Looks Like I'll Be Able to Retire Comfortably at Age 91

My advice is to focus not on retiring comfortably, but on working comfortably.

You've probably seen articles and adverts discussing how much money you'll need to "retire comfortably." The trick of course is the definition of comfortable. The general idea of comfortable (as I understand it) appears to be an income which enables the retiree to enjoy leisurely vacations on cruise ships, own a well-appointed RV for tooling around the countryside, and spend as much time on the golf links as he/she might want.

Needless to say, Social Security isn't going to fund a comfortable retirement, unless the definition is watching TV with an box of kibble to snack on.

By this definition of retiring comfortably, I reckon I should be able to retire at age 91--assuming I can work another 30 years and the creek don't rise.

Since I earned my first real Corporate America paycheck at 16 in 1970 (summer job for Dole Pineapple), I've logged 45 years of work. Now if I'd been smart and worked for the government, I could have retired 10 years ago with generous pension and healthcare benefits for life.

But alas, I wasn't smart, so here I am, a self-employed numbskull.

The articles and adverts usually suggest piling up a hefty nestegg to fund that comfortable retirement. As near as I can make out, the nestegg should be around $2.6 million--or maybe it's $26 million. Let's just say it's a lot.

This presents retirees without generous government pensions two basic problems. One is making enough money to pay the bills of survival and set aside the two million or whatever the number is to retire comfortably.

The average full-time earned income in the U.S. is around $50,000, depending on how the statistics are massaged. At this income, the worker would need to to save every dime for 40 years to assemble the nestegg. Needless to say, this isn't practical (unless you inherit a trust fund, in which case you don't even have to bother with earned income.)

The magic solution is unearned income, i.e. dividends, interest, capital gains on investments, etc. If the worker aiming for that comfortable retirement socks his/her retirement nestegg in high-yielding investments, the nestegg will grow over time to the sky (i.e. the $2 million needed to retire comfortably.)

This raises the second problem: identifying those magical high-yielding investments that won't suddenly turn to dust when the long-awaited retirement approaches.

In the good old days, plain old savings earned 5.25% annually by federal law. Buying a house was not a way to get rich quick, it was more like a forced savings plan, as over time real estate earned about 1% above the core inflation rate.

But all the safe ways of gaining earned income have been eradicated by the Federal Reserve. As I described in The Fed's Solution to Income Stagnation: Make Everyone a Speculator (January 24, 2014), the status quo "fix" for economic stagnation was to financialize the U.S. economy. What this means on the ground is eliminate safe returns and make everyone a speculator in high-risk, high-yield financial games.

The essence of financialization is turning debt into a tradeable security that can be leveraged into speculative pyramids. If I loan you $100,000 to buy a house, that loan is called a mortgage. The collateral for the mortgage is the property. In the pre-financialization era, I held the mortgage to maturity (30 years) and collected the interest and principal. This trickle of earnings from interest was the entire yield on the loan.

In the securitized economy, I divide the loan into tranches that are sold to investors like stocks and bonds. I can "cash out" my entire gain in the present, and then sell derivatives on the securitized debt as a form of "portfolio insurance" to other buyers.

Clever financiers can pyramid security on security and debt on debt, all collateralized by debt on one property.

This enables the generation of vast profits not from producing goods and services but from financial churning. The more debt I underwrite, the more I can securitize and the more debt instruments I can conjure out of thin air.

The key dynamic of speculative financialization is that pyramiding credit expansions lead to bubbles which eventually pop, wiping out the phantom wealth created by the bubble.

In effect, the central bank/state's policies of low interest rates, easy money and limitless liquidity sought to compensate for the decline of real income by generating speculative income on a vast scale.

The problem is that speculative financialization only benefits speculators with access to nearly free money and the securitization markets--Wall Street financiers, corporate raiders, hedge funds and other financial Elites. These Elites pocketed immense fortunes but very little of this wealth trickled down to households for the simple reason that there is no mechanism for such a transfer except taxes--and this mechanism is controlled by the central state, which is easily influenced by wealth (campaign contributions, lobbying, etc.)

