Bretton Woods System, Quasi Gold Standard, Inflation, Savings, Nixon Shock and Monetizing the Debt

Posted by PITHOCRATES - February 4th, 2014

History 101

(Originally published 2/5/2013)

The Bretton Woods System was a quasi Gold Standard where the U.S. Dollar replaced Gold

Government grew in the Sixties.  LBJ’s Great Society increased government spending.  Adding it on top of spending for the Vietnam War.  The Apollo Moon Program.  As well as the Cold War.  The government was spending a lot of money.  More money than it had.  So they started increasing the money supply (i.e., printing money).  But when they did they unleashed inflation.  Which devalued the dollar.  And eroded savings.  Also, because the U.S. was still on a quasi gold standard this also created a problem with their trade partners.

At the time the United States was still in the Bretton Woods System.  Along with her trade partners.  These nations adopted the U.S. dollar as the world’s reserve currency to facilitate international trade.  Which kept trade fair.  By preventing anyone from devaluing their currency to give them an unfair trade advantage.  They would adjust their monetary policy to maintain a fixed exchange rate with the U.S. dollar.  While the U.S. coupled the U.S. dollar to gold at $35/ounce.  Which created a quasi gold standard.  Where the U.S. dollar replaced gold.

So the U.S. had a problem when they started printing money.  They were devaluing the dollar.  So those nations holding it as a reserve currency decided to hold gold instead.  And exchanged their dollars for gold at $35/ounce.  Causing a great outflow of gold from the U.S.  Giving the U.S. a choice.  Either become responsible and stop printing money.  Or decouple the dollar from gold.  And no longer exchange gold for dollars.  President Nixon chose the latter.  And on August 15, 1971, he surprised the world.  Without any warning he decoupled the dollar from gold.  It was a shock.  So much so they call it the Nixon Shock.

To earn a Real 2% Return the Interest Rate would have to be 2% plus the Loss due to Inflation

Once they removed gold from the equation there was nothing stopping them from printing money.  The already growing money supply (M2) grew at a greater rate after the Nixon Shock (see M2 Money Stock).  The rate of increase (i.e., the inflation rate) declined for a brief period around 1973.  Then resumed its sharp rate of growth around 1975.  Which you can see in the following chart.  Where the increasing graph represents the rising level of M2.

M2 versus Retirement Savings

Also plotted on this graph is the effect of this growth in the money supply on retirement savings.  In 1966 the U.S. was still on a quasi gold standard.  So assume the money supply equaled the gold on deposit in 1966.  And as they increased the money supply over the years the amount of gold on deposit remained the same.  So if we divide M2 in 1966 by M2 in each year following 1966 we get a declining percentage.  M2 in 1966 was only 96% of M2 in 1967.  M2 in 1966 was only 88% of M2 in 1968.  And so on.  Now if we start off with a retirement savings of $750,000 in 1966 we can see the effect of inflation has by multiplying that declining percentage by $750,000.  When we do we get the declining graph in the above chart.  To offset this decline in the value of retirement savings due to inflation requires those savings to earn a very high interest rate.

Interest Rate - Real plus Inflation

This chart starts in 1967 as we’re looking at year-to-year growth in M2.  Inflation eroded 4.07% of savings between 1966 and 1967.   So to earn a real 2% return the interest rate would have to be 2% plus the loss due to inflation (4.07%).  Or a nominal interest rate of 6.07%.  The year-to-year loss in 1968 was 8.68%.  So the nominal interest rate for a 2% real return would be 10.68% (2% + 8.68%).  And so on as summarized in the above chart.  Because we’re discussing year-to-year changes on retirement savings we can consider these long-term nominal interest rates.

Just as Inflation can erode someone’s Retirement Savings it can erode the National Debt

To see how this drives interest rates we can overlay some average monthly interest rates for 6 Month CDs (see Historical CD Interest Rate).  Which are often a part of someone’s retirement nest egg.  The advantage of a CD is that they are short-term.  So as interest rates rise they can roll over these short-term instruments and enjoy the rising rates.  Of course that advantage is also a disadvantage.  For if rates fall they will roll over into a lower rate.  Short-term interest rates tend to be volatile.  Rising and falling in response to anything that affects the supply and demand of money.  Such as the rate of growth of the money supply.  As we can see in the following chart.

