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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: ild who wrote (21699)	1/18/2005 8:32:05 PM
From: CalculatedRisk	Read Replies (1) \| Respond to of 116555

That is the best and most comprehensive article I've read on the Social Security debate. Lowenstein gives an excellent history lesson and shows the source of various numbers (many bogus) on both sides of the debate. Lowenstein also touches on the issue of adverse selection, something I think is a critical point. If you think of Social Security Retirement Insurance as ... well, Retirement Insurance, then allowing financially healthy people to opt out (or a portion of their contribution under the Bush plan) will clearly fail. I wrote about that issue in this post: calculatedrisk.blogspot.com Now what happens if we allow Private Accounts? First, we will be removing premiums from the insurance pool of those people least likely to need any benefits from the program. This is like removing healthy Americans from a medical insurance pool and ending up with only diabetics! For diabetics we have passed legislation requiring insurance companies to accept them (and other high risk individuals) as part of a group. Isn’t that what Social Security Retirement Insurance is doing? We are keeping the high risk workers in a group. I suggest everyone read the Lowenstein article.

To: ild who wrote (21699)	1/19/2005 6:44:47 PM
From: ild	Respond to of 116555

Date: Wed Jan 19 2005 14:10 trotsky (frustrated) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved what's confusing about it? they admitted that the government spends the money and replaces it with IOUs. one of the guys stating that a default won't happen because it 'would be a first' is really comical. there's a first time for everything, as i've noted in my earlier post. no-one knows yet what the government's financial situation will be by the time the surplus inflows disappear. it may well have defaulted before that time. note: the annual inflows into the SS trust indeed are bigger than its annual outflows. but this surplus in flows is spent on whatever boondoggles the government spends its money for. if they had to really keep the cash separate, and e.g. handed it over to investment managers, the govt.'s annual budget deficit would immedately increase by 50%. so i agree it makes no difference w.r.t. the government's solvency. the 'lock box' is merely a captive 'investor' in govt. IOUs. iow, it can't one day say 'no more...i want to put the money somewhere else'. which is a problem the govt. may well run onto when it tries to sell these IOUs to private investors. Date: Wed Jan 19 2005 13:50 trotsky (dan) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved " Instead they propose looting the pension program whose sustainability isn't even in question. " i agree that the proposed reform is yet another scam, but you err regarding the sustainability of the current program. one needs to remember that the SS 'surplus' does in reality NOT EXIST. the state has long ago spent every cent in the 'lock-box' ( as Orwellian a term as you'll ever find ) and replaced it with treasury IOUs. the entire recorded SS surplus is in reality a liability - to be paid for by who-knows-who at some future date. not one of the numerous welfare schemes of the state is 'sustainable'. one needs to always keep in mind that the state is in essence a criminal enterprise put in place to loot wealth producers. its promises aren't worth a farthing. Date: Wed Jan 19 2005 13:33 trotsky (frustrated@FDI) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved the collapse in foreign direct investment flows is a signal similar to US corporations having begun to hoard cash and insiders in the US market furiously selling their shares: it shows that the private sector has finally woken up to the fact that the structural problems of the US economy are so serious that expectations regarding long term investment returns need to be tempered considerably. we already know that the alleged strength of the US economy in comparison to other major economies is largely a statistical mirage...a fiction, invented by government's statistics minions. if one takes out hedonic indexing and the rest of the bag of tricks, not much remains of the vaunted 'growth'. and once you discount growth as the fiction it is, what's left? a mountain of unserviceable debt plus several unsustainable asset bubbles. the size of this catastrophe-in-waiting is so staggering that it defies the imagination. most people remain blissfully oblivious to this, on the theory that what hasn't happened yet, won't ever happen. it's like the tech stock speculators who tried to convince me at Nasdaq 5,000 that the p/e of 300 ( not counting the loss makers of course...including them would have resulted in an infinite p/e ) was perfectly reasonable on the grounds that the bubble had not collapsed THUS FAR, which they thought proved that it would never do so. the same rationalization is employed by today's mainstream economists when they assure us that the debt mountain wont matter since it apparently hasn't mattered up to now. just as the tech stock speculators were convinced their playthings would 'grow toward justifying ( then ) current valuations' economists far and wide think the US economy will 'grow out of' its debt problems. but there IS NO GROWTH. there is only imagined growth. the debt problem ( which most people haven't even realized IS a problem yet ) will be 'solved' in the same manner such situations have historically always been resolved...via defaults and debt deflation.