FedUpUSA

Archive for February 2nd, 2012

The testimony and questioning this morning is rather interesting….

Ryan is going to town on him as I write this and I have to wonder if he reads Tickers, as he’s pointing out:

• He’s bailing out fiscal policy with near-zero interest rates.  That is, we are able to run trillion dollar plus deficits because he is playing with ZIRP and QE.  Ryan basically told Bernanke that Congress is not comprised of adults and that Bernanke must pull system liquidity in order to force Congress to do its job!
• He used the words stable prices.  What he did not do is bend him over the desk and give him one or two good ones from behind on the “2% inflation” game, but it’s a start.
• He’s pointing out that trashing saver’s investment income and forcing them into risk is counter-productive.  Mr. Ryan recognizes capital formation will get the job done?  THAT is a change.
• He called him out on creating the housing bubble.  Heh heh heh…..

There’s more — but this is a change, and a marked one, in how the questioning is unfolding.  With that, here’s my commentary on the testimony.

February 2, 2012

Chairman Ryan, Vice Chairman Garrett, Ranking Member Van Hollen, and other members of the Committee, I appreciate this opportunity to discuss my views on the economic outlook, monetary policy, and the challenges facing federal fiscal policymakers.

The Economic Outlook Over the past two and a half years, the U.S. economy has been gradually recovering from the recent deep recession. While conditions have certainly improved over this period, the pace of the recovery has been frustratingly slow, particularly from the perspective of the millions of workers who remain unemployed or underemployed. Moreover, the sluggish expansion has left the economy vulnerable to shocks. Indeed, last year, supply chain disruptions stemming from the earthquake in Japan, a surge in the prices of oil and other commodities, and spillovers from the European debt crisis risked derailing the recovery. Fortunately, over the past few months, indicators of spending, production, and job market activity have shown some signs of improvement; and, in economic projections just released, Federal Open Market Committee (FOMC) participants indicated that they expect somewhat stronger growth this year than in 2011. The outlook remains uncertain, however, and close monitoring of economic developments will remain necessary.

As is often the case, the ability and willingness of households to spend will be an important determinant of the pace at which the economy expands in coming quarters. Although real consumer spending rose moderately last quarter, households continue to face significant headwinds. Notably, real household income and wealth stagnated in 2011, and access to credit remained tight for many potential borrowers. Consumer sentiment has improved from the summer’s depressed levels but remains at levels that are still quite low by historical standards.

Note that nice hidden statement in there.  The entire problem with the last 30 years is that we have continually spent more than we made through the economy.  Again, for Mr. Ryan (who will get this by fax) and the rest of those on The Hill:

Over the last 30 years there was no actual growth funded by output.  It was all borrowed.

That’s the root of the problem and it must be addressed.  Addressing it will cause financial contraction for some period of time — it cannot be otherwise, as the demand represented by that excessive borrowing was not real and as such the withdrawal cannot do other than cause direct contraction in the economy itself.

Household spending will depend heavily on developments in the labor market. Overall, the jobs situation does appear to have improved modestly over the past year: Private payroll employment increased by about 160,000 jobs per month in 2011, the unemployment rate fell by about 1 percentage point, and new claims for unemployment insurance declined somewhat. Nevertheless, as shown by indicators like the rate of unemployment and the ratio of employment to population, we still have a long way to go before the labor market can be said to be operating normally. Particularly troubling is the unusually high level of long-term unemployment: More than 40 percent of the unemployed have been jobless for more than six months, roughly double the fraction during the economic expansion of the previous decade.

There as been no recovery in employment.

The key here is that tax receipts are inexorably tied to the Employment Rate.  But more tellingly the fact of the matter is that the US Government has never managed to extract materially more than 19% of GDP in taxes.  Expecting that we can do it now is naive — therefore, raising taxes will not raise revenue, but lowering taxes doesn’t spur actual revenue; the history is that what lower tax rates do is spur borrowing which in turn feeds bubbles instead of healthy economic growth!

The premise of continually borrowing more to create more and more fake demand is a Ponzi scheme.

Uncertain job prospects, along with tight mortgage credit conditions, continue to hold back the demand for housing. Although low interest rates on conventional mortgages and the drop in home prices in recent years have greatly improved the affordability of housing, both residential sales and construction remain depressed. A persistent excess supply of vacant homes, largely stemming from foreclosures, is keeping downward pressure on prices and limiting the demand for new construction.

The problem is not foreclosures.  It is the refusal of regulators to force actual values to be recognized by financial institutions, which in turn has prevented the market price from sinking to the level of actual value.

