Paranoid Theory on Financial Future

[Bode]

So I’ve been debating with a buddy about this theory....

 

I am weary as to whether the US government will be able to pay the military retirement in the next 30-40 years. My concerns are led by the fact our debt is growing drastically and we continue to pass bills which we can’t pay.

Numbers

Govt tax revenue / spending

2021-3.86T / 4.83T (not counting the two multiple trillion dollar bills)

2020-3.71T / 6.16T

2019-3.46T / 4.448T

2018-3.33T / 4.09T

 

We keep printing money and spending out of control. At what point do we start cutting spending in some way or form and what takes the hit? He thinks I’m overly paranoid about not having a future income or it being worthless.

 

I know this is an simple layout of where we are but I think my general point is we can survive this way.

 

Thoughts?

 

 

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[HeloDude]

They’ll always be able to pay it...it just won’t have the same value as it does today.  When you print your own currency, you never run out.

[panchbarnes]

Inflation is here already.

Look at real estate and stock markets.

And it's not just in the U.S.

 

And for fucks sake, $20 for haircut at Bolling??

Edited April 11, 2021 by panchbarnes

[DosXX]

He's right, just looking at the debt numbers doesn't tell you anything since it doesn't really matter if growth rate outpaces interest on the debt. Japan's debt to GDP ratio is over 200% and we're not projected to reach that until 30 years from now. The worst case scenario is hyperinflation, but it remains highly unlikely and there are many other options before it gets there. Japan will be an interesting case study for the world to learn from and again even for them it is not a catastrophic problem with no solutions. 

 

[Bode]

I will self proclaim I’m not too savvy on the economics side of the country.

So what solutions does Japan have?

How is military retirement adjusted for inflation?

Are we going to ever get to a point where the military retirement pay isn’t worth the personal investment?

Just thinking here....


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[DosXX]

Military pay increases have been outpacing or matching inflation, so the hits if there are any will likely be elsewhere as long as public support remains high.

In order of likelyhood: Japan can increase productivity through technological investment or increasing immigration, pursue policies that increase birth rates, print money and lower interest rates (at risk of hyperinflation), increase taxes (at the risk of slowing growth), screw over old people, or accept stagnation. 

 

Edited April 11, 2021 by DosXX

[HeloDude]

19 minutes ago, Bode said:

Are we going to ever get to a point where the military retirement pay isn’t worth the personal investment?

If you’re asking if people will start to not seek out a 20+ year military career (ie retirement) because they don’t think it’s worth it...then I think the answer is obvious since we’re already seeing it firsthand.

But I think it’s more important to see what military members, who joined since 2018, are going to do since they’re ineligible for the traditional 20 year pension.  I also think a reason that many won’t want to stay in for 20 years is that younger generations of professionals change jobs much more often than my generation and older generations.  I’m strictly speaking on commissioned officers, but I’m sure parallel arguments can be made for the enlisted side.

And while the annual spending of our military is insane, I think it can be argued that the pension system isn’t a large part of that problem wrt the recent spending increases in the last 1-2 decades.  When you figure in military spending compared to overall federal government spending since 2007/2008, the military pension becomes even much less of an issue.  I think it will be one of the last items on the chopping block, and that the greater problem will just be an increase in overall spending, which will just further devalue your retirement.

 

[pawnman]

43 minutes ago, HeloDude said:

If you’re asking if people will start to not seek out a 20+ year military career (ie retirement) because they don’t think it’s worth it...then I think the answer is obvious since we’re already seeing it firsthand.

But I think it’s more important to see what military members, who joined since 2018, are going to do since they’re ineligible for the traditional 20 year pension.  I also think a reason that many won’t want to stay in for 20 years is that younger generations of professionals change jobs much more often than my generation and older generations.  I’m strictly speaking on commissioned officers, but I’m sure parallel arguments can be made for the enlisted side.

And while the annual spending of our military is insane, I think it can be argued that the pension system isn’t a large part of that problem wrt the recent spending increases in the last 1-2 decades.  When you figure in military spending compared to overall federal government spending since 2007/2008, the military pension becomes even much less of an issue.  I think it will be one of the last items on the chopping block, and that the greater problem will just be an increase in overall spending, which will just further devalue your retirement.

 

I mean...there's still a pension at 20 years.

[Guardian]

I heard that it’s not a pension but an annuity. Anyone heard that? What’s the difference? Does it matter to this discussion?

[pawnman]

7 minutes ago, Guardian said:

I heard that it’s not a pension but an annuity. Anyone heard that? What’s the difference? Does it matter to this discussion?

It's a pension.  It's the same type of pension, just a lower percentage.  Doing 20 and getting out will net you 40% of your base pay for life, instead of 50%.  Otherwise, it's run exactly the same way as the legacy system.

[HeloDude]

2 hours ago, pawnman said:

I mean...there's still a pension at 20 years.

Yep—sure is...though it can be argued that it’s not as good as the traditional pension that is no longer available to new members.  Additionally, new members can receive money for retirement without serving 20 years...so given the reasons I listed earlier, even more of a reason to not say to 20 when compared to 1-2 decades ago.

