Mauldin: Social Security Is Screwing Millennials
ZeroHedge.com Fri, 10/11/2019 - 14:52 Authored by John Mauldin via RealInvestmentAdvice.com, Social Security is a textbook illustration of how government programs go off the rails. It had a noble goal: to help elderly and disabled Americans, who can’t work, maintain a minimal, dignified living standard. Back then, most people either died before reaching that point or didn’t live long after it. Social Security was never intended to do what we now expect, i.e., be the primary income source for most Americans during a decade or more of retirement. Life expectancy when Social Security began was around 56. The designers made 65 the full retirement age because it was well past normal life expectancy. No one foresaw the various medical and technological advances that let more people reach that age and a great deal more, or the giant baby boom that would occur after World War II, or the sharp drop in birth rates in the 1960s, thanks to artificial birth control. Those factors produced a system that simply doesn’t work. A few modest changes back then might have avoided today’s challenge. But now, we are left with a crazy system that rewards earlier generations at the expense of later ones. Screwing Millennials I am a perfect example. I’ve long said I never intend to retire, if retirement means not working at all. I enjoy my work and (knock on wood) I’m physically able to do it. Social Security let me delay collecting benefits until now, for which I will get a higher benefit—$3,588 monthly, in my case. Now, that $3,588 I will be getting each month isn’t random. It comes from rules that consider my lifetime income and the amount of Social Security taxes I and my employers paid. That amount comes to $402,000 of actual dollars, not inflation-adjusted dollars. (I also paid $572,000 in Medicare taxes. Again, actual dollars, not inflation-adjusted dollars.) What did those taxes really buy me? In other words, what if I had been allowed to invest that same money in an annuity that yielded the same benefit? Did I make a good “investment” or not? That is actually a very complicated question, one that necessarily involves a lot of assumptions and will vary a lot among individuals. In my case, if I live to age 90 and benefits stay unchanged, the internal real rate of return on my Social Security “investment” will be 3.84%. If I only make it to 80, that real IRR drops to 0.75%. While this may not sound like much, it actually is. Even 1% real return (i.e., above inflation) with no credit risk is pretty good and 3.84% is fantastic. If I live past 90 it will be even better. But this is not due to my investment genius. Four things explain my high returns.
They paid less and received more. But we Boomers are still getting a whale of a deal compared to our grandchildren. Now, consider a male who is presently age 25, and who earns $50,000 every year from now until age 67, his full retirement age. Such a person is not going to get anything like the benefits I do, especially with benefit cuts, which my friend Larry estimates will be as high as 24.5%. So, if this person lives an average lifespan and gets only those reduced benefits, his real internal rate of return will be -0.23%. I suspect very few in the Millennial generation know this and they’re going to be mad when they find out. I don’t blame them, either. The Next Quadrillion The reason Millennials won’t see anything like the benefits today’s retirees get is simple math. The money simply isn’t there. The so-called trust fund (which is really an accounting fiction, but go with me here) exists because the payroll taxes coming into the system long exceeded the benefits going to retirees. That is no longer the case. Social Security is now “draining” the trust fund to pay benefits. This can only continue for so long. Projections show the surplus will disappear in 2034. A few tweaks might buy another year or two. Then what? Well, the answer is pretty simple. If Congress stays paralyzed and does nothing, then under current law Social Security can only pay out the cash it receives via payroll taxes. That will be only 77% of present benefits—a 23% pay cut for millions of retirees. And please understand, there is no trust fund. Congress already spent that money and must borrow more to make up the difference. This IS going to happen. Math guarantees it. Missing Opportunities These problems would be less serious if more people saved for their own retirements and viewed Social Security as the supplement. There are good reasons many haven’t done so. Worker incomes have stagnated while living costs keep rising. But more important, telling people to invest their own money presumes they have investment opportunities and the ability to seize them. That may not be the case. The prior generations to whom Social Security was so generous also had the advantage of 5% or better bond yields or bank certificates of deposits at very low risk. That is unattainable now. And let’s not even talk about mass numbers of uninformed people buying stocks at today’s historically high valuations. That won’t end well. So, if your solution is to put people in private accounts and have them invest their own retirement money, I’m sorry but it just won’t work. It will have the same result as those benefit cuts we find so dreadful: millions of frustrated and angry retirees. So, what is the answer if you are in retirement or approaching it? The easiest answer is to raise the retirement age. Yes, that’s really just a disguised way to cut benefits, but making it 70 or 75 would get the program a lot closer to its original intent. Today’s 65-year-olds are in much better shape than people that age were in 1936 or even 1970. (Note, I would still leave the option for people who are truly disabled to retire younger. I get that not everybody is a writer and/or an investment adviser who makes their living in front of the computer or on the phone. Some people wear out their bodies and really deserve to retire earlier.)