The fact of the matter is that the total loss that has to be absorbed in the housing market has been stymied by these policies, which in any firm without such “blessing” would be flagged instantly as an act of fraud, that is causing the market to remain “inflated” and is thus preventing it from clearing.

Yes, I know, everyone “hates” foreclosures. Except, that is, for the person without a house who would like to buy one cheap!  Funny how we all like low prices — except when we’re sellers, or worse, when we’re municipal governments that built tax bases and rates on bubble prices that were utterly ridiculous and banks that loaned money on fictitious values that would be rendered instantly insolvent were the truth to be recognized.  Then it’s “bad”.

In contrast to the household sector, the business sector has been a relative bright spot in the current recovery. Manufacturing production has increased 15 percent since its trough, and capital spending by businesses has expanded briskly over the past two years, driven in part by the need to replace aging equipment and software. Moreover, many U.S. firms, notably in manufacturing but also in services, have benefited from strong demand from foreign markets over the past few years.

Uh huh.  Look at the GDP report and the import/export balance lately?

More recently, the pace of growth in business investment has slowed, likely reflecting concerns about both the domestic outlook and developments in Europe. However, there are signs that these concerns are abating somewhat. If business confidence continues to improve, U.S. firms should be well positioned to increase both capital spending and hiring: Larger businesses are still able to obtain credit at historically low interest rates, and corporate balance sheets are strong. And, though many smaller businesses continue to face difficulties in obtaining credit, surveys indicate that credit conditions have begun to improve modestly for those firms as well.

Economic growth does not come from credit.  Bubbles come from credit.

Economic growth comes from economic surplus, otherwise known as “profit.”  Borrowing suppresses economic surplus as the cost of borrowed funds, otherwise known as “interest” comes off the top line and thus is a dollar-for-dollar charge against profit.

So low interest rates may appear to reduce this impact but in fact all they do is produce uneconomic output — that for which there is no driver from profit.  This is otherwise known as “malinvestment” and it is bad, not good.

Globally, economic activity appears to be slowing, restrained in part by spillovers from fiscal and financial developments in Europe. The combination of high debt levels and weak growth prospects in a number of European countries has raised significant concerns about their fiscal situations, leading to substantial increases in sovereign borrowing costs, concerns about the health of European banks, and associated reductions in confidence and the availability of credit in the euro area. Resolving these problems will require concerted action on the part of European authorities. They are working hard to address their fiscal and financial challenges. Nonetheless, risks remain that developments in Europe or elsewhere may unfold unfavorably and could worsen economic prospects here at home. We are in frequent contact with European authorities, and we will continue to monitor the situation closely and take every available step to protect the U.S. financial system and the economy.

Short form:

Let me now turn to a discussion of inflation. As we had anticipated, overall consumer price inflation moderated considerably over the course of 2011. In the first half of the year, a surge in the prices of gasoline and food–along with some pass-through of these higher prices to other goods and services–had pushed consumer inflation higher. Around the same time, supply disruptions associated with the disaster in Japan put upward pressure on motor vehicle prices. As expected, however, the impetus from these influences faded in the second half of the year, leading inflation to decline from an annual rate of about 3-1/2 percent in the first half of 2011 to about 1-1/2 percent in the second half–close to its average pace in the preceding two years. In an environment of well-anchored inflation expectations, more-stable commodity prices, and substantial slack in labor and product markets, we expect inflation to remain subdued.

Against that backdrop, the Federal Open Market Committee (FOMC) decided last week to maintain its highly accommodative stance of monetary policy. In particular, the Committee decided to continue its program to extend the average maturity of its securities holdings, to maintain its existing policy of reinvesting principal payments on its portfolio of securities, and to keep the target range for the federal funds rate at 0 to 1/4 percent. The Committee now anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate at least through late 2014.

As part of our ongoing effort to increase the transparency and predictability of monetary policy, following its January meeting the FOMC released a statement intended to provide greater clarity about the Committee’s longer-term goals and policy strategy.¹ The statement begins by emphasizing the Federal Reserve’s firm commitment to pursue its congressional mandate to foster stable prices and maximum employment. To clarify how it seeks to achieve these objectives, the FOMC stated its collective view that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve’s statutory mandate; and it indicated that the central tendency of FOMC participants’ current estimates of the longer-run normal rate of unemployment is between 5.2 and 6.0 percent. The statement noted that these statutory objectives are generally complementary, but when they are not, the Committee will take a balanced approach in its efforts to return both inflation and employment to their desired levels.

