The key idea of a neoliberal regime is redistribution of wealth to the top 0.1%. and first of all
to financial oligarchy. So there is little wonder that ordinary citizens are deprived of hopes for secure
retirement to achieve this noble goal. that means that all gains from rising productivity goes
up the food chain and for lower 80% or so wages remain stagnant while cost of living trends up. And
one adjustment was to contribute less for retirement and use retirement as safety funds in case of unemployment.
This systemic shift of economic risks toward lower 99% of population is an immanent, fundamental feature
of neoliberalism not temporary aberration (so called "Last man standing" strategy"):
The elite 1% are playing a similar game against the 99% which I call “The Last Man Scrambling”.
Paul Rosenberg’s
latest essay
discusses a 2006 book by Yale University political scientist Jacob S. Hacker who explains how the
99% are being financially eaten alive by what is termed the “risk-shift” – the systematic shifting
of risk from large institutions onto the backs of citizens, including the most vulnerable among
us, under the neoliberal rhetoric of “individuals taking personal responsibility”...
So it is far from surprising that after the conversion of the society to
neoliberal model started under Reagan,
chances of "happy retirement" (aka "golden age") for lower 90% of world population (and probably 80%
of US citizens) became pretty slim. The key idea of neoliberalism is "Greed is good", or in other words,
if we increase inequality to max, we speed up growth (albeit mostly in financial sector ;-). And that
presuppose that, after we run out of cheap oil, wealth redistribution became the key "accelerator"
of economic growth. Which can be called "economic growth at any cost" and actually aligned perfectly
well with attempts of some countries to include into their GDP the revenue from prostitution and narcotics
trade.
Such policies hurts middle class and decimates lower class so retirement problem is just a tip of
the iceberg. The neoliberal elite is of strong opinion that 99% should be satisfied to get what trickle
down from the top 1% and should not complain. See
Why
America’s middle class is lost, by Jim Tankersley, Washington Post. And it goes without saying that
the top 1% grabs lion share of nation wealth and almost all gains because it can (as is "Yes we
can"). Corruption of regulators
guarantee that in this rather dirty and criminal redistribution process they never risk jail.
So "insufficient retirement funds" problem for, say, 90% of the population is an immanent feature
of neoliberal regime, not just an accidental result of 2008 financial meltdown. Investment banking has
been ruthless in dumping risk on hapless 401K lemmings. The stock run of 2013-2014 improved situation
for the most reckless part of savers, who adhere to "stocks for a long run" philosophy (akaNaive Siegelism),
but did not fundamentally changed it. The situation is considerably worse for those whom the meltdown
of 2008 frightened away from the stock market.
People in retirement or close to retirement were disproportionally affected: as stocks are inherently
riskier than other investments (and should be trimmed with age, as 100 - your_age rule
suggests), but interest on bonds precipitously dropped during Helicopter Ben actions to save financial
sector from complete meltdown.
Lack of retirement funds means that many seniors will be forced to work well past the traditional
retirement age, if (big if) they can find employment. Living standards for for 90% of seniors will fall,
and poverty rates will rise. It is important to understand that this is not an accident but the natural
situation under neoliberalism as a new social system. And the retirement crisis is the direct result
of conversion of the state into neoliberal model. Such a conversion imply
Dramatic growth of inequality with top 1% getting lion share of the wealth while 99%
face shrinking pie and relentless pressure to "increase productivity" created by global labor arbitrage.
Slashing retirement benefits and first of all elimination of defined benefits pensions
and replacement of them with inferior casino style 401K plans (defined contribution plans). Raising
the age to start collecting them as social spending are cut to allow top 1% to continue to get the
lion share of the nation pie. Companies have eliminated traditional pension plans that cost employees
nothing and guaranteed them a monthly check in retirement offloading all the risk into employees
and cutting or eliminating benefits
Increase in reckless financial behaviour based on greed as neoliberalism makes greed a virtue.
That include speculative "make money fast investments" in which many 401K lemmings wee fleeced.
That also includes "better then Jones" mentality which force many people cars and home they barely
can afford, cutting retirement contributions to a minimum.
Elimination of large number of salaried job and switch to temporary workforce. As a result
many boomerswere unable to save before the recession, and lost the job during it. Now their
wealth is disappear before retirement. As stagnation became permanent chances for old folk to find
employment became more and more difficult. Many need to accept severe cut in monthly salary to get
any employment at all. The Great Recession threw tens of millions of people out of work worldwide.
For many who kept their jobs, pay has stagnated the past five years, even as living costs have risen,
making it tougher to save for retirements cuing their banks and financing unemployment benefits
and other welfare programs.
Stock crashes which became a feature not an exception. Two neoliberalism caused crashes
of stock market (2000 and 2008) make a significant dent in 401K plans. Decimation of bonds returns
under Bernanke added to the injury as older fold should have larger part of their saving in bond.
"The low-interest rate environment has been brutal for retires: $500K in savings would yield $25K
a year at an interest rate of 5 percent, a nice supplement to Social Security, but just $10K at
2% percent.
Government budget deficits swelled both in Europe and the United States. Useless wars
and pressure from military industrial complex in one cause of rising deficits. In many countries
neoliberalism was exported on the tips of bayonets. In other via color revolutions which also cost
money (to bribe sufficient part of local elite). Another is oversized financial sector, which caused
spectacular crashes and due to the fact that it owes the government force on society its own bailout
like in USA in 2009. Moreover due to "Great Recession" tax revenue shrank, and governments pumped
huge amount of money into financial sector increasing the deficits.
Those factors of neoliberal conversion started under Reagan have been well documented individually.
What is less appreciated is their combined ferocity. There are also some negative demographic factors:
Retirees live longer and falling birth rates mean there will be fewer workers to support them.
Baby boomers will retire "en mass" during the decade of 2013-2023 stressing the system.
In other words 401K Donors to Wall Street (which as a cruel joke are called 401K investors)
are currently travelling on the Cruise Ship "Affluent Society" in Stormy Fiat Currency Waters to the
final destination, which might be the Frugality Island:-). Fleecing by financial oligarchy of middle
class retirements plans is the fact of the US life. Recent "crazy" run of S&P500 to 1800 eased the pain,
but structurally the situation essentially remains the same and, what raises fast, falls even faster:
...America’s overall retirement system is in big trouble. ...
Many workers used to have defined-benefit retirement plans, plans in which their employers guaranteed
a steady income after retirement. And a fair number of seniors ... are still collecting benefits
from such plans.
Today, however, workers who have any retirement plan at all generally have defined-contribution
plans — basically, 401(k)’s... The trouble is that at this point it’s clear that theshift
to 401(k)’swas a gigantic failure. Employers took advantage of the switch to surreptitiously
cut benefits; investment returns have been far lower than workers were told to expect; and, to be
fair, many people haven’t managed their money wisely.
As a result, we’re looking at a looming retirement crisis, with tens of millions of Americans facing
a sharp decline in living standards at the end of their working lives. For many, the only thing
protecting them from abject penury will be Social Security. Aren’t you glad we didn’t privatize
the program?
One important side effect of the transformation of the USA society into
neoliberal society since 1970 was offloading
risks on individuals. That's true for retirement too. Now with 401K plan it's individual who assumes
the inflation risk, interest risk (See
Bernanke
stole your pension), market volatility risks and structural unemployment (rampant in the USA) risks.
This neoliberal society now faces several
major crises which lead to the loss of power and prestige and as such deeply affect the US economy:
Consequences of outsourcing of manufacturing and raw materials production. Which led
to overproduction which in turn leads to a decline in profits, and as wages are squeezed to stabilize
profits. As a result demand falls further and further. Moreover the US, which plays the role the
consumer of last resort, cannot continue to borrow indefinitely. The IOUs that the rest of the world
accumulated will eventually have to be repaid.
Military overextension is a second important problem as the wars in Afghanistan and Iraq
demonstrated. Guerillas forces proved to be difficult to fight opponent. The US military is so strained
that it has to hire mercenaries from companies like Blackwater
The decline of legitimacy of the neoliberal ideology. Now neoliberal expansion on which
transnationals (which owns the US government) depends is more costly then in 90th.With neoliberalism
("Greed is good") under attack (including recent attack from
Pope
Francis), the US has lost its ideological supremacy it enjoyed in 90th. Because the US dominates
international financial institutions like the IMF, World Bank and most of the regional development
banks, their imposition of neo-liberal structural adjustments programs has led to a revolt against
their destructive policies as witnessed by the revitalization of the left political forces especially
in Latin America but also in the rest of the global South. Furthermore, the US bullying and
sometimes insulting treatment of the UN has further sullied the US's reputation.
The quagmire of domestic politics.Neocons
spend money left and right for color revolutions trying to preserve the USA as the sole superpower
on the planet, the position it acquired after the dissolution of the USSR. As Ukraine EuroMaidan
had shown recently, now it's a costly business. Added to this international de-legitimization is
the quagmire of domestic politics from
the surrender of civil liberties to Uncle Sam to the
patently obvious corporate
control of both major parties.
When a large number of old people expect to receive certain amounts from their retirement portfolios,
reductions in running yields end up reducing their monthly income. People were forcefully pushed into
stock market casino, in which of course Wall Street is the winner and ordinary investors are the losers.
Casino Capitalism, the internal version of neoliberalism the USA
and Great Britain has been nurtured and encouraged by a series of government decisions.
Of which creation of 401K plans was only one among many. There were also important decisions to deregulated
financial m and allow derivatives with the hope to replace income from manufacturing by income
from financial sector. In other words its was a counter-revolution of the part of ruling elite
that lost its influence in 30th (dismantling New Deal from above in the USA (Reaganomics)
or Thatcherism in the GB). As
Nancy
Folbre is an economics professor at the
University of Massachusetts wrote in her article Rowboats for Retirement (NYT,
Jun 24, 2013)
It feels so good to row your own boat. You’re the captain. You can set your own course and speed.
According to the boat advertisements, you are almost sure to reach your destination as long as you
pay for good advice, rebalance and row hard. Sure, there may be big waves, but you can ride them
out, and storms always subside.
A lot of people used to think of 401(k) retirement accounts this way. But in the last six years,
most Americans have gained a new appreciation of financial bad weather and the threat of a perfect
storm. Stock market volatility, low interest rates and a sagging bond market have discouraged retirement
savings.
Persistent unemployment and stagnant wages have left many workers treading water, struggling
so hard to stay afloat that they couldn’t open a retirement account even if they wanted to.
A
new report from the National Institute on Retirement Security, based on analysis of the 2010
Survey of Consumer Finances, shows that about 45 percent of all working-age households don’t hold
any retirement account assets, whether in an employer-sponsored 401(k) type plan or an individual
retirement account.
Among those 55 to 64 years old, two-thirds of working households with at least one earner have
retirement savings less than one year’s income, far below what they will need to maintain their
standard of living in retirement. By a variety of measures, most households, even those with defined
benefit pensions, are falling far short of the savings they will need.
It's very probable that without new technological breakthrough the USA economy as well as all major
Western economies are in "permanent stagnation" period. Stagnation of median wages may have been evident
for longer in the US, but the Great Recession has led to declining real wages in many other first world
countries. And semi-permanent rate lowering by FED and derivatives frenzy of major banks should probably
be viewed as the last, desperate attempt, if not to provide growth, then to provide an illusion of growth.
At any cost.
Generally, as return on investment in manufacturing diminishes more and more, money are chasing financial
assets, creating one speculative boom after another. And each of them sooner or later ends in spectacular
bust. Herbert Stein quote
"If something can't go on forever, it will stop" (which sound more like Baby Ruth quote ;-) is fully
applicable here. What is important to understand that "boom-bust" cycle now is the way neoliberal economy
functions. They are not aberration, they are the immanent feature of the system. The side effect
of fleecing 401K lemmings is in full accordance with the main idea of neoliberalism: redistribution
of wealth between top 1% and the rest of population. And any attempt of more equitable sharing of wealth
face huge, emotional resistance of "Masters of the Universe" one of which recently compared such attempts
with Hitler's Kristallnacht (Progressive
Kristallnacht Coming — Letters to the Editor - WSJ.com)
For an individual investor it is impossible to predict when such a bust happens. But it is reckless
not to take into account this possibility, when financial assets appreciate like there is no tomorrow.
Again for a regular investor the game now is not about the return on capital, but the return of capital.
This neoliberal invention called 401K is, in essence, a privatization of retirement plans. And
instead of growing the funds, many people discovered that it actually impose a tax of savers because
it offloads all kind of investment risks on the individual. It also created a huge and semi-parasitic
industry of mutual funds, which try to lure 401K investors in stocks. Those who were saving in bonds,
especially in bond mutual funds and ETFs now face dramatically lower returns due Bernanke helicopter
money and bringing short term rates below inflation, In no way they are safe. See Coming Bond Squeeze.
Read Saving your 401K (or may be not now and
access to this page strongly depends on the value of S&P500; when S&P500 is above 1700 few people read
it, but it was an avalage in 2008 and 2009 when S&P was below 1000 ;-).
Even the current, high value of S&P 500 that does not change general situation: what is proposed
for lemmings in 401K plans is not investing, but gambling with Wall Street as the casino owner (aka
Casino Capitalism). As such there is a distinct possibility to
be a victim of computerized financial warfare of Wall Street with middle class. The financial elite
also lusts after Social Security money, and would love to have it transferred over to them for 'safekeeping'.
The news isn’t good about the shift from defined-benefit to defined-contribution pension plans for individual
investors. Wall Street behavior is sticky. As John Kenneth Galbraith noted:
"People of privilege will always risk their complete destruction rather than surrender any
material part of their advantage."
In selecting you allocation try to fight greed and opt for security. The working hypothesis should
be that you probably can beat inflation in 401K, but that's about it. Don't expect anything larger then
that -- all profits belong to Wall Street not you.
This, more cautious strategy, includes avoidance of anything that has a slightest shadow of
possible scams involves. Stakes are just too high.
Warning -- Warning !Warning !
Please read section about
retirement
scams first !!! This is real danger for those close to retirement and all people already
in retirement. Targeting is very sophisticated and the fact that you have a university diploma
might not save you, unless you understand the risks.
Often scamsters are seniors themselves and live in the same community and/or attend the
same church. Remember, if the investment it too good to be true it usually is.
Now in order to survive, many financial advisers are faced with tough choices. And this
type of behaviors is no longer limited to sleazy "cold-call" financial advisors.
Moreover, there are three important factors that IMHO dictate extreme caution as for stocks holdings
for people who are close to retirement (see discussion at
Economist's View for more details)
Stock market like Ponzi scheme depends in entering of new and new players for growth.
That condition held true when baby boomers aged and stock market dramatically risen as self-fulfilling
prophecy, but now is it less true and may even became false.
Quality of corporate earnings is now extremely low. Most of this often sited "increased
profitability" is just result of draconian cost cuts across the board. Large corporation are
still shrinking their workforce in order to maintain the level of EBITRA earnings. This scorch land
policies can't last indefinitely. I think without some kind of technological breakthrough, the situation
can spin out of control in less then a decade. So far corporations did not shred "all the fat" but
in some areas (for example IT) they are close.
The current unemployment is structural. Computers and
outsourcing really eat people jobs. They will never return, at least good paying portion of it which
sustained the middle class. So there is big difference between "Clinton years" and "Obama years."
During Clinton years many created jobs were relatively well-paid IT and financial sector jobs. Even
later, during Bush II years, a lot of them were construction jobs. Right now most of newly created
jobs are service-sector McJobs. That pay less then $15 per hour. This sad development impoverishes
population and dampen consumption from the lower 60% of population considerably (although in the
USA consumption is mainly top 10% game in any case; lower 60% simply does not matter; that why consumption
is so resilient to economic slumps).
Neoliberalism is now entered
zombie phase and that creates some difficulties for the US government and US global corporations
in pushing their agenda through the other countries throat. Those difficulties might increase
in he future. Just count the number of left governments in Latin America now and in 1991. It can
still attempt to expand, but in any case the gold years of neoliberalism after disintegration of
the USSR with subsequent colonizing the new half-billion people economic space (the key source of
Clinton's years prosperity) are over.
At the same time, the amount of funds you need for retirement now it difficult to estimate as you
now carry both inflation risk and market crash risks. That means that you need to put efforts in creating
a model (using Excel) suitable for your situation to have a realistic
assessment of what you need and can be adapted to the changing situation (for example ZIRP regime installed
by Bernanke and Co.). More or less comfortable monthly income now approaches $4.5K a month for a
couple of two, renting a modest two bedroom apartment, who wants and is able to travel (let's say one
trip to children, one vacation and one other trip, $2000 each, of $6K total per year):
Item
Monthly
Annual
Total expenses
4505
50760
Rent
1200
14400
Food
800
9600
Travel/Vacation
500
6000
Suppl Medical Insurance
400
4800
Car amortization (two cars)
400
4800
Car insurance (two cars)
150
1800
TV
120
1440
Gas/transportation
120
1440
Heating/air conditioning
100
1200
Extra expenses
100
1200
Drugs and out-of-pocket med
100
1200
Electricity
60
720
Presents to relatives
50
600
Cloth, computer, furniture, etc
50
600
Internet
40
480
Cell phone
40
480
But to get those funds by growing your 401K investments is a difficult task. At minimum, if one of
spouses gets SS $3K at age of 70 (so the other is eligible for half) you need approximately $300K of your own funds
to get from age 65 (or the time you lose your full time employment) to age 70.
You need to double that if you lose job at the age of 55.
As many IT specialists who reached senior age lose full time employment much earlier and are underemployed
since, you may need to dip at your 401K at some point of your life, so doubling this amount by shooting
for $300K in 401K for each of spouses is prudent. That's not that much but few people have that at,
say, 55. Generally it is realistic to assume that since 60 you will be underemployed and can't get more
then 50% of previous salary. So you can't contribute to 401K any longer. Most of available jobs now
are McJobs in service sector.
Yes, once in a while stock market performs a spectacular run and that can help. But the question
is whether it last. Who would expect that when the USA economy is still in zombie state with high unemployment
S&P 500 would reach 1667 as it did on May 17, 2013.
But for each 100 days then stocks are at their five year peak level, there are ten different years.
And the key problem is that to one can predict when the fortune changes and at what level stock market
will be when you desperately need to withdraw money. In any case, the events of 2000 and 2008 for many
people were like losing half of money at a casino, then having the dealer smile at you and say "How
about one more try. Trust us. This time it will be different..." At this point, relations of Wall
Street and 401K investors look like in a classic scorpion and frog fable.
Boomers were brainwashed about "stocks
for the long run" and now they see that returns are below expectations (as of Feb 25, 2013
S&P500 grew 15% less in comparison to the same investment to
Pimco Total Return fund, if we invested from
01/01/1996 biweekly to Feb 2013). Of course, God knows what will happen with Total return fund after
Bill Gross left, but still...
As most 401K investors feel that they do not have enough money for retirement they tend to take outsized
risks and recently jumped back to stocks and junk bonds (aka reaching for yield), because
interest in regular bond funds and Treasuries disappeared (thanks to Bernanke Fed). Wall Street
is famous for royally fleecing such people.
As most 401K investors feel that they do not have enough money for retirement they tend
to take outsized risks and recently jumped back to stocks and junk bonds (aka reaching
for yield), because interest in regular bond funds and Treasuries disappeared (thanks
to Bernanke Fed). Wall Street is famous for royally fleecing such people.
Even the recent fuelled by Fed money printing boom in stock prices is no escape: in the current
oil-constrained US economy stock prices have been sliding in real terms (inflation adjusted) since the
2000 peak, and every time after peak they suffer a collapse. Two most recent were in 2001 when
S&P500 fall to 720 or so from 1460 and in 2009 when S&P fall to 670 or so.
You can't predict the time of the next collapse, but you can be sure that it will happen in the most
inopportune moment then you vigilance is at low after a relatively long and steady period of growth
of stock values. It can happen in 2015 it can happen in 2020 but generally each ten years there is a
risk of such calamity.
When Wall-street pump-and-dump insiders start a dump phase, the Fed opens the credit tap to push
them back up, thus the oscillating pattern around a downwards trend in 2000-2012 But at the end a stock
crash occures that those who paniced give a lot of money to Wall street speculators. Can it modern method
of redistirbution of wealth from lemming to Wall-street sharks, if you wish.
One positive for 401K investors trend is that S&P500 became like another government statistics. That
means that it is the US government who now desperately wants to stop or slow the decline of the S&P500,
because the S&P500 goes down, most pension funds and other insurers blow up... As Greenspan argued recently
the main goal of FED policy is to boost stock prices (and house prices).
But at the same time ZIRP — the near zero percent rates sinking already retired Boomers retirement
dreams and undermining prospects of happy retirement for those boomers who still work. Some can't bear
the pressure and do move assets back into stocks reaching to yield. They can be lucky, but if they are
not then the next crisis will wipe out that paper gains in no time like has happened in 2008. And there
is no guarantee that the third great robbery of the century is far away: halfway across that stream,
scorpion again will show the frog its true nature…
That's why the first thing in retirement planning is to learn
Excel. Even with crappy rates your Social Security will kick in at 66. Your financial situation
will be better if you can wait till 70 to start getting SS. In most cases this "66-70" increase
in SS constitute tremendous help. In other words minimal size of 401K should give you the ability to
postpone Social Security till 70.
Also with crappy interest rates you need to understand that your health is becoming your most valuable
asset.
Minimal size of 401K should give you the ability to postpone Social Security till 70.
Generally IT staff can't assume that they will be employed till 66, so it is better to reach
this amount around 60. That means that you should strive to contribute the amount which at 60
"theoretically" makes you 401K sufficient to support "self-financed" retirement for 10 years.
Assuming $60K a year and 3% return after inflation a year that comes approximately to $500K.
With $12 a year ($6 an hour) supplementary income you need only $400K and with $24K ($12 an
hour) supplementary income this amount drops to $300K.
It's not a rocket science to calculate approximate year-by-year expenses from the day of your
retirement/unemployment to your longevity expectation date +7 (very few people exceed their longevity
estimate obtained usingRetirement &
Survivors Benefits Life Expectancy Calculatorby more then five years) .
This way you can see that you do you not really need to play in the stock market casino that much.
And get an approximate calculated amount of safe funds (and your monthly contributions) that will allow
you to live frugally, but securely without taking outsize investment risks. Here is an example of such
a basic estimate:
Life Expectancy Calculator
The following table lists the average number of additional years
a male born in 1950, can expect to live when he reaches a specific age.
If you are at Age
Additional Life Expectancy
(in years)
Estimated Total Years
63
20.5
83.5
66
18.3
84.3
70
15.5
85.5
The means that as you (and your wife) age, you better decrease your equity exposure to the level
where your minimum life expenses are covered without your stock part of the portfolio.
For the examples table below shows minimum monthly expenses obtained by drastically downsizing retirement
life style shown above:
Item
Monthly
Annual
Total expenses
2470
29640
Rent
800
9600
Food
800
9600
Travel
100
1200
Suppl Medical Insurance
0
0
Extra expenses
150
1800
Car amortization (one car)
100
1200
Car insurance (one car)
100
1200
Gas/transportation
60
720
TV
80
960
Drugs and out-of-pocket
100
1200
Cloth, computer, furniture, etc
50
600
Presents to relatives
50
600
Internet
40
480
Cell phone
40
480
This calculation means that you probably can survive on around 60% of your "desired" retirement income.
Unfortunately this involves pretty big sacrifices in life quality. So in no way you can allow you next
egg to drop 50% due to stock market calamities, as happened in 2008. So please remember that the game
is rigged and it's you who might pay the price of all this gambling...
But here with almost no cushion you need to be aware about growing medical expenses. Like with older
cars, maintenance became more frequent and more expensive with age probably doubling each ten years
after 60.
In order to model your personal situation in Excel more realistically
on year-by-year basis you need just a few inputs such as:
Life expectancy (there are good calculators available on the Web such as
MSN Money
calculator). As a rule of thumb, a person without serious diseases (asthma, diabetes, etc) who reached
age 60 are expected to live another 22 years, if he is a male and 26 years, if she is a female (see
Wisconsin Life Expectancy
2006-2008)
Medical expenses estimate (including "out of the pocket", which can be channeled via
Flexible saving account to avoid taxes on such spending).
Before tax savings, including 401K and Roth account savings (they should be treated differently
as separate items as tax consequences for them are different -- Roth distributions and income are
not taxable. )
After tax savings. Everything else you have.
Social security. Use the estimate provided by government.
Value of your house, if any and/or your gold/precious metals, if any. This class of assets
generally can be viewed as protected from inflation.
Comfortable minimal level of monthly income (depends on the area where you plan to spend
your retirement, there are expensive places to live and less expensive places to live; also modest
changes in life-style typically can cut expenses 10% or so)
After that you need to create you first simple spreadsheet, with the columns such as Total assets,
Interests income, SS income, Pension (if nay), Other sources and Expenses columns like listed above.
Each row of the spreadsheet should correspond to one year. Some cells can be initially calculated manually.
You will be surprised how much information you can get from this simple exercise.
Boomers not only can get clobbered by the impact of market volatility, they also can lose purchasing
power due to inflation. In other word the UIS elite offloaded the long term economic risks from
states to individual. That offloading is the hallmark of neoliberalism as a "secular religion", the
ideology that still is dominant in the USA.
This another reason why increasing the share of equities is a questionable solution to the problem
of unsufficient retirement funds. A better solution is to think of retiring with a part-time job until
age 70. Even McJob: one realistic plan to enhance your retirement financial security is to continue
part time working till 70. That not only allows to maximize
the Social Security pension but also allow you to dispose your unprotected from inflation assets
in a shorter time frame, lessening the impact of inflation.
Getting part time job not only allows you to get supplementary income easing the requirements to
the size of your private retirements assets, but it permits some of us (especially for former
office slaves, may be the first time in life) to realize untapped in regular work potential. The first
$12K of income are generally tax free.
People do miss their jobs - even jobs they hated. I have never seen statistics, but my experience
suggests at least 50% of those who quit without another job regretted the decision. One discussion
list posted a note from a 40-something woman who had chosen enjoyable, low-paying jobs to "get most
of her life". Now she is against the wall, with no nest egg to fund a career transition and no options.
In any case don't be suicidal and try to compensate insufficient funds by buying some complex financial
product from Wall Street. As one trader put it (naked
capitalism, Aug 02, 2013):
“My advice to people dealing with the financial sector is: never buy anything that’s complex.
Because the more complexity the more opportunities there are to screw you over. I just
can’t get my mind around how banks can still call clients in the corporate world and say, look we’ve
got this great idea that’s going to make you a lot of money.
I mean, what are they thinking? Nobody in the City can be trusted because they don’t work
for you, they work for themselves.”/
In 2005, nearly 5.5 million households were subject to mandatory withdrawal requirements for individual
retirement accounts and 401(k) plans. In 2008 they faced an problem. If you, for example need
to withdraw $50K and all you holding are in S&P500, which is 50% down you instantly lose $25K.
This week, the Internal Revenue Service
announced that people under age 50 in
401(k) and similar workplace
retirement
plans will be able to deposit up to $18,000 in 2015, an increase of $500 from this year. Those 50
and over can toss in as much as $24,000, a $1,000 increase.
Which is all fine and dandy for the
well-heeled and the frugal. But one of the biggest problems with these accounts has nothing to do
with how much we can put in. Instead, it’s the amount that so many people take out long before they
retire.
Over a quarter of households that use one of these plans take out money for purposes other than
retirement
expenses at some point. In 2010, 9.3 percent of households who save in this way paid a penalty to
take money out. They pulled out $60 billion in the process; a significant chunk of the $294 billion
in employee contributions and employer matches that went into the accounts.
These staggering numbers come from an examination of federal and other data by
Matt Fellowes, a former Georgetown
public policy professor who now runs a software company called HelloWallet, which aims to help employers
help their workers manage their money better.
In a paper he wrote with a colleague, he noted that industry
veterans tend to refer to these retirement withdrawals as “leakage.” But as the two of them wrote,
it’s really more like a breach. And while that term has grown more loaded since their treatise appeared
last year and people’s debit card information started showing up on hacker websites, it’s still
appropriate. Millions of people are clearly not using
401(k) plans as retirement accounts at all, and it’s a threat to their financial health.
“It’s not a system of retirement accounts,” said Stephen P. Utkus, the director of retirement
research at Vanguard. “In effect, they have become dual-purpose systems for retirement and short-term
consumption needs.”
How did this happen? Early on in the history of these accounts, there was concern that if there
wasn’t some way for people to get the money out, they wouldn’t deposit any in the first place. Now,
account holders may be able to take what are known as
hardship withdrawals if they’re in financial trouble. Moreover, job changers often choose
to pull out some or all of the money and pay income tax on it plus a 10 percent penalty.
The breach tends to be especially big when people are between jobs. Earlier this year, Fidelity
revealed that 35 percent of its participants took out part or all of the money in their workplace
retirement plans when leaving a job in 2013. Among those from ages 20 to 39, 41 percent took
the money.
The big question is why, and the answer is that leading plan administrators like Fidelity
and Vanguard don’t know for sure. They don’t do formal polls when people withdraw the money.
In fact, it was obvious talking to people in the industry this week and reading the complaints
from academics in the field that the lack of good data on these breaches is a real problem.
Fidelity does pick up some intelligence via its phone representatives and their conversations
with customers. “Some people see a withdrawal as an opportunity to pay off debt,” said Jeanne Thompson,
a Fidelity vice president. “They don’t see the balance as being big enough to matter.”
Or their long-term retirement savings matter less when the 401(k) balance is dwarfed by their
current loans. Andrea Sease, who lives in Somerville, Mass., is about to start a new job as an analytical
scientist for a pharmaceutical company. She was tempted to pull money from her old 401(k) to pay
down her
student loan debt, which is more than twice the size of her balance in the retirement account.
“It almost seems like they encourage you,” she said, noting that the materials she received from
her last retirement account administrator made it plain that pulling out the money was an option.
“It’s an emotional thing when you look at your loan balance and ask yourself whether you really
want to commit to 15 more years of paying it, and a large sum of 401(k) cash is just sitting there.”
So far, she’s keeping her savings intact.
Another big reason that people pull their money: Their former employer makes them. The employers
have the right to kick out former employees with small 401(k) balances, given the hassle of tracking
small balances and the whereabouts of the people who leave them behind. According to Fidelity,
among the plans that don’t have the kick-them-out rule, 35 percent of the people with less than
$1,000 cashed out when they left a job. But at employers that do eject the low-balance account holders,
72 percent took the cash instead of rolling the money over into an individual retirement account.
This is unconscionable. Employers may meekly complain about the difficulty of finding the owners
of orphan accounts, but it just isn’t that hard to track people down these days. Whatever the expense,
they should bear it, given its contribution to the greater good. Let people leave their retirement
money in their retirement accounts, for crying out loud.
Account holder ignorance may also contribute to the decision to withdraw money. “There is a complete
lack of understanding of the tax implications,” said Shlomo Benartzi, a professor at the University
of California, Los Angeles, and chief behavioral economist at Allianz Global Investors, who has
done pioneering research
on getting people to save more. “And given that we’re generally myopic, I don’t think people
understand the long-term implications in terms of what it would cost in terms of retirement.”
In fact, young adults who spend their balance today will lose part of it to taxes and penalties
and would have seen that balance increase many times over, as the chart accompanying this column
shows.
But Mr. Fellowes of HelloWallet, interpreting the limited federal survey data that exists, says
he believes that people raid their workplace retirement accounts most often because they have to.
They are facing piles of unpaid bills or basic failures of day-to-day money management. Only
8 percent grab the money because of job loss and less than 6 percent do so for frivolous pursuits
What can be done to change all of this? Mr. Benartzi thinks a personalized video might be even
more effective than a boldly worded infographic showing people the money they stand to lose. He
advises a company called Idomoo that has
a clever one on its website aimed
at people with pensions. If you want to see the damage that an early withdrawal could do, Wells
Fargo has a
tool on its site.
"Over the past five years, the S&P 500 stock index has more than doubled. For the past
10 years, it has nearly quadrupled," says Orman. "If you have left your portfolios on
autopilot, that could likely mean that you now own more stock than you intend to, or
should."
Left to their own devices, your increasingly valuable stocks may have started to account for
an even larger portion of your account
... ... ...
Orman cites a recent analysis from Fidelity Investments on the retirement plans the company
handles. Fidelity estimates about 20% of savers own more stock than they'd recommend for
someone of their age.
Retirees who have the most money pay the most in taxes, according to a
recent
working paper
, but they're not necessarily rich.
"Most of the tax burden is carried by the top quintile of households,"
Anqi
Chen
, co-author and assistant director of savings research at the Center for Retirement Research at Boston College, told
Yahoo Money. But "it's important to keep in mind that when we think about the top quintile of households -- the top 20% -- they're
not the super wealthy."
Those in the highest quintile are mostly married couples with average combined Social Security benefits of $50,900, 401(k)/IRA
balances of $325,400, and financial wealth of $441,400. When annuitized, those assets and retirement accounts earn account
holders roughly $3,000 per month -- or $36,000 per year -- ostensibly making them middle-income earners, Chen said.
"That's some money but not a ton of money," Chen said, "and these households will have to pay about 11% [in taxes]."
(Photo: Getty)
The highest quintile pays 11.3% on their retirement income, while the top 5% is taxed at 16.4%, and the top 1% is taxed at 22.7%,
according to the analysis. Overall, retired households pay 6% in federal and state taxes on their income.
Researchers used income data from 3,419 individuals and 1,907 households included in the Health and Retirement Study, a
nationally representative longitudinal survey of older Americans. The analysis assumes the retirees follow the required minimum
distributions for their retirement accounts and consume only interest and dividends from their assets.
The heavy tax burden carried by well-off retirees demonstrates that even those who enter their golden years with the most money
are still short on savings, an ongoing problem for many Americans. Roughly 40% of the top quintile of savers are at risk of
maintaining their standard of living, meaning "taxes will make the goal even more difficult to attain," the study said.
For the majority of retired households, "taxes are negligible," Chen said, paying 0% to 1.9%. But they are far from lucky.
Those in the "bottom two-thirds of the income distribution don't have a lot in financial assets" that yield material income in
retirement, she added.
Yahoo Money sister site Cashay has a weekly newsletter.
Stephanie is a reporter for Yahoo Money and
Cashay
,
a new personal finance website. Follow her on Twitter
@SJAsymkos
.
"... If you're married and your spouse is covered by a workplace-based retirement plan but you're not, you can deduct your full IRA contribution as long as your joint AGI doesn't top $196,000 for 2020. You can take a partial tax deduction if your combined income is between $196,000 and $206,000. ..."
"... Spouses with little or no earned income for 2020 can also make an IRA contribution of up to $6,000 ($7,000 if 50 or older) as long as their spouse has sufficient earned income to cover both contributions. The contribution is tax-deductible as long as your household income doesn't exceed the limits for married couples filing jointly. ..."
There's still time to make a 2020 IRA contribution and lower your tax bill.
by:
Sandra
Block
January 13, 2021
As you get ready to tackle your 2020 tax return, make sure you haven't overlooked one of the best ways to cut your tax bill
and secure your future -- funding a traditional IRA. (There is no upfront tax break for funding a Roth IRA.)
You can actually make an IRA contribution for the 2020 tax year up until the time you file your tax return, which is due April
15, 2021. But why wait? If you have some extra income – say, from a
stimulus
check
– go ahead and deposit it into an IRA account now before you forget. You'll also give the money a little more time
to grow, which you'll appreciate when you retire.
And what about those tax savings? Well, depending on your income, you may be able to deduct your IRA contribution on your 2020
return. To contribute to a traditional IRA, you or your spouse must have earned income from a job. But, otherwise,
you
may be able to deduct contributions
to an IRA even if you or your spouse are covered by another retirement plan at
work. Plus, starting last year, seniors age 70½ and older with earned income can contribute to a traditional IRA, too.
Here's some more good news: The IRA deduction is an "above the line" adjustment to income, meaning you don't have to itemize
your deductions to claim it. It will reduce your adjusted gross income (AGI) dollar-for-dollar, lowering your tax bill. And
your lower AGI could make you eligible for other tax breaks, which are tied to income limits.
Who Qualifies
If you're single and don't participate in a retirement plan at work, you can make a tax-deductible IRA contribution for 2020
of up to $6,000 ($7,000 if you're 50 or older) regardless of your income. If you're married and your spouse is covered by a
workplace-based retirement plan but you're not, you can deduct your full IRA contribution as long as your joint AGI doesn't
top $196,000 for 2020. You can take a partial tax deduction if your combined income is between $196,000 and $206,000.
But even if you do participate in a retirement plan at work, you can still deduct up to the maximum $6,000 IRA contribution
($7,000 if you're 50 or older) if you're single and your income is $65,000 or less ($104,000 if married filing jointly). And
you can deduct some of your IRA contribution if you're single and your income is between $65,000 and $75,000, or if you're
married and your income is between $104,000 and $124,000.
Spouses with little or no earned income for 2020 can also make an IRA contribution of up to $6,000 ($7,000 if 50 or older) as
long as their spouse has sufficient earned income to cover both contributions. The contribution is tax-deductible as long as
your household income doesn't exceed the limits for married couples filing jointly.
Double Tax Break
Some low- and moderate-income taxpayers get an extra break for contributing to an IRA or other retirement account.
In addition to the usual IRA deduction, you may qualify for a Retirement Savers tax credit of up to $1,000 for contributions
to an IRA or other retirement tax plan. (A tax credit, which reduces your tax bill dollar-for-dollar, is more valuable than a
deduction, which merely reduces the amount of income that is taxed.)
The actual amount of the credit depends on your income. It ranges from 10% to 50% of the first $2,000 contributed to an IRA or
other retirement account. To be eligible, your 2020 income can't exceed $32,500 if you're single; $48,750 if you're the head
of a household with dependents; or $65,000 if you're married filing jointly. The lower your income, the higher the credit. But
you can't claim the Retirement Savers credit if you're under 18, a student, or can be claimed as a dependent on someone else's
tax return.
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@ Grieved | Dec 19 2020 6:01 utc | 135 with the rant about the Dems and Medicare for
All
The US government has been financialized like the majority of the Fortune 500. Since the
1970's the trajectory in the US has been to reduce government spending on social safety net
programs and privatize the Social Security Insurance program. While SSI was raped by
Reagan/Greenspan/Congress and taken from the independence of actuaries and made a political
budget football including false claims of being and "entitlement" program the safety net
social programs fared worse. In the early 1970's, when I was familiar with the planning for
and provision of social services like for developmental disabilities, alcoholism, mental
health, job search help, infancy care (WIC) and drug abuse, the concept of continuum of care
helped the different agencies collaborate and really help folks. Then the Fed stared changing
the rules of the way money was to be spent that developed columns of services that don't
interact/coordinate with each other as well as reducing overall low income support.
I also want to add to what you wrote earlier that humanity use to make other than the
throw-away-to-churn-the-money-mill products that were both designed and built better/to last.
It fits with our throw away food system with all that packaging and none of it refillable,
seemingly by design.....
....
....
because as I continue to write here, its all about the God of Mammon instead of the support
of the masses social structure with the underpinning of the God of Mammon way of life is
controlled by the global private financed owned elite and the support of the masses way of
life is exampled biggly currently by China.
For eight-and-a-half decades, most Republican legislators (and some Democrats) have been
trying to get rid of Social Security .
The first step in Trump's assault on Social Security's funding took effect Sept. 1st.
On Trump's orders, the IRS ordered corporations to stop withholding Social Security
contributions from paychecks, through the end of the year.
Speaking on Fox Business recently, Trump advisor Larry Kudlow said that later this year
Trump will order the IRS to continue the deferral indefinitely.
Social Security's chief actuary wrote that if Social Security is defunded, some benefits
will be reduced next year, and that benefits will disappear entirely by the end of 2023.
If you are, or if you know someone on Social Security, please pass the word!
I'm 52, won't live past 80 and have $1.6 million. 'I am tired of both the rat race and workplace
politics.' Should I retire?
More
I don't have much in savings and feel lost. What can I do? Dear Wondering in Alamo, You bring up a question I
think a lot of people have been asking themselves lately.
https://s.yimg.com/rq/darla/4-2-1/html/r-sf.html
Start survey
U.S.
Your retirement distributions won't be taxed in these states: AARP
Ann Schmidt
,
Fox Business
•
July
31, 2020
There are 12 states that won't tax your distributions from
401(k)
plans,
IRAs or pensions, according to a recent report from
AARP
.
Of those states, nine -- Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas,
Washington and Wyoming -- don't have state income taxes.
Some states only partially tax retirement distributions, AARP reported. In Colorado, taxpayers over 65
can remove
$24,000
from
their federal AGI for their state taxes, according to AARP.
Other states have policies for taxes on retirement distributions that depend on your occupation before
retirement. For example, in Connecticut, teachers can subtract 25 percent of their retirement income from
federal AGI.
There are also 29 states that don't tax
military
retirement
income at all, AARP reported. Those states include Alabama, Arkansas, Connecticut, Hawaii, Idaho,
Illinois, Kansas, Louisiana, Maine, Massachusetts, Missouri, New Jersey, North Dakota, Ohio, Oregon,
Pennsylvania, Rhode Island, South Carolina, West Virginia and Wisconsin.
The remaining 21 states tax some or all of military retirement income, according to AARP.
One exception is in Virginia, where only recipients of the Congressional Medal of Honor are exempt from
taxes on their military retirement income, AARP reported.
"... "By the Department of Labor's own admission, these are investments that are more complex, more opaque, less liquid, more difficult to value, with often higher costs than the investments that are traditionally offered through retirement plans," Roper said in an interview with Yahoo Finance. ..."
Managers of 401(k) plans now have the ability invest in private equity. In other words, your
401(k ) could soon take stakes in private companies.
The goal, according to Labor Secretary Eugene
Scalia is to allow investors to "gain access to alternative investments" and "ensure that ordinary people investing for retirement
have the opportunities they need for a secure
retirement
." The Department of Labor laid things out in a
letter that says putting 401(k) money into private-equity funds would not "violate the fiduciary's duties" of certain retirement
plan sponsors.
But some experts see a big downside.
Barbara Roper, the Director of Investor Protection
at the Consumer Federation of America, said the "significant risks" associated with private equity investments haven't been adequately
addressed.
"By the Department of Labor's own admission, these are investments that are more complex, more opaque, less liquid, more
difficult to value, with often higher costs than the investments that are traditionally offered through retirement plans," Roper
said in an interview with Yahoo Finance.
You 'could do much, much worse'
The DOL letter means that a 401(k) manager could now decide to invest in private-equity funds that previously were not accessible.
These funds traditionally have been reserved for the wealthiest traders and institutional investors. They typically come with higher
risk since private companies are not required to disclose nearly the same about of data with the SEC as public companies do.
The new rule could be tempting for average savers who may now have a roundabout way to get a piece of a company – like SpaceX
or AirBnB – that's still private. The American Investment Council, which represents the private equity industry, has
lauded the change , saying it will strengthen Americans' retirement security.
One thing that remains up in the air is how quickly the managers of the big retirement plans will embrace their new options. Companies
like Vanguard and Fidelity have not yet offered comment on the new guidelines. Another
outstanding question is whether these plans would list private-equity funds among the options for savers to choose from, or whether
private equity would simply be mixed into existing funds.
Alexis Leondis, an opinion columnist for Bloomberg,
recently asked if the move is worth the risks. “Many plan sponsors don't have the sophistication or background in alternatives
to fully understand the complicated structures of many private equity funds," she wrote.
Roper said that “the dispersion of returns in the private-equity fund space is huge, much broader than it is in the public markets.”
And while the returns for over-performing private equity funds can, indeed, beat the public markets, “if you get in a below average
fund, you could do much, much worse," she said.
An example of a big downside in private equity fund is SoftBank’s Vision fund. That fund
recently announced losses of $24 billion
after failed investments in WeWork and OneWeb.
According to
a 2018 study by the Stanford Center on Longevity, about half of American workers are saving money through a retirement plan at
work. Access to and participation in 401(k)s is much lower among younger workers.
A report from the National Institute on Retirement Security found that two-thirds of working millennials have nothing saved for
retirement.
A second rule change, over financial advice
A second change is coming soon and is expected to relax restrictions on the advice financial professionals give about their retirement
investments.
The change,
passed by the SEC last year with a compliance deadline of June 30, says brokers must act “in the best interest of the retail customer
at the time the recommendation is made, without placing your financial or other interest ahead of the retail customer’s interests.”
SEC Chairman Jay Clayton has said that the change is part of "raising the standard of conduct for broker-dealers," while he has
discussed in interviews how the best interest standard is different than a fiduciary standard.
According to the Consumer Federation of America, the move could lead to an understanding that investment advisers are not true
fiduciaries. A fiduciary is someone legally obligated to act in the best financial interests of the clients they are advising.
Roper
says that this potential new rule gives broker-dealers and investment advisers “virtually unlimited ability to act as advisers,
while simultaneously failing to regulate them accordingly.” They can now “mislead their customers into believing they are getting
trusted, best interest advice when they are actually getting investing recommendations biased by toxic conflicts of interest,” she
said.
Roper appeared as part of Yahoo Finance’s ongoing partnership with the
Funding our Future campaign, a group of organizations
advocating for increased retirement security for Americans.
Consumer Federation of America is an association of non-profit consumer organizations. More than 250 groups – from local agencies
like the New York City Department of Consumer Affairs to private groups across the country – participate in the federation.
All of these changes may not be noticed by certain savers who are often encouraged to take a “set it and forget it” approach to
their retirement.
If their 401(k) provider does end up getting involved in private equity, advocates like Roper say that "the promise of improved performance
is not necessarily met by the reality."
Ben Werschkul is a producer for Yahoo Finance in Washington, DC.
Required Minimum Distributions (RMDs) generally are minimum amounts that a retirement plan
account owner must withdraw annually starting with the year that he or she reaches 72 (70
½ if you reach 70 ½ before January 1, 2020), if later, the year in which he or
she retires. However, if the retirement plan account is an IRA or the account owner is a 5%
owner of the business sponsoring the retirement plan, the RMDs must begin once the account
holder is age 72 (70 ½ if you reach 70 ½ before January 1, 2020), regardless of
whether he or she is retired.
Retirement plan participants and IRA owners, including owners of SEP IRAs and SIMPLE IRAs,
are responsible for taking the correct amount of RMDs on time every year from their accounts,
and they face stiff penalties for failure to take RMDs.
When a retirement plan account owner or IRA owner, who dies before January 1, 2020, dies
before RMDs have begun, generally, the entire amount of the owner's benefit must be distributed
to the beneficiary who is an individual either (1) within 5 years of the owner's death, or (2)
over the life of the beneficiary starting no later than one year following the owner's death.
For defined contribution plan participants, or Individual Retirement Account owners, who die
after December 31, 2019, (with a delayed effective date for certain collectively bargained
plans), the SECURE Act requires the entire balance of the participant's account be distributed
within ten years. There is an exception for a surviving spouse, a child who has not reached the
age of majority, a disabled or chronically ill person or a person not more than ten years
younger than the employee or IRA account owner. The new 10-year rule applies regardless of
whether the participant dies before, on, or after, the required beginning date, now age 72.
The RMD rules apply to all employer sponsored retirement plans, including
profit-sharing plans, 401(k) plans, 403(b) plans, and 457(b) plans. The RMD rules also apply
to traditional IRAs and IRA-based plans such as SEPs, SARSEPs, and SIMPLE IRAs.
The RMD rules also apply to Roth 401(k) accounts. However, the RMD rules do not apply to
Roth IRAs while the owner is alive.
You must take your first required minimum distribution for the year in which you turn age 72
(70 ½ if you reach 70 ½ before January 1, 2020). However, the first payment can
be delayed until April 1 of 2020 if you turn 70½ in 2019. If you reach 70½ in
2020, you have to take your first RMD by April 1 of the year after you reach the age of 72. For
all subsequent years, including the year in which you were paid the first RMD by April 1, you
must take the RMD by December 31 of the year.
A different deadline may apply to RMDs from pre-1987 contributions to a 403(b) plan (see FAQ
5 below).
Return
to List of FAQsHow is the amount of the required minimum distribution
calculated?
Generally, a RMD is calculated for each account by dividing the prior December 31 balance of
that IRA or retirement plan account by a life expectancy factor that IRS publishes in Tables in
Publication 590-B ,
Distributions from Individual Retirement Arrangements (IRAs) . Choose the life expectancy
table to use based on your situation.
Joint and
Last Survivor Table - use this if the sole beneficiary of the account is your spouse and
your spouse is more than 10 years younger than you
Uniform
Lifetime Table - use this if your spouse is not your sole beneficiary or your spouse is
not more than 10 years younger
The Decade in Retirement: Wealthy
Americans Moved Further Ahead https://nyti.ms/34pZAbD
NYT - Mark Miller - Dec. 14
... In 2010, the economy was just beginning to recover from the worst recession and
financial crisis in recent memory. The unemployment rate was high, the stock market was
coming back and millions of workers were worried that their retirement plans were ruined.
Since then, a robust economic rebound has put some Americans back on solid footing for
retirement, but progress has been uneven. Despite the gains made in employment, wage growth
has only recently begun to recover -- and remained flat for older workers. Retirement wealth
has accumulated almost exclusively among higher-income households, while middle- and
lower-income households have only held steady or lost ground, Federal Reserve data shows.
Trends in Social Security and Medicare also are troubling. The value of Social Security
benefits -- measured by the share of pre-retirement income they replace -- is falling, and
the cost of Medicare is rising.
For members of the baby boomer and Gen X generations, the odds of success are mixed. The
Employee Benefit Research Institute has developed a model that simulates the percentage of
households likely to have adequate resources to meet retirement expenses, considering
household savings, home equity and income from Social Security and pensions.
The model shows that the highest-income households have seen their odds of a successful
retirement improve sharply during this decade, and have very high odds of success.
Middle-income households, meanwhile, have seen some gains, but still have only 50-50 odds of
success. And the lowest-income households have seen their retirement prospects diminish
sharply -- among these boomers approaching retirement, their odds of success have fallen
during the decade from 26 percent to 11 percent.
"Retirement prospects improved significantly for higher-income workers who were fortunate
enough to work for employers that sponsor retirement plans," says Jack VanDerhei, the
organization's research director.
Let's consider how the retirement landscape has changed during the decade now ending.
Retirement savings: Up for the affluent
The stock market bottomed out in March 2009 -- and it has more than quadrupled since then.
Most retirement savers did not abandon equity markets during the crash, says Jean Young,
senior research associate with the Vanguard Center for Investor Research. "Some did, but the
vast majority stayed the course."
But the recovery has seen retirement wealth accumulate almost exclusively among affluent
households that had access to workplace retirement plans and the means to make contributions.
For example, Vanguard reports that the average balance for plan participants with incomes
over $150,000 in 2018 was $193,130, compared with just $22,679 for workers with income of
$30,000 to $50,000. ...
Humans have an amazing capacity to suspend disbelief, a trait that novelists, Hollywood and,
sadly, criminals, have used to notable effect. Here are some typical frauds.
Wire transfer scams: A retired businessman in his 80s was contacted by people who claimed
they wanted to do business with him. Thinking he was back in the game and investing in a real
deal, he wired them $400,000. When he discovered he'd been defrauded, he complained to the
scammers, who then passed him along to new crooks who said they could get his money back if
he would wire them $400,000 -- which he did.
Third-party scams: Some victims play an unwitting role in facilitating scammers' attempts
to defraud a third party. For example, a gentleman in his 80s gave scammers between $600,000
and $1 million from his bank accounts. After the fraud was discovered by his family and
financial institution, he lost access to his funds. But that didn't stop the scammers. They
set up a PayPal account under his name and Social Security number, convinced him to go to
TitleMax® and borrow money using his car as collateral, then had him put the funds in the
PayPal account to which they had access.
Gift card scams: Gift cards can be used to launder money without even having to
physically send the cards anywhere. A scammer convinces the victim to go to a store, get one
or several cards, and load each one up with money. Then, they have the victim scratch off a
protective strip on the back of the card to reveal its code number, take a picture of the
number, and then text the picture to a cellphone number.
Computer-hacking scams: A common ruse aimed at seniors involves a contact from someone
claiming to be a Microsoft employee. The fake Microsoft rep claims the senior's computer has
a virus or some other problem, which they're happy to fix. The senior simply needs to click
on an email link or download an attachment the rep sends them -- and pay a fee. With one
click by the victim, the scammer gains control of the victim's computer. One victim paid
about $300 -- over and over -- to the same scammers, who kept "fixing" her computer since
they could break it as often as they chose. The victim had no idea what was happening.
Door-to-door scams: A fraudster knocks on a senior's door and says her trees need to be
trimmed or gutters need to be cleaned. I know of two people who each paid a crook $30,000 to
trim the hedges at their house. No trimming took place; the criminal just hung out for a
while and reappeared to help the elderly client write a check for their services.
Transaction settlement scams: A scammer claims they need someone to act as an agent or
middleman to help settle a transaction, such as a divorce or property settlement. The victim
receives a check that looks legitimate, deposits it in their own account or a trust account,
then wires the money to the scammer. Of course, the check was fake, but the victim's real
money is gone.
Family member financial abuse: I could devote a whole article to this type of abuse.
Financial frauds within a family can be difficult to resolve. Is an elderly parent
voluntarily giving real gifts to a family member? Or is fraud involved? Without proper
documentation, financial fraud within a family can devolve into a he said/she said conflict
among siblings and others.
Even if the timing remains vague and the conditions uncertain, the government does seem to
have decided to launch a vast reform of the retirement pensions system, with the key element
being the unification of the rules applied at the moment in the various systems operating
(civil servants, private sector employees, local authority employees, self-employed, special
schemes, etc).
Let's make it clear: setting up a universal system is in itself an excellent thing, and a
reform of this type is long overdue in France. The young generations, particularly those who
have gone through multiple changes in status (private and public employees, self-employed,
working abroad, etc), frequently have no idea of the retirement rights which they have
accumulated. This situation is a source of unbearable uncertainties and economic anxiety,
whereas our retirement system is globally well financed.
But, having announced this aim of clarification and unification of rights, the truth is that
we have not said very much. There are in effect many ways of unifying the rules. Now there is
no guarantee that those in power are capable of generating a viable consensus in this respect.
The principle of justice invoked by the government seems simple and plausible: one Euro
contributed should give rise to the same rights to retirement, no matter what the scheme, and
the level of salary or of earned income. The problem is that this principle amounts to making
the inequalities in income as they exist at present sacrosanct, including when they are of
mammoth proportions (under-paid piece work for some, excessive salaries for others), and to
perpetuating them at the age of retirement and dependency which is in no way particularly
"fair".
Aware of the difficulty, the High Commissioner Jean-Paul Delevoye's Plan stipulates that a
quarter of the contributions will continue to be allocated to "solidarity', that is to say, for
example, to subsidies for children and interruptions of career, or to finance a minimum
retirement pension for the lowest salaries. The difficulty is that the way this calculation has
been made is highly controversial. In particular, this estimate purely and simply takes no
account of social inequalities in life expectancy. For example, if a low wage earner spends 10
years in retirement while a highly-paid manager spends 20 years, we have forgotten to take into
account the fact that a large share of the contributions of the low wage earner serves in
practice to pay the retirement of the highly-paid manager (which is in no way compensated for
by the allowance for strenuous and tedious work)
More generally, there are naturally multiple parameters to be fixed to define what one
considers to be "solidarity". The government's proposals are respectable but they are far from
being the only ones possible. It is essential that a broad public debate take place and that
alternative proposals should emerge. The Delevoye Plan for example provides for a replacement
rate equal to 85% for a full career (43 years of contributions) at Minimum Wage level. This
rate would then very rapidly fall to 70%, to only 1.5 Smic (Minimum Wage) before stabilising at
this precise level of 70% until approximately 7 Smic ( 120,000 Euros gross annual salary). This
is one possible choice, but there are others. One could thus imagine that the replacement rate
would go gradually from 85% of the Smic to 75%-80% around 1.5 – 2 Smic, before gradually
falling to around 50%-60%, approximately 5-7 Smic.
Similarly the government's project provides for a financing of the system by a retirement
contribution of which the global rate would be fixed at 28.1% on all the gross incomes below
120,000 Euros per annum, before falling suddenly to only 2.8% beyond this threshold. The
official justification is that retirement rights in the new system would be capped at this wage
level. The Delevoye Report goes as far as congratulating themselves because the super-managers
will nevertheless be subject to this contribution (which will not be capped) of 2.8%, to mark
their solidarity with the older generations. In passing, once again no account is taken of the
salaries between 100,000 Euros and 200,000 Euros which usually correspond to very long life
expectancies and which benefit greatly from the contributions paid by the lower waged with
shorter life expectancies. In any event, this contribution of 2.8% to solidarity by those
earning over 120,000 Euros is much too low, particularly given the levels of remuneration;
their very legitimacy is open to challenge.
More generally it is perhaps time to abandon the old idea according to which reduction of
inequalities should be left to income tax, while the retirement schemes should content
themselves with reproducing them. In a world in which fabulous salaries and questions of
retirement and dependency have taken on a new importance, the most legible norms of justice
could be that all levels of salary (including the highest) should finance the retirement scheme
at the same rates (even if the pensions themselves are capped) while leaving to income tax the
task of applying higher levels to the top incomes
To be clear: the present government has a big problem with the very concept of social
justice. As everyone knows, it has chosen from the outset to grant huge fiscal gifts to the
richest (suppression of the wealth tax (the ISF), the flat tax on dividends and incomes). If
today it does not demand a significant effort from the most privileged it will have
considerable difficulty in convincing the public that its pension reform is well-founded.
It seems like barely a quarter goes by without Wells Fargo being exposed for some abusive
practices, like opening millions of fake credit card accounts, or selling customers of its auto
loans insurance that they didn't really need (but that the company insisted they did).
In the
latest violation,
the New York
Times
reports that Wells Fargo continued to charge overdraft and other charges to customers
even after closing their accounts for one of a myriad reasons.
The paper used Xavier Einaudi, a small business owner who banked with Wells, as its primary
example.
A few months back, the bank informed Einaudi that it would be closing all 13 of
the checking accounts he had with the bank related to his roofing company, CRV Construction.
When asked why it was closing the accounts, it replied that the issue was "confidential".
Anyway, Einaudi went to his local Wells branch and picked up a check compensating him for the
contents of the accounts. One June 27, the bank said, the accounts would go defunct, and no more
transactions would be allowed.
As it turns out, that wasn't exactly the case.
Shortly after the closure date, Einaudi realized that Wells had kept some of the accounts active
with a zero balance. Meaning that some of Einaudi's payments to vendors like his insurer and his
Google advertising accounts continued from the empty accounts. But this time, each transaction was
accompanied by a $35 overdraft fee.
By the time Einaudi realized what was going on, he had wracked up thousands of dollars
in overdraft fees.
Payments to his insurer, to Google for online advertising and to a provider of project
management software were paid out of the empty accounts in July. Each time, the bank charged Mr.
Einaudi a $35 overdraft fee
Mr. Einaudi called the bank's customer service line. He went to his local branch. Nobody
could help him. "They told me, 'The accounts are closed out - we cannot do anything.'"
This left Einaudi in an untenable position: The accounts were technically closed, but he was
still being hit with overdraft fees that nobody at the bank could make stop.
By the middle
of July, he owed the bank nearly $1,500.
Fortunately for him, Einaudi wasn't alone with this problem.
Xavier Einaudi
As it turns out, Wells has failed to address these complaints from customers and
employees, including one in the bank's debt-collection department who grew concerned
after being
hit by an estimated $100,000 in overdraft fees
over eight months.
Customers say the
bank should wipe these fees, since they were unfairly and arbitrarily charged on accounts that the
bank had deliberately closed without its customers requests.
It's not clear, exactly, how many customers have been affected by this glitch. But many angry
customers have filed complaints with the Consumer Financial Protection Bureau.
Robust discussions about the issue have continued on websites like Reddit and Quora, while some
have expressed their misgivings with Wells.
"I don't even know what happened,"
he said.
According to the NYT,
Einaudi's problem stems from the way Wells' computer system
processes closed accounts:
Accounts that customers believe to be closed can, in fact, stay
open for months past their closure date if there's a balance, even if the balance is negative (from
fees charged by the bank).
And each time a transaction involving these accounts happens, the banks tacks on a fee.
Since the financial crisis, Wells has paid more than $15 billion in settlements to resolve
investigations into its misdeeds, including the ones described above.
With more of these
scandals surfacing, who is going to step up and take the top job at Wells, particularly when you'd
be liable to be blindsided by scandals like these, that hurt ordinary Americans.
Let them bill you after you close your account. If they pressure
you to pay, or threaten your credit rating, then
sue Wells
Fargo in your local small claims court for the maximum amount
.
If you get a judgement, bill them. If they don't pay, take your
judgement to your local sheriff and have them do a "Till tap" on
them. That means the sheriff goes in and takes the money out of a
teller's drawer to satisfy the judgement.
If thousands of people do this...well, you can just imagine.
Whatever you do Brer' Rabbit,
never stick the little red
straw of a can of insulating foam into an ATM card slot!
Good advice. But with all that digitizations come so many
events that require these actions and they rely on the fact
that some people cannot spend unlimited amounts of time on
these things.
A banking ombudsman would not go astray. As
people register their stuff, patterns emerge a lot earlier and
maybe can be addressed.
Fck I hate banks, the only thing they do is move ones and zeros
around, and the can't even do that without ripping people off.
But wait till the globalists have their way and society becomes
cashless , stuff like this going to be nothing compared to what
the banksters and government is going to be able to do to your
life.
Wells Fargo can be force merged with Bank of America and dissolved
over a number of years out of public view and under Fed oversight.
There is vat over employment in the banking sector and an overall
staffing cut of 30% is long overdue.
It is the same with Commerz
and Deutsche Banks. Given the power of technology politicians are
trying to force banks to carry far more employees than can
economically be employed.
Online and robo banking will eventually lead to most branches
being closed and most employees released.
Stone walling this simply makes the crime, pain, and inevitable
dislocation ever worse.
I, too, got my money away from these thieves this year. My
annuity with my employer locked me into not being able to rollover
any of my money unless I had a break in service for and entire
year. Now that I am of a certain age, I was able to to rollover
after only eight weeks which I was able to do during recovery
after a job related surgery.
I have been waiting to do this
for four years since I found a rap sheet on these guys. If I
counted correctly, since 2000, the banks that were the
predecessors and Wells as we know it today have stolen, or been
fined and had to pay back $43bn!!!! That is 43,000 million for
****'s sake. What is it going to task to get rid of these
thieves?
I have a friend that works at Wells Fargo. She said since Warren
Buffet took control the whole place is going to hell. Buffet keeps
screaming the employees have to do better. Make more profits or
hit the door. So the management has to skin the sheeple in order
to keep their jobs.
I had a neighbor a while ago who worked in Wells' mortgage
division. I don't know what his job was called, but he was the
guy people called when they first got a foreclosure notice and
wanted to work out a way to keep their homes.
He told me
Wells kept track of who paid right at the deadline, usually the
15th of the month, rather than on or by the 1st like people do
when they aren't strapped for cash. He said when they got
payments on the 14th, say, they'd "drawer" them, or put them in
a drawer until the 16th. Then they'd enter the payments as
late, assess a late payment fee, and deduct that from the
payment. So the borrower hadn't actually made a full payment
that month; they were $35 short, or whatever the fee was.
Oh, no, they didn't tell the borrower.
So after a few years of that, the borrower would be a full
payment or two behind. And then the foreclosure would kick in,
and then these confused people would call my former neighbor.
He asked me to guess how many months, on average, the people
who called him were behind on their mortgage. I thought,
"Well, they're getting their first notice of looming
foreclosure, I'm kind of naive, uh...6 months?"
He laughed at me. "Try, 30 months," he said. I was
gobsmacked. Wells found it to their advantage to have these
people 2-1/2 years behind on their mortgage payments before
getting around to foreclosing? He said yes, it was worth it to
them to have them living in the property and taking care of it
for Wells Fargo.
Oh, I had this conversation with him while I was refinancing
my little starter home at the time.
It was 2002.
They were pulling this **** in
2002 and it wasn't new
then.
It only took what, 5 more years for the Finance
Sector to almost destroy itself and the rest of us?
If they jailed the people at Wells for this, it'd stop.
However, the fully criminalized DOJ, speaking through AG Eric
Holder, declared these people too critical to the banking system
to work under threat of arrest.
Yet another issue is that annuities can be complex financial contracts, and hard for an
average person to evaluate. How long do you pay into the annuity? When does it start paying
out? Does it pay our for a fixed period, or over the rest of one's life? Are the payouts
adjusted for inflation? How large a commission is being charged by the seller? Does the annuity
include a minimum payout if you die soon--which could be left to one's heirs? What happens if
the company that sold you the annuity goes broke a decade or two in the future? How will the
tax code treat income from annuities in the future? In the past, some annuities were not an
especially good financial deal, in the sense that someone with the discipline to withdraw money
from their retirement accounts in a slow-and-steady way have a high probability of ending up
better off than someone who purchased a life annuity.
Looking for a risk-free place to park some savings? You could open a
garden-variety savings account, but your interest might be microscopic. A
high-interest or high-yield savings account
is smarter, but an even better
option is a certificate of deposit, or CD.
While the top rates on high-yield savings accounts are currently topping 2%, you
can find CDs paying more than 3%. But to earn that kind of interest, you better
believe that you're going to have to give the bank something in return.
How CDs work
When you put your money into a CD, you agree to let the bank hold it for a
certain period of time.
So, here's the not-so-fine print with CDs: You'll have to agree to let the bank
hold on to your money for months or years. That's called the CD's term.
You might choose to stash your money away in six-month, two-year or five-year
CDs. Normally, the longer the term, the higher the interest rate.
The potential payout from a long-term CD might be very enticing. Who doesn't want
to earn better returns?
But you may have to lock your money away for a loooooooong time.
If some
financial emergency
comes along and you need to get at your money, tapping
your CDs could be costly.
You'll face penalties if you try to withdraw money from your CDs too early.
Yeah, we know -- we said at the beginning that CDs were
risk-free.
That's
true in one sense: You can put up to $250,000 in CDs and will never lose that
money as long as your account is with a bank insured by FDIC or a credit union
insured by NCUA.
But if you go back on your bargain with the institution and need to withdraw your
money early, you'll face the risk of penalties. The rules vary, but generally
you'll have to give up a chunk of your interest.
For example, if you close out a one-year CD too soon, you could say goodbye to
six months' worth of interest. If you've had the CD only two months, the penalty
would eat into your original deposit amount. Ouch!
The early withdrawal penalty for a five-year CD might be a
full year
of
interest.
Another risk is that
interest rates might rise
while you've got your money locked up, and your
savings will miss out on the opportunity to earn better returns.
A CD ladder can help you take advantage of rising interest rates.
All of that describes the workings of a traditional CD. There are other
varieties that allow you to make withdrawals more easily ("liquid" CDs) or
take advantage of rising interest rates ("bump-up" CDs).
To get some of that flexibility, you might have to accept a lower interest
rate when you open the account.
But there is a trick that can allow you to grab onto rising rates using just
plain-vanilla, regular CDs. It's called
laddering
.
You divide your investment across staggered CDs so that every year you have
CDs that are maturing.
This way, you can enjoy the higher initial interest rates from longer-term
CDs, and also have regular opportunities to invest in new CDs at even better
rates.
You can open a CD at your nearest bank or credit union.
Opening a CD is as simple as visiting your nearest bank or credit union, or
just going online.
Smaller, local banks or credit unions will give you better rates than the big
national institutions, and online-only banks can offer great deals because of
their lower expenses.
You may need to fund your CD with a minimum deposit of $500 or $1,000,
although some banks have CDs with no minimum opening requirements.
You'll want to comparison-shop for the best rates and find CDs at your sweet
spot, with a good yield and a term that's doable. How long will you want to
lock away your money?
Putting cash out of reach for years may be tough -- unless you've just got it
languishing in a low-rate savings account that you never touch. In that case,
put that money into CDs pronto!
@TomSchmidt
Social Security is not an entitlement. You pay into it, and receive a benefit. Social
Security was established as a Trust. There are legal requirements on those who manage a trust
– the trustees. Social Security has been mismanaged intentionally. There are people
receiving benefits who are not entitled to them. The US Government has raided the fund by
making it part of general revenue, instead of the Trust that it is supposed to be.
The "problems" of Social Security are a side show distraction to keep the focus away from the
real problem: the politicians and their Wall Street paymasters.
"... The CAPE aims to correct for those distortions. It smooths the denominator by using not current profits, but a ten-year average, of S&P 500 earnings-per-share, adjusted for inflation. Today, the CAPE for the 500 reads 29.7. It's only been that high in two previous periods: Before the crash of 1929, and during the tech bubble from 1998 to 2001, suggesting that when stocks are this expensive, a downturn may be at hand. ..."
"... is 36.1% higher ..."
"... Here's the problem that the CAPE highlights. Earnings in the past two decades have been far outpacing GDP; in the current decade, they've beaten growth in national income by 1.2 points (3.2% versus 2%). That's a reversal of long-term trends. ..."
"... Right now, earnings constitute an unusually higher share of national income. That's because record-low interest rates have restrained cost of borrowing for the past several years, and companies have managed to produce more cars, steel and semiconductors while shedding workers and holding raises to a minimum. ..."
"... t's often overlooked that although profits grow in line with GDP, which by the way, is now expanding a lot more slowly than two decades ago, earnings per share ..."
"... The reason is dilution. Companies are constantly issuing new shares, for everything from expensive acquisitions to stock option redemptions to secondary offerings. New enterprises are also challenging incumbents, raising the number of shares that divide up an industry's profits faster than those profits are increasing. Since total earnings grow with GDP, and the share count grows faster than profits, it's mathematically impossible for EPS growth to consistently rise in double digits, although it does over brief periods––followed by intervals of zero or minuscule increases. ..."
"... The huge gap between the official PE of 19 and the CAPE at 30 signals that unsustainably high profits are artificially depressing the former. and that profits are bound to stagnate at best, and more likely decline. ..."
"... In an investing world dominated by hype, the CAPE is a rare truth-teller ..."
For the past half-decade, a controversial yardstick called the CAPE has been flashing red,
warning that stock prices are extremely rich, and vulnerable to a sharp correction. And over
the same period, the Wall Street bulls and a number of academics led by Jeremy Siegel of the
Wharton School, have been claiming that CAPE is a kind of fun house mirror that makes
reasonable valuations appear grotesquely stretched.
CAPE, an acronym "Cyclically-adjusted price-to-earnings ratio," was developed by economist
Robert Shiller of Yale to correct for a flaw in judging where stock prices stand on the
continuum from dirt cheap to highly expensive based on the current P/E ratio. The problem:
Reported earnings careen from lofty peaks to deep troughs, so that when they're in a funk,
multiples jump so high that shares appear overpriced when they're really reasonable, and when
profits explode, they can skew the P/E by creating the false signal that they're a great
buy.
The CAPE aims to correct for those distortions. It smooths the denominator by using not
current profits, but a ten-year average, of S&P 500 earnings-per-share, adjusted for
inflation. Today, the CAPE for the 500 reads 29.7. It's only been that high in two previous
periods: Before the crash of 1929, and during the tech bubble from 1998 to 2001, suggesting
that when stocks are this expensive, a downturn may be at hand.
The CAPE's critics argue that its adjusted PE is highly inflated, because the past decade
includes a portion of the financial crisis that decimated earnings. That period was so unusual,
their thinking goes, that it makes the ten-year average denominator much too low, producing
what looks like a dangerous number when valuations are actually reasonable by historical norms.
They point to the traditional P/E based on 12-month trailing, GAAP profits. By that yardstick
today's multiple is 19.7, a touch above the 20-year average of 19, though exceeding the
century-long norm of around 16.
I've run some numbers, and my analysis indicates that the CAPE doesn't suffer from those
alleged shortcoming, and presents a much truer picture than today's seemingly reassuring P/E.
Here's why. Contrary to its opponents' assertions, the CAPE's earnings number is not
artificially depressed. I calculated ten year average of real profits for six decade-long
periods starting in February of 1959 and ending today, (the last one running from 2/2009 to
2/2019). On average, the adjusted earnings number rose 22% from one period to the next. The
biggest leap came from 1999 to 2009, when the 10-year average of real earnings advanced
42%.
So did profits since then languish to the point where the current CAPE figure is
unrealistically big? Not at all. The Shiller profit number of $91 per share is 36.1%
higher than the reading for the 1999 to 2009 period, when it had surged a record 40%-plus
over the preceding decade. If anything, today's denominator looks high, meaning the CAPE of
almost 30 is at least reasonable, and if anything overstates what today's investors will reap
from each dollar they've invested in stocks.
Indeed, in the latest ten-year span, adjusted profits have waxed at a 3.2% annual pace,
slightly below the 3.6% from 1999 to 2009, but far above the average of 1.6% from 1959 to
1999.
Here's the problem that the CAPE highlights. Earnings in the past two decades have been
far outpacing GDP; in the current decade, they've beaten growth in national income by 1.2
points (3.2% versus 2%). That's a reversal of long-term trends. Over our entire 60 year
period, GDP rose at 3.3% annually, and profits trailed by 1.3 points, advancing at just 2%. So
the rationale that P/Es are modest is based on the assumption that today's earnings aren't
unusually high at all, and should continue growing from here, on a trajectory that outstrips
national income.
It won't happen. It's true that total corporate profits follow GDP over the long term,
though they fluctuate above and below that benchmark along the way. Right now, earnings
constitute an unusually higher share of national income. That's because record-low interest
rates have restrained cost of borrowing for the past several years, and companies have managed
to produce more cars, steel and semiconductors while shedding workers and holding raises to a
minimum.
Now, rates are rising and so it pay and employment, forces that will crimp profits. I
t's often overlooked that although profits grow in line with GDP, which by the way, is now
expanding a lot more slowly than two decades ago, earnings per share grow a lot
slower, as I've shown, lagging by 1.3 points over the past six decades.
An influential study from 2003 by Rob Arnott, founder of Research Affiliates, and co-author
William J. Bernstein, found that EPS typically trails overall profit and economic growth by
even more, an estimated 2 points a year.
The reason is dilution. Companies are constantly issuing new shares, for everything from
expensive acquisitions to stock option redemptions to secondary offerings. New enterprises are
also challenging incumbents, raising the number of shares that divide up an industry's profits
faster than those profits are increasing. Since total earnings grow with GDP, and the share
count grows faster than profits, it's mathematically impossible for EPS growth to consistently
rise in double digits, although it does over brief periods––followed by intervals
of zero or minuscule increases.
The huge gap between the official PE of 19 and the CAPE at 30 signals that unsustainably
high profits are artificially depressing the former. and that profits are bound to stagnate at
best, and more likely decline. The retreat appears to have already started. The Wall
Street "consensus" Wall Street earnings forecast compiled by FactSet calls for an EPS decline
of 1.7% for the first quarter of 2017, and zero inflation-adjusted gains for the first nine
months of the year.
In an investing world dominated by hype, the CAPE is a rare truth-teller .
This is a classic, textbook example of financial astrology... You probably should read it in full to appreciate the depth of junk
science here. But this is financial casino my friends, and they try to entice you with naked girls and drinks...
A gain in January has foretold an annual gain 87 percent of the time with only 9 major errors going back to 1950, according
to the Stock Trader's Almanac.
The S&P 500 was up 7.9 percent in January, its best performance for the first month of the year since 1987.
Some market pros are skeptical of the January barometer, but Jeff Hirsch, editor-in-chief of the Stock Trader's Almanac, says
it makes sense because that's when Wall Street expectations are reset for the year.
Stocks had their best January gains in more than 30 years, and that should mean 2019 will be a pretty good year for the
market.
That's what the widely watched January barometer tells you - as goes January, so goes the year. According to Stock Trader's Almanac,
going back to 1950, that metric of January's performance predicting the year has worked 87 percent of the time with only nine major
errors, through 2017. In the years January was positive, going back to 1945, the market ended higher 83 percent of the time, according
to CFRA.
But the indicator also signaled a positive year last year, and the market suffered an unusual late-year sell-off, wiping out all
of the gains. The S&P 500 ended 2018 down 6.6 percent, despite rising 5.6 percent in January. But the S&P also defied history with
a terrible December decline of 9.6 percent , the biggest loss for the final month of the year since 1931.
This January, the S&P 500 was up 7.9 percent. The best January performance since 1987, when it rose 13.2 percent. It was its best
overall month since October 2015.
Some market pros worry the sharp snapback in stocks since the late December low means January could be stealing the gains from the
rest of the year. Some also believe there could be another test at lower levels in the not too distant future. Yet, Wall Street forecasters
have a median target of 2,950 for the S&P 500 at year end, a big leap from the current 2,704.
"I'm still struck between the contrast of a year ago and now," said James Paulsen, chief investment strategist at Leuthhold Group.
"We came in last year with nothing but optimism. At this point last year, we had synchronized global growth, confidence had spiked
to record post-war highs, and everyone knew we had this steroid-induced earnings boost coming. The thought was how could stocks lose,
and of course they did."
The market has sprung back from December's low, with the S&P gaining 15 percent since Dec. 26.
"This year, we came in with nothing but bad news - the economy was slowing down. ... The rest of the world is slowing. We have trade
wars. We have the shutdown, and analysts are revising earnings lower," Paulsen added. "We're worried about a recession and a bear
market. It's strikingly different, and yet it's kind of like how can stocks win, but they are and I think they will."
Strategists also point to the differences in the way the market traded in each January. This January has been full of volatile swings,
with ultimately larger gains than losses. Last year, the market was at the end of a long smooth glide path higher.
Last year didn't work
Stocks did well through most of January 2018, but by the end of the month, a correction started. "On January 30, in 2018, it was
the first 1 percent decline in 112 days. That was basically the start of the fall off the cliff. In terms of percent gains, this
January is similar to last, but in terms of where we've come from, it's very different. That was one of the calmest advances in history,"
said Frank Cappelleri, executive director at Instinet.
Cappelleri said it's important to put this year's market move in context, when considering the January barometer. "You have one of
the biggest snapbacks after a very bad December, so the odds were in the market's favor to do better than that. I think maybe you
have to look where we are now. You're up 15, 20 percent from the low depending on where you look. Are we going to go up that much
more for the rest of the year?" he said.
Paulsen sees the gains continuing, after a possible pause. "I think it's going to continue to be a fairly good year, and I think
we probably go up and get close to the highs or 3,000 on the S&P, and I'm not expecting hardly anything on the economy, and earnings
are going to be weak, if not flat or maybe down," Paulsen said.
He said the slowing economy and a potential U.S.-China trade deal could push the dollar down and that would be a positive for stocks.
At the same time, the Fed has paused in interest rate hikes and may even stop its balance sheet unwind.
Jeff Hirsch, editor-in-chief of the Stock Trader's Almanac, said there's another set of statistics that are in the market's favor
for a positive 2019, though they also failed last year. He said for the years when the S&P 500 was positive in the first five days
of the year, plus gained during the Santa rally period, and was up for the month of January, the S&P 500 had a positive year 27 out
of 30 times. It also had an average gain of 17.1 percent in those years, since 1950.
Nick 29 minutes ago
Job growth is solid. Unemployment remains near all time lows even while labor force participation increases. Wage growth outpaced
inflation last year. The economy is humming right along...its just the liberal media wants to bombard us with articles claiming
the Trump recession is imminent.
I'm surprised they actually published an article sayings its going to be a good year.
Parade of eminent astrologists ;-) Those financial prostitutes of casino capitlism, aka financial analysts most often are wrong
year after year, but still have a solid coverage by the neoliberal media due to the shire wieght of the companies they represent. This
bets are not connected with some kind of possible financial loss so they just talking up this firms portfolio, which of course is heavily
tilted in favor of stocks. God even Vanguard retirement 2015 fund has 40% in stock, while formula 100-age would give you less then 35%.
If this is bullish bias I do not know what is. Of course, they play with "other people money" and commissions are everything...
Notable quotes:
"... Their guesses about a great market in 2018 was kind of a miss. But they only had like 340 days so far. They still have 25 days left to turn in around. ..."
"... These guys are seldom right. I've been tracking these predictions more closely since 2014, usually 12-15 of the large financial institutions. Last year's average consensus was the SP at 2874. We closed Tuesday (Dec 4) at 2700. ..."
"... The average of the figures cited in the article is 3068. I think that is wishful thinking considering the slow downs in many sectors, slowing GDP and a flattening yield curve. ..."
"... With regard to upside potential, these all sound wildly optimistic to me. Ten years of printing money out of thin air and exploding deficits does not a future robust economy make, IMO. ..."
"... They cannot say 2500 cause people will not invest (and no commissions); they have to say equal or higher than today. To me it is screaming between the lines the index will hit 2500. ..."
"... So all of them predict the S&P will be higher then it is today even though many are saying we are already in a Bear Market...these people only make money if the market goes up so don't trust them! ..."
Morgan Stanley (Target: 2,750; EPS: $176) -- Beware tightening financial conditions and decelerating growth. (Price
target as of December 17)
Bank of America (Target: 2,900; EPS: $170) -- 'Wildcards' will make for more volatility. (Price target as of November
20)
Jefferies (Target: 2,900; EPS: $173) -- It's a 'mature, not end of, cycle.' (Price target as of December 9)
Oppenheimer (Target: 2,960; EPS: $175) -- Negative sentiment is 'setting the stage for upward surprises' (Price target
as of December 31)
Goldman Sachs (Target: 3,000; EPS: $173) -- Get defensive. (Price target as of December 14)
David
Kostin, chief equity strategist at Goldman Sachs, has a main message for investors going into 2019: Start getting defensive.
Barclays (Target 3,000; EPS $176) -- Growth will revert to trend. (Price target as of November 19)
Wells Fargo Securities (Target: 3,079*; EPS: $173) -- Sell-off will create 'double-digit opportunity' (*Note: Harvey
reduced his price target for 2019 to 2,665 and expected EPS to $166 as of December 21)
Citi (Target: 3,100; EPS: $172.50) -- Bearish sentiment makes for bullish outcomes. (*Levkovich
reduced his S&P 500 price
target for the year-end 2019 to 2,850 as of December 31, 2018)
JP Morgan (Target 3,100; EPS $178) -- A pain trade to the upside. (Price target as of December 7)
BMO (Target 3,150; EPS $174) -- Take a longer-term perspective. (Price target as of November 16)
UBS (Target: 3,200; EPS $175) -- A rough 2018 should make for a better 2019. (Price target as of November 13)
Deutsche Bank (Target: 3,250; EPS: $175) -- A while to "regain its prior peak." (Price target as of November 19)
Credit Suisse (Target: 3,350*; EPS $174) -- Bet on multiples expanding. (*Golub
reduced his S&P 500 price target
for the year-end 2019 to 2,925 as of December 18, 2018)
Joseph, 2 months
ago
So their best guess is a relatively flat to roughly a 20% gain...thanks for narrowing it down. Their guesses about a great market in 2018 was kind of a miss. But they only had like 340 days so far. They still have 25 days
left to turn in around.
M 2 months ago
These guys are seldom right. I've been tracking these predictions more closely since 2014, usually 12-15 of the large financial
institutions. Last year's average consensus was the SP at 2874. We closed Tuesday (Dec 4) at 2700.
We will need a 7% Santa Claus
rally to get there.
In 2017 the consensus was 2367; the year closed at 2673.
2016 was very close with a predicted average of 2223
and a close of 2238.
However, the market was far behind until the post-election rally.
The average of the figures cited in the article is 3068. I think that is wishful thinking considering the slow downs in
many sectors, slowing GDP and a flattening yield curve. I'll take 3068, but not going to bet a lot of money on it.
Omnipotent, 2 months ago
With regard to upside potential, these
all sound wildly optimistic to me. Ten years of printing money out of thin air and exploding deficits does not a future robust
economy make, IMO.
Linda, 2 months ago
Wall Street Strategists predicted G20 China meeting was the best news for markets and were looking for strong upside , market
tanked 800 points 2 days after. Enough said .
Gilad, 2 months ago
They cannot say 2500 cause people will not invest (and no commissions); they have to say equal or higher than today. To me it
is screaming between the lines the index will hit 2500.
PathFinder ofWhatis, 2 months ago
Not a single prediction says the market will finally have a Bear Market decline of 20%.... even after a 10 year Bull Market?
Is that called Group Think?
Todd2 months ago
So all of them predict the S&P will be higher then it is today even though many are saying we are already in a Bear Market...these
people only make money if the market goes up so don't trust them!
The first question to ask is: do those suckers need stocks at all?
That's all nice. But what if we are facing 2008 style event in a year or two?
The question here is why you need to risk retirement money in the casino? And stock market including all stock funds is a casino.
No questions about it.
Why if you are really close to, say, 65 it is necessary to take additional risk.
If you have enough money this is stupid (pure greed is often punishable, at least accounting to teaching of Prophets). You probably
can benefit from reading Other People's Money: The Real Business of Finance by John Kay first. Before jumping into this water.
If you don't -- you need to be twice more careful -- please remember that such people most often are victims of grave own errors,
and/or fraud. So the cure might be worse then the disease. May be relocation to cheaper state and cutting some expenses (one car instead
of two, one bedroom instead of two bedroom, etc) is a safer solution then gambling.
In any case, if you keep money in the stock fund despite your age (I think around 17% of old Americans have all their retirement
savings in stock funds, or individual stocks ;-) and another financial bubble burst again (and this is a guaranteed event under neoliberalism)
recovery might take much longer then you expect, and you might need to take losses to make ends meet.
So the really important question here is not what funds you need to select from a thousand of names (there are more mutual funds
then stocks, I think). That's just another variety of gambling.
They real question is whether you need to play this game or not.
What if the current decline is not just a blip is a warning that more substantial trouble lies ahead?
Neoliberal with its hypertrophied and parasitic finance industry tend to produce Minsky moments (called bubble burst for non-specialists)
with surprising regularity: savings and loan crisis (1986-1995), dot-com bubble (2000-2002), Great recession (2008-?), so there is no
guarantee that we will not have yet another similar event in the next couple of years.
Target date funds might be a safer bet if you are old and still really want to play in a casino in hope to compensate inadequate
size on your retirement portfolio. For example, its Vanguard Target Retirement 2015 Fund (VTXVX) contains 40% stocks. While classic
100-your age allocation formula for 65-year person imply 35% stocks allocation. So you see that even Vanguard is a little bit too aggressive
here.
Also if you bought S&P500 at its 2000 peak (around 1500) your return for 18 years would still be 2.5% (4.5% with dividend reinvested).
So if you are much younger then 65 it is important to compare long-term record with S&P500 and age and track record of the manager (change
of the manager in an actively managed fund often badly affects that fund performance).
Start with low costs. Cheaper funds actually tend to beat their competitors even before expenses. SEE ALSO:
The 27 Best Mutual Funds in 401(k) Retirement Plans Buy funds the managers own. If the manager(s) of a fund won't invest
in the fund themselves, why should you? Look in the prospectus for managers who put at least $1 million in their fund, as the managers
of the five recommended funds in this article have done.
Chose funds that have a good corporate culture. Does the fund firm consider you a customer to be fleeced or a partner in investing?
Figuring this out is difficult, but low costs and manager investment are two indicators. My favorite big firms are
Vanguard ,
American Funds and
T. Rowe Price .
Consider long-term, risk-adjusted returns. You can do this by looking at Morningstar's star ratings, Sharpe ratios, alphas or
Sortino ratios. All of these provide measures of risk-adjusted returns. They're all slightly different, but higher is always better.
Reduce your risk. I think the market will remain highly volatile in 2019. Standard deviation, a measure of volatility, is an excellent
predictor of how a fund will behave in unstable markets. The higher a fund's standard deviation, the more volatile it has been. It's
my favorite risk metric. Downside capture, which measures how a fund has done in bad markets, is also worth a close look.
Following are my picks for 2019 among actively managed stock funds. It's no accident that they're all either value funds or foreign
funds. My strong hunch is that a bear market next year will lead to a change in leadership among stock sectors, as is often the case
during and after a selloff. Look for growth stocks' decade-long dominance over value stocks to end, and
value
stocks to outperform . Likewise, I think foreign stocks will finally begin to outperform domestic stocks.
April 1 If you turned 70½ in 2018, April 1 is the deadline to take
your
first required minimum distribution from your IRA or 401(k). First-timers get this one-time extension on their RMD (subsequent
RMDs must be taken by December 31). To figure a first RMD due on April 1, 2019, divide the account's 2017 year-end balance by a life
expectancy factor based on your birthday in 2018. Find the factor in IRS Publication 590-B. If you turn 70½ in 2019, you might consider
taking your first RMD this year, says Bradford. By delaying the first RMD to the following year, you have to take both your first
and second RMDs in the same year.
Keep in mind that while Roth IRAs don't have RMDs for the original owner, Roth 401(k)s do have RMDs. But if you are working past
age 70½, you can skip the RMD from your current employer's 401(k) if you don't own 5% or more of the company. You'll still need to
take RMDs from your IRAs and any 401(k)s you hold from prior employers, though. ... ... ... April 1 If you turned 70½ in 2018, April
1 is the deadline to take
your
first required minimum distribution from your IRA or 401(k).
First-timers get this one-time extension on their RMD (subsequent RMDs must be taken by December 31). To figure a first RMD due
on April 1, 2019, divide the account's 2017 year-end balance by a life expectancy factor based on your birthday in 2018. Find the
factor in IRS Publication 590-B. If you turn 70½ in 2019, you might consider taking your first RMD this year, says Bradford. By delaying
the first RMD to the following year, you have to take both your first and second RMDs in the same year.
Keep in mind that while Roth IRAs don't have RMDs for the original owner, Roth 401(k)s do have RMDs.
But if you are working past age 70½, you can skip the RMD from your current employer's 401(k) if you don't own 5% or more of the
company. You'll still need to take RMDs from your IRAs and any 401(k)s you hold from prior employers, though.
You must make your RMD by December 31, and it's best not to wait until the last minute. It can take a little while for your IRA
or 401(k) administrator to process the request. Plus, you need to leave enough time for any trades to settle so there's enough cash
for the withdrawal -- especially around the holidays, when the markets are closed or close early. "We suggest moving forward in the
beginning to mid December," says Keith Bernhardt, vice president of retirement income at
Fidelity .
Find out how the administrator determines which investments to sell. Some IRA or 401(k) administrators automatically take the RMD
money pro rata from each of your investments unless you specify otherwise, and they could end up selling stocks or funds at a loss
to make your payment. You could elect a fixed percentage from a few investments or have 100% taken from cash.
If you choose the cash option, the IRA administrator may need to send you an alert beforehand in case you need to sell shares
first
Q: I am 62. Last year, I got a Social Security calculation showing that when I am
66-plus-years-old, I will receive $400-plus in Social Security benefits per month. Because of
my health, I started to work only three days a week. Will this reduce the amount of my
benefits? If l decide to quit my job, but not apply for my Social Security benefits until I'm
66-plus, will it reduce my monthly Social Security benefits?
A: Social Security calculates your monthly benefit by taking your highest 35 years of
earnings and your age, says Rick Fingerman, a managing partner with Financial Planning
Solutions. "So, if you stop working before your full retirement age or FRA, as you suggest, you
could see a lower benefit if you do not have 35 years of higher earnings already."
The same answer applies if you quit your job altogether at 62 and wait until 66 to collect,
he says.
One option, says Fingerman, could be if you were going to wait until your FRA and you have a
spouse that is already collecting on their own benefit. "You might receive a higher monthly
benefit on their record as you would get 50% of what they are receiving, which could be more
than the $400 a month under your own benefit," he says.
Of course, nobody can predict exactly how long they'll live -- the average man and woman
turning 65 today can expect to live until age 84 and 86, respectively, according to the Social
Security Administration. However, if you're facing health issues and don't expect to live that
long, it may be wiser to claim as early as possible rather than waiting until you have only a
few years left to enjoy your benefits.
... ... ...
Your
full retirement age (FRA) is the age at which you'll receive 100% of the benefits to which
you're entitled. So if your FRA is 67, and you wait until then to claim, you'd receive $1,300
per month. If you claim at 62, your benefits will be cut by 30% -- leaving you with just $910
per month.
... ... ...
If you wait until your FRA to claim, you'll receive 100% of your entitled benefits. But if
you wait beyond that age, you'll receive a bonus on top of your full amount to make up for all
the months you weren't receiving benefits at all. If your FRA is, say, 67 and you wait to claim
benefits until 70, you'll receive a 24% bonus over your full amount. So if you would have
received $1,300 per month by claiming at 67, you'd receive $1,612 by waiting until 70. (Keep in
mind, too, that this bonus maxes out at age 70, so there's no additional benefit to waiting to
claim until after that age.)
This can be a lifesaver for those who are
seriously behind on saving for retirement . If you're going to rely on Social Security to
make ends meet, it's in your best interest to maximize those benefits.
The amount you receive in benefits will be locked in once you claim. If you delay and
receive that boost, you'll continue receiving that boost for the rest of your life. Likewise,
if you claim early and your benefits are reduced, you'll receive those smaller checks for life.
So delaying can play out in your favor if you spend several decades in retirement -- the longer
you live, the more you will receive over your lifetime.
While delaying claiming benefits by a few years will result in bigger checks, you may not
actually receive more over a lifetime than you would if you had claimed earlier. Although
you're receiving more each month, that's just to make up for the years you weren't receiving
any benefits at all. If you don't reach your "break even age" -- or the age at which you've
received more over a lifetime by waiting to claim than you would have received by claiming
early -- it may not be worth it to wait.
For example, say your FRA is 67. If you claim early at 62, you'd receive $910 per month (or
$10,920 per year), and if you delay until 70, you'd receive $1,612 per month ($19,344 per
year). Here's how much you'd have received in total benefits at different ages:
Age at Death
Total Lifetime Benefits When Claiming at 62
Total Lifetime Benefits When Claiming at 70
70
$87,360
N/A
75
$141,960
$96,720
80
$196,560
$193,440
85
$251,160
$290,160
Source: Author's calculations
So in this scenario, you'll have to live past age 80 in order to "break even" and earn more
in lifetime benefits by delaying rather than claiming early. That can be a good thing if you
expect to live a long time, but if you don't expect to live past 80, it may be more
advantageous to claim earlier rather than later.
"... Currently, the S&P 500 (as of 1/18/19) is trading at 2,670 with Q4-2018 trailing reported earnings estimated to be $139.50. ( S&P Data ) This puts the 10-year average trailing P/E ratio of the S&P at a rather lofty 28.86x. ..."
I'm referring to what many retirees are most afraid of: Running out of money before they
die. An Allianz Life
survey found that far more retirees are afraid of outliving their money than they are of
dying -- 61% to 39%. This ever-present background fear is especially rearing its ugly head
right now, given the bear market that too many came out of nowhere.
Retirement planning projections made at the end of the third quarter, right as the stock
market was registering its all-time highs, now need to be revised.
The reason not to give up hope is that the stock market typically recovers from bear
markets in a far shorter period of time than most doom and gloomers think. Consider what I
found when measuring how long it took, after each of the 36 bear markets since 1900 on the
bear market calendar maintained by Ned Davis Research Believe it or not, the average recovery
time was 'just' 3.2 years."
Mark correctly used total return numbers in his calculations, however, while his data is
correct the conclusion is not.
Here is why.
While Mark is discussing the recovery of bear markets (getting back to even) it is based on
a "buy and hold" investing approach.
However, Mark's error is that he is specifically discussing "retirees" which are
systematically withdrawing capital from their portfolios, paying tax on those withdrawals (from
retirement accounts) and compensating for adjustments to the cost of living (not to mention
spiraling "health care" costs.)
These are the same problems which plague most of the "off the shelf" financial plans
today:
Faulty assumptions based on average historic rates of returns rather than variable rates
of return, and;
Not accounting for the current level of market valuations at the outset of the planning
process.
To explain the problems with both Mark's assumptions, and the vast majority of financial
plans spit out of computer programs today, let's turn to some previous comments from
Michael Kitces.
"Given the impact of inflation, it's problematic to start digging into retirement
principal immediately at the start of retirement, given that inflation-adjusted spending
needs could quadruple by the end of retirement (at a 5% inflation rate). Accordingly, the
reality is that to sustain a multi-decade retirement with rising spending needs due to
inflation, it's necessary to spend less than the growth/income in the early years, just to
build enough of a cushion to handle the necessary higher withdrawals later!
For instance, imagine a retiree who has a $1,000,000 balanced portfolio, and wants to plan
for a 30-year retirement, where inflation averages 3% and the balanced portfolio averages 8%
in the long run. To make the money last for the entire time horizon, the retiree would start
out by spending $61,000 initially, and then adjust each subsequent year for inflation,
spending down the retirement account balance by the end of the 30th year."
Michael's assumptions on expanding inflationary pressures later in retirement is correct,
however, they don't take into account the issue of taxation. So, let's adjust Kitces' chart and
include not only the impact of inflation-adjusted returns but also taxation. The chart below adjusts the 8% return structure for inflation at 3% and also adjusts the
withdrawal rate up for taxation at 25%. By adjusting the annualized rate of return for the impact of inflation and taxes, the life
expectancy of a portfolio grows considerably shorter. While inflation and taxes are indeed important to consider, those are not the biggest threat
to retiree's portfolios.
There is a massive difference between 8% "average" rates of return and 8% "actual"
returns.
The Impact Of Variability
Currently, the S&P 500 (as of 1/18/19) is trading at 2,670 with Q4-2018 trailing
reported earnings estimated to be $139.50. (
S&P Data ) This puts the 10-year average trailing P/E ratio of the S&P at a rather
lofty 28.86x.
We also know that forward returns from varying valuation levels are significantly varied
depending on when you start your investing. As shown in the chart below, from current valuation
levels, forward returns from the market have been much closer to 2% rather than 8%.
As evidenced by the graph, as valuations rise future rates of annualized returns fall. This
should not be a surprise as simple logic states that if you overpay today for an asset, future
returns must, and will, be lower.
Math also proves the same. Capital gains from markets are primarily a function of market
capitalization, nominal economic growth plus the dividend yield. Using the Dr. John Hussman's
formula we can mathematically calculate returns over the next 10-year period as follows:
(1+nominal GDP growth)*(normal market cap to GDP ratio / actual market cap to GDP
ratio)^(1/10)-1
Therefore, IF we assume that
GDP maintains, 4% annualized growth indefinitely
Which means recessions have been eliminated, AND
Current market cap/GDP stays flat at 1.25, AND
The current dividend yield remains at 2%:
We would get forward returns of:
(1.04)*(.8/1.25)^(1/30)-1+.02 = 4.5%
But there's a "whole lotta ifs" in that assumption.
More importantly, if we assume that inflation remains stagnant at 2%, as the Fed hopes, this
would mean a real rate of return of just 2.5%.
This is far less than the 8-10% rates of return currently promised by the Wall Street
community. It is also why starting valuations are critical for individuals to understand when
planning for the accumulation phase of the investment life-cycle.
Let's take this a step further. For the purpose of this article, we went back through
history and pulled the 4-periods where trailing 10-year average valuations (Shiller's CAPE)
were either above 20x earnings or below 10x earnings. We then ran a $1000 investment going
forward for 30-years on a total-return, inflation-adjusted, basis.
At 10x earnings, the worst performing period started in 1918 and only saw $1000 grow to a
bit more than $6000. The best performing period was actually not the screaming bull market that
started in 1980 because the last 10-years of that particular cycle caught the "dot.com" crash.
It was the post-WWII bull market that ran from 1942 through 1972 that was the winner. Of
course, the crash of 1974, just two years later, extracted a good bit of those returns.
Conversely, at 20x earnings, the best performing period started in 1900 which caught the
rise of the market to its peak in 1929. Unfortunately, the next 4-years wiped out roughly 85%
of those gains . However, outside of that one period, all of the other periods fared worse than
investing at lower valuations. (Note: 1993 is still currently running as its 30-year period
will end in 2023.)
The point to be made here is simple and was precisely summed up by Warren Buffett:
"Price is what you pay. Value is what you get."
This idea becomes much clearer by showing the value of $1000 invested in the markets at both
valuations BELOW 10x trailing earnings and ABOVE 20x. I have averaged each of the 4-periods
above into a single total return, inflation-adjusted, index, Clearly, investing at 10x earnings
yields substantially better results.
Not surprisingly, the starting level of valuations has the greatest impact on your future
results.
But, most importantly, starting valuations are critical to withdrawal rates
When we adjust the spend down structure for elevated starting valuation levels, and include
inflation and taxation, a much different, and far less favorable, financial outcome emerges
– the retiree runs out of money not in year 30, but in year 18.
"And, if you're retired and withdrawing from your portfolio, the 'sequence-of-return' risk
– the problem of the early years of withdrawals coinciding with a declining portfolio
– can upend your entire retirement. That's because a portfolio in distribution that
experiences severe declines at the beginning of the distribution phase, cannot recover when
the stock market finally rebounds. Because of the distributions, there is less money in the
portfolio to benefit from stock gains when they eventually materialize again.
I showed that risk in a previous
article where I created the following chart representing three hypothetical portfolios
using the '4% rule' (withdrawing 4% of the portfolio the first year of retirement and
increasing that withdrawal dollar value by 4% every year thereafter). I cherry-picked the
initial year of retirement, of course (2000), so that my graphic represents a kind of worst
case, or at least a very bad case, scenario. But investors close to retirement should keep
that in mind because current stock prices are historically high and bond yields are
historically low. That means the prospects for big investment returns over the next decade
are dim and that increasing stock exposure could be detrimental to retirement plans once
again. In my example, decreasing stock exposure benefits the portfolio in distribution phase,
and that could be the case for retirees now."
As John correctly notes, there is a case for owning stocks in a retirement portfolio, just
maybe not as much as your "run of the mill" financial plan suggests. To wit:
"Returns from cash and bonds may not keep up with inflation, after all. But stock returns
might fall short too. And if stocks do lag, they probably won't do so with the limited
volatility that bonds tend to deliver, barring a serious bout of inflation. So, if you're
within a decade of retirement, it may be time to think hard about how much stock exposure is
enough. The answer might be less than you think for a portfolio in distribution phase."
Questions Retirees Need To Ask About Plans
Importantly, what this analysis reveals, is that "retirees" SHOULD be worried about bear
markets. Taking the correct view of your portfolio, and the risk being undertaken, is critical
when entering the retirement and distribution phase of the portfolio life cycle.
More importantly, when building and/or reviewing your financial plan – these are the
questions you must ask and have concrete answers for:
What are the expectations for future returns going forward given current valuation
levels?
Should the withdrawal rates be downwardly adjusted to account for potentially lower
future returns?
Given a decade long bull market, have adjustments been made for potentially front-loaded
negative returns?
Has the impact of taxation been carefully considered in the planned withdrawal rate?
Have future inflation expectations been carefully considered?
Have drawdowns from portfolios during declining market environments, which accelerates
principal bleed, been considered?
