Eating Our Seed Corn: How Much Of Our "Growth" Is From One-Time Cashouts?

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

We as a nation are consuming our seed corn in great gulps, and there will be precious little left in a decade to pass down to the next generation.

Anecdotally, it seems a significant percentage of our recent economic "growth" is being funded by one-time cashouts of IRAs, 401Ks, sales of parents' homes, etc. This is the equivalent of eating our seed corn. Once these pools of savings/equity/capital are gone, they aren't coming back.

I personally know a number of people who have cashed out their retirement account 401Ks (and paid the taxes) to pay for their kids' college expenses--in effect, cashing out their retirement to lower but not eliminate the debt burden of their offspring who bought the "going away to college" experience.

The cashed-out 401K delighted the government, which reaped huge penalties and income taxes, as the cashout pushed the annual income of the recipient into a high tax bracket. ("Hardship" withdrawals for medical care and education waive the penalties, but the income tax takes a big chunk of the withdrawal.)

The middle-aged person who cashed out their retirement will not work long enough to save an equivalent nestegg. Not only is time against such an accumulation of retirement savings, so is the stagnant economy: companies are slashing 401K contributions to offset rising healthcare (a.k.a. sickcare) expenses, and many workers young and old alike are finding jobs that pay them as self-employed contractors or part-time jobs with no benefits.

Another set of middle-aged people are withdrawing from IRAs (and paying the penalties) just to fill the gap between expenses and income. For a variety of reasons, many people are loathe to cut expenses or are unable to do so without drastic changes in their lifestyle. So they withdraw from the IRA (individual retirement account) to cover expenses that are left after income has been spent.
This "solution" is appealing to those whose incomes have declined in what they perceive as "temporary" hard times.

Another pool of equity that is being drained is the home equity in aging parents' homes. The government will only pay for one set of medical expenses (long-term care, for example) if the elderly person has assets of less than $2,000 (as I recall). Given this cap, it makes sense for elderly homeowners to transfer ownership of their home to their offspring well before they need long-term care (which can cost $12,000 to $15,000 a month).

A variety of other medical expenses can arise that cause the home to be sold to raise cash--either expenses for the elderly parents or for their late-middle-age offspring who develop costly health issues. Family disagreements over sharing the equity can arise, leading to the sale of the house and the division of the equity among the offspring.

This cash is immediately hit with a variety of demands: a grandkid needs a car, somebody needs money to go back to graduate school (pursuing the fantasy that another degree will provide financial security), and so on--not to mention "we deserve a nice vacation, a new car, etc.", the temptations in a consumerist culture that we all "deserve."

Once the family home is sold, the furnishings and other valuables are also sold off to raise cash. In many cases, the expense of transporting the items across the country to relatives exceeds the value of the furnishings.

One common thread in all these demands for liquidation of equity is the short-term need is pressing. A consumerist culture offers few incentives for long-term savings other than life insurance, IRAs and 401Ks, and all of these can be tapped once a pressing need arises.

Though people may want to hang on to their nestegg, they are faced with short-term needs: how else can I pay tuition, or this medical bill?

As incomes have stagnated and costs for big-ticket expenses such as college and healthcare have soared, the gap between income and expenditures has widened every year for the bottom 90%.

Even those in the top 10% are not protected from draw-downs in retirement funds and family equity in homes and other assets.

Retirement funds, home equity, family assets--these are the financial equivalent of seed corn. Once they're cashed out and spent, they cannot be replaced.

In more prudent and prosperous times, these nesteggs of capital were conserved to be passed on to the next generation not for consumption but as a nestegg to be conserved for the following generation. That chain of capital preservation and inheritance is being broken by the ravenous need for cash to spend, not later but right now.

So how much of the recent "growth" in GDP results from our consumption of seed corn? It is difficult to find any data on this, something which is unsurprising as the data would reveal the entire "recovery" story as a grandiose illusion: we as a nation are consuming our seed corn in great gulps, and there will be precious little left in a decade to pass down to the next generation.

We face not just an impoverishment in consumption but in expectations and generational assets.

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666's picture

Undoubtedly true, but the gubmint just loves to twist those statistics into golden unicorns and chocolate covered strawberry trees, so all must be well!

DoChenRollingBearing's picture


Anyone cashing in their IRAs or 401(k)'s should be buying gold with some of that.

Long-term thinking will help.  Do not eat the seed corn.

kliguy38's picture

many of them are.......buying gold that is....

PRO.223's picture

Many are wising up and cashing out... so it won't be bailed in or MYRA'd.

grid-b-gone's picture

Exactly. Move it to a place and form that only you have access to.   

