What Happens to Currencies
If Social Security Gets Privatized? - Forex Market
Friday, 03 June 2005 GMT - Source
FXCM
In the short run, privatizing Social
Security should create a tidal wave of demand for US
equities as millions of employees will allocate part
of their Social Security payments to invest into the
stock market. The rise in equities should in turn create
demand for US dollars as foreign investors will acquire
the currency to participate in the US bull market. In
the long run, the situation is far less certain.
If US stocks suffer a serious setback due to some geo-political
or economic event, the US government may be forced to
rescue short-changed pensioners by guaranteeing minimum
payouts. This policy would most likely trigger massive
inflation, which would be extremely dollar bearish.
Therefore, the impact of Social Security privatization
on the currencies is likely to change depending on the
length of one's outlook.
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