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eniwetok

(1,629 posts)
Mon Mar 28, 2016, 10:44 AM Mar 2016

Ultra Low Interest Rates A Threat To Social Security


In perhaps 2-3 years new contributions to the Social Security trust fund will end and withdrawals from it will begin. The longevity of SS trust fund depends in large part on how its growth from interest exceeds its net outflow to existing SS recipients... the bigger the interest return, the longer the fund will last. But there is no floor on the interest rates the fund gets and the average interest rate for the entire fund in 2000 was 6.9%. Today it's 3.4% https://www.ssa.gov/oact/progdata/annualinterestrates.html

The average for the entire fund is being brought down by the ultra low interest rates set by the FED which brings down the rate US Treasuries get... and in this case the special treasuries the government issues to the SS fund. The formula was created by Congress in 1960 https://www.ssa.gov/oact/progdata/intrateformula.html and certainly Congress can change it.

Here are the rates any new money has been getting when it enters the fund: https://www.ssa.gov/oact/progdata/newIssueRates.html

In 2012 the average annual average interest for new monies was only 1.458% when according to http://www.usinflationcalculator.com/inflation/historical-inflation-rates/ the inflation rate was 2.1%!

SS was losing ground.

In 2013 the new monies were getting 1.9% and the inflation rate was 1.5%... a pathetic .4%.

WHY AREN'T THE DEFENDERS OF SOCIAL SECURITY RAISING THE ALARM BELLS?


Workers are involuntary taxed to provide mainly for their retirements and yet that goal is being undermined by politicians OF BOTH PARTIES. The SS trust fund has been a cash cow for politicians for too long. It MUST be treated with respect. There must be a floor beneath which the interest can not fall. I believe that should be at least 4%.
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Ultra Low Interest Rates A Threat To Social Security (Original Post) eniwetok Mar 2016 OP
A start TrueDemVA Mar 2016 #1
they will pay it back eniwetok Mar 2016 #4
So double taxation for the same benefits. OnlinePoker Mar 2016 #6
some canadian money is invested OUTSIDE the country eniwetok Mar 2016 #11
regressive vs progressive eniwetok Mar 2016 #54
It's not just taxation to pay back the interest OnlinePoker Mar 2016 #57
That's still a dumb idea Recursion Mar 2016 #38
LBJ and the "unified budget" NT 1939 Mar 2016 #48
It isn't raising alarm bells because the trust fund is supposed to be spent. jeff47 Mar 2016 #2
no guarantee the GOP will implode eniwetok Mar 2016 #12
There's no guarantee the sun will rise tomorrow Major Nikon Mar 2016 #14
it's untenable if the only new revenue is from eniwetok Mar 2016 #23
I'm speaking about the GOP, and not SS Major Nikon Mar 2016 #25
There's only so long the Democratic party can keep the Republican party alive. jeff47 Mar 2016 #17
where did you get 30 years from? eniwetok Mar 2016 #24
The 2034 claim started in about 2004. jeff47 Mar 2016 #30
I don't know where you got those numbers eniwetok Mar 2016 #40
From previous reports. Just because they're not online does not mean they do not exist. jeff47 Mar 2016 #41
*Applause* Recursion Mar 2016 #39
Is that you Pete Peterson? Fuddnik Mar 2016 #3
hardly eniwetok Mar 2016 #8
There it is! -none Mar 2016 #35
The rate that the government lends to itself is inherently trivial Taitertots Mar 2016 #5
2.8 trillion is trivial? eniwetok Mar 2016 #9
You're missing the point FBaggins Mar 2016 #15
of course... eniwetok Mar 2016 #37
"Lent and spent". It's gone. Every penny comes from increased taxes Taitertots Mar 2016 #50
shifting the tax burden... eniwetok Mar 2016 #52
The obligations are independent of the income stream. Taitertots Mar 2016 #53
see post above eniwetok Mar 2016 #55
of course interest payments come from the same source... somewhat. eniwetok Mar 2016 #56
Sorry... untrue FBaggins Mar 2016 #7
what's "untrue"? eniwetok Mar 2016 #10
The entire premise of the article. FBaggins Mar 2016 #13
sorry... you're incorrect eniwetok Mar 2016 #19
Apologies... but you still don't get it. FBaggins Mar 2016 #34
missing the math? eniwetok Mar 2016 #42
interest rates are set by Congress eniwetok Mar 2016 #22
Well, yeah Congress can always amend the SS Act. But until they do that, it's pretty much a market Hoyt Mar 2016 #28
comparable interest paid eniwetok Mar 2016 #43
Nope. They're tied to market rates FBaggins Mar 2016 #33
so you want to cut benefits? eniwetok Mar 2016 #21
Lol... nope FBaggins Mar 2016 #32
when you eniwetok Mar 2016 #44
Ultra low interest rates are not healthy for the economy in general... Wounded Bear Mar 2016 #16
nope... I don't favor privatization eniwetok Mar 2016 #20
In general, I agree.... Wounded Bear Mar 2016 #27
I think they have driven rates down in the hopes of spurring job creating business. Hoyt Mar 2016 #29
Low interest rates also reduce unemployment and generally boost the economy. jeff47 Mar 2016 #31
low interest rates eniwetok Mar 2016 #45
And it hasn't worked well because of other issues that only Congress, not the Fed, can address. strategery blunder Mar 2016 #47
And NO privatization Omaha Steve Mar 2016 #18
Raise the cap. nt WhiteTara Mar 2016 #26
or stop exempting capital gains eniwetok Mar 2016 #36
and, not or... Wounded Bear Mar 2016 #46
Ultra low interest rates... sendero Mar 2016 #49
Agreed. Allowing giant banks to borrow money for free from the taxpayers without no requirement GoneFishin Mar 2016 #51

