My Story in Newspaper

Thanks for the good comments and support.

One thing I would like to say is that my plan is also a form of pension reform. I do not think it would be too much of a stretch to say that pensions are in great danger than Social Security.

I would encourage people to listen to my podcast entitled "A Vicious Cycle."

http://blog.pactamerica.com/2005/11/podcast-vicious-cycle.htm

The transcript is available if you would prefer to read the information.

http://blog.pactamerica.com/pd06_transcript.htm

Here's an excerpt:

. . .

And what's going to happen as we look forward?

Right now these pensions are underfunded. They can get away with this now, because they don't need to be paying out the benefits. But as soon as all these Baby Boomers start to retire, they're going to need to pay those benefits. And what these pensions are kind of banking on right now is the same idea that the President had for Social Security. You invest in the stock market, and you allow those gains to make up the difference. You know, so you're expecting these higher gains and these higher rates of interest that are going to make up the difference in the long run. Unfortunately, I don't think that's going to happen.

Because you've got these corporations with underfunded pensions using those assets to purchase stock in corporations that have underfunded pensions. You know, that doesn't make any sense.

And as they... It's going to turn into this vicious cycle, because you've got normal retiring people drawing money out of the stock market to pay for their retirements, then you've got these corporations who are counting on those gains, but suddenly those gains are now going to be less. So that means the corporations are going to have to start coming for more money out of their own pockets. And as corporations use their profits to make up the difference to cover these pension liabilities, that's going to decrease corporate profit margins.

So suddenly the next younger generation is going to say, "Hey, all these profits are being eaten up by these pension liabilities. Why should I invest my money in the stock market? This no longer seems like such a good idea."

Can you see the vicious cycle there?

. . .
 
Here's an article that I wrote for the local union newspaper.

It's a little bit long, but I really encourage people to read the whole thing. I think it has some pretty good insights about the corporate pension situation.


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Calvin Coolidge once said, “The business of America is business.” Well I think it’s about time for Americans to mind their own business, so I decided to write something on the subject. And since there’s no business like show business, I decided to write about the biggest show on earth. It’s not the circus; it’s the stock market. The difference? Not much.

When it comes right down to it, the stock market is a lot like the online auction site eBay. If you have ever used eBay before, you know that it is almost impossible to predict the final ending price at the beginning of the auction. In other words, you never can tell how much someone will actually pay for something. While it is fairly easy to come up with a reasonable estimate, reason is usually thrown out the window as soon as the bidding starts.

When an auction is hot, there are going to be a lot of bidders, and the bidding soon becomes competitive. But no matter how many bidders there are for a particular item, there can be only one buyer, and the auction is simply a practical means of figuring out what someone is truly willing to pay for that item. The only certainty is that if you just have to have something, you are going to pay dearly for it.

In comparison, stock traders actually use the term “bid” to name the price at which buyers are willing to buy. So instead of viewing the stock market as a casino, think of it as one giant auction. There are only so many shares to go around, but it seems like there are always plenty of bidders. After all, millions of Americans are invested in stocks through their retirement plans. And since most Americans feel like they just have to be invested in stocks in order to become wealthy, these bidders are very willing to buy.

People often assume that stocks increase in value when there are more buyers than sellers, but that is a common misconception. The number of buyers and sellers is always the same. For every person who sells a share of stock, there is one and only one person who can buy that share. You cannot buy or sell anything unless there is another person to complete the transaction. So when stocks go up, it is not that there are more buyers than sellers, but that buyers are much more willing to buy than sellers are willing to sell.

Stock market gains are influenced by two primary factors: economic growth and money flow. The effects of economic growth are fairly obvious, but money flow typically receives very little attention. Simply stated, money flow determines whether money is entering or leaving the stock market.

Interestingly enough, money flow typically mirrors economic growth. When the economy is expanding and market returns are good, people are more likely to put additional money into the stock market. This is positive money flow, because more money is entering the market than is leaving it. In this case, money flow will have the effect of further boosting stock prices. In other words, hot auctions have a way of attracting even more bidding.

However, when investors feel that future economic prospects are limited, the market experiences a period of negative money flow. Due to various reasons, investors are more willing to sell than they are to buy, and stock prices typically decline. This means that if you are bidding on something rare, expect to pay for it. But if the bidding gets too high, other people will want to cash in by selling similar items, and suddenly the item will not be so rare (or valuable) anymore.

But what does all this mean?
 
Here's part two of that article.


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If you look at current stock prices, you will see that they are overvalued from a historical perspective, and value investors like Warren Buffet have been complaining about this fact for years. But how did stocks get to be so overvalued?

You may be thinking to yourself, “Didn’t the bubble pop? Aren’t stock prices back to normal by now?” The answer is no, not really.

