Monday, October 15, 2012

On the Fall of the PU | ZeroHedge

I followed what Biden and Ryan had to say about Social Security in their debate. My take on their words:

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Ryan said four times that his plan was to restructure Social Security. He said his plan would not involve a sacrifice for anyone who is now 55 or older. Ryan has created a new ?Red Line?. If you?re 54 or younger, you are below the red line; bend over. If you are above Ryan?s artificial red line, you get a free ride.

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This is an extremely unfair plan. I can?t imagine how it could be implemented without ripping the country apart.

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Ryan was referring to a version of the Simpson-Bowles plan for Social Security. A combination of increased taxes, coupled with increased retirement age and lower monthly benefits. There would be delay in implementing these changes, so that those who are now near retirement age would not be hurt.

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I give Ryan a B+ for honesty. America?s politicians have to fess up to the fact that Social Security (SS) must make significant changes to remain solvent. Higher taxes and lower benefits are necessary if SS is to last another twenty-years. There is no way around that fact. Any politician, who says otherwise, is just lying.

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But I give Ryan a D- for fairness. The idea that everyone today aged 54 or younger gets screwed, while those a few days older get off Scott-free is insane to me.

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America?s problem is the Baby Boomers. Every day there are 10,000 new beneficiaries who are hitting up SS for a monthly check. At that rate, over 40 million Boomers will be getting their full monthly checks by the time Ryan?s ?Red Line? comes into effect. After the first SS check is written, the future payouts can?t be reduced. So the Ryan plan creates a carve-out that protects a huge chunk of the Boomers. It does it at the expense of everyone who is today under 55.

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That?s the plan? Protect the age group that is causing the problem? At the expense of the next few generations? None of the 40 odd million Boomers will suffer at all? None of them? Where?s the fairness in that plan?

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What Ryan promised for SS is just a political lie. The fact is that all of the folks who are today 55+ probably liked what they heard Ryan saying. And that is a very big block of voters.

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The Boomers are the problem. They have to be part of the solution. Any plan that gives the Boomer age cohort a free ride at the expense of the rest of the population is a recipe for disaster. The risk is Age Warfare.

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Everyone says that Biden is the ?smart? debater. Maybe so. His comments on SS were carefully crafted. But if you look through his words, he was just playing politics.

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Joe went straight to a liberal hot spot on SS. He flat out promised that an Obama/Biden ticket would never, ever privatize SS. This was a very smart move on Joe?s part. It plays to one of the great fears that the lovers of SS have; that one-day, the Republicans will let the evil guys on Wall Street get their hands on the SS Trust Fund.

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Ryan rebutted that privatization should be considered for younger workers, but Biden blew him away with one of his now famous chuckles. Biden knew that he had scored points, as he knew that even the mention of the word ?privatization? would get a few hundred thousand folks to the voting booth.

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On this exchange I would give Biden a B+ and Ryan a D-. Ryan is wrong on privatization, he should have known better.

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Ten years ago SS was running $100+Bn annual cash surpluses. If there ever was a time to consider a partial privatization, that was it. A portion of the surpluses could have been allocated to other investments back then. But not any longer.

SS is running annual deficits now. They are in the -$50Bn range for 2012, but the red ink will grow rapidly north of $100Bn in just a few years. If any portion of SS?s current cash flow were diverted to other investments, it would mean that there would be a larger drain on the Trust Fund surplus. The fact is, privatization is no longer a policy option. So Ryan was selling sound bites of a policy that has no chance of seeing the light of day.

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Outside of the attack on the privatization of SS, Biden said nothing about SS that was worth noting. As a debate move, this was brilliant. If you say nothing, have no position and avoid critical issues, you win debates.

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Here?s the facts Joe Boy:

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Before 2016 the SS Disability Fund will run dry. They next administration has to confront this reality. A fix is required in less than 36 months. There is a gun to your head for action Joe. You have two choices. Raise taxes or cut DI benefits. Which one is it? You can?t hide under a rock for another four years, so what are you going to do?

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The retirement side of SS will run off the cliff in 20 years according to the CBO. But that estimate is off the mark. It is not possible to run the SS Trust Fund to zero; a minimum of one-year?s worth benefits has to be retained as a minimum reserve. Over the next decade there will be at least one recession, when that happens the SS death spiral will be advanced by five or so years (as it was from the 08 blowout). The reality is that the SS drop dead date is closer to ten-years away from today. You can pretend this does not exist, but that makes you a liar.

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Ryan has a bad plan, Biden has no plan at all. As it turns out, Ryan?s plan of ?55 and under get clobbered? is about right. That is exactly the way this is going to play out. Either there is legislation that screws everyone 55 or under, ?the Ryan Plan?, or there is the Biden ?Do Nothing Plan?, and in about ten-years SS falls off a cliff. Either way, the same folks get screwed.

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I think America needs a new political party. I would call it the Purple Unders Party (PUP). Purple, because it is the color when Blue and Red are mixed equally. Unders, for that group of people who are 55 and under.

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The funny thing is that the PUs are out there. They will be voting for either a Red or a Blue. One fringe or the other will win, the PUs will all lose. Those PUs make up most of the population, and well more than half of the votes.

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What a stupid system.

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Source: http://www.zerohedge.com/contributed/2012-10-13/rise-mu

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