Social Security yet again!

[GePap]

Originally posted by DanS

Really, this is a rock solid way of going about things. It takes into account all of the things that we have learned over the past couple of decades with regard to investing and pensions.

Way of going about what exactly? Diverting Trillions into private accounts does absolutely nothing to solve the current issue that supposedly faces SS, simply sends the money into a new venue.

So, first the government has to borrow trillions not to scare the old people into voting for this crap by refusing to cut their benefits. Then, its working uder, as Krugman showed, conflicting notions-that the market will outperform bonds, yet the economy will grow significantly slower in the future, which is why the system is in "crisis", so how then hell then will stocks outperform bonds?

If stocks fail to perform as magically as privitizers claim, then, added to the notion of pegging benefits increases to inflation, not wages, then younger workers will end up with less money from these accounts than they would have under the old system even when you add in their private accounts.

So all Bush is suggesting is: lets borrow massively to cut everyones benefits 75 years down the road. Great. Makes perfect sense there.....

Simple solution? Raise the retirement age further, up to 70 over 20 years if we have to, then move the cap upward, so anyone making above 100,000 is excempt, not 90,000, and finally, means test benefits to cut costs by not giving checks, or as much, to those who don't need it.

All those actions, without a penny of borrowing, would "fix the crisis".

[Ogie Oglethorpe]

Originally posted by GePap

Simple solution? Raise the retirement age further, up to 70 over 20 years if we have to, then move the cap upward, so anyone making above 100,000 is excempt, not 90,000, and finally, means test benefits to cut costs by not giving checks, or as much, to those who don't need it.

All those actions, without a penny of borrowing, would "fix the crisis".

Please please please. Have every prominant Dem come out and proport such a stance. Talk about political suicide. Or are you still awaiting the huge influx of young voters to rally to the cause as they did so well in 2004.... or not.

This truly is a case of I've got a bad idea. Wait a sec. I can make it sh1ttier.

[DinoDoc]

The old leeches wouldn't like that idea either, GePap.

[DanS]

That's all very nice in theory but how the hell do you pay for SS payments at buy the bonds at the same time without running up an insane debt?

I've already pointed out that this "insane debt" already exists, even if the formal process of issuing bonds on the debt has not yet taken place.

It's an unfunded liability of the government that is already factored into the market's view of the relative creditworthiness of the U.S. and therefore already impacts interest rates. Issuing bonds should have no additional impact on interest rates whatsoever.

[Ogie Oglethorpe]

Originally posted by DinoDoc
The old leeches wouldn't like that idea either, GePap.

Precisely and since those old fart bags actually vote, while the next generation of Deaniacs don't, it would be another nail in the imploding balloon that is the Democratic party.

I say go for it. I can pick more than a handful of Dem senators I would love to be the first on board with such a stance.

[GePap]

Originally posted by DinoDoc
The old leeches wouldn't like that idea either, GePap.

And why not? The old people are already old-the uptick in the retirement age does not affect them- if younger workers are willing to have their benefits cut, then maybe they would prefer to have to wait a bit more to get better benefits. If the system is in crisis, then people should be willing to make small sacrifices, and finally, remind people what 2 Trillion in borrowing does to what their children will have to pay back in interest on the debt.

Hey look, a Dem. standing for real fiscal responsibility, and a bunch of republicans saying its a bad idea, lest borrow and spend!

[DinoDoc]

Originally posted by GePap
Hey look, a Dem. standing for real fiscal responsibility, and a bunch of republicans saying its a bad idea, lest borrow and spend!

I'm not saying it's a bad idea. I proposed something like it several pages ago. I'm saying that it likely won't fly with the old fart bag leeches given that they are oppossed to any change in the system and they actually vote.

[GePap]

They are opposed to changes that might hurt them- its all about the sell. Heck, the current Bush plan does not hurt the old farts, it hurts all the young fools made to think it will somehow help them.

So sell it to them as the serious, adult plan- one that will assure your nice benefits till kingdom come.

[GePap]

Teh KRUGMAN strikes yet again: way to beat a horse that should die!

Gambling With Your Retirement
By PAUL KRUGMAN

Published: February 4, 2005


few weeks ago I tried to explain the logic of Bush-style Social Security privatization: it is, in effect, as if your financial adviser told you that you wouldn't have enough money when you retire - but you shouldn't save more. Instead, you should borrow a lot of money, buy stocks and hope for capital gains.

Before President Bush's big speech, a background briefing by a "senior administration official" made it clear that the plan calls for exactly the "borrow, speculate and hope" strategy I described - not just for the system as a whole, but for each individual.

