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How House Prices And Debts Are Building Ugly Tensions Between Parents And Their Children

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[quote name='RufflesTheGuineaPig' date='09 September 2010 - 07:33 PM' timestamp='1284057203' post='2704783']
You really don't understand.

[b]YOU HAVEN'T PAID ANYTHING IN.[/b]

Every penny you paid in you were given back as tax cuts.

You have saved precisely.... zero.
[/quote]

Where is your evidence for this statement?

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[quote name='Bruce Banner' date='09 September 2010 - 03:17 PM' timestamp='1284041857' post='2704550']
Sorry, but I really don't see how I can be held responsible for what others of my generation have done.
[/quote]

Can there be no collective responsibility? That's the crux of the question I think.

And the problem is not party political as both right and left contributed to this problem of underfunding.

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[quote name='campervanman' date='09 September 2010 - 10:25 PM' timestamp='1284067546' post='2704933']
Where is your evidence for this statement?
[/quote]


Errr, where do you think all their pension money is coming from? I'll give you a clue, the government didn't store it in individual safes waiting for boomers to turn 60.

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[quote name='Chef' date='09 September 2010 - 10:35 PM' timestamp='1284068110' post='2704939']
Errr, where do you think all their pension money is coming from? I'll give you a clue, the government didn't store it in individual safes waiting for boomers to turn 60.
[/quote]

Lets try some facts shall we:


[url]http://spreadsheets.google.com/pub?key=phNtm3LmDZENVZ-tcLudwEw[/url]

please explain where the tax cuts that we benefitted from were.

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[quote name='campervanman' date='09 September 2010 - 10:42 PM' timestamp='1284068536' post='2704946']
Lets try some facts shall we:


[url]http://spreadsheets.google.com/pub?key=phNtm3LmDZENVZ-tcLudwEw[/url]

please explain where the tax cuts that we benefitted from were.
[/quote]



I don't think you understand what Ruffles is saying. Public sector workers paid extra money into the pot at the time through their pension contributions, but this money was spent directly back on them via general state spending. To balance the books without the pension contributions government would've either had to raise general taxation or cut services, but they did neither. Instead they spent all the money and then pushed the pension bill out into the future.

The money isn't there, it's all been spent.

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[quote name='surfgatinho' date='09 September 2010 - 11:43 AM' timestamp='1284025421' post='2704191']
you say 'didn't ask to be born' then you may not understand that.
[/quote]
I've got three kids and I don't remember any of them asking to be born. Having kids is incredibly selfish. So, as their father I deserve a medal for looking after them? -No!
Kids have a legitimate reason to be angered by their parents.

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[quote name='Chef' date='09 September 2010 - 10:50 PM' timestamp='1284069050' post='2704954']
Public sector workers paid extra money into the pot at the time through their pension contributions, but this money was spent directly back on them via general state spending.
[/quote]

That's a pretty good description. Even those who don't want to understand should get it.

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Here's an impressive rant on the subject from Nic Lenoir, courtesy of ZH:


[quote][i][b]
From Nic Lenoir of ICAP[/b][/i][b]No Volume? Don't Shut The Algos Just Yet[/b][i][b]
[/b][/i]

I will send a macro update in a little bit. For now I would like to comment on the volumes or lack thereof... Today is just a dismal showing so far, and unless some bomb hits the news this afternoon this could well be the worst day on record. The attached chart is quite telling, and keep in mind that other than the short covering last week the past few weeks have already set record lows in volume for the year, so the comparison is quite telling! I understand it's a Jewish holiday but we are running at 1/3 of the volume of what would be already a very slow day!

