Sunday, December 28, 2008

Saving for a Rainy Day

Even governments should save for the anticipation of lean times. The collective attitude of Congress is “Why bother.” Iceland went broke as a country in October. They were consuming like us, only they were borrowing foreign money. We as a country have a hedge on this; the rest of the world holds US dollars as a form of emergency currency. If the dollar drops in value, our exports become cheaper in other countries. Conversely anything that has to be imported will cost more. Foreign creditors are left holding the bag. "Full Faith and Credit," is kind of like a prayer.

Presently the current long term interest rate in the US is about 2.6% for the 30 year bond. Using the rule of 72, it will take about 28 years for your money to double. With the present inflation rate of 12%, a savings account in a US bank is a pretty worthless investment; you end up with a negative 9.4% return. Using the same rule of 72, it would take about 7 years for you purchasing power to drop 50%. So if your savings depreciate 50% every 7 years and double in value every 28 years, you can work your way to the poor house.

Something is out of whack. Our government is 10 trillion in debt and borrowing 3 trillion to keep the show going. Isn’t there a point where interest rates have to rise because there is a risk of non payment? But the government guaranteed everything. They had to, the risk was so great that the system would collapse without government support (do you sense a catch 22 here). Interest rates are not rising. Doesn’t that imply that the system has already collapsed? Everyone owed a dollar will get a printed one. The system will be back in balance, everyone will be made whole and no one looses a dime. Who are we kidding here?

If our government had built up some cash reserves over the years instead of spending beyond their means; we wouldn't have to tax our children's future. Borrowing one to three trillion dollars at these low interest rates seems acceptable, but think again. Our total debt is approaching 13 trillion dollars. An interest rate of 10 percent would put a severe crimp in our budget; it would take 30% of the government tax revenues to finance just the interest on the debt. Total tax collections for next year could be rather anemic to say the least and that money has been already counted and spent (not collected--yet).

Government has assumed too many responsibilities. Social Security and Health Care are going to have to undergo major modifications that the “Entitled” will hate. From here, we as a nation are broke. Collective economic greed got us to where we are today.

Our government is being looked to, to clean up this financial collapse. Responsibility means saying "no" when it's all too easy to say "yes." If compound interest is the 8th wonder of the world, then the 9th wonder is probably, “How will we pay for all of this?” Decreasing tax receipts and increasing interest rates could be the next perfect storm. And now a new set of politicians gather in Washington to fix the economy. What scares me is the assumption that they can "fix" it.

Copyright 2008 All rights reserved

28 comments:

Sackerson said...

It's clearly a bust. I was amazed to read (on yours?) that some States will allow public sector workers retirement at age 50 on 90% of salary (I repeat: 90% OF SALARY, AT AGE 50!) - this is beyond the wildest dreams of us pauper Brits. How was that ever possible? Can it be true? If only I'd know about this scam when I left college, I'd have emigrated PDQ.

So obviously pensions and healthcare will have to be revised. But since this will be massively unpopular, wealth will be raided first and the only sources the government can steal money from are your earnings and savings, so presumably both taxes and inflation will increase.

I'm watching the John Adams series on British TV; what's the chances of US taxpayers dressing up as Indians and visiting the IRS? Really, the situation is so bad it's starting to get funny.

Anonymous said...

Social Security and Health Care are going to have to undergo major modifications that the “Entitled” will hate.

I remember the last major modification to Social Security in 1980. I was 16 and working part time, already paying FICA taxes. Being 16, I had exactly ZERO say in who represented me. Essentially it was taxation without representation.

From that point forward, it was clear to me that federal programs are, at their heart, nothing but an attempt to screw future generations - aka monetary pedophilia. The same will happen again.

Anonymous said...

What is becoming apparent is that the masses - including you and me - have been sufficiently sated by trinkets to trade our greatest asset - our personal freedoms - to the ruling elite (a group that does not include you or me). Social Security will continue as will other entitlements because they are necessary to continue to opiate the masses. Meanwhile, if the ruling elite get a cold, they are completely cared for. Should their assets get "sick" Congress and the Reserve Banks are there to recapitalize them. The money being printed, the debt being incurred is of no import. Holding onto power is the key. Think about it.

Jim in San Marcos said...

