Archive for the ‘spending’ Category
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.
You may have already read or heard about Steven Brill’s excellent, long article in Time magazine, called “Bitter Pill: Why Medical Bills Are Killing Us.” If you think it doesn’t concern you, don’t be so sure. Brill documents how a trip to the emergency room for chest pains that turn out to be indigestion can exceed the cost of a semester of college, how simple lab work done during a few days in a hospital can be more expensive than a new car, and how a drug that requires $300 to make and that the manufacturer sells to a hospital for $3,000–3,500, can cost the patient to whom it is prescribed $13,702. He looks closely at the outrageous prices on itemized hospital bills and finds that individual services listed on them have been priced at double and triple what those same services cost separately—for reasons neither the patient understands nor the hospital can explain. And he recounts the horror stories of people reduced to penury after a brief hospital stay, even though they had some health insurance, money in the bank, and suffered from only minor ailments.
Put simply, Brill says, these bills tell us there’s no free market in our healthcare system, that hospitals set their rates knowing that someone in pain or in fear for his or her life is not going to ask to see the price list first before agreeing to some test or treatment. It’s no wonder that 60 percent of our fellow Americans who file for personal bankruptcy each year do so because of medical costs.
Charles Simic started out well with these two paragraphs. But then he immediately descends into the common lefty shibboleths that, unfortunately, are false when it comes to health care.
What makes articles like this so outrageous is that the facts are available to anyone who cares to look. The data on health expenditures via the Federal Government, for example, are easily found in the Monthly Treasury Statements (MTS), public documents available going back for a very long time — as they are, after all, public.
This is where one finds the $1 trillion in total federal health spending, which incidentally is about $100 billion more than is counted in the various budget documents, even the so-called “as-spent” ones.
The argument that somehow Medicare is a “solution”, that is, a “government option”, is one of those common lefty shibboleths that is utterly devoid of factual basis. The fact of the matter is the Medicare and Medicare are federal government medical spending — nearly all of it in fact — and it is rapidly driving the federal government into insolvency!
This is “restraint”?
That may sound harsh. But Brill’s article makes one comprehend not just the talk in Washington about the supposed absolute necessity of replacing Medicare and Medicaid with “market-oriented” health care, but also the full human cost such a change would bring. If the elderly and the poor are stripped of the few protections these government programs give them, they’ll be left at the mercy of a medical industry and insurance companies whose already huge profits, so they imagine, will then get even bigger. Despite the claims that these are high-minded proposals that will fix our national debt, and despite their veneration as such by the political establishment and the media, what is being offered to the American people is nothing more than thinly-disguised money-making scams.
Well, in that Charles is right, but for the wrong reasons. And when you’re right for the wrong reasons then your prescription for change is wrong too.
The reality of the health situation in the United States is that cost escalation is driven by a few rather simple facts, all of which happened and continue to happen specifically due to government protectionism and intervention, not the market and not “sadism” or “the profit motive.”
It is the cartel-like behavior that causes this problem. Hospitals buying out independent imaging centers (think MRI) and then tripling their charges would be an utterly stupid act but for the ability to stop someone from setting up another one next door, undercutting their price by 90% and instantly putting them out of business. To prevent this you haveCON laws in a significant number of states and where those are not present you still have active interference with the market, including forcible licensing and inspection routines along with subtle (and not-so-subtle) threats of refusal to allow doctors who are not “affiliated” presence in these hospitals.
Then there is the blatant “in your face” game-playing with drugs. A drug made in Mexico and available over the counter for $100 is sold to a hospital here in the United States for $4,000 and is then marked up nearly 10x to almost $40,000 when sold to a patient. Not only is it illegal for you to possess that drug without a prescription, which of course you can’t get without a member of the medical cartel writing it, but it’s also illegal for you to go to Mexico and buy it over the counter for $100 and then bring it back to the United States and undercut the hospital by selling it for $200 to anyone who wants or needs it.
