The Promises Need to Change – Retirement Age Needs to Rise

The public discourse around the fact that the coffers are bare needs to happen. I’ve been saying here on Berman’s Call and in my presentations for the past decade the “unfunded liability” of the promises is a dire problem that will bankrupt governments. I now have the backing of the Canadian Institute of Actuaries that have obviously run the numbers like I have—WE ARE BROKE! And we had better start talking about it with the public. You can read their entire statement here.

In a Forbes article a few years ago they estimate the US government has an unfunded liability of over $210 trillion. I’ve said for the past decade this would bankrupt the US government eventually if the promises do not change.

Politically, in the US, you have the growth of Modern Monetary Theory. Basically printing money to pay for everything. Sadly, I do not see any other outcome because politically, austerity is not much of an option.

I’m doing a presentation this week at the Albany Club that looks at some of the policy issues related to generating economic growth without bankrupting governments. The presentation is called “Budgets Don’t Balance Themselves.” There are solutions for these economic challenges, it just requires a bold government and open public discourse.

Bill Morneau and the Liberal government commissioned a growth study a few years ago. While I’m a fiscal conservative and do not support running deficits in a strong economy, I applauded the commission. The chart is directly from their report a few years ago. It basically shows that demographics are the biggest challenge. Estimates for growth are lower in the future. It will demand that government shrinks it’s footprint as the tax base falls. Simply, we are getting older and living longer. So why then did the Liberals role Old Age Security benefits back to 65 from the target of 67 the Conservatives had started? It was just a vote grabbing promise that makes no sense.

 

Learn to Sleep at Night in a Bear Market

The previous Investor’s Guide to Thriving tour wrapped up on December 1st 2018. Aptly named “How Long Can a Bull Market Run?” we may have received our answer. The market printed the worst December since the Great Depression – bringing most of the major indices officially into bear market (-20%+) territory. Markets have rebounded in January as they always do after steep declines, but we are likely in the early phases of a bear market where average corrections are closer to 30% and extreme corrections are more than 50%. If this is case, we haven’t seen the last of market volatility and a downward pattern of lower highs and lower lows. Many people are surprised at this phase because it can take some time for the fallout to move from Wall Street to Main Street – showing up as a recession. Job markets are relative robust still and Central Banks are still talking about raising rates. Markets are forward looking and generally anticipate economic downturns, so even as rates continue to rise, employment appears to be strong, and many companies are still posting record earnings – you should be paying attention to the growing cracks in the system.

Larry will take the audience on a more detailed tour of past bear markets to see what we can learn about how this next one might compare. Will it be a gentle panda or a deadly grizzly? Can we hope for a soft landing due to aggressive government policy? How would we recognize a market bottom – when the next major bull market might begin? Why not go to cash or put all your money into a GIC right now? There are many questions to ask – and while (spoiler alert) we don’t have a crystal ball to give you the definitive answers, Larry can show you how to navigate a bear market so that you will use it as an opportunity rather than something to fear. Using some of his favorite indicators and techniques, you will learn how to use a tactical approach to trading, and strategic asset allocation (including the use of gold, real assets, and other non-equity vehicles), to help keep your portfolio within your emotional comfort zone – while avoiding costly emotional mistakes. Success in difficult markets is both a science and an art, so Larry will also discuss the psychological aspect of managing portfolios under stressful conditions.

You will take away from this live presentation a timely perspective on how to approach your investments in 2019 and beyond – along with actionable ideas to help strengthen your portfolio, and even a few tools and resources to use at home.

Click here to register for free and as always we ask for volunteer donations to one of our two favourite charities. Children’s cancer research at the Sick Kids Hospital and Alzheimer’s and dementia research at the Baycrest Hospital.

 

4 thoughts on “The Promises Need to Change – Retirement Age Needs to Rise”

  1. Avatar
    Milo Steele says:

    Larry, most of these projections are straight line and assume things will continue to get worse in future at the same rate as in past 50 years as the Boomers have worked through the system. Won’t demographics play into this? The next few years are nasty with small Gen X contributing at peak levels and Boomers withdrawing. But then larger Gen Y will be contributing at peak levels as Boomers die off and Gen X is collecting. Won’t there be more ebb and flow that will mitigate a portion of the problem?

  2. Avatar
    Joe Polito says:

    I love Larry’s commitment to addressing the coming crisis, but he is barking up the wrong tree as Greenspan explained to a very surprised Paul Ryan https://www.youtube.com/watch?v=m6MGX1AKFm4.

    The cause of this crisis is that we did not listen to Milton Friedman and his Chicago School mentors who said that: government expenditures should, “be financed entirely by either tax revenues or the creation of money.” Governments should “not issue interest-bearing securities to the public.”

    Friedman’s statement also offers the solution which one of Larry’s favourite guests, David Rosenberg, has said on several occasions for several years: we will have to monetize the debt. ……. Listen to minutes 2-3 of this Rosenberg interview
    https://www.bnnbloomberg.ca/economics/video/rosenberg-look-for-a-mild-recession-in-2019~1565535 ….Legendary hedge fund manager Ray Dalio has said the same things.

  3. Avatar
    Joe Polito says:

    Dalio has paid for a great deal of research on these issues. A major secret of his success is his historical research, and he has reviewed the use of monetization. There are many precedents for monetization when crises occur:
    – Lincoln monetized during the Civil War with Greenbacks – as per this Harvard Law Professor – https://www.youtube.com/watch?v=vkBfdehthPI
    – England monetized in 1914 with the Bradburys – faced with the enemy defaulting on loans. The markets closed for months during the panic – very hard on people in your position. http://www.lbma.org.uk/assets/blog/alchemist_articles/Alch73Roberts.pdf
    – Japan was bankrupt, privately and publicly in 1945, and the Bank of Japan ran its own toxic asset program.
    – Bernanke’s QE was a partial monetization. No Depression, no inflation. https://www.youtube.com/watch?time_continue=8&v=U_bjDAZazWU

  4. Avatar
    Joe Polito says:

    Given Larry’s notable charity work, he will be interested in the two-part crisis that alarms Dalio – income inequality:
    https://www.economicprinciples.org/downloads/bwam102317.pdf

    And dangerous political populism which inequality has set the table for. Hence Dalio did a very detailed study of the disastrous populism of the past: https://www.economicprinciples.org/downloads/bw-populism-the-phenomenon.pdf

    Fixing these two requires more triage with our resources producing more infrastructure, and universal goods such as housing, daycare, transportation, tuition, dental care, pharmacare, … to produce real equality of opportunity in economic terms. The Tax cut trend since 1980 has done the reverse. More is spent on lower priority consumer goods while inequality has grown.

    Fixing the monetary flaw will enable fixing inequality and populism.

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