The Federal Reserve's solution to stagnating household income was to make every homeowner into a speculator. The Great Housing Bubble of the 2000s was the perfection of this strategy: as every home in the nation was floating higher in valuation as the result of an enormous credit/financialization bubble, homeowners were granted a form of "free income" via home equity lines of credit (HELOCs) and second mortgages.

That this increase in home equity was a form of phantom wealth that would necessarily vanish was not advertised as being an intrinsic feature of the solution.

In the wake of the implosion of the housing bubble, the Fed sought to repeat the exact same strategy of inflating speculative bubbles in widely held assets: stocks, bonds and real estate.

So anyone assembling a nestegg for retirement is gambling that the bubbles don't all pop before he/she cashes out. If the bubbles keep inflating steadily for another decade, making assets ever-more richly valued and unaffordable to anyone who isn't using leverage to buy them, then maybe I could retire after only 55 years of work at age 71.

But what are the chances that monumental bubbles in stocks, bonds and real estate will continue inflating for another decade? Most gigantic asset bubbles pop after five years of expansion. The current bubbles are in Year 6 of their speculative expansion, and it seems highly unlikely that they will be the only bubbles in the history of humanity to never pop.

If the current bubbles follow the pattern of all other speculative credit-driven bubbles, they will pop, without much warning and with devastating consequences for all those who believed the bubbles couldn't possibly pop. In that case, it looks like I'll need to work another 30 years, logging 75 years of labor before I can retire comfortably at 91.

My advice is to focus not on retiring comfortably, but on working comfortably. Line up work you enjoy that can be performed in old age. That's a much safer bet than counting on the serial bubble-blowing machinery of the Fed to keep inflating speculative bubbles that magically never pop. 

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Get a Job, Build a Real Career and Defy a Bewildering Economy(Kindle, $9.95)(print, $20)

Are you like me? Ever since my first summer job decades ago, I've been chasing financial security. Not win-the-lottery, Bill Gates riches (although it would be nice!), but simply a feeling of financial control. I want my financial worries to if not disappear at least be manageable and comprehensible. And like most of you, the way I've moved toward my goal has always hinged not just on having a job but a career.

You don't have to be a financial blogger to know that "having a job" and "having a career" do not mean the same thing today as they did when I first started swinging a hammer for a paycheck.

Even the basic concept "getting a job" has changed so radically that jobs--getting and keeping them, and the perceived lack of them--is the number one financial topic among friends, family and for that matter, complete strangers.

So I sat down and wrote this book: Get a Job, Build a Real Career and Defy a Bewildering Economy.

It details everything I've verified about employment and the economy, and lays out an action plan to get you employed.

I am proud of this book. It is the culmination of both my practical work experiences and my financial analysis, and it is a useful, practical, and clarifying read.

Test drive the first section and see for yourself.     Kindle, $9.95     print, $20

"I want to thank you for creating your book Get a Job, Build a Real Career and Defy a Bewildering Economy. It is rare to find a person with a mind like yours, who can take a holistic systems view of things without being captured by specific perspectives or agendas. Your contribution to humanity is much appreciated."
Laura Y.

Gordon Long and I discuss The New Nature of Work: Jobs, Occupations & Careers(25 minutes, YouTube) 

---

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Marcia M. ($5/month), for your wondrously generous resubscription to this site-- I am greatly honored by your steadfast support and readership.

Read more...

Could the U.S. Become the Unrivaled Superpower Again?

That Grand Narratives based on short-term trends are often wrong should not surprise us.

Two of the most durable and least-questioned narratives of the past 15 years are:

1. The world is becoming multipolar, meaning that rising power centers such as the BRIC nations (Brazil, Russia, India and China) are expanding their share of the global economy, at the expense of the U.S. and to a lesser degree, Europe and Japan. In sum: the U.S. is no longer the dominant superpower, but merely one power among many.

2.  The U.S. dollar is in a long-term decline due to money-printing by the Federal Reserve and the world's desire for an alternative to the dollar as the world's default reserve currency.

Having written extensively on the complex dynamics of currencies (in particular, the strength of the U.S. dollar) since 2011, I am skeptical that these two narratives are correct for the simple reason that the dynamics do not align with these results.

