Is There Yet Another Agenda Behind the "Privatization" Push??

[DemocracyInaction]

Just thinking outloud----and wonder what any of you who are bit knowledgeable in economics think.

The Repubs are bellowing that SS needs to be fixed because when the boomers retire there just won't be enough money coming into the system---correct?? Well, when the boomers go into retirement isn't it more than the SS fund that will be drained??

Many of those boomers are invested in the stock market; and upon retirement will, in essence, be calling up Wall Street and saying "send me da' money"! Are our little scumbags in power trying to get money pumped into the other end of Wall Street by the 'privatization' route in order to again protect the precious ass of the more well to do?? Wouldn't big demands on the investment system possibly put stocks into a nosedive and all that loot the better 'fixed' people are depending on from those investments end up not coming through as expected??

And, what about those younger folks who would be investing in that "privatization"?? What happens when the first glut of them retire and want to start being paid "their money"?? Doesn't all this mean that corporations would have to produce mega, mega profits the likes of which we haven't even begun to see? Doesn't it mean jacking up prices for goods and services while trying to get as many jobs moved out of this country as possible to cut the bottom line?? In other words, couldn't this all end up with the Great God who shall bring us all things (Wall Street and Capitalism)collapsing in the US of A????? Can this almight system carry such a burden?? Or are the young ones also being set up to eventually get screwed???

[displacedtexan]

1. Here's what I want to know...

I'm a baby boomer.

I've been shown that age pyramid (with the baby boomer bulge) all of my life.

So my question is...

If there are soooo many of us baby boomers (compared to the generation older than us), where's all of the money baby boomers have paid into (and are currently paying into) Social Security?

With few older people to support, there should be a baby boomer pay-in surplus, which should help offset the burden of the next generation's SS pay-in requirement.

Also, we boomers have been paying in for over 30 years, and the next generation has been paying in (for us) for quite a while now.

Where has all of that $ gone?

[On the Road]

3. There is a Trust Fund of $1.7 Trillion

accumulated mostly over the past ten years:

http://www.ssa.gov/OACT/STATS/table4a3.html

[DemocracyInaction]

5. displaced---another thing that isn't discussed

Apparently---saw report on this a few months ago---there is another Baby Boom on the way. It is, I believe, kids ranging up to like 22 years old. Each year they will be streaming in to replace the retiring boomers. So it sounds like this "shortage" is a very temporary one and the first brigade another boomer generation is just about ready to walk out of college. Why don't they talk about that?????

[sunnystarr]

13. As far as I understand this ...

The money paid into SS each year and not used for monthly SS checks, is spent by our government. So they "borrow" it from SS and give SS Treasury Bonds that are held by SS. These are called unfunded liabilities and are not reported in our budget deficit dollars. The figure I recall is around 8 or 10 trillion. The government pays SS interest on this unfunded liability.

The surplus you hear quoted is this yearly surplus since the boomers are still working and more is coming in than going out. What comes in was increased when Reagan raised the SS payroll deduction in order to buy more years of surplusses in preparation of the boomers retiring.

In the Clinton years, Clinton started to pay off some of this unfunded liablity in order to reduce the interest payments due to SS and to make the system more sound.

When Bush came in, he, and his Congress, spent this surplus on their tax cut and the War. He didn't continue to pay back on the unfunded liabilities.

Bush continues to spend the SS yearly surplus.

Bush's philosophy is; why would the government pay back money to the government?. We've borrowed from ourselves so we don't have to pay it back. Since he's created record deficits, when the boomers retire and the surplus is no longer there, there would only be enough coming in to pay the monthly checks. As more boomers retire, what comes in through FICA won't be enough to cover what goes out. That means the government has to pay back those unfunded liabilities (cash in the Treasury Bonds). In order to cash those bonds they'd have to go into general tax revenues which would mean raising taxes - and that leads to a sluggish economy and high interest rates.

Of course his privitization won't take care of any of that. It will only create higher deficits in order to put it in place. But it will slowly remove people from the SS system and eventually dismantle it as future Republican Congresses continue to increase the percentage of SS that can be placed into private accounts. This will put more and more money in his chronies pockets as the administrative fees will end up being much higher than he projects. Think Medicare Drug program. But then again that's the real crisis.

That's the way I understand it - but if anyone more knowledgable can add or correct it will be appreciated.

