Ben Bernanke Is Bankrupting The Social Security Trust Fund

[FarCenter]

In June of each year the Social Security Trust Fund (SSTF) reinvests a significant portion of its investment portfolio in newly issued Special Issue Treasury Securities. The interest rates on these bonds is set by a formula that was established in 1960. The formula was designed to insulate the SSTF from transitory changes in interest rates by averaging market based bond yields over a three-year period.

Bernanke’s Fed has set interest rates at zero the past four years. In 2012 the 1960's formula has finally caught up with the SSTF. It got murdered on this year's rollover.

...

$135 billion of old bonds matured this year. This money was rolled over into new bonds with a yield of only 1.375%. The average yield on the maturing securities was 5.64%. The drop in yield on the new securities lowers SSA's income by $5.7B annually. Over the fifteen year term of the investments, that comes to a lumpy $86 billion. It gets worse.

Bernanke has pledged that he will keep interest at zero for a minimum of another two years. The formula used to set interest rates for SSA looks back over the prior three years. Therefore, SSA will be stuck with a terrible return on its investments until at least 2017.

http://www.businessinsider.com/ben-bernanke-is-bankrupting-the-social-security-trust-fund-2012-7

When banks game the interest rates, it is scandalous.

When the Federal Reserve does it, it is monetary policy.

[RKP5637]

1. Just keep giving it all away Bernanke, awesome job of propping

up the banks and wall street at the expense of the majority. Many of these outfits should have totally crashed in a truly capitalistic system. Instead, they get rewarded, over and over again.

[lostnote12]

2. Whatta Post....Thank You my kindred spirit...I'm neither a Banker nor a Poker Player, but I love the

....Ponies!!!

[OffWithTheirHeads]

3. We are being shock doctrined, no question about it.

There is a reason they changed the welfare laws and the bankruptcy laws. Why our police are becoming more and more militarized, why they are fucking with habeas corpus, our right to peaceably assemble, why there are cameras on every street corner, why the brutal crackdown on Occupy. They know the unrest that's coming. They've known it for decades. We are frogs in a pot and the heat is getting ratcheted up just slow enough to keep us under control until they can put the systems in place to beat us into complete submission.

[unblock]

4. holy crap! you seriously think HIGHER interest rates would help social security???

yes, it is correct that the social security trust fund is earning a lower rate of interest than it otherwise would be as a result of the fed's monetary policy of near zero short-term interest rates.

however, higher interest rates would reverse the tepid progress our economy has made, costing many jobs and crushing social security receipts.

moreover, it would also reduce overall government revenues as well as increase overall government expenditures, bringing still more pressure to cut benefits.


CONGRESS, and the republicans therein in particular, is to blame for the crappy state of the economy; FISCAL policy; and, both directly and indirectly, the state of the social security trust fund. had there been a properly sized stimulus when obama first took office, or at least had those types of measures been meaningfully sustained, we would have had a more sound and growing economy, and the fed would have had little difficulty deeming higher interest rates prudent and appropriate.

[FarCenter]

7. The rates are well below where there is any significant benefit in lowering them

The Federal Reserve is just "pushing on a string" when you get below around 2.5% on 5 year treasuries.

[Lucky Luciano]

8. Kind of stuck in an "it is what it is" situation.

Sure...have Helicopter Ben raise Fed Funds target to 3% or so. That'll be a hoot!

[unblock]

9. hence my putting the blame on fiscal policy.

we need both corrective monetary policy AND corrective fiscal policy.

bernanke is doing exactly what a liberal's ideal fed chairman would do. honestly, i'm impressed and i know damn well greenie would not have been doing have the good stuff bernanke is doing.

think of it this way: the fed's basic choice is to either promote growth at the risk of higher inflation or fight inflation at the risk of lower growth. do you really the latter strategy would be appropriate these days?

the ONLY reason anyone could feel compelled to attack bernanke is because CONGRESS isn't doing its part. if congress had an appropriately massive stimulative and growth-oriented policy, bernanke's policies would be seen as more effective and he would be hailed as a savior, oracle, genius, or whatever.

please put the blame where it belongs. the ONLY alternative at the fed to bernanke's policies are far worse policies.

[elleng]

26. Thanks, un.

[Igel]

10. At the same time, though,

the US Treasury's saving a ton of money on interest on the debt.

