Posted on 05/15/2012 6:40:08 AM PDT by Kaslin
“Most of these boomers have been paying SS tax since they were 16 with their first job. So the majority have paid into the system for over 40 years. What happened to all that money?”
It went to the retirees of that time. SS has always been a pass-through system, money doesn’t accumulate anywhere.
“SS has always been a pass-through system....”
I’m sure you meant “ponzi scheme”....
Us boomers have targets on our backs. If gen ex’ers don’t kills us, obamacare will.
” You can thank tricky Dick for inflation when he took us off the gold standard. I hardly remember inflation mentioned before that. “
Inflation had already been a problem for at least a decade before Nixon closed the gold window in 1971. It just wasn’t as visible as it became after Nixon.
Inflation is why silver was removed from American coins after 1964 and silver certificates were removed from circulation. The value of the silver exceeded the face value of the money.
The root of the inflation was something called the Triffin Dilemma, a problem caused by the dollar’s role as world reserve currency. It would have been necessary to contract the American money supply to defend the value of the dollar, but neither Kennedy nor Johnson nor Nixon were willing to endure the hard recession that would follow.
One result of all this is that there was a dual price for gold during the 1960s, the official conversion price and the free market price. The French didn’t believe that this situation would last so they started demanding gold for their dollar holdings. This increased the pressure on the dollar and Nixon decided to ‘resolve’ the situation by breaking the last link of the dollar to gold. Ironically enough I think you will find Milton Friedman suggesting that Nixon do exactly that.
The 1970s is when inflation became visible domestically but it had been a problem for the dollar internationally for over a decade. The expansion of the supply of dollars to facilitate its role as world reserve currency after WWII was the cause.
Triffin’s Dilemma:
“Onset during Bretton Woods Era
“Due to money flowing out of the country through the Marshall Plan, U.S. military budget and Americans buying foreign goods, the number of U.S. dollars in circulation began to exceed the amount of gold backing them up in 1959.
“By the autumn of 1960, an ounce of gold could be exchanged for $40 in London, even though the price in the U.S. was $35. This difference showed that investors knew the dollar was overvalued and that time was running out.
“There was a solution to the Triffin dilemma for the U.S.: reduce the number of dollars in circulation by cutting the deficit and raising interest rates to attract dollars back into the country. Both these tactics, however, would drag the U.S. economy into recession.
“To maintain the Bretton Woods system and exert control over the exchange rate of gold, the U.S. initiated the creation of the London Gold Pool and the General Agreements to Borrow (GAB) in 1961 which sustained the system until 1967 when runs on gold and the devaluation of the pound sterling were followed by the demise of the system.
“The Nixon Shock
“In August 1971, President Richard Nixon acknowledged the demise of the Bretton Woods system. He announced that the dollar could no longer be exchanged for gold, which soon became known as the Nixon shock. The “gold window” was closed.
“In order to maintain the Bretton Woods system, the U.S. had to do two things:
“1) run a balance of payments current account deficit to provide liquidity for the conversion of gold into U.S. dollars. With more U.S. dollars in the system the citizens began to speculate, thinking that the U.S. dollar was overvalued. This meant that the U.S. had less gold as people started converting the U.S. dollars to gold and taking it offshore. With less gold in the country there was even more speculation that the U.S. Dollar was overvalued.
“2)run a balance of payments current account surplus to maintain confidence in the U.S. dollar.
“Obviously, the U.S. was faced with a dilemma because it is not possible to run a balance of payments current account deficit and surplus at the same time.
I was just reminding my kids about how bad FDR was. All they hear is “how he ended the Depression” (FALSE - he extended it by 7 years) in school. I told them that I thought he was a great president too until I got older. And I could never understand as a kid why my dad hated FDR so much.
I told them I wish my dad had explained things back then. I wonder if he thought that my “innocent” mind shouldn’t be burdened with the adult world. I recall him watching a few minutes of “Hogan’s Heros” everyday as he passed through the den. Then he would shake his head with a chuckle and say “Oh those crazy guys”.
My kids? I pull up photos of the piles of bodies from the camps and videos of the Nazis shooting people in front of open trenches.
I told my kids that perhaps I have been too “real world” with them over the years. I don’t think so though - it isn’t like they mope around the house thinking about it. They do make things difficult for themselves in school sometimes for with their Conservative ideas. (Makes a father proud!).
I think the younger generations are becoming a bit more conservative - but they probably don’t have the numbers to sway things all on their own.
Ok but as I understand the pop numbers globally as well as nationally there doesn’t appear to be a first world replacement for the quantity involved ... Though I’m sure the plunge protection team will step in...
Yes, I recall that Friedman was on board with this and I have heard of the Triffin Dilemma. Still, in the graphs, inflation is not so manifest until after the decoupling.
Not to argue the situation with silver etc. All relevant. While Nixon may not have been the one to start the process I still contend he kicked the can over the cliff.
Your reference to contracting money supply just supports the whole premise that wrong things are done for the right political reasons for the advantage of someone. Nobody gets hard decisions do they?
Gramps is right. Many boomers aren’t able to retire because their 401Ks are now 201Ks.
However, many of us boomers saw Reagan try to fix SS, and were skeptical. We have been living as though SS and Medicare wouldn’t be here at present, and have lived our lives as though we could not rely on seeing one thin dime of our forced “investment”.
Gramps is, also, right about government union retirees. Their retirement packages aren’t sustainable.
Support Gov. Walker in his recall election. That is the second most important election this year.
” While Nixon may not have been the one to start the process I still contend he kicked the can over the cliff.”
I agree with you. I’m not trying to minimize Nixon’s role in lighting the inflation torch.
My point was that inflation had been a problem since the late 1950s, but it was a problem primarily known by central bankers. Inflation wasn’t visible to most Americans until the 1970s after Nixon cut the dollar loose.
Nixon was confronted with the same problem that Kennedy and Johnson had been kicking down the road. And rather than make the hard choices that would have defended the dollar he decided to turn the dollar into a purely fiat currency. Not that Nixon understood what he was doing, there is little indication that any politician has a grasp of monetary theory. Their primary grasp of money is to shove as much of it as possible into their own pockets.
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