I have to admit, I'm not a fan of the "Trust Fund" and tend more to the side that views it as a pile of IOUs that will have to be paid for with tax increases, budget deficits, government bonds, or funny money. And, I'm rather bored of talk about the "Trust Fund."
That said, here's something that I see as a distinction between ordinary U.S. Treasury bonds and the special issue bonds held by the "Trust Fund."
Ordinary Treasury bonds and the interest rates they pay offer a true reflection of the ability of the United States to get actual people and actual companies to trade actual money for them.
Social Security's special issue bonds are not marketable to anyone other than the U.S. Treasury. The interest rates they "earn" may reflect the interest rate derived by ordinary bonds but they themselves are not a part of the market forces that determine those rates. Social Security's special issue bonds don't reflect the interest rate at which actual people and actual companies will pay actual money for them.
If, when the time comes to redeem these special interest bonds, the choice (only choice) is to issue real bonds - ordinary marketable Treasury bonds - we may well find that actual people and actual companies don't want them at any reasonable interest rate. This will be particularly true if capital is strapped because we're facing all of the problems of an aging consuming population, a decreased productive workforce, and a slow growth economy.
