Thursday, May 18, 2017

Economic Idiocy From Bloomberg Business Week

A couple of days ago, Bloomberg published a piece on retirees that made my jaw drop.  "Rich Retirees Are Hoarding Cash Out of Fear".  It seemed incredibly uninformed about the reality for retirees and never mentioned things that seem to me to be major drivers of behavior.

I suppose I should point out that I don't think I qualify as a rich retiree.  I think I'm a middle class/ working class guy who managed to retire.  Maybe I shouldn't extrapolate my concerns to the real rich people they're talking about. On the other hand, the article is so ... dense, so full of wrong assumptions and bad thinking that I just can't let it slip by. 

That aside, it's hard to know just where to start with the Bloomberg piece, but the opening sentence is this:
There’s a time in everyone’s life to save. There’s also a time when you’re supposed to spend. That time is commonly known as retirement.
I think that's a strange way to put it.  Yes, we save for retirement and spend down our savings for the rest of our lives, but in our case, we've found our expenses have dropped quite a bit.  Going to work has costs associated with it.  Clothes and shoes, gas for the cars, and a bunch of other more minor expenses that we find we don't have - or have quite a bit less often.  Furthermore, it's a general rule that as we get older, we need less because we've bought it already.  Sure, we need to spend money on repair and replacement of some things, and some new things, but how many people do you know who have regular garage sales or donations or even rent a storage warehouse because they have too much stuff?  That's what happens as you approach retirement age.  We're spending less because our expenses are lower, not fear.
Millions of Americans aren’t doing that, however, which has put the U.S. in a perverse situation. Younger generations aren’t saving enough as their income slips further behind previous generations. Older Americans meanwhile sit atop unprecedented piles of assets built through stock market and real estate booms.

Yet these retirees, or at least the affluent ones, aren’t spending it. It turns out they’re afraid of the unknown.
At a retirement planning seminar held at work, the number one fear in this room full of people approaching retirement was ... outliving their money.  Given that fear, what's the most likely thing people are going to do?  Watch their spending.  Bloomberg goes on to say that on the average and adjusting for inflation, retirees are entering their 80s richer than they were in their 60s and 70s.  That's saying their savings are still returning for them.  That's a good thing not a bad. 

Yet there are forces in society who want you to spend.  The article quotes several sources as studying the "problem" of why retirees are spending as much as these experts think they should.   They ask why.
Notice the wording of the least common fear, "dying before I can spend all my savings", is actually the opposite of the most common fear in the seminar where I worked, "spending all my savings before I die".   The other two big fears are more in line with it.  Not being able to live my desired lifestyle (I'll add "on what I have saved") and not knowing how much I can spend tie directly to this fear of outliving our money and being financially ruined by disease or one of the ravages of aging.  No one wants to live out their last days, cold, homeless and starving. 

One of the researchers behind this is Texas Tech University Professor Christopher Browning, who actually says, we need to "train people to spend".  He says that even as retirees live longer, healthier lives, they’ve become more pessimistic about the economy, the stock market, and their own financial situation.  They go on to say that financial planners and advisors should emphasize teaching retirees about ways to generate a more stable income, something more like a regular paycheck.

No.  The answer is to let the free market set interest rates and not the central banks.  The central banks are the single biggest threat to retirees and their earning powers.  There's no way of knowing how many retirees they've actually killed.

The problem facing everyone who attempts to live on savings in retirement is Yield Purchasing Power and that's 100% a function of the Federal Reserves' ZIRP and the phony money we're forced to use.
A generation ago, 1979, one could earn a decent retirement income with the interest on savings of $100,000.  Today, it takes 1000 times that, $100 Million to earn that income.  How many of us have $100,000,000 in savings to retire on?  

What does this mean for anyone with less than what they need to support themselves—$100M and rising? They must liquidate their capital, and live by consuming their savings. It’s terrifying to anyone in that position—which means anyone in the middle class.
The whole purpose of the horrible ZIRP policies, policies that have distorted our economy into some sort of abomination, is to "train people to spend"!  It's the most likely reason for the worldwide war on cash: to force people into spending.  Right now, if they charge negative interest rates, you can stick your money in a safe, like they did in Japan, or you can invest in Bank of Sealy.  If there's no such thing as cash, you can't stick cash in a safe.  You're screwed.  You're forced to either spend your money or watch it evaporate.  It gives them nearly total control over you. 

The real problem with all the policies intended to "train people to spend" is that there's no real data showing it works.  The planners say, "if we make it hard on savers, it will make more sense for them to spend".   Instead, real people seem to be saying, "if the interest rates are so low, I really need to save more".  The problem of an economy based on debt is that when people don't need to constantly buy more, it crashes the economy.  That's what the whole "train people to spend" is all about. 

We shouldn't be burning off our savings and if we had a real-money economy, we probably wouldn't need to.  From my piece on Yield Purchasing Power from '15,  I quoted from someone using the analogy of thinking of our savings as a family farm we've built and grown over our careers.
To come back to the analogy of the family farm, people should think in terms of how much food it can grow, not how much food they can buy by selling the farm. The tractor is good for producing food, not to be exchanged for it. Why, then, do people think of the purchasing power of their life savings, in terms of its liquidation value?
Why? We're forced to by Fed and the central banks. 


