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Response to padfun (Reply #36)

Mon Apr 16, 2018, 05:27 PM

43. Depends on what you're doing.

It's part of the budget. But it's not part of the discretionary budget because, well, it's mandated.

It's not funded by general revenue streams because it has dedicated funding. And while it's self-sufficient, it has pretty much zero effect on the deficit at present. It's not really socking away excess money, it's not really drawing from the trust fund. Much of that status is because of the interest it earns on the trust fund, though.

If you consider the trust fund, then in a sense when the trust fund is liquidated to provide cash for paying OASDI, it won't increase the deficit. It's already debt, after all. On the other hand, currently the money is held in the form of special issue treasury notes that can only be held by the government, and pay an interest rate that doesn't affect the t-bill market--their borrowing doesn't affect the interest rates or demand for general-issue treasury notes. When the trust fund is drawn down, the special issue treasury securities will be bought using general revenues--but since we're running a deficit, that money will be promptly borrowed on the open market. In other words, as we redeem the trust fund, we will have larger sales of general-issue treasury bills, which may drive up the interest rate for those bills. And that would increase the deficit, because that interest increase wouldn't be for just the new debt, but for all outstanding debt that's redeemed and reissued.

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LineLineNew Reply Depends on what you're doing.
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