Friday, January 21, 2005

Social Security privatization

I’d really love to stick it to Cheney and Bush on the Social Security privatization numbers they’ve been touting – but I can’t. Over forty years, investment in equities will returning 5.9%, will be 2.5 times as much as the same investment at 2%. But that has nothing to do with the soundness of the Social Security System.

Cheney’s talk of real world numbers is bogus – it has no relationship to either real interest rates or equities performance since 1928; I suggest he look to the Carter years of double digit interest and inflation rates – even Series EE Savings Bonds carried a variable rate with a guaranteed minimum in excess of 6%.

In late 80's, the safest form of small investor investment exceeded historic equities performance.

Now, Dan Bartlett, counselor to President Bush, said SSA could do, “and what anybody can do, is to look at the numbers, and they're undeniable." Investment in equities out performs treasuries.

So why involve beneficiaries in the change? The government collects withholding, has the money, let them invest it in equities.

On a specific stock basis, equities are not safe – bubbles burst. Cheney asserts the government has the wisdom to provide guidelines. But, gee, the market plunged in 1929, 1987, 1999 and ...

In 1938, Roosevelt said, ''Because it has become increasingly difficult for individuals to build their own security, government must now step in and help them lay the foundation stones.''

That foundation worked and the nation prospered. How many people were born, lived and died, during the past 70 years – they, and their families, protected by the current system?

HELLO...Washington...anybody home! Social Security works. Privatization doesn’t. Or, at least it hasn’t in the real world. Britain committed to it twenty years ago, as did Chile. Both have seen no benefits. Privatization has driven their elderly into poverty, which the government has had to compensate for – at a higher cost than our system.

The actuarial numbers work. With the current life expectancy of 76, the average minimum wage worker will live just long enough to exhaust their contributions. Those contributing the maximum will need to live to 116 before their funds are exhausted. Right now, at 60, the majority of those who contributed to the system over the last thirty years are dead – so they’ll get no benefits.

Why can’t the Bush administration stop it’s lies and distortions? If Bush believed privatization is “for real”, and he believed the government can set safe investment guidelines, simplicity dictates he would want Social Security to buy equities instead of treasuries. He would not plan to add $2 trillion to the national debt, a $500 billion in interest through 2018 and $60 billion a year after.

KISS – Keep It Simple Stupid – credibility test, Bush’s plan fails on everything but the “stupid.”

Ever pay a credit card by taking cash advances against another credit card? That’s privatization. If there was a crisis, and they wanted to fix it, they would raise the withholding cap from $90,000 to $250,000 and index it for inflation. KISS and it’s fixed.

When my son Edom born, one of my more insane activities was to dabble in equities and futures markets – maybe it rubbed off on him, he was on the Championship 2003 RMG Stock Team.

The relevance of that? I’m going to make an equities market prediction – should I be at a crystal ball and wearing a swami turban? Hum-m-m, ... interesting image ... OH, sorry, got distracted.

With the DOW now at 10,500, I predict, within the next twelve months, a 15% drop to test 9000 possibly a fall to 8000. Bush’s third year – June 2007, is critical – Dow poised for a 35% crash. I also predict a return of inflation, and a terrorist attack on our shores before July 2007. DUH.

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