The economic crisis has ushered in the end of a generation long bull market.  Most average investors ignore the fact that heavy market volatility is a sign of an unhealthy stock market.  The stock market since the lows reached in 2009 has been on an unstoppable bull run.  Yet the real economy where most Americans work and spend money has not reflected any of this irrational exuberance.  The S&P 500 has rallied 53 percent from the lows reached in early 2009 and that is including the current retracement back.  On Tuesday the stock market pulled back on data showing consumer confidence plunging from what analysts had expected.  Outside of Wall Street the economy is walking on eggshells.

If we look at S&P 500 data we find that we have entered into a new era:

The above chart highlights milestones for the S&P 500 dating back to 1968.  For the S&P 500 to double from 100 to 200, it took a slow 17 years.  From 200 to 400 it took 6 years, an incredibly quick jump.  Another 6 years after that and the S&P 500 was riding high at 800.  From 1997 to 2007 the S&P 500 went from 800 to 1,576 in the intraday high that is now far in the past.  It almost doubled yet again in a 10 year horizon.  Yet that trend has been broken.  The S&P 500 is now back to 1,041 and has pulled back to levels seen in 1998.  Does anyone really see the S&P 500 going to 2,000 any time soon?

“The stock market needs to reflect the underlying health and productivity of the overall economy and not simply the gambling penchant of Wall Street banks.”

Most of America is dealing with the new austerity that is being thrust on them from an unforgiving economy and a government that seems to be preoccupied with helping out the financial industry before setting things right with the average worker.  In other words, the middle class is being thrown to the wolves in this crisis.  The government is serving the interest of big money at the detriment of the middle class.

If we look at the volatility of the S&P 500 over the past 22 years we’ll notice two different stories.  From 1988 to 2000, the stock market enjoyed a once in a lifetime bull run.  There were virtually no negative years and some incredible year over year gains.  Keep in mind that we are looking at a 12 year timeframe on a tiny chart but this is over a decade of mental conditioning here.  If we look from 2000 to our present day, the massive amount of volatility has sent the S&P 500 to levels seen in 1998:

2008 was the worst stock market year since the Great Depression.  That is how bad that one year turned out for investors.  This large amount of volatility simply reflects a weak real economy and the recent stock market run to the peak of the mountain was super charged by taxpayer money going into large investment banks who in return went into the stock market and gambled your hard earned money.  Clearly it hasn’t done much for consumer confidence, aiding in the foreclosure crisis, or bringing jobs back.  What then did all this money really accomplish?

If we look at the VIX which looks at option trading volume and is a good sign of volatility we also see this recent stock market reshuffling:

What we can gather from all this volatility is a new paradigm has arrived.  Most popular financial books that hype compound interest always focus on a convenient 7 to 10 percent annualized gain in the stock market.  That may have been the case from 1968 to 2000 but that isn’t the case anymore.  What are you going to invest in when U.S. Treasuries are barely offering any interest and bank accounts are offering rates of 0.01 percent on savings accounts?  Your mattress would rival some of these rates.

The stock market right now is one large casino.  No real reform has taken place and that is why we see no real changes in the economy yet trillions of dollars funneled into a financial abyss.  Someone got this money but clearly it wasn’t the middle class.  The public was told that money was going to go to shore up the housing market (didn’t happen) and to keep lending to the public going (didn’t happen).  So what did happen was that big investment banks used taxpayer money and gambled to bolster their own profits.  That was basically the smoke and mirrors campaign that we have gone through.

The middle class is largely a casualty of this all.  9 out of the top 10 jobs in this country are in low paying service sector work.  We hear this rhetoric about a double dip but the middle and working class never got out of the first dip to begin with.  Who is this double dip for?  Wall Street gamblers who have funneled taxpayer money into the casino?  Must be nice for their 53 percent rally but sadly none of that is reflected in the real economy.  If we want to be happy about gambling why not talk about the person who just won the lottery last night.   Wall Street certainly won the lottery here at the expense of the taxpayers.  The collapse of consumer confidence is merely a reflection of what most of us already know.  The real economy has never recovered.

This is the end of a generational bull run just like the 1920s came crashing down with the Great Depression.  Unlike that time, we have allowed the banks and Wall Street to continue to pollute our real economy with their gambling schemes.  Can you believe that no real reform has taken place?  No wonder why average Americans are displeased with both political parties and are furious at Wall Street.

My Budget360

The government is looking at ways to promote the conversion of 401(k)s and IRAs into steady payment streams after a significant decline in plan balances

By Theo Francis

(Bloomberg) — The Obama administration is weighing how the government can encourage workers to turn their savings into guaranteed income streams following a collapse in retiree accounts when the stock market plunged.

The U.S. Treasury and Labor Departments will ask for public comment as soon as next week on ways to promote the conversion of 401(k) savings and Individual Retirement Accounts into annuities or other steady payment streams, according to Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Secretary Mark Iwry, who are spearheading the effort.

Annuities generally guarantee income until the retiree’s death, and often that of a surviving spouse as well. They are designed to protect against the risk that retirees outlive their savings, a danger made clear by market losses suffered by older Americans over the last year, David Certner, legislative counsel for AARP, said in an interview.

“There’s a real desire on a lot of people’s parts to try to encourage something other than just rolling over a lump sum, to make sure this money will actually last a lifetime,” said Certner, legislative counsel for Washington-based AARP, the biggest U.S. advocacy group for retirees.

Promoting annuities may benefit companies that provide them through employers, including ING Groep NV (INGA:NA) and Prudential Financial Inc. (PRU), or sell them directly to individuals, such as American International Group Inc. (AIG), the insurer that has received $182.3 billion in government aid.

Balances Fall

The average 401(k) fund balance dropped 31 percent to $47,500 at the end of March 2009 from $69,200 at the end of 2007, according to a Fidelity Investments review of 11 million accounts it manages. The Standard & Poor’s 500 Index tumbled 46 percent in that period. The average balance of the Fidelity accounts recovered to $60,700 as of last Sept. 30 as the stock market rebounded.

There is “a tremendous amount of interest in the White House” in retirement-security initiatives, Borzi, who heads the Labor Department’s Employee Benefits Security Administration, said in an interview.

In addition to annuities, the inquiry will cover other approaches to guaranteeing income, including longevity insurance that would provide an income stream for retirees living beyond a certain age, she said.

“There’s been a fair amount of discussion in the literature taking the view that perhaps there ought to be more lifetime income,” Iwry, a senior adviser to Treasury Secretary Timothy Geithner, said in an interview.

Lump Sums

“The question is how to encourage it, and whether the government can and should be helpful in that regard,” Iwry said.