Interest payments in 2011 were barely higher than in 2008, even though we'd racked up another $4 trillion or so in debt in 2008, 2009, and 2010.

[Hoyt]

11. Agree. If we don't get economy rolling again, SS and a lot of other good programs are screwed.

I'm for increasing taxes on rich, but that alone will not get us out of this mess.

[Poll_Blind]

5. Holy shit that's fucked. nt

PB

[DeSwiss]

6. He's not doing it all by himself though.....

...he has many, many accomplices. Here are the ugly numbers for those with stomachs strong enough.

- K&R

[Nye Bevan]

12. This is the Government paying interest to itself. The interest rate is irrelevant.

And the "trust fund" is essentially fictitious. It's like me putting an IOU for $1 million to myself in a safe-deposit box and calling it a "trust fund" for my retirement, when I open it up at age 65.

[newthinking]

15. Not true. That is a Republican lie

The money is held in Treasury securities. If they are not worth anything then neither are the Trillions of others owned outside of the US government. They will only be "worthless" if our government and the dollar completely collapse. Unless, of course, the propaganda you have repeated allows the government to selectively default on the SS treasuries: In other words they are allowed to steal them from us.

[bvar22]

22. Except that unlike your IOU,

...the IOU in the Social Security Trust Fund is backed by the full faith and credit of the United States.

[Nye Bevan]

23. So the United States will still eventually have to come up with the money somehow.

By raising taxes, or borrowing, or printing money.

[bvar22]

24. You pretend like this is true for only Social Security.

The United States will have to "come up" with the money to pay all her bills.
Social Security is no different.
If, as the Republicans (and apparently you also) get their wish,
and Social Security goes Broke,
hungry old people will be the least of our problems.

Your post and argument is nothing more than a conservative Talking Point designed to scare people into giving Social Security to Wall Street,
like THAT would solve the problem.

Congratulations.

[Nye Bevan]

29. So why is it only Social Security that has a "trust fund"?

My point is that the "trust fund" is an accounting fiction. It's an IOU from one part of the government to another.

And I don't follow your stuff about "giving Social Security to Wall Street". I'm not sure exactly what you mean by that, but I have never suggested anything along those lines. Perhaps you are confusing me with another DUer.

[bvar22]

31. You don't follow my stuff about giving Social Security to Wall Street?

Really?
...because THAT is precisely the "solution" (private accounts) offered by the conservatives and their friends the "Centrist" NeoLiberals offer immediately after their Social Security Fear Mongering.

[dpibel]

37. No, it's the government paying interest to the beneficiaries of the trust

See, the money in the trust fund didn't come from the government. It came from the people who pay payroll taxes. Us folks who will someday get Social Security.

It goes like this: Your and my cash goes to the trust fund. That cash is invested in U.S. Treasuries (special though they may be, they're still U.S. Treasuries). We have loaned the government real money.

It's just like anyone else investing in U.S. Treasuries. Real money changes hands. It has to be paid back. Much of it is paid back by rolling over debt.

But to argue that it's the same as loaning money to yourself is utterly specious and, as someone points out below, no more than right-wing cant. If you write yourself an IOU, no money has changed hands. That's simply not the situation with the Social Security trust fund.

[Nye Bevan]

38. The government has spent the Social Security taxes.

It has then written a giant IOU to itself. That's all the "trust fund" is.

[dpibel]

40. Dead horse

You already said that.

It doesn't make it true to say it again.

You really, actually have the order of things wrong.

And you apparently don't understand what U.S. Treasuries are or how they work.

You could just as well say "The government has spent the money invested by [investor of your choice] and then written [investor of your choice] a giant IOU."

What is it that keeps you from comprehending that the government borrows from many people: Individuals, institutional investors, other nations. In every case, it borrows cash, and gives the lender an IOU called a U.S. Treasury bond (or bill, depending on term). Then, you know what the government does? IT SPENDS THE MONEY!!

This is in no comprehensible way different from what happens with funds collected from people and put together in the SS trust fund. It is actual money they have earned. It is held in trust for them. It is invested in Treasuries. Then (and not before then) the government spends the money.

But I do understand that you are being intentionally obtuse because you have an agenda to advance. I just hope you understand that what you are saying is nonsense when read by sentient people.

