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Joe Weisenthal is Right About Social Security – It’s Not Running Out

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Joe Weisenthal has a good piece on Business Insider regarding the truth about the Social Security trust fund.  Unfortunately, the comments on the article display the extraordinary level of misconception surrounding this subject.  The myth that the trust fund is “unfunded” or “running out” is one of the great myths we confront on a regular basis.  Of course, it’s silly to talk about the USA not being able to “fund” Social Security.  As an autonomous currency issuer there is no such thing as the USA not being able to fund its expenditures.  There’s no such thing as the USA not being able to print more money to meet every obligation it has.  So there’s no solvency constraint for the USA.

There is, however, an inflation constraint.  The USA could print so much money in an attempt to provide particular benefits for its citizens that it reduces the living standards of those citizens.  But this is a very different phenomenon than the solvency constraint that is often trotted out to scare everyone about Social Security.  Of course, we all know that with inflation near 40 year low it’s not as sexy or effective to try to use the inflation scare tactic on people these days.  That’s not to say that inflation won’t ever become a problem, but when discussing constraints it’s important to frame the discussion correctly.  Not surprisingly, Joe gets this right.  Hopefully more in the media will begin to catch on….


Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering asset management, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

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32 Responses

  1. hb says


    it’s true that americans should understand the shell game, but your explanation doesn’t help them. the johnson “unified budget” is a red herring. Nothing essential changes whether SS is reported “on-budget” or “off-budget,” & it has been reported both ways since johnson. SS remains an independent trust fund operating largely under the same rules and regulations as at its foundation.

    As for your claim that FICA taxes are taken from workers and borrowed into the general fund, this is true and has, again, always been the case. The requirement to park any excess SS collections in the general fund was part of the original SS legislation.

    The only thing that’s changed in this regard is the PROPORTION of taxes being borrowed by the general fund. Before Reagan, the TF never contained more than a year’s funds, and never showed any tendency to “grow” from this level.

    Reagan-Greenspan deliberately set rates so as to collect significantly more tax money than was needed to fund current retirees, leading to a TF that “grew” for 40 years. TF holdings are now large enough to fund a record five years or so.

    This overcollection is the scam; and it was a bipartisan effort.

    At the same time, income taxes at the top were significantly reduced. This is the other part of the scam.

  2. Dan M. says


    Can you please point me to one or a few hyperinflations that didn’t come as a result of pretty extreme outside events, and was simply a result of high debt/deficits? You seem to keep repeating the same stuff without backing it up.

    Further, your point about gold’s purchasing power is valid, but “paper money” actually comes with a nice thing called “risk free nominal rate of return” which has roughly, matched inflation as well over the long term, but is MUCH less volatile than gold in the short term. Right now it doesn’t, but people are extremely strapped for cash for their loan payments so they need it regardless, plus they’re only loosing about 2% per year holding ST treasuries, which is hardly catastrophic, especially considering the debt servicing they’re burdened with.

  3. Dan M. says

    People don’t save because they have things called “bonds” instead of “dollars.”

    People save because they want to spend in the future, and holding a currency is one of the surer ways to be able to keep a decent portion of your purchasing power on a lot of wealth (you run out of room to store canned tuna and it only lasts so long). Bonds are not needed to get people to hold savings, nor do they prevent spending. The fact that they are “coming due” is irrelevant and I’m surprised you don’t realize that yet.

  4. John 1025 says

    I’m not sure why you singled out Germany. Huge shortages began when the French and Belgium armies invaded and occupied the Ruhr because of war reparations disputes. germens went on a national strike. On top of that, germany had to use 50% of their GDP to buy foreign currency to pay their war debt. The shortages and the huge foreign payments caused them to print Marks. So, like almost (maybe every case) every case of hyperinflation, severe shortages, war, regime change, foreign debts caused a complete breakdown of faith in the currency. Cullen has written an excellent piece on hyperinflation where he lists every case and the reasons since WWI.

