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Yes, you’re right.

The problem is that the SS fund had all this surplus cash.... and the question becomes “OK, what do we DO with this cash?”

Well, they could leave it as cash, returning 0% yield, and suffer the effective negative return of inflation.

Or they could invest it in something.

Now things start going sideways, *fast*. How do you “invest” this surplus from this regular income stream and not distort some debt issuance? To be as “safe as possible,” you can’t invest it in private sector debt, or stocks, or even state debt.

Because of the size of the funds involved, there’s no way you could invest it in a great many things without causing a bubble.

But as you say, all Ponzi schemes collapse. This one’s collapse is being accelerated by the size and persistence of the US budget deficit.

“How do you “invest” this surplus from this regular income stream and not distort some debt issuance? To be as “safe as possible,” you can’t invest it in private sector debt, or stocks, or even state debt.”

I must be missing something. If you had invested this in a stock index fund, how would that distort things? True, it would have increased aggregate investment in the stock market, but had this been done from the get-go, there would have been a slow and steady increase, followed by a slow and steady withdrawal. Again, unless the Feds tried to pick winners or losers, I don’t see a big downside in this approach.

Admittedly, it would be even better if we’d started off with individual accounts and let everyone make their own independent decisions about where to invest. But note that the latter would have changed the mix of investments, but not the aggregate amount. So any alleged problem associated with the sheer size of this investment pool presumably would occur even if every SS recipient had invested on their own. As I say, I don’t see the downside.