Thursday, March 12, 2009
The wealth of the boomers
Mish Shedlock has a nice post up on the cruel double whammy that the boomers have endured on the verge of retirement: the drop in 401K values compounded with a sharp decline in home equity (which is further compounded in many cases by the fact that many boomers have spent much of their home equity, in anticipation of it always increasing).
He concludes that this will usher a permanent change in boomer attitudes and spending habits.
A structural shift in consumption to savings or at least reduced consumption, is in store for boomers. Meanwhile job prospects are looking pretty grim for some time to come across the entire economic spectrum. This economic backdrop is deflationary.
When you look at the data and use your brain, it does make make one skeptical about the Fed's liklihood of reinflating consumer driven economic growth anytime soon.
(Read the whole thing.)
17 Comments:
By 
, at
Thu Mar 12, 10:52:00 AM:
But, the stock market is only like a tracking poll, it goes up and down, but isn't important.
Who would say that?
By , at
Thu Mar 12, 12:36:00 PM:
What it means is, the Baby Boomers are going to implement socialist policies that will steal yet more wealth from their children and grandchildren.
Interesting how taxes go up when the Boomers needed them...as they went down when the Boomers were in prime earning years...
Don't know what the solution is, other than a "Modest Proposal."
Soylent Green is made of Baby Boomers! It's Baby Boomers!!!!
By , at
Thu Mar 12, 12:38:00 PM:
Part of this analysis was done by a "progressive" think tank, and therefore suspect.
I'm not mimimizing the sorry state of the economy....but if you have paid off your mortgage (like many seniors do) the market price of the house is less of an issue (for those who doubt, imagine you are only paying utilities on your place).
Second, the people who say seniors have lost 50% or 60% of their retirement: Well, if you're in equities it is pretty ugly, esp. if you've invested only since 1998
If you have a balanced portfolio then you are in better shape.
If you've been in treasuries/money market funds/bank CDs you're fine.
So, I don't doubt there are sad stories...but if you've taken a prudent approach to investing you probably are doing ok (maybe a little angry, but ok)
By , at
Thu Mar 12, 12:47:00 PM:
There were several anecdotes and some data in Mish's post, but it doesn't constitute a thorough analysis of the present environment.
The wild card will be how much the Democrats can ram down our throats. If they pay any attention to opinion polls, and they are all whores for opinion polls, then I suspect we will only see a slight (and brief) move leftward because the public simply hates what the Administration is doing. There is more Obama buyers’ remorse than any I can remember for a president in my lifetime, which is a function of hyper-inflated expectations.
A slight move left certainly will not help the economy, but it will not be a disaster. If that is the case, then the US economy will still be the most flexible, adaptable, and safest in the world. If the latter is true, then US entrepreneurs will come out of the woodwork and start putting to work the $3 - $5 trillion that is now sitting in cash and they will do amazing things with that capital if they are free to experiment and free to become rich. I do not fear the future.
Then, there are always the little things that government can do to stimulate in a big way; and no, I do not mean spend my money. What they could do right now to improve house prices, for example, will cost them and us nothing. They can simply accelerate the naturalization process for potential immigrants who can prove they have the financial resources and job prospects to purchase and keep a home. Our government could make it a condition that they must not sell the property for, say, five or ten years.
I cannot produce the number of millions of new home buyers that would add to housing demand off the top of my head, but given that we still have a monopoly on being the most desirable place in the world to live, I suspect it would be in the neighborhood of MILLIONs. And, it is as good an analysis as the anecdotes in the Mish post. I suspect that the housing crisis would be solved in about a month. And it is not like this would be an unprecedented move. Clinton twice accelerated the naturalization process for potential Democrats just before elections to buy votes for democrats.
By 
Gammer Gurton, at
Thu Mar 12, 01:33:00 PM:
After the "baby boom" came the "baby bust." The birth rate peaked in 1957, tapered off for a while, and declined sharply in 1964 (as I recall without actually looking up the dates). The "echo" began about 15 years later. Today the leading edge of the "busters" is about 45 years old, and the trailing edge is about 30 years old.
The "bust" causes a decline in demand. There aren't so many people to buy move-up houses. This hurts the boomers who own those houses and want to cash out. As icing on the cake, the mortgage-lending industry have already vacuumed up many of the most credit-worthy borrowers among the "busters" by lending them money more or less "on spec"--that is, in reliance on their future earnings prospects.
All in all, it looks to me as if there is going to be a real and long-term reduction on the demand side--not simply a temporary reluctance to buy.
By Unknown, at
Thu Mar 12, 02:55:00 PM:
If holders of equities did not sell but held tight they will be fine when the market returns, and it surely will one of these days. Right now all is doom and gloom. Never sell in a down market if you don't need the cash (assuming you are holding a diversified portfolio).
