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Minyan Mailbag - Social Security Buzz Recap



Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next discussion with that very intent.

Professor Succo,

Creating private Social Security accounts IS NOT a solution to the Social Security problem.

Under the current system, dollars are taken from wages and the government takes on an obligation to pay a future stream of income. Money comes into the government coffers, but there is no account that these dollars go in, they are spent. It is a quasi-loan from citizens to the government. It would be like Citibank giving me $250,000 and telling me that in 20 years they want me to start paying them $9,000 year for the rest of my life. Only rather than investing, I spend all the money expecting to take those future payments out of my future income. In other words, the 250,000 is NOT collateralizing the future income stream.

With private Social Security accounts, the government would actually have a present expense, (rather than just an obligation for a series of future payments). That means that the treasury would need to "create" the dollars necessary to fund the private accounts with present dollars. That would provide additional liquidity for our stock and bond markets and it reduces the U.S. government's future payment obligations. From an expense standpoint, the whole amount will need to be borrowed by the government. Since we are already in debt up to our eyeballs, we might as well just realistically say that the U.S. is going to take an additional loan from Japan and China to issue checks to U.S. citizens that they can only use to buy stocks and bonds for retirement.

It is in its essence - additional foreign borrowing to fund a targeted stimulus that will further strain the tenuous dollar conundrum.

Minyan Jeff Wachtman


This is an accurate description. We have commented on this before: essentially, the U.S. government is borrowing to buy stocks.

Prof. Succo

No positions in stocks mentioned.

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