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