[quote=ftealjr]Adam:
Excellent article. Especially the video about Wealth Inequality.
Unless I am missing something, most of the Debt to GDP figures I find show 101.6% for 2012 and with the addition of unfunded liabilities the figure rises to about 550%. It seems to me that these figures are bad enough as it is. Are you adding in something in that I am missing?
Keep up the good work.
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The Debt-to-GDP numbers are for the whole country, not just the federal government. It's the best way to measure things…a nation's debt against its earnings.
Total credit market debt stands at some $56 trillion
The unfunded liabilities of state and corporate pensions is in the vicinity of $4 trillion
The net present value of the unfunded liabilities of the US government range from a 'low' estimate of $50 trillion (from the Treasury) to private estimates of $200 trillion (Kotlikoff, Ferguson, and the Fed have each pegged it independently at ~200T).
So the range is between roughly $100 trillion for a debt to GDP ratio of 625%, to a high of $260 trillion for a ratio of 4,160%.
For this article, we drifted to the low end of the range and called it 'more than 1,000%' … but it doesn't really matter if the number happens to be 625%, 1,000% or 4,000% none of them pencil out. No country has ever even come close to meeting such a debt load. Meeting it would be the equivalent of running the 100 meter race in less than 5 seconds.
Adam, your chart Real Average Weekly Earnings in this article uses the ShadowStats 1990-based alternate CPI. You arrive to the conclusion that real weekly earnings are 37% lower using SGS alternate CPI than they would be if using the official CPI ($185 vs $294, approx.).
ShadowStats also has a 1980-based alternate CPI. The interesting thing about it is that it’s way more extreme. If you do the same math if the 1980 version, you get that real weekly earnings are 73% lower with SGS than with the official CPI. That would be about $80 vs. $294.
So which is the “real” stat, the 1980 or the 1990 version? It makes a world of difference. You picked 1990. Does that mean that the 1990 version represents reality more closely? And if so, why does ShadowStats publish the 1980 version at all, if it doesn’t represent reality? I haven’t been able to find the answer to this on the ShadowStats public website. Their site seems to imply that 1980 is better but they don’t state it outright.
You can also look at it the opposite way and come up with some things that may sound incredible. You can calculate what wages must have been in the past but in today’s dollars according to your chosen figures for inflation. (I did it for median income but it’s probably going to look very similar if you run the numbers for average earnings.)
1982 median income was $20171 nominally. Cumulative ShadowStats (1980-based) inflation between beginning of 2013 and 1982 was 7.2% annually. Therefore, in 2013 dollars, 1982 median income was around $174k.
If that was the median income back then, the median family must have been well off by today’s standard (2011 median income is $50k). I don’t live in the US so I can’t speak from first-hand experience, but I’ve never heard anyone claim that in 20 years the standard of living in the US has been cut by 70%.
I’ve been trying to get someone to engage in a discussion and explain to me these things about ShadowStats’ inflation figures that don’t make any sense but so far I’ve had no success. And by the way Adam, I agree with the rest of your article.
If anyone replies to this, please also e-mail me at nedynex@gmail.com so I find your reply (since there’s no notification feature).
Note: You can get the ShadowStats numbers from this file: http://www.jparsons.net/antishadowstats/Anti-Shadow%20Stats.xls . I posted some extra explanations related to this on a prior forum post here: https://peakprosperity.com/forum/80408/shadowstats-inflation-closer-truth-cpi .
Great job on this article. The first part shows the data explaining why I begin to feel more and more pinched the last 15 years of my working life. In contract, in my 20's I socked away a ton of money living on half my current income, partly by being frugal but mostly because things were cheaper and my savings had a greater rate of return.
Christoper and Keith, I struggle too getting projects done while raising my kids. I've learned to just be satisfied with what I can do and not fret about what I can't.
When helping my extended family members with this decision I ask these questions:1. Do the kids REALLY have an aptitude for a university education?
