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denverpilot

denverpilot

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Interesting editorial by some Bostonian for Bloomberg.

Don't necessarily agree with the premise, but some of the factoids are interesting, perhaps shocking.

And as pilots, we probably all struggle with "Spend it all on flying?" if we're lucky/talented/blessed enough to be able to have "disposable" income for our hobby...

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Bloomberg News, sent from my iPad.
Start Saving or Get Ready for U.S. Decline: Laurence Kotlikoff

Dec. 30 (Bloomberg) -- America has a terrible saving problem and a slumping economy. But our national mantra, underscored by last week
 
Depends on how you define "saving"- do they mean banks? 401k's? Some of these articles don't count retirement savings. The snippet posted doesn't give enough information.
 
Higher personal savings might translate to higher productivity in some limited ways, like entrepreneurship, or perhaps the things that people spend savings on (ie, college educations) are more productive than what they would spend money on today.

Any more the big corporations have the real money and incentive to invest in productivity. I don't know if corporations are spending their "savings" effectively on productivity or if they are sitting on it, intuitively it feels like they are sitting on it though.

The argument at the end about transfer programs moving money from productive adults to non-productive retirees might be true in a Logan's Run sense. I suspect this is really more about the cost of medical services rather than all retirees living lives of luxury off the working, though.
 
Companies are saving due to political uncertainty, they don't know what O'care is going to cost or what expensive work rules/tax is next. There is a transfer of wealth from the young and working to the old and retired, that will change I can't wait to see the boomers whine and cry, maybe they will finally grow up. As for personal economics I read an econ blog recently reporting household debt is at its lowest point since the early 1990's. People are saving and paying down debt. Have a buddy that cleared 300K this year he drives an old beater truck that is essentially worthless and is always hemming and hawing about replacing it, last car he was considering was a used 3K Honda. Working people have changed their consumption patterns, perhaps permanently. Housing is taking a similar track, I know lots of folks choosing to rent so they can escape local job situations and school boards. The big house in the burbs dream is another one that will die with the boomers. No one wants those anymore.
 
The economy will not recover until interest rates go up.

Hiring is stagnant because consumer spending is stagnant because unemployment is stagnant ...

Businesses cannot grow because they cannot borrow because banks won't lend because they cannot get a reasonable interest rate, so they resort to fees and schemes to increase their income.

If interest rates were to increase by 2%, banks would start loaning, business would start growing and hiring and consumers would start spending and Republicans would no longer be able to blame the Democrats for bringing an end to life as we know it.

Why are interest rates so low?
 
Cap'n Jack said:
Depends on how you define "saving"- do they mean banks? 401k's? Some of these articles don't count retirement savings. The snippet posted doesn't give enough information.
Click to expand...

The snippet got cut off. Size limit via Tapatalk. I'll dig up a link later if it's on Bloomberg's website. I just noticed the chop.
 
The interesting parts were:

U.S. Savings rates today and past decades. Currently at 0.1% of GDP. Was over 20% in the 50's.

Social Security, Medicare, and Medicaid made up (according to the article) over 80% of U.S. GDP. (This seemed shockingly high to me.) Forecast to go higher as more Boomers retire.

High spenders were the over-60 crowd today. (Also shocking/interesting.)

Anyway, sorry it got cut off. Bloomberg's iPad App doesn't have a link-sharing feature.
 
denverpilot said:
Social Security, Medicare, and Medicaid made up (according to the article) over 80% of U.S. GDP. (This seemed shockingly high to me.) Forecast to go higher as more Boomers retire.
Click to expand...

If you're shocked by that, take a look at this:

http://alephblog.com/2011/12/27/2011-financial-report-of-the-us-government/

There is little to no fanfare for the release of this report, (why do they release at such a distracted time of year, where people will ignore it?) which strips away a lot of the malarkey that the US Government delivers by providing data on an accrual basis, rather than on a cash basis, which is what the politicians argue about. As a result, the politicians take actions that hurt the future in order to benefit the present. If we viewed the national budget the way this report does, we would have had very different policies over the last 25 years.​
 
AuntPeggy said:
The economy will not recover until interest rates go up.

Hiring is stagnant because consumer spending is stagnant because unemployment is stagnant ...

Businesses cannot grow because they cannot borrow because banks won't lend because they cannot get a reasonable interest rate, so they resort to fees and schemes to increase their income.

If interest rates were to increase by 2%, banks would start loaning, business would start growing and hiring and consumers would start spending and Republicans would no longer be able to blame the Democrats for bringing an end to life as we know it.

Why are interest rates so low?
Click to expand...

Really? interest rates are too low? You really think that's the problem?

Seriously, think about what higher interest rates would do consumer spending. Until consumers stop buying stuff on credit, higher interest rates would depress consumer spending.
 
Is that comment on the other article from "our" Greg? I like it...