[Guardian]

It's a pension.  It's the same type of pension, just a lower percentage.  Doing 20 and getting out will net you 40% of your base pay for life, instead of 50%.  Otherwise, it's run exactly the same way as the legacy system.

I think I’m not being clear enough. I’m not sure what you are talking about 20 year retirement 40% vs 50%.

I’m saying on USA. Gov and dod websites it says the traditional 20 year retirement produces a monthly annuity payment. Not a pension. IRS considers it a pension. That’s what I was talking about with my previous questions.

[Dogs-N-Guns]

Legacy is 2.5% per year, so 20 years x 2.5% = 50% (average of high 3 years)
BRS (Blended Retirement System) lowers to 2.0% per year, so 20 years x 2.0% = 40% (average of high 3 years)

Legacy O-5 HYT (28 years) gets 70%.
BRS O-5 HYT (28 years) gets 56%.

[Stoker]

You also don't jump directly to hyperinflation. People forget that the main instances of hyperinflation were ones of government intentionally destroying their currency (Weimar Germany) or countries with no real economy left to underlay the currency (Zimbabwe, Venezuela). A decade or two of 15% inflation would go a long way towards debt reduction (at least, for that not on short term treasuries).

[NKAWTG]

Think we crossed the Rubicon on government debt many moons ago.  It doesn't work like personal finance.  The two options out there are to devalue the currency, i.e. inflation, or default in some manner.  Paying it off isn't even a discussion these days.  Inflation seems to be the chosen option because that's still workable as long as we're the world's reserve currency.    

One thing I'm curious about is if this latest government handout will cause inflation.  If the average consumer is smart about it, they will use the stimulus to pay back rent, mortgage forbearance and credit card debit down, or save it.  Paying for past consumption doesn't seem likely to cause future inflation, but I'm kinda clueless these days.  My economic textbooks lacked the socialist and redistributive notions that are all the rage now.

[Clark Griswold]

1 hour ago, NKAWTG said:

If the average consumer is smart about it...

That's why it won't work it.  But seriously to your point if they are smart / use the money strategically then it might be beneficial but I would argue only in the short term. 

Essentially we are nationalizing the personal debt and obligations of those who use the money to meet their immediate needs.  It would be better to tax the upper echelons of our society versus indebting all to fund increased welfare state benefits.  I make no argument for that just that if we have decided thru the election of politicians who support that and will enact those policies, we pay for it rather than borrow for it.

The 6.4 trillion dollar question then who is the upper echelons? No perfect answer but if you make north of 7 figures and particularly if you make it via passive income (capital growth, interests, dividends, etc...) you are the right person to tax.  We have it backwards in this country, we should tax passive income at a higher but not oppressively high rate versus active income.  

You're right, we may be at that tipping point:

Schultz was concerned and commented on this just before his death

https://www.marketwatch.com/story/americas-excessive-government-spending-must-stop-11614099270

And an excellent conversation between VDH and Jon Anderson (former Aussie Dep PM) that touches on this subject, national financial irresponsibility

 https://www.youtube.com/watch?v=E-Fvbgm5KVA

Around the 8:30 mark they discuss this and specifically how this has been a telltale sign throughout history that a society or civilization was in peril thru money printing / currency devaluation.  Desperately trying to maintain an inherited lifestyle but unwilling to work, fight, sacrifice, prioritize, share, etc... to actually afford it.

[pawnman]

8 hours ago, Clark Griswold said:

That's why it won't work it.  But seriously to your point if they are smart / use the money strategically then it might be beneficial but I would argue only in the short term. 

Essentially we are nationalizing the personal debt and obligations of those who use the money to meet their immediate needs.  It would be better to tax the upper echelons of our society versus indebting all to fund increased welfare state benefits.  I make no argument for that just that if we have decided thru the election of politicians who support that and will enact those policies, we pay for it rather than borrow for it.

The 6.4 trillion dollar question then who is the upper echelons? No perfect answer but if you make north of 7 figures and particularly if you make it via passive income (capital growth, interests, dividends, etc...) you are the right person to tax.  We have it backwards in this country, we should tax passive income at a higher but not oppressively high rate versus active income.  

You're right, we may be at that tipping point:

Schultz was concerned and commented on this just before his death

https://www.marketwatch.com/story/americas-excessive-government-spending-must-stop-11614099270

And an excellent conversation between VDH and Jon Anderson (former Aussie Dep PM) that touches on this subject, national financial irresponsibility

 https://www.youtube.com/watch?v=E-Fvbgm5KVA

Around the 8:30 mark they discuss this and specifically how this has been a telltale sign throughout history that a society or civilization was in peril thru money printing / currency devaluation.  Desperately trying to maintain an inherited lifestyle but unwilling to work, fight, sacrifice, prioritize, share, etc... to actually afford it.

The people north of 7 figures are already paying all the taxes.

The top 1% are paying more than the bottom 90%.

https://taxfoundation.org/summary-of-the-latest-federal-income-tax-data-2020-update/#:~:text=The top 1 percent paid,50 percent (4.0 percent).

