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How Stupid Do You Have To Be To Let This Happen?

Europe is the birthplace of Western civilization and the source of most of the trends and bodies of knowledge that define modernity. The average European speaks several languages versus sometimes less than one for Americans. They are, in short, a well-schooled people with vast accumulated wisdom.

So how do we explain this: After World War II most European countries set up generous entitlement systems including government pensions designed to offer dignified retirements to citizens who had worked hard and paid taxes and obeyed the rules for a lifetime. BUT they didn’t bother putting anything aside for the inevitable — and mathematically predictable — retirement of the immense baby boomer generation. Here’s an excerpt from a recent Wall Street Journal article outlining the problem:

Europe Faces Pension Predicament

State-funded pensions are at the heart of Europe’s social-welfare model, insulating people from extreme poverty in old age. Most European countries have set aside almost nothing to pay these benefits, simply funding them each year out of tax revenue. Now, European countries face a demographic tsunami, in the form of a growing mismatch between low birthrates and high longevity, for which few are prepared.

Europe’s population of pensioners, already the largest in the world, continues to grow. Looking at Europeans 65 or older who aren’t working, there are 42 for every 100 workers, and this will rise to 65 per 100 by 2060, the European Union’s data agency says. By comparison, the U.S. has 24 nonworking people 65 or over per 100 workers.

“Western European governments are close to bankruptcy because of the pension time bomb,” said Roy Stockell, head of asset management at Ernst & Young. “We have so many baby boomers moving into retirement [with] the expectation that the government will provide.”

The demographic squeeze could be eased by the influx of more than a million migrants in the past year. If many of them eventually join the working population, the result could be increased tax revenue to keep the pension model afloat. Before migrants are even given the right to work, however, they require housing, food, education and medical treatment. Their arrival will have effects on public finances that officials have only started to assess.

A Growing Mismatch
The pension squeeze doesn’t follow the familiar battle lines of the eurozone crisis, which pits Europe’s more prosperous north against a higher-spending, deeply indebted south. Some of the governments facing the toughest demographic challenges, such as Austria and Slovenia, have been among those most critical of Greece.

Germans, meanwhile, “are promoting fiscal rules in Spain and other countries, but we are softening the pension rules” at home, said Christoph Müller, a German academic who advises the EU on pension statistics. He pointed to a recent change allowing some workers to collect benefits two years early, at 63. A German labor ministry spokesman called that “a very limited measure.”

Europe’s state pension plans are rife with special provisions. In Germany, employees of the government make no pension contributions. In the U.K., pensioners get an extra winter payment for heating. In France, manual laborers or those who work night shifts, such as bakers, can start their benefits early without penalty.

Across Europe, the birthrate has fallen 40% since the 1960s to around 1.5 children per woman, according to the United Nations. In that time, life expectancies have risen to roughly 80 from 69.

In 2012, the Polish government launched a series of changes in its main national pension plan to make it more affordable. One was a gradual rise in the age to receive benefits. It will reach 67 by 2040, marking an increase of 12 years for women and seven for men. The changes mean the main pension plan now is financially sustainable, said Jacek Rostowski, a former finance minister and architect of the overhaul.

The party that enacted the changes lost an election in October, however, and a central promise of the winning party is to undo them. Recently, Poland’s president introduced a bill to reverse some of the measures. “You have to take care of people, of their dignity, not finances,” said Krzysztof Jurgiel, agriculture minister in the current Law & Justice Party government.

The implication is that Germany, Italy, Spain, France et al are functionally bankrupt, apparently (amazingly) by choice. They saw the avalanche coming decades ago and instead of getting out of the way or reinforcing their chalets, simply sat there watching the snow roll down the mountain. It will be arriving shortly, and they’re still debating what — if anything — to do about it.