Have plans been made to harbor capital during up years to allow for reduced portfolio
withdrawals during adverse market conditions?
Has the yield chase over the last decade, and low interest rate environment, which has
created an extremely risky environment for retirement income planning been carefully
considered?
What steps should be considered to reduce potential credit and duration risk in bond
portfolios?
Have expectations for compounded annual rates of returns been dismissed in lieu of a plan
for variable rates of future returns?
If the answer is "no" to the majority of these questions then feel free to contact one of the CFP's
in our office who take all of these issues into account.
With debt levels rising globally, economic growth on the long-end of the cycle, interest
rates rising, valuations high, and a potential risk of a recession, the uncertainty of
retirement plans has risen markedly. This lends itself to the problem of individuals having to
spend a bulk of their "retirement" continuing to work.
Two previous bear markets have devastated the retirement plans of millions of individuals in
the economy today which partly explains why a large number of jobs in the monthly BLS
employment report go to individuals over the age of 55.
So, not only should retirees worry about bear markets, they should worry about them a
lot.
The insidious and hidden tax - inflation. Retirement is mostly fantasy - it is always
being one step away from poverty. Even after decades of sacrifice and saving.
the nikkei topped out in 1989 and still hasn't recovered nearly 30 years later. most old
farts, including family members, aren't balanced, they are almost totally in stocks because
they believe that the fed guarantees the s&p only goes up. if someday it doesn't, too bad
for them.
The only way to retire [ unless you are very wealthy ] from the system is to adopt a
self-reliant lifestyle where your cost of living is way down. A single adult, in fair
condition, living a self reliant lifestyle can live comfortably on 15k per year. Thats
assuming no debt. To do that privately, you'll need about 400-600k, the right piece of land [
paid for ], and a whole mess of specific skills.
You wont be laying on your ***. This isnt your father's retirement of leisure. This is a
shifting of focus away from contribution / compensation through the system and towards
independence and literal "Self" reliance.
bull, bear who gives a ****? Only an idiot eats up the seed capital in pensions. All that
does is set down a death date you better follow thru with- With a bullet if neccesary.
Did they pick only companies that existed and survived the 30-year duration, in which case
they may not be representative of the market? Or did they use index, in which case there is
no complementary aggregate P/E ratio to account for dividends - or did they ignore dividends
altogether?
Very easy to calculate amortization of a retirement boodle. Just go online to a mortgage
amortization calculator. 1) Put in the initial amount of the retirement stake (= the amount
of a mortgage to be paid off, e.g. $1 million) 2) Punch in the projected interest rate (= the
interest on the mortgage). This will be the amount the retirement boodle pays in
interest/dividends over time as it's being drawn upon 3) Punch in the number of years the
retirement principle will have to pay out (= the number of years the mortgage is for). Crunch
these with the calculator provided and you'll get the amount the account will pay out each
month (= monthly payment of a mortgage with interest). Simple and free. The only uncertain
thing is the interest/dividend rate of the account. But one can be conservative (Say 2-3%)
and still get a very accurate monthly payout figure.
Also, nothing personal, but why should I take investment advice from someone who is still
working or paid to give it? I could never figure that one out.
If I were an investment genius, I would be rich, retired long before reaching age 65, and
avoiding people who need investment advice.
Retirees shouldn't worry about bear markets because retirees should never be in the equity
market in the first place. Especially during the times of rate normalization, where
sell-siders view every utterance by the Fed as 'dovish', and algos need ultra-volatility to
keep in business.
Assume $1 million in savings and Social Security of $25,000/yr based on a life of very
decent wages. At 4%, very easy to earn during normalized rates from fixed income, that's
$65,000/yr with NO principal reduction. Paltry for NYC or CA, but very decent for a
comfortable life almost everywhere else for an old person with no debts.
""Overall, between bank accounts and retirement savings, the median American household
currently holds about $11,700 , according to MagnifyMoney. Almost 30 percent of households
have less than $1,000 saved, MagnifyMoney finds, though the amount varies drastically by
age.Aug 28, 2018""
The article says, " For instance, imagine a retiree who has a $1,000,000 balanced portfolio, and wants to
plan for a 30-year retirement . . . "
It's not aimed at the median American household. The median American household doesn't
have a financial advisor, portfolio, or any hope for a retirement that goes beyond a $1,800 a
month Social Security check.
and to make matters worse it is becoming more and more difficult to find a reasonably
priced canned cat food that can substituted as a Decent Liver Pate. We have a high net worth
Bridge Owners party next week and the stuff we tried last month pulled the bridges right out
of their mouths.
You proved his point. You would be very concerned if you knew the true Money Power Monopolist Game of
Thrones.
===============
"Modern slaves are not in chains, they are in debt."
~Anonymous
"Let the American people go into their debt-funding schemes and banking systems, and from
that hour their boasted independence will be a mere phantom."
~William Pitt, (referring to the inauguration of the first National Bank in the United States
under Alexander Hamilton).
"The new law will create inflation whenever the trusts want inflation. From now on
depressions will be scientifically created."
~Congressman Charles A. Lindbergh, after the passage of the Federal Reserve act 1913.
"The one aim of these financiers is world control by the creation of inextinguishable
debt."
~Henry Ford
"Retirement" is a fairly new fad- prior to the 1950s it was unheard of - expect that fad
to end some point soon. The whole concept resembles a Pyramid Scheme- as long as there are
enough people at the bottom supporting those at the top everything is OK- the problem occurs
when there are not enough at the bottom contributing to support those above them - which we
have now.
the answer is simple; the math of a distribution portfolio is vastly different than that
of a portfolio NOT making withdrawals.....depending on the amount being withdrawn the
recovery point will take longer if at all.
just keep dry powder ready for when FERAL Reserve jacks discount rate up in the teens, the
geezers will make it back fast. I do not doubt I will see rates in CDs at 10%. They have to
drain 4.4 trillion of gravy from the system to protect what they stole in 2008 or inflation
will get it fast.
The legendary John Bogle passed away yesterday in Bryn Mawr, Pennsylvania. He was 89. Bogle
was the founder of Vanguard Group. In announcing his death, Vanguard said that Bogle
"introduced the first index mutual fund for investors and, in the face of skeptics, stood
behind the concept until it gained widespread acceptance; and he drove down costs across the
mutual fund industry by ceaselessly campaigning in the interests of investors."
We'll always remember Bogle for the courage he demonstrated on April 23, 2013 when he
appeared
on the PBS program Frontline . Bogle dropped the bombshell that Wall Street has
attempted to hide for half a century: If you work for 50 years and receive the typical
long-term return of 7 percent on your 401(k) plan and your fees are 2 percent, almost
two-thirds of your account will go to Wall Street.
Bogle explained the math to Frontline's Martin Smith:
Bogle: What happens in the fund business is the magic of compound returns is overwhelmed by
the tyranny of compounding costs. It's a mathematical fact. There's no getting around it. The
fact that we don't look at it -- too bad for us.
Smith : What I have a hard time understanding is that 2 percent fee that I might pay to an
actively managed mutual fund is going to really have a great impact on my future retirement
savings.
Bogle: Well, you have to rely on somebody to get out a compound interest table and look at
the impact over an investment lifetime. Do you really want to invest in a system where you put
up 100 percent of the capital, you the mutual fund shareholder, you take 100 percent of the
risk and you get 30 percent of the return?
You can check the math yourself. Access a compounding calculator on
line. Input an account with a $100,000 balance and compound it at 7 percent for 50 years. That
gives you a balance of $3,278,041.36. Now change the calculation to a 5 percent return (reduced
by the 2 percent annual fee) for the same $100,000 over the same 50 years. That delivers a
return of $1,211,938.32. That's a difference of $2,066,103.04 – the same 63 percent
reduction in value that Smith's example showed.
If you don't know the amount of fees that you're paying on the mutual funds in your 401(k)
plan, 403(b) plan, IRA or other retirement vehicle, you may be putting your ability to retire
with adequate income and dignity at risk.
Roughly a third of Baby Boomers have saved less than $25,000 while just over a fifth of all
American have no savings at all, according to a study by Northwestern Mutual.
"'The best indicator of whether someone will be amenable to being defrauded has to do with
financial insecurity,' [said] David Vladeck, the former director of the Federal Trade
Commission's Bureau of Consumer Protection."
So I wonder what the trend is on being scammed. Perhaps fairly level at the moment.
Overinvestment in stocks of retires is very common under neoliberalism.
There are several factors here: one is greed cultivated by neoliberal MSM, the second is
insufficient retirement funds (gambling with retirement savings) and the last and not least is
lack of mathematical skills an inability to use Excel for viewing their portfolio and making
informed decisions.
Notable quotes:
"... At the end of 2016, 69 percent of investors in their 60s had at least 40 percent of their 401(k) portfolio invested in stocks, up from 65 percent in 2007, according to the Employee Benefit Research Institute in Washington. ..."
"... 19 percent had more than 80 percent of their 401(k) invested in stocks in 2016 ..."
"... "We had lousy forecasts in 2008. The housing market was in a tailspin," said 76-year-old John Bauer, who worked for McDonnell Douglas and Boeing Co for 36 years in St. Louis. "Today, employment is way up. The housing market is steady and corporations are flush." ..."
BOSTON (Reuters) - Nancy Farrington, a retiree who turns 75 next month, admits to being in a
constant state of anxiety over the biggest December stock market rout since Herbert Hoover was
president.
"I have not looked at my numbers. I'm afraid to do it," said Farrington, who recently moved
to Charleston, South Carolina, from Boston. "We've been conditioned to stand pat and not panic.
I sure hope my advisers are doing the same."
Retirees are worrying about their nest eggs as this month's sell-off rounds out the worst
year for stocks in a decade, and some fear they are headed for a day of reckoning like the 2008
market meltdown or dot-com crash of the early 2000s.
Retirees have less time to recover from bad investment moves than younger workers. If they
or their advisers panic and sell during a brief downturn, they may lock in a more meager
retirement. But their portfolio could be even more at risk if they hold on too long in a
prolonged decline.
"I have no way of riding it out if that happens," said Farrington. "I can feel the anxiety
in my stomach all the time."
While many industrialized countries still have generous safety nets for retirees, pensions
for U.S. private-sector workers largely have been supplanted by 401(k) accounts and other
private saving plans. That means millions of older Americans are effectively their own pension
managers.
Workers in countries like Belgium, Canada, Germany, France and Italy receive, on average,
about 65 percent of their income replaced by mandatory pensions. In the Netherlands the ratio
of benefits to lifetime average earnings is abut 97 percent, according to a 2017 Organization
for Economic Cooperation and Development report.
The OECD says the comparable U.S. replacement rate from Social Security benefits is about 50
percent.
U.S. retirees had watched their private accounts mushroom during a bull stock market that
began in early 2009. Meanwhile, the Federal Reserve kept interest rates near zero for years,
enticing retirees deeper into stocks than previous generations as investments like certificates
of deposit, government bonds and money-market funds generated paltry income.
At the end of 2016, 69 percent of investors in their 60s had at least 40 percent of their
401(k) portfolio invested in stocks, up from 65 percent in 2007, according to the Employee
Benefit Research Institute in Washington.
Still, fewer have gone all in on stocks in recent years. Just 19 percent had more than 80
percent of their 401(k) invested in stocks in 2016, down from 30 percent at year-end 2007,
according to nonprofit research group EBRI.
"Nothing has gone wrong, but it seems the market is trying to figure out what could go
wrong," said Brooke McMurray, a 69-year-old New York retiree who says she became a financial
news junkie after the 2007-2009 financial crisis.
"Unlike before, I now know what I own and I constantly read up on my companies," she
said.
The three major U.S. stock indexes have tumbled about 10 percent this month, weighed by
investor worries including U.S.-China trade tensions, a cooling economy and rising interest
rates, and are on track for their worst December since 1931.
The S&P 500 is headed for its worst annual performance since 2008, when Wall Street
buckled during the subprime mortgage crisis. But some are not quite ready to draw
comparisons.
"We had lousy forecasts in 2008. The housing market was in a tailspin," said 76-year-old
John Bauer, who worked for McDonnell Douglas and Boeing Co for 36 years in St. Louis. "Today,
employment is way up. The housing market is steady and corporations are flush."
Still, Bauer said he is uneasy about White House leadership. He and several other retirees
referenced U.S. Treasury Secretary Steve Mnuchin's recent calls to top bankers, which did more
to rattle than assure markets. U.S. stocks tumbled more than 2 percent the day before the
Christmas holiday.
Nevertheless, Bauer is prepared to ride out any market turmoil without making dramatic moves
to his retirement portfolio. "When it's up, I watch it. When it's down, I don't," he said. And there are some factors helping take the sting out of the market rout, said Larry Glazer,
managing partner of Boston-based Mayflower Advisors LLC.
The median retirement account balance among all working US adults is $0 . This is true
even for the cohort closest to retirement age, those 55-64 years old.
The average (i.e., mean) near-retirement individual has less than 8% of one year's income
saved in a retirement account
77% of all American households aren't on track to have enough net worth to retire , even
under the most conservative estimates.
There a number of causal factors that have contributed to this lack of retirement
preparedness (decades of stagnant real wages, fast-rising cost of living, the Great Recession,
etc), but as we explained in our report The Great Retirement Con
, perhaps none has had more impact than the shift from dedicated-contribution pension plans to
voluntary private savings:
The Origins Of The Retirement Plan
Back during the Revolutionary War, the Continental Congress promised a monthly lifetime
income to soldiers who fought and survived the conflict. This guaranteed income stream,
called a "pension", was again offered to soldiers in the Civil War and every American war
since.
Since then, similar pension promises funded from public coffers expanded to cover retirees
from other branches of government. States and cities followed suit -- extending pensions to
all sorts of municipal workers ranging from policemen to politicians, teachers to trash
collectors.
A pension is what's referred to as a defined benefit plan . The payout promised a worker
upon retirement is guaranteed up front according to a formula, typically dependent on salary
size and years of employment.
Understandably, workers appreciated the security and dependability offered by pensions.
So, as a means to attract skilled talent, the private sector started offering them, too.
The first corporate pension was offered by the American Express Company in 1875. By the
1960s, half of all employees in the private sector were covered by a pension
plan.
Off-loading Of Retirement Risk By Corporations
Once pensions had become commonplace, they were much less effective as an incentive to
lure top talent. They started to feel like burdensome cost centers to companies.
As America's corporations grew and their veteran employees started hitting retirement age,
the amount of funding required to meet current and future pension funding obligations became
huge. And it kept growing. Remember, the Baby Boomer generation, the largest ever by far in
US history, was just entering the workforce by the 1960s.
Companies were eager to get this expanding liability off of their backs. And the more
poorly-capitalized firms started defaulting on their pensions, stiffing those who had loyally
worked for them.
So, it's little surprise that the 1970s and '80s saw the introduction of personal
retirement savings plans. The Individual Retirement Arrangement (IRA) was formed by the
Employee Retirement Income Security Act (ERISA) in 1974. And the first 401k plan was created
in 1980.
These savings vehicles are defined contribution plans . The future payout of the plan is
variable (i.e., unknown today), and will be largely a function of how much of their income
the worker directs into the fund over their career, as well as the market return on the
fund's investments.
Touted as a revolutionary improvement for the worker, these plans promised to give the
individual power over his/her own financial destiny. No longer would it be dictated by their
employer.
Your company doesn't offer a pension? No worries: open an IRA and create your own personal
pension fund.
Afraid your employer might mismanage your pension fund? A 401k removes that risk. You
decide how your retirement money is invested.
Want to retire sooner? Just increase the percent of your annual income contributions.
All this sounded pretty good to workers. But it sounded GREAT to their employers.
Why? Because it transferred the burden of retirement funding away from the company and
onto its employees. It allowed for the removal of a massive and fast-growing liability off of
the corporate balance sheet, and materially improved the outlook for future earnings and cash
flow.
As you would expect given this, corporate America moved swiftly over the next several
decades to cap pension participation and transition to defined contribution plans.
The table below shows how vigorously pensions (green) have disappeared since the
introduction of IRAs and 401ks (red):
So, to recap: 40 years ago, a grand experiment was embarked upon. One that promised US
workers: Using these new defined contribution vehicles, you'll be better off when you reach
retirement age.
Which raises a simple but very important question: How have things worked out?
The
Ugly AftermathAmerica The Broke
Well, things haven't worked out too well.
Four decades later, what we're realizing is that this shift from dedicated-contribution
pension plans to voluntary private savings was a grand experiment with no assurances.
Corporations definitely benefited, as they could redeploy capital to expansion or bottom line
profits. But employees? The data certainly seems to show that the experiment did not take
human nature into account enough – specifically, the fact that just because people have
the option to save money for later use doesn't mean that they actually will.
And so we end up with the dismal retirement stats bulleted above.
The Income Haves
& Have-Nots
In our recent report The Primacy Of Income , we
summarized our years-long predictions of a coming painful market correction followed by a
prolonged era of no capital gains across equities, bond and real estate.
Simply put: the 'easy' gains made over the past 8 years as the central banks did their
utmost to inflate asset prices is over. Asset appreciation is going to be a lot harder to come
by in the future.
Which makes income now the prime source of building -- or simply just maintaining -- wealth
going forward.
That being the case, it's obvious that those receiving a pension will be in far better shape
than those who aren't. They'll have a guaranteed income stream to partially or fully fund their
retirement.
Resentment Brewing
While the total number of people expecting a pension isn't tiny, it's certainly a minority
of today's workers.
31 million private-sector, state and local government workers in the US participate in a
pension plan. 3.3 million currently-employed civilian Federal workers will receive a pension;
as will some percentage of the 2 million people serving in the active military and
reserves.
Combined, that's about 25% of current US workers; roughly 13% of total US adults.
The danger here is of festering social discord. The majority, whom we already know will not
be able to retire, will highly likely start regarding pensioners with envy and resentment.
"Hey, I worked as hard as Joe during my career. How come he gets to retire and I don't?"
will be a common narrative running in the minds of those jealous of their neighbors.
This bitterness will only increase as taxes continue to rise to fund government pension
payouts, already
a huge drain on public budgets . "Why am I paying more so Joe can relax on the beach??"
Humans are wired to react angrily to perceived injustice and unfairness. This short clip
shows how it's hard-coded into our primate brains:
So it's not a stretch at all to predict the divisive tension and prejudice that will result
from the growing gap between the pension haves and have-nots.
The negative stereotypes of union workers will be tightly re-embraced. This SNL sketch
captures a good number of them:
The steady news
reports of pension fraud and abuse will anger the majority further. Any projected decreases
in Social Security (benefit payouts will only be 79 cents on the dollar by 2035 at our current
trajectory) will only exacerbate the ire, as the small governmental income the have-nots
receive becomes even more meager.
The growing potential here is for an emerging social schism, possibly accompanied with
intimidation and violence, not dissimilar to that which has occurred along racial or religious
lines during darker eras of our history.
As people become stressed, they react emotionally, and look for a culprit to blame. And as
they become more desperate, as many elderly workers with no savings often do, they'll resort to
more desperate measures.
Broken Promises
And it's not all sunshine and roses for the pensioners, either. Being promised a pension and
actually receiving one are two very different things.
Underfunded pension liabilities are a massive ticking time bomb, certain to explode over the
next few decades.
For example, many pensions offered through multi-employer plans are bad shape. The
multiemployer branch of the Pension Benefit Guaranty Corporation, the federally-instated
insurer behind private pensions, will be out of business by 2025 if no changes in law are made
to help. If that happens, retirees in those plans will get only 10% of what they were
promised.
Moreover, research conducted by the Pew Charitable Trusts shows a
$1.4 trillion shortfall between state pension assets and guarantees to employees. There are
only two ways a gap that big gets addressed: massive tax hikes or massive benefit cuts. The
likeliest outcome will be a combination of both.
So, many of those today counting on a pension tomorrow may find themselves in a similar boat
to their pension-less neighbors.
No Easy Systemic Solutions, So Act For Yourself
There's no "fix" to the retirement predicament of the American workforce. There's no policy
change that can be made at this late date to reverse the decades of over-spending,
over-indebtedness, and lack of saving.
All we can do at this time is influence how we take our licks. Do we simply leave the masses
of unprepared workers to their sad fate? Or do we share the pain across the entire populace by
funding new social support programs via more taxes?
Time will tell. But what we can bet on is tougher times ahead, especially for those with
poor income prospects.
So the smart strategy for the prudent investor is to prioritize building a portfolio of
income streams in order to have sufficient dependable income for a sustainable retirement. Or
for simply remaining afloat financially.
Sadly, accustomed to the speculative approach marketed to us for so long by the financial
industry, most investors are woefully under-educated in how to build a diversified portfolio of
passive income streams (inflation-adjusting and tax-deferred whenever possible) over time.
Those looking to get up to speed can read our recent report A
Primer On Investing For Inflation-Adjusting Income , where we detail out the wide range of
prevalent (and not-so-prevalent) solutions for today's investors to consider when designing an
income-generating portfolio. From bonds, to dividends (common and preferred), to real estate,
to royalties -- we explain each vehicle, how it can be used, and what the major benefits and
risks are.
And in the interim, make sure the wealth you have accumulated doesn't disappear along with
the bursting of the Everything Bubble. If you haven't already read it yet, read our premium
report from last week What To Do Now That 'The
Big One' Is Here .
They can try and tax to fill pension buckets that are empty, but the population is more
likely than ever to react negatively to this sort of thing.
People will not move to areas where the potential for extortion to satisfy pension
promises exists. Nor will they move to any place where there's the possibility of a big tax
increase to fill public coffers.
In my own area there's already the threat of a large property tax increase to cover
'social improvements' that are not really the responsibility of the local government, but you
can't tell them that, they extend their tentacles into everything. The county is just as bad,
with property tax increases and then handing out grants that no one monitors and no one knows
about.
If govt's would go back to doing what they're supposed to do instead of the garbage
they're involved in now we'd be better off and it would cost those who actually pay the taxes
a lot less. It's one big reason people are moving to rural areas. My muni has voted several
times now to increase local option sales tax, the people keep putting it down, the voting
costs thousands to conduct, I wish they would give it up.
It's no wonder that Chicago loses 150 people every day...not a good thing.
"The list includes a married couple -- a police captain and a detective -- who joined DROP
at around the same time and collected nearly $2 million while in the program. They both filed
claims for carpal tunnel syndrome and other cumulative ailments about halfway through the
program. She spent nearly two years on disability and sick leave; he missed more than two
years ... the couple spent at least some of their paid time off recovering at their condo in
Cabo San Lucas and starting a family theater production company with their daughter..."
Pensions in many ways they are the biggest Ponzi Scheme of modern man. Pension payouts are
often predicated on the idea the money invested in these funds will yield seven to eight
percent a year and in today's low-interest rate environment, this has forced funds into ever
riskier investments.
The PBGC America's pension safety net is already under pressure and failing due to the
inability of pension funds to meet their future obligations. The math alone is troubling but
when coupled with the overwhelming possibility of a major financial dislocation looming in
the future a nightmare scenario for pensions drastically increases. More on this subject in
the article below.
84% of state and local public sector workers receive defined benefit pensions as do 100%
of federal workers with little to no contribution on their part. After 30 years Federal
workers receive 33% of their highest 3 consecutive years pay and state workers average
benefits are $43000 with a range from 15000 (MS) to 80000 (CA). Private sector employees get
to pay for this and have little if anything coming from their employers in the form of a
pension. Instead, private sector employees get to gamble their savings in the stock and bond
markets to secure a retirement. And don't thing government employees are paid less - they are
usually paid very competitively with the private sector. Bottom line is private sector
employees are slaves to federal, state, and local governments.
Not only are government workers not paid that less, they get a slew of days off, sicks
days, mental health days , every minor holiday is a day off. And because they never get laid
off, the lower salary is worth more over the long term. then the private sector worker who
gets fired every 5 years
A 401K is not a pension plan and if you don't put anything into the 401K then you get
nothing out of the 401K. Plus, pensions can fail. The people that made no other arrangements
for their retirement other than rely on SocSec will have more because they will qual for food
stamps, housing subsidies, utility credits, etc. The picture is being distorted.
There is not going to be the old American pension, it's the new America, where everything
has been hollowed out. The new American economic conditions has created a vast
underclass.
The growing underclass is because of being hollowed out. Social services for the
underclass is costing hundreds of billions. The Trumpers want a massive cut in social
funding.
The communist Democratic Socialist have a wedge issue of underclass causes which keeps the
Democratic Socialist party growing. Clinton is their enemy as we now know from Clinton's out
burst.
The only way out for Trumpers is an infrastructure build. This will draw in the masses as
labor markets tighten, thus pushing wages up.
"... If I take Social Security at age 62 and then pay back the benefits within 12 months to erase the penalty for claiming early, is it true I get to keep the interest I earned while I had the money? ..."
"... I understand how delayed-retirement credits boost Social Security benefits by 8% for each year that one delays claiming between age 66 and age 70. But do cost-of-living adjustments during the years you wait amplify the advantage to more than 8% a year? ..."
Q If I take Social Security at age 62 and then pay back the benefits
within 12 months to erase the penalty for claiming early, is it true I get to keep the interest
I earned while I had the money?SEE ALSO:
10 Things You Must Know About Social Security
A Yes, but don't get too excited. Prior to 2010, when Social Security imposed the 12-month
limit for withdrawing an application and repaying benefits, it was often advised that people
who didn't need the money use this "do over" procedure to get what amounted to an interest-free
loan from the government. If you claimed benefits at 62 and repaid them at 66, you might be
playing with $100,000 or more of "house money." The 12-month window restricts that opportunity.
Also, note that if you receive benefits in one calendar year and pay them back in the next,
you'll likely have to pay tax on the benefits in year one. You can recoup the tax, but it's
complicated.
Q I understand how delayed-retirement credits boost Social Security benefits by 8% for
each year that one delays claiming between age 66 and age 70. But do cost-of-living adjustments
during the years you wait amplify the advantage to more than 8% a year?
A Yes. COLAs are built into benefits starting at age 62, the earliest age at which you can
claim benefits, even if you don't claim at that time.
Here's an example worked up for us by Baylor University professor William Reichenstein, head
of research for consulting firm Social Security Solutions. Let's say your benefit at age 66 is
estimated at $2,000 a month, but you decide to wait until age 70 to claim. You'll get eight
years of compounded COLAs based on the full retirement age benefit of $2,000 -- bringing the
monthly benefit up to $2,533, assuming an average annual COLA of 3%. You'd also get four years
of 8% delayed-retirement credits calculated on the $2,533 benefit. That extra 32% brings the
total monthly benefit at age 70 to $3,343. (Yes, a 3% COLA may seem high considering 2016's 0%
and 2017's 0.3%. But the annual average COLA since automatic adjustments started in 1975 is
3.8%.)
1. Re: the professor's hypothetical example... don't kid yourself. He shows a
hypothetical 20% increase ($2000 going up to $2500.) Just observing the past 3 years,
COLA's have been 0% twice,( so says social security) and & .3% this past year.. And a
few years before that, there were a few more 0% years, along with minimal COLA increases.
Myself, having been forced to retire in 2009, I've discovered what social security says
the COLA is, (on which they base your yearly increase in benefits) and what the CPI is in
REAL LIFE are ridiculously far apart.)
2. The payback question states, "it's complicated." Here's the quick and short answer: TO
START, you must be able to ITEMIZE your tax return ( and not take the standard deduction)
in the year you enact your do over, to even have a CHANCE to recoup some of the taxes you
paid on your social security benefits. The dollar amount you pay back in the "do over" to
SS that exceed the benefits you received from SS during the current year, is the amount
on which you can include as an itemized deduction on your tax return for the current
year. And remember, itemized deductions will only reduce your taxes by 15 cents or 25
cents on the dollar (depending on your marginal tax bracket.) There is no such thing as a
tax credit, nor an amended tax return, when it comes to trying to recoup income tax you
paid on social security benefits. My credentials? I'm a CPA & retired college
accounting professor.
One little discussed aspect of Social Security is the modest wealth
redistribution resulting from disability benefits. The upward trend of disability in
previous decades mirrors the decline in working class and lower middle class jobs and
income.
SSDI has been a target of the cutters for years and puts Trump in the middle between his
conservatives and his more lumpenproletariat base members, an increasing number of whom
live off SSDI benefits .
The number of SSDI recipients has tripled since the 1980s.
Democrats should continue to exploit the divergence between GOP policy and the grim
reality of a significant share of the Trumpist base.
How Ronald Reagan and Alan Greenspan Pulled off the Greatest Fraud Ever Perpetrated
against the American People
by Allen W. Smith / April 14th, 2010
David Leonhardt's article ,
"Yes, 47% of Households Owe No Taxes. Look Closer," in Tuesday's New York Times was
excellent, but it just scratches the tip of the iceberg of how the rich have gained at the
expense of the working class during the past three decades. When Ronald Reagan became President
in 1981, he abandoned the traditional economic policies, under which the United States had
operated for the previous 40 years, and launched the nation in a dangerous new direction. As
Newsweek magazine put it in its March 2, 1981 issue, "Reagan thus gambled the future
-- his own, his party's, and in some measure the nation's -- on a perilous and largely untested
new course called supply-side economics."
Essentially, Reagan switched the federal government from what he critically called, a "tax
and spend" policy, to a "borrow and spend" policy, where the government continued its heavy
spending, but used borrowed money instead of tax revenue to pay the bills. The results were
catastrophic. Although it had taken the United States more than 200 years to accumulate the
first $1 trillion of national debt, it took only five years under Reagan to add the second one
trillion dollars to the debt. By the end of the 12 years of the Reagan-Bush administrations,
the national debt had quadrupled to $4 trillion!
Ronald Reagan and Alan Greenspan pulled off one of the greatest frauds ever perpetrated
against the American people in the history of this great nation, and the underlying scam is
still alive and well, more than a quarter century later. It represents the very foundation upon
which the economic malpractice that led the nation to the great economic collapse of 2008 was
built. Ronald Reagan was a cunning politician, but he didn't know much about economics. Alan
Greenspan was an economist, who had no reluctance to work with a politician on a plan that
would further the cause of the right-wing goals that both he and President Reagan shared.
Both Reagan and Greenspan saw big government as an evil, and they saw big business as a
virtue. They both had despised the progressive policies of Roosevelt, Kennedy and Johnson, and
they wanted to turn back the pages of time. They came up with the perfect strategy for the
redistribution of income and wealth from the working class to the rich. Since we don't know the
nature of the private conversations that took place between Reagan and Greenspan, as well as
between their aides, we cannot be sure whether the events that would follow over the next three
decades were specifically planned by Reagan and Greenspan, or whether they were just the
natural result of the actions the two men played such a big role in. Either way, both Reagan
and Greenspan are revered by most conservatives and hated by most liberals.
If Reagan had campaigned for the presidency by promising big tax cuts for the rich and
pledging to make up for the lost revenue by imposing substantial tax increases on the working
class, he would probably not have been elected. But that is exactly what Reagan did, with the
help of Alan Greenspan. Consider the following sequence of events:
1) President Reagan appointed Greenspan as chairman of the 1982 National Commission on
Social Security Reform (aka The Greenspan Commission)
2) The Greenspan Commission recommended a major payroll tax hike to generate Social Security
surpluses for the next 30 years, in order to build up a large reserve in the trust fund that
could be drawn down during the years after Social Security began running deficits.
3) The 1983 Social Security amendments enacted hefty increases in the payroll tax in order
to generate large future surpluses.
4) As soon as the first surpluses began to role in, in 1985, the money was put into the
general revenue fund and spent on other government programs. None of the surplus was saved or
invested in anything. The surplus Social Security revenue, that was paid by working Americans,
was used to replace the lost revenue from Reagan's big income tax cuts that went primarily to
the rich.
5) In 1987, President Reagan nominated Greenspan as the successor to Paul Volker as chairman
of the Federal Reserve Board. Greenspan continued as Fed Chairman until January 31, 2006. (One
can only speculate on whether the coveted Fed Chairmanship represented, at least in part, a
payback for Greenspan's role in initiating the Social Security surplus revenue.)
6) In 1990, Senator Daniel Patrick Moynihan of New York, a member of the Greenspan
Commission, and one of the strongest advocates the the 1983 legislation, became outraged when
he learned that first Reagan, and then President George H.W. Bush used the surplus Social
Security revenue to pay for other government programs instead of saving and investing it for
the baby boomers. Moynihan locked horns with President Bush and proposed repealing the 1983
payroll tax hike. Moynihan's view was that if the government could not keep its hands out of
the Social Security cookie jar, the cookie jar should be emptied, so there would be no surplus
Social Security revenue for the government to loot. President Bush would have no part of
repealing the payroll tax hike. The "read-my-lips-no-new-taxes" president was not about to give
up his huge slush fund.
The practice of using every dollar of the surplus Social Security revenue for general
government spending continues to this day. The 1983 payroll tax hike has generated
approximately $2.5 trillion in surplus Social Security revenue which is supposed to be in the
trust fund for use in paying for the retirement benefits of the baby boomers. But the trust
fund is empty! It contains no real assets. As a result, the government will soon be unable to
pay full benefits without a tax increase. Money can be spent or it can be saved. But you can't
do both. Absolutely none of the $2.5 trillion was saved or invested in anything. I have been
laboring for more than a decade to expose the great Social Security scam. For more information,
please visit my website or contact me.
This article was posted on Wednesday, April 14th, 2010 at 9:00am and is filed under
Economy/Economics
, Social
Security , Tax .
5 comments on this article so far ...
Still, this is only symptom or really quite legal act by US. So, appears to me of the
system. So, what's wrong-right with the system of which governing the country by laws is
integral part? Apparently nothing; even to allen smyth.
So, why bother complaining ab an a legal act? Beats me! Why not change the system that
allows this? tnx
I think politics is, has and always will be the problem and it seems to have creeped in
to Dr. Smiths article.
The American people through decades of political rhetoric have come to believe all the lies
that have been told by politicians and duly reinforced by a compliant media.
Reagan proposed cutting benefits to fix social security. On 5/12/81 HHS Secretary Richard
Schweiker sent Congress the Administrations plan to rely on benefit cuts. You know what
happened next – the Democrats pounced with the elderly lobbies not far behind. Reagan
gave up and not unlike todays President, formed the commission mostly for political cover
and to take the heat off. And remember Congress passes the law, the President does not get
a vote.
The reserve fund build up for the boomers is also a myth. That is if we can believe the
Congressionsl Research Service:
"In fact, it has become conventional wisdom that Congress deliberately intended to built
up large balances in the trust funds, not just for the near term, but to help finance the
benefits of the post World War II baby boomers and later retirees." "To the contrary, a
review of the record of congressional proceedings would suggest that the goal was
not to create surpluses, but to assure that the system would not be threatened by
insolvency again in the event adverse conditions arose." ( CRS Report for Congress –
Social Security Financing Reform: Lessons From the 1983 Amendments – 97-741 EPW )
Or if we choose to believe Robert J Meyers:
Q: As we look at it today, some people rationalize the financing basis by saying that
it's a way of partially having the baby boomers pay for their own retirement in advance.
You're telling me now this was not the rationale. Nobody made that argument or adopted that
rationale?
Myers: That's correct. The statement you made is widely quoted, it is widely used, but
it just isn't true. It didn't happen that way, it was mostly happenstance that the
Commission adopted this approach to financing Social Security.
( http://ssaonline.us/history/myersorl.html
)
Senator Daniel Patrick Moynihan may have become outraged but he was on the commission.
He never realized that all cash surpluses have to be invested in debt – since Social
Security began? I find that hard to believe, but he was right to recommend cutting the FICA
tax, which of course went nowhere in CONGRESS.
If this new commission comes up with a plan to "extend the life" of the trust fund, as
happened with the new health care bill, it's just kicking the can down the road again.
Let's let them use the "trust fund" and run it down to zero. How? cut spending
elsewhere.
this is a great article alan, you missed one of the most important things greenspan did
to destroy the economy
he went to war on what he termed "wage inflation"
every time you see the prime go up that means there is upward pressure on wages and he
is trying to keep businesses from having money to offer higher wage
when you see wages go down it's because wage pressure is either stagnant or negative
of course there are other factors that make the prime go up or down but wage pressure is
the big reason you see it happening
when greenspan said "the economy is heating up" what he meant is "people are asking for
and getting a raise"
important stuff and one of the main reasons the middle classes wages have been
stagnant
– the US was not alone – this scam was taking place in most if not all
western faux-democracies. For the Canadian perspective – which has cost Cdn taxpayers
some two trillion dollars over the last 30+ years in "debt service" whilst government after
government claims 'no money!!' and slashes the social programs Cdns worked generations to
establish – What Happened? http://www.rudemacedon.ca/what-happened.html
. And thus it will continue until people catch on to this scam, this fraud, and put a lot
of people in jail. ABout the same time I find my way out from behind the looking glass, I
expect. We're all in cloud cuckooland now. Dorothy. The wizard is dead and the black witch
rules.
"Both Reagan and Greenspan saw big government as an evil, and they saw big business as a
virtue. They both had despised the progressive policies of Roosevelt, Kennedy and
Johnson"
Republicans BAD ..Democrats GOOD.
"When Ronald Reagan became President in 1981, he abandoned the traditional economic
policies, under which the United States had operated for the previous 40 years"
The 'traditional' economic policy of 'capitalism' (are economists allowed to utter that
word in public, or is 'traditional' a better oxymoron?) was rampant before 1981 and was
going about its destructive business. This article paints a picture of the pre-1981 world
being the 'glory days'.
"The official actuaries of the Social Security system say in order to get our Social
Security and retirement funds in balance, they'd have to cut benefits by 25 percent
indefinitely into the future," he says. "Do I think it's going to happen? Well I don't know,
but this is one of the reasons why inflation is the major problem out there. So long as you
don't do it, you're going to cause the debt overall -- the total government debt -- to rise
indefinitely, and that is an unstable situation."
He adds: "In the book discussing what the long-term outlook is all about, we say that the
issue of the aging of the population and its consequences on entitlements is having a
significant negative deterioration over the long run. The reason for that is what the data
unequivocally show is that entitlements -- which are mandated by law -- are gradually and
inexorably driving our gross domestic savings, and the economy, dollar for dollar. And so
long as that happens, we have to borrow from abroad, which is our current account
deficit."
He also said:
"When you deal with fear, it is very difficult to classify," he tells Here &
Now 's Jeremy Hobson. "But you can look at the consequences of it, and the consequence
is basically a suppressed level of innovation and therefore of capital investment and a
disinclination to take risks."
I agree with this, but not just as it relates to " a suppressed level of innovation " but
instead as it relates to the 2005 World Bank report on what produces wealth in a developed
economy like ours. It comes down to trust. Trust in your judicial system and trust in your
education system. I discuss this in the following 3 posts: 2007, 2009, 2011
This election at it's core is about trust. Destroy that, and we have no democracy, we have
no economy. It's that simple. That McConnell et al has decided he will not abide by the rules
agreed to in conducting the business of the Senate means we have no currently functioning
democracy. That is how fragile democracy in the US is. Our democracy comes down to two people,
the leaders of each party in the Senate agreeing to the rules. When one decides not to, there
is nothing that can be done other than vote.
You can hear the full interview here:
Sandi , November 5, 2018 10:48 am
Trust – I could't agree more. Thanks for shining this light.
Paul Krugman has been pounding the drum for years about the GOP's repeated con game of
creating deficits when they are in power, then running through the room with their hair on
fire on how deficits are going to be our downfall and so we MUST, MUST, MUST cut
entitlements. And yet we never seem to catch on.
It seems to me we should make all income, not just wages, subject to FICA. Of course we
could never touch what gets shipped off-shore anyway, so we'd just have to let that slide,
I suppose ..still, as long only the 'wage slaves' are taxed, things will only get
worse.
Karl Kolchak , November 5, 2018 12:16 pm
You still have trust? I gave that up after the Iraq War, the bailouts the Obama Betrayal
and Citizens United. Now I just assume the worst, no matter who is in power, and rarely am
I disappointed.
"... I have skipped the chest thumbing about the economy from Mnuchin and Mulvaney to focus on the stupidity ala CNBC . Real government spending barely kept pace with inflation, which is why outlays relative to GDP fell from 20.7% to 20.3%. Real tax revenues clearly fell in absolute terms and as a percent of GDP went from 17.2% to 16.5%. I guess this is what one gets when one lets Lawrence Kudlow become a chief economic adviser. But this kind of dishonesty is well known ever since Kudlow and his ilk tried to pull this intellectual garbage in the 1980's. Does anyone at CNBC not realize the Trump White House is playing the same games with numbers? ..."
"The only way to lower the record-high federal deficit would be to cut entitlement programs
like Medicare, Medicaid and Social Security1."
More McConnell: "It's disappointing but it's not a Republican problem." The deficit, grew 17
percent to $779 billion in fiscal year 2018. "It is a bipartisan problem and a problem of the
unwillingness to address the real drivers of the debt by doing anything to adjust those
programs to the demographics of America in the future."
The deficit has increased 77 percent since McConnell became majority leader in 2015.
A new Treasury Department analysis on Monday revealed that corporate tax cuts had a
significant impact on the deficit this year. Federal revenue rose by 0.04 percent in 2018 which
is a nearly 100 percent decrease from the previous year's 1.5 percent. In fiscal year 2018, tax
receipts on corporate income fell to $205 billion from $297 billion in 2017.
Still, McConnell insisted the change had nothing to do with a lack of revenue due to the tax
break or increased spending resulting from new programs since 2015. Instead he insists the
deficit increase is due to entitlement and welfare programs. Now he does the old switcheroo
from the yearly deficit to the national debt.
McConnell said, the debt is very "disturbing and is driven by the three big entitlement
programs that are very popular, Medicare, Social Security and Medicaid. There has been a
bipartisan reluctance to tackle entitlement changes because of the popularity of those
programs. Hopefully, at some point here, we'll get serious about this."
What McConnell
does not tell you is 8 years out those tax decreases will go away for much of the
population and many will see tax increases. McConnell and Republicans needed a way to keep the
60% of the total tax break going to the 1% of the Household Taxpayers making greater than
$500,000 annually since this tax break was passed under Reconciliation rules (Democrats could
not block it without 60 votes). Robert Reich has called this a Trojan
Horse tax break.
Recently, Mitch McConnell has been considering his legacy. I think it would be adequate to
paraphrase it as: "I saved the 2018 tax break for the 1 percenters. To hell with the rest of
you."
1. PGL pointed out the variance is barely audible on scale of the deficits. " I have
skipped the
chest thumbing about the economy from Mnuchin and Mulvaney to focus on the stupidity ala
CNBC . Real government spending barely kept pace with inflation, which is why outlays relative
to GDP fell from 20.7% to 20.3%. Real tax revenues clearly fell in absolute terms and as a
percent of GDP went from 17.2% to 16.5%. I guess this is what one gets when one lets Lawrence
Kudlow become a chief economic adviser. But this kind of dishonesty is well known ever since
Kudlow and his ilk tried to pull this intellectual garbage in the 1980's. Does anyone at CNBC
not realize the Trump White House is playing the same games with numbers? "
I kept my post the same because it is just another ruse by McConnell to get something done
for no reason what-so-ever. It is a lie by McConnell.
EMichael , October 17, 2018 11:00 am
And it will cost them exactly zero votes among the working class.
I wonder why that would be?
little john , October 17, 2018 12:02 pm
Maybe he'll get serious and endorse the NW Plan.
pgl , October 17, 2018 12:26 pm
A CNBC Federal spending SURGED. As in a 3.2% increase in NOMINAL spending, which means
real spending barely went up. As I noted under that post of mine on the CNBC/Treasury
dishonesty, Paul Ryan tried this same dishonest trick but the CBS guy nailed him. Well he
tried to but Ryan cut him off and repeated the same line.
Now how many people are stupid enough to not realize that Paul Ryan lies 24/7?
run75441 , October 17, 2018 1:20 pm
PGL:
I read your post earlier and recognized your point of spending barely rising. It is a ruse
of cut spending inside of a much larger ruse being precipitated by McConnell. If he can get
them to cut spending now, then maybe, maybe, they do not increase taxes down the road as
planned. I should have looked further and I did not.
I am thinking of adding your point in the text of my post. It is a great point and also
reinforces my point of the lies the Republicans tell the public. Thanks!
run75441 , October 17, 2018 9:19 pm
Noted . . . Just added your comment. Thanks again.
Joel , October 17, 2018 12:28 pm
"Maybe he'll get serious and endorse the NW Plan."
Co-terminus with the first verified report of porcine aviation.
pgl , October 17, 2018 3:04 pm
Trump blames the rise in the deficit on hurricanes and forest fires:
Someone fact check this please. But let's humor the Idiot in Chief for a comment by
assuming that the rise in the deficit is due to some temporary surge in FEMA spending. That
undermines the call for permanent reductions in Social Security and Medicare.
Point made – these clowns cannot keep their lies straight!
Amateur Socialist , October 17, 2018 7:17 pm
McConnell: "It's disappointing but it's not a Republican problem."
Not as long as people keep electing these clowns. I guess we'll find out in 3 more
weeks.
"... Note: Taking a spousal benefit does not reduce or change the amount your current spouse, ex-spouse, or ex-spouse's current spouse may receive. ..."
By Dana
Anspach Updated August 17, 2018 When a spouse dies, their Social Security benefits may
become available to their current or former marital partner, depending on certain
circumstances. A Social
Security spouse benefit is called a "spousal benefit" and is available to:
Current spouses
Widowed spouses
Ex-spouses
Before applying for spousal benefits, you should understand how your spouse's benefit may
be affected if you take your Social Security
benefits early, and what happens upon the death of a spouse. Eligibility for a Spousal
Benefit Current spouses and ex-spouses (if you were married for over 10 years and did not
remarry prior to age 60) both have eligibility for the spousal benefit. You must be age 62 to
file for or receive a spousal benefit. You are not eligible to receive a spousal benefit until
your spouse files for their own benefit first. Different rules apply
to ex-spouses . You can receive a spousal benefit based on an ex-spouse's record
even if your ex-partner has not yet filed for his or her own benefits, but your ex must be age
62 or older. Note: Taking a spousal benefit does not reduce or change the amount your
current spouse, ex-spouse, or ex-spouse's current spouse may receive.How Much You
Get As a spouse, you can claim a Social Security benefit based on your own earnings record,
or you can collect a spousal benefit that will provide you 50 percent of the amount of your
spouse's Social Security benefit as calculated at their full retirement age (FRA). Check the
Social Security website to determine your FRA, as it depends on your year of birth. If you file
before you reach your own FRA, your spousal benefit will be reduced because you are
filing early. You are automatically entitled to receive either a benefit based on your own
earnings or a spousal benefit based on your spouse's or ex-spouse's earnings. Social Security
calculates and pays the higher amount. If you were born on or before January 1, 1954, after you
reach FRA, you can choose to receive only the spousal benefit by filing a restricted
application. By doing this you delay receiving your own retirement benefits based on your
earnings record, until a later date. For example, at age 70 you could switch from receiving a
spousal benefit to receiving your own potentially higher benefit amount. Due to recent
Social
Security laws that went into effect Nov. 2, 2015, if you were born on or after Jan. 2,
1954, you will not be able to restrict your application and only receive spousal benefits. For
anyone born on or after Jan. 2, 1954, when you file you will automatically be deemed to be
filing for all benefits for which you are eligible.
"... If you have reached your full retirement age (and turned 62 before January 2, 2016), you may also elect to receive spousal benefits and delay taking your benefits, allowing your own delayed retirement credits to accrue, and switch to your own benefit at a later date. ..."
If you could receive more from Social Security based on your own earnings record than
through the spousal benefit, the Social Security Administration will automatically provide you
with the larger benefit.
If you have reached your full retirement age (and turned 62 before January 2, 2016), you may
also elect to receive spousal benefits and delay taking your benefits, allowing your own
delayed retirement credits to accrue, and switch to your own benefit at a later date.
However, you cannot elect to receive spousal benefits below your retirement age and later
switch to your own benefits.
Individuals who turn 62 on or after January 2, 2016, will not be
able to choose to take spousal benefits at their full retirement age.
However, spousal benefits should still be taken into consideration when planning your own
retirement strategy.
For example, let's say you and your spouse are both 66 and are still working, so you are
considering letting your Social Security benefit grow for another few years. However, if your
spouse anticipates collecting a spousal benefit on your work record, you might be better off
filing at your full retirement age instead of waiting.
As I mentioned earlier, there are no delayed retirement credits for spousal benefits. And
one of the requirements for collecting a spousal benefit is that the primary worker must be
collecting his or her own retirement benefit. Therefore, it rarely makes financial sense to
delay Social Security beyond your spouse's retirement age, if they expect a spousal
benefit.
This is just one example of how a spousal benefit can affect your overall retirement
strategy. The bottom line is that Social Security spousal benefits will affect the retirement
income of millions of American workers, so it's important to know what they are and how they
work.
The $16,728 Social Security bonus most retirees completely overlook
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Many couples can significantly enhance their lifetime Social Security earnings by having one
of the pair claim spousal benefits at 66 years and delay personal benefits until 70 years of
age.
This claiming strategy, which we call free spousal benefits , has
been discussed here
and elsewhere as one of the best ways to avoid the otherwise inevitable trade-off between
getting money sooner (early claiming) and a larger benefit later (delayed claiming).
Having drunk the free-spousal-benefit pool-aid, an inquisitive client asked if the claiming
strategy would work in the reverse. Instead of claiming spousal benefits first and then
switching to personal benefits later, Karen wanted to know if she should claim her modest
Social Security retirement benefits early, say at 62 years of age, and then switch to claiming
her husband's larger spousal benefits later on. On its face, her idea seems to make sense.
However, let's look at how this actually works for Karen and her husband Burt. They are both
62 and their full retirement age is 66. Karen's full retirement benefit is $400 a month and
Burt's is $2,000. Karen's maximum spousal benefit is $1,000 at 66 (that is half of Burt's age
66 retirement benefits). Burt plans to file for retirement benefits at 66, at which point Karen
will be eligible to claim spousal benefits. Karen knows that she can claim retirement benefits
early at age 62 and get $300/month (75% of the $400 she could get at her full retirement age).
She also believes that at 66 she can switch to her spousal benefits and get $1,000.
On this last point Karen is wrong. When getting supplemental spousal benefits at 66, her
full retirement age, her benefit will be $900, not $1,000.
The reasons for this are very convoluted. (A more complete description of the issues can be
found at socialsecuritychoices.com/blog/?p=391 .)
While Karen was hopeful that the reduction in benefits from early claiming will be temporary,
confined to benefits during her 62nd to 66th years of age, unfortunately this is not the
case.
While claiming at 62 will provide Karen with income sooner, there is a cost. First, claiming
at 62 means that she will receive only 75% of her retirement benefit. Secondly, the total
benefit she will receive after getting the spousal supplement will be smaller than it would
have been if she had waited until full retirement age to claim her retirement benefits. If she
opts for this strategy, she will receive this smaller benefit for the rest of her life.
Approach the strategy of taking your own retirement benefits now and a supplemental spousal
benefit later with caution. The rules here are especially complicated and Karen's example may
not apply in your case.
It would be wise to consult an expert before pursuing such a strategy. The long-term benefit
of claiming early might be lower than you expect.
That post led to an outpouring of deeply lived personal experience, of almost
French complexity, extolling the virtues of eating particular food types in
particular combinations at particular times, and not paying too much attention
to calories. Fine. If you wish to be befuddled, that is your perfect right.
So, with some trepidation, here is a summary of the current state of knowledge
regarding intelligence and health. Indeed, it is my summary of a summary paper.
A pointless redundancy, you may say, but I know you are busy, and I would not
like to interrupt your lunch break.
Intelligent people lead healthier lives, and that is not just because they
intelligently make healthy decisions, but also, it would appear, because they
are inherently healthier. Spooky.
What genome-wide association studies reveal about the association between
intelligence and physical health, illness, and mortality
Ian JDeary 1 Sarah EHarris 12 W DavidHill 1
1 Centre for Cognitive Ageing and Cognitive Epidemiology, Department of Psychology,
University of Edinburgh, 7 George Square, Edinburgh EH8 9JZ, United Kingdom
2Medical Genetics Section, Centre for Genomic & Experimental Medicine, MRC Institute
of Genetics & Molecular Medicine, University of Edinburgh, Western General Hospital,
Edinburgh EH4 2XU, United Kingdom
The associations between higher intelligence test scores from early life
and later good health, fewer illnesses, and longer life are recent discoveries.
Researchers are mapping the extent of these associations and trying to understanding
them. Part of the intelligence-health association has genetic origins. Recent
advances in molecular genetic technology and statistical analyses have revealed
that: intelligence and many health outcomes are highly polygenic; and that
modest but widespread genetic correlations exist between intelligence and
health, illness and mortality. Causal accounts of intelligence-health associations
are still poorly understood. The contribution of education and socio-economic
status -- both of which are partly genetic in origin -- to the intelligence-health
associations are being explored.
Until recently, an article on DNA-variant commonalities between intelligence
and health would have been science fiction. Thirty years ago, we did not
know that intelligence test scores were a predictor of mortality. Fifteen
years ago, there were no genome-wide association studies. It was less than
five years ago that the first molecular genetic correlations were performed
between intelligence and health outcomes. These former blanks have been
filled in; however, the fast progress and accumulation of findings in the
field of genetic cognitive epidemiology have raised more questions. Individual
differences in intelligence, as tested by psychometric tests, are quite
stable from later childhood through adulthood to older age. The diverse
cognitive test scores that are used to test mental capabilities form a multi-level
hierarchy; about 40% or more of the overall variance is captured by a general
cognitive factor with which all tests are correlated, and smaller amounts
of variance are found in more specific cognitive domains (reasoning, memory,
speed, verbal, and so forth). Twin, family and adoption studies indicated
that there was moderate to high heritability of general cognitive ability
in adulthood (from about 50–70%), with a lower heritability in childhood[4].
It has long been known that intelligence is a predictor of educational attainments
and occupational position and success
In addition to mortality, intelligence test scores are associated with
lower risk of many morbidities, such as cardiovascular disease, cerebrovascular
disease, hypertension, cancers such as lung cancer, stroke, and many others,
as obtained by self-report and objective assessment. Higher intelligence
in youth is associated at age 24 with fewer hospital admissions, lower general
medical practitioner costs, lower hospital costs, and less use of medical
services, and intelligence appeared to account for the associations between
education and such health outcomes. Higher intelligence is related to a
higher likelihood of engaging in healthier behaviours, such as not smoking,
quitting smoking, not binge drinking, having a more normal body mass index
and avoiding obesity, taking more exercise, and eating a healthier diet.
All this work launched a new field: cognitive epidemiology. When studying
health, factor in intelligence. If you read any research about a health problem,
like for example obesity, always ask yourself the question: how much of this
problem is associated with intelligence? Do they have early childhood data on
ability and health? Without that, there is probable confounding.
The associations which are found between health and intelligence could be
due to a direct genetic pathway shared by intelligence and health, and/or by
better, more educated and wealthy intelligence choices.
Genome-wide association studies transformed the field. Box 1 summarises all
the different statistical methods. This is a very good guide to the field. The
main one is GWAS, which finds regions of the genome which are correlated with
the trait in question and statistically significant at a P-value of <5 × 10−8
to control for the multiple comparison being made.
Here are all the correlations between the genetic code and health.
Table 1 here
Another part of understanding the genetic contribution to intelligence
health correlations concerns other predictors of health inequalities, and
intelligence's correlations with them. Intelligence is related to education
and socio-economic status (SES), and those were known to be related to health
inequalities before intelligence was known to have health associations.
Although education and SES are principally thought of as social-environmental
variables, both have been found to be partly heritable, by oth twin
based and molecular genetic studies, both have high genetic correlations
with intelligence, Mendelian Randomisation results show bidirectional genetic
effects between intelligence and education, and both have genetic correlations
with health outcomes
What does all this mean? It may mean that the underlying causes of health,
happiness, morbidity and mortality are unequally distributed, and favour some
people more than others. Evolution does not have to conform to our imaginings
or our notions of fairness. If genetics is a significant contributor within
a genetic group, it is plausible that it contributes to between group variance.
Perhaps the Japanese live longer because they are Japanese. This remains to
be proved, but is worth testing. If we ever achieve the noble ambition of creating
healthy environments all over the inhabited world we may yet have a residuum
of health differences due to purely genetic causes.
Meanwhile, you may be wondering what is the intelligent thing to do about
your health. Don't smoke, don't get fat, and don't read too many health warnings.
Dean
Baker at Beat-the-Press has pointed out (sorry, not able to link to it) that Associated Press
put out a tweet that presents an essentially hysterical story about future prospects for Social
Security following the recent release of the Trustees. This report says that as of 2026
Medicare and as of 2034 Social Security will face a "shortfall." However, the AP tweeted that
what they face is "insolvency." Needless to say, "insolvency" is much more serious than
"shortfall" and simply feeds the overblown hysteria that so many think about these programs,
feeding political pressures to mess with them.
The new report provides the latest update on what would happen if the forecast happens and
nothing is done. Given that the projection is that Social Security benefits are set to increase
by about 20% by 2034, if somehow nothing were done and benefits were set to be reduced so that
they could be paid by expected tax revenues, the benefit would be cut back by about that amount
to about what they are now in real terms. In short, this is not the hysterical crisis AP
suggested or that so many think is out there. We have seen this nonsense before.
Of course, Dean accurately points out that by law the benefits must be paid. This may also
be a time to remind everybody that the US is really in much better shape demographically in
terms of life expectancies, retirement ages, and expected population growth rates than most
other high income nations, with such cases as Japan and Germany in much worse shape than the
US. However, all these nations are making their public old age pension payments. In the case of
Germany the payments are higher than in the US, but the payments are being made, and its
economy is humming along very well. There simply is not basis for any of this hysteria in the
US regarding the future of Social Security.
"... "The main difficulty with choosing an investment adviser is that by the time you know enough to choose a good one, you probably know enough to do your financial planning and asset management on your own." ..."
There is no substitute to self-education. Those unwilling to learn are destined to repeat
these same mistakes. The financial-advice industry is too rife with conflicts of
interest for you to enter without equipping yourself with knowledge.
Maybe the best summation is by Dr. James M. Dahle in his book "
The White Coat Investor ." He says: "The main difficulty with choosing an investment
adviser is that by the time you know enough to choose a good one, you probably know enough to
do your financial planning and asset management on your own."
You can find
extensive information here to help you become a DIY investor. There are plenty of others
dedicated to demystifying the process of investing as well.
Take time and educate yourself. Then, if you still think you still need help with your
investments and financial planning, go out armed with knowledge and find a financial adviser
that fits your needs.
Chris Mamula used principles of traditional retirement planning, combined with
creative lifestyle design, to retire from a career as a physical therapist at age 41. This was
first published on the blog site Can I
Retire Yet?
"... The maximum monthly social security benefit is $3,538. caught my eye, though. ..."
"... The system was designed with psychological, political intent. The idea was that the program would be impossible for conservatives to eliminate because all wage earners would feel entitled to pensions that they themselves had paid for (though strictly speaking it is a pure tax and your taxes are paid to current retirees). ..."
"... I was in Hawaii recently and watching that was .well .interesting. You walk around and see extraordinary opulence, often gluttony really, and at the same time all those homeless. Yes, I do know the story about them, but, still Plenty of those, apparently, vets. ..."
Social Security benefits are based on your lifetime contributions and what age you choose
to begin taking them. So a higher earner will get more benefits (up to the cap, around $106k
if memory serves) than a modest earner–simply because he paid more into the system.
You can elect to take benefits as early as 62, or as later as 70.5.
The system was designed with psychological, political intent. The idea was that the
program would be impossible for conservatives to eliminate because all wage earners would
feel entitled to pensions that they themselves had paid for (though strictly speaking it is a
pure tax and your taxes are paid to current retirees).
In act early economists recommend the system be funded out of general revenues and said
there was no need for a payroll tax. FDR said he wanted people to take ownership in the
system so no one could ever destroy the system.
It is remarkably effective. It's remarkable effective and neither Ronald Reagan nor George
W Bush lasted more than a few weeks when they tried to roll back the system.
The only wins conservatives have scored against it are taxing some of the benefits (began
in the 80s) and making some changes to cost-of-living inflation adjustments in the 90s. It's
called the third rail of politics here and every old person is outraged by any suggestion
that benefits should be reduced. There is however a lot of propaganda about the alleged
future unaffordability of the system, and it now strikes me that there is an elite consensus
in favor of modifying the system to reduce benefits.
It's "known" that the US "social safety net" is the worst in West.
I mean, with that amount of available money provided by the State , how do we see all
that visible homelessness and poverty in US? I know that drugs and alcohol, with general
stupidity, can do that.
I guess my question is:
A family of four, breadwinner losing his/her job (offshoring, outsourcing, downsizing)
getting on that "net", renting would they lose their accommodation and effectively have
problem with food, shelter and medical help, while on that net while finding another job?
And, how long can they be on that net?
I know I can read about that a lot, but condensed info from a person on the ground there
would be much more helpful.
As a general rule of thumb the safety net is very weak for those in the middle class,
whereas in many other Western countries there are universal social insurance systems intended
to cover everyone regardless of income. Healthcare is an obvious one across the West, and
much ink has been spilled about the outrageous cost of college in America. The government's
safety net here is simply to allow young folks to go into unlimited state-guaranteed
debt.
Something of a stealth middle class safety net is provided by the corporate sector in the
form of health insurance, pensions, maternity leave, etc. This has been reduced since the 80s
but still exist, and government tax policy encourages it. As an example if you leave your
employer you have the right to keep your employer-sponsored health insurance through
something called COBRA.
A number of programs also exist to provide tax-deferred investment accounts for various
social purposes. These are available for retirement, healthcare, and higher education. The
programs cost the government nothing in expenditures, but reduce tax revenue (probably by
less than the public benefit however).
There is much more of a safety net for the poorer classes, but as a general rule of thumb
many of these programs run through women since they're dependent on the number of children
you have (and, of course, household income). If you're a single man or your baby mamma
doesn't want you around anymore, tough luck.
Programs that exist for the poor include:
Additionally some of the states have additional welfare programs.
Actual cash transfers to the poor have largely been abolished since the 90s, though the
Obama Administration revived them in stealth form by greatly expanding disability
payments.
As far as the homeless go, if you see them in the winter in cold cities they're probably
mentally ill.
If they're somewhere warm that's still possible, though then there are other factors such
as a lifestyle choice, temporarily down on luck, single man unable to find any work or
charity, etc.
Type of beneficiary
Beneficiaries
Total monthly benefits (millions of dollars)
Average monthly benefit (dollars)
Number (thousands)
Percent
Total
61,984
100.0
79,988
1,290.46 Average Benefit
The table format does not paste correctly. See the table here:
Comprehensive and informative.
Didn't know a couple of things.
there is an elite consensus in favor of modifying the system to reduce benefits.
Of course. It's the in their nature.
As a general rule of thumb the safety net is very weak for those in the middle class,
whereas in many other Western countries there are universal social insurance systems
intended to cover everyone regardless of income.
Interesting re former and true around here re later. The level of "assistance" depends on
assessed needs of a person/family, not on their previous income.
There is much more of a safety net for the poorer classes, but as a general rule of
thumb many of these programs run through women since they're dependent on the number of
children you have (and, of course, household income). If you're a single man or your baby
mamma doesn't want you around anymore, tough luck.
And
single man unable to find any work or charity, etc.
Interesting too. I will sound simplistic and naive, but it's really hard to reconcile those extremes in
US.
I mean, I have no problem with capable, talented, or just ruthless and greedy, or just lucky,
having all those zillions. Good on them.
But, at the same time, in the same place, people who are going through the trash cans.
Yes, I've heard all the explanations, all sound very reasonable, some don't even understand
(stupid me), but , still
I was in Hawaii recently and watching that was .well .interesting.
You walk around and see extraordinary opulence, often gluttony really, and at the same time
all those homeless. Yes, I do know the story about them, but, still
Plenty of those, apparently, vets.
I haven't got the slightest how to fix that, or even is it possible, but, still
..something simply does not compute.
Still, a couple of things are eluding me.
I'll use an example:
A man, single, late 20s, professional, worked in, say, corporate environment, got
"restructured/downsized/outsourced". Salary at the time of being "let go" around 80K. Worked
in similar capacity for, say, 6 years. Renting, of course. No savings (kid likes to
travel).
So, where I am, well, he does get an "assistance" which will pay for a rent, 3 decent meals
per day and he'll have a (state, not private, of course), medical help. Especially in
emergencies. And this can last for quite a while, actually.
Bottom line, no need to be homeless, no need to be hungry, and he'll get the basic and
emergency medical help.
All the rest, well, that's precisely the initiative to get a job, and do it fast. I mean, not
much fun living like that. But, at the same time, no need to sleep rough, beg and go through
trash cans.
I will sound simplistic and naive, but it's really hard to reconcile those extremes in
US.
I mean, I have no problem with capable, talented, or just ruthless and greedy, or just
lucky, having all those zillions. Good on them.
But, at the same time, in the same place, people who are going through the trash cans.
Yes, I've heard all the explanations, all sound very reasonable, some don't even understand
(stupid me), but , still
It's a political choice, pure and simple. And some of the political choices are unrelated
to the welfare state–some municipalities have statutes against vagrancy and enforce
them. Others don't.
I was in Hawaii recently and watching that was .well .interesting.
You walk around and see extraordinary opulence, often gluttony really, and at the same time
all those homeless. Yes, I do know the story about them, but, still
Plenty of those, apparently, vets.
Hawaii, for obvious reasons, is a place with a lot of voluntary homeless. The state has
been trying to get rid of them by buying them tickets to the mainland.
Many other voluntary homeless are found in California, Colorado, and Las Vegas. The
California ones may be quasi-involuntary as it seems many arrived from the Midwest to get
into paid rehab programs, then after running out of money moved into tent cities. But they
weren't homeless in the Midwest and panhandling enough for a Greyhound bus ticket is not hard
(though embarrassing, or at least it would be for me).
Bear in mind that Americans also donate a lot to charity, both in absolute and per capita
terms. So almost every community (besides rich-only suburbs) has a food bank which people
donate to, even if there's no social need for it. My secretary for instance is a very kind
person and as such is always trying to organize canned food drives for the food bank. The
many users of the food bank are what Victorians would call the undeserving poor who are
already on the federal SNAP program. The food bank lets them increase their purchases of
marketable commodities (such as soda), which can then be traded for supplies not covered by
the SNAP program (alcohol, tobacco, and illegal drugs).
Note that my community does not have homeless people as it's a rural small town.
Lots of churches, including here, will also do things such as offer free Thanksgiving and
Christmas dinners to the indigent and purchase toys for their children.
Larger cities have a mix of public and private homeless shelters. There generally isn't
enough capacity for all homeless, but that works as many homeless don't like the rules these
shelters impose.
So.. the same guy in US, how would that look like?
First, you are dealing with 50 different systems. Only Social Security is uniform
throughout the country.
As a general rule an able-bodied male would receive no permanent assistance in a state
like mine (Alabama).
He could get unemployment compensation for 26 weeks provided he complied with the job
search rules.
Other than pregnant women, adults in Alabama do not receive Medicare so if he was unable
to pay his Cobra insurance premiums he would have no insurance. There are public health
clinics but the availability varies by county.
Many that are under 62 try to get approved for Social Security Disability. It is a bit of
a racket. The rate goes up during times of high unemployment and is trending higher even
though most jobs are less physically demanding. "Mental" disability is one of the best
tickets available. This is the route most druggies take.
Playing it straight is a real disadvantage. As a general rule people lose assistance as
they earn more. As was pointed out, the ones who do not work and have no "income," wink,
wink, do best with regard to the available assistance.
Many of the "homeless" have mental, alcohol or drug problems (or all three) plus the
charitable organizations devoted to providing services for the homeless are extensive. Around
the cities free meals are widely available.
"... Canada is as neoliberal as almost anywhere else in the Anglo developed world. You can think of us as being just like the USA or UK, but about a decade behind in the adoption of dumb and cruel ideas. In the Anglo neoliberal family, Canada is the slightly retarded little sibling. ..."
"... Ireland allows you to claim citizenship if you have an Irish grandparent (with some caveats). Many US and Canadians use this to work/settle in the EU. A Chicago friend who was working in London and HK got her Irish passport without ever bothering to visit Ireland. ..."
"... Yves, Sweden might take you, if you can take the winters the requirements for self-employed residence permits aren't too harsh. So far they've managed to not overdo it on neoliberalism, although there are forces that sure try to make it happen. ..."
"... I also live near San Miguel de Allende in a small, agricultural Mexican community perched on the side of an extinct volcano. I pretty much avoid the expat scene, shop in the mercados, hang with Mexican friends and am thoroughly enjoying soaking in this wonderful way of life. I made this move at age 70. ..."
"... When I'm in Mexico the feeling is of constantly hitting my head against a glass ceiling and biting my tongue. ..."
"... But for the love of God, stay on the beaten tourist path (SMA-Oaxaca City-Cholula etc.). Don't go into Guerrero except maybe Taxco. I was just in Chilpancingo for a professional event, taking every precaution, and the stories you hear first hand are horrifying. The security situation in Mexico is deteriorating badly. ..."
"... Even states like Puebla that used to be safe are seeing kidnappings and other extreme crime. If you speak Spanish, the issue of security it is utterly unavoidable, it creeps into many conversations and dominates the local news. ..."
"... 'According to Pew Charitable Trusts, only 13 percent of Baby Boomers still have [defined benefit pensions].' ..."
"... This 13 percent remnant overwhelmingly consists of government employees, whose defined benefit pensions are uniformly underfunded (and even understated as to HOW underfunded they are). ..."
"... I had a work colleague from Sweden. She had been a school teacher there and came to the U.S. to sell financial products, make a lot of money and avoid Swedish taxes. I asked her if she were going to become a U.S. citizen. She looked at me like I was crazy, laughed and said, "Hell no, I would never wish to be old in America." ..."
"... From my perch, if any Americans want to make the move, I would say over the next decade before that door closes. The regulations are already tightening up such as making sure that you owe no taxes or the like before you leave. More Americans are now renouncing their citizenship as America still want to tax them even when they have moved away. After this decade, I regret to say, that America will be no country for old people. ..."
"... And speaking of inequality, most countries have far worse inequality than the US and it is savage and painful to watch when your security guard finishes a 12 hour shift and then starts another 12 hour shift across the street. ..."
"... By the way don't get me started on the cost of healthcare. It's cheap until you run into a major complication. I had surgery in Peru for something minor and the total bill was over $5000 USD. Imagine if it were heart surgery. My expat insurance paid it but you can't get that if you're over a certain age. ..."
Canada is as neoliberal as almost anywhere else in the Anglo developed world. You can think of us as being just like the
USA or UK, but about a decade behind in the adoption of dumb and cruel ideas. In the Anglo neoliberal family, Canada is the slightly
retarded little sibling.
The cost of living is high in Canadian cities. In Vancouver and Toronto, the cost of living has soared out of any sort of proportion
to employment incomes. Affordable rental housing is often infested with bedbugs or other vermin (Vancouver alleyways are strewn
with stained mattresses and other abandoned furniture). Beggars are seen everywhere, while the Teslas and Lexuses roll past. Not
a day goes by that I don't see elderly persons climbing in and out of dumpsters. Permanent shantytowns have arisen on the outskirts.
We got almost the same opiates problem as the USA.
The province of Quebec used to be more social-democratic in orientation than other parts of Canada. But even the Quebecois
seem to have caught the mental and spiritual diseases of the globalist bourgeoisie. I recently spent a month in Montreal, and
was aghast to see the staircases of downtown Metro stations rendered almost impassable by the large numbers of homeless men and
women trying to sleep there.
My younger relatives look at me very sceptically, when I tell them that as late as 1990, a beggar was an unusual sight in Vancouver.
Of course, people born since that time would think that what you see today is normal .
We were at a commercial hot springs somewhere in France about 15 years ago, and it cost around $5 to go in, and before entering,
there was a doctor and nurse that checked your blood pressure, etc., for no extra charge. It was so over the top in terms of anything
compared to here, in a delightful way.
In France, doctors make a lot less than in the US, particularly general practitioners. The GP doctors make on the order of
what a senior manager or engineer makes.
There are good reasons for that (among them free education for doctors and a totally different societal attitude towards healthcare,
based on SOLIDARITY – whose outcome is a more reasonable cost and coverage. Yes, they also do use that word a lot in general public
discourse, in many European countries. Have you heard the word SOLIDARITY in the US in public discourse, ever?).
A good summary of that and meaningful comparisons with other nations' healthcare systems is provided in the book 'The Healing
of America: A Global Quest for Better, Cheaper, and Fairer Health Care' by T. R. Reid.
Don't worry, Marcon and Merkel are accelerating the crapification of France and the wider EU. The next generation will get
to experience the joys of economic and health insecurity in abundance.
the main project now is to gut the public pensions. the PIIGS countries have already had to slash theirs, so the plan now is
to bring the rest of Europe to Canadian levels (retirement age at 67 or higher with a minimal state component).
By the way, it is not widely known for example that the retirement age in Russia is 60. And, judging by the tens of thousands
of healthy and active Russian retirees (these are teachers and professional workers, "middle class" people, not oligarchs – those
go to Monaco and Switzerland of course) living on the Black Sea coast of Bulgaria (mild winters, culturally and geographically
close, inexpensive by developed world standards, gateway to the EU), their pensions cannot be that bad.
And no, they don't look like they are about to die at 65.
So, take that, dear future US retirees (myself in that number).
Wikipedia says the retirement age in Russia is 60 for men, and 55 for women !!! My personal family practice physician is a
Russian immigrant and pre-GFC she claimed, "Most Russian men die before 60. (Wikipedia now says 70.91) Next time I see her I may
ask her about Russian retirement, and life expectancy etc. Another topic is the prevailing attitude of Russian immigrants when
they came to America. They really expected to clean up! I'd be interested in what other NC readers think about this.
Certainly
I can imagine the distress of Russian immigrants who through a lot to move to the US only to find by age 60–55 for women–they
might have been better off being back in Russia.
Indeed, the Black Sea coast is overran by Russkies, younger ones as well. The countryside is where the Brits move to to feel
like country squires on the cheap. And Americans are concentrated in Sofia, doing the heavy lifting of pretending to be civilising
the natives while securing staging areas for the future war against Russia. It's all one big happy international family :) Can't
wait to move back there permanently in 30 months.
They should allow Medicare to be used outside the US, especially for low cost countries in the Third World. They are cheaper
and just as good as the US for many medical services – maybe not for transplants but for heart bypasses, dialysis, etc., they
are ok.
correct: medicare cannot be used outside the u.s.
we are retirees living abroad much of the year. our secondary insurance (which we are lucky enough to have from former teaching
job) becomes our primary insurance. we submit bills to them and they pay (reimburse) fairly well.
we use local doctors and clinics at much lower rates than in the u.s.
emergency medical care in europe is nearly always free or all but free.
We've been to Ecuador twice in the last 4 years exploring retirement there – and decided against it. For a combination of reasons.
1. In spite of what gets touted in the retirement media, for the most part Ecuador is a third world country with everything
that entails.
2. The much ballyhood Cuenca is in an Andes plateau at 8,000 ft. elevation. Not a fan, and it's isolated, if you want to get
out of Cuenca there's a lot of nowhere to go. Cuenca has been haggling with airlines to get some service providers since TAME
cancelled its routes, that's been a constant and ongoing problem.
3. I liked Quito, It's at 9,000 ft. I really couldn't take it.
4. The coast is a very narrow strip of land at the bottom of the mountains, and outside of a couple of areas it's a backwater.
Little infrastructure, few services, dirt poor. The north coast of Ecuador (we call it the mosquito zone) shook down in a 7.8
earthquake in 2016 that wrecked everything from Manta to the Colombian border.
5. Ecuador completely overhauled its visa laws in February of this year making it much more difficult to get any kind of permanent
residency permit, and requiring all visa applicants to provide proof of personal health insurance to qualify for a visa.
6. Ecuador isn't cheap. They levy enormous taxes on almost everything that's imported, which is just about everything but food.
Impossible to get packages and mail in or out.
'Studies' have shown that the majority of pensioners who retire there, leave and go back home or somewhere else within 5 years.
American individualism is a recent myth. I remember how my grandmother who grew up in rural Montana a century ago could rattle
off the names of various second cousins, to say nothing of all the family stories. Life then was rugged but it was not individualistic.
Perhaps one can acquire new pals at the age of 70, as as not to be a lonely old man/woman.
Or are you just a Yankee with money?
And hopefully the new country is so subdued by the super power that there is no need to liberate it. For example, Libya, a
few years ago, would not have been a good choice, in this respect.
If you choose traditional medicare instead of a medicare advantage plan , I don't understand how it would narrow your network.
Traditional medicare is universal in the US and accepted by most providers. I've been on traditional medicare for16 years and
haven't had a provider that doesn't accept traditional medicare.
I wonder if that is regional. Where I live(south), I never see a problem with that.
My PCP when I asked him as I approached 65, replied, that of course he accepted medicare, that there was little difference
between it and other insurance, and that folks who did not accept medicare were immoral in his view.
I think out here in flyover it is less common for doctors to not take Medicare patients. My elderly father moved out here 1.5
years ago and has made considerable use of the excellent resources of the UW health system. His secondary private insurance covers
very little since he is out-of-network but Medicare has covered virtually everything and no expert has refused to see him (urology,
throat/swallowing, dementia, macular degeneration, etc.) due to being Medicare insured. I am pretty sure the entire Mayo Clinic
operation takes Medicare patients also.
It may be that independent docs are refusing Medicare patients but there are fewer and fewer of those out here.
A lot of doctors do not accept Medicare. My current MD does not. I think that is even more true of specialists.
And I am not in a network. I have an old-fashioned indemnity plan. I can see any doctor, anywhere in the world. I submitted
claims for 2 years from Australia, and have also submitted claims from the UK and Thailand.
it happens around this southern city . scary stuff, my first world problems may turn into third world problems. trying to imagine
being 70, living in a van, queing up for a chance at a valuable temp gig in an amazon warehouse.
I would have thought so, too. Certainly the media I have read has lead me to believe that many doctors don't accept Medicare.
I wondered what the percentages were so I did a search. Surprising to me. More nuance than one might think in the results -- seems
you can "accept" at finer-grained levels than one might assume in a Federal program. Here's what seems to be a reasonably objective
and recent appraisal: http://www.factcheck.org/2017/03/medicaids-doctor-participation-rates/
Anecdotal reply from the few doctors I have seen: They state they accept Medicare because it pays them quickly and there is
less paperwork than with most insurance companies, which results in less office overhead. Even with the lower payments from Medicare
for many procedures, the doctors do OK when the big picture is examined.
One of my docs accepts no insurance. But he will file the Medicare claim. I pay him and Medicare sends me a check. It's a little
unwieldy but he's a good doc (in my completely unprofessional opinion) so I put up with it. Others don't and go to other docs.
Physicians in private practice often do not accept Medicare or Medicaid do to billing issues. These are usually older doctors
with established practices. Younger physicians often end up working as employees of large chain hospitals to stay solvent, and
they will accept any form of payment.
I now live in Portugal. The quality of life is high, and cost of living quite low (though Lisbon has become pricey in terms
of property).
A few months ago I sustained a cut that wasn't healing well, and decided to visit a private walk-in clinic. It was clean, modern,
and there was virtually no wait. The nurse took care of me, as no doctor was required. She spent about twenty minutes cleaning
and dressing the wound, and gave me some extra waterproof bandages to take home.
The cost? Six Euros. You read that correctly: Six Euros.
To the issue of cost of living, I was in Portugal last week and had a myocardial infarction upon seeing petrol prices at 1.55€/litre.
Good thing is not only are there excellent public hospitals for such MIs, but the extremely relaxed recreational pharmaceuticals
policy makes for good prevention as well.
Where I live a liter is about .48 euro if I have my conversion right. So retirees here do catch some breaks. Also there's no
VAT although we do of course have sales tax. And finally many US retirees fully own their homes whereas in, say, Germany almost
everybody rents. Indeed I'd say that so far the US elderly have it easy compared to the millenials who are the ones really getting
screwed. Just reading an article the other day about the record number of millenials living with their parents or, undoubtedly,
their grandparents.
And finally I've read Nomadland and should be said that many of those older people wandering around the country do so by choice.
RVs are not cheap. A new one can cost as much as a house. Amazon prefers to hire these people for their work ethic and because
they bring their own housing with them which is handy for a temporary workforce. Amazon even tries to sugarcoat the exploitation
by making a kind of club out of it called CamperForce.
Home ownership in Germany is 52% and it is below 45% in Switzerland. It is 65-75% in almost all other rich countries including
the US. It is actually around 85% in Russia and 90% in Cuba although the amenities are not quite the same.
As a Swiss I can say that it does not pay to own your house outright. The way our taxes are structured you are cash ahead to
carry your mortgage in perpetuity. It is a nice gift for our banks.
Many 'Mericans say they own their home, but actually the bank (mortgage) owns the home. They're simply trying to improve their
equity (and freedom to paint it whatever color they please) in the home.
I've owned (completely mortgage free) several homes, and between crazy neighbors, time involved in upkeep, and property tax
the best hope is to sell them to a greater fool. (Price appreciation.) Spending over half of one's income on a home mortgage and
hoping the next generation will buy it when it's time to move on is more risky than many other "investments".
I was in Italy this year, in a remote part where you really needed a car to get around. The diesel prices were shocking, but
the small car efficiency actually balanced out the price. I don't think I spent any more per mile than I did in the US. For reference,
I drive a 4 cylinder Toyota which is not exactly a gas guzzler here.
My mom gave me her checkbook register from mid 1961-62 a few years ago, and for a family of 6, there was a total of $88 paid
to Dr. Evers, our family physician. My coming out party was $190.
The checks were mostly $6 and $7, with one $14 whopper.
I asked my mom if we had health insurance, and she told me that aside from a few that had Kaiser, nobody had health insurance
back in those days.
Health insurance was not as critical in those days. The low prices you quote for day to day purchases could also be found in
the healthcare of the day. Not the inflated prices we have now. Same with education. I recall seeing old tuition receipts from
my university that maxed out at a few hundred dollars per semester in the 1950's.
My dad's brother was a physician, an old-fashioned family doctor whose office was in his home and who made house calls. This
was in the 1940's and 50's. Many of his patients paid 'in kind;' although he lived in the city, people still had large gardens
or lived on outlying small farms, and in August and September especially, my aunt would routinely find boxes of fresh fruits and
veggies on their porch. She joked that she was kept busy canning and preserving for at least three months of the year.
Actually, there are some avenues available for some, depending on ancestry, but work is required.
My father was born in Europe, and, after three years and the help of an inexpensive lawyer, I was able to gain a second citizenship.
That, in turn, allowed me to live in Europe.
I believe that Ireland has fairly liberal rules along these lines, but it is worth checking into it no matter what foreign
country one's parents were born.
Won't even remotely work for me. I'm from old and undistinguished stock. All my grandparents were born in the US and three
of my four grandparents have gene pools that go back to before the Revolution (two English, one bizarrely Hungarian).
If you could speak Hungarian (which would be a feat ), you could apply for Hungarian passport by ancestry (assuming you can
track your Hungarian roots with sufficient documentation). That would open all of EU, and I think you might like Berlin
No, my Hungarian ancestors have supposedly been here over 200 years, plus my mother was terrified of both her parents, in particular
her Hungarian father, who was estranged from the rest of his family, and so she knows nothing about his ancestors. The claim was
they came to help fight in the Revolutionary War and stayed. That's likely family urban legend, but my mother is pretty sure his
parents were born here too.
Ireland allows you to claim citizenship
if you have an Irish grandparent (with some caveats). Many US and Canadians use this to work/settle in the EU. A Chicago friend
who was working in London and HK got her Irish passport without ever bothering to visit Ireland.
Easy enough within the EU of course – there are huge numbers of northern European retirees living on the Med and in Portugal.
But plenty of Britons are finding out to their horror they are very vulnerable to both Brexit and a weakening sterling.
I've not looked into the visa side of things, but some Asian countries target retirees as a source of investment in rural areas.
I don't know if it still does, but Taiwan used to market itself to Japanese retirees as a cheap place to move with your yen pensions.
There are a lot of retirement developments in Thailand and elsewhere, marketed on cheap property and good quality health systems.
They seem to aim mostly at Europeans and Japanese.
Mexico. I have friends (gay, married; a retired nurse and retired librarian), who moved there full-time 3 years ago after 30+
years in NYC, and nearly 15 years of periodic vacations all over Mexico, to consider possible locations. They moved to a medium-sized
city about 3 hours by bus from Mexico City, somewhat off the beaten path of the usual expat communities. Very affordable, and
permanent residency is not a problem. Mexico City is very affordable, very good subway system, and has lots of things to do if
you're retired and need to fill up a day. Over their years of visits, they built up a network of friends and connections, and
have found good local doctors and dentists. One is fluent in Spanish, the other not so much.
To me, another thing that makes the US horrible and expensive for older people (among other groups) is the virtual requirement
for a car. Outside of a few major metro areas you're basically screwed without one. Part of why I encourage my mother to move
back to Germany after my father passed away (even though she drives now and has a car) she can get basically anywhere in Europe
without needing to get behind the wheel.
Yves, Sweden might take you, if you can take the winters the requirements for self-employed residence permits aren't too harsh.
So far they've managed to not overdo it on neoliberalism, although there are forces that sure try to make it happen.
Thanks for the link. These bits from "Requirements for obtaining a residence permit as a self-employed" do seem a bit daunting,
though: "show that you have established customer contacts and/or a network in Sweden", and "show that the business' services or
goods are sold and/or produced in Sweden". This would be tough for us, since our main business now is fiber arts (weaving, etc.)
and farming, all very local things. I do some part-time programming but that's also quite local.
Fifteen years ago, I qualified for NZ immigration, just barely. Now I'm too old (their points system penalizes you on age).
Sad, really, since I spent a year in NZ as a child, went to school there, went on camping trips and adored the landscape, etc.
I still consider it my first home.
When Bush got appointed the second time in 2005 we made the move to Australia and boy are we glad we did.
The concerns about family and friends cited here are real but we have adjusted and Aussies are very easy and welcoming as new
friends.
We recently dropped our "private health coverage" which is essentially an American-style system that sits atop the existing
public system. So when my son recently had a non-serious health problem we were really astonished when, at 2 hours' notice, a
doctor showed up at our house to treat him. Bill? Zero. All of the health care we've received here has been top-notch.
Not mentioned in the article is that many countries, especially in Asia, are not ageist . Employers actually value and
respect the experience and wisdom older workers bring.
But my view is that the only hope is to hijack the politics of everything in the U.S., the richest country on Earth
has more than enough money to solve its woes. So pick a single issue, a simple one that everybody can understand, one that is
so destructive and hateful and wasteful that everybody can get behind it, and organize. Can I suggest Permanent War ? Maybe
mention the $21 trillion that went missing at the Pentagon in the last decade? Maybe help people understand that the
enemy (Osama, ISIS) is dead ? Show them a quick chart and ask them to pick which one they want to buy , an electronic
gun that can shoot Middle Eastern goat herders from space, or 25 new hospitals.
Stop the War. It's what worked in the 60's, and it can work again. A New Peace Dividend that can be spent on the things people
are crying out for like retirement and health care. Leave out all of the other divisive stuff like gender and race and abortions
and green energy and net neutrality. The party platform has one item on it: Stop The War. Peace, Bread, and Land.
Yes, the trick is getting to Canada and Quebec at my advanced age. I know the provinces have job categories where they are
seeking workers, otherwise my impression is it's by points, and I fail on that. The only way in might be if I got some sort of
teaching post at one of the unis for something where my background would add something they couldn't get locally.
I speak French. The spousal unit is learning. The cats picked it up quickly ;^) They are quite happy being "minous", rather
than kitties.
Actually in Montreal you can get by fine with English only in the West Island. I have anglophone colleagues who only speak English.
this is so true. 2 or more cars per household, and the ridiculous quantities of meat in their diet, are probably the two main
reasons why americans consume more than twice as much as the EU average.
I lived in Sweden for 6 months (as an EU citizen). There is indeed a lot going for it but there are a lot of issues too that
don't get media attention. As a Professor in Uppsala I was warned by a friendly local that "even if you were a Stockholm-based
immigrant to here you'd find it difficult to integrate". This was not due to any latent racism or anything like that – merely
that Swedes have quite an ingrained way of "putting down roots" (compared to, say, Denmark). So I was warned that socialising
means many many weeks of doing the coffee and cakes thing, then, if things go well, you may get invited out for a drink in a bar,
then again, if weeks of that work you may get an invite for a home visit.
It's tough – and I was someone who (unlike many anglos) was keen to learn the language so as to fit in better – though (of
course) Swedes typically have brilliant English you can't expect them all to speak it exclusively in a social context just to
accommodate you. So I witnessed Europeans (central, southern and western) tended not to integrate well and instead formed their
own groups. Furthermore Swedish healthcare, although overall cheap and good, does not do well on the "integrated care" front –
IIRC (don't have reference to hand) some "official" comparisons of industrialised countries bear this out and its ranking dropped
several places due to this issue.
It was incredibly difficult (even with employer sponsorship) to get Aussie permanent residency .but the "final hurdle" of citizenship
was a cinch (given that most of the "benefit" is accrued through PR, not citizenship) .I don't think any non-North American industrialised
country is unequivocally "better" – you decide what you want most and what you'll compromise on and take your choice. I'm probably
going to get citizenship of a 3rd country (Ireland – not cheap but I'm entitled to it via Irish mother and Irish paternal grandfather)
to hedge my bets if my company stays afloat but I have enough relatives there to know it has its own set of issues.
Agree on the integration part, but if you know this going in I think it's a bit more manageable (you learn not to take it personally,
that's just the way Swedes are, and it's definitely not universal). It also helps to join activity groups – they're into that
in a major way.
There are also large ex-pat communities in towns and cities of virtually any size. My circle of friends and acquaintances is
a Sesame Street-like cast of people from all over Europe, the Americas, Africa, and Asia who have all moved here to study and
work. Many of us speak Swedish with full professional fluency, hold dual-citizenship and regularly consume Swedish media but have
found other transplants to be among the most welcoming and have gravitated towards each other for that reason.
Oh, this is an entrepreneurial visa. That's; how I got into Oz but they shut that down. They typically require that you show sufficient net worth to fund a business and you need to generate a certain level of domestic
revenues and/or employment to stay.
The way "in Sweden" is tacked on at the end regarding where you make money makes it a little vague as to which part of the
and/or it applies to. I think they also do a reasonable job of looking at the whole case and would understand someone making a
living online or remotely. They just want you to pay tax here. If you haven't done the conversion already, 200,000 SEK is around
25,000 USD at today's rate, which I think is pretty modest from my vague knowledge of this type of visa in other parts of the
world.
But like I said, in my experience Migrationverket is quite polite, professional and even welcoming when you deal with them,
so it de worth contacting them if you're interested.
Aaw, that's really kind! And I am 1/4 Swedish if that at all helps, although my grandmother was born here (her father came
over and then had kids here after he got established).
I emailed one of our corporate attorneys today, he's been with the company since the early 1990s, and Outlook told me he resigned
on 12/8. I asked someone about it, and they said, yeah, he's moving to Sweden. I'm dying to find out why, and what he's going
to do.
It's the tax and treasury account compliance that stops many and causes more to renounce US citizenship combined with many
European banks refusing to do business with Americans that make expatriating very difficult. It's a feature and not a bug as Lambert
would say
FATCA has been a source of unending critical trouble for expatriates from the USA but also bureaucratic hassle for non-US citizens
who have strictly nothing to do with the USA.
I live 2 miles outside of San Miguel de Allende in the state of Guanajuato, Mexico. It's been voted the best tourist city in
the world by several magazines a little Paris. Settling here was tough, and ultimately I had to become functional in Spanish to
get the 13 year lease at $500/mo for a 4 bedroom 3 1/2 bath, needs work house, on 2 acres, since my landlord doesn't speak English.
But I live far and away better than I could in the US, on 1/3d to 1/2 of the cost. I am living in the only sustainable place of
my life pretty friendly, pretty clean, awfully nice a veritable garden of fireflies, butterflies, bird life, decent animal husbandry,
up against the mountains, much in nature reserve. There is excellent medical care at reasonable prices. I am 8 hours from the
US border if I have serious Medicare needs. Town offers wonderful food, luxuries, entertainment if I want to go in. Down here
we say, thank god people in the US are afraid and ignorant of Mexico. It keeps them away.
There is a lot of hand wringing in the Mexican press about how American and Canadian retirees have gentrified and de-Mexicanized
San Miguel de Allende. If the shit ever hits the fan, at the very least I would want my immigration papers in order, but really
I just would rather not be there.
Plus, quality major healthcare (the kind that a 65+ person may need suddenly at any time) is not cheap in Mexico and the Mexican
government has made it much harder for new arrivals to get onto the Institute of Medicine and Social Security.
When you add in the very high levels of xenophobia in Mexico (just look at how the Central Americans and even Mexican Americans
are treated) and deteriorating security situation in more and more states it is a risky proposition. I would not want my mom to
move there.
We take their low wage huddled masses and they get our gentry who benefited from paying low wages. It's win win! Or a stupid
circle jerk. Not sure which.
Unfortunately given escalating healthcare costs in Mexico, plus the same xenophobia as ever, they're much less keen on taking
our huddled masses. Plus they have a big problem now with American retirees who are trying to live on less than $1000 a month
in US social security, well under the approx $2500 month required to get a retiree visa, who can no longer return to the US for
healthcare or family visits because they can't even afford the bus ticket and might not be let back into Mexico because of their
massive immigration violations.
I think that's part of the problem. America is more and more reluctant to take in the huddled Mexican masses which means that
these huddled Mexican masses may begrudge more and more the privileged gringos who make the trip down south.
I also live near San Miguel de Allende in a small, agricultural Mexican community perched on the side of an extinct volcano.
I pretty much avoid the expat scene, shop in the mercados, hang with Mexican friends and am thoroughly enjoying soaking in this
wonderful way of life. I made this move at age 70.
Certainly, this required a major adjustment. It's not like moving from Boston to Tucson. It's more like moving to a different
universe. But if a person is open, hangs loose and finds someone to help work through the ins and outs of the immigration process,
it's not all that difficult.
My health insurance is free because of my age and health care here puts the emphasis on *care*. An acquaintance had a knee
replacement and the total out-of-pocket cost to her was 3300 pesos – about 170 usd. The entire surgical team came into her room
and introduced themselves before the procedure. The surgeon was top notch and she is fully functional with no pain for the first
time in years.
I've taken road trips from Chihuahua to Oaxaca alone with my dogs and have never felt unsafe. There are certain roads in Guerrero,
certain parts of Mexico City, etc that I avoid because it's just common sense. I did the same in parts of NYC and Albuquerque.
It was clear to me that I would outlast my savings if I'd stayed in the US. Here, I can afford to live here modestly but comfortably.
I have a Spanish tutor and I can get by. I am obviously a gringa but when Mexicans speak English to me and I answer in Spanish,
they smile and everything changes. People here are kind, polite and, if you don't behave like the proverbial "ugly American" (some
expats do, unfortunately), you may find yourself treated like family. And the way of life, the quality of the food, so many things
have had a hugely positive effect on my health. My borderline hypertension has given way to BP numbers I haven't seen since I
was in my 20s – and I take no pharmaceuticals.
I lived all over the US before moving here. I have no intention of going back. I'm eligible to become a Mexican citizen soon
and I will do so. Whether I renounce my US citizenship remains to be seen. I haven't been back to the US since moving here so
.
I speak Spanish at a near-native level (started learning as a child and lived years in Latin America).
My sincere advice is don't learn much more, if you're happy now, just keep being happy. If you're able to understand better
the world around you, the glow will rub off and you'll likely find that you are not in fact being treated as family but as a guest.
I once spent a year in South East Asia and made a conscious decision not to get too involved, and loved it. I pretty much had
the same experience you're having in Mexico. When I'm in Mexico the feeling is of constantly hitting my head against a glass ceiling
and biting my tongue.
The wonderful thing about not speaking the language is it's an automatic filter. Only people who like foreigners talk with
you and you are constantly in the position of wonderful people helping you out, because you need help.
But for the love of God, stay on the beaten tourist path (SMA-Oaxaca City-Cholula etc.). Don't go into Guerrero except maybe
Taxco. I was just in Chilpancingo for a professional event, taking every precaution, and the stories you hear first hand are horrifying.
The security situation in Mexico is deteriorating badly.
Even states like Puebla that used to be safe are seeing kidnappings and other extreme crime. If you speak Spanish, the issue
of security it is utterly unavoidable, it creeps into many conversations and dominates the local news.
because there isn't a lot of evidence most labor gets a very good return for crossing borders (like maybe all the low paid
mexican immigrant laborers with no rights for example?). Well yes and maybe it's better for them than staying put, but it isn't
any kind of good life. Most labor, even most skilled labor, is a lot closer to that "dime a dozen" bucket than any kind of name
your own price bucket. As individuals labor just doesn't have much power, now maybe labor movements need to cross borders have
all the workers at whole companies emigrate even.
Yes, I agree that in many cases labor doesn't necessarily win by moving in the real world. My comment was more on philosophical
level – and somewhat a spin on the NC concept of "because markets" – in an ideal world countries would compete on attracting labor
by what they offer in concrete material benefits.
'According to Pew Charitable Trusts, only 13 percent of Baby Boomers still have [defined benefit pensions].'
This 13 percent remnant overwhelmingly consists of government employees, whose defined benefit pensions are uniformly underfunded
(and even understated as to HOW underfunded they are).
On the back side of Bubble III, as pension sponsors' equity-heavy assets shrink like an ice cream cone in the Sacramento sun,
a hue and cry will arise for massive tax increases on the hapless public to bail out public employees' rich pensions. (Not that
they aren't already happening -- two towns near me just hiked their sales tax by 1 percent to bail out police and firefighter
pensions.)
'Pension envy' will be the defining cultural war of the 2020s. Got ammo?
"Pension envy" has been around for a long time, Jim. I'm in my late 50s and grew up in one of the reddest states in the country
(North Dakota). For forty years I've heard many snarky remarks about public pensioners, not to mention those gawdawful Unions
(AFL-CIO, et al.). It never occurred to these people to demand the same treatment from THEIR private employers instead of complaining
about collectively bargained for benefits. Much easier to beggar thy neighbor, apparently. Sigh.
yes just unionize and get a pension from your private employer – not all of which are big employers btw which might be the
only plausible shot at a private sector pension -however most people work for small to mid-size companies. And then people wonder
why people think public sector employees are clueless about reality when it's all "let them eat cake" all the time.
I say let's NOT pay much higher taxes to fund the public pensions but INSTEAD pay much higher taxes to fund expanded and improved
SOCIAL SECURITY for all. It's only equitable, it's only just, there shouldn't be favored types of retirees, whoever we work for,
we all get old if we live long enough. Btw those same private sector unions have often sold out younger employees and accepted
tiered wages etc.. I'm not anti-union, I'm skeptical of non-radical unions being sufficient.
For me, it's about merging all plans into one universal pension – Social Security, and defend it as hard as, or harder, as
pension plans are defended now.
government employees, whose defined benefit pensions are uniformly underfunded
They are not uniformly underfunded. The Wisconsin state and local employee pension system is fully funded. Even Scott Walker
hasn't been able to undo that.
The only way I could figure out how to retire in the US was to find a house in a semi rural community that is a 45 minute drive
past gentrification.
Start by buying a lot (bare land) then put a cheap RV on it, later a manufactured home if possible. Or find a lot with an older
decrepit -- but still livable single wide trailer. Buy it for a roof and grandfathered utilities.
Medicare, plus low price house, plus low-status address. We also looked for a county with a high percentage of over-65 residents
and rudimentary senior services.
Still not optimal but workable. northern California is where we landed because of family. Look for cheap towns with collapsed
logging, farming or fishing industries.
Investigate by taking vacations in community.
Downsides include car-dependent culture, dependence on Medicare system, poor public transit, 2 hour drive to land of decent
coffee shops.
Canada was a serious thought experiment until I realized they dont want old people unless they bring large bags of money along.
That's similar to what we've done, and we're an hour away from 'civilization'. Our difference being that we're still years
away-Medicare wise.
Our plan mostly revolves around the idea of not getting sick, a common way to avoid costly medical bills, combined with ACA
(for the time being) and costly deductibles that will put the hurt on us financially, but not devastate us, should push>meet<shove.
Too busy with yoga and writing to set up hostel. We do host traveling yoga teachers who come through periodically to teach
at county yoga studios.
The second part of the scheme outlined above is to bring a low cost avocation that gives your life meaning and connects you
with others. For me it was photography, writing, travel, and yoga. As years go by travel and photography are diminishing, yoga
and writing expanding.
I traveled like the dickens when I was younger, and am content now to hang out and do stuff that costs a pittance, most of
which doesn't involve a computer in any capacity, aside from this here ball & chain.
Yves, have you checked to see if you qualify for Canadian permanent residency? I did and don't qualify. I'm retired with a
good income from pension, social security, and interest from retirement savings. If I sold my house I'd nearly be a millionaire,
which around here isn't that big a deal. It's also not enough for the Canadians, which makes sense, given that I've never paid
into their health system and my medical expenses are likely to increase as I age. My understanding is that, given I am not going
to proved the Canadian economy with a scarce skill, I would have to invest $2 million in a business in Canada that created jobs
for Canadians.
I had a work colleague from Sweden. She had been a school teacher there and came to the U.S. to sell financial products, make
a lot of money and avoid Swedish taxes. I asked her if she were going to become a U.S. citizen. She looked at me like I was crazy,
laughed and said, "Hell no, I would never wish to be old in America."
I'm laying this one down at the door of social Darwinism at work. If you're poor then you deserve nothing and if you are rich
then obviously you deserve everything. That is why someone like Peter Thiel can waltz into New Zealand and buy himself citizenship
in less that a fortnight there. Not everybody can get themselves into the Best Exotic Marigold Hotel in India. And that mention
of Ayn Rand and her influence on American life through people like Paul Ryan?
Well, if so may Congressmen want to investigate Russian influence in American politics then I present you with Ayn Rand as proof
positive. In spite of all her malignant opinions, it should be noted that it did not stop her from claiming Medicare and Social
Security when she got old. She did not want to be bankrupted by illness in old age so registered under her married name.
From my perch, if any Americans want to make the move, I would say over the next decade before that door closes. The regulations
are already tightening up such as making sure that you owe no taxes or the like before you leave. More Americans are now renouncing
their citizenship as America still want to tax them even when they have moved away. After this decade, I regret to say, that America
will be no country for old people.
In the most excellent book "I Will Bear Witness" diarist Victor Klemperer is often writing about German-Jewish friends that
are leaving the 3rd Reich for other shores, subject to a "25% Reich Flight Tax", and in reality it was more like a 50-75% tax. What's our going rate?
