unbelievable

[dh003i]

Just an interesting note. According to the latest news I've heard, the average national savings rate is actually zero or negative (which means that people have an enormous amount of debt). This is really unbelievable. Don't people realize they're consuming their capital and that such can't continue forever?

[ERISA1]

I guess Americans are just following the example set by their President. After winning his 54% "mandate", he said: "I'm not planning on saving my capital. I'm gonna spend it."

[dh003i]

I wouldn't attribute it to the President. I'd attribute it to inflation, which lowers the value of savings (after all, why really save if your money can be made worthless at any moment), extremely high tax-rates, and other government policies that interfere with the free-market and promote very high time-preferences for the present over the future.

[mbozek]

Dont put too much stock in these statments which are prepared by people who want to get attention. "Savings rate" is a broad term which includes positive figures such as employer contributions to retirement plans and is reduced by negative figures such as the debt incurred in purchasing a home or refinancing a mortgage. A few years ago the 0 rate of savings was blamed on corporate employers who could not contribute to overfunded pension plans. Now the 0 rate results from the increase in debt caused by home ownership.

[wmyer]

Considering that the rate of inflation by some measurements is NEGATIVE, I disagree that inflation is a large factor in the savings rate; a few months ago Greenspan had us all in a panic about DEFLATION. Also, considering that the tax on capital gains and dividends is SIGNIFICANTLY LOWER than the taxes on wages, I disagree that taxes are the factor. It seems, on the contrary, that TAX SUBSIDIES are the biggest factor -- and I mean specifically the tax subsidy for homeowners that lets them deduct home interest and property taxes. Take away these subsidies, and watch the savings rate go up!

But really, I agree with mbozek that you can't put too much stock in all these statistics. How the savings rate is constructed is a matter of much debate. For example, the savings rate doesn't include social security.

[jevd]

'There are lies

Damn Lies

and Statistics"

Mark Twain.

[Belgarath]

Remember the three statisticians who went duck hunting? The first one shot a foot high, the second shot a foot low, and the third one said, "We got it!"

[R. Butler]

Although I do agree with the above posts about statistics, it wouldn't surprise if the savings rate was abysmal. I can just look at people I know & see that many of them take on way too much debt & have little thought about saving for retirement. I can look at the plans we administer & see low savings rates in many of them.

[dh003i]

most talk about "deflation" is quackery. When does the government ever stop printing out money? Almost never. And they certainly never burn some of the money they tax. No, the only "deflation" that ever occurs is a negation of a previous inflation via fractional reserve. When banks get money, they can loan it out at a reserve of 1:10.

This pyramiding creates a credit expansion (inflation). In essence it is fraud. The banks are loaning out money which they don't own to other people, and are still claiming to the depositers that they can redeem. And FDIC doesn't fix it, as you can't insure an industry that is always insolvent (incapable of paying its claims). All FDIC is is taxpayer subsidization of this pyramiding system.

Now, when someone demand their money back, what happens is that this 1:10 pyramiding reverses. To clarify, when $1 is put into the banking system, they can create $10 of credit out of thin air (1:10 pyramiding). And when $1 is taken out, they have to call back $10 (because of the 10% reserve requirement).

Various people have written on this, including Murray Rothbard and Alan Greenspan.

By the way, social security is not savings. Nor are 401ks, or Roth IRAs, or anything else where you're money isn't in currency. Buying stocks, bonds, real-estate, is not saving, but investing. Keeping your money in a currency -- Euros, Dollars, Yens, gold, silver -- is savings. Now, I see the logic in considering investment farsighted, and for some purposes calling it "savings". But social security is most certainly not savings. The SS system is a pay-as-you-go pyramiding system, and there is no social security savings fund. All there is is the government "loaning out" the money it taxes from SS to itself, which it then "promises" to pay back later. This is an accounting fiction. All of the so-called SS "savings" are spent.

Now, I think you can look at the statistics almost any way you want, you're not going to find that this nation is very future-oriented. Very present-oriented. Everyday experience confirms this as well. As people move into higher income groups, their spending increases faster than their savings. People in high-income groups still have enormous amounts of debt. Curing credit-card debt problems is a billion-dollar business. Time-preference is enormously high. Which is why the wedge that the creation of money and credit (inflation) has created between time-preferences and interest-rates is so harmful: it causes enormous accumulations of malinvestments (boom), which culminate in the realization that these projects aren't profitable and can't be completed (bust and reallocation of resources).