[FDNYOldGuy]

I like this video (and channel) for some pretty decent explanations on economic stuff. Might not agree with all of it, but it doesn’t mean there aren’t lots of good points/it isn’t well thought out.

Is Hyperinflation Coming?

As for whether the gubmit will be able to pay your pension, or it’s bills, is mainly touched on by the video and posters above: we print a valuable, world-useful, and respected currency, so as long as those things keep happening, we can kinda print whatever we want. Also helps that, while our numbers seem crazy, the whole world is doing the same thing (well, at least in relation to Covid and the Great Recession) trying to prime their economic pumps.

Weimar Republic was bad because there were other stable(ish) investments to park your money like the US and UK in the 20’s. Currently, there’s not really any other major economy that’s “just fine.” Everyone sucks, so everyone’s printing, so there’s not a huge cause for alarm. 

2 minutes ago, pawnman said:

The people north of 7 figures are already paying all the taxes.

The top 1% are paying more than the bottom 90%.

https://taxfoundation.org/summary-of-the-latest-federal-income-tax-data-2020-update/#:~:text=The top 1 percent paid,50 percent (4.0 percent).

So what, though? They also have more money AFTER taxes than the bottom 90% due to wealth concentration. Using just a sheer numeric value is disingenuous because, yes, they may be paying a greater NUMBER, tax-wise, but I’m certain, dollars to donuts, they’re paying a much smaller % OF THEIR INCOME in taxes than those in the bottom 90% due to multitudes of tax loopholes and dodges; especially when you start getting closer to that top 1%. 

[pawnman]

2 minutes ago, FDNYOldGuy said:

I like this video (and channel) for some pretty decent explanations on economic stuff. Might not agree with all of it, but it doesn’t mean there aren’t lots of good points/it isn’t well thought out.

Is Hyperinflation Coming?

As for whether the gubmit will be able to pay your pension, or it’s bills, is mainly touched on by the video and posters above: we print a valuable, world-useful, and respected currency, so as long as those things keep happening, we can kinda print whatever we want. Also helps that, while our numbers seem crazy, the whole world is doing the same thing (well, at least in relation to Covid and the Great Recession) trying to prime their economic pumps.

Weimar Republic was bad because there were other stable(ish) investments to park your money like the US and UK in the 20’s. Currently, there’s not really any other major economy that’s “just fine.” Everyone sucks, so everyone’s printing, so there’s not a huge cause for alarm. 

So what, though? They also have more money AFTER taxes than the bottom 90% due to wealth concentration. Using just a sheer numeric value is disingenuous because, yes, they may be paying a greater NUMBER, tax-wise, but I’m certain, dollars to donuts, they’re paying a much smaller % OF THEIR INCOME in taxes than those in the bottom 90% due to multitudes of tax loopholes and dodges; especially when you start getting closer to that top 1%. 

Even if you took all the money from every billionaire...every last dollar from Bezos, Gates, and Musk, and ignoring the market inefficiencies in liquidating their stocks...you STILL wouldn't fund the government for a year.

It's not a revenue problem.  It's a spending problem.

[HeloDude]

1 hour ago, FDNYOldGuy said:

So what, though? They also have more money AFTER taxes than the bottom 90% due to wealth concentration. Using just a sheer numeric value is disingenuous because, yes, they may be paying a greater NUMBER, tax-wise, but I’m certain, dollars to donuts, they’re paying a much smaller % OF THEIR INCOME in taxes than those in the bottom 90% due to multitudes of tax loopholes and dodges; especially when you start getting closer to that top 1%. 

So you’re a fan of the Fair Tax plan?

 

[VMFA187]

1 hour ago, HeloDude said:

So you’re a fan of the Fair Tax plan?

 

Is that the 23% sales tax idea? 

[pawnman]

14 minutes ago, VMFA187 said:

Is that the 23% sales tax idea? 

Basically.  It scraps all other federal taxes (income, capital gains, employment, etc) and replaces it with a universal national sales tax.

Along with the proposal was the "pre-bate", or paying a monthly payment to low-income folks so they aren't crippled by the tax until tax return time.

[VMFA187]

10 minutes ago, pawnman said:

Basically.  It scraps all other federal taxes (income, capital gains, employment, etc) and replaces it with a universal national sales tax.

Along with the proposal was the "pre-bate", or paying a monthly payment to low-income folks so they aren't crippled by the tax until tax return time.

I'm on board. 

I do understand that seniors who no longer have income from a job would be unfairly burdened so there would have to be some way of effectively managing that group. Otherwise it sounds like a great, fair way to collect taxes. 

[jrizzell]

Is that the 23% sales tax idea? 

Sounds like the VAT that the European Union imposes.


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[herkbier]

I think the EU still has income taxes.. 

I’m on board with a sales tax.. as long as it’s the only tax.

I’d like to see some way to recover the tax loss from my Roth accounts.. but I’ll and I’m sure most others will live.

It would also be nice to make it a progressive tax as well.. luxury goods taxed higher than necessities.. I’m sure there’s plenty of lobbying to be done there to figure that out