The bigger economic disaster: 78 million baby-boom retirees
money.cnn.com
money.cnn.com
1. Argentinian-style perpetual insolvency. In this case, buying gold and certain foreign debts is the best strategy.
2. Cuban-style socialism. In this case, offshore accounts will be needed.
3. Bolivian-style hyper-inequality. In this case, it's probably best to bet on a few big corporations and hope they get most-favored status by the government.
4. Chilean-style clown fascism. Least likely, but in this case, petty dictators come and go, leaving the usual bodies behind. Best bet here is to just shut up and mind your business.
5. Mexican-style mediocrity. In this case, everything is pretty much the same, but everyone is poorer and the public infrastructure is shabbier. Really, this is most likely, because people won't see it coming, and won't have to shift their portfolios around too much.
Some form of default is inevitable. The only real question is whether anyone will be smart enough to take the shortest way out, which is straight through.
I would guess not and anticipate hyperinflation.
But suburban mild racism is in the way.
However, like you, I've wondered why immigration isn't being discussed as a serious solution to our economic problems - so good one for bringing it up.
To be fair, on the last couple of times the immigration officers were very friendly, while the customs and (Homeland Security) ones were worse than ever. Uneducated bigots are the norm.
Let me tell you the last one. A customs officer started speaking to me in Cartman-Spanish (after a brief exchange in English) making a whole scene in front of about 50 people queuing behind me. After a while my patience was gone and I answered loudly "I'm very sorry but you don't speak Spanish and I cannot understand what you want. You are speaking in infinitive and skipping words, so it isn't clear if you are asking where I've been, where am I going to be, or the reason of my stay. Migrations didn't have a problem, so either check my luggage or let me go." At that point it was 50-50 he would kick me back out, but I guess the dirty looks he got from the people in the queue convinced him to just let me get through.
I don't even look Latino and had a valid visa right there in my passport. What my friends, relatives, and fellow Latinos go through is nauseating, like the occasional cavity search. It is very ironic this happens often in states named in our Language.
So trust me, it is racism.
My point, however, is on the immigration policy rather than enforcement. I do not believe American immigration policies are racist. They're protectionist and potentially xenophobic but otherwise equal black and white citizens of the same country have the same chance to migrate to the US.
Let me tell you the last one. A customs officer started speaking to me in Cartman-Spanish (after a brief exchange in English) making a whole scene in front of about 50 people queuing behind me. After a while my patience was gone and I answered loudly "I'm very sorry but you don't speak Spanish and I cannot understand what you want. You are speaking in infinitive and skipping words, so it isn't clear if you are asking where I've been, where am I going to be, or the reason of my stay. Migrations didn't have a problem, so either check my luggage or let me go." At that point it was 50-50 he would kick me back out, but I guess the dirty looks he got from the people in the queue convinced him to just let me get through.
it seems like the only person acting like a jerk is you. All he's trying to do is speak in Spanish, and you went and made fun of him for it.
Perhaps I didn't put enough emphasis on the "making a scene" part and didn't explicitly put he was asking about things out of his sphere. He was talking in a very aggressive tone in Spanish after he saw I could speak English fluently, after I showed him both my European and US visas, and after I explained it was a trip to my employer's HQ. He wasn't saying "como esta amigo", he was asking random questions that didn't make any sense related to migrations and completely unrelated to customs. I've been many times through different airports in US and never a customs officer asked me those questions. Specially in front of other people. It went on for at least 10 minutes while people were almost walking by in the other queue (including a friend of mine who had to wait and later told me he was thinking in calling the office for help.) I was the only one stopped out of dozens of people, just after he noticed my passport was from south of the border.
At that point I decided I rather get rejected from US and perhaps lose my job. And you know, if US rejects your visa, for whatever reason, you never get another one again. Luckily most people present clearly thought the guy was out of line.
This random uneducated guy on a power trip surprised me because it happened just a few minutes after maybe the nicest migrations interview I ever had (we even talked about football and his recent holidays in South America while we had to wait for a software reboot of some kind.) This is why I put the "to be fair" disclaimer on migrations vs. Customs and TSA/Homeland Security.
