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From Zero Interest Rate To Zero Retirement: How The Fed Doomed Elderly Americans To Endless Work

Tyler Durden's picture




 

Excerpted from PIMCO Viewpoints: What's Your Number at the Zero Bound?

The math of what happens when assumed rates of return go down, driven by a pro-active ZIRP from the Fed, is pretty straightforward. To make up for this, PIMCO notes that those approaching retirement have three choices: a) save more, b) work longer, or c) tighten their belts in retirement. Each of these are clear, individual family choices, but what happens when the whole of society is faced with the same dilemma? What works for one household can be grossly sub-optimal for society.

For now, let us assume that Americans would reject the idea of pre-commitment to significant future belt tightening. They may find that when they get to retirement they have little choice, but this is not something it seems they would rationally choose before having to do so.

If everyone saves more, we consume less, and therefore GDP growth slows down. Anemic growth leads to a Fed on hold for a prolonged period. If expectations for how long the Fed will be on hold are extended, low interest rates – particularly real ones – are the end result.

Given that the personal savings rate is a low 4.2%, significantly below the 6.9% average over the past 50 years, it is hard to argue that we are experiencing the paradox of thrift – at least not yet. We believe that there is a distinct wedge between households’ desired savings and actual savings driven by budget constraints. Less explored is the linkage between “working longer” and interest rates. The right side of Figure 1 shows a possible feedback loop for that cycle – which has the same end result as the Paradox of Thrift, but gets there through a different mechanism.

Here we see low rates leading to longer periods in the work force which would lead to a higher fraction of older Americans continuing employment. By construction, if labor force participation goes up, unless jobs go up proportionately, unemployment will rise. Given the Fed’s dual mandate – 1) fight inflation, 2) stimulate growth/lower unemployment – the central bank’s natural response will be to keep rates low, thus completing the circle.

The crux of the argument hinges on two things. First, if elderly labor force participation goes up and there is not an offsetting drop among other age groups, and second, whether there is empirical proof that low rates can be linked to higher labor force participation among older Americans. With respect to the first item, if there were a compensating drop in labor supply among other age cohorts, causing the unemployment rate to be unchanged, that would be unambiguously bad as these individuals are of prime working age. This would indicate serious structural issues and would likely be paired with slow economic growth. Figures 2 and 3 present support for the argument that low interest rates go hand-in-hand with high labor force participation among the elderly.

Figure 2 shows a 50-year history of 10-year Treasury yields versus labor force participation for those Americans over age 65. The axis for labor force participation is inverted to highlight the relationship. Over a long period, as yields rise, participation falls, and vice versa

Figure 3 regresses participation on the level of the 10-year rate and its squared value, as the relationship is distinctly non-linear. Elderly labor force participation displays a “convexity” of sorts – the lower rates go, the greater the inertia of the elderly to stay in the workforce. Note the relationship is not perfect, and critics of this argument can point to structural issues in social programs that can give explanation to the time series relationship. It makes sense that elderly participation fell in the 1960s given the passage of Medicare under the Johnson Administration and fell further still given more generous benefits granted in Social Security during the Nixon years. Increases in the Social Security normal retirement age phased in after reform legislation in 1983 induced gradual lengthening of working careers.

Intuitively, low rates leading to longer work lives just makes sense – especially in an era where fewer retirees will draw defined benefit pensions. For those relying more and more on IRAs and 401(k) plans for retirement, the income produced is simply a product of portfolio yield and account balances. They alone bear the risk of market volatility and their own mortality. If anything, we would expect this to tie labor force participation more strongly to yield levels.

This is why some of us are wondering if the Fed is spinning its wheels by sticking to the old model of trying to stimulate growth. Maybe instead of pushing harder on the credit demand side of the ledger by doggedly keeping rates low, central bank policymakers might benefit by looking at other parts of the equation. Specifically, those parts of the puzzle that become more important as America ages.

Work a little longer. Save a little more. Get by with a little less. It’s like each of our numbers is tied to a hot air balloon that seems to rise higher as we get a little closer. Given our outlook for growth and the Fed’s renewed commitment to keeping rates at ”exceptionally low levels” at least through mid-2015, it could be quite a while before those numbers are within reach.

 

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Mon, 10/08/2012 - 11:40 | 2868015 hedgeless_horseman
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My 74 year old parents just refi'd their $130k track house to a $350 lower payment last month.  I asked mom what the interest rate or term is on the new note, and she did not know.  All she knows is that it is a fixed rate and the "rent" will never go up. 

They live on social security and have less than $25,000 in savings, but enough tangible items.

They don't work, they just garden all day, watch television every night, and go to the doctor every 90 days so he can tell them they are not dead, yet.

Thanks, Ben!

Mon, 10/08/2012 - 11:42 | 2868103 gmak
gmak's picture

I dont mean to be disrespectful, but why on earth do they still have debt at age 74? Their house should have been paid off 10 years ago. 

Mon, 10/08/2012 - 12:03 | 2868121 hedgeless_horseman
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Bankruptcy in the early 80s and cash-out refis in the 90s and 00s is how.  My cousin's husband was a mortgage broker, now he drives a fracking truck.

For the banks, the housing boom was never really about the asset, but rather about the transaction and interest payments.

I think we would all be shocked to learn how many of their generation are in the exact same leaky piece-of-shit boat.

In the end after they are dead, and the bank gets it, that house will be worth little or nothing, which is fine.  The big thing for me was to never expect to get an inheritance.

