Yoga-nomics - Let them eat cake!

What is astonishing to the writer of the article http://blogs.reuters.com/felix-salmon/2011/01/21/treasurys-astonishing-statement-on-us-default/ is the idea that payments to Social Security recipients should come before payments to US bond holders. But that's what should be done, I think! Some hold the wealthy lenders as having a prior right over the poor and elderly and will cause untold suffering, if they have their way. To their way of thinking, if we don't pay Senior Citizens the consequences are not nearly as catastrophic.


Their policy is "Let them Eat Cake!" 

A more complex and less obvious set of circumstances occasionally occurred in the 1980s, when the advance tax transfer could not be invested in certificates of indebtedness because the limit on Federal debt had been reached and the Treasury was prevented from issuing new debt. Longer-term obligations then had to be redeemed in order to pay benefits. When the Treasury's cash balances became extremely low, these obligations were redeemed prior to the payment of benefits in order to create borrowing authority and use it to borrow from the public the cash needed to make the benefit payments. This practice also enabled the Federal government to continue other, non-Social-Security financial transactions for a longer period than otherwise could have occurred. As a result, the Treasury action was viewed by some as an inappropriate use of Social Security funds and was the source of considerable controversy. In retrospect, however, it was agreed by most knowledgeable observers that Treasury had few options and had taken the best course of action during a very difficult period. http://www.ssa.gov/oact/NOTES/note142.html

We have a situation of sustained low interest rates for Treasuries. This, it seems to me, is a guaranteed way to deplete Social Security faster. If this is so, isn't this the wealthy exploiting the elderly in a form of class warfare?

What is really going on here?
Oh, and the government has borrowed money from Social Security for decades leaving behind approximately $2.5 trillion in IOU's. I'm not sure how much interest is charged on these IOU's...
I've only found one reference to the interest rate that the Social Security Trust fund get's from IOU's at http://www.tscl.org/NewContent/101188.asp

More background at http://en.wikipedia.org/wiki/Social_Security_debate_(United_States)