Hi Sack

It does seem amazing. If you are a policeman, fireman or life guard starting the job at 20 in California, you get to enjoy the good life at the age of 50. There is a movement to change that though.

I don't think there will be another Tea Party. I think that todays equivalent would be a Toyota Car Party in the Long Beach Harbor (Of course it's only in the planning stage--we need drivers);>)

Jim in San Marcos said...

Hi Anon 6:37

Technically the program pays for itself until 2017. Of course that's on the assumption that tax receipts are along the line of lasts years. If they aren't you could probably knock 6 years off of that date.

When you look at the program, Social Security is for old people and the young are immortal and don't need it.

Old age sneaks up on you when you least expect it. Saving for old age is an accident for most people that never happens. Social Security is pretty much a program that forces your kids to give you some sort of retirement income without you having to ask for it.

Anonymous said...

I live in Florida, which has a privately funded state retirement pension system. I am also in law enforcement, which falls under the high risk retirement system, which means that I am able to retire on a percentage of the average of the my highest 5 consecutive years of service at 25 years of service or age 55, whichever comes first. I get 3% per year of service, and personally will be able to retire at age 49 at 75% of my high-five. But, the Florida system is PRIVATELY funded, that is each agency/entity that is a part of the FRS pays into the system. And the FRS is one of the top-3 funded pensions in the country at last check because the legislature has never been able to successfully raid the cookie jar.

But, for those that don't like the early retirement for public safety personnel, there's a reason why we get to retire early. It's the same reason why we are considered to be a part of the "high risk" retirement sector, and that's because many do not live very long after making it to retirement due to the high demands and stress placed on the body in this line of work. Most people don't strap on a bullet-resistant vest, or throw fire--retardant suits capable of handling 1000+ degrees, when they go to work every day. I kiss my wife and family good night every night before going into work on the midnight shift never knowing if this is the day that I eat a bullet on a domestic call or a traffic stop.

We all chose our line of work, but don't knock or bash the "early" retirement of public safety. We've paid our dues in blood.

Thanks, and Happy New Year to all. =-)

Jim in San Marcos said...

Hi Anon 1:57

Thank you for the info, Sack and I are not suggesting that you don't deserve it, I think we may be slightly envious.

There are many different issues here. People are living longer now up 85 years for men and 89 for women. When Social Security was passed in the 1930's 7/8's of the population never reached the age of 65.

The present perspective of retiring at the age of 50 implies that working for 30 years entitles one to 35 years of benefits. With people living longer, the original master plan for retirement benefits has been altered.

What is happening here in San Diego, the government did not budget enough funds to cover retirement benefits of this magnitude. Their investment portfolio has probably dropped 50% in value and the pensions going out have not.

The financial problems are real. The only solution I see is to raise the retirement age to age 70. That would limit retirement benefits to 15 years.

If these private retirement plans go broke, the government takes them over and pays about 50%. A lot of airline pilots went from a retirement income of 60K to 30K overnight.

What you need to pay attention to here is that the size or conditions of your retirement paycheck could change. I imagine quite a few airline pilots went into bankruptcy after their retirement pay cut.

It will be interesting to see how this turns out over the coming years.

I hope it turns out OK for you, take care and Happy New Year.

En Twind said...

I think the catch-word for the next 15 years will be "sacrifice". Unfortunately if your a genx'r, you happened to grow up at the wrong time.

When things get bad, people naturally tend to work together and sacrifice. While the genxrs will be a little resentful, the younger generation, "millennials" (who are voting more) will be very happy to do this.

Whether we make it out of this crisis will depend on them.

frakrak said...

Jim, I would like to comment on the post by anonymous (Dec 29, 2008 8:39). My interpretation would be:

Feeling a sense of responsibility for our personal greed is a totally misplaced sentiment into the cause of our current economic malaise. If greed is the opiate for the masses, it has been ladled liberally with out the checks and balances our system has previously enforced! It has rampaged through our economies for long enough (it would seem to bring us to this point!) As a tool, greed has done a remarkable job; giving everyone a myopic view of basic sound economic principals, encouraging a reward system that has led the “junkie” on a road to economic oblivion.

And when we are left with the cardboard cutouts of what were sufficiently functioning institutions, we will be made to feel that it was personal greed that got us all here!