Interest Rate - Real plus Inflation and 6 Month CD

The average monthly interest rates for 6 Month CDs tracked the long-term nominal interest rates.  As the inflationary component of the nominal interest rate soared in 1968 and 1969 the short-term rate trended up.  When the long-term rate fell in 1970 the short-term rate peaked and fell in the following year.  After the Nixon Shock long-term rates increased in 1971.  And soared in 1972 and 1973.  The short-term rate trended up during these years.  And peaked when the long-term rate fell.  The short term rate trended down in 1974 and 1975 as the long-term rate fell.  It bottomed out in 1977 in the second year of soaring long-term rates.  Where it then trended up at a steeper rate all the way through 1980.  Sending short-term rates even higher than long-term rates.  As the risk on short-term savings can exceed that on long-term savings.  Due to the volatility of short-term interest rates and wild swings in the inflation rate.  Things that smooth out over longer periods of time.

Governments like inflationary monetary policies.  For it lets them spend more money.  But it also erodes savings.  Which they like, too.  Especially when those savings are invested in the sovereign debt of the government.  For just as inflation can erode someone’s retirement savings it can erode the national debt.  What we call monetizing the debt.  For as you expand the money supply you depreciate the dollar.  Making dollars worth less.  And when the national debt is made up of depreciated dollars it’s easier to pay it off.  But it’s a dangerous game to play.  For if they do monetize the debt it will be very difficult to sell new government debt.  For investors will demand interest rates with an even larger inflationary component to protect them from further irresponsible monetary policies.  Greatly increasing the interest payment on the debt.  Forcing spending cuts elsewhere in the budget as those interest payments consume an ever larger chunk of the total budget.  Which governments are incapable of doing.  Because they love spending too much.

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A Weak Currency may Boost Exports but it will Raise all Prices Businesses and Consumers Pay

Posted by PITHOCRATES - February 24th, 2013

Week in Review

China created a booming economy thanks to a healthy export market.  In part because of their cheap labor.  An in part by keeping their currency weak.  For when you buy goods from China you first have to exchange your currency for theirs.  If your currency is stronger than theirs is you will get a lot more of theirs in exchange for yours.  Allowing you to buy a lot more Chinese goods with your stronger currency.  This is why China likes to have a weak currency.  And takes actions to keep it artificially weak.  Something her trading partners don’t like.  For their weaker currency tends to make the net flow of goods in international trade with China flowing from China to everyone else.  Thus giving China a healthy export market.  At the expense of everyone else’s export market.

But China is a developing economy.  Things change when you become an advanced economy.  Because you don’t have impoverished masses filling your factories manufacturing goods for export.  You have a thriving middle class.  With a high standard of living.  With good jobs giving them disposable income.  And few of them work in the export economy.  So despite all the talk about unfair trade practices of China most people in an advanced economy don’t worry that much about trade deficits.  For they’re buying a lot of imported goods.  From smartphones to coffee beans.  And a weak currency makes these items more expensive.

So there are two sides to the value of your currency.  If you have impoverished masses filling factories to build export goods a weak currency is good.  It lets the state sell more of those export goods.  In an export-dominated economy.  And provides a lot of low-paid factory jobs.  If you have a thriving middle class a strong currency is good.  For it lets the people buy a lot of stuff.  Creating a lot of better paying non-factory jobs.  In a non-export-dominated economy.  Basically the difference between free market capitalism.  And mercantilism (see Is the World on the Brink of a Currency War? by Michael Sivy posted 2/21/2013 on Time).

Currency wars – and trade wars generally – have their origins in a 17th and 18th century economic theory known as mercantilism. The idea was that a country’s wealth comes from selling more than it buys. A colonial empire could achieve this positive balance of trade by acquiring cheap raw materials from its colonies and then ensuring that it exported more finished goods than it imported. This was usually accomplished with tariffs that made imports very expensive.

