Serious Budget Issues, Don’t Count on Boomers

[powayseller]

Bill Gross of PIMCO: “In financial terms alone, Laurence Kotlikoff, a Boston University economist, has estimated the unfunded liabilities associated with health care and retirement amount to $80 trillion, over seven times our annual GDP!”

When will any of our elected officials ever address our budget issues?

As individuals and as a nation, we must reduce consumption and increase saving. Let Europe and Asia export to themselves; why do we have to shoulder the weight of their economic growth?

On a related note, boomers are not going to drive this economy going forward. They are downsizing and trying to make it on fixed incomes. Again, here is Bill Gross: “Approaching 60, their focus is less on off-roading and more on off-loading – retirement, the transfer of responsibility and anxiety to a younger generation, as well as the assumption that they will be well cared for in those hospital rooms.””

Dallas Morning News: Boomers Won’t Drive Consumption

[Roman]

Why do we (US) have to shoulder the weight of econ. growth of other nations?

Hmmmm, this becomes more of a political questions with economic/financial implications. However, let’s pick some issues:

– Corporate greeeeeeeed (we all have to get a return in our investment portfolios)
– US Corporations complain about the maturation of their market here (corporations push for new market expansion)
– Cheap wages & more market expansion sound like a good trade for any organization looking for steady growth & ROI for their stakeholders
– Geo-Political pressure to increase trade, strategic allignment with new partners (Eastern EU, Balkans, Asia.. aka old comunist countries)…I know, since I’m from one of those countries.

NOTE: from my limited knowledge, the US model of success (and the financial market definition of success) is to show continous growth. Such growth could only be achieved in big terms via (1) increase market share or (2) new breakthrough technology advancements……I guess we only limit ourselves to the first option.

I’m curious about your opinions, and I hope I did not divert the direction of Powayseller’s post here (this migh be worth a new topic).

[no_such_reality]

We Are The Consumers…

Why do we (US) have to shoulder the weight of econ. growth of other nations?

We support their growth quite willingly by being mass consumers of cheap products. For many in the USA, it’s a matter of keeping up with the neighbors and valuing quantity over quality.

If we make it ourselves, in the short term, it appears to cost more. i.e. a fan imported from China may cost $34.93 at Walmart, you probably can’t even find an American made fan anymore, and if you do, a large room size fan with current feature likely isn’t $34.

Sadly, in many cases we’re short sighted on it, we aren’t willing to pay $44 for a fan, but were perfectly willing to pay $34 every year or two and often look at many of the purchases in terms of lasting a year…

[rseiser]

I thought of this “chicken and egg” problem many times and came to the conclusion that low interest rates are quite a lot to blame. I mean we all agree that the government has been artificially lowering interest rates since at least 1987 to combat any little problem that crept up. When you keep interest rates low, a lot of things happen. People start borrowing and speculate, this drives up asset prices, thus rewards the risk takers. So people quit their jobs, stop producing, start borrowing more, start consuming, savers get punished, and in the end everyone ends up buying from abroad. This has lost us a lot of our long-term planning, our savings, and even our production potential. Now everyone focuses on the short-term, because it seems to work. When it stops working it will take a long time to unwind this whole process, so in my opinion there is nothing like: “Houses will just correct for a few percent, and then they will continue their uptrend”. Not until we do something serious about the whole thing.

[sdduuuude]

I believe that the real cause is the lofty value of our minimum wage, in combination with our welfare programs.

We refuse to hire people for low paying jobs, and pay people to do nothing who could be otherwise be working those low paying jobs.

[(former)FormerSanDiegan]

The savings rate in the US is atrocious and a negative savings rate is unsustainable. As interest rates improve for savings there is now more of an incentive (but perhaps not the ability due to the debt-laden consumer) to improve the savings rate. Hopefully this incentive and the next economic recovery will result in improved savings rates as these boomers mature.

The oldest boomers are just now in their early 60’s, with the tail end at their early 40’s. There is still time for these people to contribute to society in meaningful and productive ways and start saving and becoming more frugal as they age over the next 15 + years.

The $80 billion question is, will they ? and will it be enough ? I think some will, but many won’t and the next generation will learn from these folks and drive savings rates higher over the next 20+ years than the last 20.

I’m an optimist and a believer that economic excesses and deviations revert to the mean and that eventually savings rates will increase in the future. Getting their will definitely be interesting.

[poorgradstudent]

Most people aren’t rational consumers.

Marketing creates artifical demand and need. People buy things on credit without thinking about the 20% APR in interest they’ll be paying for it down the line. People buy cars and yes, homes, that they realistically shouldn’t be able to afford.

For the past 10 odd years, the government has relied on consumer overspending to drive the economy. I really hope the consumer spending bubble has a “soft landing”, because if not it would be far, far worse than the real estate bubble’s collapse.

[Anonymous]

To blame economic problems on the minimum wage is lunacy.

In a consumer driven society, if you want economic activity, you have to put the money in the hands of those who will spend it, that is, the workers.

Employers who want to pay less than minimum wage do it all the time. See: “illegal immigrants”.

[sdduuuude]

Columbo – It isn’t lunacy at all.

We send our money to China because we can’t produce anything for less than they can. Why? Because it is against the law to hire anyone for the wages they pay. As a result, our minimum wage earners would have to be 10x more productive than theirs because their wages are based on a market, rather than an arbitrary non-market-based regulation.

Yes, you have to put money in the hands of the workers, but if you price them out of the market, they won’t be working.

This doesn’t affect the consumer-driven part of society, but it does answer the question of why our consumers are supporting their economy.

[(former)FormerSanDiegan]

My contribution to the savings rate …

This thread got me thinking about the negative savings rate in the U.S. and how this was horrible for the economy. I was thinking, geez how come these other people don’t wake up, smell the coffee and start saving … like I do …
Or so I thought.

Since the point I left school about 30K in debt, I’ve always considered myself an obsessive saver. So I started doing the math. For the last 8 years, our family has been maximizing IRA conributions (first ROTHS, then non-deductible IRAS), we’ve been maxing out our 401k (defined contribution plans) since we’ve been employed. We also put a small monthly amountinto 529 plans for our kids (ages 7 and 4) for college, and devote the remainder of our income to living costs. I figured that our annual contributions to these things amounts to about 80% of the median family income in SD. So I figured that we were pulling the weight of about 80 families (when the savings rate was at 1%).

However, after careful research, I figured out that I AM THE PROBLEM . Why ? It turns out that of the >$45K + we “save” each year, only the 529 plan contributions counts. So we are actually only saving about 1%, according to how the savings rate is computed.

I have to apologize to society at large. I am truly sorry. To do my part to bring the savings rate back up to 7%, I need to stop contibuting to my retirement accounts and instead start paying taxes on those dollars and save them outside my retirement account. That way I can go from being part of the problem, to part of the solution.

Is this a good plan ?

[greekfire]

I think that it will be interesting to see how our country fares with the large number of baby boomers that will be retiring in the coming years.

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