For the past 20 years, financial experts have counseled the public down a self-destructive path leading to massive capital shortfalls and deficits in savings and pensions worldwide. Spend more, save less was the motto; that taking more risk and paying more fees for financial products and services would magically make up for chronic under-saving. For short periods like 1996-2000, 2003-08 and 2010-15, it appeared to wishful eyes, that the magic might be working, as three successively larger credit pumping cycles boosted asset bubbles, and helped paper over balance sheet holes. But the mirage has always been fleeting. As each bubble bursts, capital tanks and years are wasted trying to recover prior values, as savings deficits compound and the population moves closer and closer to planned withdrawals.
If ever there was a verdict on bubblenomics, it is this: today, even with asset prices back near all time highs for the third time in 17 years, even before the next bear market knocks trillions off prices once more, savings deficits today are massive and mounting. Ignoring math and believing false prophets has wrought tremendous harm. Denial is not a strategy. We are now past the point of small tweaks and well in the territory of massive restructuring needed. See: Collapsing pensions will fuel America’s next financial crisis, and this issue goes far behind America, the retirement savings blight is global today. The truth is this:
Unfortunately, there are no easy answers. Pension reform — as with Social Security reform — is most equitably approached as a combination of benefit cuts, increased contributions and higher eligibility ages. But since those solutions tend to offend all stakeholders, it is difficult to get past the inertia.
The sooner individuals take steps to understand math and take active responsibility for managing their finances, rather than blindly riding asset bubbles to their inevitable collapse, the better off we will all be.