Americans Must Save for Retirement

Listening to NPR's Marketplace this morning, I heard Chris Farrell emphasize the need for Americans to save for their own retirement. Farrell said with pensions faltering and the 401Ks that were supposed to replace the pension system falling far short of expectations (and needs), Americans cannot rely on Social Security to be their safety net. He asserted we must save - at least 20 percent of our earnings.

Farrell did not discuss a few problems with saving.

• Current long-term CD rates hover between .09 and 1.99 percent at my local banks. Given inflation rates, this is a negative return.
• Unlike dividend income, every cent of interest on (non-IRA) savings is taxable.
• Wage earners need to pay for taxes, food, clothing, shelter and transportation first.

Investing is a form of saving, so perhaps that is the answer? I would have more confidence in it if Wall Street wasn't an insiders game in which traders constantly manipulate market prices for short-term gains (short-term as in daily/weekly rather than months).

Every form of savings and investment contains risk. Diversification of assets remains the best hedge against risk. But make no mistake - our failure to control the financial industry that continues to build on top of the fault lines in the system it created has increased risk across the board.

Yes, I will continue to save, to invest, to diversify. I just have a lot less faith than I used to have that my conscientious efforts will bring me financial security.

Perhaps the strongest financial tool available to us is to recognize that debt is a slave master and to avoid it like the plague. That includes credit card balances, home equity loans, student loans, installment debt, lines of credit attached to checking accounts.

Note: Marketplace reported Americans have decreased their credit card debt by 16 percent and raised their savings by 5 percent since the 2008 financial meltdown.

The Great Big Real Time Depression

The following are taken from two Facebook threads I started yesterday.

Out of the Closet
I am out of the closet. For some time I have thought of the current economic downturn as "The Great Big Real Time Depression." Yesterday I verbalized this thought for the first time. Now I am writing it. It is NOT any easy train of thought to turn off.

The experts can keep their analysis that GDP turned positive many months ago and the recession is over.

The manufacturing jobs are lost and not coming back. Hoping small business will pull us out of this one is delusional. Small business has little hope for survival in the current climate of supremacy of the multi-national global corporations. Those that do well either will be bought out by the big guys or their technologies will be stolen and they will be put out of business.

My friend Ann argued: "Maybe. Maybe not. I really considered starting my own small business but was too chicken. I think, and I have stated this on FB before, it's not politics or big business that is killing us. I think it's simple irresponsibility. It starts with individuals. We need to take personal responsibility and not expect a bailout when we screw up. Same goes for politicians and corporations. Take responsibility!"

My friend Chris contributed: "Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much higher consideration." -Abraham Lincoln.

I replied to Ann: "Tell it to the guys at AIG, Goldman Sachs, BOA, Lehman, Citibank. Not a perp walk for any of them. Tell it to the Congress and presidents that have spent like drunken sailors and fiddled while Rome burned for 10 years. Tell it to the corrupt state legislators that lined their own pockets, sold off their states' birthrights and now must pay the piper by dismantling our infrastructure."

The Disappearance of the Middle Class
Let's face it guys, a country that produces nothing but esoteric financial instruments no one understands cannot afford a middle class. Bye, bye education, transportation infrastructure, clean water, edible food, oversight of oil, gas and chemical companies, national parks.

If we do not have decent paying jobs, we cannot raise the taxes to pay for teachers, firemen, policemen, trash collectors, snow removal, environmental protection, on the job safety, unemployment insurance, Social Security, Medicare, Medicaid, decent housing. Cheer up, you can buy stuff made in China REAL CHEAP at Walmart and Target.

My friend Mary said: "I guess the most logical questions is: how have we allowed ourselves to become so complacent? How many red flags were raised over the years that were ignored by the general population...and more importantly, who can effectively guide us through the process of restoration?"

I replied: "I am very fired up because all the sacrifice is demanded from those who have less. NOTHING is asked of those that have the most. The folks I know are fair minded. They do not mind doing their share. They SHOULD NOT be asked to foot the entire bill.

Ann contributed: Has this ever been a fair and equitable country? Our founding fathers were mainly land owners, businessmen or slave owners. I certainly don't mind paying my fair share of taxes. It beats communism! However, the government workers used to get the big benefits because they weren't getting paid the same as commercial workers. That is no longer the case. City and state pension funds are going insolvent paying for medical and retirements. I think union workers and government workers need to start paying their fair share - yes the police officers who make 125K a year and the firemen who have second jobs and teachers who only work 9 months out of the year. Fair is fair."

