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James Bacon

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  • Encouraging Data on Retiree Dis-saving Rates [View article]
    Dancing Diva, far from bursting my bubble, you raise a good point that gives even more weight to the question I raised at the end of the column. In the final paragraph, I wondered if the pattern demonstrated by members of the Silent Generation will hold true among the Boomers.

    Given the fact that Boomers are less likely to have fixed pensions, as you point out, they will be more dependent upon income drawn from their 401(k)s. Therefore, it is totally valid to think that they will draw more aggressively from their personal retirement accounts.

    I tend to be pretty pessimistic about the retirement future of Boomers and fiscal condition of the United States. On the other hand, I'm always on the lookout for data that will contradict my viewpoint -- I try to practice reality-based journalism. Perhaps I went overboard in trying to self-correct. Thanks to your comment, I'll revert to my gloomy, pessimistic tone of analysis!
    Jan 13 08:30 AM | Likes Like |Link to Comment
  • Can the Boomers Retire? [View article]
    CPA28761, I said only that S.S. is the most actuarially sound part of the federal government. That's based on the fact that even when the trust fund is depleted, payroll taxes will continue to cover 76% of promised expenditures. Compare that to the rest of the government. When the government goes into default and can't borrow anymore, taxes will cover maybe 60% of non-S.S. spending.

    As you say, the "trust fund" is an accounting fiction. If the government goes into default before 2037 -- before the trust fund has been fully drained -- it will have no resources to make good on promised S.S. payments.

    Meanwhile, the Medicare "trust fund" is scheduled to run out of money in 2017!
    Jan 3 08:23 AM | 3 Likes Like |Link to Comment
  • Can the Boomers Retire? [View article]
    Wow, there is a lot of great commentary in this thread. I have couple of responses.

    First of all, to young readers who have totally written off Social Security... That's probably a healthy attitude, because it means you are intent upon becoming financially self sufficient and not a ward of the state. On the other hand, it may be unduly pessimistic. Even under the worst-case scenario, Social Security will survive in one form or another. If the U.S. Treasury goes into default and S.S. can pay no more than it brings in through payroll taxes.... that's still a 76% payout. (Assuming, of course, that default doesn't trigger a depression that lays off millions and, thus, reduces the number of people paying payroll taxes.) In all probability, under such a scenario, Congress would means-test S.S., meaning that S.S. pay-out formulas would become more distributionist, thus reaming those who prudently worked, saved and invested all their lives. But it's a wild exaggerration to think you will get *nothing*.

    One last point: S.S., for all of its problems, is probably the most solvent part of U.S. government finances. What you really have to watch out for his the cost of health care. If current trends continue, out-of-pocket medical expenses for retirees (what Medicare doesn't cover) are expected to increase from roughly 10% of income to nearly 20% of income within a generation.... And that's assuming that Medicare remains solvent. Which is will not. The Medicare Part A trust fund for hospital payments is scheduled to run out in 2017. Obamacare does nothing to address that problem (indeed, it siphons existing Medicare revenues into programs to subsidize health care for non-retirees), and no one in Congress is even talking about the problem.

    As a card-carrying member of the middle class, my sympathies are totally in line with those Americans who work hard, pay their taxes, avoid debt and save money with the idea of providing a comfortable retirement for themselves one day without looking to the government (i.e. the taxpayers) for help. I agree with Wowulookgood that if America's derelicts and spendthrifts try to solve the problems they created by taking away what the prudent ones labored to accumulate, there will be hell to pay... Not with guns, hopefully, but at the voting booth.
    Jan 2 09:29 AM | 4 Likes Like |Link to Comment
  • Rose-Colored Glasses Can't Help State / Muni Bond Scenarios [View article]
    Shawn G, You are right to say that, technically speaking, the U.S. will never default on its debt because it can always print all the money it needs. But, alas, you are clinging to a false comfort. At some point, inflating the money supply will become a de facto default because it will lead to inflation that erodes the erosion of value of bond holdings. As investors conclude that their investments in U.S. Treasury securities are losing value, they will refuse to buy any new debt except at punishingly high interest rates. Meanwhile, the value of the dollar will plummet and higher interest rates will punish the economy.

    I guess you could say that Zimbabwe never went into default -- all it had to do is print more money. But look at what a wreck Zimbabwe is!
    Jan 2 08:58 AM | Likes Like |Link to Comment
  • Rose-Colored Glasses Can't Help State / Muni Bond Scenarios [View article]
    PaulTD, I did not mean to insinuate that the Feds would be on the hook for the full $2.8 trillion in municipal debt. Rather, the Feds will be on the hook for whatever it takes to keep states and municipalities from defaulting on tht debt. That number is unknowable. But if the "Stimulus" bill is any indication, the number could well run into $100 billion+ a year... pretty much forever. That's money that Uncle Sam can ill afford to add to its own deficits.
    Dec 31 08:52 AM | Likes Like |Link to Comment
  • The Skinny on Fiscal Stimulus Programs [View article]
    Good point. To the cost of collecting the taxes add the cost of administering whatever program the stimulus money is being funneled through.
    Dec 18 08:15 AM | Likes Like |Link to Comment
  • End of the Global Capital Glut [View article]
    MacroTrading, you said, "Increased worldwide investment leads to increased worldwide savings." I'm not sure where you got that idea. The McKinsey report does not make that claim. Indeed, it assumes that increased investment draws from a finite pool of savings, requiring the market to ration capital by means of higher interest rates.

