In fact I find it likely that that all three will happen – surpluses will continue longer than anticipated, as they always have, the ceiling on premiums will be raised or eliminated, and benefits will be subjected to means testing. If even one of these things happens it would push back any debt repayment, possibly indefinitely.

No, I’m pretty sure that any scenario to pay for the retirement of the baby boomers will requires running down the surplus in the trust fund (i.e., debt repayment). What’s fairly likely (if some combination of the three happens) is that SS remains “solvent,” i.e. that payments do not exceed current revenues + money taken from the trust fund.

You could try to account for future payments to the SSA as a liability, in other words, but it doesn’t really make sense to view it as debt.

If you prefer to call it a liability, that’s OK with me. The clear point, from either point of view, is that the crisis is not in the Social Security Fund, but in the General Fund (either because it won’t be able to make the expected payments on the Debt, or because it won’t be able to meet its expected future liabilities).

Fixing the hole in the General Fund is the problem and raiding Social Security (not that you are suggesting it, though others have) is not the solution.

I’m not saying that you’re wrong – the dollar is weak and is getting weaker. It just isn’t happening that quickly, and I expect that it won’t speed up in the future. I’m sure that you will make money investing in other debt – I just don’t know that you will make more than you would investing intelligently in U.S. stocks.

The U.S. economy is remarkably self-contained relative to the rest of the world, which is why I suspect that a relatively slow collapse of the dollar would be harmful, but not markedly so.

So, yeah, I suppose that means, “Carter had price controls.”

I’m still not sure what your point is about SSA debt. I’m not talking about ludicrous hypotheticals – it is entirely within the realm of reasonableness that 1) SSA surpluses continue for some lengthy period of time relative to current projections or 2) SS premiums are raised or 3) benefits are cut. In fact I find it likely that that all three will happen – surpluses will continue longer than anticipated, as they always have, the ceiling on premiums will be raised or eliminated, and benefits will be subjected to means testing. If even one of these things happens it would push back any debt repayment, possibly indefinitely. This is assuming that SSA isn’t retired entirely and replaced with some variety of forced-savings regime, a possibility that is obviously less likely but that would make debt repayment a complete non-issue.

I just don’t see how we can view this as a real debt if we don’t know that it will have to be repaid. And, really, the SSA is loaning money to the general fund, but if the time comes that the SSA needs money the general fund would have to be drawn down to pay it even if those loans had never happened. You could try to account for future payments to the SSA as a liability, in other words, but it doesn’t really make sense to view it as debt.

And, again, I don’t view the SSA as being meaningfully seperate from the general fund, but as I recall (I could be mistaken) the discussion during the summer of 2000 – which is what I thought Peter was talking about – was about the “on-budget” deficit. This is why I brought that particular surplus up – apologies for the ridiculous lack of clarity.

1) Re your first point: well, we’ll see. I’m betting my own money that my forecast is correct by buying non-US sovereign debt. So maybe I’ll end up both wrong and insolvent.

2) Carter had price controls? I stand corrected, thanks –

Therefore SSA premiums and outlays are not meaningfully seperate from the general fund taxes and outlays. This is why SSA debt is, in an important sense, not real – there is no way of knowing what the future transfer of funds will be, either in amount or direction.

There’s no way of knowing whether, or when, the accumulated IOUs in the SSA Trust Fund will be exhausted (since the reforms instigated by the Greenspan Commission in 1983, that date has been continually pushed back).

And, yes, it is technically possible that the US Treasury could simply default on the bonds held by the Trust Fund (when SSA outlays start to exceed revenues and the Trust fund begins calling in those IOUs).

All sorts of things could happen.

Re: surpluses, my only point was regarding the “on-budget” surplus …

But, if you believe that the separate accounting (in which Social Security is currently in surplus, whereas the General Fund is horribly in the red) is a fiction, why did you focus your comment on the “on-budget surplus”?

The total budget (including SS) was still in surplus for FY 2001.

I think that you may still be discounting the importance of the U.S. economy and the strength of the dollar to China. A fall in the dollar or a U.S. recession would destroy China’s economy, and do no small damage to the rest of Asia. I find it highly unlikely that they would bring an economic apocalypse down upon themselves – they are better off holding a bad investment, like U.S. debt, than starving.

Similarly, you can see that the U.S. has an easy out even if a run on the dollar were to occur: raise taxes. Because, again, higher taxes and slower growth beat lower taxes and a short-run economic collapse.

Also, umm, Carter had price controls, and my point about Republicans was that they learned their lesson from Nixon’s error. I mean, seriously, Nixon did a bunch of things that I would not expect Republicans to repeat.

Re: SSA debt, one of two things will happen. Either social security premiums will continue to exceed outlays, in which case the debt will never be repaid; or outlays will exceed premiums, in which case the shortfall will have to be made up out of the general fund regardless of debt held by the SSA. That is, whether or not payments will be made to the SSA out of the general fund is independent of the SSA holding debt. All SSA surpluses go into the general fund and all SSA deficits will be paid out of the general fund. Therefore SSA premiums and outlays are not meaningfully seperate from the general fund taxes and outlays. This is why SSA debt is, in an important sense, not real – there is no way of knowing what the future transfer of funds will be, either in amount or direction.

Re: surpluses, my only point was regarding the “on-budget” surplus that was projected for 2001 in the summer of 2000. I assumed that this was the surplus that Peter was discussing.

1) I think it is reasonable for the government to take on debt in a recession. However, if it borrows greatly when the economy is doing reasonably well, then when the business cycle changes, you are left with a lot of debt and no longer have additional borrowing available as a lever to move the economy. There is plenty of stimulus from the Fed’s aggressive easing — the current Fed Funds rate is currently about equal to the inflation rate. Running deficits at this time is reckless.

2) The last administration to have wage and price controls was a Republican administration (Nixon).

We’re not there yet…there are cuts that can be made (contra Tom Delay). My rap with Bush, then, is not that he is running large deficits again, as I indicated in my post – it’s that I don’t even see token moves made to control spending. And at this rate, it endangers many things near and dear to the conservative heart, such as Social Security and Tax Code reform…