Got $1,000 saved for retirement?

[Wonk]

I suspect most lurking here don't fall into that category.  Sad nonetheless:

http://www.usatoday.com/story/money/per ... s/6432241/

It all boils down to discipline and setting priorities.  Wouldn't matter if most people were paid a million per year.  There'd still be little savings to show for it...

[Kshartle]

I suspect most lurking here don't fall into that category.  Sad nonetheless:

http://www.usatoday.com/story/money/per ... s/6432241/

It all boils down to discipline and setting priorities.  Wouldn't matter if most people were paid a million per year.  There'd still be little savings to show for it...

If most people were paid 1 million a year 1 million wouldn't be very much money.

A Mcdonalds QP with cheese value meal would be about $150.

10 piece McNugget would be about $100.

Sorry it's lunch time here in EST

[dualstow]

It all boils down to discipline and setting priorities.  Wouldn't matter if most people were paid a million per year.  There'd still be little savings to show for it...

So true!

[moda0306]

I believe if you printed $5,000 for each household in the country, it would markedly improve real (not just nominal) savings.

We have enough dead and unemployment overhang that most will be used to save/delever, and anything spent (still remains (someone else's) savings btw) will be easily met by our productive capacity overhang due to inadequate demand.

This isn't a moral assertion... Just an economic one.  And one I unfortunately can't deductively prove... Though I think there's a lot of evidence I'm probably correct.

[Kshartle]

Would $5,000 work better than $4,000?

Would $6,000 work better than $5,000?

[moda0306]

Would $5,000 work better than $4,000?

Would $6,000 work better than $5,000?

Well "better" is a value judgement. But if we can agree to mean "increases private savings in real terms," I am quite sure $6,000 would be better that $5k. Or $4k.

A "better" policy would be to send $1,000 checks every month until we reached 5% unemployment or 5% inflation, whichever comes first.

And by "inflation," I mean general rise in price level, as measured by CPI... But for the sake of the inflation hawks, we can use the billion price index.

[Kshartle]

Would $5,000 work better than $4,000?

Would $6,000 work better than $5,000?

Well "better" is a value judgement. But if we can agree to mean "increases private savings in real terms," I am quite sure $6,000 would be better that $5k. Or $4k.

A "better" policy would be to send $1,000 checks every month until we reached 5% unemployment or 5% inflation, whichever comes first.

And by "inflation," I mean general rise in price level, as measured by CPI... But for the sake of the inflation hawks, we can use the billion price index.

You said more savings in "real term"...which implies a combination of nominal value and purchasing power per dollar that equals more purchasing power than before.

So "better" is not meant to be subective by me but rather that $6,000 will lead to an increase in real savings moreso than $5,000 would.

[moda0306]

Would $5,000 work better than $4,000?

Would $6,000 work better than $5,000?

Well "better" is a value judgement. But if we can agree to mean "increases private savings in real terms," I am quite sure $6,000 would be better that $5k. Or $4k.

A "better" policy would be to send $1,000 checks every month until we reached 5% unemployment or 5% inflation, whichever comes first.

And by "inflation," I mean general rise in price level, as measured by CPI... But for the sake of the inflation hawks, we can use the billion price index.

You said more savings in "real term"...which implies a combination of nominal value and purchasing power per dollar that equals more purchasing power than before.

So "better" is not meant to be subective by me but rather that $6,000 will lead to an increase in real savings moreso than $5,000 would.

Yes then that's exactly what I'm saying.  Eventually, the debt overhang disappears, we reach full capacity, and printing checks simply causes inflation.

[Kshartle]

Yes then that's exactly what I'm saying.  Eventually, the debt overhang disappears, we reach full capacity, and printing checks simply causes inflation.

Doesn't wiping out someone's debt also wipeout someone else's asset?

My point is wiping out everyone's debts with inflation has no effect on real wealth. It just transfers purchasing power away from savers and lenders to debtors. How can this improve our lives? In fact, during the process of wiping out the real value of debts you only encourage them to grow and grow. You will never acheive your goal until you destroy the currency and ruin the economy.

[Pointedstick]

Yes then that's exactly what I'm saying.  Eventually, the debt overhang disappears, we reach full capacity, and printing checks simply causes inflation.

Doesn't wiping out someone's debt also wipeout someone else's asset?

What if the asset is held by the federal government? In that case, doesn't wiping out the debt free the private sector of some of its bondage to the government? I'm specifically thinking about federal student loans here.