I had another friend, a real gem of a man. From privilege, a Harvard graduate, progressive activist, who worked for low pay
in the non-profit sector. He described his future retirement plan as "homeless in Honduras."
Sorry, I was triggered by the introduction. I am an American in my late 30s and I've lived a large chunk of my adult life outside
the US, Latin America mostly and East Asia. Already now I'm hoping not to live long-term outside the country again.
I just made a short trip to Mexico and thought dear God I'm too old for this.
If you speak the local language and are hooked into local issues, you quickly realize that there is an unbelievable (for urban
Americans who are used to a mosaic international society) amount of xenophobia in almost every other country. Being an outsider
everywhere I go, with all the constant microagressions (and ocasional more major aggressions) wears on me the way Lambert says
that inequality wears on the body.
And if you don't speak the local language and try to isolate yourself among other retirees -- why even be alive at that point?
I don't imagine commenters on this site of all people sitting at a bar all day arguing US and UK politics in English with some
other retirees far away from the action.
And speaking of inequality, most countries have far worse inequality than the US and it is savage and painful to watch when
your security guard finishes a 12 hour shift and then starts another 12 hour shift across the street.
By the way don't get me started on the cost of healthcare. It's cheap until you run into a major complication. I had surgery
in Peru for something minor and the total bill was over $5000 USD. Imagine if it were heart surgery. My expat insurance paid it
but you can't get that if you're over a certain age.
And speaking of inequality, most countries have far worse inequality than the US and it is savage and painful to watch when
your security guard finishes a 12 hour shift and then starts another 12 hour shift across the street.
The obvious in your face OMFG inequality is often worse, but the absolute inequality in America is among the greatest in the
world. Most countries, outside Latin America, and Sub-Saharan Africa specifically, have better income equality. We are
one step up from El Salvador . I've been to El Salvador, and no offense to them, we really should be doing much, much
better than that small, oppressed, corrupt, dirt poor country. Granted, we are overwhelmingly wealthier, so being poor here is
often not as bad as there, but still.
With that rant done, the GINI coefficient, which is a quick dirty way of measuring inequality, and therefore the economic/social/political
well being of a country with 1.0 meaning one person owns everything and 0.0 complete income equality. The figures change some
depending on whose doing the figuring, but the GINI for income in the American paradise is around .47 compared to Mexico's 0.48
with the Swedish hellhole at 0.24. If you are counting wealth instead of income, the United States is 0.8. Also, our lowest, therefore
our most equal GINI was 0.36 in 1968. A study was done showing Rome's GINI (income) was 0.44.
I really should check again, but I recall reading nobody, anywhere who did not have revolution, uprising, something bad once
0.59 was reached.
Come to Bangkok. The medical care here is superb.. very reasonably priced and absolutely state of the art. Yes, we pay out
of pocket, but only for what we need. There's competition between health care providers and one can get a quote from multiple
sources for any surgical procedure. The US, with its ever increasing costs which now are something like 17% of GDP, is on an unsustainable
path. Combined with the pending pension crisis I am concerned about the future for my US colleagues.
After my first annual physical here my Dr. said, bluntly, no pills but lose 25 lbs and exercise daily and come back in 6 months.
An honest answer to our metabolic issues.
The lifestyle is fantastic, food is superb, cheap direct flights to anywhere in the world, world class beaches and vineyards,which
make a halfway decent red wine, with wonderful restaurants, are just two hours away. The occasional coup keeps everything interesting.
I can honestly say my lifestyle has improved in my retirement by leaving the US.
" The U.S. Is No Country for Older Men and Women "?
Indeed, it isn't. But increasingly, it's no place for younger people either. The stagnant wages, rising housing costs, and
rising medical costs impact younger people just like they do older people. And yes, I know that younger people's medical expenses
tend to be lower that they are for older people, but today's youth are being socked with educational expenses that seem to know
no bound:
https://www.nakedcapitalism.com/2017/12/student-loan-defaults-approach-5-million-using-permissive-definition-default.html
Is the solution really to "strengthen" programs like Social Security, Medicare and Medicaid, or would it be better to tackle
the monopolies and rent-seeking behavior that results in the need for ever more dollars to be supplied? Bob Hertz had some excellent
ideas regarding medical costs in
https://www.nakedcapitalism.com/2017/11/medical-cost-reduction-act-2017.html
. I think this would be a better solution than to simply promise more money for the money-hungry beasts out there to consume on
the behalf of seniors. Tackling rising costs at the source would benefit everybody .
But strengthening social services can be done and will help many people. Fixing root causes looks politically impossible (today) and will be strongly opposed by powerful interests. I doubt anyone
here would object but we are not in charge
Yes, makes some sense. Fixing root causes would include things like fixing ever rising rents etc. (although sometimes seniors
can get it cheaper). However, the reality is living on social security is hard at this point even for those who own a home, just
because the old age benefits are so much less than almost any other industrialized country on earth. So just increasing those
would help a lot.
the loss of the family network is an important thing to consider for many. Someone from our family always goes with my aunt to her hours-long chemo sessions and doctor appointments. In the waiting rooms, I see all these other solo cancer patients. They often look sodden. Maybe they're always going to chemo
alone? The last thing you want when battling illness is also battling a sense of isolation.
Seriously, all the centrists act like the US should welcome people from all over the world, while Canada hardly lets ANYONE
in. Also, I just got the aforementioned "Nomadland" book from my library, which I'll start on as soon as I finish "The Big Rig"
which is (so far) a fantastic book about the way the trucking industry screws its workers.
My friend Max, the neurosurgeon left the US several years ago for Switzerland. His son Peter had a serious brain tumor and
went to Switzerland for treatment. Max bankrolled the treatment with a $2 million gift. Max's son is now cancer free and is now
working at CERN and is also in the process of immigrating. Max and his son at beneficiaries of a very substantial trust fund that
is sited in Nevada. Max renounced his US passport and it cost 30% of his assets. Max's son is facing a similar cost. It was easy
for Max and his son, both are extremely wealthy and Max's parents were Swiss. Lesson: portable skills that enjoy strong demand
and loads of income.
I've often thought of moving abroad but see myself more as living in a different country for only part of the year. I'd love
to hear more from those who are ex-pats.
Home ownership in Germany is 52% and it is below 45% in Switzerland. It is 65-75% in almost all other rich countries including
the US. It is actually around 85% in Russia and 90% in Cuba although the amenities are not quite the same.
I think that it has become increasingly apparent that the rich have no sense of noblesse oblige. They are in it for themselves
and nobody else.
I'd be very interested to see if they believe their own propaganda on things like Ayn Rand and Social Darwinism. I know that
many libertarian types can be, but the more extreme Ayn Rand types? Or is this just a coping mechanism?
It may be like oil executives who for years publicly denied global warming, but knew the truth. I think that deep inside, many
wealthy people know exactly how worthless they are to society and insecure. They will never admit the truth though in public.
But the only bargain "world city" I know of is Montreal.
Canadian here. Montreal has it's pros and cons. I have talked with a few people who are fed up with that city and left.
Pros:
+ Cheap rent (especially compared to any other large city)
+ Very cultured city, for lack of a better term (night life, arts, exotic places to eat that you can actually afford, that sort
of thing)
+ For a while it was Canada's job creation capital due to our weak dollar
+ Cheap tuition for students compared to rest of Canada
+ Cheap hydro! Car insurance is also much cheaper.
+ Considered the best city in North America for cycling (
https://www.mtlblog.com/lifestyle/montreal-ranked-1-bicycle-friendly-city-in-north-america
). There's also lots of parks and green spaces.
+ Apart from NYC and if you live in the middle of the city, Montreal is one of the few North American cities where you probably
don't need a car
Cons:
– Becoming increasingly unillingual (French), which is one of the reasons why one of my colleagues left Montreal
– Buddy of mine says healthcare is not very good by Canadian standards and being an English speaker will be a big disadvantage
(the government is actively trying to get people to be French) and I believe there is mandatory French schooling for parents of
English origin
– Quality of roads is pretty awful in Quebec I find and drivers can be aggressive. Infrastructure as a whole is aging.
– Winter isn't that cold (By Canadian standards mind you), but Montreal does get quite a bit of snow.
– Outside of the boom periods, it can be hard to find a good job or frankly, a job
– Wages in many jobs isn't as good (although often the lower cost of living makes up for it, so net you may not be that much worse
off, and in some cases, even better off)
– Some of the worst traffic congestion in Canada
– Quebec separatism politics
– There are cultural issues you should be aware of:
http://www.cbc.ca/news/canada/montreal/quebec-low-birthrate-immigration-1.3573966
– A lot of consumer goods aren't as available in Canada, although you can rent a US mailbox or use Kinek at the border (Expensive
because our dollar is weaker and you have to pay for import taxes, US taxes, along with the mailbox fees). On the other hand,
there are some items in Canada and especially Quebec that are not as available in the US.
On the fence:
– If you own a home, I have been told that many parts of Montreal are a "Buyers market" now so if you ever want to move out
– There are government services like affordable childcare, but they do have long waitlists. That said, child care is cheaper than
in the rest of Canada as this still does drive the costs of the private sector down.
– The US is making it harder for Americans to renounce their US citizenship for those moving from the US (
https://www.theglobeandmail.com/news/politics/delays-costs-mount-for-canadians-renouncing-us-citizenship/article28688026/
)
– Taxes are higher, but the majority of payers (especially those not in the six figures and with children) will find themselves
better off I'd say in Quebec due to the better services.
– A lot of folks in Quebec say that Montreal is expensive compared to the rest of the province, although for a city its size,
it is fairly affordable
The big challenge though is that Canada's immigration system is pretty restrictive, and yes older immigrants are at a drawback
(the purpose is to attract immigrants that are likely to pay more in the system over their life than take out).
The other big issue with Canada is that neoliberalism, although not as bad as the US, has very strong backers and I fear could
get worse. We seem to be following the dark path the US has undergone. I just hope that a genuine left can come out, not this
neoliberal identity politics stuff that really serves the rich.
It's really not that hard to move to a third world country. It's practically a lateral move.
1. Bad public transport. Check.
2. Corrupt government. Check.
3. High wealth inequality. Check.
4. Increasingly bad infrastructure. Check.
I am sure there are plenty of areas where the US is ahead, but plenty where it's behind like affordable healthcare. But really
at the end of the day, moving is not easy because of : language, and for active people scratching that itch to be productive.
Yves, the US is also no place for young people. My wife and I have been visiting South America checking out possible retirement
locations. In Ecuador, we found a young Swiss man (late 20s) with his Ecuadorian girlfriend who were running the Hacienda we stayed
in near Cotacachi. The 80-year old owner had been in a car crash and had to have someone take over operations right away. The
owner's daughter was friends with the young Swiss man and recommended him to her father. In the United States you would never
see someone his age given this much responsibility. He had trained in the hospitality field and came to Ecuador a couple of years
earlier because he would actually have the opportunity to own and operate his own business, which he considered an impossibility
in Western Europe. He told us his Swiss parents were also seriously considering re-locating to Ecuador for a better quality of
life in retirement (and presumably – my guess – to be near the eventual grandchildren). They were not wealthy but had sufficient
funds to provide relatively small seed capital for their son's business in Ecuador.
In Montevideo, we met a young woman in her early thirties from Montana and her French husband, a chef, who had just opened
the café we had stopped in for postres and tea some 8 months earlier. They left the U.S. about 6 or 8 years ago (can't recall
exactly) because they concluded they had no opportunities there, and came to Montevideo after a friend recommended it. They now
have two daughters in school there.
I spoke with a prominent immigration attorney in Montevideo who told me that it's not just Americans, many Western Europeans
were also emigrating to Uruguay "because of social issues." I didn't press for an explanation.
It's a mistake – and implicitly demeaning to the country – to think of these places as retirement havens. A North American
or European young adult might actually be able to build a life for themselves in these places because the capital investment hurdles
are low, and there are opportunities.
Every time I talk to my Boomer father he wonders how I could be so irresponsible as to not, like him, have "saved for retirement."
He's got an Air Force pension, a local government pension, a pension from a private employer, and social security. There's a 0%
chance I'll ever be able to pay off my student loans. I have less take-home money after 20 ostensibly successful years in my profession
than I did when I was 15 years old and working in a deli.
For most people in my generation, our retirement plans are to hope to win the lottery, and if not, suicide.
They often did have to pay out of their salaries into those pensions as well, so he has a tiny bit of a point, it wasn't all
free money. But they were of course much better deals than the 401ks on offer now, that we are lucky to even be able to have purely
for the tax benefits, which most employers aren't even contributing to.
I remember my friend's mother, an RNA (Cdn equiv of an LPN) who religiously contributed to her voluntary pension plan. It was
hard for her, single mother in the 50's and 60's, but she considered it the responsible thing to do. When she came to retire in
the mid 70's she was disappointed (understatement) to find that the pension she had sacrificed to contribute to for all those
years paid her a whopping $17 per month.
When I was planning for my retirement, in the 70's and 80's, I was looking at interest rates of 7 to 10 % -- truly! It is no
accident that interest rates are now less than the rate of inflation, unless you are paying out, of course. We are being robbed
in every possible way.
I'm pre-baby boomer, with no pension because of the industry I worked in. But I do own my own home in rural Pennsylvania for
how long, I'm not sure. 20% of my modest income goes to school and property taxes. I recently let a handicapped friend live in
my other building; he gets $700 a month and $85 in food stamps. Currently both of us are struggling to deal with paying to heat
our homes, so the last time he was bitching to me I said: "Why else do you think old people are living in trailers in the Arizona
desert?"
I considered not only Arizona but Cuba. I know enough Spanish to get by. But I decided that I would stay in the U.S. I think
everyone needs to downsize and simplify because, unless the American people wake up and revolt, things aren't going to get any
better.
P.S. I tried to research bankruptcy and mortgage foreclosure rates in Pennsylvania. Nothing current, but I found that the rates
continually increased every year, and this was well before the 2008 implosion. So I assume that the situation is probably dire
by now.
What's a second world country? And Montreal is inexpensive?
Anyway thinking from a young person's perspective it's even worse. Employment prospects are crap everywhere especially Europe
where there is some inkling of a social safety net.
As I said, it's an inexpensive world city. You missed that. It's even been rated that way. Rent is cheap. My costs would be
40% or so lower than in NYC.
Yeah, but that's not a very high hurdle: almost *anything* is cheaper than NYC in particular, and NYS in general. Not to mention
less stressful. I tend to recommend Buffalo and outlying suburbs/rural areas, but then again I'm biased, being a native of the
area. Real estate differences can be dramatic even within NYS: I routinely compare prices and taxes in Erie county vs Wyoming
county. Its a real eye-opener, especially compared to anything near Albany or NYC.
This entire thread is simply heartbreaking, Americans have had their money, their freedom, their privacy, their health, and
sometimes their very lives taken away from them by the State. But the heartbreaking part is that they feel they are powerless
to do anything at all about it so are just trying to leave.
But
"People should not fear the government; the government should fear the people"
As your quote appears to imply, it's not a problem that can be solved by voting which, let's not forget, is nothing more than
expressing an opinion. I am not sticking around just to find out if economically-crushed, opiod-, entertainment-, social media-addled
Americans are actually capable of rolling out tumbrils for trips to the guillotines in the city squares. I strongly suspect not.
This is the country where, after the banks crushed the economy in 2008, caused tens of thousands to lose their jobs, and then
got huge bailouts, the people couldn't even be bothered to take their money out of the big banks and put it elsewhere. Because,
you know, convenience! Expressing an opinion, or mobilizing others to express an opinion, or educating or proselytizing others
about what opinion to have, is about the limit of what they are willing, or know how to do.
100M US citizens in 1945; 200M in 1976; 320M in 2016. Population up and resources down. The politicians would give you anything
to get a vote, the reason they don't is that the money is not there. Everything goes up in price and wages stagnant because that's
how economies adjust to less resources to share. Canada and Australia and Europe are going the same way as the US, not because
of nefarious politicians or greedy rich people, although they certainly exist, but because the sums don't add up any more. MMT
is just one example of grasping at straws. I wonder what part of 'you are doomed' old people don't understand? Apart from the
last 80 years or so, people got old and died; now they get old, get sick long term, go bankrupt and then die.
I have a very rare good, very old insurance policy.
I sure hope you can hold onto it Yves. I also had a really good private BCBS NC policy. This year they killed it and threw
me onto ACA which is horribly expensive and crappy if you are single and make > $48200. 5 years to Medicare .if it's still there.
I have also lived internationally in my late 30's. It takes huge effort to liquidate here and to move. I believe it's risky
to be an alien in a country if there is unrest -- and unrest is coming imo.
I'm scouting Panama this Feb but I also just read the central america will be ground zero for climate change and they are already
having droughts.
Canada or NZ are likely the best choices for immigration if that were even possible.
I live in Alaska. Can in no way think of living somewhere else. At sixty years of being. My body is a bit worn hard and put
away wet. I have no property, no retirement, no substantial savings. What i do have is knowledge.
Now driving a cab for cash in a small city on the coast. I make furniture as my backup income. Was a cabinetmaker at a time.
In fact i count on making furniture till i cannot.
Expecting to have SS is not something i count on. I know all the wild plants to forage, wild game to be had-small game. Fish
of course, living on the coast.
But when i cannot pay rent i will have to rely on the generosity of friends to let me put up a shack on their property to get
by, or squat on land. The woman who lets me live with her for the last twenty-two years will be able for retirement next year.
We will set her up with something simple in town. I shall head for the woods. Am building a foot powered wood lathe. You may find
me one day on the side of the road turning simple items for pittance + beer.
Getting a little tired of this leave the country stuff. Heard it from my dad in the 60's (Australia). Heard it from my husband
this morning (Canada). I am 66 years old and intend to fight it out on this line, like Grant, until they carry me out of here
in the funeral home van. This is my country, major f–ked as it presently stands.
More asset-shuffling through public-private partnerships will not solve the moral
catastrophe of short-termerism and greed that prevents enterprises from investing in the
human timeframe of a lifespan, that might support a proper social safety net. A sane
government which had the interests of all citizens at heart would impose a confiscatory tax
system on asset shufflers and short term greed. This is the opposite of the policies of our
political class, who prefer voter suppression to the sort of democracy that would find the
impoverishment of our elders intolerable.
"A sane government which had the interests of all citizens at heart" In the One
Exceptional Country? Not in my lifetime or that of my children.
Its all very fine to talk about how wonderful your favorite band-aid would be if only the
Repugnant or Democon team would support it, but in the real world there is only one
semi-valid retirement strategy.
Emigrate to a country that is sufficiently un-exceptional to not have to support an Empire
and which is poor enough to allow you to live on whatever savings or pension you have
accumulated.
This larger role of government proposal overlooks the fact that is just creates more piggy
banks for workers to raid to buy new cars, finance big ticket purchases, etc.
This human irrationality is common with today's IRAs. Congress has shown willingness to
expand access to retirement savings in order for workers to raid their pots of gold. We have
just seen this with legislation relaxing withdrawal in the federal TSP. Thus, how such
programs are set up and administered is likely to merely expand financial asset management
fees while collecting taxes and penalties to boost the treasury – with little
improvement in retirement outcomes.
The first thing that government could do is guarantee an acceptable pension to all those
who live past 80. Then we would not all have to save as if we will live to 95, bloating
financial markets for nothing.
And it should be funded from current earnings, not through financial markets.
We just hit the peak of 5 workers per retiree. This number will be going to 2.5 over the
next couple of decades.
I think you don't realize how low the standard of living has to drop to fund an age 55
retirement.
2/3 of boomers have less than something like 100k saved up so this means they will be
asking the young to fund their retirement because I don't see the 1%ers doing it, without
some huge transformation which would take a decade or two sidelining boomers anyway.
This situation should have been planned for 30-40 years ago but it wasn't because the
general meme at the time was that the markets would save the boomers.
When a squirrel plans for winter, it stores nuts, meaning it does not eat them all.
In our economic system we've been eating all our nuts plus using millions of years of
energy to eat even more than we needed. Our obesity epidemic is one blatant symptom. Even
most of those with big investment portfolios have overindulged just think of how many joules
of energy they have spent in their lifetimes yet they are still expecting their investments
to represent claims on future resources.
I guess it can work out if our planet can support it and the US can force its way on the
world for another few decades but I have trouble believing that a country with more than 30%
of its population over 60 can cling to its reserve currency status while net importing.
I believe we can fund a 55+ retirement if most retirees accept to rent a room in their
kids' house but the kids have to somehow get out of the basement of their parents' still
mortgaged house and take possession of the main floor. That's the conundrum.
Yeah, that's the question. Is retirement a universal human right or a privilege? This
whole notion of focusing on the plight of the elderly as a group is bizarre. In the US
context, older generations are significantly wealthier than younger generations.
If we are really talking about people living with dignity, then such a policy should apply
to people of all ages, not just older Americans.
How bout a UBI for the elderly and disabled, and free healthcare for everyone? Seems like
the simplest solution to me.
Aside from the fact that it seems like the obviously right thing to do, as an oldish
millennial, I'd prefer to have them out of the forced-labor market anyway.
I've also long thought that providing care for the elderly, disabled, and children could
go a long way toward filling the roles of a job guarantee for us relatively young and
able-bodied.
On the one hand, the job part of the job guarantee already exists almost everywhere in the
U.S. The problem is the job stinks – low pay and often very hard work.
On the other hand, it is foolish, and inhuman, to think of these jobs as overflow job
guarantee jobs in an MMT JG. We need an economy, and society, that values caring over (mostly
idiotic) for-profit paid work.
Maybe we can put "social" in the name, because it's the social safety net. And since it's
a source of financial security, we should also put "security" in the name.
But isn't it based on earnings? Which for tens of millions were based on 10$ an hour which
is not a livable wage thanks to CEO wage inflation going from 30x lowest wage to over
300x?
Just to respond to all of you, the Townsend Plan from back in the 1930's when Social
Security was being devised, pledged to give out $200/month to people of age:
https://www.ssa.gov/history/briefhistory3.html
According to an inflation calculator I used, that's $3400/month per person.
They actually paid out more like $50/month. Which is more like $900 in our money
today.
Social Security is fine, it just needs to be increased, and the age lowered (to at least
what it used to be). Calling it a UBI, although it is one, will just lead to people trying to
tie it to costs of living which varies widely across the country, it just needs to be
increased a lot to be on par with what much of the rest of the world offers.
coincidentially, i just read
" In 2016, California residents 62 and older took out more payday loans than any other age
group, according to industry data compiled in a new report from the Department of Business
Oversight. Seniors entered into nearly 2.7 million payday transactions, 18.4% more than the
age group with the second-highest total (32 to 41 years old). It marked the first time that
the DBO report on payday lending, published annually, showed seniors as the top payday
lending recipients. The total transactions by the oldest Californians in 2016 represented a
60.3% increase from the number reported for that age group in 2013. The fees can bring annual
percentage rates that top 400%. In 2016, the average APR was 372%, according to the DBO
report. Customers typically take out multiple loans in a year, ending up in what critics call
a "debt trap." .. The average payday loan borrower 62 years or older took out almost seven
payday loans last year, compared with the average of 6.4 loans for all customers"
It is simply the case that with an ageing populace, we will in total be spending more on
Cumadin, nursing home beds and depends than we used to. Pensions, public or private don't buy
warehouses of this stuff to use later. A larger amount of our current GDP will be spent on
this than on health club memberships and daycare than if our population wasn't ageing. Those
who are currently working will have a greater percentage of the wealth that the create
devoted to purchases of these goods and services than used to be the case when there were
fewer elderly. Some of this may be paid for with higher payroll taxes, some with higher
income taxes (because bonds in the SS trust fund) and some because the value of equities goes
down as pensions become net sellers rather than purchasers of assets. The more people are
looking for a magic and relatively painless solution, the further we are from actually
figuring out how to do this.
The thing is that many with underfunded guaranteed pensions will be getting good pensions
while those with no guaranteed pensions will be getting peanuts.
Not to mention those with pensions based on 10$ per hour while others were making much
more. Those who made more feel entitled to their money by they refuse to see how social,
fiscal and monetary policies contributed to the wealth disparity. Many of the winners were
not better but just at the place at the right time.
There has to be a redistribution within the older population first before we skim the pay
checks of the young still working.
So your solution includes taking money from those who saved and invested, and
re-distribute it to those who spent everything they earned? As someone in the "saved and
invested" category, I find that plan to be a non-starter.
When I was setting aside 15% of my income for savings and investments, paying extra on my
mortgage, and driving older cars, I have friends who (at the same income level as my wife and
I) literally spent everything they earned. They had lots of fun, and lots of new stuff that I
didn't.
Fast forward 30+ years, and now – in my late 50's – I'm planning my retirement
(before my 60th birthday). My friends? None of them are even thinking of retiring, and one
couple has said they will need to work into their 70's.
We made different choices, and ended up in different places – but that doesn't
obligate me to hand them what I have.
If you've been able to work on a consistent basis at decent enough paying jobs that you
could save, it is substantially due to luck: being born into a stable middle to upper middle
class family, being white and male, being born at a time when there was enough growth in the
economy that you could land good jobs early in your career, which is critical for your
lifetime earnings trajectory. Oh, and not having you or a spouse or a child get a costly
medical ailment that drained your savings. And not winding up in a job where you were being
ethically compromised and stood up against it, resulting in career and earnings damage.
Did you miss that college grads had a worse time that high school grads and even dropouts
in landing jobs in 2008-2010? And getting no or crap jobs then set them back permanently? And
this includes graduates in the supposedly more "serious" STEM fields, where contrary to DC
urban legend, there aren't a lot of entry level jobs. You do well if you find employment, but
save in a few niches like petroleum engineering, the unemployment rate is actually worse for
STEM college grads overall than liberal arts grads.
Yves, I think that Middle Class would acknowledge the "luck of the draw" on pension or
not. It's just that neo-liberalism would only redistribute
within
the laboring
classes, not from the looting .01 percent responsible. The Arnold Family Foundation cronies
in Rhode Island are making your argument. Those who lucked into wage-earning with a pension
shouldn't be the first redistribution.
If almost all the increase in productivity and income over the past 30 years had not gone
to the top 1%, where it is essentially exempt from SS taxes, there wouldn't be a problem.
If the Middle and Working Classes still earned the same share of national income they earned
before Reaganomics there wouldn't be a problem. Lots of people with good incomes; those
incomes almost all subject to SS deductions.
Your response to Middle Class puzzled me. It is undoubtedly true that there is luck
involved in his success. However, he was comparing himself to peers that seemingly had most
of the same luck but made different life choices. I think one can recognize his luck and his
thrift and appreciate them both.
It's not my solution. It's how the cookie will probably crumble. I'm in my late 40s and
I'm in the category who saved but I also realize that I was in the lucky group with extra
income and chances are I'm going to pay for that luck.
"There has to be a redistribution within the older population first before we skim the pay
checks of the young still working."
Increased taxes on the social security of wealthy people has been proposed, so has
increased Medicare premiums for wealthy people. These ideas were part of the "grand bargain"
proposed by some Republicans and Democrats, including Hilary Clinton.
What is considered "wealthy" in these proposals has yet to be determined. I don't think
that the "grand bargain" specified that the increased revenue would be used to help
impoverished seniors either. Anyway, how much of a surplus would these increased taxes
generate ? Enough to give poor retirees a meaningful cost of living rebate on their tax
returns?
I'm not necessarily against proposals such as these, but
a better and more certain solution would be to rein in the military/security complex, stop
all the wars for oil, and get the government back in the business of working for the citizens
of this country. I bet we could find a few extra dollars that way.
If you stop investing in the MIC you will send the signal that you are weakening and
renouncing being the "protectors" of the planet. This means potentially losing your reserve
currency status. That means you would lose your easy money printing and net importing
advantages.
The currency issuer can create new spending with the constraint being generating too
much inflation.
I worry about leaving this statement to stand alone, because The Market is an independent
thing, and it's in The Market that inflation is created or not. Players out there are capable
of creating inflation on their own. Abba Lerner's article on Functional Finance (linked here
a month or so ago) tells us that the remedy is taxation. I.e. spending to generate well-being
shouldn't be blamed for inflation. Applying the taxation remedy will take some political
backbone.
No, inflation is created in the real economy due to any of commodites inflation (cost-push
inflation), wage-pull inflation (created by too much demand, or in MMT terms, too much net
government spending) and more recently and not sufficiently acknowledged, by monopolies and
oligopolies (see pricing of cable services and drugs, which have monopolies via patents) .
Interest rates are a different matter and are controlled by the central bank. We've had
risk-free interest rates below the inflation rate for years now thanks to the ministrations
of the Fed.
Central banks have the power to kill the economy (raising interest rates so high that it
induces inflation) but not much/any power to stimulate (save goosing asset prices, which only
trickles down a bit to the real economy). The cliche is "pushing on a string".
I'm a great supporter of Social Security. There's nothing inherently wrong with Social
Security. The problem has been the politicians. In the mid-1980s the Reagan admin with Dem
support changed CPI price calculations (and have been doing so ever since) in order to make
any cost-of-living inflation adjusted increase in SS be less than the true CPI inflation
numbers. They also made something like the first $25,000.00 of retiree income (all sources)
tax exempt . but did not index that number to inflation. They were clever in hiding the time
erosion aspects of that "grand bargain." They also raised the retirement age. They used the
"saved" monies these changes to pay for tax cuts for the well off.
I think adding another mandatory paycheck deduction for private savings accounts
controlled by others would simply be another pot of money for politicians and Wall St firms
to rummage. Fees? Churn? "Special" tax treatment? I appreciate the good intentions of the
proposal. However, I'd rather see proposals for stronger protections and honest CPI
accounting for existing Social Security.
adding: the number of workers to retirees is less important than the productivity per
worker, which has been going up steadily for the past 40 years. If workers were still earning
the share of income from productivity and profits that they earned up until Reagonomics there
wouldn't be a problem. Since Reaganomics, however, almost all the gains in productivity and
income have gone to the top 1-2%. Meaning that most of the productivity gains are not
reflected in SS taxes. The top 1% pay SS security tax on only a tiny, tiny bit of their
income. So less and less national total income is subject to SS tax. Falling SS tax receipts
are less a function of fewer-workers-to-retirees than to less nation total earned income
subject to SS tax. imo.
Is no one talking about just abolishing the income cap on social security taxes anymore? I
thought I read somewhere that would largely fix any holes in the program and allow retirees
to get the COLA that they need to keep up with inflation
"The currency issuer can create new spending with the constraint being generating too much
inflation".
The problem with this is money. Money >> currency. As we have seen, the market can
create its own money independent of the currency issuer, making inflation/deflation difficult
for the monetary authority to control, e.g. the Eurodollar market.
Does anyone know anyone who has retired and lived solely on their 401k, just like a
pension? And this person did not inherit any large chunk of money to assist in providing
retirement funding. I want an example of a factory worker, McDonald's worker, etc where they
were part of the working class.
Why not just expand social security? I understand she advocates in addition to SS we have
this mandatory investing thru public/private partnerships.
But when you have that, doesn't the govt have to establish guaranteed rate of return?
Because when people invest, there has to be a winner and a loser, always. Otherwise, some
people's investments may not make a return enough to support them financially.
...Tontines, like Social Security, traditional pensions,
and life annuities, insure against the risk of living longer
than expected in retirement. The problem of outliving one's
savings has gotten worse as Social Security benefits have
been trimmed back and private sector employers have replaced
traditional pensions with 401(k)-style savings plans. In
theory, 401(k) savers can insure against longevity risk by
purchasing life annuities, but few actually do. There are
several reasons for this, starting with the fact that few
have significant savings to begin with-a problem exacerbated
by current low interest rates that lock annuitants into low
annual payments. In addition, potential buyers must navigate
complex and tricky insurance markets and face prices driven
up by adverse selection and asymmetric information, the
classic problem of markets for individual insurance whereby
people at greater risk (of living longer, in this case) are
more likely to purchase insurance and have an incentive to
conceal information to avoid higher risk-adjusted premiums,
leading to higher prices for all consumers and a shrinking
market
Potential annuity buyers also behave in ways are hard to
square with fully-informed and rational behavior, such as
overvaluing lump sums relative to their equivalent in
annuitized benefits and exhibiting loss aversion-in this
case, the tendency to dwell on the potential financial losses
associated with dying prematurely rather than the potential
gains from living a long life. Could tontines at least
counter these behavioral challenges? One psychological hurdle
for would-be annuity buyers is the fact that insurance
companies profit from annuitants' early death, which puts
people in a pessimistic and suspicious frame of mind.
Advocates say tontines could be structured so that only
investors-not issuers-would benefit from the deaths of others
in the pool, which might or might not alleviate these
concerns. (Tontine murders were once a common melodramatic
plot device in plays and murder mysteries)...
*
[A fairly thorough discussion of the pros and cons of
various investment and private insurance options for
retirement security are discussed concluded by the obvious
solution.]
*
...Unlike a tontine scheme, where payments simply increase
in inverse proportion to the share of surviving investors,
such longevity and return-smoothing adjustments are complex
and require trust in the system, so may be better suited to
government-sponsored plans than private sector ones. The
simplest solution, of course, is simply to expand Social
Security, an increasingly mainstream idea among Democrats but
not one that is likely to fly in the current Congress.
"The problem of outliving
one's savings has gotten worse as Social Security benefits
have been trimmed back and private sector employers have
replaced traditional pensions with 401(k)-style savings
plans."
Social Security benefits have been trimmed back? When did
this happen? (Are you referring to the changes made back in
1986, which gradually lengthened the full-benefit retirement
age to 67? It would have been helpful to say so.)
And it's not entirely accurate to say that 401(k)-style
retirement plans have worsened the problem of outliving one's
savings. For millions of retirees, the opposite has been
true; with the cooperation of the stock market (we're in the
second-longest bull market in 85 years), they're withdrawing
tens of thousands every year and seeing their total holdings
*increase* at the same time. Traditional defined-benefit
plans do provide greater security, but they're no match for
401(k)s, IRAs and other similar plans at actually increasing
in value.
This aspect of defined-contribution retirement plans
hasn't gotten nearly the exposure that the negative aspects
have. It's just as true though.
"we're in the second-longest bull market in 85 years"
Sure
... after the biggest crash in 80 years. And since when is
the length of time a bull market lasts, rather than long term
compound annual returns, the important metric?
You're attempt to describe the upside of retirement
savings in at-risk equity investments seems to be built on a
shaky and selective view of recent history.
"... If I had a 401K, I would not be trusting those jackals with my money. My ex lost pretty much everything after he had contributed for 12+ years. ..."
"... As far as cutting off Wall Street from the teat of the Fed, this is a virtual impossibility. Wall Street, the Fed, and the Federal Government, and particularly the National Security State, are all just different faces of the same entity. It would be like trying to separate the front and the back of a dollar bill. You can't do it without destroying the whole thing. ..."
"... "Companies are worried about their employees retirement prospects" Gotta love the language. Maybe they should pay their employees more ..."
"... this is why I don't read the news anymore. The ongoing casual lies are embedded within a broader tapestry of falsehood. ..."
"... Even of the boomers I bet many of them don't have pensions. Why? They didn't work for government or fortune 500s, and it was probably never that many people with lifetime at careers at small companies that got pensions. But much of the employment is small businesses. ..."
"... "The great lie is that the 401(k) was capable of replacing the old system of pensions," No kidding. There are so many great lies with 401(k)'s, the biggest being that it is now expected that people should be able to save enough for their own retirement if they would only assume some personal responsibility. ..."
"... Over the years, I have been astonished at how little many executives understand about finance, taxes, and business. I have always wondered what they actually do in their cocooned meetings. Generally speaking, those meetings result in hilarious memos re-organizing people that don't appear to have anything to do with the normal business while cutting costs that are essential to executing the business. ..."
"... So it is not a surprise to me that a high-level executive would be unaware that a 401k is tax-deferred, not tax-exempt. He probably also thinks that a hedge fund is guaranteed to outperform the S&P 500 and has already moved his money into one, which means he will have less money to pay his taxes with. ..."
"... I'm curious: If you pay the interest on the 401k loan with already-taxed money, is that interest taxed again upon withdrawal from the 401k? ..."
"... Yes it is a 35% tax savings, even if not in the highest bracket. Say in the 25% fed bracket (income of $37,950 to $91,900). Then California income taxes for that income can come to nearly 10%. ..."
"... many 401k accounts tend to have higher costs for equivalent funds than one can get in a rollover IRA. Buyer gots to do their research. ..."
"... No, he's correct. 401(k)s have TONS of hidden fees. You can't even get full disclosure of the full fees. You are guaranteed to have lower fees and more choices at Vanguard. ..."
Since American companies are run by the greediest psychopaths on the planet, the real reason
for the objection to 401K withdrawals might as well be that selling overpriced stock and using
the cash to pay bills, reduces the opportunity of the chief corporate psychopaths to cash out
on their stock options.
It's personal. How dare a peasant beat a corporate bigwig by cashing out early, and reduce
the bigwig's monetary takings by even a penny.
Tapping or pocketing retirement funds early, known in the industry as leakage, threatens
to reduce the wealth in U.S. retirement accounts by about 25% when the lost annual savings are
compounded over 30 years, according to an analysis by economists at Boston College's Center for
Retirement Research.
That's 25% less available funds that Wall Street can steal from customers. Starve the beast?
How do we cut them off from the teat of the FED?
Bernie Sanders: The business of Wall Street is fraud and greed.
precisely. If I had a 401K, I would not be trusting those jackals with my money. My ex
lost pretty much everything after he had contributed for 12+ years.
Re: " American companies are run by the greediest psychopaths on the planet "
I have a quibble with this point of view. Greed takes many forms, and greed for power is just
as motivating as greed for wealth. So I'm of the opinion that corporate psychopaths have plenty
of company in the halls of government, particularly in the National Security arena. These people
have shown that killing hundreds of thousands and destroying the lives of millions more is not
enough to satisfy their lust for power and control. Oh no, not nearly enough. The beast you speak
of must eat every day.
As far as cutting off Wall Street from the teat of the Fed, this is a virtual impossibility.
Wall Street, the Fed, and the Federal Government, and particularly the National Security State,
are all just different faces of the same entity. It would be like trying to separate the front
and the back of a dollar bill. You can't do it without destroying the whole thing.
And if I was Marc Jones, I wouldn't be crying "ovens" too loud. It's happened before, and by
people who may not have been all that much further along the psychopath curve than the ones we
are dealing with now.
I have friends who are just past their mid-30s and borrowed against their 401k to make a house
purchase. A promotion lead to a desire for a bigger home in a nicer town (i.e. schools) and when
they sold their current house a combination of real estate transaction fees and being slightly
underwater on mortgage (I thought housing prices always went up!?) meant the only place they could
go for excess savings was their retirement accounts. Now that's something I would never do, but
I understand the motivation. And from their perspective, things are still on the upswing in terms
of their age and career expected earnings.
I have another colleague who has been at our large company long enough to still have a pension
plan, while our U.K. colleagues are still in a union. Instead of wondering why our older colleagues
have it so good with regards to benefits and time off, they just joke about the days of a pension
being gone and make with the old man cracks.
"Companies are worried about their employees retirement prospects" Gotta love the language.
Maybe they should pay their employees more
If you actually believe that's what companies are concerned about but seriously this
is why I don't read the news anymore. The ongoing casual lies are embedded within a broader tapestry
of falsehood.
Well they could just make contributions to the 401ks for employees themselves without even
requiring the employee to put anything in (without requiring matching). Some companies do do this.
Probably better than just paying them more if they are really worried about their retirement funds,
because if they just paid them more there's a good chance it wouldn't go to retirement. I'm not
opposed to more pay, just realistic about how much might go to retirement. A pension of course
is better but small companies aren't going to manage that financially even if they wanted to.
Even of the boomers I bet many of them don't have pensions. Why? They didn't work for government
or fortune 500s, and it was probably never that many people with lifetime at careers at small
companies that got pensions. But much of the employment is small businesses.
"The great lie is that the 401(k) was capable of replacing the old system of pensions,"
No kidding. There are so many great lies with 401(k)'s, the biggest being that it is now expected
that people should be able to save enough for their own retirement if they would only assume some
personal responsibility.
But the math has never worked. According to Reaganomics, personal responsibility is the solution
to retirement needs, medical costs, education costs, child care costs, unemployment, etc. No one
has ever been able to produce a household budget for a family in the lower half of income that
would ever come remotely close to fulfilling the conservative's fantasy of personal responsibility.
It. Can't. Be. Done.
The great lie that is the 401(k) and Reaganomics serves the same purpose as so many other conservative
lies: it allows more money to flow to Wall Street and the richest Americans. It also is used to
justify tax cuts for the rich and cuts in social programs. It is about the greed of the few against
the living standards of the rest of our society.
The 401(k) was intended to be a supplemental income to a pension, but those pensions no longer
exist and are never coming back. In the face of what has happened, particularly the graft Wall
Street and financial managers have imposed on 401(k)'s and other retirement investments, what
is needed is a much more muscular Social Security system for retirement.
Does anyone know what percentage of boomers (or even older boomers) have pensions? I'm guessing
it's not all that high (even if it's 50%, that means half would be relying on SS and other savings
etc.).
So if all benefited from well funded DB plan wouldn't the economy be smaller from less spending
and markets even more overvalued?
Oh no, the economy would have been smaller so there would have been less money to save
My head hurts thinking about all those what ifs!
It just seems to me that the cost of living for the vast majority will always equal disposable
income because there is alway someone out there younger, willing to work longer hours, willing
to take a pay cut or pay extra for a house. Arbitrage rules.
Asking everyone to save for 30 years of retirement is a farce and sure to fail. And we are
currently witnessing its failure. There are just too many variables.
All it takes is for someone out there to plan using a life expectancy of 80 while another with
the same income uses 95. This gives them way more cash flow during their working years to increase
the price of everything screwing up the plans of those using more conservative assumptions.
Since companies don't care if you survive after you leave them and I bet in many of these big
box stores newbies and old timers probably earn about the same amount 10-15/hr. What is the real
reason they want to stop leakage? That 25% drop in gambling money & earnings for fund managers.
I am guilty moved on to new job and cashed it out. I didn't put any money in, don't care and don't
see this as a real way to ?retire.
After 2008 it seems like 401ks are just a place to dump garbage. What do I know, I am young &
dumb.
Question:
So my spouse has changed jobs 4 times in the last 5 years. Each time we have to cash out the old
401k and deposit it in the new one. Some times this rollover was done by direct wire transfer
from old to new, but one time they sent us a check, which we signed over to the new 401k account.
Are these somehow being counted as "cashing out"? We though these are really rollovers? Just curious
The Wall Street crooks through the governments they own have convinced the majority of the
people that 401(k)s are good because of (1) tax deferral and (2) company contributions. Americans
are obsessed with paying lower taxes that they let the Wall Street Banksters get their claws on
their savings. The laws dictate that only the banksters/brokers can keep and handle your savings.
Each trade results in a commission. Add to this mix the myriad of so called financial consultants
who churn the account for their own benefit. When Wall Street crashes, Good Bye!
BIL (high-level TV executive mostly unemployed for two years) withdrew his entire 401k without
understanding the tax consequences. April 15 a very large number is due to the Feds. Oops.
Over the years, I have been astonished at how little many executives understand about finance,
taxes, and business. I have always wondered what they actually do in their cocooned meetings.
Generally speaking, those meetings result in hilarious memos re-organizing people that don't appear
to have anything to do with the normal business while cutting costs that are essential to executing
the business.
So it is not a surprise to me that a high-level executive would be unaware that a 401k
is tax-deferred, not tax-exempt. He probably also thinks that a hedge fund is guaranteed to outperform
the S&P 500 and has already moved his money into one, which means he will have less money to pay
his taxes with.
Borrowing against your 401k is only an issue if you are saving in it at a low rate. The really
big issue with 401ks is that companies generally do not put much in matching funds in – typically
far less than their old pension fund contributions would be. Instead, those funds have been going
to pay for exorbitant healthcare insurance plans in the vastly over-priced US healthcare system.
I have borrowed against my 401ks over the years. However, I also save at a pretty high rate,
generally at the highest rate that the company permits. So I get the tax savings (been in some
of the highest tax brackets for over 20 years and live in a high income tax state, so about 35%
or so tax deferral) while building an asset base.
Occasionally, something comes up that needs some cash, so I take a loan against the 401k (generally
the value is less than a year's worth of contributions) and set up a schedule to pay it back over
a couple of years. Some years the interest rate on the loan (that you are paying to yourself)
is higher than the portfolio returns and other years it is lower. In the end, I have come out
ahead because I am not trying to save those chunks of money after tax in a bank savings account
that pays little or not interest.
Yes it is a 35% tax savings, even if not in the highest bracket. Say in the 25% fed bracket
(income of $37,950 to $91,900). Then California income taxes for that income can come to nearly
10%.
Mostly true, but it depends. If the new 410k has good, low cost investment options that one
wishes to utilize then it's probably fine. That said, many 401k accounts tend to have higher
costs for equivalent funds than one can get in a rollover IRA. Buyer gots to do their research.
No, he's correct. 401(k)s have TONS of hidden fees. You can't even get full disclosure
of the full fees. You are guaranteed to have lower fees and more choices at Vanguard.
Not just the corporation investing in equities or stock buybacks, or workers investing in equities,
but also the corporations turn themselves into finance/insurance businesses (Westinghouse, etc.)
It's funny that they can't see how they have defeated themselves – and they are blaming leakage
when spending the money is the antidote to stagnation as the system now works. It's hard to imagine
that the corporations want to retire the old workers to make room for new – I don't believe that
for a second because they'll gladly retire 4 olds and hire 1new. It's "flexibility" they are looking
for.
"... This was Alan Greenspan's trick that he pulled in the 1980s as head of the Greenspan Commission. He said that what was needed in America was to traumatize the workers – to squeeze them so much that they won't have the courage to strike. Not have the courage to ask for better working conditions. He recognized that the best way to really squeeze wage earners is to sharply increase their taxes. He didn't call FICA wage withholding a tax, but of course it is. His trick was to say that it's not really a tax, but a contribution to Social Security. And now it siphons off 15.4% of everybody's pay check, right off the top. ..."
"... The effect of what Greenspan did was more than just to make wage earners pay this FICA rake-off out of their paycheck every month. The charge was set so high that the Social Security fund lent its surplus to the government. Now, with all this huge surplus that we're squeezing out of the wage earners, there's a cut-off point: around $120,000. The richest people don't have to pay for Social Security funding, only the wage-earner class has to. Their forced savings are lent to the government to enable it to claim that it has so much extra money in the budget pouring in from social security that now it can afford to cut taxes on the rich. ..."
"... So the sharp increase in Social Security tax for wage earners went hand-in-hand with sharp reductions in taxes on real estate, finance for the top One Percent – the people who live on economic rent, not by working, not by producing goods and services but by making money on their real estate, stocks and bonds "in their sleep." That's how the five percent have basically been able to make their money. ..."
"... The Federal Reserve has just published statistics saying the average American family, 55 and 60 years old, only has about $14,000 worth of savings. This isn't nearly enough to retire on. There's also been a vast looting of pension funds, largely by Wall Street. That's why the investment banks have had to pay tens of billions of dollars of penalties for cheating pension funds and other investors. The current risk-free rate of return is 0.1% on government bonds, so the pension funds don't have enough money to pay pensions at the rate that their junk economics advisors forecast. The money that people thought was going to be available for their retirement, all of a sudden isn't. The pretense is that nobody could have forecast this! ..."
"... In Chile, the Chicago Boys really developed this strategy. University of Chicago economists made it possible, by privatizing and corporatizing the Social Security system. Their ploy was to set aside a pension fund managed by the company, mostly to invest in its own stock. The company would then set up an affiliate that would actually own the company under an umbrella, and then leave the company with its pension fund to go bankrupt – having already emptied out the pension fund by loaning it to the corporate shell. ..."
"... We have the highest healthcare costs in the world, so out of your paycheck – which is not increasing – you're going to have to pay more and more for FICA withholding for Social Security, more and more for healthcare, for the pharmaceutical monopoly and the health insurance monopoly. You'll also have to pay more and more to use public services for transportation to get to work, because the state is not funding that anymore. We're cutting taxes on the rich, so we don't have the money to do what social democracies are supposed to do. You're going to privatize the roads, so that now you're going to have to pay to use the road to drive to work, if you don't have public transportation. ..."
"... "Classical and neo-classical economics, as dominant today, has used the deductive methodology: Untested axioms and unrealistic assumptions are the basis for the formulation of theoretical dream worlds that are used to present particular 'results'. As discussed in Werner (2005), this methodology is particularly suited to deriving and justifying preconceived ideas and conclusions, through a process of working backwards from the desired 'conclusions', to establish the kind of model that can deliver them, and then formulating the kind of framework that could justify this model by choosing suitable assumptions and 'axioms'. In other words, the deductive methodology is uniquely suited for manipulation by being based on axioms and assumptions that can be picked at will in order to obtain pre-determined desired outcomes and justify favoured policy recommendations. It can be said that the deductive methodology is useful for producing arguments that may give a scientific appearance, but are merely presenting a pre-determined opinion." ..."
"... "Progress in economics and finance research would require researchers to build on the correct insights derived by economists at least since the 19th century (such as Macleod, 1856). The overview of the literature on how banks function, in this paper and in Werner (2014b), has revealed that economics and finance as research disciplines have on this topic failed to progress in the 20th century. The movement from the accurate credit creation theory to the misleading, inconsistent and incorrect fractional reserve theory to today's dominant, yet wholly implausible and blatantly wrong financial intermediation theory indicates that economists and finance researchers have not progressed, but instead regressed throughout the past century. That was already Schumpeter's (1954) assessment, and things have since further moved away from the credit creation theory." ..."
"... "Although commercial banks create money through lending, they cannot do so freely without limit. Banks are limited in how much they can lend if they are to remain profitable in a competitive banking system." ..."
"... it insults the intelligence of the audience, ..."
"... we would now call ..."
"... totally insupportable on its face. ..."
"... as a corporate, spiritually mandated obligation, ..."
"... You're going to privatize the roads, so that now you're going to have to pay to use the road to drive to work, if you don't have public transportation. ..."
"... Henry Ford II: Walter, how are you going to get those robots to pay your union dues? Walter Reuther: Henry, how are you going to get them to buy your cars? ..."
"... "You're turning the economy into what used to be called feudalism. Except that we don't have outright serfdom, because people can live wherever they want. But they all have to pay to this new hereditary 'financial/real estate/public enterprise' class that is transforming the economy." ..."
"... "The industrial capitalists, these new potentates, had on their part not only to displace the guild masters of handicrafts, but also the feudal lords, the possessors of the sources of wealth. In this respect, their conquest of social power appears as the fruit of a victorious struggle both against feudal lordship and its revolting prerogatives, and against the guilds and the fetters they laid on the free development of production and the free exploitation of man by man. The chevaliers d'industrie, however, only succeeded in supplanting the chevaliers of the sword by making use of events of which they themselves were wholly innocent. They have risen by means as vile as those by which the Roman freedman once on a time made himself the master of his patronus. ..."
"... The starting point of the development that gave rise to the wage labourer as well as to the capitalist, was the servitude of the labourer. The advance consisted in a change of form of this servitude, in the transformation of feudal exploitation into capitalist exploitation. " ..."
Posted on
March 9, 2017 by Yves
Smith Yves here. This Real News Network interview is from a multi-part series about Michael Hudson's
new book, J is for Junk Economics. And after a lively discussion by readers of the economic necessity
of many to become expats to get their living costs down to a viable level, a discussion of the disingenuous
political messaging around retirement seemed likely. Among the people in my age cohort, the ones
that managed to attach themselves to capital (being in finance long enough at a senior enough level,
working in Corporate America and stock or stock options) are generally set to have an adequate to
very comfortable retirement. The ones who didn't (and these include people I know who are very well
paid professionals but for various reasons, like health problems or periods of unemployment that
drained savings, haven't put much away) will either have to continue working well past a normal retirement
age (even charitably assuming they can find adequately compensated work) or face a struggle or even
poverty.
SHARMINI PERIES: It's The Real News Network. I'm Sharmini Peries, coming to you from Baltimore.
I'm speaking with Michael Hudson about his new book J Is For Junk Economics: A Guide to Reality in
the Age of Deception.
Thanks for joining me again, Michael.
MICHAEL HUDSON: Good to be here.
SHARMINI PERIES: So, Michael, on page 260 of your book you deal with the issue of Social Security
and it's a myth that Social Security should be pre-funded by its beneficiaries, or that progressive
taxes should be abolished in favor of a flat tax. Just one tax rate for everyone you criticize. We
talked about this earlier, but let's apply what this actually means when it comes to Social Security.
MICHAEL HUDSON: The mythology aims to convince people that if they're the beneficiaries of Social
Security, they should be responsible for saving up to pre-fund it. That's like saying that you're
the beneficiary of public education, so you have to pay for the schooling. You're the beneficiary
of healthcare, you have to save up to pay for that. You're the beneficiary of America's military
spending that keeps us from being invaded next week by Russia, you have to spend for all that – in
advance, and lend the money to the government for when it's needed.
Where do you draw the line? Nobody anticipated in the 19th century that people would have to pay
for their own retirement. That was viewed as an obligation of society. You had the first public pension
(social security) program in Germany under Bismarck. The whole idea is that this is a public obligation.
There are certain rights of citizens, and among these rights is that after your working life you
deserve to live in retirement. That means that you have to be able to afford this retirement, and
not have to beg in the street for money. The wool that's been pulled over people's eyes is to imagine
that because they're the beneficiaries of Social Security, they have to actually pay for it.
This was Alan Greenspan's trick that he pulled in the 1980s as head of the Greenspan Commission.
He said that what was needed in America was to traumatize the workers – to squeeze them so much that
they won't have the courage to strike. Not have the courage to ask for better working conditions.
He recognized that the best way to really squeeze wage earners is to sharply increase their taxes.
He didn't call FICA wage withholding a tax, but of course it is. His trick was to say that it's not
really a tax, but a contribution to Social Security. And now it siphons off 15.4% of everybody's
pay check, right off the top.
The effect of what Greenspan did was more than just to make wage earners pay this FICA rake-off
out of their paycheck every month. The charge was set so high that the Social Security fund lent
its surplus to the government. Now, with all this huge surplus that we're squeezing out of the wage
earners, there's a cut-off point: around $120,000. The richest people don't have to pay for Social
Security funding, only the wage-earner class has to. Their forced savings are lent to the government
to enable it to claim that it has so much extra money in the budget pouring in from social security
that now it can afford to cut taxes on the rich.
So the sharp increase in Social Security tax for wage earners went hand-in-hand with sharp
reductions in taxes on real estate, finance for the top One Percent – the people who live on economic
rent, not by working, not by producing goods and services but by making money on their real estate,
stocks and bonds "in their sleep." That's how the five percent have basically been able to make their
money.
The idea that Social Security has to be funded by its beneficiaries has been a setup for the wealthy
to claim that the government budget doesn't have enough money to keep paying. Social Security may
begin to run a budget deficit. After having run a surplus since 1933, for 70 years, now we have to
begin paying some of this savings out. That's called a deficit, as if it's a disaster and we have
to begin cutting back Social Security. The implication is that wage earners will have to starve in
the street after they retire.
The Federal Reserve has just published statistics saying the average American family, 55 and
60 years old, only has about $14,000 worth of savings. This isn't nearly enough to retire on. There's
also been a vast looting of pension funds, largely by Wall Street. That's why the investment banks
have had to pay tens of billions of dollars of penalties for cheating pension funds and other investors.
The current risk-free rate of return is 0.1% on government bonds, so the pension funds don't have
enough money to pay pensions at the rate that their junk economics advisors forecast. The money that
people thought was going to be available for their retirement, all of a sudden isn't. The pretense
is that nobody could have forecast this!
There are so many corporate pension funds that are going bankrupt that the Pension Benefit Guarantee
Corporation doesn't have enough money to bail them out. The PBGC is in deficit. If you're going to
be a corporate raider, if you're going to be a Governor Romney or whatever and you take over a company,
you do what Sam Zell did with the Chicago Tribune: You loot the pension fund, you empty it out to
pay the bondholders that have lent you the money to buy out the company. You then tell the workers,
"I'm sorry there is nothing there. It's wiped out." Half of the employee stock ownership programs
go bankrupt. That was already a critique made in the 1950s and '60s.
In Chile, the Chicago Boys really developed this strategy. University of Chicago economists
made it possible, by privatizing and corporatizing the Social Security system. Their ploy was to
set aside a pension fund managed by the company, mostly to invest in its own stock. The company would
then set up an affiliate that would actually own the company under an umbrella, and then leave the
company with its pension fund to go bankrupt – having already emptied out the pension fund by loaning
it to the corporate shell.
So it's become a shell game. There's really no Social Security problem. Of course the government
has enough tax revenue to pay Social Security. That's what the tax system is all about. Just look
at our military spending. But if you do what Donald Trump does, and say that you're not going to
tax the rich; and if you do what Alan Greenspan did and not make higher-income individuals contribute
to the Social Security system, then of course it's going to show a deficit. It's supposed to show
a deficit when more people retire. It was always intended to show a deficit. But now that the government
actually isn't using Social Security surpluses to pretend that it can afford to cut taxes on the
rich, they're baiting and switching. This is basically part of the shell game. Explaining its myth
is partly what I try to do in my book.
SHARMINI PERIES: If the rich people don't have to contribute to the Social Security base, are
they able to draw on it?
MICHAEL HUDSON: They will draw Social Security up to the given wage that they didn't pay Social
Security on, which is up to $120,000 these days. So yes, they will get that little bit. But what
people make over $120,000 is completely exempt from the Social Security system. These are the rich
people who run corporations and give themselves golden parachutes.
Even for companies that have engaged in massive financial fraud, the large banks, City Bank, Wells
Fargo – all these have golden parachutes. They still are getting enormous pensions for the rest of
their lives. And they're talking as if, well, corporate pensions are in deficit, but for the leading
officers, arrangements are quite different from the pensions to the blue collar workers and the wage
earners as a whole. So there's a whole array of fictitious economic statistics.
I describe this in my dictionary as "mathiness." The idea that if you can put a number on something,
it somehow is scientific. But the number really is the product of corporate accountants and lobbyists
reclassifying income in a way that it doesn't appear to be taxable income.
Taking money out and giving it to the richest 5%, while making it appear as if all this deficit
is the problem of the 95%, is "blame the victim" economics. You could say that's the way the economic
accounts are being presented by Congress to the American people. The aim is to popularize a "blame
the victim" economics. As if it's your fault that Social Security's going bankrupt. This is a mythology
saying that we should not treat retirement as a public obligation. It's becoming the same as treating
healthcare as not being a public obligation.
We have the highest healthcare costs in the world, so out of your paycheck – which is not
increasing – you're going to have to pay more and more for FICA withholding for Social Security,
more and more for healthcare, for the pharmaceutical monopoly and the health insurance monopoly.
You'll also have to pay more and more to use public services for transportation to get to work, because
the state is not funding that anymore. We're cutting taxes on the rich, so we don't have the money
to do what social democracies are supposed to do. You're going to privatize the roads, so that now
you're going to have to pay to use the road to drive to work, if you don't have public transportation.
You're turning the economy into what used to be called feudalism. Except that we don't have outright
serfdom, because people can live wherever they want. But they all have to pay to this new hereditary
"financial/real estate/public enterprise" class that is transforming the economy.
SHARMINI PERIES All right, Michael. Many, many, many things to learn from your great book, J Is
For Junk Economics: A Guide to Reality in the Age of Deception. Michael is actually on the road promoting
the book. So if you have an opportunity to see him at one of the places he's going to be speaking,
you should check out his website, michael-hudson.com
So I thank you so much for joining us today, Michael. And as most of you know, Michael Hudson
is a regular guest on The Real News Network. We'll be unpacking his book and some of the concepts
in it on an ongoing basis. So please stay tuned for those interviews.
It's 10 bagger time for sure. A house in the tropics with servants at your beck and call. Breakfast
on the veranda. Lunch at the club. An afternoon sail. Dinner at the house of a famous author.
Or some native woman who cooks spicy food and is hotter than the sun. No shuffleboard and pills!
You need to stay buff if you wanna live like this. You can't be flabby and short of breath.
Yves's remark on retirement by sector is apt. I laugh bitter tears when I see that a financial
CEO contract always includes a "pension," as if the tens of millions of dollars in salary and
bonuses weren't enough.
A "pension" is for those who, broken by a life of hard physical labor, finally can't work any
more for their crust of bread. It's not another revenue line-item that's barely enough to refuel
the yacht.
There was a time when people "saved for retirement." With real rates of return being negative,
and all assets priced arbitrarily at the whim of the central bank's policy du jour, I am perfectly
frank when people ask "what should they invest in": nothing. Pay down your debt, and spend whatever
you have beyond an emergency cushion right now, while you can enjoy it. Savings will inevitably
be wasted, by inflation, the "health-care system," or financial-sector scammers. Do not ask for
whom the bell tolls; if you have to ask, you can't afford it.
This is all in the context of the Federal Government already spending 20% of GDP, a number
that was never designed to happen. It is the States that were supposed to be in charge of the
people's welfare, not the national authority. So the argument that we should increase Federal
taxes to somehow redistribute wealth is also wrong, because that wealth will simply be wasted,
spent by people who are responsible to no one.
At moments like this there are no good choices. Most Europeans have long learned to live with
governments that were hostile to them, and that is where we stand now.
Tocqueville's Democracy In America is tough going in spots, but my gosh, what a beautiful world
he depicts, when the average Pennsylvanian's tax liability beyond his township was $4 a year.
I won't argue too hard about your "Federal vs State" argument, but note that if the state is
in charge of most taxation then Richy Rich can live in a low tax state next door and employ the
well-educated, healthy (single-payer) people in your state.
"Classical and neo-classical economics, as dominant today, has used the deductive methodology:
Untested axioms and unrealistic assumptions are the basis for the formulation of theoretical dream
worlds that are used to present particular 'results'. As discussed in Werner (2005), this methodology
is particularly suited to deriving and justifying preconceived ideas and conclusions, through
a process of working backwards from the desired 'conclusions', to establish the kind of model
that can deliver them, and then formulating the kind of framework that could justify this model
by choosing suitable assumptions and 'axioms'. In other words, the deductive methodology is uniquely
suited for manipulation by being based on axioms and assumptions that can be picked at will in
order to obtain pre-determined desired outcomes and justify favoured policy recommendations. It
can be said that the deductive methodology is useful for producing arguments that may give a scientific
appearance, but are merely presenting a pre-determined opinion."
"Progress in economics and finance research would require researchers to build on the correct
insights derived by economists at least since the 19th century (such as Macleod, 1856). The overview
of the literature on how banks function, in this paper and in Werner (2014b), has revealed that
economics and finance as research disciplines have on this topic failed to progress in the 20th
century. The movement from the accurate credit creation theory to the misleading, inconsistent
and incorrect fractional reserve theory to today's dominant, yet wholly implausible and blatantly
wrong financial intermediation theory indicates that economists and finance researchers have not
progressed, but instead regressed throughout the past century. That was already Schumpeter's (1954)
assessment, and things have since further moved away from the credit creation theory."
"A lost century in economics: Three theories of banking and the conclusive evidence" Richard
A. Werner
Francis Fukuyama talked of the "end of history" and "liberal democracy" in 1989.
Capitalism had conquered all and was the one remaining system left that had stood the test
of time.
With such a successful track record, everything was being changed to a new neo-liberal ideology
and globalization was used to test this new ideology everywhere.
The Great Moderation seemed to indicate that the new ideology was a great success.
"Seemed" is the operative word here.
A "black swan" arrives in 2008 and nothing is the same again, the Central Bankers pump in trillions
to maintain the new normal of secular stagnation.
Sovereign debt crises erupt, the Euro-zone starts to disintegrate, austerity becomes the norm.,
no one knows how to restore growth and the populists rise.
A new ideology comes in that is rolled out globally and seems to work before 2008.
What happened in 2008?
This is the build up to 2008 that can be seen in the money supply (money = debt):
The money supply is flat in the recession of the early 1990s.
Then it really starts to take off as the dot.com boom gets going which rapidly morphs into
the US housing boom, courtesy of Alan Greenspan's loose monetary policy.
When M3 gets closer to the vertical, the black swan is coming and you have an out of control
credit bubble on your hands (money = debt).
The theory.
Irving Fisher produced the theory of debt deflation in the 1930s.
Hyman Minsky carried on with his work and came up with the "Financial instability Hypothesis"
in 1974.
Steve Keen carried on with their work and spotted 2008 coming in 2005.
You can see what Steve Keen saw in the graph above, it's impossible to miss when you know what
you are looking for but no one in the mainstream did.
If you paid off all the debt there would be no money.
Money and debt are opposite side of the same coin, matter and anti-matter.
The money supply reflects debt/credit bubbles.
Monetary theory has been regressing for over 100 years to today's abysmal theory where banks
act as intermediaries and don't create and destroy money.
The success of earlier years was mainly due to money creation from new debt (mainly in housing
booms) globally feeding into economies leaving a terrible debt over-hang.
Jam today, penury tomorrow.
This is how debt works.
Twelve people were officially recognised by Bezemer in 2009 as having seen 2008 coming, announcing
it publicly beforehand and having good reasoning behind their predictions (Michael Hudson and
Steve Keen are on the list of 12).
They all saw the problem being excessive debt with debt being used to inflate asset prices
(US housing).
The Euro's periphery nations had unbelievably low interest rates with the Euro, the risks were
now based on common debt service. Mass borrowing and spending occurs at the periphery with the
associated money creation causing positive feedback.
Years later, it was found the common debt service didn't actually exist and interest rates
correct for the new reality.
Jam today, penury tomorrow.
Why doesn't austerity work? (although it has been used nearly everywhere)
You need to understand money, debt, money creation and destruction on bank balance sheets and
its effect on the money supply. Almost no one does.
Alternative and I would say much more accurate realities:
1) Michael Hudson "Killing the Host", "J is for Junk Economics"
The knowledge of economic history and the classical economists that has been lost and the problems
this is causing. Ancient Sumer had more enlightened views on debt than we have today.
2) Steve Keen "De-bunking Economics"
His work is based on that of Hyman Minsky and looks into the effects of private debt on the
economy and the inflation of asset bubbles with debt.
3) Richard Werner "Where does money come from?"
The only book generally available that tells the truth about money, I don't think there are
any other modern books that do and certainly not in economics textbooks
4) Richard Koo's study on the Great Depression and Japan after 1989 showing the only way out
of debt deflation/balance sheet recessions.
"Although commercial banks create money through lending, they cannot do so freely without
limit. Banks are limited in how much they can lend if they are to remain profitable in a competitive
banking system."
The limit for money creation holds true when banks keep the debt they issue on their own books.
The BoE's statement was true, but is not true now as banks can securitize bad loans and get
them off their books.
Before 2008, banks were securitising all the garbage sub-prime mortgages, e.g. NINJA mortgages,
and getting them off their books.
Money is being created freely and without limit, M3 is going exponential before 2008.
Thanks SOS, agree. We're at that 08 point now, in fact it's worse.
Pensions should just be a click of the computer, no borrowings, savings or taxes needed and
they need to be sufficient to live on.
No, we aren't 'winning'
In Australia, we used to give people the 'aged' at 60 for women and 65 for men. Now its 67
for both, the woman's aged cut in was raised for 'equality' reasons, and it going up to 70 for
my kids.
Politicians, judges, CEOs and the c-class, all those 'shiny bums', they can often work well
into their 60s. The rest of us experience age discrimination in a tight job market and are forced
into menial jobs just when society should be funding their well earned retirement.
The whole "there aren't enough workers to support retirees" meme is risible.
Example: Jane funds an IRA for 30 years. For those 30 years, there is one person paying in,
and zero taking out. When Jane retires, the IRA flips to one person taking out, and zero paying
in.
Disaster, or working as advertised?
That Serious Thinkers, elected officials and the SSA themselves advance this trope to explain
why SS is hopeless is proof of willful mendacity.
Now if these folks admit, well yuh, you paid in over all of these years, but the money ain't
there no more, then first, that's an admission of mismanagement (unsurprising), and second, bail
us the fuck out like you did Wall Street.
Most every purported "help" by the government is the exact opposite: your paying into a black
hole.
Look around you. What around you was paid for by the government? The answer is none of it was.
Taxes are a way to keep the bureaucratic structure afloat. What is very clear is that once government
reaches a certain size it begins to massively leach off of those that work and gives it to those
that "manage".
Look at any industry today and you will find, in the private sector, declining or stagnant
wages for the "drones". Then look at the public sector: expanding, better benefits, better wages,
less work etc. Thinking about it makes my blood boil. I see truckers making less now then 10 years
ago, yet, the industry keeps crying that they "don't have enough workers". Yeah, sorry no one
wants to work 25/8 driving around in the day time, sleeping in a truck at night, getting tracked
through GPS & get penalized for going above speed limits when they can work for the DMV, make
the same amount, and sit at a desk for 7 hours a day with plenty of benefits and vacation time.
Its about time for this system to implode. I see globalization and government expansion as
a huge force that will eventually cause a revolution in the States.
Globalization and the government are simply red herrings meant to distract Trump voters while
shareholder value driven corporate overlords continue looting.
Look around you . The government employs less people than pretty much for my whole
life. Please get informed before you go off on a multi-paragraph rant.
maybe noone should work in trucking, freight trains are much more energy efficient as far as
a means of transporting goods over long distances. Nah I'm not faulting truckers, just saying
it makes no societal sense is all except maybe for the last few miles, but then neither do a lot
of things. I doubt many people want to work at the DMV, but then maybe the benefits are enough
to make a distasteful job seem worth it.
As usual, the abuse of history is the outstanding credibility-buster in this piece. When an
author says this,
Nobody anticipated in the 19th century that people would have to pay for their own retirement.
That was viewed as an obligation of society.
why should I believe anything else that he has to say?
The sole instance given is of Bismarck's Germany, actually ground-breaking in its social welfare
policies, which came only in the last part of the 19th century.
For most of the 19th century, just about everywhere, nobody who worked for a living expected
to live long enough to retire.
Indeed, retirement in past centuries had a different denotation. Its common use was among the
aristocracy, when one of that number determined to remove himself from active (urban) social or
political life and withdraw (hence the etymology, "re-tirer"), usually to the country.
Haygood had to resuscitate "rusticate" for the other day, to achieve a modern equivalent of
that.
All of this is common knowledge. In case you don't think so, spend five minutes with any book
of demographics or social history; and that's just for Europe. Don't let's even ask what "nobody
expected to pay for their retirement" meant in early nineteenth-century Alabama.
By the way, Hudson does this all the time. When I can fact-check offhand, from my fund of common
knowledge, he is often casually abusing the truth. I can be pretty sure that the rest of what
he says is just as unreliable.
You may be correct about the 19th century, but it is 2017. And his points about the US tax
system, the banks, the wealthiest 1% and our gov't deceiving the middle and lower class are solid.
A very basic retirement and healthcare should be provided to all in any decent marginally successful
society. Not to mention a supposedly "great" one.
I think this is where some progressive get tripped up and don't understand why their policies
aren't more popular to the wide swaths of America outside of their bubble.
Often times, these people (I use this term loosely to include working class whites in Appalachia
as well as Silicon Valley libertarians) like to provide a fair and wide safety net. However, most
policies that are advanced are strictly means tested. This causes significant resentment among
those just outside of the cutoff lines. Think: Social Security has essentially blanket coverage.
Yes, there's some redistribution going on behind the scenes, but if I pay in for 30 years I will
get most of my money back. It's wildly popular, while welfare programs are not.
The same applies for health care – Medicare is popular and Medicaid is not. If I pay in for
a government program, I want to be able to take advantage of it. Save me the crap about not wanting
to subsidize the lifestyles of the 1%; they pay in far more than they would take out of the program.
It's a small price to pay to have universal coverage and buy in from all segments of society.
So extending Medicare down to everyone is a better political strategy than extending Medicaid
upwards to encompass higher income levels.
You read a great deal into a statement that you didn't at all prove was untrue. Not impressive.
The question is, did society believe that it had a responsibility of care for people that got
too old to work? You didn't even address that. Yes we know life was "nasty, brutish and (most
often) short. That doesn't invalidate what he said.
PhilM 'I can be pretty sure that the rest of what he says is just as unreliable.'
No mate, he speaks truth and may have exaggerated, but the point remains that here, the UK,
most of Europe – then the state funds your pension if you need one. It is now a social obligation.
Only in the US, do you have this class of people (the working class) who don't deserve retirement
and must fund their own meagre pensions, and if the 'pool which funds the pensions' becomes insufficient,
well you know the rest.
Taxes see, they fund things, or more often don't, because it's a widely accepted lie to keep
the private bank money creation bullshit going forever.
That's the problem, Dog, I generally agree with his point, and with the responders to my comment,
on policy grounds. My point is that leading with something that is provably false, and even probably
false to common knowledge, is not a winning tactic; some would say it insults the intelligence
of the audience, even.
To me this site, if it's about anything, is about filtering out the BS that is used by people
with an agenda to "enhance" their arguments. Lambert does this with a Lancelot-sized skewer. And
part of the beauty is the crowd-sourced fact-checking from an extraordinarily informed, and sceptical,
community.
I may not have much to add to their expertise, but one thing I do know is some European history,
and it drives me berzerk to see people just misuse history as if it strengthens their argument.
If they don't know that what they are saying is true, they should not say it. And by "know it
is true," I mean, know the source, and the source of the source, and be able to judge its reliability.
That is what scholarship is all about: seeing how far down the turtles go.
So when someone just tosses out an assertion about "what the past thought was right," as if
that created a moral obligation or not in 2017 (which as MBC quite rightly observed it does not,
at least not without a clearer argument), they should be critiqued. When their assertion is based
on sloppy cherry-picked facts and wrongly generalized, they should be called out as either uninformed
or malicious, in hopes they will be less so in the future.
That's all I was saying; I did not have a point to make about pensions, because I agree with
Hudson's viewpoints almost all the time, which is why it is so sad to see him turn out to be so
cheesy, so often.
My personal experience of pensions is this: they are a total scam to lock people into exploitive,
nearly intolerable working conditions on the flimsiest of promises in the private sector; and
in the public sector, they are a way of adding to the debt burden of generations yet to come without
the assent of the people: taxation without representation, in effect.
I have seen professionals crumble morally thanks to the force of the pension. It is despicable
corporate oppression at the subtle level, because it looks as if they are doing a good thing,
which of course they are not. It's more subtle than their obvious screaming cruelties to people
and animals and the land, which, it must also be said, nobody does anything about either.
Yes pension systems aren't perfect, but some people don't have family or money to fall back
on when they get old. I am seeing more and more of my own friends in their 60s struggling to earn
money through work. They want to stop, but can't afford to.
And, I am dismayed and disheartened of seeing people on the sidewalks that could be my parents.
Or, shit, me
I have no sympathy for these people. Read Hillbilly Elegy and see the perspective from the
white working class. More often than not, people who are "struggling" in mid life are those who
made bad choices. They abused drugs, had kids out of wedlock, or didn't make a career for themselves.
Often, they spend poorly – on luxury items and consuming excessively.
I live now just like how I did when I was a poor student – with a carefully limited budget
and spending within my means (more on experiences than products). I save 80% of my income and
plan to retire early. More people can do the same.
My mentor/hero bought a fixer upper house that she repaired by herself. She bikes to work every
day in the snow, and buys her clothes from thrift stores. She makes a six figure salary.
Save for an uncertain future, folks, and you won't find yourself in dire straits later on in
life.
For most of the 19th century, just about everywhere, nobody who worked for a living expected
to live long enough to retire.
I suspect your children or your extended family, were your retirement if you lived long enough
pre-20th century times. Also I cannot imagine there was any sort of defined retirement prior to
20th century for the masses. People simply did whatever they could within their families until
they couldn't. Work loads probably just decreased with the fragility of old age.
Also many people did live long lives. IIRC, heavy mortality was primarily concentrated in children
and childbirth and maybe the occasional mass epidemic or bloody war. Dodge those and you could
probably live a fairly long life.
Quite right; there was a bimodal or multimodal curve, which is why mean averages of life expectancy
are not all that enlightening. But the fact is that most people who worked or fought, worked or
fought their whole lives, until they were incapacitated; then there was their family, or the Church,
or the poorhouse, or starvation, usually leading to mortal illness, if it had not done so before
then.
The other side of that story is that the old folk were there as part of the social and economic
unit: helping to pick the harvest with the very youngest; sharing skills and knowledge across
four or five generations, century after century-rather than being shuffled off to die in some
wretched cubby, doing "retirement" things. There's a terrific little book, Peter Laslett's The
World We Have Lost, that gives a well-sourced and interesting picture of pre-industrial family
life that pushes people to overcome some of their self-satisfaction about this kind of thing.
I remember reading where they found a Neanderthal remains that showed that this guy was definitely
disabled to the point where he couldn't have survived alone. Which means someone else helped him
live longer.
That's what humans have always done pretty much, before money. People paid in by being part of
society, and then their community helped them later. Social insurance is just the money big civilization
version of it isn't it?
I'm just thinking of the people with aging parents and children with parent cosigned student
loans And what if they were responsible for paying the $90,000+ / year nursing home payment and
all the medical bills, instead of Social Security, Medicare, Medicaid On top of trying to help
their kids get through college.
The whole scenario is a bad joke and getting worse.
There wasn't 15-20% of the population expecting to live 30 years in retirement and the next
generations to pay for their still mortgaged McMansions and trips to the tropics.
I have no issues paying for retirees. I have issues with asking the younger generations to
pay for lifestyles that are bigger than theirs. The Western retirement lifestyle is too energy
and resource intensive.
I don't think most people collecting a social security check actually have a big lifestyle,
much less trips to the tropics, that's a Charles Schwab commercial, not a reality for most people.
What Social Security has done is mostly reduce the number of old people living in poverty. Ok
so young and middle age people are still living in poverty, making everyone live in poverty including
people that are old and frail and sick is not an improvement. Are retired people's lifestyles
actually shown to be more energy intensive, I think in many ways they would be less so, ie not
making that long commute to the office everyday anymore etc..
Sorry, but your comment is delusional. It is impossible for someone retired on only Social
Security to "pay for their still mortgaged McMansions and trips to the tropics". In what universe
is that possible on a MAXIMUM annual income of less than $32,000? Googling "maximum social security
benefits" generates the following info:
"The maximum monthly Social Security benefit payment for a person retiring in 2016 at full retirement
age is $2,639. However, the maximum allowable benefit amount is only payable to those who had
the maximum taxable earnings for at least 35 working years. Depending on when you retire and how
much you made while working, your benefits may be considerably less. The estimated average monthly
benefit for "all retired workers" in 2016 is $1,341."
I suspect a lot of people (younger than boomers) might be still mortgaged to a small degree
when they retire as housing costs have gone up so that people can't afford a mortgage when they
are young, so if they buy real estate at all it's at middle age, buy the first home in their 30s
or 40s or 50, for a 30 year mortgage. But McMansions have nothing to do with that.
The income distribution table shows that the younger retirees 65-75 are not suffering when
compared to the working population they seem to have a good thing going for them
Merging all these data points, it becomes quite apparent that there is a large percentage of
retirees who still carry debt while collecting social security.
Increasing social security to some group means making another group pay
As usual, the abuse of history is the outstanding credibility-buster in this piece. When
an author says this,
Nobody anticipated in the 19th century that people would have to pay for their own retirement.
That was viewed as an obligation of society.
why should I believe anything else that he has to say?
The sole instance given is of Bismarck's Germany, actually ground-breaking in its social
welfare policies, which came only in the last part of the 19th century.
For most of the 19th century, just about everywhere, nobody who worked for a living expected
to live long enough to retire.
Indeed, retirement in past centuries had a different denotation. Its common use was among
the aristocracy, when one of that number determined to remove himself from active (urban) social
or political life and withdraw (hence the etymology, "re-tirer"), usually to the country.
Historically, he is right and you are entirely wrong, which is not surprising as Michael Hudson
is originally a philologist and historian and has specialised in economic history.
The modern conception of retirement is mostly a 20th Century invention, but throughout history,
there are many versions of 'retirement', and they were almost always paid out of current expenditures.
Roman soldiers were paid lump sums and frequently given land on reaching retirement age through
the Aerarium Militare. Militaries throughout ancient and medieval history had similar schemes,
and not just for officers, but again, these were rarely if ever paid out of a contribution scheme
– it was considered an obligation of the State.
In many, if not most societies, it was accepted that aristocratic employers and governments
had obligations to elderly staff – for example, fuedal workers would keep their homes when they
were no longer capable of working, and this extended well into the 19th Century. Organised religions
would almost always have systems for looking after retired religious members, again, always paid
out of current revenues, not some sort of investment fund. The concept of a fixed retirement age
(outside of the military) is a relatively modern one, but the concept of 'retirement' is not modern
at all.
This is the worst strawmanning bull**** I have seen in a while; it is simply infuriating. I
don't have the time to put all of what follows into perfect order, but here's what I can tap out
in a minute or two.
If, PK, you are trying to prove that some people in the past have stopped work and still gotten
paid, as part of their lifetime compensation for the work they have done, and that this is, de
facto, compensation during what we would now call "retirement," you win. Straw man knocked
over.
So let me again quote what Hudson says, just so your argument can be demonstrated as the pointless
distraction that it is:
"Nobody anticipated in the 19th century that people would have to pay for their own retirement.
That was viewed as an obligation of society."
That couldn't be clearer. "Nobody anticipated," as in "nobody." Meaning it was a generally
accepted social value that . what follows. What follows is "people," as in "people"; not just
soldiers, or priests, or servants; "people," ie, Gesellschaft; and then, "their own retirement,"
(which can only imply a period when they were old enough still to do something productive that
earned money, but chose not to, instead; because otherwise it would be called "disability," right?).
"That was viewed as an obligation of society," meaning, it was a right, not a privilege or gift
or compensation, and it was universal, because it applied to "people," and "nobody" thought otherwise.
There is just nothing there that is justifiable in any way based on the history of the nineteenth
century. The only exception is Bismarck's Germany, which is adduced as proof of the statement,
which is totally insupportable on its face.
If you stand by that, and are trying to suggest that "retirees," meaning as a group everyone
in society beyond a pre-defined age, as opposed to the disabled, were ever perceived as having
a societally based right to welfare support before the very late nineteenth or early twentieth
century, and that only in a very few, very advanced places, you fail three times over.
You do this in classically ahistorical ways: you conflate Gesellschaft with Gemeinschaft; you
adduce the military of the ancient world, which is just hilariously anachronistic, but even those
prove you wrong when examined closely; you completely misconstrue the rules of the corporately
organized ancien regime, which by the way was ancient history as far as the post-Dickensian industrializing
Europe that Hudson speaks of; you adduce the military and the priesthood as if they were representatives
of "society" as a whole, which they were not–they were adherents of the body that made the rules,
and liked to keeps its friends close, and could reward them. The same, while you are at it, was
true of some different varieties of public servants–but not many, and again, not before the late
nineteenth century, and certainly not in the US:
"Like military pensions, pensions for loyal civil servants date back centuries. Prior to the
nineteenth century, however, these pensions were typically handed out on a case-by-case basis;
except for the military, there were few if any retirement plans or systems with well-defined rules
for qualification, contributions, funding, and so forth. Most European countries maintained some
type of formal pension system for their public sector workers by the late nineteenth century.
Although a few U.S. municipalities offered plans prior to 1900, most public sector workers were
not offered pensions until the first decades of the twentieth century. Teachers, firefighters,
and police officers were typically the first non-military workers to receive a retirement plan
as part of their compensation."
Your ad hominem appeal to Hudson's authority as a historian is amusing: it is actually
not surprising that Hudson is wrong, and I am right; because he is an economic historian,
with a special faculty, apparently, for conducting contemporary policy polemics; and I would be
happy to give you my professional authority, except that this is the internet, so appeals to professional
authority don't mean anything at all, but I'll just put it to you that it is more than sufficient;
but leaving that aside, I am without a polemical agenda, except just this one: that the past needs
to be respected in its totality, and that even when being used to score points in contemporary
policy arguments. I know which of us has more credibility here just by reading Hudson's sentences,
which are devoid of historical meaning or sensitivity; and I know that I, as a historian, would
never knowingly misuse the past to make a point about the present, because that is being a bad,
bad doctor.
You bring up three cases: military, clergy, and servants. Those are exactly not what
Hudson is talking about when he mentions Bismarck, or the nineteenth century, or retirement and
its old age provisions as a whole, so you basically proved my point just by failing to address
the actual argument. What Hudson is referring to-because he says so with his one example-is the
Bismarckian "Gesellschaft" obligation to what had in previous centuries been called the the third
estate in generic terms. Not, mind you, the first and second estates and their servants and adherents.
If Hudson were talking about pensions for the military, he would have said so, and his argument
would have ended there, in a paragraph, because they are fully protected in that regard and have
been, at least more than the average citizen, since the GI Bill. Pensions for the military is
not part of some kind of "social obligation" for retirees; it is a reward for long service, and
therefore not some kind of "right of social welfare," but a kind of compensation, and it was not
much, at that, in the 19th century.
The regular clergy, which made up most of the clergy until the dissolutions, did not retire:
their jobs were for life, because they lived a life of prayer, and that was not something that
ever ended. The Church supported all clergy as a corporate, spiritually mandated obligation,
not as a generalized "social obligation" like social security, or what Bismarck instituted.
If your point is that certain corporate groups took care of their privileged members when they
no longer worked, that is one thing; if your point is that "retirement" as a condition that merited
social welfare, in general, the clergy don't make that for you. They were exceptions to the general
rule that people had to fend for themselves, a rule that applied to the entire third estate by
definition from time immemorial.
Lastly, servants: those who "retired" in the nineteenth century very often did not have the
same treatments as servants in the ancien regime, many of whom died in harness in any case. But,
if their employing families did continue to provide for them, they did so not out of a sense they
were meeting the "obligation of society to the retired," but as a matter of family or community
duty, noblesse oblige. It was completely at the mercy and discretion of the family involved. It
was a matter of personal honor, and still is, when servants have been your friends and companions
and have prepared and eaten the same food you have, and cleaned your mess and watched your back
and brushed your horses and trained you to ride, and seen your youthful foolishness, sometimes
for generations. Those are not "obligations of society"; they are personal and family and moral
obligations. So Cato the Elder took some heat for his recommendations on discarding old and broken
down slaves, but nobody suggested it was up to the Republic to pay for them instead. Since you're
going to the ancient world, you might better have used that example than that of the soldiers.
And so all that is what Hudson is not talking about. He's talking about Bismarck's
social security as a moral precedent, reflecting a widely held belief in the popular right to
a social safety net after a certain age.
So of course some people were "pensioned." They were called "pensioners," and many of them
were not at all "retired," but had gone on to work at other things, like soldiers who opened up
fish-and-chips shops (q.v.). That does not mean that there was ever a Gesellschaft-like concept
of "retirement" as a condition that brought the right to support by the commonwealth; not before
Bismarck. That's what Hudson's reference tries to imply, that such a concept was common in the
19th century, at a widespread societal level in Western Civilization, and it is provably, demonstrably,
obviously wrong. If it weren't, why would the Old-Age Pensions Act 1908 have ever been passed?
"Nobody anticipated in the 19th century that people would have to pay for their own retirement.
That was viewed as an obligation of society."
You simply cannot construe that to have any truth, given the facts of the century. You can
straw-man me about the concept of "retirement" all you like, although you are still wrong there,
because the groups you name aren't people who "work for a living," which is the third estate;
they are the first and second estates, and their adherents: those who fight for a living, and
pray for a living, and those who obey them.
So the fact remains that Hudson's statement was just polemical fluff, and no historian worth
the name should have uttered it. I guess I'll sit here and wait for his response, because yours,
well .
"He didn't call FICA wage withholding a tax, but of course it is."
This just drives me to apoplexy. 1, that it is not called a tax, and 2, that wage taxes are
never ever reduced.
Incessant yammering about "incentives" – but doesn't a wage tax disincentivise both employers
and employees with regard to wage work? – – Endless talk about how CEO's can't do ANYTHING unless
their taxes are REDUCED!!!!!!! But somehow .that just goes out the window when it comes to wages
– TAXES MUST GO UP.
Cheney – deficits don't matter .except apparently with regard to social security ..
The other scam about FICA and its "separate" funding is that social security being in balance
is OH SO IMPORTANT – deficits will be the death of it. Yet the general fund is in deficit (see
Mish today for a bunch of stuff on the hypocrisy of repubs on the deficit) and ever more deficit
and nobody seriously cares about it or worries about it. MONEY can always be found for invading
for Iraq, and paying for invading anybody is NEVER a problem. Feeding old folks, on the other
hand, sure strains the resources
Its like it is as important to keep a reserve army of the impoverished as it is to keep the empire.
FD -'This just drives me to apoplexy' Breathe, buddy.
Yes, mate, feeding old folks – looking after the oldies so they have health care, decent food
and a home.
How well each country does it reflects their views on whether it's a social obligation. For
many countries, there is no safety net and families provide the care, if they can.
It's becoming that way in the west too. I don't see many governments increasing welfare for
our poorest people, benefits are being gutted and those that did save for retirement are seeing
their funds looted and zero interest paid
Life in Indian joint family is great- no retirement work- food for life for a member- great
lack of boredoms and lonely depressions- life, life ,- exquisite vegetarian food fit for Gods-
low tech human scale towns- GREAT TO BE ALIVE ON 3 dollars a day! This talk of retirement and
working and senior junior savings is so pathetic that my sex drive just evaporated into thin air
reading it! Get a life.
It's good to read Michael Hudson's call-out of FICA as a mechanism to crush workers and transfer
wealth to the already rich.
FICA is indeed the worse sort of deductive reasoning. It is based on the premise that the rich
are entitled to be rich, and that the masses want to take their money from them. In America in
particular, wealth has historically been based on grants from the sovereign to loot the commons
(timber, agriculture, mineral extraction, railroads, military procurement, data mining, etc.).
These grants to loot the commons have nearly always been based on corrupt practices of cronyism
and bribery. Alchemists like Greenspan simply provide theo-classical mumbo-jumbo after-the-fact
justification for their piracy.
Ironically, I was just reading about impending failure of the Oroville Dam, a prime example
of America as the seat of greed. It was well-known that the spillways were inadequate and crumbling
due to 50 years of use. However, the Reagan-ites of Southern California refused to tax themselves
in order to save Oroville and Yuba City, 450 miles away.
It's sad that everyone, especially the rich, think that they can blow-up the United States
and then fly to their bolt-hole in New Zealand or Australia - or if you're not so rich to a shack
in Panama or Thailand. I suspect that we will soon find ourselves to be unwelcome pariahs in those
places.
How is FICA a redistribution to the wealthy? If anything, what you pay in buys you a share
of the distributions when you retire. That means the output is roughly proportional to the input
you contribute. The wealthy stop contributing after roughly the $120,000 limit, but that doesn't
mean they take an outsized distribution. They take home exactly the same (pre-tax) as someone
who only made $120,000 per year.
If anything there's a bit of redistribution behind the scenes that favours the poor. See my
earlier post. If you make too many changes to Social Security such that it becomes another welfare
program, it will lose its popular backing and eventually get axed.
Neoliberalism is OUT-DATED. Rather, for the past four decades, it's been fiat currency for
the .01% and gold standard straitjacket ideology for everyone else.
"The mainstream view is no longer valid for countries issuing their own non-convertible currencies
and only has meaning for those operating under fixed exchange rate regimes,
'The two monetary systems are very different. You cannot apply the economics of the gold standard
(or USD convertibility) to the modern monetary system. Unfortunately, most commentators and professors
and politicians continue to use the old logic when discussing the current policy options. It is
a basic fallacy and prevents us from having a sensible discussion about what the government should
be doing. All the fear-mongering about the size of the deficit and the size of the borrowings
(and the logic of borrowing in the first place) are all based on the old paradigm. They are totally
inapplicable to the fiat monetary system' (Mitchell, 2009).
We might now consider the opportunity afforded by the new monetary reality, effectively modelled
by MMT. A new socio-political reality is possible which throws off the shackles of the old. The
government can now act as a currency issuer and pursue public purpose. Functional finance is now
the order of the day. For most nations, issuing their own fiat currency under floating exchange
rates the situation is different to the days of fixed exchange rates. Since the gold window closed
a different core reality exists – one which, potentially at least, provides governments with significantly
more scope to enact policies which benefit society.
However, the political layer, in the way it interacts with monetary reality, has a detrimental
effect on the power of democratic governments to pursue public purpose. In the new monetary reality
political arrangements that sprang up under the old regimes are no longer necessary or beneficial.
They can largely be considered as self-imposed constraints on the system; in short the political
layer contains elements which are out-of-date, ideologically biased and unnecessary. However,
mainstream economists have not grasped this situation – or perhaps they cannot allow themselves
to- because of the vice-like grip that their ethics and 'traditional' training has on them.
MMT provides the best monetary models out there and highlights the existence of additional
policy space acquired by sovereign states since Nixon closed the gold window and most nations
adopted floating exchange rates. We just need to encourage the use of the space to enhance the
living standards of ordinary people."
Heterodox Views of Money and Modern Monetary Theory (MMT) by Phil Armstrong (York College)
2015
A new socio-political reality is possible which throws off the shackles of the old. The
government can now act as a currency issuer and pursue public purpose. Functional finance is
now the order of the day. For most nations, issuing their own fiat currency under floating
exchange rates the situation is different to the days of fixed exchange rates. Since the gold
window closed a different core reality exists – one which, potentially at least, provides governments
with significantly more scope to enact policies which benefit society.
What I especially like about your post is that it finally takes the mask off and openly admits
what everyone who tries to learn about MMT has realized at once: that for all of its utility in
understanding money systems, it is designed and propounded with an agenda: to undermine the mores
underlying centuries of private-property-based liberal capitalism. Those mores, which remain more
than illusions despite the encroachments of central banks, are the last barrier to prevent state
capitalism from becoming completely authoritarian, because as long as "taxation" is, at least
theoretically, the limit on state spending and therefore power, then "representation" actually
means something, and so representative democracy and property rights, which are the keys to a
functioning productive civil society and underlie all human progress for eight hundred years,
can survive a bit longer.
The very real and useful core of MMT, which describes what we see happening since the gold
standard fell, and is therefore unimpeachable from a certain objective turn of mind, is Janus-faced.
On the one hand, it acknowledges what the Framers knew intuitively when they gave the Federal
government the power of issuing money: the sovereign makes the money. On the other, as often used
here, and especially in your comment, it is a rationale for a government unrestrained by property
rights and representative constraints on its power of expenditure. That will not end well, simply
because it will not last long, and it will end in a military despotism or landed aristocracy (if
you're lucky). Because it always has, and you are not going to change that, are you?
In one of the recently discovered lectures (1940) by Karl Polanyi, in referring to post-war
Europe (post 1918) he argued:
"The alternative was between an integration of society through political power on a democratic
basis, or if democracy proved too weak, integration on an authoritarian basis in a totalitarian
society, at the price of the sacrifice of democracy."
It is still the same issue today which PhilM nicely illuminates when he states: "..What I especially
like about your post is that it finally takes the mask off and openly admits what everyone who
tries to learn about MMT has realized at once: that for all of its utility in understanding money
systems, it is designed and propounded with an agenda to undermine the mores underlying centuries
of private-property-based liberal capitalism. These mores, which remain more than illusions despite
the encroachments of central banks, are the last barrier to prevent state capitalism from becoming
completely authoritarian, because as long as "taxation" is, at least theoretically, the limit
on state spending and therefore power, then "representation" actually means something "
The national security state already has a potentially totalitarian hold on us and in the future
the MMT scenario "as a rationale for a government unrestrained by property rights and representative
constraints on its powers of expenditure" might nicely finish us off.
It would no longer be the neo-liberal present where the whole of society must be subordinated
to the needs of the market system, but the other extreme, where the whole of society must be subordinated
to the needs of the state supposedly working in the "public interest."
it is designed and propounded with an agenda: to undermine the mores underlying centuries
of private-property-based liberal capitalism.
You say that like it's a bad thing :-)
the last barrier to prevent state capitalism from becoming completely authoritarian
State capitalism? If this is supposed to be a topical reference I don't get it.
as long as "taxation" is, at least theoretically, the limit on state spending and therefore
power, then "representation" actually means something
How so? Did "taxation" restrain Bush from spending trillions on invasions? Can't you have representation
without taxation?
representative democracy and property rights, which are the keys to a functioning productive
civil society and underlie all human progress for eight hundred years
I thought that was the Catholic Church
"Property rights"-the private monopolisation of the gifts of nature-at least in their traditional
form, seem to me to be the third fundamental flaw in our political economy, along with Capitalism
(narrowly defined) and our bogus monetary ludibrium. We need a new Church.
MMT: great stuff. With you 100%. The issue is corruption and this culture of privilege and
corruption we live in. You better believe the government will be issuing currency for other than
the public interest. The fact is we live in an MMT economy now, it's just that the currency created
by the government is being passed out to the ethnically privileged .001%. The talk of deficits
and national debt is all a smoke screen to cover up this fact. It is way past time to educate
the masses on this theme, kudos to Michael Hudson & Steve Keen.
One part of society parasitical on the productive part .. starts small. $1 per $1000, then
$10 per $1000 until it gets to $1000 per $1000. Neither bought politicians, nor bought citizens,
stays bought.
Of course we shouldn't expect women and children to work that is destructive of reproduction
and child raising. Some women should work some children should work but only a few. Otherwise
obvious system dynamics will reduce the net population in quality and quantity.
You're going to privatize the roads, so that now you're going to have to pay to use the
road to drive to work, if you don't have public transportation.
This is a zero-sum game for the elite. They're already soaking us. If they soak us on tolls,
they'll have to take less money soaking us another way.
In contrast, Fed Gov reducing spending is not a zero-sum game for the elite. That means less
money to be soaked up from the public. Unless of course, the public compensates by taking out
more private debt. In which case, ka ching for the elite again.
That said, I don't think the mind-set really is to reduce Fed Gov spending. Rather, the mind-set
is to reduce entitlements so that other Fed Gov spending can be increased, namely on defense,
intelligence communities, etc. And I really don't think the elite have much of a dog in that fight.
After all, the elite suck up all the money regardless of how it's spent by the Fed Gov. So my
guess is that this campaign to reduce entitlement spending is being waged by the other agencies
in the Fed Gov and the eco-system that feeds off them.
In the 1980s Greenspan pushed for massive increases in FICA. And Reagan spent it on Star Wars.
Recently I've read that that wasn't really a missile shield project but a cyber technology project.
Today we read that the CIA has disseminated all this accumulated and obsolete technology; leased
it out to private contractors; or variously bribed the Europeans with it. Etc. Fast-back to the
1930s and FDR took the same SS money for WW2. In the 60s, JFK agonized about the budget and the
value of the dollar and could see no reason to go into Vietnam, but oops. LBJ bulldozed through
Congress our Medicare plan, which upped SS contributions, and he went promptly into Vietnam, spending
it all and stuffing the retirement funds with treasuries. Shouldn't we all be looking at how transitory
these achievements (or disasters) have been. Maybe nothing more than boosting the economy for
a few years every other decade or so. Money could achieve much more than this if we accepted as
fact the fleeting benefits of misspending it and instead concentrated on a steady economy benefiting
all. Hubris rules, but it doesn't ever make things better.
'it's a myth that Social Security should be pre-funded by its beneficiaries' - Sharmini
Peries
If it's a myth, it's one that's incorporated in the Social Security Act of 1935, as well as
(for private pensions) the ERISA Act of 1974.
After about a century of experimentation, we know how to fund pensions securely: estimate the
present value of the future liability using an appropriate discount rate, and then keep it funded
on a current basis.
Social Security grossly violates this model in three respects. First, it is only about 20 percent
funded, headed for zero in 2034 according to its own trustees.
Second, because Social Security does not avail itself of the Capital Asset Pricing Model developed
in the 1960s, it invests in low-return Treasuries, which causes required contributions to be cruelly
high. Had Soc Sec been invested in a 60/40 mix of stocks and bonds, FICA taxes could have been
half their current level and funded higher benefits.
Third and finally, Social Security is treated as an off balance sheet obligation in the Financial
Report of the United States. Unlike the legally enforceable obligation of private pension sponsors
to make good on their promises, the government refuses to take responsibility and put itself on
the hook. The Supreme Court has ruled that Social Security essentially is a welfare program, which
Congress can cut back or cancel at will. So much for "security" - there isn't any.
Social Security is part of a general pattern of government taking a sleazy, second-rate approach
to its social promises, by exempting itself from well-established prudential rules mandating best
practices. Frank Roosevelt wanted his constituents to be forever dependent on the kindness of
perfidious politicians. He got his wish.
>we know how to fund pensions securely: estimate the
C'mon Jim you can do better than that. Here is dictionary.com, do you see the problem with
your statement?
know:
verb (used with object), knew, known, knowing.
1. to perceive or understand as fact or truth; to apprehend clearly and with certainty:
estimate
verb (used with object), estimated, estimating.
1.to form an approximate judgment or opinion regarding the worth, amount, size, weight, etc.,
of; calculate approximately:
When you lend money to the profligate, they are happy. When you ask to be repaid, they are
furious. It turns out that is just as true when workers who payroll taxes on their whole income
"lend money" to the wealthy by paying excess amounts to the SS trust fund which in turn, enabled
tax cuts for the wealthy. The wealthy are incensed that the SS trust fund, which has "lent" trillions
to the treasury is now demanding to be "repaid" with interest.
That's the trick about S.S. that gets me. You cannot pay in 15% of your income with some amount
of reasonable compounding interest for your entire career and not have a massive nest egg at the
end. But the math is done straight up such that there never was interest on the payments, so we
are entitled to very little, despite every other form of investing on the planet returning some
kind of interest.
It's one of the reasons I argue for a Sovereign Wealth Fund to retain and manage all SS recepts,
so at least the contributions and return on investment are accounted for in plain sight, so nobody
can bait and switch.
And heaven forbid the Sovereign wealth fund could also be used as government bank that loans
(our) money direct to citizens, without private banks getting a cut.
It ain't utopia, but it is a way of playing their game and still winning results and the pr
war even in the face of the most anti-sociailst conservative.
We need to keep up with the Feudalism 2.0 Moniker.
We continue to refine society towards only 4 classes of people:
Warlords/Politicians
Productivity Owners
Rent Extractors
The Oppressed
Over the last 35 years the productivity owners have been making a run, vacuuming up all the
productivity improvements leaving everybody else stagnant, before considering inflation, but with
the robotic age coming, they are just getting warmed up.
>but with the robotic age coming, they are just getting warmed up.
Hmmm.
Henry Ford II: Walter, how are you going to get those robots to pay your union dues?
Walter Reuther: Henry, how are you going to get them to buy your cars?
