The Social Security Trust Fund Is Worthless: National Review Online

John Hood at National Review Online writes:

"Ramesh: you are being, if anything, too charitable to Brad DeLong on the point of the nature of the IOUs in Social Security. He is right to point out that, on some level, any financial security is an IOU. It represents a claim on future income. Thus it represents, inevitably, an asset for the payee and a liability for the payer. If the payee and the payer are the same person, it represents precisely nothing. The fact that the federal government always pays its debts, and thus federal bonds are a popular security, is entirely irrelevant. A private person with excellent credit who everyday filled a box with IOUs for a Christmas-present fund would, when December rolls around, be no better off that if he hadn’t bothered to do so."

Let's see what this seems to be saying:

1. The Social Security Administration has purchased U.S. Treasury bonds and apparently has about $1.335 TRILLION currently in asets.

2. These assets, consisting largely of Treasury bonds have no value, because the U.S. Government "owes" this $1.335 trillion to itself.

3. So the U.S. Treasury has no obligation to redeem these bonds from the Social Security Trust Fund when they come due.

4. Or, in other words, it's OK for the U.S. Treasury to default selectively on its obligations.

Now, don't you the Central Banks of China and Japan, to say nothing of the private holders of U.S. Treasury obligations are gonna be happy if that becomes official U.S. government policy, instead of the, well, misconceptions of the folks over at National Review?

UPDATE: PGL at Angry Bear is also on the case.