Two sets of books, two assumptionsposted by Ron Beasley at 2/10/2005 09:39:00 AM
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If economic growth is slow enough that we've got a problem with Social Security, then we are also going to have problems with the stock market. It's as simple as that," said Douglas Fore, director of investment analytics for TIAA-CREF Investment Management Group. A spokeswoman said the company has not taken a position on the Social Security debate.So, if economic growth is slow enough to cause a Social Security shortfall the stockmarket will also perform badly. Some predict that if money that now goes into the Social Security trust fund is invested in securities the demand will result in an increase in equity value. There is one problem with that, if stock prices go up without earnings and actual value increasing we have a bubble. As we learned in the 90's bubbles always burst.
It's a different economy
White House officials think the decision is easy. Social Security's chief actuary assumes that an account invested half in stocks and half in corporate and Treasury bonds would yield a 4.6 percent return above inflation, enough for a comfortable profit over the traditional benefit. An index of stocks alone would return 6.5 percent over inflation, based on historical performances.We know that the Iraq war was not about WMD so we should not be surprised the "private accounts" aren't about you have more money when you retire. Just like the WMD in Iraq you have additional money when you retire is a myth and a lie.
But some economists are not so sure. Richard Berner, senior U.S. economist at Morgan Stanley and an opponent of diverting Social Security taxes into private accounts, said strong stock market returns of the past 20 years were an anomaly driven by a confluence of low inflation and low interest rates that is not likely to repeat. "The administration's assumptions, especially for a balanced portfolio, sound pretty high," he said.