The shortest complete response would be an essay. So I'll just say that things are not nearly as bad as they look. For example, Social Security was set up despite all the warnings that its particular cost-benefit scheme would eventually fail. After the birth rate fell in 1960, people began complaining that Social Security needed reform. (Remember Goldwater in 1964?) Then by 1975 it was easy to extrapolate to its bankruptcy. But when you look into it, things start to look better. There has been almost constant fiddling with the details, cutting down on losses and putting the bankruptcy date farther off. Politicians take it seriously, so that instead of promising the utterly impossible, the benefits are only modestly greater than the possible. So it can be fixed without utter disaster.

We are a rationalizing species more often than a rational one, but Social Security is only moderately irrational. I expect that Congress will continue to tinker with it and keep it going, cutting down on some benefits.

If you really want to see a financial catastrophe, just look at the Savings & Loan debacle. Congress set up the industry to make long-term fixed-rate mortgage loans - - and made it illegal to offer variable-rate mortgages (while taking advantage of certain attractive government subsidies). As soon as the goverment increased inflation past the fixed-rate, disaster loomed. But they finally changed the laws and tossed in enough money to avoid a complete meltdown.

There are a lot of equally absurd provisions made back in the first half of the 20th century that we are slowly working our way out of. In time, ridiculous fiscal policies are revealed to be just that - ridiculous. Read 'Atlas Shrugged' and you will notice that Ayn Rand drew her picture of the railroad industry from historic policies foisted on the railroad industry by government regulators. But the situation has improved immensely since 1980.

So I do not foresee true financial catastrophe in the future. I have read innumerable books about really stupid government decisions made early in the previous century that horrified sensible people at the time. But we are slowly working our way out of them and I expect that we shall continue to put our house in order. It would have been better to have avoided stupid decisions, but a lot of the people who went along with them realized that they would eventually have to be fixed and that seems to be occurring.

Recently I read that new jobs in France (to give an example) were 1/3 private business, 1/3 government bureaucrats, and 1/3 socially-subsidised business. Meaning that 1/3 were money losers drawing tax support from the government and only 1/3 were paying propositions supporting the others through their taxes. And yet the productivity of modern technology is such that economists guessed that this ridiculous misallocation of resources would, at worst, just cut the growth in GDP by only 1% per year. Which explains how we have avoided financial disaster despite our past folly and will continue to avoid it as we slowly fix what is broken.

So it is reasonable to dream of a brighter future.

Lawrence

As you know, Lawrence, I highly value your views in this area. But I am sorry to say that I remained unconvinced.

It was an article in the Sunday Business section that triggered my post. While most companies are not required to disclose their pension funding, a recent accounting review of those that do indicate that the majority of them are substantially underfunded. This is further exacerbated by the fact that new accounting rules are taking effect which will move pension fund disclosures from the footnote section to the Balance Sheet. It is estimated that this will result in a 10% average loss in investor equity in these companies.

We must factor in the cash loss to the pensioner as well as the decreased market value of these company's stocks.

Do you see what I mean, Lawrence? The more we factor these new realities into the economic equation (which have hither-to-fore been ignored or hidden) the dramatically worse does the economic picture become. Of course, I specifically considered that the market/economy has somewhow managed to develop the capacity to minimize "sudden swings" while having the strength and resiliency to assimilate and systematically adjust for these abrupt reversals over time.

Frankly, there simply appears to be so much negative pressure that even though I suspect that the markets will continue to "even out" the effects over time; the staggering numbers involve simply must result in a substantial negative correction (even if it is relatively gradual) in the near term.

While I appreciate your optimism, my friend, I can not say that I share these sentiments regarding the U.S. economy in the near term. Let me explain.

In the U.S., just like in China, Social Security is administered by an agency of the Federal government. A big problem is that Congress has been using Social Security funds for cash without paying this money back (all very legal, of course). As a result it is entirely possible that retirees may not have the government Social Security pension they had counted on.

Simultaneoulsy, we are now witnessing the collapse of corporate sponsored retirement benefit plans. Thus our retirees may find themselves without either government pension benefits or corporate retirement benefits. We know for a certainty that many retirees are getting shut out by the corporate sector right now.

Additionally, employees are being forced to take pay cuts or lose their jobs entirely due to geographic outsourcing.

If we then add the health care and energy crisises into the equation, in my eyes the two sides just don't balance.

Here too in the UK the Social Security system is funded by the state. Pensions are funded from National Insurance contributions, however the money goes from the current contributors to the current pensioners. This is predicted to lead to a funding gap are the the retired population grows in proportion to the working population as we live longer. One current suggestion to combat this is the raising of the retirement age from 65 to 68.



Similarly here in the UK, many corporate pension funds are in trouble having taken heavy losses resulting from the stock market falls when the .com bubble burst. Thus they hare closing final salary schemes in favour of money purchase schemes. Also things were not helped by the Chancellor of the Exchequer changing the rules where by pension funds used to be able to recoup the tax paid on share dividends.



We were starting to see this in our IT sector, but the outsourcing of IT and call centre services seems to be fluctuating at the moment, with as many companies bringing things back in house as are outsourcing.

Where we are taking a huge hit is in manufacturing jobs, as we cannot compete with asian labour and power costs. I work in the polythene packaging industry where our two main costs are raw materials, power. Raw material is a traded commodity, thus globally manufacturers are all paying much the same price, but where packaging users are able to buy by the container load and 3 months in advance, they are able to buy from China with significant savings, even though the product is being shipped half way arround the world.

My biggest worry is that whilst corporations will manage to make massive amounts of money outsourcing services and import goods, Western Economies will collapse since we will very reduced levels of employment and massive levels of personal and national debt and there is very little that Western Governments can do about it.

There is hardly a Western democracy that doesn't have the same problem.
This is why it's so important to get backward nations that don't accept usury and all the other trappings to get on board or get thumped with awe and terror etc., until they do.
That village in Pakistan tonight (18dead) now know its the Anglo-Saxon way or else.