The Retirement Bubble

Once again, recent reports cause me to focus on the financial and economic environment we live in today. Three disturbing situations and no clear way out. We can begin with the US side of “the Pond”.

Allan Sloan, a senior editor at Fortune magazine, tells us, “Don’t look now. But even as the bank bailout is winding down, another huge bailout is starting, this time for the Social Security system. A report from the Congressional Budget Office shows that for the first time in 25 years, Social Security is taking in less in taxes than it is spending on benefits. Instead of helping to finance the rest of the government, as it has done for decades, our nation’s biggest social program needs help from the Treasury to keep benefit checks from bouncing — in other words, a taxpayer bailout.” The full article shares the statistics on which he bases this report and they are supportive…of his argument, not us.

And another topic that gets some attention, but far less than it deserves, is the gross under-funding of pension plans in the US. Mike (Mish) Shedlock discusses one tiny piece of this unfolding disaster in (where else?) California, as the city of San Diego faces a collapse of its pension program. Now that is a really tiny piece of a very big picture, but it gives us a taste. And San Diego is not alone. There are plenty of states, cities, and corporations in trouble, as is the federal government’s pension plan for its employees.

Across the Pond, Europe is facing a real disaster, as many of you have probably heard. Charmingly referred to as the PIIGS (Portugal, Ireland, Italy, Greece, Spain), we find their economies unraveling and threatening to take the Euro with them. Cute though “PIIGS” may be, it is also misleading, as Peter Zeihan of Stratfor (Strategic Forecasting) explains in simple terms in this video.

A major league financial crisis In Europe has consequences for all of us and we do not want to go there, but by this time next week or next month, we may be there. I do not see an easy way out for Europe, any more than I do for the US and, I fear, it will be worse in Europe.

Folks, the old 20th century system is broken. We have created a giant mountain of debt that is now crumbling, with occasional landslides that drive the point home. The mountain is still huge and growing in some areas. But the crumbling and the landslides are continuing and are likely to continue for a long period, measured in years, not months. That is the grim reality. Unfortunately, we have no really dynamic leadership, anywhere in the world, willing to level with the people and face up to this honestly. In the past, major crises have seen the rise of leaders who, whether they were loved or hated, provided the leadership that people needed when all was confusion and fear (Roosevelt, Churchill, and others come to mind). I do not see that leader today. I single out no one person to criticize, the problem is global.

When I wrote Next, the Retirement bubble last June (seems like a couple years ago), the situation was grave, but it just keeps getting worse. And as far as I can see, there is plenty of pain left to come.

But the single most important thing to know is that this is one horrible time for a traditional retirement! For all the reasons I have already discussed here (earlier retirements, much longer retirements, insufficient savings, etc.), this would be true under the best of economic circumstances for many people. Under our current economic circumstances, it is nothing less than a disaster for everyone. Yes, everyone. We are so inter-linked these days that there is no cave deep enough in the mountain for any of us to hide. If that sounds extreme, let’s talk in a year or two.

I could easily say that it is scary to watch this mountain of debt crumble underneath so many people, but that would be misleading. You see, we are all living on that mountain. None of us will go unhurt, but those who refuse to accept the reality that surrounds them are in danger of being buried beyond rescue.
———————

Did you enjoy this post? If so, click here to subscribe to updates to The Retirement Bubble by e-mail. If you prefer an RSS feed, click on the RSS symbol on the upper-right of this page. If you would like to share this with a friend, just click on “share this post” below.