Normal in exchange with customs on every other country in the world:
* In the most common case you just walk.
* Second most common, one question: Something to declare?
* Worst possible case, rare: Can you please take your luggage over here?Baby boomers don't seem to be retiring. Or if they are, they're taking a second career. Like my mom, who retired from teaching to become a teacher consultant, or my friend's dad, who's starting his second company at age 70. Instead of drawing down social security, they're putting more into it.
The nature of work has changed since social security was enacted. Back then, most Americans worked in physically-demanding manufacturing jobs. They physically couldn't work past 65, because their bodies wouldn't hold up. Now, most Americans work in white-collar knowledge or service work, and there's nothing stopping them from going to work until they die (though many want to cut down their hours).
Tucked into the 138 page bill was a clause exempting the Old Order Amish, and any other religious sect who conscientiously objected to insurance, from paying Social Security payments, providing that sect had been in existence since December 31, 1950. After Senate approval in July, the signing of the bill by President Lyndon B. Johnson on August 13, 1965, made it official and canceled tax accounts of some 15,000 Amish people amounting to nearly $250,000.
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Source: http://economy.nationaljournal.com/2008/10/is-there-room-for...
Excuse me for asking an impolite question.
But did David Walker, Eugene Steuerle -- or Peter G. Peterson himself -- devote even five percent of the vast resources that they have lavished in recent years on the supposed "entitlement crisis" to warning about the impending mess on Wall Street?
Did they write anything about it? Did they speak out against the Bush administration's abandonment of supervisory responsibility in the financial system? Did they protest the massive abuse of unsophisticated home buyers by the loan originators in the subprime sector? Did they comment on "liars' loans," "neutron loans" and "toxic waste"? Were they heard about the risks involved in securitizing subprime loans? Did they foresee that credit default swaps could collapse like a house of cards? Did they caution that the stock market might crash, ruining the private retirements of millions of Americans?
If they did, I must have missed it.
Peter G. Peterson is one of the leading figures on Wall Street. Isn't it reasonable to ask, that if he and his team wish to be taken seriously on matters of public finance, that they should have shown some leadership, some wisdom, some insight and some foresight on the disaster brewing in their own backyard?
As the disaster on Wall Street developed, George Soros was heard from. Warren Buffett was heard from. Was Peter G. Peterson heard from? Was David Walker heard from? Was Eugene Steuerle heard from? I think they were not.
What is Mr. Walker's approach to subprime crisis today? His comment above makes his approach clear. It is to use the crisis as a rhetorical springboard, in order to divert the conversation back to what he calls the "super sub-prime crisis associated with the federal government's deteriorating finances..."
But the fact is, the subprime crisis is real. The collapse of interbank lending is real. The collapsing stock market is real. The disintegration of the financial system is real. The collapse of the housing sector is real. The credit crunch and the recession are real. You can see this in the interest rate spreads and in the credit that is unavailable at any price.
Mr. Walker's "super subprime crisis" of the federal government is not real. It is a pure figment of the imagination. It is something Mr. Walker sees in his mind's eye. He sees it in his budget projections. He sees it in his balance sheets, which are the oddest balance sheets I've ever seen, because they have all liabilities and no assets.
But the financial markets do not see it. How can we tell? Because those markets are willing, today, to lend unlimited sums to the Federal Government on supremely favorable terms. What is the 20 year Treasury bond rate? Last month, it was 4.32 percent. That is almost exactly what it was in December 1959, in the last month of the Eisnehower administration. The United States Government wasn't going bankrupt then and it isn't going bankrupt now.
The point is directly relevant to the question posed by National Journal: "is there room for fiscal stimulus?" Of course there is.
Not only that, sustained fiscal expansion (I dislike the term "stimulus" because I do not think that a short-term policy will work) will be essential in the next administration if the financial rescue just undertaken is to succeed. It will be necessary to stabilize the housing sector. It will be necessary to stabilize state and local government spending, undercut by falling property tax revenues. It will be necessary to stabilize the incomes and expenditures, in the aggregate, of the elderly. It will be necessary to finance new capital spending at the federal, state and local levels.
