Re: Removing Cap Virtually Eliminates SS Funding Gap

royls_at_telus.net
Date: 02/24/05 

Date: Thu, 24 Feb 2005 22:59:34 GMT

On Wed, 23 Feb 2005 21:56:32 -0800, William F Hummel
<wfhummel@comcast.net> wrote:

>On Thu, 24 Feb 2005 00:05:57 -0500, "tonyp" <tonyp@world.std.com>
>wrote:
>>
>>"William F Hummel" <wfhummel@comcast.net> wrote
>>
>>> What you are really saying is eliminate the on-budget deficit so the
>>> FICA tax surplus will pay down the debt, because there is no other use
>>> for the surplus FICA taxes in that case.
>>
>>Exactly.
>>
>>> But the Treasury will still have to borrow from the public when FICA
>>> taxes no longer cover SS benefits, regardless of what the federal debt
>>> is at the time. You can store beans and corn, but you can't store up
>>> borrowing capacity.
>>
>>It will _have_ to borrow, yes. Whether it _can_ borrow adequate amounts at
>>any reasonable interest rate is absolutely a function of "what the federal
>>debt (already) is at the time".
>
>Oh? Then please explain why the interest rate as well as inflation
>rate has been so low the last couple of years while the federal debt
>has exploded.

Do you know what "out of phase" means? How long do you think the
inflation and interest rates can remain low with real estate prices
booming? It's not like this kind of thing hasn't been done before,
you know. Look at Japan.

>And why both the real and nominal interest rates
>trended downward during the Reagan and Bush terms while the federal
>debt quadrupled. Or did I misunderstand your point?

?? Come off it. You know very well that real and nominal rates were
both at huge multi-decade peaks in 1980 because inflation was being
choked down.

>>You can "store up" borrowing capacity for
>>the future by not _using_up_ your borrowing capacity today. Have you never
>>run a credit card balance up close to your credit limit?
>>
>Great Scott! What has a credit limit on the credit card got to do
>with the borrowing capacity of the Federal government? Do you think
>the government will some day go bankrupt like an overextended credit
>card junkie?

If it doesn't get its borrowing under control, it most certainly will.

>>But how would the net
>>financial wealth of the private sector change if the private sector redeemed
>>a trillion dollars worth of Treasury bonds for a trillion dollars worth of
>>cash?
>>
>Where did this trillion dollars worth of cash enter the scene?

Printing cash, printing bonds. What's the difference, aside from the
fact that the bonds yield interest to their owners, and the cash
doesn't?

>The financial wealth of the private sector is equal to the combined
>liabilities of the Fed and the Treasury, in other words cash and
>Treasury securities.

And you carefully delete from your brain the fact that the Treasury's
liabilities are the private sector _taxpayers'_ liabilities.

>>> The problem is not with the debt or the interest on the debt. It is
>>> the many fallacies in conventional wisdom, some of which you are
>>> repeating here.
>>
>>Not all conventional wisdom is wrong. Not all unconventional ideas are
>>wise. Were it not so, wisdom would be much easier to come by.
>>
>Conventional wisdom says paying off the federal debt is "good." The
>fact is nothing could be more damaging to the economy.

Nonsense. Just print the needed cash as the debt matures. As long as
the repayment does not result in any significant disruption of money
supply growth (the error made on previous occasions when government
debt has been reduced) there would be no damage to the economy at all.
Of course, when money = debt, less debt = less money, and less money =
deflation, which transfers purchasing power from debtors to creditors,
and is definitely bad for the economy. But that is just an artifact
of the insane debt money system.

-- Roy L

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