The Government Shutdown Countdown Lowdown MEGATHREAD

[Admiral Yi]

But he hasn't. He's just put some small bills and some pencilled IOUs to himself into labelled envelopes on the mantelpiece.

I haven't put anything anywhere.  Bill Clinton put 4.75 trillion in an envelope on the mantelpiece to pay for future expenses he knew were going to occur.

[The Minsky Moment]

IWhat we agreed is the "the future liability is not debt" and  "neither can you call the trust fund an asset"
So if you are doing the latter, you must also do the former, and thus debt is the 70s not over 100.

Gross debt is 105.  The only way you can get down to 73 is if there is an asset to offset.  If we agree that the Social Security trust fund is not an asset, there is nothing to offset, and we are left with gross debt of 105.

You just agreed that if the trust fund is not an asset, then the Treasury obligations are not debt.  If  . . . then
Not debt cannot be counted as debt.  You accept the if clause but then deny the "then" clause. 

They are both on the same balance sheet and held by the same US government.  If you count the 32 as "gross debt" you have to recognize the corresponding asset on the books.  Correspondingly, if you recognize the trust fund account as an asset, you have to recognize the offsetting obligation.  The rational thing to do is to recognize this is just internal paper entries and disregard.

[Admiral Yi]

You just agreed that if the trust fund is not an asset, then the Treasury obligations are not debt.

I did nothing of the sort. 

I agreed that future liabilities to retirees is not debt.

[The Minsky Moment]

It sounds like you're confusing the future liabilities of the trust fund (which I agreed with Joan are not "debt") with the bonds issued by the Treasury and purchased by the trust fund, which are debt.

Respectfully, that is exactly what you are doing.
To wit:

Imagine the US fiscal position in the absence of a Social Security trust fund.  The US would have total debt of 73% of GDP, and an unfunded future liability of 32% of GDP (let's assume for the sake of argument that the trust fund equals unfunded liability). 

But unfunded future pension liabilities are not debt. 

In the past when media reported on national debt it was commonplace to report two numbers: debt, and debt plus unfunded liabilities.  At some point they stopped doing so, and it appears to me that they reason they have is because what the lock box did was to formally, legally incorporate unfunded liabilities into the debt.

I don't know what the media reports.  But I do know that the future liabilities were never legally incorporated into the debt, either formally, informally or otherwise. There is no lockbox; never has been; that was Al Gore's point to the extent he had one.

I'm speculating a bit here (maybe Joan could shed some light), but I would also be very surprised if the Congress and president could pass a law stating that those bonds in the trust fund no longer exist.

Sure - the bonds could just be returned to the Treaury and cancelled.

So in the context of austerity/stimulus spending/etc., etc., we have two choices: we can pretend we have a debt of 73% and go on a spending spree to bring down those last two points of unemployment, then act dismayed and surprised when the deficit soars when Boomers retire, or we say with total debt of 105% of GDP any further deficit spending at this point should be handled very carefully, and not be surprised and dismayed when the Boomers retire.

This gets to the point.
What you are really saying is that if present acturarial assumptions hold AND no changes are made to the structure and terms of the SS law AND Congress appropriates sufficient money each year to fund it AND there are no other changes in revenue or appropriations that impact debt levels AND there is no changes in GDP growth that affects debt/GDP then the net debt WILL eventually grow to 105% in the future.  But that is very different from saying the debt is 105% NOW.  It confuses the issue.

[Admiral Yi]

Another alternate reality to consider is that of putting the Clinton SS surpluses into a sovereign wealth fund, dedicated to paying retiree benefits.

We would then have a wealth fund of 32% of GDP, and national debt of 105% of GDP.

Would you all be arguing in that reality that debt is only 73% of GDP?

[Admiral Yi]

Sure - the bonds could just be returned to the Treaury and cancelled.

You sure?  There is no trustee of the fund with fiduciary and legal obligations?

This gets to the point.
What you are really saying is that if present acturarial assumptions hold AND no changes are made to the structure and terms of the SS law AND Congress appropriates sufficient money each year to fund it AND there are no other changes in revenue or appropriations that impact debt levels AND there is no changes in GDP growth that affects debt/GDP then the net debt WILL eventually grow to 105% in the future.  But that is very different from saying the debt is 105% NOW.  It confuses the issue.

Confusing how?  I'm not confused.

[The Minsky Moment]

Another alternate reality to consider is that of putting the Clinton SS surpluses into a sovereign wealth fund, dedicated to paying retiree benefits.

We would then have a wealth fund of 32% of GDP, and national debt of 105% of GDP.

Would you all be arguing in that reality that debt is only 73% of GDP?

Maybe not - if there were true formal legal and constitutional separation of the entity. 

But that isn't what is happening here.  What is happening here is the equivalent of you committing to meet your children's future college expenses by using the money if your right pocket, and then filling up your right pocket with a bunch of IOUs signed by your left pocket.  Those IOUs can be called debt instruments, but they do not in fact increase your personal debt.

[The Minsky Moment]

You sure?  There is no trustee of the fund with fiduciary and legal obligations?

Whoever that trustee is, they are obliged to do what Congress tells them to do by law.
Congress could dissolve the entire SSA and have the Treasury assume all its functions if it wished.

Confusing how?  I'm not confused. 

It's confusing because it uses a term (debt) in a way that is contrary to the usual and accepted way that term is used.
You are defining "debt" as "debt according to the usual definition + an ad hoc set of other expected future liabilities"

[Admiral Yi]

You are defining "debt" as "debt according to the usual definition + an ad hoc set of other expected future liabilities"

For the eighth time, I am not.  I am defining debt as total debt issued, minus any offsetting assets, of which there are none.

However, if, as you claim, the debt held by the trust fund has no legal safeguards, and would not trigger a default in the event of the Treasury declining to honor them, then I suppose we can agree that current debt is 73% of GDP and will rise to 105% in the future.

[crazy canuck]

The first time this happened the reaction OMG the unthinkable could happen.  Now the reaction is Meh, another budget cycle in the US.

How far the mighty of fallen.

[Neil]

That makes the number bigger.

But even the top 400 Americans, if nationalized, would do significant damage to the debt.

But how much money do we want to take from taxpayers? What would that do to the economy?

Turn it into a power capable of going toe-to-toe with the Russkis in nuclear combat while simultaneously supporting the greatest expansion of material prosperity in the history of Earth?

Higher top rates literally do not matter except in terms of revenue generation.  The incentive for people at the top of the economy is not more money in itself; money is only a token of something else, namely the illusion of control over their environment.  They'll continue to do their jobs, and even if they don't, someone else will with no real difference in quality of output.  No one is more replaceable than a billionaire.

That's a pre-globalized viewpoint.

[Ideologue]

Flight is an issue.  I propose a Wall.

Dude, have you been gone?  I had a great Daredevil: Born Again reference but you weren't here.

[Admiral Yi]

What you will need is capital controls.

[MadImmortalMan]

Even flight has its limits. Otherwise every rich person on the planet would be living in the lowest taxed municipality available. They aren't, so there must be other reasons they do what they do.

[crazy canuck]

Even flight has its limits. Otherwise every rich person on the planet would be living in the lowest taxed municipality available. They aren't, so there must be other reasons they do what they do.

Naw, people can live where they want and their assets in other jurisdictions.