The real game here Jim is, as your poster said “holding on to power is the key.” My interpretation of this would be, to be vigilant with governments that may feel that personal freedoms need to be curtailed to fix these problems, or are happy to further concentrate power at the big end of town! Keep away from blame and hold fast to your already eroded freedoms ….

Anonymous said...

A few questions:

1.
If Americans are so unhappy with their circumstances, why do they keep re-electing these representatives to Congress? With the erosion of your freedoms, liberties, economy and society over the last 50 years or so, why are the same representatives re-elected and continually allowed to stay in office?
2.
Why don't Americans carefully monitor what their representatives do and take swift action when they pursue their own interests and agendas rather than those of the people?
3.
America was built by strong and self-sufficient individuals. Social Security and all of the other implementations of Hoover and FDR are from the planks of the Communist Manifesto... pure Marxism. Jefferson and other early Americans would never have even dreamed of a government supporting its citizens in retirement. Actually retirement itself back then would've been considered a completely effete concept. One should die in harness, productive until their last day. How have we become so weak in body and character?
4.
People in a free market society should know that it is their responsibility to work hard and exchange value with the society in order to earn their keep; and that it is their responsibility to save and invest for their future. They should know that entrepreneurial activities and owning one's own business is the path to stability and wealth... it's an American birthright. Why have we allowed our representatives and law makers to create an environment where a man is taxed to death on so many levels and so greatly inhibited by other forms of government interference in every aspect of his/her life that he can't even make a living today?

(Today a man's wife must work, his kids must go to day care, he must have a 2nd job, plus have a home business, plus use credit to make ends meet. The family unit has been destroyed. The presence of a mother and father is gone, thus love, character building and education of the children from a parental source has been lost. (Here is your cause of drug abuse, crime, aberrant marital relationships, sloth, etc.)
Why have we allowed our representatives to tear down the family unit?

It would seem that the people deserve whatever form of government they have since it has been created by their omission and tacit agreement.

Anonymous said...

Jim, sorry for the SLP but couldn't fit it all in two paragraphs.

It seems at times the government relies on the stupidity and ignorance of the lemming population to continually rape and pillage the earned income of its "regular" employees. Are more kids sleeping in class these days or is history being watered down?

Social security (FICA, an insurance not a retirement program) is not the primary topic here, but want to make a few points of how our government continues to tax us without proper representation...

- Social security created under Roosevelt in 1935 has enjoyed a surplus after expenses for almost all years of collections. In fact the first amendment in 1939 was to tap the $2 billion (actual, not adjusted for inflation) in surplus to fund government spending and create a pay-as-you-go program. Had the government left well alone, there would be no problem covering the retiring baby-boomers over the next several years and still have enough left over for a "Rainy Day." Some amendments were necessary, but this aspect created the ultimate ponzi scheme.

- What has the government done with the program since? Add more programs under OASDI (disability, unemployment, SSI etc), have increase the tax rate, have increase the retirement age, and have continued to borrow against the surplus ever since... not paying back one dime of the principal to the SS Trust Fund.

What will it take to get the government back on our side and out of our pockets? I agree, throwing packages of Lipton tea bags into the harbor will just not cut it.

Thanks to your blog and others like it we all have a place to vent our frustrations. After the recent $700b charade by our clueless leaders (with much more to come) it should now be obvious to us "regular" employees that they are NOT listening to us.

Tom

Jim in San Marcos said...

Hi Frakrak

I see it a little different. In a Democracy everyone has a shot at becoming rich. If the rich are not protected by society, then there is no need to play the game.

Social Security and unemployment compensation offer a certain fairness to the poor.

I agree that our freedom could be curtailed. Too many deadbeats have nothing to lose by being irresponsible with guns and high speed chases. A lot of citizens are willing to surrender their freedom for more security.

The reason the government right now is so serious about a bailout, is because of the potential consequences. With the massive unemployment of the 1930's we almost lost our Democracy.

Greed is wanting more than your share. I don't consider it an opiate for the masses. Sex money and drugs would be a good start and I would welcome being opiated under those terms.

Anonymous said...

Hi Anon 5:08:00 PM,

All great questions which depending on your beliefs will either get you mud in your face or a slap on the back.

I'm not against change. The right kind of change is necessary for growth and stability. Question is, who gets to define whats "right" in our society. Like you, I contend its our representatives and lawmakers.

