>>>>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.
That is technically true. But what difference would there be if these same bonds were issued on the open market, and the SSTF then bid on them in that market. The exact same amount of increased demand and incresed supply. Maybe a couple of basis points one way or the other. No practical difference. And the 'govt' becoming 'demand competition' in the capital markets, which I'm sure many would be suspicious of (can you say 'fix the auction'). The rates on SSTF bonds are set by the weighted avg of the free capital markets.
>>>>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.
A lot of things wrong with this. The bonds are not marketable for a variety of reasons. First, the Congress did not want the SSTF trustees (beauracrats) having the capability to effect the private capital markets by trading bonds at their whim. Secondly, it is required that SSTF investements be guaranteed by the Feds, which doesn't leave much to trade for. Thirdly, since the gov't knows the needs of the SSTF, they can tailor bonds for their specific needs. Indeed, the SSTF can cash in bonds before maturity, if finances dictate.
Contrast that with a normal marketable Treasury security. The market for such is everybody in the world (6 billion plus). How can you tailor bonds to such a market? You can't. Instead, you make the bonds marketable. Nobody can cash in their bonds before maturity, but they can trade on the secondary market. They can choose to invest for capital gains (risky) or for the interest paid (safety). Nothing sinister about the lack of marketability in the SSTF.
>>>>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.
But of course, what you fail to mention, is that we would be in the exact same position without the SSTF. That would have been public debt instead which would have to have been paid off at maturity or rolled over. And since the govt can project when the SS funds will be needed, they can tailor the other Treasury auctions between now and then (using how much is auctioned at which 'maturities') to smooth out the bump. Can't do that with 'public' debt cause you don't know when 6 billion people will want to spend the money or rollover. And all the projections now are for drastically lower public debt as a percent of GNP than we have today (and especially what we had in the 80's). Indeed, there may be a pent up demand for super-safe Treasury Securities. Nobody can predict the future, but those are the current projections.
