Economic Force: The Boomers

A Generational Tide Has Crested

The baby Boomer economic tide is going out. Boomers have been a major economic force for the past half a century. This population surge, composed of the 78.2 million Americans born between 1946 and 1964 has virtual control over the U.S. economy, which currently accounts for almost 25 percent of worldwide gross product. Beginning after the Second World War, the generations that followed have transformed the economic landscape of the world. Spawned with a keen desire for education, growth, and opportunity, the Boomer generation rebuilt the world, and brought it into the twenty first century. It was always understood that this generation would mark a high tide someday. What has become clear in the past few years is that this high tide was artificially made higher by a credit boom and bubble cycles. And this tide is now going out with a vengeance. This fact – the baby boomers bust cycle – will be a dominant economic factor for the next several years.

After Unimaginable Tragedy – Boundless Growth

Most people agree that the Boomer generation has been an economic force since they were conceived at the end of the most devastating half-century of war in history. This was the generation of American opportunity, an expansive time buoyed by the Marshall Plan and the ascendancy of a U.S. flush with victory and eager for expansion. With much of Europe and Asia devastated by war and only one industrial power left standing, this was a uniquely favorable moment for the U.S. in world history.

The Boomers were the first generation in American history to have significant numbers college-educated, with many advanced degrees fueled by programs like the G.I. Bill. As the first generation to have such access to education, the Boomers invented and expanded the boundaries of everything. They also bought what they wanted with their increased earning power and when that wasn’t adequate, they borrowed, especially in recent years. Boomers felt they had no boundaries and they changed the world in ways unimagined by previous generations.

A Generation of Expansionist Monetary Policy

The economic and financial landscape of the Boomer generation was a Keynesian one, wherein interest rates were quite effectively manipulated to produce high employment rates and consistent growth. Savings became passe; everyone knew that the inflation rate exceeded the interest rate on a savings account! The tax subsidies to investment, begun under the Reagan administration, quickly changed how people “saved” for the future. Responding to government policy, Boomers shifted from savers to investors. ‘Savings’ became at-risk investments in the stock market. This was a strategic and fundamental shift, and it propelled world economies forward for a few decades after the flush of post-world-war growth abated.

As Boomers headed into their peak earnings years, they poured money into 401(k)’s and mutual funds and bigger and better housing . Housing was was an “investment” too – all done in hopes of “selling high, and retiring someday”. Investment became less about long term growth and more about “leverage”. Leveraging someone else’s savings to overcome shortfalls of one’s own.. In the past decade, Boomers ran pell-mell into the leverage game, until the bottom dropped out.  Real incomes stopped growing, and Boomers couldn’t borrow to cover the difference between what they earned and what they spent. The fundamental assumption that growth could continue indefinitely was now under serious challenge.

Buying Power Implodes

The end of an uptrend is never as clear or easy as its beginning, and this is true of the Boomer generation as well. In the case of the Boomers, the attempts to continue the upward trend have clearly led to our current bubble economy. But bubbles are always unsustainable, and the massive contraction in spending that happened when the debt bubble finally began deflating has been devastating. We have seen a crash in home prices,  asset price volatility, a secular bear market, and deleveraging on a massive scale. For many it has shaken their entire economic foundation, and many people are realizing that their dreams of retirement have vanished – they may not be able to retire, ever!  Boomers have lost a large percentage their on-paper wealth.  Many have lost over 50% of home values and 40% of portfolio values.

Why Buying Power Collapsed

Before we examine the effect of the Boomer’s plight, let’s make sure we’re not exaggerating it. In June of 2008, the McKinsey Global Institute published a report before anyone realized the extent of the housing slump and before the stock market crashed. Boomers were already in serious trouble. By June 2008 less than a third of Boomers had enough savings or equity to even contemplate retirement. Since then things have gotten much worse.

