Many of you might have felt Part Three sounded pretty good, so what are we doing in Part Four? I’m going to argue that Parts One through Three are necessary but insufficient for Smiling Retirement. Part One is essential, because if you don’t understand the concept, you’ll get it wrong for sure. Part Two removes the greatest friction: resources. Part Three puts you in the right position, but just. By Part Three, you’re existing (as a retiree), but you’re not living. You can’t get to the smile until you’re living.
So what’s the next step? It’s the hardest one, I’m sorry to say.
Many people go through their whole lives just existing, not living. They work to provide shelter, food, and some degree of comfort. They rest to recharge and resume work. They recreate for the same reason. They procreate (or not) because, well, that’s what we do. This is consistent with all animal life on the planet. Whether you think what differentiates us from other animals is a soul or higher intellect (or both), there is a difference. What’s the purpose of the difference? It gives us the opportunity to consider the big questions that the higher intellect inevitably raises.
Who are you in particular? We often answer that question in terms of relationships (“I’m a father, a husband, a son”) or associations (“. . . a former official, a Catholic, a fan of . . . “). But who are you essentially?
Why are you? Not in contingent terms of “when your dad met your mother” but why you, why now? For what purpose?
These are tough questions, easily avoided while working to live (i.e., existing). But you understand the concept of retirement. You have prepared financially. You have vacay-ed and experimented to a place of comfort. You can ask those questions, and better yet, you can start to find answers!
What are those answers? Yours might be different from the ones I would share. Mine are based–as you no doubt have guessed–in the Gospels and my Catholic Faith. I believe in Truth (the capitalization is important here), and truths. The latter is contingent and personal, but must in the end lead to the former, if they are indeed “true.” So there is no reason to fear them. The search itself is satisfying.
Is it possible to just continue existing, and never address the hard questions? Sure. Birds do it, bees do it, even dogs do it. And billions of people do it too. Retirement as I have described it is a rare blessing, an opportunity not to be missed. And what an opportunity! Because seeking those answers (whether you find them or not) leads to a certain satisfaction. And that satisfaction generates a smile.
What’s with the emphasis on the smile? It’s a simple gesture, universally recognized. It’s a moderate emotion, not a belly-laugh. It’s pleasant. There is a degree of amiability, knowledge, and just plain old friendliness in a smile. And it’s genuine. It makes life easier, for the one smiling and for everyone who sees it.
Here’s hoping you not only retire, but you get to be a smiling retiree!
You “get” the concept that retirement means not working, and you’ve arranged a pension or nest egg which should cover your costs till you head for the great beyond. So now you just retire and start smiling, right? Wrong. The transition may be jarring, and if not done well, can lead to many outcomes other than Smiling Retirement.
That video I mentioned in Part One talked about the Vacation Phase of retirement: the few weeks or months where the lack of structure provided by work gives the new retiree the sensation of being on vacation. Days become irrelevant, or as retirees joke, a week consists of “six Saturdays and a Sunday.” Things like school calendars, holidays, and long weekends can creep up on you since they no longer seem relevant. Most everybody enjoys this at first, but eventually the sameness of the lack of structure begins to grind on you. We generally limit our tours and cruises to ten-to-twelve days for the same reason; otherwise, it all begins to blend together.
Turns out, humans need routines. If work doesn’t provide one, you have to come up with your own. The beauty of retirement is you’re free to develop your own. Perhaps you’re a night owl who had a career which required an early morning start; now your day can start at 10:00 am and end at 3:00 am, if you like. Never had time to fit in exercise? You do now. When do you eat, and what’s your big meal? All up to you. And you can change it, to see what works.
I started eating a huge breakfast (bacon or sausage, eggs, avocados, tomatoes, hash browns or a bagel) every morning, after a career of having only a banana and a cup of coffee. It was heaven, and I didn’t need to eat again until dinner. But while I enjoyed this schedule, my digestive tract didn’t, and it made its objections known. I switched to some fruit or yogurt and coffee in the morning, and a large lunch in the mid afternoon, which my body ratified. I moved exercise to the late morning after only exercising after lunch for decades. I found starting my day with prayers meant I didn’t skip them later, and I was in a better mood regardless of how I slept. You get to experiment with things you always did one way, because now you can.
If you don’t establish a routine, you’ll get bored. Then you’ll feel a powerful pull to go back to work, if only for the routine. Or you might substitute some other thing (volunteering, for example) for work to provide your routine. But that is putting the cart before the horse, so to speak. Find the routine that works for you, makes you comfortable, then fill in your hobbies and activities around it.
Experimentation is just as important when developing your new (or rediscovering your old) interests. Take up the guitar? Why not! Learn to cook Welsh Rarebit? Sure! Join a charity or service organization? Of course. But whatever you do, never, never, never impose a “success” filter on it. It’s ok to consider whether you can afford a hobby (financially or in terms of time), but don’t start evaluating “am I any good at this?” or “is this doing any good for that?” Those are business/work concepts, and you don’t do that anymore, right? If you like it and can afford it, keep doing it. If not, don’t.
It is easy to fall back into workday notions of success, competition, and merit. But you’re living, not working. Perhaps we can learn something from the way children behave. When a child finds something they really enjoy, they’ll get lost in it. They don’t start asking “how good am I?” “or “what’s the purpose of this?”, they just enjoy themselves. They haven’t met the work world yet, but they have mastered one key to retirement!