I think that alot of people here might not see this. Many here are probably in frequent contact with the financial elite: the financially responsible. Financially irresponsible people don't consult with experts, like the people on these forums. Why would they? They don't think far enough ahead.

[Jon Chambers]

I'll disagree with dh, at least to a minor extent, on a couple of his points. But in general, I found the post thought provoking and sensible, so consider these observations "nits", not major disagreement:

1) Disinflation or deflation can exist--see Japan in the 1990s, or the US in the 1930s. Money supply is simply one of the factors driving inflation, the velocity of money (the number of times an available dollar is spent in any year) and Gross National Product (GNP) are also key factors (depressions such as the US experienced in the 1930s and Japan experienced in the 1990s tend to cause velocity of money to slow dramatically, so even as the government prints more money to stimulate the economy, less money is actually spent). But I agree that the conditions that make deflation likely are highly unusual, and that the probability for deflation has been overstated. IMHO, deflation is possible but highly unlikely.

2) The definition of national "savings" is typically gross national income less gross national consumption. If income is less than or equal to consumption, savings is zero or negative. For the purpose of this statistic, there is no distinction between whether "savings" are invested or held in cash equivalents. This whole topic is somewhat meaningless, as the more important factor is whether aggregate national wealth is increasing or decreasing. For instance, as people watched the value of their homes rise, they increased consumption through refinance techniques. For many people, their wealth was increasing even though their consumption was greater than their income, which isn't necessarily indicative of a problem. However, "zero net savings" may be indicative of a future problem, or of increasing costs of capital for our society as a whole. I won't bother to get into that now.

3) Social Security has some elements of a pyramid scheme and (at least currently) some elements of savings (because more is taken in than is distributed). However, since the Social Security surplus is "invested" in T-bonds, due to the vagaries of government accounting, it simply makes the Federal deficit look smaller than it is, so I see why dh argues that it is not really savings.

[dh003i]

Also, considering that the tax on capital gains and dividends is SIGNIFICANTLY LOWER than the taxes on wages, I disagree that taxes are the factor.

I agree that tax subsidies are a big factor, however, there's a few thing you're not considering in the above-quoted text. Taxes on your income decrease the incentive for working in the first place (it is clearly obvious that if the tax-rate were 100%, no-one would work unless coerced to do so). Thus, taxes on income decrease savings, consumption, and investment. In short, they discourage work-ethic.

The relevant thing to consider regarding savings vs. consumption is the taxes on consumption vs. those on savings. Typically, consumption taxes are less than 10%; however, interest earned (from savings) is taxed at the income-tax bracket. Gold and silver are unconstitutionally taxed at the income-tax bracket. Taxes on long-term capital gains are, I believe, 15%.

Taxes on consumption also reduce savings, because people are also taxed on consumption after they've saved money for a period of years. The person saving money knows that he will be taxed both on the growth of that money, and on his eventual consumption of it. Indeed, because the overall trend of taxes is always up and never down, he may worry that consumption taxes will be higher in the future when he decides to spend the money than they are now. This leads to great uncertainy regarding the future, which makes people more likely to spend everything here and now.

The much-vaunted Roth IRA's have this -- and other -- problems. (1) At any time, the government can decide, "nope, we're going to tax you on distributions from a Roth". They did it to social-security income, what stops them from doing it in a Roth? (2) The consumption tax may very well be higher when they take their distributions than it is now. The 401(k) and 403(b) fall prey to even more uncertainty, having the same uncertainties as the Roth, and one additional uncertainty: (3) The uncertainty of income-taxes when distributions are taken. Income-taxes could very well -- most likely will be -- higher when the money is taken out than now. There's also uncertainty about whether one's tax-bracket will be higher now than when one retires. Now, I'm not saying that one shouldn't invest in Roth's or 401(k)s. I'm just saying that uncertainty -- taxes, inflation, government debt, confiscation, etc -- causes time-preferences to be higher, ceteris paribus: that is, it causes the time-discounting of the future to be greater, thus savings and investment to be lower, ceteris paribus.