Another, more recent report which corroborates and updates the McKinsey report was released in February 2009 by the Center for Economic Policy Research. This report presents the Boomers’ financial situation in early 2009 and projects that situation into the coming decades. This research shows most Boomers don’t have enough savings to even contemplate retirement, and that only about ten percent have adequate resources to maintain their current lifestyles into retirement. Many retirees will live well below the standard of living they enjoyed while working. Over half will only have social security to live on.

The result of this huge loss was an immediate demand retrenchment. Take a look at the recent contraction in spending. This is a graph sourced from CalculatedRisk Blog, depicting the annual change in retail sales over the past 15 years.


Surely someone will say “but that contraction is due to global sentiment. The Boomers are a U.S. phenomenon”. Surely you’ve heard of the concept of “coupling”? By that expression, we mean the close-coupling of global economies, and the unfortunate reality is that the U.S. consumer provided most of the demand for export products from around the world, so long as the Ponzi-Economy Myth remained un-contested.

Now the Boomers’ wealth-effect consumption has stopped, cold. The world economy may well take decades to recover from the sudden removal of this demand. Whatever the effect of the Ponzi-collapse on the world economy, the effect on the Boomers themselves has been shattering. For many it has shaken their entire economic foundation, and many people are realizing that their dreams of retirement have vanished – they may not be able to retire, ever!

The Future of the Boomers – the Bust Generation

No matter what happens in the economy, Boomers will need to live and will have the political influence to impel other generations into supporting them, in some way or another. Boomers are aging, and that means they’ll need ever increasing health care. This is an interesting paradox for Boomers and the entire country. The common assumption is that aging Boomers will cause the health care system to expand and there will be lots of money to be made. The reality is that Boomers may drive up the demand but have few resources to pay for all this demand. Where is the money going to come from, especially when governments are already running huge deficits that will have to be repaid by the younger generations? How can the advanced economies governments take on ever more entitlements in a time of decreasing tax revenues and spiraling deficits. Something will have to give, and it will.

Many Boomers are relying on pensions and government Social Security programs. They face longer life spans, but this also comes with increased costs in later life. They will be collecting, not contributing. And why shouldn’t they – they built the economy and they feel they deserve to bask in their twilight. Unfortunately, the economic realities are very different from the way it should be.

The Boomer’s demand has been severely curtailed, much earlier than many of them expected. With 401K’s and home equity gone, with pensions suspect and Social Security a ticking time bomb, Boomers are cutting back. A natural part of aging – the desire to simplify, has been brought front and center into the Boomer’s consciousness. They realize their jeopardy and they are reacting. The transformation is not an unnatural one. Aging people naturally want less and less to take care of. Less yard work, less responsibility, fewer consumer goods, less gadgets, more simplified lives. This is a normal part of aging for most people. We have seen it happen in all generations as they age. Retirement villages will grow or families will go back to multi generational configurations like in past generations and in many other countries.

What Does It Mean for the Economy of Tomorrow?

The trend for the Boomer’s economic tide is clear – it’s going out. The trend of the underlying economic math is also clear – it doesn’t work. When economists build their projections for future growth assuming trendlines will move as they have in the past, they risk missing this important generational wave. The Boomer bubble will not be reflated; our nation’s current economic policies are pushing on a string. The assumptions of economists and policy makers will almost certainly prove to be too optimistic. As in other things that need ‘fixing’ in the global ecomony, the fixes will have to come, bottom up, from the next generation and from Boomers working from a new foundation with an entirely new set of assumptions. The future is not going to look or act like the recent past because the Boomers are now bust. Now we must deal with the consequences.

Originally published at the RealEconomy.Org blog and reproduced here with the author’s permission.