[Kshartle]

Yes then that's exactly what I'm saying.  Eventually, the debt overhang disappears, we reach full capacity, and printing checks simply causes inflation.

Doesn't wiping out someone's debt also wipeout someone else's asset?

What if the asset is held by the federal government? In that case, doesn't wiping out the debt free the private sector of some of its bondage to the government? I'm specifically thinking about federal student loans here.

Then the taxpayer or saver (in USD) takes the loss PS.

If the kids end up getting a college education for free it wasn't acutally free....someone else had to pay. That person was everybody else holding dollars that lost value relative to everything else. It's not as clear a transfer but it still is one. Some people got to use the purchasing power earned by others.

When this is official policy (wiping out debt with inflation) it encourages people to go into debt. It encourages them to consume without first producing and discourages people from producing because their production is stolen from them. Their production is bid away by others who have more dollars than they would have.

The result is people are encouraged to consume without saving and discouraged from producing. Less production DECREASES living standards and consuming without savings.....well it's obvious that this does not result in more savings.

Higher interest rates are needed to help encourage savings and discourage wasteful borrowing. If people can't make good on their debts right now, stealing from others through inflation will not change that, it will just transfer the losses and distort people's choices to more destructive ones.

[flyingpylon]

I would be curious to know how the "amount saved for retirement" has changed through the last several decades.  Anyone have that info?  I would not be surprised to find that there has always been a significant percentage of people that had saved little or nothing.

[moda0306]

Yes then that's exactly what I'm saying.  Eventually, the debt overhang disappears, we reach full capacity, and printing checks simply causes inflation.

Doesn't wiping out someone's debt also wipeout someone else's asset?

My point is wiping out everyone's debts with inflation has no effect on real wealth. It just transfers purchasing power away from savers and lenders to debtors. How can this improve our lives? In fact, during the process of wiping out the real value of debts you only encourage them to grow and grow. You will never acheive your goal until you destroy the currency and ruin the economy.

They are using the dollars to wipe out the debt.  So the creditor now holds $5,000 cash, and the debtor holds less debt. 

Don't forget, under my "better" bill, even the creditor would get $5,000, if he's an individual or household.

If there's unused productive capacity in the economy, it will improve productivity, GDP, and overall wealth. If there is not, it will be a zero sum game at best... But more likely negative as sound monetary mgmt is not being exercised.


K, I think this all comes down to accepting what a recession truly is.  You think it's an economy geared to "produce the wrong stuff" due to malinvestment, where attempts to engineer full employment and GDP growths through monetary/fiscal policy meet a wall of structural unemployment.

I think there's some of that in there, but it is more so due to a monetary/debt-based economy in a Mexican standoff and with a debt overhang that our cash needs to address rather than bringing us to full employment and full capacity.

If yours was the correct description of the world, we'd be seeing economic clues like high-inflation and full-capacity in non-malinvestment areas (non-housing).

We don't see those things.  There is an inadequacy of demand far more-so than an inadequacy of productive supply.  The reason investment isn't a good decision right now is that very lack of demand. Why add on to the widget factory if your current one can produce 1,000 per day and you can barely sell 800. Especially if an inflation hawk gets in control and raises your cost of capital from 4% to 8% and lowers your future nominal sales expectations.

This is only possible due to money and debt rather than barter being the main economic medium if exchange.

[Kshartle]

moda if I am a net debter and inflation wipes out the value of my debt am I not richer than I was before?

How can I get richer if I didn't earn anything by working for it?

I had to get it from someone else. That means they are poorer.

Wiping out debt doesn't make us richer overall.


Conversely, if the official policy of the government is to wipe out debt through inflation.....does this not encourage people to take on more debt than they otherwise would?

If so.....do you know what it means to take on debt? It means you are consuming without first producing. This means the official policy of the government will be driving people to consume without producing first. That means they must consume the production and savings of others. If you are a net producer and saver you are hurt by this activity. It discourages you from producing and saving.

This is one of the reasons in hyperinflation production plumments.

If we could improve economies by printing slips of paper there would never be recessions or poor people or poor countries. Unfortunately improvment in economies comes from productive work and real savings that can be used for investment in capital to impove future productivity. Inflation discourages this.

[Kshartle]

K, I think this all comes down to accepting what a recession truly is.  You think it's an economy geared to "produce the wrong stuff" due to malinvestment, where attempts to engineer full employment and GDP growths through monetary/fiscal policy meet a wall of structural unemployment.

