Retirement: Surely You Jest

A 90% cogent article in The New York Times discusses the utter absence of any contact with reality in most Americans' retirement plans. The numbers do not come close to adding up. The article is here.

Seventy-five percent of Americans nearing retirement age in 2010 had less than $30,000 in their retirement accounts. The specter of downward mobility in retirement is a looming reality for both middle- and higher-income workers. Almost half of middle-class workers, 49 percent, will be poor or near poor in retirement, living on a food budget of about $5 a day.

This means that a majority of Americans have not taken seriously the economics of retirement. They have not saved. They have been faithful Keynesians. They have spent. They have borrowed to finance this spending. They have been grasshoppers, not ants.

To maintain living standards into old age we need roughly 20 times our annual income in financial wealth. If you earn $100,000 at retirement, you need about $2 million beyond what you will receive from Social Security. .....This number is startling in light of the stone-cold fact that most people aged 50 to 64 have nothing or next to nothing in retirement accounts and thus will rely solely on Social Security.

If we manage to accept that our investments will likely not be enough, we usually enter another fantasy world – that of working longer. After all, people hear that 70 is the new 50, and a recent report from Boston College says that if people work until age 70, they will most likely have enough to retire on.

 I was warned in 1959 that the government would default on its Social Security promises. My high school civics teacher ran the numbers for us. The program would go bankrupt. It did: in 2010. The general fund is now bailing it out....The confidence that people have in the future is based on ignorance, procrastination, and naivete. The voters do not understand how close the U.S. government is to bankruptcy. I define "bankruptcy" as follows: "the inability of the Treasury to borrow money at rates low enough to keep from producing Great Depression II, but without relying on the Federal Reserve System to lend at these low rates."

By Gary North

Turning Into PIIGS: Why France’s Debt Crisis Could Doom the EU

From one ragged country to another. We are on a tour of Europe’s unraveling economies. Ireland…Spain…and now France.

France seems to be hanging by a thread too…

The Telegraph:

Public debt in France is at 86.1pc of GDP (146pc if ECB liabilities and bank guarantees are included). The projected budget deficit this year is 4.5pc, with France having exempted itself from the EU’s instruction to bring deficits down to 3pct by the end of the year.

France’s numbers are not so different from those of the US. But America has a very big bazooka….one that France does not have…at least not yet. The US can give out the word to its central banks to buy its own bonds. It can ‘monetize the debt’ in other words.

This is always a disastrous policy…but that doesn’t make it unpopular. And in a period of debt destruction, the disaster may be far in the future…and it may not be suffered by the people who cause it. But France doesn’t have that option. It has to operate in a more honest system…like the individual US states. Which means, it has to cut spending.

By Bill Bonner

The Illusion of Choice

.............The State’s self-serving version: Too Big to Fail? Where might the economy be if the weak hands had been eliminated from the market, ceding what remaining value they had on the books to institutions that had exercised prudence and good judgment while future bailout recipients busily indulged in excessive risk-taking and reckless profligacy?

We’ll never know, of course…because Bernanke, Paulson, Pelosi & Co.’s false dilemma scared enough people into thinking there was “no other option”........ it attacks the creative process by which new ideas come to “market” by slamming the door closed on alternative possibilities.

Nowhere is a free market alternative presented. And it’s little wonder why. At the precise point the free market ends, the tyranny of The State begins. Nowhere do the two overlap. (Crony capitalism, mixed market economies and the rest are NOT free markets.) Clearly, therefore, it is in The State’s best interest to see that free market activity is marginalized as far as possible in order that The State itself might occupy ever more space in people’s minds and, by extension, in the economies they are “allowed” to build....some confused people even contend that, were we to ignore the iron-fisted directives of The State, we would promptly descend into a Mad Max-style dystopia, in which a collection of unchecked territorial monopolies would roam the planet, stealing and damaging property at whim and torturing, imprisoning and killing whomever they so wished.....

By Joel Bowman

Jim’s Mailbox....

In 1974 I placed an advertisement in Barrons saying gold would go to $900. That made for good laughs amongst the establishment then at Domonicos Steak House in the financial district. When in early 2000 I suggested gold would go to $1650 there were great laughs amongst the newbies. Now we are going to and through $3500.

If we go back to the late 1960′s, the gold price was suppressed to try and keep it at the $35 dollar price level where it had been for years, some three and a half decades. If anyone had suggested the gold price would rise from $35 to $887.50 at the high in 1980, they would have been considered nuts. A 25 fold increase. Yes, it settled down at 400 dollars for the next 30 something years, but that was still 11.4 times what it had been for the several decades before that.

