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Saving Social Security: Is the “Soveriegn Wealth Fund” Viable?
The idea of creating a sovereign wealth fund to solve the Social Security funding problem surfces from time to time, usually concluding that it’s generally a bad idea given the need to have surplus funds available to seed the creation. In these times of massive deficits and soaring debt levels, it seems such a move might remain out of reach. Issuing new debt to create the wealth fund generally appears to be a non-starter due to the need to service additional debt and the opportunity cost of diverting investments.
Recently, the idea has resurfaced, now in the form of thought to reinvest trust fund reserves in the financial markets to get a higher return–a return that would be greater than the cost of borrowing at current Treasury rates, with the net difference channeled to Social Security. In a post today on the Financial Times website, Robert Armstrong and Aiden Reiter explore this thought and present a thorough analysis of their conclusion…a possible short-term boost likely outweighed by the downside of market risk and financial volatility. Still, it’s an interesting thought, and you can read the Armstrong/Reiter analysis in full here.