No that's the "boom" that precedes the recession. The recession is the unwinding of the malivestment and the acceptance of the losses that were piling up but being ignored. The recession is the economy trying to snap back to reality and try to satisfy real demand instead of the artificial demand created by the government's intervention in the economy (low rates, risk-free loans, inflation, outright redistribution to losing businesses etc.).

[moda0306]

moda if I am a net debter and inflation wipes out the value of my debt am I not richer than I was before?

How can I get richer if I didn't earn anything by working for it?

I had to get it from someone else. That means they are poorer.

Wiping out debt doesn't make us richer overall.


Conversely, if the official policy of the government is to wipe out debt through inflation.....does this not encourage people to take on more debt than they otherwise would?

If so.....do you know what it means to take on debt? It means you are consuming without first producing. This means the official policy of the government will be driving people to consume without producing first. That means they must consume the production and savings of others. If you are a net producer and saver you are hurt by this activity. It discourages you from producing and saving.

This is one of the reasons in hyperinflation production plumments.

If we could improve economies by printing slips of paper there would never be recessions or poor people or poor countries. Unfortunately improvment in economies comes from productive work and real savings that can be used for investment in capital to impove future productivity. Inflation discourages this.

Kshartle,

Do you understand the dynamics of an economy that is beneath its productive capacity?  You seem to be viewing the relationship between the confetti we shop with, and the real assets we own, all in a vacuum.  My Widget factory isn't just valuable because it's big and full of engineering accomplishments.  It's valuable in a world that demands widgets.  If my orders for widgets are well-under capacity, and the government of my small town prints some (but not too much) money and passes it out to citizens, then more widgets get made.  More money... more wealth.

This isn't in a vacuum.  There are dynamics with supply and demand that can create shortages of either (in a debt-based monetary system, especially).  We have to realize that and logically walk through that.

[Kshartle]

There are dynamics with supply and demand that can create shortages of either (in a debt-based monetary system, especially).  We have to realize that and logically walk through that.

Can you logically walk me through how a process of wiping out the real value of debts doesn't encourage people to go into debt? Can you walk through a process of how stealing the purchasing power of people's savings doesn't discourage them from saving?

[moda0306]

There are dynamics with supply and demand that can create shortages of either (in a debt-based monetary system, especially).  We have to realize that and logically walk through that.

Can you logically walk me through how a process of wiping out the real value of debts doesn't encourage people to go into debt? Can you walk through a process of how stealing the purchasing power of people's savings doesn't discourage them from saving?

I'm assuming by "wiping out" you don't mean eliminating, entirely... right?  Just reducing?

And by "stealing purchasing power" of people's savings, do you mean generating higher-than promised (the promises upon-which they engaged in their savings/investing/debt contracts) increases in general price levels, or just printing more dollars?

[Kshartle]

There are dynamics with supply and demand that can create shortages of either (in a debt-based monetary system, especially).  We have to realize that and logically walk through that.

Can you logically walk me through how a process of wiping out the real value of debts doesn't encourage people to go into debt? Can you walk through a process of how stealing the purchasing power of people's savings doesn't discourage them from saving?

I'm assuming by "wiping out" you don't mean eliminating, entirely... right?  Just reducing?

And by "stealing purchasing power" of people's savings, do you mean generating higher-than promised (the promises upon-which they engaged in their savings/investing/debt contracts) increases in general price levels, or just printing more dollars?

Reducing is fine. They have a certain level of debt in real terms and the government policy is to reduce it in real terms at the expense of someone else. If you owe 100k today and in 12 months the value of that 100k is only 50k in last year's terms or whatever you like......does that not encourage the taking on of debt? What if you believe the value is going to drop and it'll be easier to repay next year?

Yes, higher prices and expectations for rising prices. If you know prices are going to be higher next year does that influence your incentive to purchase now rather than if you believe prices will be stable or fall?

Do you think the government can pursue an inflation policy without people reacting to it and making decisions based on it?

[moda0306]

Can you logically walk me through how a process of wiping out the real value of debts doesn't encourage people to go into debt? Can you walk through a process of how stealing the purchasing power of people's savings doesn't discourage them from saving?

I'm assuming by "wiping out" you don't mean eliminating, entirely... right?  Just reducing?

And by "stealing purchasing power" of people's savings, do you mean generating higher-than promised (the promises upon-which they engaged in their savings/investing/debt contracts) increases in general price levels, or just printing more dollars?

Reducing is fine. They have a certain level of debt in real terms and the government policy is to reduce it in real terms at the expense of someone else.