[Nye Bevan]

41. I think we are in agreement.

We both agree that the money has been spent, and that future Social Security benefits are essentially a Government IOU. My point (and you seem to concur) is that despite what some seem to believe, the "Trust Fund" does not contain any actual money, or actual assets such as gold, but rather just represents a future government promise.

BTW I'm not sure what you think my "agenda" is, but I support the Social Security program. It is clear that the majority of people do not have the self-discipline to independently save for their retirement, and so a system like Social Security, that effectively forces people to save and does not allow them to cash out early, or borrow against their retirement funds, is needed.

[dpibel]

43. You think wrong

Unless you believe that U.S. Treasuries, backed by the full faith and credit of the government, are not assets.

If you believe that, then I trust you are not at all worried about the bonds held by China. Because they are, after all, just a future government promise.

Incidentally, if the bonds held by the SS trust fund are merely a "future government promise," then why do they generate interest?

You're just parroting the Pete Peterson lies here. You should stop doing that.

Thanks for adding the throwaway person responsibility bit. Does it register with you at all that for the half of people who make less than the median income saving for their retirement isn't an issue of self-discipline? If you make just the amount of money it takes to get by--or less--you simply can't save.

Please don't trot out flat-screen TVs, Cadillacs, or whatever other right-wing memes you might want to parrot about profligate spending among low-earners. This is a highly stratified society, and there's a huge number of people who who just barely get by.

[newthinking]

45. By your own definition *all* money is just worthless paper

All dollars themselves are is a type of "IOU". They are printed out of thin air, much of the nation's wealth are just electrons.

You have an expectation that those "electrons" will be honored and tendored. Explain to me how that really differs from the trust fund treasuries? You can't because there really is only a difference you/we have been taught to believe.

[Igel]

13. For every dollar in interest collected by the SS Trust fund,

that's $1 more added to the US deficit.

Except that if you increase the interest rate to help the trust fund, you also increase the interest rate on all the government debt being issued. The one thing making a $1.3 trillion deficit at all manageable year after year is the low interest rate.

Crank it up a point or two and those deficits would eat up any recission of the * tax cuts and leave little but a burp.

[mckara]

14. Central Banks Have Been Pushing Neo-liberal Economics for 50+ Years

Neo-liberalism hates social safety nets!

[newthinking]

17. Most money is just electrons. What is important is who is screwed and who benefits at who's cost

The entire budget deficit debate is full of shit. It is all smoke and mirrors at this point anyway. It holds together only because money still slightly represents bartering in goods and because of the dollar's "brand" still holds a lot of psychological value and people still expect to be able to trade it for goods.

We have been quietly "printing" Trillions of additional dollars in just the last couple of years out of thin air and yet we have managed to increase the worldwide trade value of those dollars. We have given China and other countries additional Trillions of pieces of paper/electrons (dollars) in exchange for tangible goods and have managed to actually strengthen the world's investment in the dollar's welfare, because they all have dollars too.

Our currency is not going to fail due to our budget deficit, and it is likely going to continue along for at least a while longer. At some point a catastrophic event or such a serious theft/bank/industry failure may open the masses to what money really is, and that might cause it to collapse.

Why do we debate our currency as if it were not just a trust relationship around paper and electronics? Because it is great to use it to steal any remaining bartering power from the poor and middle class.

[rhett o rick]

16. I am not sure you can bad mouth Bernanke, Pres Obama's guy, during "election time". nm

[FarCenter]

19. Bernanke was Bush's guy first

He was a member of the Federal Reserve Board of Governors from 2002 to 2005 during Alan Greenspan's chairmanship. Bernanke then served as chairman of President George W. Bush's Council of Economic Advisers before President Bush appointed him on February 1, 2006, to be chairman of the United States Federal Reserve.

Obama reappointed him in 2010.

"Helicopter Ben" has not followed policies much different from those that Alan "Greenspan put" would have followed. And his view on the depression is only mildly different from Milton Friedman's.

