Holiday Spending Set To Hit 12-Year High Thanks To...Debt

Even though consumer confidence cooled for a second straight month in November, CNBC is reporting that holiday spending for the average American household is on track to be the highest in 12 years.

Amazingly, the CNBC All-America Survey found that the average family will spend $900 for the first time in the 12-year history of the poll, eclipsing last year"s estimate of $702 by a wide margin.

Furthermore, the survey of 800 American households - which has a margin of error of plus or minus 3.5 percentage points - found a surge in the percentage of Americans planning to spend more than $1,000. The number climbed to 29%, up from 24% last year.

But before economists and retail analysts begin recalibrating their expectations, it’s worth noting that much of this spending will be funded by debt. Another study by RentCafe which examined spending habits of American renters discovered that, in the 50 largest US metropolitan areas, the average renting family will go into debt due to holiday-related expenses, debt that must be paid off in the opening months of the following year.

Here’s what an analysis of the average renter’s household budget for November and December looks like. As the chart shows, the average American family of four can spend $5,865 during that period without dipping into savings or going into debt.

The numbers are based on the median renter household income according to the U. S. Census Bureau, November’s average rent according to Yardi Matrix, average cost of living data from the Bureau of Labor Statistics, and a survey conducted for the National Retail Federation that reveals how much American consumers plan to spend on average this holiday season.

Based on this data, RentCafe concluded that the average American family of four spends about 2.8% of their annual income on winter expenses. (See more details in the methodology).

RentCafe then broke the data down for each of the 50 largest cities in the US. They found 24 areas where the average family finishes the holiday season with a positive balance...

...they are...

Then, RentCafe tabulated which cities were the most expensive for the average family. Expenses factored in the estimated costs of gifts and holiday-related dinners.

Unsurprisingly, New York City tops the list, followed by Boston and San Francisco.

Trying to figure out where you fit in on this spectrum? RentCafe has a tool on their website for readers to calculate how they will finish the year after holiday spending.

Circling back to the CNBC data, experts pointed at the stock market - the so-called wealth effect - as one factor that might inspire people to spend more this holiday. Because, in the eyes of many Americans, the market is the economy - a fact that President Donald Trump seems to have latched on to.

"The holiday spending outlook is stronger than it has been in over decade," said Micah Roberts from Public Opinion Strategies, the Republican pollster for the survey. "People are more comfortable with where the economy is and where it"s heading, prompting them to spend money this holiday season and help boost the economy as well." Jay Campbell of Hart Research served as the Democratic pollster.

Taxes: Here"s What"s Going To Stay The Same

Authored by Simon Black via SovereignMan.com,

On October 3, 1913, US President Woodrow Wilson signed the Underwood-Simmons Act into law, creating what would become the first modern US income tax.

The legislation (at least, the income tax portion) was only 16 pages and imposed a base tax rate of just 1%.

The highest tax rate was set at 7%– and it only applied to individuals earning more than $500,000 per year, which is about $12.6 million today according to the Bureau of Labor Statistics.

And individuals earning less than $3,000 (about $75,000 today) were exempt from paying tax.

Tax rates moved up and down over the years– the government raised rates to fund World War I, then lowered them in peacetime.

In fact, taxes were cut at least four separate times during the 1920s alone, reaching a low in 1929 of just 0.375% for the bottom tax bracket.

Back then, making major changes to tax law was pretty simple. Today, thanks to heavily vested interests on all sides, it takes a miracle to make any serious modifications to the tax code.

That’s why there hasn’t been any significant tax reform in the Land of the Free since Crocodile Dundee was the #1 movie in America (that’s 1986, by the way).

There are now two versions of legislation that will make major changes to the US tax code– one in the Senate and one in the House of Representatives.

I spent most of the nearly 30 hours of travel time during flights over the past week from Santiago to Sydney, Sydney to Bangkok, and Bangkok to Singapore, reading the proposals’ 400+ pages.

The media is touting these bills as a ‘major overhaul’ and ‘comprehensive reform,’ and financial markets have been treating this legislation as if the second coming of capitalism is walking across the water.

It’s not.

Sure, there are a few significant changes.

They’re scrapping the idiotic Alternative Minimum Tax, which ensnares more and more people each year.

Tax rates on certain business profits are going down substantially.

And they’re making tax reporting a lot simpler, saving countless hours of senseless paperwork.

Undoubtedly there are plenty of positive changes in this proposed tax code.

There are also plenty of negative changes.

Some people will benefit. Others will see their tax bills grow.

But for the most part the tax code will stay the same– they’re essentially just rearranging the pieces on the board rather than coming up with an entirely different game.

The existing tax code is built on a legal framework that goes back to the 1950s… a time when manufacturing and agriculture were economic mainstays.

Businesses rarely outsourced their production back then or even thought about selling their products overseas.

Entrepreneurship was uncommon. Employees often remained with the same company for decades. And few women were in the labor force.

Today it’s completely different. The digital economy has displaced manufacturing; business is now dominated by ideas, not factories.

And it’s easier than ever before in human history to start a business, sell products and services worldwide, and even hire employees who live on the other side of the planet.

It seems ludicrous to govern the digital, global businesses of the 21st century with such an antiquated, industrial-era tax code.

True reform would have started by throwing all of it in the garbage, right where it belongs.

You wouldn’t even have to reinvent the wheel; there are plenty of great examples in the world of tax systems that work extremely well– like right here in Singapore.

Singapore’s government is awash with cash.

They almost always run a small budget surplus, yet they’re able to provide ample public services, world class health care, high quality education, strong national defense, pristine infrastructure, and a substantial reserve fund.

But at the same time they encourage people to become wealthy, ensuring that they keep the vast majority of what they earn.