Why the Rising U.S. Dollar Could Destabilize the Global Financial System (November 13, 2014)

What Will Benefit from Global Recession? The U.S. Dollar (October 9, 2012)

Could the U.S. Dollar Rise 50%? (January 12, 2011)

I suspect the exact opposite is about to unfold: the dollar (USD) will rise another 40% to 50% (if not more) in the coming years, and as a result the U.S. will be left as the unrivaled superpower, financially, economically, militarily and geopolitically as its rivals suffer the consequences of the destabilizing dynamics that are just starting to unfold.

Preparing to pen this essay on currencies was a painful exercise because I had to read numerous commentaries to get all the threads aligned.

Here is the basic dynamic that is currently playing out globally:

Rather than address the structural problems revealed by the Global Financial Meltdown of 2008-9, central states/banks responded by increasing the supply of credit and money, and lowering interest rates to near-zero.

Since writing down all the bad debt in the system would have taken down the big banks that were central to the world's financial systems, the central banks enabled debt to be rolled over at lower rates and new credit to expand.

But these policies created an enormous global carry trade, in which financiers and institutions borrowed trillions of dollars and yen on the cheap and invested the borrowed money in emerging-market periphery economies with much higher yields.

As long as the Fed was issuing money to invest in peripheral nations and the dollar was declining, this trade was low-risk and profitable.

But once the Fed tapered its $1 trillion-a-year QE money issuance, the emerging market/periphery nations' economies suddenly took a nose-dive, as the flood of money into their financial systems started drying up.

As the USD started rising, the carry trade became less profitable and threatened to become a losing trade.

Japan's 40% devaluation of the yen introduced another risk, as the yen's decline cut profits when converted to dollars. This matters because 2/3 of the emerging-market debt is denominated in USD.

Here's what's happened beneath the surface: the central bank policies that have fueled "risk-on" global carry trades since 2009 have not addressed any of the structural problems that led to the 2008 global meltdown; all they've done is transfer the risk to the foreign-exchange (FX) market, which dwarfs the global stock and bond markets.

In effect, the central banks have inflated a new risk bubble in currencies, and these risks are only now becoming visible as the dollar's rise starts destabilizing commodities and periphery currencies.

There is a powerful positive feedback to this risk-off dynamic: as emerging market currencies decline and the USD strengthens, the incentives to convert periphery assets and cash into USD only increases. As the periphery currencies weaken, the urgency to preserve capital by selling periphery assets and buying dollars greatly increases.

In response, the periphery's central banks are forced to drastically raise interest rates to offset the drop in their currencies. This constriction of lending will push their economies into recession, further depressing their currencies and increasing the flow of capital into dollars.

This dynamic will increasingly lead to currency crises, which quickly blossom into political crises that then led to geopolitical crises as governments are delegitimized by the sharp decline of their currencies.

There are no winners in this domino-like destabilization of the global economy except the U.S.  Japan is obsessed with importing inflation by devaluing the yen, which is in turn destabilizing Asian exports and currencies. China's currency is pegged to the dollar, so it rises along with the dollar, crushing Chinese competitiveness. China has little room to maneuver within the peg to the USD, and ending the peg introduces a new set of uncertainty and risk.

Europe cannot be the winner as Germany's exports crumble, and the carry trade turns against everyone borrowing in dollars and investing the money in other currencies.

That Grand Narratives based on short-term trends are often wrong should not surprise us.

This essay was drawn from Musings Report 45. The Musings Reports are sent exclusively weekly to subscribers $5/month) and major contributors $50+/year).


Admin. note: I will be off-line for the remainder of the month, other than a few moments here and there to post new content. Thank you for your readership and understanding. 

---

Get a Job, Build a Real Career and Defy a Bewildering Economy(Kindle, $9.95)(print, $20)

Are you like me? Ever since my first summer job decades ago, I've been chasing financial security. Not win-the-lottery, Bill Gates riches (although it would be nice!), but simply a feeling of financial control. I want my financial worries to if not disappear at least be manageable and comprehensible. And like most of you, the way I've moved toward my goal has always hinged not just on having a job but a career.

