Presentation Transcript

1. The History of Retirement

2. Union Pensions Union army veterans retired at a higher rate at all ages than the general public. Union pensions reflect a pure income effect on labor supply. In 1900, a 1% increase in pension benefits increased retirement rates by .73%.

3. Who We Will Support in the Future

   Population over 65 by 2025 Population currently over 65 Thousands
4. Age Discrimination Retirement rates increased from age discrimination at the beginning of the 20th century resulting from: Shorter workdays Scientific Management
5. Why 65? “Age 65 is generally set as the threshold of old age since it is at this period of life that the rates for sickness and death begin to show a marked increase over those of the earlier years” -Issac Rubinow, 1916 “It is a commonplace fact that physical ability, mental alertness and cooperativeness tend to fail after a man is 65” -Federal Government before the Supreme Court, 1936
6. Importance of Social Security Benefits to Those Aged 65+ 35% 34% 90% to 100% of Income Less than 50% of Income 50% to 90% of Income 31% Data Source: Social Security Administration, 2012
7. Video Can You Afford to Retire?
8. The State of the States
9. State Pension Funding Levels 2009 Source: Pew Center, 2012
10. Funding for Retiree Health Benefits, 2009 Source: Pew Center, 2012
11. Comparing Pension & OPEB Funding and Liabilities
12. State Pension Reforms 2001-2010 Source: Pew Center, 2012
13. State Budget Gaps Source: Center on Budget and Policy Priorities 2012
14. State Budget Gaps Source: National Conference of State Legislatures, 2012
15. State Revenue Losses Exceed Previous Recessions Source: Center on Budget and Policy Priorities 2012
16. Cuts in Services by Number of States and Category Source: Center on Budget and Policy Priorities 2012
17. Tax Increases by Sector and Number of States Source: Center on Budget and Policy Priorities 2012
18. State vs. Private Employee Hourly Compensation Data Source: BLS as of March 2012
19. State vs. Private Employee Hourly Compensation Source: “A Hidden Toll as States Shift to Contract Workers,” New York Times. 11/6/2011
20. Government Revenue as Percent of GDP, 1979-2011 Data Source: St. Louis Federal Reserve
21. Distribution of Federal Spending Data Source: Office of Management and Budget, 2011
22. U.S. Federal Government Spending vs. Receipts, 1980-2011 In Billions Data Source: Bureau of Economic Analysis, 2012
23. Effective Federal Tax Rates, All Payers Data Source: Congressional Budget Office, 2012
24. Taxes and the Rich Source: IRS, Statistics of Income, 2008
25. Taxes and the Rich Data Source: IRS, Statistics of Income, 2009
26. BREAK
27. Irving Fisher "Stock prices have reached what looks like a permanently high plateau." 1929 1932 Booms and Depressions 1933 "The debt-deflation theory of great depressions"
28. Debt Deflation Theory of Depressions Debt liquidation and distress selling. Contraction of the money supply as bank loans are paid off. (unless outside forces at work) A fall in the level of asset prices. A still greater fall in the net worth of businesses, precipitating bankruptcies. A fall in profits. A reduction in output, in trade and in employment. Pessimism and loss of confidence. Hoarding of money. A fall in nominal interest rates and a rise in deflation adjusted interest rates.
29. Total U.S. Debt - 2010 Government $16.6Trn Financial $14.1Trn Corporate $10.8Trn Consumer $13.3Trn Data Source: Federal Reserve Flow of Funds Report, 2011
30. Household Debt as % of Disposable Income, 1946-2010 Data Source: Federal Reserve Z1 Report; Bureau of Economic Analysis, 2012
31. Consumer Credit1978-2011 Source: Federal Reserve; Calculated Risk Blog
32. U.S. Retail Sales & Ex-Gasoline 1992 – January 2012 Source: Calculated Risk Blog, 2012
33. Inflation Adjusted Total Retail Spending January 1992 - August 2011 Adjusted for Inflation Retail Sales Data Source: US Census Bureau, 2011
34. Change in Real Total Retail SpendingSeptember 2007- February 2012 Data Source: US Census Bureau, 2012
35. Capacity Utilization1967 – 2012 % of Capacity Data Source: Federal Reserve, 2012
36. Industrial Capacity, Industrial Production, And Capacity Utilization Rate, 1967-2012 Data Source: Federal Reserve, 2012
37. Unemployment Rate 1948 – 2012 Unemployment Rate Data Source: US Census Bureau, 2012
38. Number of Americans in Workforce 2000 - 2011 Data Source: Bureau of Labor Statistics, 2012
39. Percent Job Losses in Post- WWII Recessions Source: Calculated Risk Blog, 2012
40. U.S. Employment, Part-Time for Economic Reasons, 1960-2012 Source: Calculated Risk Blog, 2012
41. Key Economic Indicator #3Unemployment Rate, 2000-2012 Seasonally Adj. % Unemployment by Month Data Source: Bureau of Labor Statistics, 2012
42. Median Household Income1975 – 2011 Data Source: US Census Bureau, 2012
43. Fall in Real Median Household Income Since 2000 Inflation Adjusted YoY Percent Change Data Source: U.S. Census Bureau, 2012
44. Fall in Real Median Household Income Since 2000 Inflation Adjusted Cumulative Percent Change Data Source: U.S. Census Bureau, 2012
45. Fall in Real Median Household Income Since 2000 Inflation Adjusted Percent Change Since 2000 Data Source: U.S. Census Bureau, 2011
46. The Blunt Instruments of Government US Government deficit spending, targeted stimulus Federal Reserve interest rates, bond purchases, printing dollars
47. Actions of the Fed Fall 2008 – Qualitative Easing March 2009 – Quantitative Easing (QE1) August 2010 – Announced QE2 Summer 2011 – Announced Operation Twist Repeated pledge to keep balance sheet level Repeated pledge to watch for signs of stress in economy Gave series of lectures extolling successes of the Fed’s actions over the last 3 years
48. Outcomes – Desired vs. Actual Wanted – inflation expectations, increased borrowing and spending, falling unemployment, higher wages, asset inflation (re-inflation) Got – split prices – deflation in services and real estate, inflation in commodities – local vs. global
49. Who Gets Helped, Who Gets Hurt? QE favors real assets, hurts dollars, so the question becomes, what is more important to your household, real dollars (dividends, interest, paycheck) or assets such as stocks, metals, commodities? Income Assets
50. Who Gets Helped, Who Gets Hurt? Wealthy households tend to hold assets, poor households tend to rely on income. While higher food/energy costs might annoy rich households, the increase in their assets more than offsets the price difference. Not so for the poor. Affluent households own more hard assets Modest households rely on earned income

