You may believe that the banking crisis has no effect on Social Security. The government program may be affected by the troubles of several banks.
A group of senators from both parties has been working on numerous proposals to protect Social Security benefits. Yet, one of these prospective adjustments may be doomed due to the financial crisis.
Bipartisan Brainstorming On Social Security Improvements
Sen. Bill Cassidy (R-La.) and Sen. Angus King (I-Maine), who caucuses with Democrats, apparently lead a bipartisan group of U.S. senators who have been meeting informally for months. This group’s primary objective is to generate ideas to safeguard Social Security benefits. The program’s trust assets will run dry by 2035, according to the Social Security trustees’ report for 2022. Yet, the Congressional Budget Office estimates that insolvency may occur even sooner.
The nonpartisan committee has proposed a variety of solutions to safeguard Social Security. One possibility is to progressively increase the full retirement age from 67 to approximately 70. Historically, the retirement age was gradually increased from 65 to 67 over time.
Several proponents of sovereign wealth funds point out, with justification, that other nations employ comparable methods to support their national retirement schemes. The largest sovereign wealth fund is held by Norway.
Guess where some of Norway’s sovereign wealth fund’s money was invested. In bonds issued by the recently defunct Silicon Valley Bank. SVB Financial Group, the parent business of Silicon Valley Bank, is now pursuing reorganization under Chapter 11 bankruptcy laws.
A representative for Norway’s national wealth fund told Reuters on March 13, 2023, “We expect to receive some money back on our credit exposure, but it is too early to say how much.” The sovereign wealth fund also owned SVB Financial Group shares, which have plummeted due to the financial crisis.
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Worsening Bank Crisis
The circumstances may have been much worse. Earlier this year, Norway’s sovereign wealth fund drastically decreased its holding in Credit Suisse. After detecting “significant flaws” in its fiscal 2021 and 2022 financial reporting systems, shares of the Swiss bank have dropped 70% over the last three weeks.
This week’s concerns about a worsening of the bank crisis may give lawmakers second thoughts about investing Social Security funds in stocks. The experience of Norway will very probably heighten these doubts.
Might the bipartisan group of senators even decide not to create a sovereign wealth fund for Social Security? In light of the crises plaguing the banking system and its influence on Norway’s sovereign wealth fund, this is not inconceivable.
Senators are aware that something must be done to avoid Social Security from being insolvent in the near future. As Sen. Cassidy and Sen. King emphasized in their news release, “Taking action is our only option; inactivity now will only make it worse later.”
If the idea of a sovereign wealth fund to help secure Social Security is doomed because of the bank crisis, new solutions will be required.
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