The Missing Trillion

Bruce Krasting has a very nice illustration of the difference between accounting and economics, using a $1.2 trillion discrepancy between the Social Security Trustees’ accounting of the fund’s net cash flow and the CBO’s estimate of it as an example.

23 comments… add one

  • Guarneri

    “As an ex Wall Streeter I always go to the ‘Cash Flow’ numbers first, as cash flow is what drives most companies to success or ruin.”

    Heh. This statement makes the heart grow fond.

    Anyway, not to be too nit-picky, its really a difference between cash vs accrual accounting more than acctg and economics. The “scrip” interest could be taken to income or hung up on the balance sheet as an asset, presumably an account receivable, to be taken into income later. The bottom line is, since SS recipients can’t spend IOU’s, the system is shorter on funding than advertised.

    OK, bring on the “but we are sovereign’s” crowd.

  • TastyBits

    And, how is a balanced budget amendment going to work?

  • TastyBits

    @Drew

    OK, bring on the “but we are sovereign’s” crowd.

    Easy. Redefine corn syrup as corn. When you plant it does not grow anything, and you cannot pop it. It does make tasty candy bars which give you a quick sugar high. You may get diabetes, but this is a theoretical argument conservatives use to harsh one’s mellow.

  • Guarneri

    Uh, er………..it was just a crack about those who don’t believe financing matters; we are a sovereign and can just gin up funds willy-nilly with the printing press or Uncle Ben’s, er, Auntie Janet’s, converted………..oh, never mind.

    I say end the War on Poverty now with overwhelming force. Just print up a million dollars each for about 14% of the population. Make’m rich.

  • ...

    No need for such drastic measures, Drew. I’m sure all that monstrous growth (o.1% in Q1) will power us out of all these problems.

  • Guarneri

    Patience, ice, patience. Obama is a self proclaimed singles hitter and .1% is jest fine.

    Seriously, this is sad. I told that great economist Michael Reynolds last fall, as he was crowing, that the GDP numbers were all inventory build and the ObamaCare tax hadn’t even hit yet. Well, businesses aren’t holding or further building inventories. When one makes all the timing and noise adjustments, more intuition than science, I suspect we are where we’ve been for a long time: somewhere between 1.5-2.0% growth. Thanks, Bammy.

    For all the snark and hyperbole I deal out to you and others, I have to say, you folks have no wind behind your back. None. Its a shame. As long as this know-nothing character is in the WH, the Dems hold the Senate and the Repubs can’t shirk off the corporatist wing, it ain’t gonna change. Damned shame.

  • ...

    Obama is a self proclaimed singles hitter and .1% is jest fine.

    Okay, I actually laughed out loud at that.

  • Guarneri

    “Okay, I actually laughed out loud at that.”

    And that ain’t all…………………

  • Guarneri

    A thought just occurred to me. I’ve been catching up on some reading. The St. Louis Fed, and some others, are producing new work that shows that the ‘wealth effect” may only produce a penny of stimulus (vs about 10 cents assumed). So many dollars pumped………..so little value.

    Uncle Ben and Aunt Janet will not be amused….

  • ...

    So, Drew, you aren’t buying the story that winter unexpectedly struck in the middle of winter, and that’s why growth wasn’t ten percent?

  • TastyBits

    The money that is created from the printing press is like corn syrup. It is high calorie, low nutrition, and unproductive. It is created by squeezing corn (capital) and adding water and sugar to increase the volume.

    Are businesses created from corn or corn syrup? In the last 5 years has there been more corn or corn syrup created?

  • Guarneri

    “So, Drew, you aren’t buying the story that winter unexpectedly struck in the middle of winter, and that’s why growth wasn’t ten percent?”

    I’ve been listening to management teams tell me the weather is the cause of financial underperformance……….but apparently not know a weatherman exists when things go well……for 20 years. Look, if you can’t pour concrete, or people huddle in their homes and don’t patronize eateries when its cold I get it. But there were plenty of places that had good weather too.

    More importantly, I know that people who have $500 – $1000 in discretionary income a month see half of that gobbled up in increased health care premiums don’t buy other stuff. And those souls who haven’t yet been subjected to the magnificence of ObamaCare, because Obama has shielded them from its wonders (snicker), aren’t stupid, and are looking ahead. As are employers.

