Let's try this again: No, Social Security is NOT insolvent.

[econoclast]

16. Define "insolvent"

The OP is correct in almost everything he said 2 points however....

1.) Technically .... Insolvency is defined as not having the capacity to pay all ones debts.

So, if things remain unchanged, SS will be insolvent in something like 15 years. If I remember correctly the trustees project that somewhere around 2026 there won't be enough funds to meet all obligations. They'd have enough to pay out at 75% of projected benefits. SS is not insolvent ... YET. But that day is near.

2.) The SS Trust Fund indeed has 2.6 trillion dollars worth if US Treasuries in it. The OP's analysis is spot on.

But how do those securities get turned into cash that can be paid out as benefits?

To turn the 2.6 trillion in assets in the SSTF into the cash needed to make future payments, those assets have to be redeemed. Which means that, since the government seems likely to continue running budget deficits, to get that cash the government will have to borrow an additional 2.6 trillion dollars in the market. That is an additional 2.6 trillion on top of what they need to borrow to cover the annual budget deficits.

Seeing as how we already owe 14, 15 (is it 16 yet?) trillion dollars, the question is this .....is there a limit to how much the US can borrow at reasonable interest rates?    Is the well bottomless?     And if it is not,    What will interest rates have to be to attract enough cash to meet our future borrowing needs?

In a sense, the current crisis atmosphere around the world plays into our hands as it increases demand for Safe assets.    And nothing is safer than US treasuries.    So the "flight to quality" helps keep rates down and US borrowing costs relatively low.    But the crisis atmosphere abroad won't last forever.     What happens to demand for US Treasuries when the Euro is "safe" again?