You don't have to be a financial blogger to know that "having a job" and "having a career" do not mean the same thing today as they did when I first started swinging a hammer for a paycheck.

Even the basic concept "getting a job" has changed so radically that jobs--getting and keeping them, and the perceived lack of them--is the number one financial topic among friends, family and for that matter, complete strangers.

So I sat down and wrote this book: Get a Job, Build a Real Career and Defy a Bewildering Economy.

It details everything I've verified about employment and the economy, and lays out an action plan to get you employed.

I am proud of this book. It is the culmination of both my practical work experiences and my financial analysis, and it is a useful, practical, and clarifying read.

Test drive the first section and see for yourself.     Kindle, $9.95     print, $20

"I want to thank you for creating your book Get a Job, Build a Real Career and Defy a Bewildering Economy. It is rare to find a person with a mind like yours, who can take a holistic systems view of things without being captured by specific perspectives or agendas. Your contribution to humanity is much appreciated."
Laura Y.

Gordon Long and I discuss The New Nature of Work: Jobs, Occupations & Careers(25 minutes, YouTube) 

---

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Ben G. ($75), for your overwhelmingly generous contribution to this site-- I am greatly honored by your steadfast support and readership.

Read more...

The Surprising Consequences of the Global Frenzy for Positive Yield

As the dollar soars, so does the real yield on bonds denominated in dollars.

As central banks rush to depreciate their currencies and push yields into negative territory, what's becoming scarce globally is real yield in an appreciating currency.Real yield is yield adjusted for inflation/deflation: if inflation is 3% and bonds yield 2%, the real yield is negative 1%. If inflation is negative 1% (i.e. deflation), and the yield on bonds is .1%, the real yield is 1.1%.

What's the real yield on a bond that earns 1% annually in a currency that loses 10% against the U.S. dollar in a year? Once the foreign-exchange (FX) loss/gain is factored in, the investor lost 9% of his investment.

Needless to say, the real yield must include the foreign-exchange loss/gain. An investor earning 10% in a currency that's losing 20% annually against other currencies is losing 10% annually, despite the apparent healthy nominal yield.

An investor earning 1% in a currency that's appreciating 10% annually against other major trading currencies is earning a yield of 11%.Clearly, the nominal yield is deceptive; the real yield can only be calculated by factoring in both inflation/deflation in the issuing economy and the appreciation/depreciation in the issuing currency against major tradable currencies.

Now we understand why what's scarce globally is real yield in an appreciating currency: the only major trading currency that's appreciating is the U.S. dollar. Any nominal yield on bonds issued in euros or yen turns into a loss when measured in U.S. dollars. Even the Chinese renminbi, which is pegged to the U.S. dollar, has slipped against the dollar as Chinese authorities have responded to the devaluation of the Japanese yen and other Asian-exporter currencies.

One result of the global scarcity for real yield is high demand for U.S. Treasuries, which are denominated in U.S. dollars. High demand pushes bond yields down, effectively replacing the Fed's quantitative easing (QE) bond-buying programs, which the Fed ended last year.

The U.S. gets the benefits of strong demand for its bonds (i.e. low interest rates) without having to issue new money (QE).

Another factor is the reduced issuance of new Treasury bonds as the U.S. fiscal deficit declines. This effectively reduces supply as demand remains strong.

This is a self-reinforcing feedback loop: as the U.S. dollar strengthens and the U.S. fiscal deficit declines, the Fed has no need to buy Treasury bonds (with freshly issued money) to keep interest rates low. Since the U.S. central bank isn't issuing new money while every other major central bank is printing massive amounts of new money to depreciate their currencies, this pushes the U.S. dollar even higher.

And as the dollar soars, so does the real yield on bonds denominated in dollars.That may not surprise everyone, but few can support a claim of predicting this a few years ago.


Admin. note: I will be off-line for the remainder of the month, other than a few moments here and there to post new content. Thank you for your readership and understanding. 

