The Social Security Trust gets paid less interest than long term Treasury bond holders.

Social security actuaries predict the OASI 2.4 Trillion dollar trust to increase to a range of 3.5 to 4.8 Trillion by the end of 2019. The intermediate projection is that the trust assets will fall below 2.4 Trillion in 2033. Rather than issue Treasury bonds to mature in 2033 or later when the present day principal is predicted to be needed the US Treasury has for decades annually reinvested the Social Security trust to maintain an 8 year average maturity.

The interest rate computation is determined by statute "equal to the average market yield on all marketable interest-bearing obligations of the United States that are not due or callable (redeemable) for at least four years."

But the statute requirement to have the maturities fixed with due regard for the needs of the funds has been honored with neglect.

This has reduced the potential Social Security trust assets in two ways. First the Treasury bond interest rates for the 8 year average maturity have been at times lower than buying 20 or 30 year maturities. Secondly those higher rates were not locked in for the longer maturities. . . .

The first deficiency is most pronounced when the yield curve is positive and longer maturities have a higher yield than short term maturities. For example on June 30, 2009 the Treasury issued 282 Billion in bonds to OASI at 3.25 percent while the 30 year bond yield was 4.32 percent. In recent years this has had a large effect in 2003, 2004, 2008, 2009, and 2010.

If for just the last 21 years the trust had invested at market rates at 20 to 30 year maturities, then the trust would have received more than an additional 24 Billion dollars in interest in 2009, 142 Billion instead of 118 Billion.

This does not make or break Social Security solvency, but the shortfall magnitude in 2009 was about half a percent of the 5.2 Trillion a year in wage income subject to FICA. The Treasury has the option to sell public marketable securities to the trust. The Treasury should do the fiduciary duty and roll over the 165 Billion a year from maturing bonds and over 100 Billion in interest into high yielding, longer maturities. But that would mean the "public" debt would increase, the IMF and the Federal Reserve Board would report it, and there would be no question that the "lock box" had the same claim on the US government as foreign non tax paying Treasury bond holders.

Meanwhile when they ask the Social Security trust to pay for the deficit, we can answer "we already gave at the Treasury".

greengiant

greengiant

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