Tuesday, May 24, 2011

The Great Recession Continues to Take Its Toll

US President Obama may want to continue to pretend that his 2009 stimulus package was a "Goldilocks prescription" that got the US back on track to healthy growth, but nearly two and half years of data now show that isn't true. The US recovery is anemic and, worst of all, it is under attack by right wing ideologues who want to kill the recovery in order to put people into distress so they will "vote the bums out" and put right wing crazies into power in 2012.

Here is a bit from a speech by Elizabeth A. Duke, a governor of the Boston Federal Reserve Bank. This speech hammers home the devastation in people's lives that the Great Recession is having. I've bolded key bits:
The financial crisis and the slow recovery from it has obviously had a dramatic impact on the financial decisions made by American families. Many now have fewer financial resources and limited options. The pace and timing of their saving and investing life cycle has also been disrupted. For example, high unemployment levels among recent high school and college graduates, especially among young African Americans, means that this demographic likely won't be able to start saving and investing as early in life as previous generations.

In addition, starting salaries for recent college graduates have also declined, which means that young Americans who are employed will have fewer resources for saving and investing than their predecessors. Young people are living with their parents longer, which helps conserve their limited resources but likely places a strain on their parents' budgets.

Also troubling is research showing that many consumers who should be saving for retirement instead have been forced to take hardship withdrawals from their 401(k) plans. According to an analysis by Vanguard, hardship withdrawals increased by 49 percent between 2005 and 2010. Other types of withdrawals increased by 56 percent.

The increasing use of retirement savings for other purposes is particularly troubling given that the responsibility for saving for retirement has shifted away from employers to individual employees. Having a secure retirement is a high priority and a significant long-term goal for many Americans, so it is especially important that they have an understanding of what level of resources they will need in retirement and the investment options available to them.

Individuals who are approaching retirement age, in particular, are being forced to make changes to their plans for retirement. Social Security Administration data indicate that in 2009 and 2010, the proportions of men and women claiming social security benefits at age 62 began to rise again after several years of decline. Workers have either chosen to leave the work force early in the last few years or, more likely, have applied for social security benefits as early as possible because of the weak job market. Opting to receive a smaller social security annuity earlier in life is just one of many hard decisions Americans have had to make in order to balance their short-term and long-term financial needs.

The recession has clearly disrupted the future expectations and financial plans of millions of Americans, but even in the best of circumstances, effectively managing one's longevity risk requires a level of financial knowledge well beyond that required of any previous generation. The pending retirement of Baby Boomers means that millions of older households will need to assess pension distributions and make decisions about payout options for their defined benefit plans. Those with defined contribution plans will need to make decisions about the purchase of annuities or rates of withdrawal from these plans.
Obama has shown himself to be a day late and a dollar short throughout this crisis. The Republicans have shown themselves to be cynical political operators more interested in destroying their political opponents than in working cooperatively to provide a better future for Americans. The corruption of politics has been exposed. The malfactors got rewarded and the taxpayers were left holding the bag. This has been an unmitigated disaster and it isn't over yet.

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