"The vast majority of this debt represents baby boomer’s broken promises to themselves. Baby boomers promised themselves generous post employment benefits, then failed to keep their promise to themselves.
Younger generations did not make these promises, and have no obligation to honor them. The legal term is “odious debt”, and it is a well established legal principal dating back centuries.
The US was the largest creditor in the world when baby boomers came of age — now the US has 15 trillion in official debt. Major corporations that dominated global market share have been destroyed.
Whether the cowards in Washington DC admit it or not — the medicare promises cannot be kept, even if they had a shred of legal merit.
As baby boomers enter their twilight years (starting earlier this year) — they are going to reap what they sowed. They will live the retirement they saved for."
 
denverpilot said:
The interesting parts were:

U.S. Savings rates today and past decades. Currently at 0.1% of GDP. Was over 20% in the 50's.

Social Security, Medicare, and Medicaid made up (according to the article) over 80% of U.S. GDP. (This seemed shockingly high to me.) Forecast to go higher as more Boomers retire.

High spenders were the over-60 crowd today. (Also shocking/interesting.)

Anyway, sorry it got cut off. Bloomberg's iPad App doesn't have a link-sharing feature.
Click to expand...

ClimbnSink said:
Here is the link.
http://www.bloomberg.com/news/2011-...decline-commentary-by-laurence-kotlikoff.html

Interest rates are not the answer, regulatory predictability is the answer. As for the rates themselves good chance deflation is coming. That will move wealth to the working.
Click to expand...

If both of you are working off the same link, I didn't see the percentages for SS, Medicare, medicaid for GDP. I doubt that overall government spending (Fed, state, and local) gets beyond 40%.

I also didn't see "savings" defined. I know some retired people that sold off their houses a few years back before the bubble burst, waited for the dust to settle, and bought a smaller cheaper place. One could then consider ther homes (and equity) as "savings". If someone puts money in a 401k with a corporate match, is that considered "savings"? How about a Roth IRA?

Another thing not mentioned is I think pensions were more common back in the 60's than now, except for government jobs. Were those counted as savings?

I think "savings" has shifted from banks to mutual funds (401k, Roths)- neither of these existed in the 50's and 60's.
 
Cap'n Jack said:
I also didn't see "savings" defined. I know some retired people that sold off their houses a few years back before the bubble burst, waited for the dust to settle, and bought a smaller cheaper place. One could then consider ther homes (and equity) as "savings". If someone puts money in a 401k with a corporate match, is that considered "savings"? How about a Roth IRA?
Click to expand...

He's using this number in his article... "Personal Savings as a Percentage of Disposable Income".

http://www.bloomberg.com/apps/quote?ticker=PIDSDPS:IND

That number is interesting in that Disposable Income is quite variable depending on the overall costs of goods/services, which has been rising for most of them.

Cap'n Jack said:
Another thing not mentioned is I think pensions were more common back in the 60's than now, except for government jobs. Were those counted as savings?
Click to expand...

Doubt it, since they were held on the books of the company. Note that if you take those out of the number, it makes things look even worse, though.

Cap'n Jack said:
I think "savings" has shifted from banks to mutual funds (401k, Roths)- neither of these existed in the 50's and 60's.
Click to expand...

I think that type of "savings" is included, but I can't find a solid definition of Bloomberg's index that he's using.

Basically he sums up the interesting, if maybe a little contrived, point at the end of his article:

"In 1960, Medicare and Medicaid didn’t exist and Social Security benefits per oldster were small. Today, these benefits per oldster total 72 percent of per-capita GDP and will reach roughly 85 percent in 20 years when all 78 million baby boomers are fully retired. We will be lucky if our national saving rate remains at zero.
The bottom line is, we’re taking from young savers and giving to old spenders. We need to reverse course and raise national saving and, thus, domestic investment with generationally fair policies. The alternative is an early economic grave."

I always prickle a little bit whenever the word "fair" shows up in economics talk... such a thing doesn't exist in the real world. :)

But, for my personal thoughts on the matter... I spend roughly 5 months of work, out of every year, working for the government.

As best as I can tell, they're pretty awful stewards of it and I'm mainly paying to service their debt interest, anyway... not the principal of what they've already spent.

"Progressive" taxes mean that someone not as well off, might only work 3-4 months of the year to pay the government. Such generosity in the spending spree of Uncle Sam, eh? You're only slightly less screwed. :)
 
Wasn't me. But I agree with it.
denverpilot said:
Is that comment on the other article from "our" Greg? I like it...

"The vast majority of this debt represents baby boomer’s broken promises to themselves. Baby boomers promised themselves generous post employment benefits, then failed to keep their promise to themselves.
Younger generations did not make these promises, and have no obligation to honor them. The legal term is “odious debt”, and it is a well established legal principal dating back centuries.
The US was the largest creditor in the world when baby boomers came of age — now the US has 15 trillion in official debt. Major corporations that dominated global market share have been destroyed.
Whether the cowards in Washington DC admit it or not — the medicare promises cannot be kept, even if they had a shred of legal merit.
As baby boomers enter their twilight years (starting earlier this year) — they are going to reap what they sowed. They will live the retirement they saved for."
Click to expand...
 
Gold's just another bubble. Money looking for a ROI... It always works for a while.
 
Bob Noel said:
Really? interest rates are too low? You really think that's the problem?

