Tag Archives: Savings

The Fed Detests Free Markets – 2, by Raúl Ilargi Meijer

You can have market-driven financial markets or you can have central bank-driven financial markets, but you can’t have both. From Raúl Ilargi Meijer at theautomaticearth.com:

It wasn’t really the plan to make this a series, but it seems to have turned into one. Part 1 is here: The Fed Detests Free Markets. Part 3 will follow soon. And yeah, I did think perhaps I should have called this one “End The Fed” Is No Longer Enough. Because that’s the idea here. But what’s in a name?

Okay, let’s talk a bit more about finance again. Though I still think this requires caution, because the meaning of the terminology used in such conversations appears to have acquired ever more diverse meanings for different groups of people. Up to the point where you must ask: are we really still talking about the same thing here?I’ve said multiple times before that there are no more markets really, or investors, because central banks have killed off the markets. There are still “contraptions” that look like them, like the real thing, but they’re fake. You can see this every time a Fed chief opens their mouth and every single person involved in the fake markets hangs on their lips.

They do that because that Fed head actually determines what anything will be worth tomorrow, not the markets, since the Fed buys everything up, and puts interest rates down so more people can buy grossly overpriced property and assets, and allows companies to buy their own shares so nobody knows what they’re worth anymore.

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The Globalists Have Declared War on Your Savings, by Andrew Moran

Governments are bankrupt, so they’re going to take money any place they can find it. Raiding people’s piggy banks will yield an ample haul, but that only works once. From Andrew Moran at libertynation.com:

When any one of the plethora of bubbles burst – pick your poison – and the next financial crisis impacts Wall Street and Main Street, how will the central banks and federal governments react? They have fired all their unconventional rounds of bullets, from subzero interest rates to vast money-printing. One other proposal could conceivably be giving your deposits a haircut, much like what occurred in Cyprus following the recession. This dyspeptic vision is not hyperbole nor is it paranoia – the tariffs have raised the price of tinfoil! It is unfolding right now as our globalist overlords are executing, or at least entertaining, fiscal and monetary measures to confiscate your wealth – directly or indirectly.

Plugging Holes In Swiss Cheese

 

 

 

 

Switzerland is one of the few European nations to record a federal budget surplus. The budget for the fiscal year 2020 will record a $615 million surplus, despite imposing pension and tax reforms that slashed revenues and raised spending. The Swiss government is handcuffed by a so-called debt brake, a balanced-budget amendment that mandates the budget to be in balance throughout the business cycle. This policy has decreased the debt-to-gross domestic product ratio to nearly 25%.

Although national debt levels are still at multi-decade highs, the fact that the government is taking red ink seriously should be music to the ears of fiscal conservatives. But to others, it is headache-inducing.

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The Road To Serfdom… Via Credit Markets, by Peter Earle

Current monetary abominations like negative interest rates can only lead to disaster. From Peter Earle at The American Institute for Economic Research via zerohedge.com:

On the morning of Monday, September 15, 2008, at 6:55 a.m., I arrived at my turret on the trading floor of a Manhattan-based hedge fund and flipped on my Bloomberg terminal. As the head of trading, I was in the habit of looking at sovereign debt markets before checking our positions from the previous trading day. But on this morning, reviewing world bond markets took on a particular urgency. Lehman Brothers was filing for bankruptcy and the entire world was in the throes of the worst financial crisis in 75 years.

What I saw was that, all over the world, short-term debt markets – “bills,” in industry parlance – showed negative yields. In virtually every industrial nation, firms and individuals were seeking the safety of the printing press, effectively handing $100 to governments for the assurance of receiving $98 in four weeks.

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25% of Millennials no longer having sex due to financial problems, by Simon Black

In many ways Americans are a lot poorer than they used to be. From Simon Black at sovereignman.com:

My grandfather was just a toddler when soldiers came home from World War One in 1918.

They brought the deadly Spanish Flu with them, which killed well over 50 million worldwide.

As a young adult, my grandfather struggled through the Great Depression with the rest of the world.

And just as things started looking up, World War II broke out.

Lucky for me, he survived it all.

After the war, my grandfather took a job as a teacher. And on that single salary he was able to buy a house, provide for his family, afford a car, and have a secure pension for when he retired.

His wife (my grandmother) started a small hair salon in the family living room to earn money on the side.

They saved nearly every penny they ever earned. They never went into debt.

And they invested conservatively, often buying short-term government savings bonds that paid  over 4% by the late 1950s– well above the rate of inflation.

This wasn’t just my grandparents’ experience either.  Back then, this was the fundamental promise of America: you were rewarded for working hard and saving money.

But now things are entirely different.

For starters, cost of living is totally out of control. My grandfather’s teaching salary was more than enough to support his family in a comfortable, middle class lifestyle.

Today that would be almost impossible.

More often than not, it takes two working parents to make ends meet in a typical household.

Census statistics show that just 25% of married households with children were dual income in 1950. Today it’s nearly 70%.

Plus, to even qualify for a lot of jobs today, you must have a university degree… which carries its own enormous costs.

Even after adjusting for inflation, a typical university education in the US costs over five times as much as it did in 1960, according to the National Center for Education Statistics.

A typical young person today emerges from university with student debt exceeding $40,000. And millions of young people have student debt exceeding $100,000.

Speaking of debt, my grandparents had none. And they had plenty of cash savings, as was typical of their generation.

But today’s median household (according to Federal Reserve data) has racked up consumer debt exceeding $30,000, with a bank balance of less than $5,000.

And that bank balance earns a pitiful interest rate of just 0.02%. So even for people who have savings, the interest they earn doesn’t keep up with inflation.

