money – the federal government manufactures all of the money. The US government owns and controls the only US Dollar factory in existence in the United States and anywhere else on planet Earth. If you hate federal government spending, then you hate having US Dollars.
Do you need to have the number “4” on hand before you can type it? No, you don’t, and neither does the US Government. The difference between you and the federal government is authority and access. You have no authority to access the entire banking system and to type numbers in it which become US Dollars. Only the US government has that authority, and when it accesses the banking system and types the number “4” in an account somewhere, then that number “4” becomes $4.
Understand this now? Hopefully, you do because CNBC’s Trent Gillies doesn’t, or if he does, he’s paid to act like he doesn’t. At this point, if you are thinking clearly, you might notice that I am saying that the problem with Social Security is never about “money”. So, if the problem with Social Security isn’t “money”, then what exactly is the problem? The answer is unemployment.
The Real Problem with Social Security is Production, Not Money
Social Security never faces a financing shortfall. What it does face is a shortfall of goods and services for Social Security recipients to purchase with the US Dollars that the US government pays to them. Simply put, if there are not enough people working, then the production of goods and services drops. Remember, both Social Security recipients and everyone else in the nation have to buy food, clothes, and everything else you can think of. If there aren’t enough goods and services for the entire population to buy today, then some people are going to go without. If there aren’t enough goods and services produced in the future for our future population to buy, then some people in the future are going to go without. That is the problem with Social Security. If our future production of goods and services is insufficient, then we cannot increase benefits to Social Security recipients – they won’t have anything to buy with the US Dollars that the US government gives them.
So, to guarantee that Social Security will still function 50 years down the road, the United States government must create and then maintain a situation of absolute full employment indefinitely.
You need to learn to ignore all of this “insolvency” nonsense that the media and politicians spit out of their lying mouths. Put it this way: If you typically believe that all politicians are liars, what makes you think that they’re somehow telling the truth about Social Security?
Sadly, the CNBC article was longer than the opening paragraph. Mr. Gillies goes on to quote someone who knows less than nothing:
“Despite relatively low fuel and food prices, The Times’ Senior Economic Correspondent said there’s ‘plenty of costs that especially seniors — especially people on Social Security receive — that are rising faster than that, health care is a big one’.”
Vast amounts of derp in such a short statement.
Because the US Government is the Currency Issuer, It is Also the Price Setter
Health care and drug prices are major issues in the US, because we allow politicians like Obama to hand us “market-based solutions” that cannot and do not work. Obamacare will always be a miserable failure for the sole reason that the private sector does not issue US Dollars. It is nothing more than mandatory health insurance. It leaves insurance companies in on the deal to profit. The US government manufactures and spends US Dollars into the economy, workers earn them and then workers are forced by the US government to hand those US Dollars over to insurance companies. You want to talk about “handouts” and moochers? Start talking about insurance companies. At any rate, when Mr. Gillies quotes the The Times’ Senior Economic Correspondent concerning health care costs for seniors, who knows as much about economics as stink bugs do about quantum mechanics, what he’s really talking about are drug prices and the fact that private healthcare schemes like Obamacare are what make drugs unnecessarily unaffordable.
Since we know that the US government issues all of the US Dollars, we can also understand, with a little bit of thought, that when it purchases goods and services from the market, it is setting the price of the goods and services. Why? Because it is buying those goods and services with its own currency, which is the thing that the market badly wants and cannot get anywhere else. When the market sells to the US government, the US government decides what it is willing to pay and the market must take that price or leave it and go without US Dollars. If the US government decides to pay the current “market price” then the US government is declaring that price to be acceptable. At any point, the US government could pay less or more if it so chooses and the market has to take it.
Understanding this reality, and also understanding that financing is never a problem for anything that the US government wants to purchase, the US government can easily afford to fund universal healthcare. Just like Social Security, the question for universal healthcare is one of real resources. Are there enough doctors, nurses, medical equipment, hospitals, clinics, ambulances and anything else necessary to ensure the healthcare of every, single US citizen? If so, and there are, then it’s as simple as Congress authorizing the manufacturing of US Dollars for universal healthcare. The US government will enter a few keystrokes from a keyboard and Medicare for All becomes a reality. Great. So, what about high drug prices? It’s all very simple. Again, the US government is the price setter. The drug companies will want to sell their drugs to the US government in exchange for US Dollars. The US government will give all drug companies a “take it or leave it price”. If the drug companies refuse, then they don’t do business in the United States. So, bye now! Don’t forget to write, ok? Good luck finding a sucker in another country who is willing to pay $800 for a $1 bag of salt water. That’s how it is done. The US government says, “I will pay $10 for each EpiPen and if you don’t take it, then you will have to do business outside of the United States.” The maker of EpiPens will gladly take the price, because they want to do business in the United States. If they don’t, then another company will gladly supply the epinephrine injections, and the maker of EpiPen can shove it.
Problem solved and solved efficiently. No more old people, nor anyone else, paying high drug prices. But rather than write about doing the correct thing and actually solving problems, Mr. Gillies trumpets age old Cato Institute and Heritage Foundation drivel about raising the retirement age:
“An option to saving Social Security could be raising the full retirement age from 67 to 70.”
That is not an option whatsoever. All raising the retirement age will do is further impoverish millions of elderly people, because folks like Pete Peterson do not want a bunch of numbers on a government spreadsheet anymore. Peterson wants those numbers on the spreadsheets of companies like Blackstone, so Pete Peterson can loot them. For years, Peterson has wanted to get his greedy little fingers on Social Security dollars, but can’t, because the US government controls it. Privatize Social Security which cannot go broke, and suddenly, it is in the hands of people who can go broke – Just not before they make billions in profits off it.
I’m going to stop here, because, frankly, there’s only so much derp that I can tolerate in one day.