Generational Storm

I finished up “The Coming Generational Storm” (CGS) while up on a fishing trip to Winnibigosh. The weather is actually beautiful on our fall trip, maybe a good reason to do it a bit earlier in the future as we have this year.

CGS can be summarized as saying that we have been far to profligate for far too long in making promises to the old and eventual old, and the house of cards is about to crash … soon. Interestingly, we are better off than Japan and most of Western Europe with the exception of Great Britain. These guys try somewhat hard to be even handed, so I’d say they are “mostly in the middle” politically. They do their share of Bush bashing, but they point out that unlike the rest of Western Europe, and thanks to Margaret Thatcher, England has kept a lid on Government pensions and the growth of their medical system so they have a decent chance to avoid the perils of ever increasing liabilities and reduced population to keep paying that beset Japan, the rest of Western Europe, and to a lesser degree, the US.

The core of their claim is that we have an unfunded future liability of $51 Trillion listed in decreasing order of severity when Medicaid, Medicare, Social Security, and the national debt are counted. They maintain that there is no way we are going to cut benefits or raise taxes at anything like the rate required to pay that liability so the most likely outcome is hyperinflation and a wrecked economy. If we were so inclined, they propose the following plan that could still work:

1. Immediately stop accrual of benefits under the current Social Security(SS) program.
2. Current retirees and workers get whatever they have already accrued under SS.
3. The SS payroll tax is eliminated and replaced with equivalent investment into Personal Security System (PSS) accounts
4. A new federal retail sales tax of 12% that would reduce over time is initiated to pay off the benefits under the old system.
5. Workers PSS accounts are shared 50/50 with their spouses.
6. The government does PSS accounts on behalf of disabled and unemployed
7. The government matches PSS accounts on a progressive basis.
8. All PSS balances are invested in a single market weighted global index fund of stocks, bonds, and real estate.
9. The government guarantees the real principle that workers contribute to their PSS accounts.
10. Between ages of 57 and 67, workers PSS balances are gradually sold and transformed into inflation protected pensions.
11. If a worker dies prior to 67, any remaining PSS balances are transferred to PSS accounts of the workers heirs.

They spend a lot of time on the whys and wherefores, and I’d have to say that while I don’t agree with it all, they make rational arguments and it does have a bit of “pain for everyone” so if the world was rational, there is some chance it would be accepted. It doesn’t appear that the world IS rational however, so they indicate that it is time to “buy land and stock ammo”. Well, they aren’t actually that morose, but somewhat close.

In preparation for hyperinflation downsize but own your home, save, save, save, but not in 401K accounts since the government is going to be taxing those like crazy. Get in inflation adjusted securities, very broad market indexes that have an overseas component as well, and even some gold. While the pre-industrial life tended to be “Nasty, Brutish and Short”, they seem to be setting up for a case where the boomer old age will be “Nasty, Brutish, and Long”.

The book is a depressing but worthy read. I like to be a bit more optimistic than they are, but they do an excellent job of making the future look dark and knocking down any hopeful ideas one might have on how it could get better; technology/productivity improvement, globalization efficiencies, smarter immigration, people working longer … etc. In their world nothing works and doom wins. That is always a hard view to completely ignore, for it is certainly true that in the long run we are all dead.