The OASDI funds and Medicare trust fund are a source of confusion for lots of people. Even for an open minded non-partisan person intragovernmental debt holdings are fairly unintuitive. I have a good grasp on the fact that surplus revenue collected by Social Security and Medicare are invested in US Treasury debt, which they then hold as income generating assets.
What I don’t understand is what the reason is they’re required to invest in non-marketable treasury obligations. To be clear, I’m asking about marketable vs non-marketable treasury obligations only - not why it can’t buy investments that aren’t backed by the full faith and credit of the US. I’m clear on that.
But why do they have to be non-marketable? I can see that in 2012, the trust funds own so much debt that they couldn’t switch without drastically influencing the market, so I’m asking about early on.
The obvious benefit is that by buying direct from the treasury the government has that cash available for spending. But I have a hard time understanding how that doesn’t increase the debt burden as if they were part of the general budget.
In other words, am I misunderstanding anything major? If we went back to the beginning and ordered entitlement trust funds to invest excess revenue in US treasuries purchased on the open market, wouldn’t our public debt be drastically smaller and the trust funds exactly as well funded?
This is just a guess, but I suppose it might have been set up that way so the trust funds would not be bidding against (comparatively) tiny private investors for treasury securities.
At one time, the trust funds did own marketable securities. Congress changed it because the securities have certain unique features as to coupon dates and interest rates, and it was easier to create a special category of customized securities rather than buy marketable securities apporpiate for the general public.
To the OP–this has no impact on the national debt. Both marketable and non-marketable securities are considered part of the national debt.
The trust funds represent a special category of national debt, not because they are non-marketable, but because they represent money owed by one part of the government to another part. They represent an asset to the government as well as an obligation. For this reason, analysts sometimes speak of “debt owed to the public” as a more meaningful measure of government indebtedness.
Note, however, that in another sense the national debt is understated relative to entitlements, even when stated inclusive of the trust funds. The trust funds are a proxy for money owed to future entitlement beneficiaries, and the amount owed is much larger than the trust funds. These entitlements (mostly Social Security and Medicare) are not legally binding and could theoretically be changed, and thus are not counted as part of the national debt, but they are very real and a “default” on those entitlements will be every bit as painful as a default on actual Treasury obligations.