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In this issue we focus on: Americans' Second Amendment rights and broader political implications; vice presidential candidate Paul Ryan; the success of privatized social security in Chile; plus articles on health and wellness, personal finance and investments. In Travel authors take a visit to Fredricksburg, Texas, and Door County, Wisconsin.
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Shall not be infringed
THE OFFICIAL NEWSLETTER FOR GENERATION AMERICA MEMBERSSEPTEMBER 2012
ALSO INSIDE
PAUL RYANINVESTING FOR THE
LONG TERMFREDRICKSBURG,
TEXAS
Throughout history, Americans have always fought for the personal freedoms our founding fathers secured for all of us.
October 7, 1777 marks the defeat of the
British in the second battle of Saratoga
and is widely recognized as the turning
point in the American Revolution and
our fight for freedom.
On June 6, 1944 General Eisenhower
committedAllied troops to the largest
invasion in history that led to preserva-
tion of the free world.
November 6, 2012: Our Election D-Day
This November 6, 2012, can be viewed
as a similar turning point in the battle to
restore the freedoms, the opportunities
and the economic stability that have
been systematically destroyed.
In fact, this November 6th could just be
the most important day in all of our
lives. On this Election D-Day, a battle
will be waged and we must mobilize to
prevail. This election can’t be lost or
there will be four more years of bank-
rupting this country, destruction of our
individual savings and security, and loss
of our personal freedoms.
Generation America is committed to
protecting the economic safety, security
and well being of seniors and all
Americans. This was our mission when
we started and it is the motivation that
gets us out of bed every morning.
The first step to victory is to stop the
implementation of The Patient
Protection and Affordable Care Act
(ObamaCare), which will destroy the
America that seniors have protected
and nurtured.
The good news is that this Battle
(election) can be won! Look back at the mid-term elections of 2010 when supporters of ObamaCare suffered the largest defeat in the history of the Progressive movement. Those defeats were in almost every race from the Senate to Gubernatorial seats and local elections.
THE WINNING CAMPAIGN
With a coalition of the Tea Party, Republicans, Libertarians, Independents and Democrats who are abandoning the Obama agenda, we can defeat President Obama and his supporters in the Senate while retaining the majority in the House of Representatives.
If Americans are educated about what is really happening in Washington, they will be motivated to stop this destruc-tive movement. For America to prevail on November 6th, we must inform everyone we know. With our standard of living and freedoms on the line, everything must be done to educate, gain support, and get people to vote. It is simple. The most votes win. An educational grass roots mobilization is a critical component for victory. We are asking you to help with this effort. With each member “acting individually and in concert,” this battle will be won. With your commitment, we can elect citizens who oppose The Patient Protection and Affordable Care Act and take back America: Generation America will produce weekly, informative emails for everyone who joins this effort. They will be accompanied by either a short survey or petition, which will be used to impact current elected officials or those who hope to be elected in November. Everyone who knows the TRUTH can’t help but be energized to pass along the emails to their family and friends and get them involved.
YOUR PARTICIPATION IS ESSENTIAL FOR SUCCESS
What we are asking you to do is to
forward these emails to your friends
and ask them to forward them to their
friends. If each member forwards these
to only 20 people and they continue the
forwarding of this information, the truth
will reach millions of voters.
NOT A SOLICITATION
Let me make one thing perfectly clear,
this effort is not a fundraiser or a
membership drive for Generation
America. This initiative is simply
focused on November 6, 2012, and this
crucial effort to stop the destruction of
our Country.
As members, just to remind you, the
policy issues we are developing include:
taxes, national security, deregulation of
healthcare, fiscal responsibility, social
security protection, term limits and
shoring up Medicare (not reducing its
growth by $500B over the next 10 years
and forcing many seniors to buy
additional coverage). It all begins with
getting a new President as well as
Senators and Representatives that take
a stance this election season on
repealing The Patient Protection and
Affordable Care Act.
Our fight is simple. Forward the emails
to 20 family members, friends, and
acquaintances. The truth will get out
and America will win.
As Thomas Jefferson said, “Educate
and inform the whole mass of the
people... they are the only sure reliance
for the preservation of our liberty.”
Sincerely,
Michael Young
Founder, Generation America
The Campaign
OPENING REMARKS
In this issue:
SEPTEMBER 2012
4
1032
20
FREDRICKSBURG, TX
WHAT TO DO WHEN THE STOCK MARKET DEFIES LOGIC
14
31
29
Food & Your Health
ReduceYour Risk of Falling
On the cover:
Minuteman Statue, Battle Green Square,
Lexington, Massachusetts,
by H.H. Kitson, dedicated on April 19, 1900.
PHOTO: Ian BrITTOn
The Success of Chile’s Privatized Social Security
What’s Really in the Ryan BudgetDefinining Ryan 15
SECTIONS
Special Feature: Your Second Amendment Rights and Freedom 4
News & Opinion 10
Your Finances 20
Health & Wellness 29
Travel 32
Plus: What They Didn’t Tell You about Mass Shootings 9
Shall Not Be Infringed
3GENERATIONAMERICA.ORG
Shall not be infringed
“A well regulated militia, being necessary to the security of a free state, the right of the people to keep and bear arms, shall not be infringed.”
What do those words mean to you? What do
they mean to us, as Americans, as seniors? How
can a single line, a single law, make the difference
between a society of free citizens and one that is
socialist?
To answer these questions, we must look into the
fundamental principle from which the Constitu-
tion derives its true power. That principle is that
the rights spoken of in the Constitution are not
granted to us by the government; they are
endowed upon us by our Creator and are
unalienable. The Constitution’s power is that it
forbids the government from acting in a way that
violates those rights. In other words, it insures
that those rights shall not be infringed.
This is the heart of what defines this nation as
more than just another constitutional republic; it
defines us as a nation of free men. It was that
philosophy that brought the world, by America’s
example, out of tyrannical darkness at the end of
the 18th century, and into the modern age. It has
guided man from a world where every significant
nation on earth was ruled by an absolute
monarchy, to one where only a few, such as in
Brunei, Qatar, and Swaziland, remain. Do we
really feel that our current leaders are more
qualified to guide us than the men who crafted
the document that brought this about?