Apparently not an actual quote, but one Reuther certainly endorsed.
You know "they" are just planning to kill 2/3 of us off, don't you? The elite are evil and
sure many of them are stupid, but far from all of them.
"You're turning the economy into what used to be called feudalism. Except that we don't
have outright serfdom, because people can live wherever they want. But they all have to pay to
this new hereditary 'financial/real estate/public enterprise' class that is transforming the economy."
Spot.On.
From Marx's "Capital", Chapter 26 (The Secret of Primitive Accumulation):
"The industrial capitalists, these new potentates, had on their part not only to displace
the guild masters of handicrafts, but also the feudal lords, the possessors of the sources of
wealth. In this respect, their conquest of social power appears as the fruit of a victorious struggle
both against feudal lordship and its revolting prerogatives, and against the guilds and the fetters
they laid on the free development of production and the free exploitation of man by man. The chevaliers
d'industrie, however, only succeeded in supplanting the chevaliers of the sword by making use
of events of which they themselves were wholly innocent. They have risen by means as vile as those
by which the Roman freedman once on a time made himself the master of his patronus.
The starting point of the development that gave rise to the wage labourer as well as to
the capitalist, was the servitude of the labourer. The advance consisted in a change of form of
this servitude, in the transformation of feudal exploitation into capitalist exploitation. "
"... Wasn't there a recent discussion about how 401(k)s are a sham? ..."
"... Hillary should have campaigned on this policy of diverting savings to Wall Street in order to help exports. This would have gotten more voters to the polls.... Call it a private Wall St. tax on savers. ..."
"... from Miles Kimball the supply-sider ..."
"... how would Brad Setser think about an 8 percent tax on Chinese consumers that the Communist sovereign wealth fund could invest abroad for their retirement? That would boost Wall Street some more. ..."
"As I explained in my May 14, 2015 column "How Increasing
Retirement Saving Could Give America More Balanced Trade":
I talked to Madrian and David Laibson, the incoming chair
of Harvard's Economics Department (who has worked with her on
studying the effects of automatic enrollment) on the
sidelines of a Consumer Financial Protection Bureau research
conference last week. Using back-of-the-envelope calculations
based on the effects estimated in this research, they agreed
that requiring all firms to automatically enroll all
employees in a 401(k) with a default contribution rate of 8%
could increase the national saving rate on the order of 2 or
3 percent of GDP."
Wasn't there a recent discussion about how 401(k)s are a
sham?
Progressive neoliberals....
Hillary should have campaigned on this policy of diverting
savings to Wall Street in order to help exports. This would
have gotten more voters to the polls.... Call it a private
Wall St. tax on savers.
how would Brad Setser think about an 8 percent tax on Chinese
consumers that the Communist sovereign wealth fund could
invest abroad for their retirement? That would boost Wall
Street some more.
Peter K. -> Peter K....
, -1
The other benefit of Kimball's plan - from a prog neolib
viewpoint - is that it would weaken Social Security.
In the nondescript
world of public
policy, oopsies don't
get any bigger than
this.
In a remarkable
story (#) in Tuesday's
Wall Street Journal,
several early
champions of 401(k)s,
the now-ubiquitous
tax-deferred plans
that help workers sock
away retirement funds,
expressed regrets for
what their efforts
later yielded: Private
pensions have
withered. Individual
workers now shoulder
risks that large
corporations once
bore. Investment fees
chip away at account
owners' returns. The
typical American
worker is badly
underprepared for old
age.
"I helped open the
door for Wall Street
to make even more
money than they were
already making," said
benefits consultant
Ted Benna - sometimes
known, according the
Journal's Timothy W.
Martin, as the "father
of the 401(k)." "We
weren't social
visionaries," said
former Johnson &
Johnson
human-resources
executive Herbert
Whitehouse, who helped
popularize the plans.
"The great lie is that
the 401(k) was capable
of replacing the old
system of pensions,"
said Gerald Facciani,
the former head of the
American Society of
Pension Actuaries.
Whoops.
Older Americans'
fear of leaving the
workforce with nothing
saved surely added to
the economic unease
that Donald Trump
channeled in his
campaign. ...
Instead, a Republican
Congress and the
incoming Republican
president are
preparing to repeal
Obamacare and replace
it with individual
health savings
accounts, or something
else, or perhaps
nothing at all. At the
least, the new regime
in Washington should
heed a lesson from the
401(k) debacle: When
you fiddle with the
safety net, you should
consider how people
and corporations
behave in real life.
...
Herbert Whitehouse was
one of the first in
the U.S. to suggest
workers use a 401(k).
His hope in 1981 was
that the
retirement-savings
plan would supplement
a company pension that
guaranteed payouts for
life.
Thirty-five years
later, the former
Johnson & Johnson
human-resources
executive has
misgivings about what
he helped start.
What Mr. Whitehouse
and other proponents
didn't anticipate was
that the tax-deferred
savings tool would
largely replace
pensions as big
employers looked for
ways to cut expenses.
Just 13% of all
private-sector workers
have a traditional
pension, compared with
38% in 1979.
"We weren't social
visionaries," Mr.
Whitehouse says.
Many early backers
of the 401(k) now say
they have regrets
about how their
creation turned out
despite its emergence
as the dominant way
most Americans save.
Some say it wasn't
designed to be a
primary retirement
tool and acknowledge
they used forecasts
that were too
optimistic to sell the
plan in its early
days.
Others say the
proliferation of
401(k) plans has
exposed workers to big
drops in the stock
market and high fees
from Wall Street money
managers while making
it easier for
companies to shed
guaranteed retiree
payouts.
"The great lie is
that the 401(k) was
capable of replacing
the old system of
pensions," says former
American Society of
Pension Actuaries head
Gerald Facciani, who
helped turn back a
1986 Reagan
administration push to
kill the 401(k). "It
was oversold."
Misgivings about
401(k) plans are part
of a larger debate
over how best to boost
the savings of all
Americans. Some early
401(k) backers are now
calling for changes
that either force
employees to save more
or require companies
to funnel additional
money into their
workers' retirement
plans. Current
regulations provide
incentives to set up
voluntary plans but
don't require
employees or companies
to take any specific
action. ...
The advent of
401(k)s gave
individuals
considerable
discretion as to how
and even whether they
would save for
retirement. Just 61%
of eligible workers
are currently saving,
and most have never
calculated how much
they would need to
retire comfortably,
according to the
Employee Benefit
Research Institute and
market researcher
Greenwald &
Associates.
Financial experts
recommend people amass
at least eight times
their annual salary to
retire. All income
levels are falling
short. For people ages
50 to 64, the bottom
half of earners have a
median income of
$32,000 and retirement
assets of $25,000,
according to an
analysis of federal
data by the New
School's Schwartz
Center for Economic
Policy Analysis in New
York. The middle 40%
earn $97,000 and have
saved $121,000, while
the top 10% make
$251,000 and have
$450,000 socked away.
Savings gap
And the savings gap
is worsening.
Fifty-two percent of
U.S. households are at
risk of running low on
money during
retirement, based on
projections of assets,
home prices, debt
levels and Social
Security income,
according to Boston
College's Center for
Retirement Research.
That is up from 31% of
households in 1983.
Roughly 45% of all
households currently
have zero saved for
retirement, according
to the National
Institute on
Retirement Security.
More than 30
million U.S. workers
don't have access to
any retirement plan
because many small
businesses don't
provide one. People
are living longer than
they did in the 1980s,
fewer companies are
covering retirees'
health-care expenses,
wages have largely
stagnated and low
interest rates have
diluted investment
gains.
"I go around the
country. The thing
that people are
terrified about is
running out of money,"
says Phyllis C. Borzi,
a U.S. Labor
Department assistant
secretary and
retirement-income
expert.
Some savers
underestimate how much
they will need to
retire or accumulate
too much debt. Lucian
J. Bernard is among
those wishing he had a
do-over. The
65-year-old lawyer
from Edgewood, Ky.,
doesn't have much
savings beyond a small
company pension and
Social Security. He
cashed out a 401(k) in
the 1980s to fund law
school and never
replenished it. He
implores his daughter
to start saving.
"It's a little
easier saying it than
doing it," he says.
Defenders of the
401(k) say it can
produce an ample
retirement cache if
employers provide
access to one and
people start saving
early enough. People
in their 60s who have
been socking away
money in 401(k)s for
multiple decades have
average savings of
$304,000, according to
the Employee Benefit
Research Institute and
Investment Company
Institute.
"There's no
question it worked"
for those who
committed to saving,
says Robert Reynolds,
who was involved in
Fidelity Investments'
first sales of 401(k)
products several
decades ago.
He considers
himself among the
success stories. At
64, he could retire
comfortably today
after saving for three
decades. "It's a very
simple formula," he
says. "If you save at
10% plus a year and
participate in your
plan, you will have
more than 100% of your
annual income for
retirement."
The 401(k) can be
traced back to a 1978
decision by Congress
to change the tax
code-at line 401(k)-so
top executives had a
tax-free way to defer
compensation from
bonuses or stock
options.
At the time,
defined
benefit-pension plans,
which boomed in
popularity after World
War II, were the most
common way workers
saved for retirement.
A group of
human-resources
executives,
consultants,
economists and policy
experts then jumped on
the tax code as a way
to encourage saving.
Ted Benna, a benefits
consultant with the
Johnson Companies, was
one of the first to
propose such a move,
in 1980, leading some
in the industry to
refer to him as the
father of the 401(k).
Selling it to
workers was a
challenge. Employees
could put aside money
tax-free, but they
were largely
responsible for their
own saving and
investment choices,
meaning they could
profit or lose big
based on markets. They
also took home less
money with each
paycheck, which is why
401(k)s were commonly
called "salary
reduction plans."
Traditional pension
plans, on the other
hand, had weaknesses:
Company bankruptcies
could wipe them out or
weaken them, and it
was difficult for
workers to transfer
them if they switched
employers.
Companies embraced
the 401(k) because it
was less expensive and
more predictable to
fund than pensions.
Company pay-ins ended
when an employee left
or retired.
Employees, for
their part, were drawn
to an option that
could provide more
than a company's
pension ever would.
Two bull-market runs
in the 1980s and 1990s
pushed 401(k) accounts
higher.
Economist Teresa
Ghilarducci, director
of the Schwartz Center
for Economic Policy
Analysis, says she
offered assurances at
union board meetings
and congressional
hearings that
employees would have
enough to retire if
they set aside just 3%
of their paychecks in
a 401(k). That assumed
investments would rise
by 7% a year.
"There was a
complete overreaction
of excitement and
wow," says Kevin
Crain, who as a young
executive at Fidelity
Investments in the
1990s recalled
complaints about some
of its funds
underperforming the
S&P 500. "People were
thinking: Forget that
boring pension plan."
Two recessions in
the 2000s erased those
gains and prompted
second thoughts from
some early 401(k)
champions. Markets
have since recovered,
but many savers are
still behind where
they need to be. ...
That seems to be the point of the
article. People find easy excuses/good reasons/ essentials
require them to pull out their 401k funds. That is sooo
wrong!
Yes it is possible to create a sizeable retirement fund if you have a stable job with 401K plan.
But many people don't and changing companies create difficulties for them (and associated losses).
Also you intimately depend on the stability of dollar during retirement as your holdings are not
indexed to inflation as for Social Security and a typical pension. As well on the stability of
bond and stock market. Then there is such phenomenon as inherent instability of financial sector
under neoliberalism (aperiodic market crashes).
Also you do not have the time to follow the market so you either use index funds (where returns
can be wiped out due to sharp recession and associated market crush close to your retirement) or you
run unbalanced portfolio and eclectic trading strategy with oversize risks. Especially if your
investing is fashion/sentiment driven.
Getting something like 2008 events on your first year of retirement can cut your funds almost in
one third if not more, if you panic and sell at low point.
I think you do not understand the most despicable part about 401k: It offload all the risk to
individual and remunerates (wildly) Wall Street, which became the middleman between the man and his
money, charging an annual fee.
This offloading of all the risks to individual is an immanent feature of neoliberalism, so we
have what we have. In this sense 401K is a perfect neoliberal invention, perfect for redistribution
of wealth up.
Also many people are not trained to distrust all wealth management and fund manager types and get
into various types of traps, when fool and his money are soon parted.
Let me remind you what happened with 401K accounts in 2008 -- they dropped for a year around 30%.
And similar volatility you can experience several times during your lifespan, on average probably
once is a decade, or even more often. And quick recovery like in 2003 or 2009-2010 is not guaranteed
at all.
There is also element of adverse selection in many if not most 401K plans companies providing
401K plan often hire intermediaries which handle 401K for some other services, and as a result 401k
provide limited selection of expensive and inappropriate for retirement funds which are not suitable
for balanced portfolio. Usually 401K are overloaded with stock funds, some with high fees and risky
strategy (international stock market, emerging markets, etc).
A good example here is Wall Mart which behaves as for 401K as a real predator hunting its pray in
a pack with another predator (Merrill Lynch)
If all 401K participants are allowed to invest in 30 year government bonds without any financial
change (but not via evergreen bond funds, who are in reality money vampires) that will be a slight
improvement over the current situation were bond funds provided are often real financial sharks (say
0.5% annually on 2% return or 25% of nominal return). Which is somewhat true even for Vanguard (to
say nothing about Fidelity). These ghastly, lazy, incompetent predators don't care much about 401K
investors.
401K also created that whole parasitic branch of financial industry, with a lot of people
employed. But to manage a sizable mutual fund is not a very exiting job either, if you try to do it
honestly. There are way too many variables beyond your control.
Employee pensions funds can do the same staff more economically (but they require higher
participation from the companies -- around 10% instead of 3-4% matching in 401K). So along with
offloading of risk switching to 401K also confiscated a part of your retirement fund.
401K funds are also not free from fraud (hidden fees) and mismanagement. The 401K plans typically
promote neoliberal "Cult of equities" which benefits Wall Street and large speculators, like Goldman
Sacks. As well of day traders and HFT as they create daily volume.
And last but not least 401K created those huge companies like Fidelity and Vanguard which
dominate the boards of most publicly trading companies, making the USA a classic case of rentier
capitalism (monopolization of holding of stocks). They also create a perfect playing field for
shorting shocks and facilitating derivatives such an options.
And this "greed is good" manta is corrupting even better of them such as Vanguard, which now started
offering some shady services and such.
"... I helped open the door for Wall Street to make even more money than they were already making ..."
"... "The great lie is that the 401(k) was capable of replacing the old system of pensions," said Gerald Facciani, the former head of the American Society of Pension Actuaries. ..."
In the nondescript world of public policy, oopsies don't
get any bigger than this.
In a remarkable story (#) in Tuesday's Wall Street
Journal, several early champions of 401(k)s, the
now-ubiquitous tax-deferred plans that help workers sock
away retirement funds, expressed regrets for what their
efforts later yielded: Private pensions have withered.
Individual workers now shoulder risks that large
corporations once bore. Investment fees chip away at
account owners' returns. The typical American worker is
badly underprepared for old age.
"
I helped open the door for Wall Street to make
even more money than they were already making
," said
benefits consultant Ted Benna - sometimes known, according
the Journal's Timothy W. Martin, as the "father of the
401(k)." "We weren't social visionaries," said former
Johnson & Johnson human-resources executive Herbert
Whitehouse, who helped popularize the plans.
"The
great lie is that the 401(k) was capable of replacing the
old system of pensions," said Gerald Facciani, the former
head of the American Society of Pension Actuaries.
Whoops.
Older Americans' fear of leaving the workforce with
nothing saved surely added to the economic unease that
Donald Trump channeled in his campaign. ...
Instead, a Republican Congress and the incoming Republican
president are preparing to repeal Obamacare and replace it
with individual health savings accounts, or something
else, or perhaps nothing at all. At the least, the new
regime in Washington should heed a lesson from the 401(k)
debacle: When you fiddle with the safety net, you should
consider how people and corporations behave in real life.
...
Herbert Whitehouse was one of the first in the U.S. to
suggest workers use a 401(k). His hope in 1981 was that
the retirement-savings plan would supplement a company
pension that guaranteed payouts for life.
Thirty-five years later, the former Johnson & Johnson
human-resources executive has misgivings about what he
helped start.
What Mr. Whitehouse and other proponents didn't
anticipate was that the tax-deferred savings tool would
largely replace pensions as big employers looked for ways
to cut expenses. Just 13% of all private-sector workers
have a traditional pension, compared with 38% in 1979.
"We weren't social visionaries," Mr. Whitehouse says.
Many early backers of the 401(k) now say they have
regrets about how their creation turned out despite its
emergence as the dominant way most Americans save. Some
say it wasn't designed to be a primary retirement tool and
acknowledge they used forecasts that were too optimistic
to sell the plan in its early days.
Others say the proliferation of 401(k) plans has
exposed workers to big drops in the stock market and high
fees from Wall Street money managers while making it
easier for companies to shed guaranteed retiree payouts.
"The great lie is that the 401(k) was capable of
replacing the old system of pensions," says former
American Society of Pension Actuaries head Gerald Facciani,
who helped turn back a 1986 Reagan administration push to
kill the 401(k). "It was oversold."
Misgivings about 401(k) plans are part of a larger
debate over how best to boost the savings of all
Americans. Some early 401(k) backers are now calling for
changes that either force employees to save more or
require companies to funnel additional money into their
workers' retirement plans. Current regulations provide
incentives to set up voluntary plans but don't require
employees or companies to take any specific action. ...
The advent of 401(k)s gave individuals considerable
discretion as to how and even whether they would save for
retirement. Just 61% of eligible workers are currently
saving, and most have never calculated how much they would
need to retire comfortably, according to the Employee
Benefit Research Institute and market researcher Greenwald
& Associates.
Financial experts recommend people amass at least eight
times their annual salary to retire. All income levels are
falling short. For people ages 50 to 64, the bottom half
of earners have a median income of $32,000 and retirement
assets of $25,000, according to an analysis of federal
data by the New School's Schwartz Center for Economic
Policy Analysis in New York. The middle 40% earn $97,000
and have saved $121,000, while the top 10% make $251,000
and have $450,000 socked away.
Savings gap
And the savings gap is worsening. Fifty-two percent of
U.S. households are at risk of running low on money during
retirement, based on projections of assets, home prices,
debt levels and Social Security income, according to
Boston College's Center for Retirement Research. That is
up from 31% of households in 1983. Roughly 45% of all
households currently have zero saved for retirement,
according to the National Institute on Retirement
Security.
More than 30 million U.S. workers don't have access to
any retirement plan because many small businesses don't
provide one. People are living longer than they did in the
1980s, fewer companies are covering retirees' health-care
expenses, wages have largely stagnated and low interest
rates have diluted investment gains.
"I go around the country. The thing that people are
terrified about is running out of money," says Phyllis C.
Borzi, a U.S. Labor Department assistant secretary and
retirement-income expert.
Some savers underestimate how much they will need to
retire or accumulate too much debt. Lucian J. Bernard is
among those wishing he had a do-over. The 65-year-old
lawyer from Edgewood, Ky., doesn't have much savings
beyond a small company pension and Social Security. He
cashed out a 401(k) in the 1980s to fund law school and
never replenished it. He implores his daughter to start
saving.
"It's a little easier saying it than doing it," he
says.
Defenders of the 401(k) say it can produce an ample
retirement cache if employers provide access to one and
people start saving early enough. People in their 60s who
have been socking away money in 401(k)s for multiple
decades have average savings of $304,000, according to the
Employee Benefit Research Institute and Investment Company
Institute.
"There's no question it worked" for those who committed
to saving, says Robert Reynolds, who was involved in
Fidelity Investments' first sales of 401(k) products
several decades ago.
He considers himself among the success stories. At 64,
he could retire comfortably today after saving for three
decades. "It's a very simple formula," he says. "If you
save at 10% plus a year and participate in your plan, you
will have more than 100% of your annual income for
retirement."
The 401(k) can be traced back to a 1978 decision by
Congress to change the tax code-at line 401(k)-so top
executives had a tax-free way to defer compensation from
bonuses or stock options.
At the time, defined benefit-pension plans, which
boomed in popularity after World War II, were the most
common way workers saved for retirement.
A group of human-resources executives, consultants,
economists and policy experts then jumped on the tax code
as a way to encourage saving. Ted Benna, a benefits
consultant with the Johnson Companies, was one of the
first to propose such a move, in 1980, leading some in the
industry to refer to him as the father of the 401(k).
Selling it to workers was a challenge. Employees could
put aside money tax-free, but they were largely
responsible for their own saving and investment choices,
meaning they could profit or lose big based on markets.
They also took home less money with each paycheck, which
is why 401(k)s were commonly called "salary reduction
plans."
Traditional pension plans, on the other hand, had
weaknesses: Company bankruptcies could wipe them out or
weaken them, and it was difficult for workers to transfer
them if they switched employers.
Companies embraced the 401(k) because it was less
expensive and more predictable to fund than pensions.
Company pay-ins ended when an employee left or retired.
Employees, for their part, were drawn to an option that
could provide more than a company's pension ever would.
Two bull-market runs in the 1980s and 1990s pushed 401(k)
accounts higher.
Economist Teresa Ghilarducci, director of the Schwartz
Center for Economic Policy Analysis, says she offered
assurances at union board meetings and congressional
hearings that employees would have enough to retire if
they set aside just 3% of their paychecks in a 401(k).
That assumed investments would rise by 7% a year.
"There was a complete overreaction of excitement and
wow," says Kevin Crain, who as a young executive at
Fidelity Investments in the 1990s recalled complaints
about some of its funds underperforming the S&P 500.
"People were thinking: Forget that boring pension plan."
Two recessions in the 2000s erased those gains and
prompted second thoughts from some early 401(k) champions.
Markets have since recovered, but many savers are still
behind where they need to be. ...
Progressives have already homed in on Republican efforts to privatize Medicare as
one of the major domestic political battles of 2017. If Donald J. Trump decides
to gut the basic guarantee of Medicare and revamp its structure so that it hurts
older and sicker people, Democrats must and will
push back hard
. But if Democrats focus too much of their attention on
Medicare, they may inadvertently assist the quieter war on Medicaid - one that
could deny health benefits to millions of children, seniors, working families and
people with disabilities.
Of the two battles, the Republican effort to dismantle Medicaid is more certain.
Neither Mr. Trump nor Senate Republicans may have the stomach to fully own the
political risks of Medicare privatization. But not only have Speaker Paul D. Ryan
and Tom Price, Mr. Trump's choice for secretary of health and human services,
made proposals to deeply cut Medicaid through arbitrary block grants or "per
capita caps," during the campaign, Mr. Trump has also proposed block grants.
If Mr. Trump chooses to oppose his party's Medicare proposals while pushing
unprecedented cuts to older people and working families in other vital safety-net
programs, it would play into what seems to be an emerging strategy of his: to
publicly fight a few select or symbolic populist battles in order to mask an
overall economic and fiscal strategy that showers benefits on the most well-off
at the expense of tens of millions of Americans.
Without an intense focus by progressives on the widespread benefits of Medicaid
and its efficiency, it will be too easy for Mr. Trump to market the false notion
that Medicaid is a bloated, wasteful program and that such financing caps are
means simply to give states more flexibility while "slowing growth." Medicaid's
actual spending per beneficiary has, on average, grown about 3 percentage points
less each year than it has for those with private health insurance,
according to the Center on Budget and Policy Priorities
- a long-term trend
that is projected to continue. The arbitrary spending caps proposed by Mr. Price
and Mr. Ryan would cut Medicaid to the bone, leaving no alternative for states
but to impose harsh cuts in benefits and coverage.
Mr. Price's own proposal, which he presented as the chairman of the House budget
committee, would cut Medicaid by about $1 trillion over the next decade. This is on
top of the reduction that would result from the repeal of the Affordable Care Act,
which both Mr. Trump and Republican leaders have championed. Together, full repeal
and block granting would cut Medicaid and the Children's Health Insurance Program
funding by about $2.1 trillion over the next 10 years - a 40 percent cut.
Photo
Tom Price, President-elect Trump's choice for secretary of
health and human services, has made proposals to deeply cut Medicaid.
Credit
Joshua Roberts/Reuters
Even without counting the repeal of the A.C.A. coverage expansion, the Price plan
would cut remaining federal Medicaid spending by $169 billion - or one-third - by the
10th year of his proposal, with the reductions growing more severe thereafter. The
Henry J. Kaiser Family Foundation
estimated
that a similar Medicaid block grant proposed by Mr. Ryan in 2012 would
lead to 14 million to 21 million Americans' losing their Medicaid coverage by the
10th year, and that is on top of the 13 million who would lose Medicaid or children's
insurance program coverage under an A.C.A. repeal.
The emerging Republican plan to "repeal, delay and replace" the A.C.A. seeks to
further camouflage these harmful cuts. Current Republican plans to eliminate the
marketplace subsidies and A.C.A. Medicaid expansion in 2019 would create a health
care cliff where all of the Medicaid funds and subsidies for the A.C.A. expansion
would simply disappear and 30 million people would lose their health care.
In the face of such a manufactured crisis, the Trump administration could cynically
claim to be increasing Medicaid funding by offering governors a small fraction of the
existing A.C.A. expansion back as part of a block grant. No one should be deceived.
Maintaining a small fraction of the current Medicaid expansion within a tightly
constrained block grant is not an increase.
Some might whisper that these cuts would be harder to beat back because their impact
would fall on those with the least political power. Sweeping cuts to Medicaid would
hurt tens of millions of low-income and middle-income families who had a family
member with a disability or were in need of nursing home care. About 60 percent of
the costs of traditional Medicaid come from providing nursing home care and other
types of care for the elderly and those with disabilities.
While Republicans resist characterizations of their block grant or cap proposals as
tearing away health benefits from children, older people in nursing homes or
middle-class families heroically coping with children with serious disabilities, the
tyranny of the math does not allow for any other conclusion. If one tried to cut off
all 30 million poor kids now enrolled in Medicaid, it would save 19 percent of the
program's spending. Among the Medicaid programs at greatest risk would be those
optional state programs that seek to help middle-income families who become
"medically needy" because of the costs of having a child with a serious disability
like autism or Down syndrome.
Democrats at all levels of government must aggressively communicate the degree to
which these anodyne-sounding proposals would lead to an assault on health care for
those in nursing homes and for working families straining to deal with a serious
disability, as well as for the poorest Americans. With many Republican governors and
local hospitals also likely to be victimized by the proposals of Mr. Ryan and Mr.
Price, this fight can be both morally right and
politically powerful
. Republicans hold only a slight majority in the Senate. It
would take only three Republican senators thinking twice about the wisdom of block
grants and per capita caps to put a halt to the coming war on Medicaid.
Gene B. Sperling was director of the National Economic Council from 1996 to
2001 and from 2011 until 2014.
From "One neat trick to stop Social Security 'Reform'" http://angrybearblog.com/2016/12/one-neat-trick-to-stop-social-security-reform.html
=== quote === Republicans constantly try to bring Social Security into ongoing debates about 'Balanced Budgets'.
But they face a fundamental problem with their math. For a variety of reasons, some quite reasonable
and others nakedly political (seniors vote) nearly every 'Reform' proposal out there promises to
hold 55 and older harmless. Meaning you can't have any more than miniscule effects on Cost projections
until today's 54′s and younger start retiring. Except for a handful of early retirees that event
happens 11+ years in the future, which is to say outside the 10 year Budget Scoring window.
You can't have a fix to a problem scored over 10 years with a solution starting Year 11. Sure
the 'Reformers' will blather about "Infinite Future Horizons". But any proposal that spares current
seniors from cuts will score close to zero by CBO and JCT. You just have to count years on your fingers.
... ... ...
GOP plans to "reform" Social Security often take this form
1. Américas $20 trillion public debt is unsustainable
2. Current Budget Deficits add to that debt
So far so good
3. Social Security must be part of that discussion
4. 55 and orders must be shielded from changes that allow them no time to adjust
5. (The Bush/Krasting argument) Payrolll tax increases across the board are neither politically possible
nor econimically wise
All three of these are doubtful. This post points out that 2 and 3 +4 (2nd edit) are incompatible
within a structure that assumes 10 year budget scoring. Argue or acknowledge that specific point
and we can move on. ... ... .. GOP point one is interesting on several fronts. One it is debatable on its own terms. It it is not
clear that current Public Debt is unsustainable on a percentage of GDP basis, especially when you
take that in the form of Debt Service at current and projected 10 year rates. A $10 trillion debt
at 8% (roughly Bush era) is twice as expensive as a $20 trillion debt at 2% in debt service terms
and assuming principal rollover. Simply put Obama years have seen a massive refi of Public Debt.
Much credit for which belongs to the Feds QE1 and QE 2.
... ... ..
Jim A, December 15, 2016 11:31 am
Of course that 22% benefit cut is an illusion created by thinking that the SS trust fund is something
more substantial than your left pocket borrowing from your right pocket and giving it IOUs.
Assuming
that we were to simply run out the clock and make no changes to SS until the trust fund ran out.
On the day before the trust fund ran out we would have combined general revenues and government borrowing
sufficient to redeem the special, non-negotiable bonds held in the trust fund. On the day afterwards,
the general revenue and the ability to the US treasury to borrow money wouldn't have changed. Under
current law we would at that point be forced to cut benefits to all retirees by 22%.
Presumably that
22% of revenue that was NOT being spent to repay the trust fund would be applied as deficit reduction.
Or used for tax cuts or new discretionary spending. Of course those are all political impossibilities,
and would never happen.
It is important to the Republicans that want to reform SS that people never
realize that we can afford to pay the shortfall in SS revenues from the treasury. Because once people
realize that, they will be more comfortable with that than they will be with the alternatives.
First Bush II bankrupted the country by cutting taxes for rich and unleashing Iraq war. Then
Republicans want to cut Social Securty to pay for it
Notable quotes:
"... His nominee to run the Department of Health and Human Services, Tom Price, a Republican congressman from Georgia, has been a champion of cuts to all three of the nation's large social programs - Medicare, Medicaid and Social Security. When discussing reforms to Social Security, he has ignored ways to bring new revenue into the system while emphasizing possible benefit cuts through means-testing, private accounts and raising the retirement age. ..."
"... But Mr. Price, who currently heads the House Budget Committee, has found a way to cut Social Security deeply without Congress and the president ever having to enact specific benefit cuts, like raising the retirement age. ..."
"... Mr. Trump's hands-off approach to Social Security during the campaign was partly a strategic gesture to separate him from other Republican contenders who stuck to the party line on cutting Social Security. But he also noted the basic fairness of a system in which people who dutifully contribute while they are working receive promised benefits when they retire. Unfortunately, he has not surrounded himself with people who will help him follow those instincts. ..."
Donald Trump campaigned on a promise not to cut Social Security, which puts him at odds with the
Republican Party's historical antipathy to the program and the aims of today's Republican leadership.
So it should come as no surprise that congressional Republicans are already testing Mr. Trump's hands-off
pledge.
... ... ...
As Congress drew to a close this month, Sam Johnson, the chairman of the House Social Security
subcommittee, introduced a bill that would slash Social Security benefits for all but the very poorest
beneficiaries. To name just two of the bill's benefit cuts, it would raise the retirement age to
69 and reduce the annual cost-of-living adjustment, while asking nothing in the way of higher taxes
to bolster the program; on the contrary, it would cut taxes that high earners now pay on a portion
of their benefits. Last week, Mark Meadows, the Republican chairman of the conservative House Freedom
Caucus, said the group would push for an overhaul of Social Security and Medicare in the early days
of the next Congress.
... ... ...
Another sensible reform would be to bring more tax revenue into the system by raising the level
of wages subject to Social Security taxes, currently $118,500. In recent decades, the wage cap has
not kept pace with the income gains of high earners; if it had, it would be about $250,000 today.
The next move on Social Security is Mr. Trump's. He can remind Republicans in Congress that his
pledge would lead him to veto benefit cuts to Social Security if such legislation ever reached his
desk. When he nominates the next commissioner of Social Security, he can choose a competent manager,
rather than someone who has taken sides in political and ideological debates over the program.
What Mr. Trump actually will do is unknown, but his actions so far don't inspire confidence. By law,
the secretaries of labor, the Treasury and health and human services are trustees of Social Security.
Mr. Trump's nominees to head two of these departments, Labor and Treasury - Andrew Puzder, a fast-food
executive, and Steve Mnuchin, a Wall Street trader and hedge fund manager turned Hollywood producer
- have no government experience and no known expertise on Social Security.
His nominee to run the Department of Health and Human Services, Tom Price, a Republican congressman
from Georgia, has been a champion of cuts to all three of the nation's large social programs - Medicare,
Medicaid and Social Security. When discussing reforms to Social Security, he has ignored ways to
bring new revenue into the system while emphasizing possible benefit cuts through means-testing,
private accounts and raising the retirement age.
There is no way to mesh those ideas with Mr. Trump's pledge. But Mr. Price, who currently
heads the House Budget Committee, has found a way to cut Social Security deeply without Congress
and the president ever having to enact specific benefit cuts, like raising the retirement age.
Recently, he put forth a proposal to reform the budget process by imposing automatic spending
cuts on most federal programs if the national debt exceeds specified levels in a given year. If Congress
passed Mr. Trump's proposed tax cut, for example, the ensuing rise in debt would trigger automatic
spending cuts that would slash Social Security by $1.7 trillion over 10 years, according to an analysis
by the Center for American Progress, a liberal think tank. This works out to a cut of $168 a month
on the average monthly benefit of $1,240. If other Trump priorities were enacted, including tax credits
for private real estate development and increases in military spending, the program cuts would be
even deeper.
Mr. Trump's hands-off approach to Social Security during the campaign was partly a strategic
gesture to separate him from other Republican contenders who stuck to the party line on cutting Social
Security. But he also noted the basic fairness of a system in which people who dutifully contribute
while they are working receive promised benefits when they retire. Unfortunately, he has not surrounded
himself with people who will help him follow those instincts.
Susan Anderson is a trusted commenter Boston 1 hour ago
There is a simple solution to Social Security.
Remove the cap, so it is not a regressive tax. After all, Republicans appear to be all for
a "flat" tax. Then lower the rate for everyone.
There is no reason why it should only be charged on the part of income that is needed to pay
for necessary expenses should as housing, food, medical care, transportation, school, communications,
and such. Anyone making more than the current "cap" is actually able to afford all this.
There is no reason the costs should be born only by those at the bottom of the income pyramid.
As for Republican looting, that's just despicable, and we'll hope they are wise enough to realize
that they shouldn't let government mess with people's Social Security!
Thomas Zaslavsky is a trusted commenter Binghamton, N.Y. 1 hour ago
The idea hinted in the editorial that Trump has any principle or instinct that would lead him
to protect benefits for people who are not himself or his ultra-wealthy class is not worthy of
consideration. No, Trump has none such and he will act accordingly. (Test my prediction at the
end of 2017 or even sooner; it seems the Republicans are champing at the bit to loot the government
and the country fro their backers.)
Christine McM is a trusted commenter Massachusetts 2 hours ago
I wouldn't hold Trump to any of his campaign promises, given how often he changes positions, backtracks,
changes subjects, or whatever. His biggest promise of all was to "drain the swamp" and we know
how that turned out.
He might have a cabinet of outsiders, but they are still creatures from outside swamps. That
said, if there is even the barest of hints that this is on the agenda, I can pretty much bet that
in two years, Congress will completely change parties.
Imagine: cutting benefits for people who worked all their lives and depend on that money in
older age, all in order to give the wealthiest Americans another huge tax cut. For a fake populist
like Trump, that might sound like a great idea (he has no fixed beliefs or principles) but to
his most ardent supporters, that might be the moment they finally get it: they fell for one of
the biggest cons in the universe.
Rita is a trusted commenter California 2 hours ago
Given the Republican desire to shut down Medicare and Social Security, it is not hard to predict
that they will do so a little at a time so that people will not notice until its too late.
But since the Republicans have been very upfront with hostility towards the social safety net,
one can conclude that their supporters want to eliminate social safety net.
Mary Ann Donahue is a trusted commenter NYS 2 hours ago
RE: "To name just two of the bill's benefit cuts, it would raise the retirement age to 69 and
reduce the annual cost-of-living adjustment..."
The COLA for 2017 is .03% a paltry average increase of $5 per month. There was no increase in
2016.
The formula for how the COLA is calculated needs to be changed to allow for fair increases
not reductions.
Mary Scott is a trusted commenter NY 4 hours ago
Republicans have been promising to "fix" Social Security for years and now we are seeing exactly
what they mean. We can see how low they're willing to stoop by their plan to cut the taxes that
high earners now pay on a portion of their benefits and decimate the program for everybody else.
I wouldn't be surprised if they raised SS taxes on low and middle income earners.
There has been an easy fix for Social Security for years. Simply raise the tax on income to
$250,000 thousand and retirees both present and future would be on much firmer footing. Many future
retirees will be moving on to Social Security without the benefit of defined pension plans and
will need a more robust SS benefit in the future, not a weaker one.
Don't count on Donald Trump to come to the rescue. He seems to hate any tax more than even
the most fervent anti-tax freak like Paul Ryan. Mr. Trump admitted throughout the campaign that
he avoids paying any tax at all.
The Times seems to want to give Mr. Trump limitless chances to do the right thing. "Will Donald
Trump Cave on Social Security" it asks. Of course he will. One has only to look at his cabinet
choices and his embrace of the Ryan budget to know the answer to that question. Better to ask,
"How Long Will It Take Trump To Destroy Social Security?"
At least it would be an honest question and one that would put Mr. Trump in the center of a
question that will affect the economic security of millions of Americans.
serban is a trusted commenter Miller Place 4 hours ago
Cutting benefits for upper income solves nothing since by definition upper incomes are a small
percentage of the population. The obvious way to solve any problem with SS is to raise taxes on
upper incomes, the present cap is preposterous. People so wealthy that SS is a pittance can show
their concern by simply donating the money they get from SS to charities.
david is a trusted commenter ny 4 hours ago
We can get some perspective on what Social Security privatization schemes would mean to the
average SSS recipient from Roger Lowenstein' analysis of Bush's privatization scheme.
Roger Lowenstein's Times article discusses the CBO's analysis of how the Bush privatization
scheme for Social Security would reduce benefits.
"The C.B.O. assumes that the typical worker would invest half of his allocation in stocks
and the rest in bonds. The C.B.O. projects the average return, after inflation and expenses,
at 4.9 percent. This compares with the 6 percent rate (about 3.5 percent after inflation) that
the trust fund is earning now.
The second feature of the plan would link future benefit increases
to inflation rather than to wages. Because wages typically grow faster, this would mean a rather
substantial benefit cut. In other words, absent a sustained roaring bull market, the private
accounts would not fully make up for the benefit cuts. According to the C.B.O.'s analysis,
which, like all projections of this sort should be regarded as a best guess, a low-income retiree
in 2035 would receive annual benefits (including the annuity from his private account) of $9,100,
down from the $9,500 forecast under the present program. A median retiree would be cut severely,
from $17,700 to $13,600. "
"... Social Security has succeeded because Roosevelt insisted it be paid for by the workers who would get the benefits, "so no damn politician can take it away from them." ..."
"... "These who pant after the very dust of the earth on the head of the helpless also turn aside the way of the humble; " ..."
The trouble with Sneed's article is that she does not appear to know what she is talking about.
She just wrote down what some "experts" told her with no idea what the words mean.
For example, she says,
"A 65 year-old at the top of the scale, a $118,500 average earner, would see his benefits cut
by 25% when he retired, compared to the current law, and that reduction would grow to 55 percent
compared to current law by the time the retiree was 85 years old."
Well, which is he, "at the top of the scale" or an "average earner"?
The point is probably trivial but I point it out so you will be on your guard if you read her
article.
Additionally she quotes Paul Van de Water, who is someone who actually knows that Social
Security can be fixed entirely and forever by simply raising the payrolll tax one tenth of one percent
per year until the balance between wage growth and growth in the cost of retirement is restored.
But somehow she doesn't bother to mention this, or maybe Van De Water forgot to mention it
because he favors a "tax the rich" solution without understanding that that will turn Social
Security into welfare as we knew it, and lead to its ultimate destruction by those rich who would
then be paying for it.
Social Security has succeeded because Roosevelt insisted it be paid for by the workers who would
get the benefits, "so no damn politician can take it away from them."
But the damn politicians keep lying and journalists keep repeating the lies without spending ten
minutes thinking about them. The basic "facts" about the Republican proposal, introduced by Texas Congressman Sam Johnson appear
to be :
gradually raise the retirement age from 67 to 69.
This amounts to a benefit cut of about 10%, but that's not the worst of it. Raising
the retirement age is simply a death sentence for people whose health is not up to working another
two years, or won't live to collect benefits for more than a few years after they retire.
change the cost of living adjustment to reduce real benefits as the retiree gets older .
This is called a "technical adjustment." They can pretend that the CPI is too generous and
know that most people won't understand the scam.
the size of initial benefits will be cut for most workers by catastrophic amounts .
This turns Social Security into a straight welfare plan. Most people will be paying for
benefits they will never get. The very poorest are promised a larger benefit for awhile until
the bogus cost of living adjustment, and increased retirement age do their work. Moreover it
is not clear what happens to "the rich" who lose their "side income" as they get older.
And of course there is always the fun of going to the welfare office every month to prove that
you don't have any hidden assets.
Meanwhile, the CRFB (Committee for a Responsible Federal Budget). an organization dedicated
to the destruction of Social Security by misrepresenting the facts, is playing cute games like "use
our calculator to find out how old you will be when SS runs out of funds."
But SS will never run out of funds as long as the workers are allowed to pay in advance for their
own benefits. With no change at all in SS, SS will pay 80% of "scheduled benefits," but this
is 80% of scheduled benefits which meanwhile have grown 25% in real value. So the GOP "plan
to save SS" is out and out theft.
CRFB has another cute game: "use our calculator to design your own plan to save social security."
But when I used their calculator it did not allow "increase the payroll contribution by one
tenth percent (for each the worker and the employer) per year for twenty years.
There are other ways to accomplish the same end, but this seemed to be the simplest way to fit
the CRFB "calculator." Someone with more time and a newer browser might want to try seeing
what they get. But look at small per year increases in payroll contribution. For example,
I think a 0.4% increase (combined), about two dollars per week for each the worker and the employer,
should solve the problem in ten years, but I haven't done the numbers on that myself.
Meanwhile, something that calls itself "the Bipartisan Policy Center, says "Ultimately, we are
going to need something that's a little more balanced between benefits saving and revenue changes
in order to get a proposal that could pass Congress and get approved by the president," said Shai
Akabas, director fiscal policy at the Bipartisan Policy Center."
It's hard to see how much cuts ("benefit savings") make sense to balance a dollar a week increase
in the payroll tax (revenue changes), but that's the kind of thinking that "Bipartisan" gets
you. "Hey folks, we can save you a dollar a week just by gutting Social Security so it
becomes meaningless as insurance so workers can retire at a reasonable age."
I am getting too discouraged. As long as no one is working to tell the people how this will
work for them, we are just going to stand around like sheep and watch them cut our throats.
As someone who grew up with the promise of Social Security as a minimal income support system
for my old age I can attest to the fact that when the "average" retiree, who has almost no individual
savings accrued, steps in the pile of Social Security "reforms," there will be not just a wailing
and gnashing of teeth.
Modern age old people no longer can rely on extended families for support. Those extended families
have been fragmented by the pressures of "modern" socio-economics. This is prime territory for
a demagogue.
The Twentieth Century had World War 1.0 and a subsequent "Lost Generation." It's increasingly
looking like the Twentyfirst Century will have the GFC, Social Support 'Reforms' and a subsequent
"Euthanized Generation."
Remember, this process will not affect just oldsters. It will suck in those closest to said
oldsters as emergency support resources. It won't be only oldesters who will be watching elites
"over iron sights."
Perhaps someone will enlighten me, but this is one thing that really puzzles me about the Republican
determination over many years to gut social security. I can understand their ideological fixation
with it – what I can't understand is why they are so willing to play electoral fire with it. Surely
this directly attacks millions of core Republican voters?
They may be able to fool many of them with deceptive slogans, but surely when the prospect
of finding their pensions slashed faces them, even the most supine and gullible middle American
Republican voter in their middle to late years is going to realise they've been had. The backlash
could be enormous. I find it hard to see how any rational politician would want to go near it.
They will find a way to blame it on the Democrats, and more importantly, on Blacks, Hispanics
and other minorities. They will sell the cuts and privatizations as the only way to save the system
that has been so badly damage by the fore mentioned, and as long as their base gets their beliefs
from Faux News, Bretbart, etc; it's quite probably the Republicans will succeed in getting what
they want while screwing down the ever hapless Democratic party.
I've met more than a few who'd almost be pleased to suffer as long as they thought blacks were
being made to suffer even more. There's no logic when hate gets this strong.
Exactly, the same way they have mortally wounded our once stellar public education system,
(a system once good enough to educate our "Greatest Generation) – is now a shell, death by a thousand
cuts
Also, if you think income disparity is bad now? – hang on to your wallet, because after 4 years
of Trump and his prospective cabinet picks, it will hit the stratosphere.
"There's no logic when hate gets this strong" – so true.
Smart to point at the educational system.
I have not found many youths who can tell me what they want to do. I find this really weird.
It is true that if you know what you want to do the library will do.
Thanks to Ben Franklin, inventors, engineers had a place to hang out and collect information they
could use.
Maybe you had to live in NYC to have a NYCity library card, but it is a big city.
Meantime Charter schools, which sounded great to us when at Kenwood on the Southside, are gaining
ground and collecting tax money regardless of results.
They are said now in Not Conscious to be handing out diplomas same as Public Schools did to get
some bodies out the door.
I was a graduate, but denied attendance at the diploma hand out thing, cause I refused to pay,
for my public school diploma. Public education, supposed to be free to citizens.
People think I didn't graduate.
The Union believed in Trump. I get sick about lots of things. It will be worse than they think.
Education & Defense are what the government is for.
Twelve years ago the Republicans needed the Democrats to actually plunge the knife on the back.
Democrats like Joe Lieberman dearly wanted to lend a bipartisan hand but Pelosi and Reid actually
rallied to prevent it. Talking Points Memo was all over it then. Now they're on top of Paul Ryan's
machinations to privatize Medicare and this Social Security scam. Kind of raised some old feelings
for TPM, but they're also heavily flogging the CIA Russian hacking dembot campaign.
About the only thing I knew about Hillary's agenda is that she wanted to means test Social
Security and Medicare and start new wars. Obama wanted to do many of the cuts in Sam Johnson's
bill but was foiled by Tea Partiers who couldn't take yes for an answer or were smarter than they
seemed.
Both Schumer and Pelosi said the Democrats would oppose any of these current plans. We'll see.
I would hope they would realize that Social Security and Medicare are issues where the only
winning move is to expand them. IOW, they need to realize this is an area where the campaign donors
need to be told to pound sand, shut up and expect to pony up – as in you ARE going to be paying
more into the system.
But these are people who thought there was no way that Clinton could lose, that this Russia nonsense
is a winning strategy and that ACA was going to be good for Democrats once people got to know
it. IOW, their grasp of reality outside their bubble might as well not exist it is so broken.
So while my fingers are crossed they still want their jobs AND aren't completely delusional, I
also know we better put the fear of the voters into every member of Congress about grannies and
wannabe grannies with canes beating them to a pulp any time they leave their house.
And by grannies I mean anyone on SS, and wanna be grannies everyone who someday might be able
to retire or at least only work part time after retirement age because of SS.
IF they cannot win an election they will not have any donors, and they are rapidly getting
to the point where a Democrat getting elected to a national office is the exception. Not to mention
there are a large number of states where that is pretty much the case. There is no reason to try
to bribe people so you can have them in your pocket if they are powerless.
They are terrible at strategy, but eventually they may figure out they need voters. You do
NOT alienate seniors as seniors are the most reliable voters around. Oh, and most of those seniors
have grandchildren they think deserve Social Security and Medicare as well. The only winning strategy
is to protect and expand.
I forgot to mention the consultant class. Absent a hostile takeover the Democrats may not be
fixable. Their disdain for and disconnect from the voters will do them in.
Would love to see this repeated and repeated, because although it's hard, we need to grasp
this fact:
their grasp of reality outside their bubble might as well not exist it is so broken.
their grasp of reality outside their bubble might as well not exist it is so broken.
their grasp of reality outside their bubble might as well not exist it is so broken.
their grasp of reality outside their bubble might as well not exist it is so broken.
their grasp of reality outside their bubble might as well not exist it is so broken.
Sam Johnson the same Sam Johnson who wrote "I spent seven years in the Hanoy Hilton. The Hanoy
Hilton is no Trump hotel." back in July ? Who milks his Vietnam tour of duty like a rabid milkmaid Who
says "I do not feel like a hero, and I do not call myself one" in the tones of one who thinks
the exact opposite? Who is constant cahoots with McCain (who is currently trying to sink a Trump
presidency) why am I not surprised that a neoliberal faction of the senatorial republican party
in seeking to weaken a populist president-elect is reaching for the third rail with both hands
and smearing all republicans with the same brush. I doubt very much Trump will weaken social security
since he knows it is the only thing his rebellious base of Deplorables can depend on call me simple
but Trump won this election against practically everyone and he knows his base is the only sure
recourse he has.
I don't count on that (Trump knowing not to touch Social Security). I wouldn't be surprised
if he went for privatization. HE will never ever need Social Security so why concern himself over
it? He's already throwing his electoral base under the bus with his cabinet picks. Every single
one of them is a direct violation of his pre-election promises.
I think Hillary also wanted to increase the payroll tax by 3% (an enormous amount of money)
and use it to privatize 3% of the SS funds to make up for shortfalls, ostensibly. They better
have a good insurance policy so that'll be another 3%. All this nonsense because we refuse to
admit we need social policies and social funding of the basic things. We are committing suicide
24/7 these days. Why don't we just call it all insurance?
The financial (rentier) crowd want to get their claws on the SS funds. They'll achieve their
goal unless we kick their puppets out of Congress.
They already have their teeth into your IRA funds, student loans, home mortgages and your bank
funds, It won't be too long before a Trojan Horse Prez signs away your SS. Beware!
We'll see if the Dems stand firm and fight back OR go for the old "bipartisanship!" bullcrap
and instead agree to a lessor CUT. They would then promote it as the two sides working together.
Typical neoliberal Dem establishment move.
Or are the progressive forces ascendant and ready to fight absolutely?
We'll see. In any case, the House will pass it, no question. The test is in the senate where
the Dems still have some teeth available (whether they USE those teeth is another thing altogether).
The Democratic Party must be made to defend Social Security as they rallied
against Bush's privatization plan. They will do so for political advantage, but they
too have attacked Social Security. Obama attacked it on three occasions–the Deficit Commission,
the chained CPI added to a budget proposal, and the timing of married couples claiming benefits–and,
were it not for Monica Lewinsky distracting
Bill Clinton, Bill Clinton would have been attempting to privatize Social Security, not Bush.
Now it the time to contact your senators and representatives: NO CUTS.
As things stand, what you recommend is the best action to take as of right now. It is not enough,
but when letters come in to Dems and Repubs stating the senders will NEVER vote for anyone who
votes to mess with Social Security, Medicare, Medicaid, there might be some reactions.
BUT it needs to be many, many, many people writing, calling, and meaning it when stating "Representative/Senator
XXX, you mess with this and you will never, ever get a vote from me."
Humm, if you are depending on Bernie or any one politician to save you, then you've lost the
point of Democracy. It's all of you forcing them to do the right thing.
Bernie Sanders has said it himself, even FDR said to Black Activist asking for an anti-discrimination
executive order to the defense industry: "I agree with you, I want to do it, now make me do it."
They did do it, by threatening a strike during WWII, for which some were sent to jail. That's
what it's going to take, because voting once every 2 or 4 years isn't going to cut it.
They will never attack current beneficiaries. This is a lesson they have learnt over the years.
This is why they changed tack in the 1980s and keep raising the eligibility age which is a very
soft target. One thing the GOPers understand really well is, GOPer Seniors ALWAYS vote and some
Dem Seniors vote sometimes. So they will leave current beneficiaries alone. GOPer Seniors – almost
all of them are driven by the conviction (Tea Party types) that Social Security and Medicare are
under jeopardy because of illegal immigration and because Social Security funds are being raided
and handed over to other beneficiaries like those on Disability etc. They have plenty of traction
on this because if you go ask the average 25 year old or even a 40 year old today whether they
can count on Social Security, most of them being morons and having swallowed the MSM propaganda
will tell you, 'I don't think it will be around when I get to 65'. I am fairly certain there are
polls to back this up. This is what the Greenspan Blue Ribbon Commission cleverly did under Reagan.
The people who are in their 50s today were in their late 20s in the 1980s and clueless about what
exactly Greenspan did to the eligibility age. So telling current beneficiaries that its good to
cut benefits for future beneficiaries makes a lot of sense to current beneficiaries. In any case
SS is toast. I think we will have to wait for the entire cycle of Old Age poverty to take root
again in another 50-60 years and for the tide to turn. It was wide spread old age poverty that
prompted FDR and also Trueman into action for SS and Medicare respectively.
Sewer species like Pete Peterson and the Hedge Funders target SS because it is a very productive
way to create mass unemployment and lower wages. They don't want people removed from the labor
market by SS when they become 65. Their secret longing is to drive down wages to the point where
the per hour rate will equal the human mules you see pulling overloaded hand carts in Mumbai,
India or Shangai, China. This is really the agenda. This is basically the psychology of monopoly
thinking. When you have captured markets up to a 95% level then you start looking like an idiot
because you have closed off growth altogether. Monopolies do not grow because there are no more
markets left. So the next thing to do is increase profits via driving labor costs down – standard
Michael Porter Harvard Business School trick. This is what they have been doing in the last 40
years.
It's how they are selling every sort of deregulation. it destroys the future, but who gives
a damn about their children and grand-kids, the ungrateful snots. Shipping the old folks off to
the retirement home has divorced them from both the care and of caring about their descendants.
Your comment about the old folks home is right on target. The better class of senior housing
establishments are often the most fortified of bubble worlds, and the Seniors there spend hours
ranting to each other about how the younger generation has screwed them over somehow. I've witnessed
it first hand. They've been carefully taught not to give a crap about future generations, including
their own kids and grandkids. It's all about MEEEEEEEEEEE .
Thank you, I think a lot of us have noticed the veracity of this, especially over the last
four decades. Show of hands who else out there is sufficiently paranoid, to consider signing-up
a year early & simply absorbing the hit, with some silly fantasy of being grandfathered-in?
Thanks! I was dizzy from a bad head cold, working in very bagger-ridden environs (a quite literally
Dikensian hell-hole in Pennsyltucky), applying for Medicare and fishing through obfuscatory pleonasm,
picking Plan D & N insurers the 2nd or 3rd page in, they ask you if you're applying for "benefits"
at this time! Jesus Anybody ANYBODY??? I have some meager equity (at least, last time I looked?)
sufficient for a decade or so. But with Republicans dying young?
Increasing the retirement age while the average life expectancy is decreasing seams especially
crewel. Combine that with that piece from the times that showed people like me, born in the 80's
only have a 50% chance of earning more than our parents and that we are already drowning in student
debt and that is a full on assault on the youth of this country. Screw the national debt burdening
future generations, this will actually burden us. This really is the worst country in the world.
Fuck Patriotism.
Anyone who has a chance of affecting the behavior of AARP when it comes to SS and Medicare
needs to step up and apply whatever pressure they can to get that thing to return to its origins
and "work the issue" for their members, present and future. I know, it's mostly just another front
for insurance and other sales pitches and scams and "cruise packages" and other lifestyle crap,
but at least there has to be some skeletal remains of the original bones of the organization in
there somewhere.
Or failing that, is there another entity that might be worth supporting and joining with, to
go on the offensive and fight back? I would hate to think it's all futility and "47%" from here
on out.
AARP's origins? It was founded by an insurance salesman as a slick way to sell, yep you guessed
it, the industry's interests to a powerful bank of less than bright voters.
Some of us question if there won't be mass human extinction before then. Maybe there will be
no old age for many people alive today including yours truly. But nonetheless, if by some miracle
the worst doesn't happen then Social Security is important.
Prez Hope and Change's support for chained-CPI will certainly complicate the fight against
this. If Obama and his Rubinite stable of bean-counting butt-boys were for it then it must be
okay?
They're banking on getting some Democratic support, to make it bipartisan. With weasels like
Mark Warner in the Senate, they might get some Democrats to sign on to this.
Eh? Democrats will line up with their Republican BFFs to screw over the proles. Given how Democrats
are now a very Rump party in this nation, what have they got to lose? Why take of their alleged
"constituents" in the 99% What a laugh. The constituents of the Dem pols are, have always been,
and will continue to be the .01%. So the Dems will happily oblige their real constituents by screwing
over the proles. Anyone who expects a different outcome is not living in reality.
Perhaps it's because "the banks own this place." Also the Republicans, like the Dems, are running
on the fumes of past ideological obsessions and Social Security was always seen as a prime Dem
vote getter and flagship of the hated New Deal. Remember Karl Rove wanted to take the country
back to the McKinley administration. But mostly it's probably because people like Paul Ryan are
creatures of their funders.
Plenty are stupid, but the Democrats are in complete disarray. The GOP will face push back
from their voters, but the Democrats as they are now are not a threat to win any time soon. AARP
recognizing the interests of its members can shake Washington, but right now, the GOP sees no
threat to its rule.
Many of the not so weathy Repubs are 'rich wannabes'. So they'll gladly toe the line on cut
social security cuts and free market memes. They think that they have noting to worry about because
they'll be wealthy before they retire and they won't need SS. Boy, do I have a few bridges and
lots of swamp land to sell them!
One can note the Social Security "reform" is usually pushed by wealthy individuals who feign
concern about saving a system for the future of less well off Americans.
Also, Social Security is a system that is of little import to the wealthy as they will not
be depending on it for basic living expenses.
The wealthy's real fears are of a raising of the income cap that will hit them directly or
of an effort to support higher wages for the citizens currently paying into Social Security, hitting
their business profits.
While it may seem unexpected they can get help from Democrats in this effort (Obama, Bill Clinton )
but I suspect this is so because wealthy donors support the effort and the Democrats can pitch
the "saving" aspect while collecting campaign cash.
If a politician is not re-elected as a result, they might have a more lucrative career at a
think tank or as a lobbyist.
Of course, if the wealthy are so concerned about the alleged Social Security problem that is
looming in the future, where were far sighted wealthy Americans when it came to questioning the
Iraq War, the drug war, the lack of financial reform, and all the USA military/covert actions
that have done great harm to public finances?
Strangely, Social Security "reform" is a big concern of theirs, and the other USA efforts that
have caused much harm, are not.
Then there is climate change, again, wealthy individuals are more concerned about "saving social
security" than saving the planet.
Also the "reform minded" politicians do not appear to allow that current social security benefits
probably are used by many entire low income families. So cutting grandma's benefits also could
immediately hit her kids/grandkids financially.
A secondary effect is that lowering SS benefits means the wages of current workers can be lowered
in concert as their SS payments, which flow to current recipients, can be lowered, perhaps even
allowing another Social Security reform effort to be promoted.
The ability of TPTB to sell this to the American public should not be underestimated as the
advertising/public relations/MSM has been successful in promoting/maintaining many bad ideas.
The wealthy are not concerned about saving anything unless they can make money off it. They
are already getting richer from the endless wars on terror and drugs, and taking planetary resources
for themselves. The only reason they talk about "reforming" Social Security and Medicare is to
get their hands on that money as well. And please do not expect the corporate media to explain
any of this to the dumbed-down masses.
The Republicans can afford to play with potential policial backlash for two reasons: First,
they relentlessly beat out false narratives about the demise of SS and its inadequacies so that
their flase story becomes a part of the consciousness of citizens. (This is the same thing done
to attack teachers, unions, the post office, government, etc. You put out the lie long enough,
it becomes the truth.) Second, they have been engaged in not one knife to the heart of the program
but an attempt to promote its demise by a thousand cuts, little by little, until the program is
no longer viable. I know for a fact that young people have bought into the lies put forth by them
and do not think the program will be there for them because they too have bought the lie. Those
pushing to kill the most effective program in US history, one that has kept the elderly from complete
poverty, are nothing more than evil. They want no public programs, and all revenue funnelled into
corporate models that enrich the 1%.
Conservatives love destruction for its own sake. Smashing the Alaska Wildlife Refuge, smashing
the ancient city of Baghdad, spilling oil all over North Dakota, wrecking Social Security, all
these things have a political component, but it is the destruction itself that makes them absolutely
adorable to Conservatives. Bear in mind this pervasive love of destruction, and many Conservative
initiatives will become more clear.
And the "base" goes along with it, because many of them have been inculcated with the theory
that it is more pleasurable to do someone else harm than to do one's self good. Given a choice
to make, they will always pick the former. Hope this helps.
Me, I find NC's alarm and amazement at the Republican plans to wreck Social Security ingenuous.
What did you think would happen? God knows you were warned.
Who warned us? Not the media. Not Obama. Who? I'm thinking naked capitalism.com, best Paul
Revere substitute I can come up with at the moment.
Nobody here needed warning. Nobody is alarmed or amazed. And nobody stuck their heads in the
sand and figured everything is going to be peachy. What we did need was a well written reminder.
People drunk a whole lot of Koolaid like "it takes a Democrat to cut social security". Koolaid
was spilled all over in drunken Koolaid orgies at one point toward the end of election silly season.
But the party is over and all that is left is the wreckage. Of course Hillary may have done the
same thing as we weren't exactly getting any encouragement from her that she wouldn't and rather
in fact got hints that she might (support for Peterson committee, her retirement plans for private
investment etc. – to supplement Social Security of course). None of which were absolute certainty
that she would cut it of course, but they aren't always honest about that are they, so not encouraging
either.
It's best seen as an all out effort to wreck any good that the government does for common people
so that they can beat the war drum of government failure. This then serves as the smoke screen
to hide just how much ultra rich directly benefit from government support through bailouts, privatization,
tax cuts, subsidies, and out right theft and fraud. And just how much more they will get when
Social Security and Medicare are privatized and benefits are shrunk. Those are large streams of
government controlled funds, and they want it.
Social Security and Medicare work extremely well, and should be expanded. But don't delude
yourself into thinking this is obvious to most people. Both political parties are dedicated to
killing Social Security and Medicare and are extremely adept at spouting the " we must kill it
to save it" BS.
Ds movement to the right and their continuation of R policies, no matter how vile, actually
redeems the R party for the next election. If they take turns governing only on behalf of the
.9, .09 and .01% they take turns redeeming the other branch of the money party. The colluding
media will propagandize every bit of corruption and sleazebaggery as 'no other option' trot out
imaginary deficits.
The voted out politicians will enthusiastically do it because they enter office looking for
the big sellout as they will receive the only objective they ever had in achieving elected office .
lucrative appointments and sinecures at parasitizing corporations, think tanks, scam foundations
and presidential libraries.
Exactly. But not everyone has a reflex sight or scope. And a lot of people who do have such
a very wrong notion of who the targets ought to be, the ones that actually pose the greater=st
immediate threat
Though 4,000 veterans appearing at Cannon Ball with the #NoDAPL presence probably have or are
developing a correct "sight picture" and target designation
Oh H-! Where is my 3-9X40 when I need it?
The late lamented science fiction writer Mack Reynolds penned a screed along these line a ways
back about a pissed off ageing Lord Greystoke and the fate of the old in America called "Relic."
The plan will be structured to only hurt future retirees. The solution to this political problem
is to have anyone who will be affected demand that they be allowed to opt out from now on and
to receive a refund, with interest, of all of their previous contributions to the system because
the "earned benefits" have been taken away. Ownership in America is a sure winner politically.
I don't expect Democrats to have the balls to actually propose this, but it would leave the
plans in tatters because without the tax stream and the already contributed taxes it won't be
able to pay current retirees. Now that would get the current retirees attention!
Not only can old people no longer depend on their extended families for support I'm afraid
many young people in that extended family have had to rely on the older people for support. My
young adult children are not doing terribly well in the new economy and I don't see things improving
for them any time soon - if at all. I've had to step in and help a little here and little there
more and more as the costs for those unplanned surprise expenses keep blindsiding my children.
And maybe that is what the author thought, but it doesn't work. Wages above the SS max don't
get taxed and don't add to the final benefit, so people who have an average salary equal to the
max have a benefit that is below the max. The difference would depend on how much the salary fluctuates,
year by year.
Perhaps a serious attack on welfare for the rich would persuade the enemies of Social Security
that those who live in glass houses should not throw stones?
To make such an attack, one needs must take over the "reins of power." In short, your suggestion
is revolutionary. (I'm not averse to such, just observing.)
I mean an ideological attack since much welfare for the rich is not yet recognized as such
(e.g. government provided deposit insurance instead of a Postal Checking Service or equivalent,
e.g. interest on reserves, e.g. other positive yeilding sovereign debt).
Yes it is. It is part of the means by which the poor, the least so-called creditworthy, are
forced to loan to depository institutions to lower the borrowing costs of the rich, the most so-called
credit worthy.
The ethical alternative is an inherently risk-free Postal Checking Service or equivalent for
all citizens, their businesses, etc. Then the poor need no longer lend (a deposit is legally a
loan) to banks, credit unions, etc or else be limited to unsafe, inconvenient physical fiat, aka
"cash."
Interesting that maybe 4,000 veterans showed up and formed up at Cannonball/DAPL, to stand
against the thugs and "government" and with the Native Americans who seem to have found a set
of honest and attractive memes to present to the rest of us. The Bonus Marchers got the MacArthur
Fist way back when, but I'm wondering how all those troops trained in maneuver-and-fire would
take to further (planned) assaults on their livelihoods and families, while they are ever more
being "deployed" to protect the as-s-ets and post-national "interests" of the Few
Not to worry. Organization is taking place. In New York State the Bernie delegates have kept
in touch since the convention. They have organized into 25 affiliates state wide. We have had
a conference already. The Lower Hudson Valley affiliate may be able to defeat the Trump agenda
all by itself. We tuned into the Our Revolution call and decided to do our own thing.
https://twitter.com/NYPANetwork
Any similar initiative in Massachusetts? The last time the Republicans tried to gut SS under
Bush, the Democrats came out in force and held meetings on weekends around Rhode Island (where
I was living at the time) to fire up opposition to the plan. I'm anticipating Elizabeth Warren
and other MA democrats will oppose this, but want to be ahead of that by looking for other avenues
of opposition like Bernie's coalition, such that it is.
I seriously doubt anyone would be enthused by a Democrat party still headed by that Super Frisco
Water Carrier Pelosi. I know I would not for one. The bell tolls for Bernie but the man has been
struck dumb.
If you already have an OR local or state group and you want to be affiliated with national,
or at least talk to national DM me on twitter and I can get you in touch, I have a friend who
works for them. https://twitter.com/UserFrIENDlyyy
Social security has already been cut over the last several years without a peep out of anyone.
No cost of living adjustments in 3 of the last 8 years. Actual inflation is at least 2 points
higher than the reported figures. Social security has been cut 15-20% since the financial crisis.
Yep. And I have elderly friends who are suffering bc of it. But everyone is very passive having
bought into the propaganda that this is "just the way it is," and "there's just not enough money"
to provide anymore via SS. So we have a very passive population, who've mostly all bought the
propaganda about how "broke" Soc Sec is we proles, yet again, have to suck it up bc the wealthy
certainly cannot be expected to have the income cap raised heave forfend.
Just got my Soc Security statement. My net gain, for 2017, after an increased deduction for
MediCare, is .nothing. See, there's no inflation (except my car insurance, home insurance, health
insurance, food, etc have all gone up). And to add insult to injury, our benefits (derived from
involuntary deductions from our paychecks) are called "entitlements."
As our elected "representatives" are so adamantly opposed to these programs, and would like to
reduce them to table scraps, I am eagerly awaiting the announcement that Congressional pensions
and healthcare benefits are going to be discontinued.
Same here. Any small gain was offset by increase in deduction for Medicare. In addition to
the rising costs you cite, I find I am paying increased local taxes, among other things. So, like
most people, we must contend with stagnant income to pay rising cost of living (and I mean the
necessities).
I started paying into the system in 1965. Medicare used to be no cost and cover all medical expenses,
so that is a cut in itself. I knew that I could not rely on SS in my old age, and I live modestly.
I agree with your last comment. I have never seen why our representatives in Congress should receive
any different coverage than the citizens they are elected to represent. As individuals, they can
supplement it, just as we have to.
I was notified yesterday via letter that my SS benefits will increase 4.00 / mo next year.
This will be a great help because my rent went up 7.00 / mo to 1600.00 for my studio apt.
Current law says that in approximately 13 years all benefits will be cut – across the board
– by 20-25%.
That is an unacceptable outcome.
What to do with this reality? The answer is "Something" must get done. The wrong answer is,
"Don't do anything, wait 13 years, and then fall off a cliff".
The proposal that in the author's words "Guts" SS actually increases benefits by 9% for the
bottom 20% of beneficiaries. The cost of the proposal falls on those who have high incomes before
AND after reaching age 65. The proposal stabilizes SS for the next 75 years, and there are no
new taxes required. Exactly what is wrong with that?
In the post pension plan age, I think the 20%-90% bracket needs it. Maybe up to the 99% bracket
once our current 401K bubble bursts and Housing Bubble II bursts.
So the only option are things that actually punish today's working class and weaken the system
by eliminating the all in/all the same position? No, it isn't. The problem is that the answer
is to slowly raise the payroll tax AND eliminate the cap – something that should have been done
decades ago once it became clear that the people who lived the longest on SS were largely those
who stopped paying payroll taxes at some point throughout the year. But we cannot consider those.
Nope we have to talk about raising the retirement age when life expectancy for most is dropping
and we have to go with things that mean that you need to start living like you have to choose
between drugs and eating cat food from day one because your benefit will never increase regardless
of how much more your food, housing or medicare premium increase, or there even if they allow
cost of living they write off things because you can give up steak for chicken over and over.
Instead of a expanding to a more universal program, you support turning SS farther into a program
that categorizes individuals, assigns a hierarchy and then ranks them according to some random
definition of human and who is most deserving.
There's nothing wrong at all with having nothing but contempt for others and hiding behind
some made up term of 'cost'. It's perfectly reasonable to deny the means to the dignity of housing
and food to others.
The fact the last two Dim-o-crat presidents (Clinton and Obama) and not a few Dim-o-crat Senators
and Congressmen are in agreement about "saving" Social Security doesn't help either. Clinton's
plan was derailed by the Lewinski thing and Obama's because the Republicans wouldn't take yes
for an answer (didn't want him to get credit for it but don't mind doing it themselves)
In case anyone has not noticed, they are already cutting SS benefits by stealth means. There
have been no cost of living increases in 3 of the last 5 years, and for my personal SS benefits,
the measly .3% increase next year goes away entirely with the increase in medicare payments. I
suspect many folks, like my sister who is 78 and still working full time, do not realize that
the increases they are receiving are due entirely to their still being in the work force. In addition,
with the cutbacks that have been forced on the administrative side of SS, more mistakes are being
made. A friend of mine was declared "dead" by SS (something that also happened to me with my tiny
pension plan). When she attempted to correct the error, the SS employee discovered that "thousands"
of people had been similarly affected. This happened last summer and my friend is finally receiving
her benefits, but a month late and for some reason the agency cannot issue that catch-up check.
She is still working and so not completely bereft, but what in the world are the folks doing who
have no other income??? I suppose our overlords will be most pleased that the constant annoyances
they are causing us will result in our passing away from sheer anger and frustration.
That's interesting. I have a friend, who is still in her 50s, who was working on her will,
etc, and discovered that she was no longer "alive" as far as Soc Sec was concerned. She got it
rectified, and it didn't have a negative impact on her (she's still comparatively young and working).
But it's decidedly odd about how all these citizens are suddenly dead as far as Soc Sec is concerned.
And yes, it takes some effort to get back on the database of the living. For those who are really
elderly, this could be a very difficult thing to do.
It boggles my mind why any one would ever want to gut social security. Companies already push
people out at 55 and then you have a good 8 to 12 years of somehow managing until social security
comes to your rescue. Younger people do think social security will not be in place when they are
in their 60s which makes them angry. And who can ultimately rely on the stock market etc. to give
them the money they will need when older – shivers. Is the economy that sound? Plus many people
cannot manage to work so long due to health reasons which do start creeping up on people in their
late 50s or the work they do is too labor intensive for them to imagine keeping at it until 69
or even 67. Bodies give out at some point. That is reality. Everyone wants to work until 70 but
the companies don't want older workers – they want young, fresh, vital. If anything, social security
should start at 60.
Two reasons come to my mind, a desire to reduce or eliminate the employer half of payroll taxes
AND the pool of money that the financial industry thinks should be theirs to rape and pillage.
But I'm sure there are others.
Recent posts and comments have noted both more billionaires and a rapid concentration of wealth
amongst them. But it's mo' po', too, what Turchin calls 'popular immiseration'. To decrease the
effects of 'interelite competition' the wealthiest cannot just bestow unto their favorites, they
must tend to the rich on the downslope. Those are the ones with resources to engage in attrition.
So there is a long history of shoving the costs onto those who can't fight back, and the unlanded
are easier to slap down.
A personal case: Pearl was a delightful very elderly lady a few doors down. Her house was in
trust until she died, and she had a daughter and a grandaughter living with her. When she died,
one of her (all over-55) children had medical debt needing paid and so he vetoed keeping the house.
It sold, the land was lost to the family, and daughter and grandaughter were homeless.
That interelite competition was apparent in the election. Our choice of two New York billionaires
was a choice over which aspect of the FIRE sector would dominate, Finance or Real Estate. But
those differences seem to get averaged out below a scale of 10^8 or so dollars.
Re Companies that push people out at 55 and don't want older workers and prefer younger ones,
this leaves a lot of people in that 55-70 age bracket in a difficult (and in some cases, a terrible)
situation if they're not in the minority of those who have a secure gig until they retire (usually
people that I know that have government gigs w/ pensions.) The Presidency nor the Congress have
no solution for older workers who get pushed out and face discrimination due to their age when
they seek employment. They would prefer to not hear about it and if they're sleeping in cars or
in tents under bridges, that's their problem.
continuing what's been going on for the past 8 years, ever heard of quantitative easing, the
ACA, or chained CPI? Foam the runway with HAMP, maybe, or endless war as the only jobs guarantee
available. Sorry, but trump is just more of the same, only a little more forthright. You should
be used to it by now.
No argument here. Put the Dems in control and they will find all kinds of excuses for doing
the same thing, all bight more subtlety. Clinton was going to privatize Social Security and Obama
proposed chained CPI. Not to mention the effects of TPP.
Another columnist whose "answers" are predicated on the assumption that taxes provision government
programs. Just one question: Where do tax payers get the dollars to pay taxes with if government
doesn't spend them out into the economy first?
If that's too much thinking: Where was all this "we're out of money" talk when the Fed, according
to its own audit, pushed $16 – $29 trillion out the door to save the financial sector from its
own frauds? Yet government routinely denies it makes the money when the orders-of-magnitude demands
of safety net programs appear. Taxes make the money valuable; they do not, and obviously cannot,
provision government.
As long as this isn't common knowledge, we're all condemned to austerity. Even public policy
makers sympathetic to workers (e.g. Dilma Rousseff) are in peril if they adopt the "inevitable
austerity" routine.
Unfortunate that I had to scroll this far down to find the first person with a correct understanding
of government finance. I've explained MMT point blank to people multiple times and they still
cannot grasp it. Until people start caring and get a general understanding of how this thing works
we are in a lot of trouble. I am hoping that Trump will be godawful enough to bring about such
a conviction for revolution to the average American
As the Henry Ford saying goes (oft-quoted by Ellen Brown):
"It is well enough that people of the nation do not understand our banking and monetary system,
for if they did, I believe there would be a revolution before tomorrow morning."
Exactly right and if the powers that be were really concerned about funding SS from those who
will receive it all they have to do is raise the income cap to cover total income for everyone
- not just middle income workers. Problem solved and no need to worry about the fact that the
government can't run out of dollars.
I see the Trust Fund as having been accumulated over the decades by my generation - by paying
higher FICA tax to purchase fed bonds with. TF running out now supposed to be the big to do? Wasn't
it supposed to run out? Aren't we supposed to use what we saved?
I like to say: have an SS retirement shortfall today? Do it all over again: hike FICA, lower
income tax and accumulate bonds. Mmm.
But, just yesterday I had a brainstorm. If Repubs want to cut benefits so FICA shortfall doesn't
have to made up by income tax cashing bonds (covering about 25% of outgo just before our bonds
run out, then, Repubs want to steal our savings that we forgave immediate gratification to accumulate
all those long years.
Always suspected income tax payers who are hit for as much as 39% would balk at cashing the
bonds when the time came - but on the basis of the usual world run for the haves idea. Never thought
of it in terms of outright theft - before yesterday.
PS. Really shouldn't use up all bonds. Right now there are about four years of full replacement
in the TF. Legal solvency is defined as one year - needed to cover temporary shortfall while Congress
moves to fill in - happened couple of times.
No. Defined benefit plans are supposed to be funded so that the assets earn enough to pay promised
benefits. If the assets run out, the plan is not only mismanaged, it's bankrupt.
Seriously, if your checking account were emptied by a hacker, would you ask "Wasn't it supposed
to run out?" You are a crime victim.
Educate, Agitate, Organize, yup, expanding on cry shop's comment above, it's more than breitbart
and Fox these days. The mainstream media may be (usually) more polite and more subtle, but they
will not report the basic info accurately like Yves and Lambert do here. Our Revolution is a good
start. There need to be alternative sources of information such that education can happen. That
is why the "fake news" attacks on alternative media are such a big deal. The founders of the US
understood the importance of information too, one reason the postal service was established with
low rates for all periodicals. "Knowledge will forever govern ignorance; and a people who mean
to be their own governors must arm themselves with the power which knowledge gives", wrote Madison.
We really are sheep without knowledge. Some like it that way .
Donald Trump, at his rallies, consistently lied to his fervent fans that he was going to save
Soc Sec & Medicare. What a laugh.
I've been blogging and telling people throughout the election process that Trump made a very
public DEAL with Paul Ryan that he, Trump, was totally behind cutting and gutting SS & Medicare.
That is the main (possibly only) reason why Ryan gave Trump his very tepid "endorsement." But
this was very public knowledge and not hidden.
But of course, Trump lies constantly, so his fans were mainly enthralled with what a bully
he is and believed what they wanted to believe. Made up fantasies. Some of his fans are waking
up to the fact that they've been screwed over royally. Of course the M$M will happily oblige by
somehow finding a way to blame it all on Obama, Clinton, the Democrats, whatever (not that the
Dems aren't equally happy to cut and gut SS & Medicare, as well) and the proles will buy it.
Although various states have now passed laws to legalize what's called "assisted suicide,"
there's still a lot of resistance to it, esp from those of various religious persuasions. Also
assisted death in these cases is only available for those already in the latter stages of terminal
illnesses, and generally extreme poverty doesn't fall under that definition. So sucks to be you.
I guess dying from hunger and exposure, due to extreme poverty, is our just deserts. No rest
for the wicked. When you die, you have to die as painfully and slowly as possible just to impress
upon you how worthless and awful you truly are. The punishments will continue until morale improves.
This was posted hours ago. How many readers have taken the time to email their congressmen?
Please do! You don't have to be lengthy or learned. You can simply state a couple of talking points
you all know and intimate that tampering with benefits is not going to be accepted. This is definitely
one of those "if you're not with us you're against us" issues, and the sooner your elected representatives
understand you mean that the better.
"I think a 0.4% increase (combined), about two dollars per week for each the worker and
the employer, should solve the problem in ten years, but I haven't done the numbers on that
myself. "
WHUT? Why are space cadets like this even allowed on the internet?
Trying to patch Soc Sec's $10 trillion hole with an 0.4% FICA tax hike is like trying to empty
the Atlantic Ocean with a teaspoon.
Net present value, Dale - I'm afraid you cut class that day. Now it's too late.
The attempt by the right to "fix" Social Security is nothing more than an attempt to make the
trust fund disappear, and to mark all the obligations that fund was supposed to have met null
and void.
If this sounds like they are trying to steal the trust fund, that is not the case. They have
already stolen it. Now they just have to fix the accounting to say they didn't, which they will
do by setting the system to never need to cash a bond from the trust fund.
Tin foil hat, you say? Fine, but do me a favor. Whenever a bill is introduced to "fix" Social
Security, do the accounting for how it will play out. The trust fund will no longer be needed?
Something about this strikes me as a hilarious farce of unintended consequences. People worried
about "government debt" and demanding its reduction are getting exactly what they wished
for.
I'm not quite sure of your meaning here. It sounds like you are mocking people for not being
able to get out from under a propagandist educational/media system and a corrupt government. Then
again, it also seems to be gloating and that people deserve to be immiserated.
This is called a "technical adjustment." They can pretend that the CPI is too generous and
know that most people won't understand the scam.
I am a 100% disabled veteran and several years back they tied our COLA to the SS COLA.
The result is that since mid 2013 in this region we have lost about 40% of our purchasing power.
Our standards of living have dropped by that much.
Of course there is NO INFLATION, the letters I have been getting actually claimed that because
of this DISINFALTIONARY economic environment . That is no inflation so no raise this year.
Now, I am going to be 59 this spring, I worked at a lot of things between 1973 and 2005 when
a judge ruled in my favor regarding my disability and awarded me SSD. But, because I spent so
many years fighting SS and did not have the quarters of income recent enough my SSD amounts to
$1,013 per month.
Now for all the republicans out there who think SS is too generous, I would ask you to stick
your filthy little brains, or rather pull them out of your exhaust holes. You can claim it is
too generous when you have spent a lifetime paying in and then someone tells you that 12 grand
a year is too generous.
MY RENT IS MORE THAN THAT and this place s a hovel in the sticks. The only way I can have a
roof over my head for less is to live in my vehicle.
Fortunately I also have a bit in VA disability and between the two I thought of myself as middle
class if just barely only 36 months ago, now I would consider myself in dire poverty at 20k a
year, anything less and we are talking eating at the mission and sleeping in shelters. Vehicle?
Right. The fact that they refuse to acknowledge inflation and use quite literally half a dozen
tricks to disappear it from the headlines does NOT mean it does not exist. If you can eat gasoline
and flat screen TV's you are certainly doing great, otherwise you are experiencing something never
known in the USA, structural downward mobility for 90% of us.
And it is these facts that drove the angry and the stupid to vote for Trump, they were not
the majority of voters, but between them and antiquated laws giving voters in small states far
more power than in urban areas (where people actually live) that Orange Hitler dude got in, and
so did the GOP majority of fascists who have as a holy mission class warfare and getting rid of
diversity of any kind, racial, sexual, or gender.
They are going to gut every bit of progress since Teddy Roosevelt. They are going to bring
back segregation, this time though via school vouchers. They are not going to FORCE non white
non middle class kids into slum condition schools, so they will plausibly claim HEY it is NOT
segregation and those parents have an equal right to move their kids to private schools also.
No, instead these kids will be abandoned in schools that the government will slash funding to
as white upper and middle class people are partially paid the tuition to send their kids to private
schools which are exempt from federal discrimination laws. I am NOT holding my breath for this,
I have a one way ticket to Australia for the first week of January.
THAT is going to be the story of all government for a while, social security is just one of
MANY functions of government they are going to kill off. If you think people were angry in 2016
just you wait till 2020.
It is already so bad that unless the GOP grows a conscience and a heart in the next 2-4 years
the USA will break up the way the Soviet Union did. The nation now has what so many married couples
cite in divorce proceedings, IRRECONCILABLE differences.
And the worst of it is that no matter if you like it or hate it the USA is the rock of stability
that has keep civilization working since the end of WWII. You break up the USA and bingo there
is no uni in the unipolar geopolitical world. What we will have is chaos and war and humanity
will fail. USA FAIL=Humanity FAIL.
Thank you. Thank you. Thank you. For your plainspoken honesty. This should be copied and posted
everywhere, starting with senators and representatives.
They should have an option for an opt out of social security, medicare/Medicaid, Affordable
Health Care. Not having that kind of freedom to me is not worth it. I am not buying any other
excuses such as I am not shrewd to invest my money. Taking money is the easy part. Getting back
is always laborious if you are lucky to get.
right. many people opt out of "mandantory" auto insurance by just not
getting it. it's been estimated that in FL at different times as many as
one third of the drivers on the road are not insured. and really, if they
get injured, they get treated in an emergency room until they are stabilized
(the law) and if they were sued for damages, what could be recovered?
but, let's remember, while they are on their "ride" they are "free." Yep.
a lot of people think like that.
Social Security, let's lay it to rest once and for all Social security has nothing to do
with the deficit. Social Security is totally funded by the payroll tax leviedon employer and
employee. If you reduce the outgo of Social Security, that money would not go into the general
fund or reduce the deficit. It would go into to the Social Security Trust Fund. So Social Security
has nothing to do with balancing a budget or lowering the deficit.
would someone explain why the greenspan changes , which were supposed to keep social security
solvent, did not, I've googled the history and the only answers seem to be that the trust had
trillions in surplus that were used to pay off other obligations, , which I do know that the funds
were used to lower the deficits in previous years, but wouldn't the surplus still be there? Explanation
please by someone knowledgeable about the history and why the problems now
"Well, which is he, "at the top of the scale" or an "average earner"?"
Oops. Even I understand that one. It means he earned an AVERAGE of $118,500, the maximum that
SS taxes.
Next question: what kind of idiot actually introduces a bill to cut Social Security? One who
plans on a lucrative retirement from politics, that's what kind.
Protesting the proposed policies of President who owns real properties of value in media-drenched
major cities that require the labor of lower income workers on a daily basis might be more effective
than protesting a President whose wealth is almost entirely stored in secret, offshore bank accounts.
"The trouble with Sneed's article is that she does not appear to know what she is talking about.
She just wrote down what some "experts" told her with no idea what the words mean."
You missed the question, is it the writer or the policy of the site?
"... Second, it is important to note that the size of the projected shortfall in the Medicare Part A program (the portion funded by its own tax) has fallen sharply in the Obama years. The shortfall for the 75-year planning horizon was projected at 3.53 percentage points of payroll in 2009, the first year of the Obama presidency. It has now fallen by 80 percent to just 0.73 percent of payroll. This reduction is due to a sharp slowdown in the projected growth of health care costs. Some of this predates the Affordable Care Act (ACA), but some of the slowdown is undoubtedly attributable to the impact of the ACA. ..."
"... On Chris Wallace's question, we know now from Hillary Clinton's Wall Street speeches that her plan on debt and entitlements is to support the elitist Bowles-Simpson project, the centerpiece of which was raising the age for Medicare and Social Security. Who do you think Hillary is lying to about benefits - everyday Americans like you (who she deplores) or her Wall Street backers? ..."
"... Japan has been doing this deficit spending thing for 20+ years and borrowed an enormous amount of money. It has not solved anything. Growth continues to be elusive. Progressive economists keep whistling by the graveyard. And the conservatives just want to cut taxes. Both groups look like medieval doctors who prescribe bloodletting no matter what the illness is. Oh, the dismal science! ..."
"... She proudly proclaimed that her programs would not add to the national debt implying no increase in deficit spending. She ridiculed Trump because his tax plan would add significantly to the deficit and national debt. Clearly she wants to portray an image of fiscal responsibility and Wallace's question allowed her to go down that path. ..."
At the debate last night, moderator Chris Wallace challenged both candidates on the question of cutting
Social Security and Medicare. The implication is that the country is threatened by the prospect of
out of control government deficits. The question was misguided on several grounds.
First, as a matter of law the Social Security program can only spend money that is in the trust
fund. This means that, unless Congress changes the law, the program can never be a cause of runaway
deficits.
Second, it is important to note that the
size of the projected shortfall in the Medicare Part A program (the portion funded by its own
tax) has fallen sharply in the Obama years. The shortfall for the 75-year planning horizon was projected
at 3.53 percentage points of payroll in 2009, the first year of the Obama presidency. It has now
fallen by 80 percent to just 0.73 percent of payroll. This reduction is due to a sharp slowdown in
the projected growth of health care costs. Some of this predates the Affordable Care Act (ACA), but
some of the slowdown is undoubtedly attributable to the impact of the ACA.
Anyhow, the implication of Wallace's question, that these programs are somehow out of control
and require some near term fix, is not supported by the data. We will have to make changes to maintain
full funding for Social Security, but there is no urgency to this issue.
On the more general point of deficits, the country's problem since the crash in 2008 has been
deficits that are too small, not too large. The main factor holding back the economy has been a lack
of demand, not a lack of supply. Deficits create more demand, either directly through government
spending or indirectly through increased consumption. If we had larger deficits in recent years we
would have seen more GDP, more jobs, and, due to a tighter labor market, higher wages.
The problem of too small deficits is not just a short-term issue. A smaller economy means less
investment in new plant and equipment and research. This reduces the economy's capacity in the future.
In the same vein, high rates of unemployment cause people to permanently drop out of the labor force,
reducing our future labor supply if these people become unemployable. (Having unemployed parents
is also very bad news for the kids who will have worse life prospects.)
The Congressional Budget Office now puts potential GDP at about 10 percent lower for 2016 than
its projection from 2008, before the recession. Much of this drop is due the decision to run smaller
deficits and prevent the economy from reaching its potential level of output. We can think of this
loss of potential output as a "austerity tax." It currently is at close to $2 trillion a year or
more than $6,000 for every person in the country.
It is unfortunate that Wallace chose to devote valuable debate time to a non-problem while ignoring
the huge problem of needless unemployment and lost output due to government deficits that are too
small.
On Chris Wallace's question, we know now from Hillary Clinton's Wall Street speeches that her
plan on debt and entitlements is to support the elitist Bowles-Simpson project, the centerpiece
of which was raising the age for Medicare and Social Security. Who do you think Hillary is lying
to about benefits - everyday Americans like you (who she deplores) or her Wall Street backers?
and the nerve of this Wallace dude and the nerve of all these other... so called journalist on
this show?
Wallace even didn't notice - the whole time!! - that it was Alec Baldwin -(and not Trump) -
who answered his silly questions - and then the nerve of the so called 'media' to praise Wallace
- that he didn't notice that Alec Baldwin answered his questions.
I am perfectly fine with running deficits to get out of a recession and compensate for temporary
shortfall in private demand. Isn't this the original idea behind deficit spending? But we are
7 years out of a recession.
Japan has been doing this deficit spending thing for 20+ years and borrowed an enormous
amount of money. It has not solved anything. Growth continues to be elusive. Progressive economists
keep whistling by the graveyard. And the conservatives just want to cut taxes. Both groups look
like medieval doctors who prescribe bloodletting no matter what the illness is. Oh, the dismal
science!
The Japanese yen is severely overvalued and therefore Japan's exports no longer can sustain GDP
growth as they did in the past. Combined with Japan's anemic consumer demand, there is nothing
but government spending to spur growth. If Japan now cut its deficit spending, its economy would
collapse.
My point is that American health care is profit driven. The private health insurer companies drive
up the costs in all sectors of health care - whether that be for a simple phlebotomy test or a
urinary catheter or...., or for a visit to a cardiologist after initial treatment for angina in
an emergency dep't.
Health care should be considered a basic human right in any country and not one that is affected
by the amount a person can pay - or the quality of private insurance a person can afford. I worked
in the field for 33 years before retiring and what I saw was, in many cases, very sad and unfortunate.
Those who had money went on with their lives and those who did not often simply died. That is
no way to manage any society.
Dear Michael,I am in TOTALl agreement with you but, as a very satisfied Kaiser Permanente member,
I am a little defensive about maligning the term "HMO" which, I believe, is a beacon of hope for
"Best Practices" in our current profit driven health delivery mess. I am a retired RN who watched
first hand as the system became ruled by consolidation and greed. I remember in the 1980s being
told that consolidation would bring cost down. What a joke that was. So I am working for single
payer, Medicare for all. Carol
"It is unfortunate that Wallace chose to devote valuable debate time to a
non-problem while ignoring the huge problem of needless unemployment
and lost output due to government deficits that are too small." -D. Baker
We should have a Full Employment Fiscal Policy coupled with a Federal Job Guaranty would put an
end to this discussion. Funding the entitlements are not an issue - although the law may need
to be revised - as the government can issue its currency without a problem - inflation being the
constraint. (The increase in demand for apartments, cable subscriptions, and shuffleboards are
unlikely to trigger uncontrolled inflation.)
Dean thinks the debt is not a problem but the majority of voters Clinton was trying to reach probably
do think it is a problem. She proudly proclaimed that her programs would not add to the national
debt implying no increase in deficit spending. She ridiculed Trump because his tax plan would
add significantly to the deficit and national debt. Clearly she wants to portray an image of fiscal
responsibility and Wallace's question allowed her to go down that path.
I did not say that she did not propose to increase spending - just that she would not increase
the debt because everything is "paid for". If everything is paid for by tax increases then there
is no near term stimulus to the overall economy. There may be long term benefits if the projects
are worthwhile but that will take years to surface. She also declined to defend the benefits of
fiscal stimulus after the financial crisis. People hear what they want to hear from these debates.
I think you are wrong about the near term benefits of taxing wealthy people and then using that
money for public spending. The propensity of the wealthy for spending is low and therefore if
you take some of their money and spend it it will be stimulative.
I am aware of this ptc argument but find it weak. I know plenty of "wealthy" couples who save
very little. Anyhow, even if there is some merit to the argument why not borrow now at almost
zero cost and ensure the maximum stimulus.
Another factor - public spending may not find its way into the lowest income levels of our
society. Infrastructure projects, for example, will enrich contractors and materials industries
as much or more than the individual workers. Also, they take a long time to get started as there
really is no such thing as shovel ready. Couple the protracted startup with higher taxes and you
get very little near term benefit.
This whole discussion is of course mute since running deficits does not crowd out investing. And
increasing the debt has no negative implication other then the political effects. The government
can print money and spend money. If it runs deficits it can keep interest rates low by buying
securities.
We need to stimulate DEMAND Now to get the economy revved up and the money flowing. Best way is
the change Social Security such that it doesn't kick in until the earner has made $10,000 (i.e.)
and account for that by lifting the cap accordingly such that 90% of all earned income is taxed:
just as it used to be when Reagan/?? fixed it. Just think what all that money would do in the
economy. It would not be used to by back stock or inflate golden parachutes. It would be immediately
spent. It would be DEMAND.
The $173 Trillion Austerity Tax in the Infinite Horizon
By Lara Merling and Dean Baker
The Peter Peterson-Washington Post deficit hawk gang keep
trying * to scare us into cutting Social Security and
Medicare. If we don't cut these programs now, then at some
point in the future we might have to cut these program or
RAISE TAXES.
There are many good reasons not to take the advice of the
deficit hawks, but the most immediate one is that our economy
is suffering from a deficit that is too small, not too large.
The point is straightforward, the economy needs more demand,
which we could get from larger budget deficits. More demand
would lead to more output and employment. It would also cause
firms to invest more, which would make us richer in the
future.
The flip side in this story is that because we have not
been investing as much as we would in a fully employed
economy, our potential level of output is lower today than if
we had remained near full employment since the downturn in
2008. The Congressional Budget Office estimates that
potential GDP in 2016 is down by 10.5 percent (almost $2.0
trillion) from the level it had projected for 2016 back in
2008, before the downturn.
This is real money, over $6,200 per person. But if we want
to have a little fun, we can use a tactic developed by the
deficit hawks. We can calculate the cost of austerity over
the infinite horizon. This is a simple story. We just assume
that we will never get back the potential GDP lost as a
result of the weak growth of the last eight years. Carrying
this the lost 10.5 percent of GDP out to the infinite future
and using a 2.9 percent real discount rate gives us $172.94
trillion in lost output. This is the size of the austerity
tax for all future time. It comes to more than $500,000 for
every person in the country.
By comparison, we can look at the projected Social
Security shortfall for the infinite horizon. According to the
most recent Social Security Trustees Report, ** this comes to
$32.1 trillion. (Almost two thirds of this occurs after the
75-year projection period.) Undoubtedly many deficit hawks
hope that people would be scared by this number. But compared
to the austerity tax imposed by the deficit hawks, it doesn't
look like a big deal.
"... When I signed up for a 401k at my previous job, I wanted to invest in the S&P index fund, as it was the lowest cost option. Given that Putnam used their own fund, it charged 0.35% at a time when Vanguard was at 0.07% and Fidelity at 0.10%. ..."
"... Rule of 72 says that at 7% return for ten years would be $20,000 not $136K. ..."
"... Washington has proven itself incapable of managing its money (our taxes) prudently and efficiently because of our corrupt representatives putting their electoral and personal interests first. The 401K experiment has failed. Very few individuals will be able to rely on them for retirement security, and of those most hail from the higher income brackets. They do virtually nothing for retirement security for the vast, vast majority of the country. ..."
"... Social Security is a proven, cost effective, and reliable deliverer of retirement income for our entire population. 401K's will never come close, and in fact aren't worth shit to most people. But that is not what matters in Washington. ..."
"... The Plan administrator has a fiduciary obligation to manage the options. The administrator can put pressure to make non-Sponsor funds available. With a total company 401k of only about $5mm, I was able to pressure our 401K plan Sponsor to provide access to lower cost equivalent portfolios for investment options such as S&P 500, Russell 2000 and a long-term bond yield (via Vanguard and Fidelity). ..."
"... Difficult to reconcile this with the Department of Labor's new fiduciary rule, which reportedly requires financial advisers to place the interests of clients with retirement-saving accounts ahead of their own. I have read that it will be implemented sometime next year, assuming there are no additional delays. (hat tip Barry Ritholtz) ..."
Thanks for this analysis. I have a 403b through my institution of higher Ed, specifically Tiaa.
Their funds are kind of lousy (compared, say, to a vanguard index) and there's little choice in
which funds seem to be available from one institution to another.
The idea that workers will somehow sit down and process the numbers surrounding badly performing
funds, and then redistribute, is a fantasy. Who has the financial literacy to do that? Like healthcare,it's
another area of personal finance where people are expected to take on time consuming and complex
administrative duties.
Mandatory 401s sounds just great. Can't wait. "You give me your money, you tell me where to
put it among crappy options, wait forty years, and you may or may not ever see it again, based
on the quality of your choices. Pleasure doing business with you."
I love the last line, because it applies to almost everything in our society today: far more
scrutiny and oversight. Thanks to Naked Capitalism for turning up the scrutiny.
We are going to have a fight on our hands if and when HRC gets elected. The fact that our politicians
have gotten away with weakening New Deal programs that actually worked well is all the evidence
I need to believe they are not finished with their attack.
When I signed up for a 401k at my previous job, I wanted to invest in the S&P index fund,
as it was the lowest cost option. Given that Putnam used their own fund, it charged 0.35% at a
time when Vanguard was at 0.07% and Fidelity at 0.10%.
If you put $10k into the fund at 35 bps, you'd have $136k at the end of 10 years (assuming
7% gross return). if you got it at 7 bps, you'd have $137k. Now, if you'd bought a loaded A share
American Fund with a 5.75% sales load and a 65 bps expense ratio, you'd have $126k.
The principle of low fees is important, but you're effectively there with the 35 bps fund.
"…investors might be vigilant enough to recognize that their interests are not being well served…"
Come on. Really. I would wager that the percentage of people knowledgeable and sophisticated
enough to do so at well under 0.1% of the population. The entire system of 401 retirement plans
has been constructed for the purpose of fleecing undisclosed fees from us suckers forced into
these plans.
Washington has proven itself incapable of managing its money (our taxes) prudently and
efficiently because of our corrupt representatives putting their electoral and personal interests
first. The 401K experiment has failed. Very few individuals will be able to rely on them for retirement
security, and of those most hail from the higher income brackets. They do virtually nothing for
retirement security for the vast, vast majority of the country.
Social Security is a proven, cost effective, and reliable deliverer of retirement income
for our entire population. 401K's will never come close, and in fact aren't worth shit to most
people. But that is not what matters in Washington.
I see this as akin to a Board of Driectors governance issue.
The Plan administrator has a fiduciary obligation to manage the options. The administrator
can put pressure to make non-Sponsor funds available. With a total company 401k of only about
$5mm, I was able to pressure our 401K plan Sponsor to provide access to lower cost equivalent
portfolios for investment options such as S&P 500, Russell 2000 and a long-term bond yield (via
Vanguard and Fidelity).
All it required was performing the minimums of being a 401k plan administrator. Quarterly monitoring
of fund performance versus peers via a service like Morningstar (took 4 hours to prebuild screens
that displayed QonQ, YonY and 3Yon3Y), pressing the Sponsor for alternatives and then refusing
the steak dinner to discuss with the Sponsor. I mean for crying out loud this is really simple.
And of course if your plan administrator isn't doing this minimum I'm sure they have fiduciary
insurance so there are alternatives.
Of course many people aren't willing to ask/press these questions of their employer/HR. I've
seen plans administered exceptionally well (utility with a union for about 1/3 of employees and
small family energy firm) and poorly (some larger energy companies). Why somebody doesn't provides
this administrator function as an outsource is beyond me. The real liability can be quite high
and pushing off to a 3rd party who does just that would seem worth the $.
My 401K was administered by Fidelity and I believe there were no restrictions whatsoever. I
could invest in any Fidelity fund or actually any fund through a brokerage account. If you didn't
use a Fidelity brokerage account offered by the plan as an option your choices were restricted.
They are often dodgy too. Great-west/Empower does a real bait and switch on the options offered
for certain 401A funds were there is deeply buried disclosure about proprietary versions charging
much higher fees, than the term sheet prominently displayed as "this is what you're buying if
you select this fund". This is a real racket
Yves, article and analysis insightful, thanks again. "Doggy" in title makes sense, but "dodgy"
may apply as well to Fidelity specifically, read on. Stumbled on to Reuters write up by Tim McLaughlin
about Fidelity this month and began a search for a new money management firm with a "fiduciary"
bone in it's body:
http://www.reuters.com/article/us-usa-fidelity-family-specialreport-idUSKCN1251BG .
Though the article indicates Fidelity's behavior is not "illegal nor unethical" – Yale University
law professor John Morley said Fidelity runs the risk of losing investors by competing with the
funds that serve them.
"What they're doing is not illegal, not even unethical," Morley said. "But it's entirely appropriate
for mutual fund investors to take their money elsewhere because Fidelity has made a decision to
take away some of their potential returns."
Many of us are trapped in the DC funds our employers establish for us. As cdub referenced,
pressuring plan administrators is one way to change options or broaden offerings – but one needs
to understand what pressure to apply.
Difficult to reconcile this with the Department of Labor's new fiduciary rule, which reportedly
requires financial advisers to place the interests of clients with retirement-saving accounts
ahead of their own. I have read that it will be implemented sometime next year, assuming there
are no additional delays. (hat tip Barry Ritholtz)
So: Hillary Clinton has already said that she will raise Social Security taxes on people who make
less than $118,500 per year, but Donald Trump has not indicated whether he will impose Social Security
taxes on income above $118,500 per year.
