Wow, Don't The Emperor's Clothes Look Awesome?

More nominally intelligent people talking seriously about a Social Security trust fund as if such a thing exists.

The only thing supporting our ability to pay future Social Security benefits in full is the government's ability to print currency.


  1. Benjamin Cole:

    As long as we have the printing press (unlike Greece) then we do not have to worry. We can print the money for old people.

    Inflation? By printing money, you are giving old people a modest claim on output on globally generated goods and services. Demand creates supply, especially in a free trade, globalized economy. Goods, service, capital and (until recently) labor flow across our borders freely.

    So far, foreigners love US dollars. They give us goods and services, and we give them slips of paper. When will this end? Seems unlikely for many, many years.

    It is bewildering--free traders actually undermine the supply-wide argument. The supply-side is now global, non-unionized and more integrated than ever. And for paper dollars, this supply side is instantly mobilized. Oddly enough, the free trade arguments means the domestic supply side is not all that important.

    By printing more money, we obtain a higher standard of living, and goose the global economy.

    The Fed needs to let loose, and big time.

    The printing press is our friend.

    If, at some point the dollar begins to sink (there have been scare stories about this for generations), then exports will surge, and they have been recently. All good again. Foreigners will vacation here, spend their money.

    Ben Bernanke, print money until the plates melt and then start issuing scrip.

    An unhealthy, even perverted fixation on inflation is not a monetary policy--it is a form of economic suffocation.

  2. delurking:

    ...and raise taxes.

    Benjamin Cole:
    inflation is theft from those who save.

  3. Billford:

    Printing presses in large part, yes, but Social Security also is in large part taking a share of whatever productive enterprise workers are engaged in and giving it to older non-workers who once had the same done to them.

    Not a bad policy, ASSUMING the benefits are sustainable (small enough) given the worker to non-worker ratio. Although it is a terrible investment, in a perfect world Social Security would be in my opinion a good thing, becase it would alleviate investment and inflation risk to a significant degree and prevent absolute poverty. Because of its unsustainable path though, it is turning into the worst of both: a very low-return-yielding and risky "investment" given that it is clearly unsustainable.

  4. Roy:

    Benj Cole has fascinating faith. He believes thermodynamic's First Law does not apply. Not only does he recommend a policy which has a questionable morality, a policy which promotes all sorts of civil scorning or others. He wants that which will fail.

    Perfect illustration of Coyote's repeated memes: kick the can down the road; nominally intelligent people talking seriously about a Social Security

  5. jj:

    The 'trust fund' is just an accounting identity, so it's neither real nor unreal -- it is whatever you define it as. You can look at it two ways:
    1) The US debt is $10 trillion, and there is no trust fund
    2) The US debt is $14 trillion, and there is a $4 trillion trust fund.

    The numbers add up the same both ways. However, the common mistake is to think that the debt is $10t, but it's not all that bad because we also have that $4t in the bank. That's completely false.

  6. Gil:

    By extension deflation is theiving from those who borrow.

  7. Benjamin Cole:


    Inflation is theft from those who hoard cash---most cash is held offshore about $800 billion to $1 trillion worth. Most likely by black marketeers, meaning drug lords.

    I happen to believe in legal drugs, so I have no beef with drug lords on that level. But they would be the "savers" for which you are crying.

    Otherwise, you have the right to save in many forms, from bank accounts that pay interest to TIPS, to gold to equities. Inflation is not theft except for those who hoard large amounts of currency.

    And ask yourself this: If foreigners will trade goods and services for paper money, are we not fools to make such a trade? Why would you not make such a trade?

    Besides, we are seeing historic low inflation rates right now. The traditional monetarists have not been right about inflation for many years running.

    Housing affordability is at a record high right now.

  8. EscapedWestOfTheBigMuddy:

    Of course you can represent the accounting either way and be correct, but the kinds of politicians who get on TV and talk about the "trust fund" are using those words with--as far as I can see--the explicit intent to deceive. They want the listener to believe that they're going to be able to eat their cake without having to pay for it because there is a actual pool of money to take care of those little details.

    It's a lie by omission.

    That's why it is important to harp on about the fact that there is no money in the "thrust fund".

  9. Benjamin Cole:


    There is no money anywhere, not in anybody's fund. You have blips of data on computer chips somewhere that represent your claims on the output of the globe.

