
The world is sitting on a $400T financial time bomb (2017) - monsieurpng
https://qz.com/994596/the-world-faces-a-400-trillion-disaster
======
graeme
World savings is a misnomer. You redeem savings by drawing on the resources of
the rest of society. The world can't be a net saver.

Imagine a desert island of two people. They have a system of savings. You can
bank away a voucher that makes the other person gather coconuts for you, and
do other necessary work.

 _One_ of the two people could conceivably work harder in their youth and then
work less later using the vouchers. But:

1\. They can't both do it 2\. If the other person loses capacity to work hard
in their later years, your savings voucher loses value.

How can they both save? To a limited extent, they can store resources like
extra coconuts, build infrastructure and tools while young, etc. But this only
goes so far: food rots, infrastructure depreciates.

On a global scale the world is no different. A savings shortfall means that
global youth productivity won't be high enough to support global elderly
retirement. We will need to either:

1\. Get youth more productive 2\. Make more youth 3\. Take a greater percent
of youth's income 4\. Have old people live on less or not retire so early

Notice that none of these are about saving now? That's because moving 1's and
0's in a ledger isn't a provisioning of future goods. You need actual future
goods production.

~~~
SuoDuanDao
Your logic seems to require labour to be the primary creator of value.
Returning to your desert island analogy, both castaways could spend their
youth planting coconut trees close to their shelter, thereby reducing the
amount of work needed to gather coconuts as their mobility decreases. It seems
to me that any economic system which invests in productivity and automation
could similarly replace the labour required to subsidize the 'retired'
population by investing in labour replacement technologies.

~~~
nicoburns
Right, but money sitting in a bank account isn't necessarily being invested in
a meaningful way. A lot of "investment" these days is in financial
instruments, which don't generate value in the way that would be realise these
benefits.

~~~
Fjolsvith
Wrong. Money sitting in a bank account is loaned out by the bank to people who
will use that money profitably. The only place that money can sit without
contributing to the economy is in a piggy bank or under a mattress.

~~~
gnosis89
False. Trillions of dollars are simply re-invested in financial activities
(many of which are risky and borderline illegal as well as insured by your
taxes) that serve only to generate more numbers with 0 physical contribution
to the world. At least you can lift your mattress up with money underneath it
or use your piggy bank as a paper weight.

~~~
Fjolsvith
Do explain where they get the interest they pay the depositor of the cash.

~~~
candybar
Interest rate has nothing to do with profitability - it's just a price that
balances the supply and demand of funds and on the short end, it's heavily
influenced by monetary policy and on the long end, it's heavily influenced by
the inflation and growth expectations. Lots of consumers borrow at very high
rates and it's not because they expect to be profitable with the money they
borrow.

------
atq2119
The risk with this kind of story is that we end up focusing on the financial
at the expense of the real.

Ultimately, the goods and services consumed by retirees are provided by the
real economy, not by financial instruments (which is just a fancy way of
saying that you can't eat savings).

The way to ensure their availability is to make _real_ investments, not
financial ones: build infrastructure, factories, accessible retirement homes;
train nurses, doctors, etc...

Unfortunately, focus on the financial can trigger (and arguably has already
triggered) some extremely counterproductive reflexes. For example, we've been
told for decades now that private savings are essential for retirement. This
may be true at an individual level, but in the aggregate it causes a savings
glut - those low interest rates aren't _just_ the making of central banks -
and it withdraws effective demand from the real economy, which disincentives
many of the investments in the real economy we need to provide for an aging
society.

So yeah, good to see some focus on the aging society, but please try to look
beyond the financial smokescreen.

~~~
asciident
Fair point. In that case, the real issue then is that more people are retiring
and living longer, needing more healthcare and labor, and the workforce is
dwindling in comparison? Maybe the amount of resources that can be used as
medical supplies is decreasing (and if you think single-use plastic like
plastic bags and straws are a problem, wait until you see how much single-use
plastic and other materials are used everyday day in healthcare).

What's the solution in non-financial terms? Make more young people care for
the elderly? Automate as much of the healthcare as possible? Let some elderly
people go without healthcare?

~~~
atq2119
I suppose as other people have pointed out in the thread, the first step is
figuring out how much of the shortfall is actually real.

But yeah, ultimately the solution would have to be something along the lines
of the things you mention. Of course, you don't necessarily have to automate
healthcare: if you automate something else, it could also free people to then
move to healthcare.

------
bryanlarsen
An even bigger financial time bomb IMO is that society and our financial
system was built on risk-free investment returns, and those have disappeared.

Some have said that financial reserve banking enabled the industrial
revolution. The party is over, we now have negative nominal interest rates,
and very negative real interest rates.

