by Bruce Webb
Well this is a response to a question in the Rivlin thread. There are widespread misunderstandings about what if anything makes up the “IOUs” in the Trust Funds, with many people thinking they just have artificially low rates (and so obviously underperforming theoretical private accounts) or just are open-ended loosey-goosy commitments to maybe pay the money back someday. Well that is not how it works at all on a monthly basis. So with no further ado here they are:
As always click to enlarge. Some notes under the fold.
First thing to notice is that these are the assets of the OASI or Old Age/Survivors Insurance Trust Fund, there is an entirely different set of assets in the DI or Disability Insurance One.
Second thing is that there are a range of yields from Certificates as low as 2.750% and Bonds as high as 7.250% with maturities ranging from 2008 to 2022.
Third is that this table gives you a snapshot of two moments in time, year-end 2007 and year-end 2008. A slot marked by “–” in the 2007 column indicates a bond that was issued in 2008 and so obviously did not exist in Dec 2007, similiarly a slot marked by “–” in the 2008 column indicates a bond category that was redeemed during the course of the year
Okay some observations. The instruments with the lowest rates were mostly issued in 2008, which is perfectly in line with the yields in Regular Treasuries in that time period. Contrawise the ones with the highest rates represent mostly 10 year bonds issue eight or nine years ago, once again in line with market conditions then. Note too that with one except every slot that shows zero in 2008 after showing a positive number in 2007 has a face maturity of 2008, these bonds matured and were honored by Treasury, no muss no fuss, just the same kind of routine re-financing you see in the Regular Treasuries.
But there was one interesting exception, the Treasury also redeemed the 3.500% 2009 a year ahead of time, which points out two facts, one that these securities are redeemable at any time, while as we see they are typically held to maturity, in a time of need the Treasury can and will tap them, and too that the Treasury at least in this case did so in the way that best preserved the fiscal health of the Trust Fund, presumedly they could have saved some interest by cashing in the remaining 7.000+% bonds instead.
The Social Security Trust Funds are not investment funds, that is not their purpose, but neither are they simple slush funds designed to separate out workers from their wages. I argue a times that there is something odd about certain details of the actual reporting, but as to daily operations and general management the Trustees have over the years lived up to their titles.