Tax rates in Singapore are quite low and incredibly competitive. Whereas the US corporate tax rate may drop to as low as 20%, in Singapore a company pays no more than 17%, and typically less than 10%.

Right now I’m in the process of negotiating the sale of an asset we purchased here a couple of years ago which will likely produce several million dollars in net realized gains once the deal is closed.

But we won’t pay a dime of tax here on any of it… because Singapore does not tax capital gains.

It’s a model that works: Singaporeans have one of the highest standards of living in the world… plus there are more millionaires per capita here than in any other country.

And this country is just one example. There are plenty more.

Point is, while it’s nice that they’re trying, it’s going to be very difficult for the US government to achieve anything meaningful or truly revolutionary when they’re essentially just making some changes to the pitifully outdated, existing tax code.

But the good news is that, even though the euphoria and expectations about this new proposal are totally overblown, there are still plenty of gems from the current tax code that aren’t going anywhere.

For example– if you’re a self-employed professional and you’re worried that the new tax code will probably increase your tax bill, you still have some excellent options.

There’s nothing in the proposed law that changes, for example, the substantial tax benefits you can realize from establishing a solo 401(k) or SEP IRA plan.

Nor did I see anything changing the enormous benefits from setting up a captive insurance company (in which you effectively insure yourself against certain risks, shielding up to $2 million per year from taxation).

Those are still fully intact.

So is the US federal tax exemption for certain legal residents of US territories. Which means that you can still qualify for Puerto Rico’s ultra-generous 0%/4% tax incentive programs.

There are dozens of other great tax strategies from the old tax code which will remain.

To continue learning how to legitimately reduce your taxes, I encourage you to download our free Perfect Plan B Guide.

Labor Market Conundrum: Number Of Millennials Living At Home With Mom Continues To Surge

Nary a day goes by that President Trump and/or the talking heads on CNBC fail to mention the following unemployment chart as evidence that "everything is awesome" with the U.S. economy...

...which might be true unless you"re among the 95 million-ish Americans who have been looking for a job for so long that you no longer even count as a human being to the Bureau of Labor Statistics...

...or if you"re a millennial.

Despite being the most educated generation ever to walk the face of the

planet, at least according to their tuition bills paid by mom and dad, a

staggering number of millennials still can"t seem to land a steady job.  Moreover, despite the steadily improving labor market, as the USA Today points out, the outlook for millennials continues to inexplicably deteriorate with 20% of 26-34 year olds currently living at home with mom versus only 17% back in 2012.

The share of older Millennials living with relatives is still rising, underscoring the lingering obstacles faced by Americans who entered the workforce during and after the Great Recession.

 

About 20% of adults age 26 to 34 are living with parents or other family members, a figure that has climbed steadily the past decade and is up from 17% in 2012, according to an analysis of Census Bureau data by Trulia, a real estate research firm. The increase defies record job openings and a 4.1% unemployment rate, the lowest in 17 years.

 

Not surprisingly, a much larger portion of younger Millennials age 18 to 25 (59.8%) live with relatives, but that figure generally has fallen the past few years after peaking at 61.1% in 2012.

So why does the professional development of millennials continue to diverge from other generations?  While one can never be sure, perhaps the answer to that question lies in the personal experience of young Heidi Toth who decided to quit her job, after gaining just two years of experience, to join a church mission for nearly two years.  Then, after returning to work from her travels, Toth quit again in 2013 after a "series of layoffs modified her duties"...which we assume roughly translates to..."a bunch of people got fired which meant I had to work harder so I quit."

After graduating from Texas Tech University with a journalism major in 2005, Heidi Toth, now 35, got a job quickly at a Provo, Utah, newspaper. But in early 2007, she went on an 18-month church mission, landing her back in the job market in the depths of the recession in 2008. Unable to find work, she moved in with her mother in Roswell, New Mexico, for nine months while she hunted for work and took part-time, low-paying jobs.

 

She was rehired at the Provo paper in spring 2009 but left again in 2013 after a series of layoffs modified her duties. After months of fruitless job searching and traveling, she returned to her mother’s house for three months until she was hired at a Lubbock, Texas, paper.

 

Toth was grateful she could live rent-free during her periods of unemployment. But, she adds, “It wasn’t ideal, professionally or personally.”

 

Prospective employers in larger, distant cities didn’t think she would be readily available for interviews. And at home, “I felt like I was back in high school,” she says. “I felt like I had to ask permission to go out.”

Meanwhile, as the Pew Research Center recently noted, even the Millenials that manage to hold a job and establish their own residence aren"t much better off as they now head more households living below the poverty line than any other generation and, in aggregate, represent nearly one-third of all impoverished households in the United States. 

More Millennial households are in poverty than households headed by any other generation. In 2016, an estimated 5.3 million of the nearly 17 million U.S. households living in poverty were headed by a Millennial, compared with 4.2 million headed by a Gen Xer and 5.0 million headed by a Baby Boomer. The relatively high number of Millennial households in poverty partly reflects the fact that the poverty rate among households headed by a young adult has been rising over the past half century while dramatically declining among households headed by those 65 and older.

 

Of course, that"s all despite the fact that they only head just over 20% of all households...

Millennials are the largest living generation by population size (79.8 million in 2016), but they trail Baby Boomers and Generation Xers when it comes to the number of households they head. Many Millennials still live under their parents’ roof or are in a college dorm or some other shared living situation. As of 2016, Millennials (ages 18 to 35 in 2016) headed only 28 million households, many fewer than were headed by Generation X (ages 36 to 51 in 2016) or Baby Boomers (ages 52 to 70).

 

Of course, those aren"t the only stats that prove just how much those anthropology degrees are paying off...Millennials are also winning at the "cohabiting-couple" game...presumably because it takes a village of millennials to cover one monthly rent bill.

