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The Brewing Generational Conflict
May 17th, 2013 | 
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Financial promises made under different conditions and assumptions are null and void, period.
Essayist Eric A. touched on a key theme of the next decade in his two-part series A Brief History of Cycles and Time, Part 1 and Part 2: the political, social and financial dominance of the Baby Boom generation, and the eventual erosion of that dominance.
The promises made to the 76 million baby Boomers cannot be met. It’s really very simple: promises made when the economy was growing by 4% a year and the next generation was roughly double the size of the generation entering retirement cannot be fulfilled in an economy growing 1.5% a year (and only growing at all as the result of massive expansions of public and private debt) in which the generation after the cohort entering retirement is significantly smaller.
Just look at this chart: demographics is destiny, and the so-called Silent Generation (roughly those born 1925 – 1942) currently drawing Social Security and Medicare benefits is somewhere between half and 2/3 the size of the Baby Boom.
Meanwhile, Generation X that follows the Baby Boom is almost half the size of the enormous cohort currently entering retirement. Sorry folks, the numbers don’t add up, no matter how you finesse them: a smaller working population in a low-to-zero growth economy burdened with fast-rising debt cannot fund the pay-as-you-go retirement of 76 million citizens, fully 25% of the entire U.S. population.
(Recall that Social Security, Medicare and all other entitlements are pay-as-you-go. There is no trust fund; the current benefits are paid in full by taxes paid by current workers/taxpayers or by Federal borrowing via the sale of Treasury bonds.)
(The numbers and dates of generations are inexact; the Silent Generation, for example, is assumed to have missed serving in World War II but my father was born in 1926, joined the U.S. Navy in 1944 and was on a LST preparing for the invasion of Japan in early 1945, so this is not true of all Silents. The Baby Boom is typically defined as those born between 1946 and 1964, but many of those born in 1959-64 do not feel they belong to the “earlier” Baby Boom, and so some people divide the Baby Boom into two cohorts, or start Generation X in 1961. The lack of precision does not change the basic demographics.)
Everyone takes the present trend, takes out a ruler and pencil and projects it into the future, as if current trends will continue in a straight line. But they never do; the world is dynamic and trends change and reverse.
I have been surprised by the deep emotions that arise out of our cultural Id when generational characterizations and conflicts are openly discussed. Perhaps this is why these issues and feelings are rarely aired in the mainstream media.
In the free-form blogosphere, these officially inconvenient (i.e. suppressed) emotions are expressed, and these few honest expressions garner large audiences and a great many highly charged comments.
My position on the entitlements promised to the Baby Boomers has been clear since 2005 (Boomers, Prepare to Fall on Your Swords June 2005): demographics, the changing job market and the destructive consequence of financializing the U.S. economy render the entitlements promised (Social Security and Medicare) unpayable.
The current 115 million full-time workers cannot sustainably support the 110 million people currently drawing Social Security and Medicare/Medicaid–and the number of retirees entering these entitlement program will rise by millions in the decade ahead.
This worker-beneficiary ratio (already 1-to-1) will only become more unsustainable as Baby Boomers retire and the forces of The End of Work erode full-time jobs The End of (Paying) Work (January 21, 2009).
The Promises That Cannot Be Kept (July 6, 2011)
That Which is Unsustainable Will Go Away: Medicare (May 16, 2012)
The generation in power has the biggest stake in retaining the status quo.Anything that threatens the status quo threatens their power and all that has been promised to them by the status quo.
As a result, any real reform that reduces entitlements to a sustainable level is politically dead on arrival (DOA). Reform is thus as impossible as paying the promised entitlements.
Though he is often presented as belonging to a new generation, President Obama (born 1961) is a Baby Boomer in age, outlook and politics, accepting the fantasy that 25% of the nation can draw hefty, open-ended benefits from Medicare indefinitely.
