Greenspan: NEW CRISIS PRETEND DATE = 2008 - - why 2008 - who knows!?!

[papau]

NEW CRISIS PRETEND DATE = 2008
"the demographics are inexorable, and call for action before the leading edge of baby boomer retirement becomes evident in 2008."


http://www.latimes.com/business/la-021605greenspan_lat,0,455347.story?coll=la-home-headlines

WASHINGTON — Fed Chairman Alan Greenspan, delivering his semiannual assessment of the economy to the Senate Banking Committee, gave a cautious endorsement today to President Bush's plan to shift some Social Security funding to individual investment accounts.

Any solution to the problem created by the baby boom's impending retirement has to be solved by increased national wealth, he said, which in turn depends on increased savings or investment.

The individual investment accounts would contribute to national savings only if they could be financed by methods other than borrowing, and in order to slow the rate of borrowing by Social Security, benefits would have to be trimmed, Greenspan said.


http://money.cnn.com/2005/02/16/news/economy/fed_greenspan_testimony/index.htm?cnn=yes

Greenspan urges Social Security changes
(But no more than $1 trillion of borrowing over next 10 years for private accounts)
Fed chief says economy in good shape but calls urgent fiscal reforms 'imperative.'
February 16, 2005: 2:50 PM EST
By Chris Isidore, CNN/Money senior writer

NEW YORK (CNN/Money) - Fed Chairman Alan Greenspan said Wednesday the economy is in good shape but warned that Americans urgently needed to save more -- and he endorsed the idea of private accounts as part of Social Security reform.

The Fed chairman also indicated the central bank would continue to raise interest rates gradually.

Greenspan waded into one of the more contentious issues facing Congress coming out in favor of fundamental changes in the Social Security system, but he urged caution. The Fed chief said the move toward private accounts should be gradual to limit borrowing needed to keep benefit payments, while payroll taxes are diverted into the new accounts.

And under questioning by Democrats, he conceded that private accounts by themselves would not boost the nation's saving rate. But he said that not making changes to Social Security was risky and not sustainable. <snip>

"There are basically two models we're confronting, one a pay-as-you-go model, if we can fully fund, will work, and the other is the forced savings model. I've always supported a move to private accounts. The issue with respect to the financing is difficult to answer. But because the pay-as-you-go system will be very difficult to manage, we need an alternative," he said. <snip>

[TwilightZone]

1. Why 2008? That's easy.

It's the date of the next presidential election.

Can't change leaders in the middle of a crisis, right? At least that's what the Republicans tell the voters. Therefore, they'll need a crisis or five.

I have to say that it seems rather early for them to be fabricating crises for 2008, though.

[papau]

2. I always fear being hit by the demographic leading edge - doesn't

everyone (1946 plus 62 early retirement makes you leading edge I guess) :-)

[swag]

3. Boomers retire, sell their stocks.

By the way, will it make any sense for us to have all that private account money in stocks since Boomers all retire on January 1, 2018 and will all sell all their stock on January 2, 2018?

[papau]

4. Japan's aged start withdrawing funds from US market well before '18

but let's not talk about all that gov bond selling by the Bk of Japan, or about the equity selling pressure by individuals in Japan, as there population reaches a retirement "bubble" before our's does,

[REACTIVATED IN CT]

5. I don't buy this...

Even after retiring, wouldn't they stay invested - at least a portion of their nest eggs (be it RP, 401k or personal savings). You don't put it all in CD's when you turn 65 unless you want to outlive your savings :)

[swag]

6. Hi,

I think you are right (the esteemed papau may disagree) to be skeptical of the "age wave" problem, in fact Jeremy Siegel wrote a convincing paper recently (and apparently at least one chapter of his new book "The Future for Investors" is on the subject) debunking "age wave" fear-mongering.

A lot of folks do stay invested in stocks, of course, and Siegel contends that accelerated globalization will provide new customers for assets that will offset massive retirements in the US.

I was really playing with a bit of the double-edged distortion of Bushco. in trying to sell their Soc Sec rip-off in my original post, but guess I wasn't terribly clear or funny about it.

Siegel's paper is here:

http://www.jeremysiegel.com/view_article.asp?p=265

[papau]

7. I actually agree as to worldwide investment - but governments will hit

their own "retirement payouts means cashing in some bonds" point well before the US.

The US National Debt will not be growing 10 years from now because Japan and others can no longer afford to put surplus tax money into US Government Bonds - and indeed will begin to sell those bonds - as the defacto Bretton Woods2 that the Southeast Asian countries and the US are running at the moment so as to preserve the import flow begins to fall apart. Granted that at a much higher interest rate we no doubt could sell those worthless IOU's based on a claim to our grandkids taxes paid on their earnings

But what is on the books will be worth less to the those in the capital market that own such debt (the special Gov Bonds that are given to the Soc Sec System are guaranteed as to prinicipal and can be cashed in - redeemed - for the face amount from the US Treasury at any time, and will therefore not be affected by the collapse of the gov bond market in the next 10 years).

When it happens it will be quick - and those that sell short the gov bond market until then may well be caught in a few dozen "bear traps" before the real collapse occurs.