Note that nowhere is an element of forgery, counterfeiting or misrepresentation present — this is simply collusive cartel behavior that is specifically enabled and given legal force (without which it would instantly collapse) by an industry who lobbied government to get special laws passed that prohibit the forces of the market from working.
Likewise, anti-gouging laws prohibit me from selling gasoline for $3/gallon every day of the year, except when there’s a hurricane coming, at which point I charge $6. I can make a clean argument that such “anti-gouging” laws are wrong, in that the market price for gasoline in a hurricane might well be $6, and if it’s $3 instead everyone who drives by will buy up all my gas — which means the guy who really needs it will get none since I’ll run out!
But that’s not what happens here. In the gasoline example there are 4 gas stations on pretty much every exit on the highway and they all have signs up posting the price before you pump the gas. And these “anti-gouging” laws don’t require collusion — a singular and unjoined decision to boost your price is enough to get in trouble.
In the medical example not only is there no posted price anywhere, with the price being retroactively determined after the service is provided but there is active collusion between providers and overt acts to remove lower-priced competitors by buying them out or, if they refuse to cooperate, freezing them out of their practices through various means. These sorts of actions in virtually any other line of work are rank violations of the Sherman and Clayton acts — laws that proscribe such anti-competitive behavior and attach felony criminal penalties along with treble-damage civil liability to violations.
The final shibboleth is that there was something immoral about what Ron Paul said in Tampa, when he made the comment that taking your own risk might mean that someone who is uninsured because he accepted his own risk might die as a consequence for lack of the ability to pay and obtain care. What’s left unsaid by Ron Paul or anyone else for that matter, including the author of this piece, is that the reason everyone considers such “insurance” mandatory is because of the cartel behavior that leads prices to be FIVE TIMES what they would be in a free market.
The Oklahoma Surgical Center points this out quite clearly. There prices are posted before the procedure is undertaken and they are quite-typically one fifth of what is often charged uninsured people in “conventional” hospitals. For the same procedures.
The solution is not to further ensconce cartel behavior into the government and then try to “restrain” it while leaving the basic structure alone that led to the problem in the first place.
Rather, it is to first remove all such special protections from this industry en-masse and then prosecute any and all medical providers, irrespective of whether they are doctors, hospitals or drug and device makers who act in an attempt to restrain the market, de-capitating the medical cartels and imprisoning all involved from doctors to CEOs.
THAT will solve the problem.
Trying to place a cartel inside the government, which is what Charles proposes, is not only ethically bankrupt it will financially bankrupt our nation if we don’t cut that crap out.
Shameless blackmail is now the standard response of the political class because it has been brilliantly effective at coercing the masses.
Internet mythology is replete with stories of canny blackmailers exploiting our natural empathy for puppies and kittens by running web campaigns that claimed the blackmailer would kill the adorable kitten/puppy displayed if 5,000 people didn’t send him $1 each.
It was all a hoax, of course, a shameless ruse that played melodramatically on our fears and sympathies. In the mythology, people responded by sending cash and rewarding the blackmailer.
We see the same effectiveness of melodramatic blackmail everywhere in Status Quo responses to the debt/phantom collateral endgame. If your city faces a shortfall of tax revenues, rest assured the first response of overpaid bureaucrats in City Hall frantic to keep their jobs, pensions and perks will be to slash the hours the library is open.
A 2% reduction in the Federal budget, we’re told, will push orphans onto the frigid streets, send our troops into battle without ammo (“gee, Sarge, I coulda taken out that terrorist but we were only issued one clip this month”), and generally shut down every service the public cares about.
The alternative you will never hear about is a reduction in the multiple layers of overpaid bureaucrats in City Hall, the White House staff, the Pentagon, the local school district, etc., etc., etc., or any reduction in funding the parastic cartels that have captured the machinery of governance. Sickcare remains fully funded, of course, so the cartels can continue to feast on needless duplicative tests, medications that don’t work as advertised, $70,000 biopsies, $100,000 hospital visits, and so on.