[rhett o rick]

20. Yes I am well aware. How does that apply to my post?

Berny is an Obama guy now. If you bad mouth a Pres Obama guy during "election season" then you may be jeopardizing the reelection and warrant a visit from the Neighborhood Watch.
Just Sayin'

[sad sally]

35. Looking back at his actions, recall that Greenspan said he was wrong about 30% of the time.

[AdHocSolver]

18. Keeping interest rates low helps the banks and Wall Street.

While banks pay depositors as little as 0.1 percent on their money, banks charge 4-, 7-, or 14-percent or more (credit cards) to borrowers for the use of the money.

This amounts to a spread of 40 to 1 (0.04 / 0.001), 70 to 1 (0.07 / 0.001), or 140 to 1 (0.14 / 0.001).

Throw in the ever-increasing usage charges by the banks and depositors are effectively paying the banks for the privilege of keeping their savings in those banks.

The Fed kept interest rates low for several reasons.

One reason for low interest rates was to deny people fair value for their savings to get them to withdraw the money from insured accounts and gamble it in the stock market, thereby increasing demand for stocks and driving up the stock market prices.

A second reason for low interest rates was to reduce risk to the banks for making "bad", risky loans. This action drove the real estate market "boom". Cheap money encouraged speculation in packaged mortgages that eventually collapsed the real estate markets.

A third reason, in the early years, was to provide corporations with "cheap" money to build factories in Mexico, China, India, and outsource jobs, as well as to enable investment in automation to eliminate jobs, and to buy up competitors in order to eliminate ("duplicate&quot jobs.

Nowadays, the corporations can (and do) go directly to Chinese banks for money.

Another reason for low interest rates is to encourage people to spend money before "hyper-inflation" kicks in. It is surprising that the considerable inflation that has occurred over the last thirty years has been totally ignored.

For example, a midsize car that cost about $8,000 in 1980 today costs over $20,000 for a comparable vehicle. Fruit, in season, that 30 years ago cost 29-cents to 39-cents a pound, today costs $1.99 to $2.99 a pound.

This increase in prices does NOT reflect increases in cost of production since many goods are produced in low wage countries and imported into the U.S. Lower labor costs due to automation are not reflected in cost to the consumer either.

The main U.S. economic problems stem from the fact that we import too many products that should be produced in the U.S. by American workers. An economy cannot be sustained by continually borrowing to maintain consumption when, at the same time, the income of consumers, and therefore demand, is undergoing contraction.

What Wall Street and the bankers do NOT want you to understand is that their policies and actions are going to bring on another depression. The trade deficit brought on by outsourcing of jobs to low-wage countries, not the government deficits, is going to collapse the U.S. economy.

[Nuclear Unicorn]

21. The 1960 law never should have passed. This is the inevitable result.

A trust fund is supposed to be locked. Selling it into a bond puts the money at risk if the bond is not repaid. The mere fact the bonds are being sold to the government because the government doesn't have enough general fund money is the first clue that those bonds will ultimately not be honored. It's not if, it's when.

Everytime I've brought this up in the past I was shouted down. People fear SS being "on the table" more than they fear the inevitable, predictable, approaching collapse.

[bvar22]

25. Only one problem with your post.

There IS no [font color=red]"inevitable, predictable, approaching collapse"[/font]

Social Security is fully funded until 2037,
and will be able to pay out 80% after that for the next 100 years IF WE DO NOTHING.
If we raise the FICA cap to about $175,000, Social Security is fully funded forever.
(Non-Partisan Government Accounting Office)

If we dump all the so called "Free Trade" treaties,
and enact Economic Reforms that benefit manufacturing in America,
not only will it generate MORE FICA funds,
we would also be able to liberalize our immigration policy to encourage New Americans to fill the surplus manufacturing jobs generated by these "protectionist" reforms,
greatly incrteasing FICA revenue.

THAT is a Democratic Party approach.
The fear mongering you are parroting is the Conservative Republican (or Centrist New Democrat) approach.

[Nuclear Unicorn]

27. But we aren't doing "nothing"

SS is loaning its funds to a gov't that already has so little money it has to borrow from SS and elsewhere. Your 80 figure assumes the money will be there when the bonds come do. The feds will have to start showing a surplus in tax receipts for that to happen.

Even the OP article admits we're paying the bonds due today with other bonds. In other words, no real money is being paid back we're just multiply the interest payments due. Interest payments eat away at future tax receipts just as interest on your loans detracts from your future earnings.

Far from refuting my post never having passed the 1960 law would be the same as the doing nothing you speak of.

