Obama's Perfect Storm

Nice analogy by James Quinn: He is alluding to the movie The Perfect Storm.

The Andrea Gail (United States) is captained by Billy Tyne (Barack Obama) with his young first mate Bobby Shatford (Timothy Geithner). Their fishing boat was fighting the rough waves of the North Atlantic (Financial Crisis) as they sought their prize of swordfish (Economic Recovery). While they were concentrating on the task at hand, the remnants of Hurricane Grace (Unfunded Liabilities of $53 trillion) was moving up the Atlantic coast. A low pressure system ($787 billion stimulus bill) moved off the East Coast and a strong disturbance (Bank Bailout) along a cold front coming from Canada combined to create a strong Nor’easter. The intensifying storm was already dangerous (Causing Unemployment and Bankruptcies), but when the subtropical power of Hurricane Grace was sucked into the maelstrom, it became a Perfect Storm (Financial Crisis of Epic Proportions). With 75 mph winds (Deficits) and 60 foot waves (Unsustainable Spending on Social Programs & Military Spending), the storm had become enormously treacherous.

Captain Tyne (Barack Obama) received frantic warning calls from Captain Linda Greenlaw (David Walker) that the storm had grown into a killer and must be avoided. Cocky Captain Tyne (Barack Obama) thought he knew better and could make it through the storm and safely back to port in Gloucester to reap the riches of his catch. Instead of maneuvering (Reigning in spending and allowing banks to fail) to avoid the storm, Captain Tyne (Barack Obama) decides to double down and plough full speed ahead into the heart of the Perfect Storm. The Adrea Gail (United States) gets caught in the vortex of the storm. Ultimately, Captain Tyne (Barack Obama) and Bobby (Timothy Geithner) realize they will never get out alive. They make one last effort to climb a 60 foot wave and the Andrea Gail (United States) capsizes (Collapse of American Financial System), and all men are lost at sea.

US government is on a “burning platform"

James Quinn writes:

President Obama has been only concerned with speed rather than long term corrective actions. The $787 billion 1,074 page stimulus bill has been passed. President Obama has signed it. The market immediately dropped 500 points. It will have no impact on the economy in 2009. The bill will stimulate nothing but the National Debt. Within months, plans for another stimulus plan will be demanded by the Democratic led Congress because speed and the appearance of action are how politicians get reelected.

"Delay is preferable to error." – Jefferson

“Give me six hours to chop down a tree and I will spend the first four sharpening the axe.” – Lincoln

Why Thomas Friedman Doesn't Know What He is Talking about

Thomas Friedman, yet again spews spurious ideas, passing himself off as a domain expert. Too bad his readers can't call him on his.

In yesterday's OpEd piece in the NYTimes Thomas 'hothead' Friedman wrote:

You want to spend $20 billion of taxpayer money creating jobs? Fine. Call up the top 20 venture capital firms in America, which are short of cash today because their partners — university endowments and pension funds — are tapped out, and make them this offer: The U.S. Treasury will give you each up to $1 billion to fund the best venture capital ideas that have come your way. If they go bust, we all lose. If any of them turns out to be the next Microsoft or Intel, taxpayers will give you 20 percent of the investors’ upside and keep 80 percent for themselves.

Fred Wilson, a VC at Union Square Ventures responds:

So Tom's idea, while it looks good on paper, is a dream. The top venture firms don't want, don't need, and are never going to take government money. The same is true of the top entrepreneurs.

the venture capital business, thankfully, does not need any more capital. It's got too much money in it, not too little. Just ask the limited partners who have been overfunding the venture capital business for the past 15-20 years what they think. You don't even need to ask them. They are taking money out of the sector because the returns have been weak.

And the top 20 firms in the venture capital business are the least in need of a bailout of any group I've ever thought about. These firms, the Sequoias and Benchmarks and Accels and Kleiner Perkins etc etc can raise a fund anytime they want. Accel raised a ton of money last fall in the midst of the worst global financial meltdown in my lifetime.

The venture capital business is an asset class where the top 10-20 percent of the firms make 80%+ of the returns. That's how its always been and that's how it will likely always be. It's because the best entrepreneurs want to work with firms with reputations for making money, making connections, recruting top talent, and getting the right exit at the right time. And those are the top 10-20 percent of the firms.