Conclusion:

The Ponzi Scheme That"s Over 100x The Size Of Madoff

Authored by Simon Black via SovereignMan.com,

By January 1920, much of Europe was in total chaos following the end of the first World War.

Unemployment soared and steep inflation was setting in across Spain, Italy, Germany, etc.

But an Italian-American businessman who was living in Boston noticed a unique opportunity amid all of that devastation.

He realized that he could buy pre-paid international postage coupons in Europe at dirt-cheap prices, and then resell them in the United States at a hefty profit.

After pitching the idea to a few investors, he raised a total of $1,800 and formed a new company that month– the Securities Exchange Company.

Early investors were rewarded handsomely; within a month they had already received a large return on investment.

Word began to spread, and soon money came pouring in from dozens, then hundreds of other investors.

By the summer of 1920, the company’s founder was receiving more than $1 million per day from investors.

His name was Charles Ponzi. And as you could guess, it was a total scam.

Ponzi wasn’t really generating any investment returns. He was simply taking the new investors’ money to pay the old investors.

The business collapsed later that year, giving rise to the term “Ponzi Scheme”.

The most famous Ponzi Scheme in recent history was the case of Bernie Madoff, whose scam robbed investors of $65 billion.

But today there’s another major Ponzi Scheme that’s literally 100x the size of Bernie Madoff’s.

I’m talking about pension funds.

Pensions are the giant funds responsible for paying out retirement benefits to workers.

And if you think calling them a “Ponzi Scheme” is sensational, it’s not.

Pension funds (including Social Security) literally make payments to their beneficiaries with money contributed by people in the work force.

In other words, the money that people pay in to the pension fund is paid out to the people receiving benefits.

In theory this could go on indefinitely as long as

a) there’s a sufficient ratio of workers paying into the system vs. retirees receiving benefits; and

 

b) the pension funds are receiving an adequate return on investment

When one (or both) of these conditions is not being met, the pension is considered to be “underfunded,” and it starts burning through its cash balance.

Eventually it will burn through all of the fund’s assets until there’s nothing left. Poof.

Credit-rating agency Moody’s estimates state, federal and local government pensions are $7 trillion short in funding.

And corporate pension funds are underfunded by $375 billion.

One of the big drivers behind this is that investment returns are way too low.

Pension funds need to invest in safe, stable assets (like government bonds), but have to achieve yields of around 7% per year in order to stay solvent.

But today with government bonds yielding 3% or less (and in some cases bond yields are NEGATIVE), they aren’t achieving their targets.

One or two years with sub-optimal investment returns is not catastrophic.

But it’s been like this now for a decade.

And that’s just problem #1.

Problem #2 is that the ratio between workers and retirees is moving in the wrong direction.

As an example, despite all the hoop-lah about the unemployment rate falling in the Land of the Free, the number of retirees receiving Social Security is rising MUCH more rapidly.

Ten years ago in November 2007, the Bureau of Labor Statistics calculated that 146 million Americans were working.

Today that figure is 153 million, a 4.8% increase over the past decade.

Social Security, on the other hand, was paying benefits to 34.4 million Americans in November 2007, versus 44.2 million today– a 28.5% increase.

These are government statistics– and the numbers clearly show a terrible trend: there aren’t enough workers to pay for retirees.

The problems persists across state and local pensions as well.

The State of Kentucky’s Teachers’ Retirement System, for example, saw a 64% increase in retirees just in the last twelve months.

Unsurprisingly Kentucky’s retirement system is massively underfunded.

It’s so bad that Governor Matt Bevin is publicly attacking teachers who retire early (early retirement means that someone is taking benefits sooner and paying less into the pension fund).

Bottom line– this trend is real:

– Pension funds are earning a lower investment return than they require

 

– The ratio of people paying in to the fund vs. people receiving benefits is moving in the WRONG direction.

This is how Ponzi schemes invariably unravel.

Again, I’m not trying to be sensational. These are facts.

And given that just about everyone at some point probably plans on retiring, it’s important to be able to have an objective, data-driven conversation about the topic.

I know it’s uncomfortable. We want to believe so badly that the system is going to work.

I also want to be the starting Quarterback of the Dallas Cowboys. But that’s probably not going to happen either.

Retirement is a BIG component of a Plan B– which is fundamentally about taking sound, sensible steps to be in control of your own fate.

And there ARE plenty of options.

For example, you can look into a self-directed SEP IRA or Solo(k), which both allow you to contribute 10x more each year for retirement than a conventional structure.

Plus these structures allow you greater flexibility in where you can invest your retirement savings– real estate, lucrative private businesses, even cryptocurrency.

Just ONE great investment through a more flexible structure can make an enormous difference to your retirement.

And even if the Ponzi pension crisis somehow miraculously rights itself, you certainly won’t be worse off having your own independent nest egg.

It just makes sense… no matter what happens (or doesn’t happen) next.

Do you have a Plan B?

The Downright Sinister Rearrangement Of Riches

Authored by EconomicPrism"s MN Gordon, via Acting-Man.com,

Simple Classifications

Let’s begin with facts.  Cold hard unadorned facts. Water boils at 212 degrees Fahrenheit at standard atmospheric pressure.  Squaring the circle using a compass and straightedge is impossible.  The sun is a star.

The sun is not just a star, it is a benevolent star. Look, it is smiling…  sort of. [PT]

 

Facts, of course, must not be confused with opinions, which are based upon observations.  Barack Obama throws like a girl.  The Federal Register is for idiots.  Two slices of chocolate cake are one too many.  Are these opinions right or wrong?

The answer depends on who you ask.  What’s certain about opinions, however, is that like bellybuttons, everybody has one.  Moreover, unlike free drugs from the government, everyone is in fact entitled to their own opinion.