Society has adjusting by chasing risk. Comments like "as long as you hold for
at least 10 years, investing in the stock market is risk free" become common.
They make these statements by cherry picking American returns. Meanwhile an
investment in 1914 German stocks would not return your investment until 2014.
I don't believe that we're comparable to 1914 Germany, but potential isn't
comparable to the last century of American growth either...

A society does not become rich by moving pieces of paper around. A society
becomes rich by increasing its capacity to provide goods and services.

------
skrebbel
That bar chart is terrible. It puts the US at a 137T shortfall and the
Netherlands at 6T, making NL look much better than the US.

But there's about 20x more people in the US as in NL. The shortfalls are about
the same.

~~~
neor
Shortfalls are about the same, but I do wonder if the problem is as big as
well.

I'm not sure about the US, but in the Netherlands the pensions are a hot topic
in politics.

The pension funds have to maintain a minimum amount of money, and need to take
action if they risk getting below the minimum.

Some/most funds are no longer indexing yearly based on inflation, and some
funds are talking about reducing payouts to the retired. They are actively
protecting their wealth to ensure the younger generation still has access to a
pension when they retire.

On a grander scale there are talks about a completely new pension system; the
big funds where the current generation of workers pay the pensions of the
retired is fragile with the general aging of the population. The amount of
working persons per retired person is shifting, so they are talking about
restructuring in a way where every working person saves money for their own
pension.

So when the article states that it is an invisible problem... not entirely
true for the Netherlands.

------
tomp
> The WEF defines a shortfall as anything less than what’s required to provide
> 70% of a person’s pre-retirement income via public pensions and private
> savings.

Oh come on... why 70%? Presumably retirees don't have childcare costs, can
downsize on housing, no more daily commute so savings on transport and lunch
costs, ... Also, does "private savings" account for accumulated housing
equity?

Also, I think that "retirement _savings_ " are a fundamentally misguided
economic policy... There's a fixed amount of wealth created at any moment (and
a lot of it isn't transferable over time - in particular, labor, energy and
food), so by "saving for retirement" we're actually causing a deflation (less
money spent to buy same amount of wealth) and will cause an inflation when we
start "spending retirement savings" (more money spent to buy same amount of
wealth, so prices go up). This is a rat race, you only get ahead as long as
you save _more_ than others (similar to the housing bubble). The only
sustainable solution is the working population to subsidize the non-working
population (kids, students, retirees) _in real time_ , year by year. If that
math doesn't work out, we need to change it (make more kids who become new
workers or make less retirees by having people work longer). Or post-scarcity
economy of course.

~~~
chooseaname
> Oh come on... why 70%? Presumably retirees don't have childcare costs, can
> downsize on housing, no more daily commute so savings on transport and lunch
> costs, ... Also, does "private savings" account for accumulated housing
> equity?

I came here to say the same thing; was even typing it up. Then I paused.
Healthcare (in the U.S. at least) is going to be at a crisis point in a
decade. Prices keep going up and it isn't sustainable. Retirees will spend a
large portion of their retirement income on healthcare.

~~~
shantly
You've already gotta be _pretty damn rich_ for the most likely outcome, even
as a quite comfortably retired person who's careful not to overspend, not to
be "hospitals and hospice care take all my money in the last few years, and I
die nearly penniless".

We're rapidly approaching a time when leaving inheritance will no longer
happen _at all_ for nearly all people who've worked their whole lives (i.e.
have never been owners, "capitalists", as their primary source of income). I
mean I know there's not much there already, but soon that'll just _not be a
thing anymore_. Healthcare expenses plus the death of pensions are going to
cause some _serious_ unrest in the next decade or two, unless we course
correct hard and _very_ soon.