In fact the only thing that can be reasonably described as preparation is the decision to ramp up immigration. This might have worked if Europe had chosen more compatible immigrants, but that’s a subject for a different column. For now let’s focus on insanely stupid choice number one, which is to offer entitlements with no funding mechanism other than future tax revenue. If an insurance company or corporate pension plan did something like that its executives would be led away in handcuffs — rightfully so, since the essence of such deferred-payout entities is an account that starts small and grows to sufficient size as its beneficiaries begin to need it.

So what the Europeans have aren’t actually pensions, but a form of election fraud designed to give an entire generation of politicians the ability to offer free money to voters without consequence.

Soon, a whole continent will be left with no choice but to devalue its currency to hide the magnitude of its mismanagement. The math will work like this: devalue the euro by 50% while raising pension payouts by 20%, thus cutting the real burden significantly — while taking credit for the nominal benefit increase at election time. It might work, based on the level of voter credulity displayed so far.

Now here’s where it gets really interesting. The US “trust funds” that have been created to guarantee Social Security and Medicare are full of Treasury bonds, the interest on which is paid from — you guessed it — taxes levied each year on US citizens. So the only real difference between the European pay-as-you-go and US trust fund models is that the former is more honest.

This is why gold bugs and other sound money people are so certain that precious metals will soon be a lot more valuable. The pension numbers are catastrophic everywhere and the reckoning that was once merely inevitable is now imminent. Europe is a little further along demographically and so might have to devalue its currency first, but $80 trillion in unfunded Medicare liabilities can’t be denied. We’ll be following along shortly.

37 thoughts on "How Stupid Do You Have To Be To Let This Happen?"

  1. Allowing real estate to become an expensive investment instead of merely being a place to live is the dumbest thing that was ever allowed in white countries because it creates a world with fewer white people and renders the value of work null and void next to real estate values plus it stops white people from starting and having large families. The problem isn’t low sperm counts it is extreme home prices and rents plus stagnant or low pay rates. Call it what it is; genocide by other means.

  2. World War III is going to be carefully crafted and staged to eliminate the “retirement population”, which means most of Japan, Europe, and the U.S.

    1. Any WWIII scenario I can come up ends with eliminating all life. And it’s not just the bombs, although that could probably do it. But the real kicker is that all of the potential combatants have built extensive “dooms day machines” in the form of the thousands of tons of spent fuel rods piled up in storage pools at each of the 400 or so reactors world wide. They don’t respond well to nuclear bombs. If a reactor and it’s storage pools get hit by a nuke, all that material will vaporize and spread throughout the atmosphere. It would be far worse than 400 Fukashimas, plus the radiation from the bombs on top. Mad Max is only going to live a year or 2. Even the reactors that don’t get hit will eventually release their materials as they fall into decay after society can no longer maintain them, whatever society that theoretically remains. WWIII is a bad idea. They say the cockroaches will survive but they won’t. Our planet will be sterile for over 500,000 years. I am sure there are think tanks on all sides that have thought this all through so any upcoming wars will be along the lines of what we saw in Iraq, not a full scale conflict between the nuclear powers. WWIII cannot be fought because there will be nothing to win and no one to win it. Maybe it could be fought in the 50’s and 60’s when the bombs were smaller and there wasn’t so much spent fuel, but the situation has changed and the thinking must too.

    1. How do you work that one out. These people have no skills, no understanding of the language and are hostile to the culture they have entered. They will remain unemployed in ghettos and will be a drain on the German and other economies.

  3. This is the result of letting idiots both in and outside of the governments set policies. Who cannot do the simple math that showed way back in the 1950s that this would happen? It was in Popular Mechanics in 1956, according to a report I have read. The article said that one half of the U.S. population would be supporting the other half!
    What kinds of jobs will these migrants who are supposed to be the saviors of the various nations do? From where will the money come from to pay them high enough wages to tax at a rate sufficient to prop up the failing model?? This is just more proof that idiots, retards, morons and buffoons are in charge; the inmates are running the asylums now!!
    EVERY fiat paper currency monetary system over the last 350 years or so has failed. There are over 600 of them before you even get past the letter B of the alphabet! What does that tell us?