---

Get a Job, Build a Real Career and Defy a Bewildering Economy(Kindle, $9.95)(print, $20)

Are you like me? Ever since my first summer job decades ago, I've been chasing financial security. Not win-the-lottery, Bill Gates riches (although it would be nice!), but simply a feeling of financial control. I want my financial worries to if not disappear at least be manageable and comprehensible. And like most of you, the way I've moved toward my goal has always hinged not just on having a job but a career.

You don't have to be a financial blogger to know that "having a job" and "having a career" do not mean the same thing today as they did when I first started swinging a hammer for a paycheck.

Even the basic concept "getting a job" has changed so radically that jobs--getting and keeping them, and the perceived lack of them--is the number one financial topic among friends, family and for that matter, complete strangers.

So I sat down and wrote this book: Get a Job, Build a Real Career and Defy a Bewildering Economy.

It details everything I've verified about employment and the economy, and lays out an action plan to get you employed.

I am proud of this book. It is the culmination of both my practical work experiences and my financial analysis, and it is a useful, practical, and clarifying read.

Test drive the first section and see for yourself.     Kindle, $9.95     print, $20

"I want to thank you for creating your book Get a Job, Build a Real Career and Defy a Bewildering Economy. It is rare to find a person with a mind like yours, who can take a holistic systems view of things without being captured by specific perspectives or agendas. Your contribution to humanity is much appreciated."
Laura Y.

Gordon Long and I discuss The New Nature of Work: Jobs, Occupations & Careers(25 minutes, YouTube) 

---

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Terry S. ($10), for your much-appreciated generous contribution to this site-- I am greatly honored by your support and readership.

Read more...

Greece at the Crossroads: the Oligarchs Blew It

Once one oligarchy falls, it will threaten to topple a long line of oligarch dominoes.

A great many narratives invoking Greece are being tossed around, but only one really encapsulates the unvarnished truth: the Oligarchs blew it. The oligarchs in both Greece and the European Union/ECB had the opportunity a few years ago to trade some of their outsized wealth and political power for stability and sustainable expansion.

Instead, they chose to not just cling to every shred of their outsized wealth and power but to actively increase it. Their greed and hubris has now put their entire system of parasitic wealth extraction at risk of collapse. Their political stranglehold on power has been weakened, and there's no going back: they blew it, and now it's too late. The debt-serfs have finally had enough.

If you enter Greece in the custom search box on this site, six pages of blog entries come up. I have addressed the situation in Greece many times; this summarizes my conclusion:

Greece, Please Do The Right Thing: Default Now (June 1, 2011)

Thankfully, many in Greece have reached the same conclusion, for the same reasons:

Greece's New FinMin Warns "We Are Going To Destroy The Greek Oligarchy System"

The basic problem is that Greece Is a Kleptocracy (June 28, 2011). Greece has shown the world how oligarchies can expand their wealth and power even as their populace slides deeper into poverty. A recent article, Misrule of the Few: How the Oligarchs Ruined Greece, lays out the key dynamics.

Writer Pavlos Eleftheriadis pulls no punches:

"Greece has failed to address (rising wealth/income inequality) because the country’s elites have a vested interest in keeping things as they are. Since the early 1990s, a handful of wealthy families -- an oligarchy in all but name -- has dominated Greek politics. These elites have preserved their positions through control of the media and through old-fashioned favoritism, sharing the spoils of power with the country’s politicians. Greek legislators, in turn, have held on to power by rewarding a small number of professional associations and public-sector unions that support the status quo. Even as European lenders have put the country’s finances under a microscope, this arrangement has held."

The vested interests have obscured the cold reality of rising inequality by focusing obsessively on "growth" as the fix-all to inequality.

But this is exactly backward. As Eleftheriadis observes:

"The fundamental problem facing Greece is not slow economic growth but political inequality. To the benefit of a favored few, cumbersome regulations and dysfunctional institutions remain largely unchanged, even as the country’s infrastructure crumbles, poverty increases, and corruption persists. Greek society also faces new dangers. Overall unemployment stands at 27 percent, and youth unemployment exceeds 50 percent, providing an ideal recruiting ground for extremist groups on both the left and the right. Meanwhile, the oligarchs are still profiting at the expense of the country -- and the rest of Europe."