As a historical note, the taxes on gold and silver are unconstitutional because the Constitution deigns them money. Then again, income taxes in-and-of-themselves were unconstitutional -- and struck down by the courts -- by the original constitution. An Amendment had to be passed. As said earlier, the universal trend of taxes is up. Our founding father's rebelled because the British put a tax on tea. They wouldn't recognize our present system of government.

[david rigby]

Gold and silver are unconstitutionally taxed at the income-tax bracket.

Huh? Gold and silver what? Ownership? Appreciation?

Just because you don't like it, does not mean it's unconstitutional.

[mbozek]

DH your analysis of possible tax changes is somewhat flawed. Consumption or value added taxes are more talked by academics and tax policy wonks rather than elected reps, even republicans, because of their regressive nature. Politicians still remember that Al Uhlman, the dem chairman of ways and means was defeated in 1980 because he had talked about replacing the income tax with a VAT tax.

When Congress changes the income tax law it does so only a prospective basis because it does not disturb the expectations of taxpayers who are entitled to rely on the law in effect when the funds were deferred. Taxation of SS benefits was the exception because of the crisis in funding SS in 1983 and because the changes were approved by a bi partisan committtee headed by Sens Monyihan and Dole. Generally when Congress changes the income tax law it grandfathers amounts deferred prior to the change under current law, e.g., the recent changes in NQDC only affect amounts deferred after this year. When Congress eliminated universal IRAS in 1986 it allowed amounts deferred to prior to 1/1/87 to remain deferred. Any changes in roth IRAs will be prospective affecting amounts deferred before the effective date of the change.

Increases in income tax only occur when the Dems control the house of Reps because tax legislation must orginate there which is unlikely given the current population shift to the south and west.

Finally your analysis of the validity of income taxatation prior to the 16th amendment is incorrect. Congress always had the power to tax income from wages, it was only prevented from taxing income derived from property prior to the 16th amendment. Hence the language of the 16th amendment that authorizes taxation of income regardless of the source.

[dh003i]

pax,

In some states, the accumulation of gold/silver (buying it) is taxed at the sales tax (this is what I mean by consumption tax), even though by the Constitution, gold and silver are money (thus, their acquisition shouldn't be taxed any more than changing 100 $1's for a $100). Furthermore, appreciation is also taxed, despite the fact that (again, as money), it shouldn't be taxed anymore than should increase in the value of the dollars.

Taxing gold and silver is the State's way to make sure that you can't completely protect yourself from inflation.

mzbozek,

My point is that uncertainty about the future -- taxes, inflation, national debt, confiscation -- leads to higher time-preferences and a more present-oriented society than otherwise would exist: that is, more immediate gratification and consumption, and less savings and investment.

There is nothing preventing Congress from changing income-tax law on a retroactive basis as well. They did in SS. Who knows what "crisis" in the future will make it another "exception", so that maybe they'll decide to tax Roth IRA withdrawals. What's stopping them from doing that? The Constitution, a piece of paper? In the end, all that matters -- constitutional or not -- is that they have the power to do whatever they want. Simply because in the past, in most cases, they didn't enact retroactive changes, doesn't mean that they won't or can't in the future.

The Constitution didn't stop Abraham Lincoln from suspending habeas corpus, or engaging in numerous other rights violations. It didn't stop FDR from confiscating gold. Who knows what's next? You can point to the past and note that it is unlikely, but it is still a feasible possibility.

[mbozek]

DH: " The future is uncertain and the end is always near." - Jim Morrison, the

Doors, Road House Blues. But we can only plan for the future based upon the laws as they are currently legislated since there is no way to predict what could occur in some unlikely circumstance in the future. The rest of you comments are irrevalent as the sup ct will not permit suspension of habeas corpus by presidential decree and FDR did not confiscate gold- he just changed the law to prevent the US govt from exchanging paper money for gold. Just here do you get your info from?

[dh003i]

mbozek,

I agree that we should plan, based on our best estimates so-far. What I'm saying is that the all-invasive state causes a highly present-oriented society.

What do you mean when you say the USSC won't "permit" something? What are they going to do? Throw their pens and legal briefs at soldiers under the President's command? The USSC has no enforcing power. They make decisions. It is the job of the President to enforce them. If the President doesn't do that, there's nothing the USSC can do. See Andrew Jackson on John Marshall: "John Marshall has made his decision. Now let him enforce it."