While traditional defined-benefit pensions were paid out as annuities, providing monthly payments for retirees and often their spouses, workers increasingly are taking advantage of options to receive lump-sum distributions.

Only 2 percent of 401(k) plan participants convert retirement savings into an annuity on retirement, according to a July 2009 report from the Retirement Security Project, a joint venture of Georgetown University’s Public Policy Institute and the Brookings Institution in Washington.

A survey of 149 companies released on Dec. 17 by employee-benefits consultant Watson Wyatt Worldwide, now part of Arlington, Va.-based Towers Watson & Co. (TW), suggested that about 22 percent of employers with retirement savings plans offered retirees the choice between an annuity and a lump-sum distribution.

Annuity Sellers

Government success in getting workers to move retirement assets into annuities may prove profitable for insurers that sell annuities, Anne Mathias, policy research director for Washington Research Group, a policy analysis unit of Concept Capital, said in an interview.

Retirement plans, including 401(k) accounts, held $3.6 trillion in assets at the end of the second quarter of 2009, while annuity investments of all kinds totaled about $2.3 trillion, according to figures from the Washington-based Investment Company Institute, a trade association for asset managers.

The top sellers of individual annuities in the U.S. include AIG, MetLife Inc. (MET), Hartford Financial Services Group Inc. (HIG), Lincoln National Corp. (LNC) and New York Life Insurance Co., according to figures from the American Council of Life Insurers for 2008. The top group-annuity sellers include ING, Prudential Financial, MetLife and Manulife Financial Corp.

Under Fire

Asset managers are concerned the government may go too far in encouraging annuities, said Mike McNamee, a spokesman for the Investment Company Institute. Seven in 10 U.S. households would object to a requirement that retirees convert part of their savings into annuities, according to a survey the group released today.

“Households’ views on policy changes revealed a preference to preserve retirement account features and flexibility,” the institute said in a report.

The institute also said annuities have received support from academic research and “it is unclear why individuals usually forego the annuity option” even when it is available. The survey didn’t ask about potential efforts by the government to encourage voluntary use of annuities.

Annuity sales to individuals have come under regulatory scrutiny in recent years over the size of sales commissions and whether some varieties are suitable for older investors.

Social Security

John Brennan, the former chairman of Vanguard Group, the Valley Forge, Pennsylvania-based mutual-fund company, criticized annuities today as often expensive and offering little inflation protection. Americans already benefit from “the best annuity in the world, which is Social Security,” Brennan said in an interview on Bloomberg Television.

AARP’s Certner said policy makers could avoid many of those pitfalls by encouraging the use of group annuities, which are bought by employers rather than individuals and often carry lower fees, or using approaches that provide retirement income without commercial annuities.

Adding lifetime income to 401(k) plans won’t be sufficient for many workers because they can’t, or don’t, save enough to live on in old age, and Social Security often proves inadequate as more than a safety net, said Karen Ferguson, director of the Pension Rights Center in Washington, D.C.

Senate Bill

“It’s a great idea, but how much are people really going to get out of it?” she said. A better approach would be to give employers incentives to revive defined-benefit pensions, which have languished as employers have focused on cheaper and more flexible 401(k) plans, Ferguson said.

One proposal raised by Iwry as co-author of a paper while at the Retirement Security Project, before joining the administration, has reached Congress. A bill requiring employers to report 401(k) savings both as an account balance and as a stream of income based on an annuity was introduced on Dec. 3 by Senators Jeff Bingaman, a New Mexico Democrat, Johnny Isakson, a Georgia Republican, and Herb Kohl, a Wisconsin Democrat.

To contact the reporter on this story: Theo Francis in Washington at tfrancis14@bloomberg.net.

May 18 (Bloomberg) — Goldman Sachs Group Inc., fighting a fraud lawsuit from U.S. regulators who accuse the company of misleading investors, is trying to persuade more Americans to trust the firm with their retirement funds.

The New York-based company is promoting alternative asset funds and designing target-date funds that provide guaranteed income to grab a bigger piece of the $2.7 trillion 401(k) market, said Bill McDermott, a managing director at Goldman Sachs Asset Management and head of its defined-contribution business.

“We understand risk and we understand asset allocation,” said McDermott, who joined the firm in February to strengthen its retirement-plan products and marketing. “We’re looking to leverage that for the 401(k) market.”

Goldman’s 401(k) plan assets totaled $17.5 billion as of March 31, according to the company. Fidelity Investments, the largest 401(k) asset manager, had $347.8 billion as of December 31. Assets in 401(k) plans are estimated to increase 41 percent, to $3.8 trillion, by the end of 2014, according to data from Cerulli Associates in Boston.

Goldman and BlackRock Inc., the world’s largest asset manager, don’t administer retirement plans and have been seeking more 401(k) business. The business has been dominated by firms such as Boston-based Fidelity and Vanguard Group, based in Valley Forge, Pennsylvania, which administer plans as well as manage assets.

‘Writing on the Wall’

“A lot of investment-only managers are trying to get in,” said Lori Lucas, defined contribution practice leader at San Francisco-based Callan Associates, an investment consulting firm. “They see the writing on the wall,” as traditional pensions are replaced by 401(k) plans.

The U.S. Securities and Exchange Commission filed a lawsuit against Goldman on April 16 accusing the company of misleading investors in a mortgage-linked investment. Goldman denies those allegations and said it will fight the charges. A Senate panel grilled executives, including Chief Executive Officer Lloyd Blankfein, on April 27 about the case.

“Having issues certainly isn’t going to help. But all the signs so far are telling us that clients are sitting tight,” said Teresa Epperson, a partner at Mercatus, a Boston-based financial consulting firm. “Goldman’s capabilities are in trading strategies and hedging risks. The extension of those absolute-return strategies could be attractive to plan sponsors.”

Fiduciary Duty

The asset management division that McDermott works in is separate from the mortgage unit that sold the securities at the center of the SEC’s fraud suit against Goldman. A key difference between the two businesses is that the asset management division operates under a fiduciary duty to its clients, whereas the sales and trading division doesn’t.

“When a client gives us their money and their assets to manage, we are 100 percent their fiduciary, we must manage their money in the most prudent fashion possible using our best judgment possible,” Goldman Sachs President Gary Cohn said on May 11 at an investor conference in New York. “The rest of Goldman Sachs is not in the fiduciary business.”

Goldman’s total assets under management at the end of the first quarter were $840 billion, down 4 percent, primarily because of outflows in money market funds, according to the company’s first-quarter earnings release. Asset management is a smaller department at Goldman than investment banking or trading, representing 8.8 percent of the firm’s 2009 revenue of $45.2 billion, according to Goldman’s yearend earnings release.