    1. Migrants won’t be doing any jobs…they will be a permanent and highly destructive drag on the German and other economies.

      1. Not really permanent, they will only be there until the collapse occurs and they are starving too, then they will leave, if they can.

        Randy

  4. I have a university degree from technology field I live in southern Europe I’m more than 30 years old and I was working only 9 months till now. I think there is no demographic crisis and we don’t need more people. Economy shrinks fast and globalism does the things.

  5. You guys can take jabs and insults at each other, go ahead. When TSHF, it really gets ugly. You will trade your verbal barbs for knives and begin killing each other. Thinning out the population of unproductive whining and entitled people will solve the problem. That has always been the solution throughout history.

  6. So how do we explain this?????? Obviously your observation that they are: “a well-schooled people with vast accumulated wisdom” was a bit off target. What you should have said is they are a bunch of lazy azz socialists that are running out of other peoples money…THAT would have been accurate and answered the first question you asked.

  7. All governments spend more than they extract from people in taxes. Most borrow to cover the shortfall. Many debase their currencies in an attempt to hide the truth. No governments, even those that conquer and extract tribute, have ever found enough loot to support their profligate promises and corruption.

    But what if there are limits?

    The more taxes you extract, the less productive the economy. You get a downward spiral. The purpose of the tax does not change the negative effect. Carbon taxes are as much friction as payroll taxes and income taxes. More taxes mean less wealth to tax.

    What happens if no one will lend to governments? Are we at or near limits, since there’s neither the intention nor any demonstrated ability or effort to repay loans to governments?

    Then there’s government policy of reducing interest rates to ZIRP. Understandable now that 70% of outstanding debt really is accrued, unpaid and unpayable interest on prior debt. But ZIRP undermines all the pension fund actuarial assumptions of an 8% return. The government’s own figures show Social Security goes negative in 2017.

    Do you think perhaps those infamous FEMA camps were for Muslims and destitute pensioners?

    When people cheered for the US Military adventures in foreign lands, did they understand their Social Security taxes were paying for bombs and make work soldiering?

    Revolution on the horizon?

    1. There is no debt when fraud gets involved. Fiat paper currencies are 100% fraud, ergo no actual debts exist in that kind of a system, it’s all just made up out of thin air!

      Randy

  8. There appears to be an assumption in the article that is not being addressed. Namely, the author assumes that the current situations in the EU and the US are due to negligence. An alternative idea is that the current situation was purposefully implemented. The Fiat monetary systems have been doomed since the beginning and those who implemented it were fully aware of this. So, wouldn’t it make sense for those in power to create a system where entitlement programs that provide healthcare, food, housing, retirement, etc.are implemented to appease the population? After all, it doesn’t really cost anything other than dollars or Euros that are printed from thin air. The important thing is that the illusion captivates the masses for as long as possible to generate a sizeable amount of wealth and power for those in power. If a significant amount of people stopped and thought about this, they would quickly realize that trading paper for tangible items of value such as food, housing, PMs, tools, etc. is a great deal until the day comes when people stop believing in the system. However, the vast majority of people will believe in the system despite knowing the truth; because if they do acknowledge the truth, they will undermine their own financial security, i.e. bi-weekly paycheck, checking account, savings, and any retirement. The system was intentionally designed this way and the masses will continue to believe in the fairy tales presented by the mainstream media because to do otherwise will be fatal.

    1. It probably doesn’t matter if that’s true, but personally I don’t think “it” was designed this way from the beginning. The thinking is and was much more short-term, fragmented, and pragmatic. There is no positive end-game for “your” masterminds when things hit the wall. Why wouldn’t they rather have (or design) a sustainable system so they can leech indefinitely? Why wouldn’t they rather have economic growth and inflation continue indefinitely so they can maintain their power?

        1. True, and that’s why I say they don’t care about PURPOSELY creating a system that will fail. They just care about meeting whatever agenda they have at the moment. You could argue that by doing anything that goes against rationality and economic laws will knowingly fail, but I just think that’s a consequence they don’t care about. As long as whatever they do satisfies their agenda (usually to increase their own power) then that’s what they’ll do regardless of how it may help or not help anything else down the line.

