Robert Reich - On October 22, 1985, Treasury Secretary James A. Baker III told congressional leaders that if Congress failed to raise the debt ceiling by the end of the month, the Reagan administration would pay the nation’s bills by taking back Treasury securities in which Social Security had invested. I remember being stunned at the time. It was an extraordinary move. It meant Social Security would lose interest paid on its funds.
If Congress still didn’t raise the debt ceiling, Baker said the administration would borrow from the railroad retirement and military retirement trust funds. And if the impasse continued, the administration would begin selling gold from the U.S. gold reserve “even though that could undercut confidence here and abroad based on the widespread belief that the gold reserve is the foundation of our financial system,” Baker said.
Baker’s point was that the Reagan administration would continue to find ways to pay the nation’s bills, come hell or high water. An agreement was finally reached after the Reagan administration had begun raiding Social Security but before it took any other measures.
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