and so it begins.

on the way to pick up the 6er last night I had a whole idea about how
to explain this ss stuff. then you sent the wikipedia link. that's a
perfect start. i read the preface and it completely complies with what
i'm saying. let's take it apart, sentence by sentence. at the end i'll
reveal the really critical part of understanding what this is all
about. the wikipedia article touches on the controversy surrounding
whether or not the fund is real savings or not. they don't anwswer one
way or the other. but i do have a question that, if answered, will
reveal the epic answer.

ok, so here we go...

wikipedia says:

"The Social Security Trust Fund is the means by which the federal
government of the United States accounts for excess paid-in
contributions from workers and employers to the Social Security system
that are not required to fund current benefit payments to retirees,
survivors, and the disabled or to pay administrative expenses."

ok, so the first thing that this says... it defines what the ss trust
fund (sstf) is NOT. And somwhat, what it is.

now, we all konw the gov't has multiple sources of income... income
taxes, excise taxes, tarrifs, capital gains ... on and on.

the gov't recieves a certain amount of money in the from of your FICA
contributions and pretty much a matching contribution from your
employer. (important: if you are self employed, you pay both. so, when
i was self-employed, i paid ~15% to ss before i paid for anything
else. so, in the future, a 20% FICA tax means that for a new business
to start, a person has to take on a 40% tax liability -- just to pay
social security, before state, local, or income tax, assuming the
current funding model continues in its present form).

"the social security trust fund is the means by which the federal
governement of the united states accounts for excess paid-in
contributions..."

so the gov't collects this FICA tax from employee and employer. this
money goes "somewhere"... that somewhere is NOT "to fund current
benefit payments to retirees, survivors, and the disabled or to pay
administrative expenses"

basically, there's more collected in FICA taxes than what is required
to operate SS so that money is "accounted for" by the united states
government. notice there is no mention of a bank account containing
gold, or paper, or even a mention of an electonoic account where
electronic money from your electronic debit account goes. the
government "accounts for" it.

Next sentence:

"More important, the trust fund also contains the securities that will
be redeemed to make benefit payments in the future when contributions
derived from payroll taxes and self-employment contributions no longer
are sufficient to fully fund then-current benefit payments. (The
controversy over its meaningfulness is a topic of the sustainability
of the unified Federal budget.)"

whoa. whoa. whoa.

so we have this thing called money.

we pay our taxes with money. when debt obligations are enforced via
the courts, debts are do in the form of money.

without much of a dispute, people would consider cash and coin, demand
deposit accounts, savings accounts, and gold and silver coins with
with dead presidents on them to be money. otherers consider 30 day
t-bills, CDs, and money market accounts to be money because they are
easily converted to cash, or equivalent, in a very short period of
time with relative ease.

we and our employers pay taxes in "money" (not in car titles, mortages
or bonds), which is most likely transferred from a demand demposit
account via a "check" or a transfer via debit card from our demand
depoist account. or maybe money order or wire tranfer. we all know
that demand depost account or chase or money order can be IMMEDIATELY
converted into a gallon of gas, a house, or paper and coin money.

Now, take out that cash money in your pocket. Look at it. What you are
holding is a government bond that has been redeemed. It is a bond with
a maturity date of NOW. It yields an interest rate of 0%. As time goes
on, the redemption of additional government zero date bonds will
deprecate the value of the paper you are holding. so there is a
definite incentive to exchange the retuned promise for some measure of
wheat or a session of chemo therapy as soon as possible. in addiition
to the obvious incentive to redeem the paper certiicates for cocunuts
or sea shells, before the paper becomes worthless due to ever
increasing quanties of paper being issued to make claims on scare
physical goods, there is an additional requirement to pay debts and
taxes in dollar form, as specified by "courts" defended by
interlocking clans claiming and maintaining monoply control over
violence through a series of complicated protection rackets (ie
government).

you are holding the realized expectation that the entire arrangement make sense.

lol.

so we'll just go with that.

(serious face)

the important thing to udnerstand about money is that there is no
implied or explicit obligaton behind it. it stands alone as a store of
value. you use that money to exhange it for boats or apples or lap
dances. value for value. the boat seller wants cash. and you want a
boat. you each perceive to be better off at the end of the exchange so
thus you make it.

now that we understand money, something happens along the way when you
send it to the government in FICA taxes...

we and our employers send, what we understand to be money, to the
government. and then something happens. we skip straight ahead to
"securities".

