Gary North uses the economy of recreation vehicle capital of America, Elkhart, Indiana, to describe how the illusions of easy money and overspending have ambused many Americans.
Link: Retirement Living in Elkhart, Indiana by Gary North
Over the last 18 months, Americans over age 55 have suffered a reversal in their capital that has not fully registered psychologically. They will not be able to afford a comfortable retirement.
This was true 18 months ago, just less obvious. Very few Americans enjoy a combination of private pensions, annuities, and Social Security payments sufficient to fund what Social Security says retirees need: at least 70% of their pre-retirement income in the last year of employment. They are oblivious to this assessment on the Social Security website.
Today, about half of all workers are covered under an employer-sponsored pension, and many people are not saving as much as they should. While Social Security replaces about 40 percent of the average worker’s pre-retirement earnings, most financial advisors say that you will need 70 percent or more of pre-retirement earnings to live comfortably. Even with a pension, you will still need to save. If you will not have a private pension, you will need to save more – and start saving sooner.Yet throughout Greenspan’s bubble economy, the savings rate of American households fell, going negative in 2005. The boom fooled Americans who owned stocks that they were getting richer. They weren’t. They were merely benefitting from the greater fool theory of investing. That theory has brought down the real estate bubble. There will be further declines. It has ended the stock market mania. And it has just about shut down Elkhart, Indiana.
Americans have not yet recognized what has been done to them by the Federal Reserve System and the highly leveraged banks and hedge funds that thought the good ship Effortless Wealth had come into port. The hot-shots did not understand Ludwig von Mises’ theory of the business cycle as the product of central bank monetary inflation. They never saw it coming.
Now the investors who believe the same dream, but without multimillion dollar severance deals, have seen their dreams called into question.
They have not yet dumped their stocks. They have just stopped buying as many. The fall of 55% by the Dow and the S&P 500 was not accompanied by a huge sell-off. The decline has been one of dribbling away. The dreams of would-be retirees have not yet been smashed. They have merely dribbled away. The crash has not yet come. It will.
STAGES OF DECEPTION
First, there is a dream: easy prosperity. This dream is funded by fiat money. Next, there is a boom: easy prosperity. This boom is funded by fiat money. Next, there is reality: the stabilization of fiat money. Next, there is recession: the end of the dream.
Then what?
In the conventional scenario, there is recovery. But recovery since Greenspan arrived as chairman in October 1987 has always been based in more fiat money. That was his solution to the 22% one-day fall in the stock market in 1987. That was his solution to Bush I’s recession in 1991. That was his response to the recession of 2001 and 9-11. Again and again, fiat money solved the problem. It brought back the recovery.
It is not working this time. The federal funds rate is at 0%. The economy is still falling. The Federal deficit is headed toward $2 trillion a year. No recovery is visible.
When recovery comes, it will be accompanied by price inflation on a scale never seen in peacetime America. Those who rely on pension payments and annuities will see their income shrink. They will be the primary victims.
The target market of the RV industry will be the victims of the recovery’s familiar solution: fiat money. They will remain the victims for the foreseeable future.
The people at CNBC do not see this yet. The high-paid hot shots on Wall Street who lost their jobs may suspect that the gravy train has gone off the rails, but what can they do about it? They are trained in high finance, and high finance is now an appendage of the Federal government. The era of salaries has replaced the era of stock options and bonuses. The Democrats have vowed that the old days will not return. I don’t think the Republicans are likely to run on a platform to bring back the world that ended in 2008.
When they run on a platform to end Medicare, I will be impressed. In 2016 or 2017, and maybe earlier, Medicare goes into the red. At that point, political reality will meet actuarial reality. There will be an inter-generational pile-up. The geezers will lose. They won’t have the votes in Congress.
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