[url="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/shirakawa/sp%20intraday%20volume.gif"][img]http://www.zerohedge.com/sites/default/files/images/user5/imageroot/shirakawa/sp%20intraday%20volume_0.gif[/img][/url]

A lot of noise has been circulating regarding high frequency and how the new market structure is detrimental to participation. Yes order front-running via flash trading and some bidding/offering patterns show that there are practices that are questionable to say the least, however I decided to pull out the chart of the volume or the Nikkei after the crash... That alone pretty much tells you LOWER VOLUMES HAVE NOTHING TO DO WITH MARKET STRUCTURE. The daily volumes traded on the Nikkei decreased 6-folds from 88/89 to 92 and that was without high frequency computers disturbing the market structure. So while I agree that there are definitely some problems with the current way our markets function in terms of mechanics, I think people are wildly missing the point. Besides, it's not like the market was not rigged before when brokers and sales traders would leak out selected information to their "favorite" customers. There will always be a race to informational advantage, and while it must be kept fair, the technological race is in a sense more fair than the old structure where the volume you traded commended the information you received... At least now the edge is obtained using your brain and not based on your size of your wallet. Order visibility is definitely making it difficult to move size easily, but I think part of it is also a need for participants to adapt.

[url="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/shirakawa/volume%20nikkei%201990.gif"][img]http://www.zerohedge.com/sites/default/files/images/user5/imageroot/shirakawa/volume%20nikkei%201990_0.gif[/img][/url]

The real reason why volume is so poor is that the market is fixed, I just don't know anyone who is a clever investor out there who thinks the market is fairly valued here and most buyers I talk to are motivated by the thought that the Fed will keep printing and debase the currency enough to make asset prices go up... talk about an optimist point of view: the only buyers are cynical! I was faced with an interesting challenge last night. My fiancee came home after starting a new job at a big firm asking me to help her decide on the allocation of her 401K. My first response was: I don't have a 401K (I do save, just not in a 401K), are they matching your contributions, if so only contribute up to the maximum they match. Having cleared that I looked at the options offered: company stock (ya right, you will get enough of that in bonuses and you are long just by working there), a handful of bond funds with just a vague description of the strategy/assets invested in, maybe a dozen equity funds... and that's it! Where is the "cash" box? Where is the "Gold" box? Ultra-short ETFs anyone? It became completely obvious that the 401K system is a perfect way to send savers to the slaughter house. It worked during the credit expansion of the last 40 years but now it's an awful proposition. Trying to come up with some sort of allocation in order to collect the matching program of my fiancee's employer was a lot trickier than it seemed and after tossing 33% into TIPS I really had to scratch my head to come up with the other two thirds. Other than a couple foreign equities funds that allow you to "escape" the government's and the Fed's policies partially you are pretty much stuck.

Laurence Kotlikoff has been talked about quite a bit after a couple op-eds in which he basically highlighted the fiscal gap and the absurdity of our current pension system. Volumes in stocks will not and should not pick up until we deal with it, it's time to wake smell the coffee and address a problem that everybody recognizes. People don't invest because they know the system is broken and they want nothing to do with it in its current state, as made obvious by the outflow out of equity funds. Sadly bond funds may not really save them when the bill comes due. Forget for a second that we have exported job overseas, automated manual labor, and doubled the workforce by including women (I am not talking negatively of any of these, just observing effect on labor supply) thereby devaluating labor, that this was only possible because we borrowed our growth and have now a broken world economy with producers with no demand and over-borrowed consumers who can't buy in countries that don't produce... We are still left with massive fiscal gaps. Again I bring up Japan where in the late 1990s they simply slashed pension payments. Americans are not as docile and with what is in practice a 2-year election cycle politicians are busy buying votes with money they don't have rather than tightening the government's belt. However cutting entitlements is exactly what's needed. Not for future retirees or people who start working now, absolutely not, for everybody now dead or alive (America is one of the rare countries where there are dead people collecting pension payments... this gives me very dark ideas). Retirees and people in their 40s and 50s vote, but they don't burn things up... young people do. Why is it that young people should pay the bill for a retirement system basically put in place by our great grand-parents and benefited for by our grand-parents and parents? On top of that people don't retire anymore because their pension savings don't cover their life style and so young graduates can't find jobs to pay for their parents retirements. With Illinois where pension payments are more senior than teachers' salaries in the debt structure cutting jobs, I wonder when people are going to get properly angry. I am already and it's not getting better. Voting turnout has actually gone up the past 10 years after a 30 year downtrend during which fat and happy baby boomers did not really bother showing up at the urns since both democrats and republicans were united in the demagogy of borrowing an illusory prosperity. People started voting a bit more, and it seems all they want is change, but change they are not getting. [b]You want change? Well how about the truth for a change: we are bankrupt, your investments are in their totality worth 35 cents on the dollar including your house, you need to move in with your parents because we are slashing their pension payments and you can't afford a home. Now start from scratch! To me it sounds better than 4-day school weeks in Oregon where we are not educating the future generation so they can be even angrier and counter-productive revolutionary protesters when they grow up. [/b][b]
[/b]
Good luck trading... from the short side!