    What the globe is suffering from is a lack of demand. Not enough blips on computer chips.

    Make more blips.

    The demand from old people on our services is of little import, save perhaps for health care. This will be a problem, as we do not accept euthanasia in the USA.

    We will spend $250k to keep a cadaver "alive" for three months. Some GOP'ers got themselves into a fever over that brain-dead body down in Florida, back in the Bush jr. days. We were supposed to keep the body "alive" for decades in guess.

    We need to pare health outlays down to 10 percent of GDP, by hook or crook.

  10. Ted Rado:


    Carrying your views one step farther, why not print HUGE amounts of money and inflate away ALL the debt? Everyone would own their house free and clear, the USG would have no debts, etc.

    One of our big problems is that the USG encourages irresponsible spending and behavior. If we inflate away all debt, everyone will be encouraged to piss away money, knowing that their debts will made to disappear.

    I see where a congressman is pushing the idea of forgiving underwater mortgages. I guess I have been an idiot all my life. I only buy what I can afford and pay my bills. It is outrageous to make responsible people feel like fools. What a great motivational concept! We should all be deadbeats that expect out folly to be forgiven or inflated away. Great idea! Why didn't I think of that?

    One last point: If we inflate aeay all debt, why would anyone want to be a lender with no expectation of repayment?

  11. caseyboy:

    Benjamin Cole – In our “global” economy the relative strength of the dollar against other poor performing economies/currencies is no cause for celebration. Look at what gold has done since the 2008 financial meltdown, up 194%. You can also see evidence of the dollar’s demise against the Australian dollar (-42%), the Canadian dollar (-22%), the Swiss Franc (-28%) and the Swedish Krona (-30%). Some very knowledgeable currency traders fear that the dollar may even lose its status as the world’s reserve currency. Katie bar the doors if that happens.

    All the money being pushed into the financial system will need to be taken out in order to avoid inflation. What helicopter Ben will be attempting is like landing the space shuttle on a Nimitz Class aircraft carrier. It aint’ gonna be pretty.

  12. Benjamin Cole:

    To All-

    There are reasonable bounds for monetary expansionism. Just because ee must spend money on defense, does not mean we have to spend $1 trillion annually. That is overkill.

    It would be overkill to expand the money supply (taking into account velocity) by very large amounts.

    That said, inflation is not much to worry about, as long as it is under 6 percent or so. It is an index, and one that many people say over-counts inflation. Measuring inflation is not a science. If you are buying a house today in the USA, it is more affordable than ever!!!! That is not hyper-inflation.

    No need to genuflect to a federal government index, or gold. I prefer prosperity.

  13. caseyboy:

    By the time you see 6% inflation we'll be well on our way to double digit inflation. Ben, I don't know if you do the grocery shopping, but my food bill has gone up significantly. My salary, not so much. And I'm paying twice as much for gas per gallon than I did just 3 years ago. With so much money added to the economy it will eventually cause growth and velocity will take-off. That is when helicopter Ben has to do his magic by pulling just the right amount of excess money out of the system. Me, I don't think he can pull it off. Not because he isn't smart enough. He will fail because we have economic adversaries that would like to see us get knocked down a few pegs. They will hand us cement life preserver at the most opportune time.

  14. Doug:

    @Benjamin Cole: "we are seeing historic low inflation rates right now." That's because the guys doing the inflating are also making the rules that define "inflation." If they say inflation is low, who are we to argue? My $5 steak is now $10. My $1.50 gasoline is now $3.50. My $2 gallon of milk is now $4. My $500/mo apartment now costs $1200/mo. My $15k car is now $35k. If the inflation-definers ignore such life's essentials in favor of defining down the cost of a television set, then I guess I have nothing to complain about, do I?

  15. caseyboy:

    Benjamin, I'll bet you like the new unemployment rate of 8.6%. Only needed 300,000 people to give up looking for a job to drop it .4%. Now if Obama can discourage another 1,000,000 to drop out of the job market he'll have unemployment below 8%. Brilliant don't you think. Doug's right, "they" control the inputs and the outputs and tell us what they want us to know.

  16. Anon:

    jj gets it.

    To add to jj's point, we must keep in mind that when its time to pay up, the money must come from somewhere -- taxes or a bigger deficit.

  17. Matt:

    But the trust fund is real!!!1!1! That's why there were no concerns about paying current SS beneficiaries during the debt ceiling debate!