The Pentagon/National Security State budget has essentially doubled in a decade, but a 2% cut never touches the sclerotic administrative layers of useless meetings, under-assistants to the assistant director, cost over-runs to bloated defense contractors, etc.Instead we’re treated to the equivalent of the same old shrill melodrama: give us money or the puppy/national defense/widow/orphan dies!
The same blackmail ruse is being played out again and again in Europe. The European Union is essentially telling Greece, Cyprus, et al. “either pay off our banksters and bondholders or we’ll kick you out of the Eurozone.”
Confounding all reason, the citizens of these indebted countries shrivel in terror at this dread prospect, when they should be cheering that they can exit a neocolonial, neofeudal system of exploitation and extraction.
Political games of blackmail abound. When did this puerile, pathetic melodrama of threatening puppies and kittens (library closures, government shutdowns, closure of useful services to leave the unproductive, overpaid, bloated bureaucracy intact) become standard operating procedure?
It became standard operating procedure when politicos discovered it worked.The public has effectively “trained” the political class to shamelessly frighten and blackmail us at every turn, because we cave into their demands to protect their own power, perquisites and fiefdoms.
Look how easy it is. Consider City Hall, filled with overpaid people plotting their escape to fat pensions and lifetime healthcare coverage, and all they have to do to keep their share of declining tax revenue is close the libraries half the week and order the street repair crews to stand down and let the potholes multiple for a few weeks.
Voila, the taxpayers cave in and re-elect the scoundrels and wastrels, and vote in higher taxes to “save our libraries.” Next time, why not ask how many cuts is City Hall taking? How many cuts to bloated pensions and healthcare benefits are being absorbed to save the libraries?
The blackmailers have no skin in the game. The cuts and sacrifices are all imposed on others, and if the house of cards collapses due to their mismanagement, the losses won’t fall on the portfolios and pensions of the political class and their Upper Caste of technocrats: others will absorb the losses.
The only way to limit shameless political blackmail is to re-train the politicos by ejecting them all from office. It appears at least a third of Italian voters now understand that, having voted for a true outsider (Grillo); now the rest of the nominal democracies need to follow the same path.
Vote down all tax increases until the political class absorbs 40% cuts in staffing, salaries, pensions and healthcare coverage.
Blackmail has even seeped into spheres like Public television, where we’re threatened with another week of retread 1950s music, ways of dodging dementia and other Baby Boomer material designed to force us to donate lest we get another week of the Three Tenors and endless pitches from earnest PBS boosters.
Give us money or your favorite program dies. Fair enough, but how tight a ship are you folks running at the top? How many expense accounts and travel junkets do you at the top enjoy? What sort of cuts are you absorbing first before blackmailing us with re-runs of gray-haired ponytailed guys jiggling their spare tires?
One last thing: buy my book Why Things Are Falling Apart and What We Can Do About It or the puppy and kitten get it. I really really mean it.
Charles Hugh Smith – Of Two Minds
Conservatives believe seniors could shop for health insurance, as they do for groceries, to drive down prices. The states, freed from excessive federal oversight, could similarly drive down costs.
That’s absolute fantasy.
Seniors would confront large insurance companies armed with too little information, and limited choices or monopolies when they purchase drugs and hospital care. That’s not a fair fight–like individuals with bows and arrows vs. B-52s.
Already, large employers operate in a similar market space—free to negotiate with health insurance companies—and even they have not been able to harness rising health insurance premiums.
The reason this problem exists is that government has intentionally provided health insurance companies and health providers monopoly protections that allow them to literally screw anyone they wish, while barring the market from correcting these practices, by conferring legal protection against both market forces and long-standing anti-monopoly laws such as the Sherman, Clayton and Robinson-Patman acts.
