President-Elect Obama Suggests Defaulting on the National Debt
President-elect Obama apparently believes that the crisis brought on by the collapse of the housing bubble will require defaulting on the national debt. The New York Times reported today that Obama believes that "changes in Social Security and Medicare will be central to efforts to bring federal spending in line."
While Medicare is projected to face shortfalls because of the incredible inefficiency of the U.S. health care system, the Congressional Budget Office projects that Social Security will be fully funded until 2049 from its own stream of tax revenues and the U.S. bonds it holds.
If Mr. Obama plans to cut Social Security in the near future, then this effectively amounts to a default on the bonds held by the trust fund which were purchased with workers' Social Security taxes. If the budget situation is so dire that it is necessary to default on the government debt, then surely we should be considering defaulting on the bonds held by Robert Rubin, Peter Peterson, and other wealthy bankers, not just the bonds that were bought to pay Social Security benefits for the country's workers.
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I said in another comment that Obama was starting to look like Bush Lite and this is just adding to the image. I am Very positive that if this happens this nation is finished. All members of congress that allow it to happen should be recalled to their home states and charged with treason to the citizens to their states. Clinton was a conservative at heart and it appears that Mr. Obama is also. We paid the money into the system and the government used ti to fund the American Empire. Hell we'll spend close to a trillion on the military this year that would go a long way to help the seniors in this nation. But then again the citizens on this nation have always come last after the politicians and their supporters.
Yeah, Obama is Bush-lite because he doesn't want to lie to seniors and promise them more money than we can afford to pay them. Better to close his eyes and punt the problem for future generations.
The money isn't there.
"The money isn't there" doesn't fly. This is the same flawed argument that the automakers use to explain why "legacy costs", i.e. funding pension obligations are an unworkable burden. The fact is, a commitment was made and monies should have been allocated for it. Using social security funds or pension funds to pay for other expenses instead of leaving them untouched in an account for future use for their intended purpose is nothing less than theft. Coming back to say that the deal cannot be honored because we stole all the money intended for fulfilling the obligation and burned it on other stuff is disingenuous at best.
Maybe forced retirement is the way to go. once a person becomes 65 they must retire, freeing up jobs to famillys who need those jobs and will pay their fair share of taxes, not like the older worker who does'nt pay taxes because of his age.
This is quite possibly the worst idea I've ever heard, government forced retirement, would just be another horrible infraction upon personal liberties. But hey if you think it benefits the collective, why not. Have you even heard of the constitution?
This is exaclty what the German government has done, to no avail. Unemployment remains high (when I was living there 16 months ago, the average national unemployment rate hovered around 11.5%, I'm not exaclty sure what the figure is now that economies are failing worldwide). What ends up happening is that taxes are increased to cover ithe ncreasing pension burden on a shrinking workforce (the German population has age demographics represeneting an inverse pyramid). http://www.nber.org/books_in_progress/intlSS-p3/germany2-19-03.pdf
Americans aren't having enough children these days to cover what is left of our Social Security system as is, so your plan would also invariably involve increases in immigration... steep increases. With that you have a whole host of new issues to deal with.
I've said that all along. Blow it off, and start over. Goodbye China.
I love the way the democrats are using scare tactics...they sky is falling so just let them do what they want and everything will be just fine. Let them spend, borrow, increase corrupt government, etc. Their idea is like the guy who is heavily in debt who pays his bills with a credit card...yeah that will work out great!!!
Humm.....has the current administration nor been doing this for 8 years? The piviotal point in all of this was Paulson on TV back last September hitting the panic button. He got all of this stimulus $ & what has happened? Seriously, what good has it done? He scared everyone. Now, looking back, we should have simply let it all collapsed.
first of all the headline is hyperbole. attacking the strawman is a disingenuous argument.
social security and medicare need reform so discussion should focus on how to effectively reform the programs within the context of their present form.
retirement is not a right. if you didn't save the money for retirement then you can't expect to retire. ss and medicare were never meant to be nor should they be a retirement program. ss and medicare are simply a stop gap measure to prevent masses of poor old people. its better to act as if it doesn't exist then treat it as a bonus when the time comes to collect.
in view of that admonishment ss and medicare are critical to the welfare of the country so it must be funded. the solution is relatively simple. there is no reason why the people who most likely will not use the system because they derive the biggest benefit from the wealth building opportunities in the usa pay into the system like everyone else. problem solved.
You're literally correct that "retirement is not a right": it's a necessary fact of life. And people have attempted to prepare for it in a variety of ways, one of which being that they, in fact, did "save the money for retirement." Many - perhaps most - were led to believe, first, that a pension was the answer: clearly it wasn't. Then they were led to believe that 401k's were the answer: after all, it's your own money; but, as the recent financial crisis has shown, that clearly wasn't the answer either. The one - and only - thing that's held constant through all these twists and turns of fate has been Social Security. How exactly can millions of people treat it simply as a "bonus" when every other retirement prop has been pulled out from under them? I would love to see a poll asking how many people who never imagined they would someday be dependent on Social Security for their survival now find themselves in exactly that boat. I bet the answer would surprise a lot of those who see the fault as being in ourselves.