The solution is to work backwards from what the current generation of workers can afford to pay, not to work forwards from promises made when things were different. The pool of money that can be skimmed from the productive economy via taxes to pay for national defense, the care of veterans, education, welfare in all its forms, corporate and individual, all the myriad departments of government and Social Security pensions and Medicare is not unlimited. Difficult choices will have to be made, and what was promised decades ago is not the key consideration: what is foremost is the sustainability of the nation as an ongoing concern, which means focusing on the generations coming of age and those shouldering the tax burden going forward.
It is a truism of the entitlement mindset that the greater the entitlements promised and offered, the greater the resentments and self-absorption of the beneficiaries. I have often written about the state of permanent adolescence the Savior State/entitlement mindset engenders:
Our Many Layers of Entitlement (September 29, 2011)
The State, Dependency, Addiction and Reciprocity (September 28, 2010)
Opting Out and the Culture of Entitlement (March 29, 2010)
Entitlements, Taxes, Inequality and Three-Way Class Warfare (September 20, 2010)
Tyranny of the Majority, Corporate Welfare and Complicity (April 9, 2010)
Entitlements and the Federal Deficit (February 5, 2011)
We desperately need an adult discussion focused on reality rather than resentment. The solution will require dismantling open-ended, everyone-deserves-everything Medicare, which will bankrupt the nation itself. The solution is currently “impossible”: The “Impossible” Healthcare Solution: Go Back to Cash (July 29, 2009)
As for pay-as-you-go Social Security, it will have to be means-tested: those drawing thousands of dollars a month in other pensions will have to let go of “what wuz promised” so other Boomers who have only Social Security can receive their full benefit. What exactly is so difficult about that?
I am a Baby Boomer, born 1953, and I hope our generation musters the courage to face reality and the need for re-assessment and adjustment and yes, the word that is tossed around in endless lip-service but avoided in the real world, sacrifice. Anything less will be a generational failure of monumental proportions.
I refuse to burden our children and grandchildren with mountains of debt so I can get the full measure of “what I wuz promised.” Financial promises made under different conditions and assumptions are null and void, period. Reality trumps “what wuz promised” every time.
What nobody dares say is that if the 76 million Boomers press their claims to the point the nation is bankrupted, then the next generations (X and Y) will have to wrest political power from the retirees, not for their own sake but for the sake of the nation and for the generations behind them.
Charles Hugh Smith – Of Two Minds
Posted in Baby Boomers, Banks, Corruption, Debt, Economic Crisis, Economy, Entitlements, Generation X, Government, income, Money, Retirement Accounts, Wages | 
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Oh Put A Sock In It GenX!
This sort of story makes my blood boil:
Generation X, the unlucky cohort of Americans who became young adults during the boom years of the 1990s only to suffer a midlife bust, is facing bleak retirement prospects, according to a study.
The Pew Charitable Trusts said the typical Gen X couple, born between 1966 and 1975, only has enough savings to replace half of its pre-retirement earnings. Married Americans born during the first part of the baby boom, from 1946 to 1955, can expect to retire with about 82 percent of their income. The younger boomers, born between 1956 and 1964, can expect to quit work and make about 59 percent of pre-retirement earnings.
That’s because they blew the damn money.
These are the same people who have incessantly demanded more and more government, more and more control over other people, more and more servicesand at the same time think an iPhone is more important than their retirement savings.
They’re the ones driving new cars every 2 years and pissing away money chasing after the Joneses. They have no sense of reality, especially when it comes to personal responsibility over their lives and bodies. They are the “young people” who pressed for “freedom” – from responsibility.
They’re the ones who flooded the market (and still do!) screaming for cheaper and more debt to buy houses, cars, cellphones and other alleged “badges” of prosperity. They made up the majority of house-flippers, condo resale junkies and the schemers selling the nation on this crap. They made up the majority of the Wall Street junkies pushing the credit heroin through the streets too.
In short many of them were the “I’m gonna get mine and fuck you” generation. Yeah, many of the boomers were responsible for this too; in many ways they’re even more responsible. The sense of entitlement has gotten worse, not better, as you move forward in generational terms.