The liberal media and left wing politicians want
us to think that government-imposed regulation
and the outright banning of arms are not an
infringements upon our right. The nonsensical
message repeated by them is that “sensible” gun
laws pose no threat to liberty or law-abiding
citizens, and we, the people, shouldn’t resist
them.
However, in order to allow the restriction of our
God-given right to defend ourselves and our
loved ones from violence, theft, and oppression,
we must relinquish that right to the government.
Therefore, any law infringing upon our right to
bear arms is, by definition, a threat to our liberty
because it establishes that the rights enumerated
in the Constitution can be considered nothing
more than privilege. Once the government has
authority over what was once our rights, it can
measure out freedom, as it sees fit.
The burden of voting to preserve America’s civil
liberties, such as freedom of religion and
freedom of speech, has often fallen to the older
generation, and this civil liberty is no different. In
total, about half of Americans report owning a
gun, and Americans who are 55 and older, as a
group, have the highest percentage of gun
ownership. This statistic is also reflected in the
membership of the National Rifle Association,
which is predominantly over 55. In other words,
seniors in this country are more likely to own a
firearm than any other age group, and they are
also more likely to vote. As a group, that means
we are in a position to have our opinion and our
vote taken very seriously by those who would
seek to dissolve our rights.
If half of Americans own guns, and seniors have
the highest percentage of ownership, and we
vote more than anyone else, how is it that our
right to own guns is being legislated away? The
answer is that those who seek to disarm the
citizenry know that it must first be divided. They
need to break apart gun owners into manage-
able groups. In this way they are able to avoid
their combined voting power as they remove
liberty from one group without invoking the
outrage of the other.
The myth the media, activists, and many politi-
cians want us to believe is that all they are after
are military style guns, handguns, concealable
weapons, and those weapons that are very
powerful, and that if we let them just outlaw
these guns, they will leave us alone. Politicians
need to convince the older Americans that they
are not after our dove gun, or our deer rifle. They
claim that those guns have a purpose, and are
If the Constitution of the United States is the most important document of man’s historical quest for liberty and self-governance, the Second Amendment to that document is the single most liberating phrase man has ever written.
See also:
What They Didn’t Tell You About Mass Shootings
PAGE 9
BY SETH DISARRO, GENERATION AMERICA
5GENERATIONAMERICA.ORG
not used in crime, and, therefore, will never be a
target of their restrictions. However, there is no
reason to believe that the actual goal is anything
short of the removal of all firearms and all
ammunition from the populace.
England is one of many examples of this “divide
and conquer” tactic being used to eliminate the
individual right to bear arms. Starting with the
1920 and 1937 firearms acts, ownership of
firearms in England was restricted. Just as in the
United States, the early approach was to ban or
restrict the possession of those weapons
considered dangerous to the public or the
government. Ownership of a firearm now had to
be justified. Once the government established
that possession of a firearm required a specific
“need,” they had only to limit what “needs” they
considered justifiable. At first, some hunting and
sporting use was considered an acceptable
justification, but, defense of one’s person or
home was not. If self-defense is not considered
important enough to justify owning a gun, is it
really that far of a stretch to imagine that there
would be no “need” to allow people to hunt or to
target shoot? It didn’t take long for the British to
realize that. By 1968, England was outright
banning hunting arms and ammunition. By 1997,
the ownership of all handguns and almost all
hunting arms was outlawed. So complete was
England’s ban on firearms of all types, that
British athletes training for shooting sports of the
2012 London games were forced to train off of
British soil.
The same is happening here at home. If the right
to keep and bear arms is allowed to be within the
control of the government to limit, how far will it
go? What else will the government see that you
have no reason to own? Will it be all ultra-high
power “sniper rifles,” capable of assassinating a
person at 500 yards, such as a scoped Browning
bolt action with a walnut stock chambered for
30-06?
We are expected to believe that these kinds of
restrictions on our way of life are justifiable
because they will eventually reduce crime, when,
in fact, the opposite is true. Reducing the legal
access to guns does not reduce violent crime, it
causes it to increase. As the population becomes
less able to defend themselves, the criminals,
being opportunistic in nature, commit more
crime. With less risk inherent in committing
violent crime, there is naturally more violent
crime committed.
The effect has been consistent in cities and states
in the U.S. where ownership has been restricted,
and on a national scale in other countries where
it has been almost entirely forbidden. Again, we
can look to England as an example. In the first
five years after England implemented the 1997
firearms act, banning most weapons, gun-related
crime sky rocketed from 13,874 to 24,070
incidences, and has remained about the same
ever since. As a result, England now has a higher
overall crime rate than the United States. Of
course, the elderly were the hardest hit by this
rise in crime, as they no longer had any means to
protect themselves or their property.
The myth that gun control will somehow limit
criminal access to a gun is demonstrably false.
Illegal guns, like any other black market com-
modity, operate on fundamental economic
principals: So long as there is a demand, there
will be a supply. The only people who will have
their access to guns limited are those not willing
to commit a crime by owning them. Banned
firearms are easily illegally imported from other
countries and transported across state lines like
any other illegal item in demand. An extreme
case of this level of circumventing gun laws can
be found in the horrific case of Behring Breivik,
the terrorist who perpetrated the 2011 mass
killings in Norway. Some of the most restrictive
gun control laws in the western world did not
prevent him from obtaining weapons and
explosives and using them to murder 77 innocent
people.
England, Australia, Canada, and the U.S., have
had the same experience: As gun ownership
decreased, gun-related crime dramatically
increased. If the goal of disarming law-abiding
people is truly to decrease crime, why do
governments continue to systematically elimi-
nate the ability of their people to own firearms
when the crime rates rise, rather than fall? The
political message most often repeated during
these failed efforts is that if the restrictions were
more severe and more universal they would
eventually cause crime be reduced. The more
The notion of freedom has become little more than a placating campaign slogan.
SPECIAL FEATURE: YOUR RIGHTS
7GENERATIONAMERICA.ORG
logical motivation for perpetuating such a failure
is to increase the balance of power in favor of the
government, and to decrease the perception and
expectation of individual liberty among the
governed citizenry. It other words, the purpose is
to make people into subjects; to make them
more dependent upon their government and
more likely to accept or demand the expansion
of its size and power. Is this not the goal of the
liberal government? Is this not the unspoken goal
of such things as socialized healthcare and Social
Security? If we allow ourselves to believe that we
can trade liberty for security, we are destined to
have neither.