2. Do they have ANY IDEA what they want to do with a university education?
3. Is the university a REAL quality educational institution? Or is it some mill that turns out crap degrees and illiterate graduates?
4. Is the kid willing to work to assist in the payment for his/her education? How committed are they to this idea of a university education? Regardless of your ability to pay, are they willing to sacrifice Xbox Live to attend?
5. Are a great deal of student loans required to finance this education? Is there any expected payback? Or are we going to study "Chicano Literature"?
After going through this process a few entered the military, one went to vocational college to study some kind of nursing, and two went to a Real University. Part of the problem IMO is that we have fallen under the spell that "all people should go to college". What bunk! Half of all people are of below average intelligence!
Rector
The part the resonated strongly for me related to baby boomers, my generation. As you pointed out, my generation is completely unprepared for retirement. Just as bad, many who think they are prepared are members of the global head in the sand society.
I'm in the top 80+%, having saved enough by traditional measures to retire comfortably. My 37+ year corporate job was eliminated late last year so I am "retired." My actuarial life expectancy at this point is somewhere around 27 years and my wife's is longer by as much as a decade. If I plug the numbers in a retirement plan with investment earnings nominal in comparison to inflation, the numbers eventually get ugly. If I take out social security a few years down the road, they get ugly much faster.
Simply put, you need a very large pool of money to retire with no investment earnings or social security. I would argue that social security should not be lumped into the "perceived entitlement" category, for people who have paid very large chunks of money into the system over the years.
What I find staggering is that most people in my situation assume that they are set. Their portfolio is earning 6 or 7 percent. Inflation is between 2 and 4 percent, right? Plus, social security checks are covering perhaps 1/4 to 1/3 of their annual expenditures. Life is good.
Meanwhile, people think I'm a bit strange for considering another job. From my perspective, I'd prefer to continue to work in my 60s than to try to go back to work in my 80s.
Simply put, baby boomers are not going to retire like previous generations. That's one of the things that will be different going forward that you and Chris talk about so frequently on this website.
By the way, thanks again for this website. I was throwing my hands up in disgust at the MSM about the same time it was activated.
Les
Rector, I think that's a pretty good list overall. I've seen hundreds of 20 year olds without a clue about why they are at school or what they should be doing there - racking up student loans they'll likely never pay off. I should make clear that it's not all kids, but, at least where I was, it was most. Some do work hard and even take the tough classes.
I would add few questions to your list:
Does the potential student have self motivation to engage the learning process with all it's necessary discomforts, or does she just expect something to magically happen to her because she is sitting in a seat in front of someone making a presentation?
Is the potential student prepared to make real sacrifices to learn? Is he ready to willingly endure a certain amount of pain and discomfort that comes with learning, or does he expect everything to be easy (And if it's not, it's "somebody elses fault"). Also, is he ready to assume personal responsibility for whether or not he actually learns? This is the key point in my view.
There's solid research that grade inflation is rampant everywhere - inluding the big name private schools. But I would say that some universities, both private and private, likely still have enough reputation that they can be selective about admissions and also maintain a relatively (key word) higher level of standards. God knows, at least I hope so.
A really interesting book with a chapter about all this is Chris Hedges "Empire of Illusion". I definitely recommend it.
One extremely important point given our circumstances: Knowing how to grow a garden, repair an engine, disign and build a chicken coup, or install PV cells on the roof (for high winds), is at least as important as intellectual knowledge in whatever form. That's the cultural bias right there.
Everything is now available on the interenet. Any person with access can study anything if he/she actually wants to learn. If we're after education (Again, as opposed to obtaining credentials), its mostly a matter of whether the person is motivated. There are also, very likely, all sorts of people in every community willing to share their knowledge - probably for free.
The degrees - from whatever university - are just exacly as meaningful as fiat currency. They have meaning and "work" simply because everybody is still playing the game. It's all a cutural construct, a sort of mass hallucination - all in your mind. In reality, you know what you know (or don't).
Cheers you'll, back to the cabbage seedlings and the markets.
