The article relays a series of possible outcomes determined by the Congressional Budget Office (CBO) and then goes from there. I'm not going to recite the article but among other conclusions was the very obvious idea that taxes will have to go up for everyone, that means everyone. There will also have to be spending cuts that are painful to some segment of the population. One problem of course is that we lack the political will to do the difficult thing and this seems likely to remain an obstacle for a long time.
The article also includes a bit on "the risk that Uncle Sam would have to renege on promises made to people over 65" which of course is Social Security and Medicare. CBO stresses the need to get started fixing things immediately so that people would have time to "plan and adjust their behavior."
Concerns along these lines have been around for a long time and the threat seems to be getting more serious as we begin to understand the demographic problem embedded within and perhaps also because if something bad is going to happen we are obviously moving closer to that time.
That the issue is not new and that the conclusion of the article is that this won't really hit the fan for quite a few years then we all have years to be able to "plan and adjust our behavior" if you haven't done so already.
My perspective is that of people solving their own problem, or maybe more correctly, preventing their own problem. One very tangible solution that we've discussed countless times is living below your means. I write about this frequently because it comes easy for me. I've disclosed before that my parents made some poor choices in their 30s and 40s and I was able to understand the consequences of their choices when I was younger. If your expenses are low then it becomes much easier to endure any sort of financial shock like losing your job.
For many years I have been saying that I don't expect to get Social Security. I realize there are plenty of people who disagree with me on this but we continue to kick this can down the road and I can see some President and some session of Congress that will be painted into a desperate corner and will be forced to start whacking away at benefits and I believe this will come down the income scale much further than people think.
My own plan is to do all I can to have enough when I need it assuming no social security. You may disagree with me of course but if something bad is coming we have years to prepare (repeated from above for emphasis). I've said many times that where all of this is concerned, something's gotta give which means that something is going to have to give.
And on a lighter note, the picture, I was watching a rerun of The Sopranos and Furio said "I gonna go watch Bloomberg." I thought that was hysterical. Interestingly, reruns on HBO stand up over time but when it was on A&E I thought it was unwatchable because of the editing required.
16 comments:
...well that was depressing...
Roger- My dad mentioned this article last while we were watching the SDSU/UNLV game. Just read the post over at Barron's. I am 40 and the Fed's actions of the past 15 years are appalling. Thanks for your candid, heart on your sleeve insights as to living below your means, etc. As a long time reader, I cannot thank you enough for sharing your thoughts. Randy in SD.
WOW, nobody here seems to get it. Not one word devoted to the laughably bloated "defense budget"- or should I say the "offense budget". Roaming the world picking fights and losing, has been the historical way for countries to ultimately fail. Clearly the U.S. has not learned that lesson from history. to sum it up, "it's the american empire-stupid"
8:28,
If the defense budget were zero and all other spending unchanged, would that solve all the fiscal problems?
I don't know the answer, but it seems like you do.
I know that in the agricultural sector that I'm involved with, most farmers are very critical toward social spending etc. Ask them to give up their own goodies from the federal government like subsidized crop insurance, electrical power rates and direct payments and they howl like spoiled babies. They claim they wouldn't be able to survive. And they probably wouldn't because government largess has inflated land prices and rent beyond what is sustainable in the free marketplace.
I bet you can find examples of this in just about every sector of the economy.
How to break the logjam...I don't know...but it seems like a series of sequestration events would work. Everyone knows the cuts are coming people would do what they have to do to preserve their own self interest.
Randy did you go to SDSU? I graduated Spring 89.
We are not going to cut defense spending to the point of neutering the country. Effective cuts in defense spending would help a lot but there needs to be cuts in the other biggie which is SS and medicare.
Mixed feelings on it, but I think we are going to see the first tranche of the sequestration experiment soon.
I wonder if those who are hell bent on savaging the defense budget would feel differently if their children were flying 50 year old combat aircraft,sailing vintage VietNam era warships or Coast Guard ships built by George Steinbrenner's company before he bought the Yankees.