Regarding gold confiscating, you are wrong and confused. What The Gold Confiscation Of April 5, 1933 did was make it criminal to hoard gold. Originally, dollars were redeemable in gold. A dollar was a claim to a fixed amount of gold. So, part of what this law did is allowed banks and the government to avoid paying up their obligations to people. People got worthless inflation-prone pieces of paper; the government got gold. The act mandated that people turn in their gold (except for a few relatively insignificant exceptions): "hereby prohibit the hoarding gold coin, gold bullion, and gold certificates within the continental United States".

The penalties for violating the prohibition were severe, emphasis added:

Whoever willfully violates any provision of this Executive Order or these regulation or of any rule, regulation or license issued there under may be fined not more than $10,000, or,if a natural person may be imprisoned for not more than ten years or both.

The order mandated that people get pieces of paper in exchange for a real asset:

Upon receipt of gold coin, gold bullion, or gold certificates delivered to it in accordance with Section 2 or 3, the Federal reserve bank or member bank will pay thereof an equivalent amount of any other form of coin or currency coined or issued under the laws of the Unites States.

In other words, real property is confiscated, and in return, you're given worthless inflation-prone pieces of paper. Arguably unconstitutional. That's like taking my house and saying, "oh, we're giving you this paper-clip for 'just compensation'". "[N]or shall private property be taken for public use, without just compensation." The only way to tell whether compensation is "just" is to allow the person to voluntarily keep or exchange the property. Summarily, the US Constitution is dead letter, which ir routinely violated and ignored.

Also, regarding the income tax, you are incorrect to say that the 16th Amendment was only needed to tax property. See The Origin of the Income Tax:

President Cleveland opposed the income tax, but let it become law without his signature, believing it to be unconstitutional. In 1895, the Supreme Court ruled 5-4 against the income tax, saying that its provisions amounted to a direct tax, which was prohibited by the U.S. Constitution.

I won't get into the lengthy debate about whether or not the income is in fact valid, whether the 16th was properly ratified, whether the IRS has the power to enforce, or any of that other stuff. Unsurprisingly, the various hands of the goverment always tend to make the rulings that favor the government the most, and not those that favor the people. It is unsurprising that judges rule against various challenges to our tax-structure: for if those challenges succeeded, it undermines the stability of their very salary.

PS: Regarding the claim that taxes don't go up under Republicans, that is incorrrect. If you look at government spending, it is actually much larger under Republican Presidencie than Democrat Presidencies. National debt, government spending, inflation, and even taxes are usually hiring when Republicans are in office.

[Guest PensionNW]

An interesting discussion for sure but please let me offer another perspective.

I'm originally from Montana and most of my relatives still live there. I can assure you that the spending habits of the current administration and the inflation rate don’t factor into my brother’s or nephew’s spending habits at all. Not a bit.

What matters to them is can they afford to make their monthly payments. A new Dodge hemi truck or a horse looks pretty good even if you can just barely afford it. Saving for the future is not even a consideration. They all just want a bunch of stuff today.

And this is not just a phenomenon in the US. My in-laws are Irish and when they were working they would take 2 month vacations in France and stay in 5-star hotels. They had the butcher grind up prime rib to make hamburger (really). But now that they are retired the party is definitely over.

Folks like to buy things and most of them just don’t worry about the future the way that a lot of us in the retirement profession do. Those new cars and trucks are just so darned shiny and hard to resist.

[mbozek]

DH: In Pollack v. Farmers Loan & Trust, the case you quoted, the sup ct. ruled the 1894 income tax act unconsitutional because it defined income subject to taxation to include income derived from real estate and personal property in violation of the prohibiton in Art I sect 2 Clause 3 on imposing a direct tax which was not apportioned equaly among all citizens. The case is at 15 S.Ct 912 (1895). I dont have time to respond to your other comments.

P: The european govts have adopted what is called the leisure economy which provides socialized benefits such has national health care, 5 -8 weeks of vacation generous holidays and 35 hour work weeks which are financed by heavy employment and income taxes, e.g, England imposes a 75% tax on gasoline. The result is that european workers are less productive than American and Asian workers and have twice the rate of unemployment than the US because of high labor costs/ low productivity.