All the blather about "growth" is just propaganda to misdirect our attention from the real problem: the total domination of governance and finance by a class of vested interests and mega-wealthy cartels/oligarchies.

The solution is straightforward: default on all debt by no longer making interest payments. There is no way Greece can pay back the $240 billion of current debt, and sooner the delusion that this can be renegotiated to preserve the oligarchy is smashed, the better.

As for the big threat of kicking Greece out of the euro currency--since most Greeks are already impoverished, how can they get any poorer? The reality is poor countries prosper by making their goods and services cheaper via currency devaluations, and by paying a healthy rate of interest on capital so capital is attracted and invested productively, as high interest rates make speculative, marginal gambles soberingly risky.

The only people with enough wealth left to worry about a return to a sovereign currency are the wealthy who own the assets and who depend on handouts from the E.U.

As the old saying has it, you can't get blood from a turnip. The impoverished face little downside from leaving the stranglehold of the euro, and only upside from a return to a sovereign currency controlled by the Greeks rather than the E.U. or the European Central Bank (ECB).

The threat of expelling Greece from the euro is hollow. A return to a sovereign currency puts the responsibility for prudent management of government expenditures and debt back in the hands of the Greek people and the leaders they elect. Why is that something terrible?

If the new leadership of Greece pursues policies of fiscal prudence, high interest rates, zero-tolerance for corruption and freeing up the Greek economy to encourage small-scale enterprise, any decline in Greece's sovereign currency will be brief. If they pursue meet the new boss, same as the old boss policies, then the Greek people will remain shackled in poverty.

We have to remember that the lenders who entrusted capital to marginal borrowers took the risk and therefore have to absorb the losses. In this case, the irresponsible lenders include sovereign nations that acted to protect their own oligarchies.

Why? Once one oligarchy falls, it will threaten to topple a long line of oligarch dominoes.


Admin. note: I will be off-line for the remainder of the month, other than a few moments here and there to post new content. Thank you for your readership and understanding. 

---

Get a Job, Build a Real Career and Defy a Bewildering Economy(Kindle, $9.95)(print, $20)

Are you like me? Ever since my first summer job decades ago, I've been chasing financial security. Not win-the-lottery, Bill Gates riches (although it would be nice!), but simply a feeling of financial control. I want my financial worries to if not disappear at least be manageable and comprehensible. And like most of you, the way I've moved toward my goal has always hinged not just on having a job but a career.

You don't have to be a financial blogger to know that "having a job" and "having a career" do not mean the same thing today as they did when I first started swinging a hammer for a paycheck.

Even the basic concept "getting a job" has changed so radically that jobs--getting and keeping them, and the perceived lack of them--is the number one financial topic among friends, family and for that matter, complete strangers.

So I sat down and wrote this book: Get a Job, Build a Real Career and Defy a Bewildering Economy.

It details everything I've verified about employment and the economy, and lays out an action plan to get you employed.

I am proud of this book. It is the culmination of both my practical work experiences and my financial analysis, and it is a useful, practical, and clarifying read.

Test drive the first section and see for yourself.     Kindle, $9.95     print, $20

"I want to thank you for creating your book Get a Job, Build a Real Career and Defy a Bewildering Economy. It is rare to find a person with a mind like yours, who can take a holistic systems view of things without being captured by specific perspectives or agendas. Your contribution to humanity is much appreciated."
Laura Y.

Gordon Long and I discuss The New Nature of Work: Jobs, Occupations & Careers(25 minutes, YouTube) 

---

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Keith C. ($50), for your awesomely generous contribution to this site-- I am greatly honored by your support and readership.

Read more...

The Federal Reserve Has Declared the Winner in the Generational Financial War

The policy of safeguarding Boomer benefits with asset bubbles will lead to the destruction of the unprepared, the unwary and those who foolishly trusted our "leadership" and central bank to tell them the truth.

Though it is exceedingly politically incorrect to mention it publicly, a financial war between the generations is being fought in the U.S. and every other developed nation that has promised social welfare benefits to its burgeoning class of retirees.

