Dec 20, 2010

Social Security Facing Waterloo In The Spring?

From Dean Baker, Co-Director of the Center for Economic and Policy Research, writing at the Huffington Post:
Sometime in the spring the government will run up against its debt ceiling. This will prevent the government from any further borrowing.

Since the government has a substantial deficit, with spending exceeding revenue, hitting this limit would mean that the government would not have sufficient funds to pay for all its programs. It also would mean that the government could not pay interest or principle on debt that is coming due; in effect requiring it to default on its debt.

The prospect of the U.S. government defaulting on its debt creates the sort of end of the world scenario in which Congress rushed to pass the TARP in 2008. Back then, President Bush, Fed Chairman Ben Bernanke and all sorts of other luminaries told members of Congress and the public that we would have a second Great Depression if the Wall Street banks were not immediately bailed out, no questions asked. And the money flowed.

The prospect of defaulting on the debt will create a similar outbreak of shrill warnings of disaster. This would likely to lead to scenario in which President Obama signs whatever debt ceiling package House Republicans hand him, even if it includes the privatization of Social Security and Medicare and major cuts and/or elimination of other important programs. The argument from the administration will be that they have no choice.

I do not buy that this is going to happen, especially since any form of privatization would increase the deficit dramatically, but Baker is not the only one sounding the alarm.


Don Levit said...

When you look at privitization of Social Security versus the present system, privitization, to me, is the preferred choice.
Under the present operations of the system, the trust fund dollars are loaned to the Treasury. Thus, those dollars are no longera available to earn interest.
And, the interest these "phantom dollars" earn is "phantom interest," paid by issuing Treasury securities, more debt.
I can empathize with people who are concerned about the stock market.
It basically hasn't grown in over a decade, which I think is the first time that has ever happened.
Bonds look weak, for many people think interest rates will rise, thus deflating the value of bonds, particularly long-term bonds.
For me, I shortly will be pulling out of the stock and bond markets entirely, investing in annuities with several "highly rated" insurers.
These annuities grow with the S& P index.
If the index rises, I capture a portion of its gains.
If the index falls, I lose nothing, and start from a lower base to accrue growth.
I am also guaranteed 3% on my money.
To me, this looks to be a very viable alternative compared to what we've got.
Don Levit

Anonymous said...

The debt ceiling is raised all the time. It has happened under both Republicans and Democrats. Nothing is different now. Just more fear-mongering. When will people learn.

Anonymous said...

Don -- guaranteed 3%??
I think you need to do research on that.
If you're being guaranteed with no risk attached, then in all likelihood, you've got yourself a Ponzi scheme.

Watch out and good luck to you sir.

Don Levit said...

Thanks for your concern.
What we have now isn't a Ponzi scheme?
I presented a trust fund presentation to the Unitarian Universalists last Sunday.
They are a fairly liberal bunch composed mostly of agnostics and atheists.
It came down to "full faith and credit of the U.S. Gocvernment" for paying out of the trust fund.
When I ssked them, "Who do you have more faith in - God or the U.S. Government, it was a tie!
Don Levit