How Government Intervention Was/Is The Problem

By Marc Faber:

Sadly, government policy responses -- not only in the U.S. -- are plainly wrong. It is not that the free market failed. The mistake was constant interventions in the free market by the Fed and the U.S. Treasury that addressed symptoms and postponed problems instead of solving them.

The bad policy started with the bailout of Mexico following the Tequila crisis in 1994. This prolonged the Asian bubble of the 1990s, because investors became convinced there was no risk in growing current-account deficits and continued to finance Asia's emerging economies until the bubble burst with the start of the Asian crisis in 1997-98.

Then came the ill-advised bailout of Long-Term Capital Management in 1998, which encouraged the financial sector to leverage up even more. This was followed by the ultra-expansionary monetary polices following the Nasdaq bubble in 2000, which led to rapid and unsustainable credit growth.

So what now? Unfortunately, Fed Chairman Ben Bernanke and Treasury Secretary Tim Geithner were, as Fed officials, among the chief architects of easy money and are therefore largely responsible for the credit bubble that got us here. Worse, their commitment to meddling in markets has only intensified with the adoption of near-zero interest rates and massive bank bailouts.

The best policy response would be to do nothing and let the free market correct the excesses brought about by unforgivable policy errors. Further interventions through ill-conceived bailouts and bulging fiscal deficits are bound to prolong the agony and lead to another slump -- possibly an inflationary depression with dire social consequences.

Brief History Of The Current Crisis

By Marc Faber.

Following the March 2000 Nasdaq bust, the Federal Reserve began to slash the fed-funds rate from 6.5% in January 2001 to 1.75% by year-end and then to 1% in 2003. (This despite the fact that officially the U.S. economy had begun to recover in November 2001). Almost three years into the economic expansion, the Fed began to increase the fed-funds rate in baby steps beginning June 2004 from 1% to 5.25% in August 2006.

But because interest rates during this time continuously lagged behind nominal GDP growth as well as cost of living increases, the Fed never truly implemented tight monetary policies. Indeed, total credit increased in the U.S. from an annual growth rate of 7% in the June 2004 quarter to over 16% in early 2007. It grew five-times faster than nominal GDP between 2001 and 2007.

The complete mispricing of money, combined with a cornucopia of financial innovations, led to the housing boom and allowed buyers to purchase homes with no down payments and homeowners to refinance their existing mortgages. A consumption boom followed, which was not accompanied by equal industrial production and capital spending increases. Consequently the U.S. trade and current-account deficit expanded -- the latter from 2% of GDP in 1998 to 7% in 2006, thus feeding the world with approximately $800 billion in excess liquidity that year.

When American consumption began to boom on the back of the housing bubble, the explosion of imports into the U.S. were largely provided by China and other Asian countries. Rising exports from China led to that country's strong domestic industrial production, income and consumption gains, as well as very high capital spending as capacities needed to be expanded in order to meet the export demand. An economic boom in China drove the demand for oil and other commodities up. Rapidly accumulating wealth allowed the resource producers in the Middle East, Latin America and elsewhere to go on a shopping binge for luxury goods and capital goods from Europe and Japan.

As a consequence of this expansionary cycle, the world experienced between 2001 and 2007 the greatest synchronized economic boom in the history of capitalism. Past booms -- of the 19th century under colonial economies, or after World War II when 40% of the world's population remained under communism, socialism, or was otherwise isolated -- were not nearly as global as this one.

Another unique feature of this synchronized boom was that nearly all asset prices skyrocketed around the world -- real estate, equities, commodities, art, even bonds. Meanwhile, the Fed continued to claim that it was impossible to identify any asset bubbles.

The cracks first appeared in the U.S. in 2006, when home prices became unaffordable and began to decline. The overleveraged housing sector brought about the first failures in the subprime market.

Sadly, the entire U.S. financial system, for which the Fed is largely responsible, turned out to be terribly overleveraged and badly in need of capital infusions. Investors grew apprehensive and risk averse, while financial institutions tightened lending standards. In other words, while the Fed cut the fed-funds rate to zero after September 2007, it had no impact -- except temporarily on oil, which soared between September 2007 and July 2008 from $75 per barrel to $150 (another Fed induced bubble) -- because the private sector tightened monetary conditions.

In 2008, a collapse in all asset prices led to lower U.S. consumption, which caused plunging exports, lower industrial production, and less capital spending in China. This led to a collapse in commodity prices and in the demand for luxury goods and capital goods from Europe and Japan. The virtuous up-cycle turned into a vicious down-cycle with an intensity not witnessed since before World War II.

