It occurred to me last night while listening to a discussion of what might not be paid in the event of a default. Among the suggestions were Social Security, etc.
We know they don't care about the people who depend on SS to live. But are they made enough to default on ALL bonds in order to kill Social Security entirely? Or can they default on specific sectors of debt while still paying others?
The Social Security Trust Fund is counted as part of the deficit so defaulting on it would not only kill the program but reduce the deficit by (according to wikipedia) $2.5 trillion.
This diary is just a quick hit before I go to work. I apologize for the scarcity of research but don't have time for more at the moment.
These [Trust Fund] balances are available to finance future benefit payments and other Trust Fund expenditures â but only in a bookkeeping sense.... They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. The existence of large Trust Fund balances, therefore, does not, by itself, have any impact on the Governmentâs ability to pay benefits. (from FY 2000 Budget, Analytical Perspectives, p. 337)
"http://en.wikipedia.org/wiki/Social_Security_Trust_Fund"
To escape paying either principal or interest on the "special" bonds held by the trust funds, the government would have to default on these obligations. This cannot be done by executive order. The Congress would have to pass legislation to repudiate these particular government bonds. This action by Congress could involve some political risk and, because it involves the financial security of older Americans, seems unlikely.[citation needed]
An alternative to repudiating these bonds would be for Congress to simply cap Social Security spending at a level below that which would require the bonds to be redeemed. Again, this would be politically risky, but would not require a "default" on the bonds.
The week after his State of the Union speech, Bush downplayed the importance of the Trust Fund:
Some in our country think that Social Security is a trust fund -- in other words, there's a pile of money being accumulated. That's just simply not true. The money -- payroll taxes going into the Social Security are spent. They're spent on benefits and they're spent on government programs. There is no trust.[13]
These comments were criticized as "lay[ing] the groundwork for defaulting on almost two trillion dollars worth of US Treasury bonds".[14]