I understand the situation quite clearly. T bonds are assets. If I buy one, the money has not somehow disappeared. I get it back, with interest.
If the SSTF did not invest in T bonds, where should they put the money?
Assets are just that, assets. You can say Congress has borrowed a lot of money over the years from insurance companies, investors, China, the Fed, etc., but that money has not magically disappeared.
The looming deficit in the SSTF has NOTHING TO DO WITH CONGRESS AND HOW MUCH THEY SPEND (other than they didn't fix the system).
Ok... Let me go on then...
Assume that I'm a new college grad in my early 20s. I decide that for the purposes of my life, I'm actually going to get two jobs instead of one, because I have a particularly interesting "side hustle" that I can do for fun in addition to my career.
So I get two jobs.
- The income from Job A goes into my left pocket. I define Job A as the one that pays the bills, i.e. my "mandatory spending".
- The income from Job B goes into my right pocket. That money becomes my "walking around money", i.e. all my discretionary spending.
Now, I'm a new college grad and can choose to live pretty spartan, and my mandatory bills don't consume all my spending. Prudently, I want to save that money and plan for the future. I may one day get married, have kids, and I'm sure my bills will go up significantly.
Now, where do I save it? I've got a great idea! My right pocket is offering savings bonds, and promises that if I lend the excess money from my right pocket to my left pocket, it'll promise to pay me back with interest when I need to draw down on those assets.
My right pocket is a bit of a spendthrift. And flush with not only the cash from Job B, but all the excess leftovers from Job A, it spends and spends and spends. It keeps creating bigger and bigger promises to the left pocket, but hey, I'm good for it, right? I have excellent credit!
Years and years go by. I get married, have kids, my conditions change and I find my left pocket needing to draw down those assets.
So what do I do? The way I look at it, I have four options:
- Work more hours at Job A. Obviously if my mandatory spending goes up, maybe I should be bringing in more money into left pocket. (This is akin to raising the payroll tax or removing the cap to allow the SSTF to keep growing).
- Work more at Job B, since you need to start paying back left pocket. (This is akin to raising income taxes to pay back the SSTF.)
- Quit spending excess money out of right pocket. It's time for some serious austerity measures! Now instead of having walking-around money, Job B can go pay back Job A. Sure, my standard of living goes down, but at least I'm being fiscally sound. (This is akin to Congress reducing discretionary spending, which we all know ain't happening.)
- Find some new source of money... Hey, maybe right pocket can borrow money from the Chinese to pay back left pocket. Maybe right pocket can max out its credit cards to pay back left pocket. I mean, this causes my overall debt load as a person to get much, much worse, but at least left pocket is getting paid back! (This is akin to the federal deficit increasing much more quickly than it would without a growing SSTF.)
But you're right...
None of right pocket's spending is responsible for left pocket needing to draw down the assets it has built up. But that doesn't change the fact that every one of #1 through #4 is a bad move for @bwarbiany -- who wears the damn pants. Now, the other option would have been if left pocket had been loaning YOU the excess money over the years,
@Cincydawg -- it would have meant that right pocket didn't have as much hidden income to overspend in the past, but it also would mean that it wouldn't require more earning power from
@bwarbiany to pay back the assets to myself.
The American taxpayer thinks it has an asset to draw down on, in the SSTF. But that asset comes from our own tax dollars (or deficit borrowing), so it's not like "we" are helped by some magical trust fund that's full of money. The SSTF is a claim on future taxpayers. The only difference is that it has to be funded from income taxes rather than payroll taxes. If you want to call that an "asset", well as one of the non-retired guys paying those income taxes, it certainly seems like a burden to me.