TrueDemVA

(250 posts)
1. A start
Mon Mar 28, 2016, 10:51 AM
Mar 2016

Congress should off paying back the trillions of dollars they have taken out of the trust to start. Those scumbags have used social security trust as their own piggy bank for decades.

eniwetok

(1,629 posts)
4. they will pay it back
Mon Mar 28, 2016, 11:17 AM
Mar 2016

But not until the money is needed to pay benefits. After new contributions to the fund can no longer meet payouts, benefits will be paid by a combination of new contributions and interest going into the fund. Then as these two sources can't meet payout needs, the IOUs will start to be drawn upon.

OnlinePoker

(5,689 posts)
6. So double taxation for the same benefits.
Mon Mar 28, 2016, 11:22 AM
Mar 2016

Taxed once through SS and then through income taxes to repay it. This is the problem with any financial tool the government can get their fingers on. They'll rip it off and say trust us, we'll pay it back.

In Canada, in 1997 the Chretien Liberal government changed the laws governing the Canada Pension Plan (our equivalent to SS) and put contributions into an indepentent investment board. At the time, the CPP had a total of $30 Billion in government bonds and that was it. It has now grown to $283 Billion of diversified assets from around the world and had a 7.5% annualized rate of return over the past 10 years. Because the government can't get its hands on it, the Chief Actuary of Canada has said the plan is on solid footing for the next 75 years.

http://cppib.com/en/home.html

eniwetok

(1,629 posts)
11. some canadian money is invested OUTSIDE the country
Mon Mar 28, 2016, 11:59 AM
Mar 2016

If you look at some of the Canadian investments... the money is being invested OUTSIDE the nation.

I have no problem with such a fund IF the money was invested in the US to increase overall productivity then that excess productivity were taxed with a VAT tax to repay the fund. Right now that SS money can be pissed away on anything... and Congress is free to pay sh*t for interest.

eniwetok

(1,629 posts)
54. regressive vs progressive
Wed Mar 30, 2016, 04:52 PM
Mar 2016
"Taxed once through SS and then through income taxes to repay it. This is the problem with any financial tool the government can get their fingers on. They'll rip it off and say trust us, we'll pay it back. "
Payroll taxes are regressive and income taxes are progressive. So if there's more to be paid in interest... ie out of general funds... at least hopefully. Borrowing has gotten insane.

So I don't understand your objection. When interest was 6-7-8% on the trust fund... the interest was coming from the same source. By your logic we can be taxed for SS and not get any interest and in that way we can avoid the double taxation.

OnlinePoker

(5,689 posts)
57. It's not just taxation to pay back the interest
Wed Mar 30, 2016, 07:40 PM
Mar 2016

It's taxation to pay back the principal as well. The $2+ trillion in money that went into the fund is gone with the government giving promisory notes that they will pay them back in the form of treasuries. Because there will be insufficient revenue from the payroll tax to cover the expenditures to pension recipients in the near future, these treasuries have to be paid back with new revenue in the form of non-payroll taxes (unless they raise the cap). People paying in now will have to pay both SS and the increased taxes to keep the system afloat...double taxation for the same benefits.