Such an approach couldn’t work in the modern world. Countries don’t get cheap raw materials from colonies anymore. They have to buy them – especially oil – on the open market. So while currency devaluation makes exports cheaper for foreign buyers, it also makes essential imports more expensive. For Europe in particular, which imports so much of its energy, devaluation isn’t necessarily a plus…

The Federal Reserve’s quantitative easing – buying bonds to swell the money supply – is aimed principally at stimulating domestic demand. European advocates of a cheaper euro currency, meanwhile, are hoping to make national debt easier to finance, not trying to pump up exports. In fact, the continent’s greatest exporter, Germany, is the country least amenable to currency devaluation…

So forget all the talk of a currency war. What’s going on has nothing to do with trade and everything to do with debt and growth and inflation. If the global economy is in danger of reliving the past, it will not be a repeat of the 1930s. Rather, it will be a repeat of the 1970s, when the Federal Reserve expanded the money supply to offset the economic slowdown caused by the oil crisis – and ended up encouraging double-digit inflation.

The double-digit inflation of the Seventies really devalued the currency.  Raised prices.  Greatly limiting the amount of stuff people could buy.  Even though printing money then didn’t work these nations believe it will work now.  Because it will make their exports cheaper for foreigners to buy.  Despite making everything more expensive inside their own country.

But there is another reason they love to print money.  It lets them spend more.  And it makes old debt easier to pay off.  We call it monetizing the debt.  For example, if a nation has a GDP of $1 million and a debt of $500,000 that debt is huge.  It’s 50% of GDP.  But if we turn on the printing presses and devalue the currency to one tenth of its original value that GDP is now $10 million ($1 million divided by 1/10).  Making that outstanding debt only 5% of GDP.  And a whole lot easier to repay.  But what is one person’s debt is another person’s retirement savings.  So not only does inflation increase prices it destroys our retirement savings.  And all this just so we can boost the small sliver of our economy we call exports.

If this is so bad on so many levels why do governments print money then?  For one simple reason.  To get people to vote for them.  Because all the people see is the free stuff the politicians are giving them.  The damage it causes comes later.  And they can always blame that on Republicans.  Who refuse to raise tax rates on rich people to make them pay their fair share.

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Bretton Woods System, Quasi Gold Standard, Inflation, Savings, Nixon Shock and Monetizing the Debt

Posted by PITHOCRATES - February 5th, 2013

History 101

The Bretton Woods System was a quasi Gold Standard where the U.S. Dollar replaced Gold

Government grew in the Sixties.  LBJ’s Great Society increased government spending.  Adding it on top of spending for the Vietnam War.  The Apollo Moon Program.  As well as the Cold War.  The government was spending a lot of money.  More money than it had.  So they started increasing the money supply (i.e., printing money).  But when they did they unleashed inflation.  Which devalued the dollar.  And eroded savings.  Also, because the U.S. was still on a quasi gold standard this also created a problem with their trade partners.

At the time the United States was still in the Bretton Woods System.  Along with her trade partners.  These nations adopted the U.S. dollar as the world’s reserve currency to facilitate international trade.  Which kept trade fair.  By preventing anyone from devaluing their currency to give them an unfair trade advantage.  They would adjust their monetary policy to maintain a fixed exchange rate with the U.S. dollar.  While the U.S. coupled the U.S. dollar to gold at $35/ounce.  Which created a quasi gold standard.  Where the U.S. dollar replaced gold.

So the U.S. had a problem when they started printing money.  They were devaluing the dollar.  So those nations holding it as a reserve currency decided to hold gold instead.  And exchanged their dollars for gold at $35/ounce.  Causing a great outflow of gold from the U.S.  Giving the U.S. a choice.  Either become responsible and stop printing money.  Or decouple the dollar from gold.  And no longer exchange gold for dollars.  President Nixon chose the latter.  And on August 15, 1971, he surprised the world.  Without any warning he decoupled the dollar from gold.  It was a shock.  So much so they call it the Nixon Shock.

To earn a Real 2% Return the Interest Rate would have to be 2% plus the Loss due to Inflation

Once they removed gold from the equation there was nothing stopping them from printing money.  The already growing money supply (M2) grew at a greater rate after the Nixon Shock (see M2 Money Stock).  The rate of increase (i.e., the inflation rate) declined for a brief period around 1973.  Then resumed its sharp rate of growth around 1975.  Which you can see in the following chart.  Where the increasing graph represents the rising level of M2.