27 Responses to "Economic Force: The Boomers"

  1. serialsaver   April 21, 2009 at 4:39 am

    A very interesting analysis. The boomers are also the crunch generation. Skyrocketing costs for college educations for their children, aging parents whose income resources have dwindled and fall through the gaps of support and their own needs for health care that has far exceeded all other inflationary pressures means its a triple whammy of disposable income pressures. Its not only the pressures of aging and self-interest which are affecting spending pattern for this generation. Real wages declined in the past 10 years, inflation in critical services and the common needs of life through gamed commodities, you name it, under-reported and taxation increased for many at the state and local levels. The goose is throughly cooked now and can’t lay anymore eggs.Some of us spent our entire lifetimes in productive endeavors, educated and working our tails off for the prospect of supplying for ourselves a modest but stable quality of life as we age and are less competitive as workers. Not all of us were victims of the lack of retirement savings options invested in the stock market but all too many had no other choice to stay up with inflationary pressures. Not all of us listened to the faddish market or investment gurus. It meant that some of us chose a modest lifestyle for security over a luxury lifestyle and expectations on paper wealth. Our homes are paid for, our cars are paid for and our savings are cash.Our generation won’t go silently into the night, particularly if after decades of preparations and diligence we are denied what we worked for and paid for UP FRONT. We are the generation which broke through barriers before. As a graying population it would be unwise to minimize or discount our ability to shape the future still. Economic and monetary policies must account for and provide avenues for those that have prepared safe harbor for decades of savings. Prudence, due diligence is now required; capitalization of non-sexy banks and a return to common money markets not connected to the risks of the globalized stock market necessary. This means the restoration of Glass-Steagall so those of us wise enough that have built firm foundations have confidence in common and boring banking which COULD provide the necessary hedge against inflationary pressures and those events of aging which are costly. Avenues to age in place and be participants in communities, the economy will require creativity, innovation and some fresh financial engineering that accounts for our richly deserved cynical and jaundice view of opportunists.We are a competitive lot by nature as boomers knew there was someone waiting in the wings to replace them should they fall behind or suffer from tragedy, jobs and resources always a fight because there are so many of us. Business and government would be wise to partner with us in equitable ways rather than cast us as a drain on society or economy; we’re not dead yet.

    • Free Tibet   April 21, 2009 at 7:54 am

      Our savings may be gone, but our productive capacity is not.The real question now is whether we let our productive capacity be squandered too. It will be if we don’t take independent action because the leaches get theirs on the top line without having to wait for bottom line earnings. Theirs being the 2% in the 2/20.But you know that.

      • Theta   April 25, 2009 at 7:37 am

        “Our generation won’t go silently into the night…””… we’re not dead yet.””Our savings may be gone, but our productive capacity is not.”And it is comments like these that make me want to bury my head for the next twenty years. Is it truly possible to have positive change until the boomers are out of power?Oh, and about the crunch generation thing? I would be more sympathetic if I didn’t have to look forward to the exact same situation, except I have to support twice as many retirees using reduced wages and through potential double digit inflation.