Recursion

(56,582 posts)
38. That's still a dumb idea
Mon Mar 28, 2016, 09:07 PM
Mar 2016

What does that even mean, "pay back"? Redeem all of the bonds right now? You literally want the SSA sitting on a bunch of cash? How would that possibly help? Do people ever think about these things before they spout off nonsense like this?

jeff47

(26,549 posts)
2. It isn't raising alarm bells because the trust fund is supposed to be spent.
Mon Mar 28, 2016, 10:58 AM
Mar 2016

Fundamentally, Social Security works by taxing roughly two younger generations to fund retirement for a third, older generation. As long as each generation was larger than the previous, it worked fine.

Then GenX turned out to be much smaller than the Boomers.

So the Greenspan commission in 1983 was created. It recommended creating a large trust fund filled with excess payments by Boomers, GenX and now Millennials could fund the retirement of the Boomers. This fund was never intended to be permanent. It was always intended to be spent during the retirement of the Boomers.

And since Millennials are larger than GenX, Social Security should work during GenX's retirement just as Social Security worked before the Boomers. Whether or not that turns out to be the case will depend on the size of the generation after Millennials. And they're still being born.

We probably need to tweak the cap on Social Security taxes, because income inequality means Social Security taxes are not being paid on a very large amount of income these days. But we've got decades to get that passed, and any "fix" we pass in the near future would be severely harmed by Republican orthodoxy. We need to let the Republicans finish imploding, or we will get a "fix" that really hurts people.

eniwetok

(1,629 posts)
12. no guarantee the GOP will implode
Mon Mar 28, 2016, 12:06 PM
Mar 2016

How many times has the GOP thought to be dead? Nixon won in 68 after Goldwater's defeat in 64. A few years back the GOP was thought dead then it won both houses in Congress. The dynamics of our electoral and political systems will reform the two major parties. They'll steal issues from each other and create new collations from the vast reserve of citizens that never vote as Reagan did by bringing in evangelicals. Just look how Trump is reforming the GOP by exploding some old taboos such as criticism of Bush's war against Iraq and free trade. Clinton did the same in 92 by stealing issue from the GOP such as free trade, welfare reform, and law & order.

Major Nikon

(36,811 posts)
14. There's no guarantee the sun will rise tomorrow
Mon Mar 28, 2016, 12:13 PM
Mar 2016

The successes you mentioned were obtained by a strategy that relies on an increasingly larger share of a shrinking demographic, which is ultimately untenable.

eniwetok

(1,629 posts)
23. it's untenable if the only new revenue is from
Mon Mar 28, 2016, 01:17 PM
Mar 2016

Sure... we can't ignore the problem of demographics. I'm a Baby Boomer and will be turning 65 soon... so this issue is more concern to me than perhaps others.

But that 2.8 trillion in the fund could have been invested more wisely than just letting the government borrow and spend it for whatever... and not setting any floor below which interest could not fall. I'm NOT talking about privatization. Obviously it's too late now but I think we could have better invested it in public infrastructure and then taxed the increased productivity... not with user fees but possibly with something akin to a VAT tax.

Major Nikon

(36,811 posts)
25. I'm speaking about the GOP, and not SS
Mon Mar 28, 2016, 01:24 PM
Mar 2016

As far as SS goes the wisest move in hindsight would have been not to foolishly cut taxes on the rich while spending trillions on pointless wars. A healthy US economy with lower debt means we would have more options for everything, including SS. VAT taxes along with any other consumer tax are highly regressive. I'm more in favor of basing all taxes on income that has an infinitely progressive rate.

jeff47

(26,549 posts)
17. There's only so long the Democratic party can keep the Republican party alive.
Mon Mar 28, 2016, 12:37 PM
Mar 2016

Mostly because the Democratic party is sacrificing itself to keep the Republicans viable. That will eventually collapse as more and more people abandon both parties.

We've got 30 years until the earliest projections of a Social Security shortfall...and that 30 years keeps moving into the future about as fast as time does. We do not have to fix this today, with today's politics.

eniwetok

(1,629 posts)
24. where did you get 30 years from?
Mon Mar 28, 2016, 01:21 PM
Mar 2016

The latest SS Trustees report projects the Trust Fund will be exhausted by 2034.

