Sep 15, 2013

Here's An Alternative If You Don't Like Having The Trust Funds Invested In Government Bonds

     From Slate:
A lot of coverage of the sale of Neiman Marcus by the private equity companies than own it to new private equity companies seems to me to be missing what's interesting here. David Gelles at Dealbook, for example, said the buyers are "a group led by Ares Management and a Canadian pension plan."
But it's not just a Canadian pension plan. It's the Canada Pension Plan.
Which is to say the luxury retailer has been bought by Canada's version of Social Security.


Anonymous said...

Interesting to see, however the main thing when thinking about alternatives is that the existing $2.8 trillion in gov't bonds must be redeemed first.

Anonymous said...


This Sunday morning on a news show:

Barack Obama: "I'm willing to reform entitlements". Once again, this guy, whoever the hell he really is, is calling Social Security an entitlement while offering it up to republicans once again.

Clearly, not only has he no loyalty to Social Security, he has no party loyalty either.

People, we're seeing a potential nightmare unfolding before our eyes. With tea party types conducting an "economic terrorism" campaign against him, this hapless pawn may be about to give away the store.

Every American knows that the feds have no business including Social Security in debt deals. It has a $2.8 trillion surplus.

Bottom line: the feds are going where the money is and they intend to ROB US. This is what happens when big money corrupts politics.

Even though Social Security has yet to be cut, a
preponderance of the evidence is that it is in grave danger. If passed, Chained CPI may be followed by additional cuts and eventual privatization.

The likelihood that Social Security survives in its current form is dependent on how hard Americans are willing to fight.

Folks: it looks like we're in Big Trouble! The time to act is now. Upcoming budget battles may provide Obama the cover he needs to stab Social Security in the back.

Anonymous said...

This would bring up the issue of whether the government should have an investment interest in one company over anotherand how this could influence government policy. In this case, Neiman_Marcus does not have any stores in Canada but I could just see the complaints in the US if people found out the government pension was invested outside the country.

Don Levit said...

Anonymous at 4:29 stated "It has a 2.8 trillion surplus."
Anonymous at 1:05 stated "The existing $2.8 trillion in government bonds must be redeemed first."
Curiously, both are correct.
The surplus is in the form of government bonds, for it was loaned to the Treasury to pay for expenses and lower the deficits.
The bonds were issued as collateral for the loans.
Those loans over all these years must be paid back... and the process must start, soon.
The advantage of private investments is that the government would be less likely to raid the trust fund if people's own designated money was being pillaged.
Currently, they are able to borrow the taxes, which the government views as non designated money, not actually owed to specific individuals. Raiding people's own, individual accounts will be a lot more difficult and a lot more illegal.
Don Levit

Anonymous said...

Don, you stated that loans needed to be paid back. Do you really believe they will be?

Actually, cash shortfalls occurring over the past few years have been made up from the general fund. Bonds didn't need to be redeemed, as intetest credited to the fund was used.

These shortfalls, although expected, seem to have many in Washington running around like "chickens with their heads cut off'. They are also relatively minor considering the boomer retirements have begun and economic factors are exascerbating the situation. From what I've read, the cash shortfalls have been in the 4-5% range per year, or about $40-50 Billion. Seems "manageable". So, the feds have begun repayment of the borrowed money.

It seems like what many in Washington want is to institute cuts in benefits to end these shortfalls. The Chained CPI may not accomplish this as it appears to be more of a long term policy. That makes me afraid that they might try something more drastic and immediate.

I'm only just recently realizing the influence and pull that people like Pete Peterson and other millionaire and billionaire types are having in this matter. And how dangerous this situation really is. The very idea that cuts to Social Security are even being considered while the huge trust fund is outstanding is, for lack of a stronger word, outrageous.

Don Levit said...

Anonymous at 11:33 wrote "Bonds didn't need to be rdeemed as interest credited to the funds was used."
The interest credited was in the form of Treasury bonds. So, in order to redeeem the interest (and soon, the principal), general revenues were needed. Without a budget surplus, additional debt held by the public was issued to redeem the interest.
"The feds have begun repayment of the borrowed money."
No, they have not. While debt held by the public was issued to redeem the interest, intragovernmental debt decreased by the same amount.
So, the good news is that total debt does not increase when trust fund principal and interest is redeemed.
The bad news is that many economists consider debt held by the public to be more "serious" debt, essential to pay back, in order to not anger debtholders, many of whom are foreign sovereign entities.
Intragovernmental debt is taken less seriously, for it is debt the Treasury owes 29 trust funds, of which Social Security is the major "bondholder."
This is internal, not external debt, debt owed to the taxpayers as a whole.
Paying back these bonds with cash requires budget surpluses. It may take a while for that to occur.
Don Levit