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Several years ago a $50K charitable fund was established in town to be administered by a committee composed of one rep from each of several civic organizations. Each year they would take applications for grants and distribute the fund's income. The grants were small but managed to help several local projects each year. This year they announced that due to low interest rates, they would not be making any grants. Sounded odd when I read it and today I learned just how odd it is.

It seems that their $50K generated only $800 in interest this year. That's 1.6% for those without a calculator. Now my checking account pays 1% and long term CD's have never gone below 3% at the local banks, so I'm wondering how they could only earn 1.6%.

What makes this really interesting is that the president of the group is also the Republican county chairman and a very vocal supporter of privatizing social security. If he manages his private account like he's managed this fund, the 2% yield of the current SS system will start to look pretty good.
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Someone needs to tell him about the ING Direct Orange Savings Account.

Fuskie
Who hopes you will mention him for a potential referral...
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What makes this really interesting is that the president of the group is also the Republican county chairman and a very vocal supporter of privatizing social security. If he manages his private account like he's managed this fund, the 2% yield of the current SS system will start to look pretty good.


Now you're catching on. The privatized Social Security accounts will be guaranteed losers for investors, since it is welfare for financial industry companies. Never forget that they have already limited the upside of your return -- the highest proposed "allowable" return in a given year is 9 percent -- but the losing years are all yours.

You can't win a rigged game.

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eone needs to tell him about the ING Direct Orange Savings Account.


He isn't interested in getting a return. He is interested in opportunities for skimming. Like all Republicans and a large number of other politicians as well.

Poor countries like Chile privatize pensions. Rich countries like western Europe don't. We have a choice to decide whether we want a rich future or a future of peonage where we will all be owned by the financial services industry. Since I'm not stupid, I already know what I choose. I just wish I had more faith in my fellow sheeple.


There are people even on this board, apparently people who had benefit of college, who can't figure out that adding a layer of commissions and fees to any service will raise its costs and lower its return. What can you do if a man will not agree that 2 plus 2 equals 4?
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Michael Savage listener, pekinrobin?
I've heard him use the "sheeple" term, is why I ask.

> There are people even on this board, apparently people who had benefit of college, who can't figure out that adding a layer of commissions and fees to any service will raise its costs and lower its return. What can you do if a man will not agree that 2 plus 2 equals 4?


I'm not sure if I agree with this or not. The 2 main problems with SS as far as I understand (which could be totally wrong and I am open to correction)

a) the money doens't really exist anywhere (i.e. there is no real fund) distributions are paid out of current budget. if the money doesn't really exist somewhere what kind of return can you really expect from it?

b) managed funds underperform the market. and anything the goverment manages had a predisposition to underperfom commonsense.

Privatization I think alleviates (A) because it designates "real" accounts like IRA's that the goverment cannot spend. I think it helps (B) because it at least opens up the possibility of people following the market. Although I haven't heard about this 9% gain cap.

The extra layer and fees I think are more than offset by those 2 benefits.

The main reason that I think privatization wouldn't work is that there is just too much money involved. It's easier to beat the market up until the point when the money you are using actually *moves* the market because it is a significant portion of said market. Also this would put some in goverment in a situation where guaranteed market returns would be desired and I think it opens up the possibility of artifically propping up the marketplace.

qaddy




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Supposedly there is a social security fund -- recall the lock box promises, but the government "borrows" from it and writes worthless checks to secure the loans we unwillingly grant -- maybe not so unwillingly, given that we reelect the devils. Now, if instead, the social security fund were invested in a fiduciarilly responsible way, and the governemt had to raise taxes if they couldn't manage to live within avialable income, we wouldn't have a problem for the adminstration to exaggerate to support their idealogical desire to end a bastion of FDR's New Deal. But administration's tax reductions exacerbate the problem by increasing the need for the government to write those worthless checks to social security. I must admit, there is a nice, if sinister, circularity to the whole mess. What, me worry? We have a government by and for special interests, so why would we expect anything different?

db
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That's a good point. If a president wants to "fix" Social Security and maintain its long-term viability for generations to come, one of the worst things you can do, given the way it's currently funded and administered, is to pile on record amounts of new debt.