Mon, 10/08/2012 - 12:20 | 2868281 duo
duo's picture

There are millions of inheritances being spent by seniors trying to stay afloat.  Some of this is multi-generation savings that ZIRP is destrying.  I have a neighbor down the street that did the right thing, saved a few million dollars, and at 0.25% doesn't have the money to do much more than watch TV.  Five years ago he bought a new car every year and had all sorts of upgrades being done on his house.  Now, nothing but TV.

Mon, 10/08/2012 - 13:09 | 2868455 francis_sawyer
francis_sawyer's picture

Carousel at 30 bitchez!...

Mon, 10/08/2012 - 14:02 | 2868640 MachoMan
MachoMan's picture

rent houses - ~10%

farm land - ~3-15%

He can find something better than .25%...  and it might even be a bit more tangible and/or provide more utility than a government note.

Mon, 10/08/2012 - 19:38 | 2869443 The Alarmist
The Alarmist's picture

"I dont mean to be disrespectful, but why on earth do they still have debt at age 74? Their house should have been paid off 10 years ago. "

It's the American way, my friend. The one-way transfer of property rights to our ruling classes.

Tue, 10/09/2012 - 10:31 | 2870640 MachoMan
MachoMan's picture

Why not?  Head into the great abyss with a giant tab...  they gonna garnish your bones?  I'm pretty sure the worms will beat them to it.

Mon, 10/08/2012 - 13:14 | 2868472 LetThemEatRand
LetThemEatRand's picture

"did the right thing, saved a few million dollars"

I know what you're trying to say, but I can't help but point out that the large majority of people could not accumulate a "few million" dollars if they saved 100% of their income during their entire lifetimes, much less do so and buy a new car every year and fix up the homestead to boot.  Yet that is pretty much a baseline to be able to retire without a pension if you intend to live a while and use the hospital from time to time.

Mon, 10/08/2012 - 13:43 | 2868573 duo
duo's picture

Those people born during the Depression tended to avoid debt and buying things they hadn't saved for.

Mon, 10/08/2012 - 14:00 | 2868629 MachoMan
MachoMan's picture

Actually, not at all...  the people who tend to avoid debt and buying things they haven't saved for are the ones that were burned during the depression...  children remember it more as that bad time where people had dirt on their faces and were hungry a lot...  that bad time that has nothing to do with the present...  now gimme my reverse mortgage mr bionic man, pappa wants a new scooter to ride around walmart

Mon, 10/08/2012 - 15:31 | 2868941 css1971
css1971's picture

Saving $200 per month ($2400pa) for 45 years with 10% interest/dividend/capital gain would just about do it. That's projecting the starting buying power into the future. Anything which reduces the % needs to be eliminated, particularly fund fees for example. By the end of the time you're earning the future equivalent of $150k pa.

The best thing you can do for your kids today is give them a 20 year head start. Compounding does the rest.

10% pa is ambitious but not impossible and I appreciate there are a lot of people who can't afford to save $2400 pa. There are a lot who could but don't.

Mon, 10/08/2012 - 16:07 | 2869015 LetThemEatRand
LetThemEatRand's picture

If you save $2400/year for 45 years, you have saved only $108,000.  Current interest rates are effectively zero.  So you are advocating an aggressive equity position to turn that $100K of investment into millions, which assumes year-by-year wise investments in a market that will continue to go up on average 10% a year for the next 45 years.   Seems more likely to me that the person is going to be hit by lightning while winning the lotto. 

Mon, 10/08/2012 - 16:22 | 2869041 NotApplicable
NotApplicable's picture

You sound like the rest of those insurance salesman who never heard of the power of the Federal Reserve nor bother to consider "saving" in light of purchasing power.

As for 10%, I'd say it's wholly ludicrous rather than merely ambitious.

Simply put, your story would make a nice side-show at the Bernanke Carnival. Anybody who thinks you can save wealth via dollars isn't really thinking.

Mon, 10/08/2012 - 12:56 | 2868403 slaughterer
slaughterer's picture

My father was living off the dividends of BAC/C until 2007--he died in April 2008, before he could see his way of providing for himself get swallowed into the abyss. 

Mon, 10/08/2012 - 11:59 | 2868154 Popo
Popo's picture

Oh please, you don't sound disrespectful, you just sound 22.  Slightly more than half of all Americans own their home.  This whole "supposed to own" thing is a convenient policy canard.   On top of that, how many people do you know who own properties and rent them out?  That business wouldn't exist if there weren't millions of renters out there.

I know dozens and dozens of people who rent, and so do you.  Are you "supposed" to buy an artificially inflated asset?   Is now a "good time to buy"?   Are we "supposed" to be debt serfs?

And how many men do you know who lost their houses to their wives in divorce?   I have two close friends who *did* own their house.  Now their renting in their 50's with their 2nd wives.   They have no intention of buying another house to give away.   I have another friend who bankrupted himself paying for healthcare due to an illness that nearly killed him.  Now he's a shadow of his former self and deeply in debt.

"Supposed to"?

Life doesn't always work as planned...

Mon, 10/08/2012 - 12:01 | 2868191 derek_vineyard
derek_vineyard's picture

interest rates near zero.....retirement rate nearing zero........betcha VIX is soon to follow......boy I love an engineered depression

Mon, 10/08/2012 - 12:45 | 2868362 q99x2
q99x2's picture

That's why I'm waiting to find a wife with 2 houses before I re-marry. One for me and one for her.

Mon, 10/08/2012 - 13:21 | 2868490 LetThemEatRand
LetThemEatRand's picture

"Life doesn't always work as planned..."

Sure it does.  It's all there laid out perfectly in the holy Rand works.  You just need to take personal responsibility and be productive.  For example, take responsibility for your own cancer when you find out that the health insurance you paid for has a life-time maximum that gets used up in a few months.   Shared risk and pooling of resources is for marxists..