There is no other way that an antivenom that costs $100 per dose to manufacture in Mexico is sold for well north of $30,000 a dose in a hospital in the United States. But that is, in fact, what has been documented to have happened.
I have repeatedly, through the last several years, outlined exactly this problem and proposed solutions. Both featured prominently as the key element inLeverage, which you can order off the sidebar at the right and which was published in 2011. Recently, in response to a Wall Street Journal OpEd which claimed that they didn’t see a path forward or identification of the real issues, I provided a condensed set of both problems and recommendations.
Now Fox News is publishing articles like the above; the Kool-Aid has worn off even among the right-wing faithful.
To the GOP: Stop protecting these jackals in the US Medical system. If you don’t act now you are and will be held responsible — individually, jointly and severably – for the upcoming and inevitable destruction of the United States Federal Budget and our economy.
Unemployment, Taxes and Unfunded Retirement are Squeezing Each Generation
The American spirit is rooted in the belief of a better tomorrow. Its success has been due to generations of men and women who toiled, through both hardship and boom times, to make that dream a reality.
But at some point over the past several decades, that hope for a better tomorrow became an expectation. Or perhaps a perceived entitlement is more accurate.
It became assumed that the future would be more prosperous than today, irrespective of the actual steps being taken in the here and now.
And for a prolonged time – characterized by plentiful and cheap energy, accelerating globalization, technical innovation, and the financialization of the economy – it seemed like this assumption was a certain bet.
But these wonderful tailwinds that America has been enjoying for so many decades are sputtering out. The forces of resource scarcity, debt saturation, price inflation, and physical limits will impact our way of life dramatically more going forward than living generations have experienced to date.
And Americans, who had the luxury of abandoning savings and sacrifice for consumerism and credit financing, are on a collision course with that reality. Like the grasshopper in Aesop’s fable, they have partied away the fair seasons and winter is now on the way, which they are not prepared for.
The prudent thing to do here would be to have an honest, adult-sized conversation with ourselves about our level of (un)readiness and how best to use the resources and time we have left while the system still works more or less the way we’re used to. There are certainly strategies and steps we can take in the here and now to best match priorities to needs, and meet the future as prepared as possible.
But you won’t find this discussion in the national media. Our politicians insist on charting a course of more of the same, no matter how unsustainable, adamant not to touch any political third rails – for fear of not pleasing the electorate and/or donors. Major media outlets have abandoned the investigative journalism that once held the mirror of truth up to power, and instead, run superficial puff pieces that conclude with platitudes – for fear of not offending viewers and/or sponsors. The message is clear: The future will be better as soon as economic growth returns. Or oil prices come down. Or the iPhone 6 comes out. Or whatever the magic bullet du jour.
So it’s up to the concerned and critical-thinking among us to look at the math, the hard data underlying the headlines, and construct what we can best calculate to be true.
And the truth is: The three adult generations in the U.S. are suffering, and their burdens are likely to increase with time. Each is experiencing a squeeze that is making it harder to create value, save capital, and pursue happiness than at any point since WWII. At that point, we were a creditor nation with an economy exploding into dominance on the world stage. Now, however, the U.S. is the largest debtor nation and our economic hegemony is increasingly at siege across a number of fronts.
A continuation of the status quo is a decision to sleepwalk face-first into the constraints hurtling towards us.
Instead, shouldn’t we stop fooling ourselves and ask: What should we be doing differently?
We’ll address that after we walk through the numbers.
Seniors Woefully Unprepared for Retirement
In the late 1970s, the 401k emerged as a new retirement vehicle. Among its touted benefits was the ability of the individual to save as much as s/he thought prudent for his/her financial future. Companies loved the new private savings plans because they gave them a way out of putting aside mandatory savings for worker pensions. For a long time, everyone thought this was a big step forward.
