The Baby Boomer generation encompasses 86 million people.
That’’s 86 million people.
The Dow Jones Industrial Average hit it’’s all time high on October 9, 2007 ( Filled with Baby Boomer 401K and pension monies).
The first Baby Boomer applied for Social Security benefits on October 15, 2007.
The significance of these seemingly unrelated events cannot be understated, as I believe they are directly correlated.
Baby Boomers and subsequent generations have been funding their retirements for 35 years, reaching it’’s peak funding on the day of the filing for social security benefits. Peak funding for pensions is reached when the maximum amount of workers are funding pensions in the workforce. The day the first Baby Boomer filed for social security represented the end to the gushing inflows of cash into the stock market 401K and pension plans. From October 15, 2007, going forward for a generation, the stock market will pay out more in the form of penison plan withdrawals than is paid into the market in the form of pension plan contributions (inflows), resulting in net declines of our stock values. It’’s simple supply and demand. The more dollars entering into the market produces a heavier demand for stocks, thus the net long bull market of the Baby Boomer generation. When the Baby Boomers retirement dollars cease to enter the market, the demand for stocks decline, thus increasing the supply of stocks, resulting in declines in stock values.
Let’’s repeat the opening statement of this column, as it’’s significance is extraordinary.
The Baby Boomer generation encompasses 86 million people.
That means the exodus of 86 million people from the workforce in the next 18 years.
What would happen to the workforce if 86 million people retired? For the first time in our history, the generation preceding the retiree generation is smaller in numbers, creating a theoretical shortage of labor in the workforce.
How could society continue the engine of our economy with such a disruption? After all, with such a mass exodus of people from the workforce and into retirement, our workforce would need to expand, as it has in all previous generations, to care for retirees in their leisure and elder years. Furthermore, a labor shortage (that supply and demand thing again) would force an increase in labor costs, which would lead to higher wages, thus the ability of the present generation of workers to retire sooner, creating labor shortages for generations to come. The retirement of the Baby Boomer generation, if alowed to occur, would cause an irreparable disruption in the workforce. Accordingly, significant changes must happen-and have happened, to thwart the retirement of the Baby Boomer generation.
We had to create a climate of low interest rates in order to insure that an individual who saved their earnings could not create a safe nestegg and live off the interest earnings of such savings. By implementing low interest rate monetary policy, a worker would have to save much more dollars than the worker would under natural monetary policy, thus forcing the worker to stay in the workforce longer to save, or forcing the worker, once retired, to liquidate the worker’’s retirement trust at a faster pace. Should the worker liquidate their retirement trust in order to survive, the worker would eventually re-enter the workforce.
We also had to create a climate of inflation, whereby everyday costs needed to rise faster than the increase in wages. Low interest rate monetary policy, implemented in 2002 by the Greenspan federal reserve, created a 300% increase in real estate from 2002-2005, while the prices of food, clothing, commodities, and other necessities rose 100% from 2002-2007. Oil, the most basic needed commodity, rose from $ 10 per barrel (1999) to $ 148. per barrel in July, 2008. This single commodity rise lead the economy into severe recession beginning in December 2007.
The price of oil has since dropped from $ 148. per barrel to $ 38. per barrel in December 2008. This drop in oil price, coupled with the correction of hyper-inflated real estate prices has given the Federal Reserve a platform by which to decry “deflation” (falling prices), and implementing a near 0% fed funds rate. This destructive, horrific monetary policy attempts to keep real estate prices from correcting to affordable levels, while insuring 0% return on short term money market savings accounts. The worker will now need literally millions of dollars to retire from the workforce, something that cannot happen given today’’s wage levels.
We also had to devise a way to eliminate or reduce the available funds to the Baby Boomer 401K and retirement accounts. While the act of short selling artificially increases the supply of stock on the open market by permitting a stock trader to sell a stock the trader does not own (the act itself must cause the price of a stock to decline), in order to remove the the ability of the Baby Boomer to retire, short selling alone would not be a sufficient force to create a rapid decline in the market.
On July 3rd, 2007, the SEC eliminated the “uptick rule”, a rule implemented in 1934 to prevent the precipitous decline of stock prices. The uptick rule required that if one wished to short a stock, they had to wait for the stock to tick “up” prior to commencing the trade. The uptick rule did not prevent a stock price from declining, but it did prevent a stock price from collapsing over a short period of time. The elimination of the uptick rule has led to the Dow Jones Industrial Average declining over 35% since it’’s all time high on October 9, 2007. In fact, the pervasive short selling of banking stocks was so destructive that it threatened the ability of banks to operate as going concerns, leading the SEC to suspend the shorting of bank stocks for three weeks in October, 2008.
By removing the uptick rule, short sellers can literally steal the equity of stock values from retiree accounts. Hence, when the Baby Boomer retirement accounts decline in value, the short seller’’s account rises in value. The race is on to see how fast wall street can remove the pension funds from Baby Boomer retirees, forcing the retirees to stay in the workforce.
It is now universally accepted that our economy is bordering on a depression. Please note, we did this to ourselves. We allowed the Federal Reserve to manipulate monetary policy in order to devalue our savings and create rampid inflation. We allowed wall street investment firms to create phony investments and deregulated our financial institutions, permitting our financial institutions to gamble away our savings. We stood by while the SEC eliminated the uptick rule, setting the stage for the great raid of our worker pension funds by wall street traders. Now, we have permitted the Federal Reserve to print money, potentially increasing our money supply by a factor of seven, which may lead to a hyperinflationary environment the working class has never experienced. Such an environment could lead to a seven fold increase in prices, which ultimately destroys our savings dollars. To allow the Federal Reserve to intentionally destroy the value of our savings, and by consequence extinguish any hope the Baby Boomer and subsequent generations of workers hold towards retirement is criminal. If left unchecked, the actions of our Federal Reserve (a private consortium of banks-not a government entity), will lead our citizenry into heretofore unseen abject poverty.