So how did stocks get to be so overvalued? The simple answer is that there have been too many bidders. The Baby Boom generation is just that, a boom. All of these people started buying up stocks because that was what they figured they had to do in order to enjoy a comfortable retirement.

With all of this positive money flow, stock prices were bound to increase. Not only that, but as stock prices continued to climb due to this increased bidding, more and more people started to invest larger and larger portions of their savings. And as these stock prices climbed even further, the value of these portfolios continued to compound and these profits were in turn used to buy even more stock.

We must not forget that stock gains are also influenced by normal economic growth. After all, the economy has grown rather substantially over the years. Nevertheless, over the past few decades, the gains from money flow have far outpaced those from economic growth. But will this positive money flow continue on forever? No, probably not. After all, members of the Baby Boom generation are getting ready to start their retirements.

When these Baby Boomers start to retire en masse, they will begin liquidating portfolio assets to fund their retirements. In other words, you will need to sell some stock in order to take that vacation you’ve always dreamed about, because while they may take American Express, they won’t take Caterpillar stock.

So not only will there be millions of Americans retiring and selling stock, but they will be selling this stock at a much faster rate than the younger working generation will be able to buy it. Therefore, there will be a significant amount of money flowing out of the stock market, which will in turn cause stock prices to decline.

All of this wouldn’t be so bad except for one tiny little detail.

Corporate pensions are severely underfunded. The government agency that regulates pensions claims that these pensions have never been in worse financial shape, and that as a whole they contain unfunded liabilities totaling hundreds of billions of dollars. Billions. So on second thought, that’s a huge detail. Enormous.

But what does the term underfunded mean? It means that the pension does not have enough money in it to pay out all of the retirement benefits that have been promised to its workers.

It’s kind of like rent. You can go the whole month without having rent money in your checking account. In other words, your checking account would be underfunded because you did not have sufficient funds to cover your next month’s rent liability. However, even though you may have gone off your budget, as long as you can get the money before your rent is due, everything will be fine.

Unfortunately, corporations are not too concerned with getting the money to cover their pension liabilities, and they are banking on future investment returns to make up the difference. It’s kind of like President Bush’s plan for Social Security. Invest in the stock market, and the increased returns will make everything work out in the end. But will everything work out in the end?

You see, these corporations with underfunded pension liabilities are investing their pension assets, your pension assets, in the stock of other corporations with underfunded pension liabilities. That doesn’t make too much sense, now does it?

The rent is soon coming due. The Baby Boom generation is ready to start collecting pension benefits, and corporations will have to meet these payments. However, these pension liabilities will suck the life out of corporate earnings for many, many years to come. This means that economic growth for corporations will be minimal at best. Will people continue to invest in companies with lackluster returns? Not likely. This will only make the pension situation worse, because these corporations are counting on economic growth and stock returns to save them.

I’m not trying to say that the stock market is headed for a crash. However, there will be several factors working heavily against stock returns in future years, which will not make stocks the most attractive investment. There will always be opportunities for investment in individual companies, but overall growth will likely slow to a crawl.

Several companies have already had to declare bankruptcy because of pension problems. These corporations are dumping billions of dollars in pension losses on the government, which really means that they are dumping those losses on the taxpayers. Not to mention that the government will not cover all of these losses, so retirement benefits are being drastically slashed for affected workers.

We need to fix this problem before it gets any worse, because left untouched, it will get worse. Much worse. The government agency that regulates and insures corporate pensions is calling for comprehensive pension reform, and such reform is critically needed.

I believe that I have figured out a practical solution to these problems. This government agency currently collects a minimal insurance premium in order to insure these pensions. My proposal is to restructure this funding model by also requiring corporate pensions to direct a certain percentage of pension assets into individually held accounts invested in government bonds.

Each employee will own his or her account, which will him or her to change jobs while still keeping a core benefit. The bonds in these accounts will serve as collateral for the government to insure the pension, and they will also be used to pay back the Social Security trust fund bonds.

Therefore, my proposal combines pension reform with Social Security reform. The only major issue with Social Security is the fact that Congress spent its trust fund and issued bonds that will soon need to be repaid in order to pay out full benefits for the Baby Boom generation. Given the state of our current budget deficits, it will most likely be extremely difficult to find new financing for the trust fund bonds. That is where pension reform comes into play.

Right now our national debt is somewhere around $8 trillion. It averages about 4.5% interest rate, but there are some portions of the debt like Treasury Bonds that average higher rates like 8%. So these wealthy bondholders and foreign central banks are earning high rates of interest while our own citizens are hardly earning anything on their savings.

The Social Security trust fund is at about $1.6 trillion right now, and according to the Social Security Administration, the effective interest rate on this trust fund is 5.7%. That means that these bonds are earning 5.7% interest.

In order to repay these bonds, the government will need to issue new bonds. So somewhere along the line, these bonds will be issued to someone, and then the money that they give us for these bonds will be used to pay back the Social Security trust fund bonds.