  2. Free Tibet   April 21, 2009 at 7:40 am

    I’m tired of going on and on about the problems. And tired of everybody else doing the same. We’ve been over that. I’m tired too of this economic forces clap-trap. It’s the destructive force of debt which has us against the wall. And I don’t care where you went to economics school, you can’t borrow your way out of debt. By the way, how many of you knew that Jim Cramer went to Harvard with Elliott Spitzer? No kidding. They were classmates. What does that say about the admissions policy of our leading academic institutions? Horrors. The problems start there.But it’s not about the problems. I want solutions. I don’t care about consensus. I want to break away. I don’t care about panaceas. I will work with what I’ve got. I want what’s right for me. I don’t want to wait. I want it now.The systemically important part is not the financial intermediaries who take a cut of your savings to move money from one folder to another – the rubble of a failed regime. Au contraire, it’s the part that produces the savings that we hope will one day bring this over-leverage down – the part that can be saved from the rubble. The savings. The capital – including the human capital. And it’s these producers & savers who have their backs against the wall. We must salvage what we can of that.What can I do myself without waiting for those charm-school despots to screw things up even more? How do I get away from banks and money managers and “sell side”. How do I get on-side? How do I hedge my own risk without placing money in a 2/20 pool? Really, how do I get out of the pool and onto solid ground? How can I make productive investments? Something that can be measured in tonnes. I want to be part of something real and I’m not too fond of gold – a rather inert element. What are the options? Who has ideas?On one of the other blogs that I’ve been reading someone was complaining about credit card companies raising rates and it was suggested that everybody pay off their balance. Well, yeah…. I think some of that must be happening. I would expect households to be de-leveraging more quickly than banks. And I suspect that the increase in delinquencies may have something to do with those best credit risks leaving the room as well as the deteriorating economy leaving everybody in poorer condition. But everybody isn’t going to be able to de-leverage. A lot of people are losing their jobs. Not only should those of us who can pay off our balances do so, but we should insure that those who can’t don’t face usurious fees. I suggest that we launch a serious effort to reinstate some control. Normally we would write our representatives and beg them to see things our way. That doesn’t do any good. They are already bought and paid for. Guess where they went to school! Last summer’s TARP outrage brought govt. communications services to a stand-still. My own effort generated 2 form letters in reply. So, what do you do? Volunteer with the credit counseling groups and try to help one family at a time? Has anybody done that? Please relate experiences. What about an information site: Put up practical advice. How to get a cheap credit card. How to default on it. OK, that’s probably not a good idea.It’s not hopeless. There are things that can be done. No, I don’t have specific solutions. No panaceas. You’re not going to get any solutions from government either. What I can do is shine a light on a path that can lead some of us part of the way out. Individual solutions. Which require individual action.Recapitalizing the banking system will not correct for the misallocation of resources (the squandering of our savings) which has brought us down. Banks are not in the business of making productive investments. They extend credit to borrowers who can make repayments and they find those borrowers on the credit ratings lists. And the lists are made by agencies who work for the borrowers to both miss-price that risk and justify the irresponsibility of the banks and the regulators get their cut to do nothing. It’s all legal. It’s incestuous. They’re in cahoots. And the object is to TAKE YOUR MONEY!So, accepting cosmetic or perfunctory changes in regulation in exchange for the use of your earnings to recapitalize that system is insufficient too.You are responsible for seeing that your savings are invested productively. You can’t put that responsibility in somebody else’s hands. You are responsible – the one they call “sucker”, “retail investor” and “slow money”. Take it away from them! Leave the casino. But there is no safe haven. That’s something we have to build together.It’s time to take command of your own destiny. Break those bonds. The change you want is not coming from the people who manipulate you and your savings and benefit from the status quo.

    • ex VRWC   April 21, 2009 at 12:00 pm

      FT,I read your frustration. I don’t think its clap-trap, but rather I think is is necessary background. Think of it as a mechanism to help people build understanding, so then they can take the steps as you suggest. They are all great steps. We need to break free of the capital/credit/debt mechanisms. Leave it for those who are willing to continue being a part of the zombie system. Remember our discussions on RGE a while back about alternative capital mechanisms? I think that is an effort we should be doing. We can use the RealEconomy collaboration mechanism to focus some effort around this. Or whatever mechanism you propose. This was always one of my intentions was to start to offer this kind of advice and discussion to interested parties. And, if you think about it, the goal of RealEconomy longer term is to offer real ideas that can be the focus of such mechanisms. Real business ideas. Real collaboration to help it to happen.The pace is slow. I feel it too. We need to pick it up.Mark

      • Free Tibet   April 21, 2009 at 12:28 pm

        thank you. I am ready to pick it up.

      • Free Tibet   April 21, 2009 at 1:40 pm

        Always nice to be able to reflect a bit. The problems are structural. The background necessary is an understanding of the structures that lead us to where we are and the kinds of structures that have the potential to lead us on. The example I used above – banks being in the business of extending credit to borrowers, not evaluating investment opportunities – is one of those structural “problems”.Solutions:a) Policy approach (top down): convince a super-majority that change is needed, change the management of all banks, change the curricula of all business schools, change the training of all professors, write all the new books…b) (bottom up) develop a pilot project in parallel to the existing system based on a new structure.I contend that if b) works it will do a) more effectively than anything else that can be done. Roll up those sleeves. Do something. Get to the solutions. A thorough understanding of the problems is not necessary. Basic instincts and common sense will carry you. And there are always plenty of critics to point out the problems.