Lower Risk

Alternative assets, such as commodities and real estate, can increase a portfolio’s return and lower risk. They’re gaining in 401(k) plans because more companies are creating their own custom target-date funds, said Callan’s Lucas. Target- date funds move money from riskier investments such as stocks to more conservative alternatives like bonds as an investor approaches retirement.

The market drop of 2008, when the Standard & Poor’s 500 Index declined 38 percent, showed that “there were very, very, very few safe havens,” said Bud Pernoll, senior managing director of Santa Monica, California-based Bay Mutual Financial LLC, which advises corporate retirement plans on their investment options and works with Goldman. “You’re starting to see plan sponsors look outside the traditional asset classes.”

Large-Company Sales

Pernoll has added Goldman’s Satellite Strategies Portfolio, a mutual fund with a portfolio of other mutual funds invested in assets such as real estate, commodities and emerging markets, to more than a dozen 401(k) plans he advises since the start of the year. The fund, with $585 million in assets, returned 28.6 percent in the last 12 months, according to data compiled by Bloomberg.

Goldman already has sold its funds to the 401(k) plans of companies including Intel Corp., Sun Microsystems Inc., and Sysco Corp., according to data compiled by BrightScope Inc., the San Diego-based 401(k) research firm.

The most popular Goldman funds for 401(k) plans are Goldman Sachs Mid Cap Value Fund and Goldman Sachs Small Cap Value Fund, according to BrightScope. The mid-cap fund returned 42.9 percent for the last 12 months, and the small-cap fund returned 45.2 percent in the same period, according to data compiled by Bloomberg.

Goldman is developing target-date offerings that include guaranteed income during retirement, McDermott said. That puts it in competition with BlackRock and AllianceBernstein L.P., the money management unit of AXA Group, in developing target-date funds that include annuities.

‘Major Player’

“There’s a lot of interest in product development, but not a lot of plan sponsor usage,” Callan’s Lucas said. That may be because big corporate plan sponsors are waiting for guidance from regulators. The Department of Labor has been studying annuities in retirement plans, and the Senate’s Special Committee on Aging is scheduled to hold hearings on lifetime income June 16.

“We want to be a major player,” said Goldman’s McDermott, who previously worked in the corporate retirement divisions of AXA Equitable and Fidelity. He said he expects to increase the number of people on his team to 30 from 20 by yearend.

Goldman’s alternative asset push “is ahead of the curve right now, so they see an opportunity to dominate that niche,” said Steven Dimitriou, managing partner of Mayflower Advisors LLC, a Boston-based retirement plan consultant. “As soon as these funds start gaining traction, they’re going to get copy- catted.”

To contact the reporter on this story: Amy Feldman in New York at afeldman16@bloomberg.net.

The retirement myth – 1 out of 3 Americans has no savings or retirement account. Half of Americans have $2,000 or less in their retirement account. 401k new name for Wall Street grease.

Posted by mybudget360

Middle class Americans are witnessing the conversion of their retirement accounts into gambling pots used by Wall Street.  The metamorphosis of Wall Street into one giant fraud ridden center moved by investment banking funds has slowly occurred over the last four decades.  Average Americans have sat back over these years since they were given enough hope that they too, by investing in Wall Street managed funds can also become a multi-millionaire if they just try hard enough.  Yet this was all one giant ruse and direct challenge to the middle class to basically allow a bunch of financial predators to siphon off any productive value from the economy.  The 401k for example was a small unheard of investment item two decades ago.  It has now become a larger part of the retirement pie for Americans.

The idea of not working and having a long retirement is actually rather new to this era:

When Social Security came about in the 1930s, it was largely a program to keep families from starving and from going absolutely broke.  It was never intended as a long-term benefits program.  Yet life expectancy has increased over time and now today, many Americans depend on Social Security as their primary source of retirement:

58 million Americans receive either Social Security or SSI.  37 million Americans receive Social Security benefits from reaching retirement age (this will grow with baby boomers retiring).  And don’t think that middle class Americans are living it up with Social Security.  The average monthly benefit from 53 million beneficiaries is $1,066 yet a large number of Americans depend on this as their primary source of retirement.  Some recent surveys say that as many as 1 out of 4 Americans will depend completely on Social Security as their primary retirement source.

As fragile as Social Security might appear, the 401k has become the bigger scam for Americans.  Many companies only offer a handful of investments to Americans to choose from and many are managed by the same Wall Street crooks that have caused massive volatility in the markets.  The 401k has allowed many employers to push off the retirement question or even caring about their workers as they once did by:

-Using Social Security as the last stop-gap measure

-Claiming they don’t need to have any sort of pension plan

Many companies have no loyalty to any worker.  Over the decades Wall Street has brainwashed the public into believing that companies can do whatever they want to employees because Wall Street is just a “free market” where goods can travel where they want.  But as we are now realizing, Wall Street is simply one selective syndicate that decides to transfer wealth to the top 1 percent of our country with really no work involved.  It is manipulation and stealing of the productivity of the working economy.

The 401k was used with sophisticated charts put together by large investment firms showing Americans that if they only put away 5, 10, or even 15 percent of their income into the stock market through the magic of compounding, they too can retire rich just like their Wall Street idols.  Of course, this has all been a sham and many middle class Americans are waking up.  Over the last decade the stock market has done nothing but move sideways while miraculously, the banking sector has gotten bigger and bigger:

After 10 years, the S&P 500 is down over 20% even after the record breaking stock market rally.  No compounding going on here.  And when the market can fall 700 points in a matter of minutes, we start to realize that many retirement accounts are merely greasing the wheels of the Wall Street roulette game.

So this absurd notion of easy street has been pushed and sold by Wall Street to take away the responsibility banks and companies have for their workers.  They like to claim all is a free market but have no problem taking trillions in taxpayer bailouts.  Let us not forget that many Wall Street banks would be gone today without government assistance.

Let us dig deeper into the details of the 401k:

“(Bloomberg) The average 401(k) fund balance dropped 31 percent to $47,500 at the end of March 2009 from $69,200 at the end of 2007, according to a Fidelity Investments review of 11 million accounts it manages. The average balance of the Fidelity accounts recovered, to $60,700, as last Sept. 30 as the stock market rebounded.”

“Seven in 10 U.S. households object to the idea of the government requiring retirees to convert part of their savings into annuities guaranteeing lifetime payments, according to an institute-funded report today. The Washington-based institute represents the mutual-fund industry.”

I actually find this part interesting.  The average retirement account balance is small relative to what is needed in retirement.  How long will $60,000 last you without a paycheck?  Think you can cover your rent/house payment, medical bills, food, college for kids, and other items for 1, 2, or even 3 decades?  But many Americans, even after two decades of pure gambling on Wall Street still want to believe in that Horatio Alger myth:

“People value the tool of the 401(k),” Paul Schott Stevens, chief executive officer of the institute, said at a news conference in Washington. “They do not want government to take it away from them. They think the structure works very effectively.”

