Mish's Global Economic Trend Analysis

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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 Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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 Benefit Total Annual Cost Employment E/B Ratio Dec-67 22,979 $73.92 $20,383,201,682 66,900 2.9114 Dec-68 23,886 $85.24 $24,432,839,002 69,245 2.8989 Dec-69 24,709 $86.47 $25,638,687,737 71,240 2.8832 Dec-70 25,701 $101.35 $31,257,463,769 70,790 2.7544 Dec-71 26,817 $113.22 $36,435,282,006 72,108 2.6888 Dec-72 28,066 $138.70 $46,712,482,840 75,270 2.6819 Dec-73 29,514 $143.99 $50,996,092,215 78,035 2.6440 Dec-74 30,576 $163.02 $59,813,483,661 77,657 2.5398 Dec-75 31,862 $179.29 $68,549,741,469 78,017 2.4486 Dec-76 32,835 $194.95 $76,815,361,682 80,448 2.4500 Dec-77 33,923 $211.16 $85,958,416,484 84,408 2.4882 Dec-78 34,453 $229.86 $95,032,473,435 88,674 2.5738 Dec-79 35,013 $258.37 $108,555,575,502 90,669 2.5896 Dec-80 35,526 $300.75 $128,213,644,374 90,936 2.5597 Dec-81 35,930 $340.84 $146,956,770,724 90,884 2.5295 Dec-82 35,778 $372.10 $159,755,010,234 88,756 2.4808 Dec-83 36,034 $393.15 $170,001,091,973 92,210 2.5590 Dec-84 36,439 $412.21 $180,244,135,062 96,087 2.6370 Dec-85 37,027 $429.35 $190,768,953,436 98,587 2.6626 Dec-86 37,683 $438.76 $198,407,802,022 100,484 2.6665 Dec-87 38,171 $461.35 $211,323,314,397 103,634 2.7150 Dec-88 38,613 $484.01 $224,268,374,172 106,871 2.7678 Dec-89 39,141 $511.89 $240,431,129,294 108,809 2.7799 Dec-90 39,825 $544.52 $260,224,095,454 109,120 2.7400 Dec-91 40,587 $568.55 $276,908,006,552 108,262 2.6674 Dec-92 41,504 $588.90 $293,296,976,201 109,416 2.6363 Dec-93 42,243 $607.48 $307,943,241,597 112,204 2.6561 Dec-94 42,882 $628.14 $323,229,663,108 116,055 2.7064 Dec-95 43,386 $648.77 $337,772,228,816 118,208 2.7246 Dec-96 43,736 $672.81 $353,113,695,411 121,002 2.7666 Dec-97 43,971 $692.82 $365,565,297,977 124,357 2.8282 Dec-98 44,246 $707.39 $375,585,941,872 127,359 2.8785 Dec-99 44,595 $730.53 $390,940,040,819 130,533 2.9270 Dec-00 45,415 $767.35 $418,187,686,581 132,481 2.9171 Dec-01 45,877 $795.69 $438,050,881,510 130,720 2.8493 Dec-02 46,444 $815.05 $454,253,081,458 130,175 2.8028 Dec-03 47,038 $840.62 $474,497,794,254 130,259 2.7692 Dec-04 47,688 $871.80 $498,889,778,321 132,316 2.7746 Dec-05 48,434 $915.71 $532,222,768,675 134,814 2.7834 Dec-06 49,123 $955.53 $563,260,007,133 136,882 2.7865 Dec-07 49,865 $987.03 $590,618,750,824 137,982 2.7671 Dec-08 50,898 $1,054.38 $643,995,009,294 134,379 2.6401 Dec-09 52,523 $1,064.41 $670,869,765,261 129,319 2.4621 Dec-10 54,032 $1,074.33 $696,579,633,240 130,346 2.4124 Dec-11 55,404 $1,122.89 $746,557,638,566 132,186 2.3858 Dec-12 56,758 $1,152.79 $785,163,217,034 134,021 2.3613 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 Making Social Security Actuarially Sound in a Business-Friendly Manner Social Security Cliff in Sight; Retirees Will Outlive Trust Fund; Ramifications of Nonmarketable IOUs and Privatization Payroll Employment for Age Group 18 to 29 Shows Fewer Full-Time Employment "Regardless of Education" 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 Philadelphia: 5th Largest City in US is Effectively Bankrupt; Mayor Holds Closed Meeting With Wall Street to Discuss Asset Sales Houston: CPAs state Houston is Bankrupt LA: Mayor of Los Angeles Says "Bankruptcy is Not an Option" (Of Course It Is) New York Cities: Public Pension Ponzi Scheme - New York Cities Borrow From Pension Plan to Make Contributions Baltimore: Time for Baltimore to "Pull a Vallejo" and Declare Bankruptcy Miami: Miami Commissioner Says Bankruptcy is City's Best Hope; Chris Christie Says New Jersey Careens Towards Becoming Greece Chicago: Chicago's Mayor Daley Discusses Bankruptcy For City Pensions  Scranton: Scranton Mayor Slashes All Public Worker Wages to $7.25 per Hour, Including Police, Fire, His Own; City Effectively Bankrupt Harrisburg: Pennsylvania State Capital Files for Bankruptcy Zombified Cities Roundup: Detroit Becomes Dumping Ground for the Dead; Financial Urgency in Miami; Oakland Pension Time Bomb; How Pensions Crashed Stockton and San Bernardino 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 Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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