Here's the money quote: "In return for the opportunity to get the benefits from the personal account, the person forgoes a certain amount of benefits from the traditional system. Now, the way that election is structured, the person comes out ahead if their personal account exceeds a 3 percent rate of return" - after inflation - "which is the rate of return that the trust fund bonds receive. So, basically, the net effect on an individual's benefits would be zero if his personal account earned a 3 percent rate of return."

Translation: If you put part of your payroll taxes into a personal account, your future benefits will be reduced by an amount equivalent to the amount you would have had to repay if you had borrowed the money at a real interest rate of 3 percent.

Peter Orszag of the Brookings Institution got it exactly right: "It's not a nest egg. It's a loan."

For years, privatizers - including Mr. Bush - have claimed that people would do better with private accounts than with traditional Social Security even if they played it safe and invested in U.S. government bonds (which yield 3 percent after inflation).

But the official at the briefing made it clear that his boss was fibbing: if you invested your private account in government bonds, you would face benefit cuts equal in value to your investment, so you would be no better off than under the current system.

The only way to get ahead would be to invest in risky assets like stocks, and hope for higher yields. But if the investment went wrong and you earned less than 3 percent after inflation, your benefit cuts would leave you poorer than if you had never opened that private account.

So people are expected to take a loan from the government and use it to buy stocks, and if that turns out to have been a mistake - well, too bad.

Experts usually tell people to plan for their retirement by investing in a mix of stocks and bonds. They disapprove strongly of speculation on margin: borrowing to buy stocks. Yet Mr. Bush wants tens of millions of Americans to do exactly that.

Meanwhile, what does any of this have to do with the ostensible purpose of the whole thing: saving Social Security?

Here's the senior official again: "In a long-term sense, the personal accounts would have a net neutral effect on the fiscal situation of Social Security." The government would have to borrow huge sums up front to create the personal accounts - $4.5 trillion in the first two decades - but it would supposedly make up for all that borrowing with offsetting cuts in account holders' benefits many decades later.

Color me skeptical: will retirees with private accounts that performed badly really be forced to repay their loans in full? Even if they are, private accounts will at best have a "net neutral effect" - that is, they will do nothing to improve Social Security's finances. Mr. Bush says the system faces a crisis; what does he propose to do about it?

The answer, presumably, is that his plan will also involve major benefit cuts over and above those associated with private accounts. And it's true that you can improve Social Security's finances with privatization, as long as you also slash benefits - just as you can kill a flock of sheep with witchcraft, provided you also feed them arsenic. (Thanks, M. Voltaire.)

Do you believe that we should replace America's most successful government program with a system in which workers engage in speculation that no financial adviser would recommend? Do you believe that we should do this even though it will do nothing to improve the program's finances? If so, George Bush has a deal for you.


E-mail: krugman@nytimes.com

[Kidlicious]

Die horse, DIE!

Gross

Gross criticizes Social Security plan

Manager of biggest bond fund contends individual accounts not the answer, wants deficit reduction.
February 4, 2005: 8:13 AM EST

NEW YORK (CNN/Money) - Bill Gross, manager of the world's largest bond fund, is criticizing President Bush's plan to privatize part of Social Security.

Gross, managing director at Pimco, called the argument about the solvency of Social Security "silly" and said it was an example of the president not focusing on more important issues, such as the budget deficit.

The president's argument for individual Social Security accounts is meant "to promote an agenda that has little to do with seniors and more to do with Bush, his ownership society, and ultimately his domestic legacy alongside the likes of Ronald Reagan and FDR," Gross wrote in comments posted on Pimco's Web site.

"Without a blockbuster of a program in his second term it is unlikely that Bush can go very far in the history books on the back of a paltry 3 or 4 percentage point tax cut for the rich," Gross wrote.

"Presto!" he continued. "We now have partial privatization of Social Security heading the agenda upon which the president intends to spend his well-advertised political capital."

But while the president says that will help fix Social Security, "the problem has more to do with demographics than the lack of ownership," Gross wrote.

Gross argued that it will take more than individual Social Security accounts to correct a projected shortfall and suggested the government should focus on cutting the budget deficit instead.

"Production can only come from employed workers and so the basic solution is to produce more workers, either through immigration or postponed retirement for the existing work force," he wrote.

"By reducing budget deficits now, and especially that portion of the deficit owed to foreign governments, we would be able to keep more of our domestic production within our borders and therefore available to senior citizens."

President Bush on Thursday kicked off a five-state tour to push his plan to overhaul Social Security, an issue highlighted in his State of the Union address.

While the president offered new details of how individual accounts would work in his address, he did not address many outstanding issues. For more on those questions, click here.

Interesting take. The best way to help SS is to help the economy, by reducing the deficit, not increasing it.