On Sun, Dec 19, 2004 at 02:05:07AM -0500, Bryon Daly wrote: > One question first to see if I'm on the right page: if SS was > privatized and hooked into the stock market, that would mean that > my SS tax money would go into an account in my name and be invested > (somehow) in the market, and that the government couldn't use that > money to pay out benefits to other people (as is the case now)? Is > that correct?
That is what most people are talking about. > If so, that begs the question: what about the people receiving > benefits currently under the old plan? Are they "grandfathered in"? > If so, where does the money come from to pay for them? I'm guessing > "new taxes"? The leading plan would keep benefits more or less the same for people who don't elect to divert some of their payroll tax to individual accounts. (More or less because there has been some talk about indexing benefits to inflation instead of the faster-increasing wages that are indexed now) The traditional benefits would be paid the same way they would be paid without the partial-privatization, except more so. (in other words, taxes and government borrowing, but under Bush you can bet on the borrowing rather than the taxes) > Also, what about people who've been paying into the old system for 10, > 20, or 30+ years - they've paid a lot into the old system, money that > is, technically, theirs, I believe. I suspect the answer is "tough > luck"? You suspect wrong. No way a politician would get away with that. Can you say AARP? > If that's all the case, it seems to me that initially a lot of money > will flow into the stock/bond markets, and very little will flow out > until the people that actually paid into this new private system start > retiring and pulling money out. None of the leading privatization plans that I've seen allow more than 4% of payroll to go into the accounts. Currently SS tax is 12.4% (half by employee and half by employer). > The sheer amount of money that would be pumped into the market at > the start makes me wonder how the market could handle it. If the > privatization works as I think, that would mean essentially around > $526 billion (amount collected in SS taxes in 2002) would start to > flow into the stock/bond market *yearly*. More than $700B in US treasuries, agency securities, and MBS/ABS trade hands DAILY. The US stock market is worth more than $12e12. The US bond market is over $22e12. I don't know how big the foreign stock and bond markets are (NYSE says that the US stock market is 57% of the world market) so let's leave them out for now and be pessimistic in our estimates. Let's be even more pessimistic by taking your full number of $526B instead of 1/3 of it. $526B is 1.5% of the US stock and bond market. So, even an extremely pessimistic estimate has us increasing stock and bond markets by just 1.6% a year due to SS money. Given that the stock and bond markets have increased about 9% per year historically, this 1.5% will not cause any serious difficulties. Many people would welcome it help the market -- usually markets have trouble with not enough trading, not by having too much trading and too much capital. > From what I've read, managed mutual funds like Fidelity's Magellan > become incredibly unwieldy once they get large. Magellan is currently > at ~$63B and hit ~$104B a few years back and used to be the largest. > (The Vanguard 500 index is at $81B, and the Wilshire 5000 index fund > (WFIVX) is at ~$110B), That $63B, $81B, or $110B is the total net > assets for the fund. The thought of some government flunky running a > fund that gets that much money (or double or triple) to invest *every > year* is frightening. It would mean incredible, almost unstoppable > power to move the market not just on individual stocks, but on broad > sectors or even the market as a whole. Irrelevant. Magellan is not an index fund. More importantly, an individual fund manager doesn't choose the allocation of stocks in an index fund (and in the case of the DJ Wilshire index, there isn't much choice by anyone since the index is just about everything), and the size that matters is not the individual index fund but the entire index. SO, you don't look at Fidelity's WFIVX of $110B but rather the entire US stock market of over $12 trillion. > Having the SS investment money tied to a big, broad index is less > scary, but when we're talking $500B* to invest per year, that's a lot > of money to be pumped into virtually every stock on the market, every > year. No, it is not a lot, it is a drop in the bucket. No problem. -- Erik Reuter http://www.erikreuter.net/ _______________________________________________ http://www.mccmedia.com/mailman/listinfo/brin-l