The Second Amendment is the most extraordi-
nary and extreme symbol of a truly free popula-
tion. The guarantee that the people will not be
disarmed insures that the power of governance
will remain with the people, for unjust laws
cannot be enforced because the whole of the
people are armed. What could possibly show
more clearly that this country is ruled by the
people than to show that the government is
powerless to disarm them? Ronald Reagan may
have put it best…
“The gun has been called the great equalizer,
meaning that a small person with a gun is equal
to a large person, but it is a great equalizer in
another way, too. It insures that the people are
the equal of their government whenever that
government forgets that it is servant and not
master of the governed. When the British forgot
that they got a revolution. And, as a result, we
Americans got a Constitution; a Constitution that,
as those who wrote it were determined, would
keep men free. If we give up part of that Consti-
tution we give up part of our freedom and
increase the chance that we will lose it all.”
—Ronald Reagan, 40th President of the
United States
Today, understanding the importance of preserv-
ing our civil liberties seems to be lost on many of
our politicians. Many treat it as an extreme or
outdated philosophy, one to be cheered in
political speeches, but not cherished in policy.
The notion of freedom has become little more
than a placating campaign slogan.
Are we, as Americans a free people, or have our
freedoms been so infringed upon over the
decades that we have come to redefine the
concept of liberty in order to allow it to fit within
the limits imposed upon us by ourselves and our
government? How much of our liberty have we
voted away over the past couple hundred years?
Is it so much that we no longer know what it
means to be free? Have we been misled so far
from the noble path blazed for us that we are
willing to give up the very tools that forged this
nation? It was the individual ownership of
military grade weaponry that allowed us to rend
this land from the British, and build the nation
that inspired a world to seek freedom. Now, safe
and prosperous, we debate the merits of
allowing or preventing the people from owning
this or that kind of weapon, while the very bones
upon which our laws are built forbid the limiting
of such ownership, in any way.
If we don’t see individual ownership of arms for
what the Constitution intended it to be—an
unalienable God-given right—we will watch it
eroded away until we are no freer than an
Englishman. Wasn’t that how all this got started
in the first place? G
SPECIAL FEATURE: YOUR RIGHTS
If we allow ourselves to believe that we can trade liberty for security, we are destined to have neither.
PHO
TO: A
ITCH
EYE.
COM
It seems like there is another mass shooting in the news every few days.
Some of these shootings, such as the recent one that took place in aurora, Colorado, involve what is commonly, and incorrectly, referred to as “assault rifles.” The rhetoric is always the same; if people didn’t have access to these types of weapons there would be less shoot-ings, and the shootings that did happen would result in less victims. What they didn’t tell you is that the availability or the use of military style weapons has little statistical effect on either the frequency of shootings or the number of fatalities caused by the shooters.
Over the past 40 years the number of mass shootings in the United States has remained, more or less, consistent at an average of around 20 per year. The
highest number of mass shootings and the victims of those shootings in the US reached a 40 year high at the end of the decade long assault weapons ban and the height of the Clinton “Crime Bill.”
There are a variety of factors that contribute to the number of victims caused by a mass shooting: the intent of the shooter, the proximity of the shooter to the victims, the ability of the victims to exit the area, and the duration of the attack. What has proven to not be a consistent cause of a high number of victims is the type of weapon used. The data shows that common handguns are just as likely to cause a high number of fatalities as a semi-automatic ar-15 carbine with a 100 round C-Mag, such as the one used in Colorado.
What does appear to be the most significant and consistent factor in determining the number of victims is if the shooter was stopped by a citizen or by law enforcement. In the cases where the shooter was stopped by a citizen (armed or unarmed), the number of victims are consistently low. In the events where the shooter was stopped by law enforcement the number of victims are consistently high.
The facts that the media will not bother to report are that there are no more mass shootings occurring today than normal, the type of weapon used is not the problem, and the best way to end a mass shooting, with the least number of victims, is through the bravery of those being attacked. —SETH DISARRO
GRAPHIC: TIME. Sources: James alan Fox, northeastern University; Bureau of Justice Statistics; Gallup.
What They Didn’t Tell You About Mass Shootings
9GENERATIONAMERICA.ORG
The Success of Chile’s Privatized Social Security
It’s an honor for me to share with you some of
the experiences we have had in Chile with our
new private pension system. I would like to
comment on how the new system works, how
we were able to make the transition from the old
system to the new one, and what have been the
main economic, social, and political consequenc-
es of the new system. I will not explain the
shortcomings of the old pay-as-you-go system
in Chile. Those shortcomings are very well
known because that is the system that is failing
all over the world.
In Chile we accomplished a revolutionary reform.
We knew that cosmetic changes—increasing the
retirement age, increasing taxes—would not be
enough. We understood that the pay-as-you-go
system had a fundamental flaw, one rooted in a
false conception of how human beings behave.
That flaw was lack of a link between what
people put into their pension program and what
they take out. In a government system, contribu-
tions and benefits are unrelated because they
are defined politically, by the power of pressure
groups.
So we decided to go in the other direction, to
link benefits to contributions. The money that a
worker pays into the system goes into an
account that is owned by the worker. We called
the idea a “capitalization scheme.”
We decided that the minimum contribution
should be 10 percent of wages. But workers may
contribute up to 20 percent. The money
contributed is deducted from the worker’s
taxable income. The money is invested by a
private institution, and the returns are untaxed.
By the time a worker reaches retirement
age—65 for men, 60 for women—a sizable sum
of capital has accumulated in the account. At
retirement the worker transforms that lump sum
into an annuity with an insurance company. He
can shop among different insurance companies
to find the plan that best suits his personal and
family situation. (He pays taxes when the money
is withdrawn but usually at a lower rate than he
would have paid when he was working.)
As I said, a worker can contribute more than 10
percent if he wants a higher pension or if he wants
to retire early. Individuals have different prefer-
ences: some want to work until they are 85; others
want to go fishing at 55, or 50, or 45, if they can.