Hey You Liberal Doctors Who Voted For Obama, You Got What You Asked

So your so called expertise and experience is for naught. The Feds will call the shots. Just what you trained so hard for!

From Bloomberg:

One new bureaucracy, the National Coordinator of Health Information Technology, will monitor treatments to make sure your doctor is doing what the federal government deems appropriate and cost effective. The goal is to reduce costs and “guide” your doctor’s decisions (442, 446). These provisions in the stimulus bill are virtually identical to what Daschle prescribed in his 2008 book, “Critical: What We Can Do About the Health-Care Crisis.” According to Daschle, doctors have to give up autonomy and “learn to operate less like solo practitioners.”

Keeping doctors informed of the newest medical findings is important, but enforcing uniformity goes too far.

New Penalties

Hospitals and doctors that are not “meaningful users” of the new system will face penalties. “Meaningful user” isn’t defined in the bill. That will be left to the HHS secretary, who will be empowered to impose “more stringent measures of meaningful use over time” (511, 518, 540-541)

What penalties will deter your doctor from going beyond the electronically delivered protocols when your condition is atypical or you need an experimental treatment? The vagueness is intentional. In his book, Daschle proposed an appointed body with vast powers to make the “tough” decisions elected politicians won’t make.

The stimulus bill does that, and calls it the Federal Coordinating Council for Comparative Effectiveness Research (190-192). The goal, Daschle’s book explained, is to slow the development and use of new medications and technologies because they are driving up costs. He praises Europeans for being more willing to accept “hopeless diagnoses” and “forgo experimental treatments,” and he chastises Americans for expecting too much from the health-care system.

Yet Another Campaign Pledge Goes By The Wayside

From the Hill.com

If President Obama signs the $787 billion economic stimulus legislation Monday, he’ll again be dodging a campaign pledge he made on transparency.

During the campaign, Obama pledged to post legislation online for five days before signing it. But administration officials have said they don’t have to do that for the stimulus because the pledge applied only to non-emergency legislation.

The first bill Obama signed into law, the Lily Ledbetter Fair Pay Act, wasn't posted online until after he signed it Jan. 29.

He signed legislation expanding children’s health insurance on Feb. 4 after posting it online Feb. 1.

“The honorable thing to do is to give us the time to see the bill,” said Rep. Charlie Melancon (D-La.), a leader of the centrist Blue Dog Coalition. "When you make commitments you follow through on them."

Will Obama Spend Our $$ on Cool Copters

From the NYT. Will we see more hypocrisy from the LOTUS

President Obama has slammed high-flying executives traveling in cushy jets at a time of economic turmoil. But soon he will have to decide whether to proceed with some of the priciest aircraft in the world — a new fleet of 28 Marine One helicopters that will each cost more than the last Air Force One.

The choice confronting Mr. Obama encapsulates the tension between two imperatives of his nascent presidency, the need to meet the continuing threats of an age of terrorism and the demand for austerity in a period of economic hardship.

Equipped to deflect missile attacks and capable of waging war from the air, the new VH-71 helicopters would fly farther, faster and more safely than the current decades-old craft. But each improvement pushes up the cost. The program’s original $6.1 billion contract has ballooned to $11.2 billion, and the Pentagon notified Congress last month that it was so far over budget that the law required a review. The Obama administration now must determine if the project is essential to national security and if there are alternatives that would cost less.

Let the taxpayers eat cake while go zoom zoom zoom, zooma, zoom zoom zoom!!

Shaft - How Obama Roped The Dopes For Support

From Reason:

Supporters of the package describe the legislation as transportation and infrastructure investment, the idea being to use new spending to put America back to work while at the same time fixing decrepit infrastructure. However, only 17 percent of the discretionary spending in this package is for infrastructure items. More worrisome still, the final version lacks any mechanism to ensure that spending will be targeted toward infrastructure projects with high economic returns.

If we include the massive amount of interest that will accrue on the increased debt, the overall cost will total to $1.14 trillion.

The conference report dedicates 30 percent of all discretionary spending to 33 new programs totaling $95 billion and expands 73 programs which are normally part of the regular appropriations process by $92 billion.

