David Friedberg: How to Save Social Security Using Compound Interest

the US Social Security program is meant to be kind of the retirement program for folks that don't have access to private retirement accounts this program was set up in the 1930s after the Great Depression there's a trust fund the OASDI which is the fund that they invest the capital so every year we all put money in with our social security taxes out of our paychecks goes in there it gets invested in one thing us treasuries which have averaged about 4.8% return since the beginning of the program per year meanwhile the S&P has been averaging 11% so here's the map if in 1971 which was the year that we went

off the gold standard in the United States if we invested the Social Security trust fund in the S&P the balance of the Social Security trust fund today would be $15 trillion that would be roughly onethird of the value of the total s&p500 which would be jointly owned by all Americans now here's what's up the middle class people who had access to private retirement accounts benefited by buying the S&P 500 and the wealthy were able to access it so all of the equity value that accured from American Enterprise and the prosperity of the American system accured to the people that had access to the private accounts meanwhile the people that only had access to the

Public Accounts got stuck owning treasuries today the Social Security trust fund has $2.7 trillion balance and based on the outflows and inflows it's going to go bankrupt in 2032 so I did the math if you assume that the S&P 500 continues to grow at 10 a half% a year on average we could put about $500 billion in the trust fund today and it will not go bankrupt again and it will continue to grow every year and then all americ Americans have participation in American Enterprise and importantly this becomes the world's largest Sovereign wealth fund ever you don't need a separate Sovereign wealth fund we already have one we've totally mismanaged it and I went back to trying

and understand why this is the case why have we only ever bought treasuries early on the US needed someone to loan money so they basically forc the citizens to loan the government money in the form of treasuries but today the Social Security trust fund owns less than 10% about 8% of the total treasury bonds outstanding so why are we forcing all the American citizens to partip for no reason through the Social Security System we've created the Deep inequity we see in this country If instead we had allowed the social security system to invest in the S&P 500 to buy American Enterprises to fund American businesses then every American would be wealthy and

that middle class that uniquely participated by basically arbitraging the market where they forced the treasury bond yields on the poor and they got to take access to the equity yields would have not happened