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The US is Bankrupt
Old 09-10-2018, 01:42 AM   #1
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The US is Bankrupt

This was an interesting article (at least to me). The basic premise of the article is that the US is in financial trouble and it will affect how people should plan for retirement. Couple interesting points made are that you should work as long as youíre able and take SS as late as possible (I assume he means 70). More interesting was how to plan for retirement by focusing on your living standard versus the framework of the financial institutions which focus on your planned income. Unfortunately, the article didnít give a lot of information on how that would be done or how the two methods are different.

FWIW, I do agree with the basis of the article, that our country is way over committed and that the chickens will come to roost in my expected lifetime. Iím not sure it will be catastrophic, but I believe it will be painful. I just wish I had a better plan as to how to best deal with this. I read the book, by this economist, The Coming Generational Storm several years ago. Maybe itís time to go back and read it again as I work to make my money last as long as my life.

This economist thinks the US is bankrupt. What that means for your retirement
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Old 09-10-2018, 05:07 AM   #2
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Originally Posted by Jerry1 View Post
This was an interesting article (at least to me). The basic premise of the article is that the US is in financial trouble and it will affect how people should plan for retirement. Couple interesting points made are that you should work as long as youíre able and take SS as late as possible (I assume he means 70). More interesting was how to plan for retirement by focusing on your living standard versus the framework of the financial institutions which focus on your planned income. Unfortunately, the article didnít give a lot of information on how that would be done or how the two methods are different.

FWIW, I do agree with the basis of the article, that our country is way over committed and that the chickens will come to roost in my expected lifetime. Iím not sure it will be catastrophic, but I believe it will be painful. I just wish I had a better plan as to how to best deal with this. I read the book, by this economist, The Coming Generational Storm several years ago. Maybe itís time to go back and read it again as I work to make my money last as long as my life.

This economist thinks the US is bankrupt. What that means for your retirement
Upon reading the article, it appears a company that sells software to tell you about your retirement needs has decided to use the scare tactic of "country is bankrupt" to sell his products. He admits he is not in it for the profit, which is the first sign of a politician(he ran for president twice). I also found his leaning to a socialist viewpoint in this quote-

"Why is that the country is so broke that it can't help young people?" Kotlikoff said. "Why can't we put them through college like they do in other countries? Why can't we give them a decent interest rate on their student loans rather than exploiting them?"

I didn't find much new in the article that has not already been plastered on the internet.

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Old 09-10-2018, 05:16 AM   #3
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That's not an article, it's an infomercial for his software. And not even a good one.
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Old 09-10-2018, 05:20 AM   #4
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That's not an article, it's an infomercial for his software. And not even a good one.
A good example of why we are so frustrated by knowing what is news and what is not.
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Old 09-10-2018, 05:41 AM   #5
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My simplistic approach on trying to understand this and wrapping my head around bankruptcy...

- US debt is just over 100% of GDP... so if I made $100k, my debt is just over $100K..
- the interest payments is 3.5+% of GDP to growing quickly based on new tax reforms... I wonder what that number is relative to what the US government collects

The first point isn’t bad IMO but the second point worries me especially since the economy is currently humming
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Old 09-10-2018, 06:56 AM   #6
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A good example of why we are so frustrated by knowing what is news and what is not.
Eh, don't really think many people are getting their news from MSN and considering it a day. Hope not anyway.

If people want to believe doom and gloom, there's plenty of fodder like this to be found.
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Old 09-10-2018, 07:46 AM   #7
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I agree that the federal government is on an unsustainable financial path. And, it appears a majority of politicians are perfectly happy to make that worse if it means either more money for campaigns or more votes.

But, I don't know how to put this into practical retirement planning. I don't know what will happen when the piper needs to be paid. Higher taxes, but which taxes and which people? Lower government benefits, but which benefits and which formulas get changed? Formal "restructuring" of federal debt, but how and which private firms go under as a result? More inflation, but which private firms can ride that out, and will TIPS protect me?
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Old 09-10-2018, 08:00 AM   #8
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Actually, I discovered Kotlikoff's ESPlanner software many years ago, when it was just Larry and a contract programmer. Even then it was light-years ahead of simple things like Firecalc. It's strength was its weakness: It required an incredible amount of detailed data input and even after the data was gathered it was tedious to enter.