    Oh, wait a minute....

  18. Benjamin Cole:

    To All-

    The CPI is computed by BLS, actually in a manner largely determined by the Hoover Institution, at Stanford. Michael Boskin, a right-winger, was very influential.

    No index is going to be right for every consumer or business. If you buy a house today, and do not need a lot of health insurance, and use digital photography, and e-mail, then you are enjoying deflation.

    You can take 100 or 1000 pictures and e-mail or phone them to relatives for free, and buy a house for the lowest monthly payment, relative to average income, ever. Any electronic gadget you can name is cheaper and better than 10 years ago.

    Cars get 40 mpg today--your gasoline bills could actually be lower.

    If you are renting, driving a low mpg car, and getting older and more risky and buying a lot of health insurance, then you are facing inflation.

    But back to the main point: Printing more money will assist this deflation-prone economy out of recession. Give unto me five years of five percent real growth at five percent inflation, and I will eat the inflation for breakfast.

    The USA economy expanded mightily from 1982 to 2008. We had moderate and varying inflation, from just under 2 percent, to more than 5 percent, during that time. That is the historical record.

    Why are we going into hysterics now at the thought of four to five percent inflation--especially when the GDP is 13 percent below trend and real estate is dead?

    I advise all Coyote readers to start reading the Market Monetarist blogs. Scott Sumner is excellent.

    The right-wing is making a horrible mistake if they think "tight money" is a great cause to rally around. It is a great way to asphyxiate the economy--see Japan.

    Do not genuflect to gold--praise prosperity instead.

    Can we have some boom times first before we start fretting about inflation?

  19. ringo:

    Mr. Cole:

    We *had* the boom times in the 90s. This is the hangover. I don't want to be condescending, but do you remember the 1970s? The reason there was relative growth in the 80s was that the 1970s were just that bad. A guaranteed student loan in those days was over 11% and unemployment was in the same ball park. Inflation always sounds good to those who haven't seen it or don't remember it.

    Also, arguing over metrics is irrelevant. The economy is contracting, the money supply is expanding. That is all you need to know that inflation is occurring. Probably a small amount of inflation is unavoidable in order to handle the "sticky wages" problem (though I'm not completely sure of that) but substantial amounts are very bad news. Furthermore, the ability to be the first to spend the inflated dollar distorts resource distribution and pricing signals. There is a reason that governments at war try to counterfeit each other's currencies. Running the presses until the plates melt is simply declaring war on you own country.

  20. Gil:

    Hangover for whom? It is said that the prime productive years of most people is around 25-45 years of age. Chances there's a lot of grumpy, middle-aged whose best earning years are behind them now and their income has felt relatively static hence they think there's been inflation. If the same people were living in a gold-standard they would see prices stay relatively the same whereas their pay packets going down as their employers aren't going to subsidise their decreasing productivity.

  21. Bart Hall (Kansas, USA):

    Cole: regarding US currency in foreign hands ... I doubt you've spent much time overseas. Local currencies are often merely proxies for the USD, and as the local currency gets goofier and goofier anyone who can do will "dollarise" for all but the least significant transactions.

    Several countries (e.g. Ecuador, Liberia) have made it official. In others with a long history of currency manipulation the people who are able do so unofficially, as for example Argentina. As long as the USD is a better **store** of value than the local proxy this will continue.

    I've known small farmers and shopkeepers in South America who keep a stash of US currency, because it holds value, and if someone in the family needs a doctor the best way to get treated well and quickly is to say "tengo dolares."

    It also appears you don't understand inflation/deflation dynamics particularly well, nor the role of "velocity" therein. Velocity BTW has completely tanked. We are in an excess-debt event, and dealing with debt -- either by repayment or default -- is quite deflationary.

    Balance sheets are very weak across the board, and your view of "printing" money is that people will ignore the bleeding there (e.g. house prices) and pay attention only to a modest improvement in their income statement, which is what must happen for them to SPEND that money rather than use it to improve their balance sheets by paying down, for example, credit cards.

    For the Fed to inject "money" it must be borrowed by someone, and credit-worthy concerns are paying off their debts, not loading up on more. You cannot solve an excess-debt problem by creating more debt.