Moving on from facts and opinions, the next classification we encounter is the wholly asinine.  This broadly contains the absurd and ridiculous.  Take most university teachers, barring natural science professors, for instance.  They’re wholly asinine.  The wholly asinine also extends to editors at the New York Times, Washington Post, circus hunchbacks, and the like.

Lastly, we want to mention the downright sinister.  This includes sociopaths like Hillary Rodham Clinton, John McCain, nearly all of Congress, the Federal Reserve, fractional reserve banking, Washington lobbyists, a good part of Wall Street, and much, much more.  Clearly, such people and professions don’t represent honest work.  Rather, they epitomize less than honest work that’s performed by less than honest people.

Sinister mafia boss from Arkansas, possibly checking classified material on private phone… [PT]

 

Nixon Casts the Die

From this point forward, the weight of today’s reflection falls squarely on the shady shoulders of the downright sinister.  But within this category, we dig deeper and uncover a certain subcategory: grand larceny.  Namely, we want to better understand the incessant pilfering going on about us.  Where to begin?

When Tricky Dick Nixon closed the gold window in 1971, severing the last tether holding the money supply in orbit, the national debt was under $400 billion.  Today it’s over $20 trillion.  What’s more, it’s now common for a single year’s budget deficit to top $1 trillion.

But it’s not just government debt that has drifted into deep space due to the Federal Reserve’s ability to issue limitless credit.  Corporate and consumer debt has also drifted out of orbit.  Since 1971, nonfinancial corporate debt has increased over 3,200 percent.  And consumer debt is now at a record high of $12.8 trillion.

Total US credit market debt – ever since Nixon’s gold default and the adoption of a completely unanchored fiat money system, debt has grown at an explosive trajectory. At the same time, economic output growth has slowed ever more, decade after decade. This is a sign that the massive growth in the supply of money and credit has fostered malinvestment and capital consumption on a grand scale. [PT] – click to enlarge.

 

However, while public and private debt has radically increased, and the money supply has radically inflated, economic growth has lagged.  Certainly, one would expect this radical money supply inflation and debt growth to show up in consumer prices.  Yet somehow consumer prices are always reported as being nearly flat.

One reason for this is that the government’s statisticians at the Bureau of Labor Statistics have made a fine art of subtracting price inflation from their monthly propaganda reports.  Hedonic price adjustments.  Price deflators.  Seasonal adjustments.  These all serve to mask the rate of consumer price inflation and to conceal the effects of the Federal Reserve’s ongoing currency debasement program.

Specifically, these various adjustments and deflators paint an incomplete picture of what’s going on.  For what good is it if you can get a really powerful laptop computer for $500 and a new pair of jeans for $20, when half your paycheck goes to pay the rent and another quarter of it goes to cover medical insurance and transportation costs?  In addition, it has become near impossible to get a college education without going tens of thousands of dollars into debt.

 

The Downright Sinister Rearrangement of Riches

The discrepancy between low cost consumable goods and living, transportation, medical, and education costs illustrate the true effects of the government’s incessant pilfering of the wage earner, student debtor, and fixed income retiree.

Those who’ve never scratched below the surface to take a closer look at what’s going on may be unclear how Nixon’s closure of the gold window has been so destructive for so many people.  This is understandable; most are unable to diagnose it.  However, the ultimate effect of these actions, including debt servitude, has been demonstrated for millennia.

Nixon “temporarily” suspends the gold standard and concurrently imposes tariffs and price controls. The usual bromides and economic falsehoods are provided as justifications, including the standard attack on “shadowy foreign speculators” who are supposedly attacking an innocent US dollar. This is an excellent demonstration of a fact people need to be reminded of over and over again: governments lie. [PT]

 

Ironically, John Maynard Keynes, the godfather of modern day economic intervention by governments, confessed to this fact.  If you didn’t know, Keynes provided one of the better explanations of the relationship between money debasement and the economy.  What follows is an excerpt of Keynes from The Economic Consequences of the Peace, written in 1919.

“Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency.  By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.  By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some.  The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.

 

“Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become “profiteers,” who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat.  As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

 

“Lenin was certainly right.  There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency.  The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

Could there be a more accurate characterization of the present structure of systematic grand larceny?  More importantly, what should one do?

Politburo members Lev Kamenev, Vladimir Lenin and Leon Trotsky in 1920. What did Lenin actually say about currency debauchment? The complete quote was: “Experience has taught us it is impossible to root out the evils of capitalism merely by confiscation and expropriation, for however ruthlessly such measures may be applied, astute speculators and obstinate survivors of the capitalist classes will always manage to evade them and continue to corrupt the life of the community. The simplest way to exterminate the very spirit of capitalism is therefore to flood the country with notes of a high face-value without financial guarantees of any sort. Already even a hundred-ruble note is almost valueless in Russia. Soon even the simplest peasant will realize that it is only a scrap of paper, not worth more than the rags from which it is manufactured. Men will cease to covet and hoard it so soon as they discover it will not buy anything, and the great illusion of the value and power of money, on which the capitalist state is based will have been definitely destroyed. This is the real reason why our presses are printing ruble bills day and night, without rest.” [PT]

 

First, one should grin and bear it.  Then one should grin and bear it some more.  After that, one should buy gold.

"This May Be The End Of Europe As We Know It": The Pension Storm Is Coming

Authored by John Mauldin via MauldinEconomics.com,

I’ve written a lot about US public pension funds lately. Many of them are underfunded and will never be able to pay workers the promised benefits - at least without dumping a huge and unwelcome bill on taxpayers.

And since taxpayers are generally voters, it’s not at all clear they will pay that bill.

Readers outside the US might have felt safe reading those stories. There go those Americans again… However, if you live outside the US, your country may be more like ours than you think.