What does dictionary.com say a security is:

Security definition
An instrument representing ownership (stocks), a debt agreement
(bonds), or the rights to ownership (derivatives).
Investopedia Commentary
THE IMPORTANT SENTENCE: A security is essentially a contract that can
be assigned a value and traded.
Examples of a security include a note, stock, preferred share, bond,
debenture, option, future, swap, right, warrant, or virtually any
other financial asset.

ok, so it looks like we send what we understand to be "money" and what
economists understand to be the M1 money supply to the government and
the governement "accounts for" it. And then something happens to that
money. There's suddenly no mention of it. Out of nowhere appear
"securities" in the trust fund.

the last sentence:

"Paid-in contributions that exceed the amount required to fully fund
current payments to beneficiaries are invested in securities issued by
the federal government. The securities issued under this scheme
constitute the assets of the Social Security Trust Fund. Because under
current federal law these securities represent future obligations that
must be repaid, the federal government includes these securities
within the overall national debt.[1] The portion of the national debt
that is not considered "publicly held" represents the obligations
incurred by the government to itself, the bulk of which consists of
the government's obligations to the Social Security Trust Fund."

ok, so, for a moment, let's assume that the gov't doesn't want these
massive vaults full of pieces of paper, nor do they want a checking
account with a bazillion zeros on the balance. so they print pieces of
paper that is referred to as a "debt obligation" to retirees in the
future.

now.... here's the really critical issue that will settle all this.

IF IF IF IF IF IF these social security trust fund represents real
savings, then the "money" we send to the government needs to be
destroyed at the same moment the securities are generated. OR, the
"money" we send needs to accumulate and for the sake of simplicity, a
$10 billion security will be printed at the same moment cash is
destroyed.

REALLY IMPORTANT: Now, for this to be REAL SAVINGS, that "money" we
send can't exist in two forms at the same time!

You can't send the government $1,000 and then have them "account for"
it by generating a "security" and NOT destroy the $1,000 in "money"
once the security is generated -- OTHERWISE YOU JUST TURNED $1,000
INTO $2,000 USING AN ACCOUNTING TRICK.

The article goes on later. This is from the Office of Management and Budget:

"These [Trust Fund] balances are available to finance future benefit
payments and other Trust Fund expenditures – but only in a bookkeeping
sense.... They do not consist of real economic assets that can be
drawn down in the future to fund benefits. Instead, they are claims on
the Treasury that, when redeemed, will have to be financed by raising
taxes, borrowing from the public, or reducing benefits or other
expenditures. The existence of large Trust Fund balances, therefore,
does not, by itself, have any impact on the Government’s ability to
pay benefits. (from FY 2000 Budget, Analytical Perspectives, p. 337)"

Let me put it in terms of real estate.

So, you go and get a mortgage. Based upon your income and credit
levels, the bank makes a book keeping entry. In exhcnage for "money"
the bank marks the mortgage down as an asset on its balance sheet.
When you take out a mortgage you MAKE A PROMISE TO PAY the principal +
interest over some specified period of time. The bank, using the force
of law, can take that asset back from if you default on your promise.
That is their security. They can't compel you to pay or to work -- but
they can take your house.

Now... as we all know.... some enterprising people decided to take all
of these OBLIGATIONS TO PAY IN THE FUTURE (AKA A MORTGATE) and sold
them as "securities". In and of themselves these pieaces of paper have
no intrinsic value beyond your perceived legal obligation to pay --
and the bank's ability to take the house from you if you don't.

The "securities" held in the trust fund work the same way. They
represent an obligation on the part of tax payers to pay at some point
in the future. There is no house to take if someone doesn't pay. THEY
CAN COMPEL YOU TO PAY YOUR TAXES AND CAN AND WILL MAKE A CLAIM ON YOUR
LABOR in order to fulfill this obligaton. These 'securities' held in
the trust fund do not have an intrinsic value other than the federal
government's lawful ability to force you to give up your income.
Whether its a mortgage payment, or your labor, their value is based
upon a perceived future ability to produce income.

Now... back to money and what happens to the money when we send it to
the government and it becomes a 'security' or an 'obligation' to pay
in the future.

