Just How Ugly Is The Sovereign Default Truth? How Self Delusions Prevent Recognition Of Reality

Tyler Durden's picture

When psychologists evaluate human behavior, one of the most prevalent observations regarding any activity is the all too often flawed basis of perceived versus realistic outcomes that dictates our every action. As imperfect  creatures, we tend to construct theories that conform with our worldview, which are subsequently reinforced by our confidence (or lack thereof) in the future. This is true in any discipline: finance, politics, gambling, mating, etc. There is hardly a better example of this than the very basis of modern economic theory where assumptions about the validity of fiat currencies determine the actions of central banks, which in turn spill over into every aspect of modern society. Yet what if the very basis of core assumptions is wrong? What if every activity exhibited by humans in the post gold-standard world has a flawed assumption at its core? Austrian economists have, of course, claimed this for ages, usually seeing their efforts conclude with a dead-end as the attempt to change the status quo hits the brick wall of quadrillions of (arguably worthless) pieces of paper which dictate the status quo. However, with the recent turn for the worse, courtesy of sovereign bail outs (as confused as they may be) could the day of reckoning be fast approaching? With each passing the day an affirmative answer seems closer at hand. Today SocGen's Dylan Grice shares his perspectives on popular delusions, and why these may soon be coming to an abrupt end.

Dylan begins:

Behavioural psychology applies to central bankers, regulators and politicians as much as it does to investors. In promising to ‘fiscally retrench tomorrow’, finance ministers are exhibiting the behavioural phenomenon of overconfidence in their future self-control. The bitter fiscal medicine required to stabilise debt levels won’t become more palatable today relative to tomorrow until the bond market makes it so. It can only do this through higher yields. Thus, Ireland and perhaps now Greece lead the way. For the Japanese it’s too late.

Why should behavioural psychology be seen as something applying only to investors? "Behavioural" finance is a well defined sub-discipline in its own right. But where is ?behavioural? politics, ?behavioural? central banking, or "behavioural" regulation? Remember the Fed policy statements around the end of the 1990s? The ones that kept referring to the "technology-enhanced" rate of GDP growth? Wasn?t this herding around a bad idea the very same herding then fuelling the NASDAQ bubble?

Nowhere is self delusion more prevalent that in the workings of the Federal Reserve duo of Greenspan and Bernanke. The issue is that any weakness, or any affirmation of faulty policy by the head money printer, will immediately be seen as weakness that could destabilize the reserve currency format. For a monetary system based on flawed assumptions that would be the beginning of the end.

As the housing bubble inflated, Bernanke in a quite staggering display of logical sloppiness, concluded that the risk of a housing collapse in the future was small because there had never been one in the past ? Weren't they then guilty of "framing" their analysis in a way guaranteed to preclude an uncomfortable conclusion? If you don't expect to see something, you're less likely to see it. Similarly cringe worthy logic was used when sub-prime rolled over, and Bernanke concluded that there was no risk of contagion to the rest of the economy because... er... there had been no contagion to the rest of the economy yet... wasn't this textbook "recency bias" whereby the importance of recent events is over-weighted?

It probably was, and it probably demonstrates that central bankers are as prone to be as systematically silly as the rest of us. Indeed, just last year a study by yet more of Bernanke's "best and brightest" concluded that “monetary policy was not a primary factor in the housing bubble”. I don?t want to pretend I?m any kind of behavioural expert, but isn't this the well documented "attribution bias" by which people attribute positive outcomes to themselves, but negative ones to others?

So with nobody willing to take blame for the massive errors of the past 3 decades, and what's worse, nobody attempting to place the blame, we happily plough along as if nothing has changed.

So here we are today, with regulators rounding on investment banks, hedge funds and tax havens, apparently in denial of the reality that the problem was not the regulations but the regulators. After all, heavily regulated institutions like Fannie Mae and Freddie Mac were at the epicentre of the crisis (as was AIG, whose financial services business model was the facilitation of "regulatory arbitrage" around Basle capital requirements). Not that it makes any difference. The regulators are merely bowing to pressure applied by politicians whose understanding today is as flawed as Gordon Brown's was in the Mansion House back then. If this sounds like a rant then I apologise - it isn't meant to be one. We're all fallible and policy making is an impossible job. But that means policy mistakes are inevitable, and I believe we?re seeing one right now.

Before we get into the gist of Dylan's analysis, we present his example which brings the self-delusion bias down to the individual level.

