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”.
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
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
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
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
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
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
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
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
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.
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
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
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):
Suppl Medical Insurance
Car amortization (two cars)
Car insurance (two cars)
Drugs and out-of-pocket med
Presents to relatives
Cloth, computer, furniture, etc
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
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
Estimated Total Years
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:
Suppl Medical Insurance
Car amortization (one car)
Car insurance (one car)
Drugs and out-of-pocket
Cloth, computer, furniture, etc
Presents to relatives
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
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
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
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
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
Over a quarter of households that use one of these plans take out money for purposes other than
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
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 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
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
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.
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
"... 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
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
As far as the homeless go, if you see them in the winter in cold cities they're probably
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
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.
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
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
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
I will sound simplistic and naive, but it's really hard to reconcile those extremes in
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
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
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.
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.
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
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
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.
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
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,
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.
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.
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.
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
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
Actually in Montreal you can get by fine with English only in the West Island. I have anglophone colleagues who only speak English.
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
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.
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
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
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
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
'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.
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
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
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
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
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.
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
. 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.
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.
+ 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
+ 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 (
). 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
– 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
– 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:
– 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 (
– 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
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
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
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.
"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
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
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
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.
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.
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:
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
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
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
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
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
The currency issuer can create new spending with the constraint being generating too
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
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
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
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
...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
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
This aspect of defined-contribution retirement plans
hasn't gotten nearly the exposure that the negative aspects
have. It's just as true though.
"... 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
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.
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.
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
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
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 &
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!
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
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.
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.
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
"... 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. " ..."
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
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
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
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
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
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.
"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
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
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
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
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
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.
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
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,
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
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
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
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.
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
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
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,
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,
"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
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)
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
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,
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
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.
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:
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.
"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."
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
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.
In the nondescript
world of public
policy, oopsies don't
get any bigger than
In a remarkable
story (#) in Tuesday's
Wall Street Journal,
champions of 401(k)s,
that help workers sock
away retirement funds,
expressed regrets for
what their efforts
later yielded: Private
workers now shoulder
risks that large
bore. Investment fees
chip away at account
owners' returns. The
worker is badly
underprepared for old
"I helped open the
door for Wall Street
to make even more
money than they were
already making," said
Ted Benna - sometimes
known, according the
Journal's Timothy W.
Martin, as the "father
of the 401(k)." "We
former Johnson &
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
fear of leaving the
workforce with nothing
saved surely added to
the economic unease
that Donald Trump
channeled in his
Instead, a Republican
Congress and the
preparing to repeal
Obamacare and replace
it with individual
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
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
plan would supplement
a company pension that
guaranteed payouts for
later, the former
Johnson & Johnson
misgivings about what
he helped start.
What Mr. Whitehouse
and other proponents
didn't anticipate was
that the tax-deferred
savings tool would
pensions as big
employers looked for
ways to cut expenses.
Just 13% of all
have a traditional
pension, compared with
38% in 1979.
"We weren't social
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
tool and acknowledge
they used forecasts
that were too
optimistic to sell the
plan in its early
Others say the
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
"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
administration push to
kill the 401(k). "It
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
incentives to set up
voluntary plans but
employees or companies
to take any specific
The advent of
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
according to the
Research Institute and
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
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.
And the savings gap
Fifty-two percent of
U.S. households are at
risk of running low on
retirement, based on
projections of assets,
home prices, debt
levels and Social
according to Boston
College's Center for
That is up from 31% of
households in 1983.
Roughly 45% of all
have zero saved for
to the National
More than 30
million U.S. workers
don't have access to
any retirement plan
because many small
provide one. People
are living longer than
they did in the 1980s,
fewer companies are
wages have largely
stagnated and low
interest rates have
"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
underestimate how much
they will need to
retire or accumulate
too much debt. Lucian
J. Bernard is among
those wishing he had a
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
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
question it worked"
for those who
committed to saving,
says Robert Reynolds,
who was involved in
first sales of 401(k)
himself among the
success stories. At
64, he could retire
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
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
bonuses or stock
At the time,
which boomed in
popularity after World
War II, were the most
common way workers
saved for retirement.