There are exceptions, of course. I’ve met plenty of people who have had their own personal “Come to Jesus” moment on these matters — who understand that economic surplus is first and foremost personal, and that the premise that someone else (including the collective “someone else” found in government) owes you something makes you their slave, as once you stick your hand out they get to dictate terms.
There’s a certain wry smile that crawls across my face when I run into someone learning that lesson the hard way. But there’s a sadness that goes with it, because the fact of the matter is that until a critical mass of people return to being able to think things through logically and put the effort in to do so the net position of our nation and her people is destined to deteriorate rather than advance.
Ronald Reagan famously said that it was “morning again in America“; unfortunately what he allowed and what we got was a false dawn. Rather than be the stern father who says “Yes, son, it’s morning, and this means you have 12 hours of daylight to bust your ass so after you buy your room for the night and food for your belly there is something left to save and thus invest in a future venture” he allowed Congress to fail to follow through on the bargain he struck and contract the size of government to fit the reduced tax revenues that were passed.
He could have done so but that would have been hard; simply refusing to sign any bills until the promise was kept would have been enough, but it also would have been politically nasty.
It’s easy to be loved when you’re handing out “free money.”
The problem is that you’re living an open and notorious fraud because there is no such thing as free money.
That fraud continues and has been amplified today.
Posted in Baby Boomers, Banks, Corruption, Credit, Debt, Economic Crisis, Economy, Freedom, Generation X, Government, greed, Irresponsible, Money, Responsibility, Retirement Accounts, spending, Statism |
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How They Will Steal Your Retirement
I’ve laid this out before but it’s time to do it again, because it’s coming folks.
The recent ditty on how ”nobody needs more than $3m for retirement”, defined as “whatever you need to get a $200,000 annuity”, is just one facet of how this will play out.
Since I started writing The Ticker I have been repeatedly asked where one should put their assets to evade confiscation, whether through outright acts of theft, devaluation or any other means.
The simple answer: There isn’t a reasonably-safe means of doing that for anyone who does not possess enough wealth to be willing to write off 20, 40 or even 60% of it and who doesn’t have enough to be able to piss away 1% or more of it annually in compliance, monitoring and associated costs.
That basically means if you don’t have tens of millions (and the first digit isn’t a “1″ either) you’re not in that game. If you are then you can do a whole host of things that are reasonably certain to “work”, where “work” is defined as “won’t lose enough of it to wind up in the street” with a confidence level in the 90s or better.
This isn’t where virtually everyone is, so listening to advice on how to do that is dumb since you’re almost-certainly not in that position, and if you are you don’t want to ask people like me, you want to get the legal, tax and accounting advice from licensed professionals who can actually do it.
For this reason I have steadfastly maintained that the only solution for ordinary people is political – that is, to rise and demand, through the political process in all of its forms, that the looting operations conducted by the various parts of our so-called “society” be stopped and the actors involved go to prison where they belong — whether they be banksters or medically-related “professionals” of various sorts. This is the only path that has a reasonable probability of success for the common citizen.
If you are unwilling to take those steps, and 99% of America is, then you have only two additional options that are peaceful and lawful:
- Withdraw from the economy to the greatest possible extent, making it difficult or impossible to attach your earnings. This will get more and more difficult but for most people is not impossible. It does mean living “less large”; that nice new car will have to be discarded in favor of an older but serviceable one, the fat-cat mansion eschewed for a small house or apartment chosen with a view toward low tax exposure and your work effort will have to be dialed back to a dull mewl instead of a roar — sub-$50,000 gross income.
- Try to anticipate where the next steps will come. That’s what the rest of this article is about.
I have a decent feel for that. See, I fully expect another large market swoon in the next 6 to 18 months, probably closer to the inside on time. And by “large” I do mean large – 50% or worse, perhaps considerably worse.
This time, however, The Fed has used its bullets with QE and interest rate games and so has Congress and the White House. What does this means?