The projected annual OASDI cost exceeds non-interest income throughout the long-range period (2015 through 2089) under the intermediate assumptions. The dollar level of the theoretical combined trust fund reserves declines beginning in 2020 until reserves become depleted in 2034.


https://www.ssa.gov/oact/TR/2015/tr2015.pdf

jeff47

(26,549 posts)
30. The 2034 claim started in about 2004.
Mon Mar 28, 2016, 02:08 PM
Mar 2016

About every 15-20 years, the date gets revised to about 30 years out.

Remember, at one time Social Security was doomed by 1992....and then 2004....and then 2020....and now 2034.

eniwetok

(1,629 posts)
40. I don't know where you got those numbers
Mon Mar 28, 2016, 09:17 PM
Mar 2016

I have absolutely no recollections of ANY of those dates you mentioned and given the amount of money going into the fund during those years plus the reserve I don't know where you got those numbers. Are you sure you're not thinking of 1982? Of course if one looks back to the 1997 report https://www.ssa.gov/oact/ssir/SSI97/ssi1997.pdf the earliest one on line https://www.ssa.gov/oact/ssir/index.html they only looked out 25 years.

Currently, the DI fund is in trouble as we speak. The HI trust fund is expected to last until 2030 and OA to 2034.

https://www.ssa.gov/oact/TRSUM/index.html




jeff47

(26,549 posts)
41. From previous reports. Just because they're not online does not mean they do not exist.
Mon Mar 28, 2016, 09:33 PM
Mar 2016

The 1992 "doomsday" was used to push through the Greenspan commission's recommendations.

Fundamentally, the misunderstanding here is your belief that the trust fund is supposed to be permanent. It is not. It is supposed to be spent during the Boomers retirement. Since the vast majority of Boomers will be dead by 2034, it will have served its purpose.

The ongoing funding problem is a combination of two things:
1) The SSA uses a very pessimistic economic forecast when calculating this date. That's why the "run out of money" date keeps moving into the future. The economy isn't as bad as they forecasted, resulting in higher Social Security tax receipts.

2) Economic inequality means far less income is subject to Social Security taxes. We no longer have nearly as many well-paying non-service jobs in the country which would be 100% subject to Social Security taxes. Instead, we have absurdly wealthy people making more money, which is beyond the Social Security cap.

We don't need to fill the trust fund NOW to solve the ongoing funding problem. We need to raise the Social Security tax cap to keep up with what has happened to incomes in the last 60 years. And we can do that at a much later time, because raising that cap still works with the "two-generations-fund-a-third" system Social Security is designed around - no (significant) trust fund required because it raises enough money to cover expenses.

If we rush into fixing this now, we will have to do something that Republicans and conservative Democrats will vote for. That will mean cuts to Social Security payments, or adding something like means-testing that will be used to destroy the program.

It's a problem, but it is a problem we can wait to solve. And we should wait to solve it, because there will be a future environment far better suited to solving it.

As for DI, that's a problem created by Republicans in order to drive through cuts by explicitly disallowing shifting of money between the programs. They're looking to create a "failure" so they can destroy the entire program. Don't fall for it. Instead, fix the problem by going back to allowing transfers between the funds, and again really address it when our politics is not dominated by an insane party, and a party desperately trying to find common ground with that insane party.

eniwetok

(1,629 posts)
8. hardly
Mon Mar 28, 2016, 11:34 AM
Mar 2016

I certainly would never trust the sociopaths and thieves on Wall St with this money. But it looks like we can't trust even our most liberal politicians either. I think liberal Dems have a blind spot on this issue and they're blinded by that 2.8 trillion in the trust fund. But the SS Trustees are predicting the trust fund will run out around 2034 and after that it will only pay about 80% of benefits.

There are numerous threats to this program... from the damage the Bush recession did to the fund, to low interest rates to outsourcing higher paying industrial jobs and replacing them with lower paying service jobs, to the current cap. I'd like to see capital gains money finally taxed. Then there's the GOP... a party that keeps getting more and more insane by the day... and they want to destroy SS.

I don't know how old you are but I'll be 65 soon... and I'm not going to delude myself with empty assurances when all the hard numbers and trends are raising red flags.



-none

(1,884 posts)
35. There it is!
Mon Mar 28, 2016, 03:24 PM
Mar 2016
There are numerous threats to this program... from the damage the Bush recession did to the fund, to low interest rates to outsourcing higher paying industrial jobs and replacing them with lower paying service jobs, to the current cap. I'd like to see capital gains money finally taxed.