Oscar Wilde said he could resist anything but temptation. But doing something you know you shouldn't is easier if you can convince yourself that this will be the last time you indulge, that you won't do it again. So we convince ourselves that since we'll be strong in the future, we can still indulge today. Whether it?s smoking, eating too much or going to the pub instead of the gym, we delude ourselves into thinking that we will take the more difficult path next time.

A few years ago, two economists actually looked at the issue using gym membership data. They found that in a club in which non-members could pay a no-strings fee of $10 per visit, people preferred to pay the $70 per month for unlimited access. And since members only attended 4.3 times a month on average, they ended up paying an average $17 per visit. The authors concluded this to be clear evidence of "overconfidence about future self control."

Investors understand the affliction all too well: a stock trades at £10 and we tell ourselves that we?re buyers at £8. But how many of us buy when it gets to £8? Some of us do, but most of us don't. Most of us (I can?t be the only one!) convince ourselves that it's going lower still: “I’ll buy at £7” becomes “I’ll buy at £6” and by the time it's back at £8 we're “waiting for a pullback” Each investor has their own way of circumventing this problem. But at root, such poor decision-making is a consequence of our fundamental underestimation today of the discipline and even courage we will require in the future.

The delusion problem becomes exponentially more complex when one adds in the concept of dependence and addiction, not so much to a substance, but to an idea.

Last weekend, the G7 "committed" itself to the path of further stimulus. As politicians are wont to do, they presented it as though it was somehow a difficult decision: "the position for most countries is to support the economies now, and get the budget deficit down as the economy recovers." said the UK's Chancellor, Alistair Darling, nodding earnestly. Am I the only one who heard a heroin addict steadfastly committing to his next fix?!

Well, it got me thinking about how much governments need to retrench to stabilise existing debt to GDP levels. And although I consider myself fortunate enough to have forgotten most of the economics I learned at university, one lesson which was useful, or in any case has stuck with me, is of the arithmetic behind government debt sustainability.

And when we begin to actually dissect numbers, as opposed to demagogic propaganda, is when we get into the meat of the problem.

There are lots of books containing lots of equations outlining lots of limits and theorems about the dynamics of government debt sustainability, but the basic intuition is that if I'm a finance minister mulling out how much money I should be borrowing, I want my GDP growth (and therefore my tax revenue growth) to pay the coupons on any debt I take on today. If the GDP growth rate equals that interest rate, the incremental revenue flowing into my coffers thanks to the incrementally higher level of GDP covers my coupon payments. I don't need to borrow any more money and my debt ratios are stable. But if the interest rate is higher than GDP growth, my incremental tax revenue won't cover interest payments. I'll be in deficit and I'll have to issue more debt to plug the gap and my debt ratio will rise. The only way I can prevent further debt growth is by running a primary budget surplus (i.e. a surplus excluding interest payments).

There are nuances and qualifications to this arithmetic, and limitations too, but in essence the fault line between sustainable and unsustainable debt dynamics can be summarised as: maintaining a stable debt to GDP ratio requires governments to run a primary balance proportionate to the difference between interest rates and GDP growth.

How does all this translate into quantifiable observations:

Before seeing how our governments compare, two qualifications are necessary. Firstly, the European estimates are distorted by the recent "convergence" within the eurozone which allowed periphery economies temporarily higher GDP growth rates and lower interest rates. This makes on-balance sheet debt loads appear more stable for those economies than they actually are. Secondly, the calculations show only those surpluses required to stabilise the debt loads which are on-balance sheet. And it's important to be clear about this. According to Gokhale, most government indebtedness is in the form of unfunded pension and health liabilities, which are unrecorded and effectively off-balance sheet (see chart below). I'll come back to these shortly.

But sticking with the on-balance sheet debt for now, the calculations shown in the following chart (over the page) use the equation in the footnote at the bottom of page 2 and give a decent first stab of who needs to do what.

The countries on the right are in the fortunate position of paying a rate of interest which is below their GDP growth rate. Provided interest rates don?t change from these (historically very low) levels, they can run deficits without increasing on-balance sheet debt. The US, the UK and Switzerland both currently fall into that category. Japan doesn't. With bond yields at around 1.5%, "trend" nominal GDP slightly negative, and on-balance sheet debt to GDP at around 200%, it should be aiming for a primary surplus of 3.3% in order to stabilise its ratio.