I answered: "Ann, you're right. All the good private sector jobs for ordinary folks are gone. The government workers were the last bastion and the tax revenues that supported them disappeared with those private sector jobs. We can no longer afford to support the systems we as a society came to rely upon and take for granted. What comes next scares the s--t out of me.

Chris commented: "M, I doubt you are just discovering this now. We've been in a symbiotic dance with China for a generation. "Chimerica" as Niall Ferguson refers to it, only worked when we continued to buy what China continued to sell. Now that we've run out of money to buy, we have few options, but China can turn inwards and redirect the investment into their own infrastructure. Which is much easier in a state-run authoritarian culture. At least until they develop their own middle class who want to change things.

"More than anything else, our demographics doom us. Social Security and Medicare were created with a population demographic that had a lot of young working people paying into a pool used by a much smaller group who didn't live as long. Now we have the boomers turning that pyramid upside-down. A small pool is forced to support a larger group who live longer, and have many chronic illnesses that can be treated but are tremendously expensive. Without a dramatic paradigm shift, we will experience a dramatic reduction in the quality of life in the near future."

I answered: "Chris, and yet the Simpson/Bowles Report is widely attacked by both sides and we continue to do nothing."

Conclusion
I would like to thank my three Facebook friends for their contributions to these threads.

Peaceful Assembly as Protest

We watched tens of thousands of young Egyptians assembly peaceable to protest their suppressive regime. Some of us cheered. Some of us wanted policy to be directed at maintenance of the status quo.

We are now watching thousands of frustrated educators peaceably protest policies of the newly elected state government in Wisconsin. American conservatives believe this is inappropriate. They tended to be far more sanguine over the somewhat less peaceable protests against "Obama Care" during the summer of 2009.

Sauce for the Gander
Sorry guys. What's sauce for the goose, is sauce for the gander. The Wisconsin teachers have made substantial concessions on pensions and health insurance. They drew the line in the sand over their right to collectively bargain.

Public employees serve at the discretion of the taxpayers you say? True. And hard times call for harsh measures. But the Wisconsin teachers' union has already agreed to very hard measures. Its members proved willing to sacrifice for the common good. What they refuse to give up is their right to bargain as a unit, rather than individuals. To strip them of this right, is to insure they have no clout at all at the bargaining table. It is a negation of the concept of public unions. Depriving employees of union protection makes them incredibly vulnerable.

During the early 1980s President Ronald Reagan summarily fired all the striking air traffic controllers. The reason for the strike? Chronic under staffing had make this job incredibly stressful and endangered the public. The result? The experienced workers were replaced by those willing to cross the picket lines and public unions were dealt a crippling blow.

Why are unions necessary?
From the days when the Pinkertons beat and murdered striking workers, the "powers that be" have always been aligned on the side of management. Unions were the only substantial institutions protecting the "small people" in a society devoted to ever increasing profit shared among fewer and fewer individuals. Our national government colluded with the corporations to ship jobs overseas to countries without the standards of workers compensation, insurance, pensions and minimum wages mandated in the U. S. of A. The result? A country that produces nothing. A population that works longer and longer hours for less and less money and an economic polarization in which the top tier do very well indeed and everyone else gets the dregs.

Can the unions survive? The outcome is far from certain. But their loss would be one more nail in the coffin of the American middle class.

So Long Borders

Borders Books and Music has declared Chapter 11. The fact this was not unexpected is no consolation.

The Border's on Wolf Road used to be my destination at the end of every tedious trip to the mall. It was conveniently located right outside the entrance to Colonie Center. Until it closed about 2 years ago, a trip there was my reward for going shopping. Entering the bookstore, I would head straight for the well-stocked sci-fi section where I had discovered Marian Zimmer Bradley, David Weber, Elizabeth Moon, Lois McMaster Bujold, Mercedes Lackey, Anne McCaffrey, Orson Scott Card, Julian May and many, many other authors. Next I would head to the mystery section to see if Robert Parker, Rita May Brown, James Lee Burke or Jill Churchill had come out with something new. Then to the new releases and last the bargain tables.

In late December or January, my wallet always contained several generous gift cards thoughtful relatives had given me for my birthday and Christmas. My arms would struggle to contain their load of books to checkout. Then up to the cafe for a wonderful cup of coffee and something devilishly chocolate and sweet and the wonderful debate over which book I would delve into first.

