Tom...as in Morgan

Two questions for you:

How does it feel to perch on the brink of one of the largest revolutions in the history of humanity?

What do you suppose will be the sorry fate of our Social Security system when the U.S. economy utterly collapses?

Yes, this article is another contribution to the debate on the privatizing of Social Security. I assume the debate will soon heat up. Now that President Bush has said he will make this a priority in the new year.

The think tanks and chattering classes already bat it around. Politicians are drawing lines in the sand. AARP and trade unions vow to firebomb the proposals. The New York Times and others issue dire warnings. And all that.

When the issue finally lands on Congress’s griddle the flames and steam will erupt like Krakatoa’s.

And well it should. Because it is one of those rare events that will poke its hands into virtually everyone’s pockets.

And if it comes off it will plunge us into a revolution of Krakatoa proportions.

Think: This will be the largest transfer of power and money from government to citizens in the history of humankind.

You might argue that the system has already made such a transfer. Social Security has paid out trillions. Ah, but that is a bit of smoke and mirrors, isn’t it? The money comes from the people, lands on a treadmill, goes out to the people. It was their money to begin with.

Under privatization the money will not ever go to government. So I stand corrected. Privatization will not be the transfer of money from government to citizen. It will be government tossing in the towel. Government will cease and desist from extracting the trillions from its citizens, to dole out later. Its new role will be to direct traffic. It will point to where you can park your - YOUR - money.

(This assumes all of our social security money will someday be privatized.)

Power follows money. As people get to keep and control their own retirement money they will assume the power of that money government now has.

Pretty heady stuff.

The other leg of the revolution is just as significant in the history of humanity. It is that hundreds of millions of folks will be able to build a fortune for their family. This has been the dream of working people since the first one slaved for his boss.

And I hardly exaggerate about the possibilities. Here are the figures.

Let’s say a person works from age 22 to 65. And all the money that now goes from his pay to Social Security goes into his own account instead. His pay averages just $40,000 per year. His investments gain just 7 percent per year. That is not a huge return. Stocks have averaged between 10 and 11 percent for decades.

At age 65 this worker will have $1,300,000. Say he draws 5 percent per year for retirement. And leaves the other 2 percent for further growth. He will draw $65,000 per year. And his nest egg will keep edging upward. Giving him some pay raises in years to come. And leaving him a huge fortune to pass along to his heirs.

Now, some adjustments: Some of his pay will not go to his investments. It will go to some term life insurance. And to some disability insurance. To cover him and his family for what Social Security now covers them. So he won’t have $1,300,000. But I bet he will have a million, or close to it. He only needs $800,000 to give himself $40,000 per year in retirement. In other words, to equal his pay. Not bad for a working stiff who averages $40,000 per year over his entire work life. It is a lot better than he gets now from Social Security.

That such a worker will create such wealth for his family will be revolutionary. We are not the first to do this. The Chileans and others already provide for their retirements this way. But when we do it we will make the biggest splash. Because of our big population. And our fat incomes.

Now the question about what happens to all his retirement money if the U.S. economy collapses? What do you suppose would happen to it if the economy collapsed tomorrow? It would impoverish government. By the time an impoverished government inflated the currency and slashed the payouts, his Social Security check would buy a tank of gas a week.

So you can worry about how private retirement investments would suffer in an economic collapse. You might better worry about how today’s system would.

Welcome to the revolution.

From Tom...as in Morgan.