Oh really Ben?  Your mandate is for stable prices.

I will note that 2% inflation produces this over the “longer term” for an item that costs $3.50 today (say, for example, a gallon of gasoline) and I’ve taken the liberty of extending it over a working man’s life (45 years)

That’s gas prices for you, Mr. 20 year old, by the time you’re 65.

How about your kids?  Let’s extend this out 100 years:

Oh yeah that’s gonna work out real well.

Now what if Ben is off by just 1%, and it’s 3% instead?

And over 100 years?

This is why a mandate of stable prices must be enforced as exactly that — stable, or unchanging, and we must start imprisoning those who “interpret” things otherwise.

Fiscal Policy Challenges In the remainder of my remarks, I would like to briefly discuss the fiscal challenges facing your Committee and the country. The federal budget deficit widened appreciably with the onset of the recent recession, and it has averaged around 9 percent of gross domestic product (GDP) over the past three fiscal years. This exceptional increase in the deficit has mostly reflected the automatic cyclical response of revenues and spending to a weak economy as well as the fiscal actions taken to ease the recession and aid the recovery. As the economy continues to expand and stimulus policies are phased out, the budget deficit should narrow over the next few years.

That’s a nice theory.  It does not, however, fit with the facts.

Unfortunately, even after economic conditions have returned to normal, the nation will still face a sizable structural budget gap if current budget policies continue. Using information from the recent budget outlook by the Congressional Budget Office, one can construct a projection for the federal deficit assuming that most expiring tax provisions are extended and that Medicare’s physician payment rates are held at their current level. Under these assumptions, the budget deficit would be more than 4 percent of GDP in fiscal year 2017, assuming that the economy is then close to full employment.² Of even greater concern is that longer-run projections, based on plausible assumptions about the evolution of the economy and budget under current policies, show the structural budget gap increasing significantly further over time and the ratio of outstanding federal debt to GDP rising rapidly. This dynamic is clearly unsustainable.

The CBO estimates ridiculously large expansion of the economy as a whole, expiration of all of the tax cuts passed (and no new ones) and ridiculously small expansion in overall spending at a number of levels.  The one place they’re reasonably accurate is in their projection of health expense, which has grown by about 9% over the last 30 years (from $53 billion to ~$820 billion) and will continue to do so.  This is not a demographic problem either, as is often said — it also present in the private economy which is not subject to that distortion.

These structural fiscal imbalances did not emerge overnight. To a significant extent, they are the result of an aging population and, especially, fast-rising health-care costs, both of which have been predicted for decades. Notably, the Congressional Budget Office projects that net federal outlays for health-care entitlements–which were about 5 percent of GDP in fiscal 2011–could rise to more than 9 percent of GDP by 2035.³ Although we have been warned about such developments for many years, the time when projections become reality is coming closer.

Actually it’s coming now.  With a 9% rate of growth the rule of 72 tells us that health spending doubles every eight years!  If you think we can keep doing this for even one more eight year cycle, you’re wrong.

We are literally a few years — three or four at the outside — from hitting the wall at 120mph as within four years we will have added $410 billion a year to deficits and in eight nearly one trillion per year.  That’s not a one-year deal, it’s every year and it will utterly destroy any attempt to bring balance to the budgetary process.

This must be stopped right now or it will kill us and we do not have time to address it.  Those are the facts.

Having a large and increasing level of government debt relative to national income runs the risk of serious economic consequences. Over the longer term, the current trajectory of federal debt threatens to crowd out private capital formation and thus reduce productivity growth. To the extent that increasing debt is financed by borrowing from abroad, a growing share of our future income would be devoted to interest payments on foreign-held federal debt. High levels of debt also impair the ability of policymakers to respond effectively to future economic shocks and other adverse events.

No.  This grossly understates the case; we will not make it through the next one cycle (eight years) say much less two.  To believe we can manage to spend over three trillion dollars at the Federal level in 16 years is an outrageous lie and the idea that we can absorb another $400+ billion annually in deficits before 2016 and $800+ billion annually by 2020 is preposterous. 

That which cannot happen will not happen.

This puts the lie to claims by Ryan, Southerland, Miller and others that “those over 50 will not see their Medicare tampered with.”  Oh yes they will, as for them to “not have it tampered with” they’d have to make it through four cycles of doubling, not two, which would increase Federal health spending at present rates of acceleration to more than $13 trillion by the time that person reaches 85, or some 16 times the present amount.