The war is being fought on multiple fronts: political promises, interest rates, housing, central bank policies and official rates of inflation, to name a few of the top battlefields.

Though no one in power will state this publicly, the Federal Reserve has already declared the winner of the generational war: the Baby Boomers won and Gen-X and Gen-Y lost. Fed policies insure the Boomers will benefit from financial bubbles inflated by the Fed, and the following generations will lose--not just this year or next year, but for decades to come.

Any nation that offers its retirees social welfare benefits (pensions and healthcare) faces a no-win demographic crunch: the number of retiring people entering the class of beneficiaries far exceeds the number of additional full-time jobs being created. In other words, it's not just a matter of having enough young people to support the rapidly expanding cohort of retirees--there must be enough good-paying full-time jobs for the young people so they can pay high taxes to fund the retirees' benefits and support their own consumption/saving.

Let's cover the fundamentals of the mismatch between what was promised to retiring Baby Boomers and the generations that must support their retirement.

The fact is that the number of full-time jobs paying more than minimum wage has stagnated while the number of retirees qualifying for pensions and healthcare benefits has soared. In the good old days of expansion, there were roughly 10 full-time workers for each retiree drawing social benefits (Social Security and Medicare).

The ratio fell to 5-to-1, then to 3-to-1, and is now 2-to-1: that is not a ratio that is sustainable without crushing tax burdens on the young.

Estimates are even worse in other developed nations. In Europe, the ratio of retirees over 65 to those between 20 and 64 will soon reach 50%--and that's of the population, not of people with full-time jobs paying taxes to fund social welfare programs. (source: Foreign Affairs, July/August 2014, page 130)

All government social welfare programs are pay-as-you-go. The Trust Funds touted in propaganda are illusions, backed by nothing but the promise to sell more Treasury debt.

The Problem with Pay-As-You-Go Social Programs: They're Ponzi Schemes (November 5, 2013)

While the costs of defined-benefit programs such as Social Security can be extrapolated relatively accurately, the program's revenues cannot be predicted because they come from wages. If recession slashes millions of jobs, or earned income declines as wage increases slip below the rate of inflation (which is precisely what's been happening for the past 6 years), revenues won't meet wildly optimistic forecasts that presume high, sustained wage and employment growth forever.

No official forecast of tax revenues supporting Social Security and Medicare ever factor in a recession, much less a decade or two of declining wages. If the forecasts were more realistic, the programs would be revealed as insolvent.

That is of course a political impossibility, so delusional forecasts are issued and accepted as "real" lest the unpalatable reality be recognized.

Defined-benefit programs such as Social Security have costs that can be estimated with some accuracy, but programs such as Medicare are open-ended: their costs cannot be predicted. Every attempt to control the ballooning costs of healthcare benefits for the retired lowers the rate of growth for a year or two, and then the costs soar once again as the number of beneficiaries and costs of delivering ever-expanding services both explode higher.

As a result of these fundamentals, the Powers That Be face a dilemma: they cannot reveal the insolvency of these huge social welfare programs, even though the insolvency is guaranteed by demographic and global-economic dynamics.

There are a very limited number of financial solutions to this dilemma.

1. Taxes can be raised. This is problematic for several reasons. One is that taxes on the self-employed and upper-middle class are already 40%-50%, as I have outlined many times. Two, the number of "wealthy" people (households earning $250,000 or more) is tiny compared to the 100+ million army of social welfare program beneficiaries.

Higher taxes and junk fees are already suppressing consumption. Every dollar of additional tax paid is a dollar that won't be spent by the household that earned the dollar.

Tax the rich is politically popular but in practical terms, it doesn't generate the revenues that are expected, for the simple reasons that A) the number of wealthy is relatively tiny and B) the super-wealthy either move their capital elsewhere or they buy political favor-tax breaks.

2. Slash benefits and limit the total Medicare costs per beneficiary. Since young people tend not to vote and older people tend to vote, this is a political non-starter, at least until 90+% of young people start voting.