M2 versus Retirement Savings

Also plotted on this graph is the effect of this growth in the money supply on retirement savings.  In 1966 the U.S. was still on a quasi gold standard.  So assume the money supply equaled the gold on deposit in 1966.  And as they increased the money supply over the years the amount of gold on deposit remained the same.  So if we divide M2 in 1966 by M2 in each year following 1966 we get a declining percentage.  M2 in 1966 was only 96% of M2 in 1967.  M2 in 1966 was only 88% of M2 in 1968.  And so on.  Now if we start off with a retirement savings of $750,000 in 1966 we can see the effect of inflation has by multiplying that declining percentage by $750,000.  When we do we get the declining graph in the above chart.  To offset this decline in the value of retirement savings due to inflation requires those savings to earn a very high interest rate.

Interest Rate - Real plus Inflation

This chart starts in 1967 as we’re looking at year-to-year growth in M2.  Inflation eroded 4.07% of savings between 1966 and 1967.   So to earn a real 2% return the interest rate would have to be 2% plus the loss due to inflation (4.07%).  Or a nominal interest rate of 6.07%.  The year-to-year loss in 1968 was 8.68%.  So the nominal interest rate for a 2% real return would be 10.68% (2% + 8.68%).  And so on as summarized in the above chart.  Because we’re discussing year-to-year changes on retirement savings we can consider these long-term nominal interest rates.

Just as Inflation can erode someone’s Retirement Savings it can erode the National Debt

To see how this drives interest rates we can overlay some average monthly interest rates for 6 Month CDs (see Historical CD Interest Rate).  Which are often a part of someone’s retirement nest egg.  The advantage of a CD is that they are short-term.  So as interest rates rise they can roll over these short-term instruments and enjoy the rising rates.  Of course that advantage is also a disadvantage.  For if rates fall they will roll over into a lower rate.  Short-term interest rates tend to be volatile.  Rising and falling in response to anything that affects the supply and demand of money.  Such as the rate of growth of the money supply.  As we can see in the following chart.

Interest Rate - Real plus Inflation and 6 Month CD

The average monthly interest rates for 6 Month CDs tracked the long-term nominal interest rates.  As the inflationary component of the nominal interest rate soared in 1968 and 1969 the short-term rate trended up.  When the long-term rate fell in 1970 the short-term rate peaked and fell in the following year.  After the Nixon Shock long-term rates increased in 1971.  And soared in 1972 and 1973.  The short-term rate trended up during these years.  And peaked when the long-term rate fell.  The short term rate trended down in 1974 and 1975 as the long-term rate fell.  It bottomed out in 1977 in the second year of soaring long-term rates.  Where it then trended up at a steeper rate all the way through 1980.  Sending short-term rates even higher than long-term rates.  As the risk on short-term savings can exceed that on long-term savings.  Due to the volatility of short-term interest rates and wild swings in the inflation rate.  Things that smooth out over longer periods of time.

Governments like inflationary monetary policies.  For it lets them spend more money.  But it also erodes savings.  Which they like, too.  Especially when those savings are invested in the sovereign debt of the government.  For just as inflation can erode someone’s retirement savings it can erode the national debt.  What we call monetizing the debt.  For as you expand the money supply you depreciate the dollar.  Making dollars worth less.  And when the national debt is made up of depreciated dollars it’s easier to pay it off.  But it’s a dangerous game to play.  For if they do monetize the debt it will be very difficult to sell new government debt.  For investors will demand interest rates with an even larger inflationary component to protect them from further irresponsible monetary policies.  Greatly increasing the interest payment on the debt.  Forcing spending cuts elsewhere in the budget as those interest payments consume an ever larger chunk of the total budget.  Which governments are incapable of doing.  Because they love spending too much.

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Inflation and the Erosion of Savings

Posted by PITHOCRATES - February 4th, 2013

Economics 101

Some of the First Banknotes were Gold Receipts Redeemable for Gold on Deposit in a Goldsmith’s Safe

Money has a few important attributes.  It has to be portable so we can carry it to the store.  It has to be durable so we can use it and carry it without it wearing out.  It has to be divisible so we can buy things at a variety of prices and make change.  It has to be fungible so one $20 bill is the same as any other $20 bill.  And it has to be scarce.  Because above all else money has to store value.  For money is a temporary storage of value.  Which is why we don’t use garbage for money.  Because garbage isn’t scarce.  Nor is it portable, durable or fungible.  And it smells bad.  No one wants it.  And no one will take it in payment for anything.