Failure to do this will cause the housing crisis to get worse. And that will cause the losses in the financial sector to multiply, overwhelming all efforts to stabilize finance.
I was at the Peterson Institute the other day. There I heard a very good panel discussion of the financial crisis, featuring Fred Bergsten, Adam Posen, Morris Goldstein and others. All agreed that the deficit would exceed one trillion dollars next year. All agreed on the need for the expansionary and stabilizing steps outlined above. Nobody was defending, in any serious way, the Walker-Steuerle line.
I found this greatly encouraging.
Given how the "markets" completely failed to foresee the current crisis (otherwise there wouldn't be one to begin with), this is not much of an argument.
What he's saying is this: "Keynesianism sure did a great job ending the depression, right? Let's try it again!"
That's what he's saying, and he's saying it in the context of an old, indebted, war-weakened country. In 1929, the US was young, solvent, and free from a large standing army.
http://krugman.blogs.nytimes.com/2008/10/18/james-galbraith-...
Hmmm, that's not what they called it when they took the first 15% of every check I ever received.
STFU and give me my money back.
Get rich or die trying.
[EDIT: Maybe securitize the default risk and sell it to third parties, a collateralized debt obligation? I'm on to something here....]
In Norway, which actually has a working health care and retirement system, that number somewhere in excess of 50%. (33%+ tax on income, 25% VAT on everything and any number of specialized taxes on most services people have to use). Social services are a lot more expensive than most people realize.
What is the total tax level in the US? If it is even 30%, you shouldn't expect that the state will be able to cover everything. Your real problem is that wages are lower than in the rest of the industrialized world, and hence that the average worker is unable to save up enough money to retire comfortably in any way.
The way I see it, the US has been living a dream for the last 30 years. It's going to hurt. The median wage has to double, and you need to save the excess. Or else you'll have a major poverty problem.
When I say this in other forums, people always bring up the discussion of private vs. public social services. This is a red herring. A well-run public system doesn't waste more than half of the money we put into it - if that is the case, you have more than one problem.
I didn't include the other 20 to 30% for federal and state income taxes, 7% sales tax, not to mention property taxes, excise taxes, etc., etc., etc. We all know that money is gone.
Options? At a national level, I don't see a solution without restructuring government. Once the federal government completely usurped the states, there was no longer and tension or balance between who was responsible for what. The feds are into everything, and the states don't have an even playing field. National politicians get elected not on national issues, but on how much money they can get spent in their district.
Personal/Startup options? I'd move my location to the best place for each stage of growth. Need to be in the Bay Area to start out? Fine, but you might not need those same environmental things at 2 years in. Then you might want lower cost-of-living, low taxes, and cheap infrastructure. The only way to survive is to be able to grow where the best soil is. BTW, that's the same way it is today, but the difference is that instead of just moving one time, a small startup might move 2 or 3 times -- sometimes across national borders. You can have a separate discussion of whether that's patriotic or not, but I'm just talking survival.
The average age of the world's greatest civilizations from the beginning of history has been about 200 years. During those 200 years, these nations always progressed through the following sequence:
From bondage to spiritual faith; From spiritual faith to great courage; From courage to liberty; From liberty to abundance; From abundance to complacency; From complacency to apathy; From apathy to dependence; From dependence back into bondage.
I feel differently now because it has morphed, via healthcare, into a moral issue versus a strictly financial one. People have grown into the idea that a person has a right to have any amount of money spent to prolong their lives, even for a few weeks. Previously this was impossible. Death was almost always quick and cheap because there was only so much medicine could do. Science is changing this rapidly.
You can imagine how this would lead to the collapse predicted with a simple thought experiment. What if every person could, at the end of their life, press a magic "science button" and get one extra year? What if this button cost $100 million to press?