U.S. direct-contribution plans, which include 401(k) and other employer-sponsored retirement programs, held about $3.6 trillion as of mid-2009, according to the report. They account for 25 percent of total U.S. retirement assets. Annuities, with $1.4 trillion, represent about 10 percent of U.S. retirement funds.”

The structure does not work effectively.  The stock market has not gained over the last decade.  You would have done better by buying CDs or sticking your money into the mattress over the past decade.  This isn’t because we have no good companies in the U.S.  On the contrary, we do and we still have the strongest economy around the globe.  But Wall Street uses that as a way of leveraging to the max and putting solid companies at risk for raids and stock manipulation.

Yet Wall Street and the financial industry like to parade the “average” retirement account including the millions of the top 1 percent; the actual details are different:

Source:  U.S. Census

While it is true that the average retirement accounts for many Americans is near $50,000 half of Americans have $2,000 or less in their account. Many middle class Americans are simply not prepared for retirement.  Even with Social Security, this will only be a small amount.  So with a large number of baby boomer depending on a smaller income in years to come, what does this do to our consumption based economy?  Also, you have to sell your stocks to get the funds out of them so what is going to happen with millions of baby boomer selling stocks into a market where younger Americans have very little to save, not to mention save for retirement?

I found an article back in 2002 talking about the 401k and the same issues were present even then.  But these articles are quickly forgotten after the stock market and housing bubble took off:

“While the fall in savings due to the stock market losses are causing a huge financial strain, many workers have no savings at all. According to a USA Today/Gallop Poll, more than one-third of adults say they have no money saved in any kind of retirement account and half of all households did not save a penny last year. “The average American household has virtually no chance to reach an adequate retirement savings in the next 50 years,” commented Christian Weller of the Economic Policy Institute (EPI).”

Ironically things are worse today.  As we have shown in the above chart, the stock market is basically back to 2000 price levels.  A large part of Americans have no savings and no retirement accounts so they are completely at the mercy at whatever is available.  Keep in mind we now have 40 million Americans receiving food assistance.  401k accounts also had the phony allure of having “company” matching funds but this only went up to a certain point of income:

“Even when companies offered matching contributions to 401(k) plans, on average they only contributed 2 percent of pay, compared to the 6 to 7 percent of pay they typically contributed to traditional pension funds. Enron, like many companies, strongly encouraged employees to invest in the company’s stock. Thousands of Enron’s current, laid-off and retired workers lost most of their life savings when the company prevented workers from selling its stock held in 401(k) accounts, just as the stock price was plummeting.”

Much of that is gone today.  Many companies are now using the recession as an excuse to even take away the company match.  So now you are left putting money into the stock market while half of trades are basically computer generated trades in the big giant casino.  Average Americans are basically putting their money into the one arm bandit of Wall Street.  Yet someone as usual is taking the profits:

“Reports on account balances in 401(k) plans often give a more optimistic picture of retirement savings, because the assets of higher income workers skew the results. At the end of 2000, while the average account balance was $49,024, 44 percent of participants had balances of less than $10,000.

In contrast to the plight of working people, however, the top executives of companies engulfed in financial scandals have no retirement worries, even in those instances where their companies have collapsed. In the case of Enron, Jeffrey Skilling made $78 million. Laid-off Enron workers received a mere $4,500 severance payment, no matter how many years they had worked for the company.”

This is a battle for the survival of the middle class.  Many baby boomers who once believed Wall Street would be there to protect them will find they are out to sea with no paddle.  Maybe this will wake many people up to take action but given the strong belief in the get rich myth, you wonder if many would rather be paupers as long as they can believe in the phony notion of big money with little work and effort.  After all, Wall Street has mastered that game plan.

Republicans Sound Alarm on Administration Plan to Seize 401(k)s

by  Connie Hair

In February, the White House released its “Annual Report on the Middle Class” containing new regulations favored by Big Labor including a bailout of critically underfunded union pension plans through “retirement security” options.

The radical solution most favored by Big Labor is the seizure of private 401(k) plans for government disbursement — which lets them off the hook for their collapsing retirement scheme.  And, of course, the Obama administration is eager to accommodate their buddies.

Vice President Joe Biden floated the idea, called “Guaranteed Retirement Accounts” (GRAs), in the February “Middle Class” report. 

In conjunction with the report’s release, the Obama administration jointly issued through the Departments of Labor and Treasury a “Request for Information” regarding the “annuitization” of 401(k) plans through “Lifetime Income Options” in the form of a notice to the public of proposed issuance of rules and regulations. (pdf)

House Republican Leader John Boehner (Ohio) and a group of House Republicans are mounting an effort to fight back. 

The American people have become painfully aware over the past year that elections sometimes have calamitous consequences.  Republicans lack the votes (for now) to reign in the Obama administration’s myriad nationalization plans for everything from health care to the automobile industry.

Now the backdoor bulls-eye is on your 401(k) plan and the trillions of dollars the government would control through seizure, regulation and federal disbursement of mandatory retirement accounts.

Boehner and the group are sounding the alarm, warning bureaucrats to keep their hands off of America’s private retirement plans. 

Just when you thought it was safe to come up for air after the government takeover of health care.

The entirety of the House GOP Savings Recovery Group letter outling the issue that was sent last night to the Labor and Treasury secretaries:

The Honorable Hilda L. Solis
Secretary
U.S. Department of Labor
200 Constitution Avenue, NW
Washington, DC  20210

The Honorable Timothy Geithner
Secretary
U.S. Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC  20210

Dear Secretaries Solis and Geithner:

As members of the Republican Savings Solutions Group, we write today to express our strong opposition to any proposal to eliminate or federalize private-sector defined contribution pension plans, such as 401(k)s, or impose burdensome new requirements upon the businesses, large and small, who choose to offer these plans to their employees.

In the Annual Report of the White House Task Force on the Middle Class, Vice President Biden discussed at length the creation of so-called “Guaranteed Retirement Accounts, (GRAs)” which would provide for protection from “inflation and market risk” and potentially “guarantee a specified real return above the rate of inflation” — presumably at taxpayer expense.  In the Report, the Vice President recommended “further study of these issues.”

The Vice President’s comments are troubling, insofar as they come on the heels of testimony before Congress from supporters of GRAs proposing to eliminate the favorable tax treatment currently afforded to 401(k) plans, and instead use those dollars to fund government-invested GRAs into which all employees would be required to contribute a portion of their salary — again, with a government subsidy.  These advocates would, essentially, dismantle the present private-sector 401(k) system, replacing it instead with a government-run investment plan, the size and scope of which remain to be seen.  This despite data showing that 90 percent of households have a favorable opinion of the existing 401(k)/IRA system.

