"carl mciver" wrote in message
ink.net...

"Cliff" wrote in message
news | On Mon, 24 Jan 2005 21:45:01 +0800, hamei wrote:

SNIP
| Meanwhile, back at the Texas ranch, this all seems to
| be a plan to loot the social security *surplus* by the
| neocons. Plus, they want two+ more TRILLION US dollars
| in deficit spending to do it.
| --
| Cliff

Kinda curious. What's the return on investment of your SSI?

It depends on how long he lives. It can range from a loss of "capital" to
one of the wildest rates of return you could get during the Internet bubble.
g

On the other hand, what's the worst return on investment of a CD? Or
the average of a generic mutual fund over your lifetime?

They suck. Furthermore, the extra level of "maintanence" fees that the
"approved" vendors are now salivating over are likely to make it one of the
worst returns in modern history.


It's the simple numbers that highlight the truths.

The simple numbers are for the simple-minded. If you want to see the likely
scenarios, you have to look at the more thorough analyses of the situation.
For example, here's one that's rarely talked about, which was explained in a
NYT editorial last week:

"There are several ways to explain why this particular lunch isn't free, but
the clearest comes from Michael Kinsley, editorial and opinion editor of The
Los Angeles Times. He points out that the math of Bush-style privatization
works only if you assume both that stocks are a much better investment than
government bonds and that somebody out there in the private sector will
nonetheless sell those private accounts lots of stocks while buying lots of
government bonds.

"So privatizers are in effect asserting that politicians are smart - they
know that stocks are a much better investment than bonds - while private inv
estors are stupid, and will swap their valuable stocks for much less
valuable government bonds. Isn't such an assertion very peculiar coming from
people who claim to trust markets?

"When I ask privatizers that question, I get two responses.

"One is that the diversion of revenue into private accounts doesn't have to
lead to government borrowing, that the money can come from, um, someplace
else. Of course, many schemes look good if you assume that they will be
subsidized with large sums shipped in from an undisclosed location.

"Alternatively, they point out that stocks on average were a very good
investment over the last several decades. But remember the disclaimer that
mutual funds are obliged to include in their ads: 'past performance is no
guarantee of future results.'"

[The facts are that you may do quite well on private investments under such
a scheme as long as, a) millions of other people aren't doing it at the same
time, for the same reasons; b) your timing is good, and you retire on a
stock uptick and cash out; and, c) as the editorial above says, that there
are a lot of stupid investors around to buy the bonds, and that they won't
wind up holding their stocks while the market is screaming for them, thus
driving up P/E ratios through the roof (and that they'll be dumb and happy,
and will soak up all the required bonds instead, while selling their stocks
in a seller's market. Of course, most such people probably went broke long
ago. g)]

[Swamping markets with big movements in investments immediately drives up
prices for the investment being bought. It will drive stock returns down
relative to what they were when they were purchased, which, as time goes on,
will put a damper on their value. Big returns on stocks, like the ones that
people sometimes get now when their timing is good, are very unlikely.]

"But a very high return on stocks over bonds is essential in privatization
schemes; otherwise private accounts created with borrowed money won't earn
enough to compensate for their risks. And if we take into account realistic
estimates of the fees that mutual funds will charge - remember, in Britain
those fees reduce workers' nest eggs by 20 to 30 percent - privatization
turns into a lose-lose proposition.

"Sometimes I do find myself puzzled: why don't privatizers understand that
their schemes rest on the peculiar belief that there is a giant free lunch
there for the taking? But then I remember what Upton Sinclair wrote: "It is
difficult to get a man to understand something when his salary depends on
his not understanding it.'"

The editorial was written by Paul Krugman.

--
Ed Huntress