A major reason seldom mentioned when talking about Social Security. The root reason Social Security is in trouble. Is the major decline in the number of Living-Wage-Jobs since 2000. Anything else is diddling with the symptoms. Put our money on good, decent jobs and not into For-Profit-Prisons.
Stop our wars of choice, our self-perpetuating wars on terrorism and drugs and concentrate on rebuilding out own crumbling infrastructure and getting our manufacturing back into this country. And try to catch up to the rest of the civilized world on transportation and communications. Our high speed trains derail at 80 MPH, while other countries can have 250/300 MPH safely.


We will be better off. Our country will be better off. And the world will be better off.

Cooperation, not war seems to have been a foreign concept since the first non-aboriginals arrived.
 

Taitertots

(7,745 posts)
5. The rate that the government lends to itself is inherently trivial
Mon Mar 28, 2016, 11:20 AM
Mar 2016

Every penny that comes out of the "trust" comes from taxpayers. So will your SS come from tax payers via the trust or via direct taxation. It's entirely trivial.

eniwetok

(1,629 posts)
9. 2.8 trillion is trivial?
Mon Mar 28, 2016, 11:51 AM
Mar 2016

Not sure what you mean. That 2.8 trillion in the trust fund was already lent to the government and spent and 2.8 trillion is hardly trivial. I'm sure Congress would never default, but repayment of that 2.8 trillion may meet political resistance when it approaches 150-200 billion a year... and Congress then will certainly propose what it's already proposed: cuts in SS benefits.

FBaggins

(26,585 posts)
15. You're missing the point
Mon Mar 28, 2016, 12:18 PM
Mar 2016

The interest is paid by the government TO the government. It doesn't create any money. If they pay an extra trillion dollars to SS without increasing taxes to cover it... they're just borrowing a trillion dollars to do it. It isn't that a trillion dollars isn't a lot of money... it's that ANY amount is irrelevant if all you're doing is taking on debt on one ledger to pay down debt on another.

There is no way to increase income to SS without increasing taxes or investing in riskier options.

eniwetok

(1,629 posts)
37. of course...
Mon Mar 28, 2016, 09:03 PM
Mar 2016

Who else would be paying interest on the money borrowed from the SS trust fund but the government? That was true when the fund was getting 6% and it will be true at 3%. WHO CARES! To focus about where the money comes from evades the greater moral question that workers are involuntarily TAXED for a social purpose... for OA, DI, and HI and this money IS HELD IN TRUST... for those purposes. It's not those taxed workers' fault that Bush, the GOP, and corporate Dems imploded the economy any more that it was GM's fault that the economy tanked and their market disappeared. So why should this money... and the purposes it was collected for, be treated with such disrespect? The government is not being a responsible caretaker of MY money. This only helps those on the right who look for any excuse they can to push for privatization. We know the GOP has no intention of strengthening Social Security. But where are the Dems beside Bernie?

 

Taitertots

(7,745 posts)
50. "Lent and spent". It's gone. Every penny comes from increased taxes
Wed Mar 30, 2016, 10:41 AM
Mar 2016

The obligations exist whether or not the trust exist. The funds to pay those obligations comes from increased taxes (or decreased services) either way.

The trust is an accounting fiction to shift the tax burden onto working class Americans.

Money is fungible. The SS obligations are unchanged. The funding source for those obligations is unchanged. It's trivial to discuss whether the interest rate is high enough when every penny comes from new taxes (and/or austerity).

eniwetok

(1,629 posts)
52. shifting the tax burden...
Wed Mar 30, 2016, 12:03 PM
Mar 2016

And if I had a choice I'd like to see the fund's life extended though high interest rates which, of course, would come from general funds... and extending the tax to tax free income such as some capital gains.

Of course I'm advocating for a higher interest rate which can only come from general revenues. Congress can set a new formula just for SS... say to create a floor if general rates fall to low, but let the rate float otherwise. To let some new funds to get interest that's below the rate of inflation is moral if not criminal maladministration. Workers are involuntarily taxed for a social purpose and the health of OA, DI and HI should not be left to the whims of the economy or how low the FED drives down rates.

As for your comment that the trust is designed to shift the tax burden downward... you'll have to explain that. I think generally the goal of the Right is to create massive DEBT largely through irresponsible tax cuts for the rich... then to push for even lower tax rates which then would shift the burden of debt paydown... downwards. Of course debt may be too valuable a political tool for the right to give up on... it puts downward pressure on social spending. Better to spend on interest than services that help people... with the exception of interest for SS... which would have extended the longevity of the trust fund if there had been an interest floor 8 years ago.

