Wednesday, October 15, 2008

Nouriel Roubini on the coming recession

This man was a guest on Washington Journal last week and several callers recognized him and thanked him for his good advice. One man said that thanks to Roubini he had liquidated all his stocks last November and put his money into CD's/ Because of that move he didn't lose anything in the recent stock market crash. He remarked dryly that he didn't make much in interest, but at least he hadn't lost his capital.

This is a very smart man.

I found this video with a blog search. Roubini's predictions are not altogether negative, but it is not realistic to expect happy times in the near future.

Well, crap.Looks like that video is for sale and won't play past the first few minutes. I guess Charlie Rose has to pay the rent like everyone else.
Anyway, you get the idea.

Here is a link to the Washington Journal program.

The program was October 11 (scroll down), and to see the Roubini segment you must drag the timer to the second hour.

I would like to find a more user-friendly way to link this segment.

Here is a more recent appearance of Roubini...

After watching the news over the last week or two it is clear to me that the most broken part of the economy not being discussed is the crazy mixture of retirement arrangements that are supposed to take care of us when we can no longer be productive. In my case I have watched a twelve thousand-dollar savings set aside over the last five years shrink to about ten thousand dollars in value. That is one part of various IRA's and other stuff my wife and I squirreled away for retirement. I don't want to talk about the rest of the picture.

I am fortunate (literally, thanks to luck!) to be the beneficiary of TWO defined benefits pension plans, those old-fashioned arrangements rapidly being shed by all sectors of the economy in favor of so-called "employee-paid" plans.

This duke's mixture of plans includes Social Security, traditional IRA's, Roth IRA's, private plans sponsored variously by companies or unions, and, of course, the defined benefits plans like mine. This patchwork quilt has been cobbled together since the Great Depression as the needs became obvious and offered attractive political opportunities for this or that group along the way.

What is needed now -- and this is clear from the recent crash -- is that common stocks, euphemistically called "equities" by the peddlers who take their pound of flesh, as brokers do, no matter whether the market goes up or down.

Those old-fashioned plans with actuarial tables and capital reserves suddenly look as lot less crazy, don't they?

My naive dream is to scrap the whole mess and replace them with a single, solid national plan produced and administered by the already in place Social Security Administration. That body has been in business now for many decades, charged with keeping up with everyone in the country, even those not at work, by a numbering system that includes even aliens. They know who makes what, and keep financial records for everyone's lifetime.

Everyone in America with a SS number is taxed along with their employer, from the first earned dollar, with no deductions allowed as in the case of the additional "income tax."

The employers "contribution" is, in fact, a tax for each working employee. We can argue til the cows come home about whether the tax is "on" the employee or the employer, but the fact is that if the employee didn't work the expense to the employer would not exist and neither would the revenue to the Federal Treasury. As far as I am concerned, ALL that goes into the treasury is a tax, and it is a tax on the worker who triggered it.

Having said that, it is time to structure the books so that the "hidden" tax portion, the employer's contribution, be called what it is: a tax on the wages of the worker.

A true representation of Social Security would show up on the employee's stub as about seven percent of wages, not counting the other penny or so that goes to Medicare.

I see no reason that about a dime of everyone's earned income shouldn't be taken from the first dollar, just as we now do, with a federally-managed, iron-clad, portable for lifetime equivalent of the old-fashioned defined-benefits pension plans now going obsolete. This would put into place a solid base of care for eveyone, no matter how little they earned in their working years, that could reflect in part how much they were able to set aside during their productive years. As in the case of DB plans, the more you earn and the longer you work, the better your retirement benefits could be... and if you don't make it that far, thanks for your contributions to the good of the community. That's why it's called SOCIAL Security, not INDIVIDUAL Security.

Anyone who wants to feed an Individual Retirement Arrangement or put the rest of their next egg into "equities" is welcome to do so. I hope by doing so they will retire fat, happy and rich.

But for the great unwashed, it is time that a more sensible plan be put into place.

(I say the "great unwashed" because of the cap on the tax for those earning over a certain amount. One of the best-kept secrets in America is that those multitudes who toil away week after week, year after year making less than that cap never suspect that their better-paid bosses get a bonus every year as they sail past that point. I know because I paid the max into Social Security for over twenty years, Each fall when I got that bonus I looked around me in the cafeteria at what the rest of the world calls the " working poor" and knew that they would never know what it feels like to get an annual three percent boost in earnings just in time for the fall holidays.)

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