This week the spotlight will be on Europe.

The UK Is Headed to a Retirement Implosion

The UK now has a $4 trillion retirement savings shortfall, which is projected to rise 4% a year and reach $33 trillion by 2050.

This in a country whose total GDP is $3 trillion. That means the shortfall is already bigger than the entire economy, and even if inflation is modest, the situation is going to get worse.

Plus, these figures are based mostly on calculations made before the UK left the European Union. Brexit is a major economic shift that could certainly change the retirement outlook. Whether it would change it for better or worse, we don’t yet know.

A 2015 OECD study found workers in the developed world could expect governmental programs to replace on average 63% of their working-age incomes. Not so bad. But in the UK that figure is only 38%, the lowest in all OECD countries.

This means UK workers must either build larger personal savings or severely tighten their belts when they retire. Working past retirement age is another choice, but it could put younger workers out of the job market.

UK retirees have had a kind of safety valve: the ability to retire in EU countries with lower living costs. Depending how Brexit negotiations go, that option could disappear.

Turning next to the Green Isle, 80% of the Irish who have pensions don’t think they will have sufficient income in retirement, and 47% don’t even have pensions. I think you would find similar statistics throughout much of Europe.

A report this summer from the International Longevity Centre suggested that younger workers in the UK need to save 18% of their annual earnings in order to have an “adequate” retirement income.

But no such thing will happen, so the UK is heading toward a retirement implosion that could be at least as damaging as the US’s.

The Swiss Are No Different Despite the Prudence

Americans often have romanticized views of Switzerland. They think it’s the land of fiscal discipline, among other things. To some extent that’s true, but Switzerland has its share of problems too. The national pension plan there has been running deficits as the population grows older.

Earlier this month, Swiss voters rejected a pension reform plan that would have strengthened the system by raising women’s retirement age from 64 to 65 and raising taxes and required worker contributions.

From what I can see, these were fairly minor changes, but the plan still went down in flames as 52.7% of voters said no.

Voters around the globe generally want to have their cake and eat it, too. We demand generous benefits but don’t like the price tags that come with them. The Swiss, despite their fiscally prudent reputation, appear to be not so different from the rest of us.

This outcome in Switzerland captures the attitude of the entire developed world. Compromise is always difficult. Both politicians and voters ignore the long-term problems they know are coming and think no further ahead than the next election

Switzerland and the UK have mandatory retirement pre-funding with private management and modest public safety nets, as do Denmark, the Netherlands, Sweden, Poland, and Hungary.

Not that all of these countries don’t have problems, but even with their problems, these European nations are far better off than some others.

France, Belgium, Germany, Austria, Spain Are in Deep Trouble

The European nations noted above have nowhere near the crisis potential that the next group does: France, Belgium, Germany, Austria, and Spain.

They 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.

Let’s look at some details.

Spain was hit hard in the financial crisis but has bounced back more vigorously than some of its Mediterranean peers did, such as Greece. That’s also true of its national pension plan, which actually had a surplus until recently.

Unfortunately, the government chose to “borrow” some of that surplus for other purposes, and it will soon turn into a sizable deficit.

Just as in the US, Spain’s program is called Social Security, but in fact it is neither social nor secure. Both the US and Spanish governments have raided supposedly sacrosanct retirement schemes, and both allow their governments to use those savings for whatever the political winds favor.

The Spanish reserve fund at one time had €66 billion and is now estimated to be completely depleted by the end of this year or early in 2018. The cause? There are 1.1 million more pensioners than there were just 10 years ago. And as the Baby Boom generation retires, there will be even more pensioners and fewer workers to support them.

A 25% unemployment rate among younger workers doesn’t help contributions to the system, either.

Overall, public pension plans in the pay-as-you-go countries would now replace about 60% of retirees’ salaries. Plus, several of these countries let people retire at less than 60 years old. In most countries, fewer than 25% of workers contribute to pension plans. That rate would have to double in the next 30 years to make programs sustainable.

Sell that to younger workers.

The Wall Street Journal recently did a rather bleak report on public pension funds in Europe. Quoting:

Europe’s population of pensioners, already the largest in the world, continues to grow. Looking at Europeans 65 or older who aren’t working, there are 42 for every 100 workers, and this will rise to 65 per 100 by 2060, the European Union’s data agency says. By comparison, the U.S. has 24 nonworking people 65 or over per 100 workers, says the Bureau of Labor Statistics, which doesn’t have a projection for 2060. (WSJ)

While the WSJ story focuses on Poland and the difficulties facing retirees there, the graphs and data in the story make clear the increasingly tenuous situation across much of Europe.

And unlike most European financial problems, this isn’t a north-south issue. Austria and Slovenia face the most difficult demographic challenges, right along with Greece. Greece, like Poland, has seen a lot of its young people leave for other parts of the world.

This next chart compares the share of Europe’s population that 65 years and older to the rest of the regions of the world and then to the share of population of workers between 20 and 64. These are ugly numbers.

Source: WSJ

The WSJ continues:

Across Europe, the birthrate has fallen 40% since the 1960s to around 1.5 children per woman, according to the United Nations. In that time, life expectancies have risen to roughly 80 from 69.

In Poland birthrates are even lower, and here the demographic disconnect is compounded by emigration. Taking advantage of the EU’s freedom of movement, many Polish youth of working age flock to the West, especially London, in search of higher pay. A paper published by the country’s central bank forecasts that by 2030, a quarter of Polish women and a fifth of Polish men will be 70 or older.

Source: WSJ

This Coming Crisis Is Beyond the Power of Politicians

I could go on on reviewing the retirement problems in other countries, but I hope you begin to see the big picture. This crisis isn’t purely a result of faulty politics - though that’s a big contributor.