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The Founders Warned Us About Central Banking
ZeroHedge.com Tue, 10/08/2019 - 18:45 Authored by South Carolina state Rep. Stewart Jones via SchiffGold.com, The Federal Reserve just lowered interest rates for the second time this year and announced more quantitative easing by injecting even more US dollars into the market. The days of cheap money will soon come to an end, and I fear that many people won’t realize what’s happening until the rug is pulled out from under them. As economist Henry Hazlitt wrote, the practices of the Fed distort the real-world market indicators of cost, future prices, investments and production. A recent study from the National Association for Business Economics showed that 72% of economists now predict that a recession will occur between 2020 and the end of 2021. Some have even warned that the US is on the brink of the biggest bubble in world history — not just a correction of a business cycle or another recession, but a complete collapse of the US dollar. Yet the dangers of centralized banking are not new knowledge. For centuries, people — including many of our founding fathers — have tried to warn us of the numerous threats posed by institutions like the Federal Reserve. Today, it’s understood by many that the recklessness of the Fed allowed for the subprime mortgages that caused the Great Recession of 2008. With over $22 trillion in debt, $120 trillion in unfunded liabilities, and, soon, an all-time high debt-to-GDP ratio (comparable to World War II levels), however, it’s not overstating it to say that the Fed-facilitated out-of-control federal government spending constitutes the greatest threat to the American way of life in history. To understand the full extent of the debt and the destruction of the dollar, it’s essential to realize that paper money has a history of being printed as bills of credit to finance runaway government. In 1775, the founders attempted to use paper money without gold or silver backing, and they found that the inflation robbed them of any value. In 1788, Thomas Jefferson wrote: Paper is poverty. It is only the ghost of money, and not money itself.” The Coinage Act of 1792 then set specific ratios for gold and silver coinage, placing gold and silver in control rather than a central bank. This lasted until the passage of the Federal Reserve Act of 1913, which allowed for the formation of the Federal Reserve System just two decades before Pres. Franklin D. Roosevelt started to come after private ownership of gold and silver in the 1930s. In 1944, the Bretton Woods system made the US dollar the reserve currency of the world, when it was still partially backed by gold and silver. Finally, in 1971, the Nixon Administration suspended wages, issued price controls, and canceled dollar-to-gold convertibility, completing the final step in ending the “gold standard.” This gave the central government planners — and the federal reserve — the power to print money without restraint. This is how the national debt has been able to reach the levels that it has. The only thing backing the US dollar today is public debt. Remember when Coke was a nickel? In 1913 (the year the Fed was founded) a bottle of Coke cost five cents. Today, a bottle of Coca-Cola costs an average of $1.79. While there are many factors (like supply and demand, cost of goods, etc.) that help set prices, inflation plays a critical part. At an average inflation rate of 3.12% annually, inflation alone accounts for $1.30 of the actual cost of Coke. The addition of more US dollars doesn’t mean that anyone is more wealthy; in fact, it means that the dollars you have are worthless. You will need a higher amount of dollars to buy the same goods and services. Hence, saving inflated dollars, in many cases, is losing value. Those who save money are being robbed. With the continued decline of the dollar, there could also be hyperinflation on an unprecedented scale. Both James Madison and Thomas Jefferson warned that “the greatest threat to be feared” was the “public curse” of “public debt”, and that “banking establishments are more dangerous than standing armies.” The founding fathers understood the dangers of centralized manipulation of the money supply, the hidden taxation of inflation, and the control of buying power. They understood that gold and silver are real money. Furthermore, if we look at the history of money, we can see that precious metals, mainly gold and silver, have been used for coinage for over 2600 years; in one way or another, gold and silver have been used by people for over 6.000 years. American revolutionary