Other proposals that have been pushed in order to "replenish the Social Security Trust Fund" -
or to achieve the long-term stability of the Social Security system - mainly focus on three approaches:
One is privatizing Social Security, as Wall Street wants, and which proposal is based on private
gambles that the assets that are
purchased by the Wall
Street firm for the individual investor will continually increase in value, never plunge, and never
be reduced by annual charges to pay Wall Street's fees for management and for transactions, throughout
the worker's career until retirement.
Another approach is gradually reducing
the inflation-adjuster for benefits, the inflation-adjusted value of the benefits that Social
Security recipients will be receiving. President Obama had been trying to get congressional Republicans
to agree with him to do that (which some call "the boiling-frog approach" because it's applied so
gradually), but they continued to hold out for privatizing Social Security, and thus nothing was
done.
And the third option is to increase the retirement-age, as Obama also wanted to do (and which
is really just another form of "boiling-frog approach"), but also couldn't get congressional Republicans
to accept that. (Trump's comment to "Not increase the age and to leave it as it is" is a clear repudiation
by him of this approach. And his promise to not increase taxes would, if taken seriously, also prohibit
him from endorsing Hillary Clinton's approach.)
"... Mr. James recommended a proposal by Teresa Ghilarducci, director of the Schwartz Center for Economic Policy Analysis at The New School in New York, to create a retirement savings plan for everyone based on 3% annual salary contributions shared equally among employees and employers. The federal government would guarantee a 2% return, through a modest insurance premium on such accounts . "With corporate profits at an all-time high, this should be a manageable burden," he said, adding that the approach "is going to require us to look beyond the next election cycle." ..."
Blackstone Group's Tony James, likely to be Clinton's Sec of Treasury, advocates a hedgfund enriching
scheme involving MANDATORY government savings plan on all Amercans.
Tony James head of the crooked Blackstone Group, a giant hedge fund connected to many state pension
funds, is likely to be Clinton's Treasury Sec. Hedge funds have donated 125 million to Crooked Hillary,
20k to Trump. This is thievery on the grand, epic biblical scale with the usual bs about "helping"
people.
"We absolutely have to start now," Mr. James said at a Center for American Progress conference
in Washington on Wednesday. " It has to be mandated . Nothing short of a
mandate will provide future generations a secure retirement."
Mr. James recommended a proposal by Teresa Ghilarducci, director of the Schwartz Center for Economic
Policy Analysis at The New School in New York, to create a retirement savings plan for everyone
based on 3% annual salary contributions shared equally among employees and employers. The federal
government would guarantee a 2% return, through a modest insurance premium on such accounts . "With
corporate profits at an all-time high, this should be a manageable burden," he said, adding that
the approach "is going to require us to look beyond the next election cycle."
Mr. James also called for redirecting $120 billion in annual retirement tax deductions to give
every worker a $600 annual tax credit to save for retirement.
small search brings up deluge of corruption, payoffs etc.
Contrary to What AP Tells You, Social Security Is NOT a Main Driver of the Country's Long-term
Budget Problem
The New York Times ran a short Associated Press piece * on Social Security and "why it matters."
The piece wrongly told readers that Social Security is "a main driver of the government's long-term
budget problems." This is not true. Under the law, Social Security can only spend money that is in
its trust fund. If the trust fund is depleted then full benefits cannot be paid. The law would have
to be changed to allow Social Security to spend money other than the funds designated for the program
and in that way contribute to the deficit.
The piece also plays the "really big number" game, telling readers:
"the program faces huge shortfalls that get bigger and bigger each year.In 2034, the program faces
a $500 billion shortfall, according to the Social Security Administration. In just five years, the
shortfalls add up to more than $3 trillion.
"Over the next 75 years, the shortfalls add up to a staggering $139 trillion. But why worry? When
that number is adjusted for inflation, it comes to only $40 trillion in 2016 dollars - a little more
than twice the national debt."
Since this is talking about shortfalls projected to be incurred over a long period of time, it
would be helpful to express the shortfall relative to the economy over this period of time, not debt
at a point in time. This is not hard to do, since there is a table ** right in the Social Security
trustees report that reports the projected shortfall as being equal to 0.95 percent of GDP over the
75-year forecasting horizon. By comparison, the costs of the war in Iraq and Afghanistan came to
around 1.6 percent of GDP at their peaks in the last decade.
The piece also gets the reason for the projected shortfall wrong. It tells readers:
"In short, because Americans aren't having as many babies as they used to. That leaves relatively
fewer workers to pay into the system. Immigration has helped Social Security's finances, but not
enough to fix the long-term problems.
"In 1960, there were 5.1 workers for each person getting benefits. Today, there are about 2.8
workers for each beneficiary. That ratio will drop to 2.1 workers by 2040."
Actually the drop in the birth rate and the declining ratio of workers to beneficiaries had long
been predicted. The reason that the program's finances look worse than when the Greenspan commission
put in place the last major changes in 1983 is the slowdown in wage growth and the upward redistribution
of wage income so that a larger share of wage income now goes untaxed.
In 1983, only 10 percent of wage income was above the payroll tax cap. Today it is close to 18
percent. This upward redistribution explains more than 40 percent *** of projected shortfall over
the next 75 years.
It is also worth noting that the loss in wage income for most workers to upward redistribution
swamps the size of any tax increases that could be needed to maintain full funding for the program.
While AP wants to get people very worried over possible tax increases in future years, it would rather
they ignore the policies (e.g. trade, Federal Reserve policy, Wall Street policy, patent policy)
that have taken money out of the pockets of ordinary workers and put it in the hands of the rich.
fewer workers to pay into the system. Immigration has helped Social Security's finances, but
not enough to fix the long-term
"
~~dB~
Fewer workers who on balance draw smaller pay-check-s within a World of rising prices.
Can you see the long trend of inflation? Do you see how the price of a t-bond has risen steady
on during the past 35 years? As the bond price rises the yield falls. Do you see how much?
This is a long term unstoppable inflation that raises the price of all ships. All nursing
homes and all ships!
That's 139 Trillion with a capital
"T", and that rhymes with "P", and that stands for pool!
And don't look at guys like me to
save Social Security. My unfunded liability for kids shoes alone is over $20,000, and that's
assuming they leave home at 18.
The country's major banks are like trouble-making adolescents. They constantly get involved
in some new and unimagined form of mischief. Back in the housing bubble years it was the pushing,
packaging and selling of fraudulent mortgages. Just a few years later we had JP Morgan, the
country's largest bank, incurring billions in losses from the gambling debts of its "London
Whale" subsidiary. And now we have the story of Wells Fargo, which fired 5,300 workers for
selling phony accounts to the bank's customers.
It is important to understand what is involved in this latest incident at Wells Fargo. The
bank didn't just discover last month that these employees had been ripping off its customers.
These firings date back to 2011. The company has known for years that low-level employees were
ripping off customers by assigning them accounts -- and charging for them -- which they did
not ask for. And this was not an isolated incident, 5,300 workers is a lot of people even for
a huge bank like Wells Fargo.
When so many workers break the rules, this suggests a problem with the system, not bad behavior
by a rogue employee. And, it is not hard to find the problem with the system. The bank gave
these low level employees stringent quotas for account sales. In order to make these quotas,
bank employees routinely made up phony accounts. This practice went on for five years.
As it became aware of widespread abuses, it's hard to understand why the bank would not
change its quota system for employees. One possibility is that they actually encouraged this
behavior, since the new accounts (even phony accounts) would be seen as good news on Wall Street
and drive up the bank's stock price.
Certainly Wells Fargo CEO John Stumpf, as a major share and options holder, stood to gain
from propping up the stock price, as pointed out by reporter David Dayan. In keeping with this
explanation, Carrie Tolsted, the executive most immediately responsible for overseeing account
sales, announced her resignation and took away $125 million in compensation. This is equal
to the annual pay of roughly 5,000 starting bank tellers at Wells Fargo. That is not ordinarily
the way employees are treated when they seriously mess up on the job.
Regardless of the exact motives, the real question is what will be the consequences for
Stumpf and other top executives. Thus far, he has been forced to stand before a Senate committee
and look contrite for four hours. Stumpf stands to make $19 million this year in compensation.
That's almost $5 million for each hour of contrition. Millions of trouble-making high school
students must be very jealous.
There is little reason for most of us to worry about Stumpf contrition, or lack thereof.
His bank broke the law repeatedly on a large scale. And, he was aware of these violations,
yet he nonetheless left in place the incentive structure that caused them. In the adult world
this should mean being held accountable.
This is not a question of being vindictive towards Stumpf, it's a matter of getting the
incentives right. If the only price for large-scale law breaking by the top executives of the
big banks is a few hours of public shaming, but the rewards are tens of millions or even hundreds
of millions in compensation, then we will continue to see bankers disregard the law, as they
did at Wells Fargo and they did on a larger scale during the run-up of housing bubble.
There is another aspect to the Wells Fargo scandal that is worth considering. Insofar as
the bank was booking revenue on accounts that didn't exist, it was also ripping off the banks'
shareholders. The shareholders' interests are supposed to be protected by the bank's board
of directors.
It doesn't seem the shareholders got much help there....
Cellino & Barnes? I hope these
plaintiffs have been attorneys than that. But yea - having a government agency make your case
is a good idea as I'm sure top Wells Fargo management has hired some nasty defense attorneys.
California has
some of the strongest whistle blower protections in the country.
I find it remarkable that(and I have tried but failed to find any evidence) not one of these
mistreated employees filed a lawsuit years ago. The firings started in 2011. Are you telling
me these employees sat around for 5 years without a single one of them taking action?
The other part that bothers me is this bonus level goal. Wells Fargo is not the only company
in the world that sets their bonus levels at points that are almost impossible to obtain.
Not talking whistle blower protections.
Firms like Cellino and Barnes only take cases where they know they can win. Then again - I
am talking about a dirt bag law firm. Why bring a case when the odds are stacked against you?
But I think what you are pointing out is they is a new sheriff in town with respect to gathering
the facts - which of course is always key in winning any law suit.
"not one of these mistreated
employees filed a lawsuit years ago".
A lot of women who have been raped don't bother to
prosecute the creep thinking they can't win anyway. This may have been the thinking of these
employees until now.
I am not saying the law firm is incompetent, I am saying it seems to me they are taking
a case where WF might not want to deal with more bad pr and settle.
The only people, from what I have seen of this case, that have a chance to win on the merits
are those who claimed they called the ethics department at Wells and were fired for that action.
Yes, the lawyers are circling
like vultures.
But it just shows that lawyers evaluate cases before taking them on, and that the cases' prospects
depend on public opinion.
In addition, it is much easier for people to feel empowered, talk
to lawyers, and fight back if they don't feel isolated and vulnerable to retaliation.
"the executive most immediately
responsible for overseeing account sales, announced her resignation and took away $125 million
in compensation. ... That is not ordinarily the way employees are treated when they seriously
mess up on the job."
Based on (public) evidence available to me, I have to inform you that
this *is* ordinarily the way how the higher executive ranks are treated when the have to leave
because of a serious blunder. In many cases, the termination package is written into their
contract, with exceptions mostly for criminal malfeasance, breach of contract, and that type
of thing, or if the management/board deems it is better for everybody else to "convince" the
undesired executive to leave without a big splash, then they will sweeten the deal.
As I have seen in tech, in many companies the rank-and-file are treated to similar arrangements,
only the amounts are several orders of magnitude lower. But it is not very common for somebody
to be outright fired without severance. There are commonly provisions like a few weeks of salary
continuation per year of service, or offering a small sum to get a quick exit instead of a
drawn out and arduous process of managing somebody out and "documenting" everything.
Here's the part that bothers
me about this.(and once again I will mention that I feel almost dirty defending bank execs).
" large-scale law breaking by the top executives of the big banks".
I don't get this at all. It seems that setting huge bonus numbers is somehow large scale
law breaking.
But let's look at the real numbers is some perspective here(which is usually Baker's thing).
The idea seems to be that Stumpf came up with this idea to open accounts that people did
not know they had. Those accounts would both generate revenue and allow him to talk about the
growth of accounts in the bank.
I have seen nothing that shows how many accounts were opened illegally(I would like to see
that) and nothing to show how many legal accounts were opened during this time frame. With
that info you could put this into perspective how Stumpf and other high level execs gained
from this action.
That being said I know one thing. People who had accounts opened illegally were returned
the fees that they paid. That total is $5 million. Not a lot of revenue but it kind of makes
sense. You cannot charge people a lot of fees with products they do not even know they have.
there is no way in the world that anyone can think there was going to be a lot of money made
on accounts that were, to all intents and purposes, dead.
Meanwhile, in the time period that this case covers, Wells Fargo had profits of almost $100
billion. To think the CEO is going to worry about such an insignificant amount of revenue by
"planning" an illegal action is absurd.
I am all in in the bank CEOs committing fraud during the bubble, there was a huge amount
of profit to be made. But to think this thing came from the top, or even five or six levels
down, is silly. There is no reason.
This was the case of front line people committing fraud to make money. It was also the case
of their managers to encourage and/or allow that fraud to make money.
Wells certainly deserves the punishment for allowing this fraud to happen, but thinking
it originated in the executive offices makes no sense from an standpoint.
"... Most investors do fairly well at "buying" but stink at "selling." The reason is purely emotional driven primarily by "greed" and "fear." Like pruning and weeding a garden; a solid discipline of regularly taking profits, selling laggards and rebalancing the allocation leads to a healthier portfolio over time. ..."
"... once you run out of chips you are out of the game. ..."
Submitted by Lance Roberts via STA Wealth Management,
As markets hover near all-time highs, investors have become quite complacent
that the current bull market trend will continue indefinitely. But why shouldn't
they? After all, the Central Banks of the world have made it a primary mission
to ensure that asset prices don't fall in order to keep extremely weak economies
limping along. Interest rates hover near historic lows, and inflationary pressures
are non-existent. Of course, these arguments are used to justify the second
highest levels of valuation in history and a market that has set records for
the longest stretch without a 10% correction. This time is truly different...right?
Of course, a quick look at history tells us that this time is not different.
In March of 2008, I was giving a seminar discussing why we had already likely
entered into a recession and that a market swoon of mass proportions was approaching.
While that advice fell on deaf ears as we were in a "Goldilocks" economy, and
"subprime" was contained, the bubble ended just a few short months later. Why?
Because that "bubble" was no "different" than any other time in history. The
slide below was from the presentation:
this time is different
Of course, the next time I make this presentation I will have to add "Central
Bank Interventions" to the list.
The reality is that markets cycle from peaks to troughs as excesses built
up during the previous bull market cycle are liquidated. The chart below shows
the secular cycles of the market going back to 1871 adjusted for inflation.
What is important is that historically, bull markets are launched from ver low
valuations (buy low) and have historically ended with valuations around 23x
earnings (sell high).
SP500-PE-Recessions-031815
This time is not different. The excesses being built up in the markets today
will eventually revert just as they have been at every other peak in market
history. The only question, of which no one has the answer to, is exactly when
this occurs.
With this in mind, there are 10-basic investment rules that have historically
kept investors out of trouble over the long term. These are not unique by any
means but rather a list of investment rules that in some shape, or form, has
been uttered by every great investor in history.
1) You are a "saver" - not an investor
Unlike Warren Buffet who takes control of a company and can affect its financial
direction - you are speculating that a purchase of a share of stock today can
be sold at a higher price in the future. Furthermore, you are doing this with
your hard earned savings. If you ask most people if they would bet their retirement
savings on a hand of poker in Vegas they would tell you "no." When asked why,
they will say they don't have the skill to be successful at winning at poker.
However, on a daily basis these same individuals will buy shares of a company
in which they have no knowledge of operations, revenue, profitability, or future
viability simply because someone on television told them to do so.
Keeping the right frame of mind about the "risk" that is undertaken in a
portfolio can help stem the tide of loss when things inevitably go wrong. Like
any professional gambler - the secret to long term success was best sung by
Kenny Rogers; "You gotta know when to hold'em...know when to fold'em."
2) Don't forget the income.
As stated by the "Investment Brothers," an investment is an asset or item
that will generate appreciation OR income in the future. In today's highly correlated
world, there is little diversification left between equity classes. Markets
rise and fall in unison as high-frequency trading and monetary flows push related
asset classes in a singular direction. This is why including other asset classes,
like fixed income which provides a return of capital function with an income
stream, can reduce portfolio volatility. Lower volatility portfolios will consistently
outperform over the long term by reducing the emotional mistakes caused by large
portfolio swings.
3) You can't "buy low" if you don't "sell high"
Buy-Low-Sell-High-Rogers
Most investors do fairly well at "buying" but stink at "selling." The
reason is purely emotional driven primarily by "greed" and "fear." Like pruning
and weeding a garden; a solid discipline of regularly taking profits, selling
laggards and rebalancing the allocation leads to a healthier portfolio over
time.
Most importantly, while you may "beat the market" with "paper profits" in
the short term, it is only the realization of those gains that generate "spendable
wealth."
4) Patience And Discipline Are What Wins
Most individuals will tell you that they are "long-term investors." However,
as Dalbar studies have repeatedly shown investors are driven more by emotions
than not. The problem is that while individuals have the best of intentions
of investing long-term, they ultimately allow "greed" to force them to chasing
last year's hot performers. However, this has generally resulted in severe underperformance
in the subsequent year as individuals sell at a loss and then repeat the process.
This is why the truly great investors stick to their discipline in good times
and bad. Over the long term - sticking to what you know, and understand, will
perform better than continually jumping from the "frying pan into the fire."
5) Don't Forget Rule No. 1
As any good poker player knows - once you run out of chips you are out
of the game. This is why knowing both "when" and "how much" to bet is critical
to winning the game. The problem for most investors is that they are consistently
betting "all in, all of the time."
The "fear" of missing out in a rising market leads to excessive risk buildup
in portfolios over time. It also leads to a violation of the simple rule of
"sell high."
As discussed recently, the reality is that opportunities to invest in the
market come along as often as taxi cabs in New York City. However, trying to
make up lost capital by not paying attention to the risk is a much more difficult
thing to do.
6) You most valuable, and irreplaceable commodity, is "time."
Since the turn of the century, investors have recovered, theoretically, from
two massive bear market corrections. After 15 years, investors are now back
to where they were in 2000 after adjusting for inflation. The problem is that
there has been an irreplaceable loss; the "time" that was available to "save"
for retirement is gone, forever.
For investors getting back to even is not an investment strategy. We are
all "savers" that have a limited amount of time within which to save money for
our retirement. If we were 15 years from retirement in 2000 - we are now staring
it in the face with no more to show for it than what we had over a decade ago.
Do not discount the value of "time" in your investment strategy.
7) Don't mistake a "cyclical trend" as an "infinite direction."
The-trend-is-your-friend
There is an old Wall Street axiom that says the "trend is your friend." Unfortunately,
investors repeatedly extrapolate the current trend into infinity. In 2007, the
markets were expected to continue to grow as investors piled into the market
top. In late 2008, individuals were convinced that the market was going to zero.
Extremes are never the case.
It is important to remember that the "trend is your friend." That is as long
as you are paying attention to it and respecting its direction. Get on the wrong
side of the trend, and it can become your worst enemy.
8) Success breeds over-confidence
Overconfidence
Individuals go to college to become doctors, lawyers, and even circus clowns.
Yet, every day, individuals pile into one of the most complicated games on the
planet with their hard earned savings with little, or no, education at all.
For most individuals, when the markets are rising, their success breeds confidence.
The longer the market rises; the more individuals attribute their success to
their own skill. The reality is that a rising market covers up the multitude
of investment mistakes that individuals make by taking on excessive risk, poor
asset selection or weak management skills. These errors are revealed by the
forthcoming correction.
9) Being a contrarian is tough, lonely and generally right.
Buy-Fear-Sell-Greed
Howard Marks once wrote that:
""Resisting – and thereby achieving success as a contrarian – isn't easy.
Things combine to make it difficult; including natural herd tendencies and the
pain imposed by being out of step, since momentum invariably makes pro-cyclical
actions look correct for a while. (That's why it's essential to remember that
'being too far ahead of your time is indistinguishable from being wrong.')
Given the uncertain nature of the future, and thus the difficulty of being
confident your position is the right one – especially as price moves against
you – it's challenging to be a lonely contrarian."
The best investments are generally made when going against the herd. Selling
to the "greedy" and buying from the "fearful" are extremely difficult things
to do without a very strong investment discipline, management protocol, and
intestinal fortitude. For most investors the reality is that they are inundated
by "media chatter" which keeps them from making logical and intelligent investment
decisions regarding their money which, unfortunately, leads to bad outcomes.
10) Comparison is your worst investment enemy
paint-dry
The best thing you can do for your portfolio is to quit benchmarking against
a random market index that has absolutely nothing to do with your goals, risk
tolerance or time horizon.
Comparison in the financial arena is the main reason clients have trouble
patiently sitting on their hands, letting whatever process they are comfortable
with work for them. They get waylaid by some comparison along the way and lose
their focus. If you tell a client that they made 12% on their account, they
are very pleased. If you subsequently inform them that 'everyone else' made
14%, you have made them upset. The whole financial services industry, as it
is constructed now, is predicated on making people upset so they will move their
money around in a frenzy. Money in motion creates fees and commissions. The
creation of more and more benchmarks and style boxes is nothing more than the
creation of more things to COMPARE to, allowing clients to stay in a perpetual
state of outrage."
The only benchmark that matters to you is the annual return that is specifically
required to obtain your retirement goal in the future. If that rate is 4%, then
trying to obtain 6% more than doubles the risk you have to take to achieve that
return. The end result of taking on more risk than necessary will be the deviation
away from your goals when something inevitably goes wrong.
It's all in the risk
Robert Rubin, former Secretary of the Treasury, changed the way I thought
about risk when he wrote:
"As I think back over the years, I have been guided by four principles for
decision making. First, the only certainty is that there is no certainty. Second,
every decision, as a consequence, is a matter of weighing probabilities. Third,
despite uncertainty we must decide and we must act. And lastly, we need to judge
decisions not only on the results, but on how they were made.
Most people are in denial about uncertainty. They assume they're lucky, and
that the unpredictable can be reliably forecast. This keeps business brisk for
palm readers, psychics, and stockbrokers, but it's a terrible way to deal with
uncertainty. If there are no absolutes, then all decisions become matters of
judging the probability of different outcomes, and the costs and benefits of
each. Then, on that basis, you can make a good decision."
It should be obvious that an honest assessment of uncertainty leads to better
decisions, but the benefits of Rubin's approach goes beyond that. For starters,
although it may seem contradictory, embracing uncertainty reduces risk while
denial increases it. Another benefit of "acknowledged uncertainty" is it keeps
you honest. A healthy respect for uncertainty, and a focus on probability, drives
you never to be satisfied with your conclusions. It keeps you moving forward
to seek out more information, to question conventional thinking and to continually
refine your judgments and understanding that difference between certainty and
likelihood can make all the difference.
The reality is that we can't control outcomes; the most we can do is influence
the probability of certain outcomes which is why the day to day management of
risks and investing based on probabilities, rather than possibilities, is important
not only to capital preservation but to investment success over time.
Average:
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Your rating: None Average: 3.1 (13 votes)
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Zirpedge
#11 Money Talks and Bullshit Walks
#12 Cash is King!
summerof71
"What's a trillion between friends?" - Bernank
kaiserhoff
kaiserhoff's picture
So what's the point in saving if the return is less than zero...,
a lot less?
max2205
Only go all in when the fed owns and buys the market every Fucking day for 8
Fucking years
asteroids
Don't fucking play! Stay in cash and wait for the inevitable crashes. They will
happen. Buy gold and silver to keep away the fucking vampires. Invest in yourself.
malek
Seems Robert Rubin optimized principles out of the equations. The outcomes from
his decisions support that view.
A Lunatic
#13. Sell in March, have nuclear holocaust in May........
ronron
well the fucker left out. sell in may and run away.
indaknow
#11.......Don't get high on your own supply
Seek_Truth
Missed one:
"The rich rule over the poor, and the borrower is slave to the lender." -
Proverbs 22:7
Eo Ipso: Never buy what you can't afford without borrowing.
Tinky
My personal favorite:
Journalist: "To what do you attribute your great success in the market?"
Bernard Baruch: "Selling too early."
davidalan1
"You can get more money but not more time"...ok...this was demonstrated to me
one beautiful Saturday in spring. I had an almost 30yr old toro lawnmower that
I LOVED. Called him "the old man" during his last days. 2.5 briggs and stratton.
Towards the end he was put together with liquid cement. Looked like hell, but
i kept the blade sharp. At one point i took him to the shop to get a pull string
replace and the workers thought it was a junk mower and took it 45min away to
be junked. Much to their chagrin the small motor shop had to go retrieve the
old man.
Anyhoo...back to the story. He started cutting out on inclines. Took the
carb apart, googled and shit to no avail... Had him out front on said Saturday
in question. An old guy, maybe 80-90 years old pulls up out of NOWHERE.. walks
up and says. "Thats an old toro". I said yes sir it is, appreciating his knowledge.
He says. "having any trouble with her"...I was blown away. Explained the situation
and he says, "got a flashlight and flat head"? "Yes Sir"...anyway he fixed it..I
was BLOWN away...
As he was walking back to his car, I made the stupid comment. "You should
open a lawnmower shop you could make alot of money". Omg what a dork comment.
He turns around and says. "son I have plenty of money, its time Im running
out of"...
True story
A Lunatic
Just goes to show you that having a flat head is very important.......
I Write Code
I'm a mediocre investor, so stop rubbing it in already.
Panic Mode
The house always wins.
stant
I was only helping the muppets over the yield fence
King Rear
In the short term the market is a voting mechanism, in the long run it is a
weighing mechanism. - Ben Graham
Patton
#1 is Horseshit. Studies have shown that holding the best American companies
over the long term can generate crazy returns. Look where you would be right
now if you had held companies like IBM, KO, WMT, MCD, T, V, GOOG, etc even through
all the crashes. Markets crash, but they ALWAYS recover. This is an undisputable
fact. If you hold stocks for decades and reinvest the dividends, you will be
rich. That's a guarantee.
TheGreatRecovery
Since 1988, the SP500 has returned 8.17% compounded annually. I agree with you
BUT I fear that inflation may actually be running 8%, and therefore eating up
everything a stock market investor makes. (Of course, 8% inflation would more
than eat up everything a bond investor makes, and I think it would eat up even
what a buy-and-hold real estate investor "makes".)
Michigander
Even a stopped clock is right twice a day. So what the fuck do you if you needed
your "riches" on 1/1/09?
#11 Timing is everything.
Who was that ma...
Who was that masked man's picture
#11 "The person who risks nothing, does nothing, has nothing, is nothing,
and becomes nothing. He may avoid suffering and sorrow, but he simply cannot
learn and feel and change..."
Leo Buscaglia
#12 "I am more interested in the return of my capital than the return
on my capital."
Mark Twain
#13 "You've got to go out on a limb sometimes because that's where the
fruit is."
#14 Don't gamble; take all your savings and buy some good stock and hold
it till it goes up, then sell it. If it don't go up, don't buy it.
– Will Rogers (1879 – 1935)
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WTFRLY
WTFRLY's picture
9/11 Truth: Judges shocked by first time seeing video of WTC 7 collapse
in Denmark court
FPearl602
"If you liked it at $50, you gotta LOVE it at $40; if ya luvved it at $40,
u gotta ADORE it at $20; if it continues to drop, shoot yourself."
- Jim Cramer
kchrisc
"10 Investment Quotes To Live By"
10 Investment Quotes to Survive By
1. Buy and hold gold and silver.
2. Buy and hold steal.
3. Buy and hold lead.
4. Buy and hold brass.
5. Buy and hold primers and powder.
6. Buy and hold food and water.
7. Buy and hold filters.
8. Buy and hold fuel.
9. Buy and hold land.
10. Buy and use guillotines.
The banksters need to repay us.
83_vf_1100_c
'The banksters need to repay us.'
I like your tag line but you do know it will never happen. Maybe after
all the descendants of slaves finally get their 40 acres and a mule... never.
kchrisc
You are thinking of payment in gold or silver, when heads will also gladly
be accepted.
With that said, they WILL repay us.
The banksters need to repay us.
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Thu, 03/19/2015 - 06:52 | 5905303 Firewood
Firewood's picture
2. Buy and hold steal
I think that should be
2. Steal hold and buy
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Thu, 03/19/2015 - 00:16 | 5904979 Kina
Kina's picture
Nobody ever lost money taking their profits.
Plenty lose money waiting for higher and higher profits.
Never chase a climbing stock price.
Always take your losses at your pre-decided margin.
I think that comprehensive financial planners now do a lot of the work that
family attorneys did in generations past. This is partly because the sort of
person who goes to law school now is much more intellectual -- and thus often a
little more introverted and socially inept–than in years past. Watergate caused
that, I believe. All of a sudden everybody was interested in the mechanism of
the law. Fifty years ago a right-of-way agreement from the local utility was
three sentences. Now it's five pages single spaced, in some English derived
technical gibberish.
Anyway, you really need the professional when somebody dies. That
professional is far more likely to be the financial planner than the lawyer
these days, in part because the financial planner is paid by assets under
management, rather than hundreds of dollars per hour, so the financial planner
would be paid anyway. I think it is rare to see attorneys designated as
executors of estates these days. They charge six percent by statute, and that's
too much for many people's blood. God forbid that one should be appointed to
manage a trust with multiple beneficiaries. They'll stretch it out thirty
years.
In reading the following NYT article about the Greek Crisis, with an emphasis on pensions and
pensioners, I recalled Professor Hamilton's post on the US Social Security system. To borrow Warren
Buffet's phrase about finding out who is skinny dipping when the tide goes out, I wonder if the
tide has just receded faster for Greece than for the US, in terms of over promised and under-funded
Social Security and pension plans, especially in regard to vastly underfunded state and local
government pension plans. And of course, federal government owns both the asset and the liability
for the Social Security Trust Fund
Greece's social security system was troubled even before the crisis, already divided into
more than 130 funds and offering a crazy quilt of early-retirement options that were a monument
to past political patronage.
In 2012, the pension funds, which were obliged under Greek law to own government bonds*,
were hit by a huge debt write-down as those bonds plummeted in value. As a result they lost
about 10 billion euros, or $11.1 billion - roughly 60 percent of their reserves.
Greece's creditors, seeking to make the Greek labor market more competitive, insisted that
the government reduce the amount companies and workers must contribute toward pensions. And
they insisted that Greece reduce its minimum wage so that those who do contribute have smaller
outlays.
At the same time, the pension system was becoming an even bigger component of the social
safety net, absorbing thousands. People like Ms. Meliou retired early, either because of the
sale of state-owned companies, because they feared their salaries would be cut and thus their
pensions would be smaller, or simply because their businesses failed. Few are living comfortably,
and many support unemployed children.
"... Hey, if the plutocrats won't raise wages then they will need to raise the payroll tax cap on Social Security. They should have thought of that before starting so many wars. The Bonus Army will not be denied. ..."
"... Raise it my foot, they need to eliminate it. The cap has always been more welfare for the rich. ..."
"... Why not eliminate the income cap ($118k) entirely and start taxing capital gains and dividends for Social Security too? Members of Congress pay this tax on 65% of the salaries ($174k), while 95% of all wage earners pay this tax on 100% of their earnings. ..."
An Aging Society Is No Problem When Wages Rise: Eduardo Porter
discusses the question of whether retirees will have sufficient
income in twenty or thirty years. He points out that if no
additional revenue is raised, Social Security will not be able to
pay full scheduled benefits after 2034.
While this is true, it is important to note that this would have
also been true in the 1940, 1950s, 1960s, and 1970s. If projections
were made for Social Security that assumed no increase in the
payroll tax in the future, there would have been a severe shortfall
in the trust fund making it unable to pay full scheduled benefits.
We have now gone 25 years with no increase in the payroll tax, by
far the longest such period since the program was created. With
life expectancy continually increasing, it is inevitable that a
fixed tax rate will eventually prove inadequate if the retirement
age is not raised. (The age for full benefits has already been
raised from 65 to 66 and will rise further to 67 by 2022, but no
further increases are scheduled.)
The past increases in the Social Security tax have generally not
imposed a large burden on workers because real wages rose. The
Social Security trustees project average wages to rise by more than
50 percent over the next three decades. If most workers share in
this wage growth, then the two or three percentage point tax
increase that might be needed to keep the program fully funded
would be a small fraction of the wage growth workers see over this
period. Of course, if income gains continue to be redistributed
upward, then any increase in the Social Security tax will be a
large burden.
For this reason, Social Security should be seen first and foremost
as part of the story of wage inequality. If workers get their share
of the benefits of productivity growth then supporting a larger
population of retirees will not be a problem. On the other hand, if
the wealthy manage to prevent workers from benefiting from growth
during their working lives, they will also likely prevent them from
having a secure retirement.
RC AKA Darryl, Ron said...
Hey, if the plutocrats won't raise wages then they will need
to raise the payroll tax cap on Social Security. They should have
thought of that before starting so many wars. The Bonus Army will
not be denied.
DrDick -> Darryl, Ron...
"they will need to raise the payroll tax cap on Social Security"
Raise it my foot, they need to eliminate it. The cap has always
been more welfare for the rich.
Bud Meyers -> DrDick...
Why not eliminate the income cap ($118k) entirely and start
taxing capital gains and dividends for Social Security too? Members
of Congress pay this tax on 65% of the salaries ($174k), while 95%
of all wage earners pay this tax on 100% of their earnings.
mulp
"We have now gone 25 years with no increase in the payroll tax,
by far the longest such period since the program was created. With
life expectancy continually increasing, it is inevitable that a
fixed tax rate will eventually prove inadequate if the retirement
age is not raised."
Illogical!
If wages of younger workers were maintaining the same gains over
their previous generation peers, and in fact, gained even more due
to reduced supply of workers relative to steady demand for labor as
the large boomer cohort leaves the labor force to the smaller
subsequent generation.
Instead, conservative free lunch economicntheory, itself grossly
illogical, has led to cuts in wages as a matter of policy based on
the idea that workers are not consumers, so gdp can grow faster if
workers are paid less, leading to a larger supply of consumers with
pockets of money being created by the tinker bell of wealth.
While changing demographics might require higher payroll taxes, say
younger generations having more kids than the boomer generation and
being stay at home parents than boomers were, in reality, the
younger generations are moving further along the trend line of
working more, just like the boomers.
Incomes are falling leading to reduced gdp growth because that is
driven by labor incomes which are labor costs, and lower gdp means
lower wage income means lower tax revenue with a fixed tax rate.
Social Security has structural problems simply because
conservatives have sold Americans a bill of goods, promising
something for nothing.
TANSTAAFL
As a leading edge boomer, I've had the best of both good and bad
policy. Great big government benefits when young to give me a great
start in life, followed by bad policy tax hikes for me paid for by
screwing the generation of children I did not have, and now 68,
getting the great big government Social Security benefits Reagan
signed into law in 1983, doubly great because, my big government
start in life lasted to 2001 and made me very rich from simply
working and living like my parents who were shaped by the
depression. And Republicans can not cut my benefits because I'm
hidden in the biggest block of the Republican base who almost all
depend on Social Security.
... ... ... EF: More recently, one of your areas of research has been retirement
finance and the investment decisions of workers thinking about their retirement. In recent decades,
we've seen a tremendous shift in the private sector from defined benefit retirement programs to
defined contribution programs. Was this mainly a response by firms to the tightening of the regulatory
environment for defined benefit plans, to changing demand from workers, or to something else?
Poterba: I think it's a bit of everything. A number of factors came together
to create an environment in which firms were more comfortable offering defined contribution plans
than defined benefit plans. One factor was that when firms began offering defined benefit plans,
in World War II and the years following it, the U.S. economy and its population were growing rapidly.
The size of the benefit recipient population from these plans relative to the workforce was small.
It was also a time when life expectancy for people who were aged 65 was several years less than
it is today. Over time, the financial executives at firms came to a greater recognition of the
true cost of defined benefit plans.
I also think the fiduciary responsibilities and the financial burdens that were placed on firms
under the Employee Retirement Income Security Act of 1974, or ERISA, have discouraged firms from
continuing in the defined benefit sector. ERISA corrected a set of imbalances by requiring firms
to take more responsibility for the retirement plans they were offering their workers and to fund
those plans so that these were not empty promises. ERISA was enacted in the aftermath of some
high-profile bankruptcies of major U.S. firms and the discovery that their defined benefit plans
were not well-funded, leaving retirees with virtually no pension income.
But ERISA and the growing recognition of the costs of defined benefit plans are probably not
the full story. The U.S. labor market has become more dynamic over time, or at least workers think
it has, and that has led to fewer workers being well-suited to defined benefit plans. These plans
worked very well for workers who had a long career at a single firm. Today, workers may overestimate
the degree of dynamism in the labor market. But if they believe it is dynamic, they may place
great value on a portable retirement structure that enables them to move from firm to firm and
to take their retirement assets with them.
Most workers who are at large firms, firms that have 500 employees or more, have access to
defined contribution plans. Unfortunately, we still don't have great coverage at smaller firms,
below, say, 50 employees. For workers who will spend a long career at a small firm, the absence
of these employer-based plans can make it harder to save for retirement. A key policy priority
is pushing the coverage of defined contribution plans further down the firm size distribution.
That's hard, because smaller firms are less likely to have the infrastructure in place in their
HR departments or to have the spare resources to be able to learn how to establish a defined contribution
plan and how to administer it. They are probably also more reluctant to take on the fiduciary
burdens and responsibilities that come with offering these plans.
Another concern, within the defined contribution system, is the significant amount of leakage.
Money that was originally contributed for retirement may be pulled out before the worker reaches
retirement age.
EF: What is causing that?
Poterba: Say you've worked for 10 years at a firm that offers a 401(k) plan
and you've been contributing all the way along. You decide to leave that firm. In some cases,
the firm you are leaving may encourage you to take the money out of their retirement plan because
they may not want to have you around as a legacy participant in their plan. Sometimes, the worker
may choose to move the funds from the prior 401(k) plan to a retirement plan at their new employer,
or to an IRA. Those moves keep the funds in the retirement system. But sometimes, the worker just
spends the money. When an individual leaves a job, they may experience a spell of unemployment,
or they may have health issues. There may be very good reasons for tapping into the 401(k) accumulation.
Using the 401(k) system as a source of emergency cash, sort of as the ATM for these crises, diminishes
what gets accumulated for retirement.
Inadequate social insurance for workers who lose their jobs leads to inadequate retirement savings.
So while there may be a "very good reason" for this from an individual's perspective, from a larger
social perspective this is a problem connected to our unwillingness to provide adequate social insurance
for those who are the unlucky losers to the dynamism inherent in capitalism that propels us forward.
Those who benefit so much from the dynamism could and should do more to help those who pay the costs.
pgl:
"I also think the fiduciary responsibilities and the financial burdens that were placed on
firms under the Employee Retirement Income Security Act of 1974, or ERISA, have discouraged firms
from continuing in the defined benefit sector. ERISA corrected a set of imbalances by requiring
firms to take more responsibility for the retirement plans they were offering their workers and
to fund those plans so that these were not empty promises. ERISA was enacted in the aftermath
of some high-profile bankruptcies of major U.S. firms and the discovery that their defined benefit
plans were not well-funded, leaving retirees with virtually no pension income."
Gee we corporations liked pushing the responsibility of provided retirement benefits onto others
and now that government regulations made that more difficult for us to do - we don't want to take
any responsibility whatsoever!
Which is exactly why Mark's closing here is so correct.
likbez said in reply to pgl:
"Gee we corporations liked pushing the responsibility of provided retirement benefits onto
others and now that government regulations made that more difficult for us to do - we don't want
to take any responsibility whatsoever!"
Not only that. 401K opens huge possibilities of shadow deals between financial firms/mutual
funds and providers of 401K plans. They can agree on a bad set of funds (for example with high
annual costs or with bad diversification -- heavily tilted toward stocks) in exchange of discounted
services in other areas.
This is actually how such deals are done by all major corporations. Providers of 401 mutual
funds in this case typically perform other services for the corporation. Some like Wall-Mart are
especially cruel to their workers in this respect and fleece them mercilessly.
Also the amount of contributions from the company is usually much less then in defined benefit
plan and all risks are transferred to employees.
The other negative side effect was tremendous growth of mutual fund industry which increased
the "Financialization of the economy" -- hallmark of the neoliberal social system (aka casino
capitalism).
This industry which has developed over the decades between 1980 and 2000 created preconditions
for the situation, in which financial leverage tended to override capital (equity), and financial
markets dominate the traditional industrial economy and agriculture.
For example such behemoths as Vanguard, Fidelity, Pimco, etc are direct result of the switch
to 401K plans. They would never exists in such enormous size without them.
They by the virtue of being the largest shareholders play very negative role in corporate governance
(if we use this neoliberal term). For example both Vanguard and Fidelity are indirectly responsible
for 2008 crisis as the major voting shareholders of Wall Street "Masters of the Universe".
Such mutual funds providers are creating a new situation on the market with their enormous
mutual funds and amount of funds under management.
Indirectly they facilitate sophisticated parasitic forms of trading which can exist only in
high volume environment.
Tom aka Rusty said in reply to pgl:
Between 1974 and 1990 almost every small business and professional group DB plan I was aware
of was closed or frozen, including HR-10s. Most of the rest faded away over time.
The ERISA administrative costs and financing risks were too much for these smaller sized firms,
and the 401(k) came along (started in Rev. Act 1978, regulated more thoroughly in 84 and 86 tax
acts).
A reform directed at the likes of General Motors didn't work well for the little guys. And
General Motors continued playing games anyway.
And the 401(k) has not filled the void.
pgl said in reply to Tom aka Rusty:
"The ERISA administrative costs and financing risks were too much for these smaller sized firms".
Oh Lord - Rusty wants to excuse all sorts of nefarious corporate behavior as it is just too
hard to play by the rules. How tiresome.
Rusty believes in free lunch economics. Eliminate all labor costs so profits are 100% of revenue
and gdp will explode as wealth creation drives production and the surge in supply will create
consumers with drills of money due to the effect of other people's wealth.
Workers are a deadweight cost to an economy because workers such money into a blackhole from
which the money never reappears.
Consumers are never workers and workers are never consumers.
Wealth comes from profits, not labor.
Labor destroys wealth.
That sums up free lunch economics. The free in free markets means wealth and profit should
be free by labor being free.
pgl said in reply to Tom aka Rusty:
I wonder if Rusty has ever seen "Pensions: The Broken Promise" (NBC September 12, 1972) detailed
the consequences of poorly funded pension plans and onerous vesting requirements. This Congress
to hold a public hearings on pension issues and public support for pension reform grew significantly.
Or does Rusty remember Studebaker which closed up in the 1960's with pension plan was so poorly
funded that Studebaker could not afford to provide all employees with their pensions. 3600 did
receive full benefits but 4000 workers aged 40–59 who had ten years with Studebaker received lump
sum payments valued at roughly 15% of the actuarial value of their pension benefits, and the remaining
2,900 workers received no pensions.
But Rusty thinks compliance with ERISA is just too complicated.
djb said in reply to pgl:
I mean seriously , pension after pension just disappeared when the firms declared bankruptcy
and suddenly the money is no where to be found
there is nothing about that in this article
Mr. Poterba has no credibility with me, based on this interview
defined contribution, in part, was supposed to make it so this couldn't happen
pgl said in reply to djb:
I agree that Poterba could have spent more time on this issue but he is not the bad guy here.
The bad guy are the fools who say government intervention has no place (hello Rusty). Defined
contributions is a different means for paying for retirement but as Mark Thoma has noted since
the beginning of this blog, it does not cover certain risks. Which is why we need to defend the
Social Security program.
ilsm:
" The size of the benefit recipient population from these plans relative to the workforce
was small."
Malthusian excuse for productivity gains going to the pentagon and other payors of the .1%.
"Inadequate social insurance for workers who lose their jobs leads to inadequate retirement
savings."
The system works for the duped, the exploiters and the plunderers, no one else.
tom:
During the Obamacare debate, there was talk about a public option. Why not a public option
for 401K plans, that would take the burden of administering such planes away from small firms?
And if we are going to get so hot under the collar about 'choice', why not give employees two
choices for public option, a defined contribution public option, and a defined benefit public
option?
"The time has long since passed when we should be arguing about whether global warming is happening
or whether the consequences will be serious. The question is what we are prepared to do about
it."
And the answer is… "set targets"?
As long as adopting shorter work weeks and years to achieve full employment is off the agenda,
doing something meaningful about climate change is also off the agenda. Shorter hours is not a
panacea for full employment or slowing man-made climate change. But excluding shorter hours from
the policy mix is the opposite of a panacea - guaranteed toxic.
It is no mistake that shorter hours are off the agenda. It is not happenstance or serendipity.
The best way to describe the thinking behind the exclusion is a kind of rentiers' marxism-in-reverse.
Marx's model of capitalism predicts an "increasing organic composition" of capital. In the absence
of capital devaluing crises, such an increase makes labor increasingly scarce relative to capital.
Shorter hours would make labor even scarcer relative to capital. Price of labor goes up, returns
to capital go down. Can't let that happen. This is America, where "free enterprise" rules and
the rich buy the public policy regime - and whatever economic policy rationale justifies it -
that suits them.
So achieving full employment and mitigating climate change are off the respectable economists'
agenda. The question is what are we prepared to do about that?
Types of accounts where RMDs apply. While your invested money sat in your qualified
retirement accounts, the IRS deferred any taxes due until a later date. That date arrives when you
hit age 70 ½.
Once you reach the trigger age for RMDs, the IRS requires that you start taking RMDs and begins
collecting taxes previously deferred. Taxes come due on amounts only as they are distributed to you
and not while you keep them invested.
For the year you first reach 70½, you must take a minimum distribution either that year or no
later than April of the following year. Every year after, you also must take the required minimum
distribution by Dec. 31 of each tax year.
Beware deadline penalties. Not only does the IRS want to tax revenue from your
retirement accounts, if you fail to meet the deadline for distribution the taxman sticks on an additional
and whopping 50% penalty.
Figuring out what you owe.
IRS publication number 590 explains how to calculate the actual amount you must take as an annual
distribution and additional information on how RMDs apply to each type of retirement account you
might own.
Generally, calculate RMD for each account by dividing the prior Dec. 31 balance of that IRA or
retirement plan account by a life expectancy
factor. Use the:
Joint and Last Survivor Table
if your sole beneficiary of the account is your spouse and your spouse is more than 10 years younger
than you;
Uniform Lifetime Table if your
spouse is not your sole beneficiary or your spouse is not more than 10 years younger; and
These great resources help you avoid the price of getting these calculations wrong – a price high
enough that I recommend you consider help with the calculation and with getting the proper amount
withdrawn from your accounts before the IRS deadline.
I especially warn those tracking more than one tax-deferred retirement account. If you still have
years or even decades before RMDs apply to you, your parents or loved ones 70½ or older need this
reminder, too.
"... Only consider retaining old plans if you have an exceptional deal, like 3% or higher guaranteed interest in the current low interest-rate world. ..."
The state of Americans' retirement preparation is shocking. Why is this, and what can people
do about it?
PBS ran its Frontline documentary The Retirement Gamble a few years ago, and it's still
pertinent. It's hard to watch this program without a sense of horror at the way our retirement
plan system is rigged to rip off Americans struggling to save for their later years after
working.
Here are the key points in The Retirement Gamble. Read them and think about what you can do to
shore up your retirement plan:
The majority of Americans close to or in retirement don't have enough saved to cover a
lengthy life as a retiree. And they don't have any ideas about improving their situation.
The retirement systems - chiefly, 401(k) and 403(b) plans - bilk billions of dollars from
Americans in the form of fees. Plan documents deliberately hide some of these fees in fine
print.
U.S. government attempts to clamp down on runaway retirement plan fees have met with mixed
reaction in Congress, thanks to successful lobbying efforts by the financial services
industry, such as JP Morgan Chase and Prudential Financial.
Americans are confused about the critical difference between a fiduciary and a
non-fiduciary retirement advisor. The former, such as fee-only Registered Investment Advisors,
are required to put clients' interests before their own interests. Brokers, however, adhere to
a lower suitability standard – as long as a product seems "suitable," the broker has done his
or her work. (My firm is an RIA.)
Periodic market swoons and fees hammer many retirement plan participants, who ignore how
they invest. One interview on the program featured a retired couple, both teachers, who had an
excessive concentration of their retirement money in dot.com stocks; their account plunged
more than two-thirds in 2000. Agents circulate in teacher's lounges and sell the educators
"tax-sheltered annuities," neglecting to tell them they are handcuffed to punitive redemption
penalties, misleading return projections and high fees.
Potential Versus Real Wealth
John Bogle, the Vanguard Investments founder, pointed out that a "little" 2% annual fee
will erode a whopping 63% of what clients could earn in their retirement accounts that booked
a 7% annual average return (pre-fees). In other words, what he called "the tyranny of
compounding costs" whittled the $100,000 you should have down to a measly $37,000 over 50
years of investing. JP Morgan Chase and other brokers who run expensive retirement plans come
across poorly when they responded to this by saying they weren't familiar with these numbers,
each retirement client has different needs, etc.
Sadly, there don't seem to be enough improvements to retirement plans to avoid having
Americans work well into their 70s, if they can, or run out of money in retirement.
So what can you do? Here are some strategies:
Utilize tools such as www.brightscope.com to verify the quality, including cost, of your
plan. If your plan is rated poorly, consider only saving up to the amount of your 401(k)
contribution that your company matches.
If you qualify, based upon your adjusted gross income, save additionally in an individual
retirement account. Look for low-cost mutual funds (e.g., Vanguard) so you can save 1% to 2%
per year in fees.
Consider opting out of your plan if you have no match. You lose the up-front
tax-deduction, but you may end up with more in hand by investing in low-cost mutual funds with
after-tax money. Run these numbers with a professional since your retirement horizon and tax
bracket can affect outcomes.
Coping: IRA Withdrawal Rules
Rollover old 401(k) or 403(b) plans from previous jobs to eliminate ongoing plan fees.
Only consider retaining old plans if you have an exceptional deal, like 3% or higher
guaranteed interest in the current low interest-rate world.
Postpone taking Social Security benefits as long as possible. Seek professional help
before making Social Security decisions.
Consider downsizing by moving to a less expensive part of the country if you are at risk
of outliving your assets. Sadly, some places – such as New Jersey, where I live – are
relatively unattractive for retirees due to high taxes (including state estate tax) and high
living expenses. New York may not be much better.
Save, save and save some more. Get professional advice about your retirement strategy from
a qualified advisor.
"... The title is an allusion to Keynes' famous observation that fund managers, courtesy of endemic
groupthink, tend to prefer (and consequently often deliver) conventional failure as opposed to unconventional
success. Swensen himself has steered the Yale Endowment through many years of impressive investment
returns. ..."
"... "The drive for profits by Wall Street and the mutual fund industry overwhelms the concept of
fiduciary responsibility, leading to an all too predictable outcome: except in an inconsequential
number of cases where individuals succeed through unusual skill or unreliable luck, the powerful
financial services industry exploits vulnerable individual investors." ..."
"... The rather sickening fight over the bonus pool at Pimco now being gleefully reported in the
financial media is just one example of a large fund management organisation that appears to have
entirely forgotten what its core purpose is, or should be. ..."
In medicine, they have something called the Hippocratic Oath. It requires physicians to swear
to uphold certain ethical standards. In modern fund management, there is no Hippocratic Oath.
Whereas doctors are expected to "First, do no harm", in modern fund management, iatrogenic illnesses
hold sway. An iatrogenic illness is one that is caused by the physician himself.
Fund management doctors seem to be doing the best they can to kill their own patients. Science
has a word for this, too. It's called parasite. There is a solution to all this insanity.
... ... ...
There is a solution to all this insanity.
The chief investment officer of the Yale Endowment,
David Swensen, has written an excellent book entitled 'Unconventional Success'.
The title is an allusion to Keynes' famous observation that fund managers, courtesy of endemic
groupthink, tend to prefer (and consequently often deliver) conventional failure as opposed to unconventional
success. Swensen himself has steered the Yale Endowment through many years of impressive investment
returns.
Swensen pulls few punches.
The fund management industry involves the
"interaction between sophisticated, profit-seeking providers of financial services [Keynes
would have called them rentiers] and naïve, return-seeking consumers of investment products.
"The drive for profits by Wall Street and the mutual fund industry overwhelms the concept of
fiduciary responsibility, leading to an all too predictable outcome: except in an inconsequential
number of cases where individuals succeed through unusual skill or unreliable luck, the powerful
financial services industry exploits vulnerable individual investors."
The nature of ownership is crucial. To Swensen, the more mouths standing between you and
your money that need to be fed, the poorer the ultimate investment return outcome is likely to be.
In a rational world, investors would be well advised to favour smaller, entrepreneurial boutiques,
or private partnerships, over larger, publicly listed full service investment operations – especially
subsidiaries of banks or insurance companies – with all kinds of intermediary layers craving their
share of your pie.
The rather sickening fight over the bonus pool at Pimco now being gleefully reported in the
financial media is just one example of a large fund management organisation that appears to have
entirely forgotten what its core purpose is, or should be.
This past week, and the conjunction of the Bill Gross lawsuit and the Investment Association's
Daniel Godfrey debacle, is likely to go down as one of the biggest fund management public relations
disasters in history.
Before buying any fund, ask yourself some questions:
How big is it? The tree cannot grow to the sky. But try telling that to Pimco, or to
the average member of the Investment Association. Managers' pay is invariably linked to the size
of funds under management. The more assets, the more pay. It takes guts, and principles, to turn
money away and concentrate solely on investment performance. But that's precisely what many smaller
investment boutiques do on a regular basis. And it's why we only invest with smaller investment
boutiques.
Has the manager invested his own money? If he hasn't, why should you? Meaningful personal
investment is by itself no guarantee of investment outperformance, but it shows the most basic
alignment of interests between manager and investor.
Is it independent, and owner-managed? David Swensen has gone on record saying he prefers
the smaller, private partnership over the larger, listed full service operator. How many mouths
must your fees feed?
Is it an asset manager, or an asset gatherer? This gets to the heart of the challenge
facing investors today. The investment world is polarised between asset managers, who focus their
energies on delivering the best possible returns for their clients, and asset gatherers, who just
want to maximize the number of clients.
Most fund management firms fall into the latter category. Favour the former.
How to distinguish between the asset managers and the asset gatherers? Try to find managers like
the celebrated investor Jean-Marie Eveillard, who once remarked:
"I would rather lose half of my shareholders than half of my shareholders' money."
The managed fund marketplace is clearly much larger than it should be. It is oversupplied, and
there is insufficient genuine talent and integrity to support the grotesque number of spurious, me-too
funds out there all chasing a finite pot of capital.
After a disastrous week in the spotlight, asset management companies might wish to start cutting
their fund ranges before the regulators force them to. >
Muddy1
Working in a brothel? Working in finance?
It's the same thing. You take people's money and then they get screwed.
Couples have two key claiming strategies to boost the power of the spousal
benefit, which is worth up to 50% of a spouse's monthly benefit. One is called
"file and suspend," in which the higher earner immediately suspends his benefit so
the lower earner can take a spousal benefit. The other is known as "restricting an
application," in which the higher earner files for a spousal benefit, even though
his own benefit is larger.
Both strategies enable a beneficiary to
delay his own retirement benefit, allowing it to earn 8% annual delayed retirement
credits until age 70. To use these strategies, a beneficiary must be full
retirement age.
With these strategies, couples can get the best of both worlds. "You get some
income in your sixties and you let the higher earner's benefit grow to the
maximum," says Judith Ward, senior financial planner for T. Rowe Price.
A major goal is to maximize the higher earner's benefit. If the higher earner
dies first, the lower earner will qualify for a survivor benefit worth up to 100%
of the higher earner's benefit. But it doesn't really matter which spouse dies
first, because the higher earner's benefit "will last until the second spouse
dies," says William Reichenstein, a professor of finance at Baylor University, in
Waco, Tex., and a principal of consulting firm Social Security Solutions.
The difference between the size of the couple's benefits is key in determining
which spouse takes what benefit when. "The amount of the benefit itself and who's
the higher earner matter," Ward says. Even a few dollars' difference in benefit
amounts between the two spouses can be important over the long term.
When to Employ Which Strategy
We asked Reichenstein to run the numbers for three hypothetical couples to show
the different ways the spousal benefit can be used to maximize lifetime benefits.
In each case, the higher earner is delaying his benefit until 70, and the
lower-earning spouse is waiting until full retirement age to claim the spousal
benefit. (If she claims before full retirement age, the benefit will be less than
50% of the other spouse's benefit.)
The spouses in each hypothetical couple are the same age. The wives are
expected to live to 90, while the husbands are expected to live to 85. We assume
the husbands are the higher earners, each with a full retirement age benefit of
$2,200. The wives' full retirement age benefits vary. (Results could change if the
spouses are not the same age.)
Disparate earners. In this case, the wife's full benefit is
$500. Couples whose benefits differ widely have a relatively easy claiming
decision. If the low earner has little or no earnings, the higher earner can file
and suspend, says Thomas Wiggins, a certified financial planner with Rehmann
Financial, in Farmington Hills, Mich.
A spouse can't claim a spousal benefit until the other spouse claims his. With
this strategy, the higher earner files for his benefit and then suspends it. That
enables the lower earner to claim a spousal benefit. And by suspending, the higher
earner can allow his own benefit to grow until he collects it later -- perhaps at
age 70.
This is the best strategy for this couple, Reichenstein says, because the
wife's spousal benefit of $1,100 is much larger than her own retirement benefit.
Even if she delayed her own benefit until age 70, it would only be $660. The
strategy also provides the couple with $350 more per month between the ages of 66
and 70 than if the wife had claimed her own $500 benefit and the husband had
restricted his application to get a $250 spousal benefit.
At age 70, the husband will get $2,904 (plus cost-of-living adjustments) --
$704 more than if he had claimed his own benefit at 66 without suspending. And the
wife will continue getting her $1,100 spousal benefit.
Unequal earners. In this
scenario, the wife's full benefit is $1,000. As the gap between benefit amounts
shrinks, the best strategy is not clear-cut. It's critical to calculate all
possible strategies.
Say the wife claims her $1,000 benefit and
the husband files a restricted application to receive a $500 spousal benefit. That
gives the couple $1,500 a month. At age 70, the husband takes his boosted benefit
of $2,904, and she switches to a spousal benefit of $1,100, for a total of $4,004
a month.
But Reichenstein says the couple can do better with another strategy. At age
66, the husband files and suspends his benefit. The wife restricts her application
to a spousal benefit, enabling her own benefit to grow. (If she had simply claimed
a spousal benefit without restricting her application, she would not be able to
allow her own benefit to grow.) They will get $400 less a month for the first four
years. But the couple ends up doing better, Reichenstein says, because the wife
"can grow her own benefit past her spousal benefit."
At age 70, both spouses switch to their delayed benefits -- hers of $1,320 a
month and his at $2,904. That gives them a total monthly benefit of $4,224. This
strategy increases the couple's total lifetime benefits by $20,400. The lesson:
Couples should consider this route if the lower earner's benefit with delayed
retirement credits exceeds her spousal benefit, Reichenstein says.
Equal earners. In this case, the wife's full benefit is
$2,000. For couples with a narrow benefit gap, the best strategy may be for both
spouses to delay their benefits, with one spouse restricting an application to a
spousal benefit at full retirement age. Since both spouses in this case are the
same age, the one receiving the higher spousal benefit should file a restricted
application.
The husband files and suspends his benefit. The wife files a restricted
application for a spousal benefit of $1,100 a month. That will give the couple
$52,800 for the four years they have to wait to switch to their boosted benefits.
At age 70, he switches to his boosted benefit of $2,904 and she steps up to her
delayed benefit of $2,640. That gives them $5,544 a month.
When deciding how to best employ the spousal benefit, consider using online
tools to run the numbers. One tool is T. Rowe Price's free Social Security
Benefits Evaluator (www.troweprice.com/socialsecurity).
For more personalized help, you can use a paid service such as Reichenstein's
Social Security Solutions (www.socialsecuritysolutions.com).
Deji Akintoye: Figuring out how much you need to accumulate gets
to the heart of the matter: the dollar amount you'll need to "afford"
retirement.
... ... ...
By looking at a few factors (including your age, the amount you save, and
your anticipated rate of return), you can
project whether you're on track to meet your savings goals.
The key
is to set realistic expectations for retirement and create a plan.
... ... ...
Kahlilah Dowe: I've heard people say that retirement starts to
seem "real" when it's about 5 years away. This can be a good time to think
about
how much income you'll need to make your vision of retirement a reality.
... If your portfolio will be your primary income source, it may be smart
to invest more conservatively to preserve the value of your portfolio.
...
focus on your asset mix. The level of risk you take on should correspond
with how much your investment portfolio will have to shoulder the weight of
supporting your daily living expenses in retirement.
... ... ...
Jane Simpson: For some investors, retirement means transitioning
to a life of relaxing and spending-from a life of working and saving. In the
midst of the transition, consider how your lifestyle changes can potentially
impact your finances.
Using projected fixed expenses (costs that are the same
every month) and discretionary expenses (costs that cover wants rather than
needs), come up with a
spending strategy to balance your expectations with your limitations.
Although it's prudent to plan ahead, it's also necessary to remain
financially flexible-you can make a plan based on what you know right now,
but you have to monitor your actual spending and make adjustments as needed.
I encourage all newly retired clients to remember that the first few years
of retirement are often about fulfilling lifelong dreams (like relocating or
taking a trip of a lifetime), so it's unlikely that subsequent years of
retirement will include the same expenses. It's okay to take some time to
figure it out.
Julie Edwards: About 5 years after you retire, consider asking
yourself whether or not retirement is what you thought it would be. Compare
the vision you had for retirement with the reality of being retired. But
before you place the blame on your finances for any unmet expectations,
review your budget. Is your spending on track?
If you're overspending, you can either supplement your income (by getting
a job) or reduce your expenses. Because you're on a fixed income, it's a
good idea to periodically review your discretionary expenses and potentially
give up or cut back on a membership, an activity, or a recurring expense
that isn't crucial to your happiness.
Even if you have never been subjected to an investment fraudster's sales pitch, you probably know
someone who has. Following the legendary Willie Sutton principle, fraudsters tend to go "where the
money is"-and that means targeting older Americans who are nearing or already in retirement.
Financial fraudsters tend to go after people who are college-educated, optimistic and self-reliant.
They also target those with higher incomes and financial knowledge, and have had a recent health
or financial change. If you believe you've been defrauded or treated unfairly by a securities professional
or firm, file a complaint. If you suspect
that someone you know has been taken in by a scam,
send a tip.
To entice you to invest, fraudsters use high pressure and a number of "tricks of the trade."
Here are some common tactics:
The "Phantom Riches" Tactic-dangling the prospect of wealth, enticing you
with something you want but can't have. "These gas wells are guaranteed to produce $6,800 a month
in income."
The "Source Credibility" Tactic-trying to build credibility by claiming to
be with a reputable firm or to have a special credential or experience. "Believe me, as a senior
vice president of XYZ Firm, I would never sell an investment that doesn't produce."
The "Social Consensus" Tactic-leading you to believe that other savvy investors
have already invested. "This is how ___ got his start. I know it's a lot of money, but I'm in-and
so is my mom and half her church-and it's worth every dime."
The "Reciprocity" Tactic-offering to do a small favor for you in return for
a big favor. "I'll give you a break on my commission if you buy now-half off."
The "Scarcity" Tactic-creating a false sense of urgency by claiming limited
supply. "There are only two units left, so I'd sign today if I were you."
Protect yourself with these strategies:
End the conversation. Practice saying "No." Simply say, "I'm sorry, I'm not
interested. Thank you." Let them know you'll think about it and get back to them. Have an exit
strategy so you can leave the conversation if the pressure rises.
Turn the tables and ask questions. Before you give out information about
yourself,
ask and check.
Talk to someone before investing. Be extremely skeptical if the salesperson
says, "Don't tell anyone else about this special deal!" A legitimate professional will not ask
you to keep secrets. Even if the seller and the investment are registered, discuss your decision
first with a family member, investment professional, lawyer or accountant.
Take your name off solicitation lists. To reduce the number of sales pitches
you receive, use the Federal Trade Commission's
National Do Not Call Registry.
FINRA offers an array of information and resources to help you outsmart investment fraud.
Red Flags of Fraud
Knowing the important warning signs of financial fraud puts you in charge.
Ask and Check
Ask the right questions and verify the answers before you work with an investment professional
or buy an investment product.
How Social
Pressure Cost One Family $30,000 It's often hard to resist an investment tip from someone in your social circle. Before
handing over any money, you need to check out the investment and the person selling it.
Spot a Scam
in 6 Steps
Financial fraudsters use sophisticated and effective tactics to get people to part with their
money. Here are six steps you can take to help you spot an investment scam.
Investor Alerts
Don't be taken in by these frauds and scams. Learn how to protect yourself and your money.
More
Risk Meter
Use our Risk Meter to see whether you share characteristics and behavior traits that have been
shown to make some investors vulnerable to investment fraud.
Scam Meter
In just four questions our Scam Meter will help you tell if an investment you are thinking about
might be a scam.
We live
in a new
world,
and the
Saudis
are
either
the only
or the
first
ones to
understand
that.
Because
they are
so early
to
notice,
and
adapt, I
would
expect
them to
come out
relatively
well.
But I
would
fear for
many of
the
others.
And that
includes
a real
fear of
pretty
extreme
reactions,
and
violence,
in quite
a few
oil-producing
nations
that
have
kept a
lid on
their
potential
domestic
unrest
to date.
It would
also
include
a
lot of
ugliness
in the
US shale
patch,
with a
great
loss of
jobs
(something
it will
have in
common
with
North
Sea oil,
among
others),
but
perhaps
even
more
with
profound
mayhem
for many
investors
in US
energy.
And
then
we're
right
back to
your
pension
plans.
When "the retirement of the baby boomers
is expected to severely cut U.S. stock values in the
near future," is the ominous initial
sentence from no lesser maintainer-of-the-status-quo
than the San Francisco Fed's research
department, one begins to recognize the
Federal Reserve's overall need to hyper-inflate
asset prices at whatever cost for fear of the
'wealth' destruction looming. As the following study
reports, projected declines in stock values - based
on the latest demographic and valuation data - have
become even more severe. Our current
estimate suggests that the P/E ratio of the U.S.
equity market could be halved by 2025 relative to
its 2013 level.
America's Federal Reserve is headed down a familiar - and highly dangerous -
path. Steeped in denial of its past mistakes, the Fed is pursuing the same
incremental approach that helped set the stage for the financial crisis of
2008-2009. The consequences could be similarly catastrophic.
Consider the
December meeting of the Federal Open Market Committee, where discussions of
raising the benchmark federal funds rate were couched in adjectives, rather
than explicit actions.
In line with prior forward guidance that the policy rate would be kept
near zero for a "considerable" amount of time after the Fed stopped
purchasing long-term assets in October,
the FOMC declared that it can now afford to be "patient" in waiting for
the right conditions to raise the rate. Add to that
Fed Chair Janet Yellen's declaration that at least a couple more FOMC
meetings would need to take place before any such "lift-off" occurs, and the
Fed seems to be telegraphing a protracted journey on the road to policy
normalization.
With so much dry kindling, it will not take much to spark the next
conflagration.
This bears an eerie resemblance to the script of 2004-2006, when the
Fed's incremental approach led to the near-fatal mistake of condoning
mounting excesses in financial markets and the real economy. After pushing
the federal funds rate to a 45-year low of 1% following the collapse of the
equity bubble of the early 2000s, the Fed delayed policy normalization for
an inordinately long period. And when it finally began to raise the
benchmark rate, it did so excruciatingly slowly.
In the 24 months from June 2004, the FOMC raised the federal funds rate
from 1% to 5.25% in 17 increments of 25 basis points each. Meanwhile,
housing and credit bubbles were rapidly expanding, fueling excessive
household consumption, a sharp drop in personal savings, and a record
current-account deficit - imbalances that set the stage for the meltdown
that was soon to follow.
The Fed, of course, has absolved itself of any blame in setting up the
U.S. and the global economy for the Great Crisis. It was not monetary
policy's fault, argued both former Fed Chairmen Alan Greenspan and Ben
Bernanke; if anything, they insisted, a lack of regulatory oversight was the
culprit.
This argument has proved convincing in policy and political circles,
leading officials to focus on a new approach centered on so-called
macro-prudential tools, including capital requirements and leverage ratios,
to curb excessive risk-taking by banks. While this approach has some merit,
it is incomplete, as it fails to address the egregious mispricing of risk
brought about by an overly accommodative monetary policy and the
historically low interest rates that it generated.
In this sense, the Fed's incrementalism of 2004-2006 was a policy blunder
of epic proportions.
Despite the public pledge of President Obama to pull out of Afghanistan, we continue to spend
huge amounts of money in the war and the Obama Administration has fought to keep U.S. troops in
the country. Now an estimate from the Financial
Times and independent researchers put the cost of the war at roughly $1 trillion with a
commitment of hundreds of billions more in the coming years. There continues to be no serious
debate over our ongoing losses both in personnel and money in this war.
"A boom has to be driven by something. Looks, to me, like we are still in a demand-constrained
economy, and the 5% is mostly a spike and not a trend. "
I hate to put a damper on the party, but the some of the reporting on the economy is getting
a bit out of hand. The Washington Post gave us an example, with a piece * on the revised fourth
quarter GDP numbers headlined, "Robust Economic Growth in the third quarter raises hopes that a
boom is on horizon." That's not what Mr. Arithmetic says.
First, just to be clear, the third quarter numbers were definitely good news. Five percent
GDP growth is a solid economic performance by any measure, so there is no doubt that it is a big
step forward by any measure. The economy is clearly growing, and likely at a reasonably
respectable rate. The issue is whether the term "boom" is appropriate.
As this article and other reporting notes, the third quarter follows a strong second quarter
of 4.6 percent growth, which in turn followed a first quarter where GDP shrank by 2.1 percent.
The piece dismisses the drop in first quarter GDP as the result of bad weather. This is surely
true, but the strong growth in the subsequent two quarters is clearly related to the drop in the
first quarter. The growth in these quarters was a reversal of the decline in the first quarter.
If we take the average growth over the last three quarters, we get a 2.5 percent annual
growth rate. This isn't bad, but it's hardly anything to write home about. If we assume the
economy has a potential growth rate (the rate of growth of the labor force plus productivity) in
the range of 2.2-2.4 percent, then with the 2014 growth rate we are filling the gap in output at
the rate of between 0.1-0.3 percentage points a year. CBO estimates that the gap between
potential GDP and actual GDP is still close to 4 percentage points. This means that at the 2014
growth rate we can look to fill that gap in somewhere between 13 and 40 years. Perhaps we should
put a hold on that champagne.
Looking at specifics of the third quarter numbers, there are several items that are virtually
certain to be reversed in whole or in part in the fourth quarter. Top on this list was the jump
in military spending that added 0.66 percentage points to growth in the quarter. Military
spending is highly erratic and sharp jumps are almost always followed by sharp falloffs in
subsequent quarters. This means that instead of adding 0.66 percentage points to growth, we are
likely to see military spending subtracting something like 0.66 percentage points from growth in
the fourth quarter.
A smaller trade deficit also added 0.78 percentage points to growth. We will almost certainly
see a larger trade deficit in the fourth quarter (October's deficit was considerably larger than
the third quarter average), which means that the trade deficit will be subtracting from growth
in the fourth quarter. Equipment investment, which added 0.63 percentage points to growth in the
quarter is also likely to go the other way in the fourth quarter. The data for October and
November show that shipments are running below the third quarter average, before adjusting for
inflation.
The takeaway is that we should see decent growth in the fourth quarter (consumption spending
was very strong in November), but it is likely to be much closer to 2.0 percent than 5.0
percent, so folks may want to put that boom talk on the shelf for the moment. One final point,
we continue to hear celebrations of the 0.4 percent growth in the average hourly wage reported
for November. As noted previously, these data are highly erratic. The November number was
primarily a bounce back from weak growth the prior two months. The annual growth rate for the
three months (September, October, and November) compared with the prior three months was just
1.8 percent.
Folks can believe that wage growth was really weak in September and October and then bosses
suddenly coughed up big pay increases in November, or that the monthly data was mostly driven by
measurement error and that there has been little change in the actual rate of wage growth over
the last three months. Mr. Arithmetic and I believe the latter.
No technology breakthroughs I am aware of. That's what drove the boom in the '90s.
Wages aren't going anywhere.
Government still isn't investing like it should be. The deficit isn't anywhere near big
enough to drive spending. In fact, it's shrinking.
A boom has to be driven by something. Looks, to me, like we are still in a demand-constrained
economy, and the 5% is mostly a spike and not a trend.
pgl said in reply to anne...
Nice piece from Dean. I'll just add that the GDP gap is still $570 billion (2009$) or 3.4% of
potential GDP.
Peter K. said in reply to pgl...
Look at what Bernstein says about historical levels of "discretionary" government funding
below:
Reagan 10.2 percent of GDP Bush I 8.5 percent Clinton 6.4 Bush II 7.3 Obama 6.1
and we have a 3.4 percent gap
JohnH said in reply to Peter K....
"Discretionary" government spending at 6.1% under Obama, the lowest in 35 years. What does it
take for people to realize that Obama is an austerity-driven conservative? Did Obama, Reid, and
Pelosi, despite majorities in the Senate and/or House, ever do anything but appease
conservatives? Even when they had overwhelming majorities in both houses, they could only manage
to pass a perfunctory stimulus? (Budget resolutions are not subject to filibuster.)
And people wonder why ordinary Americans are pissed at Obama, Reid and Pelosi, who have
barely acknowledged their economic situation? And they done virtually nothing to help, dutifully
appeasing Republicans at every opportunity. Heck, they couldn't even craft an economic message
for the 2014 elections, which they lost big time.
To make matters worse, Democrats have largely shrugged as the 0.1% take an ever increasing
share of income, reducing ordinary Americans' share.
We've just watched the Senate and the House - aided and abetted by President
Obama - pay off financial interests with provisions in the new spending bill
that expand the amount of campaign cash wealthy donors can give, and let
banks off the hook for gambling with customer (and taxpayer) money.
What happened in Washington over the past several days sounds strikingly
familiar to the First Gilded Age more than a century ago, when senators and
representatives were owned by Wall Street and big business. Then, as now,
those who footed the bill for political campaigns were richly rewarded with
favorable laws.
Bill's guest this week, historian Steve Fraser, says what was different
about the First Gilded Age was that people rose in rebellion against the
powers that be. Today we do not see "that enormous resistance," but he
concludes, "people are increasingly fed up… their voices are not being
heard. And I think that can only go on for so long without there being more
and more outbreaks of what used to be called class struggle, class warfare."
Steve Fraser is a writer, editor and scholar of American history. Among
his books are Every Man a Speculator, Wall Street: America's Dream Palace
and Labor Will Rule. His latest, The Age of Acquiescence: The Life and Death
of American Resistance to Organized Wealth and Power, will be published
early next year.
Hard for me to see the fed sounding hawkish in the middle of an emerging currency crisis.
The financial sector can never be "insulated" from mass unemployment. No matter how many
banks there are (big or small) mass unemployment will cause mass defaults. If they are (intentionally
or not) behind the curve as unemployment rises, concerned about inflation, defaults will be
higher than they would be otherwise.
Banks are largely exposed to domestic credit. The energy sector, though growing rapidly,
is not nearly as large as housing, and there is not nearly as much collateral tied to the value
of energy projects (housing backs a lot of financial market collateral).
This time though we are leaning the opposite way. With disinflation(as opposed to inflation
in 2008), the Fed is more than likely to stay dovish for a while.
Credit is priced based on *expected* unemployment, wage growth, and default rates. If unemployment
unexpectedly drops (or rises) then defaults will unexpectedly drop (rise) and banks will have
unexpected gains (losses) - because credit reserves and capital are released (or needed).
Unfortunately, regulators will draw the wrong conclusions. They will draw the conclusion
they are doing a good job regulating. No, they are just not causing unexpected mass unemployment
by tightening too soon.
The real problem as stated in other articles is that since 2007, ALL and I mean ALL of the
decent paying jobs and enough of them to create positive jobs unemployment numbers and the like
came from the 6 shale states...even with oil not going lower, that growth was probably slower
to flat going forward.
With oil at $50, this will move in reverse and the next 6 months of employment numbers
will be horrendous, which will have to engender more QE discussions IMO.
What we see happening in the currency market should be taken as a big red flashing signal
of instability. A weakening in the yen, euro, and pound, is giving the illusion of a strong
dollar. These four currencies are the big players in the world currency market.
Coupled with weak oil prices the strengthening dollar may be sending a signal that the whole
system is unstable. Other currencies are under assault because both economies are weak and countries
are buried in debt they can never repay at real market interest rates. The change in currency
values may be dramatic and using history as a guide m often show no mercy when this shift
occurs.
For months the major world currencies had traded in a narrow range as if held in limbo by
some great force. This has allowed people to think we were on sound footing as central banks
across the world continued to print and pump out money chasing the "ever elusive growth" that
always appears to be just around the corner. Recently the major currencies have made multi-year
highs or lows depending on the match-up.
John Maynard Keynes said By a continuing process of inflation, government can confiscate,
secretly and unobserved, an important part of the wealth of their citizens. While there are
not many Bond Vigilantes there are a slew of Currency Vigilantes and they are ready to make
their presence known. Weakness in the value of the Yen, Pound, and Euro must not go unnoticed.
The article below looks at why this trend may accelerate and cause the stock market to drop
like a stone.
the most dangerous thing in finance is the "thing" that never moves.
This stability creates an
illusion of control around which many positions are built, the greater the perceived stability the
greater the positions, and the more other assumptions and forecasts are made.
If we assume that "time-to-live" for an shale well is two years, the it would be logical to assume
that at those prices the destruction of US shale will take 2-3 years.
As we have noted in the last two days, on the heels of Janet Yellen's
mutterings, US equity m have exploded higher even as the highly correlated and causative oil
prices have done anything but rise. This 'fact' has not escaped BofA's Hans Mikkelsen's attention
as he warns, "While stocks currently are getting a break from oil, it appears most likely
that they reconnect when the decline in oil prices accelerates – especially if we see associated
weakness in credit and EM." And sure enough, modestly at first, the two are starting
to converge this morning...
ben_bernanke
Or maybe oil decoupled from stocks? Why does ZH ALWAYS
take the view that is bearish on stocks?
How about this? If stocks discount the future, then why did they
not respond to oil like in 2008? Maybe because the fundamentals don't jive with the drop in
crude.
Yes, there is an oversupply, but does anyone honestly believe
that can account for 50% DROP IN JUST A FEW MONTHS? That is not reasonable. Something else was
going on.
For all I know, the US was intervening directly in the futures m . What happens when they
close their "position"?
yogibear
All the banks are giddy because they know DC signed the derivative bailout.
No matter how bad the bets are they'll steal from the taxpayer.
Dr. Engali
If BofA says it, then we know the opposite will happen.
rccalhoun
what b of a says has no correlation to what will happen. dont
give them any credit for anything except sub-prime and their complicity in their own bail out
and riding on golden chariot lead by GS's ms. dimon. in a revolution...all b of a executives
are 'fair game'. stupid, no conscience, holier-than-thou whores.
Fed-up with being Sick and Tired
Calling them whores is a compliment.
divingengineer
You have to admire the sheer dipshit arrogance of people who
truly believe in their heart of hearts that they can, by fiat, counteract the forces of nature,
economics, human tendencies, etc.
There are a number of them out there, and they shurely must be cut from the same cloth.
Fed-up with being Sick and Tired
This focus upon stocks or correlations is laughable. It would
not surprise readers here who likely know this, but I will post if nonetheless: stocks are a
distraction from where the real money is and will not be: CREDIT M . Bond moves move m ,
all of them and secondarily, we have our FX market. BUT, the real fortunes are made in bonds
and buying and selling derivatives against them. Remember that it was the derivatives on Mortgage
Bonds, and the CDS window that closed that caused world-wide misery and we are still stuck in
that rut.
Bottom of oil prices is not seen yet. Last time in 1986 oil fall $35 to $10. Most of the damage
in oil price decline behind us. But not oil speculators were washed out.
Marginal producers will go out of business. They are highly leveled and they will have problems
in refinancing their debt. There will some ripple affects on financial market. Increased volatility
is probably coming in 2015. Fed intend to raise rate.
Behind closed doors, the billionaire also opposed the firm's expansion into stocks and real estate,
areas seen by others as crucial to position the firm as the bond rally on which Pimco's growth had
been built showed signs of waning. In pushing for a return to a simpler business model, he questioned
why the firm needed some of the executives it had hired.
By September, as Gross revived plans to fire Balls, 41, Pimco's new senior managers turned against
him. Several of the firm's key executives offered to resign. When Gross proposed again to take a
smaller role, give up management responsibilities and hand over his main fund to a successor by
the end of 2015, Pimco executives were considering his ouster.
Rather than suffer the humiliation of being fired, Gross decided to walk away from the firm that
he had started in 1971. A few hours later on that Friday morning, he was on a plane bound for Denver
to join Janus Capital Group Inc. (JNS), the money manager run by his former general counsel and
operating chief Richard Weil, 51.
... ... ...
Gross built Pimco with some of the best long-term investing track records, and was the face of
the bond market with television appearances almost every day. Assets at the firm doubled between
2010 and 2013, making Gross one of the best-compensated money managers, with a bonus of about $290
million in 2013, a fortune even by Wall Street standards.
An Ohio native who graduated from Duke University with a psychology degree in 1966, Gross built
a reputation unparalleled among mutual fund managers, with his main fund, the $162.8 billion Pimco
Total Return (PTTRX), beating 96 percent of peers over 15 years, according to research firm Morningstar
Inc. The fund has become a staple in the 401(k) retirement accounts of millions of Americans.
Vietnam Vet
His departure triggered a combined $60.5 billion in withdrawals in the past three months from Pimco
Total Return, which at its peak in April 2013 was the world's largest mutual fund, with $293 billion.
Assets in the fund have since shrunk by 44 percent.
Gross, who spent three years in the Navy and served in Vietnam, was obsessed with performance.
When his flagship fund trailed 77 percent of peers in 2011, he apologized to clients, calling it
a "stinker" of a year and reassuring them he hadn't lost his touch. After a rebound the next year,
he examined his legacy in an investment outlook that said the careers of great investors were fueled
by a credit expansion that may be ending, and that the real test of his investing prowess was
yet to come.
"Am I a great investor?" he wrote in an April 2013 investment outlook. "No, not yet."
... ... ...
Four years after a Bloomberg M article in which Gross said that stock-market returns would
beat bonds, the firm's equity business wasn't meeting expectations, having gathered less than $3
billion into its four main mutual funds.
Gross argued the push wasn't cost-efficient, that stocks and other assets were too expensive, that
Pimco should retrench and didn't need the staff it had hired to diversify.
... ... ...
"In the case of Pimco, which always seemed like this monolithic really good organization, when
you go behind the screen you can see that it was pretty messy," said Kurt Brouwer, chairman of Tiburon,
California-based advisory firm Brouwer & Janachowski LLC, who has invested in Pimco funds since
the 1980s.
"Money, big money, personal egos, differences of opinion, slights and disagreements built up over
10 or 15 years -- that's a pretty explosive combination."
As if on cue, OPEC stepped in just as monetary policy (at least
the Fed's) has dried up. Central bankers have nothing on the oil cartel that did just what everyone
expected, but has still managed to crush oil prices.
Protest away about the 1% getting richer and how prior QE hasn't trickled down to those who
really need it, but an oil cartel is coming to the rescue of America and others in the world
right now.
It's hard to imagine a "more wide-reaching and effective stimulus measure than to lower the
cost of gas at the pump for everyone globally," says Alpari U.K.'s Joshua Mahoney. "For this
reason, we are effectively entering the era of QE4, with motorists able to allocate more of
their money towards luxury items, while firms are now able to lower costs of production thus
impacting the bottom line and raising profits."
The impact of that could be "bigger than anything that has come before," says Mahoney, who
expects that theory to be tested and proved, via sales on Black Friday and the holiday season
overall. In short, a consumer-spending explosion as we race to the malls on a full tank of cheap
gas.
Tossing in his own two cents in the wake of that OPEC decision, legendary investor Jim Rogers
says it's a "fundamental positive for anybody who uses oil, who uses energy." Just not great
if you're from Canada, Russia or Australia, he says. Or if you're the ECB, fretting about price
deflation. Or until it starts crushing shale producers.
Neil G
The problem with market volatility is a failure of traders to acknowledge cause and effect.
The United States has implemented some form of QE since 2008 which has very little to do
with sustaining the economy other than flooding the banking system with reserves that haven't
been lent while providing liquidity to institutional investors for repositioning to equities.
Regardless, equity valuations are no further out of line than they have been historically,
and with nearly twice the growth rate among emerging m , those valuations are at a more
favorable discount. That being said, the only thing that matters is valuation, not speculation.
Problem is, when your living as a trader is based on mostly speculation and inching out returns
over competing institutions, one looks for reasons to invite volatility, partly from over reactive
insight, also because volatility triggers opportunity. Meanwhile the vast majority of investors
innocently bite their nails and assume improper references by mistaking the forest for the trees.
Media exacerbation doesn't help either, especially while all the drama and accompanying attention
deficit disorder feeds their paychecks too.
At the end of the day, the performance of XYZ company usually has very little to do with
the price of rice in China. All investors large and small with have the most consistent chance
of success by maintaining their investing focus based on prevailing economic fundamentals while
remaining patient with those underlying assumptions. Divergences aside, these events are simply
modest opportunities to re-allocate strategically and have little lasting impact that can't
be overcome by long term discipline; so have a Xanax and stop obsessing already!
Jay
Most people recognize that the m are being supported in some way but most don't understand
the mechanics. I have not worked in finance but I have a lot of experience with industrial process
control systems and I understand their capability. Modern trading networked platforms are nearly
identical. Among many other characteristics of the m , these platforms easily allow prices
to be precisely controlled if there is an unlimited pool of digital money. These systems can
precisely control the price, the rate of the price rise, and the priority of asset price control.
All of the m are networked together to allow the needed liquidity to flow to the m
that demand it. The constant rise in the m since 2009 could not have occurred without
these systems even with QE. As far as the algorithms are concerned all QE looks the same, regardless
of the central bank that support it. QE is the fuel but the trading platforms are the engine.
Legitimate buyers, sellers, bid, and offers no longer dictate prices.
The algorithms ensure that the additional bids and offers are created with thin air digital
money if the legitimate bids will not achieve the desired price. As a result there is nothing
that will keep stocks from going higher except the will of the central banks. But remember that
this is all a debt backed digital creation. Its not even cash until you sell and a clash between
these illusionary values and real values will make it all blow up. That is the risk you are
taking if you participate.
Peter
After 2009 the trading volume in stocks has been cut by 66.6 %. People lost too much. 99%
of the bears disappeared.
Since 2010, People's credit debt is rising 6-7 % yearly. it used to be 2-3%. Now, DEBT to
INCOME ratio is at a very-very high 25%. The only money made in the m are the 401 k s,
rigged by the FED-centrals and the GOV. to keep HOPE alive.
German industrial production dropped 4% from July to August, versus an expected decline of 1.5%.
This is the biggest month-on-month drop in five years. The figure represents a 2.8% drop on the
same month last year.
Similarly ugly numbers on factory orders released on Monday and the worrying business reports
suggest the sector is in decline.
We don't yet have a full quarter's data, but Claus Vistesen at Pantheon Macroeconomics is already
saying the German manufacturing sector "is in a recession."...
This is just a warning for 401K investors to keep power dry... Recession might happen or it might
be postponed again due to lower oil prices (which are huge economic stimulus in itself), but the fact
that we are getting closer to the next economic crash is undisputable. It's already 6 years since the
last. So each year the chances of a new devastating crash only grow. This is the nature of neoliberal
economic order. And during the crash it is 401K investors who are fleeced by Wall Street.
Are you waiting for the next major wave of the global economic collapse to strike?
Well, you might want to start paying attention again. Three of the ten largest economies
on the planet have already fallen into recession, and there are very serious warning signs
coming from several other global economic powerhouses. Things are already so bad
that British Prime Minister David Cameron is comparing the current state of affairs to the horrific
financial crisis of 2008. In an article for the Guardian
that was published on Monday, he delivered the following sobering warning: "Six years on
from the financial crash that brought the world to its knees, red warning lights are once again
flashing on the dashboard of the global economy." For the leader of the nation with the
6th largest economy in the world to make such a statement is more than a little bit concerning.
So why is Cameron freaking out?
Well, just consider what is going on in Japan. The economy of Japan is the 3rd
largest on the entire planet, and it is
a total basket case at this point. Many believe that the Japanese will be on
the leading edge of the next great global economic crisis, and that is why it is so alarming that
Japan has just dipped into recession again
for the fourth time in six years…
Japan's economy unexpectedly fell into recession in the third quarter, a painful slump that
called into question efforts by Prime Minister Shinzo Abe to pull the country out of nearly
two decades of deflation.
The second consecutive quarterly decline in gross domestic product could upend Japan's political
landscape. Mr. Abe is considering dissolving Parliament and calling fresh elections, people
close to him say, and Monday's economic report is seen as critical to his decision, which is
widely expected to come this week.
Of course Japan is far from alone.
Brazil has the 7th largest economy on the globe, and it has already been
in recession for quite a few months.
Italian GDP dropped another 0.1% in the third quarter, as expected.
That's following a 0.2% drop in Q2 and another 0.1% decline in Q1, capping nine months of
recession for Europe's third-largest economy.
Like Japan, there is no easy way out for Italy. A rapidly aging population coupled with
a debt to GDP ratio of more than 132 percent is a toxic combination. Italy needs to find a
way to be productive once again, and that does not happen overnight.
Meanwhile, much of the rest of Europe is currently mired in depression-like conditions.
The official unemployment numbers in some of the larger nations on the continent are absolutely
eye-popping. The following list of unemployment figures comes from
one of my previous articles…
France: 10.2%
Poland: 11.5%
Italy: 12.6%
Portugal: 13.1%
Spain: 23.6%
Greece: 26.4%
Are you starting to get the picture? The world is facing some real economic problems. Another
traditionally strong economic power that is suddenly dealing with adversity is Israel. In fact,
the economy of Israel is shrinking
for the first time since 2009…
Israel's economy contracted for the first time in more than five years in the third quarter,
as growth was hit by the effects of a war with Islamist militants in Gaza.
Gross domestic product fell 0.4 percent in the July-September period, the Central Bureau
of Statistics said on Sunday. It was the first quarterly decline since a 0.2 percent drop in
the first three months of 2009, at the outset of the global financial crisis.
And needless to say, U.S. economic sanctions have hit Russia pretty hard. The rouble has been
plummeting like a rock, and
the Russian government is preparing for a
"catastrophic" decline in oil prices…
President Vladimir Putin said Russia's economy, battered by sanctions and a collapsing currency,
faces a potential "catastrophic" slump in oil prices.
Such a scenario is "entirely possible, and we admit it," Putin told the state-run Tass news
service before attending this weekend's Group of 20 summit in Brisbane, Australia, according
to a transcript e-mailed by the Kremlin today. Russia's reserves, at more than $400 billion,
would allow the country to weather such a turn of events, he said.
Crude prices have fallen by almost a third this year, undercutting the economy in Russia,
the world's largest energy exporter.
It is being reported that Russian President Vladimir Putin has been
hoarding gold in anticipation of a full-blown global economic war. I think that will end up
being a very wise decision on his part.
Despite all of this global chaos, things are still pretty stable in the United States for the
moment. The stock market keeps setting new all-time highs and much of the country is preparing
for an orgy of Christmas shopping. Unfortunately, the number of children that won't even have a
roof to sleep under this holiday season just continues to grow. A stunning report that was
just released
by the National Center on Family Homelessness says that the number of homeless children in America
has soared to an astounding 2.5 million. That means that approximately one out of every 30 children
in the United States is homeless.
Let that number sink in for a moment as you read more about this new report
from the Washington Post…
The number of homeless children in the United States has surged in recent years to an all-time
high, amounting to one child in every 30, according to a comprehensive state-by-state report
that blames the nation's high poverty rate, the lack of affordable housing and the effects of
pervasive domestic violence.
Titled "America's Youngest Outcasts," the report being issued Monday by the National Center
on Family Homelessness calculates that nearly 2.5 million American children were homeless at
some point in 2013. The number is based on the Education Department's latest count of 1.3 million
homeless children in public schools, supplemented by estimates of homeless preschool children
not counted by the agency.
The problem is particularly severe in California, which has about one-eighth of the U.S.
population but accounts for more than one-fifth of the homeless children, totaling nearly 527,000.
This is why I get so fired up about
the destruction of the middle class. A healthy economy would mean more wealth for most
people. But instead, most Americans just continue to see a decline in the standard of living.
And remember, the next major wave of the economic collapse has not even hit us yet. When
it does, the suffering of the poor and the middle class is going to get much worse.
Unfortunately, there are already signs that the U.S. economy is starting to slow down too.
In fact, the latest manufacturing numbers
were not good at all…
The Federal Reserve's
new
industrial production data for October show that, on a monthly basis, real U.S. manufacturing
output has fallen on net since July, marking its worst three-month production stretch since
March-June, 2011. Largely responsible is the automotive sector's sudden transformation from
a manufacturing growth leader into a serious growth laggard, with combined real vehicles and
parts production enduring its worst three-month stretch since late 2008 to early 2009.
Equities are in a bubble, but the real economy continues to languish. Paper money is
overwhelming, and overflowing. There is some thought that the US can never print too many dollars
for the rest of the world to take. Hubris does not even begin to describe the financial system of
the Anglo-American banking cartel. Who are these people? What are they thinking? Their ability
to bully others blinds them to the balances of the real world.
David Cameron has issued a stark message that "red warning lights are flashing on the dashboard
of the global economy" in the same way as when the financial crash brought the world to its knees
six years ago.
Writing in the Guardian at the close of the G20 summit in Brisbane, Cameron says there is now
"a dangerous backdrop of instability and uncertainty" that presents a real risk to the UK recovery,
adding that the eurozone slowdown is already having an impact on British exports and manufacturing.
His warning comes days after the Bank of England governor, Mark Carney, claimed a spectre of
stagnation was haunting Europe. The International Monetary Fund managing director, Christine
Lagarde, expressed fears in Brisbane that a diet of high debt, low growth and unemployment may yet
become "the new normal in Europe".
Cameron has adopted the more sombre tone in the runup to the chancellor's autumn statement on
3 December, when the Office of Budget Responsibility will produce new growth forecasts and spell
out the impact on public finances.
"The eurozone is teetering on the brink of a possible third recession, with high unemployment,
falling graowth and the real risk of falling prices too," Cameron writes. "Emerging market
economies which were the driver of growth in the early stages of the recovery are now slowing down.
Despite the progress in Bali [trade talks in 2013], global trade talks have stalled while the epidemic
of Ebola, conflict in the Middle East and Russia's illegal actions in Ukraine are all adding a dangerous
backdrop of instability and uncertainty."
The emphasis on potential dangers, balancing some more hubristic ministerial accounts of the
state of the UK economy, reflects Cameron's concern – underlined by conversations at the G20 – about
the extent to which Britain can detach itself from gathering economic storms.
Politically, Conservatives believe an emphasis on the risks still facing the UK will make anxious
voters recoil from handing stewardship of a fragile economy to a relatively untried Labour team.
Some recent polling has seen the economy decline as an issue for voters, partly because there
is a belief that the recovery is secured, leading to issues such as the health service and living
standards, which have been seized upon by Labour, to rise in importance.
But with Germany, Europe's manufacturing powerhouse, growing by just 0.1% in the third quarter,
the eurozone economy appears to be faltering.
A European Central Bank
(ECB) survey showed that inflation would remain at worryingly low levels before picking up slightly
next year. The annual inflation rate in the eurozone was near a five-year low of 0.4% in October
and the ECB expects a rate of 0.5% for 2014 – well below the target of close to 2%.
The EU may also be only one or two new rounds of sanctions away from pushing Russia into a deep
recession as punishment for its interference in Ukraine, a point made in Brisbane by the Russian
president, Vladimir Putin.
Cameron stresses that retreating from the world or imposing extra tax and borrowing may seem
easy solutions but they would instead prove only to be a repeat of the mistakes of the past.
According to data compiled by Goldman Sachs, most American workers earn below $20 per hour. Goldman
Sachs economists David Mericle and Chris Mischaikow crunched Labor Department data that is used
to generate the monthly jobs report that the market closely watches, in particular from the survey
of employers.
The chart, shown above, shows that 19% of workers make less than $12.50 per hour, 32% of workers
make between $12.50 and $20 per hour, 30% make between $20 and $30 an hour, 14% make between $30
and $45 per hour, and 5% make over $45 an hour.
The economists also found that, while wage growth has been soft, the fastest growth in income
has come to the lowest-paid workers.
And they found that the biggest driver to income growth has been rising employment, with help
from rising wages and more hours worked.
Needless to say, this relentless expansion of the bubble eventually kills off the bears,
the skeptics, the prudent and even the militantly incredulous. Undoubtedly, that is where
we are now because the global economic news has been uniformly negative since the October dip, yet
the market has resumed its relentless melt-up.
Under such circumstances, therefore, it is well to remember that we are in the middle of the
greatest central bank fueled inflation in recorded history, and that thisinsidious inflation has been channeled into financial assets owing to the arrival
of peak debt everywhere around the world.
But that is the Achilles heel of the game. As the bubble takes on ever greater girth,
it becomes increasingly susceptible to a negative shock to confidence.
I have a lot of respect for Stockman (even though I think he's a bit of an ideologue who
could learn from his contemporary Paul Craig Roberts), but he fails to consider the fact that
bubbles pop when the CB's allow them to pop. Will the Fed decide to pop the stock market bubble
in the next few months or few years? Maybe, maybe not.
He's still focused on fundamentals which mean jack fucking shit for the market. We could
have a Mad Max scenario in the real world, and the market could still be making new highs each
week.
ArtOfLife
Stockman, just another old crank ranting about how he missed the biggest bull run in history.
Or is he the type of guy who's screaming for a collapse, but is long stocks anyway?
Newsflash, DJIA is up 11,000 pts in 5 1/2 years, anyone who didn't make some money off that
is an epic loser.
BigJim
Sold, have you? Converted your paper profits into cash?
Yeah, sure you did Isaac, the South Sea Trading Company is still going strong! You'd be a
fool not to get back in now!
Well take a look, University of Missouri Professor of Economics Videos. MMT is the current
Official US Economic Theory... But lo and behold... here is a Professor talking as a Rebel.
http://www.youtube.com/watch?v=_d6D_QvtTmg
(Michael Hudson Video, talks about Predators, what Greece Expected by Joining a United Europe,
How they got hijacked by the Bankers, 2011)
Michael Hudson: Finances vs Economy, Credit vs Money [3/18 ENG] ...Sounds like lots of ZH
people agree with him on Greece & Financialization of Debt & Government in order to steal the
assets.
...A recent
Gallup poll found that 59 percent of those surveyed were very or moderately worried they won't
have enough money for retirement – by far their biggest concern.
Many people once counted on a triad of support for retirement – Social Security, personal savings,
and employer-sponsored pensions. Yet in the wake of the Great Recession and a long stretch of
high unemployment and stagnant wages, the once-dependable foundation has been crumbling.
Employers have phased out generous defined benefit pension programs in favor of 401(k)s and other
workplace-based retirement accounts. Personal savings have taken a dive as many people have tapped
retirement savings to pay the rent or help make ends meet. And many young people seriously question
whether the Social Security trust fund will be able to pay them anything by the time they retire.
The latest National
Retirement Risk Index from the Center for Retirement Research (CRR) at Boston College says that
more than half (53 percent) of households risk falling more than 10 percent short of the retirement
income they'll need to maintain their standard of living. More than 40 percent of retirees are also
at risk of running out of money for daily needs, out-of-pocket spending on health care or long-term
care, according to the Employee Benefit Research Institute (EBRI).
Even more alarming, the National Bureau of Economic Research
recently concluded that nearly one-quarter of Americans could not come up with $2,000 in 30 days
if necessary, and another 20 percent would have to pawn or sell possessions to do so. That would
mean nearly half of all Americans are financially stressed.
Since 1998, the number of companies offering any sort of defined benefit plan plummeted from
71 to 30 – and an increasing number of those are hybrid plans, where workers accumulate an account
balance rather than an annuity. When 401(k)s were created in 1978, they were meant to be a supplement
to traditional defined benefit pensions, not a stand-alone retirement account. But over time, they
have evolved to serve that purpose – although they typically provide far less in long-term benefits
than the old plans.
The reasons for the long decline in personal savings are difficult to pinpoint, but they likely
include stagnant real incomes for many workers, rising standards of living and higher consumption,
and a weaker dollar than in the past. The savings rate is the percentage of money that one deducts
from his or her personal disposable income for retirement.
America's savings rate fell steadily from the early 1980s through the mid-2000s, ticking up only
during or after recessions, according to a Washington Post analysis. It topped 11 percent during
President Ronald Reagan's first term. From 2005-2007, the annual rate averaged 3 percent. The savings
rate essentially doubled during the Great Recession, and stayed there, averaging nearly 6 percent
from 2009-2012. By early 2013, the rate had dipped to 2.6 percent, before rising again to 4 percent
by mid-2014.
... ... ...
A Sea Change in Workplace Retirement Plans
Over the past two decades, the workplace retirement landscape has dramatically shifted to defined
contribution plans, in which a worker and in some cases the employer contribute to an account managed
by the employee. These have largely replaced defined benefit plans, which specify a benefit
– often a percentage of the average salary during the last few years of employment – once the worker
retires.
Since 1998, the number of companies offering any sort of defined benefit plan plummeted from
71 to 30 – and an increasing number of those are hybrid plans, where workers accumulate an account
balance rather than an annuity.
When 401(k)s were created in 1978, they were meant to be a supplement to traditional defined
benefit pensions, not a stand-alone retirement account. But over time, they have evolved to
serve that purpose – although they typically provide far less in long-term benefits than the old
plans.
Related: The 401(k) Loan: America's Pricey New Piggy Bank
Even as the job market continues to improve, many financial experts recommend that most Americans
keep at least three to six months of expenses stashed away in an emergency savings account.
Yet that message – despite years of shaky economic times – still hasn't gotten through.
Over 40 percent of Americans are living paycheck to paycheck, says a new report from Springleaf
Financial, a consumer finance company. The findings, released today, apply to people across all
education and salary levels.
The study discovered that 24 percent of consumers have less than $250 in their bank accounts
on any given payday – leaving them without reserves to handle unexpected costs.
