US Govt Strategic Default: Both parties mull raising retirement age

[WildspitzE]

Additional covert defaults on the way!

http://www.washingtontimes.com/news/...etirement-age/

"In a rare departure from this year's intense political posturing over the soaring budget deficit, House leaders of both parties recently signaled that they are prepared to tackle a leading long-term liability — Social Security — by raising the retirement age.

..."

[lakedaemonian]

Re: US Govt Strategic Default: Both parties mull raising retirement age

Yeah I caught that one as well reading the news over breakkie.

Sounded like a bipartisan test to float both increased social security entitlement age as well as means testing.

I have the most sympathy for the cohorts in their 40's and 50's.......they've probably taken some of the biggest 401K hits, if unemployed, they will have the hardest time seeking re-employment while further draining their 401K funds, will see stagnant nominal and dropping real wages moving forward and will be some of the first to be get means tested against a dropping real entitlement.

Pretty grim prospects moving forward for the former pseudo affluent.

[WildspitzE]

Re: US Govt Strategic Default: Both parties mull raising retirement age

yup.

next frontier to loot is 401K savings.

[ASH]

Re: US Govt Strategic Default: Both parties mull raising retirement age

yup.

next frontier to loot is 401K savings.

I'd say that changing eligibility rules for entitlements isn't really new "looting" so much as recognizing that those from whom you propose to loot (workers) are decreasing in number relative to those who propose to do the looting (retirees), and that the ability of workers to generate income to pay for retirees will be impaired if taxes rise high enough to compensate for their smaller numbers.

The other irony is that notwithstanding the cost of current fiscal stimulus (which, at least theoretically, is temporary), the changes to entitlement policy being contemplated are driven by the unsustainable nature of the entitlements themselves as presently constituted... so looting retirement accounts would mainly pay for... retirement. The only difference is whose retirement accounts (such assets being concentrated in the hands of the few), and whose retirement (the need for entitlement spending being broad). Both means-testing retirement benefits and the hypothesized future looting of private retirement accounts tend to shaft the well-off, whereas raising the retirement age and possibly reducing the growth rate of benefits shafts the poor.

In any case, I read that Americans have about $15.6T in retirement accounts. It's a big pot of money, but not enough to close the projected gap.

Social Security isn't the biggest problem, anyway, but rather the rate of increase of medical costs. If that rate of increase can be contained, then a lot of our projected budgetary problems go away.

[WildspitzE]

Re: US Govt Strategic Default: Both parties mull raising retirement age

I'd say that changing eligibility rules for entitlements isn't really new "looting" so much as recognizing that those from whom you propose to loot (workers) are decreasing in number relative to those who propose to do the looting (retirees), and that the ability of workers to generate income to pay for retirees will be impaired if taxes rise high enough to compensate for their smaller numbers.

agreed, but to clarify:

i didn't use loot when i talked about ssn originally, i used it re: 401Ks.

the "new" in my second post implies that there is existing looting [of savings] going on, in my head i was thinking of the looting of savings through inflation.

that said, ssn, medicaid, and /or the income tax, in my humble opinion, is looting.

....

"so looting retirement accounts would mainly pay for... retirement."

i think that's how they would sell it (it's for your own good kinda of thing, the mkt is too volatile for you, or some other bs), but we all know it wouldn't go to pay for retirement directly. it would go to pay govt obligations, and then via such payments, the retirement of people working or owning those firms that enjoy being recipients of such funds.

[ASH]

Re: US Govt Strategic Default: Both parties mull raising retirement age

agreed, but to clarify:

i didn't use loot when i talked about ssn originally, i used it re: 401Ks.

the "new" in my second post implies that there is existing looting [of savings] going on, in my head i was thinking of the looting of savings through inflation.

that said, ssn, medicaid, and /or the income tax, in my humble opinion, is looting.

....

"so looting retirement accounts would mainly pay for... retirement."

i think that's how they would sell it (it's for your own good kinda of thing, the mkt is too volatile for you, or some other bs), but we all know it wouldn't go to pay for retirement directly. it would go to pay govt obligations, and then via such payments, the retirement of people working or owning those firms that enjoy being recipients of such funds.

