If The Debt Ceiling Isn’t Raised, Obama Will Raid Social Security

Wednesday, November 10, 2010
By Paul Martin

Joe Weisenthal
Nov. 10, 2010

In a column at RealClearMarkets, Josh Barro cuts through the hype about the debt ceiling, and walks through the options the government has available to it in the event that Congress drags its feet (or refuses) to raise it.

A key option regards a raid of entitlements:

The most financially promising of those options would be to “disinvest” government trust funds that hold Treasury debt, most principally the Social Security Trust Fund. Essentially, the trust funds would redeem bonds they hold ahead of schedule, in exchange for a promise to be paid back later — and such an IOU would not count against the debt limit. Because the trust fund balances exceed $2.5 trillion, this tactic could be used to run the government for several years without hitting the debt limit.

This tactic works because the debt limit applies to gross debt, including trust fund holdings, which are debts the federal government owes to itself. The government’s true indebtedness is better reflected by net debt, also called Debt Held by the Public. By reducing the amount of debt that the government owes to itself, the federal government can grow the net debt while staying within the gross debt cap.

The Rest…HERE

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