Nic [/quote]

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[quote name='Chef' date='09 September 2010 - 10:50 PM' timestamp='1284069050' post='2704954']
I don't think you understand what Ruffles is saying. Public sector workers paid extra money into the pot at the time through their pension contributions, but this money was spent directly back on them via general state spending. To balance the books without the pension contributions government would've either had to raise general taxation or cut services, but they did neither. Instead they spent all the money and then pushed the pension bill out into the future.

The money isn't there, it's all been spent.
[/quote]

For the sake of argument, lets assume what you claim is true. If so, how is that different for the boomer generation as opposed to any other generation in history?

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[quote name='campervanman' date='09 September 2010 - 11:26 PM' timestamp='1284071207' post='2704981']
For the sake of argument, lets assume what you claim is true. If so, how is that different for the boomer generation as opposed to any other generation in history?
[/quote]

The current system is a pyramid scheme that didn't exist prior to WWII AFAIK.

As happens with every pyramid scheme, Only those at the bottom of the pyramid scheme stand to benefit while everybody else lose. Boomers are seen (wrongly IMO) as those at the bottom of the pyramid.

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[quote name='_w_' date='09 September 2010 - 11:42 PM' timestamp='1284072131' post='2704994']
The current system is a pyramid scheme that didn't exist prior to WWII AFAIK.

As happens with every pyramid scheme, Only those at the bottom of the pyramid scheme stand to benefit while everybody else lose. Boomers are seen (wrongly IMO) as those at the bottom of the pyramid.
[/quote]


The state pension system started in 1908. The first recipients had paid nothing in. They couldn't have because no scheme existed before they received their pensions. Therefore there was no fund, it was paid out of future taxation. In 1977 I bought my first house. I paid 20x the price the previous generation would have paid for it when they were my age. I paid higher taxes than they did, they had a property worth the same as mine that they paid a fraction of what i paid for mine. In other words, I was paying for their retirement through higher taxation and paying vastly more for the same house than they had. What is new?

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[quote name='campervanman' date='09 September 2010 - 11:50 PM' timestamp='1284072602' post='2704995']
The state pension system started in 1908. The first recipients had paid nothing in. They couldn't have because no scheme existed before they received their pensions. Therefore there was no fund, it was paid out of future taxation.
[/quote]
Thanks for the info, I didn't realise the UK started it so early, I always though it came with Labour after WWII. So the pyramid started earlier, the only problem is that now we're bust and people are looking for someone to blame; the boomer generation is the most visible.

[quote name='campervanman' date='09 September 2010 - 11:50 PM' timestamp='1284072602' post='2704995']
In 1977 I bought my first house. I paid 20x the price the previous generation would have paid for it when they were my age. I paid higher taxes than they did, they had a property worth the same as mine that they paid a fraction of what i paid for mine. In other words, I was paying for their retirement through higher taxation and paying vastly more for the same house than they had. What is new?
[/quote]

Good point, there's no arguing with that.

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[quote name='campervanman' date='09 September 2010 - 11:50 PM' timestamp='1284072602' post='2704995']The state pension system started in 1908. The first recipients had paid nothing in. They couldn't have because no scheme existed before they received their pensions. Therefore there was no fund, it was paid out of future taxation.[/quote]

Fair comment, however 1908 is pre anti-biotics. and pre 2 world wars.

Not many got to claim and those that did didn't get to claim for long.

In reality it didn't mean much until post WW2 when a long period of international stability along with modern medicine massively increased life expectancy.

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[quote name='singlemalt' date='09 September 2010 - 09:05 AM' timestamp='1284023134' post='2704127']
My only issue with Boomers is with those who have piled into BTL thus fuelling the rise in house prices and ultimately stripping the younger generation of their 'wealth' (I use that term very loosely).
[/quote]
You mean like DrBubb?

