K-12 tax & $pending climate: “The trust fund is filled with worthless paper, so emptying it out will have no effect”
The true problem is the accumulation of ever more federal debt to provide revenue to allow the trust fund to redeem its claims on the Treasury. As total baby boomer benefits payments mount, the Treasury has had to issue bonds at an accelerating rate. This is why it only took 260 days to go from a national debt of $34 to $35 trillion a few weeks ago.
In the absence of significant reform, growing shortfalls will have to be covered by evermore newly issued debt or monetized debt. In either case, the effect on long term interest rates will be the same: they will rise from either increased demand in the credit market arising from additional federal borrowing or, if the Fed decides to monetize these new debt instruments, decreased supply in the credit market arising from creditors requiring a premium for expected inflation.
This latter effect arises because creditors will only buy a bond if its price is low enough to ensure a return that is high enough to protect the real purchasing power of their investment. This phenomenon is what economists call the Fisher effect.
