Thursday, October 17, 2013

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


Silence is Golden

Posted: 17 Oct 2013 03:48 PM PDT

The message of the day comes from the Fed currency crank Charles Evans who wants to continue QE because "incoming information has been silenced with the federal government shutdown."

Evans' statement is in reference to nearly useless reports from the BLS and BEA that have not come out since the shutdown.

Bloomberg reports Fed's Evans Sees QE Tapering Postponed After Data Shutdown
Federal Reserve Bank of Chicago President Charles Evans, an outspoken advocate of pressing on with Fed stimulus, said the central bank should not begin reducing the pace of asset purchases as the data used to gauge the economy's health stopped during the government shutdown.

"Only the data can tell us how much progress we've made and they aren't saying much right now," Evans said today in a speech prepared for delivery in Madison, Wisconsin. "The data available in September were inconclusive, and since then, incoming information has been silenced with the federal government shutdown."

"It is not yet time to remove accommodation," Evans said at the 2013 Wisconsin Real Estate and Economic Outlook Conference. "The data are still not definitive enough to say that now is time to adjust the QE3 flow purchase rate."

In response to audience questions, Evans said the Fed would likely need "a couple of meetings to assess" the economy and await data that present a picture of how the economy weathered the shutdown.

"I also would need to see more steady, solid growth in gross domestic product to be confident that the labor market gains would not be undone by a drop in businesses' demand for labor," Evans said.

The government had planned to release its jobs report updating statistics on the labor market on Oct. 4. The report was postponed by the shutdown and has not been rescheduled for release.
Musical Tribute



Link if video does not play: The Tremeloes - Silence is Golden

Question of the Day

With all these currency cranks on the Fed, and with incoming Fed chairperson Janet Yellen more dovish than Ben Bernanke, how can you dislike gold?

Addendum:

Here is a comment from a friend that I agree with: "I have thought lately how nice it has been without the noise from all the different economic reports while the government has been shut down. If it was up to me, I'd keep it that way..."

I made a similar comment in Is Gathering Real Time "Inflation" Data With Smart Phones a "Game Changer"? 

Instead of bringing back laid off BEA and BLS workers let's get rid of them. Gallup can easily track unemployment and this firm can better track consumer  prices.

Any technology with a capability of eliminating government workers is fine by me, but unless that actually happens, "game changer" is a bit of a stretch.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Unsustainable Social Security Promises: Spain vs. U.S.

Posted: 17 Oct 2013 11:18 AM PDT

I have written numerous times about pension problems in the US. Let's cross the Atlantic and take a peek at the setup in Spain, then let's compare the two setups.

Via translation from Libre Mercado, please consider The Chart That Will Shake Future Pensioners.

Workers vs. Pensioners


Given that eight million people age 65 and 16.7 million workers cannot sustain the current pension, imagine what will happen in the coming decades as the differential goes back even closer.

Pensions today promise Social Security payments of 100% of the average wage in the last 25 years for those with 37 years of Social Security contributions. Such payments are absolutely unsustainable. The relative income of pensioners relative to the average income of the society will sink (without massive tax looting of active workers).

Immigration could partially alleviate the problem, making the demographic transition somewhat smoother, but if new rights accrue to future pensions, immigration only delays the problem. In any case, it might be a good idea to allow free immigration to Spain in exchange for not accrue rights to Social Security.

The most important practical advice to draw from the above chart is simple: save and invest. If you trust your retirement to politicians, you will end up poor and feeling cheated.

US vs. Spain

Here are a few charts from my January 8, 2013 post Social Security Trends: Beneficiaries, Total Costs, Number of Workers, Ratio of Workers to Beneficiaries