  5. Obsvr-1 says

    If folks really understood the operations of the gov’t and the use of the SS “Trust” fund to hide spending (deficits) and perpetuate the shell game of political gamesmanship.

    Once the SS “Trust” fund was put under the Unified Budget (I believe by Pres. Johnson) the structure of a “Trust Fund” retirement system was forever changed. The gov’t takes all the payroll taxes (FICA) and uses it to pay/fund/offset contemporaneous budget expenses; in trade they through in a IOU (Special issuance Bond, intergovernmental debt instrument) into the empty carcass of the “Trust Fund”. Now for the fun part of a mental exercise to uncover the 3 part tax system of the FICA game

    1. Withhold 12.4 % payroll tax from the working class; the rich get to bail out of the system at $110K
    2. Income taxes used to pay interest on the bonds (or add to the tab, Nat Debt)
    3. Income taxes used to pay the bond when it matures (or rollover to “kick the can”)

    If folks could (would spend the time to) understand how the SS system has been corrupted from the original intent into this shell game, then the histrionics of an insolvent system would be replaced by a call for massive change in the gov’t budget (enables waste, fraud and abuse) and the tax code (Franken-tax).

  6. Vincent Cate says

    There are “long and variable” delays from when the money is printed till when the inflation hits. This has been studied, see URL below.

    If production increases 2% then you can increase the money supply by 2% and if the velocity of money is the same the prices will be the same. But when you increase the money supply by 30% there is no real chance that increases in production will hide the inflation.

    A 1 oz gold coin has about the same purchasing power today as it did 3,000 years ago (a nice suit, belt, shoes). Paper US money buys like 1/30th of what it did 50 years ago. But a silver dime bought a gallon of gas 50 years ago and still does today. The basic reason is there is far more of that paper currency today. Really.

  7. JK says

    Does ‘money printing’ / deficit spending / creation of new net financial assets eve n cause inflation? Has anyone crunched data?

    I understand that the only constraint is inflation.. i.e. we couldn’t all be given a billion dollars and also expect not to see massive inflation as we all wen’t out buying tons of stuff.

    But I wonder if the inflation claim is exaggerated. If “money creation” creates inflationary pressure, why don’t we see massive inflation during ‘boom’ times of credit expansion? (or do we?). Although it’s not new net financial assets, it seems like credit booms inject a lot of money into the economy. Is it all asset inflation (bubbles)? Where’s the scary inflation in most consumer items? AND… as Rodger Malcolm Mitchell claims, does it have more to do with oil prices than “too many dollars chasing too few goods” ?

    MMR often talks about productivity. Does increased productivity have an anti-inflationary bias? What I’m getting at is… maybe large amounts of deficit spending COULD lead to inflation, but much of it is offset by increased productivity?

    An thoughts? (sorry, kind of rambled here)

  8. beowulf says

    “It will not last forever.”

    As long as we send men to sea, my advice to you is
    “Don’t be alarmed, Ziggy”.

    if you don’t like books…

  9. Vincent Cate says

    The US controls its own food supply. Oil is traded globally in US dollars (and the US Navy controls the world’s sea lanes).

    It seem the US has said people can’t use the Swift system to send money to Iran, so China and India are paying for Iranian oil with gold. If the rest of the world stops selling oil in dollars the US will not be able to afford much oil. The US will suddenly seem poor.

    It is a crazy system where the US prints pieces of paper and sends them to the rest of the word and gets real things in return. It will not last forever.

  10. beowulf says

    The US controls its own food supply. Oil is traded globally in US dollars (and the US Navy controls the world’s sea lanes).

  11. beowulf says

    “Neutral money was a fundamental axiom of nineteenth-century classical theory. By the early twentieth century, this neutrality of money presumption became one of the basic axioms of the prevailing orthodoxy in economics…In 1933 Keynes explicitly indicated that the ‘monetary theory of production’ that he was developing explicitly rejected the classical neutrality of money”

  12. Vincent Cate says

    Hyperinflation does not in any way act like an automatic stabilizer for the economy. Nope. Wrong.