Mon, 10/08/2012 - 14:01 | 2868637 ATM
ATM's picture

Do you mean forced risk sharing, like we are experiencing witht he risk assets that the Fed is "buying"? Or do you mean shared risk where I am forced to buy a government phantom of a pension in social security? 

seems that when your beloved government becomes involved the risk is shared and the rewards disappear. Funny, I thought bureaucrats were the ones we are suppoed to have Hope in and believe. I guess they just don't get enough money fromt hose greedy people who hope to take care of themselves. 

Mon, 10/08/2012 - 14:21 | 2868718 Jack Burton
Jack Burton's picture

MS RAND, for all here shooting off of her big mouth, took full advantage of shared risk when she took Social Security and Medicare when she became older. No hesitation on her part when she needed it. Personal responsibility? It was all in her mind, in reality her writtings are a giant hoax in service of a thieving elite 1%. Many of whom didn't work for their wealth, but got it handed to them in inheritance. Of course Ms. Rand lived in her own mind, a tool of the rich and the connected elite classes.

If this bitch meant what she wrote, why sponge off of government in the end. This PROVES her to be a liar and a fraud. Just another liar tool of an elite that knows it can Bull Shit the American people into anything that screws their own self interests.

Mon, 10/08/2012 - 14:37 | 2868766 LMAOLORI
LMAOLORI's picture

 

 

How is getting back YOUR OWN MONEY that you were forced to pay into Social Security sponging off the government?

 

Ron Paul, Social Security opponent, acknowledges he receives benefits 

 

Ron Paul Admits He's On Social Security, Even Though He Believes It's Unconstitutional

Never voted to spend one penny of Social Security money

snip Q: You said in 1988 that you would abolish Social Security. You’re OK with Social Security now?

A: I think we need to offer the kids the chance to get out. But right now, if we don’t save the money, we can’t take care of the other. I never voted to spend one penny of Social Security money. So I’m the one that has saved it.

Mon, 10/08/2012 - 14:23 | 2868699 Jack Burton
Jack Burton's picture

Popo, I appreciate your comments. Yes indeed, life happens and it often happens to kick the shit out of well layed plans. Divorce is happening to nearly every second couple, should a home and children be in the picture, the man will be out on his ass. Should he remarry, the family will most likely be renters for life. I agree, nobody SHOULD own their home by retirement age. Just think, buy a home, most people need a 30 mortgage to swing it, say you buy at 40, which is not all that old in the modern era of late development. You still might not get it payed off at age 70!

I respect the young see the world through eyes that haven't yet been met with all the bumps in life. Divorce, job loss, illness, accident, arrest for petty drug offense, you name it. I know so very many people who got caught up in one or the other and though they may be in their 50's find themselves little better fixed up than their 20 something kids.

My daughter is now 27, she has already had a divorce, to a combat soldier who got badly beat up in Iraq and has mental and alcohol problems now as a disabled verteran. They surely never planned on that! But now she is remarried and they do own a starter home and are fighting the battle most young people have to. He had a construction job, now gone with the crash, lucky his father has created a fairly successful small business and he has been able to move in as a bottom rung manager of new stores. Yet his pay is low, small business doesn't pay those Goldman Sachs salaries! She has a college degree which did not tanslate into high paying job, so works for a lawyer as a legal secretaru/law clerk. Again we are talking $12 an hour. They have a new baby, they can not afford to save! Maybe a decade before they can even think of saving.

This economy and the constant threat of medical problems blowing up your savings plans. Divorce, job loss, a host of threats.

No, a person should NOT always be well set by retirement age. You do after all have to live till you get that old, and that is fraught with danger and expenses.

As a side note, I bailed out of markets before the crash of 2008, I was set to earn a nice interest income off of T-Bills, Laddered bank CD's, savings bonds, etc. Well Bernanke has stolen every last dime of my interest income so banks and the government can use my money for free. Hundreds of billions of interest income has been stolen from savers to bail out the speculators. That is a crime, but something an honest working citizen saver can do nothing about. Bernanke is a thief in pay of the Banker Class. A fucking crook!

Tue, 10/09/2012 - 02:43 | 2869944 FreedomGuy
FreedomGuy's picture

Retirement is actually a modern concept that came to life in the last century. Essentially retirement was living with or near your children. They might inherit your house and you would help take care of kids and small things in the home. You would pass on the wisdom of your lifetime to your kids.

There is no inherent right to retirement. Social Security tries to guarantee it but it is a ponzi and all real money has been stolen and given to others.

Mon, 10/08/2012 - 14:48 | 2868802 css1971
css1971's picture

You have any idea what money is?

Mon, 10/08/2012 - 11:48 | 2868140 Oh regional Indian
Oh regional Indian's picture

The old greeters in WALMART always made me feel terrible.

No dignity in doing that at that age. It's a time for quitening, contemplation.... not standing on your feet for hours a day with a smile on your face.

Must be especially galling when a welfare queen and her brood walk in. Very sad.

I heard a brilliant balck woman on KPFA, many moons ago say " You Can jude the state of a nation by who it pays the most money to and how it treats it's elders"...

 

Telling eh? Between the NFL and Corporate CEO's and Old Age homes and once a year Mother's day card/visit for the one who is keepiing your inheritance at bay, dammit.

ori

Mon, 10/08/2012 - 12:53 | 2868391 Oh regional Indian
Oh regional Indian's picture

Funny, I'm back in India and the Aggressive Hospitality culture is alive and well here.