[Guest saber]

What do you mean when you say the USSC won't "permit" something? What are they going to do? Throw their pens and legal briefs at soldiers under the President's command? The USSC has no enforcing power. They make decisions. It is the job of the President to enforce them. If the President doesn't do that, there's nothing the USSC can do. See Andrew Jackson on John Marshall: "John Marshall has made his decision. Now let him enforce it."

The USC won't permit constitutional violations that is correct.

But you are correct the enforcement is the President's job.

What you are referring to would be a huge constitutional crisis.

All federal law enforcment officers and military personnel take up an oath to defend the constitution. It would come down to whether or not the law enforcement and military wanted to obey the president or to obey their oath to protect the consitution and not obey the president. Messy situation. Could find fractured loyalties in both alike.

As for saving money and having it made worthless in an instant you live with that risk (albeit minor) every day. What you are talking about is the collapse of society which I don't see happening. The instant one dies, money is worthless to them. That is more of a risk. As to why I save? Regardless of those risks I save for rainy days.

[dh003i]

I'm not referring to anything extraordinary here. People seem to have very little perspective on these things. Hyperinflation has been a very common thing since the inception of fiat-money. An obvious example that comes to mind is post-WWI Germany under the Weimar Republic. It can happen at any time. The US is particularly susceptible to it now, given the enormous debt from the war on terrorism. Inflation is the easiest way for the State to fund its new projects. It is obvious that anyone who has the power to print out money will do it to his own advantage. Furthermore, the fractional reserve system magnifies the inflationary problem.

Now, fiat money is particularly vulnerable to this, because it can be printed out without abandon. Hard money -- gold and silver -- is not. You can't "print" out gold. It is expensive to mine gold and silver, and we're always approaching the point where all of the gold/silver that exists has been mined (some argue that it's very possible that almost all of the gold that's existed has already been mined).

Which is why I think it important to have a large position in real money. In a portfolio of $100k, 10-20% of gold will hedge against inflation, particularly against the disastrous situation of hyperinflation.

Regarding the USSC, they have a very questionable history of striking down unconstitutional laws. The USSC routinely held up the constitutionality of slavery, for example, despite the fact that it is obviously contrary to "pursuit of life, liberty, and happiness". Of course, some lawyers say there is no problem, since the Constitution is whatever the USSC says it is. That's all fine and good for legalesse types, but for those of us who read real English and live in the real world, it doesn't matter. The USSC was particularly worthless during Lincoln's Presidency, as Lincoln violated the Constituion in every way imagineable, using the opportunity of the Civil War to elevate himself to dictatorial status.

[joel]

DH: How many books on President Lincoln have you read?

Joel

[dh003i]

read through some various stuff on King Lincoln. The best is Thomas DiLorenzo's The Real Lincoln.

[joel]

DH: How many books on President Lincoln have you read?

Answer: read through some various stuff on King Lincoln. The best is Thomas DiLorenzo's The Real Lincoln.

====================================================

How much independent research have you conducted on President Lincoln?

[dh003i]

joel,

Perhaps you could kindly inform me what the hell your getting at. The man was essentially a dictator in the US and a racist, despite all the propaganda that's taught in high-school about Lincoln, the slave-freeing hero (in reality, he wanted to deport all of the slaves back to Africa). He certainly wasn't a great champion of African-American rights (some of the strongest abolitionists, like Garrison, Tucker, and Spooner harshly criticized him on the issue). Then of course there was his ridiculous specious argument that the Union somehow magically preceded the States (an argument that Hitler approvingly cited in Mein Kampf) Iin reality, at the time, there was a proposed Amendment to ban secession -- if it wasn't constitutional, why make an Amendment to ban it? Also, Northern States (I believe New England) had been planning secession, and recognized the right to secession, long before the Civil War. However, the point is that the USSC didn't stop him from violating the Constitution numerous times.

[GBurns]

What is "independent research"? Who determines what "independent" means? How much would satisfy? How much would be more than you might have done? Even if more, Isn't quality of any importance? How will we be able to determine if the subject matter was even understood?

What does it matter any way?

[dh003i]

What is "independent research"? Who determines what "independent" means? How much would satisfy? How much would be more than you might have done? Even if more, Isn't quality of any importance? How will we be able to determine if the subject matter was even understood?