By Viking Kaj, at
Thu Mar 12, 03:10:00 PM:
The boomer wealth is about to hit the ballot box. Everybody who gets cleaned out will most likely not be voting for a Republican anytime soon.
Nobody has really sussed the ramnifications yet, but I suspect the Democrats want to delay the recovery as much as they can so long as they don't get blamed for it. Underpriviledged and newly bankrupted boomers will want national health and a whole lot more.
By , at
Thu Mar 12, 04:48:00 PM:
"In effect, Boomers will be competing with their children and grandchildren for jobs that in many cases do not pay living wages."
I love this. I'm being taxed to pay for health benefits I can't afford to provide for my own family.
Revolution.
By , at
Thu Mar 12, 06:31:00 PM:
Margaret ... that's the conventional wisdom. Allowing that you can't time the top or the bottom, if you went to something stable, or even cash, waiting for near the bottom of the 60% loss, you could then buy back in with 2.5X what you started with to ride back up. You wind up a lot wealthier. Do a simple excel schedule to show compounding and add in a big loss. You wait the rest of your life to get back to where you started.
Viking ... only if the GOP fails to use the media, using the lessons learning this past time around. Obama has written checks we can never cover, and I suspect even those who voted for him are privately wondering how this all ends. With each finger wag about accountability, he tries to appoint a tax cheat. About lobbyists, as he tries or does appoint one. About pork and favors, as he signs the spending bill. We know he's as imperfect as any other president, but folks are going to catch on ... and, with far fewer 'rich', he's going to have to tax the daylights out of the 'middle class' to foot the tab.
By SR, at
Thu Mar 12, 09:58:00 PM:
One of my friends puts it this way: The US is a huge debtor nation. Who can pay off the debt? The ones with money. I point out that given this, is it smart
economics to gut the wealth of those with money to pay off the debt? The answer is so obvious that the conclusion becomes inescapable that the purpose of the Obama administration is not to right the economic ship, but merely tow it along while it continues to take on more water. Sooner or later, all aboard will be crying for life rafts.
By Muggins, at
Sun Mar 15, 01:01:00 AM:
It's not generational. The boomers are roughly split up the middle, left versus right, with the left winning by a few percentage points. What are the percentages of women who voted for Democrats? How did the Hispanics of all ages vote? Those of African lineage? Jews? Compare those groups with boomers, and blaming this mess on boomers makes little sense.
By , at
Sun Mar 15, 01:25:00 AM:
The most interesting thing about Mish's post are the comments under his post. I have rarely read a comments aggregate that is so hopeless, helpless, bitter, etc.
Where are the creative folks who will entrepreneur us out of this recession? I am an older white- haired lady who would like to offer some advice to these people:
Find something to do that you love doing so much that you would do it for free...then do it and charge money for it. Create something.
We are probably about halfway through this recession. Don't buy high and sell low. We are probably looking at a trading range for awhile in a U shaped recession where we are approaching the bottom of the U.
We are going to be OK. This must be terrible for the xers who have never seen a brutal recession.
Hang in.
By , at
Sun Mar 15, 04:14:00 AM:
The most interesting thing about Mish's post are the comments under his post. I have rarely read a comments aggregate that is so hopeless, helpless, bitter, etc.
I'd noticed this as well. But I think that it's fair to say that Boomers are also prone to hysterics, though this is obviously a very broad generalization.
What's also interesting is that the great majority of the commenters don't acknowledge any responsibility for their situation.
But the only way for this situation to come about - if the analysis referenced is adequate - is from a lack of savings and a failure to diversify investments adequately. It appears that their retirement 'strategies' were almost wholly dependent on significant uninterrupted gains in home prices and equities.
By , at
Sun Mar 15, 08:03:00 AM:
That's true. But to a fair degree the Feds encouraged that investment / retirement strategy through low interest rates combined with the insanity of pushing sub-prime mortgages.
Lots of blame and denial for all in this mess.
By Jim, at
Sun Mar 15, 09:40:00 AM:
What the heck are Boomers doing in equities towards the end of their earning years? (Trying to make up for earlier losses, no doubt.)
By Kev, at
Mon Mar 16, 01:42:00 AM:
Where are the creative folks who will entrepreneur us out of this recession? I am an older white- haired lady who would like to offer some advice to these people:
Find something to do that you love doing so much that you would do it for free...then do it and charge money for it. Create something.
I believe that the white-haired lady speaks the truth here. It's the productive class who will get us out of this mess; the non-productive class (government, for one) didn't completely get us into it, but they won't (can't?) help us out of it. It's time for the productive class to be in charge again.
I realize that the Obama presidency does not want this to happen, but give it credit for (inadvertently) defining the true conflict here. The producers need to figure out a way to 1) step up and lead, and 2) knock the non-producers out of the way for good.
By , at
Mon Mar 16, 11:33:00 AM:
Jim at 9:40:
You must be planning to spend your last dollar on the last day of your life. If you are not planning that, then you should be in equities.