And walmart is on it's way too, with a recent ruling allowing FDI in BigBox retail.

Yayicky!

ori

Mon, 10/08/2012 - 12:58 | 2868412 slaughterer
slaughterer's picture

Worse than the WALMARt greeters are the Publix baggers in FL.  But some of them like being out in the work world, chatting, joking, playing games with the management--keeps them alive.  I have an ambivalent relation to senior employment--increasing heavily in the last year in FL.  

Mon, 10/08/2012 - 13:03 | 2868423 silverserfer
silverserfer's picture

If you dont want to feel akward ORI, dont shop at wallmart!

Mon, 10/08/2012 - 13:15 | 2868477 Oh regional Indian
Oh regional Indian's picture

Thanks Silver, I actually don't. 

But in my student days in the US, I knew or felt little like I know and feel now. BigBox was like a wonderland.

ori

Mon, 10/08/2012 - 13:28 | 2868513 Binko
Binko's picture

There is always dignity in performing honest labor. 

Tue, 10/09/2012 - 04:53 | 2870004 Parrotile
Parrotile's picture

True, but the evidence we have before us indicates clearly that there's far, far more income to be made from dishonesty and Institutionalised theft . . . . . .

Mon, 10/08/2012 - 14:11 | 2868671 GOSPLAN HERO
GOSPLAN HERO's picture

Their property tax could rise.

Mon, 10/08/2012 - 11:45 | 2868074 Landotfree
Landotfree's picture

 

From Zero Interest Rate To Zero Retirement: How The Fed Doomed Elderly Americans To Endless Work

 

This is a stupid title.  The Fed can't stop the system from collapsing.   You should be blaming yourself for attaching interest to your medium of exchange.

This is why some of us are wondering if the Fed is spinning its wheels by sticking to the old model of trying to stimulate growth.

The Fed's job is very simple, extend the time till the collapse as long as possible.  That's it, the collapse was always coming, nothing the Fed can do about it than to try convince the lemmings into thinking the helicopters are coming... .thereby delaying the given as long as possible.

Of course the Fed could drive up the overnight rates drastically and it would be curtains out very quickly.   It's over guys.  You guys remind of the thief that triggers the alarm while breaking into a house and getting caught.   The whole time while you are in jail, instead of thinking you should have never broke into the house to start with you focus on how you could have avoided the alarm trigger.   

You attach interest to your medium of exchange and build a system which is based on interest, eventually you will hit max potential then it's all downhill until you hit max. bottom.  

hedgeless_horseman

The universe could give a rat's ass about those retired people, those retired people are part of a ponzi system... they should be looking into the mirror because crying at this point isn't going to change a thing.   The system will collapse and there is nothing anyone can do about it.  Those parents of yours are part of the problem, involved in a system which is unsustainable, then when basic Math catches up to them... they cry.   Well, continue to cry the Universe don't give a crap.

Mon, 10/08/2012 - 11:48 | 2868135 Marley
Marley's picture

That'll do pig, that'll do.

Mon, 10/08/2012 - 11:50 | 2868145 Landotfree
Landotfree's picture

Calling me names will not change the eventual outcome, that was set in stone before either of us were born.   

Like watching an asteroid coming from a distance.   

Eventually the tanks and weapons will be used to liquidate the unfunded liabilities.

Mon, 10/08/2012 - 11:57 | 2868176 centerline
centerline's picture

lol - beat me to the "unfunded liabilities" thing.  Is about as accurate a term as could be applied in a modern economic sense.  Very politically correct.  Scary.

Mon, 10/08/2012 - 12:03 | 2868193 Landotfree
Landotfree's picture

It's kind of funny and kind of sad at the same time.   Once the system is unable to natural expand at and exponential rate, the liabilities become unfunded.   

The only real choice really at that point is how many of the unfunded liabilities have to go and the how they are liquidated.   It's all a balance sheet.  

Last time the Germany got tired of waiting and to be honest the world was begging for it... although everyone wants to deny it.   

http://2.bp.blogspot.com/--RkLZLRlRi8/UGAGOUg7fNI/AAAAAAAAABs/HHgMlfUYP24/s1600/sept20latest1.gif

Unless the lemmings start supplying the unsustainable, the collapse will be starting again in due course.

Mon, 10/08/2012 - 12:03 | 2868200 Jean Valjean
Jean Valjean's picture

I was thinking the title was bad for a different reason.

Really, all that generation did was make the wrong investments.

If they had converted all their savings into coins in 1964, they'd be just fine right now.

Mon, 10/08/2012 - 12:14 | 2868243 Landotfree
Landotfree's picture

Wouldn't matter, humans would take the coin, lend them to each other and attach interest to it... been there done that.   

Of course, the liquidation would have had to be starting in 1964 as if you have no credit system how are you going to supply the unfunded liabilities?  They would have had to be liquidated or at least a good portion of them.

Mon, 10/08/2012 - 11:55 | 2868169 centerline
centerline's picture

Is right on though.  Expecting the Fed and politicians to save us is just stupid.  They can't.  And aren't trying to either.  They are simply manuevering for the next act... an inevtible transition to whatever is coming next... which most likely involves the liquidation of so many "unfunded liabilities."  Indirectly or directly.

Mon, 10/08/2012 - 11:58 | 2868179 Landotfree
Landotfree's picture

Correct.  Nothing anyone can do, really.   I just hope nukes are not used to liquidate the unfunded liabilities, however that maybe the most humane way.  I don't know.

Mon, 10/08/2012 - 12:05 | 2868206 centerline
centerline's picture

I hope not.  I could see something limited coming for shock and awe.  But, in general it would contaminate the environment.  The sociopaths that own us want to survive, so I think a full on nuclear event is not likely... unless control is lost.

