Doesn’t Anyone Get It?

Look at the national savings statistics for the answer!


Henry K. (Bud) Hebeler



Am I the only one deploring the lack of national savings?  Everyone is complaining about the debt and thinking the solution is to provide government handouts and more liquidity so people can borrow more and consume more.  Huh?  What about all of those Boomers who are going to be retiring?  They are far short of the savings needed for their retirement.  Hasn’t it dawned on politicians that people may have finally determined that they have to save, not spend?


So what has to happen?  The Boomers will have to save and work a lot longer—assuming that they remain healthy in their old age and keep their skill levels up.  Also, of course, they have to be working in an enterprise that will remain healthy--or the government.


The way things are going, I think that the majority of real growth will occur in government jobs.  I well remember the Pentagon castigating the aerospace industry because of the charges for pliers and toilet seats (never mind that the cause was government mandated rules for how overhead should be charged), and that the government added so many people to monitor the situation that those surveillance costs far outweighed what the Pentagon would have spent if the pliers and toilet seats actually had cost that much.


Unfortunately for the rest of us, government jobs cost us a lot.  The pay is higher, the benefits more costly, and the multiplier effect on the economy is lower.  We think that the added cost to American cars from the generous UAW negotiated autoworkers pensions and medical insurance are pricing the cars out of business.  Those are miniscule compared to the government retirement benefits.  I would love to have a government pension that starts out at the same or higher value than mine but is increased every year with a cost-of-living-adjustment (COLA).  Virtually no one in the private sector gets such a benefit.  And how about a medical insurance program that’s backed by the power to tax instead of a program that can be withdrawn by my employer at any time?


The book, Getting Started in a Financially Secure Retirement (Wiley, 2007) and articles, examine what people would have to save in the next twenty years to make up for the drop in savings that began in 1985 and went to virtually zero twenty years later.  They conclude that the national savings rate would have to be 23% for the next twenty years!  The only time the country ever reached that kind of savings rate was during World War II when goods and gasoline were rationed, nothing was in the stores, and everyone worked or was in the military.


Now we’re talking about more government spending, more consumer spending to save the economy, more health care to save the uninsured, more credit for people to buy more homes, and on, and on, and on.  Our Social Security system is the biggest Ponzi scheme ever, dwarfing Madoff’s.  Worse, there is no way we can fund the Medicare promises, and state and local governments are screaming for federal aid for Medicaid, teachers, pensions, infrastructure, ad infinitum.  The costs will be exacerbated by providing the Congressional health benefits to the nation’s uninsured who already get free health care.  That’s better health insurance than those of us in the private sector who pay the taxes to support them.


What does this cost the average person who actually pays income tax and doesn’t get a handout?  Each trillion dollars of bailout requires each of them to “invest” $12,500 in securities and industries that are so bad that they can’t attract private equity.  At 4% interest, the current national debt costs about $5,000 every year on average for each of these taxpayers.  It won’t be long before that doubles.


What are we thinking?  When will politicians stop making impossible promises?  When will governments realize that our country is bankrupt?  When will Congress start reducing its own bloated staffs to set an example?  Forget those dazzling Monte Carlo forecasts based on a history that won’t repeat itself.  We are headed into a future of the Great Depression II followed by hyper inflation, if not worse.  The way we are going, there is no way that you can put together a scenario that includes a future for the country and following generations that is anything but poverty unless we start to take some of the hurt now.


The best we can do is to protect ourselves.  That means taking on some substantial hurt ourselves right now so that we can save lots and invest as wisely as we can.  As always, this means diversification, low cost investment services, attention to taxes and, particularly, conservative allocations.  Allocations still can include diversified stock funds but fixed investments might also include Savings I bonds, TIPS, treasuries, certificates of deposits, and, for the already retired, inflation adjusted immediate annuities—providing that the insurers look like they will stay in business.


Finally, our best health and old age insurance is exercise and eating healthy foods.  One way to help achieve this is by planting our own vegetable gardens.  That will also help us save more and give us a little exercise in the process.  Victory gardens were an essential part of living during World War II.  They kept the folks back home in good shape and made it possible to export food to the troops abroad.


Our agrarian ancestors survived by storing a year’s supply of food in containers and root cellars.  My grandmother kept a 55 gallon barrel of flour from which, it seemed, she could make anything.  Some form of food storage will help both in periods of depression or inflation.  If we lose our jobs in a depression, at least we can eat.  On the other hand if there is severe inflation where something costs $1.00 today and $1.20 next year, we’ve effectively made 20% on our food investment.


Health and old age insurance is not going to be helped by the inevitable rationing of health care.  Health care rationing will certainly be in our future not just because of the disastrous financial status of Medicare.  There just aren’t anywhere near enough general practitioners or internists now, much less in the pipeline of medical schools. The average doctor at most clinics has three to four thousand patients on his roles and must limit the time for each visit to about fifteen minutes.  That includes reviewing past records and lab reports, examine the patient, write a report, and file the insurance information.  These doctors are so overworked and underpaid because of Medicare mandates that they are exiting the field rapidly.  Finding a doctor who will take Medicare for compensation is a very difficult task already.


I was brought up in the Great Depression.  My mother insisted that I learn a musical instrument because she felt that would always allow me to get employment if I lost my regular job.  She said I could play in an orchestra, for dances or give lessons.  I learned to play the piano, flute and trumpet.  That was another form of diversification!


So, look out for yourself both health wise and financially.  The economy is not going to recover for long, long time, not next year, and generations are going to pay much higher taxes.  I heard Warren Buffet say he believed America’s ingenuity will bring us out of this.  I personally don’t make bets on things that haven’t been invented yet.  On the other hand, politicians have to be praying for something to show up.  Hopefully that isn’t a World War like the one that brought us out of Great Depression I.