[Copernicus]

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...That is an impressive prevarication except that congress isn't borrowing money from a third party, they are borrowing it from their own revenues, which qualifies the excercise as nonsense.

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Looking at it another way, government (trust fund account) is lending money to itself (financing other government spending). Let's say the U.S. government decided that it didn't want to have the trust fund money being lent to finance other government spending so the government either borrows from bond investors, cuts spending in kind, raises taxes, whatever to make up for the shortfall. Now the SS surplus can go right into the trust fund. What you want it to sit there in cash wasting away due to inflation? Perhaps it would be better to lend the money to a worthy creditor(s) and get a return on the cash to beat the effects of inflation. If so you'd certainly want to lend the money out to creditors with low to non existent default risk. Probably would want to be careful in lending it to emerging market creditors since many blow up so often (default). Remember Clinton was talking about taking the surplus and putting it in the stock market but then the stock market blew up. U.S. treauries are viewed as having no default risk more or less, at least close to the safest creditor there is. I believe many countries in the Eurozone are running budget deficits so maybe those places would be better options. The government issues non marketable bonds to the trust fund so it's not clear to me the effects of the government defaulting on those. I'm kind of thinking the stock, bond, and the US $ might rally. I think if the government is going to lend money to itself the trust fund ought to receive marketable securities where the government has a vested interest in making those coupon payments and redeeming the bonds.

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A good explanation of why natedogg's so wrong about the government "lending to itself". Its done all the time at the personal level.

Im not sure why you think that special issues are less credit worthy or give the government less reason to "make those coupon payments and redeem the bonds" though. They are a higher priority debt than regular issues, with a guarantee of return of principal prior to maturity if interest rates rise and their value drops below $1. Default on any Treasury security will have the same effect whether its a special issue or marketable...economic chaos (actually the chaos would precede the default).

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Thanks for the info about the nature of the debt owed to the trust fund. My main point though, after thinking about this some, is that given all the possible things that could be done with the trust fund, the safest and most prudent course would be to lend the money out to the borrower with a minimal amount of default risk. That borrower happens to be the Unitied States government. Hoarding cash is a dumb idea, lending it to less credit worthy borrowers is about as dumb, many problems with putting it in stock market(s), lending the money to the Eurozone doesn't seem like a good alternative, etc.

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Absolutely. You sound like an actuary, or do I remember reading that somewhere? Jeremy Gold has written some interesting papers on the intergenerational transfer of risk when a Government retirement plan invests in risky (meaning non-risk free, not those that carry unusually high risk) asset classes. I think one of them was at a Wharton conference, should be able to Google it. i don't agree with him totally, because there are 4 elements of total return, the risk free rate, the inflation premium, the risk premium, and productivity (the extra return inherent in equities over and above the risk premium..Dcifrthis describes this better). Gold would strip everything down to the risk free rate, the inflation and risk premiums have the offsetting inflation and risk, but he forgoes the last element, which is costly for all generations.