 

Taitertots

(7,745 posts)
53. The obligations are independent of the income stream.
Wed Mar 30, 2016, 03:18 PM
Mar 2016

The exact same amount of money needs to come out of the general fund regardless of what rate is selected. The source of that revenue is the same regardless of the status of the "trust". The rate is irrelevant because it doesn't change anything. It could be 100 trillion dollars and every penny would still come from increased taxes and/or austerity.

To explain the shift in the tax burden:
The funding obligations are fixed by legislation. The "surplus" is used to offset progressive marginal income taxation. It replaces progressive marginal income taxation with regressive taxes on workers. Shifting the tax burden from people who would have paid a higher effective rate on income to hourly workers whose taxes were effectively increased.

eniwetok

(1,629 posts)
56. of course interest payments come from the same source... somewhat.
Wed Mar 30, 2016, 05:02 PM
Mar 2016

Sure interest payments come from general fund. But most revenue that goes into the general fund is paid with more with progressive taxation. Of course there's always more borrowing.

So I don't understand your objection. When interest was 6-7-8% on the trust fund... the interest was coming from the same source. By your logic we can be taxed for SS and not get any interest and in that way we can avoid the problem of the government paying money to itself... even if it's been doing it forever. My first concern is the health of the program... and it's undeniable that low interest rates harm it... especially when they drop below the level of inflation.

FBaggins

(26,585 posts)
7. Sorry... untrue
Mon Mar 28, 2016, 11:23 AM
Mar 2016

This would be correct if SS were actually a trust fund of invested assets. A higher return would keep the fund solvent longer.

But that isn't the case. The investment portfolio is made up of government obligations. The higher the interest rate paid on those obligations, the more expensive they become to the government. Either way, there's a fiscal dent that's due directly to SS payout obligations.

Essentially, you're arguing to transfer more of current government tax revenue into the SS trust fund... and that would be fine in and of itself. Unfortunately, a higher rate on those bonds means higher interest rates in general... which means that all of the other government debt (FAR more than just what is owed to SS) would also be due higher interest payments. The net effect is a significant negative.

eniwetok

(1,629 posts)
10. what's "untrue"?
Mon Mar 28, 2016, 11:52 AM
Mar 2016

Congress can set ANY interest rate for SS it wants. It can create a floor beneath which the interest rate will not fall. So are you suggesting that we should let interest rates fall below inflation?

FBaggins

(26,585 posts)
13. The entire premise of the article.
Mon Mar 28, 2016, 12:10 PM
Mar 2016

Low interest rates do not, in fact, endanger Social Security.

Congress can set ANY interest rate for SS it wants.

Untrue - but also irrelevant. By law, the trust fund is invested in US treasuries and rates are set by the market - but even if we changed the law and set a higher rate... the money doesn't magically appear. It has to be paid out of government revenue.

Of course - this whole thing is a game where we pretend that there's actually a pool of cash sitting there for future retirees... but let's skip that one.

The entire premise boils down to "SS doesn't have enough money and we should throw more at it". That isn't caused by interest rates.

eniwetok

(1,629 posts)
19. sorry... you're incorrect
Mon Mar 28, 2016, 12:55 PM
Mar 2016

OF COURSE if we paid high interest rates it would come out of general funds. But why should we be involuntarily taxed for a specific purpose... then have no floor on how low interest rates can sink? These are not "market" interest rates... they are essentially set by the FED first. The "market", to the extent it's involved in treasury auctions, is secondary. Are you saying workers who are taxed only to have their money diverted into general funds for any purpose should tolerate getting interest that's below inflation?

And OF COURSE, all things being equal, if the fund received a higher interest rate it would extend the fund's longevity.

FBaggins

(26,585 posts)
34. Apologies... but you still don't get it.
Mon Mar 28, 2016, 02:42 PM
Mar 2016

No. The Fed only sets short-term treasury rates. The longer-term rates that drive "returns" on the SS portfolio are entirely market-driven based on future expectations of inflation. The Fed can "twist" and impact that market, but they can't set it by fiat. Just compare 10-year treasury rates to the Fed Funds rate over the last decade.

should tolerate getting interest that's below inflation?


The expected "return" net of inflation for the trust fund is, and always has been, zero. This is not an investment account.

Why should we be involuntarily taxed for a specific purpose... then have no floor on how low interest rates can sink?