It’s a problem that is far bigger than even the most disciplined, future-focused governments and businesses can easily handle.

Worse, generations of politicians have convinced the public that their entitlements are guaranteed. Many politicians actually believe it themselves. They’ve made promises they aren’t able to keep and are letting others arrange their lives based on the assumption that the impossible will happen. It won’t.

How do we get out of this jam?

We’re all going to make big adjustments. If the longevity breakthroughs that I expect to happen do so soon (as in the next 10–15 years), we may be able to adjust with minimal pain. We’ll work longer years, and retirement will be shorter, but it will be better because we’ll be healthier.

That’s the best-case outcome, and I think we have a fair chance of seeing it, but not without a lot of social and political travail. How we get through that process may be the most important question we face.

Sharp macroeconomic analysis, big market calls, and shrewd predictions are all in a week’s work for visionary thinker and acclaimed financial expert John Mauldin. Since 2001, investors have turned to his Thoughts from the Frontline to be informed about what’s really going on in the economy. Join hundreds of thousands of readers, and get it free in your inbox every week.

BLS Caught Fabricating Wage Data

While it"s not the first time we have observed the BLS manipulate data (the last time was in "This Is What Happens When The Bureau Of Labor Statistics Is Caught In A Lie"), never before had we actually caught the Bureau Of Labor Statistics openly fabricating data. Until now.

As reported earlier today, in one of the most closely watched statistics in today"s payrolls report, the BLS reported that the annual increase in Average Weekly Earnings was a whopping 2.9%, above the 2.5% expected, and above the 2.5% reported last month. On the surface this was a great number, as the 2.9% annual increase - whether distorted by hurricanes or not - was the highest since the financial crisis.

However, a problem emerges when one looks just one month prior, at the revised August data.

What one sees here, as Andrew Zatlin of South Bay Research first noted, is that while the Total Private Average Weekly Earnings line posted another solid increase of 0.2% month over month, an upward revision from the previous month"s 0.1%, when one looks at the components, it become clear that the BLS fabricated the numbers, and may simply hard-coded its spreadsheet with the intention of goalseeking a specific number.

Presenting Exhibit 1: Table B-3 in today"s jobs report. What it shows is that whereas there was a sequential decline in the Average Weekly Earnings for Goods Producing and Private Service-producing industries which are the only two sub-components of the Total Private Line (and are circled in red on the table below) of -0.8% and -0.1% respectively, the BLS also reported that somehow, the total of these two declines was a 0.2% increase!

Another way of showing the July to August data:

• Goods-Producing Weekly Earnings declined -0.8% from $1,118.68 to $1,109.92


• Private Service-Providing Weekly Earnings declined -0.1% from $868.80 to $868.18


• And yet, Total Private Hourly Earnings rose 0.2% from $907.82 to %909.19

What the above shows is, in a word, impossible: one can not have the two subcomponents of a sum-total decline, while the total increases. The math does not work.

This, as Zatlin notes, undermines not only the labor inflation narrative, but it puts into question the rest of the overall labor data, and whether there are other politically-motivated, goalseeked  "spreadsheet" errors.

We have sent an email to the BLS seeking an explanation for the above data fabrication, meanwhile here is what likely happened: a big, juicy fat-finger error, whether on purpose or otherwise because if one looks at the finalized July weekly earnings of $907.82, it"s precisely the same as what the August preliminary wage number was as released last month, also $907.82.  For the excel fans out there, it means that the August totals were simply hard coded when the BLS shifted cells in the spreadsheet, becoming July.

Of course, if the BLS confirms that this was a transposition fat finger error, it would also imply that the August number is in fact, the September data, a rather massive mistake which today has had a impact on trillions dollars worth of assets.

Source: BLS

San Franciscans Pissed To Learn Their Liberal Policies Caused A Wave Of Restaurant Failures

In a note that we"ll file away under the definition of "irony", Bloomberg wrote today that the fun-loving, free-spirited socialists of San Francisco are suddenly really pissed off that their liberal economic policies have resulted in a wave of restaurant failures, making it nearly impossible to find good food at an "affordable" price. 

We would be pissed too...who could have guessed that artificially raising wages well above market supported rates would result in business failures?

On Thursday, the Michelin Guide announced its 2018 Bib Gourmand winners for San Francisco with only 67 restaurants on the list this year, a decrease from the 74 restaurants in 2017. Twelve restaurants in total dropped off, once you factor in some new additions. In 2016, there were 73 restaurants, and in 2015, 76 were on the list.

Restaurants that rate a spot on the Bib Gourmand list are defined as places that offer notable food at a reasonable price. Michelin specifically defines that as two courses plus dessert or wine for $40, not including tax or tip. A group of anonymous inspectors choose the restaurants. Bib Gourmand restaurants are not eligible to receive Michelin stars.

Some of the attrition on the 2018 list is due to places that simply fell off (or maybe even got promoted to the star list, proper), like Bistro Jeanty in Yountville, Bistro 29 in Santa Rosa, and Le Garage in Sausalito. But the alarming rate of restaurant closures in the Bay Area also accounts for the dip on the list, with spots like Bar Tartine and Mason Pacific in San Francisco and Scopa in Healdsburg wine country shutting their doors.

So what was the catalyst that sparked the ongoing massive wave of San Francisco restaurant failures?  Well, Bloomberg figures it"s the result of soaring minimum wages and health care costs...you know, all the things that San Fran liberals argue and protest for.

Factors like skyrocketing rents, minimum wage and health care have certainly taken a toll on Bib Gourmand-style restaurants around the Bay Area. More than 60 restaurants closed between Sept. 2016 and Jan. 2017, according to the East Bay Times. “We’re at this precipice where the model of the full-service restaurant is being pushed to the brink,” said Gwyneth Borden, executive director of the Golden Gate Restaurant Association.

