Retirement Nightmare

It is widely known that Americans on average have saved very little, and in many cases actually nothing, for their retirement. Here are a few examples of studies looking at retirement savings:  one recent study found that 50% of US citizens have saved precisely zero for their retirement. We quote:

 

“The youngest and the poorest are the least likely to be putting money aside. Fifty-six percent of all 18- to 34-year-olds are not saving at all for retirement, according to the study. In addition, just 23 percent of Americans earning less than $50,000 per year contributed at least $2,500 to their retirement accounts over the past year.

[…]

At the same time, many younger Americans simply cannot afford to start saving for retirement. Just one in two recent college graduates have full-time jobs, according to a study by Rutgers released on Thursday. And the average debt burden of twenty-somethings is $45,000, according to a recent study by PNC Bank.

That financial insecurity lasts throughout the lives of many. Forty-three percent of all American households are one crisis away from poverty, according to a recent study — meaning saving for retirement is all but impossible.

 

It is of course not particularly surprising that the poorest strata of society are the ones that find it nigh impossible to accumulate savings: they are the main victims of the incessant monetary inflation practiced in the modern-day fiat money regime (it is therefore rather mystifying that it is the political left that is usually most vocal in pleading for more inflation by the Fed; this can probably be ascribed to economic ignorance). These are the people who are the last to receive newly created money (if they receive it at all), by which time prices have already been bid up. They cannot profit from asset inflation, as they don't own any assets to begin with. As a result, they keep losing ground in real terms. In fact, it is a good bet that the percentage of the population that actually profits from inflation is exceedingly small – likely no more than 5% to 10%. Ironically it is also the group that needs these profits the least, since it is already the richest stratum of society.

Another study notes:

 

“A new report paints a rather grim assessment of how prepared we are for retirement. "The Retirement Savings Crisis: Is it Worse Than We Think?" from the Washington, D.C.-based National Institute on Retirement Security, says the typical American family has only "a few thousand dollars" saved for retirement.

"We have millions of Americans who have nothing saved for retirement," says Diane Oakley, executive director of the NIRS. "We have 38 million working-age households who do not have any retirement assets."

For people 10 years away from retirement, the median savings is $12,000. "Of the people between 55 and 64, one third haven't saved anything for retirement," Oakley says.

 

Bankrate conducts a regular survey asking Americans about their personal 'financial security', and its results are not particularly encouraging either. The financial security index is just about at the 100 level which is the demarcation between declining and increasing financial security:

 


 

Aug2013FinSecIndexBankrate's financial security index is declining again after briefly popping above the 100 level for a few months this year – via Bankrate.

 


 

We know of course that this sorry state of affairs is not exactly big news. The reason why we mention it is because it is such a contrast to what other statistics claim about the wealth of the citizenry and the economy's ability to produce wealth.

 

Orwellian Statistics

Even while the above plays out and many observers note that the government's unfunded liabilities are somewhere in the stratosphere, which means that people without savings will have to rely on a social security system that may become insolvent in a not too distant future, the government regularly reports that things are not just perfectly fine, but getting better.

It does so by regularly altering the statistics it publishes, allegedly to add to their precision. According to these 'more precise' statistics, there haven't been any noteworthy price increases for decades, in spite of the money supply growing by more than 1,000% over the past 30 years, and data describing economic output are continually altered to show how everything is getting better and better by putting a monetary value on things that actually have no market price. There are for instance 'imputations': as an example, banks charge no fees for checking accounts in order to attract customers. These fees that are not charged, are then added to 'income' by the government, by assigning an imaginary dollar value to them.

When the government recently altered GDP calculations, which resulted in the addition of the economic output of all of Belgium to US GDP, it started counting a number of intangibles as well. Some of these additions to output are truly absurd. For instance, pensions that companies are promising to pay in the future are now added to GDP. No-one knows if they will ever be paid of course, since companies can go bankrupt, can alter their pension plans, and are in any event lugging grievously underfunded pension plans around (estimates vary, but all the numbers are in the trillions). A recent study found that in spite of the stock market rally, the underfunding problem has grown; the plans of S&P 500 companies alone  are underfunded by nearly $1.6 trillion:

 

“The cumulative liability among defined benefit pension plans sponsored by companies in the benchmark Standard and Poor's 500 index increased to $1.56 trillion in 2012 from $1.38 trillion the year before, outpacing the growth in assets.”

 

Moreover, what value to put on these promised future payments is attended by considerably uncertainty, as it is unknowable what the purchasing power of money will be at these future dates. Recall that the US money supply has grown by more than 230% since the year 2000 alone. The full impact on money's purchasing power very likely has yet to arrive.