What does it matter any way?

Yea, good point. There's a lot of crap out there on Lincoln. Essentially, many historians have formed a cult of worship around Lincoln. It's their profession. Henry Jaffa writes some of the worst crap trying to justify all of Lincoln's various immoral and unconstitutional actions.

[david rigby]

OK, dh003i, you started this thread as a vehicle to express an opinion, which has now become a rant. For me, the connection between this Board and Abraham Lincoln is a bit spurious, but that is a different matter.

Drop the profanity.

[Guest MrClean]

DH: This is a pension forum, not a Lincoln conspiracy forum, please go back to your awful,profanity laced website.

[Guest Hans Moleman]

Telling dh003i not to rant is like telling a dog not to bark. Just look at his prior posts, profile and webpage.

[could be me maybe not]

oh, come on, this is great!

Look at all the benefitslink extreme characters dh attracts! (no, not all of you-just a whole bunch!). A virtual character Hall of Fame.

to Hans: purple monkey dishwasher

[dh003i]

Abraham Lincoln came up as a tangent to a point I made (that the USSC doesn't have any enforcing power, and does nothing during the worst of times).

Hans, that's a weblog, or journal. You do know of the concept, right? But, thanks for reminding me about that journal; I didn't know I still had it linked. I was a worthless socialist when I was writing in my K5 journal, and don't write anything there anymore.

[GBurns]

"Extreme characters" ? Where? Who?

Not giving names might lead some to think that you might mean the newer faces (fewer posts) that have appeared in or have been attracted to this thread.

I am kidding, I think I know what/who you mean. Be aware that some posters like to "stir the pot" just for the fun of it, so take some posts with a grain of salt.

What's wrong with www.mises.org ?

I also could not find the profanity laced website mentioned.

[could be me maybe not]

And do you not count yourself amongst the "pot stirrers"? Or do you prefer a different delivery system?

[GBurns]

I will admit that I have stirred the pot a few times. However, there have been times when I was accused of other things, probably because my post was either not read or not understood. How do I know? Because other posters said so. I would expect that the same would apply to many other posters as well.

By the way, was it a typo and you really meant Hall of Fame rather than Hall of Shame? It could be either and even both.

[could be me maybe not]

This would be incomplete without some commentary by Hoard2.

[joel]

May I now suggest that we fucus our attention on the 403(b) message board where mbozek believes that the new 403b regs will force non erisa 403b plans to simply terminate. This topic is crying out for additional viewpoints.

Joel

[Guest Hans Moleman]

I was a worthless socialist when I was writing in my K5 journal, and don't write anything there anymore.

Yeah, when I was a socialist I was cursing like a sailor too. I remember screaming down two nuns in a profanity-laced tirade when they had the audacity to ask me for directions. Fortunately, I have moved on in my life and now I am a big hot bag of wind.

[alanm]

This is nice. Keep it going and the benefits board will have its first book published. How about Iraq next? In any case, I don't want to be left out, so I will add a chapter that has nothing to do with all this.

A city boy named Kenny moved to the country, and bought a donkey from an old Texas farmer for $100. The farmer agreed to deliver the donkey the next week.

A week later, the farmer drove up and said, "Sorry son, but I have some bad news. The donkey died on the way over here."

So Kenny said, "Well then, just give me my money back."

The farmer groaned, "Can't do that. I spent it already."

Kenny said, "OK then, just unload the donkey."

The farmer, puzzled, asked, "What ya gonna do with him?"

Kenny replied, "I'm going to raffle him off."

The farmer said, " You can't raffle off a dead donkey!"

Kenny said, "Sure I can. I just won't tell anybody he's dead."

A month later the farmer met up with Kenny and asked, "What happened with that dead donkey?"

Kenny said, "I raffled him off. I sold 500 tickets at two dollars each and made a tidy profit of $898."

The farmer, amazed, asked "Didn't anyone complain?"

Kenny replied, "Just the guy who won. So I gave him his two dollars back."

Well, Kenny grew up and prospered, eventually becoming the chairman of Enron.

I am speaking of course of Ken Lay and he goes on trial next month; now all can continue the discussion on economic and political history and finish this book.

[Appleby]

Funny funny alanm