Prof. Michael McConnell on the Debt Ceiling and Social Security

Prof. McConnell has a post on this at the Hoover Institution’s Advancing a Free Society blog. An excerpt:

As recently explained in much more detail by legal scholars Mark Scarberry and Nancy Altman, and by the aptly-named Thomas Saving, a former public trustee of the Social Security and Medicare Trust Funds, in an op-ed in the Wall Street Journal, reaching the debt ceiling will not affect the ability of the Social Security Administration to pay its obligations.

The Social Security trust fund holds about $2.4 trillion in U.S. Treasury bonds, which its trustees are legally entitled to redeem whenever Social Security is running a current account deficit. Thus, if we reach the debt ceiling (which I continue to think is a remote prospect, even if less remote than it seemed a week ago), this is what will happen. The Social Security trust fund will go to Treasury and cash in some of its securities, using the proceeds to send checks to recipients. Each dollar of debt that is redeemed will lower the outstanding public debt by a dollar. That enables the Treasury to borrow another dollar, without violating the debt ceiling. The debt ceiling is not a prohibition on borrowing new money; it is a prohibition on increasing the total level of public indebtedness. If Social Security cashes in some of its bonds, the Treasury can borrow that same amount of money from someone else….

President Obama is therefore wrong when he says that failure to raise the debt ceiling might result in not sending out Social Security checks. Many bad things might happen, but not that.

I know nothing about the subject myself, but I have great confidence in Prof. McConnell’s work.