We should note here that it is certainly true that 'R&D' has value (another item that is now added to GDP). An argument can certainly be made that intangible capital adds considerably to long term economic growth. Unless protected by patents, knowledge is a non-rivalrous good: it is free, like the air we breathe. And yet, its application in production processes can serve to increase output in the long run. In a way this is similar to the effect described by Hayek, who noted that investments in certain stages of the capital structure can also affect the returns in stages of the capital structure that produce complementary goods. What is however crazy is the idea that any of this can be measured.

In fact, it seems to make no sense to add it to those things for which money prices are paid, and simply making up imaginary dollar values to do so. Not to mention the fact that what precisely is added in terms of imputations, R&D, or whatever other intangibles the government's statisticians have identified as worthy for inclusion, is completely arbitrary. The money prices that are paid for the products that have been produced with the help of both tangible and intangible capital already fully reflect the value buyers put on such goods or services. Why should additional numbers be made up out of whole cloth and be added on top?

When the government calculates the IT spending to be added to GDP, it employs hedonic indexing to determine the 'real' value of such spending. The result are imaginary numbers of stunning proportions. We illustrated the effect with an example in a previous post on the Reinhart-Rogoff study, in which we discussed in more detail what a nonsensical number GDP generally is. Let us quote the example again:

 

“In Q2 of 2003, actual spending on computers increased by $6.3 billion, from $$76.3 billion to $82.6 billion. If simply 'every monetary transaction' were added to GDP, then this is the number that would have been added, and thereafter it would have been massaged by the 'deflator'. If not for hedonic indexing, that is. Before we tell you, try to guess how big an increase in spending on computers the government actually added to GDP in this instance. Was it 20% larger? 30%? Maybe even 50%? Hold on to your hat.

The number added by government to GDP instead of the $6.3 billion in actual additional spending was $38.2 billion. In other words, almost $32 billion in completely imaginary money that no-one ever spent or received, with the total number used by the government amounting to more than 6 times the actual spending growth was used for the calculation of 'real GDP'. It should probably be renamed 'unreal GDP'.

One could easily throw a 'growth' party with such methods in the middle of a depression.”

 

(emphasis added)

To some extent we can even understand the argument for hedonic indexing, which attempts to put a value on quality changes. But what these arithmetic acrobatics ultimately demonstrate is the complete futility of trying to generate meaningful aggregate economic statistics.

 

Giant Overnight Imaginary Wealth Creation

We have now learned that the government has decided that US citizens have actually become wealthier by $3 trillion overnight. Don't try to spend all that new-found wealth all at once though, unless you can find someone who accepts imaginary dollars for real goods. That is what you would have to accomplish if you wanted to actually spend it.

Via Zerohedge:

 

“As today's release of the Fed's very much revised Flow of Funds report confirmed, US households as of this moment are wealthier by over $3 trillion, just because the re-definition of the Pension Fund line item, which is no longer counted as "Reserves" but the broader "Entitlements."

End result: whereas Americans last quarter had net worth of $70.3 trillion, as a result of this revision, they now have $73.5 trillion. Revisionist Definition wealth for everyone!”

 

Apparently this addition of $3 trillion in imaginary wealth is a follow-on effect of the above discussed inclusion of the value of pension promises in GDP. The result is that the leverage of households now looks far smaller than it actually is.

Readers may have noticed that there has never been a change in definitions or statistical methodologies that is making things look worse. For instance, improvements in quality are counted – declines in quality never are. The effect of monetary inflation on prices has been defined away with so many tricks, that the measurement has become utterly meaningless for the vast bulk of the population (the price effects of inflation are different for different strata of society, depending on what goods they mainly spend their money). If the government were still using the same methodology to calculate 'consumer price inflation' it employed in the early 1980s, economists would now be discussing why we are in stagflation.

And so it is not surprising that mere promises are suddenly regarded as actual wealth. The only problem is that this wealth does in fact not exist. This brings us back to the retirement savings problem discussed above. The problem with the aggregate of household assets and liabilities the Fed publishes is precisely that it is an aggregate – it contains the assets of the top few percent of the population that own the bulk of he wealth (and can thank the Fed profusely for helping it to attain this exalted position with its policy of constant inflation – which in yet another Orwellian twist has been misnamed the 'price stability policy').

For the remaining population this statistic is completely meaningless. It's only purpose as far as we can tell is to make the government's economic policies look better. We suspect that is the purpose of most of these statistical mirages that have been created over the years.

 


 

 
 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

5 Responses to “The Accumulation of Phantom Wealth”

  • Bogwood:

    The whole idea of retirement was an illusion created in an era of cheap energy/resources which is now in the rear view mirror. The real concern is disability, how to plan for it, how to define it. National programs are probably inadequate. In one program you have to be disabled to get a job,in the other you have to be disabled to get benefits without working. Only your family,friends and neighbors will judge your disability accurately. The young adults should forget retirement but consider their disability options. The options will be more local, fairer but still a little element of red tooth, red claw.