    It is not true that hyperinflation “almost always comes from foreign debt or war”. People who think this may have only studied Germany and not the 100 other cases.

    The mechanism for spending a ton of money is that as bonds come due the government will print a ton of money. There are like $7 trillion in bonds coming due in the next 12 months. If people panic with the realization that we may be getting hyperinflation and in 5 years their 5 year bond will be worthless people will stop rolling over bonds. The government will print for bonds as they come due. You can either count this as lots of new money (as most people do) or if you want the MMT/MMR view were bonds count as money then you can look at this as a huge increase in the velocity of money as the bonds did not change hands much and the cash will.

    Do MMT/MMR folks use the Equation of Exchange?

  13. Vincent Cate says

    “People will get their cash as their bonds come due and spends it.”
    I can’t even get past this sentence to read your other comments – as this one just takes the cake. So…. people will choose not to save, and just spend. Uh huh. When, where, what, who, how will that happen???? […] Well la de da. We all know the “if” but it is meaningless without the why, where, when and how.

    It may be they don’t have much choice, they need to use their savings. Or it may be they figure out they are much better off saving with “inflation hedges”. You may not know what these are, but by the end of the 1970s most people did know about them.

    Imagine I have repeated an experiment where I have a board attached to my concrete roof sticking out 10 feet with a 55 gallon water barrel attached to the end where I slowly add water drop by water till it breaks. I have a computer that monitors how much water was added and stops when the board breaks. Now different boards came from different trees and are not exactly the same thickness or age or dryness, and have different knots in them. So different boards break at different amounts of water. But imagine my results are that over 40% full and before 80% full all my test boards have broken. I could then predict that if you pass 40% full and keep filling that the board will break.

    Hyperinflation is like this. Each case is different. Different people, different government, different tax system, different debt etc. But if the government gets to deficits over 40% of spending for long enough they always seem to get hyperinflation. We can’t say the day or the hour. or even exactly how it will play out, but we can tell the currency is going to break.

    If you can’t predict exactly at which drop or even at what % full the barrel will break the board, you should not be surprised that with the US dollar that is impacted by over 1 billion people we can not say exactly when it will break. It is still useful to understand the danger.

  14. hangemhi says

    “People will get their cash as their bonds come due and spends it.”

    I can’t even get past this sentence to read your other comments – as this one just takes the cake. So…. people will choose not to save, and just spend. Uh huh. When, where, what, who, how will that happen????

    I’ve got savings, and I don’t care if it is losing money. I NEED savings to retire on. What the hell am I going to spend it on that will put me in a better savigns position???? I can only afford to spend it when I actually need it. In the meantime I’ll keep earning and spending out of my earnings, and saving the rest.

    Inflation only “steals” from savers, and most of the country has ZERO savings. Inflation helps those in debt, and most Americans are deep in debt. As for people like me – no to little debt, with savings no where near enough to retire on, I must continue to be productive and earn so that I can add to that savings. Inflation could therefore be looked at as a clever way of the government to keep people working. Deflation is the opposite – I have less incentive to work as I get paid less and less, and the value of my savings goes up and up. With inflation my wages appear to go up, so I feel a reward for my work and keep working.

    Anyway, a long rant to just say… give me a break with your non-stop hyperinflation fears when you can’t ever point out when, where, how, why hyperinflation will actually happen. You just like to say “if it happens then x, y and z will happen”. Well la de da. We all know the “if” but it is meaningless without the why, where, when and how.