The uniform pay-as-you-go social security system
does not recognize differences in individual
preferences. In my country, those differences had
led to pressure on the congress to legislate
different retirement ages for different groups. As a
result, we had a discriminatory retirement-age
system. Blue-collar workers could retire at 65;
white-collar workers could retire more or less at
55; bank employees could retire after 25 years of
work; and the most powerful group of all, those
who make the laws, the congressmen, were able
to retire after 15 years of work.
Under our new system, you don’t have to
pressure anyone. If you want to retire at 55, you
go to one of the pension-fund companies and sit
in front of a user-friendly computer. It asks you
at what age you want to retire. You answer 55.
The computer then does some calculations and
says that you must contribute 12.1 percent of
your income to carry out your plan. You then go
back to your employer and instruct him to
deduct the appropriate amount. Workers thus
translate their personal preferences into tailored
pension plans. If a worker’s pension savings are
BY JOSé PIñERA
José Piñera, who as Chile’s
minister of labor privatized
the state pension system, is
president of the International
Center for Pension Reform
and co-chairman of the Cato
Institute’s Project on Social
Security Privatization.
NEWS OPINION
not enough at the legal retirement age, the
government makes up the difference from
general tax revenue.
The system is managed by competitive private
companies called AFPs (from the Spanish for
pension fund administrators). Each AFP oper-
ates the equivalent of a mutual fund that invests
in stocks, bonds, and government debt. The AFP
is separate from the mutual fund; so if the AFP
goes bankrupt, the assets of the mutual fund—
that is, workers’ investments—are not affected.
The regulatory board takes over the fund and
asks the workers to change to another AFP. Not
a dime of the workers’ money is touched in the
process. Workers are free to change from one
AFP to another. That creates competition
among the companies to provide a higher return
on investment and better customer service, or to
charge lower commissions.
The AFP market opened on May 1, 1981, which is
Labor Day in Chile and most of the world. It was
supposed to open May 4, but I made a last-min-
ute change to May 1. When my colleagues asked
why, I explained that May 1 had always been
celebrated all over the world as a day of class
confrontation, when workers fight employers as if
their interests were completely divergent. But in a
free-market economy, their interests are conver-
gent. “Let’s begin this system on May 1,” I said, “so
that in the future, Labor Day can be celebrated as
a day when workers freed themselves from the
state and moved to a privately managed capital-
ization system.” That’s what we did.
Today we have 20 AFPs. In 14 years no AFP has
gone bankrupt. Workers have not lost a dime. Of
course, we created a regulatory body that, along
with the central bank, set some investment
diversification rules. Funds cannot invest more
than x percent in government bonds, y percent
in private companies’ debentures, or z percent in
common stocks. Nor can more than a specified
amount be in the stock of any given company,
and all companies in which funds are invested
must have credit ratings above a given level.
We set up such transitional rules with a bias
for safety because our plan was to be
radical (even revolutionary) in approach but
conservative and prudent in execution. We trust
the private sector, but we are not naïve. We knew
that there were companies that might invest in
derivatives and lose a lot of money. We didn’t
want the pension funds investing workers’ money
in derivatives in Singapore. If the system had
failed in the first years, we would never have been
able to try it again. So we set strict rules 14 years
ago, but we are relaxing those rules. For example,
only three years ago we began to allow the funds
to invest abroad, which they weren’t allowed to
do initially, because Chilean institutions had no
experience in investing abroad. The day will come
when the rules will be much more flexible.
Let me say something about the transition to the
new system. We began by assuring every retired
worker that the state would guarantee his
pension; he had absolutely nothing to fear from
the change. Pension reform should not damage
those who have contributed all their lives. If that
takes a constitutional amendment, so be it.
Second, the workers already in the workforce,
who had contributed to the state system, were
given the option of staying in the system even
though we thought its future was problematic.
Those who moved to the new system received
what we call a “recognition bond,” which
acknowledges their contributions to the old
system. When those workers retire, the govern-
ment will cash the bonds.
New workers have to go into the new private
system because the old system is bankrupt. Thus,
the old system will inevitably die on the day that
the last person who entered that system passes
away. On that day the government will have no
pension system whatsoever. The private system is
not a complementary system; it is a replacement
that we believe is more efficient.
The real transition cost of the system is the
money the government ceases to obtain from the
workers who moved to the new system, because
the government is committed to pay the pen-
sions of the people already retired and of those
Workers have not lost a dime. Of course, we created a regulatory body that, along with the central bank, set some investment diversification rules.
11GENERATIONAMERICA.ORG
who will retire in the future. That transition cost
can be calculated. In Chile it was around 3
percent of gross national product. How we
financed it is another story. It will be done
differently in each country. Suffice it to say that
even though governments have enormous
pension liabilities, they also have enormous assets.
In Chile we had state-owned enterprises. In
America I understand that the federal government
owns a third of the land. I don’t know why the
government owns land, and I don’t know the
value. Nor am I saying that you should sell the land
tomorrow. What I am saying is that when you
consider privatizing Social Security, you must look
at assets as well as liabilities. I am sure that the
U.S. government has gigantic assets. Are they
more or less than the liabilities of the Social
Security system? I don’t know, but the Cato
project on privatizing Social Security will study
that. In Chile we calculated the real balance sheet
and, knowing there were enough assets, financed
the transition without raising tax rates, generating
inflation, or pressuring interest rates upward. In
the last several years we have had a fiscal surplus
of 1 to 2 percent of GNP.
The main goal and consequence of the pension
reform is to improve the lot of workers during
their old age. As I will explain, the reform has a
lot of side effects: savings, growth, capital
markets. But we should never forget that the
reform was enacted to assure workers decent
pensions so that they can enjoy their old age in
tranquility. That goal has been met already. After
14 years and because of compound interest, the
system is paying old-age pensions that are 40 to
50 percent higher than those paid under the old
system. (In the case of disability and survivor
pensions, another privatized insurance, pensions
are 70 to 100 percent higher than under the old
system.) We are extremely happy.