[undergroundpanther]

2. THe whole market system is a big PONZI scam

http://www.upi.com/view.cfm?StoryID=20020801-104208-9705r

By definition, pyramid schemes are doomed to failure. The number of new "investors" -- and the new money they make available to the pyramid's organizers -- is limited. When the funds run out and the old investors can no longer be paid, panic ensues. In a classic "run on the bank," everyone attempts to draw his money simultaneously. Even healthy banks -- a distant relative of pyramid schemes -- cannot cope with such stampedes. Some of the money is invested long-term, or lent. Few financial institutions keep more than 10 percent of their deposits in liquid on-call reserves.




http://www.sacredlands.org/pyramid.htm

There's a saying in Argentina that each night God cleans up the mess the Argentines make by day. This seems to be what all of us are counting on. During the 20th century alone, our population multiplied by four, while our consumption grew by 40. Yet the number in abject poverty today is as great as all mankind in 1900. Is this progress? Can the stock market be trusted to run the world? Or is our consumerist boom the illusory wealth of wastrels blowing an inheritance -- by no means only their own? Is the promise of prosperity for six billion the Big Lie of our time?

[On the Road]

7. Social Security is NOT a Pyramid Scheme

Everyone puts in; everyone takes out. The stresses are partly caused by the birth rate escalating after WWII. When that generation retires, there will be fewer workers for each retiree. Eventually, that generation will die and the proportion will improve again. We know that because those people are born already.

The other big factor is that people are living longer. Each working person therefore needs to support more years of retirement. Long life is a good thing, but it has to be paid for. Increasing tax revenues or delaying the retirement age are both reasonable ways to consider making up that gap.

Fundamentally, Social Security is a stable, sustainable plan. NOTHING in it bears any resemblance to a Ponzi scheme.

[undergroundpanther]

8. It will become one

If SS is subjected to the whims of "the market"

[On the Road]

9. Oh, Maybe I Missed Your Point

Are you saying that if people are allowed private accounts, they will behave in a way that will create bubbles and busts? That may happen, even though there are some things that will soften that blow greatly: (1) individuals would be allowed a limited mix of stock and bond options and (2) when individuals retire, they will be forced to buy annuities, meaning that can be no rapid collapse as people cash in their accounts.

I think a better way to describe those possibilities are that Bush's privatization plan may create a pyramid scheme.

[elsiesummers]

14. That 2%+2% of income will be shifted from Treasury Purchases...

Andrew Tobias (at andrewtobias.com) did a piece (I think from January 21st - search Social Security in his archives) where he describes how the total of 4% of earned income that will be diverted from Social Security contributions will no longer be going into Treasuries - so Treasury interest rates (yields) will have to rise to offset the decreased purchase and attract the additional necessary investment.

If this money is diverted to something similar to the Federal Thrift Savings plan then much will end up in equities and some in bond funds - possibly including corporate bond funds. The amount going into Treasuries will be significantly reduced.

The long term impact on the markets is not inconsequential. On one hand, this might help boost the stock market by increasing capitalization at the same time as boomers withdraw from 401Ks and IRAs, reducing the demographic impact of boomers cashing out equities. On the other hand, in an equity market with sky high PE valuations and an inadequate market correction for 90's irrational exhuberance this is a recipe for too much money chasing too little value - and potentially catestrophic market crash resulting from even greater exhuberance with no interim correction.

Also, this could really drive up interest rates as Treasury interest rates are forced up in a world in which concern about continued willingness of foreign central banks to subsidize our ever increasing debt. This in turn would drive up mortgage rates and other long term rates, slowing the housing market.

Economically this apparent tinkering with the Social Security System has sweeping macro economic implications that have been completely underexamined.

[On the Road]

15. Yeah, It's Hard to Tell What the Results Will Be

Your scenario is very plausible, especially since SS accounts will not be highly managed, meaning no one is making a decision on the best investments.

On the other hand, you never know. If SS private account money flows into the stock market, a lot of that money may flow right out again as rich individuals, pension funds, and foreign investors decide the market is overpriced and put their money elsewhere.

You are right, though -- the consequences could be severe, and no one is talking about it.

[elsiesummers]

16. If you think about the succesive bubbles...

the way people put all their money into stocks - then freaked out in 2000 and put them in bonds - then went on to put money into real estate...

This sort of swarm mentality of trying to get in and get out of an asset class caused by chasing returns, well pulling 4% of all earned income out of SS (and therefore out of the treasury market) is sort of a government enforced swarm.

It's not like these sorts of tax laws and economic consequences haven't happened in the past. The advent of first Traditional IRAs, Then 401Ks, then Roth IRAs - well we see the impact on the market of these programs.

It is very possible that these tax law changes were behind the equity bubble - then the lack of new stock market tax incentives may have contributed to the equity bubble burst. Social Security Privitization, even just 4% of earned income per year - it's a huge amount to switch from one asset class (Treasuries) to another (Equities or whatever the hurd purchases).

Partial Social Security Privitization may not be all bad - maybe it could smooth out some demographic rough spots for equities - but Bush and Congress are really playing God with the economy - but I don't think they are looking at these things through a wide angle lens.

It's sort of scary how much impact the whims of a very few who may not know that much about economics can have on the nation's and possibly the world's economy.