  15. hangemhi says

    exactly – no one is complaining that the military is “running out of money”

  16. hangemhi says

    Deficit spending in the ONLY “real” kind of money printing there is. And we’re not doing enough of it right now…. certainly not enough to cause an even remotely scary inflation number. We’re trillions in deficit spending away from that right now

  17. Dan M. says

    First off, if we do start to see bad (not hyper, but just bad) inflation, it will be an automatic stabilizer to our “fiscal situation” (or it would be if we had a fiscal situation), as debt as an amount is meaningless without a nominal GDP to put it over for perspective.

    Also, hyperinflation has almost always come from foreign-denominate debt, losing a war or regime change. Do you see the US going any of those routes any time soon?

    If the dollar is really losing 2-3% real value every year, it’s still a better store of wealth than most other things, including a can of tuna, which most likely won’t last more than a few years. Gas might go up, but that goes bad over time and you can’t pay your mortgage in gas. Once agin, for the umpteenth time, we are short on savings reserves, and are exporting $500 billion of our “confetti” every year… where on earth is the mechanism for us to be confident to spend a ton of our money, much less spend it in ways that won’t bring about economic recovery. Can you see Americans with eventual electronic wheelbarrows of cash to push around? I certainly don’t feel as cash-rich as those people in Weimar did in all those pictures.

  18. Vincent Cate says

    Hyperinflation really happens. It is not nearly as implausible as you seem to think.

    Here is the key point I would like to get across. Hyperinflation is a positive feedback loop. It feeds on itself. It snowballs. Once it is started it grows and is very hard to stop. Look at some of the feedback:

    When inflation is starting it seems to start first in the things we need, like gas, food, electricity. Paychecks are not the first thing to go up. Necessary things with limited supplies go up first. So people can become poor. Yes, there will be people who lose their houses. There will be people who lose their cars. It is going to be hard. But when things are hard you also see people with their shopping cart filled up waiting for 12 midnight so the government credit on their snap card is available. These people are spending the money minutes after it comes in. This is a real velocity of money far greater than when people had 5 year bonds. As things get harder people will be spending their paychecks faster and not buying bonds. The velocity of money will go up. Prices will go up.

    Many people will wait till 10% inflation and 20% inflation and 40% inflation till they try to move to some sort of inflation hedge. The higher it gets the easier it is to find things that hold value better than dollars. Eventually you will get people buying pianos they don’t use and all sorts of things rather than putting money into the bank.

    Perhaps I am wrong and the US is not headed for hyperinflation. But I am not wrong about it being a dangerous positive feedback loop. Of this I am sure.

  19. Dan M. says

    Lots of productive capacity can be bought for the US dollar. What you’re arguing is that inflation will be high, and because dollars will lag that inflation, it will get exponentially higher. You can’t just wish this into existance.

    It also seems you didn’t feel like responding to my points. Millions and millions americans have barely enough savings to pay their mortgages/car-payments/taxes for more than a few months in a row… how are they in ANY position to decide to reject the dollar when it’s those precious dollars that are keeping them in their homes, transportation, and out of jail for not paying taxes?

    Currently, we’re exporting about $500 billion per year of our currency in exchange for foreign real goods (like cans of tuna ;)), which is only slightly lower than average over the last decade. Shouldn’t we at least wait until our trade deficit as a percentage of GDP gets quite a bit lower before worrying about a net-rejection, not purchase, of our currency?

    Lastly, if people are rejecting dollars because they lose 2% to inflation, what would they move to? Do you really think a can of tuna will not be worth 2% less in real terms a year from now? What’s so much more incredibly durable than the dollar’s real value to be immune to the same loss of real purchasing power?

    Very few things bought a year ago were relatively certain to be worth 96%-98% of their real value a year later. Real interest rates would have to get much lower than this to get people to see their dollars as decaying faster than most other things one can buy.

    Plus, this is all assuming that people will rush to canned tuna and gold, and not simply saving in a more risky format (corporate bonds & stocks), lowering the cost of funding investment and therefore leading to economic growth. You have WAY too many false and/or implausable assumptions built into your model.