Mon, 10/08/2012 - 12:12 | 2868250 Landotfree
Landotfree's picture

Hard to know.   Of course, if we knew all the details it wouldn't make for as good of entertainment.   

I am still going for starvation and disease as the number #1/2 killers but tanks could be a good bet too.

Mon, 10/08/2012 - 12:45 | 2868359 Mountainview
Mountainview's picture

Their only objective is reelection. The FED is running out of tools. Congress is a joke and even changing the whole bunch wouldn't help much...Doom is on the elderly and the young...

Mon, 10/08/2012 - 22:04 | 2869685 Tompooz
Tompooz's picture

Something "small" that would limit the pollution (halflife 20 years) to the Northern hemisphere with the worst fallout over a near-uninhabited area.

http://www.stuff.co.nz/sunday-star-times/latest-edition/6368092/Who-is-really-buying-New-Zealand

 

Mon, 10/08/2012 - 13:55 | 2868611 csmith
csmith's picture

"...involves the liquidation of so many unfunded liabilities."

 

Which goes as follows:

Oh...your promise to pay me $100 is substituted with a promise to pay me $92 or $93. OK then. 

 

What's the big deal? Let's get on with it.

Mon, 10/08/2012 - 11:49 | 2868142 centerline
centerline's picture

All just depends the maximum condition.  Social complexity, limits of creative accounting (exotic financial instruments, shadow banking, etc.), resource constraints, and so forth.

Seems that this time we have hit on all cylinders.  Almost.  Nonetheless, collapse of some sort is inevitable.  And a new cycle will begin.

 

Mon, 10/08/2012 - 11:36 | 2868081 Jason T
Jason T's picture

So many folks, even the elderly are in debt.. these low rates are helping those with debt .. it's ass backwards though.  

The sacred puritain values of thrift, hard work and savings are being turned into, get into debt, get Gov't help and supporting ZIRP to help with debt service payments.  

 

 

Mon, 10/08/2012 - 11:36 | 2868082 ejmoosa
ejmoosa's picture

Seniors having to still work, taking up employment spots that may have gone to younger workers, who are racking up tremendous debt as they await an improving job market. 

Gotta love unintended consequences....

 

Mon, 10/08/2012 - 11:52 | 2868156 mendigo
mendigo's picture

the plan is same as always
it is optimum if seniors retire early and die soon thereaftet - transfering thier savings to our glorious, best in class healthcare system
saving is unpatriotic really

Mon, 10/08/2012 - 12:01 | 2868185 Dr. Engali
Dr. Engali's picture

Are you sure the consequences are unintended? By keeping the seniors working it takes some strains off of the safety nets and it also helps to set expectations for the next generation as we continue our slide into the abyss. The younger generations,especially those burdened with student loans will be glad to take a lower pay,just so long as they have something. Another benefit for the government is that the senior's nest egg will be absorbed into the system in some fasion.

Mon, 10/08/2012 - 12:53 | 2868387 robertocarlos
robertocarlos's picture

Housing and wages need to drop to third world levels.

Tue, 10/09/2012 - 05:02 | 2870013 Parrotile
Parrotile's picture

Seems wages are definitely heading in that direction for "The Great Unwashed".

Once the inevitable happens it'll be very interesting to see just what skills (Graduate or Technical) are prized. I'm betting "Financial Engineer" just might not be at the top of the list . . . .

Mon, 10/08/2012 - 11:39 | 2868092 LawsofPhysics
LawsofPhysics's picture

There is a very real cost for creating capital out of thin air.  Escpecially when nothing of real value is created as a result.

Moral hazard anyone?  Time to find out if yeast or humans are smarter.

Mon, 10/08/2012 - 11:48 | 2868136 Landotfree
Landotfree's picture

History has shown that humans are no further down the evolutionary path in this regard... history shows that.

This system will collapse due to use of attaching interest to the medium of exchange and building a system based on "interest", just like all the other prior systems collapsed.

Mon, 10/08/2012 - 11:41 | 2868097 Shizzmoney
Shizzmoney's picture

Lower-to-flat incomes that don't keep up with true inflation (food, college, rents, gas).  Low taxes on corporations and billionaires, yet raised taxes (and inflation) on the working class, which will also be convinced to have a 48 hour work week and retire at 67 for Social Security.  Job insecurity.  Costs of health care passed onto to workers. ANd 10% of the coutnry owning 90% of it's wealth.

This is what the Fed wants, because their quest for rentiership props up fake assets that their Wall Street owners (who also own the corporates) wants, to give the economy a picture of "health".

If you tell a lie enough, people will believe it. 

"Americans should go on and live their lives"

- Ben Bernanke

Mon, 10/08/2012 - 11:52 | 2868102 LetThemEatRand
LetThemEatRand's picture

But can't the average person just save a couple of million dollars over their career and put it in a 401(k)?  Are you telling me that the whole 401(k) thing was just a cover to all but eliminate both private pensions and (soon) social security, and that it was clear all along that the average guy could never save enough to fund his own retirement including likely health expenses if he has the bad sense to live more than a year or two after he stops working?

Mon, 10/08/2012 - 12:36 | 2868335 centerline
centerline's picture

+1.  Even 10 years ago and more I found those "retirement planning/wealth management" ads insulting.

Mon, 10/08/2012 - 11:42 | 2868104 Everybodys All ...
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... and yet AARP says vote for O. Criticicism of Bernanke is at the very least warranted and yet you get nothing.