Why would we want to start selling these bonds at 5% or 5.7% interest to China and Japan when we as Americans are barely getting that interest on anything right now? We need to start requiring corporations to start purchasing these bonds on our behalf in order to secure our pension plans. Otherwise, both pensions and Social Security will continue to be in jeopardy. We must act protect our retirements, and this task cannot be entrusted to corporations or the government.

So while the stock market may be the greatest show on earth, it has turned our economy into a virtual three-ring circus. The show must go on, but not with money from Social Security. Therefore, in the words of Benjamin Franklin, American citizens must, “Drive thy business or it will drive thee.” I think we should listen to the guy. After all, his face is on the hundred dollar bill.
 
I have problems with the "pigs" trying to erase all resemblance of social network and a safety net and at the same time belittling people for getting pissed off and talk about chaos and anarchy.
I am with you 100-percent. This latest attempt of "fixing" SS was the Fox trying to get into the hen house for a quick steal.
 
"but there are some portions of the debt like Treasury Bonds that average higher rates like 8%. So these wealthy bondholders and foreign central banks are earning high rates of interest while our own citizens are hardly earning anything on their savings."

where do you come up with this stuff? who should decide if stocks are overvalued and bonds are a better buy? you? greenspan? congress?
 
Quote from vhehn:

where do you come up with this stuff? who should decide if stocks are overvalued and bonds are a better buy? you? greenspan? congress?
More...

First of all, it is not the government's business to be telling/forcing people to invest in stocks. Period. End of story.

Secondly, the government has gotten itself into a real mess with budget deficits and the national debt. Looking to the future, we will soon begin to experience problems maintaining/servicing this debt.

Thirdly, corporate pensions as a whole are underfunded, and the problem will likely only get worse.

Finally, the Social Security trust fund has been spent, and the bonds in this fund will need to be reissued if members of the Baby Boom generation expect to receive a full benefit check.

It's time to quit living in a dream world. People need to wake up and realize that unless we start to address the financial problems of this nation, the future will be a whole lot worse. The situation is already bad, and it is bordering on out of control.

Rest assured that the government will take care of the government no matter what happens. But I'm saying that we should come up with a reasonable plan while we citizens still have a say in the matter.

So you can either take steps to protect yourself and your future, or you can continue with your la, la, la, who are you to tell me what to do attitude.

"If a nation expects to be ignorant and free, in a state of civilization, it expects what never was and never will be." - Thomas Jefferson
 
i was more interested in your statement that
"wealthy bondholders and foreign central banks are earning high rates of interest while our own citizens are hardly earning anything on their savings".. how do wealthy people and foreign banks get 8% while everyone else gets almost nothing. one false statement ruins the credibility of your argument.
Quote from AFterburner:

First of all, it is not the government's business to be telling/forcing people to invest in stocks. Period. End of story.

Secondly, the government has gotten itself into a real mess with budget deficits and the national debt. Looking to the future, we will soon begin to experience problems maintaining/servicing this debt.

Thirdly, corporate pensions as a whole are underfunded, and the problem will likely only get worse.

Finally, the Social Security trust fund has been spent, and the bonds in this fund will need to be reissued if members of the Baby Boom generation expect to receive a full benefit check.

It's time to quit living in a dream world. People need to wake up and realize that unless we start to address the financial problems of this nation, the future will be a whole lot worse. The situation is already bad, and it is bordering on out of control.

Rest assured that the government will take care of the government no matter what happens. But I'm saying that we should come up with a reasonable plan while we citizens still have a say in the matter.

So you can either take steps to protect yourself and your future, or you can continue with your la, la, la, who are you to tell me what to do attitude.

"If a nation expects to be ignorant and free, in a state of civilization, it expects what never was and never will be." - Thomas Jefferson
More...
 
Quote from vhehn:

i was more interested in your statement that
"wealthy bondholders and foreign central banks are earning high rates of interest while our own citizens are hardly earning anything on their savings".. how do wealthy people and foreign banks get 8% while everyone else gets almost nothing. one false statement ruins the credibility of your argument.
More...

I apologize for the misunderstanding.

In the above statement, I was just trying to illustrate a point. I think that somewhere along the line, I have had to simplify my wording for explanatory purposes. But that doesn't mean that my argument is incorrect, nor is it compromised.

I will however consider your suggestions. I may end up making a revised version of the report to include additional material. But keep in mind that I am just one person working alone. Not only do I have writing, editing, graphic design, programming, etc., but I have also started giving public speeches for which I need to prepare as well as lobbying efforts, etc. Not to mention that I still have to make a living. No excuses, but I have a list of priorities, and I have more demands than time to complete them all.

Thank you for understanding.
 
your work is simply amazing.

why don't you go get an education?

(please do not misunderstand me, I am not saying you are not learned. I simply think you can do a lot more.)
 
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