In light of these facts, we write today to express our opposition in the strongest terms to any effort to “nationalize” the private 401(k) system, or any proposal that would dismantle or disfavor the private 401(k) system in favor of a government-run retirement security regime.

Similarly, and more recently, the Departments of Labor and Treasury have jointly issued a “Request for Information” regarding the “annuitization” of 401(k) plans through “Lifetime Income Options.”  While we appreciate the Departments’ seeking guidance and information from all parties and stakeholders in advance of regulatory activity, we strongly urge that the Departments not proceed with any regulation in this area before they have carefully and thoroughly considered all of the information received.

More specifically, we urge that the Departments take no action to mandate that plan sponsors — often, small businesses — include a “lifetime income” or “annuitization” option if they choose to offer a 401(k) plan to their employees, or that beneficiaries take some or all of their retirement savings in such an option.  Data shows that 70 percent of Americans oppose the concept of a mandated annuity or government payout of their 401(k) plan. On a more fundamental level, Congress should not be in the business of choosing “winners” and “losers” among retirement security stakeholders.  Instead, we urge the Departments to make it easier for employers to include retirement income solutions in their savings plans and to help workers learn more about the value of their retirement savings as a source of retirement income.  Finally, to the extent new mandates and bureaucratic red tape from Washington push small employers out of the business of offering these plans to their employees, we would submit such an effort weakens, rather than strengthens retirement security. 

We appreciate your consideration of our views in these important matters and stand ready to work with you and the Administration to promote secure and adequate retirement savings for all Americans. 

Sincerely,

House Republican Leader John Boehner (R-OH)
Rep. John Kline (R-MN)
Rep. Dave Camp (R-MI)
Rep. Sam Johnson (R-TX)
Rep. Dean Heller (R-NV)
Rep. Brett Guthrie (R-KY)
Rep. Michele Bachmann (R-MN)
Rep. Pat Tiberi (R-OH)
Rep. Bob Latta (R-OH)
Rep. Erik Paulsen (R-MN)
Rep. Lynn Jenkins (R-KS)
Rep. Ed Royce (R-CA)
Rep. Buck McKeon (R-CA)

The $2.3 Trillion State and Local Government Debt Monster – California Pension Systems on Unsupportable Path with $500 Billion Projected Shortfall. CalPERS, CalSTRS, and UCRS.

Posted by mybudget360

Much of the focus on government debt over the past few years has revolved around the federal government.  No doubt, this is a stunningly large amount.  Yet the government has the ability to finance this debt through the U.S. Treasury and Federal Reserve with a buffet of choices.  You have direct bailouts to Wall Street, quantitative easing, and systematically dismantling the U.S. dollar.  But one issue that is rising to the top is that of state and local government debt.  States do not have the ability to print money at the whim of any central banker.  And the state and local government debt market is up to a whopping $2.3 trillion.  At this point, trillion is the new billion.

Let us examine the growth of this debt over the last forty years:

The growth in local government debt has exploded since the 1970s.  We went from $295 billion in 1968 to $2.3 trillion today.  But as Greece is demonstrating, there is such a thing as having too much debt and at a certain point the markets no longer have an appetite for so much borrowing.  Average Americans probably have a hard time examining the large numbers being thrown around.  Yet state and local governments are now finding a hard time balancing their budgets.  In many cases, the ability to balance their budget goes in direct conflict with paying out pension distributions.  Or in many cases states need to raise taxes or cut services.

Wall Street enjoys exploiting this fact because they actually loot the public sufficiently with golden parachutes and ridiculous bonuses that they never need any sort of pension.  Yet the truth is, many of the gold plated pensions are just another side of the Wall Street mentality coin.  That coin relies on having others pay for your bailout or extended retirement.

Now Wall Street has implemented the biggest transfer of wealth in history with the $13 trillion in bailouts and backstops.  But many pension funds also bought into what Wall Street was pushing.  Let us examine the California state pension systems.

California Pensions – $500 Billion Underfunded

The Stanford Institute for Economic Policy Research issued a stunning report on the three largest pension systems in California.  The report was titled Going for Broke and what we find is a rather daunting mountain that California has to climb if it seeks to remedy their pension system.

Let us look at the three largest systems:

In total these cover 2.6 million of California state workers.  These are CalPERS (the largest), CalSTRS, and UCRS.  But if you look at the funds performance through the crisis, all of the funds saw 23 to 25 percent declines.  These declines only exacerbate the shortfall of the system.

The odds of shortfalls are virtually assured for all systems.  We are now entering a stage where many workers will be retiring and drawing into the system.  Expectations for deficits are large:

Part of this stems from the notion that markets will always return a standard rate.  As we have seen with the massive market volatility, markets are largely unpredictable especially when they become casinos for the wealthy.

As the report finds, these funds do not have the flexibility required in an unpredictable market:

“A public employee’s pension constitutes an element of compensation, and a vested contractual right to pension benefits accrues upon acceptance of employment. Such a pension right may not be destroyed, once vested, without impairing a contractual obligation of the employing public entity.”

It becomes a matter of law to pay even if the economy has rendered a new reality.  As Greece is showing, having very early retirement rates with generous packages is not supportable with a younger generation that isn’t having larger families.  The math doesn’t work but good luck changing that.  Some will argue that people contribute into these systems.  This is true but not anywhere to cover the actual payout over time:

In other words, there is a shortfall of coverage and a market decline only pushes the problem to the surface for all to see:

“As mentioned earlier, the pressing nature of California pension shortfalls is due in part to the losses CalPERS, CalSTRS, and UCRS sustained in the mar­kets over the past 18 months. CalPERS expects an average annual investment return of 7.75 percent, CalSTRS targets 8.00 percent, and UCRS expects 7.50 percent.”

Those expected rates of return are simply too optimistic.  These funds are expecting 7.5 to 8 percent annual returns in a market that is giving 0 percent rates to savings accounts and 4 percent for 30 year fixed government debt.  Instead of realigning to this low yield environment fund managers went all in to the market and gambled on Wall Street:

It is amazing that many fund managers look at the above as “safe” but it is anything but safe if you are losing 23 percent.  Part of the bets were flat out risky:

“(LA Times) SACRAMENTO — The value of residential real estate investments owned by the country’s largest public pension fund has plummeted 35% — a paper loss of $3.3 billion for current workers, retirees and their state and local government employers.

The California Public Employees’ Retirement System reported Wednesday that in the year ended June 30 its real estate portfolio declined to $6.08 billion from $9.36 billion, based on 461 independent appraisals of its investments in 288,000 housing units across the country.”