The vacation and experimentation periods of retirement are incredibly rewarding. Getting to try out new things without any pressure to “do well” or “succeed” is liberating, once you understand it. How long do they last? How long do you last? To some extent, the two timelines are the same. As time goes by, you’ll find a daily routine that fits. You’ll find hobbies and interests that fit, and people who also fit. But all that may change. Friends asked me why I stopped attending a group, and I said (truthfully) “it seemed too much like work.” You may get too tired for pickleball, or too old for globetrotting, too bored for politics. It happens.
Perhaps the most important thing to remember is that this phase is just a transition. You may enjoy the transition, but you haven’t reached Smiling Retirement yet!
St. Paul’s first letter to Timothy (chapter six, verse ten) tells us “the love of money is the root of all evil.” Hard to improve on that. Mark Twain allegedly did so, quipping “the lack of money is the root of all evil.” When it comes to retirement, both maxims apply. As with working life, more money means more opportunities. Worker or retiree, you can be a happy, poor person, or a miserable rich person. The differences appear in the many ways you get there.
The key point is this: since you’re not working (remember our definition from Part One), your ability to generate resources may become limited. If you have a pension indexed to inflation, consider yourself greatly blessed. If not, there’s social security as a safety net (if you’re an American). If you have invested in a retirement account, it may continue growing, but you’ll be tapping it as you go, which limits the overall growth and total available. The inputs side of the equation, less a winning lottery ticket or a rich uncle’s will, is a fairly constant constraint.
Meanwhile, you do have great control over your expenses. Your spending for commuting, maintaining a wardrobe, and business expenses all drop dramatically. You can live where you want, which could be much less expensive. You can take time to comparison shop, and seize opportunities for deals and discounts which were out of reach during the workday. But you’ll also want to do things previously postponed (like travel or a hobby) which might be expensive. And you’ve got to place a bet which most of us avoid: how long am I going to be doing this? Most importantly, you control this variable (expenses, not when you check-out).
Since financing retirement is mostly a math problem, it is actually the easiest part to master. When should you start saving for retirement? Yesterday. Money set aside early compounds (remember the magic of compound interest?), turning the few dollars you saved in 1978 into thousands today. The amount is much less important than the fact of investing and not tapping it early. By the way, this is my biggest complaint with Millennials and Zoomers today who are living the digital nomad lifestyle, in effect moving retirement forward so they can enjoy it while they’re young. Your traditional work years (ages 20-50) are your peak earning years. By reducing your income in this period, you reduce what you can invest, and thus surrender significant compounding of your investments. I hope they are doing the math, too, while trekking across the globe!
How about those other young folk buying into the FIRE (Financial Independence, Retire Early) concept. Basically, the idea here is to restrict your spending while young, invest wisely, then retire very early and live off the wealth you created. Some challenges here are: (1) actually restraining your spending while young (hard, not impossible), (2) investing smartly to maximize your wealth (hard, not impossible), (3) guessing how long you’re going to be retired if you do so very early (damn near impossible, but essential to solving the FIRE calculation). It’s a simple math problem for a 65 year-old retiree to project they’ll live approximately fifteen more years, and a small error is easily covered. But a 40 year-old retiree planning to live another forty years? This is double jeopardy, where the “scores can really change!”
Great Christmas Movie!
What if you don’t have a pension, didn’t save much (or anything) for retirement? Well, you have a lot of company: 45% of baby boomers in the US have zero retirement savings. If you’re planning on retiring under these conditions, you’ll need to seriously consider how to drive your cost-of-living down to meet your social security level means. Folks who through no fault of their own found themselves retirement age but with no other resources were a major source of expats in Mexico once upon a time. That is becoming more difficult to pull off, as the Mexican government keeps raising the income requirements for residency (temporary or permanent) while tightening up enforcement of tourist visa overstays.
I’m not going to get into all the ways one can amass wealth, as that is a path well-trod by many financial planning experts (which reminds me, retaining one of these experts, especially one who gets paid by the size of your holdings and not by the amount of trading, is a great idea!). Suffice it to say: live within your means, invest and diversify, avoid keeping up with the Joneses, and don’t get divorced. Maybe I will write a blog on how to amass wealth.
more life lessons from Die Hard
To finish with one more Die Hard reference, the “fly in the ointment, the monkey in the wrench” of retiree financing is your health. Health care costs, whether routine or traumatic, can bankrupt even the frugal, life-long saver. Having good health insurance is critical, but hard to do. You can’t really save your way past the risk of long-term care expenses. You will get old, you will get sick. Maybe you’ve won the genetic lottery. Maybe you exercise and eat a healthy diet. We all do what we can. I prefer to think of it this way: if you face life-or-death health issues, retirement financing is the least of your worries.
In Part Three, we’ll consider how to transition to retiree, smiling or not.
I recently saw a Tedx talk (link) which did a good job of discussing the phases of retirement. Still, some things bothered me, since some of the language (e.g., “squeezing all the juice out of retirement”) seemed to convey the exactly wrong sentiment in my opinion. So I decided to gather my own thoughts and write about it, as that’s what bloggers do. I’m not exactly an expert on retirement, but I do have some credentials, which I’ll cover as we go. So far we (important change of subject pronoun there!) have faced none of the financial or existential challenges which are so common among retirees. So we got that going for us. . . which is nice.
