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Response to meti57b (Reply #18)

Wed Nov 14, 2012, 06:35 PM

40. I Know People Say That, Meti57b,

but as far as I can tell, that argument shows a fundamental misunderstanding of what a bond is and should be completely disregarded.

Corporations or government entities issues bonds in order to borrow money. The money is always spent -- that's why bonds are issued. Regardless of the reason, the bond is an asset. It is generally safer than stocks or most investments. The Social Security fund has a surplus of over $2 trillion of these bonds.

Whatever Congress spends for defense, medicare, or any other purpose is irrelevant. The bonds are in the rough equivalent of a pension fund and earmarked for Social Security shortfalls that will occur as the baby boomers retire. Theoretically, the Social Security fund could trade them for corporate bonds or bonds of other government entities, but they buy Treasury bills in order to reduce risk. In hindsight, it's not too bad a trade.

Any Chief Financial Officer that invested the pension fund in company bonds and then tried to tell retirees or other bondholders "Oh, those bonds we issued? We spend that money on a factory" would be summarily laughed off the stage, fired, sued, and end up in jail. It's an utterly ludicrous argument to anyone with any knowledge of financial instruments. It appears to be designed to impart a sense of sophistication to those ingenuous enough to trust their sources, repeat that line to others, and build up a consensus for cutting Social Security.

If that happens, I really don't know what would happen to the bonds in the trust fund. They won't evaporate and can't be used for anything else. If there is an attempt to appropriate them, it would have to be voted on by Congress. In that case, the only justification i can think of would be: "But the pension fund was just sitting there!"

As far as "worthless promises to pay it back," the behavior of bondholders (primarily the very rich and pension fund managers) indicates that the "promise to pay it back" is held in higher regard than virtually any other government or corporate entity.

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LineLineLineReply I Know People Say That, Meti57b,
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