  20. Vincent Cate says

    After hyperinflation the government may not be able to buy enough oil for its army or pay employees enough for them to live on. When their currency is no longer useful there is a real fiscal constraint. Hyperinflation takes away the ability to live off of printed money that makes life so easy on most governments.

    Currently 5 year T-bond pay 1%. After 5 years you will get just a bit over 5%. If inflation in the things that you want to buy is 5% per year then saving in dollars is not helping you. As people come to understand that saving at 1% is not helping them they will stop doing it. People will get their cash as their bonds come due and spends it. When they had 5 year bonds the velocity of money was low (if you count bonds as money) but when everyone has cash and inflation is eating at the value of their money every month then the velocity of money will be far higher. Prices can shoot up. Which makes holding bonds even worse.

    Yes, hyperinflation often happens when there are bad political things going on. But sometimes it is the hyperinflation that is causing the bad political things and sometimes it is the bad political things that is causing the hyperinflation and sometimes they cause each other. But the math for hyperinflation is about quantity of money, velocity of money, GNP, and does not mention wars or dictators.

  21. Dan M. says

    Even then, insolvent isn’t even the right term. It implies some kind of fiscal constraint. But, of course, hyperinflation would be a disaster, so discussing semantics isn’t so important as discussing effects in the real economy… so if you want to use insolvent as a placeholder for hyperinflation, fine… I’m still wondering why foreigners are still sending us $500 billion worth of real assets every year in exchange for our confetti.

    I wonder why people would simply reject their savings when their rent, mortgage, taxes, car payments and student loan liabilities are denominated in the US dollar, and so many of us only have a few months worth on hand to make those payments with.

    I wonder why people would all of a sudden reject their savings at .1%, simply because they’re no longer being paid the .9%.

    There is a natural decay to the value of most things. Homes, even, if left for 6 months, will come into disrepair that might seriously decrease the value of the home if left unattended… where I live anyway. Canned tuna and the like may last a really long time, and I’d assert we probably don’t have enough people loading up on a safe buffer stock of food, but you can only store so much of your savings in canned tuna & beans. Gold has limited utility and insane volatility, so its use as a saving-vehicle is limited. Do you really expect savers with liabilities denominated in dollars, and far too few dollars to pay them off, to simply reject the dollar as a savings vehicle simply because it loses 2% to inflation every year?

  22. Vincent Cate says

    “If a government is spending more than it gets in taxes some people will say it is not solvent ” In my opinion, those people are wrong.

    I think a currency issuer is only really insolvent after his currency is not longer used as money. After hyperinflation, when you can’t buy food or oil with the currency, and it is not really money any more, then the currency issuer is insolvent.

  23. Dan M. says

    Much more concise version of my football analogy… nice!

  24. Dan M. says

    To me, the term “insolvent” implies we’re talking about a currency USER, not issuer. The issuance of currency may be a role of government some may disagree with (such as yourself), but to use terms like “insolvent” simply does not apply. Words have meanings, and you’re trying to combine your moral issues with government money with verbage that, while it doesn’t apply, will hopefully aid in proving your moral point before the argument even gets off the ground.

    A football team can be desperately in need of more touchdowns (or, more specifically, more points) to win the division and have a chance at the superbowl and all the glory/wealth that goes with it, but the NFL itself (the ref’s, regulators, and score keepers) is not in any kind of need for more points. Nobody would try to frame the concerns of the NFL (making points matter and getting more fans) in terms of the individual teams within it (scoring points). The NFL has an entire different set of worries than the teams. They have all the points in the world to issue. The key is HOW they choose to use them and the rewards given for getting them. To try to use the terminoligy of a team’s constraints on the NFL itself will get you nowhere. Instead, the NFL has to ensure that the points MEAN something real and tangible… that the income flows from fans meet the teams in such a way that motivate them to do better and attract fans. That the rules allow the best teams to win, and not the ones with the best hidden recording devices. Keep in mind, the NFL rules also allow for rewarding the worst teams with SOME chance of a better team next year by giving them better draft picks, and scores start from 0 at every game, so some would say that part of the system involves creating enough equity to keep everybody on the ball and keep fans interested.