Many democracies (e.g. the US, UK, Australia) have bicameral legislatures in which legislation must be passed by both houses, but where one of the houses no longer properly serves its original purpose. In the US and Australia the role of the Senate was to represent the voice of the individual states -- this doesn't happen any more and it just winds up filled with the same parties as the other house in slightly different numbers. In the UK the House of Lords was supposed to represent the interests of the nobility, but that's no longer seen as a desirable goal anyway. I'm not totally sure about the details of the systems in other countries.
Anyway, my suggestion is to keep the House of Representatives in its present form and replace the nonfunctional upper house with a "House of Taxpayers", in which the representatives are elected by voting among the nation's taxpayers with each taxpayer's vote being worth an amount proportional to the amount of tax they pay. This would ensure that any law being passed by the legislature would have to be approved both by all the people who might benefit from it (the House of Reps) and the people who would have to pay for it (the House of Tax). It might also have the added benefit of encouraging the lower classes to shift more of the tax burden onto themselves in order to have more say in how it's spent.
It's probably not practical to pioneer this kind of constitutional reform in any existing democracy, but I certainly think it should be considered by anyone setting up a constitution for a new one.
The House of Commons necessarily can't see any further than the next election, at most 5 years out. The House of Lords is full of people who know (or used to anyway) that any problems they create, their own grandchildren would have to sort out. Regardless of anyone's feelings about heredity, that was a very valuable capability and it has now largely been lost.
I still don't think the benefits are worth the costs, but that's certainly a benefit.
In the U.S., the House of Representatives is specifically supposed to represent the taxpayers while the Senate represents the states (as you noted) For those of you concerned with runaway spending, the founders specifically charged the House with the pocketbook.
What happens, however, over time the House begins to realize that while you don't have taxation without representation (unless you're DC -- long story) you sure as heck can end up with completely disproportionate representation to the amount you are paying.
Or in other words I can get taxed $1 and you can get taxed $1 Million and we still have the same representation. To me this feels more like a prison system than a progressive one. If you proportionately had representation in the "House of Taxpayers" according to how much skin they had in the game, increases in taxes would amount to re-districting, and would be done with the utmost care.
Very interesting idea. On first glance, I like it.
what happens if a person can live to 200 yo? Will USA, starting from retirement age, pay till s/he dies?
what if the person only lives to retirement+1 age? can descendant carry over the benefits? ot it just poof?
Social Security was put forward as part of the New Deal in the 1930s. The idea was that truly old people would never be destitute. Once you reached a certain age, the federal government would send you a check each month. Sort of a "retirement package just for being a citizen" At the time it was enacted, the activation age was about a year more than average life expectancy, so it wasn't a huge promise. The checks would be paid for by the younger folks working. I believe at the time there was a ratio of workers-to-receivers of something like 45-to-1
Several things have happened in the last 75 years. People are living a lot longer. The benefits have been increased to cover people with profound disabilities, no matter what their age. Most critically, the boomer generation is coming through, taking the ratio somewhere south of 5-to-1. That means that five workers have to come up with the money to pay one person -- no matter how long they live. If life expectancy increases to 120 due to some new medical miracle, we're hosed. It's already common for people in their 90s to have receive benefits longer than they have worked.
You might ask -- what about all that money that was put into the system when the ratio was high? Surely that has accrued interest and is more than able to pay these costs. Well -- we spent it. Seemed like a good idea at the time. The current phrase is "intergenerational promise" -- in other words, it wasn't your money, it was ours, and we promise to make these new young workers help you out. And no -- unlike something that would be your money, this is just for you, and just for as long as you live (there are exceptions for a surviving spouse, I believe)
The current trick is to see how long we can keep from actually working on this problem while we invent even more wonderfully great, moral. feel-good ideas that some later generation can screw up.
Not really. They would just increase the retirement age.
Once you get the breakthough you can change things.
It's not like there is a switch: if you were born before date X, you will live an extra 50 years - it's a continuum, it's very easy to tell average lifespan by looking at the other people who live right now (remember them?).
For this suggestion to be convincing to me, you need to add some new variable. We've already had massive increases in life expectancy on an insolvent system and nothing was done about it.