  1. Most of us become snakes, eating our tails in terms of retirement incomes. A great annuity will keep pumping out the basics but most people don't make more than enough to do that. There are things that come up that require cash - so you need to dip into the pot or be content on going without.

    A lot of this reality is not lost on the middle class who voted for Trump. Whether President Trump can fulfill his pledge to improve the economy (a rising tide floats all boats) without the Democrats trashing the system for the sake of currying favor with voting poor (poor, for whatever reason) voters by casting the thrifty and well off as evil remains to be seen. Greed and income redistribution is a powerful aphrodisiac. It works especially well on those who squandered what they had and are looking for a free ride on somebody else's back.

  2. Cloistered academics, like beltway politicians, live in their own little world without near enough contact with real people. People pay less and less attention to them every day and the media, who rub elbows with them daily, view them as "experts" even though we've seen them leave the rails long ago. indyjonesouthere

  3. I agree 100%. It is crap articles like this that made me stop reading the financial press 15 years ago.

    Who the hell are these guys to tell retired folks to spend more... all of that manipulation has made the financial system the shitbox that it is today.


  4. I grew up poor. Before there was welfare. We had real food insecurity not the phony claim if food insecurity they toss around today. Because of this I could live on next to nothing and do it without fear or qualm. Too many people think poverty is not being able to have an Apple Iphone and an expensive data contract or not being able to go out to eat or buy takeout. Don't get me wrong, I don't "want" to live poor again BUT because I don't want to I am conservative with my spending and my investments. IMHO most people are the masters of their lives/futires BUT most people choose to do little to nothing to prepare or worse act in ways contrary to their long term fiscal health. Our government needs to get out of the business of bailing out fools. Allow them to learn that their actions and choices have consequences and they will learn/grow from that experience.

  5. That is why I didn't go with TSP when FedGov brought that in, but instead stayed CSRS. As far as I am concerned, as long as FedGov doesn't declare bankruptcy - and I don't think they legally can - I get my retirement under the terms for which I worked. And if they renege on that agreement without going officially bankrupt, I will deal appropriately with those fine people who enable them to do so.

    1. Can the government declare bankruptcy? Sure. But most probably what will happen is the conditions that bring us to bankruptcy will bring us runaway inflation AND an emergency declaration that gives the government power to stop inflation based increases in pension payments. So over a very short time your $2000 a month pension check will stay the same but be worth less than $50.

    2. At which time, Anonymous at 5:31 PM, all US currency will be equally worthless and I will be no worse off than anyone holding $$$ in any form.

      And the deal made for the work I performed was that the retirement was indexed for inflation. Of course, the government's "word" will be no more good then than now, but as I said, I will deal appropriately with those fine people who enable their sedition and treason.

  6. It's not idiocy, it's kingsmanship. The mainstream media's job is to incite the peasants who are not economically stable to liquidate the peasants who are economically stable.

    As Orwell said, the actual competitors to the ruling class are the top-middle of the middle class, who have achieved in life due to merit and worth ethic and aren't in that position because of politics. Think of an engineer with a master's degree, with a long record of outstanding achievement among his peers, who is now making keynote speeches and on standards committees. The rulers implement periodic wars to drain off the capital accumulation of that class. Your only defense is to not obey. Disobedience is difficult for you because the rulers' government schools have placed a control mechanism in the form of a computer virus in your mind. Despite the fact that government murdered 260 million in the 20th century, you have been trained to fear the lack of a government even more. I actually heard a National Public(/Socialist) Radio "news" report speculating, what if the North Korean dictator's government collapsed and was replaced with liberty? Scary!

    I know you've been programmed to think that "Bloomberg" is the most market-y of market-oriented mouthpieces, but that's just...what's that religious word for lies to unbelievers to further the religion?..."progressivism".

    Here's a nice graph from showing the sea level in New York since 1856, and it doesn't show an upward inflection starting around 1950 correlated to more fossil fuel use. Send this graph to a Bloomberg reporter, I await the Bloomberg breaking news that global warming is a hoax:

    Bloomberg: adding to the increasing inequality that flows from inherited wealth

    Write a program simulating a normal distribution of human abilities which increase or decrease each person's wealth +/-5% a year. Run it for a 40 year work span and sum the wealth.

    Mark Matis: as long as FedGov doesn't declare bankruptcy - and I don't think they legally can -

    "Legally" means "whatever the legal system does", and national bankruptcy is declared by hyperinflation.

    I get my retirement under the terms for which I worked.

    No you won't. Government retirements are all Ponzi schemes pretending they will earn 8% or more interest. Pay-ins are paid out in the same year they are paid in. There is no savings or investment component, never has been. You are expecting several times more out than what you put in. Physically not gonna happen.

    And if they renege on that agreement without going officially bankrupt, I will deal appropriately with those fine people who enable them to do so.

    You can prove today that they can't pay out. Gary North said his high school teacher proved to him in 1955 that SS would go bankrupt.

    Your move.

    1. It will indeed by "my move". And "my move" will be pig hunting season.

    2. Government employees have planned to renege since 1955, and you have bled income into their Ponzi your whole working life. You have been perfectly obedient. They got what they wanted, which is to destroy your financial independence, your personal logistics, and constrain your ability to disobey.