  • Mark Humphrey:

    I like this blog and read it nearly every day.

    But your statement above, “Unless protected by patents, knowledge is a non-rivalrous good: it is free, like the air we breathe.” won’t hold water. On what basis you conclude that knowlege is free or “non-rivalrous” mystifies me. Real knowlege isn’t free, a condition of nature, like air or sunshine. It is scarce and today, rare even.

    What does rivalry have to do with knowlege, or with private property, for that matter? The purpose of property is to demarcate the works of morally sovereign individuals, so that the productive can enjoy and keep what they’ve earned.

    Of course, if one views this issue from a Misian perspective, in which values are subjective and people are utility maximizers, incapable of distinguishing between truth and falsehood, between good and bad, then property exists only to prevent rivalries from getting out of hand. So from this perspective, one thought or idea is the same as another thought, since they’re all expressions of subjective utility of the subject. From this perspective, there’s no free will, since people are automans who are locked into their subjective world views. Finally, from this view, knowlege is non-absolute, because the idweas people choose to hold as “knowlege” simply satisfy subjective longings.

    Given Mises’ subjectivism, of course, knowlege is not objective and ideas are interchangeable. Interchangeable subjective ideas are “free”–a condition of human nature.

    I won’t try to persuade anyone that this view is wrong. But I’m guessing that this view gives energy to the idea that ideas are “non-rivalrous”. Whatever the imagined relevance of this imaginary concept to reality, the fact remains that good ideas are scarce and valuable. Copyrights and patents simply uphold imperfectly the rights of writers and inventors to prevent unauthorized knockoffs by buyers of their PHYSICAL CREATIONS (written poems and stories, etc; mechanical devices and biological innovations, etc.).

  • Thomson Hankey:

    The entire concept of wealth for an entire society measured in USD – or in any other currency – is an artifact. It just represents from an accounting standpoint the current valuation of the stock of real estate, equities, bonds and so forth and actually, the higher the stock of wealth to the flow of income (GDI), the poorer society is. Let’s consider a society where the the valuation of all assets is equal to the total yearly income and a society where it is ten times (which is roughly where most current national systems are trending). Which society is richer? Of course the latter one, as people can afford much more real estate and own much more units of stocks and bonds from which they derive more yield (income) by virtue of the lower valuations. Thus, what is true for an individual or for a group of people (a higher wealth to income ratio is better), is not true for society as a whole (it just means that the valuation of assets is high compared to income i.e. that the purchasing power is low).

    • JasonEmery:

      Agreed, Hank. Another point is that it is almost impossible for a vast nation state to save for the future!! Certainly an individual can do so, and maybe even a small country, the size of Panama. Individuals and the Panamanian Nation can work hard and generate wealth, and then trade that wealth for things, like dollars, gold, stocks, bonds, etc. all without pushing the price up against themselves in the purchasing process.

      But when a country reaches the size of the USA, relative to the entire World’s economy, (25%), it is impossible to buy anything in size without pushing up the price to the stratosphere. This limits the amount that can be saved, and creates destructive asset bubbles in the process.

      The best example is the vast wealth created by the Baby Boomer Generation, arguably the largest, best educated working block of people ever assembled on the face of the planet. If their wealth is around $70 trillion, minus their share of federal debt and unfunded liabilities, they are collectively $100 Trillion UNDERwater!!!

      When the boomers the their peak earning years, they bid up the price of worthless tech stocks to the heavens, and we know how that ended. Another example is the Social Security Trust Fund. They correctly realized in the early ’80’s that the Baby Boomer generation would annihilate ‘pay as you go’ structure starting around 2010, if no changes were made. So they vastly increased the tax, with the idea that the amount of revenue collected that was over and above benefit payments, would go into a lock box, earning interest. Here, another common problem manifested itself. The govt. never met a dollar (or peso, or franc, etc.) that it couldn’t figure out a way to spend. So much for the ‘lock box’ concept.

  • No6:

    In Argentina you could be arrested for publishing this kind of heresy.

