Copyright 2005
Introduction
The following proposal suggests a new format for the Social Security Trust fund (Trust). The Trust is modified to move from a reliance on Federal Bonds to Mutual Fund type tools owned by the Government and is used to create a new tool for Federal debt management. Additionally, aspects of this model indicate that influence over foreign and global markets is possible adding additional tools to the US’s diplomatic capabilities.
Premise
A Social Security board is constructed on the model of the Federal Reserve board (Fed) with then intent of investing the total Social Security Trust across the board in all investment tools available by the creation of thousands of Government owned Mutual Funds. The US and the World are broken into Board of Governor regions that each invest within their portfolios and create fund types niches focused on their jurisdictions.
The Trust is Massively Divested (MD) with up to 10,000 individual funds grouped by region of the country, at a national level, by type (equities, commodities, fixed income), grouped by region of the world, and globally. The goal is to establish a rock solid return rate in excess of inflation in the 8% or greater return rate region. The rate of return will increase the funds in conjunction with payroll taxes as normal. As the fund grows, payroll taxes may be reduced.
Each Qualified US citizen is considered a part owner of the trust but without rights of survivors. Metrics can be set to limit how much and how often draws can be made from the fund to avoid runs on the fund for foreign and individual investors.
Individuals may participate in the new uber fund over and above their payroll contributions much like any mutual fund; this includes foreign nationals, foreign investment groups and foreign governments. They are considered investors and not principles. Participants will enjoy benefits not typically extended to mutual funds such as low or no taxes.
Individual’s participation outside of payroll taxation may allow reduction in real income much like 401k and IRA to a set limit. Institutions and Foreign Entities may participate utilizing these funds as a riskier form of bonds. Equally, deduction from the fund can be made tax free for the first 10 to 20 years of the funds life to assist in gaining initial fund equity.
These funds are owned by the US Government, structured by the board of governors and managed by fund managers under the oversight of the Government and audited by outside entities. Private organizations may manage the funds on day to day bases but the funds can be moved from one institution to another at the discretion of the Board of Governors with jurisdiction over the fund(s) question.
Value Proposition
1. Investments are Massively Diversified – MD -- so that no single economic issues will impact the Trust or no single country’s economic conditions could significantly impact the funds. Fund sizes may be limited to allow additional diversification between funds and fund groups. 10 trillion worth of assets could mean up to 10,000 different funds in the trust.
2. A fully funded Trust fund would give the US an important diplomatic tool. A fully funded trust fund would be approximately 10 trillion dollars in today’s dollars. Foreign participation in the fund would allow a mechanism of global influence more powerful than the US’s nuclear arsenal which could have a stabilizing effect on global economic conditions. Foreign investment would be in lines with a conservative or moderately conservative US perspective portfolio investment metric. This will work out to 2%-10% or so in foreign investment. (10 trillion worth of total assets would be 200 billion to 1 trillion dollars of clout)
3. A fully funded trust fund working with the Federal Reserve can be used as an additional backing for the value of the dollar. The fed can draw on it to adjust reserves via a liaison board. It can also be used for emergency purposes by the Fed (TBD).
Structure
Us and Foreign Investment Regions
The US would be broken into regional board of governors, much like the Federal Reserve, plus 3 national boards. In addition, the world will be broken into regional board of governors plus 3 global boards.
General Charter of the board of governors
1) The boards are responsible for establishing the investment type structure for their regions.
2) They are to enforce that expenses stay below a predetermined percentage
3) They are to manage the investment participates according to Service Level Agreements for rate of return.
4) They choose who the participates are (this would impact the diplomatic aspect of the fund – investments are not handled politically, who can participate is!)
5) Each region is audited both internally and externally. No two regions may use the same third party sources.
The Make up of the US Regional Investment groups
Each board of governors puts together
1) Investment groups consisting of qualified brokerage houses and establishes multiple mutual fund type investment tools (there must be many in each board).
2) Primary investment elements focus only on the region: Municipal bonds, regional commodities, regional business (stocks, bonds, loans), and regional real-estate. (If I missed anything, please inform me).
3) Auditing is handled by the board of governors internally and with external accounting organizations not within this region. A different organization must be used each year.
