Toro
Diamond Member
They are also referred to by S.S. as Special Issue Treasury Bonds. They are not marketable because the fund is not allowed to sell them. This does not mean they have no value. They have a face value payable at maturity like any other bond. Private placement bonds used by businesses, large and small are not marketed but that certainly doesn't mean they lack value.If by lock-box, you mean cash sitting in an account invested in nothing, then no there has never been a lock-box and for good reason. Most of the 2 trillion dollars in assets in the fund comes from interest earned on investments in treasuries bonds. Typically the fund earns 50 or 60 billion a year.
By law social security payroll taxes go to the treasury where benefits checks are issued. Any remaining funds must be deposited in the trust fund. Most of the funds assets are then invested in US treasury bonds and special issue treasury bonds. Any other use of the funds is illegal.
In most years there is sufficient payroll taxes coming in to pay all benefits, therefore as bonds mature, the proceeds are reinvested in order to maximize interest payments to the fund. Once in the 1980's and in 2010 and 2011, payroll taxes were insufficient to cover benefit payments therefor some benefits were paid from the fund. The amount was about 2% of the fund in 2011, less that the interest being earned.
Anyone that says "S.S. is bankrupt" or "there is nothing in the fund" is showing their ignorance.
S.S. has real problems. Very soon S.S. payroll taxes will not be enough to cover the benefit checks so we will start drawing enough from the trust fund to pay benefits. Sometime in the 2030's, not sure of the year, there will be no assets left in the fund. So what will happens to S.S? Benefits will continue to be paid out the S.S. payroll taxes, however the benefits will be reduced by about 25% possibly a bit more. This is the S.S. problem. It has little or nothing to do with the deficit. S.S is considered off budget, so there is no line item in budget to be cut.
Social Security history Frequently Asked Questions
Social security does not own Treasury bonds. Treasury bonds are marketable bonds that can be bought and sold. Social security owns nonmarketable government liabilities that cannot be bought and sold.
According to S.S, there are only two differences between Special Issue Treasury Bonds and Ordinary Treasury Bonds. Special issues bonds can be redeemed at any time by the fund. Unlike ordinary treasuries, the government can not default on these bonds without an act of Congress. This makes the bonds safer from default than ordinary treasuries.
BTW I think a lot people are unaware that the S.S. trust fund is only 1 of 18 trusts managed by the treasury with a total asset value of 2.5 trillion. To my knowledge all of these funds are invested in US debt. These are just 18 of 230 government trust funds. The other funds are not managed by the treasury and there is little information on the Net about them. I think one of them is an Indian trust fund but I haven't found anything else. I wonder what these funds might be.
I know, I realize all that. I have this argument all the time with people who say there is no trust, or SS is broke, etc. But the bonds don't really exist in the tangible sense. They are accounting entries that are credited and debited to the accounts as if they were real Treasury bonds. The liabilities are real in the sense that they are claims on the US government, but as I understand it, there are no identifiers such as CUSIPs which identify each bond separately. They are conceptual. Of course, most securities no longer exist in the true tangible sense, i.e. bearer bonds, but at least they can be identified and traded.