It means the government needs to find a way to keep the game going. They will look toward private and public retirement assets to do so because this is one of the very few remaining stores of wealth they can attach. To do it they’re going to play on your fear and offer you a carrot that is in fact a giant corn cob aimed you know where.
Here’s what I expect.
They will “offer” to replace your loss in your trading account, including a taxable account, provided that you convert the entire thing to a ladder of 10 to 30 year Treasury notes at then current interest rates, which will be ridiculously low — lower than they are now — and agree to lock it up until you are 65.
Let’s assume that 10 year rates are at about 1% and 30 year at about 2%.
How bad of a deal is this, assuming you just suffered a 50% capital (but unrealized) loss?
Catastrophically bad.
Let’s further assume the deficit spending does not stop; after all, that’s the point of this program — to make it “possible” for it to continue. Let’s further assume that the deficit is about 10% of GDP, which is not all that far from today’s 8% and is less than the 12% range of a couple of years ago.
A 10% annual purchasing power debasement over 10 years results in a loss of 42% of your original purchasing power. If you are paid 1% on a 10 year Treasury you get 10% back so you lose 32% in real terms. This doesn’t sound all that awful compared to the 50% unrealized loss but this assumes there is no recovery in the market at all. In short you will have crystallized that loss and made it permanent.
Now let’s look at 30 years. Let’s further assume that the 10% debasement goes on for 10 of them, then 5% for the next 20 years. This is probably optimistic. It results in an 81% loss of purchasing power. You allegedly get 60% of that back via the “interest”, assuming the ponzi system survives.
Note that if the system does not survive and the bonds default you may get zero. That risk, of course, will be claimed to be “non-existent.” Uh huh. Whether that happens via outright default or through dilution doesn’t matter; either way a loss is a loss is a loss and what matters is how many gallons of gas you can buy, not how many chits you possess.
The latter (30 year) is your better deal, incidentally, provided you live for 30 years. You can bet the deal will include forfeiture of any residual value and recapture against any Medicare and Medicaid expenses. Additionally you will not be able to touch the amount until you are 65, and then you will berequired to take an actuarial 20 year payout to age 85, like it or not.
I’m willing to bet that 90% of the people offered this deal will take it and sign away their futures voluntarily. I’m also willing to bet that all of the State and Local pension systems will be coerced into accepting this “deal” through being offered some sort of “safe harbor” against benefit reductions (which will be massive for pensioners) under some rubric of “Federal Sovereignty” that will trump so-called “guarantees” in these municipal and state pension laws.
Note that without this “deal” virtually all State and Local pension systems are going to blow up within the next decade or so. It is a mathematical certainty. Long before they blow up they will siphon off as much as they can from you in the form of increased property and other taxes; this will not be a quiet process either. Your only means of avoiding this is to live somewhere that is rural and has none, or at least very few, of these obligations.
Those of you who live in cities are going to get buggered to within an inch of your life, to be blunt.
If you think this is fanciful look at what is happening in Portugal right now; they are looking at paying public workers in Treasury Bills instead of cash. That’s the exact sort of “deal” I’m referring to – take this and get “paid”, or (in this case) get fired!
As the noose tightens around the neck of the people you will see more and more blatant pump-and-dump schemes such as Bitcoin come onto the scene, along with more irrational (and indefensible on the facts) attempts to pump “assets” such as Gold. What the people putting forward this premise never bother to mention is that transacting without reporting to the government is already a crime in most jurisdictions (evading of taxes) and that it’s always easier to confiscate your funds through some sort of bogus “civil procedure” than it is to pass tax increases over the protests of angry constituents.
You don’t really think “Civil Forfeiture” is about drugs, do you?
As such you can expect the seizure mentality to ramp up materially from where it is now; we have already gone well past the Rubicon when it comes to personal privacy if you transact in any way online or through otherwise-traceable means, In short, forget about being rationally certain that your actions cannot be traced and thus attached.
