Resistance Begins at Ohm!

Sunday, February 15, 2009

Well I suppose there is some good news...

Social Security is more solvent?
If the value of most peoples' 401K or other equity-based retirement funds is down by 40%, that's a lot fewer people who can afford to retire and live on social security instead. I mean, I would defer my benefit and then get a bigger monthly payment later if I know I can't afford not to work anyway.

Folks counting on guaranteed distributions aren't going to be too happy either. Assuming that the funds behind your benefit are still solvent next year, let alone when you retire, inflation in the next few years is going to eat your lunch and dinner, so to speak.

Fact is, people wise enough to know Social Security is anything but secure have been lured into stashing their hard earned income into investment and retirement accounts with government incentives (pre-tax when contributed) and employer matches. Hey easy enough for the employer since once they make the contribution, they are done with their obligations. But for the most part, your employer's contribution has been erased in the last 6 months, and probably a lot of your account earnings as well. The rub is that you can't take what is left of your money out without paying a mean penalty of another 20%.

In some cases, people have been investing their earnings in guaranteed benefit accounts or annuities. Eliminating 40-50% of the value of those plans sets you the employee back unless you can to retire now and can take your one-time distribution. Because the funds themselves are going to sustain only half the people in retirement. Think about it, basically there is nothing but principle left and the principle will be reduced by the next wave of retirees, leaving nothing to pay you, let alone invest for your retirement.

The US has committed itself to a massive expenditure of money with no long range value or equity. Paying for things like healthcare, unemployment and food stamps, as noble as it may sound, is an operational expense, not a captital investment. We don't have the money, we won't have the money anytime in the forseeable future, and there isn't a return on investment where no investment is made.

US plans to do to raise the cash by selling treasury bonds. With the interest rate so low at the moment, and with the equity markets already in the tank, those bonds aren't looking too attractive. So the federal reserve is planning on printing up a whole bunch of money to buy the US debt. Now that sounds ludicrous on the face of it. The inevitable result is that interest rates must go up.

Let's say you had a 100 gold pieces and you wanted to sell a hundred shares at 1 goober each. Your plan is to trade the goobers for dollars. But wait, you need 200 dollars. Just because you need sell another 100 shares doesn't make the gold pieces worth anymore. It just makes your goobers worth less - by half. Same deal as the federal reserve and treasury bonds. Your goobers are going to be worth less at the end of this spending spree. When the dollar is worth less, it's called inflation and we're in for a an ugly bout of it.

If you needed a few hundred thousand, no one would lend you money and your bank account was dry, would you just print more checks?

So much for that guaranteed benefit. It gets wiped out by inflation.

I wonder if it has occurred to the politicians that there aren't any rich people left to tax? We didn't spread the wealth around, we spread the poorth.

No comments:

Post a Comment