Ah yes. Sorry for putting words in your mouth. I hadn't caught that you meant "next" relative to inflation.

My (uninsightful) expectation is that this is going to end up being bad for everyone.

[WildspitzE]

Re: US Govt Strategic Default: Both parties mull raising retirement age

Ah yes. Sorry for putting words in your mouth. I hadn't caught that you meant "new" relative to inflation.

My (uninsightful) expectation is that this is going to end up being bad for everyone.

no need to apologize, there was no way you could've known what i was thinking by the post i wrote. unless you can read minds, and if so we may need to talk about a few investment ideas.

i totally agree with your last thought.

[World Traveler]

Re: US Govt Strategic Default: Both parties mull raising retirement age

The Baby Boomers are really getting screwed on this.

In 1983, Social Security was in crisis. The Greenspan "bi-partison" Commission explicitly recommended and Congress passed laws to raise SS taxes, far beyond what was needed to keep paying SS to WW 2 generation, stating that the Baby Boomers would "pre-fund their own retirement" - the exact words used at that time. In 1990 a law was passed saying that these excess fund in Social Secrity Trust Fund could on be used only for SS benefits. These excess funds could be loaned to the Treasury, but the Treasury was obliged to pay back those loans. (these are the IOU's in SS Trust Fund that we hear about).

In effect, the Baby Boomers are creditors to the federal government, which it doesn't have the money to pay back the SS loans to Treasury. It's all been been spent - offsetting income tax cuts (which have heavily favored the most affluent in the U.S.), and paying for wars, the military, farm subsidies, bridges to nowhere, etc., etc.

Since the Powers That Be (aka, the super-wealthy elite and their political flunkies) do not want to give up the income tax cuts they've received since the 1980's or apply SS tax to incomes above roughly $110,000, we get propaganda, like the Washington Post article. How often do you hear talk or read articles about the 1983 Greenspan Commission to save Social Security by having the Baby Boomers "pre-fund their retirement", again the explicit words used at that time.

[jk]

Re: US Govt Strategic Default: Both parties mull raising retirement age

Both means-testing retirement benefits and the hypothesized future looting of private retirement accounts tend to shaft the well-off, whereas raising the retirement age and possibly reducing the growth rate of benefits shafts the poor.

i would amend that to say: Both means-testing retirement benefits and the hypothesized future looting of private retirement accounts tend to shaft the MODERATELY well-off, whereas raising the retirement age and possibly reducing the growth rate of benefits shafts the poor.

i.e. the banksters are safe. the poor, the working class and the middle class are squeezed to benefit the wealthy.

[ASH]

Re: US Govt Strategic Default: Both parties mull raising retirement age

The Baby Boomers are really getting screwed on this.

In 1983, Social Security was in crisis. The Greenspan "bi-partison" Commission explicitly recommended and Congress passed laws to raise SS taxes, far beyond what was needed to keep paying SS to WW 2 generation, stating that the Baby Boomers would "pre-fund their own retirement" - the exact words used at that time. In 1990 a law was passed saying that these excess fund in Social Secrity Trust Fund could on be used only for SS benefits. These excess funds could be loaned to the Treasury, but the Treasury was obliged to pay back those loans. (these are the IOU's in SS Trust Fund that we hear about).

In effect, the Baby Boomers are creditors to the federal government, which it doesn't have the money to pay back the SS loans to Treasury. It's all been been spent - offsetting income tax cuts (which have heavily favored the most affluent in the U.S.), and paying for wars, the military, farm subsidies, bridges to nowhere, etc., etc.

This is true, but you have to consider that the Baby Boom generation as a whole benefitted from the expenditure of their tax dollars, as much as citizens ever do. Who, if not the voters, have a responsibility to understand the government that acts on their behalf, and to hold their government accountable? Surely not the unborn, or citizens below the age of majority. When politicians lie, they do so to get votes... the lie they told the Boomers was believed because it was appealing: you can spend your tax dollars twice, and earn interest on them besides, all on the backs of your children. And the voters of the early 80's -- not just Boomers, let us remember -- accepted this deal.