That money in your pocket contains no future obligation or a future
promise to do anything of any sort. It is a fully realized unit of
currency that is a store of value RIGHT NOW.

But how does this store of present value turn into an future
obligation after it is "accounted for"?

The article continues, this time with people arguing against me:

"Other public officials have argued that the trust funds do have
financial and/or moral value. "If one believes that the trust fund
assets are worthless," argued former Representative Bill Archer, then
similar reasoning implies that “Americans who have bought EE savings
bonds should go home and burn them because they’re worthless because
the money has already been spent.”[5] At a Senate hearing in July
2001, Federal Reserve Chairman Alan Greenspan was asked whether the
trust fund investments are “real” or merely an accounting device. He
responded, “The crucial question: Are they ultimate claims on real
resources? And the answer is yes.”"

These people aren't really disagreeing. Yes, a government bond does
have value. Why? Because the government can and will compel people to
pay taxes in order to redeem it. Same deal with mortgage backed
securities. These things are all FUTURE PROMISES TO PAY.

Again, this comes down to this question....

How does equity become debt?

How does money become an obligation?

Think of it like this:

You have a bicyle. The bicyle is some realized physical form of
innovation, thought and labor.

On the other hand, you have a promise to your kid. You WILL BUY THEM A
BICYLE IN THE FUTURE if they do all their homework.

Now, given that a bike doesn't cost a lot of money, and you and your
wife have jobs, and given that you are a man of your word and you
wouldn't disappoint your kid -- THE PROMISE OF A BICYLE IN THE FUTURE
IS JUST AS GOOD AS A REAL PHYSICAL IN THE PRESENT.

So, since this is a moral issue, and you love your kid, and you made a
promise -- THE PROMISE IS JUST AS GOOD AS THE REAL THING.

But in reality, AN IMAGINARY BICYCLE IS NOT THE SAME FUCKING THING AS
A REAL BICYLE.

Now, follow this....

The day comes to get the bicyle. You give your wife $100 and she goes
to the store. You expect her to come back without the $100 and with a
bike.

But instead she comes back without the $100 and a certificate which
states that the store will provide a bike in the future.

You tell your wife, uh, ok, that sounds great. But we need the bike
for the kid tomorrow.

Not a problem!

All you have to do is redeem the certificate and they'll give you a
real bike. Fabulous! You ask her, how do you "redeem" the promise of a
bike?

You come up with $100. They take the $100, give you a bike, and tear
up the promise.

LOL, but you already gave her $100 before she went to the store! Now
the bike is gonna cost $200?

No, not at all, she tells you. The $100 was converted into a promise
of a bike. It was "accounted for". All you have to do to get the bike
is to "redeem" the certificate by exchanging the certificate for $100.
The store promises the bike. They're totally good for it. In fact,
everone of these certificates that get exchanged for cash turns into a
bike.

But she took the $100 in the beginning, it disappared, she got no bike
and came back with a $100 piece of paper that will be torn up when you
get the bike and hand over another $100.

And you still only have a $100 bike.

WHERE THE FUCK DID THE EXTA $100 GO?

HOW DID YOUR $100 GET TURNED INTO A PROMISE OF A BIKE THAT WILL NOT BE
DELIVERED UNTIL IT IS REDEEMED BY ANOTHER $100?

SHE SPENT IT ON FUCKING DRUGS, MORON.

Do you understand why none of this makes sense in the real world?

So, in some sense the reply by the politicians are true. THE PROMISE
TO PAY is just as good as REAL MONEY.

Why? Because the Federal Government of the United States doesn't
default on its debt. And its exceptionally good at collecting taxes.
And there's a will among the population to pay taxes. So, a promise is
just as good as the real thing.

So... that's it... what happened to the money you sent to the IRS when
you pay your FICA taxes?

As far as I can tell, only two things can possibly happen to money EVER:

1) the money is saved (or, converted from "money" to a "security"
which can be converted the same way in the opposite direction)
2) the money is spent

Now, if all that money we send to SS needs to be "redeemed" through
borrowing money or collecting additional taxes, you just go screwed.

Congress done spent the money.

The money is gone.

All that's left is a ***promise on the part of the usa taxpayer*** to
come up with the money in the future.