~~~
tomp
I really don't know what to think about healthcare expenses... Like, dying
pennyless _makes sense_! Why _wouldn 't_ you spend _all_ your money just to
prolong your life a bit longer? Obviously, our (civilization's) resources are
limited, and we need to make decisions how to allocate them... EU countries
decide by fiat (government says, we'll spend this much taxes on healing kids
vs that much on healing old people), whereas US decide by market (rich people,
young or old, can spend more on their own health). Personally, as technology
improves, I really don't see us spending _less_ on healthcare... after all,
it's literally _life_ , the most (individually) valuable thing there _is_!

~~~
Dylan16807
> Why wouldn't you spend all your money just to prolong your life a bit
> longer?

Money doesn't work that way. Fixing the problems that can be fixed usually
isn't a crippling amount of money.

And when hospice is expensive, it's not because any notable treatment is
happening, it's just to give you a place to live.

------
bko
> The WEF (World Economic Forum) defines a shortfall as anything less than
> what’s required to provide 70% of a person’s pre-retirement income via
> public pensions and private savings.

So people aren't saving enough to retire with 70% of their pre-retirement
income.

From the paper:

> We have assumed that current global conventions of retiring between 60 and
> 70 are maintained, and that individuals do not simply remain in the
> workplace longer.

I don't see how this is a financial bomb. 70% of pre-retirement income is
pretty arbitrary. The paper discusses this in the context of increasing life
expectancy, but doesn't take into account people working longer which seems
the natural thing to happen.

> Still, an overwhelming majority of the short-fall comes from government
> programs. In order to address this problem, governments must adequately and
> proactively fund their entitlements too, either by increasing taxes or by
> cutting benefits. Individuals alone cannot save enough to compensate for the
> unrealistic promises their governments have made.

A better solution would be to stop providing public defined benefit pensions.
Instead switch over to defined contribution. Defined benefit encourages
government agencies to make promises in the future that they won't be around
to carry out. As a worker, I wouldn't want to trust my retirement to the
political process over 50 years. Defined contribution prevents you from
kicking the can down the road and not properly fund the person's retirement

~~~
bryanlarsen
There's a floor, though. Social Security and Medicare ensure that pensioners
don't starve and have health care. That's defined benefit.

------
asah
How much of this is addressed by elderly parents selling their homes (which
helps the housing crisis...) and moving in with their adult children? It's
uncomfortable but frees up enormous amount of capital, and radically reduces
costs of maintenance, food and even cable/internet/entertainment.

Back of the envelope: 50M people doing this at $300k average home value and
$20k annual maintenance/taxes/insurance over 20 years of lifespan, and costs
drop to food and healthcare. Seems like a no brainer.

(yes obviously this depends on people having had kids and not borrowed heavily
against their house...)

What am I missing?

~~~
simonh
What's missing is a practical way to encourage that to happen and make it a
default expectation in society.

My wife's parents both live with us, they're Chinese and that's a common
cultural norm in China, which which I am absolutely fine. It's not a common
thing generally here in the UK though.

I can't imagine doing this with my mother because she is used to living in her
own house, with her rules and her way of doing things. There's nothing wrong
with that, I get on with my mother fine, but living with us would drive her,
or us, or all of us insane very quickly. It's not just about doing it, it's
also about the social norms and expectations of behaviour that make it
possible.

~~~
lotsofpulp
>What's missing is a practical way to encourage that to happen and make it a
default expectation in society.

Lack of options will be the encouragement. It's luxury to be able to live
alone with your own rules and way of doing things. I will bet that most people
who currently "live by their own rules" will acquiesce once they no longer
have the power to do so.

------
ebg13
Now I'm not an economist, but percentage of my current income seems like a
braindead metric to work with that doesn't factor in that I spend less than
half of my income and the rest is invested for later and that when I retire I
will stop doing that. Shouldn't they be looking for "sufficient assets to meet
expenses"?

~~~
sokoloff
People who are living on less than 50% of their income (particularly less than
half of after-tax income) are a pretty much vanishingly small subset of the
population.

It's a smart policy, but it's quite uncommon. When economists think of
simplifying assumptions that also help to communicate the essence of a
situation, this one doesn't seem that bad to me.

[https://www.mrmoneymustache.com/2012/01/13/the-shockingly-
si...](https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-
behind-early-retirement/)

~~~
IHLayman
I'm sorry but this comment comes from a very privileged position. Let's talk
reality here: a large portion of the US can't afford a 400$ expense without
going into debt ([https://www.cnbc.com/2019/07/20/heres-why-so-many-
americans-...](https://www.cnbc.com/2019/07/20/heres-why-so-many-americans-
cant-handle-a-400-unexpected-expense.html)). The vast number of people live
paycheck to paycheck; to be so surprised that the number of people living on
less than 50% of their income is vanishingly small betrays a lack of knowledge
of a vast majority of people.

~~~
foogazi
> Let's talk reality here: a large portion of the US can't afford a 400$
> expense without going into debt ([https://www.cnbc.com/2019/07/20/heres-why-
> so-many-americans-...](https://www.cnbc.com/2019/07/20/heres-why-so-many-
> americans-cant-handle-a-400-unexpected-expense.html))

That is not true

From TFA they would have to sell something(assets), and probably adjust their
spending in the next paycheck

The myth that abled bodied human beings in 2019 America are unable to come up
with $400 is ridiculous

~~~
gnosis89
Selling assets is actually worse than going into debt. I know plenty of people
who would not be able to afford paying their bills without going into debt if
they had an unexpected 400 dollar charge. The delusion that wealth inequality
and massive economic impoverishment is a myth in America is insane. Get out of
your bubble.