Housing, both residential and commercial has not recovered.  So these losses are still likely part of the funds new reality.  The massive rise in equities probably has helped but it is a long way from that 7.5 to 8 percent annual return:

Past performance is no indication of future returns especially when more and more retirees are going to draw from the system:

“In 1999 California passed Senate Bill 400 (SB400), substantially raising benefit factors and lowering retirement ages for public employees (see Table 3). Based on a National Institute on Retirement Security report, average monthly public pension benefits in California were $2,008 in 2006, the eighth highest nationwide.”

Now that $2,008 monthly benefit does not factor in additional healthcare benefits which cost a lot and are also provided.  Just do the quick math, let us assume someone retires at 55 and lives to 85 and receives that $2,008 monthly benefit:

$2,008 x 12 = $48,192 x 30 = $1,445,760 in total paid out

We are also assuming no COLA adjustments which some of these plans have.  We aren’t adding the added healthcare cost which an older retiree will be using up.  Something tells me that a state worker did not even come close to putting in $1.4 million over their working career.  And you wonder why these pension funds combined are projected to have a $500 billion shortfall?  And good luck if the stock market turns lower or simply remains stagnant for years.  California is only one example of many.

The paper lays out a few suggestions including higher contributions, a hybrid 401k/403b system, and safer investments but also a tiered system.  In reality, Wall Street has not wanted to deal with reality and has used the taxpayer as a bailout for their wealth protection.  Now that taxes are being talked about including a value added tax (VAT) people are getting angry.  You didn’t think bailing out Wall Street was free?  The same reality will hit the state pension systems.  Younger workers are going to enter a tiered system where they have to pay out more with no future guarantee while they watch older workers take on funds that they will never see.  I’m sure that is politically going to go over well.

The Weakest Bang for our Wilting Dollar – How we Overpaid for the Bailouts and were left with a Wilting Economy Propped up by Government Spending. Paying $446,000 Per Loan Modification and $43,000 for Homes that were already going to be Purchased.

Posted by mybudget360

So much horrible policy has occurred since the economy entered recession that the majority of Americans are shell shocked with each day of news.  It used to be that a billion dollars in toxic assets was enough to garner some movement out of the market.  Now, we talk about trillion dollar deficits as if they were normal.  Take for example the ridiculous home buyer tax credit.  Let us set aside for a second that massive home buying and speculation led us into this financial crisis in the first place.  The home buyer tax credit was basically a gift to people for doing something they were already going to do.  Keep in mind that even without the tax credit, people were going to buy homes.  But this is what we are left with:

“(Las Vegas Sun) It’s awful policy,” says Andrew Jakabovics, associate director for housing and economics at the liberal Center for American Progress. “It’s incredibly expensive. It’s not well targeted.”
…
“We paid $8,000 to at least 1.5 million people to do something they were going to do anyway,” Jakabovics says.
…
“A heck of a lot of people would have bought the house anyway,” says Ted Gayer, an economist at the Brookings Institution.
…
The tax break, due to expire at the end of November, is on track to cost $15 billion, twice what Congress had planned. In other words, it will cost $43,000 for every new homebuyer who would not have bought a house without the tax break.”

This is policy gone bad like milk left out on a hot sunny day.  In many parts of the country $43,000 will buy someone a home or a condo.  Instead, we will blow through $15 billion to encourage people to buy something they were already going to buy.  This is the kind of policy that we have had for decades.  But the game is hitting a massive wall.  For the first time in record keeping history household debt has contracted on a year over year basis:

Much of this comes from American households pulling back on spending but also, banks refusing to lend.  In fact, the bailouts have done nothing that they were promised to do.  First, the banking bailout was quoted as a necessity to keep liquidity in the system.  To the contrary, liquidity is being pulled out of the system.  Wall Street and their corporate public relations machines would like to convince you that banks are now having to be tighter with their lending given market conditions.  It is amazing how in midsentence banks are able to shape-shift their position to always maximize their own profits but only after they have secured taxpayer money.  If we really wanted to increase liquidity why don’t we just send each family $10,000 to get the economy going?  Is this any less preposterous than paying $43,000 for someone to buy a home they were already going to buy?

If you think that spending more and more and financing each purchase with debt is good for the long-term health of our economy, just look at the following:

Over the last 25 years the U.S. dollar has been cut in half and U.S. households are feeling the effects of this.  We would have felt this earlier in 2000 if it weren’t for the massive housing bubble that was ignited by the Federal Reserve and its spawn investment banks.  All of a sudden, instead of spending money we had and protecting home equity houses became ATMs:

Source:  Center for Retirement Research, Boston College

So even though incomes were stagnant for the decade, the average person on the street thought they were experiencing prosperity but all they were enjoying was a lease on a lifestyle that was no longer supported by underlying fundamentals.  Most Americans are now dealing with this as they see credit card access shut down and access to home equity is gone since home prices have collapsed.  Yet the only sector that seems to be back on its feet is the banking sector.  Or to clarify, the too big to fail banking sector seems to be fine.  Underemployment is still over 17 percent, credit is still pulling back, and states are still seeing faltering revenues:
 

Source:  The Nelson A. Rockefeller Institute of Government

Tax collections are a good indicator of the economy since they are derived from working people.  Looking at the stock market is like looking at someone who just hit blackjack 10 times in a row.  At a certain point it needs to reflect reality.  Yet the way we structured the bailouts was as absurd as the three page memo former Treasury Sectary Hank Paulson handed to Congress requesting $700 billion to clean up the toxic assets.  That price tag now sounds cheap!  And guess what?  The toxic assets are still here which is only more proof that banks are two-faced liars that will siphon off every penny from the productive sector of the economy.  As it turned out the $700 billion figure was simply pulled out of thin air by dividing ten percent of GDP ($1.4 trillion) in half according to the former interim Assistant Treasury Secretary Neel Kashkari:

“(WaPo) In Washington, he used his BlackBerry to determine the bailout sum presented to Congress. His arithmetic: “We have $11 trillion residential mortgages, $3 trillion commercial mortgages. Total $14 trillion. Five percent of that is $700 billion. A nice round number.”

Looking back, he says, he is more confident about the two-by-sixes.

“Seven hundred billion was a number out of the air,” Kashkari recalls, wheeling toward the hex nuts and the bolts. “It was a political calculus. I said, ‘We don’t know how much is enough. We need as much as we can get [from Congress]. What about a trillion?’ ‘No way,’ Hank shook his head. I said, ‘Okay, what about 700 billion?’ We didn’t know if it would work. We had to project confidence, hold up the world. We couldn’t admit how scared we were, or how uncertain.”

