Social Security

The Social Security reformers are making a blunder of incalculable magnitude. The real problem with Social Security is not that it will go bankrupt in 2042. The crisis of Social Security reform is 2011, the year that the babyboomers start retiring. When they do, they will begin withdrawing money from their 401(k) accounts and IRAs. The massive amount of capital flowing out of the stock and bond markets, if not replaced by a massive influx of new capital, will cause a steady, strong, and irreversible decline in U.S. equity markets. Partial privatization of Social Security will provide that new influx of capital. Nothing else likely will.