Mon, 10/08/2012 - 11:46 | 2868124 The Axe
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My neighbors  work their whole life at their own hardware store     then sold it....pocketed 400,000      pre BEN  they got 4.5   interest on their nest egg    Now 0.25       needless  to say they   don't eat anymore.....

Mon, 10/08/2012 - 14:21 | 2868717 MachoMan
MachoMan's picture

Retirement savings means having some business in which you can actively participate for additional income if necessary...  the notion of just putting enough money aside and riding it out until the great abyss is antiquated....  laughably naive at best.

Retirement savings also means everything OUTSIDE of a retirement account...  because that account is worthless or will be soon enough.

Mon, 10/08/2012 - 12:07 | 2868223 Waterfallsparkles
Waterfallsparkles's picture

0% interest rates will cause older people to stay in the work force longer.

This means that the Government will collect more Taxes from those workers and the Government will delay the payment of any Social Security benefits.  A win for the Government.

Yet, it is just kicking the can down the road again because the longer the Seniors work the more they will eventually collect from Social Security.

Plus, the 0% interest rates cause people to pay off Debt which is not good for the Banks.

Mon, 10/08/2012 - 12:26 | 2868307 RSBriggs
RSBriggs's picture

"The longer the Seniors work the more they will evenually collect from Social Security".  Excuse me?  How does having to work until 70, or 75, or 80 years old result in someone collecting more from SS than if they retired at 62 ?

Mon, 10/08/2012 - 12:17 | 2868272 overmedicatedun...
overmedicatedundersexed's picture

trillions lost in 2008..to whom ..congressman kanjorski knows but they shut him up. deliberate acts my zh friends, ask that bastard SEC head chrissy cox why the markets were naked shorted & by whom..

want to know who the real elite are?  find out what the real story of the 08 crash was,, Tyler' you up to it?

Mon, 10/08/2012 - 12:35 | 2868332 LMAOLORI
LMAOLORI's picture

 

 

I have commented on that before and had responses like does it matter or that's in the past which just shocked me. People bitch and complain but no one ever really gets to the facts. Remember all that phony talk about a new Pecora Commission from the Democrats?  And what did we end up with a complete White Wash and the time for criminal prosecution is running out the Statute of Limitations is only 5 years. 

Wall Street’s Collapse to Be Mystery Forever: Jonathan Weil

snip

To get to the heart of what went wrong with the report released yesterday by the Financial Crisis Inquiry Commission, check out its account on page 254 of how the largest investor in a cash fund managed by Bank of America suddenly pulled out $20 billion of its money in November 2007.

The withdrawal crippled the fund, which had $40 billion of assets at its peak, forcing Bank of America to step in and prop it up. The commission included a note about the episode in the back of its report.

“The identity of the investor has never been publicly disclosed,” it says. The note then referred readers to the source of the information: A couple of stories published in December 2007 by Bloomberg News and the New York Times.

And here I had thought the purpose of the commission’s inquiry was to uncover new facts that the public didn’t already know. Such as: The identity of the mystery investor that single- handedly kneecapped Bank of America’s Columbia Strategic Cash Portfolio, once the largest cash fund of its kind in the U.S. The commission had subpoena power. It should have been able to get this information. It didn’t, though.

This, in journalistic parlance, is what we call a clip job. And that’s the trouble with much of the commission’s 545-page report. There’s lots of breezy,magazine-style, narrative prose. But there’s not much new information.

Where is today’s Pecora Commission?

 

Mon, 10/08/2012 - 12:54 | 2868395 overmedicatedun...
overmedicatedundersexed's picture

LMAO, ZH had many threads about 08 but all they could report is what the media was reporting. Kanjorski spoke on cnbc about the massive withdrawal of MM funds but never got to who pulled the funds..funny so many commissions much like the warren com, all big pols looking so offical, but never going to put light on the truth...

the story of 08 must be kept secret for it leads direct to the elite masters of NWO.IMO..

C Cox and the senate and house finance committee's at that time should be put under oath.right with corzine

will it ever happen..guess not.

Mon, 10/08/2012 - 14:29 | 2868547 LMAOLORI
LMAOLORI's picture

 

 

I remember the Kanjorski moment and ZH's articles you would think people would be looking into this imagine what a truly huge story that would be. I guess it won't happen either I have some suspicions as to who myself.

Mon, 10/08/2012 - 12:22 | 2868287 Tombstone
Tombstone's picture

The federal debt is out of control.  The government has not a clue as to how to reverse the socialist process where wealth is redistributed from the middle to the richest elite.  Benny knows the system is doomed, and like all politicians, he is in full denial when he speaks in public.  It is the government's job to keep the whole shebang afloat as long as possible so that the slave owners can grab as much riches as they can carry before the country burns to the ground.

Mon, 10/08/2012 - 12:23 | 2868294 john_connor
john_connor's picture

I agree with much of the sentiment above in that the Fed is just delaying the inevitable, which has been known around these parts for a while.  The scary thing is that the Fed is actually making the final outcome worse, and the system has essentially already collapsed.  The ONLY thing keeping people's "eye off the ball" is the perception management/fraud/intervention associated with the thing formerly known as the stock market.  Given that the equity tranche is the last to see anything in liquidation and they are pumping that bubble, you know this is the endgame or last stand.

ALso, a secondary or tertiary effect of the elderly's income statement becoming worse and worse is that for every one who does go back to work, there is another who is not able and must soak up funds from their working children.  This exasprates the feedback loop mentioned above.  You have people in their prime working years who are not saving OR spending but rather diverting funds to take care of their parents.

Collapse indeed.