Three decades later, what we’re realizing is that this shift from dedicated-contribution pension plans to voluntary private savings was a grand experiment with no assurances. Corporations definitely benefited, as they could redeploy capital to expansion or bottom line profits. But employees? The data certainly seems to show that the experiment did not take human nature into account enough – specifically, the fact that just because people have the option to save money for later use doesn’t mean that they actually will.
First off, not every American worker (by far) is offered a 401k or similar retirement plan through work. But of those that are, 21% choose not to participate (source).
Of those with retirement savings, the numbers are not good. Over half of US retirees have less than $25,000 in savings:
Most planners advise saving enough before retirement to maintain annual living expenses at about 70-80% of what they were during one’s income-earning years. Medicare out-of-pocket costs alone are expected to be between $240,000 and $430,000 over retirement for a 65-year-old couple retiring today.
The gap between retirement savings and living costs in one’s later years is pretty staggering:
- As the table above shows, nearly 83% of retired households have less saved than Medicare costs alone will consume.
- One-third of retired households are entirely dependent on Social Security. On average, that’s only $1,230 per month – a hard income to live on. (source)
- 34 percent of older Americans depend on credit cards to pay for basic living expenses such as mortgage payments, groceries, and utilities. (source)
As for Medicare, the out-of-pocket costs could easily soar over retirement. The Wall Street Journal reportsthat the current estimate of Medicare’s unfunded liability now tops $42 Trillion. Such a mind-boggling gap makes it highly likely that current retirees will not receive all of the entitlements they are being promised.
And the denial being shown by baby boomers entering retirement is frightening. Many simply plan to work longer before retiring, with a growing percentage saying they plan to work “forever”.
But the data shows that declining health gives older Americans no choice but to leave the work force eventually, whether they want to or not. Years of surveys by the Employment Benefit Research Institute show that fully half of current retirees had to leave the work force sooner than desired due to health problems, disability, or layoffs.
Add to this the nefarious impact of the Federal Reserve’s prolonged 0% interest rate policy, which makes it extremely hard for retirees with fixed-income investments to generate a meaningful income from them.
The number of Americans aged 65 years and older is projected to more than double in the next 40 years:
Will the remaining body of active workers be able to support this tsunami of underfunded seniors? Don’t bet on it.
Taxes and Inflation Are Sucking Productive Workers Dry
To borrow from another fable, U.S. policy is doing its best to kill the goose that lays the golden eggs. Bottlenecked between retirees and the younger “millennial” generation is the current “productive peak” working class. As government, mired in debt and budget deficits, grows desperate to boost tax receipts and keep interest rates on its debt manageable, it is increasingly both siphoning capital and stealing purchasing power from those generating income.
History shows that this cannot continue indefinitely. Eventually you exhaust the incentive for working and your productive class goes on strike.
How close are we to that breaking point? It’s not hard to find a litany of articles on the Internet these days warning that it’s coming soon:
If we put all of this together we can see a picture of the average American. The chart below shows the annual change in personal incomes combined with the annual change in personal expenditures. What is clear is that consumption has been supported by rising transfer receipts (welfare) and a drop in the personal savings rate which is now at the lowest level since just prior to the last recession. The consumer is clearly struggling to maintain their current standard of living and all indications are that they are going to lose this battle.