So now funds can go to museums, stadiums, arts centers, theaters, parks, or highway beautification projects. Most significantly, this reopens the door for many of the projects on the U.S. Conference of Mayors' wish list of "shovel ready" projects that includes many items that are nothing but waste and pork, such as doorbells, construction of dog parks, replacement of street lights, and money for a "mob museum."

Don't Believe the Blather From Barak - It is not about jobs!

If you believe the blather from Obama, that the pork bill making it way through Congress is about jobs, then consider the following from Mr. Practical:

“I have written that what makes an economy and wealth grow is productivity. Don't think of wealth as more money, as the government wants you too (because they can always just create more of that); think of it as standard of living. I have illustrated how productivity makes standard of living/wealth rise.

But notice the government's plan of fiscal stimulus directly opposes productivity. Its objective is to create as many jobs as possible. But the definition of productivity is to do as little work as possible for the most output. So the objective of creating a lot of jobs is by definition unproductive

Everyone wants jobs and it is unfortunate that the is in this state. But we are here because we have borrowed future standard of living, living beyond our means. We now have to pay it back. Creating unproductive jobs will merely forestall that process.”

Barney Frank, Chris Dodd, Team Obama Should Be Questioned

Bank CEO operated in an environment carved out by government regulations and implicit rules. Unfortunately now the government is getting itself more involved and preventing the markets from functioning.

From Mr. Practical.

The government isn't the solution since they're the enabler. They'll enable until the currency is literally destroyed. A former Chinese bureaucrat already stated that the US needs to guarantee its debt. That's code for you now work for us.

That will happen unless we just stop and let the markets correct the problem. There's too much debt, and creating more debt is no longer an option. This is sad, but economics is like physics: You can’t expect to jump out of a window and go up.

The 2 most important were excess government spending and the continued backing of the GSEs. Very simply, banks would probably have not been able to keep lending without Fannie Mae (FNM) and Freddie Mac (FRE) guaranteeing and buying up debt from banks, which encouraged them into moral hazard: lending to people that, in even a modest downturn, could never pay back their loans.

Team Obama Should Learn From Economic History

Here is an excerpt from Friedrich Von Hayek's speech when he accepted the Nobel Memorial Prize in Economics in 1974. It applies to what is going on today and what Obama wants to do.

In fact, in the case discussed, the very measures which the dominant "macro-economic" theory has recommended as a remedy for unemployment, namely the increase of aggregate demand, have become a cause of a very extensive misallocation of resources which is likely to make later large-scale unemployment inevitable. The continuous injection of additional amounts of money at points of the economic system where it creates a temporary demand which must cease when the increase of the quantity of money stops or slows down, together with the expectation of a continuing rise of prices, draws labour and other resources into employments which can last only so long as the increase of the quantity of money continues at the same rate - or perhaps even only so long as it continues to accelerate at a given rate. What this policy has produced is not so much a level of employment that could not have been brought about in other ways, as a distribution of employment which cannot be indefinitely maintained and which after some time can be maintained only by a rate of inflation which would rapidly lead to a disorganisation of all economic activity.

Why Obama's Government Actions Won't Work

Simply put, if you cut taxes and spend freely today, you have to raise taxes and cut spending later. If you were a rational taxpayer and you think the government does not have the will power to do the later then you won't believe the former. It might explain why the private markets and the taxpayers don't believe in the current stimulus package.

Here is another take from Naked Capitalism

For a fiscal stimulus (current tax cut or public spending increase) to boost demand, it is necessary that the markets and the public at large believe that sooner or later, measures will be taken to reverse the tax cut or spending increase in present value terms. If markets and the public at large no longer believe that the authorities will assure fiscal sustainability by raising future taxes or cutting future public expenditure by the necessary amounts, they will conclude that the government plans either to permanently monetise the increased amounts of public debt resulting from the fiscal stimulus, or that it will default on its debt obligations. Permanent monetisation of the kind of government deficits anticipated for the next few years in the US and the UK would, sooner or later be highly inflationary. This would raise long-term nominal interest rates and probably give risk to inflation risk premia on public and private debt instruments as well. Default would build default risk premia into sovereign interest rates, and act as a break on demand.

Beacause I believe that neither the US nor the UK authorities have the political credibility to commit themselves to future tax increases and public spending cuts commensurate with the up-front tax cuts and spending increases they are contemplating, I believe that neither the US nor the UK should engage in any significant discretionary cyclical fiscal stimulus, whether through higher public spending (consumption or investment) or through tax cuts or increased transfer payments...