Now look at the next chart which shows the primary balances governments have actually achieved. I was surprised to find Belgium and Italy running such aggressive primary surpluses, but this is consistent with the broadly stable debt ratios those countries have seen recently. The US, the UK and Japan especially have been running pronounced primary deficits.

If we add both charts together we can compare the primary balances governments should be running with those which they're actually running, to get a better feel for the difficulty governments are going to have to face up to in order to merely stabilise their on-balance sheet debt ratios. The next chart does this. Those on the left have been running budget balances consistent with falling on-balance sheet debt to GDP ratios, while those on the right haven't. The US, the UK, Greece, Portugal and Norway (?) all fall into this latter category.

Eyeballing this chart, one might think governments "only" need a 3% underlying contraction of fiscal policy in order to right the ship. Wouldn't doing that over a number of years be plausible? Perhaps, but I can't find any examples of it having happened before. And while that doesn?t make it impossible it does illustrate both the political difficulty of following such a path, and the behavioural biases present in politicians? confidence that they will - if it is difficult to summon the political courage today, why will it be easier tomorrow?

And here is the crux: the black swan will be not so much a totally failed auction - we are confident the Federal Reserve will never let that be the precipitating factor for the next crisis. All that is needed is for interest rates to start going up. That's it. How much longer can money be printed out of thin air so that we can all buy each other's debt and prolong the fiat fallacy for another day or two?

But consider this: all countries, and especially those to the right in the chart, are enjoying exceptionally favourable financing positions, with government bond yields near unprecedented lows. Should anything push bond yields higher, even by just a percentage point, the onbalance sheet debt situation will become explosive. This is the situation in Japan where the 8% contraction required to rein in its already explosive debt ratio is politically  impossible. And again, remember that the estimated 8% required contraction assumes the Japanese government can continue to fund itself at a 1.4% JGB yield, which is clearly unrealistic.

If the on-balance sheet position today looks dicey for the rest of us, the off-balance sheet numbers are far more worrying. The following chart shows Gokhale's estimates of the perpetuity surpluses governments would have to run to meet the current outstanding obligations which are both on- and off-balance sheet. The chart speaks for itself. Such fiscal deflation is clearly a political impossibility.

Apparently heroin addicts can become so drug dependent their bodies cannot withstand the shock of withdrawal, and failure to continue taking the drug triggers multiple organ failures. I just wonder how apt that analogy is to our governments? debt dependency today. As long as governments think that taking these difficult decisions to end the addiction will be easier in the future than it is today, they will never take the decision "today." At the very least, there will have to be a sufficiently large bond market "event" to force the issue.

Today we finally saw a crack in the 30 Year Auction. And as the crack belongs to an ever more brittle wall holding back trillions in debt just begging to be revalued to fair value, and to an unmanipulated supply and demand curve, more and more fissures in the smooth and fake facade of sovereign debt will soon appear, only this time not somewhere out of sight and out of mind like Greece, but in our own back yard. At that point the financial oligarchy will very much wish the Methadone had been administered sooner (roughly about March 2009, when we first suggested it). It will however be far too late, and the decades of self delusion will finally end.

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Shocker's picture

Excellent post!

strike for return to reality's picture

Yes, excellent post.

In the heroin abusing world, I suggest that the US is Begbie. 


TraderMark's picture

The coming disaster that is the Pennsylvania public pension system.  A series of decisions early in the decade is going to lead to an implosion of new liabilities in 2012. 

Greece GDP $350B

PA GDP $550B



And we got plenty more PA's out there! Boo yah.

Anonymous's picture

So what exactly is your solution to such a problem? Are you advocating that pensions should be cut off for all these workers? That they not receive the money they have been promised and have labored years for?

Anonymous's picture

You're begging the question that there actually is a solution. Have you considered possibility/probability that a solution may not exist to keep both pensions and state budgets solvent and that these pensions will inevitably be toast?

Nothing really entitles anyone to >20 years worth of paychecks for 20-30 years of labor--such notions are the product of cultural expectations, irrespective of the financial reality.

Simply assuming that the money would "be there" for such programs is one of the factors that's gotten governments in this situation to begin with.

MsCreant's picture

"Nothing really entitles anyone to >20 years worth of paychecks for 20-30 years of labor"

Anon, they paid in. They don't even get that money back or even that money plus interest. I feel like they are getting ready to be robbed. I know there are some folks milking it bad and they need a spanking, but most of them are not retired police cheifs pulling down $300,000 a year in benefits, and holding a new job in a new state. Most are just folks, trying to do the right thing, pay in their money, and not be a burden on the rest of us.