  22. caseyboy:

    May I pile on? I am not concerned with "tight money". My concern is "real money". Does it not bother you that the biggest US treasury debt holder is the alter-ego of the treasury, i.e., the Fed? In your heart of hearts does that sound like good monetary policy? PLEASE

  23. Sam L.:

    Are they lying? Are they just saying this because it makes them feel better? Or are they just completely deluded by the Dem Party and its apparatchiks (of which they are a part, perhaps unknowingly, being so deluded)?

  24. Benjamin Cole:

    To All-

    I am happy for the Fed to buy debt. It can print money and buy debt, and that is like retiring the debt. It may be inflationary, but we are not suffering from inflation--we have mild inflation. It is a great time to retire US bonds by printing money and buying them.

    Yes, I remember disco and the 1970s and Pacer-AMC cars. I drove a Pinto btw, while attired in bellbottoms.

    But look at the record. The 1960s, 1980s, 1990s, and 2000s were not marked by double-digit inflation, but mild inflation. Indeed, the worst period, 2008-2010 was deflationary.

    We can prosper with mild inflation in the 2 percent to 6 percent range, and have. in particular, the period from 1982 to 2007ish was great. It took Bush jr. wars and runaway property lending (commercial markets tanked too, btw) to tank us. It wasn't inflation that tanked us---it was $4 trillion in wars and horrible property underwriting.

    Shooting now for 2 percent inflation, while trying to get out of a debt-bombed recession, is the way of Japan. When you suffocate the economy you end up with less growth, and more demand for government services and job programs. It is horrible.

    BTW, I say we hold federal outlays to 16 percent of GDP, so this is not a Keynesian talking, I am talking Milton Friedmanite monetary expansionism.

    Utopia and idealism are great, maybe gold would work in Mary Had a Little Lamb-Land. Milton Firedman thought the gold standard was for idiots.

    In the real world, we need an aggressive, growth-oriented central bank, and need to worry a lot less about moderate inflation.

  25. jj:

    I think the "inflation is theft" concept is wrong. You could say it was theft when the US went off the gold standard, or revalued $/oz, because the promise to exchange a certain amount of gold for a dollar was broken. But with today's fiat currency, who promised you that the dollar would have the same value when you withdraw it? That was your assumption, and a bad one.

    High inflation can cause economic chaos, and I think it's a bad idea. But it's not theft.

  26. Ted Rado:

    I love the way the USG does math. According to them, if everyone dropped out of the job market except one person, and he had a job, they would announce that we have 100% employment.

    Food and fuel are left out of "core" inflation. They have gone up wildly inrecent years. Every time I go to a restaurant, the meal costs more.

    By overweighting things that cost less with time (electronics) the USG claims low inflation. I have not bought a TV or computer for a for a couple of years so that does nothing for me. I thing Josef Goebels would be proud of the USG propaganda machine.

    P.S. My barber just increased his fee by 20%.

  27. diz:

    This one issue, the social security "trust fund", should be thrown in the face of anyone who thinks education will save democracy.

    A simple basic cash flow analysis can prove there is no difference between it existing and not existing.

    And yet the public can not be convinced of its irrelevance.

  28. Brad S:

    Benjamin: how long does it take for 5% inflation to erode the value of a fixed income pensioner's pension to one-half? Pray, continue trumpeting the virtues of inflation; it has no victims.

  29. Leo:

    Inflation, at some rate, is not theft. In fact, the opposite is true. Why? Well, in an increasing population the price of a commodity *should* increase, because there are more people demanding that product. The price of gold should increase, because there are more people now who want it than in 1913. Add to this the fact that worker productivity has increased massively since the old days: this means that labor which use to be valuable fifty years ago is worth less now, merely because it can be done by fewer people, in less time, with less cost to the environment in most cases. Therefore, it stands to reason that a dollar, paid to someone fifty years ago, should be worth less now.

    In order to accurately assess whether we have had too much inflation, we need apples-to-apples comparison. It is not good enough to compare the price of oil in those old days, we have found too many uses for oil, much more people want and use it, and the supply has greatly diminished. The price of milk? I would not drink milk produced in the 20s for an ounce of gold: we'd have to compare the cost in those days of producing a gallon of milk which equals the health, safety, and quality standards of even the average gallon of milk produced today. The price of a car, or a house? A new car you could get in the 70's for 3,000 dollars is outperformed by a used '98 toyota corolla you could pick up on craigslist today.