But there have been other enormous effects. A
second—and, to me, extremely important—one is
that the new system reduces what can be called
the payroll tax on labor. The social security
contribution was seen by workers and employers
as basically a tax on the use of labor; and a tax
on the use of labor reduces employment. But a
contribution to an individual’s pension account is
not seen as a tax on the use of labor. Unemploy-
ment in Chile is less than 5 percent. And that is
without disguised unemployment in the federal
government. We are approaching what could be
called full employment in Chile. That’s very
different from a country like Spain, with a
socialist government for the last 12 years, that
has an unemployment rate of 24 percent and a
youth unemployment rate of 40 percent.
Chile’s private pension system has been the main
factor in increasing the savings rate to the level
of an Asian tiger. Our rate is 26 percent of GNP,
compared to about 15 percent in Latin America.
The Asian tigers are at 30 percent. The dramatic
increase in the savings rate is the main reason
that Chile is not suffering from the so-called
tequila effect that plagues Mexico. We do not
depend on short-run capital flows because we
have an enormous pool of internal savings to
finance our investment strategies. Chile will grow
by about 6 percent of GNP this year, the year of
the “tequila effect.” The stock exchange has gone
down by only 1 or 2 percent and will be higher at
the end of the year. Chile has been isolated from
short-run capital movement because its develop-
ment is basically rooted in a high savings rate.
Pension reform has contributed strongly to an
increase in the rate of economic growth. Before
the 1970s Chile had a real growth rate of 3.5
percent. For the last 10 years we have been
growing at the rate of 7 percent, double our
historic rate. That is the most powerful means of
eliminating poverty because growth increases
employment and wages. Several experts have
attributed the doubling of the growth rate to the
private pension system.
Finally, the private pension system has had a very
important political and cultural consequence.
Ninety percent of Chile’s workers chose to move
into the new system. They moved faster than
NEWS & OPINION
Chile’s private pension system has been the main factor in increasing the savings rate... 26 % of GNP, compared to about 15% in Latin America.
Germans going from East to West after the fall of the Berlin Wall. Those workers freely decided to abandon the state system, even though some of the trade-union leaders and the old political class advised against it. But workers are able to make wise decisions on matters close to their lives, such as pensions, education, and health. That’s why I believe so much in their freedom to choose.
Every Chilean worker knows that he is the owner of an individual pension account. We have calculated that the typical Chilean worker’s main asset is not his small house or his used car but the capital in his pension account. The Chilean worker is an owner, a capitalist. There is no more power-ful way to stabilize a free-market economy and to get the support of the workers than to link them directly to the benefits of the market economy. When Chile grows at 7 percent or when the stock market doubles—as it has done in the last three years—Chilean workers benefit directly, not only through higher wages, not only through more employment, but through additional capital in their individual pension accounts.
Private pensions are undoubtedly creating cultural change. When workers feel that they
own a fraction of a country, not through the party bosses, not through a politburo (like the Russians thought), but through ownership of part of the financial assets of the country, they are much more attached to the free market, a free society, and democracy.
By taking politicians out of the social security business we have done them a great favor because they can now focus on what they should do: stop crime, run a good justice system, manage foreign affairs—the real duties of a government. By removing the government from social security, we have accomplished the biggest privatization in Chilean history—someone even called it, paraphrasing Saddam Hussein, the mother of all privatizations, because it has allowed us to go on to privatize the energy and telecommunications companies.
That has been our experience. Of course, there have been some mistakes. There are some things that should be improved. There is no perfect reform. With time and experience, I know I would do some things differently. But on the whole, I can tell you that it has been a success beyond all
our dreams.GSOURCE: CATO.ORG
In this section we will be bringing you some illustrations of the condition of our nation. This month we point the spotlight on our nation’s out of control debt.
US: Crushing Burden of DebtDebt held by public as a share of economy
Europe: Trouble AheadGovernment debt as a share of economy (2011)
SOUrCE: OMB/CBO
SOUrCE: IMF
ECONOMIC SNAPSHOTS:PUBLIC DEBT
1940
100%WWII
CURRENT PATH
19601950 1970 1990 20101980 2000 2020
64%
91%
114% 120%
152%
100%
SPAIN PORTUGAL IRELAND ITALY GREECE
100%
UNITED STATES
13GENERATIONAMERICA.ORG
NEWS & OPINION | ELECTIOn 2012
BY DANIEL J. MITCHELL
Thanks to several years of fiscal
restraint during the 1990s, the
burden of federal spending dropped
to 18.2% of gross domestic product
by the time Bill Clinton left office. The federal
budget today consumes more than 24% of
economic output, a one-third increase since 2001
in the share of the U.S. economy allocated by
politics rather than market forces. That makes
the Republican House budget, which would
reverse this trend, extremely important for the
economic health of the country.
Both political parties deserve blame for the
spending spree that’s put America in a fiscal ditch.
President George W. Bush was a big spender and
President Obama has compounded the damage
with his stimulus spending and other programs.
But the era of bipartisan big government may
have come to an end. Largely thanks to Rep.
Paul Ryan and the fiscal blueprint he prepared
as chairman of the House Budget Committee
earlier this year, the GOP has begun climbing
back on the wagon of fiscal sobriety and has
shown at least some willingness to restrain the
growth of government.
Policy makers should focus on reducing the
burden of government spending as a share of
GDP—leaving more resources in the private
economy.
The Ryan budget has generated considerable
controversy in Washington, and it will become
even more of an issue now that Mr. Ryan is Mitt
Romney’s running mate. So it’s an appropriate
time to analyze the plan and consider what it
would mean for America.
The most important headline about the Ryan
budget is that it limits the growth rate of federal
spending, with outlays increasing by an average
of 3.1% annually over the next 10 years. If spend-
What’s Really in the Ryan Budget
The Ryan budget has generated considerable controversy in Washington... it’s an appropriate time to analyze the plan and consider what it would mean for America.
BY MICHAEL D. TANNER
With more than a third of American voters tell-ing pollsters that they don’t yet know enough about Republican vice-presidential candidate Paul Ryan to have an opinion of him, the race to
define the Republican congressman is fully joined.
Democrats clearly want to paint Ryan as an unbending
ideologue who refuses to compromise and is unwilling to
work with his opponents. Already Obama campaign adviser
David Axelrod has taken to calling Ryan a “right-wing ideologue”
and “quite extreme.” President Obama himself refers to Ryan as
“the ideological leader of Republicans in Congress.”