Precious metals make good money.  They have all of the necessary attributes money should have.  Especially gold.  Which will last forever.  And it will never rust or lose its sheen.  And above all it is scarce.  No one can make gold.  It takes enormous costs to find it, mine it and process it.  So it’s not easy to make it NOT scarce.  Which means it will hold its value.  The only drawback to gold is that it’s not that portable.  It’s pretty heavy to carry around.  And a little dangerous.  As you can’t hide a large and heavy pouch full of gold very well.

So some people started thinking.  Who else has a lot of gold?  And needs to put it in a safe place where others can’t help themselves to it?  A goldsmith.  Who has a large safe they lock their gold in.  So, for a fee, the goldsmith would lock up other people’s gold in his safe.  And give them a paper receipt for the gold on deposit.  And the banknote was born.  People left their gold in the safe.  And used their gold receipts as money.  Paper currency.  Which were fully redeemable for the gold on deposit in the goldsmith’s safe.

The more we Increase the Money Supply the more we Depreciate the Currency and reduce Purchasing Power

Issuing banknotes for gold on deposit evolved into the gold standard.  Where we used paper currency that represented the gold on deposit.  And it was just as good as that gold.  Sharing all the same attributes.  Portable, durable and fungible.  As well as scarce.  If, that is, the amount of paper in circulation equals the amount of gold on deposit.  If so then the paper is as scarce as gold.  And as valuable.  So people will be willing to hold onto it.  Just as they are willing to hold onto the gold.  Because the paper currency is redeemable for the gold on deposit.

But as governments spent money they started to think.  They could spend more money if they just printed more.  And increase the amount of money in circulation beyond the amount of gold on deposit.  Allowing governments to spend more.  And they did.  But it made paper money less scarce.  And less valuable.  We can see how with the following table.  We start with $100 of gold on deposit.  And $100 of paper banknotes in circulation.  Then each year we increase the number of banknotes in circulation (the money supply) by 3% while the amount of gold on deposit remains the same.  Representing a 3% annual inflation rate.  ‘MSB’ stands for Money Supply at the Beginning of the year.  ‘New’ stands for the New money added to the money supply that year.  ‘MSE’ stands for Money Supply at the End of the year.  ‘100/MSE’ is the result of dividing the $100 of gold on deposit by the money supply at the end of the year.  And ‘Savings’ stands for the purchasing power of $750,000 in retirement savings after being adjusted for inflation ($750,000 X 100/MSE).

Inflation on Savings 3 Percent

When 100/MSE equals 1 the amount of banknotes in circulation equals the amount of gold on deposit.  Which means those banknotes are as good as gold.  For you can redeem every last one of them for that gold on deposit.  But when they start printing more banknotes the money supply grows greater than the gold on deposit that backs it.  Making each dollar worth less.  Depreciating the currency.  For the total amount of currency in circulation still equals the $100 of gold on deposit.  The more we increase the money supply the more we depreciate the currency.  Reducing the purchasing power of the currency in circulation.  Which erodes away the value of retirement savings over time.

High Inflation Rates greatly Discourage Savings and Encouraging Consumption

This was at a 3% annual inflation rate.  Which is something you may find in the United States or Britain.  Some countries, though, really inflate their currency.  Especially nations that have abandoned the gold standard.  Which removed all restraint from printing money.  The following table shows what happens to that retirement savings at a 25% annual inflation rate.

Inflation on Savings 25 Percent

Even though there is no longer an exchange mechanism between gold and dollars to keep the monetary authorities responsible they are still supposed to exercise restraint.  As if there was still a gold standard.  Because whether there is gold or not a massive inflation of the money supply still depreciates the currency.  And the greater the inflation the greater it erodes that retirement savings.  At this rate a person’s retirement savings loses over half of its value in 4 years.  It loses 74% of its value in 6 years.  And loses 89% in 10 years.  Greatly discouraging savings.  And encouraging consumption.  Graphing these results we get savings curves for these different inflation rates.

How Inflation Erodes Savings

Note that the higher the inflation rate the steeper the curve.  And the steeper the curve the faster your retirement savings lose their purchasing power.  Here you can see why people living in countries with high inflation rates don’t want to hold onto their currency.  They try to spend it as soon as they get it.  Buying things that hold their value.  Or exchanging it for a stronger currency.  Like U.S. dollars.  British pounds.  Or Eurozone euros.  Anything to avoid their wealth eroding inflation.