Casey Stengel's picture

Mrs. Stengel and I cashed out and converted to real property that pays 7% annual return. We can put our hands on it. The bank would gladly give us a .75% return.

DoChenRollingBearing's picture

Whaaa..., and leave none for Bitcoin?!?!

seek's picture

Sssh! It leaves more for me!

DoChenRollingBearing's picture

Now you stop that!  Next thing you know you'll tell me not to buy any more ammo either.

Rainman's picture

happy, happy .. I been eating my seed corn at Cabelas.

superflex's picture

Gold and silver with the scraps .gov left me.

0b1knob's picture

Silly capitalists.   Any Keynsian government economist could tell you that savings are HARMFUL to the economy. Liquidation of savings (and savers) are a necessary sacrifice.

Forward USSA!

Woodyg's picture

Yea let's not blame the fascists in the gov and corporate world who shipped the decent paying jobs overseas -
All in order to take home 20 mil a year instead of 10 mil

Or to have 5 vacation homes instead of 2

I'll go ahead and blame the fascists who bought the guv into doing their bidding and rewriting the tax laws to favor the predatory monopolist.

We thought we won WW2 against these types but of course like cockroaches they've scurried out from behnd the walls and are once again ruining my dinner - you turn around and there's 100's of these roaches all over the place -

AGuy's picture

"Anyone cashing in their IRAs or 401(k)'s should be buying gold with some of that."


That can be difficuilt if you have no job and a pile of bills stacking up. The term "Stackers" now applied to a large group of unemployee that are stacking their bills, not PMs


ZH Snob's picture

better to sell you 401K now than to have the government eat your seed corn with a (soon to be) forced MYRA once they have no one else to buy their worthless t-bonds.

DoChenRollingBearing's picture

Yes, good advice.  I did that in late 2008, paid the taxes and penalties.  Some went to gold, NONE went to frivolity (Bearings are not happy-go-lucky types).

This MyRA looks to be dangerous!  Your .gov approves of the MyRa, that should be all you need to know.  The very nature of the MyRa is confiscatory...

cynicalskeptic's picture

Sad thing is that ANY funds left anywhere in the financial system are being eaten up by the vermin in the barn.  REAL inflation combined with near ZERO% interest is eating up that 'seed corn' even if you do NOTHING and leave it alone.  Try and beat inflation by investing in equities or high yield instruments and you risk losing it ALL if you don't get out in time.

Tangibles seem to be the only option left - but then govcan take whatever they want from you.... so?????   what to do?   glad I'm near the end of MY life. 

TeamDepends's picture

Hope you're not eating Monsanto GMO seed corn.

HyBrasilian's picture

This post is a 'hook'


LOL ~ on 'Monsanto' seed corns... FUCK MONSANTO!... 'Survival' will have N-O-T-H-I-N-G to do with them... [as much as they'd like ~ by way of their PERVASIVE ZH 'ad' plants ~ to think they will]...

MONSANTO 'shills' [who have been an, unnoticed, RECENT ENTRY, to Zero Hedge 'click ad' bait] ~ Instigate RED ARROWS ~ NOW!

DoChenRollingBearing's picture

Trolls & shills not here yet.  Two greens as of now, zero reds.

BeansMcGreens's picture

I just finished eating my Monsanto gmo seed corn, and chased it down with a nice gallon of round-up. Mighty tasty (sound of smacking lips)!!!

TeamDepends's picture

That's the taste of progress!  See you on the other side!

NOTaREALmerican's picture

Well,  "savings" is spent eventually.  Otherwise, what's the point?

Kayman's picture

"Savings" spent on current consumption and not spent on long term, self-liquidating investment would be the same as cutting off your leg and boiling it in a pot. Eventually you run out of appendages.

DoChenRollingBearing's picture

The best savings are those you can pass on to your children.  Especially the kind that lie very still and are yellow.

High quality bearings of good value are pretty close too...

NOTaREALmerican's picture

Re:  Eventually you run out of appendages.

Well, yeah.   But, eventually you die too, and you don't need those appendages.

Individual savings eventually gets spent or inherited, period.   

SOMEBODY, at some point, will spend it.

Seychelles's picture

Yes, and if your heirs tend to blow money on a constant stream of late model cars and consumer junk then why shouldn't you have the fun blowing it?  You had the discipline to accumulate it!

SAT 800's picture

There's a very good point to the article. When a country as a whole spends down its savings; citizen by citizen, because it's no longer a functioning part of the global economy, it's a very bad sign. all this is due to the globalization, which in turn is brought to you by the multi-national corporations who bought the congress critturs and paid for the propaganda barrage. When Clinton signed the legislation making China a most favored nation trading partner, and I don't care if he was a democrat, a republican, or an alien, it was a watershed moment. This legislation came to his desk from congress, where it was purchased; and you were sold.