    The NFL regulates the whole game in such a way that makes each point extremely valuable, but keep the game attracting fans, because if nobody likes how the game is played, how valuable, really, can an uber-scarce point system be? The value of the points is SECONDARY to the quality of the entertainment. They could make points more valuable by allowing extremely rough contact with the quarterback, but what would that accomplish? Our points are more valuable, but now we don’t have the passing game that people love to watch so much. Likewise, making our dollars more valuable may serve some peoples’ interests, but it makes the game of our US economy decidedly imbalanced and disengages a lot of people.

    In the US, our points (dollars) still mean quite a bit, contrary to the Austrian assertion. A TON of people are still only a few months of job-loss away from defaulting on their mortgages. A ton of people are locked into payments with far too little savings cushion. Our QB’s are getting pummeled, and the NFL is trying fix the problem by rotating 2nd and 3rd string QB’s in instead of changing the game so we can get some more touchdowns and put people back on the edges of their seats. Our monetary system is a points system… one that we try to create some rules around to ensure equity and stability, but for the most part allow people to succeed under by being productive and trading freely with each other.

    Analogy Overload: Complete.

  25. not a carny says

    A carnival operator issues tickets and distributes them to patrons (deficit spends), but does not collect any tickets to ride the ferris wheel (no taxation), there is no worry if the carnival operator can issue any more tickets (he is solvent when it comes to tickets). The problem is some patrons might not ever get on that ferris wheel because everyone wants on but there is only a limited number of seats (inflation).

  26. Dunce Cap Aficionado says

    I think we’re just going to end up talking past eachother because we disagree on fundamentals. (that being said, I have enjoyed discourse with you in past as you present your case much better than most who share you opinions).

    Gov’t does not have to tax to spend. Its spends before taxing. ‘Recouping’ enough in taxes to cover expenditures is a political idea driven by misunderstanding of the monetary system.

    “If a government is spending more than it gets in taxes some people will say it is not solvent ” In my opinion, those people are wrong.

  27. Jay H. Mani says

    Reading the comments on most articles having to deal with politics and or the national debt always leaves me in a 50 IQ Point deficit.

  28. Vincent Cate says

    Dunce Cap Aficionado
    Neither deficit spending nor ‘printing money’ are related to a solvency issue, so I’m missing you here.

    If a government is spending more than it gets in taxes some people will say it is not solvent but if it can print money then that is what it will do. It is very much related.

  29. Erik V says

    I think another challenge we have is that even if more people understood the operational realities, they would still say that even a small amount of NFA creation would lead to high inflation. The SS debate is really about intergeneration redistribution, not solvency. At some point you do run up against the inflation constraint, and then the question becomes how much of the nation’s purchasing power do we want to just hand over to seniors for consumption, especially if we have to pay higher FICA taxes than they did during our lifetimes? I suspect that if SS didn’t have a dedicated “trust fund” and instead was part of the general budget, then these debates would really never happen as we would just deficit spend to pay benefits like we do with everything else.

  30. Dunce Cap Aficionado says

    Neither deficit spending nor ‘printing money’ are related to a solvency issue, so I’m missing you here.

  31. Vincent Cate says

    “There is, however, an inflation constraint. The USA could print so much money in an attempt to provide particular benefits for its citizens that it reduces the living standards of those citizens. But this is a very different phenomenon than the solvency constraint that is often trotted out to scare everyone about Social Security. ”

    Deficit spending and printing money go together so tightly that I am not sure it is fair to say it is a “very different phenomenon”.

  32. just an auditor says

    The comments at BI are very disheartening. Forget about the MMT/MMR policy debate, we have a long way to go before the masses first understand the operational realities before we discuss which tools are best to use.