I’d love to look at the next 10 years+ and say that things get “more bleak” beyond that horizon, but the fact of the matter is that the ponzi debt-leverage monster has run out of gas and the evidence for this is laid on the table here and now.
We don’t have 10 years, in short, and one way or another there will be a massive shift and reform in how the world works financially. The options here range from reasonably good to catastrophically bad, and if you’re younger than 70 you’re going to get to experience them — like it or not.
You should get off your political ass, but I’ll bet that 99% of the people who read this either won’t or will claim they are through either one of the existing Party hacksterisms (be they Dem or Pub) or some group (like the Libertarian Party) who’s casus belli consists of such “terribly important” things like gay marriage and smoking pot, refusing to take on the actual meat of the issues that face us as a nation.
Good luck folks; I have set my plans in motion and will execute on them in a peaceful and lawful way, but I will not change my mind until and unless I see evidence that a material percentage of the public will get off their ass — and that appears to be damned unlikely.
Posted in 401k, Debt, Economic Crisis, Economy, Government, Money, Retirement Accounts, Savings |
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Do You Want To Scare A Baby Boomer?
If you want to frighten Baby Boomers, just show them the list of statistics in this article. The United States is headed for a retirement crisis of unprecedented magnitude, and we are woefully unprepared for it. At this point, more than 10,000 Baby Boomers are reaching the age of 65 every single day, and this will continue to happen for almost the next 20 years. The number of senior citizens in America is projected to more than double during the first half of this century, and some absolutely enormous financial promises have been made to them. So will we be able to keep those promises to the hordes of American workers that are rapidly approaching retirement? Of course not. State and local governments are facing trillions in unfunded pension liabilities. Medicare is facing a 38 trillion dollar shortfall over the next 75 years. The Social Security system is facing a 134 trillion dollar shortfall over the next 75 years. Meanwhile, nearly half of all American workers have less than $10,000 saved for retirement. The truth is that I was being incredibly kind when I said earlier that we are “woefully unprepared” for what is coming. The biggest retirement crisis in history is rapidly approaching, and a lot of the promises that were made to the Baby Boomers are going to get broken.
The following are 35 incredibly shocking statistics that will scare just about any Baby Boomer…
1. Right now, there are somewhere around 40 million senior citizens in the United States. By 2050 that number is projected to skyrocket to 89 million.
2. According to one recent poll, 25 percent of all Americans in the 46 to 64-year-old age bracket have no retirement savings at all.
3. 26 percent of all Americans in the 46 to 64-year-old age bracket have no personal savings whatsoever.
4. One survey that covered all American workers found that 46 percentof them have less than $10,000 saved for retirement.
5. According to a survey conducted by the Employee Benefit Research Institute, “60 percent of American workers said the total value of their savings and investments is less than $25,000″.
6. A Pew Research survey found that half of all Baby Boomers say that their household financial situations have deteriorated over the past year.
7. 67 percent of all American workers believe that they “are a little or a lot behind schedule on saving for retirement”.
8. Today, one out of every six elderly Americans lives below the federal poverty line.
9. More elderly Americans than ever are finding that they must continue working once they reach their retirement years. Between 1985 and 2010, the percentage of Americans in the 65 to 69-year-old age bracket that were still working increased from 18 percent to 32 percent.
10. Back in 1991, half of all American workers planned to retire before they reached the age of 65. Today, that number has declined to 23 percent.
11. According to one recent survey, 70 percent of all American workers expect to continue working once they are “retired”.
12. According to a poll conducted by AARP, 40 percent of all Baby Boomers plan to work “until they drop”.
13. A poll conducted by CESI Debt Solutions found that 56 percent of American retirees still had outstanding debts when they retired.
14. Elderly Americans tend to carry much higher balances on their credit cards than younger Americans do. The following is from a recent CNBC article…
New research from the AARP also shows that those ages 50 and over are carrying higher balances on their credit cards — $8,278 in 2012 compared to $6,258 for the under-50 population.