It’s impossible to deny that there has been an ideological
component to Ryan’s career in Washington. He has been an
articulate spokesman for the idea of smaller, less costly govern-
ment, and he is perhaps Congress’s best-known advocate of
entitlement reform. There is no doubt that in his heart he prefers
markets to government control.
But any effort to paint him as an inflexible ideologue runs up
against his demonstrable tendency toward pragmatism.
Throughout his time in Washington, Ryan has been the classic
“half a loaf” type of conservative. Time and again, he has shown
that he is willing to compromise and take far less than he had
originally sought, as long as he is moving incrementally in the
direction he wants to go. You won’t find Ryan on the short end
of any 434-to-1 votes.
Take, for example, the infamous “Ryan budget.” Yes, it cuts
spending and reforms Medicare—though not Social Security—
but it was far from the most fiscally conservative budget offered
by Republicans this year. Just compare Ryan’s budget with the
one proposed by Senator Rand Paul (R., Ky). Ryan’s budget
takes 30 years to reach balance. Paul’s would have balanced the
budget in five years. Ryan would cut government spending by
$4.1 trillion over ten years. Paul would have cut spending an
additional $4 trillion over that period. Ryan’s budget didn’t
touch Social Security. Paul’s would have raised Social Security’s
retirement age and means-tested the program. Now, that is a
fiscally conservative budget.
In fact, Senators Jim DeMint (R., S.C.) and Pat Toomey (R., Pa.)
also offered budget proposals that cut spending more than
Ryan’s budget did. Ryan was willing to push the envelope on
spending cuts, but only as far as he could while still getting
ing is left on autopilot, by contrast, it would grow
by 4.3% (or nearly 39% faster). If President
Obama is re-elected, the burden of spending
presumably will climb more rapidly.
This comes as a surprise to many people since the
press is filled with stories about the Ryan budget
imposing trillions of dollars of “savage” and
“draconian” spending cuts. All of these stories,
however, are based on Washington’s misleading
budget process that automatically assumes an
ever-expanding government. The 4.3% “base line”
increase is the benchmark for measuring “cuts”—
even though spending is rising rather than falling,
and it’s only the rate of spending growth that is
being slowed.
Even limiting spending so it grows by 3.1% per
year, as Mr. Ryan proposes, quickly leads to less
red ink. This is because federal tax revenues are
projected by the House Budget Committee to
increase 6.6% annually over the next 10 years if
the House budget is approved (and this assumes
the Bush tax cuts are made permanent). Since
revenues would climb more than twice as fast as
spending, the deficit would drop to about 1% of
gross domestic product by the end of the 10-year
budget window.
To balance the budget within 10 years would
require that outlays grow by about 2% each year.
Spending in the Ryan budget means the federal
budget reaches balance in 2040. There are many
who would prefer that the deficit come down
more quickly, but from a jobs and growth
perspective, it isn’t the deficit that matters.
Rather, what matters for prosperity and living
standards is the degree to which labor and capital
are used productively. This is why policy makers
should focus on reducing the burden of govern-
ment spending as a share of GDP—leaving more
resources in the private economy.
The simple way of making this happen is to follow what I’ve been calling the golden rule of good
Defining Ryan
To balance the budget within 10 years would require that outlays grow by about 2% each year.
SEE ‘RYAN BUDGET’ PG 18
15GENERATIONAMERICA.ORG
NEWS & OPINION | POLITICS
the votes of moderate as well as conservative
Republicans. Yes, his budget is conservative,
but it is hardly radical.
According to the National Journal, Ryan
works with Democrats about as often as any
Republican does. Most famously, he collaborated
with liberal senator Ron Wyden (D., Ore.) to
develop the latest iteration of his Medicare
reform plan. In fact, the evolution of Ryan’s
Medicare plan shows both the promise and the
perils of his pragmatism.
Ryan’s first Medicare reform plan was fairly
accurately described as a voucher program:
Seniors would each receive a support payment
roughly based on the current per-capita amount
of Medicare spending. Wealthy seniors would
receive somewhat less, poor and sicker seniors
somewhat more. The Ryan-Wyden plan, on the
other hand, abandons the voucher concept in
favor of a pure premium-support model.
Ryan also gradually agreed to loosen his pro-
posal’s cap on overall Medicare spending. In his
original plan, Medicare spending would not be
allowed to grow any faster than the overall
economy. In Ryan-Wyden, the cap is GDP growth
plus a full percentage point. At the same time,
the burden for exceeding growth caps has
shifted from seniors themselves, who would have
been required to pay more out of pocket under
the original Roadmap for America’s Future, to
providers, who will have their reimbursements
reduced under Ryan-Wyden.
The budget passed by the House this year was
in some ways closer to Ryan’s original Medicare
proposal than to the Ryan-Wyden plan. But
Ryan has clearly shown that he is willing to
water down his ideas if doing so garners
Democratic support.
The downside of Ryan’s pragmatism is that each
change has weakened his proposal. His original
proposal would have reduced Medicare spending
by far more than Ryan-Wyden. Given that even
the most optimistic scenarios show Medicare
running $38 trillion in the red, Ryan’s retreat is not
a step in the right direction.
Still, it might have been justified if Ryan’s willing-
ness to compromise had attracted substantial
Democratic support. But, in the end, it was the
Democrats who refused to budge. Senator
Wyden was the only Democrat to join with Ryan,
and even he later backed away from his support
under pressure from his caucus.
Ryan’s pragmatic streak has also led him to cast
many votes that seem to contradict his reputation
as a budget hawk. Ryan would no doubt say that
he won important concessions in exchange for
those votes—for instance, getting health savings
accounts included in the Medicare prescription-
drug bill—or that the alternatives were worse. But
any way you look at it, those votes hardly make
Ryan an inflexible budget cutter.
All of this means that Ryan is not really the
government-slashing savior envisioned by some
conservatives. It also means that he is not the
ideological hard-liner portrayed by some
liberals. He is, in fact, likely to disappoint his
conservative backers on occasion. But he may
also be able to work across party lines to really
change the disastrous course we are now on.G
Michael Tanner is a senior fellow at the Cato Institute and
author of Bad Medicine: A Guide to the Real Costs and
Consequences of the New Health Care Law.