A side note -on the personal investment level - if the withdrawl of this 4% from Treasuries causes a subsequent Treasury interest rate increase, bonds purchased outright and held to maturity may improve as an income investment.

[On the Road]

19. I Agree that Mass Private Accounts Tend to Result in Bubbles

but some of the features of the Bush plan would mitigate those effects. There are supposed to be a limited range of options, such as:

- Money Market
- Bonds
- Half bonds, half S&P 500
- All S&P 500
- Wilshire 5000

or something like that. I don't think most people will touch their selections very often. It doesn't sound like a suitable vehicle for trading. But as usual, people will tend to select more stocks when prices are up, just like they do today.

On the back end, as I understand it, retirees won't be drawing money out directly. Instead, they will be forced to buy an annuity. That will mitigate speculative swings, too.

None of this is meant to defend the Bush plan. I think it would be catastrophic. Just trying to portray it accurately.

[elsiesummers]

17. BTW Andrew Tobias sees it as a financial industry giveaway/windfall.

In case you don't read him
Andrew Tobias, he has really made some great points on ways to fix entitlements and on what Bush is up to.

Edit: Most relevant columns are archives 04/12/20 and 04/12/21. But there are other SS columns ongoing - including today's.

He is or was the DNC treasurer and is known for his personal finance books and columns in NY magazine and Parade.

He has an interesting perspective because he sees Social Security though both and investment lens and a Democratic political lens.

He also has some terrific pieces on budget deficits and the national debt and what amount of deficit is managable. You have to search through his site to find his different articles - but lately he really brings up some interesting points about Social Security.

[On the Road]

18. Oh, I Think Those Implications are Clear

It IS a windfall for the finance industry. ElsieSummers points had to do with the effect on stock prices and the markets. I was just pointing out that when new money moves in, old money may move out. It's hard to forecast those particular effects because the markets are so responsive to new developments.

Thanks for the Tobias article.

[TexasSissy]

4. Good thinking. That's a very interesting

question you've posed. I wonder.

[Wapsie B]

6. The most obvious one to me

is that a bush crony, a bank/brokerage firm will get their hands on those SS funds. A slew of bad investments later and we'll have another S&L crisis on our hands, only larger.

[meow2u3]

10. Wall Street is reported to be plotting more pump-and-dump scams

using our FICA dollars! They'll trick shareholders, who can't divest when their stock is high (read: inflated), into thinking they'll have more than enough money to retire, and all of a sudden, after they retire--PAM!--the insider traders will have made off with your retirement money, leaving the victims not only holding an empty bag of worthless stock, but also get off scot-free doing so because the government will look the other way and pretend not to know the massive crimes against the elderly!

[Hidden Stillness]

11. Cruelty is its Own Reason

It has become just like a game to these people now, to kill everything of the Govenment, everything the people rely on, everything ever built up by Democrats, just for the fun of making people suffer. This is the type that, as Pres. Roosevelt's grandson has been saying about the Repub Social Security lies, etc., have always hated all these programs, hate the fact that the peons are making rich people pay taxes for the benefit of the "little" people, hate their inability to abuse us on this score. It galls these evil people; they are like bastards who torture animals--there is no "why" apart from their obsessive drive to get this thing done and hurt their victims! These spoiled asshole rich boys who have never had a job or a real-world achievement, who are going to attack us all, because they can. Notice that the asshole Bush does not even care about plummeting approval poll numbers, public outrage about the fake-media scandals, etc. They are in a higher sphere entirely, rich capitalist pricks. They don't have to be popular. They own everything--they win.

Capitalism is a pyramid scheme; Social Security is salvation.

[sadiesworld]

12. Welcome to DU, Hidden Stillness!

:hi:

Nice post/rant.

[Patchuli]

21. I agree with you

Those guys are all pricks but remember, time wounds ALL heels!

Karma.....

Welcome to DU! :hi:

[Califooyah Operative]

20. Switching peoples dependence from gov. to big business...

then rather wanting to see government succeed they'll be forced to want see big business succeed, as their future will be invested in the well being of business.

[Generic Other]

22. We are being Enron'd every which way we turn!

And all those CEOs expect to retire like fabulously wealthy potentates on my dime while I live like a pauper.

Why does that sound like Tsarist Russia? Oh the irony of it all.

[applegrove]

23. Exactly. It is about getting the Middle Class to fund the expantion

into emerging economies that the corporations need to do. But will the corporations and the rich go to the American public and say: "we need your help - we need the help of America's huge middle class to keep growing". NO! Because they have been told by neocons, gop and rove than "we create the reality".

So they think they can not pay taxes and have all of America remake itself in their image. Republicans always represent the elite. If they pretend to be more patriotic - that is just for show (cause otherwise they would never have the numbers to get elected).