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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: KyrosL who wrote (114283)7/24/2001 5:01:18 PM
From: Don Lloyd  Read Replies (2) of 436258
 
K -

Don, I thought the SS trust fund holds Treasury IOUs, and those are equivalent to the publicly owned US Treasury securities. So, I don't understand the contention that these assets are not real. If the government defaults on the SS IOUs, it will simultaneously default on the publicly owned Treasury IOUs. In that sense, SS trust fund assets are much less risky than a basket of stocks, corporate bonds and real estate.

What you're missing is exactly who is responsible for redeeming those IOU's. The answer is that YOU are. The only way the government can pay its SS obligations is by borrowing, taxing, inflating or reducing benefits.

When the SS Administration needs to send out a check in 2050, one way is to borrow money by selling new treasury debt. It can do this without being either benefited or hindered by anything that exists in the Trust Fund. The same thing applies to new taxes. Inflation can be used to both increase the nominal amount of taxes received and reduce the purchasing power of the SS payments, but this hardly solves anything.

The IOU's in the trust fund do nothing more than say "yes, we really mean it" WRT the Government's obligation to pay out SS checks. The Trust Fund could either be zeroed out or have its interest rate increased to 100% per day, without even a penny's effect on the Government's ability to pay its SS obligations.

Regards, Don
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