Rob P, Rector and others,Great points re the educational system. I view it as one more aspect of society where we have been collectively brainwashed to follow the herd, as per the norm. It seems like education has been embraced by the financialization machine. I cannot help but feel that somehow colleges and universities are in cahoots with the banks.
The comment re degree certificates being like fiat money is bang on. What good is a piece of paper when there are no street smarts or common sense to go along with it? Kids go through this seemingly mandatory gateway into adulthood only to arrive on the otherside woefully unprepared for real life. I am sure there many exceptional young adults graduating, but the vast majority will find their dream bubbles bursting once they get out into the real world. More and more graduates, from all over the world, are competing for fewer and fewer quality jobs. That will only accelerate from here, leaving many indebted degree holders to compete for the lower echelon jobs that require little education, let alone post secondary. And more still floundering with a skill set that is lacking in the most basic elements of how to take care of themselves.
This is just one more example of how we bought into "let the good times roll", put on the party blinders, and ignored reality. As with all of the unsustainable things we have done, we are now faced with the 64,000 dollar question of what to do next. What DO we do with millions of global college graduates who are up the creek without a paddle, and the dam is about to burst? It's a little late for swimming lessons.
Jan
Thanks Chris, that explanation was very helpful.
By the way, CNBC is running an article today that "The Rich Pay Majority of Income Taxes". It is easy to understand why when you look at the Income Distribution video presented above. The rest of us don't have enough income to be able to pay significant taxes. Give me a break.
Adam,
Fantastic article! Well thought out and well constructed.
The last section titled "Redefining Prosperity" is the section I prefer to focus on. The positive side that believes there is hope for those who prepare. I even emailed that section to my wife who is having a difficult time coming to grips with the fact that the reality she feels she deserves because she did all the right things…go to college, work hard, always do the right thing, turns out to be no guarantee of success. I then remind her that we named our son Marshall Emerson after Ralph Waldo because of his poem defining success by the impact you have on your children.
I am also of the school of thought that the train is off the rails and we're just waiting for the pile up to begin. I suspect there will be many casualties and there is very, very little that can be done other than prepare and protect your family and friends. Most others will continue to drink the Kool-Aid and bury their heads in the sands of ignorant bliss.
Thanks for taking the time to write this article Adam!
Dave
Something continues to bug me, how is it so many smart people can completely ignore deficit spending, current debt, and future obligations? I know I'm preaching to the choir here, but this situation seems so crystal clear to me.
I am 90. How is a window of opportunity to occur , for buying a house at real value, with the government and banks holding house values hostage at 10 year old evaluations?
ChristopherA, the secret is to do a little something every day, no matter how small. You deal with being busy by "chipping away at it." You get as much or a little done as you can. It adds up over time.
This past week we picked up a lot of logs for our woodpile, but we did not get them all cut and stacked. I planted 12 ft of potatoes (SC - it's planting time!) but need to fnish the row. We watered the flats of started seeds by our window,s but the bell peppers did not come up and we need more seeds. We ordered bird netting to keep our cats from using newly planted raised beds as litter boxes and shrugged off the seedlings they killed (hopefully this will stop them: they're mousers and useful otherwise.)
I restocked our pantry after raiding it to catch up on our budget after the previous holidays. We also did something about the cost of next holiday's gifts: my husband is a tech wizard and he turned a load of demonstation e-rearders into fully functional machines, for about $16 each including charging cords.
We organized a cople of little things. We reinforeced good habits like using cloth napkins and towels (not paper), cooking from scratch with healthy ingredients, walking a little extra, taking vitamins and toothbrushing. This weekend we hope to cut more firewood, plant more potatoes, make a batch of strawberry jam, and work on strengthening neighborhood relationships by sharing flower seeds and perennials. But if all or some of it does not happen, we will just keep plugging along. The main thing is to be headed in the right direction: resilliency.
Wendy, I appreciate your practical posts about the resilent life. And I'll enthusiasticlly second your mention of tooth brushing.
