4 ms·

There is a common misconception in your description or the return rate on bonds and equity. At some point, you need to sell your bonds to get actual money to bu

by wazoox 11y ago

There is a common misconception in your description or the return rate on bonds and equity. At some point, you need to sell your bonds to get actual money to buy things. When many older people sell their bonds to earn a living, they flood the market and bond price crashes, and they're actually no better than using the pay-go system. in the end, retired people must live on the surplus created by those still working; the way you redistribute that surplus doesn't really change the equilibrium.

yummyfajitas 11y ago
This ignores the effect of buying bonds earlier in life. While people are working, they are reducing consumption and directing some of their productive capacity into investment. This raises future production, resulting in more future surplus to go around.
- toomuchtodo 11y ago
  You're assuming future production will always be higher than present day. No one can be sure of this. The federal reserve can't even raise rates above zero today, let alone us assuming future productivity or production gains.
  - yummyfajitas 11y ago
    I'm assuming that if we invest in the future, production will be higher than if we don't. Do you believe this to be false (i.e., do you believe that all possible investments are receiving optimal resources)? I'm also not sure what the federal reserve has to do with anything, or why you believe the fed can't raise rates.
    - toomuchtodo 11y ago
      > Do you believe this to be false (i.e., do you believe that all possible investments are receiving optimal resources)? I believe that we've tapped out as much consumer demand as we can in the first world, and that emerging economies (China, clearly from recent events) is unable to bootstrap their own local demand. It doesn't matter if production is higher if there's no consumer demand; you're "pushing the string" as it were. > I'm also not sure what the federal reserve has to do with anything, or why you believe the fed can't raise rates. The Federal Reserve is the level by which the US (and through it, the world) economy is governed. Rates go lower, you (supposedly) throttle up the economy. Rates go higher, you throttle it down. The Federal Reserve won't raise waits until there are enough positive economic indicators that their actions won't push us back into recession; if you want to see what I believe the Fed can't raise rates, look at Japan: http://www.bloombergview.com/articles/2013-04-25/zero-rates-are-harder-to-escape-than-the-imf-thinks http://www.bloombergview.com/articles/2013-04-25/zero-rates-... Now, I'm not one to hold Japan up as a failed experiment. Even with interest rates at zero, everyone has a fairly high quality of life. I'm saying: Once consumer debt is sapped, either because of a populace aging (which reduces demand), stagnant wages (which also reduces demand), and so forth, there is no economic driver.
      - yummyfajitas 11y ago
        If consumer demand doesn't exist there is no problem - everyone already has everything they want. Is it your belief we live in a post-scarcity world? If so, we indeed need no new investment. Then again, the consumption of retirees is also not really a problem. I don't know China well, but the idea that the emerging world doesn't have unmet demand is insane. Indians (a nation I know much better) certainly want to consume vastly more than they currently do.
        toomuchtodo 11y ago
        > If consumer demand doesn't exist there is no problem - everyone already has everything they want. Is it your belief we live in a post-scarcity world? If so, we indeed need no new investment. I agree with this. We're almost there, not quite yet though. The renewables push and electric vehicles get us over the hump (although housing is going to be something we'll need to figure out). Although, if you don't have consumer demand, you don't have any need for investment (except perhaps infrastructure, which the government can do; that leaves bonds/treasuries intact as an investment vehicle). > Then again, the consumption of retirees is also not really a problem. Ahh! But it is! Retirees consume much less, especially with most of them not having saved enough for retirement. They'll have enough to survive, and that's it (and those who need to depend on their families will be sapping away disposable income that's now re-purposed as non-discretionary living expense). > I don't know China well, but the idea that the emerging world doesn't have unmet demand is insane. Indians (a nation I know much better) certainly want to consume vastly more than they currently do. Yes, true. But do they have the income to do so? Without income, you cannot have consumption.

by wazoox 11y ago

yummyfajitas 11y ago

This ignores the effect of buying bonds earlier in life. While people are working, they are reducing consumption and directing some of their productive capacity into investment. This raises future production, resulting in more future surplus to go around.

toomuchtodo 11y ago
You're assuming future production will always be higher than present day. No one can be sure of this. The federal reserve can't even raise rates above zero today, let alone us assuming future productivity or production gains.
- yummyfajitas 11y ago
  I'm assuming that if we invest in the future, production will be higher than if we don't. Do you believe this to be false (i.e., do you believe that all possible investments are receiving optimal resources)? I'm also not sure what the federal reserve has to do with anything, or why you believe the fed can't raise rates.
  - toomuchtodo 11y ago
    > Do you believe this to be false (i.e., do you believe that all possible investments are receiving optimal resources)? I believe that we've tapped out as much consumer demand as we can in the first world, and that emerging economies (China, clearly from recent events) is unable to bootstrap their own local demand. It doesn't matter if production is higher if there's no consumer demand; you're "pushing the string" as it were. > I'm also not sure what the federal reserve has to do with anything, or why you believe the fed can't raise rates. The Federal Reserve is the level by which the US (and through it, the world) economy is governed. Rates go lower, you (supposedly) throttle up the economy. Rates go higher, you throttle it down. The Federal Reserve won't raise waits until there are enough positive economic indicators that their actions won't push us back into recession; if you want to see what I believe the Fed can't raise rates, look at Japan: http://www.bloombergview.com/articles/2013-04-25/zero-rates-are-harder-to-escape-than-the-imf-thinks http://www.bloombergview.com/articles/2013-04-25/zero-rates-... Now, I'm not one to hold Japan up as a failed experiment. Even with interest rates at zero, everyone has a fairly high quality of life. I'm saying: Once consumer debt is sapped, either because of a populace aging (which reduces demand), stagnant wages (which also reduces demand), and so forth, there is no economic driver.
    - yummyfajitas 11y ago
      If consumer demand doesn't exist there is no problem - everyone already has everything they want. Is it your belief we live in a post-scarcity world? If so, we indeed need no new investment. Then again, the consumption of retirees is also not really a problem. I don't know China well, but the idea that the emerging world doesn't have unmet demand is insane. Indians (a nation I know much better) certainly want to consume vastly more than they currently do.
      - toomuchtodo 11y ago
        > If consumer demand doesn't exist there is no problem - everyone already has everything they want. Is it your belief we live in a post-scarcity world? If so, we indeed need no new investment. I agree with this. We're almost there, not quite yet though. The renewables push and electric vehicles get us over the hump (although housing is going to be something we'll need to figure out). Although, if you don't have consumer demand, you don't have any need for investment (except perhaps infrastructure, which the government can do; that leaves bonds/treasuries intact as an investment vehicle). > Then again, the consumption of retirees is also not really a problem. Ahh! But it is! Retirees consume much less, especially with most of them not having saved enough for retirement. They'll have enough to survive, and that's it (and those who need to depend on their families will be sapping away disposable income that's now re-purposed as non-discretionary living expense). > I don't know China well, but the idea that the emerging world doesn't have unmet demand is insane. Indians (a nation I know much better) certainly want to consume vastly more than they currently do. Yes, true. But do they have the income to do so? Without income, you cannot have consumption.