So what a shocker that GDP increased by over 5 percent when all was said and done.  It would have been a surprise if it hadn’t.  Yet where did the money go?  The vast majority into the stock market casino.  Was there any massive targeted effort for job creation?  Or what about reforming the financial industry that led us here?  None of that was accomplished.  So today, we have spent or committed $13 trillion on the financial sector with no strings attached.  It is the biggest bank robbery in history and it is happening under our noses.  In fact, people are pulling $700 billion out of thin air apparently just like Goldman Sachs needed every penny from AIG.

Most are familiar with the GDP equation:

GDP = private consumption + gross investment + government spending + (exports ? imports)

Right now the biggest factor boosting GDP is government spending.  Yet as we have seen with the home buyer tax credit, other programs have been a waste as well.  Take the HAMP program as well backed by $75 billion.  So far, only 168,000 permanent loan modifications have occurred.  So run those numbers:

$75 billion / 168,000 = $446,428 per modification

Now of course, the program still has money left for additional modifications and other gifts to the banks like aiding in short sales.  But do that math.  With $75 billion we could have bought 750,000 homes for $100,000 each.  Policy is so bad right now, we’d be better off just giving the money directly to the people to do whatever they wanted.  Ironically this would stimulate the economy more than continuing down a road of expensive policy that is merely a method of transferring wealth to the banking elite.

The weaker dollar is a symptom of a bigger problem.  The inefficient bailouts are a symptom of a bigger problem.  Our government being controlled by Wall Street is merely the ultimate conclusion of four decades of egregious mismanagement and corporate welfare.  If the government won’t do what is obviously right to reform the system then average Americans are left to wonder who is going to reign in Wall Street?

Middle Class Americans Losing Financial Ground on Retirement – As Stock Market Rebounds more Middle Class Americans Have Less Money and Fewer Jobs. How is Health Care Spending Boosting GDP a Good Thing?

Posted by mybudget360

As more and more data is released on this Great Recession it is becoming abundantly clear that we have two tracks people are following.  On one track where most travel, we have middle class Americans dealing with the highest unemployment in a generation while seeing their net worth dissolve.  On the other side of the road, the one lane highway for the tiny percent of the extremely wealthy, we see an extraordinary jump in wealth since the depth of the crisis in March of 2009 when the S&P 500 touched that unholy number of 666.  It must seem like a cruel joke that with the stock market being up nearly 70 percent since that low point in 2009, the vast majority of Americans are wondering why they don’t feel much of that rally when they open their wallets.  The reality is that most Americans are not invited to this resurgence and in fact, the destruction of the middle class is partly a reason for this stock market rally.

Take for example what Americans are saving.  A recent survey from the Employee Benefit Research Institute’s annual Retirement Confidence Survey found some startling data:

43% of workers in the survey stated they had less than $10,000 in savings while an amazing 27% of workers said they had $1,000 saved.  Many of these Americans are one illness or a job loss away from being broke (many are called the working poor).  It is no surprise that the survey found that only 16% of those who responded felt comfortable about retiring, the lowest rate in a generation.  What this survey highlights is that more and more middle class Americans are going to struggle in their retirement.  Thanks to the Federal Reserve artificially slamming interest rates lower, many Americans on fixed incomes or Social Security will see no cost of living adjustments even though their daily cost of living items will increase in price.  This is targeted destruction of the middle class.

And keep in mind this survey is comparing 2009 and 2010.  What happened to the rally here?  Workers clearly did not participate in the stock market rally.  Why?  Because a large part of the rally also hinged on “productivity gains” which is a nice euphemism for laying off people and making current workers juice out more production.  So this translates to great profits for the Wall Street elite while unemployment in the last year has done this:

Source:  BLS

It might be hard to save for retirement if you are getting fired.  And that is what millions of Americans experienced in 2009 as the stock market went on a massive rampage as Wall Street was fueled by taxpayer bailout money and decided to load into stocks.  Keep in mind that many of the large multinational companies are making a boatload of their profits internationally.  This is great for those companies but as most Americans know, small business is the juice of the American economy and most small businesses sell to domestic clientele.  A clientele that is increasingly poorer and unemployed.  We used to call this group the middle class.  This isn’t lost on some:

“(RR) Companies in the Standard&Poor 500 stock index had sales of $2.18 trillion in the fourth quarter, up from $2.02 trillion last year, and their earnings tripled. Why? Mainly because they’re global, and selling into fast-growing markets in places like India, China, and Brazil.

America’s biggest companies are also showing fat profits and productivity gains because they continue to slash payrolls and cut expenditures. Alcoa, for example, had $1.5 billion in cash at the end of last year, double what it had on hand at the end of 2008. Sounds terrific until you realize how it did it. By cutting 28,000 jobs – 32 percent of workforce – and slashed capital expenditures 43 percent.

The picture on Main Street is quite the opposite. Small businesses aren’t selling much because they have to rely on American – rather than foreign – consumers, and Americans still aren’t buying much.”

One of the disturbing trends especially when it comes to retirement is the massive increase in health care costs.  It is absurd to use health care costs (i.e., premiums, etc) to inflate GDP but that is exactly what is happening:

Source:  BEA

It is absurd that in 2008, as the economy was flying off a cliff and other service industries were contracting health care still managed to pull in 0.31 of the 0.32 gain in the entire year for this sector.  Take a look at 2009.  What service sector did the best in another troubled year?  Health care.  So to say that gouging Americans like the 39% hike in premiums in California is good for GDP is nonsense:

“(ABC) Reports that Anthem Blue Cross is raising premiums on some customers by 39 percent on March 1, have prompted the Secretary of the Department of Health and Human Services, Kathleen Sebelius, to write a letter to the company, Golden State’s largest private insurer, asking the company to “provide a detailed justification for these rate increases to the public.”

“Additionally, you should make public information on the percent of your individual market premiums that is used for medical care versus the percent that is used for administrative costs,” Sebelius wrote, noting that the profits of Anthem Blue Cross’s parent company, WellPoint Incorporated, have soared.”

Ask any middle class American about their health care costs and the likely story is that prices have gone up consistently over the last decade as incomes have gone stagnant.  How is this good especially when many baby boomers are now reaching retirement age with little savings as we have seen and are now going to shift a larger portion of their income to health care?

In many ways the health care industry is much in line with how Wall Street banks have operated for the last forty years.  They’ll gouge and exploit the middle class until every dollar you earn is either yanked by bank bailouts, health care costs, or taxes.  Let us run the numbers on a hypothetical family in California to see how this plays out.  We’ll use a family making $61,000 a year (Census 2008 data):

Now the above is merely a hypothetical budget.  I welcome people to comment on different items one way or another.  The above is a two adult household with no children with two cars.  This is very typical for California but I’m sure for other states as well.  But as you can see from the above, given that this household is at the median there isn’t much room for large amounts of flat screen TVs, expensive nights out on the town, or leased BMWs.  Yet many across the country lived like this and clearly that was on borrowed time and was all a ruse usually magnified by credit cards.  Now as many near retirement they are realizing that the only game in town is Wall Street and that has now become a large casino.

