>>>>A magic $100 billion in savings? Sounds a lot like David Stockman's magic asterisk. No definition about where it is coming from. Indeed, it is unrelated to SS reform at all.
>From: Javier Jimenez
>>>>a) There's no magic $100B in savings; the failed magic trick stops with the end of SS as we know it. Those savings are real and come from payroll contributions, as suppossed to taxes, from all workers that choose to switch to the new system; b) Since the government's general revenues would be used to cover the cost of current retirees and baby boomers, there will basically be no reduction in consumption because retirees will receive their promised benefits;
You must not be familiar with the CATO Plan. Note their own explanation from their own website:
>>>>Here is an example to demonstrate the analysis just given. Assume a Social Security system in the year of reform with $100 billion in revenues and $100 billion in benefit expenditures. Suppose the workers invested the $100 billion in revenues in a private system instead.
>>>>Now suppose that to obtain the funds to finance outstanding benefit obligations, the government cut spending on other programs by $100 billion. The result is $100 billion in increased savings, through the private system. Moreover, the $100 billion in reduced government spending involves forgone present consumption, by society as a whole and not just current workers, of $100 billion as well. The cost of the transition is simply the cost of the increased savings, which is the same as the cost of any other savings increase forgone present consumption equal to the amount of the savings increase.
Note that the entire $100 billion in additional savings and reduced consumption comes entirely from reduced gov't spending on other programs. If that was not present, the $100 billion the workers put into private investments would be entirely offset by the gov't borrowing the same amount from private capital markets to continue with the current SS payments and no net savings or reduced consumption would occur. And the $100 billion is totally unrelated to the SS reform. So what is really responsible for the increased investment savings? And even CATO tells you that this involves $100 billion in reduced consumption (in the form of gov't spending). Indeed, you cannot magically increase the savings rate overnight without reducing the consumption side of the equation.
>From: Javier Jimenez
>>>>c) there will be no printing of new currency; thus, no inflation pressure. Workers that choose to switch will be given recognition bonds to mature at their 65th b-day.
Inflation does not depend on the printing of paper currency, it has to do with the amount of 'money' in circulation, a different concept. All the gov't bonds issued up to this point have represented real borrowing of real 'money' already in existence. These new bonds represent 'money' that has never really existed. There is where the inflationary pressures come in. At some point, those bonds have to be exchanged for real 'money' or something of value. At maturity, they have to represent some real 'value' that has never existed before. Will the holders be allowed to market (sell) their bonds? If so, that will have a major effect on the bond market. If not, how will those holders be able to protect themselves from inflation. Will the gov't provide an inflation escaltor clause? Paid for how?