Before we dig in, may I take a moment to point out just how weird the concept of retirement is? For all of human history, people worked and raised families until they were too old or infirm to do so, then they died. The rich never needed to work, so they found ways to spend their leisure, and eventually they died, too. But nobody “retired.” Rome gave its soldiers a pension, but that was because having poor-men-with-combat-experience-lying-about is bad public policy. Otto von Bismark introduced the modern concept of retirement in the 19th century by forcing Germans over the age of seventy to quit and accept a government payment. Even as late as FDR’s successful enactment of social security in the States, many people of retirement age were opposed to the idea of having to stop working! Population growth, the industrial revolution, and the rise of the middle class all combined to popularize what we now call retirement. So it’s fairly recent and not at all surprising humanity hasn’t quite mastered the concept!
So what is retirement? In its simplest form, it is a period of life in the absence of work. To differentiate it from other times without work (i.e., unemployment), I would add “the need to” before work. Pretty simple, but you would be amazed at the number of people who fail to get this definition. I think here of friends who talk about their “retirement job,” “part-time retirement,” “semi-retired,” or “retired except for. . .”. Nope, not retired, that’s all. Not that there’s anything wrong with continuing to work, or working less hours, or working with less stress: all great concepts, and rightly to be praised. Just not retirement.
Notice that in the definition I have proposed (a period of life in the absence of the need to work) need does not necessarily denote resources. Need can be financial (e.g., I have to keep working to pay off my mortgage) but it can also be purposeful (I have to keep working because I’m the boss, that’s who I am), or evasive (I have to keep working because I don’t know what I would do with myself), or well anything. Need just represents the “what” which comes after “I have to keep working because . . .”
So the person who takes on huge responsibilities in volunteer positions during their retirement? Are they truly retired? Perhaps, since only they can answer “why?” they do so. The point here is not to judge what options anyone chooses, but rather to clearly identify what we are talking about when we say “retirement” so we can then move on to how to be a smiling retiree.
Next up, Finances, or the way we go about retiring!
It’s rare that a so-called national security event provides so much grist for humor. From beginning to end, the Chinese Spy Balloon Saga has been on a steady trajectory from the sublime to the ridiculous, with politicians and news media playing a leading role. I can’t wait to see what Dave Barry does with it next January!
This crisis, if one wants to call it that, launched with bureaucratic stupidity. It climbed with partisan hype and bald-faced diplomatic lies. It escalated further with the media seeking headlines but failing to ascertain facts. It reached a crescendo with a military over-reaction of stunning proportions. It finally came crashing down with a series of inane government comments and a Presidential non-address. During all of this, I experienced some grins, a few chortles, a belly-laugh or two, and of course near-continuous ROTFLMAO.
Let me share!
So What did Just Happen? The Chinese launched a balloon from Hainan island, from where they previously launched balloons to float over the Pacific to places like Guam and Pearl Harbor, Hawaii, where the US Navy likes to port. Except this balloon caught some waves from a Polar Vortex (hey, wait, can we blame climate change for bringing us to the edge of World War III?) and swept north to the Aleutians, then down across Canada, Montana, Kansas, and eventually North Carolina. Where the US military shot it down. Oh, and it was a spy balloon.
Blinding Flash of the Obvious (BFO #1): China spies on the United States, every day, every way it can. As we do against China. There are very few exceptions to who-spies-on-whom rule, but suffice it to say China in the skies with balloons is not one of them. China has satellites over the US continuously. They mine things like TikTok for data. They task Chinese students and academics to find specific information. They ask Chinese visitors to gather information. They establish Chinese “police” stations in the US (and other countries) which keep track of Chinese expats and no doubt facilitate intelligence collection. Heck, they even stole the entire human resources holdings of the US Office or Personnel Management a few years back (Note to China: update your records, I’m in Mexico now!).
This balloon does not represent a significant escalation in spying, or any kind of breakthrough. You don’t send a new or novel collection platform gently floating, attached to a giant balloon, over your opponent. What it does represent is Chinese bureaucratic incompetence. They have sent these balloons before. They know Chinese-American relations are tense these days. Yet some fool in charge of the balloon program launched one a week or so before the US Secretary of State was due to visit and patch things up. Nobody in his chain-of-command thought to say “wait.” Nobody in the balloon operations team asked, “Hey, where’s the jet-stream taking our balloons now?” That’s some prime bureaucratic incompetence there. I wonder if the guy in charge is making iPhones in Xinjiang now. And we’re off!
How many days til Christmas?
So the balloon drifts off course, and what? It’s too high to affect commercial air traffic. Who cares? Nobody. We’re tracking it, but only because it’s huge. BFO#2, the North American Aerospace Defense Command (NORAD, a joint US- Canadian military structure) constantly watches the skies for large, fast-moving objects like missiles (which are bad) and planes (which might be bad). They are most famous for their annual tracking of Santa Claus, who apparently is large and fast-moving enough for them to identify. They generally don’t look for small or slow things, of which there are many. How many? Nobody knows, since nobody cares. One estimate is almost a thousand on any given day. They can be weather balloons (the National Weather Service launches 180 high altitude balloons every day!), model rockets, high school science projects, or a guy in a lawn chair. But in this case, the balloon is so large it gets spotted from the ground by regular people. Well, not really regular people, because who sits around all day staring at the sky? And even if you did, who makes a big deal if they see a balloon? But somebody did, and away we go!