Seriously, think about what higher interest rates would do consumer spending. Until consumers stop buying stuff on credit, higher interest rates would depress consumer spending.
Click to expand...
I am not speaking of higher interest rates on the already usurious credit card debt. Credit card interest and fees are some of the tricks I spoke of that major banks are using to increase their earnings in the face of nearly non-existant loan interest.

Higher interest on business loans and home loans would help. Banks would stop hoarding their money or hoping to use it to prop up credit card debt. They would instead loan it long-term to business to grow the economy and they would loan it long-term to new or extended home loans and get home ownership moving upward.

Likewise, what value is there to you as a citizen in plunking your hard-earned money into a savings account that doesn't return decent interest?

I reiterate: The economy is not growing because money isn't moving. It would be moving if banks were not sitting on it and they wouldn't just sit on it if they could be making a reasonable amount of interest.
 
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AuntPeggy said:
I reiterate: The economy is not growing because money isn't moving. It would be moving if banks were not sitting on it and they wouldn't just sit on it if they could be making a reasonable amount of interest.
Click to expand...

(no pun) I'm not buying it.

The economy isn't growing for a number of reasons, interest rates being too low isn't one of them.

I'm sure you can understand that there is more involved in lending than the interest rates (e.g., collateral, risks, regulations)
 
I think too many people don't understand what "money" really is, or how its real value changes.

Suppose that the entire population had saved exactly $10,000 and decided to quit their job or retire with say a $2000 per month retirement or unemployment income. Now, nobody is working, but everyone has some savings and income.

So, what happens when the first person desires to purchase something and nobody is willing to work to produce it. What is the new value of those $$$?
 
Bob Noel said:
(no pun) I'm not buying it.

The economy isn't growing for a number of reasons, interest rates being too low isn't one of them.

I'm sure you can understand that there is more involved in lending than the interest rates (e.g., collateral, risks, regulations)
Click to expand...
Of course it is one of them. Money is a commodity. But, it isn't currently responding to Supply/Demand.

Of your other factors:
collateral: This is a factor of the blundering economy. If the economy were moving forward, collateral would continue to have value.
risks: The decision to loan money is predicated on the supposition that return exceeds risk. When return is allowed to increase, then risk is mitigated.
regulations: Don't drink that water. De-regulation is getting us into this morass.
 
No one is borrowing money but if we make borrowing more expensive people will start? Yes and lets start a gov't run keynsian window smashing brigade.:rolleyes:
Deflation is coming and it will be the ruin of boomers.:lol:
 
ClimbnSink said:
No one is borrowing money but if we make borrowing more expensive people will start? Yes and lets start a gov't run keynsian window smashing brigade.:rolleyes:
Deflation is coming and it will be the ruin of boomers.:lol:
Click to expand...

I'm not following your logic here. The problem has been that banks are not lending. It is not that business refuses to borrow.

http://www.pittsburghlive.com/x/pittsburghtrib/business/s_774252.html
"Who's getting these loans? It's the larger companies, and it's in larger loan amounts," said Marilyn Landis, president of Basic Business Concepts, a small business consulting firm on the North Shore that specializes in finance.​

Figures from the Federal Deposit Insurance Corp. for the level of commercial and industrial loans of $1 million or less tend to support her claim. Such loans to small businesses from the nation's banks have receded from an aggregate $336.4 billion at year-end 2008 to $279.9 billion as of Sept. 30.​


"Banks are continuing to tighten lending standards, even though they say they are not," said Landis, a former chairwoman of the National Small Business Association.​
Click to expand...


Their credit lines with their banks are limited or closed out. If the banks continue their credit policies, it becomes more and more difficult to stay afloat.
Click to expand...

I cannot see any good coming of a window-smashing brigade.:hairraise::yikes:

I must agree with the smilie attached to this comment: "Deflation is coming and it will be the ruin of boomers.:lol:"
 
AuntPeggy said:
I'm not following your logic here. The problem has been that banks are not lending. It is not that business refuses to borrow.

http://www.pittsburghlive.com/x/pittsburghtrib/business/s_774252.html





I cannot see any good coming of a window-smashing brigade.:hairraise::yikes:

I must agree with the smilie attached to this comment: "Deflation is coming and it will be the ruin of boomers.:lol:"
Click to expand...

You are complaining about tighter lending standards and claiming de-regulations got us into this mess.

ding ding ding ding ding.

That's the irony meter going off.
 
Money is an endless circle, so where do you want to interrupt it.
 
I thought I was claiming that increased interest rates would promote lending.
 
Think about this:

Who does deflation hurt most?
1) Those who have assets that need or desire to sell, and
2) Those who are deep in debt.

Who does Inflation help most?
1) Those who have assets that need or desire to sell, and
2 Those who are deep in debt.

Now, since us taxpayers are 15T deep in debt, who controls that debt, and will they be more likely to take actions that will tend to hurt or help. Us big debtors can not withstand deflation and higher interest rates. Higher interest rates will come when inflation takes hold. Then, savers will still be losing because inflation will still be greater than the interest rates.
 
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