You're acting as though your payments were supposed to go into an account in your name that would earn interest. That's the right-wing's spin in order to support privatizing the program.

You keep missing the math. It's entirely irrelevant what interest rate is paid because there isn't any money there... just debt. If they artificially declare that SS will be paid 5% above market rates, then the impact on the amount that they must pay out over the coming decades is entirely unchanged. It would make the fund look solvent by one measure... but would not change at all the changes that would need to be made (tax increases, cuts to other programs, or retirement age changes) in order to pay out the promised benefits.

eniwetok

(1,629 posts)
42. missing the math?
Mon Mar 28, 2016, 09:34 PM
Mar 2016
"You keep missing the math. It's entirely irrelevant what interest rate is paid because there isn't any money there... just debt. If they artificially declare that SS will be paid 5% above market rates, then the impact on the amount that they must pay out over the coming decades is entirely unchanged.

Of course there's no money in the trust fund... even the interest paid is lent back. So if your idea is that if the trust fund had been getting 40-50 billion a year more in interest for last 7 and, say, the next 3 years would not extend the life of the trust fund... then I think we have nothing left to discuss.

And no, I don't in any way believe that SS is anything like a bank account. It's an insurance program. But contributions made in my name are accounted for.
 

Hoyt

(54,770 posts)
28. Well, yeah Congress can always amend the SS Act. But until they do that, it's pretty much a market
Mon Mar 28, 2016, 02:01 PM
Mar 2016

rate defined at your link as: "The current formula was established by the 1960 amendments to the Social Security Act. The formula sets the rate applicable in a given month to the average market yield on marketable interest-bearing securities of the Federal government which are not due or callable until after 4 years from the last business day of the prior month (the day when the rate is determined). The average yield must then be rounded to the nearest eighth of 1 percent. This formula became effective with the October 1960 rate."

I don't really see that changing to a significant degree.

eniwetok

(1,629 posts)
43. comparable interest paid
Mon Mar 28, 2016, 10:01 PM
Mar 2016

I'm doing this from memory but I believe it was around 2014 where the fund had grown by some 800 billion over 2006... and yet the fund was getting the roughly same interest as it was in 2006.

The simple fact is, as this SS chart proves... interest IS a key variable


FBaggins

(26,585 posts)
33. Nope. They're tied to market rates
Mon Mar 28, 2016, 02:30 PM
Mar 2016
Congress could set a floor if it wanted... and otherwise let the rate float.

They could make a new law... but it wouldn't change the error in your OP. You continue to miss the fact that there are not trillions of dollars sitting in an investment portfolio earning interest. All of the money that came in for SS was spent and replaced with IOUs. Paying above-market rates on those IOUs isn't an actual rate of return on an asset... it's just the government agreeing to shift more debt from one account to another.

eniwetok

(1,629 posts)
21. so you want to cut benefits?
Mon Mar 28, 2016, 01:06 PM
Mar 2016
"But that isn't the case. The investment portfolio is made up of government obligations. The higher the interest rate paid on those obligations, the more expensive they become to the government. Either way, there's a fiscal dent that's due directly to SS payout obligations. "


This is, of course, another variable in the health of the trust fund.... of which there are many... benefit rates, new revenue which is affected by the cap and the state of the economy, interest rates etc. But you are suggesting the cutting of benefits, not I. I'm looking more towards the revenue side... higher interest rates, maybe the doughnut hole approach or making some capital gains pay SS taxes.

FBaggins

(26,585 posts)
32. Lol... nope
Mon Mar 28, 2016, 02:26 PM
Mar 2016

Those aren't the only two options. "Accept my spin that it's the fault of low interest rates or you must want benefits to go down". Now you're accusing me of "suggesting cutting benefits"?

What I'm telling you is that interest rates are not the problem. Suggesting artificially gaming those rates is no different from just saying "take money out of general revenue to fund the benefits". Which is fine... but you don't seem to realize that that's what you're proposing.

I'm looking more towards the revenue side... higher interest rates

Interest rates are NOT revenue. This is the fact that you keep missing.

eniwetok

(1,629 posts)
44. when you
Mon Mar 28, 2016, 10:11 PM
Mar 2016

When you claim increasing interest isn't an option and also say

"But that isn't the case. The investment portfolio is made up of government obligations. The higher the interest rate paid on those obligations, the more expensive they become to the government. Either way, there's a fiscal dent that's due directly to SS payout obligations. "


Yet you take umbrage at the suggestion that you seeming see high benefit rates as the problem...