1. It is far easier, less painful, and cost effective to prevent dental disease than to fix it. I'd estimate the ROI of a soft bristled tooth brush and pack of dental floss 10,000%. In addition, in a post-technological world, who will make that bridge that you need?
2. http://www.sciencedirect.com/science/article/pii/S0021915099004633
http://www.jci.org/articles/view/57132
http://www.ncbi.nlm.nih.gov/pubmed/20501966
Functional medicine, naturopathy, and now (finally) traditional medicine is coming to the impression that inflammation underlies many of the chronic degenerative processes so prevalent in the western world. Mark Houston, MD, Chairman of the Department of Hypertension at Vanderbilt University has lectured the functional medicine groups on this topic. He explains that the blood vessels are INNOCENT BYSTANDERS damaged by the inflammatory chemicals released by inflammation, often at a distant site and in a distant organ system. And gum infections are one of the big sources of the inflammatory signals. Also, there is strong (but new) evidence that inflammatory chemicals induce insulin resistance tipping us towards type 2 diabetes. http://www.sciencedirect.com/science/article/pii/S1471490603003363
I'd classify brushing and flossing as major parts of a healthy (and resilient) life.
Addendum: A better reference on the mechanisms by which gum infections can cause inflammatory processes in different organ systems. http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2951292/(For those interested in biology)
My college experience is, go to a community college, then transfer to a four-year institution. My wife's experience will be: go to a community college, apply to the RN program at that community college to keep paying that community college tuition (that's where we are now), then after getting a job as a nurse, join a part-time RN to BSN program (and pay with it using money earned as an RN).
My advice to family members in high school has been:
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Are You Doing All The Homework? How Are Your Grades? If you want college, you better be doing the work in high school to show you can handle the work in college. There will be no parents watching over you to make sure you do your homework.
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Take AP Classes, Take AP Tests. Get into the honors courses, because their level of rigour is about how it was for non-honours classes up to the 1970s. I can say that with a straight face even though my Americna public high school days were in the '90s. Take all the AP (Advanced Placement) classes you can that are offered, because if you're going to spend the time taking U.S. history, biology, chemistry, physics, calculus, government, civics, a foreign language (make sure to take a foreign language for all four years in high school), you might as well take the tests as well, pass them, and get college credit for those classes AND skip those courses in college. I have a relative in high school right now who will be taking 5 AP tests at the end of this year. Considering that it may cost $40,000 to for a year of college, 10 semester-long classes means $4,000 per class.
It's not just about saving money by not having to take certain classes. First: registration for classes is often based on seniority (as measured in how many units you have). In a time of budget cuts causing there to be fewer course offerings, fewer sections, and even cancelled courses and sections, you want an earlier registration time. I remember being able to register for the classes I wanted several days before my cohorts. Second: By not having to take some of the basic general education classes, you can graduate earlier or double major. For people in math, science, and engineering, this can open up more time and relieve some of the pressure.
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Go To College During The Summer. Are there classes that can be taken during the summer at a community college? These would 3-unit semester-long courses that last about 6 weeks. Great for knocking out some general studies courses.
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Focus. I would say to someone who wants a career in a certain field, how much research have you done? For example: I said this to a cousin of mine who is a freshman in college: Our country graduates 105,000 students with bachelor degrees in Psychology each year. What are the specific steps and pre-requisites for you to get that degree. Have you tried contacting a professor in that field to see if you can help out in a lab or in research to know what it is like? How do you get notice and experience when about 1 in every 20 students is a Psychology major? What graduate programs would accept you an what scores and course pre-requisites and possible lab or researh experience would they require you to have already completed? If you don't know, perhaps you need to research to find out. If you just love the field of Psychology, can you indulge in it by reading books and finding articles on the Internet?
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Consider Community College. I know it's not as good in other states' community colleges. But here in California, it's under $4,000 for in-state tuition, books, fees, and supplies for a full-time student taking 10 semester-long courses per year. That's a huge bargain, considering tax credits and tax deductions that are available. As previously mentioned, I went to a community college. I then transferred to a four-year institution and completed my degree. My résumé doesn't mention the community college. My wife wiill get her RN from a California community college - how cheap is that?