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[quote name='campervanman' date='09 September 2010 - 11:50 PM' timestamp='1284072602' post='2704995']
I paid 20x the price the previous generation would have paid for it when they were my age. I paid higher taxes than they did, they had a property worth the same as mine that they paid a fraction of what i paid for mine. In other words, I was paying for their retirement through higher taxation and paying vastly more for the same house than they had. What is new?
[/quote]
Could you give us some stats?

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[quote name='campervanman' date='09 September 2010 - 11:50 PM' timestamp='1284072602' post='2704995']
In 1977 I bought my first house. I paid 20x the price the previous generation would have paid for it when they were my age.
[/quote]

20x nominal or wage/inflation adjusted? Young people in 2010 are paying 3-4x joint salary for smaller properties than their parents paid 3.5x single salary for, and their parents started at a younger age so presumably had more payrises ahead of them.

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[quote name='RufflesTheGuineaPig' date='10 September 2010 - 04:20 AM' timestamp='1284088845' post='2705057']
Fair comment, however 1908 is pre anti-biotics. and pre 2 world wars.

Not many got to claim and those that did didn't get to claim for long.

In reality it didn't mean much until post WW2 when a long period of international stability along with modern medicine massively increased life expectancy.
[/quote]


But before the ww2 the tax take was vastly lower than recent years. The argument you and others make is that boomers are unique in being a generation who benefitted from low taxation and at the same time expect pensions and other benefits. This is not true. taxation has increased as compared to previous generations during the boomers working lfe so if anything, the reverse of your argument is true.

[url]http://www.ifs.org.uk/bns/bn25.pdf[/url]

See chart 1.1. Government spending [b]and[/b] receipts as a % of GDP has risen from around 10-15% before ww1, 25% before ww2 to around 40% during the working life of the boomer generation. The problem we have now is that an event equivalent in expenditure terms to another ww has just occurred and has increased government spending in the same way that it did in 1914-1918 and 1939-1945. It is this that has to be paid back, not the underfunding of the pensions of boomers at the expense of tax cuts that you claimed in your earlier post. State pensions may be underfunded but they have been underfunded not just for my generation but for all generations. That is hardly our fault.

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[quote name='campervanman' date='09 September 2010 - 11:50 PM' timestamp='1284072602' post='2704995']
The state pension system started in 1908. The first recipients had paid nothing in. They couldn't have because no scheme existed before they received their pensions. Therefore there was no fund, it was paid out of future taxation. In 1977 I bought my first house. I paid 20x the price the previous generation would have paid for it when they were my age. I paid higher taxes than they did, they had a property worth the same as mine that they paid a fraction of what i paid for mine. In other words, I was paying for their retirement through higher taxation and paying vastly more for the same house than they had. What is new?
[/quote]
That's an interesting point (that you paid for your house x20 what the previous generation had paid). It would highlight that this ponzi scheme has been going on for a very, very long time.
It also highlights how hard it's going to be to turn the supertanker around - if a whole generation, like Campervanman, paid x20 for their property, it's going to be very hard for them* to understand why the next generation can't also do the same.

* I mean "them" as in a group of people, not necessarily just you Campervanman.

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[quote name='Dorkins' date='10 September 2010 - 09:05 AM' timestamp='1284105953' post='2705103']
20x nominal or wage/inflation adjusted? Young people in 2010 are paying 3-4x joint salary for smaller properties than their parents paid 3.5x single salary for, and their parents started at a younger age so presumably had more payrises ahead of them.
[/quote]

Nominal. When i bought my house in 1977, we needed a 3+1 multiple, the previous generation would not have been able to include a second income and anyway most women didn't work in 1950. So the same argument applies, we had to have two incomes to buy what one income would have bought a generation earlier (and the 1950's house was much bigger than the 1970's barrett slavebox I could afford). As for inflation, I didn't know that inflation would erode the debt over the next 30 years, how can you plan for an unknown? I just borrowed what I thought I could afford to pay back with the income I had at the time. Don't get me wrong, high house prices are bad but they were bad in 1977 just as they are bad now, having said that, given the US and their addiction to money printing, inflation could well turn out to be the house buyers friend in 2010 just as it was in 1977 and 1950.