3. Raise interest rates to 10+% to encourage saving and to generate a healthy return on pension funds and retirement accounts. The net result of 10% yields is the immediate collapse of the Fed-fueled asset bubbles in housing, bonds and stocks. All these currently bubblicious assets would implode.

This is also a non-starter, because the financial/political Aristocracy and owners of these assets would be devastated by the implosion of the bubbles.

4. Inflate bubbles in housing, stocks and bonds to boost the value of pension funds, retirement accounts, and government tax revenues from capital gains by pushing interest rates to zero and extending credit to speculators, financiers and marginally qualified borrowers.

The Federal Reserve has clearly chosen #4 as the only politically palatable solution. While asset bubbles create the politically positive illusion that pension funds can pay the benefits promised, retirement accounts are swelling in value and tax revenues are rising thanks to higher property taxes and capital gains taxes, this legerdemain comes with a heavy price:

Younger generations are either priced out of assets such as housing or they are forced to buy assets at inflated prices-- prices that will inevitably implode as these stupendous speculative bubbles pop. When the bubbles pop, the young people who bought into the illusion that asset bubbles can expand forever will be underwater, and not for a year or two but for a generation.

The system rewards silence and complicity. Everyone bellying up to the social welfare trough is implicitly encouraged to support the Status Quo, lest their share of the swag be diminished. That the trough will collapse is not important to each beneficiary; what's important is that their share of the swag is not diminished, even if cuts are the only sustainable way to save the programs from collapse.

I am a Baby Boomer, and in 4 short years I will be entitled to belly up to the trough and extract hundreds of thousands of dollars in open-ended benefits (at least for Medicare). I have long proposed that the Boomers collectively fall on our swords and accept the draconian cuts necessary to align our benefits with the cold reality of declining wages and employment.

The equally cold reality is that the current "solution" impoverishes the younger generations and generates a tsunami of risk that will wash away the Status Quo--including the benefits of the Boomers.

Right now, we as a nation are greedily collecting the financial fish flopping around as the coming tsunami pulls the water out of the bay and briefly exposes the sea floor. The Federal Reserve and our self-serving political "leadership" is reassuring us the water has left for good and we are free to collect the free fish forever.

This is a blatant lie. The demographic and economic tsunami is gathering force over the horizon, and the policy of safeguarding Boomer benefits with asset bubbles will lead to the destruction of the unprepared, the unwary and those who foolishly trusted our "leadership" and central bank to tell them the truth.


Admin. note: I will be off-line for the remainder of the month, other than a few moments here and there to post new content. Thank you for your readership and understanding. 

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Get a Job, Build a Real Career and Defy a Bewildering Economy(Kindle, $9.95)(print, $20)

Are you like me? Ever since my first summer job decades ago, I've been chasing financial security. Not win-the-lottery, Bill Gates riches (although it would be nice!), but simply a feeling of financial control. I want my financial worries to if not disappear at least be manageable and comprehensible. And like most of you, the way I've moved toward my goal has always hinged not just on having a job but a career.

You don't have to be a financial blogger to know that "having a job" and "having a career" do not mean the same thing today as they did when I first started swinging a hammer for a paycheck.

Even the basic concept "getting a job" has changed so radically that jobs--getting and keeping them, and the perceived lack of them--is the number one financial topic among friends, family and for that matter, complete strangers.

So I sat down and wrote this book: Get a Job, Build a Real Career and Defy a Bewildering Economy.

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I am proud of this book. It is the culmination of both my practical work experiences and my financial analysis, and it is a useful, practical, and clarifying read.

Test drive the first section and see for yourself.     Kindle, $9.95     print, $20

"I want to thank you for creating your book Get a Job, Build a Real Career and Defy a Bewildering Economy. It is rare to find a person with a mind like yours, who can take a holistic systems view of things without being captured by specific perspectives or agendas. Your contribution to humanity is much appreciated."
Laura Y.

Gordon Long and I discuss The New Nature of Work: Jobs, Occupations & Careers(25 minutes, YouTube) 

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Thank you, G. Wayne A. ($25), for yet another superbly generous contribution to this site-- I am greatly honored by your steadfast support and readership.

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