11A005 The Bulge Arrives by Jim Davies, 1/5/2011    

It's been predicted since the 1970s to my knowledge, but the news of it hit PBS' News Hour on Monday just as if it were a surprise: the baby-boom generation has officially begun to retire, meaning that the FedGov's "Social Security" scheme is in trouble. Observe this exchange, on that show:

JUDY WOODRUFF: So, Ted Fishman, how well-prepared is the rest of society to care for all these boomers getting older?
TED FISHMAN: Yes, we're not prepared right now. We're in a bit of a panic.

The boomers represent a moving "bulge" in the US population, for the US birth rate in the two decades following 1945 was abnormally high. As these folk retire they will absorb SS handouts instead of "contributing" to them; that's the bulge. It was predictable, and predicted. On my shelf is a book by Peter Ferrara called "Social Security: the Inherent Contradiction" published thirty years ago which can now be read on-line and which includes this sober footnote on page 122: "By the time young people now [1980] entering the work force retire social security tax rates will have to be raised to 25% or 33% of the taxable payroll, just to pay them currently legislated benefits. It is doubtful whether taxpayers will be willing to accept these tax rates." No, really?

Ferrara's book traces historic fertility rates and notes on page 178 that "These changes in fertility create the worst possible population mix for a pay-as-you-go system - a baby boom followed by a baby-bust." That's the "bulge" for which Fishman says "we're not prepared right now." Contradiction was put out by the Cato Institute, and subsequently the Greenspan Commission raised SS rates from 12% to 15.3%, but that merely postponed the crunch. It is now 30 years closer, and we can notice that this severe "bulge" problem is additional to the fundamental flaws of the scheme outlined in this Blog last August 6th. In 1960 5.1 workers supported each beneficiary, in 2007 the ratio was 3.3, and by 2032 it's projected to be 2.1.

For as long as government survives (less than another 20 years, by my count) so will its SS scheme; it's politically too dangerous to touch. Therefore, until the happy day when both vanish, we have to plan our defense from the looting - which will take the form of reduced benefits and increased taxes. Yesterday's ZGBlog warned of a third trick that may supplement them - confiscating private supplemental pensions - and showed the best defense: gold coin, bought in small lots over many years. I worked out that had one bought just 2 ounces a year for the past 37 years, one would now have a nest-egg of 419 ounces, worth 587,000 current dollars - enough for quite a decent annuity. Not, of course, to be kept in a government-licensed bank vault.

After E-day, savings will be safe from predation in much more productive places, as working capital for industry that will accelerate everyone's living standards. One more huge benefit of a zero government society.

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