"We know full well that with rising costs and unexpected expenses, consumers may have a tough
time making ends meet," Dave Hogan, executive vice president of marketing and analytics at Springleaf,
said in a statement.
'Rather Go to the Dentist'
Among those surveyed who make more than $200,000 per year, 20 percent said they save rarely,
inconsistently, or not at all. One in four consumers with a graduate degree actually couldn't miss
a single month of paychecks without having to borrow or sell assets.
The study put some of the blame for Americans' failure to save on a lack of financial skills.
One in five says they learned about money "the hard way" – and one in five says they would rather
go to the dentist than spend half an hour learning money management skills.
The survey was conducted online among 2,010 consumers in October 2014.
In a separate survey done this year by Ameriprise Financial, just a quarter of people said they
were trimming their housing expenses or college savings – the big lifestyle decisions that could
result in serious savings. By comparison, more than half said they were cutting down on everyday
expenses like eating out, entertainment, and clothing.
"Nobody can predict how long governments can get away with fake growth, fake money,
fake financial stability, fake jobs, fake inflation numbers and fake income growth. Our
feeling is that confidence, especially when it is unjustified, is quite a thin veneer. When
confidence is lost, that loss can be severe, sudden and simultaneous across a number of m
and sectors."
"The situation is universal, a consequence of incompetent leaders and careless (or
ignorant) citizenry."
Just a warning against overconfidence and violating 100-your age asset allocation due to greed
or clear insufficiency of the size of 401K to the age/time to retirement. Trying to outsmart Wall
Street in this casino game is like trying to pick nickels before a steamroller. As financier
J. P. Morgan used to say "During crisis assets
return to their legitimate owners". This situation repeats before each crisis because the
allure of "reaching for yield" is so strong. That does not mean that the next crisis will happen
the next year or in 2016. It just means that when it happen suddenly you will see that many people were
swimming without pants.
The stock market reached all-time highs last week based upon the machinations of central
bankers and the perceptions of speculators that these bankers will always have their back.
Yellen, Kuroda, and Draghi are growing increasingly desperate as everything they have done in the
last five years has failed to revive their moribund economies. The average person in the U.S., Japan
and Europe is far worse off today than they were in 2009 at the height of the worldwide recession.
The .1% have vastly increased their riches through the ZIRP and QE policies of central bankers.
The rise in stock m is nothing but a confidence game built upon the false belief that there
will always be a greater fool to buy overvalued assets acquired by borrowing from the central bankers
at 0%. John Hussman understands the nature of markets:
We're mindful that the financial m move not based on what is true, but by what
is perceived.
At present, the entire global financial system has been turned into a massive speculative
carry trade. A carry trade involves buying some risky asset [typically on margin
-- NNB] – regardless of price or valuation – so long as the current yield on that asset exceeds
the short-term risk-free interest rate. Valuations don't matter to carry-trade speculators,
because the central feature of those trades is the expectation that the securities can
be sold to some greater fool when the "spread" (the difference between the yield on the speculative
asset and the risk-free interest rate) narrows.
He is also understands the move by the BOJ on Friday was made out of panic. It will set in motion
tragic consequences for the Japanese people and world financial systems:
With regard to the recent move by the Bank of Japan, seeking to offset deflation
by expanding the creation of base money, the move has the earmarks of a panic, which is counterproductive.
The likely response of investors to panic is to seek safe, zero-interest money rather than being
revolted by it. The result will be a plunge in monetary velocity and a tendency to strengthen
rather than reduce deflationary pressures in Japan. In our view, the yen has already experienced
a dramatic Dornbusch-type overshoot, and on the basis of joint purchasing power and interest
parity relationships (see Valuing Foreign Currencies), we estimate that rather than the widely-discussed
target of 120 yen/dollar, value is wholly in the other direction, and closer to 85 yen/dollar
(the current exchange rate is just over 112). The Japanese people have demonstrated decades
of tolerance for near-zero interest rates and the accumulation of domestic securities without
any material inclination to spend them based on the form in which those securities are held.
Rather than provoking strength in the Japanese economy, the move by the BOJ threatens
to destroy confidence in the ability of monetary authorities to offset economic weakness – in
some sense revealing a truth that should be largely self-evident already.
The carry trade is like picking up nickles in front of a steam roller. We've seen it all before.
The result will be the same.
The narrative of overvalued carry trades ending in collapse is one that winds through
all of financial history in countries around the globe.Yet the pattern repeats
because the allure of "reaching for yield" is so strong. Again, to reach for yield, regardless
of price or value, is a form of myopia that not only equates yield with total return, but eventually
demands the sudden and magical appearance of a crowd of greater fools in order to exit successfully.
The mortgage bubble was fundamentally one enormous carry trade focused on mortgage backed securities.
Currency crises around the world generally have a similar origin. At present, the high-yield
debt m and equity m around the world are no different.
Hussman can prove that QE and suppressed interest rates below the rate of inflation have completely
failed to benefit the real economy and the real people. It has only benefited Wall Street profits,
insiders, and rich speculators. They have set the stage for a financial collapse that will
make 2008 seem like child's play.
High real interest rates generally reflect strong demand for borrowing, driven by investment
opportunities that are seen as productive enough to justify borrowing at those rates. They also
encourage savings that can be directed to those productive investments. As a result, higher
real rates are generally associated with more efficient investment and faster economic growth.
In contrast, depressed real interest rates are symptomatic of a dearth of productive
investment opportunities. When central banks respond by attempting to drive those real interest
rates even lower to "stimulate" interest-sensitive spending such as housing or debt-financed
real investment, they really only lower the bar to invite unproductive investment and speculative
carry trades.
We wouldn't suggest that the Fed target above-equilibrium interest rates, but we
are also entirely convinced that below-equilibrium interest rates are harmful to long-term economic
and financial stability. Despite the ability of these policies to create short-term
bursts of demand – enough to hold the global economy at growth rates that remain just at the
border that has historically delineated expansions from recessions – the ultimate and rather
predictable result of these policies will be another round of financial chaos.
Bernanke and Yellen created $3.5 trillion out of thin air since 2008 and have done absolutely
nothing for Main Street USA. None of that $3.5 trillion has ever reached average people in the real
world. It has been funneled to the .1% and used to speculate in the m , creating simultaneous
stock, bond and real estate bubbles. Now central bankers around the world desperately attempt to
keep the bubbles from bursting simultaneously. They will fail once again.
As the central bank creates more money and interest rates move lower, people don't
suddenly go out and consume goods and services, they simply reach for yield in more and more
speculative assets such as mortgage debt, and junk debt, and equities. Consumers don't consume
just because their assets have taken a different form. Businesses don't invest just because
their assets have taken a different form.The only activities that are stimulated
by zero interest rates are those where interest rates are the primary cost of doing business:
financial transactions.
What central banks around the world seem to overlook is that by changing the mix of government
liabilities that the public is forced to hold, away from bonds and toward currency and bank
reserves, the only material outcome of QE is the distortion of financial m , turning the
global economy into one massive speculative carry trade. The monetary base, interest rates,
and velocity are jointly determined, and absent some exogenous shock to velocity or interest
rates, creating more base money simply results in that base money being turned over at a slower
rate.
Those expecting hyperinflation from these money printing measures will have to wait awhile.
It will happen after deflation engulfs the world and those in power panic. But, confidence in fiat
currency and those controlling its issuance is waning rapidly.
Hyperinflation results when there is a complete loss in the confidence of currency to hold
its value, leading to frantic attempts to spend it before that value is wiped out. I expect
we'll observe significant inflationary pressures late in this decade, but present conditions
aren't conducive to rapid inflation without some shock to global supply.
The fact is that all financial m are extremely overvalued and will crash. The speculators
have already forgotten the tremors of the coming earthquake which occurred two weeks ago. Treasury
rates plunged, along with stock m , as there were no buyers to be found. Confidence dissipated
in an instant. Fear was palpable. Everyone has a choice. You can look like an idiot before the crash
or after it.
Overvalued bull market peaks may still be drawn-out and frustrating. They can seem
endless (see The Journeys of Sisyphus)
and then suddenly unravel far more rapidly than it seems they should (see
Chumps, Champs, and Bamboo) at which
point the "lagging" features of a defensive stance are often reversed with striking speed. As
the late MIT economist Rudiger Dornbusch once observed, "The crisis takes a much longer time
coming than you think, and then it happens much faster than you would have thought." Recall
that the 2000-2002 decline wiped out the entire total return of the S&P 500 – in excess of Treasury
bill returns – all the way back to May 1996. The 2007-2009 decline wiped out the entire total
return of the S&P 500 – in excess of Treasury bill returns – all the way back to June 1995.
As we've noted before, the problem with what we call the Exit Rule for Bubbles – "you only
get out if you panic before everyone else does" – is that you also have to decide whether to look
like an idiot before the crash or an idiot after it.
Lehmann: I think it proves that Milton Friedman wasn't exactly right in terms of saying
that the printing of money is a major cause of inflation, that there are other mitigating factors.
And the velocity of money isn't there because the economy isn't moving. So, the multiplier effect
of all this pumping of money hasn't happened. But that doesn't mean it isn't sitting there on the
periphery, waiting for the economy to pick up.
Forbes: The gunpowder is still there, waiting for a match?
Lehmann: That's it. The fuse is still burning.
Forbes: And has that created a bubble in the stock market?
Lehmann: Yes. The Fed policy has basically punished anybody that wants to invest into
fixed income. And therefore, especially things like pension funds, which have 7% and 8% earnings
assumptions, have had to go into the stock market to try to boost up their earnings. Because otherwise,
the companies would have to dramatically increase their funding requirements. And that would be
a real downer to the economy.
Forbes: You've made note, and maybe you can share it with us, that with the easy money,
large companies find it easy to borrow at a very low rate. And this has led to stock buybacks. How
much stock buybacks have there been since the middle of the last decade?
Lehmann: It seems to be a major activity. And it makes sense, in a certain context, that
if companies aren't growing or are even shrinking in their sales, then they're throwing off
cash and buying back their stock. It makes sense. But if you look back in history, it almost
seems like they're buying at the peaks or near it, rather than when things are really cheap.
QE has finally come to an end, but public comprehension of the immense fraud it embodied
has not even started. In stopping QE after a massive spree of monetization, the Fed
is actually taking a tiny step toward liberating the interest rate and re-establishing honest finance.
But don't bother to inform our monetary politburo.
As soon as the current massive financial bubble begins to burst, it will doubtless invent some
new excuse to resume central bank balance sheet expansion and therefore fraudulent finance.
But this time may be different. Perhaps even the central banks have reached the limits
of credibility - that is, their own equivalent of peak debt.
Remember my son's comment about the drivers of expensive cars? You probably know at least a couple
of people who put on a fantastic display of wealth even though they don't have much. They are so
concerned about appearing successful that they make buying decisions that get in the way of long-term
financial success.
It may never happen, but our relationship with money would change considerably if our financial
decisions were transparent to the world. For instance, what would change if the car we drive or
the home in which we live could no longer hide that we've saved nothing for retirement? Would it
be easier to focus on the financial choices that help us instead of hurt us?
Maybe this idea is too radical, but for the next week, I'd love for you to test this theory.
Try living as if everything you did financially was public information. How does it affect your
decisions? Do you find yourself still doing things that just look good, or are you doing things
that actually are good for you? Do you find it easier to be your authentic self? And, perhaps most
important of all, do you now understand the difference between buying the trappings of success and
actual success?
It's six years since the last bubble burst. So it's time for a new bubble ;-). In this sense Zerohedge
is important antidote to Wall Street propaganda machine. And might help to avoid stupid moves, which
people usually do after a long rise of stock market.
The U.S. economy continues to lose momentum despite the Federal Reserve's use of conventional
techniques and numerous experimental measures to spur growth. As Kindleberger clearly stated,
the process of excess liquidity fueling higher prices in the face of faltering fundamentals can
run for a long time, a phase Kindleberger called "overtrading". But eventually, this gives way to
"discredit", when the discerning few see the discrepancy between prices and fundamentals.
Eventually, discredit yields to "revulsion", when the crowd understands the imbalance, and
m correct.
It's remarkable that this Goldman report, and its writeup on Business Insider, is being treated
with a straight face. The short version is current stock price levels are dependent on continued stock buybacks.
Key sections
of the story...
From exuberant escape velocity 'expansion' hopes and dreams in June, to 'slowing' in September,
and 'drastic downward revisions' in early October, the Goldman Sachs Global Leading Indicator has
had a very troubled recent past (as QE is just 4 POMOs away from coming to an end). But nothing
could prepare the avid reader for what happened to the infamous Goldman "swirlogram" this month
- an epic, total collapse. As Goldman 'politely' notes, "the October Advanced reading places the
global cycle deeper in the 'Slowdown' phase, with momentum (barely) positive and declining."
And just as amazing: the world has gone from Expansion and Recovery, to Slowdown and borderline
Contraction in the span of just 3 months.
Manthong
Oh, and Rickards noted on a chart that the velocity of money now is almost identical in slope
and duration to the months immediately preceding the 1929 crash.
Bell's 2 hearted
Channel stuffed. Wholesale inventories rising more than expected. NRF (national retail federation)
reports record amount of imports for the holidays ... we just had a negative retail sales month.
Blowing out of HY credit and more important OCC and FDIC have warned on subprime auto loans
going sour.
Rising inventories + slowing demand = inventory correction (recession if bad enough ... it
will be bad enough)
Renfield
Bells, I learn a lot from your comments, but I had to downtick you here for appearing to
believe that the 'recession' ever ended.
Bell's 2 hearted
haha. I agree with you 100%. "official" recession ended june 2009
Glasnost
Probably deflation in some areas, hyperinflation in others. I think U.S. might be crazy
enough to hyperniflate. Europe, China will probably deflate. Again. Russia could go either
way, but with the current action in its currency, may inflate significantly. Unless Putin reveals
some gold-backing...doubtful that he will, but it's a possibility as a 'stabilization measure'
or something similar.
Pool Shark
Once a banker creates money out of thin air by lending it into existence, there are only
3 possible outcomes:
1) The borrower goes even deeper into debt while continuing to service the original
debt (what's been happening over the last 30 years). This is necessary to the continuation of
our existing Ponzi financial system, and is where inflation comes from. The Ponzi must always
increase: money and credit must constantly be created, or the system implodes. Unfortunately,
no Ponzi scheme can go on forever (See # 2 & 3 below:)
2) The debt is payed off. This destroys the money that was in existence and is deflationary.
3) The debt is defaulted. This destroys the value of the loan 'asset' on the bank's
books and is also deflationary. This is what happened in 2008 resulting in a rapid downdraft
of deflation, which was reversed only by the massive credit creation of the central banks. Note
that the debts and bad assets never went away, they were merely 'papered-over.'
Because the US dollar is still the world's reserve currency, a hyper-inflation cannot happen.
Hyper-inflation is a political, not an economic event.
The most likely outcome of the current mess is a replay of 2008 on steroids (i.e., initial
defaults, followed by a 'hunt for liquidity' liquidation of assests to meet obligations, followed
by an immediate slowdown in economic activity, resulting in a vicious-cycle feedback loop of
debt destruction, asset price collapse and eventually depression). That will all be highly deflationary...
[We are all Japan. Cash, Bonds, Gold...]
JustObserving
Another few more cases of Ebola in the US and many people will stop flying, going to sporting
events and restaurants, and heaven forbid, going to malls. With thousands of people being monitored
for Ebola, we may be just a week or two away from this reality. Yellen better be ready to buy
airlines and hotels and restaurants with a trillion or so in freshly-minted fiat.
Have not heard anything about Nina Pham's boyfriend who worked at Alcon and was allegedly
admitted to a hospital for monitoring.
Ebola fears blamed for poor turnout at mainland's largest trade fair
Lack of buyers at the mainland's largest trade exhibition amid fears over disease and
economy
The number of buyers attending the mainland's largest trade fair was down significantly
yesterday, the first day of its autumn session, with the downturn attributed to fear of
the Ebola virus and global economic gloom.
The opening of the fair coincided with reports the number of Ebola cases in West Africa
could reach between 5,000 and 10,000 a week by December and that a second nurse who contracted
the virus while treating a patient in Texas boarded a plane the day before she fell ill,
sparking fears the disease could spread elsewhere in the US.
Exhibitors at the Canton Fair, held twice a year in eastern Guangzhou, said they had
seen far fewer buyers yesterday than at the spring session in April.
"In the past the hall was full of people. There are fewer people this session, around
half of that in the spring session this year," said Joyce Lin, a sales representative for
Guangdong Kito Ceramics, which sells ceramics used for building materials. She said her
company's exports had declined.
<<But given that it's all just bullshit anyway, they probably just do this to mix things
up a bit>>
heh...how far does the the market have to fall before 'folks' start believing it's really
down? I think the machines and printers may have a wee credibility problem with their market
numbers, going up AND going down, these days. Nobody I've heard from thinks this fall is real...so
far. Bet it'll take a lot bigger than 2008 to get a good panic going this time.
Trouble with believing the printers will always come to the rescue, is that this same belief
leads to their inability to do so. It's just logic. You need some real, true believers in there
to take the losses, in order to convince anyone that this is a real market.
But the jig is up. Every BTFATH moment of the last six years, has proven that this is nothing
but printing. Delete risk, delete market. There are no market moves anymore, no charts to follow,
no production to judge. There is only what the central planners do and don't do next. I think
we're done here, at least with this economic iteration.
Most of those funds use lower credit rating bonds.
Good alternatives to Bill Gross and Pimco
Fund
Ticker
Yield
1-Year Return
3-Year Return
5-Year Return
Expense Ratio
DoubleLine Total Return Bond
DLTNX
4.85%
6.24%
5.08%
NA
0.73%
Fidelity Strategic Income
FSICX
3.71%
9.09%
5.78%
7.73%
0.69%
Loomis Sayles Bond
LSBRX
3.99%
12.87%
8.54%
10.62%
0.92%
Pimco Income
PONDX
4.98%
11.11%
11.47%
13.20%
0.77%
Source: Yahoo Finance
DoubleLine Total Return Bond. Manager Jeff Gundlach may become the Bill Gross of
his generation. (He's 55.) After having a terrific decade at TCW Total Return bond fund, he started
DoubleLine in 2010. DoubleLine Total Return has good, if not quite stellar, returns over nearly
five years, though it has attracted
more than $2.47 billion this year. Its yield is just below 5%. Turnover is only 14%
Fidelity Strategic Income. Joanna Bewick is the most low-profile manager in a group
of heavyweights, but she has posted very good returns since taking over in 2008. Fidelity Strategic
Income is small, giving her more leeway, and is invested heavily in U.S. and foreign government
bonds. Turnover is a relatively high 135%. This is a good choice for people who have Fidelity accounts,
though I might not go out of my way to buy it.
Loomis Sayles Bond. Another investing legend, Dan Fuss, co-manages this fund
with Elaine Stokes and Matt Eagan. Fuss is 80, 10 years older than Gross, so I wouldn't invest just
because of him. But I've
interviewed Eagan and found him very bright, and the fund's performance is excellent. Turnover,
at 28%, is also low.
Pimco Income. Co-managed by new CIO Ivascyn and Alfred Murata, who both won
Morningstar's Fixed-Income Manager of the Year in 2013, Pimco Income's performance has smoked many
other unconstrained bond funds over the last five years. Ivascyn probably won't be as hands on as
he used to be, so Murata will likely do more heavy lifting.
One reservation: The fund's turnover rate was a blistering 251% - way too high! I'd
wait a bit to see if the managers reduce that over the coming months. But if you're in Pimco Total
Return and want an alternative, look no further than this stellar next-door neighbor rather than
following the once-great Bill Gross down his long, lonesome road.
Howard R. Gold is a MarketWatch columnist and founder and editor of
GoldenEgg Investing, which offers simple,
low-cost, low-risk retirement investing plans. Follow him on Twitter @howardrgold.
robert laden
Probably shouldn't blame Gross too much. It's tough to make money in the bond market
when credit-worthy bonds are yielding zero after taxes and inflation.
"Unconstrained" bond funds sounds like it could be the new face of "mortgage backed securities",
except that the "mortgage" part has probably been replaced by "sub-prime car loans".
Don Bowmore
@robert laden
and "student loan backed securities" ?
[Oct 18, 2014] A quote from previous crisis
After a spectacular year-long rally in the stock market, investors are exuberant. Stock market
bears have become an endangered species, but reports of their extinction are greatly exaggerated.
Indeed, there are many reasons to believe that a return to bear market conditions may be imminent.
If the m turn down again, it won't be pretty but bearish investors may be able to harvest
impressive profits by betting on lower prices.
Regardless of market conditions, most investors are overwhelmingly bullish. They have been trained
to hold stocks through thick and thin. The bear market of 2000-2003 proved that the average investor
will hold stocks through devastating declines, much like a deer in the headlights. Few investors
are even aware of techniques such as short selling, put options, or inverse funds that allow profiting
within bear m . For savvy traders, a fast moving bear market can provide stellar profits using
these techniques. But a bear market implies that most investors are losing. Severe losses can lead
to extreme resentment against those traders who profit from these environments. If you are a profitable
bear trader, you should be sensitive to those who are losing while you are winning. In a very real
sense, the money that you are making is the money they are losing.
Cocktail conversations about stocks are typically brag sessions about being long a stock that
went to the moon. When was the last time you heard someone brag about a spectacular short sale?
The next time you are at a party, try telling your best short-sale story and see what kind of reaction
you get. Hopefully, your friends will be polite.
The most popular form of bear market investing is short selling, a practice where the investor
sells borrowed stock from a broker with the obligation to purchase it back later, presumably at
lower price, with the profit being the difference between the sale price and the repurchase price.
Even though there is nothing illegal or unethical about short selling, it is still regarded in popular
culture as a rogue practice. Many people consider it unpatriotic to sell short the country's finest
firms and profit from their troubles. Short sellers have always created resentment, particularly
during bear m when the majority of investors have lost large sums of money.
Stock investing is fundamentally an optimistic pursuit. Most people (particularly Americans)
have a natural tendency to be optimistic. Short selling goes contrary to that natural tendency.
This may be why short sellers are mistrusted. Short sellers are not necessarily pessimistic, they
are just identifying a trend and profiting from it.
One of the most famous short sellers on Wall Street was Jesse Livermore who emerged from the
1929 crash with almost $100 million. Jesse certainly caused a lot of resentment among all of the
ordinary people who had lost fortunes in the crash. Some even blamed Jesse and other short sellers
for the crash. In response to investor outrage, the stock exchanges enacted rules to limit short
selling that remain to this day. After the crash, Livermore often received personal threats and
was forced to hire bodyguards. Sadly, Jesse lost his entire fortune in a mistimed investment strategy
a few years later and eventually committed suicide. The tragic story of Jesse Livermore has become
a parable for the "evils" of short selling.
Other well-known bears have been teased and ridiculed during bull m , then shunned and reviled
when their bearish predictions came true. Bearish analyst Jim Grant endured years of ribbing by
Louis Ruckeyser on the Wall $treet Week television show during the long bull market. The same Mr.
Ruckeyser fired "permabear" analyst Gail Dudack just months before the stock market peak in April
2000. The unfortunate Ms. Dudack disappeared into obscurity just as her bearish forecasts proved
correct. Professional stock analysts know that a bearish outlook may permanently ruin a promising
career. This may be why bullish analysts vastly outnumber bearish ones. There is little room on
Wall Street for a bear.
Stock market bears are always in a battle with a perpetually bullish "Wall Street Industrial
Complex". These institutions are designed to sell securities to the public so they are always promoting
stocks as safe and sound places to invest capital. Trading commissions by short sellers generate
little revenue for the brokerage industry. In fact trading commissions in general are only a small
part of investment industry profits. Management fees, investment banking, research, media, and a
plethora of related activities make up the big money the investment industry. These institutions
need a constant inflow of new capital to survive. Only a continuously bullish marketing message
can lure investors to buy these products and services.
This bullish message is reinforced by the financial media who receive the bulk of their advertising
revenue from the same industry that is after your investment dollars. They have created 24-hour
"news" channels that are really nothing more than non-stop infomercials for stock investing. Most
people get their financial information exclusively from these tainted sources. Financial media influence
is powerful and pervasive. Most common investors simply reflect the bullish perspective of the information
they receive from the media.
It is not the purpose of this article to discourage purchasing stocks. Quite the contrary. Stock
investing is an essential part of a healthy economy. But there is a time to buy and a time to sell.
The media will tell you that anytime is the right time to buy but will never tell you when to sell.
Successful investors listen to the message of the m , not the talking heads on the cable news
network. The financial media will give no comfort or assistance to short sellers or any other species
of the bear family. Short sellers must think independently and not be influenced by the media-controlled
stock market pop culture.
It is important to remember that other investors may deeply resent all of the money you have
made selling their favorite stocks short. You are on the other side of most investor's trades and
making all of the money that they are losing. Be careful how you describe your investment success.
Be sensitive and generous to those who are losing. Don't brag about your short-selling triumphs.
A bear market usually implies economic distress. Those who profit from this distress have an
obligation to give back to society and help those who have been hurt by deteriorating economic conditions.
Bear investors in particular should give generously to charity and work for the public good. This
is not only for good karma, but to diffuse any resentment that would be generated by profiting from
a bear market.
Collapse without triggering CDS as that would end the Eurozone's amusing monetary experiment and
collapse the Deutsche Bank $100 trillion house of derivative cards
Remember Greece: the country that in 2010 launched Europe's sovereign solvency crisis and the ECB's
own helpless attempts at intervention, which later was "saved", only to default shortly thereafter
(but without triggering CDS as that would end the Eurozone's amusing monetary experiment and collapse
the Deutsche Bank $100 trillion house of derivative cards), which later was again "saved" when every
single global central bank made sure Greek bonds became the only yield-generating securities in
the world? Well, the country which at last count was doing ok, is about to not be ok. Because according
to none other than S&P, at some point over the next 15 months, Greek debt is about to be
in default when the country is no longer able to cover its financing needs. In other words,
back to square one.
As Bloomberg reports, citing Real News, S&P analyst Marie-France Raynaud said Greece can't cover
its own financing needs.
How is that possible? Isn't Europe so fixed, it no longer has anything to worry about except
deflation, pardon,
inflation?
Guesst not. According to Bloomberg, S&P estimates Greek financing needs for the next 15 months
to be at EU43 billion.
This is a problem because even if Greece sells bonds this year and next, sales won't
be enough to cover net financing needs. So maybe Greece will sell more bonds? Well, the
problem with that is that the second the LIFO paradigm of bond investing no longer works, and the
last guy in may be stuck holding the bag, nobody will want to buy 1 penny in debt issued by Greece.
The specifics: S&P estimates Greece will draw EU5 billion from intl bond sales, EU20 billion
from internal mkt, EU12 billion from official lenders inluding the IMF in next 15 mos. S&P also
forecasts Greece will repay EU3 billion in bonds held by investors who refused to participate in
2012 debt writedown, and if it doesn't then Greece will following Argentina in being held in "contempt
to court" for cramming down foreign law covenants. Just kidding: that would mean the global legal
system actually works instead of serves merely to make the rich richer.
It's the latter. Here's the gist of what happened:
Let's say that you're making $90k a year, and you run three companies: tourism, ship construction
and warehousing, You want to expand, so you take out a loan. Each one of those, (for simplicity's
sake,) makes $100k and costs $70k. So to expand, you take out a loan, say $300k apiece. You're
making a profit, everything's going great, and you're looking to expand again. Even better news,
someone offers you unlimited credit to expand. What do you do if you're optimistic and have
unlimited credit? You overexpand. Instead of taking $300k on $30k profit, you take $3 mil. And
then the crisis hits. So now you have a lot of debt, a lot of workers, and no one wants to buy
your original product, nevermind your expanded products.
On top of that, you have to subject your company to austerity. The problem is that if you're
running tourism and subject your workers to austerity, tourism fails. That's what happened to
Greece in a nutshell; by adopting the Euro, the Greek government went on an uncontrolled spending
spree. When you have your national currency, you'd either have to buy Euro reserves, (or Dollar
reserves,) with your currency. If your currency is fucked, you cannot borrow more currency.
If the Dollar's at 100 of YCU (your currency units), you cannot get it for 50. Unless you're
a member of the Euro Zone. Since the Euro is backed by Germany, and thanks to loose restrictions
and creative financing,
http://www.bloomberg.com/news/2012-03-06/goldman-secret-greece-loan-shows-two-sinners-as-client-unravels.html,
the Greek government breached their currency safety wall. This means that Greece has a debt
that they cannot pay back.
The financial machinations continued, but the point is that Greece still cannot pay back
their debt. If I make $30k and I'm $3 mil in debt, can I pay that back? On top of that, Greece
was hit hard with austerity, which further destroyed their ability to pay back the debt that
they couldn't pay in the first place. It's going to be a fall into the abyss for Greece, so
the EU is, allegedly, applying pressure to credit agencies to be nicer to Greece, meaning that
those projections are the most optimistic that S&P could manage to run on their simulators.
What's going on in Greece is certainly interesting from an analytical perspective, i.e. "what
happens when a country breaches its currency safety wall", but for the average Greeks they really
suck. Greece can default now or Greece can default later. Add Russian sanctions in response
to EU sanctions on top of that, and, well, poor Greece. In more ways than one.
Cult of GDP existed in the USSR and served the same purpose: to hide real problems and stagnation
of the economy... Without new technological breakthrough, it doubtful the this period of stagnation
will end by itself. Money printing since 2008 allowed to make the shock milder (and conceal the death
of neoliberal doctrine), but at one time chickens might come to roost.
It is amazing how the government manages to continue selling Brooklyn Bridges to a gullible
public. Americans buy wars they don't need and economic recoveries that do not exist.
The best investment in America is a highly leveraged fund that invests only in large cap companies
that are buying back their own stocks. Many of the firms repurchasing their stocks are
borrowing in order to push up their stock prices, executive "performance bonuses," and shareholders'
capital gains. The debt incurred will have to be serviced by future earnings. This is
not a picture of capitalism that is driving the economy by investment.
Neither is consumer spending driving the economy. The US Census Bureau's 2013
Income
and Poverty Report concludes that in 2013 real median household income was 8 percent below
the amount in 2007, the year prior to the 2008 recession and has declined to the level in 1994,
two decades ago! Even though real household income has not regained the pre-recession
level and has declined to the level 20 years ago, the government and financial press claim that
the economy has been in recovery since June 2009.
Neither is an increase in consumer debt driving the economy. The only growth in personal
debt is in student loans.
Real retail sales (corrected with a non-rigged measure of inflation) remain at the level
of the bottom of the recession in 2009. Macy's , J.C. Penny's, and Sears store closings are
further evidence of the lack of retail sales growth, as is the fact that two of the three dollar
store chains are in trouble. Walmart's sales are declining.
The basis of auto sales hype is subprime loans and leases taken by those who cannot qualify for
a loan to purchase.
Housing starts remain far below the pre-recession level, which is not surprising when available
jobs are part-time with no benefits. Such jobs cannot support the formation of households
and purchase of homes.
Where does the government's second quarter 2014 real GDP growth rate of 4.6 percent come from?
It comes from an understated inflation measure and jiggled numbers. It is not
a correct figure. Nothing has occurred in the economy to turn it from a first quarter decline
of more than 2 percent into a second quarter growth of 4.6 percent.
The 4.6% number is pulled out of a hat to set the stage for the November election.
It is extraordinary that economists and the financial media permit the government to get
away with its false economic reporting. Of course Wall Street likes good news . . .
but fake news that misleads investors and covers up economic policy mistakes?
Clearly, something is wrong with the government's economic reporting. It is not possible
to have real GDP growth when real median family incomes are declining and business investment
consists of corporations buying back their own shares. Either the government's GDP estimate
is incorrect or the Census Bureau's Income and Poverty report is incorrect. Apparently Washington
doesn't understand that if it is going to rig the numbers, it must rig all the numbers.
The rigged inflation measures create illusionary real GDP growth. They also block cost-of-living
adjustments to Social Security pensions. Indeed, the main purpose of the rigged inflation
measures is to get rid of "socialistic" Social Security by allowing inflation to gradually erode
away the real values of "entitlements." Republicans always want to cut "entitlements" that
people have paid for over their working lifetime with the payroll tax. But Republicans never
want to cut the payroll tax. They need the revenues in order to bail out the big banks and
to pay for never-ending wars.
Washington has been conducting needless wars abroad for 93 percent of the 21st century at
a cost of trillions of dollars. More trillions have been wasted bailing out banks that
deregulation permitted to become "too big to fail." During the past seven years, millions
of Americans have lost their jobs and their homes, and food stamp rolls have reached record numbers.
These hurting Americans have been ignored by policy-makers in Washington.
Clearly, government in America is focused on something different from a healthy economy and the
well being of citizens. We call it democracy, but it's not.
Paul Craig Roberts is a former Assistant Secretary of the US Treasury and
Associate Editor of the Wall Street Journal. Roberts'
How the Economy Was
Lost is now available from CounterPunch in electronic format. His latest book is
How America Was Lost.
It might well an end to the created by FED money printing period of irrational exuberance" where
all those "mad money" instead of going to infrastructure went to speculation and propelled S&P500 to
2000.
Wall Street slumped on Thursday as anxieties about global economic growth smothered a short-lived,
Federal Reserve-sparked rally in equity m around the world.
The dollar gave up some gains from a remarkable three-month run-up and U.S. benchmark bond yields
touched one-year lows as investors shrugged off encouraging U.S. jobless data.
Oil prices, deeply affected by the dollar's value, tumbled to near a two-year low.
Energy stocks were big losers on Wall Street, where leading indices were off sharply at mid session.
The MSCI index of world stocks was off 0.9 percent at 407.53.
The Dow Jones industrial average (.DJI) fell 311.82 points, or 1.83 percent, to 16,682.4, the
S&P 500 (.SPX) lost 36.73 points, or 1.87 percent, to 1,932.16 and the Nasdaq Composite (.IXIC)
dropped 83.10 points, or 1.86 percent, to 4,385.49.
The S&P Energy Index (.SPNY) was down 3.5 percent on Thursday, a day after investors gave the
U.S. stock market its best day of the year as Fed meeting minutes suggested the central bank would
not rush interest-rate hikes.
European shares hit a fresh two-month low as German exports fell 5.8 percent in August, the worst
decline since January 2009. The data from Europe's biggest economy fed anxieties about recession
in the euro zone.
Brent oil fell below $90 a barrel. Prices have been hurt by a supply glut and concerns about
global economic growth and are now down 20 percent from June.
Yesterday, gold climbed back above $1,200 an ounce. US stocks
went nowhere. Meanwhile, a chill went down our spine. A sense of dread filled our frontal cortex.
We read a report that was designed to give investors courage and hope. Instead, it felt to us
like a guilty verdict in a murder trial. Even with good behavior, our sentence would probably last
longer than we would.
A chart told the story. It showed three bull m over the last 20 years. In the 1990s, the
S&P 500 total return was 227%. Then from 2002 to 2007, another bull market. The total return this
time: 108%. And from 2009 to 2014, the S&P 500 returned another 195%.
The lesson is unmistakable. It tells you to get in stocks… and stay in. If the market has a fainting
spell, don't get dizzy. Stick with stocks!
Don't let the occasional 50-60% crashes disturb your peace of mind! You will always win in the
long run! Long term bear m don't exist…well, maybe except in Japan. And much of the 18th
century. But other than that, nothing can go wrong – click to enlarge.
Buy the Dips?
"Yes, we've seen some weak periods," say the wealth managers, investment counselors and stockbrokers.
"But they've always been followed by even greater strength. Each high has led to an even higher
high."
This is the message taken on board by a generation of investors. And if you go back further,
you will find the same lesson learned by their fathers… even their grandfathers.
Since the end of World War II, there have been up m , down m and sideways m .
But if you had just gotten in and stayed in over any substantial length of time, you would have
done well.
That is true for almost all financial assets – at least over the last 35 years – and true for
stocks, especially, over the last 70 years. In 1960, the S&P 500 was 59. Yesterday, it was 1,964.
The lesson is now imbedded in our race memory… in our collective unconscious… and in our brains,
our culture and our muscles. Even after a stroke or Alzheimer's… after senile dementia and adult
diapers… we will recite it on our deathbeds: "Buy the dips."
We don't have to think about it. We may fear the next recession… or the next sell-off on Wall
Street… but we are confident the darkest night will always be followed by a bright dawn – always
has!
And always will. At least, until it doesn't.
A picture of the "impossible" – a stock market that remains 60% below its peak value almost a
full 25 years later. It frequently paid to buy the dips, but there was never a full retracement
of the lost ground – click to enlarge.
Mr. Market's Biggest Coup
But what if Mr. Market is about to pull his biggest coup? What if the next dark night lasts 10…
20… 30 years? What if the experience of the last 70 years was sui generis? What if it was
the result of particular conditions, which have now changed… and can't be repeated? What if we are
now looking at highs that we will never again see in our lifetimes?
Of course, what we don't know about the future is encyclopedic. But wouldn't it be a nice trick
on Mr. Market's part?
After World War II the US had the world's largest economy – by far – and unlike its rivals in
Europe, it was still intact. The GIs came home. They got married… they had the famous baby boom
children… they started businesses and careers. Credit expanded – up 50 times since then.
And now, with interest rates lower than ever before, the credit expansion must be nearing
its end. World War II vets are dying at the rate of about 1,000 a day. And their children are retiring…
at a rate of 10,000 every day. The boomers are no longer adding to wealth; they're subtracting from
it.
They're no longer expanding credit by borrowing to buy new houses and new cars; now, they're
living off their investments and Social Security, counting on their own savings or the kindness
of strangers to see them through the rest of their lives.
You heard about the great jobs report on Friday. Some 248,000 new jobs were created. But wait…
The real story is that of the 14 million people added to the adult population of the US since 2008,
only 1 million have found real jobs.
That's the important story: Growth is slowing. We have more people… but fewer of them paying
the bills. Reagan's former budget adviser David Stockman comments:
"Going back to September 2000, for example, there were only 76 million adults not in the
labor force or unemployed, and that represented just 35.8% of the adult population of 213 million.
This means there has been a 26 million gain in the number of adults not working – even part-time
– during that 14-year period. About 10 million of that gain is accounted for by retired workers
on Social Security – a figure which has risen from 28.5 million to 38.5 million during the interim.
But where are the other 16 million? The answer is on disability (+4.5 million), food stamps
(+25 million), survivors and dependents benefits, other forms of public aid, living in parents'
basements on student loans or not, or on the streets.
The employment ratio has plunged; full-time breadwinner jobs have actually shrunk; total
labor hours employed have been stagnant; real GDP has grown at only 1.8% annually for 14 years
– compared to 4% annually between 1956 and 1970; and real net capital investment is 20% below
its turn-of-the-century level.
This isn't at all like the postwar period. It is a whole different ballgame. We may never
again in our lifetimes see stocks so high."
Labor force participation is in a steep downtrend since the peak of the 1990s stock market mania
– click to enlarge.
Charts by: BigCharts, St. Louis Federal Reserve Research
A prolonged period of ultra-low interest rates poses the threat of a fresh financial crisis by
encouraging excessive risk taking on global m , the International Monetary Fund has said.
The Washington-based IMF said that more than half a decade in which official borrowing costs
have been close to zero had encouraged speculation rather than the hoped-for pick up in investment.
In its half-yearly global financial stability report, it said the risks to stability no longer
came from the traditional banks but from the so-called shadow banking system – institutions such
as hedge funds, money market funds and investment banks that do not take deposits from the public.
José Viñals, the IMF's financial counsellor, said:
"Policymakers are facing a new global imbalance: not enough economic risk-taking in support
of growth, but increasing excesses in financial risk-taking posing stability challenges."
He added that traditional banks were safer after the injection of additional capital but not
strong enough to support economic recovery.
Viñals said the IMF had analysed 300 large banks in advanced economies, making up the bulk of
their banking system. It found that institutions representing almost 40% of total assets lacked
the financial muscle to supply adequate credit in support of the recovery. In the eurozone, this
proportion rose to about 70%.
"And risks are shifting to the shadow banking system in the form of rising market and liquidity
risks," Viñals said. "If left unaddressed, these risks could compromise global financial stability."
The stability report said low interest rates were "critical" in supporting the economy because
they encouraged consumers to spend, and businesses to hire and invest. But it noted that loose
monetary policies also prompted investment in high-yield but risky assets and for investors to take
bigger bets. One concern is that much of the high-risk investment has taken place in emerging
m , leaving them vulnerable to rising US interest rates.
"Accommodative policies aimed at supporting the recovery and promoting economic risk taking have
facilitated greater financial risk taking," the IMF said. As evidence it pointed to rising asset
prices, smaller premiums on riskier investments and the lack of volatility in financial m .
In many cases, the IMF said the behaviour of investors was at odds with the state of the global
economy.
"What is unusual about these developments is their synchronicity: they have occurred
simultaneously across broad asset classes and across countries in a way that is unprecedented."
The IMF said there was a trade-off between the upside economic benefits of low interest rates
and the money creation process known as quantitative easing and the downside financial stability
risks. While its report found that in some countries, including the UK and the US, economic benefits
were becoming more evident, it warned that
"market and liquidity risks have increased to levels that could compromise financial stability
if left unaddressed".
It said developments in high-yielding corporate bonds were "worrisome", that share prices
in some western countries were high by historical norms, and that there were pockets of real
estate over-valuation.
"The best way to safeguard financial stability and improve the balance between economic and
financial risk taking is to put in place policies that enhance the transmission of monetary
policy to the real economy – thus promoting economic risk taking – and address financial excesses
through well-designed macroprudential measures."
These include tougher supervision of banks, requirements on them to hold more capital, and curbs
on lending to specific sectors such as housing.
Viñals said it was time for traditional banks to overhaul their business models. This would involve
not only changing the focus of their lending, but also consolidation and retrenchment. "In Europe,
the comprehensive assessment of balance sheets by the European central bank provides a strong starting
point for these much-needed changes in bank business models," he said.
elektrafortyseven, 08 October 2014 2:12pm
time for traditional banks to overhaul their business models.
In other news ... turkeys vote for Christmas.
phildigbybayliss -> elektrafortyseven, 08 October 2014 5:25pm
This has got bog all to do with turkeys or christmas (i.e self regulation).
Bring back the Glass-Steagal Act which split commercial banking (read 'real world economy')
from financial banking (read speculation) and made casino bets with customers funds illegal.
Simple bit of regulation. But regulation is off the agenda.
Even the IMF who have stated the problem do not advocate a 'simple' political act to remedy
the situation. Speculation is leading (has led) to risk taking (and high returns) in fracking,
privatization of health, transport, energy........
Is there a political party in May 2015 who is willing to regulate the financial system? Vince
Cable has threatened it (but has been very quite since); nothing from Labour and the Cons would
cut their own throats before rejecting the Thatcher-Reagan mantra of the 'free market'.
As Piketty has so eloquently argued, inequality is a political issue, not an economic one.
Elbowpatch, 08 October 2014 2:28pm
These include tougher supervision of banks
There's a major downside to increasing regulation, often the very best model small regional
banks and building societies are taken over by the big boys able to absorb the cost of regulation.
Instead, Govt should create incentives for small regional lenders to once more flourish because
old fashioned building societies tend to be naturally responsible 'old fashioned' guardians
of finance. Bet no one in the lofty corridors of Westminster has ever thought of this.
Germany is full of small regional lenders.
warmachineuk, 08 October 2014 2:29pm
Wow! When the IMF realises something is wrong, it's really obvious.
foolisholdman warmachineuk, 08 October 2014 3:15pm
Wow! When the IMF realises something is wrong, it's really obvious.
It is another case of "You saw it first on Max Keiser!" Really, it is the case, that he has
been saying exactly these same things, in almost the same words, for about 4-5 years.
He also said, long before it was admitted, that LIBOR was being rigged.
Tiresius warmachineuk, 08 October 2014 10:39pm
What is obvious , but not yet on the radar of the IMF , is that grotesque income inequality
also produces unproductive consumption and asset price inflation.
When household income is , say £25,000, any increment in earnings is usually spent in
the economy on goods and services and hence has a multiplier effect.
If household income is £1m or more , incremental income is usually spent on buying further
non consumption assets, houses , stocks and shares etc , with no multiplier.
When wealth is so concentrated and real wages for most people so depressed this becomes further
exacerbated. But as yet the IMF still believe in the idiocy of trickle down economics ..
tomsixty1, 08 October 2014 2:30pm
So why do they now recognise that the policies they supported are making what remains of
the global economy unstable and unsustainable?
They are preparing us for more bail outs and austerity.
"The primary beneficiaries of these central bank money creation policies have been
global very high net worth investors, their financial institutions, and global corporations
in general.
According to a study in 2013 by Capgemini, a global business consultancy,
Very High Net Worth Investors increased their invest-able wealth by $4 trillion in 2012
alone, with projected further asset growth of $4 trillion a year in the coming decade. The
primary financial institutions which invest on their behalf, what are called 'shadow banks'
(i.e. hedge funds, private equity firms, asset management companies, and dozens of other
globally unregulated financial institutions) more than doubled their total assets from 2008
to 2013, and now hold more than $71 trillion in invest-able assets globally.
This massive accrual of wealth by global finance capitalists and their institutions occurred
in speculating and investing in offshore financial and emerging market opportunities - made
possible in the final analysis by the trillions of dollars, pounds, Euros, and Yen provided
at little or no cost by central banks' policies since 2008. That is, until 2014.
That massive tens of trillions of dollars, diverted from the US, Europe and Japan to
the so-called 'Emerging M ' and China is now beginning to flow back from the emerging
m to the 'west'.
Consequently in turn, the locus of the global crisis that first erupted in 2008 in
the U.S., then shifted to Europe between 2010-early 2013, is now shifting again, a third
time. Financial and economic instability is now emerging and deepening in offshore m
and economies-and growing increasingly likely in China as well."
Jack Rasmus February 2014.
Terpitude, 08 October 2014 2:55pm
How is it a "new global imbalance"? The shadow banking system has been in full flow for almost
a decade and its activities make the majority of government attempts to stabilise the global
economy almost pointless.
Johnny Kent, 08 October 2014 2:59pm
The UK and US, who seem to share identical ideals, unfortunately, stick with near zero
rates for the benefit of stockmarket speculators, not the wider hard working public. High time
this changed.
The US/UK ruined by the Neo Cons lets hope Germany can take centre stage and save
us from the authoritarian Chinese regime and the religious fascists in the Middle East. Mutti
we need you and your engineers we got rid of ours for City sharks.
The pinnacle of British engineering skills and training was Rolls-Royce. If you had worked
for RR you could get an engineering job almost anywhere. So what did our brilliant government
do? They sold it to the heirs of Joseph Goebels! If that wasn't treason, it bloody well should
be!
ruskiny, 08 October 2014 3:19pm
You cannot create wealth from a Ponzi scheme. Over 1 million people using money given to
them by the UK Gov. who have borrowed said money in the name of the rest of the UK , go to work
in the City of London and prove this truth every day.
marcelprout, 08 October 2014 3:23pm
Private Eye on Tesco
"While earnings per share (EPS) – "the Number" that drives all things, especially management
pay, had marched on upwards in the Leahy years, return on capital employed "ROCE" had declined.
Tesco was generating insufficient free cash to invest and pay its dividend- the gap being
filled by debt. And its definition of ROCE had changed eight times"
Cheap debt is ruining companies as their greedy CEOs do anything to boost EPS so they
can get big bonuses.
The system is in serious trouble. EPS and low interest rates are right at the heart of it.
kimdriver Notbig Mick, 08 October 2014 4:45pm
Buying a share on the secondary market isn't the sort of investment the IMF is describing.
They want investment in productive assets.
Sadly, with so much existing productive capacity and little growth in demand, nobody wants
to invest.
Ron Jacobs, 08 October 2014 3:35pm
The capitalist system is now in the hands of the financiers. They will not make decisions
that do not provide them with a means to make as much money as possible via their speculative
practices. The rest of the world be damned.
richbandit, 08 October 2014 3:37pm
IMF ......almost 40% of total assets lacked the financial muscle to supply adequate credit
in support of the recovery. In the Eurozone, this proportion rose to about 70%.
................
So that must leave the Basel III LCR stress test close to tatters which was supposed to strengthen
bank capital requirements by increasing bank liquidity and decreasing bank leverage. Fluidity
in the system is obviously failing.
My take:-Western lander EU banks have a problem when compared to those in the FE and Asian
pacific rim which are doing fine. The UK has a lender of last resort, i.e BoE; but for the rest
of Eurozone only the EZB.
marcelprout -> richbandit, 08 October 2014 4:46pm
Basel 3 is a joke. It's stupid to think individual CFOs in finance companies understand the
risk on their books. They do not understand the risk posed by the system itself.
Stripping out all the margins that the boring previous generation left behind was the
worst thing that ever happened to banking. Most if it was lost in speculation.
Following the Lehman collapse (Greenspan 'shocked' that free m are flawed, November
23, 2008) Alan Greenspan told the New York Times "I made a mistake in presuming that the
self-interest of organisations, specifically banks and others, was such that they were best
capable of protecting their own shareholders."
o572, 08 October 2014 3:54pm
Mind boggling.
The idiocy of the people that 'run' our economic 'systems' is beyond belief.
A layman can instantly see the insanity of printing infinite money, charging nothing for
it and never expecting it to be paid back but those who operate it take 5 years to get an inkling
it might not work.
Am I even living in the same reality as these sort of people, although I suppose when
you are taking 10% of £infinite and pass it on your ability to suspend belief must be affected.
Notbig Mick -> Halo572, 08 October 2014 4:01pm
Not sure you grasp this, tightening would be suicidal a la 1929. Central banks have modestly
increased their balance sheets and the recession has not been bad. The exception being EZ, a
reduction in balance sheet and chaos.
I'm sorry if people don't grasp this but back in 2008 I'd take the UK today in an instant,
few understand how grim things could have been. EZ meanwhile.......................
Notbig Mick, 08 October 2014 3:58pm
Why not wind the IMF up by 2020.
Totally pointless and discredited if not self-serving organisation.
Governments may not ride so rough with their hairbrain schemes, act more conservatively with
a view to long term sustainable progress. Their central bank is the correct backstop.
Was waiting for that... "we want interest rates to rise"
The "rich" don't care if inflation
rises too.
Think about it, interest rates usually hover a % or two above inflation. (financial crash
period excluded). The more money they have, the more money they make relatively, just by storing
it.
The inflation hit is less relevant to them as a corporation doesn't rely on CPI and isn't
really affected by the cost of milk.
IMF (september 30th)
"one of the few remaining policy levers available to support growth" – especially in
the euro zone where despite accommodative monetary policy "there is still substantial economic
slack, and inflation remains too low."
B-BU-BUT OUR GROWTH
The German government provisionally posted a 16.1 billion euros ($20.3 billion) surplus
in the first half of 2014, despite faltering growth.
The Puritans said the same hundreds of years ago. People always say Armageddon is just around
the bend, yet we muddle through.
If this was 1973 you would be posting that OPEC is kicking
off together with Iran Iraq war and third world war inevitable.
In 1977 Carters state of the nation address informed a sombre public that peak oil was upon
them, to prepare for the worst. Then followed 20 years of boom.
The whole Keynesian ponzi scheme will come crashing down.
The sooner it does and we get a system of sound money, the better off we will all be.
Keynesianism was actually premised on 1.5% monetary growth per year, as it tied in with annual
increases in the physical amount of gold produced each year, thus tying in perfectly with the
gold standard and tight state regulation over endogenous money creation.
The present system is premised far more firmly around monetarist policies - that is, providing
liquidity to banks and financial institutions to increase the growth of money creation in the
economy like we did over 2008-10. It is the idea that won Friedman his Noble Prize in 1974.
QE is a Friedmanite idea first used in the mid 1970s and then in Japan from 1990.
Of course, this is completely useless in an economy where the cash leaks out to tax havens,
or simply goes into speculation - particularly when a slump is entirely demand driven and hampered
by vast inequalities.
Keynesianism would recommend public works programs and encourage 'the euthanasia of the
rentier' and growth in infrastructure, not their empowerment to speculate away with QE and hold
entire countries at ransom.
Also, your system of 'sound money' (which I presume is full reserve banking) would send the
global economy into a twenty year slump - the key is to take full state control over the creation
of credit/fiat and put it to more productive, rather than speculative, use.
Speaking as somebody who actually owns a small manufacturing business I can't say I blame you
for not investing in a manufacturing start-up. It's not a safe investment. I was pretty lucky
in that i've been building guitar amplifiers and effect pedals since about 14 as a hobby and
I kind of grew that hobby into a business. The only investment i've ever taken was a startup
loan in 2002 and I paid that back in 2010.
I think there are a couple of problems with British
Business from my observation. Firstly a lot of senior management lack technical experience in
the business sector their business is involved in. When I was at university I worked freelance
as a web developer and I noticed that a lot of the MDs of these web development firms had no
background in web design or development. Whilst i'd concede that it's not necessary to be an
expert web developer to own web development firm i'd say it is necessary to have some technical
competency otherwise how do you make appropriate decisions, you end up reliant on other people
and usually those people have their own interests at heart not the interest of the business.
The other problem is again senior management not being able to accept responsibility or criticism.
They pretend they're open to constructive criticism but as soon as somebody sticks their neck
out the axe swings even if the criticism is valid. This is part of the reason I struck out on
my own and tried to run my business differently, I got pissed off with not being able to challenge
stupid decisions. Being a CEO or MD doesn't mean one is better than anyone else, nor are they
infallible and the sooner people realise this the better.
DaylitTunnel, 08 October 2014 4:25pm
Shadow banking system = organised crime. Or it would if the governments of the world legislated
to outlaw antisocial banking activities. I don't hear ANY British political party standing for
election in 2015 offering ANY redress, ANY shift in the balance of power to protect 'ordinary
people'. So what is the point of voting?
The British political system needs urgent reform because as it stands it is undermining democracy
and allowing a run-away corruption in 'shadow economies' to ruin our world.
Voltaire21, 08 October 2014 4:25pm
Thinking we could trust the people who f@#ked us over the first time is arguably the dumbest
mistake our central governments could make. The low lending rates have been given to the banks
with zero caveats to use it responsibly.
So they have done what they usually do...which is instead of working hard and doing the work
they were asked to do, they have gone out and found the quickest way to make hay. The bankers
are still playing on the stockmarket where they can easily make more than 0% interest.
The stockm have been performing remarkably well despite a moribund economy in most
countries. The stockmarket and the real economy have limited relevance yet the former is continually
used as an indicator for the latter. This lie needs to stop, the reason the m are performing
well is the glut of cheap money parked into it by the banks. Half the world is in freefall but
the world of high finance has nicely hijacked the funds to recover from it. Government should
have by passed the funds and directly injected the money into the economy.
jayant, 08 October 2014 4:30pm
With near zero interest rates, it was clear that cheap money was there for asking. It is
more profitable to engage in speculation than to invest in bricks-and-mortar businesses with
human workers. It's too much trouble.
No wonder the stock exchanges are booming, take-overs are increasing and people are struggling
because the real wages are stagnant.
dolly63, 08 October 2014 4:40pm
The cracks are showing and the full is beginning to happen! There is no golden egg, never
have been, never will be. Just poverty to look forward to.
kykcrzy, 08 October 2014 4:44pm
Perhaps the fate of the modern economy is always going to be that of Japan, eventual
stagnation and malaise.
mikedow, 08 October 2014 4:44pm
The IMF has lots to say.
The International Monetary Fund slightly lowered its outlook for global economic growth this
year, but is optimistic about the next two years in the U.S. and Canada.
The IMF said Tuesday the global economy will grow 3.3 per cent this year, a drop from the
3.4 per cent it forecast in July, because of weakness in Japan, Latin America and Europe. In
2015, world growth could be 3.8 per cent, a reduction of two percentage points.
But it sees "firming momentum" in Canada and the U.S., led by buoyant domestic demand in
the U.S. and export growth in both countries.
zelazny, 08 October 2014 4:48pm
The IMF, another cancer cell in the overall malignancy of financial capitalism, sees perpetual
growth as the only solution to life.
Instead, the world needs a massive austerity program directed at the rich. Ban private jets.
Ban cars, the cause of most wars for oil. Impose draconian taxes on wealth. Make the richest
families pay reparations to those they have enslaved and abused. Hold war crime tribunals for
all of the western leaders.
Many historians like to use the image of a human body to represent the body politic. In that
image, the rich would appear as pustulant boils on the body's posterior, providing no benefit,
but a lot of pain.
zelazny, 08 October 2014 4:51pm
Only perpetual war and authoritarianism holds financial capitalism together. Since 2008,
the central banks have printed money to try to revive the decrepit body of capitalism, without
success.
The cancer of perpetual growth must stop and the people should rise up and demand that the
rich stop their predations. Rich people in their yachts and private jets provide nothing of
value to society.
Michael York, 08 October 2014 5:14pm
<Almost zero borrowing costs has encouraged speculation rather than hoped-for pick up
in investment, says Fund>
Well what a surprise! Who could have predicted that?
That's the problem with blackmail; after you pay them off, the blackmailer always wants more.
PeasantsRevolt, 08 October 2014 5:16pm
The Washington-based IMF said that more than half a decade in which official borrowing
costs have been close to zero had encouraged speculation rather than the hoped-for pick
up in investment.
No shit, Sherlock.
With governments of all hues singularly failing to rein in the pre-crash destructive habits
of the banks, and prosecute those who took the global economy to the brink of annihilation,
is it any wonder that said bankers feel free to return to their gambling ways, and shun the
notion of lending to business and industry as a viable business model.
In the UK, this problem is being exacerbated by a government incapable of formulating
anything close to an industrial policy, let alone facilitating a re-balancing of the economy
away from financial services. GO's solution is to actively encourage a housing price bubble,
and mass debt fuelled consumption as a means of boosting GDP - hence why most people don't feel
any better off.
Those who ignore history are doomed to repeat it - and once again it will be the little people
who pay the price.
jakedog, 08 October 2014 5:19pm
So the casino banking in the City by hedge funds and others is back in full flow - what a
surprise!
After the financial crash of 2008, there was short period when greater regulation of the
world's financial m looked possible - but not for long. Only 6 months into 2009 and the
Financial Times was calling for the blaming of bankers to stop, for business as usual to be
reinstated, and unfortunately that is exactly what has happened.
For the IMF, the temple of free market, neo-liberal economic thinking, to be calling
these warnings shows just how serious the situation is.
How much longer are we going to accept that unregulated financial m are somehow of
benefit to us all; how much longer before some contribution by rapacious hedge funds and the
rest through a Tobin tax is imposed?
blueba, 08 October 2014 5:22pm
The IMF was founded to support the US Neoliberal Empire and its agenda is to promote
its interests. Raising interest rates before there is employment recovery would be a disaster
for the "real" economy where the bulk of people live and operate. It is just another Neoliberal
concession to the oligarchs who have been screaming as loud as they can to raise interest rates
as its in their best interest to own US Treasure paper with a good return and almost -0- risk.
Clearly, as we have watched the disaster of the "real" economy continue long past the recovery
of the 1930s and policy makers making decisions only in the interests of the oligarchs and the
banks and corporations they own we see IMF has supported the process throughout.
The US Neoliberal Empire and its globalization has done serious damage to civil and human
rights as well as "corportized" the global economy.
No one should trust the solutions offered by this corrupt institution.
ID3839388, 08 October 2014 5:26pm
"IMF warns period of ultra-low interest rates poses fresh financial crisis threat" cries
the headline... then we read down and find it's not actually low interest rates, but the
choice of shadow banking institutions to go for excesses in financial risk taking in light of
those ultra-low interest rates.
So in summary, greedy, high-risk investment by bankers chasing bonuses tanked the economy
and interest rates had to drop to ensure the whole system don't come crashing down completely
taking everything with it...
Then, 5 years or so later, the greedy, high-risk investments by bankers chasing bonuses threatens
to destabilize the economy and cause a fresh financial crisis (even before we've recovered from
the consequences of their last cluster-cuss).
Is anyone else spotting the common denominator here?
Low-interest rates are, thanks to the cost of housing relative to wages in most developed
countries, about the only thing ensuring swathes of ordinary folks don't lose their homes at
present and others aren't locked in to a largely unregulated, and mostly p*ss-poor value for
money private rental sector.
Maybe, if low rates are being taken advantage of and abused by the financiers, the abuse
and risk-taking should be looked at, instead of blaming low interest rates in themselves?
CrazyGuy, 08 October 2014 5:41pm
Greenspan is at fault for all of this nonsense - presiding over year after year of very low
interest rates at the Fed so that Banks and Corporates took it for granted that money would
always be cheap. As a result they developed long-term Business Models which required very cheap
capital and very high margins - or, worse still, they chased after non-viable business such
as Sub Prime Mortgages - and the rest is history.
This is all very well and it made a few people and enormous amount of money but the question
remains as to what happens when the party is over? Adjusting your business model to make more
normal profits - and foregoing huge bonuses is the right way but who in the City is going to
do that? The mantra there is 'if I can take the money I will' - but amazingly with the Governments
generous Quantitative Easing programmes they didn't have to come back to earth - and we are
well on the way to Financial Meltdown 2 - the sequel - which will be much more dramatic - real
'end of the world as we know it stuff' - unless governments all around the world act to put
in structural measures - with teeth - to change the way the M do business.
Which brings us to the punchline - why do governments not raise base rates to discourage
this behaviour? Well. apart from the current government allowing their mates to stay on the
Gravy Train a little/lot longer the real bombshell is that the Government is also in hock and
working to a dodgy business model - there is a huge pile of Sovereign debt which was sold at
very low rates of interest. If the Interest Rates on refinancing that debt were to rise even
a couple of percentage points UK PLC would be properly invsolvent - in a way that even the IMF
couldn't help us!
So we are stuffed and set on a long, hard road of reflation - hopefully led by economic growth
to inflate away the debt - something the USA realised and accelerated 3 years ago - but don't
hold your breath!
ChenaBaldEagle toadwarrior, 08 October 2014 8:35pm
Screwing up the economy?
What is wrong with pushing wages down to benefit the plutocrats and oligarchs? What is wrong
with hollowing out the middle classes? Or transferring assets to the plutocrats and oligarchs,
from the middle classes and also the poor? Or having the taxpayers indirectly subsidize the
plutocrats and oligarchs, by providing the poor with safety nets?
Or ignoring the advice of Adam Smith, in his work, "The Wealth of Nations", that workers
should receive good wages (well above living wages, which only create wage slaves), and that
owners will or may be dissuaded from underpaying workers by patriotism and ethics. Many plutocrats
and oligarchs today have no patriotism, being World Citizens, and justify paying low or minimum
wages, because greater resulting profits benefit shareholders, which is their ethical duty,
(and are not paid to their workers, who give them loyalty and create the profits),
Adam Smith realized that building the wealth of a nation required workers to have good wages
(so that they may buy products of their labor and accumulate wealth). Today, that advice is
ignored, and the wealth of many nations is being dissipated, for the benefit of the plutocrats
and oligarchs. This process, which is a war on the middle classes and the poor, is not new.
As Marie Antoinette advised, we should buy cakes. To date, the handmaidens of the plutocrats
and oligarchs divert the attention of the rest of us with "infotainment", for the same purpose
as the circuses of the Romans.
While there are patriotic and ethical millionaires and billionaires, to date they have not
been able to enlighten the others. And the rest of us, even globally, do not know or understand
what is, and has been occurring. The war on the rest of us, the middle classes, the poor and
even the mere millionaires, will continue until reform or revolution.
Janet Yellen, the Fed Chair, at her confirmation hearing, stated she had not decided whether
we are a capitalist democracy or had morphed into an oligarchy. She now might concur with my
analysis, that we are now an oligarchy.
Cavirac, 08 October 2014 6:21pm
Its all the fault of the greedy American banks and insurance companies. Now they are trying
and claw back the money they lost. The IMF is just their mouthpiece. Three five years ago the
IMF said the Euro was finished, possibly within six weeks of making that statement. Guess which
is the second most traded currency in the world, guess what is the second biggest currency in
the world?
Lets not forget that these are the same 'experts' (if ever a word was used so badly out of
context) that got us in all this crap in the first place.. They should be confined to the bin
along with the credit rating companies.
nikkkkko, 08 October 2014 6:24pm
This is the expected result of trying to use monetary stimulus without a Keynesian fiscal
stimulus. Keynes showed back in the 30's that demand drives supply, and not the other way around.
Beginner20, 08 October 2014 6:39pm
According to the report the IMF's World Economic Outlook, released on Tuesday, the world
has got a new Group of Seven (G7)
The new G7 includes BRIC countries (Brazil, Russia, India and China) and the three countries
of the so-called group of MINT (Mexico, Indonesia, Nigeria, Turkey), with the exception of Nigeria.
The total size of the GDP of the new G7 calculated by PPP, is 37.8 trillion dollars, while
the total GDP of the "old" G7 (Canada, France, Germany, Italy, Japan, United Kingdom and United
States) reaches only 34.5 trillion dollars.
At the same time, according to the report, the United States ceased to be the world economy
№1 losing this place China.
MountainMan23, 08 October 2014 6:50pm
A prolonged period of ultra-low interest rates poses the threat of a fresh financial crisis
by encouraging excessive risk taking on global m , the International Monetary Fund has
said.
The Washington-based IMF said that more than half a decade in which official borrowing costs
have been close to zero had encouraged speculation rather than the hoped-for pick up in investment.
Who believed the "hoped-for pick up in investment" line? It was obvious from the outset,
and even more obvious as the years wore on, that giving the big institutions "free money" to
play with was only going to make matters worse. Of course they don't invest in the real economy.
Why should they when they can "earn" much more money in derivatives, buy backs, corporate mergers,
etc, ie ALL the bad "investments" that brought the economy down in the first place.
Beginner20 MountainMan23, 08 October 2014 7:04pm
If the stock market had not absorbed all the US dollars, today a loaf of bread would have
cost thousands of dollars. Look how many shares of online companies that do not have any sort
of assets and whose profits will never cover even their costs ... But it is a convenient mechanism
of society control and the Government shifted this burden on private investors..
norecovery, 08 October 2014 7:02pm
For years, we have been screaming at the people holding the purse strings to put money into
the real economy where it will boost real productivity and benefit all of society, instead of
propping up the addictive financial gambling to benefit the infinitesimally few and imposing
austerity on everyone else, but they will not listen nor will they learn from the errors of
their ways.
As with climate change vis-a-vis the fossil fuel and military monopolies, only further disaster
might bring about needed change in the financial system. Or maybe it will take mass revolt...
take your pick, guys.
Beginner20 norecovery, 08 October 2014 7:09pm
Well, as it was so convenient to cut the property of the former Soviet Union and other
development countries - crazy money and no work - that is all - shop is closed.
Blader, 08 October 2014 7:28pm
The US has a problem it has been ducking for years. One the one hand, real wages have been
stagnant or dropping for many years (except for those at the top), yet the US economy depends
heavily on consumer spending (69% of GDP according to the World Bank). Therein lies the problem:
how do you keep consumer spending high while also reducing wages? First, offshore as much manufacturing
as possible. This lowers product prices and eliminates the better-paying factory jobs at the
same time, thus lowering wages. That's not enough though, to drive constant consumer spending.
Here's the solution: sell everyone a house, thereby driving the housing market up. The paper
value increases then serve a dual function: they form the basis for taking "equity" out by refinancing
and higher real estate values result in higher property taxes, thus bringing in more revenue
for towns and cities. Equity-out refinancing provides cash for consumer spending: everything
from cars, appliances, clothes, to college tuition or vacations. Or even in speculative investing
in the m -- As long as the housing market was going up, up, up this seemed to work just
fine. I watched Jamie Dimon, head of JP Morgan, tell a Congressional committee that he "just
never imagined the housing market would ever go down." But it did. The whole thing was a house
of cards, a sort of Ponzi scheme that required ever larger numbers of homebuyers in order
to stay afloat, and that in turn led to the more creative mortgage products: variable rate,
interest only, liar loans, etc. And all of these were made possible because the secondary mortgage
market (created conceptually by the big investment banks) led to very few banks holding mortgages.
The notes and their accompanying mortgages were sold at a discount to bigger banks that then
securitized them. This made it very easy for the institutions financing the actual real estate
purchases to look the other way when it came to lending to unqualified borrowers, or taking
advantage of inexperienced borrowers to sell them a mortgage product for which they qualified
but which had a strong potential to fail. And of course in the end, the big banks learned nothing,
because they were "too big to be allowed to fail" and likely because they have a practice of
hiring their former regulators at peachy salaries (so how tough will those regulators be?)
The key to the whole thing was the idea that the US housing market had been "a sure bet"
historically. Now there is another "sure bet" for banks: student loans. Here's the deal:
US law prevents student loans from being discharged in bankruptcy! Those loans may go into default,
but they can't be escaped from. If they do go into default, the borrower's ability to get a
car loan or a house loan goes to nil. Although talking heads in the media keep talking about
the housing market comeback, student loan debt is going to hurt those prospects, for a couple
of reasons.
First, if recent grads (who would ordinarily be expected to begin focusing on buying a house)
have large student loan debt to service, they will not have the cash to make mortgage payments.
Second, mortgage lenders always want to have the "senior" debt. That way, if the bank has to
foreclose on the borrower, the bank gets paid first. But if there's student loan debt, it could
end up being "senior" to the mortgage bank's loan and if the borrower defaults on both then
the student loan bank (for want of a better term) will get paid first from the proceeds of the
foreclosure sale, meaning the mortgage lender may not recoup enough to cover what it's owed.
In the US college tuition costs have been skyrocketing - all out of proportion to other
increasing costs. This suggests that there is a very large supply of "easy" money being made
available for student loans, which in turn allows universities to increase their prices.
We are now beginning to see cases where "for profit" colleges are springing up, and colleges
in general are becoming more like processing plants rather than educational institutions. Along
with this there is the longstanding belief that everyone should go to college. This sound familiar?
Everyone should own a house - everyone should go to college. Same song, different key. And if
you want to go to college, you most likely will have to take out loans. The ability to pay back
those loans is predicated on an expectation that the graduate will be able to find employment
with wages sufficient to service the loan. But that in turn is dependent on the labor market,
and there are no guarantees (despite what education lenders say) that a graduate will in fact
secure employment that pays enough to both service the loan and live independently.
It is getting dark. The chickens are headed home to roost. Maybe not today. But soon.
Last week's US inflation figures showed that the Federal Reserve's over-expansionary monetary
policy wasn't revealing itself in inflation. But that doesn't mean it's doing no damage. Instead
of in inflation numbers, the multiple years of ultra-low Fed interest rates are manifest in savings
figures for both individuals and companies. Individual savings are at half the long-term average
and corporate stock buybacks, together with dividends, are absorbing 91% of the Standard and
Poor's 500's net income, according to the Financial Times.
Traditionally, fiat-money central banks were supposed to run the system with a view to keeping
inflation as low as possible. In 1978, the Humphrey-Hawkins Act extended the Fed's remit to the
"dual mandate", supposedly managing unemployment and inflation simultaneously.
Hard-money types have criticized this as sloppiness incarnate, allowing the Fed to pursue soft
money policies even when inflation is rising, as in 2005-06. However, the Fed's period of extraordinary
stimulus since 2009 has not been accompanied by an inflation upsurge. Far from it.
There appear to be a number of reasons for this. The link between money supply growth and inflation
is nothing like as tight as Milton Friedman claimed, and his parallel assertion that inflation
is "always and everywhere" a monetary phenomenon is nonsense.
Actually, we could tell that Friedman himself was losing confidence in his own theory during
his last years when he gave encouragement to Alan Greenspan's sloppy monetary policy. With M3 money
supply rising at close to 10% per annum, Friedman should, as a true monetarist, have condemned it.
Friedman should, as a true monetarist, have condemned it.
Since 2008, money supply growth has risen at 6-7% per annum, but that's still a lot faster than
nominal GDP growth, which has rarely touched 5%. Saying that monetary "velocity" has declined is
in a sense tautological; if money supply consistently rises faster than GDP then monetary velocity
must, as an arithmetic necessity, decline. But that says nothing about events in the real world,
nor does it suggest that any real factor is causing monetary velocity to decline and GDP to increase
more slowly than money supply.
Prices have become detached from money supply growth owing to a number of factors. The most prominent
of these is modern telecoms: the communications revolution that has made it much easier and cheaper
to construct global sourcing networks for goods and services. By these technologies, emerging m
labor has been put more directly in competition with Western labor, causing an arbitrage closing
the differential between the two wage rates. That's why median incomes in the U.S. have declined
a further 5% in real terms since 2010, even as economic growth has continued at a moderate pace.
The downward pressure on prices-both directly through competition from goods and services
produced in emerging m and indirectly through lower domestic wages-has suppressed costs in
the West in the 2010s just as an equivalent process of market opening to the world suppressed costs
in Japan in the 1990s. Also, demographics haven't helped. As Western economies have aged, the downward
wage pressure from semi-retired workers finding they need to continue working has been accompanied
by downward price pressure as they and other disadvantaged consumers attempt to shop more cheaply.
If the Fed has no effect on inflation, then it is left simply with its unemployment mandate.
That is completely unsatisfactory, because it causes the Fed to run policies of negative real interest
rates long after there is any justification for them from the economic cycle. Normally, a burst
of inflation would cut off this nonsense (as it did to some extent in 2004-06) but in this case,
the inflation isn't happening, and the Fed's self-indulgence is thus uncontrolled.
Even though negative real interest rates aren't producing a surge in inflation (at present) they
are having a number of other adverse effects on the economy. The most serious of these is that they
are discouraging saving, to the extent that the U.S. savings rate (savings as a percentage of disposable
income) has declined from an average of over 10% in 1929-94 to an average of just 5% since 1995.
Even if everyone worked till they dropped without retiring, if savings are inadequate the economy
is de-capitalized and living standards erode to poor-country levels.
The savings rate, measured by the Bureau of Economic Analysis since 1929, fluctuates considerably
from year to year. Over the 84 years for which we have data, it has been at times very low, as in
the early 1930s when incomes fell more than consumers were anticipating, and very high, as during
World War II when the opposite process occurred and production shortages restricted purchases of
many goods. However, if you divide the 1929-94 period into three roughly equal segments, 1929-45,
1946-71 and 1972-94 (the separator between the second and third being the breakdown of the Bretton
Woods monetary system), you see an average savings rate that would round to 10% in each of the sub-periods.
In other words, at least in the twentieth century, 10% has been the natural savings rate. Only extreme
economic events have caused it to vary, and it quickly reverted to its long-term average after those
ended.
The savings rate's descent to the 5% range after 1995 is thus highly significant. This is not
solely a function of negative real interest rates. Real interest rates during the Greenspan bubble
of the late 1990s were generally positive, yet the money supply was expanding much faster than the
economy, and the savings rate correspondingly fell (with the impetus for the decline being the extraordinary
rise in asset prices rather than ultra-low rates themselves). Then after 2002 the savings rate fell
further, bottoming out at below 3% in the housing bubble in 2005-07. Its rebound in 2008-09, prompted
by the collapse of housing and portfolio values in 2007-08, proved short-lived. Since 2010, it has
once again languished around 5%.
The same dynamic has played out in the corporate sector. Here, profits in recent years have been
running close to record levels in terms of GDP, but companies have not been using the extra money
for long-term investment. Instead, they have been conducting stock buybacks, running at a record
level of $338 billion in the first six months of 2014. Needless to say, since the U.S. stock market
is at record levels, this is unlikely to be an efficient use of shareholder capital. Indeed, given
that buybacks dropped off sharply in the bear market of 2008-09 and in several cases were replaced
with emergency rights issues at low prices, shareholders have generally been penalized by management
buying stock at high prices and selling at low prices (or at the very least, ceasing purchases when
prices were low) thus producing almost perfect destruction of shareholder value.
Some of the largest companies have spent far more on buybacks and dividends (the preponderance
on buybacks), with Hewlett-Packard spending almost double its profits in 2003-12 and Microsoft,
Cisco and Intel all spending more than 100% of profits, according to the FT. Because all four companies
are trading below their 2000 peaks-even though the S&P's 500 index is about 30% above its 2000 peak-the
buybacks can be regarded as singularly inept investments. H-P, Cisco and Intel are almost certainly
carrying a negative return even in nominal terms. It must be remembered that normal investors typically
get no benefit whatever from buybacks, because they are not the ones tendering stock to the company.
Management, which gooses the value of its stock options, is the only true beneficiary.
With the major tech companies of 2000 investing all their profits in share repurchases, it's
not surprising that economic growth since 2000 has been anemic at best. The Fed, by encouraging
cheap leverage and narrowing the capital cost differential between the U.S. and emerging m ,
is largely responsible for this failure. It has left the behemoths of U.S. industry with huge domestic
leverage, while they sit on pools of overseas cash that cannot for tax reasons be deployed in investment
within the U.S.
When you look at corporate behavior, individual savings behavior and monetary policy, it becomes
clear that the economy-wide dearth of savings is very largely the Fed's fault. Far from providing
"stimulus" to U.S. economic growth, its over-expansionary policies have driven growth offshore while
stunting the creation of the domestic capital essential to providing adequate living standards for
the American people. The Fed's artificial stimulus has been anything but stimulating, except in
the shortest term.
The solution is simple. Rather than targeting inflation or unemployment directly, the Fed should
target the savings rate, which it has a much better chance of affecting through its interest-rate
policies. By running the financial system with a high risk-free real rate of interest, it will quickly
pull the savings rate back to 10%, while ensuring that corporations cease taking on unnecessary
borrowing and instead focus on reducing their leverage and repatriating foreign cash pools. Initially
this might cause deflation, as a 3% federal funds rate was accompanied by minus 2% inflation. But
high real rates would soon create more capital in the economy, tending to increase genuine capital
investment and pushing inflation back to positive territory.
Rather than praying for Keynes' "euthanasia of the rentier," the Fed should instead run its interest
rate policy in the interest of rentiers until savings have recovered to their long-term average
level. Not only will it be good for the economy's heath, it will be good for its moral probity.
Speculation and leverage games will disappear, and long-term, steady wealth accumulation will return
to fashion. Who knows, we may even get the bankers back into wing collars!
Martin Hutchinson is the author of Great Conservatives (Academica Press, 2005)
- details can be found on the website www.greatconservatives.com - and co-author with Professor
Kevin Dowd of Alchemists of Loss (Wiley, 2010). Both are now available on Amazon.com,
Great Conservatives only in a Kindle edition, Alchemists of Loss in both Kindle and print
editions.
(Republished with permission from PrudentBear.com.
Copyright 2005-14 David W Tice & Associates.)
I've been a bond bull since February, frequently predicting that the 30 year would fall below
3% by the end of the year. Last week, I said it would fall below 3% by Thanksgiving; a call
I still standby. For the reasons that I mentioned on a morning call, I will
give the shortened version of a case why the long bond may even be headed toward 2.5% in 2015.
As the country managing the world's reserve currency, the US needs to run a chronic current
account deficit to supply the world with dollars. Yet, in running a chronic perpetual deficit
it undermines confidence in it. This is what is known as the Triffin Dilemma.
Many believe QE3's printing of $1 trillion per year (of a fiat currency) would be the tipping
point that would debase the dollar. Bitcoin become popular and Gold soared. The world
was flush in dollars. EM corporates issued in dollars, expanding the outstanding float of
such securities 7X, versus 2006 levels. The debasement never happened and now that the QE is ending,
the world will have fewer dollars. In turn, the dollar soaring, while Gold is under pressure and
the Bitcoin has collapsed (75%).
Most importantly, the shale revolution is structurally shrinking the size of the US current
account and fiscal deficits. The US is producing an extra million barrels of oil
per year. Throw in a looming interest rate hike and the dollar is rising (more demand than
supply). Since the US is exporting less capital, liquidity in being tightened abroad,
particularly for countries whose currencies are tied to the dollar (China) or who depend on commodity
production (EM).
Reasons to like long Treasuries:
To obtain more dollars, these countries can try to export more or they can deflate their
currencies. Either result is deflationary for the US.
Bank regulation means that new bank deposits are going into Treasuries and away from loans
and credit securities.
Rule changes from the PBGC will increase demand over time for long dated Treasuries (asset
allocation shift away from equities) as penalties for under-funding become more punitive.
Bad demographics and higher debt levels will act as economic growth headwinds.
The falling fiscal deficit will result in less Treasury issuance going forward.
The Fed owns over 40% of all secondary Treasury securities 10-years and longer, so there
is a shortage of high quality longer dated securities.
Geo-political tensions are the highest in decades.
China is reeling in its credit and real estate bubbles further hurting commodity exporters.
(etc)
Equities and credit instruments will be hard pressed to justify valuations. With
little pricing power and economic growth that is likely to be modest at best, revenue growth and
profits are unlikely to be adequate enough to justify lofty valuations.
I maintain my bullish view on long Treasuries and implore investors not to underestimate
the upside potential (in price). Almost everyone is expecting much higher yields
in the near term, but a 30-year drop in yield toward 2.5% should be considered as a possibility
German factory orders had their sharpest drop since 2009, Berlin's Economy Ministry said Monday,
erasing recent gains and adding to fears of a slowdown in Europe's largest economy.
A big drop in international demand caused factory orders to fall by 5.7 percent in August from
July and 1.3 percent from a year ago, Berlin said. Economists had expected a 2.5 percent monthly
decrease, according to a Bloomberg survey. By contrast, orders from abroad drove a 4.6 percent increase
in factory orders in July, the most in more than a year.
Orders from outside the euro zone fell 9.9 percent in August from July, orders from other countries
in the euro zone fell by 5.7 percent, and domestic orders fell by 2 percent.
The "hesitant economic development" of the 18-nation euro zone and uncertainty introduced by
"geopolitical events" weakened demand, the ministry said. The bloc of European countries is struggling
to maintain economic momentum in a recovery while political tensions with Russia continue to escalate.
International sanctions against Russia and a faltering Chinese economy have deteriorated business
and investor sentiment in the euro area. Inflation in the region is at a five-year low, at 0.3 percent
last month compared with the European Central Bank's 2 percent target for price stability.
The European Union and the U.S. have imposed several economic sanctions against Russia over its
involvement in the Ukraine crisis, and Moscow has retaliated by banning most food imports from the
Western trade partners. Moscow is reportedly considering a ban on car imports and clothes from the
West, which would hurt Germany's Volkswagen and Mercedes-Benz manufacturers among others leading
the country's industrial output. If the dispute with Russia over the Ukraine crisis hits Germany's
economy harder in the third quarter than the second, the German economy could fall into recession.
Quote: "I would argue that falling commodity prices are bad news. It likely means that the debt
bubble which has been holding up the world economy for a very long time–since World War II, at least–is
failing to expand sufficiently. If the debt bubble collapses, we will be in huge difficulty."
I would argue that falling commodity prices are bad news. It likely means that the debt bubble
which has been holding up the world economy for a very long time–since World War II, at least–is
failing to expand sufficiently. If the debt bubble collapses, we will be in huge difficulty.
Many people have the impression that falling oil prices mean that the cost of production is falling,
and thus that the feared "peak oil" is far in the distance. This is not the correct interpretation,
especially when many types of commodities are decreasing in price at the same time. When prices
are set in a world market, the big issue is affordability. Even if food, oil and coal are close
to necessities, consumers can't pay more than they can afford.
"Prices of many commodities crashed in 2008, and it was only with massive intervention that
prices were propped up to 2011 levels."
That's one of the hamsters we need to keep running on the wheel.
Looking at prices at the moment are the central banks losing control - or are they playing
a game - do not intervene when the prices increase with the purpose being to encourage investment
- but this of course destroys growth - so do they phase it down purposely - to prevent a collapse
of the economy …. then phase it back up again before oil producers shut down….
Hopefully it is the latter - because if prices keep dropping and stay low - we have a problem.
I think the latter is more likely because otherwise we surely would see some sort of reaction
out of the central banks to offset this drop - the reaction may find it is pushing on a string
- but none the less - I can't imagine that they would sit idly by and let oil tumble out of
control…
Of course all of these measures are stop gap – there is no solution … at some point it all
unravels and that is the end of oil and most other resources - they will simply remain in the
ground
My position remains we end up with an 'economy' somewhere between a cave man and Mad Max.
Food will surely be the issue – not trying to tape together the detritus of a collapsed civilization
and trying to keep vehicles on the road…
Stilgar Wilcox,
If Gail's article is correct, we will be separated from non-conventional oil sources first
as they become unaffordable, on down the line until we are mostly reliant on conventional oil
which is already being taken out of the ground via horizontal super straws at an alarming rate
of depletion.
At this point I'm very interested to see if oil price does go back up and how much, and for
how long. There seem to be two peak oil camps; those that think oil price can go up to $130-200
a barrel and those that think the price is currently residing at the affordability ceiling,
which is the camp I am in. Recently there was an article about the Saudi's plan to cut back
on oil production to get price back up, which should prove interesting to see if that works
or not.
Stilgar – I think it was posted on this site something to the effect that oil over $50 is
not really affordable… that the economy can only tolerate that for so long…
I think this all ties back to this:
HIGH PRICED OIL DESTROYS GROWTH According to the OECD Economics Department and the International
Monetary Fund Research Department, a sustained $10 per barrel increase in oil prices from $25
to $35 would result in the OECD as a whole losing 0.4% of GDP in the first and second years
of higher prices.
http://www.iea.org/textbase/npsum/high_oil04sum.pdf
If that is the case then even $50 oil would be putting a significant drag on the economy
…
I think to even stay afloat with 90 oil massive offsets must remain in place (stimulus, QE,
ZIRP …) - of course these offsets cannot hold back the tsunami forever…
I really don't think any of the numbers we are seeing are doable - and of course we can't
go back to 20 or even 50… because that the cost to pull much of the oil of the ground is well
beyond that number…
Really a very bad situation… I remain amazed that they are able to hold this together
BBC this morning: "Rockefellers to switch investments to 'clean energy'"
"Heirs to the Rockefeller family, which made its vast fortune from oil, are to sell investments
in fossil fuels and reinvest in clean energy, reports say.
The Rockefeller Brothers Fund is joining a coalition of philanthropists pledging to rid themselves
of more than $50 bn (£31 bn) in fossil fuel assets….."
One wonders if this level of dis-investment will start a cascade of dis-investment resulting
in an oil price spike-cum-crash, ala 2008. I speculated over at peakoil.com that this, on the
surface, looks like a good thing for the growth of 'green energy' and the climate, but there
may well be another side to this; disaster capitalism at its best. If the Rockefellers can spur
an exit from fossil fuel investment on much of a scale, all hell could break lose in the oil
m as investors follow the 'smart money' out. As we've seen, major oil players are already
selling assets to keep up profits and dividends. Of course, if you're the Rockefellers and can
risk a few $billion loading up on credit default swaps, etc., and position yourselves to buy
back the peices, all-the-while investing heavily in alternatives, just the movie rights could
be worth billions.
Nothing wrong with having a little fun with this stuff, eh?
I suppose that there may be some clean energy investment that sort of works–for example,
geothermal in the right location. But there is an awfully lot that has no chance of being cost
effective, and makes the electric grid less resilient. Such investment takes money away from
where investment does (sort of) still work. It makes people feel like they are doing something
useful, but it just makes the crash come sooner, as far as I can see.
I think this is a smart mover on the Rockefellers' part. I was reading where in one of GM's
Labs they are getting their gray matter wrapped around the Lithium Sulphur battery technology
and it appears that they have a battery in the lab that can store 1,000 wh/kg. This is about
10 times the energy density of Lithium Iron Phosphate batteries of the same weight. They showed
a graph where there was very little capacity loss after 600 cycles. In other words, an EV pack
with a 100 mile range is likely to be replaced with a pack of a 1,000 mile range. This, if there
are no "side effects" (e.g., it's not volatile, has a wide operating temperature range, long
shelf life, long cycle life, etc.), is a real game changer.
The other game changer would be if there were economical photovoltaics with an efficiency
of greater than say 45%. I wonder if they have gotten wind of something?
We sometimes look at something like this and say how wonderful life will be if this comes
to pass. For some it will be. It always is. This will at least cut our fossil fuel usage out
the tail pipe and maybe out the smoke stack.
I wonder if this is what some of the people who fought carbon capture were seeing: No one
giving up their cars and hot showers but having them fueled by solar with excess solar energy
stored in batteries.
I wonder what life would look like under a solar/battery epoch? What would we really need
coal, oil, and natural gas for? What could not be done by energy stored in high energy batteries?
We need oil. Easy to extract oil. Unless someone comes up with something that is cheap and
can do what oil does - then the discussion is not worth having
I read through your referenced list under Automotive. Gasoline was listed and EVs do not
use gasoline.
If the fleet turnover is once every 16 years, then at the end of 16 years, there will be
very little gasoline used. Also EVs do not use antifreeze, coolant ( not sure if this is redundant
with antifreeze), motor oil, oil filters, fan belts, etc.). The amount of petroleum used in
battery cases, bearing grease, traffic cones, brake fluid, windshield wipers, visors, etc. might
be supplied from Colonel Drake's original well either because the material does not wear out
such as battery cases or the amount used is so minimal such as less than a teaspoon of grease
every100+K miles, to the point we could be supplied with grease for an extremely long time.
After 16 years, the body of cars that used to use gasoline would be using electricity that
could be supplied solar, wind, and hydro with excess stored in those batteries. Is that not
a game changer? If the USA uses 180 million gallons of gasoline per day, that's 10 million barrels
of oil per day that are not used. Is that not a game changer??? We decrease oil usage to the
point of becoming "energy independent". Is that not a game changer???
The only ones I saw that might be a problem are asphalt and tires. The question back to you
is how much asphalt do we use a year in barrels of oil? What substitutes could we use instead?
How many barrels of oil are used per day to make tires? What can be used as a substitute?
When I posed this situation to my son, he said there are alternatives and he is in the tire
business.
I see EVs in the form of cars and trucks as buying us a lot of time to find substitutes to
make the adjustments we need. This is **not** BAU but an evolution into the next era. There
may be less cars and more bicycles but then that is part of the evolution.
The discussion we need to have is what do we do with the remaining oil given our current
infrastructure, resources, and our attitudes? We don't need to be blinded by list of things
that might disappear but to find substitute(s) or alternatives for those things. There are a
lot of smart people out there who have solved problems and there are those that have said that
man will never fly so why try. There have been a lot of people who have seen this coming and
are finding and suggesting ways forward.
It isn't direct use of fossil sunlight that counts, it's the pyramid-effect.
A modern, computer-controlled, high-tech EV essentially requires all of current human civilization
in order to exist.
I think older EV technology could last for some time, but next to fossil sunlight, I think
our biggest addiction is to "human exceptionalism," the thought that our brains and our technology
can get us past the basic laws of physics.
I would absolutely love it if some brave, daring individual would produce EVs using no technology
that didn't exist in 1950. That's going to be the only way EVs can continue past the decline
of fossil sunlight.
I'm currently working on a Vanagon re-powering, using flooded-cell NiCd batteries and a series-wound
DC motor. That may have a chance of surviving a couple decades, but the sealed Curtis controller
can't be repaired if the semiconductor industry falters.
What will be present in the future is hard to say. I can see the military trying to keep
some facilities open to produce electronics. The spill over would be to produce controllers
for various vehicles. Greer mentioned a stair step down scenario and I think I would agree.
We may even go back to a Henney Kilowatt controller.
However, we are still producing and have access to FF of various types. We recycle CPUs and
other electronic parts. Not sure of all that we can retrieve.
"I can see the military trying to keep some facilities open to produce electronics."
Factories are not closed systems … they require inputs from BAU in order to produce electronics…
So to keep a factory operating you would also need to keep the mines open that supply the
copper … the smelters open that smelt that refine the copper … you need mining equipment, spare
parts etc… so you have to keep the factories that produce all of that open … you also need to
transport stuff from one place to another etc…. etc…. etc… etc….
Basically if you want to keep even one electronics factory producing – you need a fully functioning
global economy.
They are called contracts and the Gov't will increase debt to pay for them. During the great
depression, FDR created a number of civic projects and paid people to work them. It was not
BAU but it was a way to prime the pump
If energy is represented by money and energy dwindles, then money dwindles. It is one of
the reasons that the Gov't has tax incentives on home owner solar energy projects. In the summer,
I am basically energy neutral and can recharge an EV while others burn gasoline.
We need to keep the whole system operating. This means that we have to keep demand
for oil high enough that the price stays (or rather, rises) high enough that we can actually
get it out of the ground. Getting rid of all automotive uses is not necessarily helpful.
'Even if this worked out it is not a game changer' I disagree. If the kind of battery advances
he is talking about come to fruition then electrical vehicles become feasible. PV home systems
become feasible. An army of segways. Sure the copper for the motors still has to be mined with
fossil fuels. Sure the tractors and farm equipment will not be converted or replaced with electric.
Batteries like he is talking about could extend BAU for a long time however. Thats a game changer
in my book.
Even if these could be invented tomorrow, we are talking a minimum 20 year change-over time
period, because current cars need to wear out before they are replaced. (We cannot afford the
loss of value on existing cars.) We need to keep oil demand and oil prices high during that
period, so that oil is available for other uses where it is still needed. We have to find ways
to continue to produce electricity as coal is phased out and nuclear wears out. We need to maintain
electrical transmission lines, or we won't have electricity for recharging all of these vehicles.
We would need coal, oil and natural gas as before. In fact, we would need rising prices for
these products, to make it worthwhile for producers to continue to extract them. Without fossil
fuels, we could not make the cars or the new batteries or the new PVs.
There are many calculations of the electric grid investment required to make that transition.
One of them (link below) says about $500 billion a year till 2050 across the globe. Other say
even about $900 billion.
How any one could expect that humanity is able to raise all these investment projects in
such long period of time? Stable economy is needed for once. And I do not even mention the money.
There are resources (steel, copper, oil, coal and full Mendeleev's periodic table considering
current material/technological needs) behind all of these works. Where are we going to find
and peacefully extract them? On Venus, Mars, Jupiter or Saturn? And the energy for that task
comes from which natural resource? And please add the results of demographic bomb we are sitting
on.
Oil is gone. Liebig's LotM. The humanity will follow. Sorry.
"we are talking a minimum 20 year change-over time period, because current cars need to
wear out before they are replaced."
Older vehicles with sound body, brakes, steering, etc. could be retrofitted to electric
drive fairly simply.
I haven't gone through a full emergy analysis, but I suspect that an electric drive retrofit
would have less embedded energy than the original internal combustion engine. Plus, electric
drive is simpler, and easier to maintain.
The rub is batteries. There are rumblings about "peak lithium," should electric cars really
take off. Lithium batteries require a lot of technology, too, and long supply lines.
I'm using NiCd, but they are horribly expensive, even though they have a very long life,
compared to the lowest common denominator, lead-acid batteries, which are heavy and need to
be replaced every few years - but they can be rebuilt using simple technology at the disposal
of a large village or small town.
This situation isn't going to change much. There are rumblings of better battery technology
available Any Day Now™, but any highly advanced technology will require much of today's civilization
to maintain it. My vote is that lead-acid will be around for the long term.
That battery thing is interesting. I do know that it takes about half the energy that a lead
acid will ever store, just to make, that is energy stored on investment, ESOI, and that
certain li-ions can achieve an ESOI of up to 10. However, I'm not sure if that includes the
average of whatever gains gathered with recycling. So, imagine a solar panel with an EROEI of
about 7 coupled with the lead acid. We need to store about 4/5ths of the energy for "later"
(and for making more batteries and solar panels). Just not happening, because the battery eats
fully half the energy (in this extreme case). Also not happening because we humans are just
a little too impatient for all that, as we are used to extracting and consuming "instantly".
O the other hand, imagine a (somewhat) clean source that doesn't require 4/5ths storage,
and a form of storage that has an ESOI of over 100. Also imagine the source itself having an
EROEI of that of windpower or higher (>20). That would be nuclear, because the power of fission
by far offsets the energy intensive process of mining and enrichment. Efficiency in energy gathering
and storage (and usage) is key to surviving peak oil. What we need to do is make nuclear
itself far more efficient. We do that by chemically reprocessing spent fuel. This voids the
negative inputs to EROEI caused by both mining and enrichment. It also voids the need to mine
for any extra uranium (or thorium) for many centuries!
Given a civilization powered almost completely by fission (and then fusion), there would
be plenty of hydrocarbons for tires and roads, etc
Humans now number 7.1 billion on the planet and that number is on track to rise to 8
or 9 billion by 2050. Already 'energy per capita' is stagnant across the world and has been for
a few decades. If the human population indeed grows by 15-25% over the next three and a half decades,
then net energy production will have to grow by the same amount simply to remain constant
on a per capita basis.
But can it? Specifically, can the net energy we derive from oil grow by another 15% to 25% from
here?
Consider that, according to the EIA, the US shale oil miracle will be thirty years in the
rear-view mirror by 2050 (currently projected to peak in 2020). And beyond just shale, all
of the currently-operating conventional oil reservoirs will be far past peak and well into their
decline. That means that the energy-rich oil from the giant fields of yesteryear will have to be
replaced by an even larger volume of new oil from the energetically weaker unconventional plays
just to hold things steady.
To advance oil net energy on a per capita basis between now and 2050, we'll have to fight all
of the forces of depletion with one hand, and somehow generate even more energy output from energetically
parsimonious unconventional sources such as shale and tar sands with the other hand.
These new finds...they just aren't the same as the old ones. They are deeper, require
more effort per well to get oil out, and return far less per well than those of yesteryear. Those
are just the facts as we now know them to be.
In 2013, total worldwide oil discoveries were just 20 billion barrels. That's against a backdrop
of 32 billion barrels of oil production and consumption. Since 1984, consuming more oil than we're
discovering has been a yearly ritual. To use an analogy: it's as if we're spending from a trust
fund at a faster rate than the interest and dividends are accruing. Eventually, you eat through
the principal balance and then it's game over.
Meanwhile, even as the total net energy we receive from oil slips and our consumption wildly
surpasses discoveries, the collective debt of the developed economies has surpassed the $100 trillion
mark -- which is a colossal bet that the future economy will not only be larger than it is currently,
but exponentially larger.
These debts are showing no signs of slowing down. Indeed, the world's central
banks are doing everything in their considerable monetary power to goose them higher, even if this
means printing money out of thin air and buying the debt themselves.
Along with this, the demographics of most developed economies will be drawing upon badly-underfunded
pension and entitlement accounts -- most of which are literally nothing more substantial than empty
political promises made many years ago.
These trends in oil, debt and demographics are stark facts all on their own. But when we tie
these to the obvious ecological strains of meeting the needs of just the world's current 7.1 billion,
any adherence to the status quo seems worse than merely delusional.
Here's just one example from the ecological sphere. All over the globe we see regions in which
ancient groundwater, in the form of underground aquifers, is being tapped to meet the local demand.
Many of these reservoirs have natural recharge rates that are measured in thousands, or even
tens of thousands, of years.
Virtually all of them are being over-pumped. The ground water is being removed at a far faster
rate than it naturally replenishes.
This math is simple. Each time an aquifer is over-pumped, the length of time left for
that aquifer to serve human needs diminishes. Easy, simple math. Very direct.
And yet, we see cultures all over the globe continuing to build populations and living centers
- very expensive investments, both economically and energetically – that are dependent for their
food and water on these same over-pumped aquifers.
In most cases, you can calculate with excellent precision when those aquifers will be entirely
gone and how many millions of people will be drastically impacted.
And yet, in virtually every case, the local 'plan' (if that's the correct word to use here) is
to use the underground water to foster additional economic/population growth today without
any clear idea of what to do later on.
The 'plan' such as it is, seems to be to let the people of the future deal with the consequences
of today's decisions.
So if human organizations all over the globe seem unable to grasp the urgent significance of
drawing down their water supplies to the point that they someday run out, what are the odds we'll
successfully address the more complex and less direct impacts like slowly falling net energy from
oil, or steadily rising levels of debt? Pretty low, in my estimation.
Conclusion
Look, it's really this simple: Anything that can't go on forever, won't. We know, financially speaking, that a great number of nations are utterly insolvent
no matter how much the accounting is distorted. Said another way: there's really no point in worrying
about the combined $100 trillion shortfall in Social Security and Medicare, because it simply
won't be paid.
Why? It can't, so it won't. The promised entitlements dwarf our ability to fund them
many times over. There's really not much more to say there.
But the biggest predicament we face is that steadily-eroding net energy from oil, which
will someday be married to steadily-falling output as well, can't support billions more people and
our steadily growing pile of debt.
Just as there's no plan at all for what to do when the groundwater runs out besides 'Let the
folks in the future figure that one out,' there's no plan at all for reconciling the forced continuation
of borrowing at a faster rate than the economy can (or likely will be able to) grow.
The phrase that comes to mind is 'winging it.'
The wonder of it all is that people still turn to the same trusted sources for guidance and as
a place to put their trust. For myself, I have absolutely no faith that the mix of DC career politicians
and academic wonks in the Fed have any clue at all about such things as energy or ecological realities.
Their lens only concerns itself with money, and the only tradeoff concessions they make are between
various forms of economic vs. political power.
If the captains supposed to be guiding this ship are using charts that ignore what lies beneath
the waterline, then you can be sure that sooner or later the ship is going to strike something hard
and founder.
I'm pretty sure the Fed's (and ECB's and BoJ's and BoE's) charts resemble those of medieval times,
with "Here be dragons" scrawled in the margins next to a series of charts of falling stock prices
and unwinding consumer debt.
So there we are. The globe is heading from 7.1 billion to 8 or 9 billion souls, during
a period of time when literally every known oil find will be well past its peak. Perhaps
additional shale finds will come along on other continents to smooth things out for a bit (which
is not looking likely), but it's well past time to square up to the notion that cheap oil is
gone. And with it, our prospects for the robust and widespread prosperity of times past.
Because all of this inevitably leads to some sort of time of reckoning, natural questions
emerge: What might happen and when? What would that feel like? How would I know it's started?
Given the knowns and unknowns, are there any dominant strategies for mitigating the risks that I
should undertake? What are the challenges and what are the opportunities?
WayBehind
Ebola (and other viruses), wars and mother nature will take care of this overpopulation problem
X.inf.capt
you mean the 1% will fix over-population. after they extracted all the wealth from the 99%..
if they wont work, send them to the showers... god, these people are evil...
markmotive
Of course not. But don't pretend to know what's coming next. Because most don't even know
how things work today.
Ray Dalio has a 'template' for understanding the world as it works and how he has avoided
catastrophes in the past.
"The sudden explosion of European sovereign debt is the direct and indisputable result of all
our political parties deciding they would safeguard their mates' and their own personal wealth (it
is the top 10% who hold the bulk of their wealth in the financial products which would be destroyed
in a bank collapse. NOT the rest of us!) by bailing out the private banks and piling their unpaid
debts on to the public purse.