  3. ex VRWC   April 21, 2009 at 7:41 am

    Very good analysis. There are those who did not overconsume. We and our financial resources can be a part of steering the economy in a new direction. You have added some good thoughts to the picture.. We can always use more.

    • Free Tibet   April 21, 2009 at 7:58 am

      There is something left. It’s not hopeless. The solution is to build something solid on what is left. Not to use that to prop up a failed enterprise now proven unsustainable.

  4. Guest   April 21, 2009 at 4:40 pm

    As a gen X’er I feel left out.BTW, I am a productive member of society in case any of you were wondering.

    • economicminor   April 23, 2009 at 1:02 pm

      I’m glad because it will be up to your generation to work hard to pay for your future and support the Boomers too.Thank you!

    • Theta   April 25, 2009 at 7:39 am

      As a gen Y’er I’m feeling increasingly hopeless. And ditto on the productive member of society thing, though I’m not sure how much good that does me.

  5. Tschurin   April 21, 2009 at 9:17 pm

    Caveat lector: Anyone who writes this sentence “In June of 2008, the McKinsey Global Institute published a report before anyone realized the extent of the housing slump” is not very well read. By June of 2008 the Case/Shiller YOY housing numbers were well into negative territory; you would have to have been a hermit not to understand the depth of the problem.

    • economicminor   April 23, 2009 at 1:08 pm

      The report was on what was going on with the Boomers up to their cut off point in time. You and I know what the Case/Shiller study was showing but this report was not projecting this, only that at that point about 25% of Boomers weren’t prepared to retire.The later report by CEPR started to show this but only up to their cut off point and did not speculate on what was happening to make even their study conclusions worse.And people on the Roubini blog and many other blogs have been talking about how American’s were Ostriches. It wasn’t until recently that enough Americans were aware of the situation to even have a public dialogue. Sad that Americans have been acting as hermits for the most part.Still this doesn’t make our conclusions about Boomers any less valid.

  6. Guest   April 21, 2009 at 9:34 pm

    Very good article.I am part of the Boomer generation and if I was a young person I would be mad as Hell! Far to many Boomers want to retire at 55 and live off the remaining workers. It would be interesting how many of the Boomers got caught up in real estate bubble bust in Arizona and FLorida, retire early with a second home has an investment.

    • serialsaver   April 22, 2009 at 5:47 pm

      Well Yeah, some played the game. A lot of us DID NOT. Our retirement paid for UP FRONT from decades of working our tails off, keeping our noses to the grindstone, paying our taxes (including SS which was supposed to be a TRUST fund but congress made it fodder for fun too) and contributed to our retirement accounts. The idea its some kind of welfare is maddening to those of us who didn’t spend our way into massive debt either short or long term. It required an exceptional amount of discipline as some of our peers enjoyed yearly luxury vacations and lifestyles beyond their means. It also meant due diligence in just how to fund our futures. I’m mad as hell too but the blame lies with those who have confiscated our futures through delusional markets, gaming of everything from the Stock (traders) market to commodities and taking everyones lunches with prejudice. Lets be sure we’re angry at the right people. As inflationary pressures mounted and was under-reported by government (like health care costs and critical services) it required higher incomes and debt to lead ordinary lives, mortgaging the home to send that young person to college and credit that was kept cheap and easy, the speculation that valuations would never stop rising. It wasn’t entirely the consumerism religion which led people into this black hole of despair. For all too many, the timing couldn’t be worse. For all too many the endless changes to the retirement game meant planning/savings for decades blew away as easily as a dandelion’s seed in a hurricane.The fear now is all we worked for, saved for and our OWNED property will evaporate under trillions going into a black hole of ‘illiquid assets’ and blind learned economists who saw no problem with a massive trade deficit or national debt. That our productivity and playing by the rules will result in being totally abandoned and made pariahs because we dared to age. We’ve paid an extraordinary amount of taxes over our lifetime; while the tax code takes a fleet of 747’s to haul around for the most enabled and wealthy to skip out on that obligation to maintain what is a free society from which they profit. Its not rocket science, if one segment of the population underpays then the rest make up for it. I do believe it is time for some economic justice to reign down upon those who have long said “let them eat cake”.

