>>>>First, it helps to understand what an investment is. An investment is an instrument for wealth creation. Investments typically take two forms: bonds and equities. A bond is a loan with a promise of payback of principal + interest. An equity is ownership of the enterprise, which entitles the owner some part of the future earnings.
So far, so good. But I hope you don't overlook the fact that the purchaser of a bond is trying to create wealth for himself, regardless of how it works out for the issuer. He is looking out for his own self-interest.
>>>>Now, the next question to ask is, are government bonds investments? They are in fact bonds, similar to what can be found in the private sector. However, few people would call these government bonds investments.
You missed that by a mile. Many people see gov't bonds as an investment. They are getting interest and safe return of principal. Ask GM about their pension funds. Ask any mutual fund company.
>>>>When anyone loans money to the government, they are expecting future repayment of the principal + interest. Where does the government get the money to pay the interest? The government can only pay the investor back through taxation or more borrowing.
So what? As long as the investor gets his, that is what he is concerned with. His taxes will be no different if it was his neighbor who purchased the bond instead of him, or the GM pension fund, or a citizen of Japan. That is not part of the decision to purchase a gov't bond.
>>>>Therefore, since all excess FICA taxes are invested in government bonds, it follows that future tax increases would be required to pay back the bonds with interest.
No, it doesn't follow at all. The gov't bonds (and the future tax liability) will be there whether they are issued to the SSTF or Joe Blow. The obligation is due to the BORROWING, not excess FICA taxes.
>>>>Since there are currently FICA tax excesses, the overall debt of the government continues to increase as well as the interest payments.
Boy, you really do have a lot of problems with basic economic concepts. Debt comes from excess spending, not excess tax receipts. If the general fund comes into balance in the next few years, you will realize that we will still have excess SS taxes, but the total debt will NOT increase. The SSTF will hold more debt, but by reducing public debt, not burdening future taxpayers.
>>>>Ask yourself which of these options would you prefer?
>>>>* Invest FICA taxes in government bonds. The bonds are paid off from future taxes. The money loaned to the government would pay for increased government programs.
>>>>* Invest FICA taxes in the private sector. The money loaned/invested in the private sector would create more businesses. The private sector investments would pay the owners/bond holders back through wealth creation.
You still miss the point that no new businesses would be created. For every dollar that currently offsets deficits by the general fund, the gov't would pull a dollar from the same capital market that creates new businesses. Don't believe me? Try Greenspan:
>>>>Having the trust fund invest in private securities most likely will increase its rate of return, although perhaps not on a properly risk-adjusted basis. But, as I have argued previously before this committee, unless new savings are created in the process, the corporate securities that displace Treasury securities in the social security trust funds must be exactly offset by the mirror image displacement of corporate securities by government securities in private portfolios, probably largely in private funds held for retirement. This swap is essentially a zero sum game.