4) Regional participates only receive expenses, commission or other types of distributions on gains not transactions.
The Make up of the National Three Investment groups
The 3 boards would be for stocks, fixed return tools (such as bonds and real-estate and annuities in general), and commodities – investment can overlap regional:
1) Investment groups consisting of qualified brokerage houses and establishes multiple mutual fund type investment tools.
2) Primary investment elements focus only on the national elements.
3) Auditing is handled by the board of governors internally and with external accounting organizations not within this region. A different organization must be used each year.
The Global Regional Investment groups
1) Investment groups consisting of qualified Regional and US based brokerage houses and establish multiple mutual fund type investment tools within their foreign purview.
2) Primary investment elements focus only on the region: Bonds, regional commodities, regional business (stocks, bonds, loans), and regional real-estate. (If I missed anything, please inform me).
3) Auditing is handled by the US Staffed board of governors internally and with external accounting organizations not within this region. A different organization must be used each year.
The Three Global Investment groups
The 3 boards would be for stocks, fixed return tools (such as bonds and real-estate and annuities in general), and commodities – investment can overlap regional:
1) Investment groups consisting of qualified US and Foreign brokerage houses and establishes multiple mutual fund type investment tools.
2) Primary investment elements focus only on the global elements.
3) Auditing is handled by the board of governors internally and with external accounting organizations not within this region. A different organization must be used each year.
Copyright 2005
I don't quite understand why Social Security is such a crisis. Even assuming economic growth at half the current rate, SS will not go into the red until the 2040s.
On the other hand, the Federal Government IS in serious debt, and adding to that debt at $500 billion a year. Why are we being distracted by social security, with it's $1.7 trillion in the bank, when we have a real deficit crisis in the Federal Government?
A good segment of the debt you refer to is Social Security. When money is pulled from payroll and contributed to SS, it is immediately replaced by federal bonds (Federal Debt).Originally Posted by Broken
My proposal addresses this underlying Federal debt as well. It kills two birds with one stone (I actually didn't post all of the proposal here as it look like responses to posts were rather dismal) Below is a transition model that addresses SS and fed debt in general:
Transitional Mechanism
The following suggests a mechanism to begin transition to both the proposed Trust fund model as well as reduction of Federal Debt in general. The suggestion is a new type of debt management tool and issuance from the Federal Government.
By starting the new Board of Governors model relying solely on Individual contributions, institutional contributions, and foreign entity contributions, the new fund may start to cover transitional cost without impacting the current model or impacting tax contributions to the proto-Trust.
New investment tool
The Government, via the new board of governors, issues a mutual fund type bond structure with a guaranteed return rate similar to traditional bonds. The money invested into the fund goes directly into the fund manager’s portfolio. Interest to the investors is guaranteed above that of traditional Federal bonds with the intent of having the interest being paid by mutual fund activities.
If the full amount of the interest and principle can not be met by the fund, then typical US tax payer contribution is utilized. The difference being that some or all of the principle and interest may be paid by entities other than US tax payers.
As incentive to potential investors, individual, institutional, or foreign, participation is tax free both on contribution and distribution.
No, a good part of the debt is owed to Social Security. If the SS trust fund had not bought that debt (in the form of bonds), it would have been bought by someone else - and probably at a higher interest rate.
No, surplus contributions from payroll taxes are invested in Fed Bonds. It has been proposed that the SS surplus be invested in something else, like stocks.When money is pulled from payroll and contributed to SS, it is immediately replaced by federal bonds (Federal Debt).
Will it cost less to fix it now, or after it goes broke? Now is the correct answer.
No man is free until all men are free - John Hossack
I agree completely with this Administration’s goal of a regime change in Iraq-John Kerry
even if that enforcement is mostly at the hands of the United States, a right we retain even if the Security Council fails to act-John Kerry
He may even miscalculate and slide these weapons off to terrorist groups to invite them to be a surrogate to use them against the United States. It’s the miscalculation that poses the greatest threat-John Kerry
Well, the "transition cost" is actually replacing what congress is spending. When the money in the Trust fund is "invested" in bonds, that money goes to the general funds and is used as part of the budget. If it were a simple choice of investement, the money would go into a better producing tool. This is a political move to augment general funds.
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