Perhaps this is splitting hairs but I don't see that we necessarily need manufacturing jobs. If we can get to full-emplyment ( =< 5%) it wouldn't matter if the jobs were manufacturing, technology, service or what-have-you. Heck, we could turn the entire US into one giant amusement park for the rest of the world's factory workers to take well-earned, well-paid vacations for all I care, so long as we also get good pay and benefits. We wouldn't need immigration laws, folks could just buy an E-ticket.

[bvar22]

30. The difference is:

Full Employment based on low wage Servicejobs
will NOT provide the FICA Revenue that good paying Manufacturing Jobs will.

The funds "borrowed" from Social Security are backed by the full faith and credit of the United States. If we default on THAT we have a lot more problems than just Social Security.

[Nuclear Unicorn]

32. So it's more wage rate than sector based.

Personally, I'd rather make $22/hour here at my desk than $22/hour sweating in the sun or lugging machine parts through the factory.

The funds "borrowed" from Social Security are backed by the full faith and credit of the United States. If we default on THAT we have a lot more problems than just Social Security.

Exactly. That's the point. We do have much bigger problems. We have about a couple dozen trillion problems. SS was used to paper-over those problems and in the course of those events SS now has problems of its own.

[bvar22]

33. You said:

[font color=red]"Personally, I'd rather make $22/hour here at my desk than $22/hour sweating in the sun or lugging machine parts through the factory."[/font]

...and you are very fortunate to be able to have that choice.
It is very different choice for somebody who is unemployed.
What would you choice be in that situation:

a minimum wage Service Job,
OR
a $22/hr with benefits job "sweating in the sun or lugging machine parts through the factory".
I KNOW which way I would go,
and which job would produce higher FICA Revenue.

[Nuclear Unicorn]

34. Absolutely true but we need jobs, period; not a particular kind of job

As the market would have it, you can make as much as an IT specialist as you can as a factory floor worker. DBAs earn more. We need good jobs. Yes, manufacturing jobs have historically been high-paying jobs, relative to the rest of the economy but historically our economy was also more steeped in farm type jobs as well. Economies are fluid and fluid always seeks its level.

Now, if our economy could grow to where service and technical jobs replace manufacturing I think it would be a win-win-win-win-win prospect. First of all, we're better situated, educationally and technically, than most developing nations to provide technology based products and services. Second, playing off the first, factories need people to run their back office/admin/whatnot. Information tech allows factories in 1 country to be managed by offices in another country. Third, as their economies grow their demands for such services grow so we would have a ready market. Fourth, their less expensive labor keeps our consumer costs low. Fifth, nations that are economically inter-dependent are more cooperative. Don't you wish the US and Iran were so economically cooperative we had a few hundred billion reasons not to rattle sabers at each other?

BLUF: Be optomistic, don't fixate on only one sort of job, especially in a world where nothing is static. Find your opportunities and make the most of them to the benefit of as many people as popssible, even those who aren't in our particular tribe.

[bvar22]

44. The reason I focus on "Manufacturing Jobs"...

..is because THAT sector is/was the hardest hit by the "Free Trade" Race to the Bottom Scams,
and also the easiest to fix.
Manufacturing & Goods Production were one of the most heavily Unionized sectors, thereby increasing Wages & Benefits in ALL the other sectors.

If we dump "Free Trade" and focus on rebuilding Manufacturing & Goods Production,
ALL the other sectors WILL follow.

You claim:

*First of all, we're better situated, educationally and technically, than most developing nations to provide technology based products and services.

*Second, playing off the first, factories need people to run their back office/admin/whatnot. Information tech allows factories in 1 country to be managed by offices in another country.

*Third, as their economies grow their demands for such services grow so we would have a ready market.

*Fourth, their less expensive labor keeps our consumer costs low.

*Fifth, nations that are economically inter-dependent are more cooperative. "

I dispute every claim you made in this post.

Those claims could be a Cut & Paste from the glossy Free Trade Marketing Brochures of the 90s.
Unfortunately, in the Real World, they haven't produced the predicted results,
and the 1% (Corporate Owners) who sold that scam to America KNEW if from the very start.
(SEE: Ross Perot, 1992)

IF (and this is a huge MAGICAL "IF&quot ,
[font size=4]IF[/font] Worker Rights, Human Rights, Environmental Protections, access to Health Care and Education, and the Cost-of-Living could be equalized in every country in the World,
[font size=4]THEN[/font] the Magical Predictions of a wonderful Free Trade future you made in your post might have some validity.