I agree there is no solution. I agree everything needs to be cut. But be clear, most of these folks that will get little or nothing are VICTIMS.

Just like you and I will be when we go to get our social security and IT WON'T BE THERE.

Anonymous's picture

"Anon, they paid in. They don't even get that money back or even that money plus interest. I feel like they are getting ready to be robbed."

You brought up Social Security, which is related to the pension crisis. Both systems were set up on the idea that these programs would pay for themselves (and for a long time, SS did because there were more money paid into it than what was being drawn out; that's about to end, however). No one ever seriously questioned whether or not they were fiscally sustainable over the long run, and now that lack of foresight is coming home to roost.

I accepted a long time ago that Social Security wasn't going to be there, so it's not like it will be any surprise. And it irritates me to no end because I understand that what I'm paying in isn't saving for my retirement, it's going to pay for somebody else's right now. So yes, in a sense both myself and the pensioners are being robbed. But that goes back to the point that you cited, which is that people allowed themselves to believe that they were entitled to a paycheck for the rest of their life (regardless of their financial situation). We tried to establish all kinds of retirement systems to keep this idea propped up, and it's about to get smacked by reality.

Ultimately, whether it's pensions or SS, these systems rely on a third party to fund an expectation of a lifestyle that is proving to be beyond what the system can afford to provide. It sucks, but you know what? That's the risk when you place your future in someone else's hands.

I'd like to think that these events will compel people to demand more independence from third party-financed systems and increase their self-reliance, but I think this will be impossible short of a total collapse. And that would be just as bad. So either way, we're fuxored.

The party was going to end sooner or later; as Cognitive Dissonance pointed out, denial is extraordinarily powerful, but even denial can't push out reality forever.

Monday1929's picture

What is this "reality" you speak of? I have heard others speak of it too. It sounds like something very bad. Can we still keep our delusions in this new "reality" thing?

Anonymous's picture

"... both myself and the pensioners are being robbed."


And who do you think created the ambient wealth and infrastructure that allowed you your happy little income. Possibly, just maybe, your parents? No. Scratch that. Millions of people your parent's age? You weren't ROBBED, you were GIFTED all this, gratis. As are we all.

So in your case, I'd agree that "denial is extraordinarily powerful."

That said, they will be robbed, when enough younger people no longer feel they can pay into the system, it will collapse, regardless of how much they have benefited from the works of their ancestors.

Anonymous's picture


And who do you think created the ambient wealth and infrastructure that allowed you your happy little income. Possibly, just maybe, your parents? No. Scratch that. Millions of people your parent's age? You weren't ROBBED, you were GIFTED all this, gratis. As are we all."

The system is broke, will eventually collapse, and there will be nothing left for me to draw from in the future. I am paying into a system that will NOT be there as a means to provide for myself. All that "ambient wealth and infrastructure" you boast of will no longer exist.

Gifted? Please. The appearance of short-term gain is completely irrelevant when the prospect of long-term loss becomes more and more likely. I realize that it terrifies you to consider the possibility that you're working for a lie, but you may want to take it into account lest it smack you in the face in the next few decades.

If you feel you owe previous generations to such a degree, then you are free to pump even more of your hard-earned wealth into the system. No one is stopping you, and it would be consistent with your weak attempts to induce guilt by showing how much more righteous, devoted, and grateful you are.

Anonymous's picture

The robbery occurred when FICA was collected, with the threat of force in the background if it was not collected. Whether the State fulfills its promise about what it will do with its ill-gotten gains is irrelevant to that moral fact. Soon we will see the evil of 401ks being plundered. People are more likely to see that as a crime, because contributions were voluntary, but it's not essentially different from coerced participation in the SS Ponzi racket.

Anonymous's picture

They paid in.....
And then voted for politician who promised to take care of those who didn't pay in, and the disabled, and the children, and, and, and.....
Now the services voted in must be paid for, one way or the other.