A group of
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
could put aside money
tax-free, but they
responsible for their
own saving and
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
plans, on the other
hand, had weaknesses:
could wipe them out or
weaken them, and it
was difficult for
workers to transfer
them if they switched
the 401(k) because it
was less expensive and
more predictable to
fund than pensions.
Company pay-ins ended
when an employee left
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
of the Schwartz Center
for Economic Policy
Analysis, says she
offered assurances at
union board meetings
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
of excitement and
wow," says Kevin
Crain, who as a young
executive at Fidelity
Investments in the
complaints about some
of its funds
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)
have since recovered,
but many savers are
still behind where
they need to be. ...
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
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
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.
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
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.
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.
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
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
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.
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
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
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
"It's a little easier saying it than doing it," he
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
"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
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
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)
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.
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
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
. 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.
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%.
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
"... 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
... ... ...
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
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
The formula for how the COLA is calculated needs to be changed to allow for fair increases
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. "
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
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
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
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.
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
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
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.
Would love to see this repeated and repeated, because although it's hard, we need to grasp
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!
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
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.
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
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
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.
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.
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
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
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
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.
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
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
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.
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
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
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.
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?
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,
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
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.
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.
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
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?
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.
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
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
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
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
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
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
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
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
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
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
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."
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
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:
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
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"
"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
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
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!
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
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.
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.
"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
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).
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
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
3) You can't "buy low" if you don't "sell high"
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
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
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
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."
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
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
9) Being a contrarian is tough, lonely and generally right.
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
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.
Your rating: None Average: 3.1 (13 votes)
#11 Money Talks and Bullshit Walks
#12 Cash is King!
"What's a trillion between friends?" - Bernank
So what's the point in saving if the return is less than zero...,
a lot less?
Only go all in when the fed owns and buys the market every Fucking day for 8
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.
Seems Robert Rubin optimized principles out of the equations. The outcomes from
his decisions support that view.
#13. Sell in March, have nuclear holocaust in May........
well the fucker left out. sell in may and run away.
#11.......Don't get high on your own supply
"The rich rule over the poor, and the borrower is slave to the lender." -
Eo Ipso: Never buy what you can't afford without borrowing.
My personal favorite:
Journalist: "To what do you attribute your great success in the market?"
Bernard Baruch: "Selling too early."
"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
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
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.
The house always wins.
I was only helping the muppets over the yield fence
In the short term the market is a voting mechanism, in the long run it is a
weighing mechanism. - Ben Graham
#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.
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".)
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..."
#12 "I am more interested in the return of my capital than the return
on my capital."
#13 "You've got to go out on a limb sometimes because that's where the
#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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9/11 Truth: Judges shocked by first time seeing video of WTC 7 collapse
in Denmark court
"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
"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.
'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.
You are thinking of payment in gold or silver, when heads will also gladly
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
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
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
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
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
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
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.
"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."
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
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.
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
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.
"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
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
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.
" The size of the benefit recipient population from these plans relative to the workforce
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
The system works for the duped, the exploiters and the plunderers, no one else.
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
"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
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?
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
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:
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
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
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
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
"... "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
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
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. >
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
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
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
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
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
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).
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
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
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
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.
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.
Don't be taken in by these frauds and scams. Learn how to protect yourself and your money.
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.
In just four questions our Scam Meter will help you tell if an investment you are thinking about
might be a scam.
in a new
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.
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
With so much dry kindling, it will not take much to spark the next
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
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.
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
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
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
Peter K. said in reply to pgl...
Look at what Bernstein says about historical levels of "discretionary" government funding
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
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
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.
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...
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
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
For all I know, the US was intervening directly in the futures m . What happens when they
close their "position"?
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.
If BofA says it, then we know the opposite will happen.
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.
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
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.
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
"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
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
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.
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!
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.
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…
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
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.
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
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.
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
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
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.
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!
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
... ... ...
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
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
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
"The situation is universal, a consequence of incompetent leaders and careless (or
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
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
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:
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
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
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
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
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.
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.
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
Rising inventories + slowing demand = inventory correction (recession if bad enough ... it
will be bad enough)
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
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.
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...]
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
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
DoubleLine Total Return Bond
Fidelity Strategic Income
Loomis Sayles Bond
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.
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".
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.
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
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,
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
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
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
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
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
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
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
"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
"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
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
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
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
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
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
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
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 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
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
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
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
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
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
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, allowin