As we recently discussed, one of the options for the federal government is to “default” on what it owes Social Security. In other words, it could change the deal and save money by paying seniors less than what they feel they were promised.
It’s not pretty, but it has advantages. Seniors aren’t going to go to war on us if we default on them. Also, many seniors have gotten a tremendous deal, and if you incorporate Social Security into a holistic view of US finances, this is clearly a gigantic burden.
With the economy under so much stress, it finally feels like there may be some political will to do something about the entitlements mess. It’ll still be as painful and difficult as pulling Nancy Pelosi’s teeth but it could happen. Obama made a slight nod to it last night with his support of “Universal Savings Accounts”, new tax-free self-controlled retirement accounts.
The folks at Democratic Underground, the loudest liberal message board on the web, are freaking out over this. They think OBAMA IS THE SECOND COMING OF DUBYA AND THAT HE’S GOING TO KILL SOCIAL SECURITY. So that’s a positive sign right there.
Tyler Cowen has more on the accounts:
This is probably Gene Sperling’s idea and the key question is how much is “carve out” from existing benefits and how much is “add on.” In any case doing this reform at Dow = 7,000 makes more sense than doing it at Dow = 11,000. It’s even a way to boost stock prices (and possibly confidence?) though presumably it involves borrowing yet more money.
When you consider the speech as a whole, Obama is promising the largest and most ambitious attempt at rate of return arbitrage in the history of the human race.
Obama’s speech was very effective but it is mostly about borrowing more money. It is odd that in a time when capital markets and attempted arbitrage have so failed us the solution is to resort to…capital markets and attempted arbitrage.
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