Anonymous's picture

MsCreant, the whole problem with public pension plans, is that the amount taken from the worker's pay (including contributions by the government employers), did not and do not even approach the level necessary to realistically fund the promised benefits. A 3/30 pension (3% of final salary times 30 years on the job) yields 90% of final pay, which can go on for 2-3 decades, adjusted annually for inflation. The amount that would need to be set aside from annual pay throughout a career to yield such a pension would be astronomical -- on the order of 20% or more. The contributions were not even close to that. And that's before taking into account the totally unfunded promise of covering retirees' health care expenses, which adds several thousand a year for a Medigap policy for each pensioner!

Bankrupt is bankrupt. The pension plans are insolvent, and so are the state and local governments behind them. The reckoning will come soon. Who will bother paying higher taxes, if it all goes to pensions, with nothing left over for actual government services?

Master Bates's picture

Imagine how most of us REALLY people feel.  Our country was already sold out with unreasonable debt and all the jobs were outsourced by the time we were even able to vote.

Plus, our jobs don't have health insurance, pensions, and 401ks like the older people's companies did.

AND we're last in line to get social security... but that's okay because we can't get jobs now anyway...

Anonymous's picture

I know how you feel. The generation just above (Gen-X) didn't get the sweet pensions that our parents had either. Instead we went to work for companies with 401ks, bouncing around in and out of insecure non staff positions with piss poor benefits (if any). And 401ks have done so well lately....not.
Doing away with social security or pensions plans sounds like just revenge but it's not. It will only force the older generations to continue working, continue competing for the few good paying jobs left. We actually need them to retire, in order to have the chance thrive ourselves. Besides, we won't be doing ourselves any favors if we treat older generations poorly. Aging is inevitable for us all.
No I prefer to believe that most workers, public and private are good hardworking people who deserve the honorable retirement promised to them. I'd rather claw back the money from the rich bankers than kick grandma to the curb.

Anonymous's picture

Claw back the money from the rich bankers (that are insolvent themselves) so there is even less savings, less investment, less industry, and fewer jobs...so that we can maintain unrealistic consumption among the retired?
Morality can't create something from nothing not matter how "good" people are. And there is nothing "honorable" about wanting to continue a Ponzi Scheme so that you can shove the loses onto someone else.

Anonymous's picture

So you think it'd be far more honorable to reneg on promises? The economy will go no where by saddling the young with caring for themselves, their parents and their children. Either way they lose. If younger generations think they can strip older workers of their retirement and find themselves unburdened they are sorely mistaken.

Anonymous's picture

Bingo. Money was spent by people who knew they could make someone else pay for it because they didn't have enough votes or couldn't vote yet, i.e. "the rich" or the next generation. Those are always the politician's easiest targets.

Money is a claim on the future. The counter party is the next generation and they ain't payin' for something they never got and didn't have a say in.

I see a whole new generation of young teabaggers when they realize how much they are going to have to pay to support someone else's lifestyle.

"No taxation without representation."


WaterWings's picture

Uh, since 1913. Welcome to the hangover.

Jesse Liversore's picture

What are you, 18?  what company doesn't provide health insurance and a 401k, especially in the finance world. You can get your own insurance as many self employed do.  When they had pensions people stayed at companies for 20 & 30 yrs because of the pensions!!!.  I think the average baby boomer has had something like 3-4 employer changes , Gen X like 4 or 5 and Gen Y's are expected to have something like 8-12 job changes before they each middle age.  Schwab actually did an interesting study on these demographics and their attitudes.  Gen Y's are the group that thinks that social security payments should begin on average at 60.5 yrs old????  see http://oninvesting.texterity.com/oninvesting/2008fall_2/?pg=33


We kicked the worlds ass in WWII and I'm sure our grandfathers didn't enjoy it but they sucked it up... too many whiners out here and not enough do-ers.  Sorry they bailed out banks and lent cheap capital to former Investment banks, they did it so the whole system didnt go down.  As I write this who knows how many kids will be born into destitute poverty and will make their way to the U.S. become successful-  and end up firing your lazy ass for bitching that the fry machine burnt your hand again.

moneymutt's picture

tell me financial wiz, exactly how much would I have to have saved in my 401k to get the equivalent of Cali cop... draw 90 percent of my working salary, lets say conservatively, 90k at the end of my career if I don't spike it with sick time/vacation time in my last year, I would need to start collecting at age 55, including cost of full medical bene's, until I die at average age...how much would I have in my 401k, would a million dollars do in current interest rate environment? And how much would I have to had to put into my account over the years to result in that amount in 2010 with say avg rate of return indexed to S&P...

