I don't understand is what the alternative would have been. The bonds that SSA bought from Treasury are literally the safest investment possible.
What would you rather SSA have done?
^ That's the question I always ask people. The answer is usually something like "it shouldn't have been spent." So let's say the money was put in the bank instead. The bank promises to give the money back. That's called an IOU. Same thing, only you are hoping Bear Stearns or Lehman Brothers will be there instead of Uncle Sam. Uh, no thanks.
The money was indeed spent, it was spent buying bonds.
This perspective might have some merit, if the SSA actually bought marketable bonds, and had the power to sell them on the open market like any other investor. This is not the case. Not only does the SSA not have the ability to sell them, due to regulatory restrictions that require them to keep what they have to maturity; they couldn't sell them even if they did, because those are "special issue" bonds. Which, in practice, don't exist.
One thing that could have been done with those funds, that would have been a world away more honest, was to invest those funds into the same funds that government employees can invest into using their
government regulated & approved mutual funds. At least that would have been a real investment. Another alternative, if putting those funds into the stock market were too scary, is to have bought infrastructure bonds rather than special issue federal reserve bonds. Those infrastructre bonds could have even had special rules, such as investing into infrastructure that would have a high likelyhood of benefiting the retirees in the future. For example, hospital construction bonds, group retirement homes, nursing schools, etc.
Revisiting a prior post upthread, an analogy:
I have never – not once – defaulted on any of my debts. But this fact does not mean that if I write an I.O.U. to myself for, say, $100,000 and stick that I.O.U. in my desk drawer that I then have on hand in that I.O.U. an asset worth $100,000...
...If you doubt my claim that that I.O.U. held by me is worthless, ask yourself what would happen to the net present value of my wealth if I took a match to that I.O.U. and burned it. Clearly, my net wealth would be unchanged. While I no longer have a document entitling me to receive from me $100K, I also am no longer under any obligation to pay to me that $100K.
Terrible analogy. SS bonds weren't created by simply writing an IOU. SS bonds were purchased with real dollars collected from real taxpayers. If we want to make the analogy sort of consistent, author would have first had to have earned $100K. Then promised himself to use that money for some future thing. If he breaks the promise to himself he still has the $100K.
Nope, because the government doesn't have an income of it's own. It only has it's taxing authority.
One of the other problems with the analogy is that it assumes the real issue is that U.S. government bonds are being used to back a future U.S. government obligation and the implication is that's funny accounting, because when you boil it down it is sort of the same entity. And one entity owing itself money is phony accounting, the narrative goes.
Not phony accounting. You didn't read the article I posted.
Net zero accounting. The complaint is that the assets don't actually exist. If I have $1 in my left pocket, be it from income or some power to tax; and then I write my left pocket an IOU for some future date & purpose, so that I can buy that candy bar today, I have still spent that money. It's gone. The IOU is legitimate accounting, but of nothing (of marketable value) on net. The only way for that IOU to be properly repaid, so that my left pocket may have that future purpose paid for, is to have more income. In the case of the government, that means taxing authority. Thus, all future benefits, as the accounting is presently arranged, must
mathematically be paid for from future tax revenue. All fine so far, as this is pretty much how most every national pension works. The dishonesty arrives because of how this accounting system was sold to the next generation, back in 1965. They were told that there was a savings system in place, and that they are entitled to the benefits that they paid into for their entire working lives. Demographically & mathematically, however, this promise is impossible. At least with a purely national pension, openly paid directly from current taxation, no one is under the illusion that the benefits are actually
theirs by right; because (whether or not they like it) they know that the tax laws can be changed. The Boomers today believe that this is theft, after all, they paid their due! Sorry, this is a beggar thy children setup, and it's going to cease to be (in practice, if not in name) once enough voting Boomers die off that the Millennials, who are (typically) under no such illusions about the longevity or viability of SS, will take full control of the electorate.
So let's say the money was invested in Canadian bonds instead. Now the entities are separated. Does that make it more viable? Of course not. It just shifts the promise from ourselves to Canada.
This much is true. See my above commentary about what we could have done instead. As a side note, investing into infrastructure is a pretty accurate description of what Japan has been doing with their deficit spending. They may have a debt to GDP ratio over 2:1, but they
will have cities well suited to the aged & infirm. In other words, actual assets that will benefit their elderly population. We don't even have that.