  9. Well it’s not because of the pensions so much is as it is end of capitalism brought to us by computers and robotics. Moving the jobs to low wage countries is the warning but the end will be a whole new system devoid of meaningless work because there will be no more middle class. And that my friends puts Europe in front of the problem not behind it as they will have to come up with a way to keep their society from falling into chaos. Right now the wealthy are trying to protect their wealth into the future but it won’t matter when the day comes that everyone will get a stipend from the government because there will be no more jobs that a computer won’t be able to do much more efficiently. All of this hand wringing about the lazy poor not wanting to work and the middle class worrying about their pensions will all be passe. Enslaving people to do meaningless work will come to an end and a new age of learning to engage the world in a meaningful way will be upon us. Only the wealthy will fight it to the end but it will be useless.

    1. actually, the human-robotic hybrids with demonic DNA will build a weapon on the earth to destroy their enemies in the crab nebula. No meaningful way to engage the world coming up.

    2. “Right now the wealthy are trying to protect their wealth into the future but it won’t matter when the day comes that everyone will get a stipend from the government because there will be no more jobs that a computer won’t be able to do much more efficiently.”
      WOAH, where is that free money gona come from???

  10. It’s easy to be a western politician:

    1) offer people free shit all the time
    2) sell your soul to corporate and banking interests
    3) learn to lie effectively

    Not so hard for them.

  11. This like Social Security in the US scare stories is pretty silly. Any government pension program in which one generation effectively promises to support another is always limited by demographics.

    Obviously a boom generation of workers are going to take far better care of their elders than a bust generation of workers will be able to take care of a huge generation of elders.

    All this means is that the latter situation benefits they give to their parents and grandparents generation will have to be reduced.

  12. Most of us will be “downshifting” whether we like it or not. (I can attest that voluntary downshifting is a lot better than remaining in the rat race. Managing pension fund monies in my particular rat race.) We have reached an historical inflection point. Alasdair MacIntyre in his book “After Virtue” describes a similar period in the middle ages when new institutions are required. Today, Government is not the answer, nor is gold for a variety of reasons including that it is hard to digest. Boundaries are not the long-term solution as water and air do not recognize boundaries. Most retirees would be much more healthy and happy if they had something meaningful to do other than attending the “grand’s” birthday parties. Many will not have a choice but to change their expectations.

    1. Well I guess you don’t work with your hands because most of those people are pretty worn out by the time they’re 50. It’s people like you who don’t actually work who seem to think the rest of the population doesn’t deserve a retirement. Eventually it won’t matter as the computer and robotics will being doing your job to and then your toon will change. I myself worked with my hands and saved for my retirement and got tired of having to serve assholes like your kind. I would never work for someone again as most of them were assholes too.

      1. Well… I’m somewhat sympathetic as someone who only worked with my hands — excepting time sitting in a classroom being indoctrinated — from the age of 9-22 — oftentimes working until midnight and getting up at 5 am to head to school. I have also only worked with my hands — although I try to keep the mind working as well — from the age of 40-57 as a gardener, cook, cleaner and bicycle mechanic. Granted, I had 18 years — age 22 to 40 — or so as an A-hole as you so *eloquently* put it. I left it behind and that was my point…

  13. I’m not defending any of the above at all, but there is one more possible “solution” to all of this – and it’s compatible with the developing political situations all over the world – and that is a form of nationalism and isolationism for each country (what that means for the EU will be interesting to see.) If each country needs to devalue their currencies to make the numbers work for their own crappy entitlement and transfer payment systems, then they are probably not going to be able to afford a lot of imports, and so their economies are going to have to be local and domestic by necessity. I haven’t thought all of this through yet, but it seems intuitively plausible to me, which would be an ironic – and probably serendipitous – development given the seemingly inexorable growth of economic globalization and political centralization of just a few years ago.

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