February 4, 2005 - According to the prevailing predictions – the way the wind is blowing today – the Social Security System starts showing an annual deficit in 13 years. That is, in 2018 the system will start paying out more in benefits than it takes in from payroll taxes. The wolf is at the door, according to the practitioners of the dismal science. What do we do to chase the wolf away? Let’s ask the President.

The President says that we must act now and act boldly. Instead of watching the Social Security Trust Fund drip away through a leaky faucet we need to open the tap so that 1/6th of the payroll taxes now running into the trust fund reservoir runs right out to Wall Street in a steady stream to fund what he used to call Private Investment Accounts. Through the magic of compound interest, etc., etc., the depletion of the reservoir will be staved off and the wolf will slink away from the door.

Of course the magic of compound interest will only be available to those wage earners who are 55 years old and younger. The rest of us are guaranteed the Social Security checks that we were promised. For the next 22 years then the scheduled outflow from the reservoir won’t be reduced. So the outline of the President’s “fix” is to decrease the inflow while he maintains the outflow from the Social Security Trust Fund and pray that the wind will blow rain our way to refill the reservoir before it runs dry.

How does he propose to keep his promise to those of us who are over 55? He tells us that Social Security is on the road to bankruptcy; that if we do nothing the obligations will exceed the assets and income in 2042. Simple logic tells us that if you cut the revenue stream by 1/6th the system will reach the point at which expenditures exceed the available income and assets that much sooner. His solution to staving off bankruptcy is to borrow more money – between $1 and $2 Trillion more. In one word – Plastic!

Who is he going to borrow the money from? For decades the government has been funding its operations in part by borrowing from the Social Security Trust Fund. With the payroll tax inflow reduced by 1/6th the amount invested in T-Bills will also be reduced. That means that borrowing from the private bond market will be doubly increased – first to finance the so-called “transitional costs” and second to cover the borrowing no longer covered by the trust funds.

No wonder the Wall Street operators are salivating over the President “fix”. They get to tap the rain barrel at both ends. At one end is the rain falling on the equities market from the privateer’s Personal Investment Accounts. At the other is the impact of the increased opportunity in the international bond market and the rising interest rates that are bound to follow. While the President takes his show in the road in his new role as Wall Street’s Rainmaker-in-Chief they all have their fingers raised to see which way the wind is blowing and are praying earnestly for rain.