Although ecstatic by the news of her Bib Gourmand, Brown Sugar Kitchen’s chef/owner Tanya Holland echoed the sentiment during a phone interview: “It’s so challenging to operate this kind of restaurant in the Bay Area right now” especially when it comes to staffing, she said.

Of course, as we pointed out back in January, a Thrillist article written by Kevin Alexander highlighted the demise of one independently owned restaurant in San Francisco, AQ, that shut down earlier this year for all the same reasons listed above.  When it came to minimum wage hikes, Alexander found that just a $1 per hour minimum wage increase reduced an independent restaurant"s already thin profit margins by $20,000, or 10%.  So we imagine the $5 minimum wage hike that California just passed is probably slightly less than optimal for restaurant owners.

I should say before I go any further that all of the restaurant owners and chefs I"ve talked to are compassionate humans who support better coverage and livable wages, and seem on the whole progressive by nature, but restaurant margins are already slim as hell. There are no political agendas here -- they"re just genuinely worried about how to afford to pay extra without radically changing the way they do business.

Let"s start with the minimum wage. According to the Bureau of Labor Statistics, of the 2.6 million people earning around the minimum wage in 2015, the highest percentage came from service jobs in the food industry. Though the Obama administration"s attempt to increase the federal minimum wage above $7.25 failed, 21 states and 22 cities have raised the minimum wage starting this year, including Washington, DC ($12.50 an hour), Massachusetts ($11), New York ($9.70), and Arkansas ($8.50).

Considering that hour-wage workers are usually the lowest earners and the increase is essential to ensure they earn an actual living, this is the least controversial of the newer expenses and something almost everyone in the industry supports, in theory, but it doesn"t change the fact that it"s an additional cost that must be factored in. If you have 10 hourly employees working eight-hour shifts, five days a week and you raise the wages a dollar an hour, that comes out to a nearly $20K increase on the year. In AQ"s best year -- a phenomenal year by restaurant standards -- that would have been nearly 10% of profits.

Meanwhile, when it comes to Obamacare, Alexander noted that AQ was hit with an incremental $72,000 of annual expenses in 2015 that didn"t exist in 2012, which eroded another ~30% of the company"s peak net income.

Then there"s health care. For the better part of its history, the restaurant business was a health care-free zone, which is ironic, given this Bureau of Labor Statistics" description of the back-of-house work environment: "Kitchens are usually crowded and filled with potential dangers." With the introduction of Obamacare, most restaurant workers finally got the coverage they"ve needed for years through the employer mandate, but critics often talk about the strain it puts on small-business owners due to a puzzling and controversial element that defines "full time" as 30 hours per week, and not the 40-hour workweek used almost everywhere else (the Save American Workers Act proposes to move this back to 40 hours).

Though this mainly affects bigger restaurants with staffs of 50 or more full-time workers, independent sit-down restaurants still need to provide suitable coverage (meaning it has to be affordable, less than 9.5% of the employee"s income) or face fees of $2K per employee. Consider AQ. Semmelhack told me that in 2012 they paid $14,400 for health care costs. In 2015, they paid $86,400. That"s an increase of $72K MORE per year than 2012, or 29% of their best year"s profit.

Then there are those pesky rental rates which have been driven ever higher by nearly a decade of 0% interest rates that have resulted in artificially high demand for "yieldy" commercial real estate.

In the restaurant world, rent always sucks. Unless you manage to play it perfectly, as a restaurant owner you"re either moving into a sketchy or "emerging" neighborhood where the rent is cheap but few want to go there, or you"re overpaying for an established "hood and need to be a runaway success from day one. And even if you do manage to make it in the former type of neighborhood, your success often ends up pricing you out of the "hood you helped revitalize.

In Miami, Michelle Bernstein"s Cena by Michy helped rebirth the MiMo historic district but was forced to close this year, after the landlord attempted to triple the rent. And even Danny Meyer had to close and move Union Square Cafe in New York, which, since 1985, had served as one of America"s culinary landmarks, when he couldn"t rationalize paying the huge rent hike the landlord proposed.

What"s next?  Is San Francisco going to tell us how mad they are that Obamacare is driving up healthcare premiums?

Fed Admits The Failure Of Prosperity For The Bottom 90%

Authored by Lance Roberts via RealInvestmentAdvice.com,

As the stock market hits all-time highs in its 2nd longest bull market run in history, the lift of asset prices has surely lifted the economic prosperity of all. Right?

Not really.

New reports from the Hamilton Project and The Federal Reserve show the real problems facing Americans today.

First, the Hamilton Project as noted by Pedro Nicolaci Da Costa last week:

“An expansion that began, believe it or not, more than seven years ago has extended a longer-run trend of wage stagnation for the average US worker, despite a sharp drop in the official unemployment rate to 4.4% from an October 2009 peak of 10%.

No wonder the recovery seems so lopsided, particularly given economic inequality levels not seen since before the Great Depression. After adjusting for inflation, wages are just 10% higher in 2017 than they were in 1973, amounting to real annual wage growth of just below 0.2% a year, the report says. That’s basically nothing, as the chart below indicates.”

The problem with this, of course, is that if wages aren’t rising at a pace fast enough to offset the costs of maintaining the “standard of living,” individuals are forced to turn to credit to fill the gap. As I showed recently, this wasn’t a problem initially but now is THE problem for an economy that is roughly 70% driven by personal consumption.

“Therefore, as the gap between the “desired” living standard and disposable income expanded it led to a decrease in the personal savings rates and increase in leverage. It is a simple function of math. But the following chart shows why this has likely come to the inevitable conclusion, and why tax cuts and reforms are unlikely to spur higher rates of economic growth.”