Anonymous's picture

You would need over 2 million bucks in today' environemnt
to pull down 90k. These pension payouts are outrageous.

Master Bates's picture

You can kiss my ass.

I'm close enough to 18, for one, and for two, it's none of your goddamn business where I come from.

Fuckin punk.

jeff montanye's picture

i too thought the post somewhat rude.

perchprism's picture


No, Bates, you're the fucking punk.  Every time I junk your posts, I think to myself, "Flag as Punk", and you fit the bill perfectly.  What an asshole you are.  A punk.  I'd slap your face off if I ever met you.  One full-fingered slap would do it--and hopefully your scalp would come off with it---a Kodiac Bear slap, smearing your smarmy features into slag.  That's what you deserve, Chief.

Master Bates.  What a disgusting piece of shit you are.  A thousand junk votes ought to tell you that you suck out loud, but no---you suck so much you're actually proud of your assholishness.  I would beat you to a goddamned bloody pulp if I ever met you.  On principle.  You deserve to be removed from society permanently.  Asshole.

Anonymous's picture

Well, someone here is obnoxious, that much is clear.

Master Bates's picture

Big words when you're behind a computer.  It'd be nice to give you the opportunity.
I would LOVE to see your bitch ass "beat me to a pulp."

Look, since I know you're just a coward hiding behind your screen name, I won't elaborate further.  But I will say this... I AM the person in the dark alley...

Anonymous's picture

Nothing but mental masturbation on your part

kurt_cagle's picture


Your post is very indicative of how out of touch you are with regard to the degree to which the world has changed.

I'm 46 years old, putting me at the very beginning of the GenX generation. I have a teenage daughter who is just now entering both college and the work force, so I have a good perspective of what her life (and her cohort's lives) are like as well.

The boomers lives were marked by positive economic trends from birth - oil was cheap and domestically produced. Five years of war after a decade long depression had left the US fallow for economic growth, and unemployment was nearly non-existent by 1960. Given those trends, pension and social security plans made a great deal of sense (and also provided a handy source of effectively mythical money to be tapped into politically). The likelihood of working for one company for your entire life was high, which meant that you had little chance for economic disruptions in your life, and the real wages were increasing up to about the mid-1970s.

After 1973, the US became a net oil importer. We entered a major economic recession, one which in general affected younger workers far more than it did the mid-level managers that were what the forefront of the boomer generation had become. The corporate friendly 1980s marked the peak earning years for those self-same boomers, meaning that their incomes were often supplanted with bonuses, increased stock options and other non-salaried benefits which could in turn be invested. Meanwhile, those starting out in those years were likely to see 4-5 jobs in their "work lifetime", which meant economic disruption, periodically loss of pensions and similar income, depradations from financial parasites and so forth.

The 1990s saw the dot-com era, in which, at least on paper, young kids (late genXers and Millenials) could become billionaires overnight. In practice, most of them (us) ended up with lots of paper stock options that we could use to wallpaper the den with because they certainly never generated any real money, while the bulk of the money that was generated went to investors (those with high disposable incomes) who cashed in while the getting was good. Most of them were, you guessed it, Boomers.

The 2000s saw massive layoffs in the tech sector, as the money shifted over into real estate, and as senior managers (yup, Boomers) decided to save even more money outsourcing as much of the tech and manufacturing jobs as they could, while at the same time leaving them with the profit.

By this time, someone entering the workforce could expect to see their resume peppered with dozens of companies, especially if they were in tech, since the average job was now of limited duration and usually brokered through an agency that took a major slice off the top (and guess who owned most of those agencies).

Reliable insurance was a thing of the past, pension funds seem like a remarkably transient vehicle for savings (something that I think will be proved out within the next couple of years tops) and even the notion that hard work will get you to the pinnacle of success has been continually disproved in what has increasingly become a casino economy - you became wealthy if you were either friends of the casino boss or were one of the gulls that the casino would let win big occasionally to entice others to come and spend ... certainly talent and perseverance were no longer determining factors.

In the end, most of the Boomers who face a rough retirement will do so because they weren't paying attention and lost money in the recent crash - I can assure you many others will be doing quite well indeed. For the GenXers, the Millenials, the Virtuals (post 2000) its a different story - the well's been drying up for decades.