  7. Ismael   April 22, 2009 at 6:26 pm

    The current mess is the result of a scientific experiment. Since 1971 the ayatollahs of laissez-faire (free market is to weak) have gradually imposed their ideology on almost all the world. It has been applied in every field: floating exchange rates, free flow of capital full convertibility, propaganda for the superiority of stocks “investment” (very misleading word, buying a share is not an investment, same goes for houses or commodities), loosening of bank equity ratios, plundering of corporations with the big joke argument that bosses needed huge incentives to perform, free trade and investment, Mr Greenspan idea of bank supervision, fairy tale accounting, privatization of everything. Seems the only thing that has escaped liberalisation is narcotics.It’s misleading to boil it down to casino finance. Before the bubbles came gobalisation, and that has at the same time offered a huge reduction of the price of consumer discretionable and a shift of the sharing of value added from workers to shareholders in rich countries. There was no way most developed economies could resist the competition of China and co, who on top of that kept tehir currencies undervalued in order to protect themselves from currency crises and to export as much as possible since at the beginning their domestic demand was paltry. but here’s the rub: you do you sell evermore widgets to consumers whose purchasing power stagnates. Only on credit of course. So only by ever expanding credit could growth and full employment be got. And Greenspan duly begot with asset bubbles that provided the collateral allowing to extract that equity, with the connivence of many actors. But what about the mega curent a/c deficit that was the counterpart of the binge, that got some people worried? No problem, there’s a gobal glut of savings looking for financial assets to buy, this can go on forever, said the thief to the jester.The failure is irredeemable. Time for new thinking.

    • serialsaver   April 23, 2009 at 3:08 am

      Indeed! What this crisis really boils down to is human rights in my opinion. Those financial engineers just did what was in their nature to do-turn a profit and never-mind how you do it. There was no one looking at the overall economic picture or hazards, or perhaps it was thought endless sophistication, innovation and opacity could fool the masses and allow rule by oligarchs, essentially making us all indebted serfs for life. PT Barnum foretold that you can fool some of the people some of the time but not all the people ALL of the time.Goldman-Sachs, et al hijacked the government who are so ingrained in their thinking and culture, its impossible for them to realize that their roles and their importance in the making of this fine mess or that their constituents are waking up to their contempt of us with their endless rhetoric and grandstanding attempting to mask their complicity.Confidence for most is broadly lost and rightfully so and now by extension this includes the governments not limited to the USA. People will do what is natural when threatened, protect themselves financially and otherwise. The savings lost that wasn’t real in the first place will not recapitalize the casino market except for those for whom credit is still easy and free at 0%. Returning to an ownership society will be painful but required IF our constitutional rights are upheld. So for those social engineers who gave way to the incentives of profiteering off the backs of indentured servants, slaves, child labor and then extending the abuse to selling at triple digit profits plus, the hand was overplayed and short circuited the revenue steams. They failed miserably, our quality of lives reduced rather than those in poverty raised. Our futures are now in question and if what many of us worked our entire lives for is hijacked in total to include our rights to ownership, privacy and individual freedoms; then history is a fine teacher of what comes next.It is time for new thinking not only in economics which requires sterilization from political/philosophical shackles, like the sciences, to discover what is truthful and what isn’t but also in politics which requires disincentives for the overlords of wealthy lobbyists that fund the war chests of senior congressional leaders and those on the world stage. I believe them to be as naive and blindsided by the incestuousness of business/finance and the tentacles of “counter party risk”. The social experiment has now finally proven itself to be false. The upside down incentives and top down imbalances will be corrected one way or another. Bottom up re-capitalization is now required which means repatriation of jobs, opportunity and wealth, granting ‘most favored status’ on a global scale to allow freedoms to provide for ourselves, incentives and rewards for prudence, due diligence and work; and finally representation and returns that are clear and tangible for taxation.Economics/macroeconomics/economies of scale could evolve into a positive allowing for discovery, new paradigms and theory based on empirically derived data/results even with accounting for the human element. It is a gigantic IF for this to occur and would require sober, very brave adults.

