Treasuries are backed by “the full faith and credit” of the U.S. government. The risk of default on these fixed-income securities is NIL. Not even the safest corporate bond in the world can make that claim. If you’re primary goal is to not lose money, treasuries are for you. When you buy a Treasury Bill, Bond or Note you’ll get your interest payments and you’ll get your principal back.

They are not a risk-free. There are, in fact, two very clear risks to holding Treasuries.

Inflation risk.

If inflation rises, the value of your investment may decline. Consider, for example, that you own a Treasury bond that pays interest of 3.32 percent. If the rate of inflation rises to, say, 4 percent, your investment is not “keeping up with inflation.” Or to put it another way, the value of the money you invested in the bond is declining. You’ll get your principal back when the bond matures, but it will be worth less.

Interest rate risk.

Remember, bond prices have an inverse relationship to interest rates. When one rises, the other falls.

If you have to sell a Treasury before it matures, the price you can fetch will be based on the interest rate environment at the time of the sale. In other words, if rates have risen since you “locked in” your return, the price of the security will fall.

There’s a third factor that can be considered a risk, but it’s a bit of a stretch. Nonetheless, it’s worth discussing.

Treasuries are so safe that they don’t have to pay much to attract investors. As a result, the yields on treasuries often fall far short of the yields on even very safe, AAA-rated corporate debt. That doesn’t cost you money, but it could cost you the opportunity for money.

In finance, opportunity cost refers to the difference between what you earn on an investment and what you could have earned if you had invested in something else. The opportunity cost of keeping more than small amounts of cash in a savings account, for example, is generally considered too high for nearly all investors.

Treasuries aren’t quite a savings account. But they don’t pay much interest. And if you invest in treasuries, you almost always could have made more money someplace else. Thus the biggest risk for treasuries investors may be that in being too afraid of risk, they invested too heavily in treasuries.

When Social Security starts paying out more than it takes in, whether it be 2012, 2015, or a few years later, the system will be running a deficit in real terms because the trust is virtual.   If you put $10,000 in the bank, take it all out for some home repair and maybe a few weekends in Vegas, that money is gone, IOU or no.   If you write an IOU to yourself to replace that ten-grand, and you stick to your word, you still have to come up with the money somewhere…that original 10k, again, is already gone.   The Social Security Ponzi Scheme thus was a not-so-elaborate method of shoveling trillions of dollars into the mouths of politicians and out onto their pet projects…original intention aside.

Where did those payroll taxes go?   Who knows?   Could be to Star Wars funding, Farm Subsidies, Tax Cuts, Tomahawk Missiles, appropriations within the infamous Black Budget…the possibilities are as vast and spooky as Karl Rove’s imagination. We are left with the government’s promise that the trust exists. Granted, if the government defaulted on a promise like this, there would be revolution in the streets and in the retirement towers. The people wouldn’t stand for it.   At best, if tens of millions of seniors and near-retirees feel shafted, and these folks tend to vote, our next batch of leaders will make Ted Kennedy look like an arch conservative, which would mean financial ruin in a permanent way.   Uncle Sam will, one way or another, make good on those trust fund promises until 2042, but he’ll either have to raise trillions in taxes or trillions in more debt to make it so.

At this point, we should all agree that there is a problem.   Yes?

There is no one solution for saving and strengthening Social Security.   Wise tinkering and incremental changes should be cobbled together for the effect we want, which again, is a stronger and safer public pensions system. Fixing Social Security requires a holistic approach, and both sides of the partisan isle will need to honestly address some tough questions, check their sacks, and then swallow some potentially bitter medicine.

Trivia: Lou Pearlman ( former Backstreet Boys and N Sync Manager / Producer) was part of this illegal business.