Jack objects to a point I make in this post. According to Jack I am mistaken to claim that U.S. Treasury securities held by the U.S. Social Security Administration are not genuine assets held by the S.S. Administration. Says Jack:
The United States Government has never defaulted on any of its debts. This means that it will pay those debts to Social security when those come due.
From this true fact Jack draws a faulty conclusion. Jack does not understand that Uncle Sam’s creditworthiness is not the issue.
I have never – not once – defaulted on any of my debts. But this fact does not mean that if I write an I.O.U. to myself for, say, $100,000 and stick that I.O.U. in my desk drawer that I then have on hand in that I.O.U. an asset worth $100,000. In fact, that I.O.U., for as long as it is owned by me, is worthless because, while I might in the future go through some formal process of redeeming that I.O.U. in full, I will do so only by transferring to myself $100,000 from myself. To count this I.O.U. as among my assets in a way that suggests that it enhances my future ability to purchase things or to repay other loans is absurd.
If you doubt my claim that that I.O.U. held by me is worthless, ask yourself what would happen to the net present value of my wealth if I took a match to that I.O.U. and burned it. Clearly, my net wealth would be unchanged. While I no longer have a document entitling me to receive from me $100K, I also am no longer under any obligation to pay to me that $100K.
There might be, under a variety of circumstances, sound bookkeeping reasons for me to write an I.O.U. to myself and to formally redeem it when it comes due. But under no circumstances does such an I.O.U. written to myself and held by me represent a genuine asset.