The biggest problem with the defense budget is not weapons systems It is politicians in Washington demanding politically connected companies perform overpriced services and retaining useless military facilities in their districts and states. And keeping thousands of troops in such places as Germany adds to the problem.
Another tidbit: If we didn't have to pay top dollar for a volunteer military and Beltway political mandates, our direct military hardware budget would be less than many countries as a percentage of GDP.
Folks, we are living in a dangerous world.
T
Roger-
Yes, I spent a fair amount of time at SDSU before going to grad school in the midwest.
The Barron's article is another reference to what many on these boards have thought for going on 20 years. I don't think anyone looking at this blog or similar blogs would argue we have been on some imperialistic mission to impose democracy on said countries. Still, anytime there is a black swan, the first country the world looks to, for whatever defines help, is the US.
The main point is, as Roger has repeatedly stated, we have been living beyond our means as a country across all levels of income for years. Very elementary, but promises have been made that cannot be kept. Most people do not take the steps necessary to protect themselves. They are at the mere whim of whatever comes down the pike, a roll with the fiscal punches approach.
What gets me is the utter lack of fiscal respect for youth - our future. No voice, no representation whatsoever... just pick up the pieces in 20 to 30 years.
We had a great round table discussion last May at Berkshire (the B share losers conference)and one point of discussion was taking responsibility for one's self... again. Pride in your work. How you can help others. The beauty of Roger's blog is that he is humble enough to reflect on what should be expected from all Americans.
Randy in SD (proxy for Jeff in Milan)
The notion that the USA could become Greece within the lifespan of anyone now living is sufficiently bereft of both sense and evidence as to be unworthy of further comment.
The notion that a social safety net account held and paid into by individual citizens is conceptually and morally equivalent to a general fund account such as the defense department and amenable to cutting on the same terms is close behind in the downward race to utter cluelessness.
But the notion of living below ones means remains rich ground for reflection. As Thoreau observed, "A man is as rich as the things he can do without." Worth thinking about, always.
Off topic, I was just reviewing the new Pimco currency ETF, FORX, and am curious as to your take on it.
It appears to be a good hedge against the dollar. I lkke the initial currency mix and duration.
T
RW I wrote about FORX for TheStreet, obviously as an actively managed fund it would be a bet on the manager's future success. In the article I lay out a scenario where it might be difficult for the fund to execute its strategy if it becomes too big as many PIMCO funds attract a lot of AUM.
http://truth-out.org/opinion/item/11023-ignore-the-deficit-hawks-social-security-is-easy-to-fix
The above link is some food-for-thought on the social security/medicare "crisis" .....
Another perspective on the US could become Greece within our lifetimes comment. The main differences between the US and Greece are the relative importance's of our economies and the fact that the US has its own currency. The fact that the US is one of the world's major economies works to our advantage and we may be able to export some, but well short of all, of our misery. The fact that we have our own currency means we can theoretically inflate our way to solvency at the whim of the government, but that does nothing to decrease the misery of its citizens. The baby boom generation will be the first generation in US history to live better than its children due to the massive and unsustainable public debt it has amassed and is passing on to its children, and that's sad.
SS is a Ponzi scheme
We only seem to see a few ways forward
1. We punish entrepreneurs who succeed by taking their money and convincing companies like Cisco and Applied Materials to develop products off shore.
2. The government takes on excess unsustainable levels of debt to fix things in the short run that we can not afford from worthless government employees to defense to welfare to ... There is a difference between wanting defense or welfare and being able to afford these things as we can simply not afford them. Wait until interest rates normalize at much higher rates if you do not believe me.
3. We just print additional worthless monopoly money assuming that will make productive businesses flourish.
It's true that people should prevent problems, especially if they feel that they can't be reliant on the state. Living below one's means can be very difficult for some because a lot of us have baggage when it comes to spending.
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