Obama's Too Beholden To Unions to Avoid a Trade War

This is troubling. Perhaps history does not repeat but looks like it rhymes. The Smoot-Hawley Act contributed to the Great Depression. Now we have a looming trade war. Given Obama's promises to big labor it will be easy for the Democrats to place tarriffs and protect American industries.

From the WSJ

The World Trade Organization is gathering nations in a special meeting Monday to try to stem the rising tide, just two weeks after saying protectionism was largely under control. On Thursday, 10 European Union commissioners headed to Moscow for talks Friday with Prime Minister Vladimir Putin and other Russian officials, where they plan to air complaints over the pace of new Russian trade barriers.

Economists and trade analysts say the current rash of trade constraints could make it harder for global economic growth to recover from the current downturn. Global trade is expected to shrink by more than 2.1% this year after growing by 6.2% in 2008, according to the WTO.

Keynes Was Not All About Spending. He Liked Tax Cuts

In correspondence with the economist James Meade in 1942 Keynes says he is “converted” to Meade’s idea of altering the social security payroll tax over the business cycle. Here are Keynes’s words:

I am converted to your proposal…for varying rates of contributions in good and bad times. (June 16, 1942). Keynes, Collected Writings, vol. 27, p. 208.

…[Y]ou are able to show fluctuations in income of an order of magnitude which is significant in the context… So far as employees are concerned, reductions in contributions are more likely to lead to increased expenditure as compared with saving than a reduction in income tax would, and are free from the objection to a reduction in income tax that the wealthier classes would benefit disproportionately. At the same time, the reduction to employers, operating as a mitigation of the costs of production, will come in particularly helpfully in bad times. (July 1, 1942). Keynes, Collected Writings, vol. 27, p. 218.

From Think Markets

Obama Makes Sausage, Compromises on Ethics

From the NYT

Obama on his first day in office imposed perhaps the toughest ethics rules of any president in modern times, and since then he and his advisers have been trying to explain why they do not cover this case or that case. “This is a big problem for Obama, especially because it was such a major, major promise,” said Melanie Sloan, executive director of Citizens for Responsibility and Ethics in Washington. “He harped on it, time after time, and he created a sense of expectation around the country. This is exactly why people are skeptical of politicians, because change we can believe in is not the same thing as business as usual.”

In the campaign, Mr. Obama assailed Washington’s “entire culture” in which “our leaders have thrown open the doors of Congress and the White House to an army of Washington lobbyists who have turned our government into a game only they can afford to play.” He vowed to “close the revolving door” and “clean up both ends of Pennsylvania Avenue” with “the most sweeping ethics reform in history.”

The language, however, was always more sweeping than the specifics. He spoke of refusing campaign money from lobbyists but took it from the people who hired them. The ethics plan he outlined, and eventually imposed on his administration, did not ban all lobbyists outright but set conditions for their employment and did not cover many who were lobbyists in everything but name.

Liberal Economist Joesph Stiglitz Thinks Bad Bank is a Bad Idea

Obama wants to spend $2 TRILLION on saving banks.

From Bloomberg:

Obama’s administration is moving closer to buying the illiquid assets currently clogging bank’s balance sheets and preventing them from boosting lending, people familiar with the matter said this week.

That amounts to swapping taxpayers’ “cash for trash,” Stiglitz said yesterday in a panel discussion at the World Economic Forum in Davos, Switzerland. “You shouldn’t chase good money after bad. We’re talking about a national debt that’s very hard to manage.”

Stiglitz, a professor at Columbia University in New York and a former adviser to President Bill Clinton, says the plan would leave taxpayers paying for years of excess lending by banks.

Consumers Are Rational So Obama Should Leave Them Alone

Consumers are saving more and spending less. That is good. They have been spending way beyond their means for the last 30 years and now is the time to work off the bad habits, save and then resume a 'normal' rate of consumption.

That means demand is going to fall to natural levels. Which will lead to deflation and more rational consumption choices. If we have a decade of low consumption we will gain a decade of savings. That means those that save will need less social security and help from the government.