    Chance Devereaux, our past profligacy has led us to a no-win place. If we cut spending now, we will reduce aggregate demand, and undermine economic growth. But if we increase spending to promote short-term economic stimulus, we will accelerate the slide to fiscal insolvency, which will result in far greater economic pain down the road. Both options stink. take your pick. I believe the economic dislocation will be far less if we take our hits up front than kick the can down the road until the whole system falls apart.
    Dec 14 01:46 PM | Likes Like |Link to Comment
  • The Perils of Foreign Debt [View article]
    We cannot make the legislature understand. Nothing is more important to lawmakers than getting re-elected. Fundamental change won't occur until the financial markets rebel and force change upon us. Prepare your personal finances accordingly.
    Dec 11 08:08 AM | Likes Like |Link to Comment
  • The Perils of Foreign Debt [View article]
    Yes, my understanding is that Fed purchases of Treasuries count as domestic debt. It is classified as a sub-category of domestic debt called "intra-governmental holdings."

    Why can't the Fed purchase all the Treasuries the government needs to sell? In theory, it could. But doing so would inject massive liquidity into the money supply (Quantitative Easing on steroids), which at some point would unleash massive inflation, drive down the dollar, and spark a capital flight.
    Dec 10 06:28 AM | Likes Like |Link to Comment
  • How to Balance the Budget Without Raising Taxes - An Intellectual Exercise [View article]
    For what it's worth, Cato advocates significant cuts in military spending -- and so do I. We can't afford our global military posture, and we need to realign our foreign policy with our pocketbook.
    Dec 3 09:06 AM | Likes Like |Link to Comment
  • CNBC Is Right: America, We Have a Serious Problem [View article]
    OK, Cullen, I've been reading your spiel that the U.S. is not like Greece, the government can print all the money it wants, so we can run up humongous deficits and never go insolvent. Here's my question. If it's that easy, if all the Fed has to do is print money, why do we bother taxing anyone? Just crank up the money machine!

    Surely you acknowledge the potential for inflation, or even hyper-inflation, and surely you acknowledge that, all other things being equal, inflation will push down the value of the dollar, push interest rates higher and discourating people both at home and abroad from buying U.S. Treasury securities.

    I guess what I'd like to hear from you is an acknowledgement that there is *any* downside to the Fed's conjuring trillions of dollars from the ether.
    Dec 1 02:06 PM | 7 Likes Like |Link to Comment
  • Will Bond Holders Be on the Hook for Bailing Out Failing European Countries? [View article]
    JGB, I don't disagree with you. By the "tens of billions" of dollars, I was merely referring to the net costs of TARP. Of course, the Fed has supported the banking system, too, by propping up Freddie and Fannie/the housing market and by means of its ultra-low interest rate policy. Those costs are measured in the trillions of dollars.... But the subsidies don't come out of the public fisc and cannot be said to be borne by the taxpayers.
    Nov 28 08:51 AM | Likes Like |Link to Comment
  • Will Bond Holders Be on the Hook for Bailing Out Failing European Countries? [View article]
    True enough. But U.S. taxpayer support of the global banking system is directed mainly toward keeping the U.S. portion of that banking system sound. U.S. taxpayers have yet to be asked to bail out the Greeks and Irish (at least not directly, in a way that can be easily measured).

    But that is a mere quibble. I totally agree with you that we are simply postponing the inevitable unraveling.
    Nov 28 08:47 AM | 1 Like Like |Link to Comment
  • The GAO Update: Worse Than It Looks [View article]
    Eric, I share your concern that the U.S. lacks the political will to close the fiscal gap. The Republicans and Democrats are like two guys in a car heading toward a cliff and playing chicken -- first guy to turn the steering wheel loses. I fear that we'll end up flying off the cliff.

    As for your grandfather's Block Island story, the situation is even worse today than in 1978. Today, he probably couldn't get the permits to erect a windmill on Block Island -- even if the economics were a slam dunk!
    Nov 24 09:05 AM | Likes Like |Link to Comment
  • The GAO Update: Worse Than It Looks [View article]
    Beowulfx1 -- I stand corrected. Solyndra received government loan guarantees, not subsidies. However, that doesn't change the fact that the company is the beneficiary of government largesse. Capital steered to Solyndra is capital that is not available for some other enterprise.
    Nov 23 08:53 AM | Likes Like |Link to Comment
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