Most of the late Millenials and Virtuals, despite the laptops and cellphones, which effectively define their preferred mechanism for communication, are coming into the work force with the understanding that the till is gone, that jobs are scarce and will become scarcer still, that working for a single company (or even a handful) is dangerously naive and absurd, and that their world is going to be one defined by resource scarcity, not resource abundance. Tell a sixty-something that we've passed the peak of oil production and are now on a downward slope and they'll think you're insane. You don't have to tell a twenty-something - they know that fact implicitly.

moneymutt's picture

thank you, nice post, nice summary

Anonymous's picture

Comment is a very nice synopsis - spot on. Thanks!

Hondo's picture

Enjoyed the post but don't buy some of the whinny stuff.  I was at the tale end of the boomers and I can't certainly dispute your claim that all boomer had it great - even from the get go.  My daughters is 10 years younger than you and has done great because she like myself never stopped learning and seeking opportunity.  Even getting started in the early seventies with gas lines, high inflation, paying for school myself, etc.  there were always opportunities and there still are today you just have to have the mindset to find them and then act......they aren't coming to you and they never have.

Rusty Shorts's picture

Excellent post kurt_cagle !!!!

DaveyJones's picture

I've enjoyed all your posts. Keep them coming. I'm also 46 and couldn't agree more. Life is simply harder. They borrowed against, didn't plan for, and lied against our future. Now the bill is coming due and we're pretty pissed to pay it. 

Anonymous's picture

well done. nicely said. it was good to have a generational overview like that.

Anonymous's picture

Exactly! Couldn't have said it any better myself. I've actually printed your comment to share with others.


Haywood Jablowme's picture

So which division of Schwab do you work for???  Keep telling your clients not to worry, their mutual fund portfolio is a long-term strategy.  LMFAO

You guys make me fucking sick.  When the walls come tumblin' down, pray to your god you don't ever run into a guy like me.



makeyoumiss's picture

Perfectly said. Jesse LivesMORE!

moneymutt's picture

well said...we are sheep going after sheep while wolves after us all...people are understandably upset that many govt employees are doing much better than private market workers and when govt employees get bene's regardless of hardship of taxpayer, regardless of markets tanking it, regardless of deflation of other peoples wages, its tough to take..I especially resent the cops in some locales that used their crony pull with politicians, a bit like military contractors, to take what was a kinda low paying publice service job with really great benes and turn it into a very very high paying job with off the chart benes.....

but there's the rub...we want to take down govt union folks, who are the last middle class workers standing, with packages and benes that make us jealous, but merely 30 years ago a HS grad with a manufacturing job was guaranteed such a good job/career for anyone that wanted it.

(I saw friend's grandparents tax return from 1970, neither with any college, Grandpa was mattress sales man who become regular low level manager and Grandma who went back to work at 45yrs old, in admin in aerospace after raising kids, I figured their salary according to Fed inflation calculator would now be equivalent to $215k, and of course, Grandma still has medical coverage from employer). Two professionals with advanced degrees might get that now...and not get same, if any benes..

Now only govt employees have anything close to that, and are losing much of the benes agreed to as a part of their terms of working, because of greed, theft, fraud, absorbitant fees etc...and we taxpayers want to take them down a notch...

yes, unfortunately, all we working people will suffer and taxpayers won't let govt employees be exempt from said suffering...but it is so unnecessary and is not govt employees fault...

US middle class has life blood sucked out of them by parasites since about 1970...

Anonymous's picture

In 1960 the life expectancy of a white male worker was 66 years old. The Medicare / Social Security / Pension plans were expected to fund an average of one year.

In 2005 the life expectancy average was 77 years. Logiaccly we should have reset the SS / Medicar / Pension age to 76, and not expect to be funding decades of retirement.

And to disclose - I'm close to retirement age / not posting this for my self-interest.

Rusty Shorts's picture

I'm sick of hearing about "life expectancy", to me, it's about quality of life and freedom, what is the use of stringing out your miserable life to withered old age? Mark Twain summed it quite well here;


