Debt default 7-15-2011

July 15, 2011
I keep thinking about the Democratic position that most American voters are stupid. Now I am beginning to think that Republican leaders are stupid.
Remember when President Bush proposed private personal Social Security accounts which would have allowed people to control the investment in their Social Security accounts? Vice-president Gore and the then Senator Obama called that a risky scheme, and defended the social security system by saying that there was enough funding in the system to carry beneficiaries, even if social security collected less taxes, until 2026. After all, the Social Security system was set up to be self-funding. Consequently it is off-budget – it does not count in the United States budget. The taxes collected are placed in a trust fund and cannot be used to pay anything other than social security benefits. President Obama said so.
Now Obama is threatening that, if the debt ceiling is not raised, that social security checks may not go out because there is not enough money to pay them. So how can the President say on one hand that there is enough money in the Social Security account, but on the other hand that there is not enough money in the social security account?
Well, it could be because the President believes, and lives by the rules, that he can say contradictory statements and regardless of inconsistencies, and the American people will believe him. It also could be because he is inexperienced, but I doubt that because the Social Security Trust Fund is a subject of Econ 101 in most universities. My guess is that he has always known that there is no money in the trust fund, only U. S. Treasury bonds. What Obama is saying that there is not enough money to allow the treasury to redeem its bonds, and thus no money for social security.
Now, since the trust fund is a non-budget item, why not make the trust fund a non-debt item. All congress has to do is pass a law that says that the Trust Fund cannot be counted toward debt. Thus it has to be paid no matter what the debt ceiling is, and by taking it out, it effectively lowers the debt ceiling by the amount of the obligation. Alternatively, keeping the same debt ceiling effectively raises the debt ceiling. Thus both Democrats and Republicans can claim victory, and Obama can claim to be a leader.
And President Obama can argue that he did not lie to Americans because the ability to parse words allows a person to make to contradictory phrases in the same sentence.
You ask, how can this occur if there is no money? The answer is that Monetary Policy as implemented by the Federal Reserve allows the Fed to print money and use that money to buy Treasury Bonds. They have been doing this during the recession and that is how the Fed helps fund the stimulus program. Chairman Bernanke indicated as much on July 13, 2010.
So why are Republicans stupid? Because they realize that by telling the truth, working for a good political solution, that they cannot match Obama’s diatribe. They need to support Eric Cantor and attack.


One Response to Debt default 7-15-2011

  1. JE says:

    Since Novemember is approaching quickly it looks like this is a game of political rhetoric. In this game the truth seldom wins. It is he who is able to inspire “the best story” upon the minds of voters. I saw a quick transcription of this story which quoted Obama and Boehner as follows:

    Obama appeared to up the ante on Tuesday when he told CBS Evening News that failure to raise the debt ceiling in time for the Aug. 2 deadline could endanger Social Security checks. “I cannot guarantee that those checks go out on August 3rd if we haven’t resolved this issue,” Obama said. House Speaker John Boehner countered on Fox News that he doesn’t believe the checks would be delayed.

    (obtained from:

    Right now Obama has the better story line for his Democratic colleagues. ” I can’t guarantee that it won’t” is enough to worry recipients to call up and put pressure on the congress members to make sure that some deal is made. It doesn’t matter oif it is true or not true.

    Boehner’s follow up is meerly a sidenote in the story. Drama, fear, violence, and money steal the headlines; a quiet reassurance from a leading Republican will not. Point Obama.

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