Tuesday, January 9, 2018

People shouldn't gamble more on Wall Street. They need a raise and a safety net

As the stock market continues to inexplicably climb, it's worthy to note that it is causing the country to be even more a two-tier society than it already is. Let's go back to November, when CNN ran this article illustrating the gigantic gap in household wealth that exists in this country.

Related to that, Yahoo! Finance had an article this week noting that many Americans have little or no savings for retirement.
The study by the National Institute on Retirement Security, using data from the U.S. Federal Reserve, shows that retirement savings "are dangerously low" and that the U.S. retirement savings deficit is between $6.8 and $14 trillion.

Worse, the median retirement account balance is $3,000 for all working-age households and $12,000 for near-retirement households, the study reports…

"If Americans continue to ignore their future, I anticipate a serious retirement train wreck in 20 to 30 years," says John Brandy, founder of Open Mind Generations, in Redmond, Washington.

The typical savings rate for most people is somewhere around 1 to 3 percent of their annual income, and that's nowhere near enough to turn the tide on low retirement savings. However, history suggests that if we save roughly 10 percent of our incomes, we're likely to achieve many of our goals," Brandy says. "And, if we save 20 percent from gross income before health insurance and taxes, that we are likely to able to achieve most, if not all, of our financial goals."
Well, sure. Just get rid of all the other expenses people have to deal with in their lives (like rent/mortgage, other insurance, student loans, credit cards, etc), and ignore rising health insurance expenses, and there won’t be any problems!

If that DID happen, then our economy would be significantly slowed down, because around 70% of our economy is based on consumer spending. As I’ve mentioned before, a main reason that GDP growth has bumped up in the last year is because the US savings rate has plummeted to levels that we saw right before the Great Recession hit. If that suddenly reversed and people started saving 3-5 times as much as they are now, our economy would likely slide into recession, which would lead to layoffs and lower incomes. Paradoxically, those lower incomes would then make it less likely people can save the 10-20% that Brandy references.

And those “savings” basically involve throwing your extra income into the stock market and other investments. Naturally, this will blow the current Bubbles even higher, and combined with the slowdown in consumer spending, it seems like we’d see that recession get worse.

In addition, many of the same people who don’t save much are among the large amount of Americans who aren’t benefitting from the runup in the bull(shit) stock market. As USA Today noted last week, when the Dow Jones Industrial Average closed above 25,000 for the first time ever.
Many Americans, however, have not benefited from the stock market's multi-year rise, as only 54% have investments in stocks, down from 62% before the 2008 financial crisis, according to Gallup. Many Main Street investors got out of the market after it lost more than half its value in the 2007-09 bear market and never got back in.

The Dow closed higher for a third straight day to start the year. It is coming off its best year since 2013.

It took the Dow just 35 calendar days to climb from 24,000 to 25,000, tying the fastest 1,000-point climbs, including the rise to 11,000 back in May 1999 and run to 21,000 in March 2017, S&P Dow Jones Indices data show.
So the stock market is partying like it’s 1999? That’s not really a good thing, if you remember what happened next.

S&P 500 returns, 2000-2002
2000 -9.1%
2001 -11.9%
2002 -22.1%

So instead of having Americans “save more” by throwing extra money into a stock market that is due to go back down, I have a better suggestion for improving retirement security. Why don’t we encourage policies that lead to BETTER WAGES while people are working, so people can pay their bills and have more money available to both spend and save?

In addition, why don’t we EXPAND SOCIAL SECURITY and make it available to people younger than 62, so people can comfortably continue spending money on needs and wants as they know they have Social Security backing them up. And not have so many Americans be one bad break away from going over the edge.

And you know what’s also great about better wages and expanded Social Security? It’ll have a better chance of keeping our consumer-driven economy afloat instead of spending less now and gambling on the Wall Street casino with very little margin for loss. Seems like a more sustainable model than what we've seen for the last 40 years of lowering taxes on the rich and corporate, and shredding the safety net for everyone else.


  1. Amen, Jake.

    Goes a long way to describe why there's such income equality. I have some savings, but not nearly what's needed for retirement (and I'm planning forward to work into older age, simply because working gives people a reason to live). So I'll work 'till the day I die.

    I completely understand what millenials are going through (I was a later college student who now lives under debt peonage), yet am 59, an age where few companies want to employ you, no matter what your experience, knowlege, etc., could bring to their table.

    This whole situation is a prescription for ill, yet how can the mainstream just let it slide like everything's OK?

    1. Thanks for sharing your story. As a guy who is 43 and also balancing retirement savings vs mortgage/student debt, the notion of "just throw more money into your 401k" is an absurd suggestion.

      And I and my wife have decent salaries and job-related pensions to back us up. We're the fortunate ones. The lower 80% of income earners deserve so much more than what this country has given to them, but far too few seem to care to demand that. Too busy just surviving, I guess