      • Ismael   April 23, 2009 at 12:35 pm

        There is an inacceptable paradox of advanced capitalism. It has the potential to give every human being a decent life, and yet there is great misery even in the richest countries. We are able to produce much more than we can afford to consume, even though there still are in the system much more ineficiencies than economists think. But improving the system requires a radical questioning of all the things that are taken for granted. Just to give an example (I’m not pretending it’s better, but that it deserves consideration): why not tax savings instead of incomes? (I mean yearly savings, not a wealth tax)

        • serialsaver   April 24, 2009 at 7:38 am

          Because the mechanisms to hide savings are endless for those granted exceptions as identified as the ‘trickle-down’ producers. Hidden wealth from taxation becoming an issue and at least given oxygen at the last G-8 meeting. It isn’t just wealth of individuals however, international corporations/bankers, etc. have hundreds of offices off shore from the Bahamas to Lichtenstein to divert profits/earnings from taxation from their home nations and not completely, as they claim, merely the offices of their international operations The tax code explicitly allows endless avenues for those most wealthy to lessen their tax burdens at all levels. Lawyers writing laws for lawyers while the rest of the taxpaying/working schmucks burden continues to rise with little tangible in return. Its not rocket science but was made massively complex and occlusive. Now the solvency of states in the USA are at risk. The trillion dollar municipal bond market and credit default swaps on those bonds extended even into the management of local school districts. Its enraging as we local taxpayers are paying for a financial guru to the school district to manage their bonds and debt while getting federal assistance to stay in business. That imploded last February of ’08 as bankers closed their ARS bond divisions leaving investors holding the bag without access, they were denied even their principle back while calling in the debt with massive penalties and fees to those they were issued for. Goldman-Sachs is making money shorting the very bonds they sold, right now, today.You are correct there is a paradox and that paradox has reached critical mass.

          • serialsaver   April 24, 2009 at 7:39 am

            correction: I said credit default swap when I should have said interest rate swap-pardon.

          • Ismael   April 24, 2009 at 12:29 pm

            The mecanisms used to hide savings are the same as those used to hide income. Thats a separate issue, that can be resolved if there’s a will. But my idea is that it’s much more difficult to avoid indirect taxes than income tax, so those who don’t save or have undeclared incomes would actually pay income tax. All you need is to set VAT and excise duties at an adequate level. The thing I have in mind is much more complex and must be put in context, I intend to write a more structured and argumented essay about it.

  8. serialsaver   April 25, 2009 at 3:50 am

    Ismael: I’ll be interested in your thoughts as I think you have identified a key area of revenue generation. I think the economic imbalances were partially generated by substituting credit as a form of wealth. Inclusive of that I think is the ‘paper wealth’ generated from 401Ks, market mutual funds, etc. For those less enabled or wealthy, I submit that rewards for prudence, savings and ownership of property are currently backwards. Incentives count! By sheer numbers of people, this could create that positive feedback loop and a more realistic accounting for wealth that is sustainable. The risks associated with credit and market wealth are clear. Those silent/indirect taxes are targeted and disproportionate and again, create imbalances.In the USA, until we produce more than we consume, save more than we spend and are enabled to do both without unnecessary complexities that are non-productive and minimize both, then I fear the economic remedies thus far won’t supply a lasting solution. The aging population of ‘boomers’ require safe harbor for their savings which can supply their future needs. With SS, pensions and 401Ks; the destruction of property values all now in question, those real savings are even more important decreases the role of the government in filling the gaps in the coming decades.The issues regarding the most wealth/enabled and their ability to hide income/savings is perhaps a separate issue but one that is equally important in the solution to revenue generation. You are correct in saying Will is the key; those who legislate have powers of oversight to assess this more stridently, I am highly dubious about that will.

