Tag Archives: medicare

The Next Crisis – Sponging Boomers

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The Next Crisis – Sponging Boomers, The Economist, Sept 29, 2012

A great article – citing data and research on the situation in the United States.

The article begins with a recitation of the numerous one-time benefits that fell in to the laps of baby boomers.  (Let’s face it.  We were lucky.  Like winning the lottery.  And like too many lottery winners, we blew it.  Wasted the opportunity.  Instead of leaving our kids with a national budgetary surplus we’ve left them with big hole in the ground.  That’s me talking, not The Economist.)  The article continues with some macro-economic examples of how we stacked the deck against our kids.

Boomers elected politicians who promised tax cuts and increased benefits.  This Ponzi scheme was possible because the government could borrow or print money to pay the bills. “Erick Eschker, an economist at Humboldt State University, reckons that each American born in 1945 can expect nearly $2.2m in lifetime net transfers from the state—more than any previous cohort.”  That’s outrageous.  Who in their right mind would lend the government money to finance these transfers?  (Hint: Be nice to your grandchildren.)

Describing the findings of an IMF study, the Economist continues, “The boomers are leaving a huge bill. Those aged 65 in 2010 may receive $333 billion more in benefits than they pay in taxes (see chart), an obligation 17 times larger than that likely to be left by those aged 25.”

The Economist is not happy. “Sadly, arithmetic leaves but a few ways out of the mess”. The article identifies three possible outcomes:

  • Growth (unlikely, given the depressive effect of the accumulated debt);
  • Austerity, including reduced transfer payments (not politically likely since boomers are moving into the period where they will be drawing maximum benefits (social security, medicare, medicaid); and
  • Inflation – the silent killer of boomer investment portfolios.

Hmmm, what would it take to engineer a might decades-long inflationary boom?  I guess you’d start with record low interest rates, quantitative easing, and – oh!  I see where this heading.