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Friends, we’re heading for a rough patch in the economy. The good news is that the worst of it won’t start kicking in until five to ten years from now. The bad news is that by rough patch, I mean conditions that could rival or surpass the Great Depression. And here’s the scary part: decision makers have seen this coming for a long, long time.
The Problem:
Baby Boomers (and I’m at the tail end of the boomers) are nearing retirement. Right now, we’re in our peak earning years. This is the reason for:
* the large surpluses in Social Security
* an ability to fund large deficits without inflation
* a stock market that is about 40% above what historical P/E ratios say it should be
* inflated home values.
As we reach retirement, all the above will change. And I say that with the certainty that this apple I’m about to let go of will fall. (Thud: does it every time). Here’s why (in order):
* fewer earners and more retirees
* less saving-for-retirement investment money
* boomers will be selling, not buying, stocks
* we’ll all want to sell our family homes for apts./condos at the same time
Now I’m sure we’ve all heard the reassuring words that study after study shows that Social Security is just fine. Well, that reassurance depends on one thing: that the Federal Government will be able to pay back the euphemistically named Trust Fund. The Trust Fund is really just a bunch of IOUs for money that is spent as soon as the surplus FICA taxes are collected. If we’re running 300+ billion dollar deficits now, imagine what the deficits will be when instead of 200 billion social security surpluses, we’re paying back the Trust Fund to the tune of hundreds of billions of dollars. Well, we don’t have to imagine, someone leaked the study that former Treasury secretary Paul O’Neil just commissioned: $44.2 trillion over the next 50 years. That’s about a trillion dollars a year or about 10% of the GNP. Folks, that’s huge, especially when you consider that there will be considerably less boomer savings dollars to buy treasury bonds to help float those deficits. And the worst part is that the debt is cumulative. Rising interest rates and an enormous national debt may well insure that interest on the debt will become the single largest line item of the federal budget.
The Bigger Problem:
So you say, let’s cut back on Social Security payments. Needs test the benefits and extend the retirement age. Well, that might help a little, but there are two problems:
1.) Boomers, as a group, aren’t savers but rather are debtors. Many boomers are already teetering on financial ruin and are staying afloat by continuously refinancing their homes at lower interest rates. Thus the number of boomers who will be relying on Social Security is growing.
2.) By the time these problems will start to arise, retired persons will represent the majority of the voting public. Any attempt to cut back on retirement benefits should be political suicide.
Notice I said ‘should’ be political suicide. Coincidentally enough, it looks like we may well be heading into what can only be called a pseudo-democracy. A few Republican-owned private companies are taking over vote counting - no audits allowed, thank you very much. And, by yet another coincidence, no one in power, not even the leadership of the opposing party, seems to mind this at all.
Here’s what I think: There have always been two forms of power in this country: political and economic. Now, of the two, economic has always been more powerful with the possible exception of the ability to declare wars. The Square Deal, the New Deal, and the Great Society challenged the power of the economic leaders to the point where a campaign was launched to reverse these “socialist” policies. To date, this campaign has been so wildly successful that even the power to declare war seems to now have moved from the political realm. But this all could change if there is a severe economic crisis.
And so, I believe our shadow leaders have decided to hedge their bets. They have decided to use their current power to move to a pseudo-democracy where the mainstream belief is that we elect leaders but, in fact, they are (and increasingly will be) appointed. And, as the majority of seniors move towards financial ruin with little or no Social Security safety net, they will be told that candidates that enact policies against their interest are wildly popular and undefeatable. How long this polite charade will continue to be believed is unknown. However, as far as I know, once lost, democracy has never been regained peacefully
The Chimp & Co. are accelerating and inducing an early onset of at least four economic crisis:
1.) Collapse of the stock market bubble (Dow about 4,000; NASDAQ ?????)
2.) Collapse of the consumer debt bubble
3.) Collapse of housing valuations
4.) Collapse of the Federal Gov’ts ability to repay the Trust Fund
The only just answer: massive tax increases on the wealthy.
The wealthy’s answer: the end of true democracy.
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