Is “discretionary income” rapidly becoming a thing of the past for most American families? Right now, there are a lot of signs that we are on the verge of a nightmarish consumer spending drought. Incomes are down, taxes are up, many large retail chains are deeply struggling because of the lack of customers, and at this point nearly a quarter of all Americans have more credit card debt than money in the bank. Considering the fact that consumer spending is such a large percentage of the U.S. economy, that is very bad news. How will we ever have a sustained economic recovery if consumers don’t have much money to spend? Well, the truth is that we aren’t ever going to have a sustained economic recovery. In fact, this debt-fueled bubble of false hope that we are experiencing right now is as good as things are going to get. Things are going to go downhill from here, and if you think that consumer spending is bad now, just wait until you see what happens over the next several years
Looking from a bird’s-eye view, real wages have been falling in the U.S. for decades. The below chart includes numbers based on the officially reported Consumer Price Index (or CPI, the methodology of which has been changed many times to make the output “kinder and gentler”), as well as those from ShadowStats, which applies a standardized and less fuzzy methodology to try to get to a truer picture. You can see that according to ShadowStats (the dark blue line), real wages have been plummeting in recent years as the Federal Reserve has been running the money-printing machines at full tilt:
Meanwhile, the cost of living has soared as the Fed’s liquidity has found its way into the commodities markets and driven prices of essentials higher:
So today’s worker is enjoying paying for substantially costlier goods with a materially devalued income – that is, if they are fortunate enough to have an income. Unemployment in the U.S. is still painfully high. Even the recently-celebrated declines are due to a jump in part time jobs as workers take on multiple jobs to simply get by. Full-time jobs are actually on the decline.
At the same time, in pursuit of greater efficiencies, U.S. corporations are investing more than ever in automation. Many of the less-skilled jobs lost during the Great Recession are simply not coming back, as human labor is increasingly replaced by robots and intelligent machines.
And yes, while the stock market is up nicely in the past year, the wealth gains from this are hyper-concentrated within the top 10% – really the top 1%, as this excellent video visualizes. (Warning: viewing this may make the blood boil.) The mean U.S. household currently only has about $50k in savings (and that average is skewed upwards by the super-rich).
These workers have also been whipsawed over the past decade by several asset bubbles blown by central banks that have knee-capped their efforts to amass wealth. The S&P 500 stock index has just returned to price territory last seen in 2001 and 2007, and housing prices are only slowly beginning to rise again in the aftermath of the vicious correction begun in 2007. Sadly, it seems that new bubbles in stocks, bonds and housing are being inflated once again – sure to take a large swath of wealth from these workers when they burst.
Perhaps the arriving cohort of younger workers will be able to support their elders once they hit their peak earning years. We can hope.
But again, the prospects do not look encouraging.
Millennials at Risk of Becoming a Lost Generation
Pity the recent college graduate. The cost of higher education has been far outstripping inflation for years, largely due to that fact that most colleges have no exposure to their students’ ability to repay their loans. So universities actually have an incentive to continue to raise tuition and other fees as high as the market will possibly bear.
The average graduate student has a student loan balance of over $27,000 (not including credit-card or other types of debt that many students also have). This puts them into a hole early in their adult lives that delays their ability to create families, buy a first home, or start businesses.
This challenge to capital formation is compounded by the frighteningly high unemployment rate ofapproximately 12% for those under 30. Not only are companies still hiring conservatively, but given the factors mentioned above, younger workers find themselves competing with older ones for entry-level positions to an extent not seen in living memory.
It’s no wonder there’s a growing perception that going deep into debt for a college diploma isn’t a smart trade-off. A number of today’s graduates will be finally paying off their balances around the same time their own children are heading off to college.
And along with the joys of debt-serfdom, younger workers are realizing they can’t count on:
- loyalty from the companies they work for
- a national infrastructure that is the envy of the world
- low oil prices
- affordable healthcare
- affordable home prices
- easy access to credit
- Social Security
…and a number of other elements of the “American promise” that preceding generations were able to take for granted.
It’s no surprise that millions of young workers are giving up on searching for work.
Of course, the big danger for this generation’s members is that the longer they go without work experience, the less appealing they become to employers when hiring does begin to pick back up. Tomorrow’s new college graduates will be hired for entry-level positions, leaving many of today’s unskilled seekers “unemployable” – a lost generation.
Let’s Stop Fooling Ourselves
In summary, if we’re being honest with ourselves, the current narrative of recovery being pushed by Wall Street and the mainstream media doesn’t make any sense. The American experience of rising standards of living and general prosperity have always rested upon a deep and healthy middle class. That middle class, by almost any available economic or financial measure, is steadily losing ground as a direct consequence of Fed and DC policies.
