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Interest rates for US Treasuries have been falling for years. The benchmark 10-year bond is currently at 2.0%. That average rate of 3.0% for SS ROI is going to drop as bonds currently held by SS mature. Current inflation rate is about 1.8% so the current bond coupon is barely keeping pace with inflation.
Yes, thanks for the post. It was very informative. One quibble though is this:
I agree that we do not want Wall Street managing SS. I was never suggesting that. But there is a difference between using investment vehicles other than US Treasuries (which is really moving money from one pocket to the other since it it the US government that is paying the interest to SSA) and handing it over to Wall Street.
Endowments, public pensions funds (other than SS), private pension funds, annuities, private retirement accounts (like 401k, 403b, IRA, etc.) all invest in the stock market for a good reason - the returns over time far surpass those of credit markets. And they keep pace with inflation far better than bonds do. It seems silly to me for SS to have one investing hand tied behind its back.
Do you know why this was rejected in the past?
The original proposal for SS in the 1930s was to invest overages in the stock market, but it was opposed as a descent into communism. Once the government owns the means of production, you have a de facto communist state.
SO, you are asserting that government forecasters are incompetent? Were they incompetent in 1997? Or were they incompetent in 2007? Or both? Are they still incompetent?
It was a simple technical glitch. Their time machine was in the shop. Forecasting the market is a fool's errand. That's why index funds outperform managed funds. Nobody knew what the Fed would do. Nobody knows what the Fed will do. A fraction of a percentage in returns on bonds makes a huge difference 30 years down the road. When interest rates go back up, all they have to do is sell the 2% bonds and buy higher yielding bonds. That's what everyone else will be doing.
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Originally Posted by SportyandMisty
That's a bad idea, as the burden fall solely on high income workers. Far better to leave the cap in place and raise the percentage being withdrawn from employees paychecks. This is one of the few ways the federal government can extract some much needed revenue from the ~ 50% who pay no federal income taxes.
It's not much of a burden, since low income workers get to pay a higher percentage of their income. Opposition to raising the cap is just infantile whining.
Personally, I think a fraction of a % tax on all stock and bond transactions would be the simplest solution.
A lot of people probably aren't going to like this observation, but I suspect that the root causes of the problem lie in the basic nature of human want, abetted by changing roles within the workplace and differences in consumption patterns within a diversifying work force.
Fifty years ago, the pattern of the (usually-)male breadwinner as the anchor of the household was still prominent; that individual brought home more of the material goods that kept a household running. Purchases which involved a greater input of another person's time and attention were most readily viewed as luxuries, albeit often on a small scale.
The post world war II economy saw rapid growth, primarily because most of the overseas competition was either in ruins or under the boot of Marxism. The rest of the word was eager to buy North American goods at non-competitive prices. The demand for American labor drew more women and teenagers into the labor force.
The newer participants didn't earn as much, but since most of them were living under someone else's roof, their purchasing patterns were likely to involve "upscale" goods, and an increasing component of services. Greater mobility also led to greater demand for products with a higher service component -- more meals purchased and consumed away from home, for example.
And so the cycle feeds upon itself; we bring in more money, but it goes faster because more of it is spent for resources requiring somebody else's participation; "we have met the enemy, and he is us". (Walt Kelly, creator of Pogo. on the occasion of the first Earth Day).
The phenomenon seems certain to intensify as a continued rise of living standards in the Third World will further shift consumption patterns in the direction of a greater demand for the services everyone appreciates, but fewer among us want to be stuck with providing.
Didn't Pres. Clinton do away with welfare-as-a-way-of-life?
Apparently not because people are staying on it for years, if not their entire life. It's ridiculous! There needs to be a limit on the timeframe one can receive benefits. This will force people to improve their situation by forcing them to find work and/or get educated to find better employment. Government assistance was never meant to be long term however, we have generation after generation that makes it a way of life.
Personally, I think a fraction of a % tax on all stock and bond transactions would be the simplest solution.
Not sure I see that. A lot of people don't make stock/bond transactions. Seems simplest to make each person's annual SS contribution come from a tax on that individual's AGI (adjusted gross income) which will include all forms of income - rental income, capital gains, dividends, interest, earned income, gifts, inheritance, etc. Not sure why it is just a payroll tax.
The purpose of SS is not really clear and probably needs to be restated. Is it an annuity for each individual? If so, there would be no means testing as it is simply your money. Or is it a safety net? If so, there would be means testing and furthermore, some people may get way more than they put in, in which case part of SS needs to be funded by general tax revenue. It seems that SS is somewhere between a pension and a safety net.