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[quote name='campervanman' date='10 September 2010 - 08:37 AM' timestamp='1284107820' post='2705138']
Nominal. When i bought my house in 1977, we needed a 3+1 multiple, the previous generation would not have been able to include a second income and anyway most women didn't work in 1950. So the same argument applies, we had to have two incomes to buy what one income would have bought a generation earlier (and the 1950's house was much bigger than the 1970's barrett slavebox I could afford). As for inflation, I didn't know that inflation would erode the debt over the next 30 years, how can you plan for an unknown? I just borrowed what I thought I could afford to pay back with the income I had at the time. Don't get me wrong, high house prices are bad but they were bad in 1977 just as they are bad now, having said that, given the US and their addiction to money printing, inflation could well turn out to be the house buyers friend in 2010 just as it was in 1977 and 1950.
[/quote]

You say you didn't know about inflation. The difference is that we can make a pretty good estimate know. When you bought in 1977 the UK was two years into North Sea oil extraction, principally from Forties and Brent, discovered in 1970 and 1971. (Link - http://en.wikipedia.org/wiki/North_Sea_oil ) By 1980 as a nation we were nett oil exporters. This lasted until 2005, due to declines in N Sea production. (Link - http://europe.theoildrum.com/story/2006/9/17/135527/399 ) During that period sterling was a petro-currency, so with that much money sloshing around inflation in asset prices was pretty much given.

We've also seen massive deflationary pressures due to globalisation, application of technology, and so on during this period. This has helped to boost asset prices as income that would have gone into everyday costs of living has gone instead into inflating asset prices. So when older people say "but things are so much cheaper than when we were young" the answer is yes, but you are benefitting from that now, and younger people are paying for it through rents and house prices. This trend is also coming to an end as commodity shortages kick in and as developing nations' workforces are less and less willing to work as wage slaves making consumer durables for western consumers.

Both of these trends have helped those who already own and are hindering those who don't. It would be irrational to bank on similar trends helping you if you have a job tied to the UK economy. OTOH I'm buying a house right now (already exchanged) because the people I work for aren't tied to the UK economy and they are getting richer; and because I think rents are going to remain brutally high and those outside the housing market are going to continue to get shafted. In 1977 the well-informed house-buyer could take a punt based on a growing economy fuelled by cheap energy. In 2010 the well-informed house-buyer takes a punt based on printy printy, which is rational only if you have good reason to think that some of that printy printy is coming your way. Which for anyone whose job is tied to the UK economy outside of the financial sector is pretty poor odds.

Edit - linkies Edited by munro

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[quote name='campervanman' date='10 September 2010 - 09:37 AM' timestamp='1284107820' post='2705138']
Nominal. When i bought my house in 1977, we needed a 3+1 multiple, the previous generation would not have been able to include a second income and anyway most women didn't work in 1950. So the same argument applies, we had to have two incomes to buy what one income would have bought a generation earlier (and the 1950's house was much bigger than the 1970's barrett slavebox I could afford). As for inflation, I didn't know that inflation would erode the debt over the next 30 years, how can you plan for an unknown? I just borrowed what I thought I could afford to pay back with the income I had at the time. Don't get me wrong, high house prices are bad but they were bad in 1977 just as they are bad now, having said that, given the US and their addiction to money printing, inflation could well turn out to be the house buyers friend in 2010 just as it was in 1977 and 1950.
[/quote]

Fair enough that you didn't know inflation was coming, nobody did. But 3+1 is clearly not equivalent to 3-4x joint, in fact it is about half the price. There is also a big hidden selection effect now, which is that the average FTB couple earn far more than the average couple of the same age. Plus how old were you compared to today's average FTB (37yo unassisted)?

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Here's the graph of N Sea oil production, from The Oil Drum, if I can get it to post - it is striking that UK [i]average[/i] house prices have gone nowhere since 2005, judging from the inflation-adjusted graph on the home page http://www.housepricecrash.co.uk/graphs-average-house-price.php

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