Social Security Beneficiaries, Costs, Employment

Year Beneficiaries Average Monthly BenefitTotal Annual CostEmploymentE/B Ratio
Dec-6722,979$73.92 $20,383,201,682 66,9002.9114
Dec-6823,886$85.24 $24,432,839,002 69,2452.8989
Dec-6924,709$86.47 $25,638,687,737 71,2402.8832
Dec-7025,701$101.35 $31,257,463,769 70,7902.7544
Dec-7126,817$113.22 $36,435,282,006 72,1082.6888
Dec-7228,066$138.70 $46,712,482,840 75,2702.6819
Dec-7329,514$143.99 $50,996,092,215 78,0352.6440
Dec-7430,576$163.02 $59,813,483,661 77,6572.5398
Dec-7531,862$179.29 $68,549,741,469 78,0172.4486
Dec-7632,835$194.95 $76,815,361,682 80,4482.4500
Dec-7733,923$211.16 $85,958,416,484 84,4082.4882
Dec-7834,453$229.86 $95,032,473,435 88,6742.5738
Dec-7935,013$258.37 $108,555,575,502 90,6692.5896
Dec-8035,526$300.75 $128,213,644,374 90,9362.5597
Dec-8135,930$340.84 $146,956,770,724 90,8842.5295
Dec-8235,778$372.10 $159,755,010,234 88,7562.4808
Dec-8336,034$393.15 $170,001,091,973 92,2102.5590
Dec-8436,439$412.21 $180,244,135,062 96,0872.6370
Dec-8537,027$429.35 $190,768,953,436 98,5872.6626
Dec-8637,683$438.76 $198,407,802,022 100,4842.6665
Dec-8738,171$461.35 $211,323,314,397 103,6342.7150
Dec-8838,613$484.01 $224,268,374,172 106,8712.7678
Dec-8939,141$511.89 $240,431,129,294 108,8092.7799
Dec-9039,825$544.52 $260,224,095,454 109,1202.7400
Dec-9140,587$568.55 $276,908,006,552 108,2622.6674
Dec-9241,504$588.90 $293,296,976,201 109,4162.6363
Dec-9342,243$607.48 $307,943,241,597 112,2042.6561
Dec-9442,882$628.14 $323,229,663,108 116,0552.7064
Dec-9543,386$648.77 $337,772,228,816 118,2082.7246
Dec-9643,736$672.81 $353,113,695,411 121,0022.7666
Dec-9743,971$692.82 $365,565,297,977 124,3572.8282
Dec-9844,246$707.39 $375,585,941,872 127,3592.8785
Dec-9944,595$730.53 $390,940,040,819 130,5332.9270
Dec-0045,415$767.35 $418,187,686,581 132,4812.9171
Dec-0145,877$795.69 $438,050,881,510 130,7202.8493
Dec-0246,444$815.05 $454,253,081,458 130,1752.8028
Dec-0347,038$840.62 $474,497,794,254 130,2592.7692
Dec-0447,688$871.80 $498,889,778,321 132,3162.7746
Dec-0548,434$915.71 $532,222,768,675 134,8142.7834
Dec-0649,123$955.53 $563,260,007,133 136,8822.7865
Dec-0749,865$987.03 $590,618,750,824 137,9822.7671
Dec-0850,898$1,054.38 $643,995,009,294 134,3792.6401
Dec-0952,523$1,064.41 $670,869,765,261 129,3192.4621
Dec-1054,032$1,074.33 $696,579,633,240 130,3462.4124
Dec-1155,404$1,122.89 $746,557,638,566 132,1862.3858
Dec-1256,758$1,152.79 $785,163,217,034 134,0212.3613


Notes for Above Table

  • Employment and beneficiary numbers are in thousands.
  • I computed the total annual cost as monthly benefit * 12 * number of beneficiaries. That method will tend to overstate annual costs slightly vs. totaling every month individually. Thus, the total cost may vary slightly from other published figures.

Average Monthly Social Security Benefit



Total Annual Cost of Social Security 1967-Present



Social Security Beneficiaries vs. Total Non-Farm Employment



Ratio of Workers to Social Security Beneficiaries



Social Security Benefits Analysis

  • The ratio of workers to beneficiaries peaked in 1999 at 2.927 to 1.
  • The ratio of workers to beneficiaries was 2.361 to 1 at the end of 2012.
  • The ratio of workers to beneficiaries is falling fast and will continue to fall fast for a decade as the baby boomer population ages.
  • The average payout and the number of payouts are both rising fast
  • Total Social Security payouts (a multiplication of two rising numbers) are on an unsustainable exponential growth path.

The system is currently running a deficit. Trends say that deficit is going to worsen with each passing year unless benefits are cut and/or taxes are hiked.

The next chart is courtesy of Reader Tim Wallace in a January 11, post.

Social Security Burden on Non-Farm Workers



Social Security Cliff Reading


Tip of the Iceberg

Unfortunately, Social Security is just a tip of the unsustainable payout promises problem. Public union pensions are trillions of dollars underfunded and several cities in California have gone bankrupt over those promises.

Detroit went bankrupt for the same reason as did Central Falls, Rhode Island (see Central Falls Set to File Bankruptcy Exit Plan; 50% Pension Reductions, 40% Slash in Police and Fire Budgets Coming Up).

Zombified Cities


Vallejo Round Two

Vallejo, California went bankrupt about two years ago and is headed there again because it did not shed pension promises in bankruptcy: Vallejo, Mired in Pension Debt Again; Lesson for Stockton and Detroit - Shed Those Pension Obligations Now!

As I said in the above link, Stockton and Detroit have a choice. They can cut pensions now, or cut them later in a second bankruptcy, just like Vallejo will.

Pension Promises Not Sacrosanct

Yet people keep emailing me that pension are guaranteed by law. Tell that to residents of Central Falls. Their pensions were cut 50% in bankruptcy.

Here's reality: haircuts are coming. Unions need to negotiate benefit cuts now, in a sensible manner (with the highest beneficiaries taking the biggest cuts). The alternative is across the board benefit cuts à la Central Falls.

Meanwhile please consider the solid advice from Libre Mercado:

"The most important practical advice to draw from the above chart is simple: save and invest. If you trust your retirement to politicians [or promises], you will end up poor and feeling cheated."

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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