US Demography and the big crush ahead

[Polly]

I posted this on PF but it had been deleted by the force there be .  But I have pmed those likely to be hurt .

We have always known that the economy of the US is unsustainable, that some day it will collapse on its face, now we have a timeline.

And I think if you widen mentally the margin between the projection and the demography after the cap in 2010, the decline has arguably kicked off in or around 2007.

http://www.thegreatbustahead.com/pi_article_feb2004.pdf

[The Smoking Man]

Huh???

Why would they delete that?

Is the truth too much for them?

Can't they see the truth and the indicators that are already happening. (Collapsing housing market, trillion dollar debts, etc.)

[Polly]

The economy can constrict violently from an inflationary mode to a deflationary mode pretty quickly.  There has to be a pre-existing unfavourable economic circumstances of course, which is then triggered off by a general sentiment among the population that times are bad/they are poor and that they have to cut expenses and/or save.  As soon as the vast majority stops spending, business will be cutting costs and laying off staff, fueling further fear and cut-back and drop in rental and property price.  People feel yet more vulnerable and spend even less, more business go bust...and a vicious spiral is formed.

Of course if you have some savings you can hold on for a little while, relying on that money to pay for your mortgage and living expenses, while looking for and landing another job (usually with a huge cut in pay) like those of us in Japan and HK.  If you have no savings at all....

[Polly]

http://www.321gold.com/editorials/russell/russell101207.html

October 11, 2007 --

It's just starting. I'm talking about the monster drain on money as the first segment of the Baby Boomers helps themselves to their share of Social Security. These are the people who were born in 1946 and are now 61 years of age.

Shortly, an increasing number of these "baby boomers" will be taking early retirement. Why do I say that? Heck, read the papers. All you hear are these four words -- "escape," "vacation," "travel" and "retirement." But as I said, it's just starting. We're beginning to move into what I call the "Social Security Express Lane." This is the period when those people who were born between 1946 and 1964, 80 million in all, will qualify for Social Security and Medicare [during the next 22 years.]

You see, it's just the old crazies like Richard Russell who love their work and who don't retire. The boomers are from a different era. The boomer dream appears to be -- "I made a fortune at age 45, and I retired. Now I'm playing golf seven days a week and lovin' it."

With the SS trust fund bare, cleaned out and holding only government IOUs, how are all these boomers going to be paid? On top of that, there's Medicare, which is now paying out more than it's taking in.

Looking at the whole picture, Brian Riedl of the conservative Heritage Foundation warns, "This is the single greatest economic challenge of our era."

You think the US government's balance sheet is over-the-top now? Listen, over coming years, these programs will rack up $50 trillion in government obligations. How's it all going to work out?

I have my own thoughts on the Social Security and Medicare situation. I believe that the US government will address the situation two ways. The first way will be to scale back on the benefits -- there's just no other choice. The second way that the US government will address the situation will be through monetary inflation.

The government will have to print the money to cover the coming tidal wave of unfunded liabilities. This process will have a brutal impact on the dollar. The purchasing power of the dollar will continue to head down. In my lifetime I've seen the purchasing power of the dollar lose 80 percent of its value. And I have to wonder what the dollar will buy ten years from now -- fifteen years, twenty years. It's very sad, indeed.

This is the reason to own gold. I hear a lot of talk about gold not keeping up with inflation, gold spending twenty years between 1980 and 2000 doing nothing or simply declining. Forget it, that was then, this is now. As I see it, the third phase of the great gold bull market lies ahead. Gold is fated to rise to "impossible" heights in terms of current US dollars. I know this sounds far-fetched to today's impatient holders of gold. But for a great move to materialize, it has to be considered to be "almost impossible" in advance.

Another way of putting it is that for a move to be huge, the public has to be clean of the item to start with. Ideally, nobody should be in the item. And today the US public is "clean as a whistle" when it comes to owning gold. "Oh yeah, I've got gold. I bought two American Eagles a year ago, and I still have 'em put away some where. Heck yeah, I got gold."

lots more follows for subscribers...

[The Smoking Man]

The problem of the social security farce is that governments can't seem to keep their hands off the principle from the payments everyone makes into it.

Those funds should have been invested and left alone.

The people in government however have a habit of sticking their hands into the cookie jar and grabbing all they can for other projects ... financing wars comes to mind.

So now they point at it and say they don't have enough money for the baby boomers.

Well, that happened because the fund was robbed a couple of times.