Now it’s a public issue, so the Chinese Foreign Ministry bureaucrat opened the file labelled “what to say in case our spy balloon is noticed over the US.” and read it out, including the part that says “start lying here” and “stop lying here.” Of course it’s a weather balloon, he reassures us. Which only confirms the fact that (1) it is not a weather balloon, (2) the Chinese are lying, and (3) somebody in the US must take the political blame. Some Conservatives and Progressives in the US are outraged, OUTRAGED, about Chinese spying (see BFO #1), and why are we permitting it to continue?
Which leads to the utterly ridiculous government response that we can’t shoot it down over Montana because it might fall and hit someone. Now space junk (man-made and natural) falls to earth every day, and when some piece becomes famous because it is large–or radioactive–the government reassures us that the chance of it hitting anyone are infinitesimally low. Nothing to worry about. The government can’t even tell what hemisphere is going to be hit until the day before it enters the atmosphere. But a big balloon with a multi bus-sized object attached, which we can exactly determine its location, can’t be shot down because it represents a threat? Pull-eaze. My guess is we waited for the ocean because the balloon payload would better withstand crashing in water than the ground. As it stands, that explanation was nonsense.
But it gets better. We send an F22 Raptor up and shoot the balloon down with a Sidewinder air-to-air missile. That’s about $400,000 of hardware we spent. Why didn’t the F22 just use its gun, which would ably destroy a balloon? The Sidewinder explodes near the target, shredding it with shrapnel. I hope they didn’t destroy the parts we intended to salvage and exploit. Please someone tell me the Air Force had a good reason for using a missile rather than a few cheap bullets.
And thus Our Democracy was saved. Except now partisans were asking why the President let the Chinese fly their balloon over our sensitive sites and collect against them. The balloon mostly uses the wind patterns to navigate, although it appeared to have some type of motor and a rudder to make small path adjustments. Here’s a map of sensitive US intelligence sites, from the Washington Post circa 2002:
BFO #3, there’s a lot of them, everywhere. That map doesn’t include some military facilities and critical national infrastructure. I think a great new virtual reality game would involve flying a spy balloon over the United States and NOT flying over sensitive sites! Probably can’t be done.
Faced by the inquisitive press, a public demanding answers, and partisans complaining, the government issued a strong statement defusing the burgeoning crisis. Of course they didn’t; instead they clammed up. Meanwhile, NORAD “opened the aperture on their radars” to catch slow and small things, quickly demonstrating why this was a bad idea. The Air Force began a live-fire game of Space Invaders. Over the course of a few days, NORAD sighted new “objects” over Alaska, the Yukon, and Michigan. Off went the jets, away went the missiles, and down went the objects.
Wait, wasn’t it dangerous shooting things down over. . . . nevermind. The Air Force managed to use up more expensive missiles, and an Air National Guard pilot even managed to miss a balloon with a missile. We all felt better immediately, until White House Spokesperson Karine Jean-Pierre helpfully explained that (1) we don’t know what the objects were, but (2) they pose no threat, and (3) they certainly weren’t from outer space. There used to be a simple rule for government officials appearing before the public: under no circumstances are you to refer to extra-terrestrials, space aliens, or UFOs, because (BFO#4) every time the government mentions them, more people believe in them. I don’t know what was more terrifying: the fact no one in the White House noticed that statements (1), (2), and (3) are logically inconsistent, or the fact the US government was announcing it was shooting off missiles at anything moving in the sky, for no apparent reason.
“Wait!” you say, “aren’t balloons a threat to civil aviation?” Well, they’re more of a risk than a threat. Over the decades since thousands of weather balloons and aircraft have taken flight, there does not exist a single documented case of one hitting the other. There are some, rare plane-strikes of other balloons, which result in a destroyed balloon and a pilot making a routine report upon landing. See, civil aviation is a little more resilient than it appears. That extra large Chinese Spy Balloon actually could have damaged a plane, but, you know, we can’t shoot things down over land, until we can.
Suddenly, somebody in the US National Security leadership sobered up. NORAD must have re-tuned their radars, since they stopped reporting on every piece of floating mylar, the Air Force put away its missiles, and calm returned. The President went before the Press to say, “Get a Grip, man” which may have been his best moment at the podium, ever. He said all the right things about China, danced around the unidentified aerial object phenomenon, and walked off when the press went ballistic.
Hardly a “day which will live in infamy” Presidential moment. What might a competent response looked like? For starters, China needs to get its act together, since it all began with them, accidentally or not. First Covid, now balloons; what next? Next, the American government had a choice. Option one was to ignore the balloon, as it had in the past. When it became public knowledge, they could have asked China for an explanation, and when China provided the lame weather balloon excuse, the White House could have publicly offered President Xi an account with the National Weather Service and a streaming subscription to the Weather Channel. Privately, they should have called the Chinese explanation BS and told them to knock it off. I would call this the “Mature Superpower Response Option.” Now if the partisan political heat got too much for the White House, they could have chosen option two: publicly denounce the balloon as an unacceptable breech of sovereignty unfit for a nation which constantly harps on it. Shoot it down immediately, then offer to return it after processing for the illegal importation of items into the United States. Take the damn thing apart down to the last nut and bolt, exploit it, then send the box of trash to the Chinese embassy in DC, along with two more things: a bill for the cost of importing and analyzing the illegal product, and a live carrier pigeon in a box with a note saying (in Mandarin) “try this next time, pendejos.” That’s the “Welcome to the big leagues” approach. The Biden administration seemed confused or frozen, depending on the moment.