The idea that the Boomers are creditors of the federal government is meaningless because there is no "federal government" distinct from the people; the obligations of the federal government are the obligations of tax-payers. This isn't "us versus them"; this is simply "us versus us". As far as I'm concerned, the trust funds are a scheme by which the Boomers contrived to pre-obligate the tax revenue of future generations for their exclusive benefit, while also enjoying the benefit of their own taxes at the time they were collected (and lower taxes to fund the wars and bridges to nowhere that they ALSO voted for). The truth of the matter, as you well know, is that nothing of value was ever saved. Therefore, what moral right have Boomers to ask for "repayment" by their children of what was already spent on their behalf... with interest, no less? "I was told by the leaders I elected that you guys were going to honor the scam run in my favor?"

[jk]

Re: US Govt Strategic Default: Both parties mull raising retirement age

as life expectancies increased and the boomer bulge aged, social security was set up to be a giant inter-generational transfer in which the boomers would expropriate their own children and grandchildren. it could never work demographically, and it would never be tolerated by the actual workers who would have to pay for it. raising the retirement age and means testing the payouts are the only sensible solutions.

in the context of everything else that has happened, however, these actions further the destruction of the middle class and ratify a huge transfer of wealth from the many to the few. we have a growing population of permanently unemployed and prematurely, involuntarily retired, pension plans have been decimated, states and municipalities have been looted, and the banksters party on.

[vinoveri]

Re: US Govt Strategic Default: Both parties mull raising retirement age

I'd say that changing eligibility rules for entitlements isn't really new "looting" so much as recognizing that those from whom you propose to loot (workers) are decreasing in number relative to those who propose to do the looting (retirees), and that the ability of workers to generate income to pay for retirees will be impaired if taxes rise high enough to compensate for their smaller numbers.

The other irony is that notwithstanding the cost of current fiscal stimulus (which, at least theoretically, is temporary), the changes to entitlement policy being contemplated are driven by the unsustainable nature of the entitlements themselves as presently constituted... so looting retirement accounts would mainly pay for... retirement. The only difference is whose retirement accounts (such assets being concentrated in the hands of the few), and whose retirement (the need for entitlement spending being broad). Both means-testing retirement benefits and the hypothesized future looting of private retirement accounts tend to shaft the well-off, whereas raising the retirement age and possibly reducing the growth rate of benefits shafts the poor.

In any case, I read that Americans have about $15.6T in retirement accounts. It's a big pot of money, but not enough to close the projected gap.

Social Security isn't the biggest problem, anyway, but rather the rate of increase of medical costs. If that rate of increase can be contained, then a lot of our projected budgetary problems go away.

SS is a ponzi-like scheme although it does represent an obvious and real-time income transfer from one class, labors, to another class, those over a certain age and those who have qualified for some kind of disability.

I would suggest that raising the retirement age and/or reducing benefits shafts all except the rich, i.e., those who have enough assets to generate an amount of income as to make a SS check essentially chump change.

For someone in their late-40s who will, if such legislation passes, have any benefits pushed out another 3 years, it is another data point suggesting what many already know and believe ... take care of yourself, hopefully make enough money to support yourself and family w/o the SS subsidy.

When I was in my 30's and the age was raised from 65 to 67, I paid no attention. For those younger today, I would hope that in 15 years they don't raise the age again to 73 when you are pushing 50.

After writing the above I realize that I too have fallen into the spell of looking to the gov for something.
It's too bad, the system is a real-time transfer payment scheme, else I would support the gov dumping the whole system and encourage people to take care of themselves and own. Work, save, have an extended family, be self-reliant. I guess we are all on the dole in some way....