[Art]

It has long been suggested (and feared) that
the 77 million or so baby boomers in the US will
tank the economy big-time as they begin to pull
their savings out of Wall Street when they start
retiring around 2011.

so tell me Polly, are these people going to exchange all their 401s for cash and then set fire to it  . Then of course they'll also need to decline their payments from their company pension plans to be eligible for social security 

Presumably that is what the author and you believe as you assume these people will be living off social security rather than the dividends from their investments.

Please at least try to show an iota of logic 

The article is a crock of shit in most regards as it makes no allowance for the vastly different attitude people now have in relation to planning for retirement compared to attitudes even 25 years ago.

The chart is also highly suspect as it shows no 'real' gain in the Dow between 1920 and 1980. Doesn't this strike you as a little odd to say the least!!!

[Polly]

By Jeanne Sahadi, CNNMoney.com senior writer
July 25 2007: 11:24 AM EDT


NEW YORK (CNNMoney.com) -- Soaring stocks gave workers' savings a nice bump last year - but the latest numbers from Fidelity do not paint the picture of a cushy retirement.

The median balance for those workers who had participated in their 401(k)s for at least one year rose 30 percent to $32,000, according to a report released Tuesday by Fidelity Investments, which administers plans covering 10 million participants.
   
For those with 5 years of continuous participation, it rose 20 percent to $59,000. And among age groups, balances for:

Baby Boomers rose 7 percent to $38,000
Gen Xers rose 10 percent to $15,000
Gen Yers rose 21 percent to $2,100
The increase in balances came both from rising asset values and contributions from workers and company matches.

The average contribution rate for Baby Boomers, was 7.7 percent, just a little above the 7 percent overall average. And even though they are next on deck for retirement, one in three eligible Baby Boomers weren't participating in their 401(k)s at all.

Among participating Gen Xers, the average contribution rate was 6.2 percent. And among Gen Yers, it was 4.6 percent, but two out of three eligible Gen Y workers don't participate at all.

.....

http://money.cnn.com/2007/07/25/pf/retirement/fidelity_study/index.htm

A few facts:

1.  26.7% of the entire American population will be retiring in the next 20 years.

2.  1/3 of these people (or 8.8% of the population) do not have any 401K plans.

3.  The average balance of those 401K plans is USD38,000, i.e. 17.8% of the population have on average, USD38,000 from their 401K plans for retirement.

And Art, you are not scared about the pressure of liquidation of their holdings (assuming they have holdings other than the 401K plans) in the stocks and the property market for the retirement? You are not scared about the pressure on the US government already borrowing 2-3 billion USD on a daily basis as it is when the boomers are stilling working?

[Art]

Polly, why on earth would they liquidate their assets??? The whole point of a retirement fund is to live off the dividends, Doh!!

Also you will find those that cannot afford to retire simply won't. There is no law written in stone that says one has to retire at any particular age, in fact many people who could afford to retire still don't as they enjoy their work.

I am also confused by you arguing on the one hand the equity market will collapse because for some (unknown) reason all the retirees  are going to all dump their stock and then on the other hand claiming they don't have much to dump in the first place

Sorry to burst your bubble but the US is very definitely not on the verge of economic collapse. Remember how you thought the sub-prime problems would lead to economic collapse in the equity markets. Well guess what - it didn't happen; instead the markets have hit new all time highs!!

btw Still waiting for you to explain why that chart shows zero growth for the Dow between 1920 and 1980.

[Polly]

Edit to add: Art I am saying for those who have 401K plans, their balance is too little.  For those who have property and stocks, in addition to/in the absence of, their 401K plans, they are likely to add pressure to the stocks and property (already very precarious) markets.

Did you see the video on the US Comptroller at all?  Even he admitted that the Americans' social welfare and Medicare system is unsustainable - they need to have 8 trillion (?) in the cookie jar and what they have is *2 fingers put together*

You are talking about the ideal situation of receving both rental income from your second property and dividends from your stocks?  I don't know how many babyboomers in America are so nicely set up.  But I see their incomes dwindling in a property market that is glutted and crushing and a stock market that is sapped by a weak dollar and inflationary pressure. 

In my mind, I imagine most people will sell their homes (being too big), move to a smaller place and sell their stocks (being too risky for their age) and put all the money into fixed-income products.

