RE: Fictional Government Accounting-Answer to James(2)

[James <jamesk_51@hotmail.com>]

>From: Andre Dermant

>>>>The key difference between the Social Security Trust Fund owning special obligations redeemable only by the US Treasury and General Motor pension fund owning Government Bonds is not who owes the money but the kind of bonds and WHO OWNS THE BONDS. In the first case, the Trust Fund must sell the obligations to the Treasury which must find the money somewhere; in the second case, General Motor can sell the Bonds on the open market to anyone. The Government must find the money to pay for these bonds only when they mature. 

Well, of course there is a difference in WHO OWNS THE BONDS.  Yes, I think all the posters recognize a difference between SS and GM!  And the TF doesn't 'sell' the obligations to the treasury, they 'redeem' them at maturity (or before maturity if finances dictate).

But indeed, for the bonds GM holds to have any value to themselves or a potential purchaser, they must believe that the gov't can and will find the money to pay the interest and redeem the bonds at maturity.  Indeed, there is no practical difference in the two scenarios, although you seem to want to cling to that idea.  The gov't owes .7 trillion to the SSTF and 3.7 trillion to the public (including the GM pension fund).  Which bondholders should be more nervous?  The US Treasury securities are the safest in the world! 

>>>>Of course all these bonds are paper assets; but I was only trying to clarify the discussion by showing that the "assets" of the Trust Fund are backed only by your and my taxes. 

Indeed they are, because it was on behalf of the income tax payers that the general fund borrowed the money from the SSTF for general fund expenses, promising that the INCOME TAX PAYERS would redeem such bonds in due course!