 |
| |
|
|
Tingkai
|
|
To find the Northwest Passage
Aug 2001
time: 13:17
|
|
Dan S:
As Krugman points out, there is no crisis, the sky is not falling and there's no pressing need to change the US social security system.
Under the Bush plan, people will stop paying money into social security and instead invest it. But, the social security requires a steady stream of money to finance current payments. If the stream is disrupted, the US government will have to borrow money to finance the current social security payments. That means a massive increase in the US federal deficit, one that will exist for decades.
If the US government had a surplus, then this would not be that big of a problem, but with the existing deficit, the Bush plan will lead to higher interest rates and a much lower dollar. Other countries would be even less willing to finance the US gov't deficit. If that happens, even more pressure will be put on US interest rates. The higher interest rantes will lead to a recession.
This is simply the wrong time to start Bush's plan.
As for the poor, the Bush plan wrongly assumes that most people understand the financial markets and are capable of making wise decisions. That is not the case, and this is particularly true of the poor who are generally less educated. Even educated people make poor investment decisions. Look at the Enron employees. Most of them invested heavily in Enron and ended up losing their life savings when the company collapsed.
There are ways of privitizing the social security system, but it involves forcing people to invest in specific financial instruments. For instance in Hong Kong, I have to pay up to about $250 a month into a mutual fund and I can only choose between about six funds.
I doubt Americans would be willing to accept this system.
|
|
| |
|
|
|
DanS
|
 |
Kickball Capital of the World
Jan 1970
time: 00:17
|
|
quote:
If the US government had a surplus, then this would not be that big of a problem, but with the existing deficit, the Bush plan will lead to higher interest rates and a much lower dollar. Other countries would be even less willing to finance the US gov't deficit. If that happens, even more pressure will be put on US interest rates. The higher interest rantes will lead to a recession. |
All that would happen is that money would be taken from government bonds and put into assets paying slightly higher rates. The rate spread of corporate bonds and stocks over government bonds would decrease to correct for these cash movements. The government would have to pay more for use of people's money, but the impact on rates paid by the private sector would be minimal.
quote:
As for the poor, the Bush plan wrongly assumes that most people understand the financial markets and are capable of making wise decisions. That is not the case, and this is particularly true of the poor who are generally less educated. Even educated people make poor investment decisions. Look at the Enron employees. Most of them invested heavily in Enron and ended up losing their life savings when the company collapsed. |
What Bush plan have you looked at that proposes a wide range of investment choices? The serious proposals floating around assume investing in index funds and giving the investee only limited allocation options or no options at all. We already have a very successful example of this limited choice, extremeley low administrative cost system for some federal employees, the Thrift Savings Plan, which has 5 fund choices.
http://www.tsp.gov/rates/fundsheets.html
The administrative costs of the Thrift Savings Plan are .1% of assets per annum.
Last edited by DanS on 09-12-2004 at 10:41
|
|
| |
|
|
|
mrmitchell
|
|
What's funny is that when it's 2050 and Social Security has been thoroughly destroyed and is little more than a program where the government manages the insanely rich's retirement pensions, it's likely the ones that were bagging on it in this thread will be the ones out cold on the streets in rags with not a penny to their name.
|
|
| |
|
|
|
DanS
|
|
Kickball Capital of the World
Jan 1970
time: 00:17
|
|
The difference in benefits versus contributions would flow through to the deficit. The government would borrow from the market at x% interest rate and the private accounts would accrue interest at x+3% interest rate. The system would be better off financially, even if the federal deficit looks ugly in the short term.
Indeed, you could probably convince the people who are getting the x+3% interest rate to defray some of the transition costs from the extra 3 percentage points that are accruing to them. I would take that proposition in a heartbeat.
Last edited by DanS on 09-12-2004 at 10:38
|
|
| |
|
| |
|
|
|
Tingkai
|
|
To find the Northwest Passage
Aug 2001
time: 13:17
|
|
quote:
Originally posted by DanS
All that would happen is that money would be taken from government bonds and put into assets paying slightly higher rates. The rate spread of corporate bonds and stocks over government bonds would decrease to correct for these cash movements. The government would have to pay more for use of people's money, but the impact on rates paid by the private sector would be minimal.
|
No. There would be a significant increase in market rates and that would severely damage the US economy.
You assume that the money that individuals invest privately would automatically go back to the government. That's not the case. A large chunk of it would be invested in equity markets by mutual funds (because most investors will not put 100% into slow growth, balanced investment funds).
The government will have to borrow money from the international community and the international community is already signalling a reluctance to finance significantly more US gov't debt. And any money borrowed would put further downward pressure on the dollar.
The increase in interest rates will be felt market wide. There is nothing that will soften the impact.
The result will be an economic downturn.
quote:
Originally posted by DanS
What Bush plan have you looked at that proposes a wide range of investment choices? |
From the White House:
"The President’s proposal would ensure that workers who have participated in 401(k) plans for three years are given the freedom to choose where to invest their retirement savings. The President has also proposed that choice be a feature of Social Security itself , allowing individuals to voluntarily invest a portion of their Social Security taxes in personal retirement accounts."
http://www.whitehouse.gov/news/rele...20020228-1.html
It's a recipe for economic disaster.
|
|
| |
|
|
|
Tingkai
|
|
To find the Northwest Passage
Aug 2001
time: 13:17
|
|
If you click the link below, you'll see the projection for 2025.
http://www.census.gov/population/ww...tions/np_p3.gif
Notice the bulge of people between the ages of 30 - 44. These are the Y-gen (people who are not 10 to 24 years old.
Crisis? What crisis?
|
|
| |
|
| |
All times are GMT. The time now is 05:17.
Apolyton Time is 00:17. |
top of page
|
| archivepost |
|
Forum Rules:
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts
|
HTML code is ON
vB code is ON
Smilies are ON
[IMG] code is ON
|
|
|
|
|
|
09-12-2004 02:59
|