Originally posted by: glenn1
For sake of argument, let's say Congress decides to abolish Social Security effective immediately. Therefore there are no future SS obligations, and therefore the Special Issue T-bonds in the SS Trust fund have no value as they represent a claim on future cash streams. Special Issue bonds aren't an asset, they're a recognition of a future liability.
If it makes it easier to wrap your mind around, think of Special Issue T-bonds as post-dated checks. Writing a post-dated check doesn't somehow magically create the money to pay itself, it just makes it so you can account for the future obligation today in your check register so you can plan around it. If I drain all the money out of my checking account, I'll still need to come up with the money to pay the post-dated check when it's presented. The check doesn't have any value today, it's represents value payable when the liability comes due (the post-date).
Now let's say that future liability goes away - there's no reason for the post-dated check to exist since there's no longer a future obligation to pay, it becomes "worthless." Note that just as no value was created when you wrote the check, none gets destroyed if you rip up the check.
Therefore the President is correct, although he's intentionally using rhetoric to muddy up the waters, making it sound like all Treasury debt is at risk when it's not. I understand not wanting to create needless complication, but this is something which could and should be explained clearly.