Oh, it won't be turned back. It will just be renamed either RWC or TC.
(right wing care or trump care). That's what all the fuss is about....
LOL! I agree. The PR-driven GOP thought it was being so clever in attempting ridicule PPACA as "Obamacare" back in the day, and now they've come to realize that the name has become a monument to a man they hate more than any other. Well, maybe not more than Bill Clinton or Jimmy Carter. You know, the two guys who along with Barney Frank somehow brought about the Great Recession. There's another LOL!
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Originally Posted by craigiri
We never seem to get around to grown up conversations in this country.
That was exactly the point in Nancy Pelosi's "We have to pass the bill..." complaint. The Death Panels flash-mobs were sucking all the air out of the room with their endless nonsense. No way to elevate the conversation to anything above spoiled-brat middle-school level.
Certainly they allowed the Great Recession to occur.
Their role went far beyond "allowing". The monster waves of the Great Recession were sprung from the 2008 asset market collapses that resulted from failure to contain the 2007 credit crisis in the financial sector. The credit crisis itself was directly caused by several years of Wall Street investment banks selling into secondary markets mortgage paper that they flat-out knew was going to fail once interest rates began to rise. As for the Bushies, they not only allowed all that to happen but actively encouraged it.
Quote:
Originally Posted by craigiri
But it was "produced" by a gullible and uneducated and selfish population whom Wall Street and Corporations and every breed of criminal was allowed to feast upon.
That's like blaming the dog rather than the human who fed him the tainted meat.
It was because he is well-respected and dumps a hefty bucket of ice water on a lot of conventional pop-thinking about investing in anything.
And of course, the mathematics of losses from market downturns are indisputable. Worse yet, when those losses start to show up as shortfalls against where people had expected to be in Year-X of their master plans, it leads to decisions to try to make up for lost time by taking on additional risk.
***DISCLAIMER***
This is not a post about partisan politics. It's about economic factors int hte decline of this great nation.
I regard all political factions as equally worthless. .
***END OF DISCLAIMER***
Thank you for your patience. Now,
We are having bad economic times. The national debt is as big as the average Walmart shopper, our families are so much in debt they start talking like politicians. The middle class is so close to extinction the WWF has put it on the watch list.
I see one constant: families are no longer able to get by on a single pay. I see young parents, working three jobs and still end up in misery when an unexpected cost comes up. i see poverty rates going up, and the insane wealth of the wealthiest going up as well. that's not right. I don't mind rich people getting richier, they work for it, but at the same time, average Joe should get richer as well. Which isn't the case. So there's something wrong here.
When you see the price inflation, the incline is steeper then the average wage increase. that's bad news, because that means we are steadily losing purchasing power. Which means wer are losing economic momentum leading the the well known vicious circle of economics.
You can fret over SS and foodstamps and whatnot, at least they keep basic consumption flowing. Which is good on the short term, but not on the long term. That's why I like our military so much, they provide training to hopeless cases while keeping a lot of people employed, research and development going and expenditures high. Too bad it's tax money, but that is tax money well spent.
So, apart from all bull**** blah blah uttered by politicians, how do we solve this? You can't strip a bare rock. We need to put money back in the pockets of the average American, or we will go down the way of the dodo as a superpower...
We're in a stubbornly slow recovery from the 2008 economic disaster. The recovery has worked very well for the wealthy and not well at all for workers. But that's all according to the wishes of the corporate interests that own the USA.
The next 4 years promise to be "very interesting" in terms of which segment of the populace benefits from fiscal policy. All but the most gullible among us probably have a good handle on how that's going to play out.
The original proposal for SS in the 1930s was to invest overages in the stock market, but it was opposed as a descent into communism. Once the government owns the means of production, you have a de facto communist state.
Oh, please! There were never more actual communists in the US than in the 1930s, and that was quite understandable given the then recent worldwide death of capitalism. Meanwhile, SS was established to be a pay-as-you-go social insurance system. Following a common insurance model, current premiums were used to pay current beneficiaries. A trust fund was established to hold operating balances and any incidental program surpluses as might arise, but this was not a major component of the system. If either surpluses or deficits became a problem, the program was tweaked to bring it back into general balance.
All that changed in 1983 when taxes were raised to levels far above those needed to sustain SS on a pay-as-you-go basis. From that point, the trust fund became a pot to hold a cushion of cash that would be used to help fund baby boomer retirement benefits without needing to add large burdens onto taxpayers of that time. That is where the $2.8 trillion currently in the SSTF came from. With a primary investment objective of conservation of principal. the only approved investments of those funds are in US Treasury securities.
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We're not in a downturn. Yet...
