It seems that President Bush might have a better chance of Social Security privatization if he simply keeps his mouth shut. The more he has been talking in recent weeks, the more Americans think that he is simply launching an Iraq-style war on Americans this time - "phony crisis, urgency to do something right away, no need to deliberate, and let me do it alone because I know the answer". In our analysis, what Americans are saying is that they want to have a more secure retirement and they are willing to make sacrifices, if needed, but not the way President Bush wants. Or in other words, this is a financial decision and politics should be kept out of it. (Related article: Americans want retirement security but not the politics)
The other reason Americans are withdrawing from private retirement accounts now is that what seemed like a good idea in principle, it turned out to be a terrible idea the way President Bush envisions it. While initially it was positioned (falsely) as a way to fix Social Security, as more details came out, now it is very clear that these accounts will actually hurt the Social Security even now. No wonder, AARP, that supposedly speaks on behalf of people who will be unaffected, is up in arms against the proposal. They are afraid, and rightfully so, that as money is siphoned out of Social Security, these seniors have no guarantee that they will get the benefits in the future. (Related article: Support slipping for personal retirement accounts)
A series of polls continues to show that Americans are simply not aligned with the president's proposals despite being very realistic and reasonable about the challenges ahead. In fact, the push to privatize Social Security and to cut government programs that help so many low-income Americans has people so scared that their confidence (as measured by CASH index) has reached a 16-month low. The Ipsos Consumer Attitudes and Spending by Household (CASH) Index is designed to provide a single, handy number that summarizes movement across an array of consumer attitudes, including current assessments and near-term expectations about the economy and personal finance, job security, confidence in the ability to save and invest for the future, and comfort level with making major purchases and other household purchases. This number dropped to 79.1 in February, down sharply from 92.5 in January. February's showing was the worst since October 2003.
What else has been going on that is scaring Americans?
- Dismal job gains in January when people expected that as companies started the new year they would hire more. An analysis by Archstone Consulting shows that while revenues increased by 9.3% in 2003 (the latest year for which data is available for all companies), the cost management index (a measure of costs of doing business) dropped by 40 basis points. In other words, companies are floating in money but not investing it in the United States to create jobs.
- Rising interest rates. While in absolute numbers the interest rates are still low, in relative terms they have more than doubled since June 2004. As Americans pay their mortgage payments any any other loans that are tied to the prime rate, they feel the pain.
- The government plans to cut many programs. While some of these programs will mean direct loss of benefits to many, others will simply lose their jobs. Consumers are also worried that state and local governments will need to raise taxes.
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