    However, I do know the answer. All will be well if we just give minimum wage workers another buck an hour. 4-5% GDP growth. 4% unemployment. People kick’n it in the Bahamas. Hell, raise taxes on the rich and poor people will be buying in Port Royal in Naples over night!! Bon Jovi’s house is available……

    Thank you. Thank you! Bammy!!

  • Guarneri

    Its a rhetorical question, Tasty. My firm makes corn. Its really hard work, and more importantly, requires understanding.

    It ain’t gonna happen with the prevailing leftist nostrums.

  • ...

    Can someone explain to me how the stock market hit new highs today on the news that our economy is flatlining and that the Chinese are going to overtake our economy FIVE YEARS sooner than expected? Did Dammit Janet tell the markets she’d open the pumps back up?

  • jan

    Ice.

    It’s gaming the numbers. Also, there is a jobs report out there touting a “better than expected” number as well.

  • michael reynolds

    Drew:

    Have you ever been right about anything? I’m really trying to take you seriously, but you just never seem to be right. No doubt I missed something, so help me out, because you seem like the Bill Kristol of comment punditry.

  • TastyBits

    @Drew

    Many conservatives cannot articulate why printing money is bad a idea, and I am using you to get accross the concept that not all money is equal. Corn (capital) can produce more corn, but corn syrup (printed money) can only be consumed.

  • Ben Wolf

    All Krasting has done is demonstrate an ignorance of accounting, that is national accounting. He does not understand as any experienced bond trader does, that cash flow in regards to flipping Treasurys is irrelevant because Treasurys and reserves are the same thing.

    He, like most people, appears to believe a Treasury is a little piece of paper with IOU stamped on it rather than what it actually is, a dollar balance in a securities account. A Treasury is cash in the same way the dollars in a savings account are cash: you can spend once you transfer it into checking.

    Krasting’s thinking hasn’t been updated since 1932, one supposes.

  • Ben:

    Under current law when the Social Security trust fund, i.e. current receipts plus past receipts not issued as payments plus interest, is spent down, the payments issued to benefit recipients will be reduced to current receipts. Consequently, fund accounting is vitally important to the millions of Social Security recipients.

    Please correct if I’m wrong but my understanding is that MMT-ers merely point out that the federal government can support itself without balancing receipts not that it should. It seems to me that paying operating expenses, of which Social Security retirement benefits is obviously one, is something that should not be done without offsetting receipts.

  • Zachriel

    Dave Schuler: Under current law when the Social Security trust fund, i.e. current receipts plus past receipts not issued as payments plus interest, is spent down, the payments issued to benefit recipients will be reduced to current receipts. Consequently, fund accounting is vitally important to the millions of Social Security recipients.

    Sure, but at this point, Social Security has large reserves. When it was apparent that the baby boomer retirement would require additional funding, payroll taxes were increased, the surplus invested in federal securities, to be redeemed as the baby boomers retired.

    These surpluses could have been saved in a “lock box” (such as by paying down the publicly-held debt), but was used for income tax cuts instead. The tax cuts were supposed to “pay for themselves”. Now that the securities are being redeemed, the general fund must make up the difference.

  • The fund accounting includes that. According to the most recent report by the trustees, the Social Security trust fund becomes insolvent in 2033. That includes the “surplus invested in federal securities”. I think it’s likely to be sooner than that since the insolvency date for the trust fund has come nearer with every trustees’ report for the last several years. I see no reason that will stop for the foreseeable future. My guesstimate for the actual insolvency date has been around 2025.

    BTW, the Medicare Trust Fund becomes insolvent in 2026.

  • Zachriel

    Dave Schuler: According to the most recent report by the trustees, the Social Security trust fund becomes insolvent in 2033.

    We were addressing the original question concerning the two different accountings. Nothing extraordinary about the distinction between them.

    Yes, benefits will have to be cut, or revenues increased by within the next couple of decades. The sooner the U.S. makes the necessary the adjustments, the less expensive it will be in the long run.

  • Zachriel:

    If that:

    We were addressing the original question concerning the two different accountings. Nothing extraordinary about the distinction between them.

    is what you took away from Mr. Krasting’s post, you need to re-read it because you clearly don’t understand it.

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