Posted on 08/27/2002 3:21:15 PM PDT by BlackJack
Ok, no guarantees. I can still spend my privately invested money better than the government. If we can shrink government by, for instance, not allowing them to waste my Soc Sec contributions, we won't have such a large drain on GDP in 2032.
Still, no guarantees but taxes and dying.
Yes, the new bond (after inflation jumps) will yield more. You still lose on your old bond. If you were correct then you still prove my point. A regular treasury pays more than the inflation adjusted one and so my yield over Social Security is even higher.
And another thing, what's the risk in buying bonds that would give the unadjusted one a higher return?
And risk is real. If your retirement investment fails then what will you do? You will ask the taxpayers to bail you out. So it means that private/risky schemes are based on the taxpayer subsidy which will the real source of the gain for the winners.
No s**t. Hey here's an investment for you: Contribute $3,000 to $5,000 a year and after 30 years you will have:
1) Nothing. (e used the money elsewhere to buy votes)
2) A bill sent to you're kids to pay you about 2% return of the 30 year principal we stole. (See #1)
This is the good 'deal' the democrats insist on protecting us on; from stock market fluctuations...
sKrEW them!!
Social security is an inter-generational transfer. Money paid in and benfits received are unrelated. First recipients got benefits and paid nothing in. My father who died at 94 in 2000, got out much more than he put in and my 86 yr mother still living is getting out much more than she put in. The size of their payments were based on demographics, mortality trends, inflation, social policy, etc. Investment return had nothing to do with it. Baby boomers will get less than they pay in because of these same trends (unless changes are made). Those changes, again, will have nothing to do with investments but rather with desired social policy.
FDR said what he thought the purpose was. I believe him.
Currently it is an inter-generational, that's why it will fail. So you're saying that we should allow it to fail rather than fix it?
If we can provide for retirees without screwing current workers, wouldn't that be better?
The nice thing about investing in the markets is that eventually, you can also get out much more than what you put in. The magic of compounding. You also don't screw the younger generation while you're getting paid.
It MUST be inter-generational by the law of physics. The money and system of ownership are the artificial constructs designed to facilitate exchange of goods. But they become a virtual reality confusing and hypnotising to the believers in the free market.
Make such mental experiment - imagine that all people decide not to have children and instead to invest saved resources in economy. Such generation will be VERY succesful until it becomes old. Then suddenly for "mysterious" reason the horrible crash will occur. All investments and savings will disapear and there will be plenty of old starving people dying like flies and begging foreigners to come and take over.
"Magic" of compunding cannot exceed the real growth of actual economy in the long run. Sooner or later something "unexpected" happens - a crash, collapse, a leftist redistribution scheme, a civil war, confiscation or else.
Usury can work only for the few in limited scope. You cannot base the whole society on usury. And money is only a very useful artificial convention which breaks down if treated as actual reality.
Make such mental experiment - imagine that all people decide not to have children and instead to invest saved resources in economy. Such generation will be VERY succesful until it becomes old. Then suddenly for "mysterious" reason the horrible crash will occur. All investments and savings will disapear and there will be plenty of old starving people dying like flies and begging foreigners to come and take over.
OK, how about this experiment. All the investments are made to produce and store food. No new food is produced but everyone has 50 years worth stored in the basement.
The real growth of the actual economy is more dependable than the "promises" of politicians. If we can stop the politicians from destroying the actual economy (I know that's a long shot) then we can increase the real growth.
Old people need much more than very old food. What about electricity, water or heat in the winter for example? Can they store that for so long?
Interest on a bond is a charge for the use of money which reflects also the projected purchasing power of the future interest and principal, the fact that such purchasing power is unpredictable, and the risk of default by the borrower. Given two bonds of identical maturity and issuer, one of which eliminates inflation risk (i.e. reduces the volatility of inflation adjusted returns) and one of which does not, the latter will be priced to yield more.
The above, unlike the rest of our dialogue, is objectively the way things are. If you don't believe me, please ask a knowledgeable friend about it. Or just give it a little thought yourself:
TIPS offers inflation +3% and you expect inflation to average 2%. But even if you are right, it will sometimes be 0% and sometimes 4%. Therefore, if priced at 5%, your average inflation adjusted return is, indeed 3%, but your actual return will sometimes be 1% and sometimes 5% and if you've mis-estimated inflation it can go either higher or lower. Fundamental theory of investment, as well as logic, results in a premium price paid for the bond with lower (after inflation) risk. Therefore, people pay more for it, thus reducing its yield.
How does the coming crash, when all the old people retire and I quote " All investments and savings will disapear and there will be plenty of old starving people dying like flies and begging foreigners to come and take over". How does this crash make the nuke plants, water treatment plants, natural gas pipelines and all the other infrastructure suddenly evaporate?
Because all those things have to maintened by the real people capable of doing work. Assuming that they will be automatized, they will not "suddenly evaporate". They will just break down gradually.
We also invested in robots. Problem solved?
I agree with you to this point.
The above, unlike the rest of our dialogue, is objectively the way things are. If you don't believe me, please ask a knowledgeable friend about it. Or just give it a little thought yourself:
I work in the brokerage industry. I think my logic is strong on this.
TIPS offers inflation +3% and you expect inflation to average 2%. But even if you are right, it will sometimes be 0% and sometimes 4%. Therefore, if priced at 5%, your average inflation adjusted return is, indeed 3%, but your actual return will sometimes be 1% and sometimes 5% and if you've mis-estimated inflation it can go either higher or lower. Fundamental theory of investment, as well as logic, results in a premium price paid for the bond with lower (after inflation) risk. Therefore, people pay more for it, thus reducing its yield.
Here's where you've gone off course. Once you buy a TIPS, your rate of return is locked in , assuming that you hold till maturity and there is no government default. That return may be higher or lower than an unadjusted treasury. In your example, if inflation is 2%, my inflation adjusted return is 3%. If inflation is 20%, my inflation adjusted return is 3%. My return is never 1% or 5%.Inflation adjusted return is actual return.
My entire point in mentioning TIPS is that if we eliminate inflation risk the only risk left is risk of government default. The TIPS then are as close to a risk free investment out there now. If even this investment will pay me more than Social Security then I'm getting screwed, do you agree?
So, how is the government making my retirement more secure? They're not.
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