I thought the securities were non-marketable by statue, so that retirees
would not read about principal fluctuations in the business section.

Bert Buzan
Emeritus, CSU Fullerton

On Thu, Jul 14, 2011 at 1:05 AM, Scarberry, Mark <
Mark.Scarberry@pepp...> wrote:

> To add one point:
>
> In a footnote in his testimony (at
> http://www.democraticleader.gov/pdf/BartlettSP7711.pdf, as linked by
> Jack), Bartlett cites to this CRS report:
>
> Congressional Research Service, "Reaching the Debt Limit: Background and
> Potential Effects on Government Operations," Report No. R41633 [
> http://www.fas.org/sgp/crs/misc/R41633.pdf] (June 3, 2011), p. 22.
>
> It may answer my questions, but I haven't gotten all the way through it and
> probably won't in the next couple of days.
>
> The report does include this statement, at page 4:
>
> "In September 1985, the Treasury Department informed Congress that it had
> reached the statutory
> debt limit. As a result, Treasury had to take extraordinary measures to
> meet the government's cash
> requirements. Treasury used various internal transactions involving the
> Federal Financing Bank
> (FFB) and delayed public auctions of government debt. It also was unable to
> issue, or had to
> delay issuing, new short-term government securities to the Civil Service
> Retirement and
> Disability Trust Fund, the Social Security Trust Funds, and several smaller
> trust funds. In
> particular, new Treasury obligations could not be issued to the trust funds
> because doing so would
> have exceeded the debt limit."
>
> If issuance of bonds to the SSA trust fund would have increased the public
> debt so as potentially to breach the debt ceiling, as this quote says, then
> selling SSA-held bonds to investors would not increase the public debt; the
> amount of the bonds issued to the SSA trust fund must already be included in
> the total debt. The funds raised by the sales could then be used to fund
> government payments, such as social security payments.
>
> Imagine actually using the bonds in the Social Security trust fund to
> provide funding for social security payments!!!!!
>
> This quote from page 3 of the report suggests that the government has sold
> SSA trust fund bonds at times; the report uses the term "disinvest," which I
> take to mean "sell":
>
> "Past Treasury Secretaries, when faced with a nearly binding debt ceiling,
> have used special
> strategies to handle cash and debt management responsibilities.[fn 12]
> Since 1985, these measures
> have included:
> * suspending sales of nonmarketable debt (savings bonds, state and local
> government series, and other nonmarketable debt);
> * trimming or delaying auctions of marketable securities;
> * under-investing or disinvesting certain government funds (Social
> Security,
> Government Securities Investment Fund of the Federal Thrift Savings Plan,
> the
> Civil Service Retirement and Disability Trust Fund, Exchange Stabilization
> Fund); and
> * exchanging Treasury securities for non-Treasury securities held by the
> Federal
> Financing Bank (FFB)."
> ------
> Fn. 12: "For example, see archived CRS Report 95-1109, Authority to Tap
> Trust Funds and Establish Payment Priorities if
> the Debt Limit is not Increased, by Thomas J. Nicola and Morton Rosenberg
> (available from CRS upon request)."
>
>
>
> I suppose that CRS Report 95-1109 might answer the question more
> authoritatively. I couldn't find it on line, not even on the Open CRS
> website.
>
> Mark
>
> Mark S. Scarberry
> Professor of Law
> Pepperdine Univ. School of Law
> Malibu, CA 90263
> (310) 506-4667
>
>
> -----Original Message-----
> From: Scarberry, Mark
> Sent: Thursday, July 14, 2011 12:35 AM
> To: conlawprof@list...
> Subject: Possible US Debt Default Issue
>
> 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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