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Public School Teachers and Public Sector Workers have Secret Millionaire Retirements

Posted by PITHOCRATES - January 6th, 2013

Week in Review

President Obama stood firm during the fiscal cliff debate to raise taxes on the millionaires and billionaires.  To get those who can afford it to pay a little more.  The visible millionaires.  To help pay for the secret millionaires.  Public school teachers.  And public sector employees (see Millionaires, Billionaires, and Teachers by Randall Hoven posted 12/10/2012 on American Thinker).

Our President likes to use the phrase “millionaires and billionaires.” A person whose net worth is $1 million or more is a “millionaire.”

Most of us working stiffs have trouble thinking in terms of net worth; we are more used to the concept of annual salary. How does net worth translate into annual income, or vice versa? In round numbers, the annual income equivalent is 4% of an investment nest egg. So if you have $1 million socked away, consider that to be equal to $40,000 income every year…

That relationship can be turned around: if you have an annual pension of $40,000, you are effectively a millionaire, especially if that pension is adjusted for cost of living…

Now let’s look at public school teachers. In Illinois, where I live, the Illinois State Board of Education puts out a report on teachers’ salaries. The table below is a pretty good summary of that 110-page report. A beginning teacher with a Bachelor’s degree in a median school district might make about $40,000 per year. But by the time a teacher retires, she could be making $55,000 to $120,000, depending on how much graduate education she got and her school district.

And when that teacher does retire, what is her pension? If most school districts are like Chicago’s, the teacher will make about 50% of her final salary if she retires at age 55, or 75%, the maximum, if she waits until age 59…

In short, a lot of retired Illinois teachers are millionaires.

But that’s not all. Teachers who retired from the Chicago school district get 60% of their health insurance premiums subsidized. In round numbers, let’s call that a value of $8,000 per year.

Also, the above values do not include any other savings or investments made over the teachers’ careers, including home values. If they have their own 401k’s in addition to their pensions, those were not included. Social Security was not included either.

Wait, there’s more. These pensions are for life. Many or most of them are also adjusted for cost of living. Every month, for the rest of their lives, retired teachers get checks or automatic deposits of a reliable amount, indexed for inflation and guaranteed by the government. They don’t have to worry about investment risks…

The situation of the retired public school teacher is also not that much different from fire fighters, policemen, postal workers and other public employees. Nor is it that much different from a lot of other retired workers, especially union members such as General Motors retirees. If such people are getting pensions and benefits of $40,000 per year or more, not an exceptional amount, they are millionaires…

The main reason the US Post Office, the federal government and many state and local governments face unsustainable debt, bankruptcy and default is due to the costs of public employee pensions. GM went bankrupt largely due to the costs of its retirees’ pensions and benefits.

Businesses go bankrupt, governments face default and economic growth slows to a near standstill. Meanwhile, retired public school teachers, who had to work 9 months of the year during their careers, now pull in checks 12 months a year, indexed for inflation and guaranteed by the government, in amounts that often make them millionaires, maybe twice over.

So public school teachers, fire fighters, police officers, postal workers and other public employees are not the same as people who work in the private sector.  For when people retire from middle class jobs in the private sector they don’t live a long retirement like a millionaire.  They live a shorter life in retirement worrying that they may outlive their retirement savings.  Or that some illness may wipe out their retirement savings.  Forcing them to return to work in the last remaining years of their life.  Something school teachers, fire fighters, police officers, postal workers and other public employees don’t have to worry about.  As long as they can maintain a privileged class in America.  An American aristocracy, if you will.  The thing we fought the Revolutionary War to put an end to in the New World.  Old World aristocracy.

Not everyone can live like this.  For there just isn’t enough taxpayer income to tax away to pay for everyone.  Which is why the aristocracy is a privileged class.  In a ‘classless’ America.  A class that attacks rich people to pay their fair share.  So they can enjoy their millionaire retirements.  Without having the talent or ability of an entrepreneur.  The investment savvy of a Mitt Romney.  Or simply not having been lucky enough to be born into an aristocratic family.  Like a Kennedy.

And if you think these millionaire retirees have earned their good life like an entrepreneur, consider how hard they have to work for their Masters Degree.

