Saturday, May 11, 2013

Repaying Social Security will not add to debt! Still, Republicans don't want to pay Seniors back. Still Wanna vote for the Freeloaders?

If you borrow money to pay off borrowed money, you still owe the same amount, plus interest. Another words, you're not adding additional debt. Easy huh? Here's an explanation, and a related article at Rock Netroots, where Politifact messes up again:
The Nation: The fact is that, Social Security cannot contribute to the federal budget deficit because, by law, the program is not a part of the federal government’s “on-budget” accounting, as it’s called. (See slide 14 of this CBO report.) 

But the mainstream press routinely dismisses this part of the US Code as mere artifice, and loves to point out that the federal government pays out Social Security revenue as fast as it comes in and then borrows against it for more spending. All that’s left, then, is supposedly a bunch of government “IOU”s—a favorite trope of Social Security Cassandras. 

But here’s someone much smarter than me—George Washington University political scientist professor Robert Stoker, explaining how the Beltway conventional wisdom goes totally awry with this analogy:
If you owe a $5,000 credit card bill and you take a home equity loan to pay off the credit card, your total debt has not changed; you have refinanced the debt, transferring it from one financial instrument (and one creditor) to another. Much the same can be said about repaying the OASDI Trust Fund. The fund’s assets are composed of debts already accounted for as part of the nation’s total debt. When the Treasury borrows to pay current Social Security benefits, the debt owed to the Social Security Trust Fund is repaid, refinanced, and transferred to whoever purchases Treasury securities.

Of course, the cost of refinancing the debt is a key concern. However, the only scenario in which repaying the Social Security Trust Fund can increase the nation’s debt is if interest rates are higher now than they were when the original debt was incurred. Given current market conditions (nominal interest rates are presently quite low, the rate on ten-year Treasury Bonds is around two percent), the more plausible claim is that refinancing the Social Security Trust Fund’s debt has reduced the nation’s debt slightly by reducing interest costs” [italics mine]

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