Other Social Security Alternatives

Saving Social Security Alternative

This post supplements my 2008 post - Saving and improving Social Security. The major reason that Social Security is going broke (besides the fact that most recipients received benefits way in excess of the value of their compounded SS tax contributions) is that the rate of return on investment of SS taxes not immediately used to pay out benefits has been very low. The reason that it is low is that all of the SS taxes invested has been invested in only one type of investment - US Treasury bonds. They pay low interest rates because they are considered the safest investments because they are backed by the the Federal government. A lot of effort has been made by the Democratic Party to scare people away from other types of investment for SS. The proclaimed reason is 'safety'. The real reason is that this money enables the Federal government to "spend it", usually on wasteful government subsidies to gain political patronage.

Spending is the real issue to understand before I lay out my plan. Treasury bonds are loans to the Federal government that do not work like 'real' investments. A real investment (for example, you loaning a bank money to invest by taking out a Certificate of Deposit paying a fixed interest rate to you for a set number of years) is not 100% "spent" by the bank. After expenses, it is invested instead (for example the bank gives a car loan at a higher rate of interest to another customer using your CD money). The difference, and this is crucial, is that the car loan customer pays the bank back both principal and interest plus the bank has collateral of the car in case the customer defaults on the loan.

A Treasury bond has none of these qualities. The loan you gave to the Federal government is immediately spent and there is no money ever obligated or therefore being returned to the Federal government from the people or government enterprises that the money was given to. So how does the Federal government pay you back on your so called 'investment'? Like a true Ponzi scheme, it borrows the money from someone else when the bond comes due. This, my friends, is what the Democratic Party supports for your SS investment program and nothing else.

Unfortunately, they have scared enough people who do not understand how it works to make it politically impossible to make needed changes to increase the rate of return. Here's a way to turn the tables on them at their own game.

First remind the people that 75% of SS security benefits are never 'invested'. Instead they go immediately to pay current retirees. By not doing something to fund future SS liabilities, it won't be long until 100% of SS collections will go to pay current retirees and it will not be enough to pay promised benefits. No treasury bonds will be bought because there will be nothing left over from paying benefits to 'invest' in them.

Next, let's introduce a new type of Treasury bond. It pays the same interest as the current treasury bonds. However, instead of immediately spending it on wasteful government projects, that money (by new law) is invested instead. Even if it is put only in government backed FDIC bank savings accounts and CDs, not only will the interest and therefore rate of return be normally higher than 'less risky' Treasury bonds, but also when the Treasury bonds come due for payment, the money to pay them will be there. There will be no need to borrow more money to redeem this new type of maturing "SS" Treasury bonds. The bank savings and CDs are backed by the Federal government just as the Treasury bonds are.

The Federal government, through regulated, professional organizations, not government employees, could even be permitted to consider investing some of that money in mutual funds, corporate bonds, and other types of investments such as oil wells, corporate loans to companies with low levels of debt, rare metals, etc. to hopefully get better rates of returns. The difference is that, even if these suffer losses (highly unlikely over the long term, but possible), the full value of the SS Treasury bond will still be paid by the government. Even better, instead of re-borrowing the full value of the matured Treasury bond to pay it off as it does now in the current program, it would need to borrow much less. It would never need, even in an extremely unlikely 100% loss, anymore than it borrows now. Emphasize again that we are only talking a fraction of the current 25% of SS taxes that are not already earmarked to pay out current retiree benefits for these type of investments and that the contract between SS recipients and the Federal government is still the US Treasury bond, not these investments.

So the safety is still there as the underlying instrument between the government and the SS fund is still the US Treasury bond. In all likelihood the rate or return to the government is much higher. Here's the clincher - any excess profits the government makes from the special SS Treasury bonds must, by (new) law, go into the SS fund until all future SS liabilities are fully funded without the need for additional debt. It can never be 'spent' by the Federal government. It can, if in excess of current SS payout needs, be reinvested again into these special SS Treasury bonds. Once SS is fully funded, then any excesses, that is ‘profits’, in any given year could then be given to SS beneficiaries as an unexpected ‘bonus’ to help supplement their income.