If they're reducing it at a rate that they've promised to reduce it, then it isn't at the expense of someone else, since it should have been expected by both parties.

If you owe 100k today and in 12 months the value of that 100k is only 50k in last year's terms or whatever you like......does that not encourage the taking on of debt? What if you believe the value is going to drop and it'll be easier to repay next year?

It depends on the rate of interest on that debt, and what the private sector might expect that reduction in debt in real terms to be in the future.

Yes, higher prices and expectations for rising prices. If you know prices are going to be higher next year does that influence your incentive to purchase now rather than if you believe prices will be stable or fall?

Sorry if I was confusing, but this isn't what I stated.  "Rising prices" is different than "Rising prices in excess of pre-set expectations (fed inflation-target)."  If prices are going to be higher next year than expected, it would induce an early purchase.  If they're not however... it would already be baked into my expectations around my debt/savings/income/contracts/etc.

People ABSOLUTELY make decisions around an inflationary policy.  Governments, banks, borrowers, investors, businesses, etc, all make decisions (most important are long-term decisions (LT bonds, investment, LT contracts)) based on this information.  To promise a 2% inflation target to the entire country, but then engage in policies that generate deflation, is the true theft.  People can plan around inflation.  They can't plan around wild swings and purposefully ignoring the expectations you set.

[edsanville]

moda if I am a net debter and inflation wipes out the value of my debt am I not richer than I was before?

How can I get richer if I didn't earn anything by working for it?

I had to get it from someone else. That means they are poorer.

Wiping out debt doesn't make us richer overall.


Conversely, if the official policy of the government is to wipe out debt through inflation.....does this not encourage people to take on more debt than they otherwise would?

If so.....do you know what it means to take on debt? It means you are consuming without first producing. This means the official policy of the government will be driving people to consume without producing first. That means they must consume the production and savings of others. If you are a net producer and saver you are hurt by this activity. It discourages you from producing and saving.

This is one of the reasons in hyperinflation production plumments.

If we could improve economies by printing slips of paper there would never be recessions or poor people or poor countries. Unfortunately improvment in economies comes from productive work and real savings that can be used for investment in capital to impove future productivity. Inflation discourages this.

The sad thing about printing money is that it primarily hurts savers who have all their savings in cash form, i.e. the poor to middle-class savers.  The rich savers have all their savings in stocks, bonds, and gold, and so are not punished by inflation as much (on average), as the less wealthy savers.

So, inflation primarily hurts blue-collar conservative workers who are trying to save money with savings accounts and CDs.  They have the privilege of sacrificing and saving for decades, only to see their irresponsible neighbors buy bigger houses, vehicles, and recreational products, and send their kids to Harvard on borrowed money... and get away with it.  After a while, this starts to change the culture from within, because the responsible small-scale savers start to look like saps.  Accumulating debt starts to appear to be the "winning strategy."

[Kshartle]

After a while, this starts to change the culture from within, because the responsible small-scale savers start to look like saps.  Accumulating debt starts to appear to be the "winning strategy."

Yes exactly. And so devaluation of the currency encourages consumption and debt and discourages saving. The only way to improve the economy is to save a portion of what is produced in order to provide for investment in property, plant, equipment, technology etc.

Accumulating debt requires consumption of someone else's savings for the purpose of immediate gratification. When everyone is encouraged to consume more than they produce the result is negative savings and a long-term declining standard of living.

The results are all around you. We've had zero percent rates and money printing now for five years and where are the jobs? Where is the demand push? We are going further into debt, the ranks of the poor are growing and the standard of living is declining. What kind of future do high school students and new college grads have? A lifetime of being robbed to pay for older people who have no savings and people who've racked up mountains of debt they can't repay.

Their best hope is to flee.

These problems were caused by government programs (FHA, low rates, student loans, min wage, unemployment, welfare etc.) Another government program (counterfieting), cannot solve these problems, it will just make them bigger.

[moda0306]

edsanville,

I disagree with some of that, but regardless of which socio-economic class benefits, it's hardly just about "printing money."  The fed could "print money," but then use every other interest-rate setting tool in its belt to raise interest rates. Hell, the treasury could put out i-bonds that yield 10% or so.

People saving their short-term money in cash usually do so because they simply don't have much/enough savings.  Thinking that giving them 4% on $15,000 instead of 1% on $15,000 is helping them a massive amount, to me, is not even realizing the core of the issue... especially since these savings accounts are essentially just a short-term contract.  You're not obligated to keep money there if you think it's a bad deal and there are other assets going up in price.  Unlike long-term contracts, your price hasn't suffered measurably in the short-term unless we have crippling inflation devaluing it.