15. A study by a law professor at the University of Michigan found that Americans that are 55 years of age or older now account for 20 percentof all bankruptcies in the United States. Back in 2001, they only accounted for 12 percent of all bankruptcies.
16. Between 1991 and 2007 the number of Americans between the ages of 65 and 74 that filed for bankruptcy rose by a staggering 178 percent.
17. What is causing most of these bankruptcies among the elderly? The number one cause is medical bills. According to a report published in The American Journal of Medicine, medical bills are a major factor in more than 60 percent of the personal bankruptcies in the United States. Of those bankruptcies that were caused by medical bills, approximately 75 percent of them involved individuals that actually did have health insurance.
18. In 1945, there were 42 workers for every retiree receiving Social Security benefits. Today, that number has fallen to 2.5 workers, and if you eliminate all government workers, that leaves only 1.6 private sector workers for every retiree receiving Social Security benefits.
19. Millions of elderly Americans these days are finding it very difficult to survive on just a Social Security check. The truth is that most Social Security checks simply are not that large. The following comes directly from the Social Security Administration website…
The average monthly Social Security benefit for a retired worker was about $1,230 at the beginning of 2012. This amount changes monthly based upon the total amount of all benefits paid and the total number of people receiving benefits.
Could you live on about 300 dollars a week?
20. Social Security benefits are not going to stretch as far in future years. The following is from an article on the AARP website…
Social Security benefits won’t go as far, either. In 2002, benefits replaced 39 percent of the average retirees salary, and that will decline to 28 percent in 2030, when the youngest boomers reach full retirement age, according to the Center for Retirement Research at Boston College.
21. In the United States today, more than 61 million Americansreceive some form of Social Security benefits. By 2035, that number is projected to soar to a whopping 91 million.
22. Overall, the Social Security system is facing a 134 trillion dollar shortfall over the next 75 years.
23. As I wrote about in a previous article, the number of Americans on Medicare is expected to grow from 50.7 million in 2012 to 73.2 million in 2025.
24. Medicare is facing unfunded liabilities of more than 38 trillion dollars over the next 75 years. That comes to approximately $328,404for each and every household in the United States.
25. Today, only 10 percent of private companies in the U.S. provide guaranteed lifelong pensions for their employees.
26. Verizon’s pension plan is underfunded by 3.4 billion dollars.
27. In California, the Orange County Employees Retirement System is estimated to have a 10 billion dollar unfunded pension liability.
28. The state of Illinois has accumulated unfunded pension liabilities of more than 77 billion dollars.
29. Pension consultant Girard Miller told California’s Little Hoover Commission that state and local government bodies in the state of California have 325 billion dollars in combined unfunded pension liabilities.
30. According to Northwestern University Professor John Rauh, the latest estimate of the total amount of unfunded pension and healthcare obligations for retirees that state and local governments across the United States have accumulated is 4.4 trillion dollars.
31. In 2010, 28 percent of all American workers with a 401(k) had taken money out of it at some point.
32. Back in 2004, American workers were taking about 30 billion dollars in early withdrawals out of their 401(k) accounts every single year. Right now, American workers are pulling about 70 billion dollars in early withdrawals out of their 401(k) accounts every single year.
33. Today, 49 percent of all American workers are not covered by an employment-based pension plan at all.
34. According to a recent survey conducted by Americans for Secure Retirement, 88 percent of all Americans are worried about “maintaining a comfortable standard of living in retirement”.
35. A study conducted by Boston College’s Center for Retirement Research found that American workers are $6.6 trillion short of what they need to retire comfortably.
So what is the solution? Well, one influential organization of business executives says that the solution is to make Americans wait longer for retirement. The following is from a recent CBS News article…
An influential group of business CEOs is pushing a plan to gradually increase the full retirement age to 70 for both Social Security and Medicare and to partially privatize the health insurance program for older Americans.