Mon, 10/08/2012 - 12:31 | 2868321 PUD
PUD's picture

Debt is a zero sum game..sort of. There is no way in a debt as money system that those counting on passive rates of return can have such and not still have the system collapse.

If you are receiving 10% someone else is paying 10%

All that "interest money" has to be created

Since all money is created via debt, the exponential compounding of total debt must go on until saturation...now.

There can be no winners in such a system

Mon, 10/08/2012 - 12:32 | 2868324 robertocarlos
robertocarlos's picture

The govt will take over our daily needs and as such will have to tax the crap out of everyone and every thing. So that 5000% gain you made on gold will be taxed at 98% giving you a 100% profit. Not too bad.

Mon, 10/08/2012 - 12:37 | 2868338 oldman
oldman's picture

I have always wondered what zombies did during the day-time. Now I know. They write stuff for other zombies on zombie blogs like zh and then read the zombie comments before getting into a zombiescussion.

Thanks for helping an oldman comprehend one of the great 'mysteries of the univers'.  

om

Mon, 10/08/2012 - 17:52 | 2869222 Henry Hub
Henry Hub's picture

I think it's time for your nap old man.

Mon, 10/08/2012 - 12:43 | 2868355 robertocarlos
robertocarlos's picture

I think it's good to know that some people retired with 400K. I retired with 32 million. Only problem is I have no access to the principle.

Mon, 10/08/2012 - 12:55 | 2868397 DeadOnArrival
DeadOnArrival's picture

True story...70+ year old friend of the family told me 3 months ago that after he retired (laid off, decided not to stay in work force) he applied/received worker's comp and has been on it for almost 2 years, occasionally responding to headhunters, but almost impossible to get an offer at 70+ years old.  When asked, admits to gaming the system, but only minimal remourse as cost of living increasing and saving/CD rates near 0%.  Like a lot of people, 5 years ago he felt prepared to retire and would never have considered doing this sort of thing, but now "everyone is doing it."

Mon, 10/08/2012 - 13:00 | 2868415 ItsDanger
ItsDanger's picture

Couldnt the savings rate be presented lower here because consumers are paying down debt at a higher rate currently?

Mon, 10/08/2012 - 13:17 | 2868484 kevinearick
kevinearick's picture

Boyle’s Comet

So, Revelations is based upon astrology, you have been brought in and normalized to a world run by eunuch admirals, the software engineers have given the global HR function the ability to target you at will, and the moneychangers are erecting the false work for the next world war. What are you going to do about it? Can you tow a proton out of the nucleus?

The Euro US Constitution is just the latest attempt of enlightened capitalism, by the socialist elite, for the preservation of the status quo, through Ponzi demographic control, which works spectacularly, until it doesn’t, spectacularly. The State is pumping the kids with Apple credit and student loan servitude for a reason, in vain.

You may want to get familiar with one Mr. Pierre Boyle, a proponent of atheism, who did some good philosophical work, setting the foundation for church and state separation, expanded upon by Franklin, Jefferson, and Hamilton, among others. Like many of his stripe, he painted all Christians as idiots, in the classic bipolar false assumption / choice.

Ultimately, when incremental time is netted out, and the ponzi collapses, a man must choose a wife that he is willing to answer to God for, regardless, because whether he likes it or not, and the majority does not, women are tightly bound to the past on earth, gravity, due to their biological nature, along with their power over childbirth, which the State desperately seeks to subvert to its own end, and most men are quite happy to oblige, in the short run, resulting present monetization of future returns, the status quo confidence game.

Because true wealth, quality of life, is a function of demographic success, together, a man and a woman must accept their share of responsibility for life on earth, in a negative feedback loop, which the majority will run from at the first opportunity, in a positive feedback loop with government, leaving a small minority to repopulate effectively, and the majority waiting to exploit the outcome. Fusion and fission is a pair, in relative time, in all cases.

Lincoln had no hope of eliminating economic slavery in his tome; he simply employed it more efficiently than his contemporary confederate counterparts. That’s politics, the noble profession.

With that, I give you Pierre:

Judgment accommodates itself to the dominant passion of the heart, to the force of habits, and to the taste and temperament for certain objects. It is not the mind’s general opinions that determine our actions;

Christian prudence saw that the excessively great simplicity of the worship the Apostles had taught was inappropriate to the fervor of men’s zeal;

Changes in these matters are carried out by unnoticeable steps;

The circularity of these requirements indicates that, far from establishing faith, both miracles and revelations presuppose it. Thus neither miracles nor revelations constitute an infallible authority and only necessary reasonings remains to us as the source of sound convictions.;

Taken when one is not troubled either by the presence of the people or by that of bigoted doctors, two sorts of persons one must handle carefully; the first, for fear of shaking their faith, the others for fear of becoming the object of their ardent persecutions;

Which deprived the people of an infinite number of vain imaginings on which they feasted, and diviners of the most considerable part of their employment;

Regularly observe several painful and inconvenient forms of worship, thereby to redeem their usual sins and to make their conscience accord with their favorite passions;

Faith in religion is apt to excite in the soul anger against those who are of a different sentiment, very unregulated in their morals and very much convinced of the truth of a religion;

There are ideas of honor among men that are a purely work of nature;

Morality requires no reward or punishment, heaven or hell;

In equating God with nature, the biblical god vanishes, leaving physics and philosophy;

It would be a thousand times better to be indifferent to all the sects of the Christian religion than to have, in favor of the true one, so impious a zeal;

Of the kinds of republics that might make up a European Union, Holland fought, not to aggrandize itself, but solely in order to ensure its liberty and the equilibrium of the European powers;

Nature provides monsters, keeping men in fearful awe of some higher power;

The politics of magistrates has always exploited men’s ignorance of nature;

The priests rely for their livelihood on the continued devotion of the people;

To undermine religion, spread natural science, recognize that religion is at best useless as a bond of secure society, and separate church and state;

There is no longer any reason to say, one must necessarily deny, that comets are a sign of the anger of God formed in a miraculous way, since they are altogether suited to keep men in the most criminal condition they could be in;

The foundation of human nature is pride or self-love;

It is to the inward esteem of other men that we aspire above all.

