Most Americans have the right idea on SS.

[Agathon]

And another thing, is it not the case that social security payments are guaranteed until roughly 2042 and are safeguarded in Treasury bonds or something like that?

[Lincoln]

Supposedly our private savings acounts are guaranteed by "the full faith and credit of the US government". (if that phrase doesn't scare you then nothing will). But anyway, we save or withdraw as we please but the retirement accounts would theoretically have to be regulated if they are supposed to be a partial replacement for Social Security.

[Agathon]

I thought that it was in bonds. If the government dishonours those, the US credit rating would plunge. I doubt that will happen.

If you guys want to privatize social security, go ahead. I have no problem with the US shooting itself in the foot.

[Lincoln]

You will have to ask an ecomony geek that question. As far as I am concerned the only thing that guarantees my retirement is my 22 rifle. At least I can shoot a few helpless animals to keep from starving to death.

[Agathon]

What will guarantee your retirement is the increasing inequality in the US and the realization among younger people that their parents have made off with the cake.

That's a slow burn to a major political shift.

I hear gopher isn't too bad, if you cook it enough.

[Kidlicious]

Originally posted by Agathon
I thought that it was in bonds. If the government dishonours those, the US credit rating would plunge. I doubt that will happen.

If you guys want to privatize social security, go ahead. I have no problem with the US shooting itself in the foot.

They aren't bonds like you would invest in. It's a promise to pay. The only situation where the govt wouldn't pay is one where the credit rating had already plunged and they couldn't borrow any more.

[mrmitchell]

I looked up the numbers on this one the other day.

In 2010, when all the parts of the tax cuts are implemented (and possibly permanent), the top 1% will get a yearly $121 BILLION cut.

That oughta cover a tremendous chunk of the social security shortfall.

To be in the top 1% you have to make over $518K yearly. I doubt there's more than five regulars around here over the top 1% (including DanS of the Top 0.00001% - $1 billion or more ) Americans ought to be outraged that people with an average earnings of $1.1 million are getting an $84,000 tax cut. It's like they're robbing the poor to give to the rich. Yes. Robbing the poor. You know where they're going to come up with that $121 billion? I just read it in the paper the other day, they cut millions from low-income school funds. They're cutting grants for community housing developments. Eliminating Perkins grants! And trashing Social Security, one of the largest, most successful government programs ever, FDR's greatest lasting contribution to America.

This is the kind of message the Democrats should be pushing. Screw the rich and save Social Security. I'd vote for it in a heartbeat.

[Kidlicious]

Originally posted by Agathon

If my FDIC insured account goes belly up them we are all introuble. If you are not sure what FDIC means I will be happy to explain it to you...

Won't that just mean that the government will be bailing it out again? And that insurance will (in real terms, if not on paper) cost too much anyway.

Insuring your retirement insurance... makes sense to me.

That's right, but the govt insures it, so it's not really insurance at all since the govt owns it. That's what he means when he says we would all be screwed anyway.

[Agathon]

They aren't bonds like you would invest in. It's a promise to pay.

Aren't all Treasury bonds a promise to pay? My understanding is that they basically can't refuse to pay them on pain of bankrupting the government.

[Dinner]

Originally posted by Harry Tuttle
Hmmmm, Lincoln, what are your thoughts on Treasury Bonds?

Social Security is currently invested its entire trust fund into T-Bills. By law they must. So tell me how do privatized accounts get a higher return if they are invested in the same assets but have higher management costs?


(The reason costs are higher is because now you have 150 million individual accounts being managed instead of one federal account so you have 150 million times the management costs.)

[Harry Tuttle]

Originally posted by Oerdin


Social Security is currently invested its entire trust fund into T-Bills. By law they must. So tell me how do privatized accounts get a higher return if they are invested in the same assets but have higher management costs?


(The reason costs are higher is because now you have 150 million individual accounts being managed instead of one federal account so you have 150 million times the management costs.)