I loved the smell of Borders, the way the books were arranged and displayed, the intoxicating sense of luxury those gift cards gave me. I loved the randomness of choosing a book by its cover - a system that almost always worked for me. I patronized Barnes and Noble too, but Border's was always my first choice.

I suppose the day will come when I trade in tactile satisfaction of bound books and paperbacks for a Kindle. For now, I will mourn the decline of the book superstores and the sense of endless possibility they gave me.

Dismantling Public Education in America

For years we have been told that American public education has fallen behind its global competitors and must be fixed. Programs like "No Child Left Behind" and "Race to the Top" were designed to fix the system's shortcomings. We were informed the United States had no hope of competing in the global marketplace without an educated populace.

But now... across the United States tens of thousands of teachers are being laid off as beleaguered states and municipalities confront unmanageable budget deficits. Funding for public schools and colleges is being slashed to the bone.

Teaching is labor-intensive. It involves long hours trying to interest pupils in something besides I-Tunes, YouTube, texting, trolling the mall and watching television. Not all teachers are created equal. Some few can stimulate the most obstreperous youngsters. Others can bore the pants off the most eager students. Most fall somewhere in between. The larger the class size, the more difficult the challenge.

The nuns at the parochial school I attended in the 1950s proved it is possible to teach large classes. They were able to create an atmosphere of rigid discipline. If you acted up in the line to lunch (military precision was expected), you probably got a not-so-gentle tap from the "clacker" every nun carried. For a classroom breach of behavior, you might be sent to stand at attention in the hall for 15 minutes, then submit to a tongue-lashing that flayed your soul. If misbehavior persisted, you would be sent to "Sister Superior." In class you could be held up to your classmates' ridicule and contempt. If all else failed? You were expelled and sent to the public school system, which had to accept you.

Public educators do not have access to such methods. They are expected to handle larger and larger classes and handle discipline problems without effective tools and with precious little support from either their administrators or communities.

Teachers pay a lot for their education - tens of thousands of dollars, much of it at public colleges. If there are no jobs, students are not going to make that sacrifice to enter the field.

So, as more and more teachers are laid off and the unions that support those that remain are weakened, we will experience further deterioration of public education.

Do we have an alternative? It's difficult to see one at this point. If the funds are not there, they are not there. In a society that no longer makes anything and in which minimum wage jobs and high unemployment have become the norm, the tax revenues do not support the costs.

Are we in deep doodoo? You betcha.

Budget B-S

Any self-proclaimed fiscal conservative who loudly proclaims we must cut taxes is either disingenuous or far too stupid to hold a policy-making position.

The original intent of tax cuts was to "starve the beast." If government revenues were limited, the theory went, government size must shrink as government expenditures were decreased. An excellent concept that did not work for one reason. Government expenditures did not shrink - they increased - as revenues declined - and were put on the national credit card. This combination is destroying us.

The reluctance of fiscal conservatives to place more revenue in the hands of irresponsible officials is understandable. Will those revenues be used to attack the deficit or provide more excuses for excessive, unaffordable spending? If recent history is any indicator, the answer to that question is not reassuring.

The hard fact is that combination of the Great Recession's loss of millions of private-sector jobs and the Bush and Obama era tax cuts for those who have weathered the recession unscathed have accelerated the growth of the national debt.

Fiscal liberals proclaim that times of economic distress call for increased government spending to provide relief and prime the pump of economic expansion. They conveniently ignore the uncomfortable reality that the coffers are empty.

The rich blame the poor for the fiscal mess in which we find ourselves. The poor blame the rich. The middle class blame both. The blame game works well during an election season. Unfortunately blame does not produce solutions. If anything, it inhibits constructive action.

Special interest groups fight tooth and nail to protect their turf. The more well-heeled they are and the more members they can claim, the more powerful their input into the process.

How did we get to a point in this country where no one seems willing to carry their share of the burden and everyone wants someone else to tote the load?

Social Security is Cash Flow Negative

Blame the Boomers
We have known for decades this day would come. The population explosion following World War II known as the Baby Boom meant that as the population aged, the number of retirees would exceed the number of workers. Social Security was designed to support current recipients with current contributions.

During their working years, Baby Boomers paid far more into the fund than it paid out. The Social Security Trust Fund was created to save the excess contributions against the day when payouts began to exceed contributions. Special government bonds were purchased for the fund. The problem? When the government issues bonds of any kind, it is borrowing money. Add to the mix the government's propensity of borrowing to support virtually all its operations and you have a disaster in the making.