All great societies eventually come to an end and unfortunately are reborn through war and bloodshed. The kind of change needed in America will definitely not happen through elections.

Every generation looks back on his/her past and asks the proverbial question... how did we get here and what happened to the good-ole-days?

Tom

Tyrone said...

A few questions:
1.
If Americans are so unhappy with their circumstances, why do they keep re-electing these representatives to Congress? With the erosion of your freedoms, liberties, economy and society over the last 50 years or so, why are the same representatives re-elected and continually allowed to stay in office?


You're making my blood boil; next question.

Jim in San Marcos said...

Hi En Twind

The scary thing is, I don't see the sacrifice. Two places I know of have suggested 10 day and 15 day unpaid vacations. The net result was hell no, I need the money. Of course the next step is to CAN the least senior employee.

This mess could end up biting everyone in the ass.

Thank you for your comments and have a Happy New Year.

Jim in San Marcos said...

Hi Tom

I'll let you slide on the length.

I think that we really expect too much from government and they just don't have the ability to deliver.

You mentioned FDR. He set up the groundwork for our present tax structure. Social security was a way to increase tax revenues. At that time there were very few people living to the age of 65, so payments weren't much of a problem.

Hardly anyone paid taxes before then. From here it was very easy to tax earnings with government withholding. Plus at that time, there wasn't a large national debt. So work programs were not that inflationary.

At the present time, we could have a real problem paying our bills in the near future. The present SS and health care payments are a new bubble to contend with in the coming years (two at the most)

Plus the biggest banks are toast. They are bankrupt. So things don't look good.

Thank you for your input and have a Happy New Year.

Anonymous said...

It's really not that hard to understand "why things are this way".

1. We live in a culture of narcissism. People only care about themselves, their well being, their needs. Think about it. Do you even know everyone who lives on your block? (or floor of your apartment, condo, etc.). The prevailing attitude is that once you get "yours" everyone else can f#@$% off. I've got mine. Therefore, everything I did must have been right. You are wrong, you ___________ (fill in the blank, e.g. liberals, lemmings, welfare mothers, conservatives, etc.) No one cares about anyone else and as long as you...YOU...are ok, then who cares about the rest of "them".

2. People are pretty dumb. Why do we have so many problems? People are dumb. The median (half above and half below) IQ is 100. Half the population is below 100!!! Hello. That's borderline inability to even run a cash register, let alone think critically.

3. Population Explosion. Populations grow exponentially. Resources (those things we need to live) grow only linearly. There are more and more people after the same loaf of bread. That means more stress to any economic system. But moreover, it also shows that prior thinking that devised the systems we have now may not apply. When people cling the the "Founding Fathers" for any argument, I just cringe. Like they had a crystal ball and could predict a 50 state multiracial 300 million person country. Right. They were just men not God. The constitution is not the Bible.

Anonymous said...

The important thing is I'm OK.

Anonymous said...

Anonymous at 2:26:00,

I love a good rant, and I was with you for a while. The IQ thing was a bit over the top, and the population thing aint working for ya.

The IQ break down is like this:
Low IQ - Mentally Retarded 70 - 79
Dull Normal IQ
80 - 90
Normal IQ Score
91 - 110
Bright Normal IQ Score
111 - 120
Superior IQ Score
120 - 130
Very Superior IQ
131 and Above

Remember that the modern cash register is damn easy to use. This means that probably a guy with an IQ of about 80 should be just fine in collecting your cash in exchange for some stuff.

You are correct, that in general, people can act in a stupid, greedy, and mean way. This has not changed. It has always been this way.

As far as bread: We have been able to squeeze more and more bread out of an acre of land. Technology has greatly enhanced our ability to feed ourselves.

As far as knowing all my neighbors: f*** that. I think that one of 'em is dealing drugs from his house. Another one seems to be training his young sons to be ultra-competitive jerks. Why in the hell would I want to know these people? I'm sure my neighbors don't want to know me. I'm probably the biggest a-hole on the entire block. (If not, I'll just try harder).

Next time try a bit harder on the rant. The internet creates high expectations for such things.

Oh, and when I buy a Big Mac, say Hi (after giving me my change).

BOOYA

Anonymous said...