Not to mention, a lot of these "small-time" savers also carry mortgages, which they entered into given a set of assumptions (given to them by government) on the rise in general price level over time.  If the government doesn't meet those levels, the burden of their debt becomes more to them (and a better deal for the creditor) than either one of them expected when they entered the contract.

The real "punishment" (in my mind) comes to those who hold longer-term, dollar-denominated, non-inflation-indexed contracts, set with expectations about inflation (general price level) in mind, and then the fed changing those expectations half way through the game.

So imagine a world where the fed promised 6% inflation, and manipulated the currency to generate that rise in price level over time.  The market would bake those expectations into their long-term dollar-denominated contracts.  Is that really 6% theft every year?  Of course not, since you're probably getting a 6% or higher interest rate floor risk free from the government, and your private debt contracts are going to be 10% or so.

It would be a joke to "fool" the market with those expectations and then make it generate 0% inflation or deflation.  That would be a huge subsidy to the "saver" of those long-bonds.  Does that make sense?

[edsanville]

People saving their short-term money in cash usually do so because they simply don't have much/enough savings.  Thinking that giving them 4% on $15,000 instead of 1% on $15,000 is helping them a massive amount, to me, is not even realizing the core of the issue... especially since these savings accounts are essentially just a short-term contract.  You're not obligated to keep money there if you think it's a bad deal and there are other assets going up in price.

Not to mention, a lot of these "small-time" savers also carry mortgages, which they entered into given a set of assumptions (given to them by government) on the rise in general price level over time.  If the government doesn't meet those levels, the burden of their debt becomes more to them (and a better deal for the creditor) than either one of them expected when they entered the contract.

You are talking about a different part of society than I am.  I am talking about blue-collar workers who work hard and save up a couple hundred thousand dollars, debt-free, and keep it in savings accounts and CDs.  This is not short-term savings, this is long-term savings.  This group does still exist, although it is getting rarer these days.  In my view, they are punished more than anyone else, because they make material sacrifices over many years, earning relatively little, with no inflation protection (in a zero-interest environment).

The real "punishment" (in my mind) comes to those who hold longer-term, dollar-denominated, non-inflation-indexed contracts, set with expectations about inflation (general price level) in mind, and then the fed changing those expectations half way through the game.

The group I am talking about almost fits this definition, but in reality they are not so sophisticated.  For the most part, they have a very conservative mentality about their savings, and do not trust any investment where they could lose nominal money.  So, they sock all their long-term savings away in CDs and savings accounts.  They might have inflation expectations, but it doesn't affect their saving strategy, which is focused around conserving the nominal value.  Incidentally, I think these are the people who need to read up on the PP the most...

So imagine a world where the fed promised 6% inflation, and manipulated the currency to generate that rise in price level over time.  The market would bake those expectations into their long-term dollar-denominated contracts.  Is that really 6% theft every year?  Of course not, since you're probably getting a 6% or higher interest rate floor risk free from the government, and your private debt contracts are going to be 10% or so.

It would be a joke to "fool" the market with those expectations and then make it generate 0% inflation or deflation.  That would be a huge subsidy to the "saver" of those long-bonds.  Does that make sense?

Even if the government followed through with their 6% inflation plan, it would hurt the unsophisticated, conservative investors I am talking about, who are afraid of losing nominal value.  These people do have options to preserve their wealth, but how many of them are aware of the PP, for example?  Not many.  So, they put their money into CDs and savings accounts, and after years or decades of inflation, it takes a toll on their real savings.  I've seen it happen to people I know firsthand, and it does sadden me.  A rational person would start to ask, "why bother saving in the first place?"

Their thought process reminds me of this cartoon:
https://xkcd.com/947/

[Pointedstick]

FWIW, my quasi-socialist grandmother did exactly what edsanville is describing, and so did my half-democrat-half-republican other set of grandparents. My own parents are the first in their family to invest in the markets and I daresay they have, in many ways, fallen right into many of the classic traps that hold back investment returns: high fees, actively managed mutual funds, emotionally flitting into and out of the market, and the like.

It's hard for people like us here to imagine, I think, but the financial markets are really difficult to invest in successfully for like 99% of people. Turning the interest rate down to zero and forcing them to participate anyway if they don't want their savings to get ravaged by inflation (low as it may be) strikes me as not only cruel but bad social policy, macroeconomics be damned.