Time has Come Today
As long as inflows exceeded outflows, Social Security remained self-supporting and elected officials could ignore the looming catastrophe. After all, that is what our policy makers do (just research global climate change policy; the real estate bubble; the financial industry destruction of global financial stability).

In 2008 we entered The Great Recession. Millions of Americans lost their jobs. Millions of Americans and their former employers were no longer paying 12.4% of earned income into Social Security. As the unemployment rate stubbornly remained around 9% and millions of the long-term unemployed fell off the unemployment rate radar screen, Social Security Tax receipts were hard hit.

In December 2010 the Obama/McConnell tax bill cut contributions to Social Security by the currently employed 2%. Social Security Tax receipts once again were hit hard.

Despite Social Security System incentives to continue working late into their 60s, unemployed persons 62 and over began to collect Social Security early - yet another hit to the system.

Repaying National Debt Principle
Sound like a Perfect Storm? A few days ago it was announced that Social Security had turned "cash flow negative" 4-7 years before government projections. This called into question even the most conservative estimates of the long-term solvency of Social Security.

The estimates rely on tapping the Social Security Trust Fund. Tapping the Social Security Trust Fund, until it is exhausted means paying down the national debt - paying the interest on it, but also repaying the principle ($2.5 TRILLION).

There is only one way to accomplish that. Increase government revenues while cutting government services to the bone. Time to take another look at the Simpson/Bowles deficit reduction plan.

Social Security Trust Fund is Empty Because It was Raided

The Social Security Trust Fund
Guess what. All those Social Security Taxes that were supposed to go into the Social Security Trust Fund to prepare for the day draws on the system exceeded contributions HAVE BEEN SPENT! The federal government borrowed and spent them and now Congress DOES NOT want to pay them back.

According to NPR, the tipping point has arrived - 4 years before anticipated - and demands will now be made on the general fund to make up the difference. [Click on this post's title for the story.]

The 2 percent decrease in employee contributions since the Obama/McConnell tax bill became effective was NOT mentioned as a contributing factor in the premature arrival of this day.

Our elected officials appropriated these funds from the people they represented. In addition to borrowing trillions from foreign countries, they borrowed the entire Social Security Trust Fund. Referring to the debt they owe the American people as an "unfunded entitlement," they are taking it a lot less seriously than the debts they owe China, Saudi Arabia and other domestic and foreign institutions.

So when politicians begin talking about the need to cut into "unfunded entitlements like Social Security" they are blithely IGNORING the TRILLIONS of dollars that should be bolstering up the system but instead disappeared in the frenzy of spending on two wars and tax cuts we could not afford.

If we let them use this spin to dismantle/cripple Social Security, we will finally be actively complicit in our own destruction.

Why I Love Local Public Radio

So... I listen to WAMC Northeast Public Radio A LOT. One of my favorite programs is Harry Shearer's (Spinal Tap and The Simpsons fame) Le Show, broadcast Sundays at 1 p.m. WAMC is conducting its most ambitious fund drive EVER. Proactively responding to a ground swell of national budget cutting of "discretionary" spending which loudly includes resistance to support of public radio and television stations, WAMC is determined to raise $1 million from its mid-market audience and maintain its viability and independence.

I try to "put my money where my mouth is" in supporting WAMC and made a specific donation during Harry Shearer's time slot. However, I was very unhappy about the manner in which this time slot was introduced by the radio station and emailed an (if I do say so myself) elegantly worded complaint.

In LESS THAN 24 HOURS, Alan Chartock, the President/CEO of WAMC (in the midst of what has to be one of the most stressful fund-raising campaigns he has ever waged) responded to my email, after unsuccessfully attempting to reach me by PHONE! Does he agree with my complaint? I don't think so. Does he consider my opinion important? A big, resounding YES!

Why is this public radio station so incredibly important to me personally? The call-in shows (Vox Pop) during which I have an "equal" opportunity to express my opinions and concerns about important issues of the day; the invaluable local and NPR programming that informs my mind and stimulates my brain; the riveting interviews with local, state and national personalities; the once-a-month poetry hour during which listeners call in and read or recite their favorite poems; the conviction that WAMC is "my" station.

If WAMC discontinues broadcasting Le Show, I will be crushed. I will NOT stop supporting this extremely valuable public resource.

State Bankruptcies?

I hear and read more and more chatter about enabling states to declare bankruptcy. If this happens, I have a pretty good idea who will be hurt, but am trying to figure out who will benefit.