By the way do you know how easy it is for a country to keel over?  The USSR was a very recent example. All it takes is for the government to find out it no longer has any money to pay its employees.  Of course I don't expect the USA to have the honour and courage to do that.  It will probably go the cowardly way and move one step over - inflating like mad like Zimbawa and Argentina - before it finally does its thing.

By the way do you have any relatives in America?  If then I am sorry, I don't mean to be hurtful.

[Polly]

My own cousin and her husband have moved back to HK from the Silicon Valley for good last year.

[Art]

My own cousin and her husband have moved back to HK from the Silicon Valley for good last year.

I've visited the US several times, does that count? 

Polly what has family relations got to do with economics? Or is this the type of feely feely 'science' you base your economic forecasts on - burning chicken entails and the like 

To compare the USA economy with the USSR economy is beyond laughable. If your doom and gloom predictions are based on such ridiculous correlations then perhaps it is time you reviewed some of your basic premises.

3rd request Still waiting for you to explain why the chart you posted shows no gain between 1920 and 1980?

[shan]

Polly, I read your articles with interest

I know you are a gold-buying advocator, and I agree to what you said, but tell me how to buy gold ?

what's the best price, time and market for gold-buying?

Is the gold in H.K. much cheaper than mainlander’s?

Please also PM me how much gold you have bought
 

[Polly]

My own cousin and her husband have moved back to HK from the Silicon Valley for good last year.

I've visited the US several times, does that count? 

Polly what has family relations got to do with economics? Or is this the type of feely feely 'science' you base your economic forecasts on - burning chicken entails and the like 

The reason I mentioned my cousin was to show some empathy to you, that I know what it feels like to have relatives in the States who are under economic pressure. 

Actually as a Chinese I am constantly aware that I am a tiny part of the cosmo and subject to colossal forces I cannot control.  Various kinds of super economic cycles being some of them.  I'd never dare to think that I can counteract them, knowing however that there is great gain to be made in riding with the tide/trend.  As they say "the trend is your friend".

To compare the USA economy with the USSR economy is beyond laughable. If your doom and gloom predictions are based on such ridiculous correlations then perhaps it is time you reviewed some of your basic premises.

Well I suppose at various times people thought the Roman empire was uncollapsible.  Then they thought Spain would be forever great and later, that the British empire could never ever fail.  It's not surprising that they think now it is preposterous to say the US will fall. 

What is truly unthinkable to me is to expect something to alway BE, to always stand as it is. Even if it does, when everything else changes around it, its relative strength changes too and it is as good as it has changed. 

Change is the only constancy Art and everything operates in cycle.  I am sure there will be a time again when the West will go up and up and up and China will spiral down, but that's not a trend I can ride anymore.

3rd request Still waiting for you to explain why the chart you posted shows no gain between 1920 and 1980?

Which graph?

[Art]

Which graph?

That explains everything. You don't bother reading the articles you reference before posting them 

[Polly]

Polly, I read your articles with interest

  Thank you very much. Finally, there is someone who knows stuff

I know you are a gold-buying advocator, and I agree to what you said, but tell me how to buy gold ?

You can buy gold bullions (coins) but there is the problem of storage and security.

There are gold stocks (mining stocks), gold and jewellery stocks (in HK) and some financial houses in HK has launched gold related warrants.

Currently I hold "paper gold", or "passbook gold". It is the same as buying gold but your holdings will be recorded as an entry in your accounts with the bank.  There is no hassel with storage in this case.

China has just relaxed its rules on private holding of gold, you can check with your bank, I am sure they can help you.

what's the best price, time and market for gold-buying?

If you have read my posts on the 4-part theory (I will post it here later), you will see that gold has entered the 3rd part of development in around 2002, this stage will last about 10-11 years till 2013 and then enter the last part, galloping to madness all the way till 2023 or thereabout.  When you see gold price shooting up a few times (last cycle it shot up 3-4 times) within a year, that's the sign that collapse is imminent.

I started buying from 2003 using whatever balance I have at the end of the month and the return is about 50% till now.  It is great fun , collecting what nobody wants or cares about and stacking it away.  I still remember the look of disbelief on the face of the bank teller when I told her I wanted to buy gold .  My strategy is to buy every now and then but regularly, master its pattern so you can buy in dips (I can never do that ) and familiarise yourself with other instruments.  I plan to dabble in warrants and gold stocks in the 4th stage when the movement is more violent.

Is the gold in H.K. much cheaper than mainlander’s?

I am not sure, I think the price is related to the strength of the currency in part.

Please also PM me how much gold you have bought
 

  A little.