I have put forward a number of points on this issue and how to address it under the Health Care topic — we have to stop bleating and start doing, right here and right now.  Look particularly at my postings on this topic from 2009 and 2010.

Even the prospect of unsustainable deficits has costs, including an increased possibility of a sudden fiscal crisis. As we have seen in a number of countries recently, interest rates can soar quickly if investors lose confidence in the ability of a government to manage its fiscal policy. Although historical experience and economic theory do not indicate the exact threshold at which the perceived risks associated with the U.S. public debt would increase markedly, we can be sure that, without corrective action, our fiscal trajectory will move the nation ever closer to that point.

No, we will go off the cliff.  Stop mincing words Ben — see above, and that’s just health care; it ignores everything else.

To achieve economic and financial stability, U.S. fiscal policy must be placed on a sustainable path that ensures that debt relative to national income is at least stable or, preferably, declining over time. Attaining this goal should be a top priority.

Even as fiscal policymakers address the urgent issue of fiscal sustainability, they should take care not to unnecessarily impede the current economic recovery. Fortunately, the two goals of achieving long-term fiscal sustainability and avoiding additional fiscal headwinds for the current recovery are fully compatible–indeed, they are mutually reinforcing. On the one hand, a more robust recovery will lead to lower deficits and debt in coming years. On the other hand, a plan that clearly and credibly puts fiscal policy on a path to sustainability could help keep longer-term interest rates low and improve household and business confidence, thereby supporting improved economic performance today.

Nonsense. Again, we have never managed to grow the economy faster than we’ve accumulated debt over the last 30 years.  We must accept this and reduce debt, which means we must accept economic contraction.  I know nobody wants to, myself included, but what I want and what I must do are two different things.

Fiscal policymakers can also promote stronger economic performance in the medium term through the careful design of tax policies and spending programs. To the fullest extent possible, our nation’s tax and spending policies should increase incentives to work and save, encourage investments in the skills of our workforce, stimulate private capital formation, promote research and development, and provide necessary public infrastructure. Although we cannot expect our economy to grow its way out of our fiscal imbalances, a more productive economy will ease the tradeoffs that we face and increase the likelihood that we leave a healthy economy to our children and grandchildren.

You cannot both add to debt and support capital formation (which is saving.)

It’s really that simple — we must accept the economic adjustment that has to be made, and we must accept it now.

The Market-Ticker

Discussion (registration required to post)

How is borrowing money based on fraudulent claims of asset value and future income any different from counterfeiting money?

Let’s compare three financial criminals. The first is an old-fashioned counterfeiter who doctors up paper and runs a printing press to produce fake currency.

The second  criminal borrows money based on a fraudulent asset and phantom future income. For example, the criminal might obtain a credit card based on false assets and income, or borrow money against a property that is worth far less than he claims and base his credit on an inflated fantasy income he does not actually receive.

The third criminal borrows money from the Federal Reserve at zero interest and extends a loan to a fraudulent borrower because a government agency has guaranteed the loan. Whatever income the lender receives is pure gravy, and whatever losses are incurred when the fraud is uncovered are made good by the taxpayer.

Since our banking system is based on money being borrowed into existence (i.e. fractional reserve), then how is creating money unsecured by either assets or income any different from actually counterfeiting bills? The outcome is identical: money created out of thin air.

If I fraudulently obtain credit based on bogus claims of future income, borrow a large sum and promptly squander it on consumption, then the lender has no recourse: there are no assets to grab and no income to tap. In effect, I had a good time at the expense of all holders of the currency, as my money-created-from-thin-air diluted the currency without adding any productive value.

The way the debt-counterfeit game is played in the U.S., the lender is also a  financial criminal who exploits the moral hazard extended by Federal agencies. If you can’t lose money on a loan, then why not give money to fraudulent borrowers? As long as they pay enough interest to cover your origination costs, then the rest is  pure profit.

We might also ask: how is writing a derivative based on false claims of asset valuation any different from counterfeiting? Once again the creation of an “asset” that can be sold to unwary investors for cash that is based on fraudulent claims of valuation is the equivalent of counterfeiting currency: both add no  productive goods or services to the economy and both are created out of thin air.

Since the Federal Reserve creates money out of thin air to buy assets which can be sold later to credulous investors, then how is the Federal Reserve not counterfeiting dollars? It adds no goods or services to the economy and dilutes the currency, in effect stealing value from all holders of the currency.

The U.S. financial system is one vast, interconnected web of complicity, fraud and counterfeiting.

