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Thank you for the detailed response; I am not sure how to take your paragraph 3 - it seems to me that the Treasury would need to get cash from somewhere to give to SSA when SSA redeems a security, and that the reason it couldn’t guarantee payment is that they didn’t have cash on hand and needed to sell new debt to make payments. If it is truly pay-go, then it is a double-curse - not only did the previous surpluses hide government deficits, but, now that it is going negative, it will exacerbate the deficit.

“Thank you for the detailed response; I am not sure how to take your paragraph 3 - it seems to me that the Treasury would need to get cash from somewhere to give to SSA when SSA redeems a security, and that the reason it couldn't’t guarantee payment is that they didn't’t have cash on hand and needed to sell new debt to make payments.

If it is truly pay-go, then it is a double-curse - not only did the previous surpluses hide government deficits, but, now that it is going negative, it will exacerbate the deficit.”

Sorry to be late in responding. Been on vacation. The government gets cash from people paying FICA tax. Since the 1980’s, the cash received has been enough to pay the retirees with money left over.

That extra is used to purchase the special issue bonds. Those bonds can be redeemed when the Treasury needs more money than the current cash received to pay retirees.

The government can not run out of cash, because they have the ability to print it. The USA is unique in this regard, because we are the world's reserve currency. Our monetary policy, and printing has a big impact on our citizens and other countries. Still, until another reserve currency is set up, we can not default on the debt. We can just print money.

So we are paying our creditors back with a devalued dollar. Another thing that is saving us is that so many other countries are even worse than we are. Hence people have stayed in safe haven Treasuries.

I am not an expert, and don't understand all this as well as I would like. It has been more than 30 years since I studied this stuff in college.

The payment of these bonds is not so different that redemption of any other government securities. We pay it with fiat money. It is not backed by gold or anything else other than the faith the world has in us.

That is why it was so irresponsible of Obama and the Treasury Secretary to run around talking about a possibility of default, instead of government shut down.

Of course, some people believe that this is a deliberate move to cause the world to lose faith, so that a global currency can be established to replace the dollar.