    Soon coming to the USSA no doubt.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • Yanking the Bank of Japan’s Chain
      Mathematical Certainties Based on the simple reflection that arithmetic is more than just an abstraction, we offer a modest observation.  The social safety nets of industrialized economies, including the United States, have frayed at the edges.  Soon the safety net’s fabric will snap. This recognition is not an opinion.  Rather, it’s a matter of basic arithmetic.  The economy cannot sustain the government obligations that have been piled up upon it over the last 70...
  • Prepare for Another Market Face Pounding
      “Better than Goldilocks” “Markets make opinions,” goes the old Wall Street adage.  Indeed, this sounds like a nifty thing to say.  But what does it really mean?   The bears discover Mrs. Locks in their bed and it seems they are less than happy. [PT]   Perhaps this means that after a long period of rising stocks prices otherwise intelligent people conceive of clever explanations for why the good times will carry on.  Moreover, if the market goes up for...
  • What Went Wrong With the 21st Century?
      Fools and Rascals   And it’s time, time, time And it’s time, time, time It’s time, time, time that you love And it’s time, time, time… - Tom  Waits   Tom Waits rasps about time   POITOU, FRANCE – “So how much did you make last night?” “We made about $15,000,” came the reply from our eldest son, a keen cryptocurrency investor. “Bitcoin briefly pierced the $3,500 mark – an all-time high. The market cap of the...
  • The Future of the Third World
      Decolonization The British Empire was the largest in history. At the end of World War II Britain had to start pulling out from its colonies. A major part of the reason was, ironically, the economic prosperity that had come through industrialization, massive improvements in transportation, and the advent of telecommunications, ethnic and religious respect, freedom of speech, and other liberties offered by the empire.   The colors represent the colonies of various nations...
  • Bitcoin Forked – Precious Metals Supply and Demand Report
      A Fork in the Cryptographic Road So bitcoin forked. You did not know this. Well, if you’re saving in gold perhaps not. If you’re betting in the crypto-coin casino, you knew it, bet on it, and now we assume are happily diving into your greater quantity of dollars after the fork.   Bitcoin, daily – adding the current price of BCH (the new type of Bitcoin all holders of BTC can claim at a 1:1 ratio), the gain since the “fork” amounts to roughly $1,000 at the time we...
  • Seasonality: Will Patterns that Worked in the Past Also Work in the Future?
      Historians of the Future Every investor makes trading decisions based on what happened in the past – there is no other way. What really interests us is the future though. After all, what happens in the future ultimately determines investment success.   When in doubt, you can always try to reach the pasture...  In Human Action, Ludwig von Mises described stock market speculators as akin to “historians of the future”. This is without a doubt the most trenchant definition of...
  • Czar vs. Pope
      Vladimir the Great Sums Up Pope Francis the Fake Vladimir Putin has once again demonstrated why he is the most perceptive, farsighted, and for a politician, the most honest world leader to come around in quite a while.  If it had not been for his patient and wise statesmanship, the world may have already been embroiled in an all-encompassing global conflagration with the possibility of thermonuclear destruction.   Vladimir Putin is sizing up Pope Francis with his “good...
  • Bitcoin Has No Yield, but Gold Does – Precious Metals Supply and Demand Report
      Bitcoin and Credit Transactions Last week, we said:   It is commonly accepted to say the dollar is “printed”, but we can see from this line of thinking it is really borrowed. There is a real borrower on the other side of the transaction, and that borrower has powerful motivations to keep paying to service the debt. Bitcoin has no backing. Bitcoin is created out of thin air, the way people say of the dollar. The quantity of bitcoins created may be strictly limited by...
  • Is Historically Low Volatility About to Expand?
      Suspicion Asleep You have probably noticed it already: stock market volatility has recently all but disappeared. This raises an important question for every investor: Has the market established a permanent plateau of low volatility, or is the current period of low volatility just the calm before the storm?   All quiet on the VIX front... what can possibly happen? [PT] - click to enlarge.   When such questions regarding future market trends arise, it is often...
  • Why There Will Be No 11th Hour Debt Ceiling Deal
      Milestones in the Pursuit of Insolvency A new milestone on the American populaces’ collective pursuit of insolvency was reached this week. According to a report published on Tuesday by the Federal Reserve Bank of New York, total U.S. household debt jumped to a new record high of $12.84 trillion during the second quarter. This included an increase of $552 billion from a year ago.   US consumer debt is making new all time highs – while this post GFC surge is actually...
  • Will They Haul Off Trump’s Statue, Too?
      Confused by Shadows POITOU, FRANCE – This week, we are talking about theperishable nature of gods. Yesterday, the city fathers of our hometown of Baltimore let it be known that it was time to toss out the old deities.   The Robert E. Lee and Thomas. J. “Stonewall” Jackson Monument in Baltimore, which the mayor inter alia wants to remove. Suddenly it has become fashionable to erase the memory of an important part of US history all over the country. By experience, this...
  • Bad Ideas About Money and Bitcoin
      How We Got Used to Fiat Money Most false or irrational ideas about money are not new. For example, take the idea that government can just fix the price of one monetary asset against another. Some people think that we can have a gold standard by such a decree today. This idea goes back at least as far as the Coinage Act of 1792, when the government fixed 371.25 grains of silver to the same value as 24.75 grains of gold, or a ratio of 15 to 1. This caused problems because the market...

Support Acting Man

j9TJzzN

Austrian Theory and Investment

Own physical gold and silver outside a bank

Archive

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com