SOURCE: CATO.ORG. THIS ARTICLE APPEARED ON NaTIoNal RevIew
(ONLINE) ON AUGUST 22, 2012.
Ryan was willing to push the envelope on spending cuts, but only as far as he could while still getting the votes of moderate as well as conservative Republicans. Yes, his budget is conservative, but it is hardly radical.
Interest rates are at historic lows and have been for some time. Banks are flush with funds, as are large corporations. Monetary conditions are not restraining economic growth. We need to look elsewhere for the source of the problem.
BY WILLIAM POOLE
Fed Chairman Ben Bernanke recently
kicked off the annual Economic
Symposium of the Federal Reserve
Bank of Kansas City, which draws
central bankers, academics, market participants
and policymakers from around the world. I have
taken the liberty of drafting his ideal speech:
Again this year, as for the past three years, we
seek to understand the prospects for the U.S.
and world economies following the most severe
recession since the Great Depression.
We thought that by now economic growth would
be picking up, but the expected sustained
recovery has not occurred. In the U.S., employ-
ment is growing but far too slowly.
Why?
Bottom line: The absence of a long-run fiscal
plan is weighing heavily on planning by the
business sector.
I’ll focus this morning on the role of nonresiden-
tial fixed investment and the effects of fiscal
policy on this important component of GDP. In
the second quarter of 2012, real business fixed
investment was still 6% below its level at the
business cycle peak in the fourth quarter of 2007.
As I reflect on these issues, I keep coming back to
the marvelous biography of Steve Jobs by Walter
Isaacson. Are there lessons in his life as an
entrepreneur and head of Apple Computer—now
just Apple—for public policy today?
Apple made huge investments in developing the
Macintosh computer and subsequent i-this and
i-that. The vision was remarkable and the length
of time to develop new products not trivial.
Apple’s Macintosh computer project began in
1979 and continued through turbulent years in
the early 1980s of very high interest rates
followed by deep recession; the machine did not
come to market until early 1984.
Later products also took years to develop. Even
the Apple store took almost two years from Jobs’
conception to opening.
Business investment is especially vulnerable to
uncertainties about the future because the lead
times are often long. Projects expected to come
to market in three to five years are much more
dependent on the long-term environment than
on the immediate business situation.
WASHINGTON’S FISCAL PARALYSISLagging business fixed investment cannot be
attributed to monetary policy. Interest rates are
Like Steve Jobs, Ben Bernanke Should Think Long-Term
SEE ‘LONG TERM’ PG 19
17GENERATIONAMERICA.ORG
NEWS & OPINION
fiscal policy: The private sector should grow faster than the government. This is what happens with the Ryan budget. The Congressional Budget Office expects nominal economic output (before inflation) to grow about 5% each year over the next decade. So if federal spending grows 3.1% annually, the burden of federal spending slowly shrinks as a share of GDP.
According to the House Budget Committee, the federal budget would consume slightly less than 20% of economic output if the Ryan budget remained in place for 10 years. This would be remarkable progress considering that the federal government is now consuming 24% of GDP vs. Mr. Clinton’s 18.2% in 2001. If Paul Ryan’s policies are social Darwinism, as Mr. Obama and his allies allege, one can only speculate where Bill Clinton ranks in their estimation.
Spending restraint also creates more leeway for good tax policy. Regardless of what you think about deficits, the political reality is that it is difficult to lower tax rates if government borrowing remains at high or rising levels. If deficit spending contin-ues at current levels, then higher tax rates are almost sure to follow. And higher tax rates can’t create an environment condu-cive to more investment and jobs.
The Ryan budget avoids this unpleasant outcome by addressing the problem of excessive government spending. This makes it possible to extend the 2001 and 2003 tax-rate reductions. It also clears the way for other pro-growth reforms, such as Gov. Romney’s proposed across-the-board 20% income tax cut, a more competitive 25% corporate tax rate, and less double-taxation of dividends and capital gains.
One of the best features of the Ryan budget is that he reforms the two big health entitlements instead of simply trying to save money. Medicaid gets block-granted to the states, building on the success of welfare reform in the 1990s. And
Medicare is modernized by creating a premium-support option for people retiring in 2022 and beyond.
This is much better than the traditional Beltway approach of trying to save money with price controls on health-care provid-ers and means testing on health-care consumers. Price controls are notoriously ineffective—because health-care providers adapt by ordering more tests and proce-dures—and politically unsustainable due to lobbying pressure. Means testing imposes an indirect penalty on people who save and invest during their working years. That should be a nonstarter for a political party that seeks to encourage productive behavior and discourage dependency.
But good entitlement policy also is a godsend for taxpayers, particularly in the long run. Without reform, the burden of federal spending will jump to 35% of GDP by 2040, compared to 18.75% of output under the Ryan budget.
Assuming the GOP ticket prevails in November, Mitt Romney will make the big decisions on fiscal policy. But there is no escaping the fiscal math. If Mr. Romney intends to keep his no-tax-hike promise, he has to restrain the growth of spending.
This doesn’t mean he has to go with every
detail of the Ryan budget—but it’s
certainly a good place to start.G
Daniel J. Mitchell is a senior fellow at the Cato
Institute. SOURCE: CATO.ORG
RYAN BUDGETCONTINUED FROM PG 15
EVERYTHING OLD IS NEW AGAIN CHICAGO TRIBUNE 1934
at historic lows and have been for some
time. Banks are flush with funds, as are
large corporations. Monetary conditions
are not restraining economic growth. We
need to look elsewhere for the source of
the problem.
Everyone is well aware of the standoff—
indeed, paralysis—in Washington over
fiscal policy. Monetary policy cannot fix or
even offset the damage being done by
fiscal inaction.
In round numbers, to stabilize its finances
the federal government needs to cut its
annual deficit by $500 billion, or about
3% of GDP.
Doing so will require cuts in outlays,
revenue increases, or some combination
of the two. Doing more would be wise,
but 3% of GDP is the minimum. The
problem for the economy is this: No one
knows where the spending cuts or
revenue increases will fall.