leader Christopher Gadsden said in September 1764: The evils attending a wanton exercise of power, in some of the colonies, by issuing a redundancy of paper currency, has always been avoided by this province, by a proper attention to the dangerous consequences of such a practice, and the fatal influence it must have upon public credit.” People across the US should heed his warnings by allowing gold and silver to be used as legal tender once again. Some states like Utah have done just that. While this won’t stop the Federal Reserve’s destruction of the dollar, it will allow people to convert dollars to sound money before a collapse. Sound money, like gold and silver, acts as a check and balance on big government, a hedge against inflation, and a way to combat manipulation by the Fed. This is exactly why, in my home state, I will soon be filing the “2020 South Carolina Sound Money Bill,” allowing South Carolinians to use gold and silver as legal tender. I will also introduce legislation to exempt gold and silver from capital gains tax, both of which are already exempt from sales tax in South Carolina. We the People can restore sound money by using the Ninth and Tenth Amendments to the US Constitution. It is my hope that, with the success of these bills, other policymakers elsewhere will become inspired to lead by example on this vital issue as well. The key to protecting the American way of life from the federal reserve’s obliteration of our currency rests with the legislatures, but we must heed the lessons of history now. What Hyperinflation in Venezuela Really Looks Like
Theorganicprepper.com April 16,2019 by J.G. Martinez D. The intention of this article will be to describe how the prices went wild, and what you could expect in a hyperinflation scenario. Perhaps softer, or perhaps worse, that is not possible to know for an amateur like me, not being an economist. But something similar to this is what could be expected in the real world, not in some hypothetical scenario of the theoretical economy. For some reason that I will try to elucidate afterward, the salaries stopped being useful for buying anything other than food. The prices I will publish in our national currency, the Bolivar already were rounded by taking 3 zeroes by Uncle Hugo´s command. A few days ago, this was done…again, now by command of the bus driver, in an attempt to make the hyperinflation look less threatening. Go figure. One Bolivar is worth 0.000020 USD. The minimum wage is $5.21 or 1.800.000 Bs for a month. Now, how could we expect someone to live under these conditions? It is entirely unexplainable to me that this has not generated massive riots…yet. Here are the hyperinflation costs of basic items in Venezuela Remember, many people are paid only 1.800.000 Bolivars for a month:
One of the most amazing things I have seen is that people are in total denial, and they refuse to accept that the money is not worth even the paper it is printed on. They won’t innovate changing to cryptos easily, nor will they accept silver coins, much less other precious metals. They won’t barter, they won’t trade their labor time (I mean major cities, in my small town things are a little different). We had a good supply of silver coins in the 60s, but that changed. They talk and talk, complaining about the government, but they just don’t do anything. I have seen some small plots in our subdivision with tomatoes plants and other vegetables, but that is just a salad for one lunch. And the people passing by will take whatever is within their hand’s reach. The electronic money has been devaluated much more than cash. Something with a price in cash, if you try to pay with debit card or money transfer via internet the price will be 2 or 3 times the cash price. Illegal? Yes, it is. But there is no way to control it. The main problem arises because it is the military taking over the supply chain. They have an agreement with the gangs, and they deviate the production of the plants that are under military control, to the street sales. The gangs are armed, and they protect the retail sellers from thieves and turmoil. This is in the most populated cities, where the money is, and therefore the products don’t make it so often up to the smaller towns. The black market offers of tires, food, car spares, engine oil, and all kind of medicines and goods are rampant, and the social networks are full of resellers. You may expect a morality crisis, in parallel with this economic crisis. I asked a granny how much was charging for some hand towels she had for sale, and I did not have enough money in my pocket to buy even one towel…I apologized