...keep an old trader’s slogan in mind: “That which cannot go on forever, won’t.” Or we could say it differently: An unsustainable trend must eventually stop...
...This week the spotlight will be on Europe....
UK Time Bomb
The WEF study shows that the United Kingdom presently has a $4 trillion retirement savings shortfall, which is projected to rise 4% a year and reach $33 trillion by 2050.... 2015 OECD study (mentioned here) found that across the developed world, workers could, on average, expect governmental programs to replace 63% of their working-age incomes. Not so bad. But in the UK that figure is only 38%, the lowest in all OECD countries....
...(Sidebar: low or negative rates in those countries [Switzerland and the UK ... Denmark, the Netherlands, Sweden, Poland, and Hungary] make it almost impossible for their private pension funds to come anywhere close to meeting their mandates. And many of the funds are by law are required to invest in government bonds, which pay either negligible or negative returns.)
...Pay-As-You-Go Woes
The European nations noted above have nowhere near the crisis potential that the next group does: France, Belgium, Germany, Austria, and Spain are all pay-as-you-go countries (PAYG). That means they have nothing saved in the public coffers for future pension obligations, and the money has to come out of the general budget each year. The crisis for these countries is quite predictable, because the number of retirees is growing even as the number of workers paying into the national coffers is falling.
... for the US, because we control our own currency and can debase it as necessary to keep the government afloat. Social Security checks will always clear, but they may not buy as much. Spain’s version of Social Security doesn’t have that advantage as long as the country stays tied to the euro. That’s one reason we must recognize the potential for the Eurozone to eventually spin apart. ...
...The problem that the European economies have is that for the most part they are already massively in debt and have high tax rates. And they can’t print their own currencies.
...In this next chart, note the line running through each of the countries, showing their debt as a percentage of GDP. Italy’s is already over 150%. And this is a chart based mostly on 2006 and earlier data. A newer chart would be much uglier.
... when Franklin Roosevelt created Social Security for people over 65 years old, US life expectancy was about 56 years. If the retirement age had kept up with the increase in life expectancy, the retirement age in the US would now be 82.
...When the children’s books written by Dr. Seuss are considered by some to have been written by a white racist and are therefore deemed unacceptable to be in a public library, you know the quality of civil discourse has spiraled downward.
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