51. Percent of After-Tax Income Spent on Food and Energy by Income

    Source: U.S. Bureau of Labor Statistics, CEX, 2009
52. Inflation since 2000Through August 2011 Core CPI Categories CPI Data Source: Bureau of Labor Statistics, HS Dent, 2011
53. Dollars Spent on Essentials and Non-Essentials vs. Inflation (2000- August 2011) on Those Items Inflation Impact Average Expenditures Data Source: Bureau of Labor Statistics, 2011
54. The Term for Where We Are: Financial RepressionWhen interest rates are held artificially low given the rate of inflation, resulting in savers being taxed/punished in order to provide borrowers greater incentives/benefits
55. Normal Yield Curve Real Rate of Return CPI 2.8%
56. Yield Curve Before Recession
57. Yield Curve During Recession
58. Yield Curve Manipulated
59. Inflation vs 10-year Treasury1935 - 1951 inflation 10-year Treas Rate
60. The Brain Teaser What happens to all dollars printed by the Fed?
61. All Printed Dollars Find Their Way to the US Government Fed owns trillions of bonds, now what?
62. All Printed Dollars Find Their Way to the US Government
63. All Printed Dollars Find Their Way to the US Government All profits earned by Fed, through interest received, principal payments, and activities, are given to US Treasury at year end In 2009 Fed gave US Treasury $47 billion, in 2010 $79 billion, and in 2011 What if $1 trillion of US bonds mature on the books of the Fed? Over the last 99 years, the Fed has given the US Treasury $877 billion. In the last three years the Fed has increased its holding by $2 trillion, which will eventually be given to the US Treasury.
64. This, Too, Shall Pass Our demographic-driven downturn will last until the next generation pushes up its own spending in earnest – 7 to 10 years We have large cohorts of 20 year olds and younger Much more favorable position than other developed countries
65. Conclusion of Demographic School