So whatever the trigger of the next crisis may be, they know any solution which saves the wealth
and power of the over-class will have to involve piling new, private-bank bad-debts on to already
indebted sovereigns and that, our leaders must be keenly aware, will not be easy to force on an
already angry public. They know a whole range of the assurances they might like to give us about
what must be done when the next crisis hits and how those things will undoubtedly save us, will
not be so easy to shove down people's throats...
I think one of the cleverest things the 1% have done over the last few years is the way they
have created a relentless public discourse, via their paid political front-men and women and their
media empires, to insist on the need to 'fix' and protect the system, and the extreme danger to
us all should the system not be 'saved'. This has served as a perfect cover for making sure that
not enough people have noticed that the system is, in fact, being gutted and replaced by something
that better serves the interests of the 1%. We have not been fixing the banks, we have been feeding
them."
"Money is pouring in" from investors even though shale gas is "inherently unprofitable,"
an analyst from PNC Wealth Management, an investment company,
wrote
to a contractor in a February e-mail. "Reminds you of dot-coms."
"The
word in the world of independents is that the shale plays are just giant Ponzi schemes
and the economics just do not work," an analyst from IHS Drilling Data, an energy research company,
wrote
in an e-mail on Aug. 28, 2009.
"And now these corporate giants are having an Enron moment," a retired geologist
from a major oil and gas company
wrote
in a February e-mail about other companies invested in shale gas.
Deborah Rogers, a member of the advisory committee of the Federal Reserve Bank of Dallas,
[and a] former stockbroker with Merrill Lynch ... showed that wells were petering out
faster than expected.
"These wells are depleting so quickly that the operators are in an expensive game of 'catch-up,'
" Ms. Rogers wrote in an e-mail on Nov. 17, 2009, to a petroleum geologist in Houston, who wrote
back that he agreed.
A review of more than 9,000 wells, using data from 2003 to 2009, shows that - based on widely
used industry assumptions about the market price of gas and the cost of drilling and operating
a well - less than 10 percent of the wells had recouped their estimated costs by the
time they were seven years old.
"Looks like crap," the Schlumberger official wrote about the well's performance, according
to the regulator, "but operator will flip it based on 'potential' and make some money on it."
The gas rush has ... been a money loser so far for many of the gas exploration companies
and their tens of thousands of investors.
Although the bankers made a lot of money from the deal making and a handful
of energy companies made fortunes by exiting at the market's peak, most of the industry
has been bloodied - forced to sell assets, take huge write-offs and shift as many drill
rigs as possible from gas exploration to oil, whose price has held up much better.
Now the gas companies are committed to spending far more to produce gas than they
can earn selling it. Their stock prices and debt ratings have been hammered.
Fracking, it turns out, is about producing cheap energy the same way the mortgage crisis
was about helping realize the dreams of middle-class homeowners. For Chesapeake, the
primary profit in fracking comes not from selling the gas itself, but from buying and flipping
the land that contains the gas. The company is now the largest leaseholder in the United
States, owning the drilling rights to some 15 million acres – an area more than twice the size
of Maryland. McClendon [the CEO of fracking giant Chesapeake] has financed this land grab with
junk bonds and complex partnerships and future production deals, creating a highly leveraged,
deeply indebted company that has more in common with Enron than ExxonMobil.
As McClendon put it in a conference call with Wall Street analysts a few years ago, "I
can assure you that buying leases for x and selling them for 5x or 10x is a lot more profitable
than trying to produce gas at $5 or $6 per million cubic feet."
According to Arthur Berman, a respected energy consultant in Texas who has spent years studying
the industry, Chesapeake and its lesser competitors resemble a Ponzi scheme, overhyping
the promise of shale gas in an effort to recoup their huge investments in leases and drilling.
When the wells don't pay off, the firms wind up scrambling to mask their financial troubles
with convoluted off-book accounting methods. "This is an industry that is caught in
the grip of magical thinking," Berman says. "In fact, when you look at the level of
debt some of these companies are carrying, and the questionable value of their gas reserves,
there is a lot in common with the subprime mortgage market just before it melted down."
In February, Chesapeake announced that, because of low gas prices, its revenues will fall
$3.5 billion short of its expenses this year
delivered
I'm by no means an expert but do understanding accounting and finance and would like to point
out two key issues. First, the availability of cheap/easy capital as noted in numerous posts
(driven by the Fed and other CBs) has certainly contributed to the perceived economic value
of fracking. Hell, with free flowing money, just about any business can stay afloat for quite
some time as rates, terms, struture, etc. are all extremely favorable during the "salad days".
But once a business actually realizes that debt has to be, dare I mention, repaid, the combination
of very highly capital expenditure requirements and debt service payments basically consume
all cash/liquid resources.
Second, I've studied/analyzed a number of fracking company financial statements and have
noticed that the annual capital expenditures (i.e., the cost of acquiring and drilling) compared
to revenue growth and cash flow (both EBITDA and free) supports a number of the comments made
in GW's article. That is, there is a constant need to drill more and more to maintain a base
line production level so what I'm guessing is that the capitalized well devlopment costs are
being "managed" by the accountants to keep an inflated asset on the books (which probably should
be written down based on high production decline rates after 12 months). What would be interesting
to evaluate is the actual oil production in units (or barrels) compared to production development
costs over time. This might be the canary in the coal mine that really helps quantify the economics
of the fracking industry.
So let's combine the end of easy/cheap money, with accountants "managing" fracking company
assets, and a declining price of oil and most likely what you are setting up is a major shakeout
in the industry. No doubt the weak are going to get creamed in this environment and the strong,
just waiting to acquire resources but only at the right price, will get even stronger.
You can say that it's from a .edu and question the source, but then you can go through his
talk and presentation (there is a link to his slides) to see what the actual sources were, because
the .edu was just a forum for presentation.
The economy is a surplus energy equation, not a monetary one, and growth in output (and in
the global population) since the Industrial Revolution has resulted from the harnessing of ever-greater
quantities of energy.
But the critical relationship between energy production and the energy cost of extraction
is now deteriorating so rapidly that the economy as we have known it for more than two centuries
is beginning to unravel.
See: the Killer Equation starting on p.59.... rather fascinating reading....
El Vaquero
The economy stops dead without energy, but the monetary side allows us to distort things.
When those distortions become realigned with reality, it is going to be a violent process, because
we're not looking to what the future actually has in store for us, but rather what we want the
future to be. There's nothing wrong with trying to mould your own future, but we must be realistic
about it.
zuuma
As soon as I saw: "New York Times wrote:"...
I lost faith in any objectivity. That rag is just a PR dump for obamunism.
Even if they occasionaly print something that's true, it's hard to accept - given their solid
track record as lefty shills.
numapepi
Even a stopped clock is right twice a day.
AdvancingTime
Thanks for a very interesting look into this industry that has become another myth of hope.
As to the subject of the Ponzi Scheme I often forget that what may seem familiar to me and
many Americans is not always common knowledge, the story behind the term is very interesting.
To those who are unfamiliar with the term Ponzi Scheme or just would like to know more on where
it originated and such see the article below that is titled Ponzi Scheme 101.
Big difference is the Dot-Com bubble left empty office space. Fracking leaves a scarred and
polluted landscape that was mostly pure before the wells were built. Disgrace!
Felix da Kat
True B7. Take a look on Bing maps (satellite view) at the northern one-third (60 miles x
300m.) of Pennsylvania. What was once a nearly unbroken, deep and thick forest from New Jersey
to Ohio, is now pock-marked with many hundreds of disgraceful fracking operations where large
25-50 acre areas are clear-cut along with crude access roads. This might as well be a war zone
with bomb craters throughout. Enviromental concerns were the least of Dick Cheney's/Halliburton's
heinous fracking invention. Pennsylvania was the pushover state selected to be the guinea pig.
Fracking is a colossal failure, period.
givenoquarter
If a tree falls in the forest and no one is there to hear it, does it make a sound?
If a tree is cut down in the forest, and no one is there to see it, who gives a fuck if it
is cut down to extract a needed commodity?
We have tons of trees. More oil please. All of my vehicles need a regular diet of delicious
dinosaurs.
AdvancingTime
Sustainability means planning our future in a way that we do not set ourselves up to crash
and burn at some future date. Long-term planning has not been something politicians excel at
or are even good at. Our system is geared at getting politicians reelected and fulfilling the
most pressing needs of today.
Things like profit, greed, and quenching our unrelinquishing desire for growth are placed
in front of longer term issues and needs. Mapping out a logical and sustainable long-term plan
requires delving into some rather hefty philosophical questions like what brings real happiness.
More on this important topic in the article below.
FOMC voting-member Richard Fisher is among the sanest voices in the Eccles Building asylum and
he is once again sounding alarms that all is not well in US financial m :
*FISHER SAYS FED HAS 'LEVITATED' M , SEES SIGNS OF EXCESS IN FINANCIAL M
Furthermore, Fisher notes The Fed can't force companies to hire, and would like to see
rate hikes as early as Spring 2015.
Manthong
Nothing irrational about this exuberance..
Unlike the dot com bubble, the Fed and its evil owner banks deliberately engineered this
one.
Soon it will be time to deflate the bubble and steal the assets from the institutions (pension,
mutual funds/401Ks etc.) at bargain basement prices.
clooney_art
He is the token Banker who plays the bad cop. It's all stage managed for the sheep.
FL_Conservative
Signs of excess? That's a sad fucking statement coming from a supposed Fed "hawk". Just another
manipulator who wants to avoid fault when TSHTF. It's very sad that so many sell their principles
and integrity for 15 minutes of power and a few extra sheckles.
Wait What
it's not a conspiracy until the sheeple find out. then everyone runs around screaming
'it was a conspiracy all along' long after all the pillaging has been accomplished.
speaking of conspiracies, it strikes me that ZH has been peppered with a lot of bias-confirming
articles lately.
by that i mean a lot of 'the sky is blue, water is wet' type of articles... makes me wonder
if that is for all of te newbs (to the eye-rolls of those who've been around a little longer,
i imagine), or if Tylers have just said 'fuck it' like everyone else and started phoning it
in.
LawsofPhysics
and there it is. I am telling you, the real inflationary forces of people on SNAP or medicare
for simple survival is huge ;-). This real liability alone cannot be masked/hidden much longer
in the west. Government paper must be bought because exponential equations (which are driving
those real inflationary pressures) are a bitch.
That is my (what now appears to be a contrarian) hypothesis..
The recent increase in yields is nothing but a CB/government shakedown to get the weak
hands out, it's about, and always has been about, maintaining power and control, period.
People still have faith in fiat, and so long as this is the case, this can continue, period.
The decline in the price of oil - in the face of surging geopolitical pandemonium - has been
lauded as indicative of both US' awesomeness in energy independence and a tax cut for Americans...
but, as the following chart suggests, there may be another - much more realistic - explanation for
why oil is plunging... demand!
World GDP expectations for 2014 just tumbled to their lowest since estimates started...
Maybe - just maybe - that explains the price of oil...
Submitted by Tyler Durden on 09/03/2014
17:03 -0400
"The stock market is at an all-time, but economic activity is not at an all-time," explains billionaire
investor Sam Zell to CNBC this morning, adding that, "every company that's missed has missed on
the revenue side, which is a reflection that there's a demand issue; and when you got a
demand issue it's hard to imagine the stock market at an all-time high." Zell said he is
being very cautious adding to stocks and cutting some positions because "I don't remember any
time in my career where there have been as many wildcards floating out there that have the potential
to be very significant and alter people's thinking." Zell also discussed his view on Obama's
Fed encouraging disparity and on tax inversions, but concludes, rather ominously, "this
is the first time I ever remember where having cash isn't such a terrible thing." Zell's
calls should not be shocking following George Soros. Stan Druckenmiller, and Carl Icahn's warnings
that there is trouble ahead.
Billionaire 1: Sam Zell
On Stocks and reality...
"People have no place else to put their money, and the stock market is getting more
than its share. It's very likely that something has to give here."
"I don't remember any time in my career where there have been as many wildcards floating
out there that have the potential to be very significant and alter people's thinking,"
he said. "If there's a change in confidence or some international event that changes the dynamics,
people could in effect take a different position with reference to the market."
"It's almost every company that's missed has missed on the revenue side, which is a reflection
that there's a demand issue," he said. "When you got a demand issue it's hard to imagine
the stock market at an all-time high."
He also lamented about how difficult it is to call a market top. "If you're wrong on when,
that's a problem." His answer: "You got to tiptoe ... and find the right balance."
"This is the first time I ever remember where having cash isn't such a terrible thing,
despite the fact that interest rates are as low as they are," he added.
On Obama and inequality...
"Part of the impact of these very, very low interest rates is that we've creating this disparity.
The wealthy are benefiting from government policy and the nonwealthy aren't," he continued.
"So we have a president who says we've got to fight this disparity and we have a Fed
who's encouraging it everyday."
On Tax Inversion...
"This is both legal and accepted. If the government doesn't like the result, change
the law," he said. "You have to have a rational tax policy." He said the top tax rate
should be changed and the U.S. should not tax worldwide income.
Zell also said it's unfortunate that "this inversion thing has been captured as a
political, electioneering item."
Soros has once again increased his total SPY Put to a new record high of $2.2 billion,
or nearly double the previous all time high, and a whopping 17% of his total AUM.
Ironically, Carl Icahn - poster-child of the leveraged financial engineering that has overtaken
US equity m on the back of Central Bank largesse - told CNBC that he was "very nervous"
about US equity m . Reflecting on Yellen's apparent cluelessness of the consequences
of her actions, and fearful of the build of derivative positions, Icahn says he's "worried"
because if Yellen does not understand the end-game then "there's no argument - you have
to worry about the excesssive printing of money!"
Simply put, Druckenmiller concludes, rather ominously, "I am fearful that today our obsession
with what will happen to m and the economy in the near term is causing us to misjudge the
accumulation of much greater long term risks to our economy."
Financial m have been exuberant over the past year, [...] dancing mainly to
the tune of central bank decisions. Volatility in equity, fixed income and foreign
exchange m has sagged to historical lows. Obviously, market participants are pricing
in hardly any risks.
Growth has picked up, but long-term prospects are not that bright. Financial m
are euphoric, but progress in strengthening banks' balance sheets has been uneven and private
debt keeps growing. Macroeconomic policy has little room for manoeuvre to deal with
any untoward surprises that might be sprung, including a normal recession.
* * *
So now we have a quorum of billionaires and the BIS all flashing warning signals which can only
mean one thing: stocks are undervalued so buy, buy, buy...
Lambert here: If the policymakers have turned the US into Japan, we're looking at 20 years of a
flatlined economy, punctuated (this being the US) by explosions. Could that be the why 5- and 10-year
yields have diverged?
By Jérémie Cohen-Setton, PhD candidate in Economics at U.C.
Berkeley and a summer associate intern at Goldman Sachs Global Economic Research.
Originally published at Bruegel.
What's at stake: Fed tapering was widely expected to push up US yields. Instead, US yields
have fallen since the beginning of the year, raising the question of whether we're seeing a
new version of the Greenspan 2005 conundrum. Interestingly, a successful explanation of this
new conundrum cannot just rely on a flight to safety explanation as it also needs to rationalize
why 5-year yield and 10-year yield have diverged over the same period.
"Another possibility is that more people are starting to take seriously the suggestion that
we're on a path now of secular stagnation with weak economic growth and poor investment opportunities
over the next decade. But that's hard to reconcile with the stock market, which climbed impressively
this year."
I think there is no need to reconcile that suggestion with the behaviour of the Great Casino.
Instead, as the following graph shows, although the economy is growing at roughly the same
rate as before the crisis, the growth is from a much lower level of output:
Is this the
"new normal" we hear so much about? Do Americans have no choice but to accept the lower level
of output, and the lower level of employment and living standards that comes with it, or is there
something we can do to push the economy back to the pre-Great Recession trend?
One solution is to increase government spending on America's roads, bridges and other infrastructure.
But does infrastructure spending raise the level of GDP and employment while at the same time enhancing
the prospects for future growth? Or does it simply crowd out other types of private sector spending
so that, all told, there is little or no net stimulus?
Recent research from economists at the Federal Reserve Bank of San Francisco suggests that infrastructure
spending on highways enacted with the stimulus package just after President Obama took office in
2009 might be just what the doctors ordered.
The researchers conclude that such spending "had a significantly positive effect on economic
activity." Examining the broader economic impact of highway spending connected to the stimulus package,
the researchers found that:
... states increased their highway spending more than dollar-for-dollar in answer to the federal
stimulus authorized by the American Recovery and Reinvestment Act. Without these extra funds,
we estimate that national spending on highways would have declined roughly 20 percent between
2008 and 2011, on par with the decline in state tax revenues. Given the large multiplier effect
from infrastructure spending that past studies have documented, the additional spending on highways
likely had a significantly positive effect on economic activity.
With interest rates still at rock bottom so that borrowing to pay for infrastructure is as cheap
as it gets, and with so many idle resources -- the large number of unemployed in particular -- and
with output running so far below the previous trend, it is an opportune time to undertake infrastructure
projects. Even if the spending on infrastructure doesn't fully resolve the problem shown in the
graph above and return us to a higher trend rate of growth, it will at least begin to overcome our
large infrastructure deficit and provide employment for households still struggling to recover from
the Great Recession.
A credit-based financial economy (as opposed to pure cash) depends on an ever-expanding outstanding
level of credit for its survival. Without additional credit, interest on previously issued liabilities
cannot be paid absent the sale of existing assets, which in turn would lead to a vicious cycle of
debt deflation, recession and ultimately depression. It is this expansion of private and public
market credit which the Fed and the BOE have successfully engineered over the past five years, while
their contemporaries (the ECB and BOJ) have until now failed, at least in terms of stimulating economic
growth.
The unmodeled (for lack of historical example) experiment that all major central banks are now
engaged in is to ask and then answer: What growth rate of credit is enough to pay prior bills, and
what policy rate/amount of Quantitative Easing (QE) is necessary to generate that growth rate? Assuming
that the interest rate on outstanding debt in the U.S. is approximately 4.5% (admittedly a slight
stab in the dark because of shadow debt obligations), a Fed governor using this template would want
credit to expand by at least 4.5% per year in order to prevent the necessary sale of existing assets
(debt and equity) to cover annual interest costs. That is close to saying they would want nominal
GDP to expand at 4.5%, but that's another story/ Investment Outlook.
How are they doing? Chart 1 shows outstanding credit growth for recent quarters and all quarters
since January 2004. The chart's definition of credit includes the standard Fed definition of private
non-financial credit (corporations, households, mortgages), public liabilities (government debt),
as well as financial credit. The current outstanding total approximates $58 trillion and has been
expanding at an average annual rate of 2% for the past five years, and 3.5% for the most recent
12 months.
Put simply, if credit needs to expand at 4.5% per year, then the private and public sectors in
combination must create approximately $2.5 trillion of additional debt per year to pay for outstanding
interest. They are underachieving that target in the U.S., which is the reason why GDP growth struggles
at 2% real or lower and nominal GDP growth seems capped at 4.5% or lower. Credit creation is essential
for economic growth in a finance-based economy such as ours. Without it, growth stagnates or withers.
Its velocity/turnover is critical as
well.
The velocity/turnover of credit mentioned above, in turn, is a function of price or the yield
of credit. No central banker knows what that appropriate yield/price is and so Yellen/ Carney/Draghi/Kuroda
walk up forward interest rates carefully so as not to cause a credit collapse. As a general
rule, the projected return on financial assets (relative to their risk) must be sufficiently higher
than the return on today's or forward curve levels of cash (overnight repo), otherwise holders of
assets sell longer-term maturities and hold dollar bills in a mattress – lowering velocity and creating
a recession/debt delevering. We are dangerously close to the crossing of the lines between long-term
asset returns and forward levels of cash yields, which currently rest at 2.5%+ in 2017 and beyond.
If the forward levels are not validated, however, the danger is lessened.
Today's levels of interest rates and stock prices offer a historically unacceptable level of
risk relative to return unless the policy rate is kept low – now and in the future. That is the
basis for The New Neutral, PIMCO's assumption
that the fed funds rate peaks at 2% or less in 2017 versus others' assumptions (Taylor, Fisher,
Lacker, the market) that it goes much higher. BOE's
Carney, by the way, believes his country's
New Neutral is 2.5%, a level consistent with PIMCO's 2% in the U.S. If so, existing asset
prices in the U.S., while artificially high and bond yields artificially low, may continue to be
so unless the Fed oversteps its interest rate line.
This global monetary experiment may in the short/intermediate term calm m , support asset
prices and promote economic growth, although at lower than historical levels. Over the long
term, however, economic growth depends on investment and a rejuvenation of capitalistic animal spirits
– a condition which currently does not exist. Central bankers are hopeful that fiscal policy
(which includes deficit spending and/or tax reform) may ultimately lead to higher investment, but
to date there has been little progress, as seen in Chart 2. The U.S. and global economy
ultimately cannot be safely delevered with artificially low interest rates, unless they lead to
higher levels of productive investment.
"For Wonks Only" Speed Read
1. Cross your fingers, credit growth is a necessary but not sufficient condition for economic
growth. Economic growth depends on the productive use of credit growth, something that is not occurring.
Quote: "Although they rarely mention it in the history books, it is ironic that around this
time the moneyed interests and neo-cons of Roosevelt's day were
fomenting a domestic revolution, and investing
heavily in European fascists whom they hoped would be obedient gangsters for crony capitalism."
"A man must always live by his work, and his wages must at least be sufficient to maintain him."
Adam Smith
"The issue isn't just jobs. Even slaves had jobs. The issue is wages."
Jim Hightower
Some analysts are confusing higher wages with monetary stimulus. Nothing could be further from
the truth, at least in the real world of today.
Monetary stimulus is what the Federal Reserve does, that is, increasing the money supply by expanding
the monetary base. It is a non-organic growth of money.
I think it is a well-noted and oft-remarked upon feature that the monetary stimulus that the
Fed is providing is being given directly and almost exclusive to the Banks, in order to shore up
their damaged balance sheets and provide them an artificial stream of profits.
And of that stimulus, the bulk of it seems to be finding its way into financial speculation and
a new bubble in paper assets, and the acquisition of more companies to build even greater monopolies.
Wage increases, that are not merely a secondary effect of a general monetary inflation, are indeed
not useful, except that the workers at least keep pace with the rate of price inflation. But
I don't think that this is what anyone is recommending who talks about higher wages. The Fed
is not an actor on that stage.
The currently imbalanced and distorted financial system is taking the lion's share of all new
growth, and continues to do so as it has been doing for the past twenty years. This cannot
last.
When consumers purchase things, they must either use cash or credit. And to obtain the cash they
can work more hours, or have more family members working. To obtain more credit, they can mortgage
their house, and increase their debts.
We have seen the explosion of a consumer credit bubble in housing debt, facilitated and engineered
by historic levels of financial fraud by the very Banks who are now taking their subsidies of monetary
stimulus from the Fed. It happened almost six years ago, but the economy remains in 'the new
noe-feudal normal.'
At some point the long abused consumer says 'enough' and cuts back their purchasing to the barest
of essentials. And the economy grows stagnant at home, which gives the moneyed interests a
strong incentive to seek captive m overseas. And so a new round of neo-colonialism is
born. Which in turn creates its own sets of problems, lies, and economic distortions.
The data indicates that we are now, at long last, finally at that point.
And the one percent has never been richer, or had more influence with the political class.
How much is enough for them? When will they be content? With them it is with
wealth as it is with power.
'Wir haben keine Hemmungen, und einen großen Magen.'
I think that the solution is rather obvious. We have been here before.
"After many requests on my part the Congress passed a Fair Labor Standards Act, what we call
the Wages and Hours Bill. That Act --applying to products in
interstate commerce -- ends child labor, sets a floor below wages, and a ceiling over hours
of labor.
Except perhaps for the Social Security Act, it is the most far-reaching, the most far-sighted
program for the benefit of workers ever adopted here or in any other country. Without question
it starts us toward a better standard of living and increases purchasing power to buy the products
of farm and factory.
Do not let any calamity-howling executive with an income of $1,000.00 a day, who has been
turning his employees over to the Government relief rolls in order to preserve his company's
undistributed reserves, tell you -- using his stockholders' money to pay the postage for his
personal opinions -- tell you that a wage of $11.00 a week is going to have a disastrous effect
on all American industry.
Fortunately for business as a whole, and therefore for the Nation, that type of executive
is a rarity with whom most business executives most heartily disagree...
Some of my opponents and some of my associates have considered that I have a mistakenly sentimental
judgment as to the tenacity of purpose and the general level of intelligence of the American
people.
I am still convinced that the American people, since 1932, continue to insist on two requisites
of private enterprise, and the relationship of Government to it. The first is a complete honesty,
a complete honesty at the top in looking after the use of other people's money, and in apportioning
and paying individual and corporate taxes (according to) in accordance with ability to pay.
And the second is sincere respect for the need of all people who are at the bottom, all people
at the bottom who need to get work -- and through work to get a (really) fair share of the good
things of life, and a chance to save and a chance to rise.
After the election of 1936 I was told, and the Congress was told, by an increasing number
of politically -- and worldly-- wise people that I should coast along, enjoy an easy Presidency
for four years, and not take the Democratic platform too seriously. They told me that people
were getting weary of reform through political effort and would no longer oppose that small
minority which, in spite of its own disastrous leadership in 1929, is always eager to resume
its control over the Government of the United States.
Never in our lifetime has such a concerted campaign of defeatism been thrown at the heads
of the President and the Senators and Congressmen as in the case of this Seventy-Fifth Congress.
Never before have we had so many Copperheads among us -- and you will remember that it was the
Copperheads who, in the days of the Civil War, the War between the States, tried their best
to make President Lincoln and his Congress give up the fight in the middle of the fight, to
let the Nation remain split in two and return to peace -- yes, peace at any price.
This Congress has ended on the side of the people. My faith in the American people -- and
their faith in themselves -- have been justified. I congratulate the Congress and the leadership
thereof and I congratulate the American people on their own staying power...
You will remember that from March 4, 1933 down to date, not a single week has passed without
a cry from the opposition, a small opposition, a cry 'to do something, to say something, to
restore confidence.' There is a very articulate group of people in this country, with plenty
of ability to procure publicity for their views, who have consistently refused to cooperate
with the mass of the people, whether things were going well or going badly, on the ground that
they required more concessions to their point of view before they would admit having what they
called "confidence."
These people demanded 'restoration of confidence' when the banks were closed -- and demanded
it again when the banks were reopened.
They demanded 'restoration of confidence' when hungry people were thronging (the) our streets
-- and demanded it again now when the hungry people were fed and put to work.
They demanded 'restoration of confidence' when droughts hit the country -- and demanded it
again now when our fields are laden with bounteous yields and excessive crops.
They demanded 'restoration of confidence' last year when the automobile industry was running
three shifts day and night, turning out more cars than the country could buy -- and they are
demanding it again this year when the industry is trying to get rid of an automobile surplus
and has shut down its factories as a result.
But, my friends, it is my belief that many of these people who have been crying aloud for
'confidence' are beginning today to realize that that hand has been overplayed..."
Although they rarely mention it in the history books, it is ironic that around this time the
moneyed interests and neo-cons of Roosevelt's day were
fomenting a domestic revolution, and investing
heavily in European fascists whom they hoped would be obedient gangsters for crony capitalism.
Despite caution from Bob Shiller that stocks are "hovering at worrisome levels,"
the FOMC Minutes yesterday (and various Fed speakers and talking heads this morning) have reassured
the investing public that stocks are "cheap" and it's credit and bonds that are rich and bubbly.
However, as the following simple table from Bloomberg Briefs shows, concerns over "frothy"
valuations is warranted -
especially in light of P/Es above previous bubble peak levels.
After crisis of neoliberalism in 2008
global trade is under pressure. Countries are more protective about their m in Great Recessions
than before. And that speaks troubles for Germany and other countries that try to export their way out
of recession
Why are most economists more in favor of free trade than the general public?
One reason may be that the models economists use to evaluate the impact of global trade often
overlook some significant ways it affects jobs, income and social services.
STR Save_the_Rustbelt:
Tenured economists do not lose their jobs to free trade.
And they get lots more opportunities to fill journals, which is the primary metric of their
promotions and pay raises.
Besides, the "average worker" always seems to be better off.
Michael:
I'm not sure it's valid to use "free trade" and "China" in the same sentence...
I think free trade works well when all participating countries have a comparable level of
environmental and worker protection laws and exchange rates are allowed to float freely without
any government intervention. But what we have now is a disgrace. Corporations and the 1% are
making out like robber barons while the middle class gets decimated.
I guess that's what happens when unions go away and Democrats buy into supply-side economics.
pgl:
"Democrats buy into supply-side economics". You must be watching Governor Cuomo's
recent political ads. Tax free zones is his way of promoting growth for the state. I guess that's
why a lot of Republicans voted for him. Alas.
William Meyer:
Unfortunately, it seems clear that the gains of trade will never be redistributed from
the current winners. The tendency of economists to always argue for a more open economy
-- that is, one where international trade makes up a larger percentage of total economic activity
-- thus turns out to be just one more justification for the status quo.
If economists don't want to be viewed as providing nothing but complex, mathematical
excuses for the current distribution of money and power--which is largely how, I, at least,
view them -- they need to stop discussing laughably counterfactual situations like "redistribution
of the benefits of trade" and being more honest about the class war being waged by the wealthy
and powerful on the rest of society in the USA.
At the moment, "technocratic expertise" just translates to "toadying to the rich." It would
be refreshing to see mainstream people admitting this publicly, and quite possibly socially
useful as well.
Lafayette:
{Why are most economists more in favor of free trade than the general public?}
My answer would be that economists are less likely to lose their jobs to foreign competition
than the ordinary worker.
(Of course, I could be wrong ... ;^)
Catatonic:
"It's worth emphasizing this isn't the same thing as saying that expanding international
trade is harmful. Specialization and trade produces overall gains for the U.S. economy according
to both theoretical and empirical work."
It isn't harmful to Mark Thoma. It is harmful to a lot of people.
Nobody cares about the US economy. They care about their own job and wages.
And not everything shows up in the numbers. Trade updates the employer/employee power
balance in favor of the employer.
And the view of people is not colored. It is the view of economists that is colored. Our view
is crystal clear!
It's six yeas since the last market crash. Which
started at autumn of 2008 with approximately the same level of prices for junk bonds. In
august 2008 few people worried. We can probably
run another two years, or three years, or five years... But who knows when the music stops and
retail and 401K investors wiped out...
"When the music stops, in terms of liquidity, things will be complicated.
But as long as the music is playing, you've ot to get up and dance. We're still dancing,"
Chuck Prince, CEO Citigroup, 9 July 2007
In this record inequality and atmosphere of serial policy errors by the privileged ruling class,
the m no longer need the broad, direct participation of the public.
The Fed is taking care of the moneyed interests, and the sycophants in government will do anything
to smooth their way.
With Russia's 300-truck-long "humanitarian" convoy parked near the Ukrainian border,
British journalists reportedly witnessed a convoy of Russian military vehicles -- including
23 armored personnel carriers -- cross into
Ukraine. This morning, Ukraine
claimed to have destroyed part of this convoy, but Russia denies sending anything over, while Europe
is furiously warning that any unilateral Russian military action would violate international law.
The renewed escalation of tensions has stocks on the slide again, putting an end to the two-week
long rebound the market had been enjoying. After starting strong, the Dow Jones industrial average
fell nearly 100 points in the afternoon before recovering some of its earlier gains. The blue-chip
index closed at 16,656, down 58 points, 0r 0.3 percent. The S&P 500 and Nasdaq composite index were
largely flat on the day.
The mixed trading reflects the confusion over exactly what is happening in Ukraine, with Ukrainian
border guards apparently inspecting Russia's aid convoy in preparation of the move across the border.
For Russian President Putin, the stakes couldn't be higher. Serious economic sanctions have limited
the ability of the Russian financial system to borrow money in Western currencies. But "surrender"
would risk undermining his power and would abandon scores of ethnic Russians in the eastern and
southern regions of Ukraine -- a matter that's close to his heart according to an interview with
Time magazine, which named him
Person of
the Year in 2007.
So, further escalation looks likely before this is all done, which comes at a time of vulnerability
for the economy and m .
The hammer finally hit for Europe when overnight both Germany and France reported Q2 GDP prints
that missed expectations, the first actually contracting at a 0.2% rate with consensus looking for
-0.1%, while France remained flat vs expectations for a tiny 0.1% rise.
As a reminder, this GDP is the revised one, which already includes the estimated contribution
of drugs and prostitution, suggesting the actual underlying economic growth is far worse than even
reported.
Then again, this is hardly surprising considering all the abysmal data out of Europe and the
rest of the world in recent weeks, and with the Russian trade war sure to trim even more growth,
look for all of Europe to join Italy in its first upcoming triple-dip recession in history.
"The apparent stability of the world financial system is superficial – financial asset prices
are not real, the equilibrium is temporary, the lack of volatility is a trap, and when the whole thing
goes haywire, there will truly be hell to pay."
"By all measures, the U.S. stock market is currently frothy," warns Paul Singer,
founder of $24.8 billion hedge fund firm Elliott Management, ominously concluding, "The apparent
stability of the world financial system is superficial – financial asset prices are not real, the
equilibrium is temporary, the lack of volatility is a trap, and when the whole thing goes
haywire, there will truly be hell to pay."
The attached Barron's article appeared in December 2007 as an outlook for the year ahead,
and Wall Street strategists were waxing bullish. Notwithstanding the advanced state of
disarray in the housing and mortgage m , soaring global oil prices and a domestic economic
expansion cycle that was faltering and getting long in the tooth, Wall Street strategists were still
hitting the "buy" key.
In fact, the Great Recession had already started but they didn't have a clue: "Against
this troubling backdrop, it's no wonder investors are worried that the bull market might end in
2008. But Wall Street's top equity strategists are quick to dismiss such fears."
Will investing based on fundamentals eventually find favor once again with investors?
The problem is that market participants no longer view the financial m as a place to invest
savings over the "long term" to ensure future purchasing power parity. Today, they view the m
as a place to "create" wealth to offset the lack of savings. This mentality has changed the market
dynamic from investing to gambling. As Seth Klarman warned, "There is a growing
gap between the financial m and the real economy. Not surprisingly, lessons learned
in 2008 were only learned temporarily. These are the inevitable cycles of greed and fear,
of peaks and troughs." Simply put, fundamentals will matter, but only after the fact.
...Here to help us understand the legislative framework that holds America together, and the
foreign policy which results from the choices left to Americans, is the commenter I know only as
UCG. University of California Graduate? Uruguayan Cowboy Groupie? No way to know, although he is
clearly from California. I recommend you check out the other fine and perceptive discussions on
hisblog – meanwhile, read on.
Surviving in the US
According to Indeed.com, the
average salary in the US
is $62,000. Since that's on the high end of the spectrum, let's go with that, even
though the Sacramento Bee
places the average salary at $51,190. And let's take your average family, two parents,
(both working,) and two kids. That's $124,000. This seems like a lot of money, but it's not.
... ... ...
But I don't expect you to take my word for it, so let's start with the family that I introduced
earlier, 2 adults, 2 kids and $124,000 in income.
First there's the
federal income tax
of 25 percent, over a third of which goes to the military, perhaps to bomb a country you never
heard of. That's $31,000.
Of course that number doesn't include property taxes, sales taxes, other taxes, car insurance,
home insurance, other insurances, etc, and that's already $72,840. But hey, I said half, maybe they'll
get a tax rebate, so despite the tax and insurance burden clearly being more than half, let's go
with half. Now the family of four has a net income of $62,000.
The next two big items on the expenditure list are housing and food. People need a place to stay
and a place to eat. However we're talking about the middle class here, and they shouldn't be living
in Ghettoville, also known as Detroit. The
median home price is $425,000.
Presuming that they can get a decent rate, let's say four percent, that their housing value does
not decrease, (which usually isn't the case in California, or at least wasn't prior to economic
crash, but hey, at least comedians got a good laugh out of Gore's "locked box" speech, politician
wants to do something good for the economy – hilarious!) and that they take out a 30 year housing
mortgage, we're looking at $24,000 in home payments. Of course there needs to be a fund for
fixing the house, paying for utilities, etc. That can
cost about $300 a month on average,
so another $3,600.
After taxes, insurance and housing we're left with $34,400 for the hardworking family of four,
who probably need to eat. Presuming that they don't end up eating junk food all of the time,
the food would average out to be $60 a day for the family of four, one of the reasons being that
the mom is working and thus cannot cook Monday through Friday. That's $21,900. We're left with
$12,500. And I'm being generous, since I'm
basing that sum on
collegiate data.
I'm also guessing that the parents might need a way to get to work, probably a car. In California
you can get two decent cars for $25,000, and pay it off with $250 a month or $3,000 a year. But
you also need to pay for gas and car repairs. I don't drive as much as I used to and I still spend
about $100 a month on gas, and half of that on other repairs. Thus the car bill, for the parents,
assuming that they work fairly close to home and that they are safe drivers, is $6,600. We're left
with $5,900. -- [he forgot car insurance --NNB]
The charges still left include emergency situations, school supplies, clothes, toiletries, stuff
that families can do on the weekends, etc, etc, etc. That's Middle America. This is why people in
the US are having one kid instead of two: they cannot afford two. That's why the mom has to work,
instead of staying at home and raising her kids. What's that mean? The kid's raised by school, TV,
the Internet, and video games. Speaking of schools, most schools are not doing too well and quite
a few are failing miserably.
Please note what I did: I took the highest Middle America salary I could find, I've applied the
expenses generously and I still ended up with a loss. That's why
close to half of Americans are in debt. Speaking of Americans being in debt, here's
what's owed:
(OT) (Reuters) - U.S. construction spending rose less than expected in May, which could
prompt a further downgrading of second-quarter economic growth estimates.
Construction spending edged up 0.1 percent to an annual rate of $956.1 billion, the Commerce
Department said on Tuesday. However, April's construction spending was revised up to show a
0.8 percent rise, taking some of the sting out of the report.
Economists polled by Reuters had expected construction spending to advance 0.5 percent
after a previously reported 0.2 percent gain.
Inventories still rising, backlog of orders switched to declining. Lots of long tailed
cats remain who still remember that room full of rocking chairs last time.
Bubbles ride the surface, but ugly cuts to the bone.
And this market may look good, but deep down it is almost ugly as the characters that live
off of it.
That does not mean that it cannot continue on, with some pancake makeup and lipstick, for quite
some time. There is some thought that nothing bad, barring the exogenous and unexpected, will happen
before the midterm elections in November.
Highlights
Durables orders were much weaker than expected for May. Durables orders fell 1.0 percent in
May after rising 0.8 percent in April. Analysts forecast 0.4 percent. Excluding transportation,
orders slipped 0.1 percent, following a 0.4 percent gain in April. Market expectations were
for 0.3 percent.
...No durable goods report this am, I expect....so here is the lead from Bloomie, who (I
think) isn't jaundiced politically...
...Lunch is packed, and now I am off to the mountains..
"American families experienced significant losses in wealth during the Great Recession, and
these losses were distributed very unequally," said Fabian Pfeffer, assistant research professor
at the U-M Institute for Social Research.
In 2003, households at the top 5th percentile of wealth had 13 times more wealth than the
median household, according to the analysis. By 2013, this gap nearly doubled to 24 times as
much wealth.
While households at the top lost large amounts of wealth during the recession, those at the
bottom of the wealth distribution lost the largest share of their total wealth.
In 2003, households at the top 5th percentile of wealth had 13 times more wealth than
the median household, according to the analysis. By 2013, this gap nearly doubled to 24
times as much wealth.
Winning the future!
lawyerliz, 6/25/2014
Well, I was right, alas.
Like the dope dealers, some of the very rich can neither effectively spend nor invest
their wealth. Farr as I see, it exists to enforce their alphaness.
The Commerce Department said on Wednesday durable goods orders declined 1.0 percent as
demand for transportation, machinery, computers and electronic products, electrical equipment,
appliances and components, and defense capital goods fell.
Orders for durable goods, items ranging from toasters to aircraft that are meant to last
three years or more, increased by a revised 0.8 percent in April, when they were boosted
by defense equipment.
Remember when in January 2014, Q1 GDP was expected to rise 2.6%? Well, here comes the final Q1
GDP revision and it's a doozy: at -2.9%, far below the -1.8% expected and well below the
-1.0% second revision, it is an absolute disaster, and is the worst print since Q1 2009.
And while a bad GDP print was largely expected, the driver wasn't: personal consumption expenditures
somehow crashed from 3.1% to just 1.0%, far below the 2.4% expected, meaning that all hope of a
consumer recovery is dead. Finally, as a reminder, US GDP has never fallen more than 1.5% except
during or just before an NBER-defined recession since quarterly GDP records began in 1947. Good
luck department of truth propaganda machine, because even assuming 3% growth every other
quarter in 2014 means 2014 GDP will be 1.5% at best!
Major stock averages remain in earshot of all-time highs and this bull market has been nothing
if not resilient, repeatedly defying predictions of its demise for five-plus years.
Still, Robert Shiller, Yale professor and Nobel prize winner, is "definitely concerned" about
the outlook for stocks based on the cyclically adjusted price-to-earnings ratio (CAPE) he created.
At 26, the so-called Shiller PE is currently well above its long-term average of 17 and approaching
levels that previously presaged doom for equities.
Shiller has plotted CAPE going back to 1881 and notes (with some alarm) it has only been higher
than current levels three times: In 1929, 2000 and 2007.
"It looks to me like a peak," he says in the accompanying video. "I would think there are people
thinking 'it's gone way up since 2009, it's likely to turn down again.' That's what people might
plausibly think."
Anecdotal evidence does indeed suggest people are thinking "the end" of this bull run is nigh.
But if the market "climbs a wall of worry," that's arguably a bullish sign as my colleague Michael
Santoli
describes here.
And Shiller is quick to note the CAPE is not a market-timing tool and he remains in the market
in his personal account. "We don't know what it's going to do," he says. "Realistically, stocks
should be in one's portfolio but maybe lighten up."
Stocks should be in one's portfolio in part because interest rates are so low and "the fixed
income market just doesn't look very attractive," Shiller says.
As for the idea,
proffered here by Citigroup's Tobias Levkovich, that CAPE is flawed because it doesn't "normalize"
for interest rates (as it does for earnings), Shiller says the following: "He's right the very low
interest rates are a sign maybe you want to keep more invested in the [stock] market now rather
than getting nothing [from bonds]. That ought to help explain the high CAPE but that doesn't mean
the high CAPE isn't a forecast of bad performance."
So what does Shiller, whose books include Animal Spirits and Irrational Exuberance,
make of the recent steep declines in trading volume and volatility? Watch the accompanying video
to find out.
Aaron Task is the host of The Daily Ticker and Editor-in-Chief of Yahoo Finance. You can
follow him on Twitter at @aarontask
or email him at [email protected].
Roman
In addition to severe lagging and other shortfalls, I folks completely mis-use Shiller P/E.
Robert Shiller linked the 10-year AVERAGE real P/E to subsequent 20y AVERAGE return (check his
book, or Wikipedia for 'shiller p/e').
Therefore, we will know 20y average return staring this year ONLY in 20 YEARS. Instead, folks
tend to incorrectly use it as predictor of mid-term or short-term stock market return. Shiller
P/E is really only good as an ex-post metric, to make sense of history, not as a forward-looking
measure of equity market valuation. For forward-looking measures, take a look at our approach
modelcapitalmgmt.com
Wall Street and Washington want you to believe the stock market isn't rigged. Guess what?
It still is
Michael Lewis woke up Average Joe investors, but the fat cats are still trying to lull you
into financial submission with their intellectual dishonesty
Most Americans don't think much about the stock market, and that's just fine with Wall Street.
Because once you wake up to how screwed up the stock market really is, the financial industry knows
you're likely to get very nervous and take your money out.
Many are catching on: between 2007 and 2014, investors pulled $345bn from the stock market. E-Trades
are down and worries are up, with 73% of Americans still not inclined to buy stocks, five years
after the financial crisis.
No wonder "investor confidence" – the mass delusion that the stock market is trustworthy – has
been in short supply this year. Nothing has done more to decimate it than Michael Lewis's new book,
Flash Boys, which focuses on the predatory behavior of high-frequency trading. Nobody – including
Congress – cared much about the "high-tech predator stalking the equity m " before Flash Boys
hit the bestseller list, reaching beyond the walled garden of the financial industry into American
dining rooms and Washington hearing chambers. It didn't leave all spring.
So last week, Washington featured a lot of handwringing, in two separate Congressional panels,
about how to convince Average Joe investors that the stock market is their friend – even when it
obviously isn't. And it's great that elected officials and Wall Street millionaires are talking
about investor confidence. But they're not talking about what really matters: investor protection.
Guaranteeing that everyone gets a fair shake. Un-rigging the stock market.
Yet in Congress, the worry is all about appearances.
"We've heard a consistent message, and that's that there is a lack of confidence in the [stock]
m ," Senator Carl Levin said on Tuesday to open his Senate investigations subcommittee panel
inspired by Flash Boys. New York Stock Exchange president Tom Farley echoed that sentiment, testifying
that participation of US citizens in the stock market is at a 16-year low – and blaming regular
investors for simply not believing enough: "We think the reason for that is [lack of] confidence
in the m ."
Let's get one thing straight: Investor confidence is not the problem. The screwed-up stock market
is the problem. It's time to break down the polite fiction that investing in the stock market is
something that sane, rational, sensible people do. It is a high-risk contact sport for your money.
If you know that, you're ahead of the game.
And the more you read about the new game in town, the more nervous you should get about high-frequency
trading (HFT).
Rich, elite traders are making millions of dollars in bonuses by using super-fast computers to
swoop into the stock market and conduct trades in milliseconds, faster than even most professionals
and certainly faster than any Average Joe. The HFT industry – a collection of stock exchanges, hedge
funds, banks and others that has actually been around for six years – collects billions of dollars
in profits: the kind of money you just can't earn unless you elbow someone else out of the way.
Numerous studies show that Flash Boys-style trades affect stock prices and increase fees for long-term
investors. The New York state attorney general even has a nickname for it – "Insider Trading 2.0"
– and now would-be investors are starting to realize, once again, just how much the decks are stacked
against them.
As Senator Elizabeth Warren noted at her Senate panel on Wednesday, one high-frequency trading
firm, Virtu, made a profit on 1,237 out of 1,238 trading days. "You know, this isn't trading," Warren
said. "Traders have good days and bad days... but high-frequency traders have only good days."
Nice work if you can get it.
murhill, 22 June 2014 1:11pm
There is a fundamental difference between the stock market, and the corn market or the oil
market.
If the price of oil or corn goes up a bit, producers will produce more, and consumers will
consume less. And conversely, if the price goes down. This tends to maintain the supply and
demand in equilibrium.
If parties which are neither producers nor consumers try to manipulate the market, for example
by forcing prices down, then the supply of product to the market will dry up. If the price of
corn goes too far down, farmers will plant soybeans or wheat or canola or cotton instead. If
the price of oil goes too far down, owners of old or expensive wells will abandon them. Supply
will contract.
But in the stock market, if you can succeed in forcing the price down far enough - then bonanza,
there is a huge burst in new supply at bargain prices. Companies are pursuaded, often against
their best interests, and almost certainly against their existing shareholders' interests, to
issue vast amounts of new shares, at low prices, to privileged parties. The supply vs price
curve does not have the continuous and monotonic behaviour that the economists say that it should
have. This does not happen, in the oil or corn market.
BruceMullinger, 22 June 2014 1:35pm
A stock market is but a glorified casino and there are those who would rather see a plane
crash than a stock market crash.
That Wall St. is the centre of our economic universe is testament to just how warped and decadent
"the economy" has become.
Unfortunately, most of the love in the world is the love of money and if money is indeed the
root of all evil then the society is in a hell of a lot of trouble.
remarks, 22 June 2014 1:37pm
You seem to be effectively mixing up day trading/.short term trading of shares with long
term buy and hold (investing). The former will wipe most people out, the latter has taken a
knock but over the long term is not a bad way to save money.
Unlike the rigged pyramid house price taxpayer subsidised scheme, investing in shares is
generally not taking away homes, as BTL and homeowner speculators do. And investing in shares
of productive companies that employ people and who pay taxes why not, people should be encouraged
to invest in such business and the tax system should be used to discourage speculation in the
rigged housing market.
Bar some major external political or economic turmoil wouldn't be surprised if the FTSE hits
7500 this year.
After this year's Secular Forum, PIMCO adopted its New Neutral view: We expect global economies
to converge to modest trend growth rates over the next few years. What does The New Neutral mean
for inflation risk around the world?
Deputy Chief Investment Officer Mihir Worah, head of PIMCO's real return and multi-asset portfolio
management teams, discusses PIMCO's expectation of low but rising inflation over the next three
to five years, and what it means for investors.
While retirees can generally leave their savings in 401(k) plans, financial firms entice them with
cold calls, Internet ads, storefront signs and cash incentives to switch to IRAs. They tout the
advantage of the IRA's wide variety of investment choices over the typical 401(k) plan's limited
menu.
Yet that appeal can also be a pitfall for retirees offered expensive and high-risk investments.
IRAs often charge higher fees than those associated with 401(k) plans, giving brokers an incentive
to promote rollovers.
"You're going into the wild, wild west when you take your money out of a 401(k) and put it into
an IRA," said Karen Friedman, executive vice president and policy director of the
Pension Rights Center,
a Washington-based group representing retirees.
Tarr's clients paid higher fees in their brokerage accounts than they would have in their AT&T
plan. There's no way of knowing exactly how they would have fared if they had left their savings
behind. Employees in 401(k) plans, including AT&T's, also faced losses during the 2008 financial
crisis, though the market has since rebounded to reach new highs.
Tarr, who left Royal Alliance
in 2010, stands by her advice, saying the investments held up well in a difficult market. She said
she didn't even know about the commissions each investment paid and wanted to do what was best for
her clients.
'Forever Besmirched'
In a more than two-hour interview, Tarr said she often tried to talk customers out of rolling
over their pensions, but that many were eager to have the lump sum to generate higher returns and
leave money to their children. She always made clear that she worked for Royal Alliance, not AT&T,
she said.
"I am forever besmirched, and that is really hard for me," said Tarr, fighting back tears. "I
am a minister's daughter and granddaughter. If anyone thinks I would do anything illegal, immoral
or unethical, that hurts me where I live."
Tarr's strategy of focusing on one big company isn't unusual. A broker for another AIG unit,
FSC Securities Corp., cold-called employees of
UPS (UPS), the world's largest package-delivery company, in the area around its headquarters
in Atlanta, according to a June 2013 complaint. Nine customers, including six UPS employees, lost
more than $1 million when broker Brian G. Brown rolled over their retirement money into high-risk
investments, including oil and gas private placements, they said.
Experienced Customers
AIG, based in New York, declined to comment on the complaint against FSC. In a filing responding
to the allegations, FSC said most of the customers were multi-millionaires "with decades of investing
experience" who understood the risks.
Brown left FSC in 2010 and works for another brokerage company in Atlanta.
The complaint "hasn't been arbitrated, and all of it is not true," he said in a telephone interview.
Federal regulators are targeting rollover abuse. Last year, the U.S
Government Accountability
Office, Congress's investigative arm, found that a conflict of interest was fueling IRA growth.
Financial companies that administer 401(k) plans misled GAO investigators posing as departing employees,
telling them they would almost always be better off if they shifted to IRAs that the companies also
managed.
Fiduciary Standard
The U.S. Labor Department has said it will propose rules in January that brokers and other advisers
act in clients' best interests during rollovers, a so-called fiduciary standard. The agency had
announced a similar plan in 2010. Brokers are generally held to the lower standard of selling products
that are suitable for their customers, meaning that they don't have to put their clients' interests
first as long as they select appropriate investments. In January, Finra, the Wall Street self-policing
group, warned members that it would heighten its scrutiny of IRA rollovers.
The Securities Industry and Financial M
Association, which represents
brokers, banks and money managers, opposes stricter regulation. It would hurt commission-based brokers,
limiting consumer choice, according to the group. Disclosure rules are already sufficient to protect
customers, said Ira Hammerman,
the association's executive vice president and general counsel.
"If someone offers you $600 to roll over your IRA, you can be sure you are going to be paying
a lot more additional expenses later," said Mercer Bullard, an associate professor at the University
of Mississippi Law School who heads Fund Democracy, an advocacy group for mutual-fund shareholders.
Incentives 'Commonplace'
Kristen Georgian, a Bank of America
spokeswoman, said such incentives are "commonplace for many leading brokerage firms." The company
informs clients about their options, "including keeping their assets in place," she said.
"We believe strongly in rollovers," said Mike Loewengart, E*Trade's director of investment strategy.
Clients benefit from more transparent fees and broader investment options in an IRA with E*Trade,
he said.
In a 401(k), an employee sets aside money -- often with a company match -- in a menu of mutual
funds, which aren't taxed until withdrawal and, in some cases, at all.
Cheaper 401(k)s
Once workers exit a company, they generally can leave the money behind, roll it over into an
IRA, transfer it to another 401(k) or cash out and suffer a huge tax hit. In a rollover, customers
set up IRAs with financial companies, preserving their tax deferral.
Though 401(k)s offer fewer choices than IRAs, large companies such as AT&T negotiate for institutional
discounts on the funds they select. As a result, 401(k) participants paid less than half the average
1.4 percent annual expenses charged to all U.S. stock mutual-fund investors, according to a 2013
study from the
Investment Company
Institute, a Washington-based mutual-fund industry trade group.
Still, almost 18 million U.S. households hold IRAs that include rollover money, estimated a
recent report from
the Investment Company Institute.
After he lost his job in 2009, Manuel Gonzalez Martinez, a mechanical engineer for Hewlett-Packard
in Puerto Rico, rolled over $150,000 from a 401(k) and a lump-sum pension payment to an IRA with
UBS AG (UBS), the Swiss financial-services company.
'Stuck' With Bonds
His broker, Luis Roberto Fernandez Diaz, recommended Puerto Rico municipal bond funds with a
3 percent upfront sales fee and 1 percent annual expenses, according to his arbitration complaint
with Finra, which lists 17 customer disputes against Fernandez from 2009 through 2014. Six of them
have been settled.
Financial advisers generally frown on investing an IRA in municipal bonds because their main
advantage is tax avoidance, something that is already a feature of an IRA. Worse, the bonds plunged
in value because of the deteriorating finances of Puerto Rico and are now worth only $90,000, Gonzalez
said.
"I am stuck with the bonds," said Gonzalez, 51. "They are a just a number on paper."
UBS doesn't comment on individual arbitration cases, said spokesman Gregg Rosenberg. In a filing
responding to the allegations, UBS said Gonzalez "invested very profitably in the funds" for years
before the municipal bond market
deteriorated.
Fernandez now works as a broker for Popular Securities. Teruca Rullan, a spokeswoman for Popular
Inc., the parent company, said he would not be available for comment.
Vulnerable Workers
At the time of leaving a longtime employer, workers are often confused and vulnerable to unsound
financial advice. In 2010, Albert Grathwol stopped by a hotel to attend a seminar organized by Raymond
J. Lucia Sr., a radio personality who also ran an investment firm. Grathwol was about to retire
as a structural engineer for
Marc Fagel, an attorney
for Lucia, declined to comment because Grathwol's complaint is still in arbitration.
Joseph Kuo, a First Allied spokesman, also said the company doesn't comment on pending arbitration
cases, while noting Lucia is no longer affiliated with the brokerage. In a filing responding to
the allegations, First Allied said they were "baseless," because the REITs were "only one part of
a layered investment strategy" and the Grathwols were fully informed of the risks.
Employees at AT&T faced similar quandaries about where to entrust their savings.
AT&T Ranking
Based in Dallas, the telecommunications company, with 246,000 workers, is one of the largest
private employers in the U.S. AT&T's 401(k) ranks among
the best 15 percent of U.S. plans in terms of fees, according to BrightScope, a financial information
company that rates retirement offerings. AT&T funds, which are available only to employees, charge
expenses as low as .01 percent.
Typically, when employees retire or lose their jobs, they have the option of rolling over their
401(k)s or, in most cases, leaving them behind in the same low-cost investments. At AT&T, they often
have another big decision. Along with their 401(k), they can take a pension -- a monthly fixed payment
for life -- or an equivalent payment that could amount to hundreds of thousands of dollars.
Business Opportunity
Sensing a business opportunity, broker Richard McCollam, a West Point graduate and former U.S.
Army captain who had worked for insurer
MetLife (MET) Inc., began marketing to AT&T employees with 401(k) rollovers and lump-sum
pension payments.
Starting in 1994, McCollam worked for Royal Alliance, part of AIG's Advisor Group, one of the
largest networks of independent brokers in the U.S., with about 6,000 representatives. While McCollam
handled the back office, Kathleen Tarr, who joined him as a broker in 2002, prospected for clients.
"If you are like most AT&T retirees, you probably feel that you are drowning in information that
may be confusing and frustrating," according to marketing material saved by a former customer.
Tarr had an unusual background for a financial adviser. She has a Ph.D. from the
University of California at Berkeley,
where she studied invertebrate physiology. She taught briefly at UC-Irvine before quitting to raise
three boys. She then went back to work as a private-school teacher and then in finance after her
husband lost his job as a biochemist.
Chaplain's Daughter
Like many at Royal Alliance, Tarr and McCollam worked out of their homes, in Contra Costa County,
near San Francisco. Tarr, who had just turned 50 when she teamed up with McCollam, had an easy manner
with soon-to-be retirees. The daughter of an Army chaplain and granddaughter of a Congregational
minister and missionary, she would invite clients to hear her sing at a local Episcopal church,
where she led the soprano section.
Tarr won referrals by word-of-mouth, meeting clients both at their homes and, by appointment,
at AT&T offices across the San Francisco area.
Mark Siegel, an AT&T
spokesman, said the company provides information about benefits, but doesn't endorse specific financial
advisers, which aren't affiliated with the company.
Siegel said the company periodically sends alerts to employees, such as an e-mail from last October,
which warned: "You should research the individuals contacting you and their organizations before
doing business with them."
Non-Traded REITs
McCollam said they recommended that clients put 60 percent to 70 percent of their money in variable
annuities. The balance would end up in non-traded REITs, including Oak Brook, Illinois-based
Inland American Real Estate (IARE) Inc. The REITs generated dividends of 6 percent to 8 percent
a year, providing an alternative to the vagaries of the stock market, Tarr said.
In variable annuities, customers invest in mutual funds within an insurance wrapper, which offers
a death benefit, typically providing heirs a minimum payout. Earnings are tax-deferred.
Investing in a variable annuity within an IRA "may not be a good idea" because it provides no
additional tax savings over an already tax-advantaged IRA, according to a
Finra alert originally posted on its website in 2003 and updated in 2009. The annuities will
increase costs, "generating fees and commissions for the broker or salesperson," Finra says.
Variable Annuities
Customers often choose variable annuities because they offer a guaranteed minimum lifetime income,
which is assured no matter how their investments perform, said Andrew Simonelli, a spokesman for
the Washington-based Insured Retirement
Institute, which represents companies that offer annuities.
"While tax deferral is certainly part of the value proposition of annuities, it's not the only
reason," Simonelli said.
McCollam said he, Tarr and Royal Alliance would generally receive a total commission of as much
as 6 percent or 7 percent of the money that clients invested in variable annuities. The mutual funds
they selected would charge customers 2 percent to 3 percent a year in fees. Those fees were no higher
than those of many mutual funds sold by brokers, Tarr said.
Broker Commissions
The brokers and Royal Alliance also received commissions totaling 6 percent to 7 percent for
selling non-traded REITs, McCollam said. Typically, Tarr and McCollum kept 90 percent of their commissions,
giving 10 percent to Royal Alliance, McCollam said.
Over time, the pair signed up as many as 500 customers, most from AT&T, McCollam said. Overseeing
about $90 million in investments, their business generated about $600,000 to $700,000 in annual
commissions -- and $1 million in its best year, he said. As the founder of the operation, he would
keep 90 percent and Tarr, 10 percent, McCollum said. He said they won sales awards, with Royal Alliance
sending one or both to resorts in the Bahamas; Boca Raton and Orlando, Florida;
Arizona and Texas.
Doug Beal, a $32-an-hour mechanic specializing in air-conditioning and fire detection, heard
about Tarr from his union steward. Tarr visited Beal in his shop, where he worked outside
San Francisco.
"I wanted something where I wouldn't lose a whole bunch if the market went crazy," said Beal,
a disabled Vietnam veteran.
When he retired in 2009, Beal invested $320,000 in variable annuities and REITs, rolled over
from his pension and 401(k). He has since lost $60,000 because of a decline in the REITs' value,
said Frank Sommers of Sommers & Schwartz LLP in San Francisco, who represents 17 of Tarr's former
clients.
Paying Bills
Beal is deferring his dream of moving up to Spokane, Washington, where he hopes to set up a shop
to tinker with motorcycles and old cars, including a 1926 Model T Ford in his garage.
"It's making it a little harder to pay bills," said Beal, 67, who also receives disability payments
related to military service. "Thank God for my VA pension."
Tarr cultivated some employees for years, such as Mae Holloway, who started her 40-year career
at AT&T as a telephone operator and ended up overseeing maintenance in Oakland. Tarr would stop
by Holloway's desk, encouraging her to come up with a budget for her retirement.
In 2008, Holloway, then making $69,000 a year, decided it was time to leave. She was 62 and figured
she needed her investments to generate $3,000 a month. So, hoping she could have money left for
her children after she died, she turned down the guaranteed $2,500 a month pension and took a $600,000
lump sum payment from her pension and 401(k). She rolled it over into an IRA, invested in variable
annuities and REITs.
'No High Risk'
"If I do this, can you guarantee I won't go broke before I leave this world?" Holloway remembered
asking Tarr. "And she said yes. I told her no high risk. I didn't want to be aggressive."
Tarr said she would have never made that kind of statement.
"I used to call it the G-word," she said. "I could never guarantee anything. That is the first
rule of investing."
Holloway lost about $90,000 because of the reduced value of her REITs, according to Sommers,
her attorney.
"I'm losing sleep over it," Holloway said. "I should have just left it. I wanted to leave money
for my kids."
Lew's Mortgage
Lew, the former administrative assistant with the hole in her kitchen ceiling, has a more immediate
worry: paying her mortgage. An immigrant from Central America, she retired from AT&T in 2003 with
an IRA set up by Tarr. Afterward, they often discussed investments over coffee at Lew's kitchen
table, as her prized green parrot squawked in a cage with a sweeping view of the parched hills surrounding
San Francisco.
Lew started her withdrawals at $2,000 a month, then bumped them to $2,500. Lew said Tarr blessed
the move -- something Tarr disputes, saying she had warned against it.
By 2010, Lew noticed losses in her account. Her REITs have plunged $145,000, according to Sommers.
To make ends meet, she is caring for neighbors' children. She will run out of money in three
or four years, which could force her to sell her house.
"I was old-fashioned like my mom about planning for the future," said Lew, 61. "I never thought
I'd end my years worrying about money."
'Good Advice'
McCollam said that Lew, Beal and Holloway showed modest gain in their account, when the dividends
from REITs are taken into account.
"We feel like we gave as good advice as we could have given," McCollam said.
In 2010, Royal Alliance
dismissed Tarr and McCollam, citing a failure to follow a policy for pre-approval of variable annuities,
according to a Finra filing.
"No client was adversely impacted by any omission by either Mr. McCollam or Ms. Tarr -- all transactions
were ultimately reviewed and determined appropriate," Linda Malamut, a Royal Alliance spokeswoman,
said in a statement. "Further, the terminations were unrelated to any transaction by a client who
filed a complaint with Royal Alliance." Malamut declined to answer more detailed questions.
Tarr Dismissed
Before Tarr was fired, she said she had already left Royal Alliance to join a competitor because
of frustration with the backlog in approving the annuities. Royal Alliance put a black mark on their
record because the company was upset about losing their business, Tarr and McCollam said. Royal
Alliance then contacted clients, sparking the flurry of arbitration complaints, which came after
their dismissal, according to Tarr and McCollam.
As investments soured, 37 customers complained about Tarr to Finra, which logs disputes with
brokers in public records. Fifteen of these complaints are pending, four were settled, and 18 were
closed without action. The agency lists 11 complaints against McCollam. Eighty-eight percent of
brokers do not have any complaints, disciplinary proceedings or other adverse actions listed with
Finra.
Brokerage customers typically sign a contract giving up their right to sue in court and requiring
them to submit to Finra arbitration. These proceedings are generally confidential. Sommers said
ten of his clients have filed arbitration claims against Royal Alliance, Tarr and McCollam, and
he expects at least two more will too.
Lawsuit Filed
Last week, seven of Sommers' clients, including Lew, filed suit against Royal Alliance in state
court in Alameda County, California. The complaint alleges breach of fiduciary duty, fraud and failure
to supervise its brokers, leading to more than $1 million in damages. The former employees were
placed "in totally unsuitable investments" that were "designed to maximize the commissions and fees"
paid to the company and the brokers, according to the lawsuit.
In 2012, arbitrators awarded three former AT&T employees a total of $1.4 million in damages
and interest from Royal Alliance, according to a filing with a California court, where the company
unsuccessfully appealed. Darlene Peterson, Karen LaBuda and Sherry Leach-Warth each worked at AT&T
for more than 30 years.
McCollam and Tarr said they did not appear at the arbitration to defend themselves and that losses
suffered by the three customers were modest.
Tarr, 61, is now working as president of
AeroComputers Inc., an Oxnard,
California aviation company catering to
law enforcement. She took
over from her brother-in-law, who died in January.
Tarr said she believed in the products she sold at Royal Alliance, but would have changed course
if the brokerage had objected.
"Royal Alliance could have said to me five years ago, we've been looking through your book of
business, we think you're a little heavy on variable annuities, let me suggest alternatives," Tarr
said. "They never said anything. Nothing."
(An earlier version of this story was corrected to show that a payment is one-time, not annual)
IMF Warns Of Housing Crashes - World Bank Says 'Now Is The Time To Prepare For Next Crisis'
Yesterday, the IMF and World Bank issued warnings about the global economy.
The International Monetary Fund (IMF) warned that the world must act to contain the risk of another
devastating housing crash. The World Bank warned that the anticipated rise in interest rates will
hit global growth this year - and presumably house prices too.
"We are not totally out of the woods yet," Kaushik Basu, the World Bank's Senior Vice President
and chief economist and he warned that "now is the time to prepare for the next crisis."
The warning from the IMF came as it published new data showing house prices are well above their
historical average in many countries as covered in the
Financial Times today. The data shows how an acceleration in house prices in many countries
from already high levels has emerged as one of the major threats to global economic stability.
Financial Times
House prices "remain well above the historical averages for a majority of countries" in relation
to incomes and rents, Mr Zhu said in a speech to the Bundesbank last week, which was only released
on Wednesday because it clashed with a European Central Bank announcement. "This is true for instance
for Australia, Belgium, Canada, Norway and Sweden," he said.
Financial Times
In the wake of the global recession central bankers have cut interest rates to record lows, pushing
house prices to a level that the IMF regards as a significant risk to many economies.
There was no mention of the housing bubbles in important financial centres such as New York or
of the London property
bubble. The clear warnings by the two institutions were not covered by much of the non specialist
financial media and the majority of the public will not be aware of them - nor will at risk house
buyers in many countries.
The World Bank's chief economist is offering important advice to investors and savers when he
said that "now is the time to prepare for the next crisis."
One important way to do that is to own gold in the safest way possible: 7 Key Allocated Gold
Storage Must Haves
honestann
The world economy cannot survive WITHOUT a housing crash. Think about it.
A house is the number one expense for most families. Every extra dollar spent on a house
is one less dollar for every other expense. And every other expense is a synonym for... the
economy.
The only scumbags who benefit from higher home prices are banksters. Why? Because the more
people cannot afford basic expenses, the more they borrow. Which means more money for banks,
more people become debt serfs, and more generations of debt serfs into the indefinite future.
LOW PRICES ARE GOOD FOR THE ECONOMY.
And low prices on the biggest expenses are especially beneficial.
Agreed! 100% correct! We need a massive housing BUST, and the sooner the better!
I live in the further Greater Toronto Area and it's fuking mad how many new developents are
going up - tearing up farmland to build brand new cookie-cutter "homes" for God-knows who. Blackberry
is defunct and they are still building like MAD in my city. It's fucking lunatic!
Here's Carney after todays "hawkish" BOE statement;
"Mark Carney told households, companies and financial m that the tightening
cycle "could happen sooner than m currently expect". Mr Carney also outlined that measures
to cool down the housing market in the UK will act as a substitute for gradual rate rises.
...AND TO ADD ASININE TO THE ALREADY MORONIC....
Carney added, in an attempt to justify future rate hikes, that "growth has been
much stronger and unemployment has fallen much faster than either we or anyone else expected."
This, after the GBP went full retard at 4pm....bizarre that they would affect their own shit-currency
after their m are closed.
Look for some pissed off "Russell Crowes" AND HIS LAB RATS tomorrow morning in London
moneybots
"We are not totally out of the woods yet," Kaushik Basu, the World Bank's Senior Vice President
and chief economist and he warned that "now is the time to prepare for the next crisis."
We are in the deep dark middle of the forest, not even close to getting out of the woods.
Adding 30 trillion dollars to global debt digs a deeper hole in the middle of the dark forest.
There are millions of Americans who hoped 2014 would be the year their financial lives would
improve. After the struggle of a stagnant country since 2009, economic forecasts predicted that
a real recovery was coming - that this this would be the year for a well-paying new job, a house,
the year those Americans would pay off student loans or reduce their credit-card debt.
But nothing can really improve for us individually until everything improves for all of us economically.
And, increasingly, that utopia looks distant. According to the numbers – and to an increasingly
frustrated group of experts – the first few months of 2014 are turning out to be a bust, and there's
no reason to believe the rest of the year will be any better, for the haves or the have-nots.
First, there are the basics. This year has started with bad news for consumers: a
weaker housing
market, anemic employment with 10m people out of
work and millions of others not even looking any more, plus
economic growth that's lower than it's been in three years.
Guy LeBas, a managing director at Janney Capital M who called the GDP figures "an absolute
tape bomb," pointed out: "2014, what was supposed to be the 'break-out' year according to many optimistic
forecasts, would be starting off with the weakest performance of any quarter since 2011."
There are other, wonkier measures that fill out the picture: productivity, a measure of the robustness
of the American workforce, dropped to 3.2% in April - the sharpest tumble since 2008. Personal spending
is falling, into negative territory, because healthcare and high gas bills were the main things
Americans were buying this winter, and they aren't now.
To millions of Americans, this downward trend is no surprise, even if the numbers are new. The
relentless cheerleading about the improving economy never really made sense for a large swath
of Americans: those who were forced to take lower-paying jobs, had their houses foreclosed by banks,
or were drummed out of the workforce into long-term unemployment.
What's different this time is that the misery is starting to spread higher up.
The paradox of the "recovery" for the past five years has been that consumers suffered while
corporations and Wall Street raked in profits unseen in their history. At the end of 2013, corporate
profits
hit an
all-time high of $1.9tn. Those profits were largely achieved not by growing, but by cutting
- cutting jobs, investment in research, and new projects. Banks benefitted, too, with their
profits
of the six largest US banks reaching $76bn last year - not so far from the record of $82bn in
2006. That was also based on cutting - mainly, on cutting out consumers from mortgages and other
lending.
The corporate balloon is popping: trade deficits jumped to a two-year high, and once-bulletproof
companies and banks are suffering as corporate profit margins fell 14% in the first three months
of the year – at the expense of American workers, of course, with
Goldman
Sachs dispassionately declaring that "wage growth has shown little evidence of a pick-up".
The negative economic data recently has been waved off by any number of economists, who dismissed
the GDP drop into negative territory, for instance, as an anomaly. It's the same way many economists
have waved off America's persistent unemployment crisis. The promise was that the economy was storing
up all its energy, that consumers were temporarily holding back until they would be released - by
weather, by credit, by sheer impulse - to go on economy-boosting spending sprees throughout the
country.
For anyone paying attention, hearing these chipper decisions to ignore the data was like falling
through the looking glass.
Lindsey Piegza, chief economist of Sterne Agee, was paying attention. Her prediction for GDP
growth in the second half of the year is about 1.7% – less than half of what many others are predicting.
"The momentum that I found most economists pointing to, I wasn't seeing that," she told me. "A
lot of economists were expecting this rebound in demand in the consumer sector, but it's not as
if consumers were at home twiddling their thumbs waiting to spend money."
In her discussions with businesses, too, she gets the impression that "they're trying to keep
their heads above water. … I'm not seeing where the momentum is coming from."
That will trickle down to workers and consumers. Guy Lebas, a managing director with Janney Capital
M , says as long as companies are "finding it more productive to buy back shares than build
new factories, productivity will remain at best stagnant."
No wonder consumers – those engines of economic growth – don't have much money. Income growth
is at its lowest point since 2007. When people are shopping, they're using borrowed money - "some
of it credit, 401ks, investment portfolios", Piegza says.
A good example: the boom in auto sales. GM, Ford and Chrysler have been selling cars at a rapid
clip,
despite the recall scandals. The reason? Auto loans are cheap and readily available, and
the lenders aren't too picky. The average auto loan is now about $28,000 a car, and one-quarter
of new loans are being paid out over as much as seven to nine years. Lenders are also giving auto
loans to people with bad credit - subprime consumers. Auto sales are booming purely on the back
of the American willingness to go into unimaginable levels of debt with very little collateral.
For things that aren't cars - houses, and clothes, and gadgets - Piegza says, "we have nowhere
to go but waning consumption levels."
Translation: expect people to squeeze their wallets shut, and hard.
To find out why, look to employment and housing, those two stalwarts of financial security for
most people.
The job market is not yet secure. The real unemployment rate - not the one in headlines (6.3%
in May, the US Department of Labor announced Friday morning), but the one that counts a fuller number
of the unemployed as well - is around 12%. Companies are hiring, but it's "temporary flexible labor,"
and even though the economy is adding jobs, many of them are low-quality and low-paying.
Housing is also becoming weak, after false claims last year that a recovery was on the way.
The problem is simple: housing is too expensive for most people to afford, especially because
mortgages are scarce. To paraphrase
a New York political candidate, the mortgage is too damn high. Or, as Ian Shepherdson of Pantheon
Macroeconomics puts it:
The end of the severe winter weather will not bring with it a sustained revival in the housing
market. The real problem is last year's massive deterioration in affordability, the worst for
32 years. Housing is not going to drive the economy forward for the foreseeable future, and
could easily be a net drag for some time yet.
This is not a permanent situation. The economy changes - monthly, weekly, and daily. It is volatile.
It can turn around, but it would require something to create a giant shot of economic growth - a
massive investment in infrastructure, for instance, or a sudden demand for US products. If US consumers
aren't buying, maybe Chinese consumers will get excited about spending again.
There's no evidence that anything like that is in the works - and with an election coming in
November, vast swaths of Washington lawmakers are happier to believe magical thinking that says
the recovery is already here. Talk won't fix the problem.
For the rest of us, there's not much to do but be more careful with our money, work a little
harder to keep our jobs, and not make any plans for big spending. It won't improve the economy.
But it will mean we won't be surprised or particularly vulnerable if the bad times keep going just
a little bit longer.
Celtiberico, 06 June 2014 1:50pm
The paradox of the "recovery" for the past five years has been that consumers suffered
while corporations and Wall Street raked in profits unseen in their history. At the end
of 2013, corporate profits hit an all-time high of $1.9tn. Those profits were largely achieved
not by growing, but by cutting - cutting jobs, investment in research, and new projects.
Future historians will have a belly-laugh about those figures...
mcgill16 -> Celtiberico, 06 June 2014 2:02pm
It's incredible.
We hear daily on all the media, the elite speaking with great gravitas about economic reality,
the way to success, the free market etc etc, and actually they are just a bunch of self interested,
pretty thick wankers, who are completely winging it while they endeavour to fill their pockets,
without a care for their fellow human beings.
Consumers are not the engines of economic growth. That's the hangover of flawed Keynesianism
speaking.
Producers are the engine of economic growth. Or more particularly, it is the entrepreneurs
who find ways of configuring the capital structure more efficiently and better matched to what
people want to consume, who drive innovation and thus growth.
Zakida succulentpork, 06 June 2014 1:56pm
Indeed, consumers are the result of economic growth.
succulentpork succulentpork, 06 June 2014 1:56pm
I Want to be a Consumer
"And what do you mean to be?"
The kind old Bishop said
As he took the boy on his ample knee
And patted his curly head.
"We should all of us choose a calling
To help Society's plan;
Then what to you mean to be, my boy,
When you grow to be a man?"
"I want to be a Consumer,"
The bright-haired lad replied
As he gazed into the Bishop's face
In innocence open-eyed.
"I've never had aims of a selfish sort,
For that, as I know, is wrong.
I want to be a Consumer, Sir,
And help the world along."
"I want to be a Consumer
And work both night and day,
For that is the thing that's needed most,
I've heard Economists say,
I won't just be a Producer,
Like Bobby and James and John;
I want to be a Consumer, Sir,
And help the nation on."
"But what do you want to be?"
The Bishop said again,
"For we all of us have to work," said he,
"As must, I think, be plain.
Are you thinking of studying medicine
Or taking a Bar exam?"
"Why, no!" the bright-haired lad replied
As he helped himself to jam.
"I want to be a Consumer
And live in a useful way;
For that is the thing that is needed most,
I've heard Economists say.
There are too many people working
And too many things are made.
I want to be a Consumer, Sir,
And help to further trade."
"I want to be a Consumer
And do my duty well;
For that is the thing that is needed most,
I've heard Economists tell.
I've made up my mind," the lad was heard,
As he lit a cigar, to say;
"I want to be a Consumer, Sir,
And I want to begin today."
Boghaunter, 06 June 2014 2:16pm
I think of conversations about Piketty's book (confession: I haven't read it yet) and that
"profits" are being made by manipulating money rather than producing anything. Producers depend
on consumers to buy their product and so production is a better gauge of reality than simply
"profits". The current high stock market levels and profit claims are tied to the manipulation
of money - not actual economic growth. Thanks, Heidi, for this column.
psygone, 06 June 2014 2:23pm
[.. the truth about the economy ..]
Obama's economic policies have failed the very people who voted for him at a rate of 90+
percent:
Minorities, university students and the millions of 30 somethings who live in the basement
of their parents.
-- of course, after six years in office, our incompetent community organizer still has no
clue on how a job is created, and has yet to take full ownership of the presidency because he
likes to blame Congress and the previous administration for everything.
Hopie! Changie!
AnEmptyHourglass Heidi N. Moore, 07 June 2014 4:01pm
It's a good article, and a necessary article given all the government propaganda trying to
trick people into thinking things will be/are improving.
Underneath all this lies a fundamental truth - the supply of energy is not now cheap enough
for any recovery at all to the possible. This can be expected to worsen relatively rapidly year
on year for the foreseeable future, making the question more one of when and how bad the next
lurch down will be, rather than any speculation of recovery.
Anyone thinking we can power our way out with renewable energy might want to consider the
EROI of the various options.
TerribleLyricist -> AnEmptyHourglass, 07 June 2014 8:02pm
a fundamental truth - the supply of energy is not now cheap enough for any recovery at
all to the possible. This can be expected to worsen relatively rapidly year on year for the
foreseeable future
Spot on. The kinds of technological shift we need take a long time to come about - like the
proverbial supertanker. Cheap energy is in rapid decline, as are some minerals, such as phosphorus.
To be clear, there is plenty of energy (and phosphorus, and all the rest), but they are in forms
we do not have cheap access to right now. The incentive to develop the new technologies required
are not yet strong enough, or, more often, are stifled by vested interests.
BenTrovata, 06 June 2014 3:35pm
...if you'll allow me to lend a hand... getting the $1 billion plan to support and train
the armed forces of Nato states on Russian borders [...dailymail.co.uk/news...] ...plus the
nearly $3 billion in grants annually to Israel [ ...wikipedia.com...], is nearly $4bn.back into
the hands of U.S. consumers...See,that wasn't so hard to do...( But,of course,you have to *
want to *...)
Felipe1st BenTrovata , 06 June 2014 4:29pm
Don't forget the $5bn coup in the Ukraine plus all the other little escapades around the
world.
Adds up to a tidy sum not being spent on the people that gave it in the first place.
Daveinireland BenTrovata, 07 June 2014 10:37am
The US government will spend $3.7 trillion this year, those sums are less that the money
it looses down between the couch cushions.
The Continuing Lie of Falling Unemployment - The government announced this week that unemployment
has dropped to a new post-recession low, allowing them to spout off yet again about the alleged
(but for most people, non-existent) recovery. And so I update my usual post with the latest
figures to show why this is just an enormous lie.
The official unemployment rate keeps dropping – 6.3% as of May 2014 – which gives people
the illusion of an economy undergoing a jobs recovery:
From the US Bureau of Labor Statistics:
Nov 2007 - 4.7% (the month before the recession began)
Feb 2008 - 4.9%
Feb 2009 - 8.3%
Oct 2009 - 10.0% (the supposed bottom of the recession)
Feb 2010 - 9.8%
Feb 2011 - 9.0%
Feb 2012 - 8.3%
Feb 2013 - 7.7%
Feb 2014 - 6.7%
Jun 2014 - 6.3%
If you look only at the official unemployment number for that period, what you see is 10.0%
for Oct 2009 and 6.3% for May 2014, which would lead people to think that we've supposedly seen
a 37% drop in the unemployment rate over the last four-plus years.
But, as I frequently point out to people, you have to look beyond the unemployment number
alone, which by itself is more than a little misleading. For one thing, any increase in the
number of people considered to be "no longer looking for work" results in a decrease in the
unemployment rate because of the way in which it's calculated. Thus the unemployment rate can
actually drop even when the number of employed people is declining. And then there's the lesser-followed
category of underemployed people, i.e. people who need full-time jobs but can only find part-time
work but who are nonetheless counted as being employed.
The reality job-wise is that real employment hasn't budged. Let's look at the actual employed
numbers as a percentage of the population, a much more accurate measure of who's actually working:
From the US Bureau of Labor Statistics:
Nov 2007 - 62.9% (the month before the recession began)
Feb 2008 - 62.8%
Feb 2009 - 60.3%
Oct 2009 - 58.5% (the supposed bottom of the recession)
Feb 2010 - 58.5%
Feb 2011 - 58.4%
Feb 2012 - 58.6%
Feb 2013 - 58.6%
Feb 2014 - 58.8%
Jun 2014 - 58.9%
This is what's really going on. In terms of real employment, the economy has been essentially
dead in the water for the last four-plus years. After dropping for almost two years, it leveled
off around Oct 2009 but has been stuck there ever since, with a tiny improvement only occurring
in the last six months or so.
What this tells us is that:
(1) The jobs growth is more than a little anemic, just barely enough to keep up with the
overall population increase so that the ratio of employed to total population remains static.
(2) The number of people deemed "no longer looking for work" is growing and growing steadily.
In point of fact, the increase in this number is the _only_ reason that the official unemployment
rate appears to be dropping as these people are no longer considered part of the labor pool
and hence are not counted as unemployed. If they were included, the real unemployment rate would
be around 10%, which would put us back where we were at the supposed bottom of the recession.
It would also more closely fit what is reflected in the actual employment numbers.
(3) At this rate, we're not talking about years before the economy recovers in a way that
will mean anything to most people - we're talking _decades_. Consider that in the last 4 years
and 7 months (i.e. the period since the alleged bottom of the recession), the employment rate
has only managed to rise by 0.4 points. At that rate, it will take some 45.8 years before we
manage to get back to where we were in Nov 2007, just before the recession began.
Making the picture worse is the fact that the median wage for the US - which actually peaked
back in 1999 - has continued to decline during that period, to the point that we're now where
we were back in 1995. So what you have in the end is a lot of unemployed people who still cannot
get work and even more working people being hit with stagnant and declining wages.
This makes the government's assertion that we've gained back most of the jobs lost in the
recession even more egregiously deceptive. Most of the jobs that have been created in the last
four years pay less than the ones that were lost. Which means that most people in truth have
less than what they had before. Consider in plainer terms if you'd lost $10K back in 2008, had
managed to recover $7K since then, but the government claims that all money that had been lost
has been fully recovered by simply saying that part of a dollar amounts to a whole dollar. It's
the same thing as saying that a job that pays $40K/year amounts to a job that paid $60K/year.
This is the reality that most people in the US are having to deal with.
Recovery, my ass!
WithoutMalice , 07 June 2014 3:28pm
You're right Heidi, the economy sucks, and it's been sucking for 14 years now. Bush's first
term was the first full presidential term since Hoover that added no new jobs to the economy
- actually we lost a quarter million. We needed to add six million during that time (Clinton
added about 11.5 million in each of his terms) just to keep up with population growth; so that
left us with a six million jobs shortfall. In Bush's second term, when all was said and done
in Jan. of 09, we had added a grand total of about a million jobs. That's a shortfall of 5 million
jobs. And since we've only managed to return to the job numbers we had in 08 that means we have
shortfall of another 6 million jobs, for a total shortfall of 17 million jobs. Everyone bitches
about the economy under Carter, but the truth is the man created 10.25 million jobs in his four
years and he never had even one year where we lost jobs, while Reagan created about 1/3 of that
in his first four years and only a quarter million more than Carter in his second term. I really
don't know what to say when the greatest capitalist nation in the history of the world has not
been able to add one new net job in over 14 years; about all you can say is yes, the economy
sucks.
Harvestclubfounder , 07 June 2014 4:45pm
The main problem we have to creating solutions is that we are not measuring the right data.
Forget "job" numbers. Focus on payroll dollars. These figures factor in market forces and combined
with local and regional costs of living, provide a good idea of the amount of discretionary
dollars (or any currency) available to drive the economy. If one follows this methodology, it
becomes clear what is happening. The US economy is approximately 70% driven by consumer spending,
hence less disposable income begats a weaker economic outcome.
And then there is this absolute gem from the NYT article:
"The Fed is making an important contribution to middle class and lower income folks'
welfare," Mr. Bernanke said.
Right. Artificially suppressing interest to ridiculously low levels has the following effects:
1. Makes it impossible for millions of retired people to live off their life savings, forcing
them to consume their principal and/or speculate in the stock market.
2. Makes saving money a fools game, since interest rates are lower than the (government caused)
rate of inflation (which is also
much higher than reported), turning everyone with extra money into speculators.
3. Incentivizes people to incur debt, and thus interest payments.
So it is that "monetary policy" creates a nation of insolvent debtors, most of whom are a
paycheck away from penury and the dole.
Now, who actually benefits from such policies?
1. Government, which can borrow much more money that would otherwise be possible, thereby
enriching themselves and their cronies at the expense of savers, and buying support from the
gullible electorate with one boondoggle or another.
2. Banks, which can obtain newly created money for next to nothing and then lend it out via
loans and credit facilities for much higher rates, thus making large profits for doing essentially
nothing.
We the people are being fleeced six ways till Sunday so the Feds can make twice the average
salary of the rest of us and the bankers can ride an endless debt-service gravy train.
And that's assuming America's shale reserves are as massive and bountiful as they would have
you believe. Are they? Not according to the Energy Policy Forum, which reports – and I quote – "The
recent natural gas market glut was largely effected through overproduction of natural gas in order
to meet financial analyst's production targets and to provide cash flow to support operators' imprudent
leverage positions…Wall Street promoted the shale gas drilling frenzy, which resulted in prices
lower than the cost of production and thereby profited [enormously] from mergers & acquisitions
and other transactional fees…U.S. shale gas and shale oil reserves have been overestimated by a
minimum of 100% and by as much as 400-500% by operators according to actual well production data
filed in various states…Shale oil wells are following the same steep decline rates and poor recovery
efficiency observed in shale gas wells."
A very low figure: "25 percent believe the recent financial crisis was caused by the small cabal
of Wall Street bankers". And this is not a conspiracy theory, this is a fact. Is this brainwashing or
what ?
According to Vedantam, the research suggests that not everyone harbors the same doubts, either.
"So 19 percent of Americans believe the U.S. government was behind the 9/11 attacks; 25 percent
believe the recent financial crisis was caused by the small cabal of Wall Street bankers;
They had to restate the PMI number a couple of times this morning before they got it right.
I had not realized that they seasonally adjust these surveys. Do they seasonally adjust opinion
polls too?
These m are already acting like the dog days of summer, with an upward bias on sleepy volume.
There is a yawning divergence between Bonds and Stocks. I suspect this might be due to Fed interference
on the Bond side, which we know about, as well as some free range tinkering with values on the Stock
side.
Either way, this is going to end badly. I have an open mind to a summer slump, but unless something
happens to provoke more selling at higher volumes we may just muddle along until something more
traditional in the autumn, and event inspired. This is a midterm election coming up after all.
If you look at the metals calendar below, tomorrow is first notice day for June.
It is hard to
tell, but I think the worst of the sell off for June option expiration is about done. But let's
see what happens.
I must have heard ten times on the financial news, as they discussed the awful GDP revision,
that there is no inflation because gold is down. Ron Insana said that since gold is down $35 the
last couple of days, that shows that there is no inflation.
Well, this is all perception management. They took most of the damage in the GDP number now.
Why didn't they take it in the upfront number? Because it was too close to the fact. In this second
revision they took it down dramatically to the negative. But now it is further a long, and the story
about the odd winter weather effect has had time to gain traction.
The net result is that the next number is now important, and we are not looking at what just
happened because it is so two months ago. And the comparison is set rather low for the next quarterly
number, which I predict will come in much higher. All hail The Recovery™, fait accompli,
just in time to influence the midterm elections.
I think I have made my own analysis of the theory fairly explicit. It has been tried many times.
The key phrase is 'a currency issuer can never run out of money.' This is true. They can print all
that they want. The critical variable is the 'value.' And as for value, 'the Jobs Guarantee Wage
determines the value of the dollar.' And the Jobs Guarantee Wage is a function of the government.
It is a self-referential fiat standard, in the manner of the Alice in Dollarland in
which we are beginning to find ourselves today. It will stand only so far as the force of law can
reach. Generally that ends at the borders, but one can always hope for a one world government that
is able to dictate the value of everything to everyone at their own discretion.
It is not that we need better financial engineers, or more virtuous custodians of society, a
kind of a priesthood of economic virtue, worthy of the burden of being benevolent tyrants. There
is NO class that is capable of wielding such raw power, without falling into a destructive cycle
of self-destruction.
As an elite impoverishes their homeland, they find it necessary to engage in various types of
colonialism, to create new m for their excess supply, since paying living wages to their people
creates a blur in class distinctions.
How can I know I am sufficiently rich, unless many are exceptionally poor? This impulse to economic
expansion and marriage of force and economics was the story of the British Empire. And it explains
much of the otherwise odd behavior of this New American Century, and its many wars and adventures.
They make a desert and they call it peace.
I hate to pick on MMT like this, because so many otherwise nice, sensible people seem to be drawn
to it. But I can see such a revolutionary move is already in the cards from other corners. Nothing
attracts the unworthy like the power to dictate and distribute wealth. And the more arbitrary it
is, the greater the allure. As Abraham Lincoln said, it is the crux of human society.
"They are the two principles that have stood face to face from the beginning of time, and will
ever continue to struggle. The one is the common right of humanity and the other the divine
right of kings...No matter in what shape it comes, whether from the mouth of a king who seeks
to bestride the people of his own nation and live by the fruit of their labor, or from one race
of men as an apology for enslaving another race, it is the same tyrannical principle."
Abraham Lincoln, 1858
And like most utopian exercises, some of the well-intentioned may promote it, but the worst end
up controlling it for their own ends and personal enrichment. We have seen this tendency so far,
at the dawning of the sixth year of The Recovery™ from the Great Recession, which formally ended
in June, 2009. And isn't life grand.
To read the headlines, it seems that the USA has emerged out of the blue to the point
of becoming the world's oil and gas production giant. All thanks to the Shale Revolution. Recently
President Obama made various noises that the US could solve the Ukraine gas dependency on Russian
gas because of the spectacular growth of extracting natural gas, and more recently, oil, from shale
rock formations across the US. There's only one thing wrong with this picture-"It ain't gonna happen…"
The surface numbers are indeed impressive to a layman or politician. According to US Government
Energy Information Administration data, between 2005 and 2010 the contribution from shale gas to
total US marketed gas production rose from less than 2% to more than 20%. And 2011 set an all-time
record for US production as the result of shale gas growth.
However the shale gas comes from a small number of areas with significant and viable shale rock
formations that have trapped gas and oil in the interstices of the sedimentary shale rocks. The
main shale gas areas are the Barnett shale in Texas'
Fort Worth basin; the Fayetteville and Woodford shales of the Arkoma basin in Arkansas and Oklahoma;
the Haynesville shale on the Texas Louisiana boarder; the Marcellus shale in the Appalachian basin,
and the most recently exploited, the Eagle Ford shale in southwest
Texas.
Two metrics widely used in describing shale well performance are the initial production (IP)
rate and the production decline rate which together determine the ultimate recovery (UR) from a
well, an essential number in determining economic viability. A group at MIT university in Massachusetts
carried out an analysis of production data from the major US shale regions. What they found is sobering.
While initial production from most shale gas plays was unusually high, an essential component of
the Wall Street shale gas bubble hype, the same gas regions declined dramatically within a year.
They found "in general, shale well output tends to drop by 60% or more from the Initial Production
rate level over the first 12 months. The second is that the available longer-term production data
suggests that levels of production decline in later years are moderate, often less than 20% per
year."
Translated, that means on average after only four years, you have only 20% of your initial gas
volume available from a given horizontal drilling investment with fracking. After seven years, only
10%. The real volume shale gas boom appeared in 2009. That means in the fields where significant
drilling was present by 2009 are already dramatically depleted by 80% and soon by 90%. The only
way oil or gas drillers have managed to maintain production volume has been to drill ever more wells,
spending ever more money, taking on ever more debt in hopes of a sharp rise in the depressed US
domestic gas price. As a whole shale energy companies spend more than they are making in net profit,
creating a bubble of "junk" bond debt to keep the Ponzi game going. That bubble will pop the second
the Fed hints interest rates will rise, or even sooner.
The industry tries hard to pump the prospects of the shale revolution. One of the most outspoken
recently was the CEO of Conoco/Philips, Ryan Lance. Taking a baseball analogy, he recently told
an energy conference in Houston that the shale gas "revolution" in the country is only just beginning
and there should be several decades left of successful energy production: "We're in the first inning
of a nine-inning game on the shale revolution in the
United States." He did not make clear what the scientific connection between baseball and shale
gas was.
The reality of the shale gas boom is increasingly being shown to be quite different. According
to Arthur Berman, a petroleum geologist of 34 years' experience who has studied production and other
aspects of the shale gas and oil boom, "forecasts show production in shale plays from North Dakota's
Bakken to Texas's Eagle Ford will peak around 2020. Those investing with the expectation that the
boom will last for decades are "way
out of line."
To be concrete, the major shale formations in the US, and there are not that many geologically-speaking,
will begin an absolute production decline in less than six or seven years. Unlike conventional gas
or oil fields, shale is an unconventional and difficult way to extract energy by the highly controversial
and toxic practice of "fracking" or hydraulic fracturing of the shale formations. As the shale runs
horizontally, perfection of new horizontal drilling techniques in the 1990's opened commercial prospects
for shale gas for the first time.
Fracking the Bakken Formation in North Dakota
The hydraulic fracture is formed by pumping a fracturing fluid-typically highly toxic and exempt,
thanks to then-Vice President Cheney's Congressional influence, from EPA Clean Water Act regulations-into
to the wellbore at a rate sufficient to increase pressure down-hole at the target zone. The rock
cracks and the fracture fluid continues further into the rock, extending the crack still further,
and so on. Often up to 70% of the toxic fracking fluids leak and in many cases in Pennsylvania and
elsewhere seep into the ground water.
Even the US Government's EIA projects that US oil output will peak at 9.61 million barrels a
day in 2019. They see tight-oil or shale oil topping at 4.8 million barrels in 2021. That's only
seven years out. And if the US Government is trying to fast-track approval of LNG gas export terminals
on coastal ports to allow US gas companies to export their gas, completion of such complex terminals
including environmental impact approvals typically takes seven years. Hmmmm.
Wall Street easy money
No one expects the President of the US to have the time or the scientific background to delve
into the geophysical complexities of shale energy. He naturally relies on competent advisers. What
if the advisers, instead of being competent, like in so many government agencies today, are in the
sway (and sometimes perhaps pay) of the shale energy companies and their Wall Street investment
bankers who have hundreds of billions of dollars riding on promoting the shale hype?
The current US Shale boom is being sustained on steroids, otherwise known as the Fed's never-ending
Quantitative Easing zero-interest-rate policy, a stance that shows no sign of reverting to normal
interest rate levels as the economy continues to be depressed since the collapse of the 2007 real
estate mortgage securitization bubble. In effect, shale drillers are able to keep in business only
because Wall Street and other investors continue to throw money at them like it was falling from
trees. Tim Gramatovich, chief investment manager for Peritus Asset Management LLC, an $800 million
fund, notes, "There's a lot of Kool-Aid that's being drunk now by investors. People lose their discipline.
They stop doing the math. They stop doing the accounting. They're just dreaming the dream, and that's
what's happening with the shale
boom."
Given the endless zero interest rate regime of the Fed, investment funds are desperate to find
investments that yield higher interest. They are so desperate they are pouring money into shale
gas and shale or tight oil companies like never before. The companies are operating at losses, loaded
with debt and the credit rating agencies rate their debt as "junk", i.e. in a market downturn, likely
to default. One such company, Rice Energy, sold its bonds in April with a rating of CCC+ by Standard
& Poor's, seven steps below investment grade. That is below the minimum risk/quality level that
major investors, such as pension funds and insurance companies, are allowed to buy. S&P says debt
rated in the CCC range is "currently vulnerable to nonpayment." Despite that, Rice Energy was able
to borrow at an astonishingly low 6.25 percent.
"This is a melting ice cube business," said Mike Kelly, at Global Hunter Securities in Houston.
"If you're not growing production, you're dying." Of the 97 energy exploration and production companies
rated by S&P, 75 are "junk" or below investment grade. The shale "revolution" is but a Ponzi Scheme
disguised as an energy revolution.
F. William Engdahl is strategic risk consultant and lecturer, he holds a degree in
politics from Princeton University and is a best-selling author on oil and geopolitics , exclusively
for the online magazine "New Eastern Outlook"
The US economy shifted into reverse in the first three months of 2014 shrinking by an annualised
rate of 1%, official estimates have shown.
It is the worst economic performance since the first quarter of 2011.
It is also a big fall on the 2.6% rise in economic output in the final quarter of last year.
The US Commerce Department's first reading of gross domestic
product (GDP) showed the economy grew at an annualised rate of just 0.1%.
The fall in output was blamed on an unusually cold and disruptive winter - one of the coldest
in the US for 20 years - and a plunge in business investment.
Nobody thinks the US economy is slipping back into recession. Still it's a nasty reminder that
instead of robust growth America's recovery is just ticking along.
Given the slow return to health, the recovery in American corporate profits since the financial
crisis has been all the more remarkable. But has it finally peaked?
This release shows corporate profits fell 9.8% (non annualized) in the first three months
of the year. There are plenty of reasons why they were squeezed, including the weather but
it still bears watching.
... ... ...
The fall was also twice as big as economists expected. Most Wall Street analysts had
forecast the economy to contract by around 0.5%.
...American preeminence is triggering a balancing coalition.
The de geopolitical constellation--one in which the U.S. figures as the target of joint Russian
and Chinese [responding to] Washington[s ill gotten belief it] could do whatever it wanted wherever
it chose. No longer. What realists predicted would occur is indeed occurring. American preeminence
is triggering a balancing coalition."
Obama was simply wrong, when he asserted that Russia is merely a regional power and that the U.S.
is truly the [only] world power. The two are out maneuvering this country, despite our leaders denials
of that fact.
Arti Fact • 3 days ago
It is good that this deal masquerades all other deals signed. Let you think we are gas station,
let you:) But as for the text, IMHO it states obvious things, what was the purpose of writing it?
Btw try to read newspapers and blogs and forums in China: the words used towards Russia is "neighbour",
"friend", "ally". Words used towards US are in best case: "trade partner". Just to give some material
for thinking.
With the stroke of a pen, Russia significantly shifted its economic relations with its neighbors,
creating a major new export market to the east and reducing its reliance on European customers at
a time when its relations with the West are at their lowest point since the Cold War.
... ... ...
U.S. Treasury Secretary Jack Lew appealed to China in a visit last week to avoid actions that
might limit the impact of recent Western sanctions against Russia. But a U.S. official, who was
not authorized to speak by name, said the United States would distinguish between deals that have
long been in the works - such as this one - and new agreements that seek to fill space left by U.S.
and European Union sanctions.
... ... ...
Russian officials on Wednesday also hinted at a possible "prepayment" totaling $25 billion.
Mr. Putin told reporters after the signing ceremony that the price of the gas for China was based
on the market price of oil, just as it was for European countries.
"The gas price formula as in our other contracts is pegged to the market price of oil and oil
products," Itar-Tass quoted Mr. Putin as saying.
The deal is the largest ever for the Russian natural gas industry, he said.
Russia will invest $55 billion in infrastructure for transporting the gas to China, said Alexei
B. Miller, the chief executive officer of Gazprom.
AK, US
This gas deal shows that the US attempts to isolate Russia economically are destined to fail.
These attempts are getting little traction even in Europe. Nobody wants to take economic pain
to help people in the State Department advance their agenda. And countries like China and India
will absolutely refuse to treat Russia like a pariah state. These countries have their own economic
and geopolitical interests. Working with Russia helps them further their interests. The relative
economic power of these countries will continue to grow.
The US-centered world order established after the fall of the Soviet Union was never going
to last. Instead of trying to maintain it, US policymakers should think about how to act in
a multipolar world. Considering other countries' interests – now, that would be a change!
Nick Wright, Halifax, Nova Scotia 4 hours ago
The geostrategic and environmental implications of this deal are huge.
The West, in a hamfisted continuation of the Cold War, has been trying to isolate and contain
a resurgent Russia. However, it found itself strategically and tactically outplayed by Vladimir
Putin as it blundered around in his neighbourhood--Ukraine, Syria and Iran--and its Cold War
bluster and saber-rattling over military interference in sovereign nations just look hypocritical
to educated people worldwide.
On the environmental front, China looks good for succeeding in lowering its reliance on energy
from coal, while Europe--especially Germany--is building more coal-fired generating capacity,
and Canada is offending the world with its determination to develop its massive, polluting oil
sands. Western claims of superiority on the environmental front sound hollow by comparison.
Socially--from Ukraine, to Europe, to Canada, to the U.S.A.--the world is watching the rise
of aggressive, intolerant, divisive parties of the extreme right in the West, raising the legitimate
question of which of the world's regions are improving and which are in decline. Throw in Western
levels of indebtedness, and the question becomes even more pointed.