Anyway, I sent in some kind of support request and ended up with Larry calling me. We talked for quite a while. He's an incredible guy and very genuine. No huckster and no politician at all. If anything, maybe an idealist. My sense is that ESPlanner is more of a hobby with a mission for him and I'm sure he has invested far more time and money in it than he will ever get paid for. ESPlanner is a very minor activity for him and is hardly mentioned in his bio: https://en.wikipedia.org/wiki/Laurence_Kotlikoff

As an economic forecaster, like all of them, maybe not so much. Attributed to John Kenneth Galbraith: "The purpose of economic forecasting is to make astrology look good."
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Old 09-10-2018, 08:04 AM   #9
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Originally Posted by Jerry1 View Post
This was an interesting article (at least to me). The basic premise of the article is that the US is in financial trouble and it will affect how people should plan for retirement. Couple interesting points made are that you should work as long as youíre able and take SS as late as possible (I assume he means 70). More interesting was how to plan for retirement by focusing on your living standard versus the framework of the financial institutions which focus on your planned income. Unfortunately, the article didnít give a lot of information on how that would be done or how the two methods are different.

FWIW, I do agree with the basis of the article, that our country is way over committed and that the chickens will come to roost in my expected lifetime. Iím not sure it will be catastrophic, but I believe it will be painful. I just wish I had a better plan as to how to best deal with this. I read the book, by this economist, The Coming Generational Storm several years ago. Maybe itís time to go back and read it again as I work to make my money last as long as my life.

This economist thinks the US is bankrupt. What that means for your retirement
I prefer to look at debit vs GDP https://tradingeconomics.com/united-...nt-debt-to-gdp

Yes we have tons of debit but our economy is huge. Japan is in much worst shape yet their standard of living is high. Add to this vast natural resources like oil, coal, natural gas, and vast amounts of wood. The debit is sustainable. People have been preaching doom and gloom since the 80s. Almost 40 years later we are still doing ok. Now I am not saying that we are not in decline. We clearly are like any world empire in history. China is rising and will pass us eventually becoming the most powerful world power.

But it will take a long time and a lot more debit for us to really be bankrupt and in trouble.

I doubt we will see it in our lifetime....

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Old 09-10-2018, 08:15 AM   #10
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Eh, don't really think many people are getting their news from MSN and considering it a day. Hope not anyway.

If people want to believe doom and gloom, there's plenty of fodder like this to be found.
I disagree. Many people are reading or watching <insert a name here> and calling it a day.
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Old 09-10-2018, 08:25 AM   #11
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I use Kotlikoff's software and it's been a great tool for my early retirement. However, in opposition to his point of view, here is what I believe to be true:

1) The US Government is the bank to the world. Similiar to the bank in a game of Monopoly, it is impossible for the bank to go bankrupt. As per the game instructions, if the bank runs out of the supplied money pieces, it can use any substitute as money, i.e. skittles, m&m's, playing cards, or make its own from paper. Either way, no matter what deals the players make, the bank can never not supply the funds for a transaction.

2) The debt will continue to grow in nominal value, and although politicians will use this fact to manipulate the population, it is built in to our current economic system of fiat money.

3) There will always be winners and losers in the economy during both expansions and recessions, but catastrophic failure of the system, I'm not holding my breath. Take the 2008 collapse for example, lots and lots of doom and gloom, but in the end the "bank" produced $700B out of thin air that it didn't have and voila', the system continued on. Same with funding war adventures such as Iraq 2003.

I may be naive and wrong on all this, but that's my story and I'm sticking to it. Been sleeping pretty well since I stopped buying in to all the doom and gloom associated with the economy and government debt.
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Old 09-10-2018, 08:31 AM   #12
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My simplistic approach on trying to understand this and wrapping my head around bankruptcy...

- US debt is just over 100% of GDP... so if I made $100k, my debt is just over $100K..
- the interest payments is 3.5+% of GDP to growing quickly based on new tax reforms... I wonder what that number is relative to what the US government collects

The first point isnít bad IMO but the second point worries me especially since the economy is currently humming
But if you had $10 million in assets behind you would you really worry about the fact that your debt equals all that you make? I know I wouldn't.
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Old 09-10-2018, 08:51 AM   #13
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+1 Let's say that you have $20k of income and $20k of debt at 3.5% with a 15 year amortization... the annual payments would be $1.7k or 8.6% of your income... quite affordable given that most lenders would allow someone to have much more debt.

Now, just multiply each of those numbers above by $1 billion and you will have the GDP and debt of the U.S.
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Old 09-10-2018, 09:02 AM   #14
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+1 Let's say that you have $20k of income and $20k of debt at 3.5% with a 15 year amortization... the annual payments would be $1.7k or 8.6% of your income... quite affordable given that most lenders would allow someone to have much more debt.

Now, just multiply each of those numbers above by $1 billion and you will have the GDP and debt of the U.S.
But ... the US is not paying its debt down. It is constantly increasing its borrowing while making interest-only payments. So unless you are also multiplying 15 by a billion to get a 15 billion year amortization, the comparison falls down.