Exactly right. Personally, the current economy has put me in the position of looking longingly at my coming SS benefits.
Social Security was passed to guarantee every worker HAD "saved for retirement." If workers weren't paying into SS they could have put that money into their own retirement accounts.
Trying to claim now that they "didn't save the money for retirement" because the money that they gave the government for their retirement was spent on other things makes no sense at all. No, retirement is not a "right." Yes, the government can do whatever it wants, we can't stop them.
So lets not bail out Wall Street. So what if all those 401Ks become worthless, its not our fault account holders didn't "save the money for retirement." No saving insurance companies either, tough if annuity holders didn't "save the money for retirement." And no FDIC insured bank accounts. We can save a ton of money there. We can't be blamed if they didn't "save the money for retirement."
One question though. Just how DO YOU "save the money for retirement?" I'm guessing you're a mattress stuffer. Personally I'm a coffee can on the back shelf kind of guy.
social security was originally based upon a life expectancy of 67 years old but couldn't be collected until age 65. aligning the program to today's life expectency of 78 years old one shouldn't be able to collect until 75 years old. its a bonus that allows people to retire earlier then they would normally have to retire and provides income for people not able to work for physical or mental reasons.
people who have invested in the market for their entire working life are still doing very well especially if their investments were made in dividend paying companies and other income producing investments.
i agree that the people who have benefited most form the american system contribute more to the welfare of those that haven't had the same fortune based upon the premise that people are needed to make money and people are needed to work for money and , for the most part, work equally as hard for the benefit of everyone.
How is social security a "bonus" when I've paying into it for 35+ years?
I can't expect the government to pay back money that they have taken from me my entire working life with the express understanding that it would be paid back to me?
That's fine, They can send me a check for all my back FICA withdrawals, and cease all current and future such withdrawals and I'll call it even. Otherwise, what you are justifying is outright theft.
the supreme court ruled you have no right collect social security. the program can be ended at any time without consideration for you or the money you paid into it.
OK, everyone, get off the junk food, high fructose & corn syrup poison...turn off the TV and take your lives back. they are not here for us & never planned to be. we need to move on....but god bless Obama for trying.
Point well taken...
There are some various ways to interpret the articles written and posted by Dean Baker. First I consider the Hudson Institute and Newt Gingrich relation to that institute. Then I preview Dean Baker past comments related to proposed legislation and labor unions. Then I consider whether that legislation is another attempt to break labor and the working class. Does the right wing GOP have any intentions to bring down the working class? Subsequently I review this article with a grain of discernment when it comes to relating what President Elect Obama is or is not going to bring forth. I do not doubt Dean Baker has credentials but I highly doubt he has a valid inside information as to what President Elect Obama is going to do .
I have an idea we shouldn't pay China the money owe considering they have tried to attack us (cyber) several times. If they don't like eff um. That would save 20-30 billion right there.
Brilliant!!
You're running trillion-dollar-a-year deficits financed by China and you think you can solve your problem by simply refusing to pay debts to China! That'll work just fine as long as you are willing to live within your means and immediately eliminate that trillion-dollar-a-year deficit. Because you sure can't run a deficit if no one will lend you the money. And China sure as hell won't lend us any more if we decide we're just not gonna pay them back.
You can forget about bail-outs and stimulus packages. We'll do only what we can pay for out of pocket. Cash and carry. Forget about bailing out Wall Street, or the Big 3. Also Iraq, Afghanistan, rebuilding New Orleans, helping bankrupt states, rebuilding our infrastructure and military, and social security.
And maybe, one day, if we're lucky, we can claw our way back up to the standard of living of third-world nation.
Genius! That'll sure show those Chinese not to mess with us!
Interesting promotion of one of a corrupt American government's great lies.
Social Security funds were never "invested" in bills and bonds. If you're charged with managing someone's retirement funds and you spend them instead, your "IOU" is NOT an "investment," its embezzlement. Its misappropriation of funds. Its failure to meet fiduciary obligations.
You "default" on loans, not by failing to repay money you've stolen.
Americans, for decades, have been content to have congress raid Social Security rather than insist on financial discipline or increased taxes. Those of us approaching retirement age have no right to shift the burden to our children and grandchildren. We've SPENT our social security money. Trying to claim that our spending the money was instead "loaning" it to ourselves, and that therefore our children inherit the "debt," are obligated to pay us back the money we spent on ourselves, with interest, is ludicrous.
But that's our story and we're sticking with it, isn't it?
A basic truth about the financial assets we're holding and depending on for our future:
Buying government bonds is functionally very similar to buying the bonds of a corporation--the body issuing the bonds issued the bonds to generate immediate cash and uses that cash for current expenses. The body issuing the bonds wouldn't have issued the bonds and pay interest on the bonds if it wasn't going to use the cash. The original principal / investment of a any bond doesn't exist in full after the bond for any important amount of time after purchase.