Well I didn't know that Mr. Fussy.

[Kidlicious]

Originally posted by Agathon


Aren't all Treasury bonds a promise to pay? My understanding is that they basically can't refuse to pay them on pain of bankrupting the government.

If you or I own a Treasury bond it's an asset. If the US govt owns a US treasury bond it's the same as if they never sold it in the first place, which in this case they didn't. It isn't an asset.

There are no real treasury bonds in the fund account. They are more like IOUs. It's a promise to pay for the SS program. When the fund starts to run a deficit the govt will sell actual treasury bonds to cover the deficit. The effect will be the same as if they were selling actual treasury bonds from the fund.

It just doesn't make sense to keep your own debt like that.

edit: I mean normally it wouldn't make any sense, but this is a special situation.

[Kidlicious]

Agathon,

Read this from the AARP . They give you the straight story.

Why Have Trust Funds?
The securities held by the trust funds are future financial claims against the government. Securities in the Social Security trust fund accounts, along with other Social Security revenues, give the Treasury the authority to write checks. Just as a positive balance in a checking account means an individual can draw on that account, a balance in the Social Security trust funds means that checks can be written on the Social Security account.

While all government programs have Treasury accounts, for Social Security, the trust fund designation means that the total amount received by Social Security beneficiaries is not subject to the annual Congressional appropriation process. As long as there is are balances in Social Security's trust fund accounts, benefits are paid with monies designated specifically for that purpose.

The Social Security trust funds represent a long-term commitment on behalf of the government to Social Security. And, as long as the program has been in operation (64 years), the government has not defaulted on these claims.

There doesn't have to be any assets in the accounts. As long as there is a balance the govt has to pay. Now that doesn't mean that they can't pay after there is no balance, but the govt of the period could legally elect to eliminate social security at that time. The republicans want us to believe that they would have to stop all payments, but they don't.

[Sikander]

Originally posted by Oerdin
How can it not be fair to have everyone pay the same tax on all of their income? Especially when this small change can solve nearly all of Social Securiity's problems.

The unfairness comes in because while a poor person will collect more than they ever put in a rich one will pay more in than they ever take out. It's income redistribution. As long as we're redistributing income we may as well do it more efficiently and use SS as the welfare program it was designed to be rather than the poor excuse for a retirement system that it has become. The paroll tax is onerous for the poor and the benefit is laughable for the rich. So lets cut the payroll taxes on the poor and employers who match it (see the 35 hour week thread for why we should reduce barriers to employment) and cut the benefits to those who don't need them to make up the revenue. Rich people live longer and don't need the money, while poor people are less likely to become rich when they have to pay such a high percentage of their meager earnings to SS. They need all the margin they can get.

Kid is correct about the treasury bills. They are not an asset for the government they are a liability, basically an IOU. Benefits will have to be paid out of the already overextended general fund once payments for SS outgrow income from payroll taxes in the not too distant future. This see-saw effect will continue as long as we fund the system by taking the money of the employed and giving it to retirees. In the interem surpluses are simply spent by the government and replaced by IOUs with no guarantee that the budgets when you retire will be able to actually make the payments.

A better system is to ecourage people to take some of their payroll taxes and invest it under tight controls somewhere where it will actually be invested and an asset rather than spent immediately and ending up as a government liability. This will reduce the whipsaw effect as demographic changes either reduce the number of people paying vs the number receiving until the system breaks under the strain, or conversely where huge revenues from a short term surplus spur reckless governmental spending by selfish politicians who know that they'll be long gone before anyone will see the downside to the profligacy.

As for the nature of the private account investments, they should be a mix of stocks and bonds with the ratio in line with the current ages of those who invested in them. (ie the older the population the more money is invested in bonds) The stocks should be very broadly based index funds, and while we're at it we should really put the vice grips on corporate governance now that everyone in the country is going to have even more stake in how they are governed.