"MORAL STATISTICIAN."--I don't want any of your statistics; I took your whole batch and lit my pipe with it. I hate your kind of people. You are always ciphering out how much a man's health is injured, and how much his intellect is impaired, and how many pitiful dollars and cents he wastes in the course of ninety-two years' indulgence in the fatal practice of smoking; and in the equally fatal practice of drinking coffee; and in playing billiards occasionally; and in taking a glass of wine at dinner, etc., etc., etc. And you are always figuring out how many women have been burned to death because of the dangerous fashion of wearing expansive hoops, etc., etc., etc. You never see more than one side of the question. You are blind to the fact that most old men in America smoke and drink coffee, although, according to your theory, they ought to have died young; and that hearty old Englishmen drink wine and survive it, and portly old Dutchmen both drink and smoke freely, and yet grow older and fatter all the time. And you never by to find out how much solid comfort, relaxation, and enjoyment a man derives from smoking in the course of a lifetime (which is worth ten times the money he would save by letting it alone), nor the appalling aggregate of happiness lost in a lifetime your kind of people from not smoking. Of course you can save money by denying yourself all the little vicious enjoyments for fifty years; but then what can you do with it? What use can you put it to? Money can't save your infinitesimal soul. All the use that money can be put to is to purchase comfort and enjoyment in this life; therefore, as you are an enemy to comfort and enjoyment, where is the use of accumulating cash? It won't do for you say that you can use it to better purpose in furnishing a good table, and in charities, and in supporting tract societies, because you know yourself that you people who have no petty vices are never known to give away a cent, and that you stint yourselves so in the matter of food that you are always feeble and hungry. And you never dare to laugh in the daytime for fear some poor wretch, seeing you in a good humor, will try to borrow a dollar of you; and in church you are always down on your knees, with your eyes buried in the cushion, when the contribution-box comes around; and you never give the revenue officer: full statement of your income. Now you know these things yourself, don't you? Very well, then what is the use of your stringing out your miserable lives to a lean and withered old age? What is the use of your saving money that is so utterly worthless to you? In a word, why don't you go off somewhere and die, and not be always trying to seduce people into becoming as "ornery" and unlovable as you are yourselves, by your villainous "moral statistics"? Now I don't approve of dissipation, and I don't indulge in it, either; but I haven't a particle of confidence in a man who has no redeeming petty vices, and so I don't want to hear from you any more. I think you are the very same man who read me a long lecture last week about the degrading vice of smoking cigars, and then came back, in my absence, with your reprehensible fireproof gloves on, and carried off my beautiful parlor stove.


 - Mark Twain 1865

WaterWings's picture

MT was awesome!

Be good and you will be lonesome. - Mark Twain

Rusty Shorts's picture

 - Suppose you were an idiot. And suppose you were a member of Congress. But I repeat myself. - Mark Twain

Anonymous's picture

They paid in is your answer? They paid in a system that promised unreasonable returns on the backs of the tax payers.
A group of citizens hired and payed to serve the citizens conspire to get paid for 20+ years after they stop working. Is an ordinary citizen in the private sector who lost their job and a large chunk of their 401k supposed to have sympathy for these poor people who will not get paid for not working?
Well I got some new for you, they won't. The public employees did the wrong thing many years ago and now it is not going to work out for them. Too bad!

dumpster's picture

martin armstrong on solutions


What we have now is a massive acceleration of public debt that has increased the timetable for sheer economic disaster. The year 2012 will in fact be a year that history will remember.”

In the field of economics and especially its cycle movement, we are in the Dark Ages.

Stranger's picture

Problems like these are exactly why bankruptcy court exists.

But who can foreclose on a state when its voters have utterly failed at managing it?

Hitman's picture

You are exactly right.  Who is supposed to pay these benefits - working families (not employed by the government) scraping by on two or more jobs trying to hang on to their houses?  Small businessmen?

It was a series of delusions and irresponsible choices over decades that led to the public retirement/health benefits bubble.  There is no way to pay - other than ever more cowardly and reckless schemes such as the retirement bonds.

Where in the private sector could a 25 year old working class person get a job paying $60K a year, and look forward to retiring at age 55, get paid 80% of his final salary for life, with fully paid health insurance for life?   I would bet there isn't a single job like this available in the U.S.  No company could be competitive providing these benefits.  No government could afford this either - ever - except when life expectancies were 60.   I don't really expect very many local governments to address this problem honestly - therefore, we'll probably see more pension bonds or some other schemes.

I think the only answer at the state level would be constitutional amendments protecting taxpayers and making all public employee benefit plans subject to limits tied to increases in taxpayers incomes.  Then force the benefits to be adjusted downward each year if necessary to never exceed the growth in taxpayers incomes.  Or some similar formula.  No kicking the can to the future.  But at least avoid any possibility of the ever more likely scenario of continued tax increases on an ever more impoverished working public to support an elite class of retired public employees.



Anonymous's picture

That seems reasonable. :)