People getting ready to retire have put about 17 trillion dollars in their retirement savings. Our government borrowed and spent 12 trillion of that. The banks have 4 to 8 trillion in bad real estate loans that the government will make whole again (roll the presses). This retirement money the government borrowed has been spent on consumption. Whereas the money from the sale of real estate was deposited in the home seller’s account. That money made from the real estate market is still in play—the house isn’t.
What does all of this mean? By saving money, you defer consumption to a later date. The government borrowed and spent it. The IOU’s are there, but the option to consume 12 trillion dollars worth of product at a later date is gone.
There is no real problem yet, the people getting ready to retire are not going to withdraw the 17 trillion dollars all at once. We are probably looking at a 6 to 8% withdrawal rate per year for retirees. The unemployed/employed won’t be a replenishing source for these retirement funds because of the economy. In fact, they will be drawing down any saving they have available.
The country is producing less and spending down their savings. Forget the equity home loan. People are tapping their savings, mutual funds and stocks owned.
The stock market has been immune to this mess so far. The market keeps on going up. All the shares of a single stock are valued at the price it last traded at. Sounds a little like how it used to work in the housing market. So if you need cash to pay the bills, you sell the winners and keep the dogs, hoping that they too will turn around.
Bonds are another item of concern. Low interest rates are not what an investor wants. If you are buying a house, low rates are a good thing. The banks have been writing 30 year home loans at low fixed rates. Isn’t this what happened to the Savings and Loan’s of the 1990’s? They loaned dollars long term at low rates, when their deposits were short term. Rates doubled and depositors moved their money to a bank with a better rate. The net result, the Saving & Loans went to Hell in a hand basket. This time, it won’t be about interest rates, people will withdraw their savings to pay bills.
Two years ago, 60 percent of our taxes went to entitlements. What is it now, 120%, 160%, 220%? (Pick one, your choice) These created dollars are just as good as the ones I get from working 40 hours a week.
With Bernie Madoff’s Ponzi scheme, it was the lack of dollars to fund withdrawals that spelled the end. The government doesn’t have that problem; it can’t run out of dollars. The San Diego Union news paper was only a dime a few years back, now it’s 75 cents (that’s what I use to pay for the Sunday paper). Obama claims that health care costs are unfordable, well maybe that’s a result of printing too many dollars (AKA inflation). There are no COLA raises for Social Security this year, kind of makes you wonder. T Bone steaks at $9.89 a pound are a little unfordable for me, but they taste better than Obama’s health care. At least you get to spend your [hard earned \food stamp] (pick one) dollars on what you want, not on what the government says you need.
The sad thing that is no joke, the elderly are living on a fixed income. Tough times lie ahead, for everyone.