There’s nobody home at trading desks this week and yields have stayed about the same as the week before Christmas: the 10-year T-note is 4.22 percent, and mortgages are about 5.75 percent for the lowest-fee deals.

There’s nobody home at trading desks this week and yields have stayed about the same as the week before Christmas: the 10-year T-note is 4.22 percent, and mortgages are about 5.75 percent for the lowest-fee deals.

It is quiet, but there is news: the November economy was firm, consistent with more quarter-point-per-meeting rate hikes from the Fed, and no reason to fear inflation. The best single measure of inflation, the personal consumption expenditure deflator (PCE), shows a 1.5 percent annual core rate, above the 1.2 percent terrain of last year, but nowhere near the 2 percent-plus trouble zone. The financial markets are full of snipers claiming the Fed has cooked the inflation books, and that inflation is really higher, but it’s just not so: three-quarters of costs in our economy are labor costs, just now going positive after three falling years, and sky-high commodity prices are not the factor they were during past oil-spikes and weak-dollar intervals.

The economy is close to the “Goldilocks” state of the late ’90s, albeit without a tech supercharger, and not-too-hot, not-too-cold is good news for stocks. People grumpy about investment returns haven’t checked the S&P 500 lately: four decent days this week, and 2004 will have been a 9 percent gainer, six times the inflation rate.

While on the subject of investment returns, a word on privatizing Social Security.

Simultaneous with Ronald Reagan’s supply-side experiment in 1981, one which caused many an economist to wish we could try it out on a smaller country first, privatization of government retirement was tried in a smaller country: Chile. The transition in Chile had all the components we would need: borrowing to bridge the gap, cash benefit reduction, and tax increase. Chile’s program has worked beautifully for 22 years, creating wealth, capital and secure retirement.

That said, Chile is a much smaller country, and the sacrifice necessary for total transition here would never make it past American vested interests (in a small, poor country, citizens have little to sacrifice in a transition; here, everyone is self-chained to their own personal radiator, and has swallowed the padlock key).

President Bush’s modest proposal is about all we can reach for: roughly one-fourth of Social Security revenue committed to personal retirement savings accounts, the transition funded by relatively painless borrowing and very large benefit cuts (indexed to inflation, not wage growth) so far off in the future that today’s young and politically clueless beneficiaries-to-be won’t know what happened to them.

Even this modest privatization has one serious obstacle: how should the new owners of a couple of trillion dollars in new investment accounts handle the money? Wall Street birds have the usual ideas: pay us to manage the accounts, and then we will help the new owners to speculate in the stock market.

Can’t do it. Half of the new account owners don’t have any other savings, and hence no experience with Wall Street’s helpful but light-fingered hands. Second, the principal cause of pension defaults is an excessive fondness for stocks over bonds. Third, the management overhead will chew up too much of the earnings.

So, here’s the way to do it. The Treasury should fund private retirement accounts by issuing Stock Index Certificates and Bond Index Certificates that will rise and fall in value just like any other index funds, accrue interest and dividends, and may be redeemed at future market value upon vesting age. No borrowing, distribution and investment: just issue SICs and BICs as claims on the Treasury, half of each to each individual account. Any person who wants to play markets may do so, but with other money.

No middlemen, management fees on the order of point-two percent, just like market index funds, and everybody gets the same return.

Seems too easy, but it’s not.

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at


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