“Consumers are rational,” said Joshua Shapiro, chief United States economist at MFR. “They respond to incentives and conditions, and right now the conditions and incentives are: spend as little as you can, and pay down as much as you can. You hunker down. That’s what the consumer’s doing.” -NYT

“We have to expect spending to keep falling for some months yet,” Ian C. Shepherdson, chief United States economist at High Frequency Economics, wrote in a note to clients. “The concomitant rise in the saving rate, now at 3.6 percent compared to 0.8 percent in August, is good news in the long run but the key source of pain right now.” - NYT

Team Obama is trying to stimulate the economy by getting consumers to spend. The Fed is pushing down interest rates to zero, tyring to force consumers to move their money to higher yielding asset classes which contain more risk.

Obama should focus on long term INVESTMENTS that will retrain current workers and provide the incentives to the private market to invest. That means providing higher investment tax credits that will shield cashflows, increasing the internal rate of returns on those projects. The tax credit basically says that the government won't tax those cashflows for investors that take calculated risks.

At the same time Obama should cut tax rates on small and medium size businesses to lower their costs and reduce the risk of future cash flows. 60% of the workforce is employed by small and medium sized businesses. One proposal is the cut the payroll taxes so that employers will have more cash to shore up their balance sheet and lower the cost to hire workers. It will incent businesses to hire that additional work or keep workers instead of laying them off.

Unfortuantely team Obama is following the text book response to a atypical down turn. Let him fall on his own sword.

Time To Swallow The Bitter Pill - Say No To Democrats' Lunacy

From James Quinn

We have borrowed ourselves to the brink of disaster. The only logical way to resolve this quandary is to reduce spending, pay down debt, and increase savings.

It took 28 years to get to this point, and it will take at least a decade to repair the damage. Some indisputable facts will put our current predicament in perspective:

• The US National Debt was $930 billion in 1980, or 33% of GDP. Today it is $10.7 trillion, or 76% of GDP. The national debt has grown by 1,150% in 28 years.
  
  
• GDP was $2.8 trillion in 1980. Today, it is $14 trillion - and declining. GDP has grown by 500% since 1980 - which means the national debt has grown more than twice as fast as GDP.
  
  
• Total US consumer debt in 1980 was $352 billion. Today, US consumer debt totals $2.6 trillion - 738% in 28 years. Revolving credit increased from $56 billion in 1980 to $982 billion today, a 1,750% increase in 28 years.
  
  
• The real median household income was $41,258 in 1980. The real median household income in 2007 was $50,233. Over the course of 28 years, households are bringing home 22% more. The trickledown theory turns out to be a drip.
  
  
• The personal savings rate was 12% in the early 1980s and reached negative 1% during the Bush administration. It has inched above 2% in the last few months.

Real Leaders Take Their Medicine - Team Obama Is On Drugs

Few thoughts from James Quinn:

I know that many Americans are looking for President Obama to solve this crisis painlessly. But there is no easy way out. The debt must be paid off and/or written off.

The politically unpopular steps that need to occur are as follows:

• Housing prices need to drop another 15% to 20% to reach fair value. This will result in more foreclosures. When prices fall far enough, the houses will sell and inventories will fall. If you cannot afford the payment on your home, you should become a renter. Not everyone should own a home.

• The government and Federal Reserve need to shine a bright light on the bad debt within the financial system. The collateral or lack thereof backing up government loans needs to be revealed by Treasury and the Federal Reserve. Covering up the worthlessness of these assets is contributing to the frozen system.

• The remaining mega-banks that have caused this crisis -- including Citigroup (C), Bank of America (BAC), Goldman Sachs (GS), Morgan Stanley (MS), and any other insolvent banks -- need to be allowed to fail, if failure is indeed their destiny.

• Failed companies with failed strategies must go bankrupt. Allowing companies (such as General Motors (GM) and Chrysler, for example) to fail brings about restructuring; the remaining healthy companies can buy the good assets.

• Only infrastructure projects that benefit the citizens of the country should be undertaken. These would include water pipe replacement, electrical grid upgrades and repairing structurally deficient bridges.

• Keeping interest rates at zero in an effort to force savers to borrow and spend is penalizing the frugal to benefit the profligate. Borrowing our way out of a debt crisis will never work.

• Consumers should be encouraged to pay down their debt loads and increase their savings rate. The sooner this can be accomplished, the sooner the country can resume growth.

• The median 401k balance was $18,942 at the end of 2007, with 39% of workers having a balance below $10,000. Approximately 8,000 Americans turn 65 every day. 20% of the U.S. population will be over 65 by 2030. An aging population with virtually no retirement savings must increase their savings and cut consumption dramatically.