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Author: zorloc Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 5267  
Subject: Chile: Food for thought Date: 6/29/2000 4:23 PM
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Here is the Cato Institute's paper on Chile's switch to privatized social security ~20 years ago:

http://www.socialsecurity.org/pubs/ssps/ssp-17es.html

jbw
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Author: allen643 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 610 of 5267
Subject: Re: Chile: Food for thought Date: 6/30/2000 1:18 AM
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Actually, the latest Cato Institute article is a lot better than anything they've put out before. I found this link which will give you all the fun Chilean economic and population statistics.

http://www.iadb.org/int/sta/ENGLISH/staweb/statshp.htm#laig

1. Real interest rates tend to be double digit in Chile. It isn't hard to get high returns when real interest rates are that high. Hardly anything is invested in the stock market.
2. To the extent that the funds are invested in Chilean government bonds, the whole scheme acts just like our system. Future revenues are funded with future tax dollars.
3. Chilean demographics and high growth basically mean any system would work in Chile. The fact that this system has worked there doesn't mean much.
4. Read the footnotes in the Chile article before you read the article. Just a hint.
5. Is the taking of early retirement an indication of success, or are people getting out of the system as soon as they can? If it is so wonderful, why leave? It didn't say the average age of early retirement.
6. The transition costs could not be replicated here really.
7. Is a lot of debt being rolled over in Chile?

My overall impression is that the system works in Chile because there are few old people draining the system, high real interest rates, and high growth to sustain those interest rates. None of them are present in the US though.

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Author: GeorginaW Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 611 of 5267
Subject: Re: Chile: Food for thought Date: 6/30/2000 9:24 AM
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I recall reading somewhere that one of the reasons that Chile's switch worked as well as it did is due to the fact that it had no real developed capital system. They used the privitization to develop their capital markets. Obviously that is not going to be the case with the US.

Does this mean that we cannot look to Chile's results as a precursor to our results upon privitization?

Could Chile have had better returns on average in the earlier years due to the developing capital markets, where it would slow down in the future?

Has anyone published a study that tries to put Chile's conversion into the US economy? Or at least link Chile's results to how they would play out if the US did the same thing.

GW

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Author: allen643 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 612 of 5267
Subject: Re: Chile: Food for thought Date: 6/30/2000 2:37 PM
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The more I think about it, the more I think that Chile's scheme really looks like it would just collapse if you had US demographics.

Most of assets are debt instruments, except the debt has very high real interest rates. But, given the demographics, no one can cash out. There just aren't that many old people in Chile and won't be for another 75 years or so. My feeling is that the debt just keeps getting rolled over and rolled over. Who cares what the interest rate is if the pension system means you get to roll it over indefinitely?

I think also that before Pinochet, Chile essentially collapsed. At some point, the report states that the worker/retirement ratio dropped to 2/1. With Chile's demographics this means unemployment must have been horrific. The high growth comes mainly from the fact that they started at 0 and the economic reforms under Pinochet provided domestic capital and stability.

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Author: foolme1111 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 613 of 5267
Subject: Re: Chile: Food for thought Date: 6/30/2000 3:00 PM
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I think also that before Pinochet, Chile essentially collapsed. At some point, the report states that the worker/retirement ratio dropped to 2/1. With Chile's demographics this means unemployment must have been horrific. The high growth comes mainly from the fact that they started at 0 and the economic reforms under Pinochet provided domestic capital and stability.
_______________

Too bad FDR didn't think of that during the depression.
The bottom line with our present Ponzi scheme is that it will go broke unless we do one or a combination of the following:

1. Increase the ratio of workers to retirees by delaying retirement or having more babies.

2. Increase the withholdings from the salaries of the workers (this has been part of the answer for every generation since the plan started).

3. Decrease the benefits for the retired.

4. Privatize the system, partially or completely, so that our money is working for us.

Perhaps the scenario in Chile is not right for us, but at least it is a place to start.

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Author: zorloc Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 615 of 5267
Subject: Re: Chile: Food for thought Date: 6/30/2000 3:43 PM
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Actually, the latest Cato Institute article is a lot better than anything they've put out before.

Are you referring to Michael Tanner's paper "Saving" Social Security is not enough.

http://www.socialsecurity.org/pubs/ssps/ssp-20es.html

If so I agree fully. The paper trys to refocus the debate on what is best.

jbw

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Author: BuildMWell Big gold star, 5000 posts Feste Award Nominee! Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 616 of 5267
Subject: Re: Chile: Food for thought Date: 6/30/2000 6:14 PM
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Everyone who has posted here on this subject has missed the bottom line...and it is very important!

The difference between the two systems is the incentive! With our existing system, we are discouraging future workers from participation. The system will go broke so why be a part of it?

With the US FUND, the system builds a retirement that is sound, personally owned, and it will be there in twenty or thirty or forty years! That makes people want to participate! That is the difference.

Chile has the right idea, and it will work well here. Once the working people understand the soundness of the plan, they will get on board fast! The old system is doomed to failure so only an idiot would want to participate.

The people who want to "save the old social security do not have faith in America. Those of us who know the strength of this Country know what must be done. In my opinion, this is a defining moment in our history. Either we make the right moves now, or we will be in a huge pickle in just a few more years. It scares me that it is so clear to me and oblivious to so many others!


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