What did we learn? Well, if you were unaware of BFOs 1-4, maybe that was educational. Otherwise, not much. I do think that someday the balloon (eventually) shot down over Lake Huron will wash ashore. It will be an exceedingly large piece of brightly colored mylar still bearing traces of helium. And on its side will be the words “Welcome to Chuck E. Cheese’s, Kalamazoo!”
The impending United States Government Debt Ceiling Default Crisis raises an interesting question: is this more like the Y2K crisis or like the bank run leading to the Great Depression. It all depends upon who you think Uncle Sam is.
Let me explain, first off: the debt ceiling is a legislative fiction; it is not real. It is imposed by the government on itself, and so the government can just as easily undo it. For example, the Congress can pass and the President can sign an increase in the authorized debt, or even a law that simply suspends enforcement. The Treasury can finagle revenues coming in and payments going out to extend when the debt ceiling is exceeded. Some have even suggested the Treasury could mint a so-called trillion dollar coin, in effect a non-negotiable trick to say, “here’s the money, so we don’t have any debt.” That last one is arguable, but serves to make the point how artificial this crisis is.
Second, the Democrats and Republicans have driven wildly toward the debt ceiling cliff many times, and always find a way to swerve or hit the breaks in the end. One time it may be different, but there is much history supporting more of the same.
No one knows exactly what the consequences of a debt limit default would be. The real inability to pay off debt–for a country or a person–is a serious thing. But the debt ceiling is not that. Most agree the stock markets would drop, as they fear uncertainty, and just the fact that the political parties didn’t avoid a technical default is a higher degree of uncertainty. But the markets are a difficult sign to read. Some investors believe the government will service their bonds first, so they will continue to get paid (as revenues come in). Others are short-selling, predicting a big market correction from which they would make millions.
But none of that is permanent. Would it send the economy into a recession, since all the other fundamentals don’t change? Would it change the willingness of Saudi Arabia, Japan, and China to buy US government debt? Remember, it’s a technical default: the US government and the Gross Domestic Product remain the same, and the US dollar is still the world’s reserve currency. So no one knows how it will play out. Am I worried? No, but I am prepared. Why? If a technical default occurs, I am sure things like federal pay and pensions will be among the first things that don’t get paid; social security, medicare, and military pay will all come first, although even those will be at risk. There simply isn’t enough revenue coming in monthly to pay the bonds and the entitlements and everything else.
Let’s use a personal metaphor. Imagine Elon Musk, he of an enormous fortune, is sailing on his yacht in the remote South Pacific when he hits a perfect storm, his boat sinks, and he washes ashore on a remote island as the sole survivor. Being incredibly lucky, this island has a small, non-cannibalistic population, and the first thing Elon sees is a small palapa with a “restaurant” sign! He wanders in, sits down, and waves to the waiter. The waiter, a vaguely Samoan-looking character who appears as if he could play nose tackle for the Cincinnati Bengals, takes one look at the soaking-wet, disheveled man and thinks “not another drunk tourist!?!?” but hands him a menu. Elon slams down several glasses of water, then some fresh fish, all the while amazed at his good luck. The waiter brings the check, and Elon realizes his wallet and his credit card holder are gone. He finds his iPhone in a special secured pocket, but it’s a sodden paperweight. He starts to explain about who he is, why he is there, but the waiter, certain it’s time to launch another drunk, is having none of it: he doesn’t know an “Elon Musk” from a “Musk Ox.” As he drags Mr. Musk by the collar towards the door (the palapa may have no walls, but it does have a door!), a woman, the restaurant owner, walks in and does a double take. “Elon Musk? Really?” she stammers. It seems Mr. Musk’s good luck has returned. The waiter re-deposits him at his table, and Elon recounts his story to the owner. He offers to invest in her restaurant, gives her an IOU for $50,000 dollars, and agrees to do a selfie for her to post on social media.
Fun story, what? But what does this have to do with the debt ceiling crisis? Elon Musk is Uncle Sam: fabulously wealthy, but out of available cash at the moment. The waiter is the market, which isn’t sure about anyone or anything, hates uncertainty, looks at the immediate situation and starts to react. The restaurant owner is the rest of the investing world. They see the situation in front of them, but they also recognize the larger implications, and they react differently. Which is why you shouldn’t worry (too much) about the debt ceiling crisis.
Imagine our shipwreck scenario again, only the survivor is Donald Trump. He of at least four bankruptcies, a tendency to overstate his wealth and litigate any debt. If you’re the restaurant owner, do you give him a pass? That’s the US if it ignores the debt (not debt ceiling) problem. Maybe they all decide enough is enough, and the global economy crashes. We don’t know whether we’re Elon Musk or Donald Trump in the eyes of the world’s investors. Which is a reason to worry.
The real problem is not the debt ceiling, but rather the debt itself. The US government owes tons of money. . . literally. It owes $31T as in Trillion dollars: 31,000,000,000,000. That’s over 34,ooo tons of dollar bills. Is that a lot? Well, just like for a person, it only matters if they can’t pay it.
The Edmund Fitzgerald only had 26,000 extra tons, and you know what happened to her!
The US Gross Domestic Product (GDP, a measure of the total resources available to the country) is over $25T, so we’re a little over-leveraged. Of course the all the debt never comes due at once, but the government can’t access all the GDP, either.
