Tuesday, March 25, 2008

Saving Social Security

Social Security CardFrom the obvious files, Treasury Secretary Paulson declared that  we have to do something to fix social security.  Not sure where he has been the last decade or so when it became pretty obvious that we had a mounting problem.

Clearly we can't sustain the current path.  Either taxes need to be raised (they are already pretty high) or benefits need to be reduced.    Now, we all know how I feel about taxes, so I'm clearly not in favor of that.  I also see how it would be unfair to reduce benefits to those already retired or near retirement.  To me, the answer seems pretty simple.  Start promising less to people like myself and raise the retirement age.  If people near retirement need to work a little bit longer, so be it.  Social Security was never meant to fund people 1/3 of their life.

You know what the scary thing is?  I'm not sure if people fully realize the full extent of the problem.  Read the article.  It talks about how Social Security will start running a deficit in 2017 and go bankrupt in 2041.  What is not talked about is the fact that what happens in 2017 when the government has to start drawing from the "trust fund".  The fund is nothing but government issued bonds.   This causes a double whammy.  When they come due, what do you think happens?  The government needs to somehow turn these bonds into actual money.  How do they do that?

The old trick of issuing bonds won't work, can't pay bonds with bonds.  So the government now has three horrible choices.

  1. Cut spending somewhere else

  2. Raise taxes yet again

  3. Print money causing massive inflation

Considering how hard it is for the government to do either of the first two now when the pain would be relatively minor I have a bad feeling that the government will do #3.  So not only will I not get any benefit from Social Security, not only will I have to pay for everybody else's benefit, but all the money that I have saved for myself will become worth a lot less.  Sounds like a great future.

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