Thursday, November 11, 2004

The Social Security Fund

Much discussion has been going on about restructuring the Social Security system. The Bush initiative calls for privatization of accounts, where Individuals could divert some percentage of their contributions into investment accounts. This plan has certain pitfalls, most notably a diversion of funds as Investment charges, and difficulty in determination of acceptable types of investment. Another proposal states that an Investment Board should be set up to do the actual investment directly, and avoid Investment charges, while investing as a system unit. Other proposals suggest raising the age of retirement, putting a Cap on yearly Medicare expenditures per Individual, standardizing the monthly benefits to a single level living allowance, eliminating the Cap upon contributions into the system, and lastly, raising the Social Security tax rate. All these Proposals come because of the expected deficit in the Fund which will come with the retirement of the Baby-Boomers.

Another Proposal advanced by this Author is to turn the Social Security Fund into a national banking system. Economics will state the Deficit in the SS Fund is relatively immaterial, as the real problem is the lack of participation of Retirees and the Fund in the economy. The labor force of the future will have to provide for the Retirees with Goods and Services, no matter what manner of Surplus or Deficit exists in the Social Security Fund. This lack of participation is the culprit, for both Retirees and the Fund. What is necessary is to reintergrate both Retirees and Fund into the Economy. The Social Security Fund could be altered to perform as a national banking system easily, and in such manner, perform the above desired reintergration.

The Social Security Fund has been in surplus since its inception, and will be in surplus for some period into the future--relatively unpredictable because of escalating health care costs to Medicare. The previous and current Surplus of the Fund is accounted as Treasury debt, which can be easily converted into Treasuries. Such Government Notes could equitably serve as Reserves for a banking system. The primary step for a banking system has been achieved: an existent level of deposits. The Social Security Fund can be chartered as a national bank. The most viable course after it being chartered would be to purchase private banking system with Treasuries. We achieve a new national risk banking system drawing Profits from the economy from investments, and revenue from Social Security taxes; it becomes an intergrated element of the economy. Its commitments would consist of the payment of the Benefits quaranteed to Retirees who have paid into the system. There will be no Investment charges, less risk than open investment in markets, participation of both Fund and Retirees in the economy, and risk Profits at acceptable risk levels to make up for the SS Fund deficit. lgl

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