Hi,

I answered
Anonymous at 2:26:00
but I MEANT to put
Anonymous at 7:58:00

You gots ta give me a break, as me IQ is only about 81 on a good day and I'm workin real hard so I can use the register at my job in stupid city.

blrk!

Jim in San Marcos said...

You missed a few of my favorites

Moron (IQ 50-69),

Imbecile (IQ 20-49)

and Idiot (below 20)

Very descriptive when refering to members of Congress. Maybe I'll run for office, I've been called all three.

Shift said...

Jim,

Sorry, but you can not run for congress. Your ego does not seem monstrous enough.

A step in the right direction would be to think (but NEVER say) that 50% of the population is too stupid to run a cash register. Another good step would be to demonize the other party and claim your vision of America as the only true vision. Also, you should claim that anyone that does not agree with you, hates America and is actively trying to destroy this country.

You can probably think of a bunch of other ways to pump that ego up. It probably feels great to be infallible.

If you work hard enough, you might yet become congressional material!

Jim in San Marcos said...

Hi Shift

Your jesting of me not being Congressional material brings up some history not discussed much.

Our founding fathers thought very poorly of the Hoi Polloi. The masses were rubble incapable of governing themselves. In order to vote, you had to be part of the aristocracy of land owners. The real purpose of the electoral college was to keep popular opinion from interfering with the real rational of good government. I think it was "The Federalist Papers." by Madison and Jefferson that discussed this.

A scary thing is your statement, "Another good step would be to demonize the other party and claim your vision of America as the only true vision. Also, you should claim that anyone that does not agree with you, hates America and is actively trying to destroy this country."

Here is almost the same quote from the past: “. . .It is the leaders of a country who determine the policy, and it’s always a simple matter to drag people along whether it is a democracy or a fascist dictatorship, or a parliament, or a communist dictatorship. Voice or no voice, the people can always be brought to the bidding of the leaders. This is easy. All you have to do is tell them they are being attacked, and denounce the pacifists for lack of patriotism and for exposing the country to danger. It works the same in every
country.”
--- Hermann Goering, Hitler’s Reich Marshall, at the Nuremberg Trials after World War II.

On the lighter side, 19 more days before we are saved! Saved from what, I'm really not sure.

Thank you for your comments

Shift said...

Jim,

I can not believe you pulled out the Hermann Goering quote.

I love that quote. He nailed it. The Nazis were evil as all hell, but they understood better than anyone else how to manipulate the masses. There can be no question about that.

Take good care

Jim in San Marcos said...

Hi Shift

I know what you mean--the quote rings so true that you will never forget it.

frakrak said...

Thanks Jim for taking the time to respond to my post, and I do agree with most of your reply. Particularly with the need to preserve and protect capital, but another imperative should also focus on the preservation of democracy, the USA is the only game in town that really matters here!

Your point in your reply regarding democracy during the great depression is a poignant reminder that freedom is a privilege that remains fragile when taken for granted. The quote (from your later post), taken from Herman Goering’s trial at Nuremburg is a great exposition on blame, and its consequences when used as a political tool.

Your blog is, in my humble opinion the very best, and thank you for the privilege to express my opinion freely ….

Jim in San Marcos said...

Hi Frakrak

Thank you for the ata boy. I do think we have to be careful when we use the word Democracy. It means something different to each of us.

In my youth, I assumed that the whole world saw things as I did. My naivety didn't last for long. My views have changed with age.

Between the blogs and the comments, we can be more aware of what is going on. By the time it's news, it's too late.

Thank you for your thoughts.

Anonymous said...

IQ and Potential JOBS

100- Warehousemen; Carpenters; Cooks and Bakers; Small Farmers; Truck and Van Drivers.
90 Laborers; Gardeners; Upholsterers; Farmhands; Miners; Factory Packers and Sorters.

Below 100 is still pretty limited. Not that you can't understand nuanced concepts...they just don't interest you, so you ignore them. However, a negative ad about "that guy" catches your eyes and ears.

Don't downplay the culture of narcissism. The decline of a sense of "community" has accelerated the animosity that Americans have towards one another. The neighbor might be raising hyper competitive kids, but what example do you set?

How can you ignore population exploding as it is? None of our systems were designed to deal with such numbers. And they will continue to grow. 8 Billion people in my lifetime. Each one coveting a car and a house filled with swag.