The Business Roundtable’s plan would protect those 55 and older from cuts but younger workers would face significant changes. The plan unveiled Wednesday would result in smaller annual benefit increases for all Social Security recipients. Initial benefits for wealthy retirees would also be smaller.
But considering the fact that there aren’t nearly enough jobs for all Americans already, perhaps that is not such a great idea. If we expect Americans to work longer, then we are going to need our economy to start producing a lot more good jobs than it is producing right now.
Of course the status quo is not going to work either. There is no way that we are going to be able to meet the financial obligations that are coming due.
The federal government, our state governments and our local governments are already drowning in debt and we are already spending far more money than we bring in each year. How in the world are we going to make ends meet as our obligations to retirees absolutely skyrocket in the years ahead?
That is something to think about.
So what do you think? Do you believe that there is a solution to our retirement crisis? Do you think that we can actually keep all of the promises that we have made to the Baby Boomers? Please feel free to post a comment with your thoughts below…
Posted in Baby Boomers, Bankruptcy, Debt, Economy, Investing, Investment, Medicaid, Medical, Medicare, Money, Poverty, poverty in us, Retirement Accounts, Savings, Savings Rate, Social Security | 
Tags: Bankruptcy, Debt, Foreclosures, Government, Income, Investments, Medicaid, Medicare, Money, Poverty, Retirement, Social Security, Wealth |
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Spain Plunders 90% Of Social Security Fund To Buy Its Own Debt
With Spanish 10Y yields hovering at a ‘relatively’ healthy 5%, having been driven inexorably lower on the promise of ECB assistance at some time in the future, the market has become increasingly unsure of just who it is that keeps bidding for this stuff. Well, wonder no longer. As the WSJ notes,Spain has been quietly tapping the country’s richest piggy bank, the Social Security Reserve Fund, as a buyer of last resort for Spanish government bonds - with at least 90% of the €65 billion ($85.7 billion) fund has been invested in increasingly risky Spanish debt. Of course, this is nothing new, the US (and the Irish) have been using quasi-government entities to fund themselves in a mutually-destructive circle-jerk for years – the only difference being there are other buyers in the Treasury market, whereas in Spain the marginal buyer is critical to support the sinking ship. The Spanish defend the use of pension funds to buy bonds as sustainable as long as it can issue bonds – and yet the only way it can actually get the bonds off in the public markets is through using the pension fund assets. The pensioners sum it up perfectly “We are very worried about this, we just don’t know who’s going to pay for the pensions of those who are younger now,” or those who are older we would add.
Via Wall Street Journal: Spain Drains Pension Fund In Borrowing Spree
Spain has been quietly tapping the country’s richest piggy bank, the Social Security Reserve Fund, as a buyer of last resort for Spanish government bonds, raising questions about the fund’s role as guarantor of future pension payouts.Now the scarcely noticed borrowing spree, carried out amid a prolonged economic crisis, is about to end, because there is little left to take. At least 90% of the €65 billion ($85.7 billion) fund has been invested in increasingly risky Spanish debt, according to official figures, and the government has begun withdrawing cash for emergency payments.
Although the trend has drawn little public attention or controversy, it has become a matter of concern for the relatively few independent financial analysts who study the fund, which is used to guarantee future payments of pensions.
…
In addition, there are worries that Social Security reserves for paying future pensioners are running out much quicker than expected.
In November, the government withdrew €4 billion from the reserve fund to pay pensions, the second time in history it had withdrawn cash. The first time was in September, when it took €3 billion to cover unspecified treasury needs.
Together, the emergency withdrawals surpassed the legal annual limit, so the government temporarily raised the cap.
“We are very worried about this,” says Dolores San Martín, president of the largest association of pensioners in Asturias, a small region that has one of the highest percentages of retirees in Spain. “We just don’t know who’s going to pay for the pensions of those who are younger now.”
