On the question whether the current budget impasse might lead to a default that, whether justiciable or not could be seen as violating section 4 of the 14th Amendment, Jack Balkin quotes Bruce Bartlett's testimony:

"Finally, on Social Security, I have heard it said that the payment of benefits is never a problem as long as there are sufficient assets in the Social Security trust fund to pay them. The problem is that the Treasury securities in the trust fund are not marketable. If the Treasury lacks the cash to redeem the securities itself there is no practical way of obtaining the cash to pay benefits in the event that the debt limit becomes severely binding. That is why back in 1996 Treasury insisted that Congress raise the debt limit sufficiently to cover Social Security benefits or benefits due on March 1 could not be paid. Of course, Congress did so." http://balkin.blogspot.com/2011/07/bruce-bartlett-connects-dots-its.html.

I don't understand what a potential current inability to redeem the bonds held in the illusory Social Security lockbox has to do with their marketability. Why can't the Social Security Administration simply sell the bonds it holds, and use the cash to make payments? The SSA would not need to get the cash from the government via redemption but instead could just sell the bonds on the market. I understand that buyers might pay a lower price for the bonds if they think there is a real chance we will default on the bonds themselves (rather than on paying government workers or contractors etc.). But I think that any discount would be small.

Perhaps someone will know whether the bonds held by the SSA are already considered part of the debt that is capped by the debt ceiling or whether, on the other hand, they aren't (because the government doesn't actually owe the amount of the bonds to anyone else). If they are already counted as part of the debt, then selling them wouldn't increase the debt beyond the debt ceiling. But perhaps they aren't counted. Or perhaps there is a statutory prohibition on sale of the bonds by the SSA.

I know this is a little bit peripheral to the constitutional issue, but the broader context matters.

Mark

Mark S. Scarberry
Professor of Law
Pepperdine Univ. School of Law
Malibu, CA 90263
(310) 506-4667
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