#29
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but the government "borrows" from it and writes worthless checks

Actually, I read an interesting article in the NYT today by an economist. He considers this to be the number one misconception re: SS. These "worthless checks" are, in fact, US Treasury Bonds. The same bonds Fools purchase every day for a portion of their Efunds. The same bonds the US is selling to other countries to prop up our deficits. The same bonds the entire world considers to be 100% safe.

Now, his contention is that there is only one way that the system crashes before 2042, when all these "worthless checks" will have been cashed to plug the shortfall holes after 2018. The government reneges on its debt.

Stop and think about this. Is it likely that the government would refuse to honor the bonds payable to its own citizens and honor those owned by third party countries? What politician would do this?

Likewise, how likely is it that the government is going to crash the entire world economy by allowing its debt to be downgraded to worthless via refusing to honor the trillions of $$ of bonds held by other nations?

This is apparently a first installment of a, I believe, three part series where he puts forth his idea of how to fix things.

I'll be interested to see where his argument goes from here.

3MM

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I'll be interested to see where his argument goes from here.

The only place it can go. If the government is to honor its debts, taxes must be raised to pay those debts.

Regards...Pixy
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The only place it can go. If the government is to honor its debts, taxes must be raised to pay those debts.

<feigned shock>
You mean the tax cuts and other wealthy/big business favored laws aren't gonna stimulate business to produce a rousing economy which will just wisk the deficits away?!?!?!
</feigned shock>
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I read a similar piece in the "Economist" in which it was pointed out that if other countries, especially Japan and China, decide to drop the US dollar as a reserve currency, and stop buying or worse sell US Treasuries, we could be in big trouble and those checks (US Treasury Bonds) could indeed seem worthless. I gather there is not much confidence in how our government has managed its finances.

db
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TMFPixy:

<<<<I'll be interested to see where his argument goes from here.>>>>

"The only place it can go. If the government is to honor its debts, taxes must be raised to pay those debts."

Or the government can debase the currency, via inflation (because the government owns the money printing press), and pay back the debts with cheaper gross dollars.

Regards, JAFO


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>> Or the government can debase the currency, via inflation <<

Even as it understates said inflation, so it won't have to pay as much in interest for TIPs and I-bonds, or COLAs for federal employees and Social Security recipients.

#29
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With all that was said on this thread so far, my question is a simple one: How should one invest in order not to lose out given the coming inflation and other economic problems?

I have an idea on how to answer this, but hope to share the research work with others. My idea is to look at the inflationary history of the US to find out when in our past, if ever, we were in a similar position. What kind of investments performed well during that time? Why did these particular types of investments perform well? Do these same kinds of investments exist today? Do circumstances similar to those times exist today that would lead an analyst to believe that these investments would perform in a similar manner? If not, what other investments could perform in this way?

I welcome others opinions, as well as knowledge of this issue.

CalimanDC

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<<Several years ago a $50K charitable fund was established in town to be administered by a committee composed of one rep from each of several civic organizations. Each year they would take applications for grants and distribute the fund's income. The grants were small but managed to help several local projects each year. This year they announced that due to low interest rates, they would not be making any grants. Sounded odd when I read it and today I learned just how odd it is.

It seems that their $50K generated only $800 in interest this year. That's 1.6% for those without a calculator. Now my checking account pays 1% and long term CD's have never gone below 3% at the local banks, so I'm wondering how they could only earn 1.6%.

What makes this really interesting is that the president of the group is also the Republican county chairman and a very vocal supporter of privatizing social security. If he manages his private account like he's managed this fund, the 2% yield of the current SS system will start to look pretty good.
>>


Frankly, your post sounds fabricated in order to make a political point. That's the way it sounds to me, anyway.

The obvious thing to do is to obtain a copy of the financial report for the organization and see what income, expenses and donations and assets and liabilities are there. Without that information, you are just guessing and supposing without the necessary facts.

Just auditing the finances of such an organization to be sure the money is there are being used for its intended purposes might consumer a significant amount of the annual income. Such an organization would probably have liability insurance to protect the officer and directors as well, costing yet more money. Those are just two likely expenses.



Seattle Pioneer
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