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Other Resources. There are obviously other ways to pay for college. Scholarships: but remember, grades and major and career objectives do matter. Go to college part-time, Consider shorter-term certification as a bridge to higher income that then allows you to afford college. (I know someone who got a degree in Animal Sciences, with student loan to repay, who is now back in college to get their Vet Tech certification - should have been the other way around!) Military service / G.I. Bill. Corporate tuition reimbursement programs (I haven't taken advantage of this, but the company I work for offers $5,000 per year). Going to college after turning 24 (so financial aid is based on your finances, not your parents'). There are even accredited institutions like Thomas Edision State College, a public college in New Jesery that offer relatively inexpensive (in some cases, cheaper than your own state's public university) degrees on-line, and credit for life experience, job experience, other certifications, and college credit by examination (taking a test to prove your knowledge). There are also free courses on-line (like Khan Academy and Coursera). Put money into retirement accounts like a Roth IRA. A lot of institutions do not count retirement assets (yet).
Whatever you do, don't co-sign a student loan for someone. It's always easier to be on sturdy ground, able to provide a lifeline to someone else in quicksand, than it is to jump in with them. Besides, there are no loans for retirement. And it's better to not be a financial burden on your children when you are old, than to be needing their support if you don't have resources.
Poet
Great advice! Especially the community college! Often the community colleges have more experienced teachers in the classroom (not TAs), so it can be a better education for the first two years while your child is taking core courses.
I would also caution putting your college savings into an account with your child's name, colleges are more than happy to take the entire amount. Not necessarily the case when it's in your name.
Thanks for the article Adam!
[quote=Poet]
Whatever you do, don't co-sign a student loan for someone. [/quote]
Best point in the entire discussion!
[quote=Adam Taggart]Take control of your income – I realize this is easier said then done, but it is doable by just about everybody. We have a guide we'll publish on this subject within the next few weeks.
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I'm looking forward to PP's guide on this and member comments.
I am 90. How is a window of opportunity to occur , for buying a house at real value, with the government and banks holding house values hostage at 10 year old evaluations?maxnigh - Make your own window! Look for a real estate "don't wanter." That term is from a classic book, "How I Turned $1,000 into Three Million in Real Estate in My Spare Time" by Nickerson. Find a pieceof property that a person NEEDS to get rid of and the burdened owner will often make a deal to your benefit. I bought several properties that way back when my infant son needed alterntive cancer treatments and we needed money to pay or them. We made enough to pay his bills in real estate. (BTW, the kid is 32 now, and fine.)
The first step is to get a real estate agent that will work with you and not try to send you to whatever listing they think you might like. When you find one who will notify you about real deals, drop everything when he or she finds one, go see it and if you think it might be for you put a $100 deposit down on it, subject to. . . something. I made it subject to my spouse's approval, but you could also make it subject to a house inspection (necessary anyhow.)
NIckerson suggests you go for smaller homes, as they are dragged up in value by the medium sized ones in a neighborhood (larger homes are dragged down in price). Bonus points for finding an ugly place that only needs cosmetic repairs: paint, carpet, minor landscaping. And I mean ugly. I've actually had a real estate agent, when I told him we'd buy a house, say, "You will???" As long as the neighborhood is reasonably safe. If you want to rent it out to cover the mortgage, if any, rent it for cheaper than similar units in your area–for tenant loyalty–and do a background check on tenants: this s a good site to check on tenants. (I used this to to vet my out-of-state 2nd husband. Amazing what you can discover online, for a small fee.)
To all of Nickerson's advice I'd add this modernen caveat: I'd avoid foreclosed properties due to title issues/robosigning. Title insurance is a must, anyhow, but why borrow trouble?
The Book "Willful Blindness" by Margaret Heffernan describes our ability to be blindsided in a non-condeming manner.