ianrandalstrock ([info]ianrandalstrock) wrote,
@ 2008-03-27 14:29:00
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Entry tags:finance, politics

The Social Security Asteroid of Doom
My ego says "Wow. Glenn Beck read my post of two days ago, and went on to write this CNN opinion piece." The rational part of my brain says "It's an issue that affects us all, that is (or should be) a campaign issue, and that isn't discussed enough." Whichever part of the brain is right, Beck's piece talks about the impending financial obligations Social Security is bringing down on us all (well, we US citizens).

Thought experiment: how much more money would you have in your pocket, and how much more of what you want would the government be able to do if there was no Social Security? When it was started, it was a surplus the government could borrow against. Very soon now, it will become a liability. Remember, your social security taxes are not being held for when you retire; they're going out almost instantly to someone who is already retired (or otherwise receiving social security payments). By the time you get around to retiring, if the Social Security system still works, the money you paid in will have long gone back out, and circulated through the economy who knows how many times. That small monthly check you'll be getting will be the taxes paid by people working at that time.

If Social Security can't be saved—if there must come a time when we say "No more. I'm sorry. It doesn't work any more"—then there will be a generation of people who are rightfully pissed off for having paid so much into the system and gotten nothing out. And they'll also be upset for having planned on using that money as some of their living expenses during their retirement, only to have no money there. It's probably going to happen, unless we start working on it now. Start reducing payments and increasing taxes to cover what's needed today. Start educating people that their Social Security checks will be smaller, and that they need to save more for retirement on their own. Start at the very least discussing what is commonly known as the third rail of politics. Maybe what we need is a President who comes to office and says "I don't intend to run for another term. I want to do the best job I can today, and I want to work with a Congress that cares more about doing its job than keeping its job." With that group of people maybe, maybe, they can rationally discuss Social Security and implement the changes necessary to wean us from it. Anyone willing to try?


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[info]den_down_unda
2008-03-27 07:28 pm UTC (link)
Um... Social Security and Medicare are two different issues. The Social Security trust fund is running a surplus. It's not insolvent; it's not going to be insolvent. In 2019, SS will start running a deficit. In 2041, the trust fun will run out, which does not mean "there will be no social security."

It means that, unless steps are taken, you'll only be able to get out what is put in, which means you might only get 70 percent of the amount you thought you would. This can be taken care of fairly simply—whether by raising the cap on FICA-taxable income, by raising the retirement age to 70, or raising the perecentage of the FICA tax. What's more, these issues are short-term, due to the monster demographic bump known as the Boomers. By 2062, without changing anything, the fund would start running a surplus again.

Medicare is a separate issue, because the Medicare trust fund will be empty in 11 years. Doubling the Medicare tax wouldn't be a particularly popular solution, but it's not as awful as all that; our Medicare taxes would jump from 1.5 to 3% (or 3% to 6%) if you're self-employed. Or we could, you know, fix the medical industry in the country. This is, I assume, whatwill happen because unlike in 1993, GM is in favor of health-care reform, because its getting killed by health insurance costs.

The underlying issue isn't the insolvency of Medicare or SS, but rather the insolvency of the government itself; and that might be coming in the next couple of years at the rate we're going. But far from hastening that, SS has been preventing it for the last generation. Remember Al Gore's lockbox from 2000? That was so there wouldn't be IOUs from other parts of the government in the trust fund. And when those IOUs come due, it's not going to be because Social Security payments are late, it's going to be because our Chinese creditors are going to foreclose on the whole country.

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Deflecting the asteroid of Doom
[info]retiringwithaplan.blogspot.com
2008-03-28 01:30 pm UTC (link)
Everyone it seems wants to kill Social Security. Those that don't, are rehashing old ideas that have not sold well in previous attempts.

I was thinking of another way to save the program from the defeatists and those lacking originality.

It is widely considered fact, that the recent actions of the Fed, stepping in before Bear Stearns could collapse is a good thing if, and this is a very big IF, they can hold the securities they guaranteed until maturity. I am not defending what the Fed did by any means and have been on the record as critical of most of their actions. But the guarantees they offered on the questionably valued securities might offer a glimpse into how Social Security could be saved.

Mortgage backed Securities, for those who may not know are bundled home loans that make money available to those who sold the loans in the first place to lend again. The problems began when the product was offered for sale. Since few had been sold, no one knew what they were worth and unfortunately, no one was willing to hold onto them until they matured. Because of this "thin" activity and the unfolding mortgage crisis, values plummeted. When the Fed stepped in, they secured these securities and created a value for them.

My proposal to save Social Security is this: Could these types of securities, which can be bought on the cheap, be a way to fund SS without buying Treasuries?

If the surplus in SS is be used to purchase mortgage backed securities and, if the program held them long enough, would be highly profitable. This type of purchase would remove the surplus from the hands of lawmakers with several certain side effects. The securities would attain a stable value relative to the underlying security, the home that backs the loan would be worth keeping (interest rates could be frozen on these loans once the new value of the security was established)and the economy would get the needed boost of stability.

Future MBS's could be peddled to the program and would further stimulate the economy. Folks stay in their homes and the future of Social Security would be cemented in the American Dream.

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