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Strategies & Market Trends : Classic TA Workplace -- Ignore unavailable to you. Want to Upgrade?

To: AllansAlias who wrote (50891)	8/21/2002 3:15:25 PM
From: reaper	Read Replies (3) \| Respond to of 209892

<<so utterly shocking to me that the government would step in>> <<Since the mid-nineties they have inculcated this notion that there is no high-risk in the markets. >> AA -- do not be shocked. they have to do this. Over-hanging the US is the damoclean sword of the (unfunded) US pension system, otherwise known as social security. The unfortunate fact of the matter here is that the math of the bankruptcy of this system is unavoidable (barring a plague or something that wipes out everyone over 65). The government is working as fast as it can to, as most companies have done in the last 20 years, turn its defined benefit system into a defined contribution system (at of course huge losses of 'wealth' to the beneficiaries). The first step was undertaken in the mid-1990s, when the Boskin Commission found what it set out to find, namely that CPI was over-stated by +/- 1%. Just for laughs, do the math of growing $1 at x% and then at (x-1)% over 20-25 years; the difference is HUGE. So anyway, permanently lowering the CPI helped lower the future value of expected payments. The next step was brought to you by 43 in the elections, namely 'personal retirement accounts' or whatever the f he was calling them. This is where the the defined benefit system gets changed into one of defined contribution. And this does not even begin to address the actual pensions of gov't employees (federal, state, municipal). A recent study indicated something like 75% were currently under-funded thanks to the fall in stocks. And this does not count the deficits in private pension plans. The S&P 500 as of the end of 2001 had a funding deficit of $245 billion for pensions and post-retirement benefits, a deficit that is probably now closer to $500 billion, and 82% (at that time; the number now is likely close to 100%) of companies are under-funded. The government especially, but also many corporations, have made a lot of promises they cannot afford to keep. Their only hope is to renege on these promises, and to do this they need the stock market to not crash so they can pawn the liabilities onto the general populace and off of the government. Cheers