Thursday, November 04, 2004

Social Security: Bush's Market Manipulation

So, why do you think Bush wants to move social security dollars into the stock market? He'll tell you its to preserve and save the system which will be threatened by retiring baby boomers.

But let's not forget that moving this money into the market will be impossible without the help of Wall Street's major banks, which will transfer, house, and in some cases manage, the new money. Wall Street's banks do not perform these services for free. The privatization of even a portion of social security assets will be a major boon to Wall Street's firms.

Then, there's the issue of the market in general. To put things in really simple terms, stock prices go up when there are more buyers than sellers. You might hear, during the course of any week, market analysts talking about "money on the sidelines." This is money that investors have kept out of the market as they search for buying opportunities. When that money flows into the market, the market tends to go up because it represents a new wave of buyers.

Social Security is the ultimate pot of "sideline" money. Toss that cash into the market and you can create an artificial boom.

When you buy a stock, you're really buying a piece of a company's assets or earnings. The trick is that the valu of assets doesn't change much from day to day and earnings don't radically change much either. The prices, however, fluctuate daily. So, the result of all this new money entering the market will be to cause a rise in prices while the value of assets and earnings remains the same. The inevitable result, whether it takes a few months or a few years, will be a market collapse. The money will flow in, the bankers will get their fees, the market will rise, those in my profession will write jubilantly about new money millionaires and then the money will dissapear.

Oh, I'm sure they'll tell us they have ways of moving the money into the market a little at a time, so that it will have no affect. I think they'll be wrong. Because whether they move the money in on one day, or little by little over the course of a decade, the Wall Street investors will know the money is on the way and the market will react accordingly.

Think about it this way... why don't major mutual funds announce "We're going to buy $10,000 worth of GE today," before they do it? Because, once investors get wind, they'll buy GE and drive the price up. Mutual funds guard their investment moves rather closely.

Under Bush's plan, with far more money than any mutual fund has -- an amount of money that just by entering the market can move the market, we're going to announce a major gift to Wall Street and THEN give it to them. Did the President sleep through those Harvard Business School classes, or what?


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