For more on our counterfeit economy and policies, please see Our Counterfeit Economy and Counterfeit Money, Counterfeit Policy.

Charles Hugh Smith – Of Two Minds

Oh look, show trials complete with plea deals that are entered at the same time as are the charges!

Federal prosecutors unveiled criminal charges against three former Credit Suisse Group AG employees, providing a window into the way traders allegedly invented inflated values for mortgage bonds during the financial crisis.

Two of the three men pleaded guilty to criminal charges of conspiracy, admitting they attempted to conceal the scheme from managers in a bid to boost their bonuses.

Yes, and happy days are here again, the bad guys are all in prison and we can all go back to our work.

One employee was captured on a taped call worrying that “someone is going to spot” the inflated prices, prosecutors said. When another employee told his boss he should book a large loss, the boss allegedly balked: “That’s a lot of money, dude,” according to a taped conversation cited by prosecutors.

Wait a second… Taped call eh?  From 2007 and 2008?  Can someone please explain why it’s four years later when we’re seeing these charges?

Oh, I wonder if the delay has anything to do with this?

A U.S. Justice Department source has told The Daily Caller that at least two DOJ prosecutors accepted cash bribes from allegedly corrupt finance executives who were indicted under court seal within the past 13 months, but never arrested or prosecuted.

The sitting governor of the U.S. Virgin Islands, his attorney general and an unspecified number of Virgin Islands legislators also accepted bribes, the source said, adding that U.S. Attorney General Eric Holder is aware prosecutors and elected officials were bribed and otherwise compromised, but has not held anyone accountable.

The bribed officials, an attorney with knowledge of the investigation told TheDC, remain on the taxpayers’ payroll at the Justice Department without any accountability. The DOJ source said Holder does not want to admit public officials accepted bribes while under his leadership.

Say it isn’t so!  I mean, c’mon — there hasn’t been anything going on with bribery when it comes to, oh, Jefferson County in Alabama, right?  We haven’t actually seen municipal officials go to prison while the banksters who booked outsized profits (and after all, for there to be a bribe someone must offer a bribe while someone else receives said bribe) walk around chuckling, right?

But this allegation is a new low — if true, then there are people walking around right now who had indictments filed under seal but the indicted handed over the proverbial “big envelope” and, well, people sorta “forgot” about it.

Read the whole story over at Daily Caller.  It’s disgusting, and one has to assume that if this occurred in that context it is probably not an isolated incident.

On January 29 Bloomberg reported Bing Races to Beat Michigan Deadline for Union Detroit Deal

Democratic Mayor Dave Bing is racing to wrest concessions from 48 bargaining units to erase a $200 million deficit in the home of General Motors Co. and the cradle of the U.S. auto industry.

Otherwise, the city of 714,000 dominated by Democrats may face a Republican-appointed manager with authority to sell assets and nullify contracts. State Treasurer Andy Dillon has said Detroit will run out of cash by May, and called for concessions by early February.

This week, Bing began firing 1,000 of Detroit’s 11,300 employees. The mayor also proposes a 10 percent cut in payments to vendors and doubling the 1 percent tax on corporations.

Bing, 68, has said the city must trim annual employee benefit and pension costs, which have risen since 2001 to $35,000 per employee from $18,000.

“We are meeting, not daily but more than weekly, and there are sidebar conversations every day,” said Al Garrett, president of AFSCME Council 25, which represents about 3,000 employees. “I’m not sure an emergency manager would be any more Draconian than what the city itself is asking, but it’s a real possibility.”

Deal Reached?

Mayor Bing is taking his script straight from Greece where a deal has been “close” for days, weeks, and now months.

Today’s Bloomberg headline does not match the facts presented. Please consider Detroit Reaches Pact With City Unions to Avoid Takeover, Detroit News Says

Mayor Dave Bing and a majority of city employee unions have reached tentative agreement on concessions aimed at avoiding a state takeover.

“This agreement is the first meaningful step in achieving the necessary concessions and structural changes,” Bing, 68, said via Twitter.

The deal, but no details, was confirmed by Al Garrett, president of AFSCME Council 25. The agreement covers about 6,500 of the city’s about 11,000 employees, not including police and firefighters who have resisted a demand for a 10 percent wage cut, he said.

The city and unions must agree to concessions early this month to avoid state action, such as the appointment of an emergency manager with broad powers to cut spending, said state Treasurer Andy Dillon. Dillon is leading a review of city finances, after a preliminary review found it will run out of cash by May, and that it faces a $200 million operating deficit.

