Re: Franco Modigliani [and his proposals to save Social Security -- CITS

Walter Hart wrote:

> I think Modigliani sought to address the fluctuations of returns from
> the stock market through what he called a "swap" with the Treasury
> Department

Uum.

I am reminded of one financial writer who stated that
the US government has this flexibility:

        Should the US, due to lack of income, obligations,
        and/or liabilities not be able to redeem short
        term treasuries, the President has the power of
        Executive Order to convert all short-term 
        treasuries to 30 year bonds.

(If anyone knows the source of this statement, I'd like to better
document it.  I know of no law that prohibits such an
action.)

So, it does not impress me that Modigliani tries to reach
to the "lender of last resort" to secure his redesign
of S.S.  Kindleberger struggles with exactly this question
in a final chapter of his 1979 book.  And, I question the
wisdom of both.

For, if the US government must resort to 30 year bonds,
they might, in the extreme, also wish to delay S.S.
payments for 30 years, too.  And, at 1% interest or 0%, say,
in those times, could the government raise any more
funds by borrowing?  Could they just after slam-dunking all 90-
day treasury investors?  Money would flee this country.

Are these extreme cases?  Absolutely.  But, ask your
father (or imagine) what he would say of the Great
Depression.  No one could imagine how staggering that
ten year event was.  No one could imagine how or why,
"the greatest country on earth" had 25% unemployed,
bread lines, and be unable to escape that plight.  One
need only read the NYTs, as I have, on microfilm, in 1928
and 1929 about how strong the economy was, about how
productivity gains would provide vast increases in the
standard of living, etc.

Personally, I would hold zero US treasuries, even though
that is said to be one of the most secure ways of holding
wealth, at least, I would not in this era.  Some see FDIC as
a savior -- I see it as yet one more unfunded government
mandate.  With less than a dollar for every insured dollar
in reserve, you try repaying those accounts AND meeting
S.S. payments and underwriting the Pension Guaranty Trust
(which just reported massive deficits) etc., ...

Rather, I would spread my wealth among various world
currencies (say via www.everbank.com) and I would, as
I wrote two years ago, put assets into precious metals
and/or highly respected collectibles depending on how
liquid I needed those assets to be.

See:

CITS DEBT WATCH -- "Why the Dollar Will Dive, and What Assets
Are ... [May 31, 2002]

http://groups.google.com/groups?hl=en&lr=&ie=UTF-8&threadm=3CF7F3FA.7EF6%40mit.edu&rnum=1&prev=/groups%3Fhl%3Den%26lr%3D%26ie%3DISO-8859-1%26q%3D%2522CITS%2BDEBT%2BWATCH%2522%2Bgold%2Bsilver%2Bcollectibles

Is the dollar diving?

http://finance.yahoo.com/m5?a=1&s=EUR&t=USD

Is gold not near a record high?

http://www.e-gold.com/unsecure/charts.htm
(uncheck all boxes to the left except the metal
you want.  Some charts are defective if you don't
adjust the beginning month/year).

Have collectibles not climbed mightily in "value?"

[one only need watch PBS "Antiques Roadshow" to see
100's of times where a person is "greatly surprised"
at the current appraisal "value."]

Has silver not "appreciated" 25% since my newsletter?

Regards,

Curtiss
-- 


           W. Curtiss Priest, Director, CITS
   Research Affiliate, Comparative Media Studies, MIT
      Center for Information, Technology & Society
         466 Pleasant St., Melrose, MA  02176
   781-662-4044  BMSLIB@MIT.EDU http://Cybertrails.org