 

So, according to the framers, religion performs a Pavlov swap of superstition for tolerance, and the answer to this religious superstition is……..state superstition.

Labor’s response, neither, is that NPV is a function of its demographic wealth. The majority can tax labor at 85%, for capital and middle class welfare, but it will get 85% of nothing useful, and it will crash just as soon as all real tax revenue is replaced by monetary expansion, at which time the next economy will “suddenly” be born, as the curtain of false assumptions associated with family law falls of its own dead weight.

The empire has a lot of immobile robots to feed, the old source is running dry, and it has no connection to the new source.

Mon, 10/08/2012 - 13:30 | 2868521 Quantum Nucleonics
Quantum Nucleonics's picture

The dirty open secret that the MSM won't tell... the mega banks are being re-capitalized on the back of my grandparents, and yours.

Wed, 10/10/2012 - 11:55 | 2875057 tip e. canoe
tip e. canoe's picture

and grandchildren

Mon, 10/08/2012 - 13:42 | 2868552 csmith
csmith's picture

"...in an ugly paradox-of-thrift-like feedback loop."

 

POT only exists in a world where deflation is prohibited by bankers and bureacrats (who have the most to lose from it).  The system will reset at a lower price level, a level at which certain people in power are no longer in power. Tuff beans. 

 

How The Fed Doomed Elderly Americans To Endless Work

 

You - yea, all you old people - keep working so we can continue in the style we're accustomed!

Mon, 10/08/2012 - 13:45 | 2868581 spooz
spooz's picture

But, but, Bill McBride says the decline in participation rate was expected!

Mish looks at the problems with his charts:

http://globaleconomicanalysis.blogspot.com/2012/10/about-that-expected-d...

 

Mon, 10/08/2012 - 13:47 | 2868588 johnnymustardseed
johnnymustardseed's picture

Fuck old people, it is all about saving banks, Wall Street and funding government debt

Mon, 10/08/2012 - 14:15 | 2868689 geno-econ
geno-econ's picture

You aint seen anything yet.  Wait until early 2013 when austerity will be mandated and Ben has to reach further into his bag of potions and elexirs to stmulate the  US and world economy.  Ben will no doubt be happy to return to teaching by then, but will need Secret Service protection.  He could also retire to a ghost town with a senior citizen population of 0 or live at a gated country club owned by the Banks.

Mon, 10/08/2012 - 15:03 | 2868861 jonjon831983
jonjon831983's picture

 The young can be enslaved to pay their way still... but this is what they mean when the elderly are the ones who end up losing...

 

Mon, 10/08/2012 - 19:36 | 2869441 wattsnotsaid
wattsnotsaid's picture

It's about time we focused on this as it may be a major cause of the jobs crisis.

1) there are 15M people age 60-64 if 1/2 are working and 40% of those delay retirement this created 2% unemployment assuming their job would be taken by an umployed person.  ( based on a workforce of 150M).

2)There are 96 million people 50 years old and older.  If each cuts back spending $3000 it creates unemployment of 2% based on $100,000 of spending creating one job.

 Low interest rates are causing 2% unemployment due to delayed retirement and 2% due to cutbacks or 4 % unemployment. 

Raise interest rates to normal levels and unemployment goes from 9% to 5%.

Mon, 10/08/2012 - 19:46 | 2869460 The Alarmist
The Alarmist's picture

They weren't supposed to live so long.  Now that they are, it only makes sense that they work, since their KSAs (Knowledge, Skills and Abilities) have so much more potential than that of a snot-nosed youngster coming up through the systtem.

Mon, 10/08/2012 - 21:47 | 2869641 Tompooz
Tompooz's picture

a) b) c)

d) die earlier

Mon, 10/08/2012 - 23:10 | 2869807 TheObsoleteMan
TheObsoleteMan's picture

I had a conversation with my cousin's boyfriend a couple of months ago. I was trying to explain to him why the old model of low rates pumping credit into the economy won't work this time. He said:"It always has, why won't it this time?" I told him that yes, it does work UNTIL you arrive at a phenomenon I call "debt saturation". I used this analogy so he could understand it: When you have a gentle rain for a time, the ground soaks it up and you get green shoots. However, if you get tropical storm rains for days, the ground becomes saturated, and can no longer absorb it, it just sets there, then rises, choking the grass and killing it." That is what we have now, compare the zero rate until infinity coupled with QE as the storm showers. The economy can't absorb anymore debt, IT IS SATURATED. We are seeing debt saturation at all levels, sovereign, municipal, state, corporate and private. They can try to pump credit into the economy all they want, but in too many cases, it is not serviceable. Hell, the debt they have now isn't serviceable, what makes them think more can be? He slumped back into his chair with a worried look on his face. I think he got it.

Tue, 10/09/2012 - 00:57 | 2869910 Godisanhftbot
Godisanhftbot's picture

 How about those imbeciles who claim that the fraudulent food stamp junkies contribute to the economy when they spend that FREE CASH on a pre cooked chicken for $12.99

 

 They never mention the hundred of billions NOT SPENT by savers who are being forced to lend money at near zero rates .

 

 Bernake is a confiscator.

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