By forcing the stock market higher, the Fed has simply made a small minority of the country better off By funneling endless amounts of free money to the biggest banks, the Fed has enriched the banking system. The Fed truly seems to believe that this is the right course of action: that a stable and profitable banking system coupled to rising stock prices will somehow generate the necessary confidence within the middle class required for them to once again go on a borrowing binge.
Because that’s what the system has devolved into, for better or worse: our economy is founded on credit and borrowing, not earnings and savings. The problem is, outside of the manufactured statistics of government and the manufactured stock prices of the Fed, the median family has far less earning power this year than last. And it knows in its heart of hearts that DC will tax more and return less as time goes on, and that job security no longer exists as corporations ruthlessly pursue bottom line results. Quite rationally, many families are realizing that’s not an appropriate environment for taking on more debt.
More profoundly, the big picture numbers just don’t add up. A nation that’s collectively in hock to the tune of 373% of GDP – not including entitlement liabilities which launch that figure to more than 1000% – needs to seriously face the fact that it cannot make good on its current promises, let alone entertain making them larger. And yet here we are, with every outlet of the current power structure vigorously promoting that “all is well” while minimizing or completely ignoring those who would seek to open a dialog about the wisdom, or lack thereof, of ramming asset prices higher and supporting historically ruinous levels of deficit spending by printing money out of thin air.
Adam Taggart – Peak Prosperity
To much fanfare, Paul Ryan’s budget proposal is highlighted in the Wall Street Journal this morning. Much cheering is being done by the ‘conservatives’ (Yay! Spending cuts!) while there is much hand-wringing being done by the other side (Oh-noes! Cuts are too big!). Is EITHER reaction merited? Well, I decided to pose the question to a 5th grader after cutting through much of the political-speak in the WSJ article. Let’s boil it down to very simple, 5th grade math. This requires an understanding of simple addition, subtraction and the concept of greater than and less than. ( +, -, <, >) Most children have a relatively firm grasp on this by the 4th or 5th grade.
Paul Ryan’s budget states that he would reduce spending from the current 5% annual increase to a mere 3.4% increase. He claims that this reduction in the rate of spending will result in a balanced budget by 2023. Well, for this math to work, it would mean that GDP (that which we produce or make) must exceed the rate of spending. In other words, GDP growth must be substantially greater than the 3.4% rate of spending. Therefore, annualized GDP growth must be a minimum of 5% over the next 10 consecutive years in order for Paul Ryan’s proposal to actually ‘balance the budget’ by 2023. Keep in mind, this 5% growth must occur in each and every successive year up until 2023 for Representative Ryan’s bill to actually balance the budget. That means, not just two or three years, but TEN years of consecutive 5% growth.
Let’s see if this is a realistic expectation. We will look to the government’s own historical records of United States GDP.
The last time we had even one isolated occurrence of 5% growth was in 1968. It was a one-time thing and has not been repeated since. As a matter of fact, since 1973 we’ve hardly managed to hold above 3% growth. In addition, for the past 8 years, GDP growth has been SUBSTANTIALLY UNDER 3%! Regular readers of this site will also know that economic indicators have not and do not foretell any increase in GDP growth in either the near or medium-term future. So, the likelihood of growth remaining at 2% or LESS for the foreseeable future is actually quite high.
So, I posed the following question to a 5th grader: If the annual spending increase is 3.4% and the annual growth is 2%, can you get out of debt? Is 3.4 < or > 2? In other words if you earn $10 per week in allowance, but spend $24 a week, will you get out of debt or get further in debt? Is 24 < or > than 10?
5th grader’s answer: I’ll be bankrupt. Oh, and even if we could get 5% growth and this budget ‘worked’…..I’LL BE TWENTY IN 2023!!! This whole thing is dumb.
I would agree. How long will we allow politicians to lie to us, hoping we can’t do simple math?