The Federal Reserve Reveals The Ugly Truth

Every three years the Federal Reserve releases a survey of consumer finances that is a stockpile of data on everything from household net worth to incomes. The 2016 survey confirms statements I have made previously regarding the Fed’s monetary interventions leaving the majority of Americans behind:

“However, setting aside that point for the moment, how valid is the argument the rise of asset prices is related to economic strength. Since companies ultimately derive their revenue from consumers buying their goods, products, and services, it is logical that throughout history stock price appreciation, over the long-term, has roughly equated to economic growth. However, unlike economic growth, asset prices are psychologically driven which leads to “boom and busts” over time. Looking at the current economic backdrop as compared to asset prices we find a very large disconnect.

Since Jan 1st of 2009, through the end of June, the stock market has risen by an astounding 130.51%. However, if we measure from the March 9, 2009 lows, the percentage gain explodes to more than 200%. With such a large gain in the financial markets we should see a commensurate indication of economic growth – right?”

“The reality is that after 3-massive Federal Reserve driven “Quantitative Easing” programs, a maturity extension program, bailouts of TARP, TGLP, TGLF, etc., HAMP, HARP, direct bailouts of Bear Stearns, AIG, GM, bank supports, etc., all of which total more than $33 Trillion, the economy grew by just $2.64 Trillion, or a whopping 16.7% since the beginning of 2009. The ROI equates to $12.50 of interventions for every $1 of economic growth.”

The full Federal Reserve report can be found here,  but I have selected a few of the more important charts for the purpose of this post.

While the mainstream media continues to tout that the economy is on the mend, real (inflation-adjusted) median net worth suggests that this is not the case overall. Despite surging asset prices, household net worth has only recovered back to 1995 levels.

But even that view is highly optimistic as the recovery in net worth has been heavily skewed to the top 10% of income earners.

While many economists have tried to explain the plunging labor force participation rate (LFPR) was a function of“baby boomers” entering into retirement, such is hardly the case given the collapse in net worth of those in that age group. It’s not that they don’t want to retire, they simply can’t afford to.

The “economic recovery” story is also extremely fragmented when looking at median incomes. According to the Fed survey, median household before-tax incomes have fallen from near $55,000 annually to roughly $53,000 currently.

Again, the real story becomes much more apparent when incomes are broken down into deciles.

Interestingly, the ONLY TWO age-groups where incomes have improved since 2007 is for those two groups of 65 and older. Again, this suggests that the plunge in the LFPR is not a function of “retirement” as individuals are working well into their retirement years, not because of a desire to work, but due to necessity.

Despite the mainstream media’s rhetoric the surging stock market, driven by the Federal Reserve’s monetary interventions, has provided a boost to the overall economy. The reality is quite different.

Since the bulk of the population either does not, or only marginally, participates in the financial markets, the “boost” has remained concentrated in the upper 10%. The Federal Reserve study breaks the data down in several ways, but the story remains the same.

The median value of financial assets for families has fallen sharply since the turn of the century.

Except for those in the top 10 percent of the population.

While the Federal Reserve hoped that inflating asset prices would boost consumer confidence, consumption, and economic growth, the problem is that with falling incomes and rising costs of living, the ability to save and invest eluded the majority of families.

Again, the benefit of the Federal Reserve’s interventions was clearly concentrated in the top 10%.

When looking at the financial landscape of families, the future does not look bright. The percentage of families with retirement accounts is at the same level as it was in 2000, despite surging asset prices. Again, this is a function of the disparity between incomes and the cost of living.

But once again, for the top 10%, the last five years has been a windfall. However, it is interesting to note that values dropped in 2013 despite the surge in asset prices. The 80th percentile performed better.

Lastly, as discussed recently, there is a deep flaw in the Bureau Of Labor Statistics adjustments to the employment report and little evidence to support the “birth/death” model which has accounted for roughly all of the job growth since 2009. The assumption is that each month individuals are either starting or closing a business that is not reflected in the more normalized employment data. The problem, however, is that the number of families that owned business equity has been on the decline since 1992.

Well, except for those in the top 10%.

The lack of economic improvement is clearly evident across all data points. However, it has been the very policies of the current and past administrations that have fostered that wealth divide more than anything else. While the ongoing interventions by the Federal Reserve propelled asset prices higher, and fueled the demand for risks, the majority of American families were left behind.

Tax Cuts Won’t Work This Time

This is also why Trump’s recent tax cut policy will fail to fuel the economic prosperity he is hoping for. With the bottom 80% of the population still earning below $50,000 on average, a tax cut will do little to increase their consumption in the economy. Those in the top 20% may well see a tax-savings from the reform but they are already consuming at a level that will likely not change to any great degree.

As David Stockman pointed out this past week:

“The Donald’s new tax reform airball promises to make the filing with the IRS more palatable to rank and file America. Yet 101 million taxpayers (69%) have no exposure to the complexity of the IRS code at all. They owe virtually nothing.

And I mean nothing. Among the 148 million income tax filers, the bottom 53 million owed zero taxes in the most recent year (2014), and the bottom half (74 million) paid an aggregate total of just $45 billion.

By contrast, the top 4% or 6.2 million filers paid $802 billion in Federal income taxes. That amounted to nearly 58% of total Federal income tax payments.”

While the financial media incessantly drones on about the rise of the stock market, what is missed is that after two devastating bear markets many families no longer have the capacity to participate (particularly after following Wall Street advice).

Furthermore, the structural transformation that has occurred in recent years has likely permanently changed the financial underpinnings of the economy as a whole. This would suggest that the current state of slow economic growth is likely to be with us for far longer than most anticipate. It also puts into question just how much room the Fed has to extract its monetary support before the cracks in the economic foundation begin to widen.

“The chickens have likely come home to roost.”