Stocks represent the future net worth of a company and the profits (dividends) and asset value increases that are generated by the company's business. The money spent to buy the initial stock issue is used to fund the purchase of equipment, do research, and pay salaries. (and, as the Big 3 demonstrated for years, it is often spent to support the stock price by buying back shares)
And, if you remember George Bailey's speech, your bank accounts are largely an IOU floating on the value of other people's houses, cars, and businesses and their ability to repay their loans.
But SS funds WERE AND ARE invested in bonds, specifically US Treasury bonds. And yes, the proceeds of those bonds were spent, just as were the proceeds form the sale of all other bonds, including those held by Rubin, Peterson and China. For Chrissake, do some homework!
Obama has labeled Social Security and Medicare as "out of control" spending. How so? It's been known since the program's inception what the spending was for and how it was to be financed (did anyone imagine that the population was going to shrink after World War II?). Whatever he means specifically by "out of control," the very fact that he's thrown down the gauntlet suggests nothing less than draconian cuts on the horizon. Except for the free-wheelers who would cheer the program's demise, the vast majority of retired Americans (many of whom have lost their retirement savings) have come to depend on Social Security. If Obama wants to break the back of the middle class completely, there's no better way to do it than curtailing Social Security. That would necessitate older workers holding on to their jobs till they died, thus shutting countless younger workers out of the job market. Plus it would necessitate older workers who lose their jobs to reverse-mortgage their homes, thus closing off an avenue of legacy for their children. So let's see now: we "step up to the plate" to bailout Wall Street; then turn around and scold Main Street for being "out of control." Well, I guess that qualifies as "change we can believe in." Obama's made a believer of me: the Democrats are as much a part of the problem as the Republicans.
You seriously think keeping older workers from competing with younger workers for jobs by saddling said younger workers with supporting the older workers helps the middle class? That having the children support parents so homes aren't lost in hopes that maybe, someday, said homes would be inherited by the children is a legacy? Its not. Its exploitation and "wealth redistribution."
Increased competition for jobs might result in lower wages but wouldn't reduce "wealth" as much as adding another dependent. Additional workers offers the opportunity for additional productivity, and wealth, to offset lower wage pressure. And obviously, money wasted supporting older workers could better be spent by younger workers in building their own "legacy."
Older workers wouldn't be "competing" with younger workers; they would simply be keeping their jobs longer. If we're talking "fast food", then, ok, I concede the point to you. But in any kind of skilled profession, knowledge and experience usually outweigh youth every time. It would primarily be the "good" jobs that would be closed to workers just entering the job market. Plus, don't forget the "politics" of the workplace: someone who's had 20 years to learn the ropes is more than a match for someone still wet behind the ears. And as far as homes being passed along from generation to generation not being all that beneficial, all I can say is go someplace where no one is allowed to own property and see how much wealth each new generation produces for itself when it has to keep starting from square one over and over again. Home ownership is the backbone of the middle class - which is why so many people want their own. Besides, an older worker does not bequeath his home to younger workers per se but to his or her own kids, whose family attachment might preclude seeing mom or dad as a drain on building their own legacy. Economics is about real people in real life situations; not just about charts and graphs.
Great post
There is no trust fund. Social security is a Ponzi scheme.
You mean someone else on this site knows this besides me? Oh, wonder of wonders!
"Flemming v. Nestor and Helvering v. Davis, the U.S. Supreme Court ruled that Social Security taxes are not contributions or savings, but simply taxes, and that Social Security benefits are simply a government spending program, no different than, say, farm price supports. Congress and the president may change, reduce, or even eliminate benefits at any time."
All that did was reaffirm the obvious reality that no government is under any obligation to keep its word.
In a democratic republic its up to the voters to "supervise" their representatives with their votes or accept the actions undertaken in their name.
Saying that changes would be needed in social security and medicare is not the same as what the author is suggesting. Last year there were articles about criminals moving from drug dealing to medicaid fraud because it paid better and was less dangerous. There aren't enough people policing the system and there have been enormous frauds. There are a lot of changes that can be made in medicare and social security that don't require turning people in need away. One of the places I would turn would be social security benefits paid to very wealthy people. Yes, they paid in, but they are part of this society and it won't hurt them to help others. John and Cindy McCain have over $100 million dollars, but John still draws his social security. I don't know what the cut off level should be, but I think there should be one. It makes no sense to break the system for everyone if there are many who could opt out without suffering a moments discomfort.
Then they shouldn't have to pay into social security.
The government has created debt that it doesn't know how to pay. It doesn't really matter what kind of accounting fiction they use to disguise it. Funny that Social Security financing is never called embezzlement, even though it's one of the clearest demonstrations of it.
What Obama may do, and I certainly support it, it raise the tax level on SS. That is to say, from what I understand, SS is paid up to a certain amount of income, Obama wants to raise that level or, he will limit how rich you have to be before you no longer are elegible to receivable.
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