I am still optimistic that my non-US investments will prosper as the world knocks the value of the dollar down. When? I don't know.
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Old 09-10-2018, 09:02 AM   #15
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+1 Let's say that you have $20k of income and $20k of debt at 3.5% with a 15 year amortization... the annual payments would be $1.7k or 8.6% of your income... quite affordable given that most lenders would allow someone to have much more debt.

Now, just multiply each of those numbers above by $1 billion and you will have the GDP and debt of the U.S.
I think on of the points being made and it is also shown on the debt clock is that itís more than just the debt. Itís all of the unfunded obligations. In particular, the cost of Medicare for the baby boom about to move through the system. Not to mention the 25% potential cut in SS that weíve discussed here thatís labeled as a shortfall. Add to that public pensions, and I worry. Of course Iím a worrier.

U.S. National Debt Clock : Real Time
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Old 09-10-2018, 09:06 AM   #16
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+1 Let's say that you have $20k of income and $20k of debt at 3.5% with a 15 year amortization... the annual payments would be $1.7k or 8.6% of your income... quite affordable given that most lenders would allow someone to have much more debt.

Now, just multiply each of those numbers above by $1 billion and you will have the GDP and debt of the U.S.


I like the way you put that. That said...it depends on how many kids and wives I have to feed with the balance of my income.
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Old 09-10-2018, 09:08 AM   #17
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My simplistic approach on trying to understand this and wrapping my head around bankruptcy...

- US debt is just over 100% of GDP... so if I made $100k, my debt is just over $100K..
- the interest payments is 3.5+% of GDP to growing quickly based on new tax reforms... I wonder what that number is relative to what the US government collects

The first point isnít bad IMO but the second point worries me especially since the economy is currently humming
Stop paying for things you use and grow your economy. The pie is infinite
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Old 09-10-2018, 09:45 AM   #18
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+1 Let's say that you have $20k of income and $20k of debt at 3.5% with a 15 year amortization... the annual payments would be $1.7k or 8.6% of your income... quite affordable given that most lenders would allow someone to have much more debt.

Now, just multiply each of those numbers above by $1 billion and you will have the GDP and debt of the U.S.
Yes, it looks "affordable". But, for the family that has been consistently running up the debt, just keeping the balance flat will require some changes in lifestyle. That's the issue with the federal gov't.

The projected deficit for 2019 is 22% of spending or 28% of revenue (because revenue is just 78% of spending).

If we want to merely avoid adding debt, we need to find a way to cut spending by 22%. Which categories of spending should be cut? Well, the big numbers are Defense, Social Security, and Medicare.

Or, we need to increase taxes by 28%. Who is going to pay 28% more tax?
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Old 09-10-2018, 10:12 AM   #19
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... If we want to merely avoid adding debt, we need to find a way to cut spending by 22%. Which categories of spending should be cut? Well, the big numbers are Defense, Social Security, and Medicare. ...
I saw a presidential budget a few years ago that showed total tax revenue approximately equal to defense plus entitlements. Everything else was to be funded with borrowed money. Not sure how it is now but probably no better.
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Old 09-10-2018, 11:09 AM   #20
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Originally Posted by pb4uski View Post
+1 Let's say that you have $20k of income and $20k of debt at 3.5% with a 15 year amortization... the annual payments would be $1.7k or 8.6% of your income... quite affordable given that most lenders would allow someone to have much more debt.

Now, just multiply each of those numbers above by $1 billion and you will have the GDP and debt of the U.S.
I think the analogy of personal debt/borrowing against future income is instructive. At least for me, it adds some perspective. So, let’s use Kotlikoff’s figures of $20T current debt and $200T shortfall against all future revenue, then compare it to the personal level. I know there are some weaknesses in this line of argument but, I do believe it gives some much needed perspective for these discussions.

Current Shortfall:
- $20T current debt against GDP is ~100% of GDP
- At the time we bought our first house & DW was in grad school, we had ~$120k debt against annual income (GDP) of ~$40k, ~300% of our “GDP”
- Our situation was 3-times worse (more leveraged) than the US, and we’ve come out just fine.

Total Future Shortfall:
- $200T total current & future obligations against $20T GDP is 10 times ‘annual’ GDP
- If I define our ‘personal future obligations’ as taxes + home mtge over our working lifetime, I get ~20 times an estimated average annual salary. (Note: I’m not sure this is the best way to define this; would like to hear other’s thoughts & ratios)
- Our situation is 2 times worse than the US

By these measures, I should be less concerned than Kotlikoff in his article. But, there could certainly be faults in my analysis.
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