I have no idea what your position is... and at this point I really don't care.



Wounded Bear

(58,235 posts)
16. Ultra low interest rates are not healthy for the economy in general...
Mon Mar 28, 2016, 12:32 PM
Mar 2016

You can't encourage savings at 1% interest rates. Safe investments wither and die as everyone pushes their funds into the riskier, high potential reward areas.

Current interest rates favor financial institutions and gamblers, not many others, like true "conservative" investors.

I'm not so sure this threatens current SS funds, since they are by law required to invest in only gov't securities. This sounds a bit like another of those "set SS free and let it invest in the stock market" screeds.

eniwetok

(1,629 posts)
20. nope... I don't favor privatization
Mon Mar 28, 2016, 12:59 PM
Mar 2016

I'm just tired of being taxed for SS and seeing it get sh*t for interest... at one point a rate below inflation. These low rates threaten the longevity of the fund. I'm simply saying there should be a floor beneath which interest rates can not sink.

Wounded Bear

(58,235 posts)
27. In general, I agree....
Mon Mar 28, 2016, 01:54 PM
Mar 2016

but the Fed has failed us the last few years, continually driving interest rates down in opposition to non-existing inflation threats. Meanwhile, the general economy has seen inflation in prices and costs, but without any concomitant increase in earnings to offset it. Depressing rates does depress growth if they go too far, which they have.

One big problem we have now is that once you hit effective zero on rates, there's not much you can do to affect things. I guess that's what the free-market zealots want. In the big picture that is dangerous, as 2008 shows. Easing rates back up to the 3% range would probably make life better for everybody.

jeff47

(26,549 posts)
31. Low interest rates also reduce unemployment and generally boost the economy.
Mon Mar 28, 2016, 02:12 PM
Mar 2016

You can go too low, but we really haven't figured out what that is these days. It used to be considered 5% unemployment would lead to massive inflation. We're now at around 4% with very little inflation.

eniwetok

(1,629 posts)
45. low interest rates
Mon Mar 28, 2016, 10:14 PM
Mar 2016

The FED doesn't fight inflation with low interest rates, but by raising them. The low rates are designed to encourage borrowing and be a spur to the economy.

strategery blunder

(4,225 posts)
47. And it hasn't worked well because of other issues that only Congress, not the Fed, can address.
Tue Mar 29, 2016, 03:59 AM
Mar 2016

Interest rates have been so low for so long that we should be experiencing really, really high inflation right now. We're really not. There's some, especially in rental housing, due to the aftereffects of so many foreclosures in the Great Recession and suppressed wages making it difficult to fund down payments. But outside of rentals, and maybe some food staples, there's not a lot of inflation, because even though unemployment has drifted down, wages haven't risen.

Any inflationary effect that the prolong low interest rates might have had seems to me like it has been offset in a decrease in the velocity of money, because wealth inequality has SOARED in the last decade. More than 90% of the economic gains of the "recovery" have gone to the top 10% (And that is actually quite an understatement because I don't have the exact numbers right now, so I am being conservative with them). Obviously that economic recovery isn't really being paid out in wages.

And rich people don't spend money, they hoard it, which has the effect of taking it out of the economy.

Only Congress can address that, for it would take some form of taxation and redistribution to get the hoarded money circulating in the economy again. The Fed has done what it can, but it is faced with a Congress that refuses to do anything with "that man" in the Presidency, and therefore the Fed lacks the tools to address the ACTUAL problems with the economy right now.

(Yeah, I know...the rich "invest" their money, but mostly by outsourcing to other countries, and 2008 showed us what some of those "investments" are like.)

eniwetok

(1,629 posts)
36. or stop exempting capital gains
Mon Mar 28, 2016, 04:52 PM
Mar 2016

It's difficult to justify that capital gains are exempt from the higher tax rate on earned income and from Social Security taxes.

sendero

(28,552 posts)
49. Ultra low interest rates...
Tue Mar 29, 2016, 04:58 AM
Mar 2016

..... are a threat to our entire monetary system, which is based on the time value of money, a value that has been stripped away.

GoneFishin

(5,217 posts)
51. Agreed. Allowing giant banks to borrow money for free from the taxpayers without no requirement
Wed Mar 30, 2016, 12:03 PM
Mar 2016

for them to provide reasonably priced services back to the public is a racket.

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