Deal Reached? Really? No, Not Really

According to mayor Bing we have an “agreement”, albeit an agreement with no details, and without covering police or firefighters. What kind of deal is that?

What’s Best for Detroit?

The best thing for Detroit would be if there is no deal, or the state rejects the deal.

Unions are the problem and the solution is to get rid of them entirely. That will not happen under Bing, but it could happen in a state takeover.

Bing is not interested in what’s best for Detroit taxpayers nor is he interested is what’s best for Detroit school children where shockingly only 25% graduate high schools. Rather, Bing is out to save as much of the status quo as he can, including his own job of course.

Detroit Schools Bankrupt

Flashback July 24,2009: The Wall Street Journal reports Detroit’s Schools Are Going Bankrupt, Too

Detroit is like many urban  school districts—large, unwieldy and bureaucratic, with a powerful union  that makes the system unable to adapt to changing circumstances and  that until very recently had an indulgent political class that insulated  it from reform. That insulation came in two forms. The first was  neglect. Mayor Kwame Kilpatrick spent several years distracted by a  scandal stemming from his affair with a staffer. He resigned last year,  pleaded guilty to obstruction of justice, and was sentenced to four  months in jail. Had he been an effective mayor, he might have also been a  powerful advocate for students.

The other insulating force was a  conscious decision to wall off Detroit from charter schools. In 1993,  Michigan’s legislature made it difficult to create new charters in  Detroit by declaring that only community colleges could authorize  charters for primary and secondary schools in “First-Class  Districts”—defined as those with more than 100,000 students. Detroit was  the only First-Class District. In  2003 the state, under pressure from the Detroit Federation of Teachers,  turned down a gift of $200 million from philanthropist Robert Thompson  that would have established 15 charter schools in the city. Those charters are needed today.

The  net result has been a school system that’s been coming apart as the  teachers union has dug in its heels. In 2006, the union illegally went  on strike, killing a plan to force teachers to take a pay cut to balance  the system’s books.

Collective Bargaining has Morally and Fiscally Bankrupted Detroit Schools

Read  that again. Under pressure from the Teachers’ Union, Detroit turned  down $200 Million. That was in 2003 dollars. Wow. No doubt the  union  “did it for the kids“.

For more on the appalling behavior of Detroit’s teachers’ unions please see Detroit Public Schools (25% graduation rate) teachers unions opposing highly qualified volunteer teachers.

It is time to kill collective bargaining for public unions, every one of them, and nation-wide, not just Detroit.
Mike  “Mish”  Shedlock – Global Economic Analysis

The Coming Demographic and Financial Disaster – Median income of Americans 65+ is $19,167.  What happens when less affluent youth move back home and clash with older generations?

What happens when a society that prides itself on a middle class and self-sufficiency suddenly starts losing both?  For over a decade the middle class in the US has been shrinking.  This isn’t some speculation but is reflected in the stagnant household income data.  You also have a giant demographic train in that many baby boomers are now retiring in mass.  Over 10,000 baby boomers enter into retirement each day and many have an inadequate amount of savings (if any) to get them through the leaner years.  Couple this with a less affluent younger generation and you have a recipe for financial and social turmoil.  Many of these younger Americans, many saddled with large student debt, are moving back home with parents that have seen their entire home equity evaporate.  Do you think these are happy households especially when the median income of those 65+ is $19,167?

Median income of the old     

There seems to be this misconception that older Americans are simply well off.  The data shows us otherwise:

Source:  US Dept. of Health

What is troubling about the above data is that during some of the most affluent decades in US history, most Americans have very little income in older age.  In fact, most rely on Social Security as their primary source of income:

“Social Security constituted 90% or more of the income received by 34% of beneficiaries (21% of married couples and 43% of non-married beneficiaries).”

How is this even possible?  Keep in mind the average Social Security payout is roughly $1,000 per month and this is fixed.  Since the government has juiced the CPI data most of these fixed income Americans are seeing their energy and healthcare costs soar all the while they are told inflation is virtually non-existent.  Try arguing that after going to the grocery store.

There is also this sense that since many older Americans own their home, they are somehow immune to the housing bubble.  That is not true:

“In 2009, 48% of older householders spent more than one-fourth of their income on housing costs – 42% for owners”

Many older Americans still spend a lot of money on housing even if they are owners.  Much of this comes from property taxes and costs associated with owning a home.  Since many older Americans do own their home this housing bubble crash has harmed their largest asset.

Read the rest at My Budget 360