Add in to that the credit history of the United States: from the original debt of the 13 colonies, through the Union (not Confederate) Civil War debt and the enormous federal expansion during World War II, then the Cold War and creation of the New Deal social welfare state, the US Government has always, ALWAYS, paid off its debt on time and in full. And as any creditor will tell you, that counts for a lot.
Finally, in addition to its tangible assets, like the ability to raise revenue and print money, the US government has intangible but important assets, like the world’s greatest military. What’s it worth? When you need it, priceless!
When your bomb absolutely, positively has to be there overnight!
So far the debt monster is undeniably large, but seems manageable. Now let’s look at how the US Government finances that debt. The US can run large annual deficits (the difference between revenues coming in and payments going out) because it issues bonds: federal IOUs that pay interest, which are bought by investors. These IOUs are highly sought after, because of America’s stability (we don’t devalue our currency, we don’t nationalize other people’s assets) and payment history. When you have cash and you want to it to grow while being protected, nothing works like US bonds. Which is why China, and Japan, and Saudi Arabia hold so much of this debt. It’s not necessarily a bad thing being “in hock” to foreign governments. We took their dollars and gave them paper, which is only worth something as long as the US is around. Yes, they could try selling it all at once to harm the US, but that would involve destroying all their investments at the same time. It’s mutually beneficial, so it works. Banks, investment firms, insurance companies, pension plans and private investors all buy US debt, too, for all the same reasons.
Another big holder of US debt is (wait for it) the US government. What? The two largest government holders of government debt are the Federal Reserve (aka the Fed) and the Social Security Trust Fund. The Fed started large-scale buying of debt during the 2008 financial crisis. It didn’t have to, but it bought up federal debt from banks and others to keep the markets liquid (flowing) and prevent a depression. In effect, it “created money” just like the Treasury does, except the Treasury prints it while the Fed just creates it digitally. The Fed can decide when to sell those bonds and is starting to do so gradually, so as not to upset the markets.
All that money they take out of your paycheck under the heading OASDI (Old Age, Survivors, and Disability Insurance)? That’s your input into Social Security. The Social Security Trust Fund takes the extra left-over after paying out benefits and buys US government bonds. So the Trust Fund is full of IOUs, not dollars. But that’s not a problem, because the US government always pays off its IOUs on time. Right now, the amount the Trust fund pays out is about the same as it takes in, but as the baby boomers continue to retire, and there are fewer workers out there paying OASDI, the Trust Fund will need to cash in its IOUs. Current estimates (and they change annually) say that the IOUs will be all used up by 2034. At that point, most of the Social Security payments will have to be appropriated, since the Trust Fund can’t send you (as a social security recipient) a government IOU, what you want is a dollar.
Which is not to say Social Security is the problem. There are other entitlements (which for God’s sake, don’t ever complain about this word, as it means it is a legally required payment, not optional, and it has nothing to do with being “entitled” in popular usage) like Medicare and Medicaid which have similar issues, not to mention our federal tax code which is larded with tax breaks for corporations, wealthy investors, and homeowners. It is never one thing, it is always every thing, together.
By Wikideas1 – Own work https://www.fiscal.treasury.gov/files/reports-statements/mts/mts0922.pdf, CC0, https://commons.wikimedia.org/w/index.php?curid=124463747
As you already know, the larger circle is expenditures, the smaller is revenues, meaning the US once again ran a deficit. The administration points out the deficit was reduced last year, and I guess in these extraordinary times, that’s something. But it’s like a drunk telling you he only drinks half-a-bottle-of-whisky-a-day now: relevant, but not addressing the fundamental problem. Look again at Social Security, Medicare, Income Security, and Net Interest; these are mandatory budget items, requiring no Congressional approval. Most of these programs increase every year. For example, we still have ten more years of ten-thousand baby-boomers retiring every day, and as they apply for Social Security, that expenditure will steadily increase. Only about a third of the federal budget is discretionary spending, and it includes things like defense and education spending. Eventually (like in a decade or two), the entire federal revenue stream will be eaten up by mandatory spending if nothing changes.
What does it matter if institutional investors (countries and firms and people) will keep buying US issued debt? It doesn’t. The US can keep going on running an annual deficit, selling bonds to finance the debt, and nothing changes. But that willingness to buy US debt is built on a fragile, psychological base: the US is a stable, growing, responsible payer of debt. As we get to the point where we can’t pass a budget without huge increases in taxes or drastic reductions in spending (including benefits), who will continue to believe that? And once that trust is gone, it’s very difficult to reacquire.
The thing is, a series of small changes could place the US federal budget on a firmer path for many decades. Simply removing the cap on Social Security taxes (they stop collecting the tax above $160,000 income), means-testing payments for the very wealthy, and delaying the retirement age to 70 help a great deal. Creating a sovereign wealth fund to invest in market securities and help pay for entitlements is another great idea, or allowing the Social Security Trust Fund greater leeway in investments is another. A national sales tax is another good idea. And before you clutch your pearls (I’m thinking of the White House here), if it’s so regressive how come nearly all the progressive social democracies use it? Plus, the government could exempt groceries, for example (under a certain limit; we don’t need to have tax-free foie gras, as much as I like it!). Perhaps a separate value-added tax on items costing over $100k and a small financial transactions tax on securities would be nice additions. I’m open to any suggestions on consolidating (not cutting) federal welfare programs, where any savings would come from eliminating bureaucracies, not reducing benefits.