but saw she was upset. It was a sad, awkward moment indeed. Senior citizens are taking a beating. Their pension is not enough for one week worth of food. Jeez, maybe once this is published it will be not enough even for a couple of days…the clowns that tried to sell the “petro” just realized that this snake oil did not work. The calculated inflation is 13.000%. Without money from the IMF, having paid the debt, and kicked them out of the country…the disaster arrived anyway. The government just does not want to do what they have to do. There are too many military personnel involved in the black market and an uprising is more than possible that will launch the gangs in power off to the ground if some of them are disturbed. How people survive To find a medium of exchange, and at the same time capable of holding its value until you actually need to exchange it is not easy. Cigarettes, chocolates, all kind of commodities have been used, and there is a small but growing trade with this stuff. Not at the dimensions one would imagine, but generally speaking, the financial culture in our society is almost unknown. There is no such thing as a stock exchange (but there was one, in the past), and whatever other things that smell like the free market, the gov carefully removed. People clamor for “price control” without even realizing that it is not the price but the lack of production what is starving them. I have known some people that even received satoshis as a medium of payment for food or car parts. However, as the BTC has been going down these last weeks and the amount of satoshis to receive is calculated based on the USD price, this trading has been slowing down. As I have mentioned, the country is already collapsed. Those self-employed that could adjust their fees for their service from one day to another, and that could receive, say, a bag of sugar for their valuable services are those who are not overly stressed to leave the country. This is one of the most important lessons, I think. Someone with manual, valuable skills, that could provide basic goods or services, will be able to survive. They will just adjust their prices…and if the customer can´t pay, then most likely they will trade in their service for something to barter. People with low maintenance trucks, that have received meat as payment in a farm for transporting a load of hay (many farmers have to buy hay down here in the dry season because they don´t have the machines to compact it and there is no rain for the pastures to grow). They exchange the remaining meat for cheese, poultry, and fish. Or the electrician like my dad got paid with half a pork for one day of work at his friend´s farm rewiring an old corn mill. He took the excess as a gift to one of my cousins, and got back 6 kgs of pasta, and 2 of sugar. This is how we, in the small community I was born and raised and my family is lucky to live yet, are dealing with the criminals that have imposed the crisis. These are the places where people support each other because we know everyone since we were small kids. We grew up together, went to school, and celebrate birthdays, Christmas, Mardi Gras together. We cried when our elders were gone, all together. I have found people from my hometown in the opposite side of the country that I did not remember, and they had gone to basic school with me, and after a few anecdotes, we were laughing and shaking hands. This is the kind of community that will struggle but will survive. The other ones?. The big city dwellers?… The hardworking father of three, with a minimum wage, is starving, and watching their family starve too. Some of them quit their jobs and started a life of crime. Other ones leave their families behind and don’t come back. Other have been kind enough to tell their families that they will be in this or that country, and never appear again. Many have committed suicide. Elders do it because they don’t want to be a burden nor an additional weight for their family. Youngers because they don’t see themselves in such apocalyptical scenario. Normal stuff in other countries like buying a car, a house, having children, graduating from college, seem to be impossible tasks, no matter how hard you work for that. The official rate of suicides is not something that can be trusted. The gang that claims to be a government is covering up even the starvation deaths of the children in the hospitals, in an attempt to avoid further international sanctioning. They are forcing doctors to fake the cause of the deaths in the reports. And this, ladies and gentlemen, is what hyperinflation and a collapsed country looks like. Could it happen in the United States? Absolutely! Think about it! Which are the least tax-friendly states in America? California doesn’t crack the top 10, but Illinois sure does
