Social Security Trust invests in Spanish debt – just kidding

From the January 4, 2013 Wall Street Journal

MADRID—Spain has been quietly tapping the country’s richest piggy bank, the Social Security Reserve Fund, as a buyer of last resort for Spanish government bonds, raising questions about the fund’s role as guarantor of future pension payouts.

Now the scarcely noticed borrowing spree, carried out amid a prolonged economic crisis, is about to end, because there is little left to take. At least 90% of the €65 billion ($85.7 billion) fund has been invested in increasingly risky Spanish debt, according to official figures, and the government has begun withdrawing cash for emergency payments.

Does the above sound familiar?

It should because this is exactly what the U.S. Social Security Trust does (or did – there is no longer excess revenue from payroll taxes to invest in Treasury bonds). Granted, the United States is not Spain (yet) and our national debt is eons less risky than Spain’s, but keep in mind that the promises of Social Security are directly and solely linked to the payment of interest and in a few years, the redemption of Treasury bonds that the Trust purchased from the U.S. government. The government immediately spent the proceeds of those sales on all kinds of stuff – you know, like the community grants of $17 billion included in the “Sandy relief” $60 billion legislation.