Pensions and the Debt Problem Term Paper

Pages: 11 (3407 words)  ·  Bibliography Sources: 12  ·  File: .docx  ·  Topic: Finance  ·  Written: November 24, 2018

SAMPLE EXCERPT:

[. . .] The Federal Reserve basically caused inflation on assets, which puts pressure on families so that even if they do get their pensions, now their money is not worth as much (StatelessLiberty).

This is why it is important for families to save up in the sense of a family pension. They need to be able to set some aside for their members: husbands for wives and children and so on. The family has to have money that is worth something, too, and that means the Federal Reserve has to be held accountable for its actions. A family that saves just to have its money devalued by the central bank is basically being stolen from by the state. That has to end, especially if a family pension is going to work and be reliable. Money has to have value and not be destroyed as a currency through inflation.

The other problem is that the government wants to bail out the pension funds that are insolvent by using taxpayer money. So companies that promised employees to pay their salaries with benefits all the way up to death now will get to use taxpayer dollars to make good on their promises (Durden). The plan is like this:

A draft of the plan, obtained by The Washington Post, would direct the Treasury Department to spend up to $3 billion annually to subsidize payments for retirees from certain underfunded pensions. It would also require benefit cuts, higher premiums and new fees levied against companies and union members in an attempt to make the pensions as financially solvent as possible. The proposal aims to require all parties involved to make significant concessions and caps taxpayer contributions. (Durden)

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This plan by Congress shows the extent of the problem. Instead of coming clean to everyone and saying that the money for the pensions is not there, they are turning to taxpayers to now cover for the companies who made these promises to workers to fund their pensions. This is an indirect form of socialism in other words that many taxpayers would likely be upset about if they knew it was happening.

Term Paper on Pensions and the Debt Problem Assignment

But really there is no other option for the government or for these companies. They do not have the funds and the only place they can get them is from taxpayers. They cannot continue just to run deficits year after year. The disadvantages of running a deficit are that human behavior is ultimately unpredictable. Just because a fiscal policy appears correct on paper does not mean it will actually lead to the fulfillment of promises. With unemployment still down today and the world teetering on global recession, there is little hope that any stimulus package from the government will actually help to correct the problem. The issue is not fiscal but rather societal and systemic. Too many people have taken jobs expecting pensions and yet social pensions are not reliable. Now a number of issues have arisen: first, if social pensions are not reliable, how are public agencies going to staff positions in the future? Pensions were the big draw—so if they are gone, who will be teaching, or enforcing the law, or putting out fires in the future. Moreover, how are companies going to attract workers? It appears to be game over in a number of sectors as far as pension Ponzi scheme is concerned (Durden). But that is only the first issue. The second is this: how are families going to take care of themselves in the future if there are no social pensions?

That is where the other idea of the family pension comes into play. The family is a social unit: it should have two parents and children. Parents care for children when they are young and children should care for parents when they are older. Respect for the elderly is one of the cultural dimensions of countries like China and Japan, and it should be something that is a cultural dimension in the West, too. However, too many people in the West have gotten used to the idea of someone else taking care of their parents when they are old. They see the nursing homes and old folks homes as alternatives to caring for them themselves. A true family pension would be something in which families look after themselves, parents for children and children later on for parents. No society can really stand unless this is the way that people look at life and at the duties and responsibilities that individuals owe to their families (Jones). Expecting the state to take care of everything is like burying a bunch of beans in the backyard and expecting a magic beanstalk to grow up into the clouds where a chicken that lays golden eggs can be found and taken.

A few dollars shoveled out here and there by the government will not alter the way people view the overall picture. Students are paying too much for education; individuals are paying too much for commodities; car manufacturers are selling products to sub-prime borrowers and bubbles are everywhere from housing to bonds to the stock market to student loans to debt (Durden). Far from helping the economy, federal deficits are being run to pad the pockets of the military-industrial complex, which is awarded fat contracts from the government, social programs (even though Social Security is bankrupt), and to prop up the markets (bond buying programs like QE from the Federal Reserve essentially serve to keep the markets from crashing, benefitting the books of pension funds, sovereign wealth funds, and mutual funds). Yet the economy still does not grow—it only sees more and more bubbles. Rather than letting these burst and letting the bad blood out (poor investments), letting insolvent banks crash, letting the market correct itself via natural processes, and letting workers and families earn a livable wage with which they can actually plan for the future and save for themselves so that they can retire, the government attempts to intervene and keep the system afloat. It does through government spending, but this is merely like kicking the can down the road. The debt comes due eventually, and it is either paid or borrowers are stiffed and the country embarks on a death spiral the likes of Argentina in the 20th century.

Families need support, but that support should come in the form of a currency that is not devalued by the central bank. A real family pension plan would be to simply stop printing off trillions every time the market looks like it will go down. That would be a real family pension plan. But promising a retirement just to devalue the currency later on does not a pension plan make. But the Federal Reserve has many tricks up its sleeve and one cannot help be wary of what it does.

The most recent Federal Reserve policy change was the decision to raise rates by 25 basis points. It is expected that the Fed will raise rates one more time in 2018. If rates are raised, the interest owed on the debt will increase and that means more money going just to pay the interest on the loans the country has racked up. At the same time, pension funds that are out chasing yield in risky markets (the stock market was at an all-time high this year) because they cannot earn enough in interest by purchasing bonds (since rates have been so low courtesy of the Federal Reserve). As for Dodd-Frank and regulation policy, this is not likely to have much impact on the Federal Reserve or constrain it in any way (Lodge), which means that the future is likely to continue to be more of the same for savers.

The Fed attempted to stimulate the economy with its unconventional monetary policy known as QE from 2008 to 2013. That policy undermined savers and families who are not likely to benefit from their social pension plans. For that reason, family pension plans need to be considered—i.e., families need to depend on families; parents need to depend on their children and children need to respond to the debt they owe their parents. It is not just the Fed that is to blame either. Other central banks around the world have joined in and are still purchasing bonds to stimulate the obviously fragile economies of the world. The Bank of Japan has a balance sheet that represents a potential problem should it stop buying and start trying to unwind its portfolio like the Fed is doing. The European Central Bank is another one that is still buying bonds and driving interest rates down. In doing so, these banks are propping up the stock markets but they are hurting savers and pension funds that require substantial returns on their investments (a ludicrously high 5%--by today’s standards—in most cases, which is why so many pension funds in states across the U.S.… [END OF PREVIEW] . . . READ MORE

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