You might notice from the table of teacher salaries that a Masters Degree with extra graduate hours can add $20,000 or more to a teacher’s annual salary. Just for fun I want to show you two course descriptions. The first one happens to describe an engineering course I teach which is for undergraduates, required of all engineering students and generally taken in a student’s 2nd or 3rd year of college.

 Engineering Mathematics: The Laplace transform and applications; series solutions of differential equations, Bessel´s equation, Legendre´s equation, special functions; matrices, eigenvalues, and eigenfunctions; vector analysis and applications; boundary value problems and spectral representations; Fourier series and Fourier integrals; solution of partial differential equations of mathematical physics.

This second course description is taken from the University of Missouri St. Louis bulletin. It describes a graduate level course in the Education school.

 The Educational Role of Play: Emphasizes play as a constructive process with applications to cognitive and social development. Special attention to facilitating play in early childhood classrooms.

Note that the first course description (the one with all of that math) was an undergraduate course.  While the second course description (all about having fun) is a graduate course in the school of education.  The person learning about fun in the classroom will live like a millionaire in their retirement.  While the odds are that the one that worked so hard to learn all of that math to help create the wonderful things in our high-tech economy will not.  Why?  Because brilliant engineers have to earn their retirement.  While the privilege class makes the engineers and other hard working Americans pay for their millionaire retirement.  Is that fair?  According to the Left, yes.

Worse, these are the people teaching our children.  This privileged class that exploits the taxpayer so they can live a longer and more comfortable retirement are teaching our kids the evils of capitalism.  To turn them into Democrat voters.  So they vote for the party that attacks those who earn their wealth.  To make them pay their fair share.  So these teachers and public sector workers can continue to live their millionaire retirements.  While most of their student’s parents struggle in their own lives because they’re paying so much in taxes to support the better lives of their children’s teachers.

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Birth Control and Abortion have reduced Tax Revenue and House Values for Seniors

Posted by PITHOCRATES - August 26th, 2012

Week in Review

Birth control and abortion will bankrupt Social Security and Medicare.  And they will bring down Obamacare, too.  When Social Security became law we had a growing birth rate.  More people were being born each year.  So the population was expanding.  And the Roosevelt administration thought it would keep expanding.  So they created a Ponzi scheme.  Social Security.  Where more young people (i.e., taxpayers) pay into the system than retirees (i.e., tax consumers) collect from the system.  A foolproof system.  As long as the population continues to expand.  Keeping the base of the pyramid growing larger than the top of the pyramid.

Well their assumptions didn’t hold.  Women stopped having babies beginning in the Sixties.  Just as the Johnson administration gave us the Great Society and Medicare.  Based on the previous assumption that women would keep having babies.  So the funding mechanism was a flawed as it was for Social Security.  And now Obamacare is going to expand the Medicare model.  In the face of what is now a declining population growth rate.  Meaning the number of taxpayers will dwindle as the number of tax consumers retiring will explode.  Causing the aforementioned bankruptcies.  And that declining birth rate is causing even more financial damage (see Is Our Aging Population Partly to Blame for the Slow Recovery? by Philip Moeller posted 8/21/2012 on U.S. News & World Report).

As the unusually weak economic recovery continues, you’ve at least got to wonder if future studies of what ails us will include our aging population as a material cause. Simply stated, older people tend to liquidate assets to fund their retirements. Younger people tend to acquire financial assets as their personal wealth rises and they build their own nest eggs.

The United States has enjoyed nearly 40 years where the number of people acquiring assets was greater than the number of people disposing of them. This condition is being turned on its head. We now face roughly 40 years where there will be more people in this country wanting to sell financial assets than buy them. This supply-demand shift could put a lid on asset values and depress overall economic growth.

So on top of the government failing us in our retirement even our own retirement savings are going to fail us.  It will be like being on the far side of a housing bubble after the bust.  Where seniors want to sell their houses to finance their retirement.  Only to get tens of thousands of dollars less than they had planned.  For just as there are fewer taxpayers to pay the taxes to support an aging population there are fewer homebuyers (as well as other asset buyers) to buy the houses of an aging population.  Lower demand means lower selling price.  And a less comfortable retirement.  All because of that generation of greed and selfishness.  The baby boomers.  Who were all about sex, drugs, rock & roll, birth control and abortion.  And not so much about raising children.  Of course they, too, will suffer the effects of their selfish ways.  As there will be fewer taxpayers to support them in their retirement.  Or to buy their houses.

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