We now have moved up to roughly 1600 dollars, a 4 fold move. The folks that did the repression in the 1960′s, I believe it was called the London Gold Pool, lost the battle, and the same folks doing the same thing will lose this one too....

....a 25 fold move for gold would put us at $10,000 gold, something most reading this will simply not believe.

The powers that be continue to print more paper money with abandon, while denying to the grave they are doing it. They either print, or the system comes down tomorrow..... 

Nations are no different than people. At some point you cannot pay the interest. When that happens, currencies implode. When currencies implode, you better make sure you own gold. If you have the means to buy in the current weakness in the gold price, do so. If you don’t have the means, don’t do anything – make sure you have ample cash in hand so as not to have to sell out any of your position while it has been manipulated lower. There are powers that want you out of gold, holding only paper for when the currencies are devalued. Do not throw away your insurance policy. When gold lights up, many will be shocked, not understanding why it is doing so. The price control mechanism for gold and silver is beginning to break down, as it did in the 60′s.

The Aftershock Survival Summit Transcription

Given the pullback in income growth as well as other economic factors like inflation and a weakened dollar, the retirement age would now have to be raised to 73 for average Americans just to maintain the same standard of living as in the 1940s.

Since the average life expectancy is currently about 78, millions will now have to work until they drop dead, instead of enjoying their golden years.... jobs will be tight, especially for people over 55. So for those seeking job security during the coming crisis, the necessities sector is the place to be.This is composed primarily of healthcare, education, utilities, basic food, basic clothing, and government services.

I'm not a "Gold Bug" by any means. But I know what investments are right for different conditions.
Gold will continue to be a favorite safe haven for countries across the globe.
Right now, only 10 percent of the world's total gold is purchased by the United States.
Which puts us right in line with Turkey.

India currently buys more than 20 percent of the world's gold, China 18 percent, and other countries will increase their stakes in this precious metal as confidence in the U.S. wanes.

But gold is just like any other bubble. It will burst eventually...

After inflation really sets in, you will need to keep cash in short-term investments such as money markets, TIPS, and Treasuries. Their low returns don't exactly make them very attractive, but they will protect you against inflation much better than longer-term debt.
I highly advise our viewers to stay away from long-term bonds.
Let me stress that again. Avoid long-term, government bonds.

.....Bob Wiedemer (author of Aftershock)
The Aftershock Survival Summit Transcription

About Those Excess Reserves At the Fed

If reserves do not matter, if they are a meaningless accounting entity, then it would not matter what the Fed pays on them, except for the purposes of a risk free handout to their banking buddies. And there may be a valuable insight in that after all.

Regardless, I would just like the Fed to make up its collective mind what their position on this really is, and not trot out whatever argument they feel suits the moment, although that does seem to be à la modeamongst economists these days. They have become as bad as attorneys and accountants. The truth is whatever we say it is, whatever the guy with the most money wants it to be.

The next time some economist says that paying interest on Excess Reserves does not matter, show them this newswire copied below, and let them argue it with Alan Blinder. San Francisco Fed President John C. Williams made a similar argument about four weeks ago. And Bernanke concurs that this is a powerful weapon in his mad scientist's toolkit. ....some economists argue that Fed interest payments on reserve do not matter because they do not want to deal with the political issue of paying what is essentially a subsidy to the banks for the reserves that the Fed creates for them...

jessescrossroadscafe

David Einhorn Throws France Under The Bond Vigilante Bus

.... France is now cozying up to its new anti-austerity, pro-money-printing allies, Italy and Spain. This makes sense when one considers that France's economy is more akin to that of its southern neighbors than it is to the German economy. Strangely, the French bond market hasn’t figured this out just yet."

In April, the LTRO “fix” began to wear off as bank customers in Europe’s periphery started contemplating what would happen to their savings if their nation left the Euro. Visions of bank statements not in Euros, but in ‘newly re-issued for the purpose of devaluation’ local currency, offered no twinges of nostalgia. National pride gave way to pragmatism as depositors in Spain, Italy and Greece began transferring money in droves from their respective local banks to less risky banks of other countries – particularly those with German names. The market took note of these incipient bank runs as peripheral sovereign bond spreads raced to new highs.

By early June the market had given back all of its first quarter gains ....a simple analysis of Germany shows that its own fiscal situation isn’t so rosy, particularly if it is also headed toward recession. Were it to try to bail out its neighbors, there is the risk that they would all sink together. Germany already has its own fiscal commitments, and its economy is simply not big enough to bail out the rest of Europe.

The whole thing is such a mess – who can blame them for heading for vacation? ....

By Tyler Durden