Spotting trends can help us
invest and live better and yesterday’s
message looked at the trend of business pensions fading
message shows how this huge problem is compounded by Social
USA Today’s November,
2005 article. "SOCIAL
SECURITY COULD BE big chill for 50- somethings" highlights
these concerns. The article begins by telling a story of
how a couple-husband 57, wife 48, plan on 20% of their retirement
income to come from Social security. They
feel safe because they think they will be grandfathered to
receive current Social Security benefits before any changes
The story suggests that this
may not be the case despite President
Bush’s assurances that changes in the system will not
affect anyone 55 or older. "But Bush’s plan
has gone nowhere and actuaries and
demographics and simple arithmetic will make it difficult
that commitment in the future." The article
points out that"Americans who are 50-something could
be in for some unwelcome surprises down the road."
The demographics and the math
always create the real bottom line. Unless there is some huge new technology that
creates yet another economic boom, we should not count just
on corporate pensions and Social Security for all our future income.
Learn more about Baby Boomer behavior at
Even having a lot of money
in the bank is not enough because of the
risks of inflation.
Money like pensions are social
is an important part of modern society but make no mistake,
most money is not real.
Money makes it easier for
us to buy and sell without bartering. Money gives us a "medium
of exchange," which allows our
system to function.
Money acts as a way to put
tangible, universal value on commodities and services.
It helps us compare the value of one thing with
another. This gives us a "unit of value," which
allows us to make decisions about purchases and investments.
Money also functions as a
way to store wealth -- to preserve purchasing power for
spending at a later date.
Money must be real to carry
out these functions. Only money created by real production
can be real money. There are other
qualities money must have to work properly. Money must:
Real Money Quality #1: To
be absolutely universal in value, money must be acceptable
Real Money Quality #2: Money
must be portable. This makes paper and plastic money more
popular than gold. Paper currencies, checkbooks
and credit cards are easier to carry than lumps of gold and
Real Money Quality #3: Money
must be rare and require effort (real
production or work) to attain. This is why gold makes
Gravel has many money qualities of gold, but not rarity.
Gravel is as
common as dirt and if gravel were used as money instead of
temptation to just pick it up on the road, rather then work
would be too great. Money must offer an incentive to work
discipline. Rarity creates this incentive.
Real Money Quality #4: Money must be divisible and uniform
Real Money Quality #5: Money
must have some intrinsic value, or be
useful in itself or be backed by some intrinsic value.
Money Quality #6: Money must be naturally durable and reusable.
There have been
many times when goods or commodities such
as chocolate, coffee, cigarettes or silk stockings, etc.
have been used as money. Yet they fail to last as a money
because they are too fragile and once consumed cannot be
used as money again.
Gold and silver fit the categories
above. Early goldsmiths,
on account and offered receipts stating how much gold was
warehoused. Eventually people realized that the receipts
were as good as gold and more convenient. This became
money backed by gold.
Then governments took over
the role of issuing money and realized it
was possible to issue more receipts than could actually be
into gold -- if not everyone claimed their gold at the same
created commodity money which, if disciplined, helps cerate
However governments lose discipline
and create fiat money, which has no rarity or precious
"Fiat money" is
coin or currency that is not convertible to precious
metal. Issued by governments, it has value only because it
provides all the necessities of money as described above
-- and because it is
declared to be money by government decree. In fact, Webster's
defines the word fiat as "A decree, order, or sanction." It
comes from the Latin, "Let it be done."
If a government issues too
much fiat money, the value falls and
inflation results. Thus, the value of fiat money ultimately
the confidence people have in the government issuing the
Almost all currencies in the
world today are fiat money not backed by silver
or gold. As the confidence in the U.S. dollar erodes, the
of the dollar will fall. As the dollar is still the reserve
the world, other currencies that are backed by the dollar
confidence as well. Until confidence in the dollar is restored
a new reserve system is created, there will be global currency
This places those who plan
to retire on fixed income at triple risk. First, their
pensions may not pay what they hope. Second, Social security
may not pay either. Third, what pensions
and Social Security do pay may not have as much purchasing
power as hoped.
Only those who are involved
in and offering some value in the current economy are protected. Those on a fixed income suffer
the most as the social agreement is destroyed by the realities
Until next message, good business and investing!