…
After the crisis began, some of those countries began using the pension reserves for other contingencies, such covering a drop in foreign demand for their government bonds.Since the collapse of Ireland’s property boom, for example, most of its pension fund has been used to buy shares of nationalized banks and real estate for which no foreign buyers could be found.
“Most of the [Spanish] fund is an accounting trick,” said Javier Díaz-Giménez, an economics professor in Spain’s IESE business school. “The government is lending money to another branch of government.”
Spanish officials defend the heavy investment of the Social Security Reserve Fund in their government’s high-risk bonds. They say the practice is sustainable as long as Spain can continue borrowing in financial markets, and they predict the economy will start to recover late in 2013, easing the debt crisis.
…
“With foreign investors staying away from the Spanish debt market, you’re going to need all the support you can get from domestic players,” said Rubén Segura-Cayuela, an economist with Bank of America-Merrill Lynch.
…
Spain’s commercial banks already have increased their Spanish government-bond portfolio by a factor of six since the start of the crisis in 2008, and now own one-third of government bonds in circulation.
The percentage of Spanish government debt held by the Social Security Reserve Fund stood at 55% in 2008, according to official figures; by the end of 2011 it had risen to 90%. Analysts say the percentage has continued to rise, even as international agencies have lowered Spain’s credit ratings.
Spain’s continued use of those reserves to buy its own bonds appears to violate a rule set by government decree that mandates their investment only in securities “of high credit quality and a significant degree of liquidity.”
…
But with unemployment now above 25% of the workforce and fewer wage earners paying in, the Social Security System is about €3 billion in deficit, according to government estimates.
And in other news, and completing the picture, if not the circle jerk, is news from Libremercado that according to the Spanish Confederantion of Employer Organizations, some 60% of the Spanish companies are now losing money. Via Google translate:
The President of the Spanish Confederation of Employer Organizations (CEOE) has estimated that “60 percent of the companies are in losses. Thing is that entrepreneurs are more thoughtful and went outside.”Joan Rosell responds well after being asked if he receives “Spanish citizens too negative” in an interview with the newspaper La Razon, who heads a special titled “2013, the recovery begins,” and says that “social unrest is evident and business world is no exception. ”
The president of the CEOE has considered that the private sector “has already made ?? All the restructuring that had to do and the decline in employment in the private sector has virtually stopped. Now is the restructuring of the public sector.”
After defining the first year of Mariano Rajoy in government as a year of shock, Rosell has considered that the Spanish economy remains “superfluous fat by many sides.’s Central government, regional and local. Avoid duplication. We are a country hiperregulado “.
It is not exactly clear why google translate had a problem with that last word…
Posted in #OCW, #TCOT, Corruption, Crime, Criminals, Cronyism, crooks, Debt, Economic Crisis, Economy, Financial System, Fraud, Government, Money, Retirement Accounts, Social Security, Spain |
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Stupidity By The Masses On Entitlements
The following is making the rounds on Facebook:
My reply, which incidentally is all easily-verified, was thus:
No you didn’t.
You were conned.
You paid a tax, nothing more.
This has been ruled on by the US Supreme Court.
That is the same Supreme Court that liberals believe has the right to ban guns (any or all), starting with the NFA and onward through Miller and more.
It is the same US Supreme Court that the liberals say was correct in endorsing Obamacare.
The problem is that the US Supreme Court ITSELF is a con; in Marbury .v. Madison they ARROGATED the right to change the Constitution to themselves, but no such power was ever delegated to them IN the Constitution or by Amendment thereof.
All of those acts by the US Supreme Court are thus unlawful, and those that impugn fundamental liberty interests are openly seditious.
But…. you believe in that court, so go take the issue up with them, SINCE THEY HAVE RULED YOUR SO-CALLED “PAYMENTS” NOTHING MORE THAN A TAX.
You can’t have this one both ways folks…..
Posted in Debt, Economic Crisis, Economy, Entitlements, Fraud, Government, Money, Retirement Accounts, Social Security, Tax, Tax Withholding, taxes, Taxpayer |
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