Monday, March 9, 2015

So, what are you doing in 2030?

Hat tip to Borepatch

Graphic from HERE

While Social Security and Medicaide/Obamacare are growing, the elements that are really exploding are Medicare and the Net Interest.

Net Interest is the ticking bomb.  The Central Bankers have beaten the interest rates down by flooding the markets with liquidity.  This would normally cause inflation to explode but we have a situation where every country is tacitly colluding and following the same path.  To date, the United States has been perceived as the least dirty shirt in the laundry hamper.  Our currency's value has been holding up for lack of better choices in world markets.

Historically, investors demanded a return of two or three percentage points more than the rate of inflation. The most commonly quoted figures quoted for inflation are published by the Government.  Needless to say, they have a vested interest in under-reporting the actual rate of inflation experienced by the economy.

The chart shows I have fifteen years before things get squirrelly.  I will be seventy years old.  Strategically, it will be to my advantage to deploy my parachute well before I am seventy. I ain't getting any younger.  A fact that might be out of my control if inflation speeds up.


One advantage that the US has is that there will be plenty of examples to study.  There will be an abundance of both good outcomes and poor outcomes.

As developed economies go, the US  is in much better shape than Japan or Western Europe.  We have more favorable demographics and less debt than Japan and in spite of our rush to Socialist policies we are less committed than Western Europe.

Internally, there are many sub-populations that are much further down the demographic/debt path than the general US economy.  Examples include Roman Catholic religious orders,  unionized workers in rust belt industries (like the autoworkers) and municipal workers in older, decaying core cities. 

Opportunities were lost during the 2009 Chapter 11 Reorganizations of GM and Chrysler.  Imagine the data that could have been generated by randomly assigning (perhaps by Social Security Number) individuals to competing medical + pension schemes that appear(ed) actuarially equivalent at the start of the experiment.  It was a chance to run a simulation of the US trajectory 20 years before the fertilizer hits the ventilator for the rest of us.

There will be more opportunities in the future.  Shame on us if we do not capture the critical back-story on those experiments.  Unplanned experiments can have value if the people living through them have awareness.  Ivory Soap was an unplanned experiment.  Penicillin was an unplanned experiment.  One of the mutations that led to Sugar Snap Peas was an unplanned experiment.

Be aware.  Document.  Be nimble and light on your feet.

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