And finally, Western chauvinism is pushing Asian countries into closer economic alliances--and
who knows, perhaps eventually military ones as well. But it didn't have to turn out this way;
we can change direction before things get worse; it's just a matter of political will.
Stephen Miller, Oakland
This deal is just the tip of the iceberg. Russia has astonishingly huge reserves of gas,
and all those oil and coal burning plants are going to need to switch over in the coming years
to reduce pollution and greenhouse gas emissions. Russia will become the undisputed energy superpower
and likely overtake the US eventually.
As the easy oil disappears and energy demands continue to rise globally, prices will rise
very dramatically. More gas and oil from fracking and tar sands and shale will slow the rise,
but eventually the prices will go up.
The US and Europe can whine about Russian gas all they want, but in the end, everybody pays.
Quandry, is a trusted commenter LI,NY
Although this is very important to the US's and the world's survival from an environmental
perspective, this is another faux pas upon Obama's and the EU's statecraft. The big winners
in all of this are Russia who now can thumb its nose at the US, and even more China which who
will pay less than the EU for its gas. Unfortunately, China has continued to prevail in its
economic policy over the US from Iraq to Africa, while the US has paid in lives and unrequited
financial aid. Our statecraft can use some changes and improvement.
Judyw, cumberland,
Congratulaton to our State Department who have made this deal possible. Oh yes our Congress
helped out too. By our reckless of expansion of NATO we have driven the Russian into the army
of China. I hope we are proud of ourselves for doing that.
I have never seen the US government make such a mess of Foreign Policy as this government
has made. And I don;t mean to leave out the government from Bill Clinton forward - they have
contributed to this mess with the the whole Kosovo creation.
It is important that we now recognize that we are driving countries away from the US who
are sick of our efforts of trying to "run the world", be "the indispenable power" and all that
malarky.
Our pivot to Asia seems more like it was Russia's pivot to Asia while we sat and watched.
Perhaps it would be better if we did more watching and less acting. It seems that whenever we
interfere, we create more hatred of the US and increase our separation from the world.
I hope this lesson on "the pivot to Asia" has taught us a lesson. We thought we could punish
and sanctions Russia to behave as we dictated. We just found out we can't bully Russia. In the
world today Sanctions have little meaning as they are easily broken by countries who have no
interest in "toeing the US line".
We had wanted Russia as friend, but our actions have driven into the arms of China. Congratulations
USA -- you just had another foreign policy failure.
Efren, Texas 6 hours ago
All of this is the result of not understanding that the world is headed to a multipolar world,
and that the US must learn to deal with it (see conference of Bill Clinton in Davos). Why does
US insist on destabilization of governments claiming democracy interests? Don't you remember
all dictatorial regimes supported by the US in Latin America? Now, US is so engaged in bringing
back the cold war. It's not only Russia-China being together now, most of main Latin American
countries have leftist governments. Don't be surprised if they start achieving important deals
with Russia and China.
Let's take it easy. No empire last forever. It would be better for US to respect others and
try to build a leadership based on ethical and real reasons, not on bullying everybody else
who thinks differently.
Smartlegov Oleg, Moscow 7 hours ago
This is an epic deal and just on time. Putin compromised the price, but showed how quickly
he can respond in a big wave to US/EU symbolic sanctions.
Cato, California 5 hours ago
Another positive step by Russia and China in brokering a deal that doesn't involve the West.
Please note that the almighty USD wasn't invited to this party. The deal, coupled with massive
historic accumulations of gold by both countries, spells doom for the world's reserve currency.
This will be over the next 10 years the nightmare of all nightmares for Americans when we lose
world currency status. A word to America: Hope is not a strategy.
Edwin, NY 4 hours ago
China is learning how to do its things. I'm actually glad for them and for Russia also. I'm
a citizen of the United States but I'm tired of foreign policies. Its time to realize that we
are not the only kid in the block. Let them join in and play the game of capitalism. Focus our
money and our strength our Nation in serving our people, in educating them, and helping them
become more competitive in this global marketplace instead of throwing money and effort to keep
others down while we stand at the top. Those days are over. Lets work together, accept our differences,
and be the best we can be. Invest in healthcare, social programs, education, research, technology
and we will remain at the top no matter what without the need to isolate or bomb everyone that
stands on our way
Babeouf, Ireland 7 hours ago
The US desperately needs joined up thinking in it foreign policy. The US 'Pivot to Asia'
to contain China may make sense. The US funding of the coup in Ukraine may make sense. Doing
both at the same time doesn't make sense. It is US foreign policy which has provided the incentive
for Russia and China to draw closer together. Of course for imperial powers foreign policy appears
just another part of domestic policy.
With the result that, due to political competition in the US, a rational US foreign policy
seems out of reach.
PuppetMaster11 -> FighTheBrainwashing
Even better. NYT, yesterday, already ran with the story of the failure of the gas deal.
China and Russia Fail to Reach Agreement on Gas Plan
I'd like to see them eat their hats.
PuppetMaster11, 21 May 2014 6:14pm
The US attempt to sever the economic tie between Europe and Russia forced Russian into an
alliance with China.
Now, a lot depends on whether this rearrangement will congeal into a permanent line of confrontation,
or the new Russia-China alliance will work as a leverage to entice Europe away from the confrontational
US.
raindancer68, 21 May 2014 6:15pm
Energy makes the world go around, not money. The Russians are in a strong position, as the
western world tries to make up for the falling energy dynamic in their economies by scrabbling
around for fracked oil and gas.
The price that Russia was formerly selling gas to Ukraine at was $268.50 per thousand cubic
metres. Now, thanks to the so-called international community's destabilisation, Russia is selling
its gas to China instead, and getting a 30 per cent higher price.
So, as less Russian gas is available to Europe, the Ukrainians and people in the rest of
Europe can look forward to paying more. Well done, our leaders! But no doubt their masters in
Saudi Arabia and Qatar will be able to provide supplies, at rather higher prices.
MyDown titipap, 21 May 2014 6:32pm
Not that simple. Urengoy from which gas goes to Europe is 5 thousand kms away from Yakutiya
and 6 thousands kms away from Sakhalin from which gas will go to China.
Mr1Cynical, 21 May 2014 6:23pm
This has gone under the radar but Rouhani is also in China perhaps its to do with this ?
U.S. Issues Threats Over Pending Russia-Iran Oil Deal
FTMDaily.com – Russia and Iran are forging ahead with a controversial oil-for-goods deal that
is being criticized by Washington as a violation of Iran's interim nuclear agreement. .
Under an interim agreement reached with world powers last year, Iran is permitted to continue
exporting no more than 1 million barrels a day of oil to six countries: China, India, Japan,
South Korea, Taiwan and Turkey.
Now, Russia is offering to buy 500,000 barrels of Iranian oil per day, which Washington says
will violate the terms of the interim agreement.
U.S. Secretary of State John Kerry has already begun threatening more 'sanctions.
Iran's response: The country refuses to 'wait for America's permission' to increase its oil
exports.
On the surface, Washington is pointing to Iran's "violation" of the interim agreement. But,
when you follow the money, you find something much different. Not only will a Russian-Iranian
oil deal inject a massive amount of fresh revenue into Tehran while emboldening Russia, but
the proposed oil deal will completely sidestep the U.S. dollar. rest of article
Will May 20th Go Down In History As the Day the U.S. "Petrodollar" Monopoly Was Finally Shattered?
May 21, 2014
…The struggle over Ukraine has caused Russia to completely re-evaluate the financial relationship
that it has russia-dollarwith the United States. If it starts trading a lot of oil and
natural gas for currencies other than the U.S. dollar, that will be a massive blow for the petrodollar,
and it could end up dramatically – and negatively – impacting the average American's current
standard of living. Let me explain.rest of article
…The struggle over Ukraine has caused Russia to completely re-evaluate the financial relationship
that it has russia-dollarwith the United States.
Nonsense! The West's reaction regarding Ukraine has been entirely immaterial. Putin has been
committed to the geopolitical policy of Eurasianism for a decade, as have those in positions
of power and influence around him.
Mr1Cynical ID5677229
Yes but i think you'll find Iran and Syria are a part of that plan Iran the wildcard I think
they wanted the west to lift sanctions but realize now that the G5+ 1 are demanding that Iran
gives up their ICBMS as part of the Nuclear deal it won't happen so Iran has joined the triparte
and will now ignore sanctions. Iv'e heard they now have the S300 So Israel becomes less of a
threat I think the US fck fest in the Ukraine has forced Russia China Iran to man up, and put
the crazies from the shite house back in their boxes
John Mack, 21 May 2014 6:28pm
Truly ironic. Mich of the US long term strategy has been to prevent China from becoming dependent
on Russia for energy. That was the point of the Iraqi war. The US feared a Russian-French plan
to assassinate Saddam Hussein and replace him immediately with a stable military government
that would agree to respect certain human rights an Shiite rights and Kurdish rights. That would
have made Russia in control of the largest store of energy resources. The US feared that would
mean that Russia gained a position where it vastly increase the costs of energy to China, Japan,
and India, or even starve them at least partially of their energy needs, this crippling their
economies or making them ally with Russia. So here we are, over Ukraine ...
elti97
Europe's long-term energy policy seems clear: reduce energy dependence on Russia. Fortunately
there are good alternatives: oil and gas imports from the Middle East, Africa and North America,
fracking, nuclear, renewables and increased efficiency.
With a little smart planning, in 5-10 years time, Russian threats to cut off the gas will
be a mild annoyance. More importantly, a variety of competing suppliers will give European countries
greater bargaining power.
AlexRussia elti97
If you decline dependence from Russia then you increase dependence from someone and it is not
fact that the second is good for you
elti97 AlexRussia
Wrong. If you increase the number of potential suppliers, you gain bargaining power.
For example, if Estonia has the option to buy gas from Russia, Norway or the US, it is obviously
in a better position than if it could only buy from Russia. That is exactly why a massive gas
terminal is currently in construction in Estonia.
Estonia will probably still buy some gas from Russia, but at a better price.
Robert Sandlin elti97
Dream on.Estonia is one country Russia wouldn't mind seeing fall off into the Baltic Sea.
Robert Sandlin elti97, 21 May 2014 7:41pm
On yes,who would ever doubt that gas from North Africa and the Middle East wasn't a reliable
source,cough,cough,Libya,Al Queda,cough. And were you talking about the DOA Nabucco pipeline.
But seriously, I have no doubt giving up Russian gas could be done. But the question is WHY
in the first place give up a cheap easy supply. To pay out the a$$ for uncertain other supplies
of gas.
kenlinuk, 21 May 2014 6:39pm
Russia tells the EU to go frack itself. China and Russia stand united against the
US-EU sponsored fascist coup in Ukraine! UKIP landslide is a certainty. Good times for democratic
freedom. Fuck the EU!
Kingston Elenwo kenlinuk, 21 May 2014 8:05pm
It's Frack the EU... If ur gonna say it, say it right:)
ID7776906, 21 May 2014 6:40pm
West always treated Russia like a dog anyways. They`re better off going East.
burnageblue11 ID7776906, 21 May 2014 7:09pm
I find it all very sad. I would much rather closer ties with Russia and see a declining US
influence in Europe.
What we have done, is push an economic neighbor East. We are now fully dependent on US gas
imports(with transit costs).We are now more dependent on the United States than ever.
Talk about cutting off your nose to spite your face.
Huge hike in Gas bills this winter.
indietinker
21 May 2014 6:41pm
this is all in the US plan for Russia and China am afraid to say.
"Instead of containment, the US should block Russia's ambitions in Europe while encouraging
them in Asia".
Last month, The New York Times reported that in the wake of the Ukraine Crisis, U.S. President
Barack Obama had decided to abandon the reset with Russia in favor of a policy of containment
2.0. According to the report
Given Russia's intransigence, it's completely understandable that Obama would be tempted
to pursue this approach. It's also a mistake. Instead of containing Russia completely, the U.S.
should block its ambitions in Europe while encouraging it to turn eastward towards Asia.
Despite the hopes of many in the post-Cold War era, the U.S. and Russia are not going to
have compatible interests in Eastern Europe anytime soon. Russia will always see this as its
natural domain, which is a status that the U.S. is unwilling to grant Moscow, especially since
NATO's expansion over the past two decades. On the other hand, as John Allen Gay recently noted,
American and Russian interests are almost perfectly compatible throughout Asia. It is in this
region that the strategic rationale of the reset was always on the firmest ground.
The challenge is forcing Russia to turn eastward. Europe's dynamism throughout the modern
era has forced the Russian state to adopt a westward orientation. This is reflected in the country's
geography - with most of the major cities being located in western Russia - and deeply ingrained
in Moscow's strategic culture.
Over the long-term, it's nearly inevitable that the Asian Century will force Russia to reorient
itself towards the east. Indeed, as I have noted before, this is already taking place to a growing
degree. Still, the question for U.S. policymakers is what actions can be taken to accelerate
this natural progression?
The first step is blocking Russia's ability to expand westward. This doesn't mean that the
U.S. and its NATO allies have to deploy troops to Ukraine. All that is required is to introduce
greater uncertainty into Putin's calculus about Russia's ability to successfully expand westward.
Most importantly, the U.S. must disabuse Putin of the notion that Russia could easily take and
hold territory in Ukraine and Eastern Europe.
The more Putin fears that an invasion would expose the weaknesses of the Russian armed forces,
and either fail completely or turn into a prolonged debacle in the mold of Afghanistan during
the 1980s, the less likely he is to order Russian troops across the border. The good news is
that Putin appears to already have these fears, as evidenced by his restraint in an overt invasion
of eastern Ukraine.
In addition, the U.S. should continue underscoring its commitment to the securiSP 500 and
NDX Futures Daily Charts They had to restate the PMI number a couple of times this morning before
they got it right. I had not realized that they seasonally adjust these surveys. Do they seasonally
adjust opinion polls too? These m are already acting like the dog days of summer, with
an upward bias on sleepy volume. There is a yawning divergence between Bonds and Stocks. I suspect
this might be due to Fed interference on the Bond side, which we know about, as well as some
free range tinkering with values on the Stock side. Either way, this is going to end badly.
I have an open mind to a summer slump, but unless something happens to provoke more selling
at higher volumes we may just muddle along until something more traditional in the autumn, and
event inspired. This is a midterm election coming up after all. I found these words from Daniel
Ellsberg below about Snowden and some other things to be worth hearing. Have a pleasant evening.
member states, and intentionally create ambiguity as to how it might react to Russian expansion
in non-NATO countries in Eastern Europe. This will increase Putin's apprehension about becoming
too adventurous in Europe. After all, he has already squandered Russia's influence in most of
Ukraine and can hardly endure another embarrassing international setback.
At the same time, the U.S. should encourage Russia to expand its influence in Asia, and thus
give Putin an outlet in which to act upon his grand ambitions for Russia. The most immediate
area of focus should be in Central Asia, where the U.S. is currently withdrawing from Afghanistan.
Given Russia's largely congruent interests with the U.S. in Central Asia, Moscow should be encouraged
to play a leading role in helping to fill the vacuum the U.S. withdrawal is bound to create,
as it is already starting to do with India in the region. Moscow and Delhi can help ensure a
modicum of stability in Central Asia even as they cooperate in opposing radical Islamist terrorist
groups. This would be entirely to America's benefit.
Furthermore, as Russia has been focused elsewhere in recent years, China has quickly filled
the role Moscow historically has played in Central Asia. Already, many analysts see China as
the most important external actor in Central Asia, a position that Russia has held since the
19th Century. Beijing is in the process of trying to further entrench its new position further
through organizations like the Shanghai Cooperation Organization (SCO) and its new Silk Road
Economic Belt.
As Russia reengages in Central Asia, it will increasingly find itself clashing with China
for influence in the region. This would inevitably create tensions in the increasingly close
relationship between Beijing and Moscow. These tensions would force Russia to concentrate more
on the long-term threat a rising China poses to its national security. In grappling with this
challenge, Russia will naturally seek to assert itself more forcefully in Eastern Asia to hedge
against China.
Mr1Cynical -> indietinker
To try and spin this as an American plan is wishful thinking I think you'll find the NYT
is hailing defeat as victory. The Dollar as the worlds reserve currency has been in decline
for many years this deal between Russia and China will hasten it The EU won't save the US, it
will only ever be it's prostitute with little economic clout outside of Germany.
loveminuso -> indietinker, 21 May 2014 6:56pm
Yeah right...The only problem here is this shit might work in Africa and the ME, with one
big difference...Russia and China have Nukes with the capability of strategic delivery...
"We have powerful enemies but we don't have powerful friends, that's why we need
the support of such a giant as China," said Ruslan Pukhov, director of the Centre for
the Analysis of Strategies and Technologies in Moscow.
Even the threat of use by this new alliance will set the American working class against it's
'leadership'; and the Americans know how to deal with criminals - even those in leadership positions...I
think Obama, and those NeoCons who own him have huge problems right at Home suddenly. The Revolution
is coming...
docrhw -> Mr1Cynical, 21 May 2014 7:01pm
I agree about the reserve currency thing. One day we Americans will wake up and discover
that the dollar is now part of a basket of currencies needed to buy raw materials. It will
happen gradually, but I think is inevitable. The sad thing is that Congress, the Fed, and of
course the American public are completely oblivious to this issue. (At least the first two don't
talk about it.) When that day comes it will be mighty ugly here.
Robert Sandlin indietinker, 21 May 2014 7:17pm
So basically what your saying is that since Russia is to feel nothing for Europe. Then in
a crisis they'll have no remorse about destroying it in a nuclear holocaust. OK,maybe they'll
get the point.Now me, if I was a European leader, I'd want to have Russia as friendly and connected
to me as possible.
Because countries friendly and interconnected don't want to destroy each other. And with
thousands of nukes, and a rightful paranoia about being attacked by the west, I'd want as much
friendship as I could get with Russia.
But maybe I'm wrong, maybe the right thing is to slap Russia around like the EU is doing
now. Spit in their face and all. After all just how mad would a country once ruled by Stalin
get anyway. But then maybe dusting off the old bomb shelters might be prudent. Just encase following
the US's advise isn't the best idea. It was Britain that followed the US into Iraq right. I
forget,how did that work out anyway.
Mr1Cynical docrhw, 21 May 2014 7:20pm
A lot of American Patriots want the Dollar to collapse, to get rid of the Fed. introduce
a new Currency, kick the thieves and jackals out ,rebuild the constitution,.and start afresh,
these people who've run the US into the ground are neocon globalists inhuman completely without
reason,barking mad Narcissists For all our sakes i hope you get rid of them.
ID075732, 21 May 2014 6:45pm
So the EU$A have blundered into the Ukrainian kitchen.
Vicky Nuland's half-baked attempt with the cookies was a failed recipe. Even Chaz
has now brought his flaky biscuit to the table. The only question now remaining is who could
believe any of them could make anything?
So it's not surprising Putin's gone to the Chinese!
kenlinuk, 21 May 2014 6:46pm
US loan repayments to China are going to end up in Russia. Sweet justice!
tfernando, 21 May 2014 6:54pm
I ask all Americans to read this article without burying head in sand.
The US really shot itself on the foot. This self-inflicted wound of interfering to destabilize
other countries for its own interest, the US will only accelerate its decline that should/could
have been avoided with sensible thinking.
I live in the US and, as it is, times are far from being good compared to what it was just
ten years ago. And despite the fact there is not much indications the country's economy
is improving, the US wants to act as if no economic or financial crisis took place and wants
to live on just 'confidence'.
Well, I think it is very sandy ending for the people of this nation who, to begin with, has
a tough me making ends meet.
lesnouveauxpauvre tfernando
There still is enough people with good jobs to keep the illusion afloat. I live in San Francisco
and it's a bubble here in Silicon Valley. There are a lot of young people like myself and younger
with good jobs making really good money. They have no concern about what you are talking about;
and you could never convince them their bubble they are living in is not real.
They think this country is wonderful and so do all people here who still support Obama; including
gays who don't care Obama has a 'kill list', and can imprison any American without cause; as
long as he supports gay marriage they and a lot of people will support war crimes!?
It seems unbelievable but it is true. I have gotten into arguments with people about this;
and I am gay.
burnageblue11, 21 May 2014 6:58pm
The USA can now fill that big void that is left in the gas market. It can supply Gas at vastly
inflated prices knowing the EU,UK are now fully dependent on all they gas they can get
EU leaders want sacking for this.They are not looking after Europeans interests only those
off the corporate USA.We will pay the price.
evolution2now burnageblue11, 21 May 2014 7:07pm
Europe getting American Natural Gas is fantasy. This is a fact for at least the next 10 years.
richiep40 burnageblue11, 21 May 2014 7:25pm
Despite the US pretends to be into free trade it is a lie, even though it basically runs
WTO.
LNG exports from the US are not in a free market, they are restricted to only about 20
countries which the US classifies as FTA agreement countries. These FTA trade deals are
almost as catastrophic for the client nations as the proposed TTIP deal with the EU.
I am a member of 38 degrees, I was surveyed yesterday by them about my views on TTIP. Although
38 degrees have many priorities, my vote was to put TTIP close to the top of their priority
list ( I am only a member, nothing to do with those that run 38 degrees, so don't blame 38 degrees
for my opinions).
JVC120, 21 May 2014 7:00pm
America should reevaluate the direction of ots foreign policies. It is antagonizing a few
important countries and the remaking are sitting on the fences or are looking from the sidelines.
Can US afford the vives of militaristic arrogant and unreasonable messages it is sending to
the Asian ,African,and Latin American?
Its foreignolicy has been hijacked by the warmongers who have never seen a war from frontline
and have never wavered on supporting a war from close distance.
Blenheim, 21 May 2014 7:02pm
"Russia's new pipeline to China will increase competition for natural gas from 2018 and
will most likely increase the cost we pay for natural gas here in the European Union. It will
certainly increase the pressure on European countries to find alternative gas supplies,"
he said.
Yup, you just have to love the way the west handled the Ukraine situation. Brilliant!
Reducing China's massive dependence on coal based energy is a great win for the world. This
deal does more for the environment than any western climate regulations could possibly do.
Let's not forget India, which also relies heavily on coal. I would guess they are next to
make a deal with Russia.
Babeouf, 21 May 2014 7:05pm
Yes this is the first mega deal which breaks the ice it won't be the last though will it.
The US regime will still continue attacking both Russian and China. It will still bore the world
rigid with its ' Pivot to Asia' and its 'Isolation of Russia' . The really really funny part
is the sudden suggestion that the EU's Russia policy is actually going to raise gas prices for
European customers. Must be part of the EU's new competition strategy built on raising production
costs for the various European based industries that consume large amounts of energy. Still
you must admit that the EU's Russian policy has worked a treat for the Chinese government. So
among the nations of Europe there is at least one ' Manchurian Candidate'. The servile spirit
of Europe's political leaders is only matched by the bone headed stupidity of their imperial
US masters.
Peabody94
Nice deal, take a loss for a few years, smacks of desperation by Russia. It's nowhere near
being a deal big enough to bother European supplies, Europe takes about 170 bn cubic meters
a year, this is only for 38bn and from an undeveloped field. Desperate dealing at a low price.
So as Europe weans itself off Russian gas Gazprom takes a mighty big hit over time. That's
what happens when you have a one trick pony economy and you need western technology to extract
the minerals, one trick pony technology as well, decades behind the west.
AlexRussia Peabody94
Generally less and in Europe are important only a few countries - everything else is not
so important
Great job that EU is doing with antagonising Putin with the Ukrahinian saga. Now we have
to bail out a broke country and pay more for the gas. Great news.
vr13vr Shiku101, 21 May 2014 7:28pm
This deal will definitely make it more difficult for Ukraine to claim any discount. Ukraine
will have to eat at least this price and guess who will have to pay it? That's right, the "Western
partners," a.k.a EU.
ID5677229, 21 May 2014 7:15pm
The contract [is for Russia ]to provide 38bn cubic metres of gas each year [to China at]
.... about $350 (£207) per thousand cubic metres.
This deal has some symbolic value I suppose but otherwise it is a rather desperate and only
partially successful move on Russia's part to shore up its export market for gas.
Reacting to Russia's aggression in Ukraine, a month ago the EU announced plans to effect
a 25% cut in its gas imports from Russia by 2020. Since the EU has been importing 180bn cubic
metres of gas a year Russia's deal with China barely makes up the shortfall. In fact, from Russia's
viewpoint the situation is even worse: China will pay $30 per thousand cubic metres less than
the EU has been paying; moreover, Ukraine's imports of Russian gas are going to be greatly reduced
too.
vr13vr ID5677229
This deal is bigger than the current European deal, and it is muuuuuuch bigger than whatever
reduction EU will be able to make in the future. China got some 9% of volume discount compared
to EU prices, but that's reasonable given the volume. At the end of the day both countries will
end up with newly developed infrustructure. And both will be better diversified to deal with
"pressure" from the West. Not a bad deal at all.
mustspeak, 21 May 2014 7:17pm
@article:
"But one British energy expert warned last night that the move could drive up prices for European
gas consumers who are becoming increasingly dependent on Russia and now face a competition for
supplies"
Serves Britain and EU right, only pity and concern is that I happen to be British, so also
EU citizen. The West's gerrymandering around the world is going to spectacularly bite their
asses harder and harder as time goes by.
daylight101 mustspeak, 21 May 2014 7:22pm
It's unlikely. Russia already sells gas to Europe at premium price and setting it higher
now might be self defeating in longer terms. I am sure that Russia will attempt to undermine
the US gas proposal to EU by offering more competitive bargains.
SteveK9, 21 May 2014 7:21pm
The comment about 'finding financing' betrays the faulty economic thinking that pervades
the West right now. If Russia does not import anything to build the pipeline, then 'financing'
is irrelevant. The Russian state cannot run out of Rubles. The only question is whether this
is a worthwhile investment of workers and materials. Since this is becoming a strategic question
for Russia ... you can bet your ... they will 'find the financing'.
I don't know how much help China will be providing to this project but if there is one thing
that China seems to be very capable of these days it is large construction projects.
Just incredible: infrastructure investment from both sides will be more than $70
billion and will be the world's largest construction project, with Russia providing $55 billion
up front and China $22 billion. Fuck my boots...
All this is fallout over the Crimea because off US hegemonic foreign policy. It was a Russian
base to start with, its not like they were invading. We had to make a big song and dance over
it, because the United States really wanted it as a warm water base for the US 6th fleet in
Sevastopol.
It was never going to happen, we knew it, they knew it.
Sanctions, provocative rhetoric, more sanctions.
End result. New Cold war. Redirected gas supplies to China that Europe badly needed. The
irony is, the United States will be totally unaffected. Europe will become dependent on US gas
imports. How could European leaders allow this to happen. How could they pursue a US foreign
policy that will have a detrimental affect on Europe European industry, and consumers.
Our leaders are nothing more than traitors.
It wont be the citizens off the United States freezing this winter. They wont be paying though
the nose for gas, it will be us in the EU,UK.
Not sure how traitorous EU leaders who have screwed their own people, economies over will
survive long term. Germany will be the biggest loser. Merkel pursuing US hegemonic foreign policy
despite the fact German industry is very dependent on Russian imported supplies. German Business
leaders were totally against Merkel position to start with.
Russia has said it will turn off supplies to Ukraine on June 3rd if their debt is not paid
in full. And unless they pay in advance.
European supplies come through the Ukraine. This could get much worse.
I hope this winter is not a cold one.
mikebraksa Fednad
Europe will fall apart into three parts soon - that's all
Already has. Eastern EU states. Western EU states. And France.
Slo27, 21 May 2014 8:04pm
So, they are getting $350 from China and $380 from Europe and what will they do? Sell more
to Russia and less to Europe .... Eeeh, not exactly.
BrissieSteve Slo27, 21 May 2014 9:19pm
The gas comes from totally different gas fields thousands of km apart and with different
extraction costs. Geography wasn't one of your school subjects was it?
GAHenty, 21 May 2014 8:06pm
The significance is in the continued rise of China. Putin may believe himself clever but
in any Chinese-Russia alliance Russia will quickly become the junior member. The provider of
raw materials for the Chinese machine.
Russia and China have to guard against America's sanctions-happy foreign policy, so the more
business they can do together, it will be the more 'sanction-proof' their economies become.
We already see America gunning for China, in her attempt to delay China's ascendancy to top-dog
status.
Eaglesson, 21 May 2014 8:27pm
What the article forget to mention is both countries with this deal are bypassing the (petro)dollar,
so it will be in their domestic currencies.
Another bold move from both sides..After a similar bold move between Russians and Iranians
short time ago
Russia and China took a small step toward undercutting the domination of the U.S. dollar
as the international reserve currency on Tuesday when Russia's second biggest financial
institution, VTB, signed a deal with the Bank of China to bypass the dollar and pay each
other in domestic currencies.
Japan got the news and is running fast to get a piece of the deal, quoting that is paying
a hefty price for US LNG...why should't they? And Russians have thought about that, the plan
of a gas pipeline through North Korea are targeted for m of South Korea and Japan.
In a period of one year neocons have done so much damage to US and Europe that it cannot be
revoked any more. The biggest loosers are EU in this deal and right away after the deal Barroso
send a pledge letter to Putin, pleading him to keep his gas running for Europe and (they were
prepared to pay the price dictated by russians for Ukraine's gas supply)
wimberlin AlexRussia
In spite of all the space that the 'Prince's' stupid comments are receiving from the Guardian
- in fact the US today is much more similar to Nazi Germany than any other country. Ask Edward
Snowden, he has all the dirty details that the US does not want you do know. He is presently
in Russia, so therefore all the anti-Russia hysteria.
Oh but not by Luke Harding - he is really good and never lies about Russia - no I certainly
do not include him!
Ciarán Here
When you compare this deal to the "DEAL" Russia had with Ukraine since 1991- Russia lost
- subsidised Ukraine to the tune of up to 300 billion it now seems that Russia has Ukraine and
EU over a barrel. Russia won't be subsidising Ukraine a saving of 300 billion over the next
30 years and a gain of over 400 billion from China . I guess Russia with not be to concerned
about others taking on the burden of Ukraine.....
daylight101 Ciarán Here
There will be some attempts to rebuild Ukraine but it will be not subsidising, I am sure.
finnja, 21 May 2014 8:42pm
Notably, also
the plans for South Stream, which does not go through Ukraine, are on track
, at least when it comes to the directly involved EU countries (like Bulgaria, Hungary, Austria)
and Russia.
The question now is: will the EU force its Southeastern member states (the ones that depend
on Russian gas) to fall on their swords in order to make a point and to prop up fracking and
TTIP?
GAHenty natalifoley, 21 May 2014 9:26pm
Oh look. Articles from a Russian news corporation. No bias there then.
windies GAHenty, 21 May 2014 9:56pm
ABC, NBC or CNN, they do objectivity, they do equal points of view, don't they!!
American news is as bias as Russian news..
What is your point.
Mark Chaloner, 21 May 2014 8:47pm
Sounds like a good deal but it won't make the Russian economy grow. Russia needed this just
to stand still. In the long term Russia can't do without the EU. Russia needs the EU as much
as the EU needs Russia.
daylight101 Mark Chaloner
My understanding is that Russia can actually substitute many of its high-tech EU imports
by chinese ones.
ploughmanlunch Mark Chaloner, 21 May 2014 9:04pm
Standing still might be more desirable than back tracking, as this still fragile Euro economy
may yet do.
It's true that the EU and Russia would mutually benefit from unimpeded trade and commerce, but
the EU, following the lead of the US appears to be willing to sacrifice it's own prosperity
at the behest of US geo-political interests.
daylight101 Mark Chaloner, 21 May 2014 9:19pm
Russians will not quit EU market, I am sure. They will keep selling gas to EU and, probably,
will even offer bargain to undermine the US gas proposal. They will compete, not leave.
bulldoggy, 21 May 2014 9:11pm
Reporter needs to get the story straight. One paragraph describes a deal, "ten years in the
making". Another paragraph quotes a Russian spokesman who attributes the deal to western hostility.
What it really looks like is Russia and China not letting a PR opportunity slip by without exploitation.
A deal ten years in the making wasn't spawned on western hostility. It was spawned by economic
reality. An eastern Siberian gas field is conveniently close to China and half a planet away
from Europe. I'd guess the low price China wrung out of Russia had a lot to do with Chinese
perception that Russia has no other buyers for this gas.
knuckles66, 21 May 2014 9:18pm
Businessweek and Bloomberg both think the deal is more fumes....that the Chinese and Russians
agreed on the volume to be shipped, but still have not agreed on the price. The Chinese will
kick in 25 billion in pre-payment to fund the cost of building the pipeline, but the final pice
will still be in negotiations.
Since the pipeline will take several years to build, they have plenty of time to fight over
the price.
windies knuckles66, 21 May 2014 9:31pm
They will make it work, the "west" pisses them off..
American financial reporting are so boned faced one-sided, objective reporting is beyond
them. Course they want it to fail.
The US/EU point of view is now redundant in their eyes.
richiep40 windies
The 'm ' and the western press have been predicting the collapse of the Chinese economy
for more than a decade. It will not happen.
MyDown, 21 May 2014 9:22pm
Almost 700 comments, yet there is none about the agreement is somehow affecting gay rights.
Strange, but it shows that Guardian readers are confused. )))
zchabj5, 21 May 2014 9:27pm
Much more important than the deal itself is the agreement to open up Russia to Chinese investment
for infrastructure.
The UK has agreed to become a clearing house for the renminbi. Osborne is not stupid, we
can see which way the wind is blowing, and it is blowing east. Israel has also made significant
moves to encourage trade with China, to mitigate the fallout of US decline.
For last 20 centuries, China has had the largest GDP for 15 to 18 of them. The two centuries
right after the industrial revolution saw European hegemony, brief lived, but the world will
return to it's Asia dominated status quo.
MyDown, 21 May 2014 9:46pm
Economical and infrastructural aspects are significant, but political one is just huge. Talking
to my Chinese friends - they are as excited on green light the deal brought as Russians are.
The whole story is kind of step up in friendly relations between Russia and China and money
is not the main issue.
followthemonkey PoiticalWatchDog, 21 May 2014 9:59pm
Saddam Hussein paid a high price but Russia and China are not defenceless like Iraq or Afghanistan.
They're completely capable of defending their countries interest.
geoprobe, 21 May 2014 9:49pm
I think we need to thank the neo-cons in the Obama administration to apply the pressure to
make this deal happen. Without them, the Russians might have held firm on their price and the
Chinese might have held out for a lower price.
Due to the Americans' imperial might it brought these players to the table. It might be a
bad move for American might, but it just might save the planet, as it will provide the Chinese
a more climate friendly fuel than their current coal.
"We have powerful enemies but we don't have powerful friends, that's why we need the support
of such a giant as China," said Ruslan Pukhov, director of the Centre for the Analysis of Strategies
and Technologies in Moscow.
Telling statement.
Robert Sandlin Wagram, 21 May 2014 10:53pm
And it works both ways.Only a fool couldn't see that if Russia was destroyed,China would
face the West alone.A strong Russia in support is China's greatest aid.So in many ways the Russo-Chinese
relationship is a marriage made in Heaven.And they can both thank the US for being the Matchmaker.The
US trying to humble Russia,and threatening China,did the trick
Our dependence on their gas is their dependence on our money. Both sides are well advised
to diversify. However, i would be careful if i had to decide for Russia: China and Russia have
animosities and while the Europeans are a bunch of hysteric merchants, the Chinese will know
how to get what they want once Russia is dependent on THEIR money.
followthemonkey -> Bismarx, 21 May 2014 8:59pm
the Chinese will know how to get what they want
I'd rather be a Chinese than an American.
"Americans more afraid of being tortured by their government than Chinese are of theirs"
Putin said that gas price of the agreement is linked to petrol price, so it will not effect
USD.
FrankPoster -> MyDown, 21 May 2014 7:44pm
FFS you know nothing. The price might have a formula that involved the USD somewhere, but
the transactions will be in Rubles and Yuan, thereby fully bypassing the petrodollar. There
are huge implication to the US for this, and therefore you will see them ramp up efforts in
Ukraine and elsewhere to engage Russia in a proxy war with a view to eventually destabilize
Russia in 5-10 years time to grab their oil and gas and process it in dollars to support their
massively bankrupt financial system...but this time they will fails since china will side with
the Russians and will drop their US treasury bills if necessary.
HongKongBlue
preemptive move to invade Ukraine?
Gudwin -> HongKongBlue
Nobody gives a rat's ass about Ukraine anymore.
whyohwhy1 Gudwin
Nobody gives a rat's ass about Ukraine anymore.
At the moment Ukrainian soldiers are killing civilians in the eastern part of that country,
that is why the Western media seem to have lost all interest after 24/7 coverage for a couple
of months.
AndyOC, 21 May 2014 5:39pm
You can't blame them for forging ever closer ties, uncertain as both countries must be with
regards both recent Ukraine and industrial espionage problems.
Is it worth being worried about? Probably.
PaulThtanley AndyOC, 21 May 2014 7:49pm
No it isn't.
Russia and China don't trust each other at all, despite this grandstanding. Both countries
look to the West and define themselves relative to it. Their oligarchs send their kids to school
here and maintain holiday homes. Many retire (or flee) here. Let the Chinese bubble accumulate
more investment debt and let the Russians have a go at extracting gas that is harder to reach
than the gas they currently extract and sell it for less than they are currently selling their
gas that has existing infrastructure. Who knows? It may even work out.
griffinalabama, 21 May 2014 5:39pm
Nice to see Russia outsmarting the nefarious yanks especially after all the bullshit the
US has instigated in Ukraine. A good article in Counterpunch goes into the media coverup of
the Odessa massacre and US involvement. The truth is coming out. Link here:
http://www.counterpunch.org/2014/05/08/false-flag-in-odessa/
ahbowledhim
Geo-political realignment is evident. A Sino-Russian alliance is huge and puts Washington
on the back foot.
Can Washington play off the back foot like the incomparable Viv Richards could is the question?
IgAIgEIgG ahbowledhim, 21 May 2014 5:45pm
Geo-political realignment is evident. A Sino-Russian alliance is huge and puts Washington
on the back foot.
Dude! What are the contingencies?!
Carl Jones IgAIgEIgG
Only one...world war 3. The fact is, Amerika and Britain are bankrupt. So they need some
very big wars.
iamnotwise vr13vr, 21 May 2014 7:49pm
But this will become a new Cold War only if the US decides to stir trouble.
Continue to stir trouble, I think you mean. This whole Ukrainian situation is another US
instigated clusterfuck. Once again the failing empire (with the UK clinging to it like a tumour)
tries to drag everyone else down with it.
steavey, 21 May 2014 5:42pm
Russia maybe unpopular with the west, but their assets are always popular everywhere. It's
nice to come home in winter time heated by gas central heating, and does not matter where the
gas comes from, Alex Salmond's Scotland or Putin's Russia.
OneWorldGovernment, 21 May 2014 5:50pm
Love the 15 minute context. The negotiations for this deal was a decade in the making and
the Chinese strong armed the Russians into taking a lower price. It shows how desperate the
Russians have become and their weak bargaining power.
Carl Jones
I like that US dollar sign in front of the 400 billion?lol This deal is a massive nail in
the coffin of the US dollar!!lol Funny, but true, Western sanctions are actually hastening the
end of US dollar hegemony. You should watch a Dr Paul Craig Roberts youtube vid called "Fed
launders treasury bonds in Belgium"...then you`ll know just how precarious the US economy is.lol
PaperEater Carl Jones
Lol. The level of discourse is amazing. Lol
Pazuzu Carl Jones, 21 May 2014 9:07pm
Nothing like a bunch of LOLs and references to to the Youtube School of Economics to lend
that much needed dose of credibility to an argument. Well played!
Let me put things in perspective for you, if you'll allow me to interrupt your scholarly
lulz for a moment: $400 billion is about the amount Uncle Sam uses to wipe his bum every day.
Still, I admire the resolve of the Putinbots, like obedient toy poodles still firmly clamping
their little jaws on the heels of a giant, convinced they're winning the fight.
Mr1Cynical, 21 May 2014 5:56pm
This is only a terrible deal for the US and it's prostitute EU Milov i wouldn't take to seriously,
as usual the Guardian always go for the lowest denomination when it comes to experts they mean
someone who has an axe to grind.
This comes as CNN are calling Russia a pariah nation, they really mean o shi# this is great
as the Bog roll called the petro dollar struggles along getting closer to the cliff O-Bama helping
it along the way
What next Sanctions on everybody outside of Utah, still cheer up you Barry o supporters,
you've still got your killer drones to play with
whyohwhy1
Russia didn't "fall out with the West": it was threatened with sanctions by the US and their
puppets in Europe after they supported a coup against the elected government of Ukraine.
Maybe Kerry's hot air can provide enough energy for Poland and Germany next winter.
semyorka, 21 May 2014 5:59pm
The Kovykta field is considered to supply natural gas to China and Korea. According to
these agreements signed by Rusia Petroleum with China National Petroleum Corporation and
Kogas on 2 November 2000, the annual export of gas to China and Korea will be 20 billion
cubic meters (bcm) and 10 bcm, respectively.[7] The Kovykta field will contribute also to
the gasification of Irkutsk Oblast, implemented by the OAO East Siberia Gas Company, a joint
venture of Gazprom (originally TNK-BP) and the Irkutsk Oblast Administration. http://en.wikipedia.org/wiki/Kovykta_field
You tell people Putin had stomach cramps and CiF would be crawling with people announcing
this latest move had the west in knots by the master strategist.
TransAtlanticist, 21 May 2014 6:00pm
Iraq, Afghanistan .. now Russia. I will say the Chinese are remarkably good at knowing when
to capitalize on others' bad situations.
vr13vr TransAtlanticist, 21 May 2014 6:30pm
It says the US is remarkably good at creating bad situations that only hurt the US.
AlexRussia, 21 May 2014 6:01pm
Putin: gas contract with China signed today has become the largest in the history of the
USSR and Russia
Signed today contract to supply China natural gas from Russia is the biggest gas deal in
the history of the USSR and Russia , said Russian President Vladimir Putin According to him,
laying a gas pipeline " Power of Siberia " will come be the largest construction project in
the world for the next 4 years. Meanwhile, Russia will invest in the construction of the pipeline
and development Kovyktinsky and Chayandin deposits and about $ 55 billion while China is going
to to create the necessary infrastructure for at least $ 20 billion. "This is the largest contract
for Gazprom" - said SEO Gazprom Miller.
Ludwitt, 21 May 2014 6:04pm
The reporter writes
"Gazprom and CNPC (China National Petroleum Corporation) have signed a 30-year, $400bn (£237bn)
deal to deliver Russian gas to China"
a factual statement and adds an editorial comment
"a deal that underscores Russia's shift towards Asia amid strained relations with the west."
It's fine for the reporter and/or editor to have an opinion: it's just that the above statement
does not follow at all from the previous statement about the signing of the deal. Indeed further
down the article that this deal was 10 years in the making. Indeed it is prudent to diversify
one's portfolio for a variety of reasons and especially have China, a voracious consumer and
a key if not THE engine of global growth as one of your primary customers.
In fact the US and the West do roaring business with China itself. So why not Russia? And
why not some analysis as to whether this deal would eventually be good or bad for the Russian
economy and its growth? Or the development of the Russian Far East which has long been declared
as a National Priority within Russia's domestic policy?
In a Western government centric world, any major deals that don't have the West in the picture
are seen to be a threat, to be amplified as such by the Western corporate media.
An interesting gas story thread to chew on meanwhile is Hunter Biden - the US VP's son -
being appointed to the board of Ukraine's largest gas company.
And so it goes.
FighTheBrainwashing
To be honest, right now I can't but feel quite a bit of shadenfreude picturing the "ecstatic"
faces of the newsmakers from the Financial Times, Bloomberg, Washington Post, Wall Street Journal,
etc., etc. that spent the last 24 hours leading to the announcement of this ground-breaking
deal gloating over Putin's "failure to reach a landmark agreement with China".
As they say, he laughs best who laughs last, so, suckers, deal with it! It's our turn to
laugh now!
:)
PS: And I'm absolutely positive it's only the beginning of good news for those who dare defy
the criminally hypocritical, cynical, double faced, devious, mendacous and war-mongering United
States of Lies, Propaganda and Double Standards around the world!
The U.S. drive for energy independence is backed by a surge in junk-rated borrowing that's been
as vital as the technological breakthroughs that enabled the drilling spree. While the high-yield
debt market has doubled in size since the end of 2004, the amount issued by exploration and production
companies has grown nine-fold, according to Barclays Plc. That's what keeps the shale revolution
going even as companies spend money faster than they make it.
"There's a lot of Kool-Aid that's being drunk now by investors," Tim Gramatovich, who helps manage
more than $800 million as chief investment officer of Santa Barbara, California-based Peritus Asset
Management LLC. "People lose their discipline. They stop doing the math. They stop doing the accounting.
They're just dreaming the dream, and that's what's happening with the shale boom."
... ... ...
Spending Treadmill
"Who can, or will want to, fund the drilling of millions of acres and hundreds of thousands of
wells at an ongoing loss?" Ivan Sandrea, a research associate at the Oxford Institute for Energy
Studies in England, wrote in a report last month. "The benevolence of the U.S. capital m cannot
last forever."
The spending never stops, said Virendra Chauhan, an oil analyst with Energy Aspects in London.
Since output from shale wells drops sharply in the first year, producers have to keep drilling more
and more wells to maintain production. That means selling off assets and borrowing more money.
"The whole boom in shale is really a treadmill of capital spending and debt," Chauhan said.
Access to the high-yield bond market has enabled shale drillers to spend more money than they
bring in. Junk-rated exploration and production companies spent $2.11 for every $1 earned last year,
according to a Barclays analysis of 37 firms.
...
"It's a perfect set-up for investors to lose a lot of money," Gramatovich said. "The model
is unsustainable."
"The decadent international but individualistic capitalism in the hands of which we found ourselves
after the war is not a success. It is not intelligent. It is not beautiful. It is not just.
It is not virtuous. And it doesn't deliver the goods."
John Maynard Keynes
"After the collapse of socialism, capitalism remained without a rival. This unusual situation
unleashed its greedy and - above all - its suicidal power. The belief is now that everything,
and everyone, is fair game."
The market is somewhat above its historic levels relative to trend earnings. Pearlstein cites
Shiller who puts the price to earnings ratio at 25 to 1, compared to a historic average of 16.
... I would agree that stock prices are somewhat above trend, but not by quite as large a margin
as Shiller.
... ... ...
However, there are some points worth noting. The social media craze has allowed many companies
with no profits and few prospects for making profits to market valuations in the hundreds of
millions or even billions of dollars. That sure looks like the Internet bubble. Some of these
companies may end up being profitable and worth something like their current share price. The
vast majority probably will not.
The other point is that the higher than trend price to earnings ratio means that we should expect
to see lower than trend real returns going forward. This is an important qualification to Ritholtz's
analysis. While there is no reason that people should fear that stocks in general will take
a tumble, as they did in 2000-2002, they also would be nuts to expect the same real returns
going forward as they saw in the past.
With a price to earnings ratio that is roughly one-third about the long-term trend, they should
expect real returns that are roughly one-third lower than the historic average. This means that
instead of expecting real returns on stock of 7.0 percent, they should expect something closer
to 5.0 percent. That might still make stocks a good investment, especially in the low interest
rate environment we see today, but probably not as good as many people are banking on.
In short, there is not much basis for Pearlstein's bubble story, but we should also expect that
because of higher than trend PE ratios stocks will not provide the same returns in the future
as they did in the past. Anyone who thinks we can better
have their calculator checked.
The only way is to model your future using Excel spreadsheet and using you expected longevity data.
Most of those financial planners advice is counterproductive. This article is more realistic then other
but still take it with a grain of salt...
Retirement is a balancing act. You want to spend enough to enjoy today, while preserving enough
to take care of your needs tomorrow. If you keep things in balance, there is no reason you should
run out of money. So what throws people off balance in retirement? Here are five things people do
that puts them at risk of running out of money.
1. No measuring device. Imagine driving across the country with no fuel tank
gauge. How often do you stop for gas? I suppose you'll have to guess. If you approach retirement
income this way, you can get yourself in trouble. You must have a monitoring system in place.
This type of system measures how much you have left, your income needs, uses a conservative rate
of return based on your
investing style, and takes into account remaining life expectancy. Your retirement income
gas gauge isn't only there to tell you when to slow down -- it can also tell you when there is room
to step on the gas.
2. No spending plan. The No.1 reason people run out of money in retirement
is they spend too much relative to the amount of financial assets they have. Most often excess
spending occurs as parents help adult children, or because an upcoming retiree forgot to
calculate expected taxesand health care expenses in their retirement budget.
When you retire, make a spending plan that lays out your monthly and annual expenditures, including
money for fun. Now, add up your guaranteed sources of income, like Social Security. The amount of
living expenses in excess of your guaranteed income must come from your savings and investments.
Make a projection assuming you take the desired withdrawals, and see how long the money lasts.
Now, make the same projection, but assume you spend $5,000 more or less a year. This type of
scenario modeling can show you how small changes in your spending can make the difference between
having enough or running out.
... ... ...
4. No plan B. Life throws curveballs, and it will continue to do so in retirement.
If your plan requires you to use every asset you have, you're at risk of running out of money.
You need to allocate some of your assets to reserves -- this means the asset is not included
in your plan as available to meet
living expenses in retirement.
Reserves can be an emergency fund account, home equity, cash in the safe, a piece of land you
own, or even a valued collectible. Hopefully you'll never need to tap into your reserves, but it
may be you'll need it for health care expenses later in life, or to help an adult child who gets
in trouble. There's no telling what might come up that throws your original plan off track. That's
why you need assets set aside as plan B.
5. Fall for the scam. There will never be a shortage of people trying to part
you from your money. In our own family, my great aunt had caregivers that embezzled hundreds of
thousands of dollars from her in her last year of life.
... ... ...
Dana Anspach , certified retirement planner, retirement management analyst, Kolbe Certified
Consultant, is the founder of Sensible
Money, LLC , a registered investment advisor with a focus on retirement income planning based
in Arizona. She is the author of "Control Your Retirement Destiny" (Apress), writes for About.com
as its Expert on MoneyOver55 and contributes to MarketWatch as a RetireMentor.
May be not collapse but it's already 6 years from 2008 crash and it is time to start thinking about
"What's next?". And before 2008 there was a crash of 2000. Do we have two more years, four more, six
more years ?
And another one of the big problems that we are facing is something called "normalcy bias". The
following is how Wikipedia
defines it…
The normalcy bias, or normality bias, refers to a
mental state people
enter when facing a disaster.
It causes people to underestimate both the possibility of a disaster occurring and its possible
effects. This often results in situations where people fail to adequately prepare for a disaster,
and on a larger scale, the failure of governments to include the populace in its
disaster preparations.
The assumption that is made in the case of the normalcy bias is that since a disaster never
has occurred then it never will occur. It also results in the inability of people to cope with
a disaster once it occurs. People with a normalcy bias have difficulties reacting to something
they have not experienced before. People also tend to interpret warnings in the most optimistic
way possible, seizing on any ambiguities to infer a less serious situation.
Over the past several years, the U.S. economy has been relatively stable. And that is a good
thing. But it has also lulled millions upon millions of people into a false sense of security and
complacency. At this point, most Americans consider 2008 to be a temporary bump in the road, and
most assume that the U.S. economy will always be strong.
Unfortunately, that is not the truth. As I have written about previously, the long-term trends
that are destroying our economy
have continued to get worse since 2008, and none of the problems that caused the last financial
crisis
have been fixed.
We are steamrolling toward the edge of an economic cliff, and most people in our entertainment-addicted
society are totally oblivious to what is going on. So they are not doing anything to get ready for
the immense economic pain that is coming. The following are 16 signs that most Americans are completely
unprepared for the coming economic collapse…
Forty percent of individuals in the U.S. said they could not or probably could not come up
with $2,000 if an unexpected need arose, according to research by Atif Mian of Princeton University
and Amir Sufi of the University of Chicago Booth School of Business.
#2 In that
same study, Americans were asked the following question…
"Do you have 3 months emergency funds to cover expenses in case of sickness, job loss, economic
downturn?"
An astounding 60 percent of people that responded said that they do not.
#3 Another study found that less than one out of every four Americans has enough
money stored away
to cover six months of expenses.
#4 Some people are actually trying really hard to get ahead, but admittedly
that is really tough to do when we are all being
taxed into oblivion. In fact, it was reported this week that Americans now spend more on taxes
than they spend
on food, clothing and housing combined.
#5 Right now, more Americans are dependent on the government
than ever before. In fact, according to the U.S. Census Bureau,
49 percent of all Americans live in a home that currently gets direct monetary benefits from
the federal government.
#6 It is estimated that
less than 10 percent of the entire U.S. population owns any gold or silver for investment purposes.
That is a stunning number.
#7 It has been estimated that there are
approximately 3 million "preppers" in the United States. But that means that almost everyone
else is not prepping.
#8-16 The following are nine more statistics that come from a survey conducted
by the Adelphi Center for Health Innovation. As you can see, a significant portion of the population
is not even prepared for a basic emergency that would last for just a few days…
44 percent don't have first-aid kits
48 percent lack emergency supplies
53 percent do not have a minimum three-day supply of nonperishable food and water at home
55 percent believe local authorities will come to their rescue if disaster strikes
52 percent have not designated a family meeting place if they are separated during an emergency
42 percent do not know the phone numbers of all of their immediate family members
21 percent don't know if their workplace has an emergency preparedness plan
37 percent do not have a list of the drugs they are taking
52 percent do not have copies of health insurance documents
"Past performance is not an indicator of future results":
Pseudo-mathematics
and financial charlatanism, EurekAlert: Your financial advisor calls you up to suggest a
new investment scheme. Drawing on 20 years of data, he has set his computer to work on this
question: If you had invested according to this scheme in the past, which portfolio would have
been the best? His computer assembled thousands of such simulated portfolios and calculated
for each one an industry-standard measure of return on risk. Out of this gargantuan calculation,
your advisor has chosen the optimal portfolio. After briefly reminding you of the oft-repeated
slogan that "past performance is not an indicator of future results", the advisor enthusiastically
recommends the portfolio, noting that it is based on sound mathematical methods. Should you
invest?
The somewhat surprising answer is, probably not. Examining a huge number of sample past portfolios---known
as "backtesting"---might seem like a good way to zero in on the best future portfolio. But if
the number of portfolios in the backtest is so large as to be out of balance with the number
of years of data in the backtest, the portfolios that look best are actually just those that
target extremes in the dataset. When an investment strategy "overfits" a backtest in this way,
the strategy is not capitalizing on any general financial structure but is simply highlighting
vagaries in the data. ...
Unfortunately, the overfitting of backtests is commonplace not only in the offerings of financial
advisors but also in research papers in mathematical finance. One way to lessen the problems
of backtest overfitting is to test how well the investment strategy performs on data outside
of the original dataset on which the strategy is based; this is called "out-of-sample" testing.
However, few investment companies and researchers do out-of-sample testing. ...
{If a stock is currently way overvalued, it is more likely to get picked.}
Yes, that is called the "herd instinct". And when the lemmings all go over the cliff,
we all go with them ...
A balanced portfolio is best. Old fashioned but replete with good sense: One-third high-risk
(such as stocks), one-third medium risk (such as bonds), one-third very low risk (such as
the home you own and live in).
Or some such balanced variety of investments. Seeking interminably high-risk, high-return
investments is for suckers.
And why hedge-funds that pay hundreds of millions of dollars to have the fastest telecom-link
to an exchange (for high-frequency trading) is allowed, thus giving them a great advantage
over the rest of us peons dealing via the Internet, I will never ever understand.
The disparity in the ability to trade between them (a select few) and us is patently
obvious.
It's an example of the world gone berserk, as happens all too often in America with its
unfettered "free enterprise" ...
I'd agree with pth above: the industry at the research side is extremely sophisticated
(as is anyone whose business is to do modeling right (i.e. they make money when their model
is good)). This article blurb is conflating the research world with the sales world, and
in the sales world they make money by convincing people to hand over money. This is completely
orthogonal to modeling rectitude.
{... the portfolios that look best are actually just those that target extremes in the
dataset.}
Just one more ruse in a profession replete with them.
Huckstering is not new to selling equities, and will probably never ever go away entirely.
Not until there are laws that allow an investor to sue a bank or investment adviser for
portfolio-mismanagement, with sufficient precision describing "mismanagement".
That works in France, btw. But one must be careful to work through an adviser that, in
turn, is working for a entity that can afford to lose the case.
I wonder what percent of the US population even has a financial advisor? I'd think that
would be a luxury good if it were not a luxury bad:<)
My wife and I each have some index funds laying under our 401K pillows and she also is
sleeping on her firms EMPP. I have known some people that traded and made a few bucks and
I have known some people that traded and lost more than a few bucks.
... ... ...
Active portfolio investing is a rich man's game and a working man's obsessive compulsive
disorder. Stashing money in a low fee index fund or a managed fund that has a good manager,
for as long as they stay, is saving and saving for retirement makes good sense. Chasing
a higher risk for a shot at a higher yield ain't exactly saving, but it ain't really investing
either. Even in Vegas, there are a few players that beat the house, but they all cannot.
Only a few winners can take a bigger haul that everyone else.
I've been teaching a course on decision theory to freshman/sophomore honors college students
for a number of years; Because financial decisions are so important, I urge them to think
about all of this early on. They are ~20 years old and have ~45-50 years ahead before they
retire. Early acquisition of good habits is a must if they are to educate their kids and
retire in some degree of comfort.
This is the handout I give them (talking about this on Monday):
No doubt that finance does not want for charlatans, but Bailey et al, the authors of
the paper (http://www.ams.org/notices/201405/rnoti-p458.pdf)
obviously didn't even bother to perform a cursory google search:
"While the literature on regression overfitting is extensive, we believe that this
is the first study to discuss the issue of overfitting on the subject of investment
simulations (backtests) and its negative effect on OOS [out of sample] performance."
Had they done so, they would have discovered any number of papers showing that mean-variance
optimization and its progeny are notoriously unstable and perform poorly out-of-sample (e.g.,
Frankfurter et al 1971; Bloomfield et al 1977; Jobson and Korkie 1980). DeMiguel, Garlappi
et al. (2009) reported the results of an extensive out of sample horse race showing that
none of the portfolio optimization models consistently performed better out of sample than
a naïve equal weighting strategy. (DeMiguel was highlighted in Andrew Haldane's much publicized
Dog and Frisbee paper.)
So Bailey et al. provide a double service. They remind us of the importance of out of
sample testing and the conceit of the mathematical.
A curious story, and one which should be taken with a mine of salt, has surfaced out of the
pro-Russian newspaper Iskra, which reports - so far on an entirely unsubstantiated basis - that
last Friday, in a mysterious operation under the cover of night, Ukraine's gold reserves were promptly
loaded onboard an unmarked plane, which subsequently took the gold to the US.
Tonight, around at 2:00 am, an unregistered transport plane took off took off from Boryspil
airport.
According to Boryspil staff, prior to the plane's appearance, four trucks and two cargo minibuses
arrived at the airport all with their license plates missing. Fifteen people in black uniforms,
masks and body armor stepped out, some armed with machine guns. These people loaded the plane
with more than forty heavy boxes.
After this, several mysterious men arrived and also entered the plane. The loading was carried
out in a hurry. After unloading, the plateless cars immediately left the runway, and the plane
took off on an emergency basis.
Airport officials who saw this mysterious "special operation" immediately notified the administration
of the airport, which however strongly advised them "not to meddle in other people's business."
Later, the editors were called by one of the senior officials of the former Ministry of Income
and Fees, who reported that, according to him, tonight on the orders of one of the "new leaders"
of Ukraine, all the gold reserves of the Ukraine were taken to the United States.
Indicatively, according to the latest IMF figures, Ukraine's official gold holdings are just
over 40 tons, having doubled in the past decade:
Even Lord Rothschild, who invests over 2 billion pounds of his own dynasty's and other depositors'
cash through RIT Capital Partners, is ringing alarm bells this week: "With the world recovery
still fragile and reliant to a large extent on policy support [QE/money printing]", he warns,
"it is not hard to envisage m having to deal with shocks in the coming year." Yes, "shocks."
... ... ...
Abandoning a domesticated animal or withdrawing its supply of food can end in criminal convictions
here in the UK, yet the duty of care and animal cruelty legislation does not, it seems, apply to
human beings. This government has taken Britain over the line into barbarism, around 5 million Britons,
if they get their way, are headed for the Tory party knacker's yard.
Cameron seems fixated on trying to stop the unemployed or other victims of his money laundering
fraudster City funders from eating and sleeping. The Britain he wants to see is a sadistic place
where, as US writer Gore Vidal mockingly commented: "It is not enough to succeed, others must fail."
Only the selfish, the ignorant and the rich count as human in Cameron's financial determinism.
The Recovery™ - Bubble Back To the Bar For the Hair of the Dog That Bit You
"Double, double toil and trouble,
Fire burn and cauldron bubble.
Cool it with a baboon's blood,
Then the charm is firm and good...
By the pricking of my thumbs,
Something wicked this way comes."
William Shakespeare, Macbeth, Act 4 Sc. 1
And why would we expect anything different, given the lack of serious reform and the careful
targeting of the monetary expansion into the hands of the same old TBTF financial firms that have
been distorting m and misallocating capital for their own advantage since the repeal of Glass-Steagall?
The best way to cure the damage from a widespread, real economic collapse in the aftermath of
a financial asset bubble is surely a continuation of the failed policies of the past, and yet another
asset bubble targeting the most wealthy in the hope that something will trickle down to the rest.
Doing so means the only reason the Fed would change its monetary policy is if trouble in emerging
m had a direct effect on the US. There are two main channels – exports and financial m
– but neither looks likely to hurt the US unless the EM turmoil gets a lot more severe. Thus while
the Fed may make a greater show of consultation, and soak up some flak at the G20, its actions this
year are unlikely to change.
Exports
If interest rate rises drove big emerging m into recession, then that would hit US exports,
but any plausible effect is very small. A proper estimate needs a big equilibrium model, because
you have to consider currency and feedback effects, but you can get a pretty good idea just by
looking at
where most US exports go.
The only member of the 'Fragile Five' to make the Top 15 is Brazil. Brazil buys 2.8 per cent
of US exports. Meanwhile, exports equal only 13 per cent of US output. Thus exports to Brazil amount
to less than 0.4 per cent of the US economy.
It quickly becomes clear that only a very broad emerging market slowdown – one that included
China or Mexico, for example – would have much effect on US exports. It remains the case that a
US recession can plunge the rest of the world into an export crisis; there are not many countries
that can have the same effect on the US.
Financial M
A more plausible way for an emerging market shock to hit the US is via financial m . Corporate
America earns a good share of its profits from emerging m . The Asian financial crisis in 1997
and the collapse of Long-Term Capital Management in 1998 show how financial shocks from emerging
m can quickly hit Wall Street.
But as Capital Economics point out, both the Asian crisis and LTCM had short-lived effects on
US stocks, and the S&P 500 ended up rising by around 25 per cent in both of 1997 and 1998.
The effects have been similarly modest so far in 2013 and 2014. The S&P 500 is less than 4 per
cent below its all time high. A deeper EM crisis could mean greater losses for US banks and investors
but so far there is hardly an effect on financial conditions that would justify a change of Fed
policy.
Flight to Safety?
So far the troubles in emerging m , far from being a drag on the US economy, have if anything
been a net stimulus. That is because ten-year bond yields have fallen. It is hard to know whether
that reflects capital flight to US Treasuries or merely a little less optimism about the US growth
outlook. Either way, it loosens financial conditions in the US.
An emerging market crisis could end up influencing the Fed sometime this year. But it would have
to become much more of a crisis – rather than just the wobbles we have seen so far – to activate
these channels and thus endanger the US economy.
The author quotes Mr. Rchard Fisher, President of the Dallas Fed as haqving said that 'the
US Central Bank must make policy according to what is best for America.' This policy sounds
like unilateralism in economics, closely similar to unilateralism in using arm forces that led
to disaster.
Excellent table. A very diversified list. Undoubtedly a lot of good research will come out
of the QE experience.
An interesting hypothetical model would show a US increase in monetary supply and its ripple
effects out across the world economy. If a lot of US-fueled monetary expansion hits a country,
one presumes the domestic monetary authorities can counter it with some form of sterilization
(?) or macro prudential policy. Possibly, the domestic country could sop up incoming liquidity
with public debt and finance public investment. The opposite would be to allow a housing bubble
to take off.
I think US authorities are going to have to pay attention to the impacts of both expansion
and contraction in the wider world. I would say overall stability is a paramount goal of US
policy.
An axiom is that countries have no permanent friends, just permanent interests. I think the
US permanent interest is international stability. How to achieve and sustain this goal has to
be reinvented every generation or so. One might say that today Fed Reserve policy is a bigger
policy tool than NATO.
"One might say that today Fed Reserve policy is a bigger policy tool than NATO." Or more
likely to be said is that Fed policy is like a financial thermonuclear ticking time bomb.
In regards to this line, from up above: "The S&P 500 ended up rising by around 25 per cent
in both of 1997 and 1998." Statistically speaking two samples makes no rule. Also, there are
a lot of variables at play in both cases, and also in the current one that make any analysis
on such lines flawed to begin with. You might argue though that there is no proof such events
have any long term effects.
"Unstable stability" is very dangerous for investors. It stimulates making reckless moves in order
to get above average return. While Mark Faber is perma bear watching video might be educational as a
immunization from making stupid moves now. Among other things this bull market is supported by executives
attempts to secure bonuses and related abilities to cut work force. But cutting work force at some point
needs to stop. Then what?
"It's not an opportune time" to buy US stocks but while it might be too early to buy some of
the beaten-down emerging m at these levels, Faber believes investors can make money in the
longer-term - "I think I can make the case that over the next five to 10 years, I will make
more money by buying now in the emerging economies then in the U.S."
According to St. Louis Fed, the Monetary Base has halted it's $100 B/mo growth and as of
Jan, added just over $10 B/mo…bout to go negative??? Big change in trajectory since November…prior
to taper $10B (now $20B/mo taper)??? Somebody draining the pool???
http://research.stlouisfed.org/fred2/series/AMBNS
click on 1yr or 5yr chart to see big change
http://research.stlouisfed.org/fred2/graph/?chart_type=line&s1id=AMBNS&s...
http://research.stlouisfed.org/fred2/graph/?chart_type=line&s1id=AMBNS&s... During periods
since '09 when the monetary base was flat, equities have been down / flat and then lifted by
anticipation of QE / QE execution. If this pattern holds (particularly w/ record leverage) stocks
bout to get clobbered. Also notable is that golds big upside runs happened during the flat periods
or QE runoff periods…
here are the last five months…after growing consistently by about $100B/mo all '13..Novembers
growth was $31B, Dec $13B…and likely going negative in next month???
2014-01: 3,749.462 Billions of Dollars
2013-12: 3,736.789
2013-11: 3,705.077
2013-10: 3,610.306
2013-09: 3,508.808
This slowdown is way in excess of tapering and looks more like reverse repo's kicking in???
Correlation to market downturns since '09 has been 100% when this happens.
mayhem_korner
have you ever heard N.N. Taleb's saying "that's like picking up nickels in front of a steamroller"...?
Or his other gem "it's not the frequency with which you are right that counts, but rather
the aggregate of your losses."
Dr. Engali
I like Marc Faber, but I'm still waiting on that 20% correction call from levels 40%
lower than where we are now.
The market is a policy tool and until that changes the only response is to BTFD. When policy
does change there will be no getting out.
kaiserhoff
Well said, Doc.
Faber has a sense of humor and a sense of style. He plays the game on a global scale, but
which "emerging m " is he talking about? Argentina, Venezuela, Greece, Colombia, Eastern
Europe? What is the last time one of these suckers emerged and stayed up long enough for someone
to get their money back, much less a profit?
mayhem_korner
I saw this clip live (in a moment of weakness, forgive me)...Faber was in part responding
to the shill commentator who in his comatose state declared that whatever the returns might
be in emerging m relative to the U.S., there would certainly be "less risk" in the U.S.
So Faber's comments were very, very crafty in dressing down that assertion.
I feel bad for anyone who actually takes this clowns advice.
mayhem_korner
Good thing there wasn't a global recession in 2013. Oh, wait...
NoDebt
What does the economy have to do with stock prices the last 5 years (or arguably longer)?
mayhem_korner
Everything. The more the sheeple have been sold on the Keynesian myth that monetary stimulus
is needed to jump-start the economy, the more stawks have been inflated. Prolly a 90+ R-squared
on that.
Spitzer
The longer the realists like Marc are wrong, just means the worse it will be when it happens.
zebrasquid
Funny, if you call him out on being wrong on his ongoing bearishness he bristles and says
"show me where I ever said to short stocks!"
really, Marc?
Your predictions of 30% crashes would not lead one to believe that a short position would
be your advice?...
he likes to hedge alright..his words.
deflator
The difference between this long running bull market and the previous ones is there was
some actual substance besides hopium behind them.
For example, the runup to the dot.com bubble crash in 2000 had tremendous investment in internet
technology and, I think more importantly the paradigm shift of U.S. manufacturing to China.
(and the profits U.S. companies were enjoying via the labor arbitrage, lack of regulation, new
customers, etc.)
This bull market is backed purely by confidence in central bank intervention without
any underlying premise other than recovery to the good ole days.
From comments: "That comes from the seasonally-adjusted household data, which did some weird things
and doesn't agree at all with the establishment data, so I'd take this with a grain of salt. Remember
that January data are driven entirely by seasonal adjustments, which can be highly inaccurate when attempted
in real time--in the unadjusted data, employment actually fell by millions in January, like it does
every year after Christmas."
Yes, but unemployment is at 6.6%! Happy times are here again! *snark.
comma1 -> comma1...
Headline from Boston Globe website:
Jobless rate falls to 5-year low of 6.6%
pgl -> comma1...
Yep - it fell and this time because the employment to population ratio increased a wee bit.
But much of that 5 year decline was alas from a fall in the labor force participation rate.
Fred C. Dobbs -> comma1...
US employers add 113K jobs; rate dips to 6.6% - via @bostondotcom
http://bo.st/1kkkkaW
NEW YORK (AP) - The U.S. stock market is moving higher in early trading after the government
reported a decline in the unemployment rate last month.
Earnings gains from several U.S. companies including Expedia also drove the market higher
early Friday. The market had its best day of the year the day before.
The Dow Jones industrial average rose 75 points, or 0.5%, to 15,700 shortly after trading
began. ...
im1dc
Did anyone notice that local, State, and Federal jobs lost 33,000 in this report?
If government hiring were increasing to norms in all likely hood this jobs report would have
been a mildly good one.
The takeaway is that Republican/Tea Party forced austerity hurts America and increases unemployment.
Will someone please tell that story so the media will pick it up and run with it and maybe
start asking Republican/Tea Party candidates about what austerity is doing to America?
I know some might object to referring to today's trading as 'technical' but I think that is exactly
what it was.
By technical I mean that those in the know saw the market structure of positions, to which they
have an advantageous view, looked at the buying and selling pressures, saw a short term opportunity
to profit, and then jammed the futures up hard after the Non-Farm Payrolls number came out. They
ran the stops, and handed out some serious pain to traders who were positioned bearishly.
They can do this in the absence of a consensus of more organic selling volume, as opposed to
computer gamesmanship. In a light volume market, dominated by the hot money traders, they can almost
write their names in the snow with the tape. I showed a picture of it at the time, but a while ago
when AG Eliot Spitzer was taking on Wall Street, they made a nice picture of a hand 'giving him
the finger' using the 5 minute SP futures. You can't make this stuff up. If you want to be a short
term trader, you need to understand and respect that. In the intraday trade, fundamentals don't
mean squat, unless they are driving the herd to do something in force.
That is not how it always is, at least not to this degree. But with computers dominating the
course of the intraday trade and regulators held at bay, its taken on a larger footprint than what
might ordinarily might be expected.
The bad news is that in the face of some exogenous bad news, I would think this market is set
up to melt down. That is because it is a snarky, in your face 'professional market,' not based on
value but on bullshit, on short term money muscle and market gamesmanship.
Does this strike you as improbable? Talk to me after the next crash, when the economic sages
are running around waving their hands saying, 'what happened, what happened?'
And by the way, this is not sour grapes from a bear. I have 'no' short position and no stock
positions for that matter. I just think this is one hell of a way to allocate capital and revive
the real economy. It is a disgrace, and a shame.
Corporate cash piles have never been bigger, either in dollar terms or as a share of the economy.
The labor market, meanwhile, is still millions of jobs short of where it was before the global
financial crisis first erupted over six years ago.
Coincidence?
Not in the slightest, according to Jan Hatzius, chief U.S. economist at Goldman Sachs:
"The strength (in profits) is directly related to the weakness in hourly wages, which are
still growing at just a 2% nominal pace. The weakness of wages and the resulting strength of
profits are telling signs that the US labor market is still far from full employment.
Companies have been unable to raise prices much because of the economic recovery has been fragile.
But they've still managed to boost profits beyond anything ever seen before because they've got
away with employing as few workers as possible at as low a rate as possible.
Citi's credit group is bullish; but, as they admit, for all the wrong reasons. Bullish,
because they still believe that the extraordinary liquidity environment which has dominated the
last four years will remain in place this year (despite tapering) and for the wrong reasons because
aside from their doubts about the foundations of much of the economic recovery itself, nearly all
the factors that they would normally base their view on the m on seem to be pulling in the
opposite direction. In their own words, "everything is expensive; and the market is driven purely
by a variant of the Greater Fool's Theory."
Via Citi's Credit group:
...We are bullish...
For the wrong reasons, because aside from our doubts about the foundations of much of the
economic recovery itself, nearly all the factors that we would normally base our view on credit
on seem to be pulling in the opposite direction:
Credit fundamentals are deteriorating. Although the fragile European and global recovery
should support earnings, we expect leverage to rise further as companies push shareholder value.
Valuations are increasingly unattractive. Scored against 20 different fundamental
metrics, credit spreads come in as 'Tight' or 'Very tight' on every single one of them at the
moment. The yield offered by € IG corporate credit is in the 4th percentile looking at the last
ten years – hardly a compelling case for investing if you look at credit from a total-return
perspective.
The marginal money is going elsewhere. Judging by our survey, inflows into corporate
credit have been on a falling trend for 18 months and are now close to neutral at a five-year
low. This weakens the technical that has so often left the credit market almost impervious to
negative headlines in recent years.
Market composition is deteriorating. We think the European credit market should see
a record volume (~€90bn) of subordinated debt issuance next year. While some of that (the AT1
issuance) will remain outside the indices for now, the market will still have to absorb a lot
of additional risk.
And to top it off, positioning in the credit market is very different. The rush into
beta may have further to go, but already the rally we have seen since September has created
a vulnerability through higher-beta exposure in the market. We reckon that it is at least comparable
to the one that was exposed by the Fed's change in tone on tapering in May.
We'd argue that m may be driven by a variant of the Greater Fool's Theory, where
the underlying rationale for many would in essence be:
"I don't like credit here, but I don't like other assets very much either (other than, perhaps,
equities). I don't see what turns the market any time soon and I can't afford to sit and wait
for a better entry point, especially while central banks are backstopping everything. I'll have
to take more risk and then sell to someone else when I see a trigger ahead. Worst case, I'll
be in the same boat as everybody else."
We are not arguing that this is irrational – on the contrary, for individual investors whose
performance is tracked on a monthly, weekly or daily basis, this argument seems entirely rational
– especially against the perception that central banks can no more afford to let the prevailing
equilibrium slip today than they could in 2009.
But the sum of that individual rationality is a market with a very obvious vulnerability.
When no one sees an immediate risk of losing, when positions get ever longer and when valuations
are stretched further and further as a result, less and less is needed to eventually topple the
consensus. Longer-term, it is a recipe for breeding black swans.
So the inherent challenge is to predict how long the Greater Fool's game goes on.
However, the more tension that builds up between market valuations and fundamentals and the
more stretched positions get, the more likely a subsequent selloff becomes.
Where's the value? Spreads look tight to fundamentals on every single one of the 20 metrics
CarrierWave
The Market is expensive? - Come back in a month after the SP500 breaks above 1850 and closes
in on 1900, and then read this same article again.
Point is that this sort of articles is useless in determining when the market will really
top before the next Bear market.
And.. No one ever knows beforehand when M Top.
Conclusion? - Stay with the trend. Thanks to the FED, I am grateful to having seen my 401K
going 50-80% higher since Nov-2011.
No matter how many articles of this sort ZH will keep posting, it's the FED who drives
this market higher still.
Since when has labeling anything you disagree with "Socialism" a substitute for poltiical discourse?
We embarrass ourselves as a nation to the rest of the world when we do this.
Yes S&P500 can go to 2000. But it can go to 1000 too... The key question is this a new normal or
Fake Normal. Is this "normality" natural or tenable in the long term or it reflects temporary and potentially
reversible factors.
"I've got plenty of common sense ... I just choose to ignore it."
- Calvin, from Calvin and Hobbes
By the time the Times Square ball landed, U.S. equity m had closed the books on one of
the best years in recent history. Oecember's further rise of 2.5% put the capstone on an amazing
year for the S&P 500 Index, which finished 2013 up 32.4%. New historic highs on this index
were reached routinely throughout the month. Small-cap stocks, as represented by the Russell 2000®
Index, added 2% in December to finish the calendar year up a remarkable 38.8%. Yes, you read that
correctly: Small-cap stocks rose almost 40% in a single year.
The "common sense" justifications for these dramatic moves are now well documented. The Federal
Reserve (Fed) model, which compares earnings yields on the S&P 500 Index (the inverse of price/earnings)
with the Treasury yield, clearly signals to load up on stocks. Common sense also tells us that profit
margins are at an all-time high, so clearly it's a good time to be buying stocks. Yellen's dovish
background, common sense tells us, is yet further reason to expect continued loose monetary policy
and accommodation. And, finally, common sense dictates that recent upward gross domestic product
(GOP) revisions, lower unemployment numbers, and a successful holiday retail season, means that
of course it's time to load up on stocks.
Here's the problem: We don't buy the common sense. And so, like the philosopher boy above, we
choose to ignore it. We suggest you do the same, but for good reason.
First, the Fed model, while intuitively appealing, is a relative measure. Yes, bond yields are
ridiculously and artificially low, so of course earnings yields are going to look attractive on
a relative basis. But we're trying to make money in an absolute sense, not a relative one. What
if bonds and stocks are BOTH overpriced? Then what? Oh, and one more inconvenient truth-the Fed
Model's track record of forecasting future returns is actually quite abysmal.
Second, yes, we'll concede that profit margins are at all-time highs-an undeniable fact.
Here's the problem: Profit margins are reliably mean-reverting, which means that hitting an all-time
high is not a cause for celebration but just the opposite-a reason to be afraid.
Third, yes, quantitative easing can continue for some time, maybe even decades. But that isn't
a reason to get excited about stocks. In fact, we believe quite the opposite. What it means is that
if that is true (and we don't believe that it will be), then we've got much bigger problems on our
hands because stock returns going forward are going to be dismally below what they've delivered
for the past 150 years of our modern industrial society.
And finally, ah, yes, GDP growth! Too bad GDP growth has historically had zero to mildly negative
correlation with stock market returns. In other words, even if GDP growth is resuscitated, even
if 2014 turns out better than we thought, so what! Economic growth-across developed countries, across
emerging countries, across time-has told us absolutely nothing about future stock market returns.
Sorry to deliver the bad news.
So, we ignore common sense and instead rely upon the unconventional wisdom of, you guessed it,
valuation. Rather than load up on stocks, we remain cautious and nervous because, from a valuation
perspective, U.S. stocks look downright frothy. And, if the global m continue to rally into
2014 and beyond, it is more likely that we'll trim. By the end of November, our official seven-year
forecast for the S&P 500 Index was -1.3 (real) and our forecast for small-cap stocks, at 4.5%, is
worse than it was during most of 2007. Quality, a large position in the fund, has also seen its
forecast come down as it, too, has had quite a nice run. Forecasts for quality are still quite positive,
so we're happy to continue owning these stocks but becoming less happy by day. Outside of the U.S.,
the only groups that we are somewhat optimistic about are value stocks, particularly in Europe,
and emerging equities, which we think are priced to deliver 3.4% annually over the next seven years.
It's possible like Chris Hedges suggest to view creation of a National security state as a reaction
of elite to the fact that the current generation in Western countries will be unable to achieve similar
level of prosperity as their parents. That's why the elite feels an urgent need to create military and
total surveillance-based mechanisms of suppressing latent protest which materialized in Occupy Movement.
Putting them on the same page as Soviet rulers who also responded to the inability to fitful promises
of "scientific socialism" (and the major one was to exceed productivity and well-being of capitalist
nations) with the creation of brutal totalitarian state and KGB.
January 11, 2014
"In the same way, those who possess wealth and power in poor nations must accept their own responsibilities.
They must lead the fight for those basic reforms which alone can preserve the fabric of their
societies. Those who make peaceful revolution impossible will make violent revolution inevitable."
The Jobs number sucked out loud this morning, as the economy added a meager 74,000 jobs, compared
to an expected number of 197,000. That's a swing and a miss. Both hourly earnings and average workweek
missed as well. Today's box scores are included below.
The good news was that the unemployment
percentage dropped hard from 7.0% to 6.7%. Huzzah! Stocks rally back, and the VIX plummets.
The fly in that holiday toddy is that they did it by whacking the denominator in the unemployment
ratio, declaring about a half million or so able bodied workers to be the new walking dead.
(Hey, I was just kidding about liquidating people as the next move the other day.)
Capping that bit of cheer off, US retailers reported their worst holiday season since 2009.
Let's talk.
Stimulating the economy is not a bad idea when it is in shock from a financial crisis brought
on as the result of massive systemic fraud and financial asset bubbles perpetrated by the financial
system. And yes, austerity has been proven wrong, again and again, and is the stuff of puritans
and pigmen.
But stimulating the economy by giving more money directly to the same self-serving jokers
that caused the problem in the first place, AND failing to correct the massive distortions in the
economy that have been growing through horrible policy decisions over a period of years, is not
exactly what Lord Keynes might have had in mind, ya think?
The Banks must be restrained, and the financial system reformed, with balance restored to the
economy, before there can be any sustainable recovery.
"Those who fail to exhibit positive attitudes, no matter the external reality, are seen as maladjusted
and in need of assistance. Their attitudes need correction...
Suddenly, abused and battered
wives or children, the unemployed, the depressed and mentally ill, the illiterate, the lonely,
those grieving for lost loved ones, those crushed by poverty, the terminally ill, those fighting
with addictions, those suffering from trauma, those trapped in menial and poorly paid jobs,
those whose homes are in foreclosure or who are filing for bankruptcy because they cannot pay
their medical bills, are to blame for their negativity.
The ideology justifies the cruelty of unfettered capitalism, shifting the blame from the
power elite to those they oppress."
Chris Hedges
Here is a recent conversation I had with a friend about the current state of the US recovery. As
an accountant with a wide range of exposures, I enjoy hearing his perspective since I no longer
have that sort of current insight into the corporate culture in America. I have years of background
running large businesses in corporations, and some forays into large scale M&A work, so I have seen
quite a bit of it. The methods rarely change, merely the guises and degrees.
Here are excerpts
from his side of the conversation with only one parenthetical comment of my own.
"I don't think we're seeing profits in a traditional sense. Instead, it appears to me that we're
watching a long, drawn out LBO'ing of America. It appears that companies are liquidating
capital and returning it as opposed to earnings spreads on revenue.
It seems like we're seeing the final blow-off phase that started with the stock option
becoming the primary form of compensation for corporate talent. By drawing out the LBO,
they re-stock their options each year with a guaranteed return thanks to the Fed and their own
Treasury Departments.
The problem is that you can't have systematic corporate buybacks with employment/economic
growth as they create diametrically opposite outcomes. The more work I do, the more I conclude
that the US economy has not expanded since 2006.
I was looking at mutual fund data the other day and it showed that people moved their fixed
income money into domestic equity - $185 billion in liquidated bond funds to buy $175 billion
in equity funds. This happened after the Fed announced tapering was on the table. Just like
the gold market, I suspect that "someone" forced the liquidation of bond funds and herded the
money into equity funds to keep the rally going. (I think it is perfectly reasonable
to flee bond funds at any time that interest rates are turning higher. Bond funds often take
it on the chin in such a deleveraging of a long term interest rate trend. However, I think the
whole taper thing was hyped and used by the wiseguys, as are most things these days by our financial
masters of the universe. - Jesse)
Coincidentally, corporations used half a trillion in cash flow on buybacks. It's
a liquidity game but with limitations. What's the next asset that can be liquidated or levered?They're still working on gold but sometime soon, the price of gold will be set in the East,
where the gold resides. Agricultural commodities are being liquidated but that ensures
a drop in planting next year. Oil is too valuable on the geopolitical front to liquidate.
There are certainly winners in this economy but far more losers. At some point,
the weight of the losers acts against the winners, many of whom are levered up with confidence.
Corporations can liquidate equity capital but we all know how the LBO'd companies operated in
the 1990's. In many ways, they've gotten corporations to behave like consumers did in the
2000's, only this time they're trained to buy back their own stock. Every cycle has natural
limits.
We know that corporate cash flow is no longer growing and we know that it's more
expensive to sell debt today than a year ago. We also know that the Fed sees the stock market
as their proof of success. So how does this shakeout? If corporations are a lemon, how much
juice can you squeeze out of the lemon?"
Although I do not wish to be an alarmist, I have to say that this trend of attempting to sustain
the unsustainable has gone on longer than I had previously thought possible.
I am fairly sure that the next crisis will bring these things to a head and some sort of resolution.
But therein also lies great danger. Philosophies that have grown time can have deep roots, and when
faced with what to them is an intolerable change, can react somewhat excessively. They may even
welcome the opportunity to act excessively and decisively, at least in their own minds, as the path
to winning.
When a ruling subculture that has become accustomed to crushing and liquidating things for its
own power and pleasure, whether it is natural resources, the environment, crops, animals, land,
or social organizations, eventually runs out of things, it can become frustrated and angry in its
seeming impotence to continue on, to keep expanding.
Indirectly and somewhat benignly at first, but with a growing efficiency and determination over
time, it will begin with the weak and the defenseless, attacking and objectifying them, even in
the most petty of ways and impositions. It will turn to its critics, and then everyone who is defined
by them as 'the other.'
That is when a predatory social and economic philosophy can turn into pure fascism, and start
liquidating people. And finally it liquidates and consumes itself.
But really, no one wakes up one morning and suddenly decides, 'Today I will become a monster,
and wantonly kill innocent women and children.'
Otherwise ordinary people get to that point slowly, one convenient rationalization for their
'necessary and expedient' behavior at a time. After all, they are the good people, they are the
strong, they are the most successful and the favored.
They are the entitled, and not these others who would seek to drain them, drag them back
down. They are the champions of progress and achievement and civilisation, the hardest working,
and the epitome of mankind.
What could possibly go wrong?
"He prompts you what to say, and then listens to you, and praises you, and encourages you. He
bids you mount aloft. He shows you how to become as gods. Then he laughs and jokes with you,
and gets intimate with you; he takes your hand, and gets his fingers between yours, and grasps
them, and then you are his."
J. H. Newman, The AntiChrist
If you are one who thinks that the above 'could not possibly happen here,' and I am sure that there
are many, you may wish to read the following vignette from modern US history. Alan Nasser,
FDR's Response to the Plot to Overthrow Him
Speaking of optimism, stock market bullishness is at an extreme, with one bearish sentiment
indicator at the lowest level in its history going back 25 years, and at the lowest level since
before the 1987 Crash.
Reported earnings and revenues have been flat for over two years, whereas the S&P 500 is
up 60-65%, and the P/E has expanded 50%. The only two times in the 142-year history of the S&P
500 when a similar situation occurred with real reported earnings having contracted yoy along
the way was in 1986-87 and 1928-29.
Shiller's 10-year average P/E is above the levels historically when secular BULL M
PEAKED (1881, 1929, and 1966-68) and thereafter experienced secular bear m lasting 15-16
to 20 years. Even a best case scenario implies a ~0% real total 10-year return (before fees
and taxes) and cyclical drawdowns of 35-50%+ in the meantime.
The speculative leveraged meltup we have seen since summer-fall 2012 (Fed's "all in") is
one for the history books, if not one for which the history books must be rewritten.
Despite Wall St. (that depends upon inflating bubbles), Fed officials (who work for the TBTE
banks and Wall St.), and establishment economists (who serve the TBTE banks, the Fed, and Wall
St.) claiming that there are no bubbles anywhere (or they are incapable of seeing, or are not
permitted to see, bubbles), there are bubbles ABSOLUTELY EVERYWHERE (because the Fed/TBTE banks
intended there to be bubbles):
Stocks
Non-financial corporate debt to GDP
Real estate, including in China, Asian city-states, Canada, Australia, parts of Europe, and
the oil emirates
Wealth and income concentration to the top 0.01-0.1% to 1-10%
Equity market cap to GDP
Q ratio
Trophy properties
Farmland
Teslas
IPOs
NYSE margin debt
Stock buybacks
Derivatives to GDP
Total debt to GDP
Art
Vintage cars
Student loans and college tuition
Subprime auto loans
Bank reserves
Bank assets to GDP
Fed balance sheet to GDP
Professional athlete and CEO compensation
Professional sports franchise prices
Tight oil extraction and exports
There is also a bubble in the number of people claiming that there are no bubbles anywhere.
The bubbles are global and cumulatively far larger than anything experienced in history,
even larger in scale globally than in 1999-2000 and 2006-07.
The bubbles, Fed printing, bank cash hoarding, and the resulting EXTREME wealth and income
concentration to the top 0.1-1% to 10% is contributing to money velocity plunging and the pricing
of Millennials out of the housing market, causing household formation to collapse.
Bears have been in hibernation for so long (as in 1999-2001 and 2007-08) that no one remembers
where their caves are or if they are any still alive. The bulls have only themselves left to
trample in the next stampede out the exits (when, not if, it occurs) when the TBTE bankers finally
decide to pull the plug on (or deflate) the bubble, as they always do.
Reason for optimism or unreasonable optimism by the top 0.01-0.1% to 1%?
Ricardo
A friend sent me the following email.
The inability to see that the current monetary policy does not work in any mechanically
rational way is embedded in the culture of the professional and academic community.
There is an orthodoxy of thought in all the elite institutions of learning and then in all
the government and private applications of that learning. This group think will not change,
as Schumpeter explained, until all the old heads of academic economic departments die and
a new generation can impose a new orthodoxy. Professors and Central Bankers, who have spent
their whole lives writing papers and books from an Aggregate Demand, Quantity Theory of
Money point of view, are not capable of mentally confronting the possibility that everything
they learned and taught for their whole lives might be wrong.
All the cherished beliefs of a generation that low interest rates stimulate economic
activity, that increasing the quantity of money will increase bank loans and inflation,
or that the economy's growth can be judged by the level of government spending and consumption,
are exposed as intellectually bankrupt myths, are not effective in structuring policy, but
the current orthodoxy makes it culturally and professionally impossible to admit that.
Bruce:
Ricardo, brilliant. Thank you and thank your friend for his/her clarity in succinctly stating
the obvious that obviously cannot be admitted by establishment economists.
The focus on public debt by many academics creates a political debate that obscures the structural
drag effects of demographics, "globalization"/"trade" (neo-imperial "trade" regime), PRIVATE
debt to wages and GDP, and the resulting end of the reflationary effects on the growth of economic
activity when the cumulative imputed compounding interest claims of private debt on wages and
GDP are so large as to no longer permit growth of private economic activity.
Neither supply-side nor Keynesian policies can resolve the secular Long Wave debt cycle
we currently face after 32 years of falling nominal interest rates and the reflationary effects
from increasing debt to wages and GDP. More private debt (debt-money lending/deposits) to wages
and GDP to increase supply does not work when there is too much private debt to service.
(Total rentier income [interest, dividends, and capital gains)] received disproportionately
by the top 0.1-1%, and total gov't receipts combine for an equivalent of 51% of GDP, 120% of
public and private wages, and 145% of private wages. The hyper-financialized economy and local,
state, and federal gov't spending at 35% of GDP is resulting in a private sector so burdened
by debt service, i.e., "rentier taxes", and gov't taxation that it cannot grow.)
Nor is more public debt to wages and GDP successful in increasing gov't spending to encourage
private sector growth when the private sector is burdened with unprecedented debt.
By definition, secular highs in debt to GDP coincide with bubbly asset values to GDP, which
in turn is reflected by extreme wealth and income concentration, as the top 1-10% receive 20-50%
of income and hold 40-85% of all financial wealth.
The secular debt constraint to real GDP per capita precludes further supply-side expansion
of debt, whereas extreme wealth and income concentration and runaway central bank reserve expansion
causes asset bubbles, further hoarding at no velocity by the top 1-10%, and plunging money multiplier
and velocity.
Historically, high debt/GDP, asset bubbles, and extreme wealth and income concentration are
unambiguous indications of sub-optimal incentives, gross price distortions, misallocation of
flows, and precursor conditions to decelerating real GDP per capita, financial panics, currency
crises, structurally high labor underutilization, social instability, political reaction, and
war.
Then add the structural ("permanent"?) drag effects from peak Boomer demographics AND Peak
Oil (and net energy per capita), and the effects of debt and inequality are exacerbated (reinforced).
The median household income per capita for the bottom 80-90% of US households is equivalent
today to the country GDP per capita in eastern Europe and the wealthier areas of Central and
South America. The bottom 50-60% now have household income per capita of Mexico, poorer South
and Central Americans, and South Africa.
The typical American male under age 35 receives an income of 60% of that of his generational
predecessor in 1970-73 after taxes, inflation, and the effects of higher costs to income for
energy, housing, education, and medical services.
The typical college grad today (the 50% who are employed or not underemployed or unemployable)
receives a salary similarly adjusted at the equivalent purchasing power of the minimum wage
in 1970.
We should thus not be surprised why Millennials are staying home, or moving back in, with
Mom and Dad (or Mom or Dad); why household formation is collapsing; why Millennials' headship
rate is at a record low; why Millennials are not marrying; and why the birth rate for Caucasian
females is converging with that of Europeans, Japanese, Singaporeans, and Taiwanese.
In spite of all of this, or because of it, the stock market is melting up and the top 0.1-1%
have virtually disengaged from what remains of the productive sectors of the economy on which
the rest of us depend for paid employment and purchasing power.
Now the owners of most of the financial wealth and the means of production of goods and services
and the managerial caste that facilitates economic activity intend to accelerate automation
of paid employment, expand "trade" via an Asian NAFTA, increase immigration to the US, further
increase surveillance-state capabilities, and impose "austerity" on the 50% "takers".
In the context of such conditions, it's no wonder economists spend most of their time focused
on attempting to determine how many angels can dance on the head of the proverbial pin. No one
gets paid nor receives tenure, a department endowment fund, and a pension by looking out of
the window of the ivy-covered tower at the real world and telling his peers to do the same and
write about it.
We have gotten to a point when even the most tenured economists have finally admitted the truth,
and in the process none other than JPMorgan itself has just issued a chart titled "The era of
central bank-driven equity rallies."
Is the U.S. consumer tapped out? If so, how in the world will the U.S. economy
possibly improve in 2014? Most Americans know that the U.S. economy is heavily dependent on consumer
spending. If average Americans are not out there spending money, the economy tends not to do very
well. Unfortunately, retail sales during the holiday season appear to be quite disappointing and
the middle class
continues to deeply struggle.
And for a whole bunch of reasons things are likely going to be even tougher in 2014. Families
are going to have less money in their pockets to spend thanks to much higher health insurance premiums
under Obamacare, a wide variety of tax increases, higher interest rates on debt, and cuts in government
welfare programs. The short-lived bubble of false prosperity that we have been enjoying for the
last couple of years is rapidly coming to an end, and 2014 certainly promises to be a very "interesting
year".
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401k
Revenue Sharing Controversy There are two big points in a recent article in Kiplinger.com on
the topic of
hidden 401k
fees. The first is the issue of "revenue sharing" between a 401k fund choice and the 401k's
plan administrators. Apparently what happens is that large investment companies are essentially
offering a "kickback" to a plan administrator if they recommend the use of their funds. Last fall,
insurance giant ING settled, without admitting wrongdoing, an investigation by New York Attorney
General Eliot Spitzer into payments to a New York teachers union to endorse and promote ING annuities
in the union's retirement savings plan...
Will you ever be able to retire
- Cracked Nest Egg - MSNBC.com Traditional defined-benefit pensions spread that "longevity"
risk among a large pool of workers, using actuarial research on predicted life spans. Now annuities
sellers will fleece individuals: with individually managed plans, the longevity risk falls
fully on each retiree.
Think you
know what you need to retire Think again. Financial News - Yahoo! Finance -- should be read
with a grain of salt (there are definitely trying to sell annuities in this paper); this is a nice
example of how much CNN is hostage to financial industry, the most promising candidate out of three
classic candidates into class of parasites (FIRE - financial industry, insurance and real estate)
The term "irrational exuberance" derives from some words that Alan Greenspan, chairman of
the Federal Reserve Board in Washington, used in a black-tie dinner speech entitled
"The
Challenge of Central Banking in a Democratic Society" before the American Enterprise Institute
at the Washington Hilton Hotel December 5, 1996. Fourteen pages into this long speech, which
was televised live on C-SPAN, he posed a rhetorical question: "But how do we know when irrational
exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged
contractions as they have in Japan over the past decade?" He added that "We as central bankers
need not be concerned if a collapsing financial asset bubble does not threaten to impair the
real economy, its production, jobs and price stability."
Immediately after he said this, the stock market in Tokyo, which was open as he gave this
speech, fell sharply, and closed down 3%. Hong Kong fell 3%. Then m in Frankfurt and London
fell 4%. The stock market in the US fell 2% at the open of trade. The strong reaction of the
m to Greenspan's seemingly harmless question was widely noted, and made the term irrational
exuberance famous. It would seem to make no sense for m to react all over the world to
a question casually thrown out in the middle of a dinner speech. Greenspan probably learned
once more from this experience how carefully someone in his position has to choose words. As
far as I can determine, Greenspan never used the "irrational exuberance" again in any public
venue. The stock market drops around the world that occurred after his speech on December 6,
1996 have all been forgotten, eclipsed by bigger subsequent events, but it was those stock market
drops that focussed public attention on the phrase irrational exuberance and which caused it
to enter our language.
The term irrational exuberance became Greenspan's most famous quote, out of all the millions
of words he has uttered publicly. The term "irrational exuberance" is often used to describe
a heightened state of speculative fervor. It is less strong than other colorful terms such as
"speculative mania" or "speculative orgy" which discredit themselves as overstating the case.
I chose this phrase as the title for my book because many people know instantly from this title
what this book is about.
Often people ask me whether I coined the term irrational exuberance, since I (along with
my colleague John Campbell and a number of others) testified before Greenspan and the Federal
Reserve Board only two days earlier, on December 3, 1996, and I had lunch with Greenspan on
that day. I did testify that m were irrational. But, I very much doubt that I am the origin
of the words irrational exuberance. Actually, Greenspan is quoted in a Fortune Magazine article
in March 1959, long before he became Federal Reserve chairman, about "over-exuberance" of the
financial community. Probably, "irrational exuberance" are Greenspan's own words, and not a
speech writer's, and probably Alan Greenspan had written a draft of his 1996 speech even before
I testified.
Robert J. Shiller
Cowles Foundation for Research in Economics
and International Center for Finance
Yale University
30 Hillhouse Avenue
New Haven, CT 06511 [email protected]
Amazon.com Unexpected Returns Understanding Secular Stock Market Cycles Books Ed Easterling
One of the strongest points emphasized by the book is that interest rates and inflation have never
been stable for long, and the recent condition of low inflation price stability is a historical
anomaly. The author uses a plethora of graphs and charts to prove that "buy and hold" doesn't
always provide the best returns. Obviously, then, it's better to pull out during the bear m ,
but that's easier said than done
[Sept 22, 2006]
Samuelson
Growing Economic Inequality Threatens U.S. Values - Newsweek Robert Samuelson - MSNBC.com
The rich are getting an ever-bigger piece of the economic pie. In 2005, the richest 5 percent
of households (average pretax income: $281,155) had 22.2 percent of total income, reports Census.
In 1990, the share was 18.5 percent; in 1980, 16.5 percent. These figures exclude capital gains-profits
on stocks and other assets-that have most benefited the richest 1 percent. With capital gains, their
pretax income averaged about $1 million in 2003. That was about 20 times the average income of households
in the middle of the economic distribution. In 1979, the ratio was 10 to 1.
Please note that CCM Capital Appreciation C was not involved in the
SEC charges
of fraudulent market-timing aimed at PIMCO nor was Bill Gross, PIMCO's chief investment
officer, who opines in this month's
Investment Outlook that the high fees charged by hedge funds make them "generally overpriced."
Bill Gross manages PIMCO's humongous Total Return Institutional Bond Fund, which has an expense
ratio of 0.43% and tracks the comparable Lehman index with an R-Squared of 95%. Vanguard has
an institutional fund that closely tracks the Lehman index for a 0.05% expense ratio.
Therefore, Mr. Gross gets about 0.38% for the active 5% of the fund, which is a "true" expense
ratio of 7.8%. It must be said that Mr. Gross delivers an impressive alpha of 0.84 on
that active 5%, so he could have a bright future in hedge funds.
Unfortunately, the use of "Lysenkoism" as an epithet has been degraded by overuse, especially
in absurd situations. I propose to restrict "Lysenkoism" to circumstances where a clear case
can be made for coercive enforcement of the belief system from outside the system (e.g.,
by state patronage). For example, if a concept spreads concurrently among the scientific communities
of several countries, it is almost certainly not Lysenkoism. One might feel like calling it
that, but the analogy with Lysenko would fail to apply.
Socking away money for retirement is a great idea, but how much do you really need to save? How
long do you need to work to set yourself up comfortably in your golden years? Enter your information
below, the charts and numbers on the right will change as you go along, so try a few different numbers
and see how different scenarios might play out for you.
All amounts are calculated using today's dollar values. The rate of return on investments
is adjusted for a 3% inflation rate.
Below are sample for simulation "reasonably conservative investor" responses. The sample was done
of Sep 4, 2007 so the allocation looks a little bit strange for the market conditions but we have what
we have... What idiots programmed this junk ?
Here are the results of your profile questionnaire. The possible allocation models are Very Defensive,
Defensive, Conservative, Moderate, Moderately Aggressive, Aggressive, and Very Aggressive. Your
risk propensity suggests a Conservative portfolio allocated with the following mix:
The Last but not LeastTechnology is dominated by
two types of people: those who understand what they do not manage and those who manage what they do not understand ~Archibald Putt.
Ph.D
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