Chupacabra-322's picture

Wonder how many are cashing out & investing in hard assets to protect / conserve their wealth? Keep stacking.

Joe Davola's picture

Another pool of equity that is being drained is the home equity in aging parents' homes. The government will only pay for one set of medical expenses (long-term care, for example) if the elderly person has assets of less than $2,000 (as I recall). Given this cap, it makes sense for elderly homeowners to transfer ownership of their home to their offspring well before they need long-term care (which can cost $12,000 to $15,000 a month).


5 years before, or Medi won't pay for the long term care for a time period based on the home value/monthly care cost.

NOTaREALmerican's picture

I'm pretty sure that hardly ANY OldFarts would actually manipulate their finances like this in order to game the system such that they'd be receiving Government socialist handouts they don't deserve. 

The OldFarts deserve free long-term care, because they are entitled to that.   Unlike those goddamn lazy hippy bastards that just want more free shit.    me me me,  all you ever hear from them is: me me me.

The OldFarts are above that...

TheReplacement's picture

How about you buy me $1 of gold or silver for every "OldFart" I can find on the dole?

Miffed Microbiologist's picture

My boss bemoaned the fact her mother failed to do this and had left her assets which totaled 750k. After having 25 years of care with Alzheimer's she was left with an 18k for her inheritance. A fact her mother would have been horrified. Protecting assets from the vultures is difficult. Perhaps I should take some comfort with the rate I'm being bled dry by taxes and inflation I may have eventually no assets left to steal away.


SAT 800's picture

You can protect yourself from inflation; by rationalizing your spending plans; don't spend as to "get rid of the inflating currency"; but spend as little as possible; and put the surplus in Silver. This will protect you against inflation. For Real; it just will. And if .gov. doesn't know about it; they can't tax it; and this is absurdly easy to arrange. use your head and save yourself.

MsCitizen2's picture

Agreed! (To putting it all in silver.)

TheReplacement's picture

Sorry but someone has to pay for that care and it really should start with the person getting it.  Sounds cold maybe but if you wanna live longer then pay for it.  For the record, my inheritence was less than $5K.

Miffed Microbiologist's picture

Actually mine was 7k. I redid my porch which was falling down with dry rot. I considered myself fortunate to get that. Not all of us expect to live like Paris Hilton.


Offthebeach's picture

Obamacare Quality of Life Review Panels will get that monthly cost down quick.
Think of it as late life abortion. A unwanted,
There will be studies showing improved quality of Joblock life after Pop gets aborted.
I can't wait for the heroic movie were decling Pop, played by Kirk Douglas agrees to take the needle. Boffo Academy Award!

Brave New Obama World!

williambanzai7's picture

Seed corns.

I know someone who had to have one of those removed.

DoChenRollingBearing's picture

Do seed corns come back like warts do?

halfawake's picture

Saw an ad on TV for AARP Jobs site... going just as they planned. Have them save up for retirement, then take it away and impress on the old folks to keep on working. More serfs. Let's see how the boomers respond.

i_call_you_my_base's picture

Which is what happens when government policy is all geared toward consumption, which is what happens when you manage an economy to one number: GDP. Who cares if everyone starves in their twighlight years I +.5% on GDP, so bonuses and catered summits for all involved!

Umh's picture

"When a measure becomes a target, it ceases to be a good measure." Goodhart's Law

assistedliving's picture

was talking to my banker.  last crisis he said he wasnt really worried as people had savings, and yes, dipped into them.  "Thats what they're for" he said.

this time he said there are no savings. 

cynicalskeptic's picture

this time he said there are no savings. 


unless your're one of the 0.1% - THEN you've got a few billion stashed offshore......    

A good number of those in the '1%' have the majority of their assets locked up in a house, business or retirement account and are living paycheck to paycheck like the rest of the world...... astounding how many of those that SHOULD be well enough off are living above their means leasing expensive cars and sopending riduculous amounts on clothes and vacations and such.... 

The REAL wealth is concentrated in a VERY few hands.  It's not just an exponentioal curve leading up to the top 1%,  that exponential curve is going near vertical within the 1% 

wagthetails's picture

although i agree, some actually numbers on these trends would have been helpful. 

samsara's picture

One time Cash Outs,   Ok.   Let's See.  For the Record books.






Flakmeister's picture

Indeed, you beat me to it...

Fossil Fuels are the ultimate "One time Cash out"....

I'll raise you the great Soviet fields:

Romashkino and Samotlor running at an estimated 75-85% depleted...