Housing costs are also out of control.

Home prices are near record highs, making it extremely difficult for young people to afford a  down payment.

And rents have been steadily rising for years, far outpacing the rate of inflation (and lackluster wage increases.)

Perhaps that’s why a survey from Zillow last year found that nearly 25% of 24-36 year olds were living with their parents. They simply can’t afford their own housing.

Coincidentally, a study from the University of Chicago last year showed that roughly 25% of people in their 20s reported having zero sex in the previous 12 months, almost the same amount as people living with Mom and Dad.

While this might sound comical, it matters: young people are putting off children as well.

In fact, the US fertility rate is now at its lowest level in DECADES, well below the amount necessary to maintain a stable population.

It’s simply too expensive to have kids.

When my grandparents started having children, the hospital bill was about $100.

Today it can easily be more than 100x that amount. And the cost of rearing a child today through the age of 18 can now exceed $200,000, not including university tuition.

Then there are retirement challenges as well.

Back in my grandparents’ era, it was common for workers to have well-funded private pensions.

Today private pensions are nearly extinct. And of the few that still exist, about 25% are insolvent.

Public pensions (as we discuss frequently) are in terrible condition, with a mutli-trillion dollar funding gap worldwide.

And then there’s Social Security, which is in such financial ruin that even the Social Security Administration admits the program’s trust funds will run out of money in 2034.

I also think back to how easily my grandmother was able to start her own hair salon. She bought a pair of scissors one day and started cutting hair in her living room. Simple.

Today you’d have to navigate a mountain of permits, licenses, bureaucracy, and legal liability, the cost of which is prohibitive for most people who dream about starting their own business.

Unsurprisingly, Census data show that the number of new startups in the US continues to decline.

This is a long way from the original Promise of America, where the average person could work hard, save money, and afford to retire.

Today, the system is no longer designed to provide any of that.

Wages and savings don’t keep pace with inflation. Debt has exploded. People are working harder and becoming less prosperous. And retirement is anything but secure.

These problems can’t be fixed in a voting booth. Or by waiting for the Bolsheviks to engineer prosperity for all. And certainly not by following the status quo.

A better solution is to walk a different path altogether– one of self-reliance and independence.

For example, you CAN secure your retirement. Not by relying on a broken pension, but by taking matters into your own hands with a more robust structure like a solo 401(k).

You can obtain a top quality university education by studying abroad at a fraction of the price.

You can start a new business in a tax-advantaged jurisdiction (like Puerto Rico, where you can pay just 4% tax on your profits).

There are countless solutions to fix these challenges. It just takes a little bit of education and the will to take action.

The Festering Social Rift Over Pensions, by Adam Taggart

Perhaps the biggest rift will be between private sector employees with inadequate retirement savings and public sector employees with rich pensions paid for by the private sector’s taxes. From Adam Taggart at peakprosperity.com:

Most Americans will never be able to afford to retire.

We laid out the depressing math in our recent report Will Your Retirement Efforts Achieve Escape Velocity?:

  • The median retirement account balance among all working US adults is $0. This is true even for the cohort closest to retirement age, those 55-64 years old.
  • The average (i.e., mean) near-retirement individual has less than 8% of one year’s income saved in a retirement account
  • 77% of all American households aren’t on track to have enough net worth to retire, even under the most conservative estimates.

(Source)

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The Economic Consequences Of Debt, by Lance Roberts

America’s ever increasing debt load will inevitably slow down its economy, eventually to zero or negative growth. From Lance Roberts at realinvestmentadvice.com:

Not surprisingly, my recent article on “The Important Role Of Recessions” led to more than just a bit of debate on why “this time is different.” The running theme in the debate was that debt really isn’t an issue as long as our neighbors are willing to support continued fiscal largesse.

As I have pointed out previously, the U.S. is currently running a nearly $1 Trillion dollar deficit during an economic expansion. This is completely contrary to the Keynesian economic theory.

Keynes contended that ‘a general glut would occur when aggregate demand for goods was insufficient, leading to an economic downturn resulting in losses of potential output due to unnecessarily high unemployment, which results from the defensive (or reactive) decisions of the producers.’  In other words, when there is a lack of demand from consumers due to high unemployment, the contraction in demand would force producers to take defensive actions to reduce output.

In such a situation, Keynesian economics states that government policies could be used to increase aggregate demand, thus increasing economic activity, and reducing unemployment and deflation.  

Investment by government injects income, which results in more spending in the general economy, which in turn stimulates more production and investment involving still more income and spending and so forth. The initial stimulation starts a cascade of events, whose total increase in economic activity is a multiple of the original investment.”

Of course, with the government already running a massive deficit, and expected to issue another $1.5 Trillion in debt during the next fiscal year, the efficacy of “deficit spending” in terms of its impact to economic growth has been greatly marginalized.

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The Demise Of Bubble Finance And The Folly Of Trump-O-Nomics, by David Stockman

Central banks are pulling the rug out from other bubble finance and other Wall Street fun and games. From David Stockman at davidstockmanscontracorner.com via zerohedge.com:

We are at a decisive pivot point and its far more consequential than the mid-term elections. Even then, we cannot but marvel at the utter complacency which still prevails in the casino.

We even heard one bubblevision talking head today suggesting that on the off-chance that the GOP retains the US House of Representatives (the Senate is virtually guaranteed to stay Republican), it will be mighty bullish for stocks. That’s because it would mean more fiscal stimulus, presumably another tax cut of the 10%/$200 billion cost variety that the Donald has been plugging out on the hustings.

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