[sunskyfan]

Re: US Govt Strategic Default: Both parties mull raising retirement age

You can cut this cake a number of different ways but the bottom line is how do you transfer money from the productive to the non-productive at any time T1. We can rationalize the morality or justification of that transfer but that is what has to happen. Let's take a productive 35 year old vs a non-producing 65 year old. At T1 the money flows from the 35 year old and there is incentive such as promise of return on investment in the future T2 or int can be forced via taxes. In the US since the middle of the 80s we have nominally done this by providing tax inducements or the the promise of tax inducements via 401k to provide 15% of income and taxes of 15% (employer and employee contribution) of income. But at T1 that only takes care of 30% of the needed transfer. So how do we make up the difference? Well, we can create debt contracts for more promise of something in the future and that was the beauty of the 30 year mortgage. That allowed us to convince the 35 year old to transfer wealth out in the promise for owning his home when he retires and stops being productive. To handle the rise in retirements we built house and sold 30 year mortgages like there was no tomorrow. Just did I just say that? . But that wasn't enough. Saturation happened about 4 years ago. As more boomers have retired the last four years the cash flow has had to come from somewhere. That is when the FED started printing money and will continue. The idea that this can stop is a fantasy. We have been sold that this is a crisis that will abate. But until someone tells the 65 year old he can't retire it will continue.

What we are seeing is the evidence it total that the time constant for how long you can buffer wealth is becoming shorter and shorter and shorter. You can't protect your self with credit default swaps. You can't even to do it with corrupting governments and money creation. Your lifestyle is going to be a one-to-one correlation with your current productivity. Not what you made 30 years ago or the promise of what you are going to make 30 years from now. Think about it. As markets drive towards greater and greater efficiency wouldn't this be the natural outcome?

[jk]

Re: US Govt Strategic Default: Both parties mull raising retirement age

You can cut this cake a number of different ways but the bottom line is how do you transfer money from the productive to the non-productive at any time T1. We can rationalize the morality or justification of that transfer but that is what has to happen. Let's take a productive 35 year old vs a non-producing 65 year old. At T1 the money flows from the 35 year old and there is incentive such as promise of return on investment in the future T2 or int can be forced via taxes. In the US since the middle of the 80s we have nominally done this by providing tax inducements or the the promise of tax inducements via 401k to provide 15% of income and taxes of 15% (employer and employee contribution) of income. But at T1 that only takes care of 30% of the needed transfer. So how do we make up the difference? Well, we can create debt contracts for more promise of something in the future and that was the beauty of the 30 year mortgage. That allowed us to convince the 35 year old to transfer wealth out in the promise for owning his home when he retires and stops being productive. To handle the rise in retirements we built house and sold 30 year mortgages like there was no tomorrow. Just did I just say that? . But that wasn't enough. Saturation happened about 4 years ago. As more boomers have retired the last four years the cash flow has had to come from somewhere. That is when the FED started printing money and will continue. The idea that this can stop is a fantasy. We have been sold that this is a crisis that will abate. But until someone tells the 65 year old he can't retire it will continue.

What we are seeing is the evidence it total that the time constant for how long you can buffer wealth is becoming shorter and shorter and shorter. You can't protect your self with credit default swaps. You can't even to do it with corrupting governments and money creation. Your lifestyle is going to be a one-to-one correlation with your current productivity. Not what you made 30 years ago or the promise of what you are going to make 30 years from now. Think about it. As markets drive towards greater and greater efficiency wouldn't this be the natural outcome?

money is a means of exchange, a unit of account and a store of value. you are asserting that it is losing its role as a store of value. i do not accept that efficiency necessarily requires that it be impossible to store value. but i agree that the current system is driving us in that direction.

[thriftyandboringinohio]

Re: US Govt Strategic Default: Both parties mull raising retirement age

We should also think about unintended consequences. When business is the topic we hear much chatter about the damage caused by uncertainty and changing the rules in the middle of the game. Same is true for consumers.

The average American was more willing to make purchases and invest retirement funds in riskier ventures based on a known worst-case scenario; namely, if I loose it all I'll get my social security, enough to pay for a little efficiency apartment and food to eat. That basic belief is crucial to the behavior of millions of individuals and how they spend and invest.

If we take that away, inevitably the average Joe will cut back and stuff money under the mattress. None of us wants to be a vagabond bum at age 67 because we dared start a business or invested our savings in one and it all went under. If the belief takes hold that only cash under the mattress can be assured, well, that's what people will do. No more giant retirement cash flows to wall street, no more robust consumer spending.