Today, let’s take a break from Bruce Jenner, the Confederate flag, Kim Kardashian’s swim suit pictures and other related matters vital to our national security. Instead, let me address something that could be of great relevance to you in your retirement planning, which is the Greek financial crisis and could it work its way across the Atlantic to us.
How has all of this come to pass? Greece, like several other countries in the European Union, is governed by left-wing political parties. The country has a history of what can be labeled “welfare state” practices. Approximately 75% of the retirees in Greece are age 60 or below at retirement. Mandatory retirement age can be as low as age 45. As you would expect, labor unions have a significant presence in Greece.
Greek pensions are underfunded and the best benefits are tilted towards elected and appointment officials. There’s a surprise! The average age in Greece is increasing with too many retirees and not enough younger workers to offset these costs. Unemployment s in the 25% range and the country’s welfare benefits requires more and more taxes, ultimately reducing job opportunities.
By the time you read this on Sunday, Greece will probably default on a 3.9 billion dollar payment to the European Central Bank and if so, will be dropped from the European Union. Currently, the Greek banking system will probably be shut down for several days.
The Wall Street Journal notes “As the Euro shortage drags on, the government in Athens likely will be unable to pay its external creditors. Ordinary Greeks won’t pay taxes, rent or credit card bills to keep the Euros they have. The government will be forced to pay its internal obligations through scrip-in effect, checks promising a future payment in Euros.”
There will be a very good chance of defaults in other countries with social, civil and financial unrest. Three countries that come to mind are Italy, Portugal and Spain. All have unsustainable debt along with a weak economy. Don’t be surprised if the Euro collapses generating a lot of protests and violence in the process.
There are several points to remember from Greece:
– Money loaned eventually has to be repaid. Anyone who lives off of borrowed money will eventually get
in trouble. Lenders can and will say “no” if the money is not repaid.
– “Cooking the books” will eventually catch up with you. Greece hid a lot of their unfunded liabilities from
other European Union countries.
Can Greece recover from their self-inflicted financial problems? I would think the answer is yes, but there will have to be some serious adjustments in the Greek culture. As Margaret Thatcher once stated, “The problem with Socialism is that you eventually run out of other people’s money.”
Here’s a quick question for you: Do any of these problems remind you of what is currently happening in our country? The correct answer is YES !
It’s important to note that there are major market corrections taking place in China, Japan and Hong Kong. Stock losses of 30-40% are hitting China and about 4 trillion of Chinese wealth has evaporated.
Are the pieces in place for us to have similar problems here? Absolutely! Although we have suffered very fiscally irresponsible actions by Congress and the President during the past 7 years, this has been going on for 50+ years. One of my insureds put it very simply when he said, “Someone has to pay for all of this one day.” That day will be here sooner rather than later.
What can you do about it? For openers, help elect people who can balance a checkbook! A good place to start is with our local board of commissioners. Then just move right up the line with Georgia’s elected state and federal representation. I am embarrassed to see so many people in Congress who are there to do nothing more than give away free money to their voters.
Next, take a look at the stability of any government provided benefits. The Social Security Disability Trust Fund will run out of money in less than 5 years. There will have to be adjustments there as more than a few people have no business being on government provided disability benefits. When any politician (such as Chris Christie) refers to Social Security as an entitlement, cross him off your list. This was a contract made with the American people and it should be honored. Again, some changes need to be made to make it actuarially sound or it, too, will run out of money.
Medicare and Medicaid both have significant funding flaws that need to be addressed, but I could write a term paper there.
It’s very important that your planning reflects your personal feelings on risk, inflation, interest rates, future healthcare costs and government stability. If you haven’t done so lately, have your planning reviewed by someone who can give independent objective advice and provide solutions to your personal concerns. The day will come when you will be glad you did so.
Several of the points made in this article were taken from information provided by “Money and Markets” from Weiss Research.