Marketwatch.com 10-3-19 This week, the personal-finance publication Kiplinger’s released its list of the most — and least — tax-friendly states in America. To draw its conclusions, it used a hypothetical couple with two kids and $150,000 in income a year plus $10,000 in dividend income, and then looked at the income-, property- and sales-tax burden that family would face. Illinois took the No. 1 spot on the list, thanks in large part to its high property taxes. The Land of Lincoln was followed by Connecticut and New York, both of which have pretty high-income taxes. The 10 least tax-friendly states: 1. Illinois 2. Connecticut 3. New York 4. Wisconsin 5. New Jersey 6. Nebraska 7. Pennsylvania 8. Ohio 9. Iowa 10. Kansas Meanwhile, the most tax-friendly states (in order) were Wyoming, Nevada and Tennessee. The first two don’t levy an income tax; Tennessee has an income tax, but it only applies to interest and dividends and not to salaries and other wages. The 10 most tax-friendly states: 1. Wyoming 2. Nevada 3. Tennessee 4. Florida 5. Alaska 6. Washington 7. South Dakota 8. North Dakota 9. Arizona 10. New Hampshire One surprise? California, widely considered a high-tax state, didn’t crack the top 10 least-friendly tax states. (Of course, it’s important to point out that this Kiplinger’s ranking would look different if the hypothetical family and its income and dividends were different.) Rocky Mengle, the tax editor for Kiplinger’s, told MarketWatch that’s because many people “when they talk about California tax, they focus on the 13.3% [income tax] rate, which is the top rate — but that is for people making more than $1 million.” For many others, the rate is much lower, he said, adding that “California has a fairly progressive income tax, with nine brackets.” Mengle added that these kinds of analyses are often useful to people looking to relocate, such as in retirement. He said retirees should “pay attention to what type of income they are going to be relying on in their golden years.” That’s because states can tax income, Social Security, money from an IRA or 401(k), rental-property income and other sorts of income differently. For example, Social Security income is not taxed in most states, but 13 states do tax it: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia. Even then, they don’t all tax it the same. Debt Bombs: Here Are The States With The Most Debt
ZeroHedge.com Sat, 09/28/2019 - 22:00 According to a new report from Truth in Accounting, the most-indebted states include New Jersey, Illinois, Connecticut, Massachusetts, Hawaii, Delaware, Kentucky, California, and New York. Truth in Accounting published the Financial State of the States report, a regional analysis of the most recent state government financial data, on Tuesday, that is one of the most comprehensive studies of the economic conditions of all 50 states. The report includes the most up-to-date state finance and pension data, trends across the states, and key findings. The report said all 50 states have had to become more transparent in their financial reporting over the last several years, thanks to the implementation of Generally Accepted Accounting Principles set by the Governmental Accounting Standards Board. Researchers this year uncovered something truly shocking: "40 states do not have enough money to pay all of their bills and in total the states have racked up $1.5 trillion in unfunded state debt." Truth in Accounting ranks the states below according to their Taxpayer Burden or Surplus, which at the end of the day, it's what the taxpayer is on the hook for. Here are the rankings (from less indebted to most indebted):
One user said: "Look at who has controlled the State Legislatures in all the high debt States - in nearly every case it has been the Democrats, and for many years. Governors come and go - it is the Legislature that really decides if a State will be wild spending or not." Another said: "I live in Illinois. Lifelong Illinoisan. Yes I know it sucks. My 5 year plan is to leave the state before it collapses financially any home value plummets. Property taxes, sales taxes and income taxes are insane over here. DO NOT MOVE HERE." The biggest take away from the report, as explained by one social media user above, is that when the next recession strikes, the most indebted states will collapse. https://www.zerohedge.com/personal-finance/debt-bombs-here-are-states-most-debt |
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