Finally, introduce the same business rules for SS as private companies have for pensions. Number one, do not pay full SS benefits to people who only worked 10 years. A private pension would never do that. Such a person has earned a partial pension, nothing more. Usually, a credit of about 3% a year is given for each year worked, capped at 100% of the pension payout which is capped at a fraction of pay. To obtain a full private pension normally requires a person work at least 35 years. Make it the same for SS. SS and private pensions both have options to enable spouses to collect the other spouse's pension upon death. The difference is that a private pension gives the opportunity to choose a smaller pension payout to fund the survivor spous's pension BEFORE the first pension check is issued. SS does not give this type of option; it pays the higher amount always without a reduction in current payouts. That's mathematically flawed.

Why we don't believe Islam to be a peaceful religion.

Why Americans and most of the world don't believe Islam is a peaceful religion:

Forcing children to be human shields for terrorists or fight in terrorist wars.

Suicide bombers.

Killing each other in protest against cartoons and book burnings, but laughing and celebrating suicide bomber attacks that kill innocent men, woman, and children.

Militant religious schools supporting the use of terror and paid for by Arab governments and Muslim charities.

"Honor" killings of daughters by their fathers.

Stoning to death of adulterers and those that convert to other religions.

No schools allowed for women, women can't drive, and must wear clothes hiding their faces or at least hiding their hair even if it means going back into a burning school to get them before being allowed to escape the fire, resulting in certain death.

No operations for women to save their lives based on 'modesty' concerns. Let them die instead.

Firing rockets randomly at civilian towns and cities though no war between nations is declared or waged.

Promising suicide bombers heaven and 72 virgins, plus paying up to $25,000 to their families.

Denying the Holocaust ever happened and that Israel needs to be wiped off the map.

"Peaceful" Muslims around the world don't actively criticize nor try to stop the fanactics in their midst.

In America, we have a saying - "Actions speak louder than words". That's why no political leader, including the President, is ever going to convince the majority of us that Islam is a peaceful religion.

A Theory of Everything

Einstein and prominent physicists today have tried and failed to come up with a theory to explain everything in the universe. On a simpler, really not scientifically complete basis, I’m going to write down my musings on that plus life after death. Everything that exists in the universe today either uses fuel (stars use hydrogen glass, plants use sunlight through photosynthesis, and animals use the consumption of food) to create energy to survive or if dead (e.g. an asteroid) is a form of captured energy per Einstein’s equation E=mc2. Without energy consumed or stored, there is no existence. Consequently, since everything eventually exhausts its supply of fuel to create energy, everything eventually dies and ceases to exist, even as a dead ‘body‘. In other words, nothing in the physical world is ‘eternal’.

Energy itself does not exist by itself. It is only generated by an act of fuel consumption or by a crash of two objects. The only known ’thing’ in the universe that may not be fueled by energy consumption or a storage of energy from a dead object is gravity. Gravity does not appear to depend on energy consumption, nor is it an object that can crash into something else to create energy (though it can cause other things to crash into themselves to create energy).

Gravity is not yet completely explained by physics. At one point it was thought to be a ‘force’ of some sort. The latest theories seem to indicate that gravity is more of a result of large objects (stars, planets, moons), ‘bending’ space or more accurately space/time. Kind of like putting a bowling ball on a stretched sheet and it makes a depression in the sheet not only for itself, but also around it in a conical shape until the top of that ‘cone’ reaches the height of the rest of the top of the stretched sheet. Objects that are caught on the slope of that cone depression circle around the ball in a fashion we’ve seen with a coin circling round and round a hard, plastic inverted cone in some scientific or amusement created exhibits. Therefore, gravity is not a force at all, but a ‘result’ of a large object making a depression. There’s no real attraction between the objects, just an inevitable spin around the cone.

All this brings me to the after life. The after life is supposed to be eternal. To be eternal, then it cannot consume or store energy. Seemingly, it must be a form of energy itself, not dependent of fuel consumption, nor collisions to exist. How that is possible is the mystery of ‘God’.