As things stand now, Republicans are for cutting entitlements and taxes, while Democrats appear to want to raise both. Neither approach will resolve our growing debt problem. When the two sides do compromise, like during a recent debt ceiling crisis in the Obama administration, they mostly compromise on revenue-neutral provisions, which don’t add to the deficit, but don’t reduce it either. That also fails the test, because soon we still run out of discretionary spending.
If you would like to play around with fixing the deficit/debt yourself, check out this website where you can tweak the variables and see how you do. I got within $50B (chump change with respect to the federal budget) of stabilizing the debt at 90% of GDP. It’s actually not that hard, if you try. The larger point is we don’t need to produce a balanced budget (which is practically impossible at this point), we only need to show we’re willing to reduce spending and raise revenue.
In the meantime, our political leaders (both sides) seem content to posture and pretend there is no problem, other than the opposing party. One side or the other will claim to “win” the debt ceiling default crisis. If the President agrees to cuts, the GOP will crow; if the Speaker agrees to raise or suspend the ceiling without cuts, the Democrats will do so. But nobody wins here, because the day after this ends, the debt still looms. It won’t really be a problem until it is, and then it will be too late.
Ernest Hemingway, when asked “how did you go bankrupt?” said, “gradually, then suddenly.”
Facebook just reminded us we passed our sixth anniversary of moving to Mexico. Time to take a look around and see what’s changed here, and what remains the same.
First and foremost, there are more people around here. Not just expats, but also chilangos and tapatios looking to live the good life. Now that we are post-pandemic, there is a steady stream of NOB social media posts about “moving to Mexico,” and the snowbird season is especially noticeable for the crowds and traffic. But weekends year-round can be overcrowded, too. Now, to keep things in perspective, lakeside remains a string of small villages nestled ‘tween the lake and the mountains, and most of the time it still feels that way. But at times and seasons, one starts to feel the “where did all these people/cars come from?” vibe.
Weekends wall-to-wall
Several of the grand development projects intended for lakeside have flopped. The eyesore along the libramiento, on the hill overlooking WalMart, is in suspended animation: no building, maybe not even any advertising. Just an ugly road zigzagging up the mountain. May it always be only so. The seven story apartment complex on the lake near La Floresta got cut down to three or four stories, which was all it was originally approved to be. The assisted living facility west of town seems to be financially stuck, not completely finished. It’s still hard to do big things in Mexico; that hasn’t changed.
The eye-sore…
Which is not to say there is no development. Lakeside has been a beehive of what is known as “in-fill,” where small parcels or lots are transformed into little complexes of homes or apartments. This is happening in the village of Ajijic and westbound towards the county line with Jocotepec. There are some larger developments intended along the libramiento, and perhaps in and east of Chapala. There is also a continued gentrification challenge, as cash-heavy gringos buy traditional casas in Mexican neighborhoods, then gut-and-remodel them into much larger, more expensive properties.
Despite all this development, there is still no serious government plan to improve infrastructure. There are condominios with problems accessing water, others areas face sewage run-off. Internet access went from poor to good (not by NOB standards), but it is spotty by location, with the usual problems of intermittence. Still, it is generally good enough for streaming and perhaps working online. And the roads. . .well, they merit some paragraphs all their own.
Cobblestones + rain = potholes (baches)
First, we have mostly cobble-stone streets. They are the local tradition, quaint, difficult to walk on, and easily damaged. And when I say cobble-stone, I do not mean pavers, or bricks, or anything else other than STONES which are cobbled (placed) together to make a surface. During our rainy season, when some streets become streams, the stones get dislodged, and gradually grow into wheel-eating baches. Eventually the government hires someone to carefully replace the stones, usually after the rainy season ends. Rain-n-Repeat.
Given the lakeside villages lie between a lake-and-a-mountain range, there is only one major road crossing the area, with no space for another. The government occasionally adds traffic lights, which don’t help, since they are neither timed nor use sensors. All these lights do is spread the traffic jams smoothly across the area. Everyone notices that when the lights go out during the rainy season, traffic flow actually improves. Add in numerous gringos whose licenses NOB would have been suspended decades ago, young tapatios who think any straight road is a potential drag-strip, trash-trucks, gas-trucks, vegetable-trucks, families on scooters, pizza-deliverers, and people tripping on cobblestones and you can see why some folks find the traffic maddening.
the car-tastrophe
The most obvious and nakedly terrible change was the redesign of the intersection of the libramiento (the main bypass leading in to Ajijic) with the carretera (main street) in front of WalMart. Months of work and apparently minutes of planning resulted in a concentrated series of lights, right turn lanes, no left turns, topes (speed bumps), bus stops, an access road (with dividers which can be driven over) that safely brings all traffic to a standstill, except late at night, when everybody just drives through regardless of the lights. There is literally no legal way for drivers coming from the east to turn into WalMart. It is a spectacle that must be seen to be believed.
The government did complete a cyclopista, a bike lane running the length of lakeside. It was widely derided by expats as a white elephant project, and even locals objected because it ate a parking lane on the carretera. But it turned into a field-of-dreams moment; they built it, and now it’s full of cyclists and pedestrians! Of course, gringos flying down the bike lane in electrified bikes are a new menace to left turns. But that’s Mexico, two steps forward, two steps left, three steps right, one step back, and what were we doing, anyway?