Unfortunately, in the REAL World, there is a vast inequity in
Worker Rights, Human Rights, Environmental Protections, access to Health Care and Education, and the Cost-of-Living,
and those in charge WILL do everything they can to protect those inequities by
propping up dictators and opposing any emerging Populist Democracy in the 3rd World
that would try to level that playing field.
(SEE: US Foreign Policy, Venezuela vs Colombia , Haiti, ect.)

The problem is that Capital (the 1%) can and will pack up & move overnight,
while it takes Decades or Longer for The People to organize and petition their governments for protections from the worst predations of unregulated, unrestrained Capital.


Given the opportunity,
[font size=4] Capital WILL always out run Human Rights.[/font]
QED: NAFTA and every other "Free Trade" treaty.

None of them have produced the magical results you have detailed above,
and none of them ever will.


Just like the Libertarian Utopia described by Ayn Rand is based on fiction,
so too is the Magical Free Trade Utopia still being marketed by the 1%.
It is based on fiction that does NOT work in the Real World.

[newthinking]

46. We will likely never see full employment again- Automation..

We have yet to recognize the effect of modern automation and leaps in practical productivity are bringing about. The amount of labor that is required per "widget" or service has been reduced and continues to be reduced dramatically.

Unless we reduce the workweek, the world is going to continue to struggle with unemployment. And in this climate that is not likely to happen any time soon. The only other way to bust the employment nut would be to consume more "widget's and services" per capita, and do it much faster than we have in the past. Which is not possible because we are already straining world resources and the environment.

[Egalitarian Thug]

28. Is the Fed still taking a 6% rake from the Treasury? n/t

[tsuki]

36. Bernanke is bankrupting every pension fund, including

the infamous 401K Ponzi scheme. Zero interest rates equals no growth for pension funds, in fact, a negative growth if you factor in 7% real inflation.

[NashvilleLefty]

39. Terribly misleading. Sounds like Libertarian anti-Fed propaganda.

Would SS investments be better if the whole economy collapses? This OP is trying to blame the entire economic problems on the Fed, which we all know isn't true.

Yes, SS bonds are being hit hard, but it's the problem of the economic collapse that Bernanke and the Fed are trying to prevent - NOT a problem of the very few tools that the Fed has at it's disposal.

In other words, this whole line of thought is rooted in Libertarian anti-Fed BS and has no relation to Reality whatsoever.

[hfojvt]

42. This just boggles my mind

that there are people who believe stupid crap like this.

I know this is not a refutation, but I do not even know where to start. This is just so mind-bogglingly stupid.

It really reminds me of that play I was in, in the 4th grade. Or was it 6th? Probably 6th, my 4th grade teacher didn't like me, but maybe it was 5th. I am not sure how I got the lead role anyway.

The plot of the play was a man's wife and daughter started imagining some tragedy for the daughter and they were bawling about this terrible tragedy. The husband thought this was stupid and declared he would go out until he found people even more stupid. Well, he quickly found three such people. The only one I remember was a guy who was trying to brighten up a room by carrying sunshine from outdoors in a shoebox.

I feel like I have now found people carrying shoeboxes full of sunshine who are complaining about the evil Bernanke who put holes in their boxes that is allowing all the sunshine to escape.

No wonder it's so damned dark in here. It's that Bernanke POS. Let's get him!!!

But I guess I wasted a lot of verbiage that could have been used in a real rebuttal, like so

1. given the state of the economy, lower rates are better for the economy than higher rates
2. there is more supply of credit than there is demand of people wanting to obtain it, so setting a higher rate now would be like trying to sell sweetcorn for $1,000 a dozen. You wouldn't make more money that way because nobody would buy at that price.
3. the trust fund is not really earning any money except on paper. So reducing the imaginary interest income doesn't really bankrupt the trust fund any more than increasing the imaginary interest rate to 1,000,000% would mean that we could all retire tomorrow on the backs of our ginormous trust fund. After all, you can only put so much sunshine in a shoebox before the box just falls apart.

Unless it is a 3 lock box.