Plan to Slash Future Retirees' Social Security Benefits Unveiled

A dramatic trial balloon was floated from the White House through Capitol Hill and the press, this afternoon, as President Bush's spokespeople set forth a proposal to radically alter the way Social Security benefits will be calculated for future retirees. Using "price indexing" instead of worker wages to set benefit levels and increases will reduce payouts to future retirees and therefore save large amounts of money. With the cost of the Republicans' plan to partially privatize Social Security pegged at as much as $2 trillion, supporters of an overhaul in the old-age pension plan are scrambling to assure capital markets that the traditional lenders to the U.S. government will not bear the brunt of financing the scheme. Significantly cutting benefits for future retirees will reduce the Treasury and other debt obligations that will have to be floated to pay for what many outside the Republican leadership claim is a manufactured crisis to eventually end a successful, New Deal-era program that has rankled generations of small-government-is-good-government conservatives and Right-wing polemics.

By making it clear today that only future retirees' benefits will suffer under the new calculation method, the Bush Administration and its Congressional allies hope to blunt what could be a fierce and politically bloody assault already announced by the American Association of Retired Persons (AARP), whose membership would largely escape the cuts. The AARP last week unveiled a $5 million advertising campaign, to start in less than two weeks, as the first wave in a larger counter-push it plans against Republicans tampering with the fundamental structure of Social Security revenue generation and payout levels.

In other news today, the Federal Reserve released minutes of its December meeting, at which it notched up by 250 basis points (a quarter of a percent) a key interest rate under its direct control, the fifth straight increase in the much-watched benchmark rate. The minutes of the meeting show that, despite generally unanimous agreement among the attendees that inflation does not present an immediate threat, troubling signs of inflationary pressures are already evident. Interestingly, though, while the minutes revealed inflation concerns arising from rising energy prices and the dramatically depreciating dollar, apparently no one at the meeting mentioned that the only way rising sector prices could result in a rising aggregate price level (that is, "inflation") was if the Federal Reserve had been allowing the money supply to grow at a more rapid rate than the real growth rate of the economy. Clearly, however, the Federal Reserve's recent statement that it would no longer provide "policy accommodation" indicates that the Bush Administration's cash engine at the Federal Reserve has been turned off. Without the high rate of liquidity creation the Fed had been providing, the full effect of massive federal budget deficits will be more strongly and adversely felt in the general economy. The Bush Administration's red ink legacy has been attributed in large part to multiple rounds of tax cuts that boosted the economy only marginally, coupled with massive expenditures for a war of opportunity.

Reflecting the growing concerns about the economy, stock prices ended the day broadly lower, with major market indices all recording losses. In the case of the huge NASDAQ, the drop was more than two percent. After reaching levels in December not seen in almost four years, the recent slides in stock indices indicate growing doubts now arising among traders, fund managers, and institutional investors about the near- to intermediate-term robustness of economic expansion promised by George W. Bush during the 2004 Presidential campaign. Bond prices gave ground, too, with the 10-year Treasury yield rising to 4.28%, providing still further evidence that interest rates are on their way up, with almost certain adverse consequences for households and businesses. With U.S. interest rates beginning to go up in earnest, the dollar advanced modestly against major world currencies, although the gain was, at least to some extent, the result of what currency traders described as a technical correction.