I know many people scream personal responsibility.  I’m the first to agree.  But there is this massive amount of cognitive dissonance when people blame the middle class and working class for this mess when Wall Street who created the financial instruments of destruction, not only got away with the biggest transfer of wealth in history, they are actually getting richer because of bailouts.  This is like putting a bank robber in prison for stealing $100 to feed his family while letting that same banker go to Wall Street and rob millions of Americans for billions of dollars and not only letting him go, but putting structures in place to make him richer!  Is it any wonder why there is so much anger festering in America?

Retirement is getting harder and harder for many middle class Americans.  What use is $1,000 a month in Social Security when your out of pocket costs for medicine is going to cost you $300 to $500 per month?  How did we do it before?  Stable banking that allowed people to pay off their mortgages and allowed people to live securely in their homes once they retired even with a small Social Security check.  But now, many have tapped out their equity and mortgaged their future.  Unlike Wall Street Americans don’t have access to the Federal Reserve.  Massive part-time employment, weak worker protection, a corporatocracy raiding the workers, and a disappearing middle class.  Get ready to work longer America because Wall Street needs that money to fund their bailouts and billion dollar bonuses for wrecking the economy.

The Middle Class Two Income Trap – Two Breadwinners plus Extra Money to support the Banking Industry. How Middle Class Americans are losing Ground by Supporting the Financial Sector.

Posted by mybudget360

If it isn’t enough that average Americans are contending with the rising cost of healthcare, education, and daily necessities like food now additional funds are going directly to the banking sector to keep them propped up like a money loving puppet.  Since the Great Depression the rise of the middle class has been the envy of many people around the globe.  The ability for hard working Americans to have access to an economy that supported them so long as they worked hard and followed an implicit guarantee with their nation.  With this implicit guarantee it was assumed that the government would also protect people to a certain degree especially when it came to their financial well being.  This did not assure a winning portfolio but it did mean we wouldn’t turn our stock market into a giant game of casino where the connected had a loaded deck.  Much of the strong regulatory arm that came from the Great Depression was because of the speculative gambling during the Roaring 1920s.  Yet as time went on slowly Wall Street took these structures away and now we are finding ourselves once again with the middle class largely at risk in the United States.  It isn’t by accident we are in the situation we are in today.

The first important thing to understand is that yes, the income of middle class families has gone up since the 1950s but a large part of this was the rise of the two income households with women entering the workforce:

The above chart is disturbing in many ways because it bucks the nearly 50 year long-term trend of employment.  Now, even with two income households many with rising job losses are finding they now have to make it with one income while inflation has eroded their buying power over the decades.  In this recession 3 out of 4 job losses have been men.  If you have any doubt regarding the insidious nature of inflation I put together a chart looking at various costs over the last few decades:

Part of this is due to the Federal Reserve and U.S. Treasury trashing the U.S. dollar over the decades.  For example, in 1950 it took the median household income (which was largely a one income household) about 2 times the annual household income to purchase the median priced home.  In 2008, it took the median household income (now largely a two income household) four times annual earnings to purchase the median priced home.  In fact, the two income household has hidden a large part of how much the middle class has fallen behind in this country.  Now with this recession, the deep cracks are now being exposed in the system.

Income inequality has also risen in this country and a large part of it is due to the financial sector.  1 percent of our population control 42 percent of all financial wealth.  In fact, in the last decade the only segment of our population that has seen any sizeable gains in true wealth is the top 1 percent.  Every other category has seen a loss of housing net worth, wage stagnation, and higher costs for daily items that consume a larger part of their budget.  Just take a look at the chart below showing this change:

Source:  CNN

The above is looking at a one income household in 1973 versus the two income household in the 2000s.  It is interesting to note that in the 1970s Nixon took the dollar into a purely fiat system and since that time, the dollar has lost much of its actual value.  This would be expected.  The Federal Reserve with its banking lieutenants has been able to put our country so deep into debt that realistically we are in a position of never paying back all our outstanding obligations.  The only way out is via inflation and with a fiat system that is the path we are heading down.  This is important because when you look at the charts above prices rise for various reasons and inflation is a hidden tax.  No need for higher taxes to bailout the banking sector when you can just destroy the purchasing power of middle class Americans by monetizing enormous amounts of debt as we have done.

That is why in the next decade, Americans are now working for someone else beyond their immediate household.  A large chunk of their money is now going to the banking sector.  This can be in absurd payments to credit card companies, loss of purchasing power because of the Fed, or other hidden methods of taxing the public.  We are really at a crossroads for the middle class.  If we dissect the data further we realize that even though things cost more, much of it has been financed through debt:

Ironically the family in the early 1970s had more discretionary income than the family in the early 2000s even with a dual income.  Yet if you look around, it isn’t immediately apparent because of the massive debt bubble financed by the banking sector.  Sure people bought bigger homes and newer cars but all this was under a phony veneer of success and was financed with debt.  All of it was built around a mountain of debt.  Yet here is where the big divide hits.  Middle class families are now losing their homes through foreclosure.  Many are having their cars repossessed because they can’t make their payments.  Bankruptcy filings are soaring because people cannot service their debt.  So middle class Americans are paying the price with the rules that are setup.  Yet banks are not.  They are sucking the American taxpayer for all their horrible bets and are not dealing with the ramifications of their actions.  In other words, the bill is going to the middle class as the middle class is dealing with their own bad decisions.  This is part of the system built around the corporatacracy model of government.  Losses are socialized while gains are privatized.

And don’t kid yourself, this entire game was financed on debt:

And the small group of banks at the top now control a large portion of all FDIC backed assets in our country:

Source:  FDIC, Bank Financial Statements

Forget about the Republican or Democrat parties, we are being governed by the financial sector of this economy.  It is amazing how hard it is to get sensible legislation even after this great calamity.  To prove this point, in California an insurance company announced they are hiking healthcare premiums by 30 percent in the midst of this recession even though they pulled in billions in profits.  The government will sit back and let the middle class get fleeced because they are part of the problem.  They speak a good game but are bought by the industry.  Prove us wrong if this isn’t the case.  Enough talk, time for action.  From now on we need to focus on who is delivering results.  If you can, take you money out of the big banks and put them in local regional banks.  Let your local representatives know that their number one priority should be focusing on protecting our struggling middle class.  Time to get some real reform or we really risk losing our middle class.