State Pension Funds
We are discovering that many states ignored their constitutional requirement to fund their pension funds. I guess they thought tax revenues would just keep going up and up while expenses remained static - oops. To make matters worse they used smoke and mirrors to balance their budgets - selling off income-producing assets for one-time cash injections. Now pundits and politicians are proclaiming that hugely expensive, underfunded pension programs are responsible for the states' financial meltdowns.

Because of their government-funded pension plans, unless they moonlight in private-sector jobs, public-sector workers do not pay Social Security taxes and are not vested in the Social Security system.

If states are allowed to declare bankruptcy, they will want to shed their pension liabilities. Retired state workers could be confronted with the loss or devaluation of their pensions and no fall-back position. Who will be affected? Teachers, firemen, policemen, garbage collectors, highway workers, the folks who worked for motor vehicles, tax collection, licensing, the courts, among others.

Bond Holders
States issue bonds to finance infrastructure. Many states have relied heavily on bond issues to keep current expenditures within budget. As a result, they now carry huge debt loads. Bankruptcy would enable them to unload a good portion of that debt. Bonds have been an important part of many folks savings and investment strategies. The modest returns were offset by their supposed safety. The pain of defaults would be widespread and crippling to the general economy.

Vendors
One of the ways states have remained "cash flow positive" has been by dragging out their Accounts Payable. This is a ploy that works best with local governments, school districts and small businesses. The big guys (corporations like GE, Exxon, Verizon and AT&T) are far less likely to tolerate it and have much greater bargaining clout. While waiting months for payment, vendors are forced to drag out their own payables and to borrow to maintain operations and pay current expenses. In bankruptcy reorganization many of these debts would be abandoned with a rippling effect all the way down the line.

Conclusion
It is easy to see who would be hurt by state bankruptcies. The growing "chatter" about making it available to the states really makes me wonder - who will benefit? Taxpayers is an obvious answer but is it the correct one? Won't the inevitable financial disruption, loss of vital services and accelerated infrastructure decay be far more damaging than any hypothetical tax relief such action brings?

Define Not Paying Taxes Please

Assertion: millions of Americans do not pay taxes...
Over and over again my conservative friends argue that a huge swath of lower-income Americans pay no taxes at all. This is one of their strongest arguments for tax cuts for the wealthy and cutting back on or eliminating social programs.

I take issue with this claim. For private-sector employees, Social Security and Medicare taxes are non-negotiable. With the exception of those subject to the Railroad Retirement Tax Act, which provides a separate system of contributions for railroad employees, Social Security taxes are deducted from every paycheck until the ceiling of $106,800 is reached - 4.2% for 2011, 6.2% for previous years. Medicare is deducted from every paycheck, period - 1.45%.

Self Employment Taxes
If you are self-employed, you pay the full shot of Social Security and Medicare (15.3% in 2010; 13,3% in 2011). You can deduct half of the Social Security payments from your Adjusted Gross Income. This does NOT exempt you from paying Social Security taxes. It does permit you to deduct the payments from your income subject to Federal Income Tax liability. In other words, you are allowed to "expense" that portion of Social Security that an employer would pay, just like other employers do.

The self-employed are allowed a deduction for what they pay for health insurance. This deduction is taken into consideration in calculating their net income from self employment. It is NOT deducted from their tax liability. Again, health insurance is treated as an "expense," as it would be by your employer if you worked for someone else.

So What?
Well, for every $100 dollars you earn, you pay $5.65 in employment taxes. Your employer pays $7.65 on that same $100. If you are self-employed, you pay $12.85 on every $100. Sounds like paying taxes to me.

Perhaps because I am a liberal elitist, it appears to me that accusing folks who pay these taxes of being lazy freeloading tax dodgers is disingenuous (dishonest).

Do I resent paying these taxes? Absolutely not. It is a price I am willing to pay for the safety net that has enabled my 88 year old mother-in-law and my 95 year old mother to retain their independence and which will (hopefully) enable me and my husband to avoid being burdens on our children in our elder years.

Note on Public-Sector Employees
Civil Service employees are exempt from Social Security Taxes because they have government pensions. Additionally, if you receive a pension from a government job in which you did not pay Social Security taxes, some or all of your Social Security spouse's, widow's or widower's benefits may be offset due to receipt of that pension. This offset is referred to as the Government Pension Offset, or GPO. For more information refer to: http://www.socialsecurity.gov/pubs/10007.html