One thing unchanged is lakeside remains dining-out heaven. There are more, more diverse, inexpensive but good quality restaurants than any comparable town on the planet. The restaurants constantly come and go, or just change locations. The staffs move around, too. We often find we are re-introducing ourselves to a waiter by saying, “weren’t you at X and then Y restaurant?” Prices have been hit by inflation and a small appreciation by the Mexican Peso. But here’s a telling example. We went out for German food yesterday. Yes, German food in a tiny Mexican village. We had two suppen as vorspeisen, a bottle of German bier, two glasses of Mexican wine, and two servings of German-style goulash (beef) with red cabbage and spaeztle. Delicious, and quite authentic (we used to live in Germany). Total with tip? $1000 MXP, or roughly $50 USD at current rates. Of course one can eat much more frugally, but you get the point. I can cite German, French, Italian, Spanish, Polish, Middle-Eastern, Thai, Indian, Vegetarian/Vegan, Russian, Jewish Deli, Venezuelan, Chinese, Japanese/Sushi, Vietnamese, Argentine, Tex-Mex, diners, pubs, and maybe even a few Mexican places, doncha’know?
We’re seeing more, younger expats. The pandemic sent several million baby-boomers into early retirement, and that’s something (I can attest to being) much more affordable in Mexico. We also see more young families, who are looking for a quality-of-life improvement. The weather, the cost of living, and the cultural emphasis on family over financial success all play parts. We don’t see as many of the young, single, digital nomads. They tend to head toward bigger cities, as the night-life at lakeside can be limited.
The increase in migration from the United States to Mexico has led the Mexican federal government to be more rigorous about immigration status. The financial requirements keep increasing (they don’t want indigent visitors any more than any other country does), as do the enforcement of things like tourist visas, property ownership, car buying, et cetera. On the plus side, they are streamlining the actual process of crossing the border at airports, so it’s much smoother and faster.
The weather remains near perfect in this expat’s opinion. Long-time expats assure me it was warmer in winter way back when (twenty years ago), but I remind them they were much younger way back when, too. We still don’t have and don’t need heating or cooling. I have yet to start my gas fireplace for any reason beyond cosmetic. I admit the climate here has greatly reduced my tolerance for extremes. I used to run daily in Washington, DC, whether in 100° F “black flag” heat-warnings or two feet of snow and ice, always in just a t-shirt (sometimes long sleeve) and shorts. Our recent visit to Panama left me seeking shelter from the tropical Sun, and our December visit to northern Italy had me shivering uncontrollably. I guess my blood has officially thinned.
Commercial development has started to spread along the carretera west of Ajijic, much like it once did east through Riberas and San Antonio Tlayacapan. There are more restaurants, shops, and services, although again they come and go without any sense of a development plan. Nothing captures this better than the sad tale of the dog shelter, which gringos requested and the local government funded the purchase of a property. Which ended up being next to several developments. Which meant 24 hour-a-day barking. Which led to petitions to move or close it. And another government effort to find a place, which apparently fell through and, well, you get the picture. One thing that has not changed is the absolute necessity of visiting a neighborhood before living here, and also looking at the land around it. Your small set of homes amidst groves could later have an auto-body shop, a dog run, and an evento (party palace) next door.
Some expats tell me the locals are starting to resent the expats for driving up prices. WalMart’s prices don’t change due to the expats, and the locals shop the tiendas, where they never pay “gringo taxes.” Expats do run up real estate prices–the gentrification problem I mentioned earlier–but that happens regardless of who is buying: Mexicans from Mexico City (Chilangos), Guadalajara (Tapatios), or expats (Gringos). The problem exists anywhere there is a desirable place to live. Regardless, everybody seems as friendly as ever, and this remains a great reason to visit or move here.
What about crime? Well, one becomes accustomed to waking to the sound of automatic weapons fire, and cordite-in-the-morning? It smells like victory! I kid of course, the only consistent noises we hear are cohetes (fireworks) and roof dogs. Nothing tells you you’re dealing with a newbie expat more than if they ask “what’s with the fireworks?” or “why are there dogs barking from rooftops?” Seriously, lakeside remains a Mexican Mayberry. We have predictable crime patterns: before Christmas, there are a raft of petty thefts and purse-snatchings, as some desperate people try to eke out some extra cash. After an election, the police are hesitant to make arrests because they don’t know how the new administration will respond. Sometimes a few new crooks come into the area and we have a string of car thefts or mustard-bandits, until they get caught. The degree of violent crime is such that no one thinks twice about walking around at night in the village. Can you do that where you live?
What do we have more of? More hospitals, clinics, doctors and dentists than you would imagine, especially since we are a short drive from Guadalajara, which is Mexico’s medical centro. We have two hospitals and a hospital-like clinic just around Ajijic. A couple more private international schools have opened, along with the existing public schools and the technology training center. More real estate firms (‘natch!). A dozen or more thrift/resale/antique shops. More Costco re-sale shops, who travel up to Guadalajara, purchase from Costco, then stock shelves locally.
Living among an aging retired expat cohort, one change is constant: good-byes. We’ve lost amigos to death, family emergencies NOB, and health issues. More newbie expats arrive than depart, and while this discomforts some old-timers, life here would be less if it was otherwise. Like the steady flow of people into the United States (I’ll write more on that in the near future), the steady flow to lakeside attests to one thing: life really is better here, if this lifestyle fits you. It sure fits us!
