Fix the economy - Step #1: Retirement

So we know the US economy has major problems. High unemployment, likely structural, definitely hurting the youth. Aging infrastructure. Large debts + a large deficit. Very large unfunded liabilities like medicare and social security.

Oh yeah, and let's not forget that whole housing thing. The one where the banks are only solvent because they changed the accounting rules while they slowly liquidate their losses. It's clear that stuff needs to change, but where do we start?

Obviously, the Tea Party has made this whole "brouha" about a "balanced budget", but there's no clear plan to deal with any of the issues above. So it's time to start making some serious decisions. So this is the first of several steps I suggest for repairing the US economy.

Why trust me? Well you are reading my blog :) But frankly, I just live here. I can't vote, don't make campaign contributions and will probably leave in a few years (bad economy or no).

My only vested interest is that I don't like to see people suffer needlessly. Don't get me wrong, people are going to suffer as part of "fix the economy", I'm just trying to avoid the "needlessly" part.

Step #1: Retirement

Here's the deal, we cannot all retire at 65 if we plan to die at 85. We cannot have a population that spends 20+ years getting educated and 20 years "doing nothing" with only 40 years in between. 20 years of "nothing" is far too long for the average person, it's just too much "unproductivity".

It especially won't work with the upcoming Baby Boomer crisis. We can't have a giant chunk of people are retiring at once and we can't have them retiring for 20 years. The economy will suffer heavily from the productivity loss and the social security system will simply "run out" of money (i.e.: need to print money).

Of course, we may avoid the "rush of retirees" simply because many people near their sixties are nowhere close to retirement. We're talking about boomers with $50-110k to their name (including home equity). That either means stretching social security and praying for the best with inflation, or it means working longer.

For the country as a whole though, we don't have enough money to support Social Security at current levels. Especially when the big boat of baby boomers beat a path to the SS offices. So let's fix a couple of problems.

#1a: increase Social Security age

The US should definitely push this back to 67 or 68 ASAP. Several other countries have already done this, so it's not really ground-breaking.

Yep, this is going to be unpopular, but I think it's the least painful way to curtail the debt crisis.  It's also kind of fair. The people who are losing a few years of SS are also the same people who voted throughout the period leading up to the whole crisis. They were an entire generation born into and raised with the possibility of receiving SS. The current under-funding is the result of years and decades of poor fiscal planning, so at the least the planners are "reaping what they sow" here.

#1b:  consider "rolling down" SS

SS is a neat concept, but it's basically a pyramid scam. It's unlikely that my 20 & 30-something will ever see any SS payments come our way, the whole system is going to implode long before then. Most of my peers have already accepted that.

So maybe it's time to draw a line and start a new program for people under 40... but that's the next post :)

Any thoughts on changing retirement / SS age? Should it be higher (70)?

Is inflation the answer?

The Curious Capitalist explores the Fed's options, including having the Fed raise "target inflation" from 2% to 4% or even 6%.

So pushing up "target inflation" rates may seem like a good idea, but there are definitely a few hazards here.

Hazard #1: Seniors

Pushing up inflation means raiding those who have cash. The goal is to raid the coffers of big companies just enough to push them into spending that cash. You're basically trying to "scare" people into spending to produce.

The side effect here is that inflation affects all cash.

Targeting 5% inflation hurts people planning to retire soon (i.e.: baby boomers), but it also really hurts those who are already retired. These people already live off of cash and they've stopped producing. They have way to counter the effects of such growth, they cannot grow their income.

It also sucks for the unemployed who were already falling behind.

Hazard #2: Anger investors

Investors are not stupid, they can calculate the effect of inflation. The 10-year treasuries are currently under 3%. Investors are honestly accepting that this is basically zero growth. You're not moving forward much, but at least you're not losing ground.

Changing the inflation plan to 5% means that 3% investment is effectively losing ground. What's more, everyone who bought these sub-3% bonds in the last 3 years is going to end their 10-year holding at a real loss.

China will not be happy about this move. Forcing inflation is raiding cash. This would be raiding China's coffers in a very real way.

Hazard #3: The gig is up

The long term plan has always been to inflate away some portion of the debt. Everyone is doing it, but there's definitely an aspect of "chicken" going on. No one wants to inflate too much.

Well jumping inflation to 4% or 6% on purpose pretty much ends the game. Then everybody knows the plan. Fiat currency is all about trust. Raiding the savings of hundreds of millions of people is not a great way to engender further trust.

Maybe I should buy gold... or bitcoins... or both :)