[https://www.federalreserve.gov/publications/files/2018-repor...](https://www.federalreserve.gov/publications/files/2018-report-
economic-well-being-us-households-201905.pdf)

~~~
foogazi
Assets are a resource you hold instead of holding cash

It’s things you bought that you can sell to access those $400

not selling those assets and going into debt is a choice

~~~
gnosis89
False. Assets are a resource with economic value that are expected to provide
a benefit. If that benefit is worth more than the current cash value, you
actually lose more by selling it. You're free to make stupid choices though,
like wrongly defining what assets are.

------
tboyd47
> The WEF assumes many people born recently will live beyond 100, which may be
> a bit much (the Social Security Administration expects most Americans born
> today to live into their mid-80s).

The title of the WEF paper is "We’ll Live to 100 – How Can We Afford It?" The
entire paper is an extrapolation of that one assumption.

There is no country in the world with life expectancy over 84. There is also
no US congressional district with LE over 84. The idea that any collection of
humans can exceed even 90 years in average life expectancy is unproven, much
moreso for the entire human population. In fact, the LE for the USA has been
decreasing for the last 5 years.

------
gtirloni
Imagine you're an alien visiting Earth on 2050 and it's the worst-case
scenario as predicted. You see all the suffering, people starving, not a lot
going on and then you look at all the arable land, the mineral resources, the
factories, etc and nothing is happening. People refuse to help each other at a
large scale. It's like the hungry ghosts story in planetary scale. You'd be
very puzzled, wouldn't you?

Food for thought...

~~~
gibbonsrcool
Well it all happens for a reason. And I don't mean as part of some master
plan, but cause and effect. Since we're talking about an alien civilization
capable of traveling to earth, vastly technologically and intellectually
superior to us, they'd probably be able to assess the problem pretty quickly
based on human nature. It confuses us because we can't understand collective
human behavior. This made me think of the line from MIB: "A person is smart.
People are dumb, panicky dangerous animals and you know it."

------
ptah
is this what greta thunberg means by "fantasy of eternal economic growth"?

~~~
kome
exactly.

but it's not the only mistake made: pensions are easily affordable as a
society, but not for individuals.

the idea to link pensions to financial markets was the first and huge mistake.

------
drdec
What's missing from this article is the current amount of the shortfall and
what the historical value has been. Without knowing where we are coming from,
there's no way to know how concerning this is.

------
ckdarby
A book I would highly recommend looking at the future of financial systems
related to this retirement bomb is:

"Sleeping on a Volcano: The Worldwide Demographic Decline and the Economic and
Geopolitical Implications"

Non-affiliated, just though it was a very good read:
[https://www.amazon.com/Sleeping-Volcano-Demographic-
Geopolit...](https://www.amazon.com/Sleeping-Volcano-Demographic-Geopolitical-
Implications/dp/1793927758)

------
buboard
Retirement and pensions did not exist until 1-2 centuries ago. It seems the
idea itself is about to be retired

------
raincom
USA can sell debt to finance social security and medicare. This is possible as
long as (a) US Dollar is global reserve currency (b) every other country want
to export to USA (c) every non-American wants to immigrate to the states.

------
akerro
There's a book that describes it "2030: The Real Story of What Happens to
America"

------
jv0010
I would really like to see a system where people pay on their ultimate
currency of time - it’s something I have occasionally pondered where young fit
and healthy people donate their time to help the elderly in order to gain
‘credits’ for when they are older to receive benefits or benefit in some way
for when they are sick or require elderly assistance.

~~~
IanDrake
Swap the word "credits" for money and you have our current system.

No need to create a tyrannical government to force people to do deeds of
arbitrary value for elderly people.

~~~
jv0010
I just don’t understand why people see this as the same thing - the value of
money is always vulnerable to a myriad of factors however our moral interest
towards each other seems (maybe I’m optimistic ) to be more consistent

~~~
IanDrake
How does one measure value and then store it? That's kind of the definition of
money.

A money market account is insured and the real return is 0%, so it's not as
vulnerable as you seem to think.

You can call money a credit. Then you can assign credits to actions and create
a moral police to assign credits to people who do these actions and enter
those credits into a leger. And now you've recreated communist China.
Congrats.

------
onemanstartup
Bitcoin fixes this

------
HashThis
Your US Social security retirement "invests" their money in US Tresury bonds.
The US will default by 2030. Those treasury bonds turn into "IOUs" that can't
be paid back, ever (aka default). By 2030, people won't buy new treasuries as
the last generation mature, so they will have to be paid back by money
printing.

2030 is when US Social security retirement hits a big wall.

