Subject: Mr Reischauer and SS "Special Obligations"
In his message entitled: "Some Reaction to a few of the Comments" no. invest/msg00088, Mr Reischauer says:
"Under current law, we require that Social Security reserves be invested in special Treasury securities which have a relatively low yield".
This is not accurate. The law says that the Trustees may invest the Trust Fund surplus in normal government obligations or special obligations.
These special obligations have the advantage that there is no market risk, in the sense that the Treasury must buy these obligations at face value whenever the Trust Fund needs the money. This means that the value of these obligations does not vary with changes in interest rates.
The interesting thing is that the Trustees kept investing in special obligations during the 80's and early 90's when interest rates kept going lower and lower from high levels. If the Trustees had invested in regular Government obligations, the Trust Fund would have been able to sell these bonds with gigantic profits. I have written to the SS actuaries and I was never able to get an answer to this crucial question.