  9. Ismael   April 25, 2009 at 5:36 am

    I’ve been mulling my thoughts about all those things for years, and I kinda got a “general theory of efficiency” in my mind, now comes the hard part, put it in writing. I’m not an economist, but I have translated zillions of words written by that race (from english to french, actually my mother tongue is french), and I’ve seen that most economists a) say a lot of foolish things they take for granted and b) are very mediocre writers.So in fact I could say that my realm is writing, because the convoluted, redundant, and undigestable prose of the above becomes clear, concise and stylish through my work, and I dare say I’m one of the best in my profession.But good prose requires a lot of work (as Voltaire said in his correspondance, I’m writing you a long letter because I don’t have time to write a short one).In the meantime, here is a little metaphor I concocted a yearago as a pastime:The DreadnoughtT’is the unchallengend King of the Seas. The biggest, most powerfull, unsinkable, armoured, nuclear aircraft carrier ever built. In her holds lie atomic warheads, self guided long range missiles, food and water, jetfuel to last a year at sea. Nuclear fuel for eternity and a day. She boasts the ultimate navigation, detection, electromagnetic shield, battlefield control and command and engine monitoring systems. Her Master’s the most reputed Commander of the Navy. Her Helmsman has defeated the finest Skippers and won the Holy Grail of sailmanship. She’s manned by the élite of seamen, has a commando of ordinance defusersBut the Master has been stripped of his stars and bars and confined, there’s iron round his ankles. The Pilot lost his bearings. The gyroscope’s amok. The systems are jammin’. No one knows who’s the boss. The officers are on their own. The engine’s red lights are all a’flashin’. Is the plutonium cell gonna diverge or meltdown? Lord knows, maybe.It’s panic onboard. The rats are ravin’ mad, vainly scurrying for an escape hatch. The ship’s idling, but she’ll need ten miles to lose her moment and she’s in the midst of the Great Reef Barrier. The Highest Officer in State of Emergency is worried, he’s dreamin’ nightmares, but there’s pretty little he can do.The Kingdom’s for grabs, but there ain’t no fool round willin’ to swap it for a mare.Welcome aboard UBS Sir, my word is my bond.Unsinkable said you?Yes Sir, unthinkable.

  10. economicminor   April 27, 2009 at 9:41 pm

    Ismael and SerialSaver,If you still check in here. I just have the feeling that we have what we need to all live a happy productive life but for some reason the way to Nirvana has been obscured by our self indulgence and greed.We owe most of the money to ourselves… Yet is isn’t enough? Maybe it is because it has been hijacked and our thoughts and future has been hijacked and we are running around like chickens with their heads cut off rather than focusing on the obvious.It was nice reading your dialogue, both of you.I think we just need a fool to take charge.

  11. Ismael   April 28, 2009 at 2:08 pm

    There must be a way out of hereSaid the jester to the thiefJimi HendrixThere’s the respect,That makes calamity of so long life:For who would bear the scorns and whips of time,The oppressor’s wrong, the proud man’s contumely,The pangs of despis’d love, the law’s delay,The insolence of office, and the spurnsThat patient merit of the unworthy takes.William Shakespeare (Hamlet’s monologue)As you can see, nothin’ new under the sunThe trouble is human nature, there are many good men and women on this planet, do we have to blame ourselves, I think not, but there are also many sinners, greed, gluttony, deceit, vanity, violence. Democracy is a farce, and not only in the USA, the power rests in the hands of unworthy hands, because to get it you must be part of the oligarchy of those who have limitless lust for power and wealth and are ruthless, do you really believe that they care for the common good?As far as I know, the only Head of State currently in office who has really been elected by the people and cares for them is Lula: no wealthy family, no higher education, no army officer, just a charismatic and very smart trade union leader. Of course he had to make compromises with all sorts of corrupt politicians, of course the billionaires who used to take for granted that the President should be one of them and who own the media rant all they can and complain about heavy taxation (big government, sounds familiar doesn’t it? They have learnt the Reagan rethoric, if they want lower taxes it’s not out of selfishness but for the sake of “efficiency”).That’s all folks, for today.