Consider expenditure cuts first, because
their impact is easy to explain. In nominal
dollars, in 2011 total government con-
sumption expenditures and gross
investment—“government purchases” for
short—was 20% of GDP. This figure
includes both federal and state and local
purchases, which are partly financed by
the federal government. Obviously, a
resolution of the budget issue will not
eliminate the entire 20%.
If you were a government contractor,
however, from a defense supplier to a
road-paving company, absent a budget
deal, you couldn’t know what your share of the cutbacks would be. Even if ultimately government purchases are reduced by 3% of GDP, 20% of the economy is negatively affected today because no one knows who will fall in the 3% group.
Thus, although on crude Keynesian terms
current fiscal policy is stimulative, because of the deficit, in fact policy is very restrictive.
The same argument applies to revenue increases, whether by increases in tax rates or by reduction of tax preferences.
Until disputes about corporate taxation are resolved, corporations are left wondering what the effects will be on their particular businesses from some combination of tax rate and tax prefer-ence changes.
TAX UNCERTAINTY
What about the individual income tax?
Reducing certain tax preferences will affect the businesses of those benefiting from those preferences. For example, scaling back the deductibility of home mortgage interest—a proposal discussed by many—leaves prospective homeown-ers and homebuilders in doubt.
Similarly, increasing upper income tax rates, which may or may not occur, will affect the return to entrepreneurial activity.
Steve Jobs was not himself much moti-vated by money, but his investors and employees were. The possibility of a tax
increase and uncertainty over its size weighs negatively on today’s entrepreneurs.
The Apple story makes clear the impor-tance of accumulation of human capital. Steve Jobs attracted skilled and experi-enced software engineers and managers from other companies.
They gave up secure jobs to join a young firm with a charismatic leader and the promise of great riches if the company were successful.
They knew, however, that they would
have to make a commitment of several years to see the Mac and, later, various i-products come to market.
In no case was the outcome clear at the outset.
Every serious observer agrees that there is a pressing need for tax reform, and that the shape of reform is to lower rates and broaden the tax base. It may or may not be desirable to raise more tax revenue in the process of reforming the system. That is a political judgment properly left to elected officials.
My counsel, however, is to get on with it.
In the late 1990s, Steve Jobs launched the “Think Different” ad campaign. For the federal government, the mantra needs to be “Think Long-Term.”
We are fortunate that the U.S. economy is terribly resilient. Current fiscal uncertain-ties have depressed growth but seem unlikely to cause a recession in the near-term.
Vigorous growth is in our future once people understand what government spending is going to be cut and what taxes are going to be increased to control the deficit.
I emphasize again that monetary policy cannot fix the fiscal problem. If the Fed finds something more that might be done through monetary policy, we will do it.
But I must be clear: Monetary policy has gone about as far as it can in offsetting the negative effects of current fiscal policy paralysis.G
william Poole is a senior fellow at the Cato
Institute and Distinguished Scholar in Residence
at the University of Delaware. He retired as
president and Ceo of the Federal Reserve Bank
of St. louis in March 2008. SOURCE: CATO.ORG
LONG TERMCONTINUED FROM PG 17
The possibility of a tax increase and uncertainty over its size weighs negatively on today’s entrepreneurs.
19GENERATIONAMERICA.ORG
BY TERRY SAvAGE
What do you do when the
financial markets are upside
down? What’s the strategy
when bad news seems to be
good news, and vice versa?
It’s a question stock market investors
must be asking these days, when
economic growth is stalling, fiscal policy
is undecided, Europe is talking and not
acting, and even the Fed can’t seem to
find a policy to help.
Yet the Dow Jones industrial average
closed out last week at 13,096—within 8
percent of its all-time high of 14,164.53 set
on Oct. 9, 2007. That was before the
world generally recognized the global
financial crisis that has engulfed us in
waves over the past five years.
The subsequent financial fear pushed the
Dow nearly straight downward for the
next 18 months, to a closing low of
6,547.05 on March 9, 2009, as investors
dumped stocks in a classic selling panic.
At current levels, the DJIA has now
doubled from that closing low point!
If you were dumping stocks along with
the crowd in early 2009, you may feel
humiliated—and far less wealthy. If you
were buying stocks that week, you can
brag to your friends and neighbors. If you
were paralyzed with fear and did nothing,
you can now breathe a sigh of relief. If
you were this columnist, you can point
back to a column you wrote on that day
urging people to stay positive and
continue investing and believing in the
future of America.
But what no one can do is take credit for
consistently calling the turns in the
market over these past five years.
That’s just something to think about as
you keep making that monthly invest-
ment into your 40l(k) or IRA. You have no
guarantees that the market will be higher
when you are withdrawing during your
retirement years. But historic odds say
you’ll do better investing regularly in a
diversified portfolio of stocks than leaving
your money in the bank.
Following that discipline is easier when
you have some money safely set aside in
a money fund to “hedge” your bets.
That’s why you don’t put all your eggs in
any one basket. And why you step back,
gain perspective, then make a plan—and
stick to it.
Long-term thinking is what generates
prosperity over the long run.
A golden opportunity?
So if you buy into the idea that trading
YOUR FINANCES
WHEN THE STOCK MARKET DEFIES LOGIC, THINK LONG-TERM
OU HAVE NO GUARANTEES THAT THE MARKET WILL BE
HIGHER WHEN YOU ARE WITHDRAWING DURING YOUR
RETIREMENT YEARS. BUT HISTORIC ODDS SAY YOU’LL DO BETTER
INVESTING REGULARLY IN A DIVERSIFIED PORTFOLIO OF STOCKS
THAN LEAVING YOUR MONEY IN THE BANK.
Y
SEE ‘STOCK MARKET’ PG 22
Dear Reader: Retirement
planning can sometimes
seem like a lot of work, but
the more you get organized
now, the more you can relax later on.
You’re wise to be looking at your choices
ahead of time because when it comes to
what to do with a 401(k) after retirement,
there are some pros and cons to consider.
And what you choose will have an impact
not only on the potential continued
growth of your retirement savings but
also on your income taxes.
REVIEW YOUR BASIC CHOICESGenerally, there are four things you can
do with a 401(k) when you leave your job.
One in particular—rolling over to a new
employer—doesn’t really apply to your
situation, but the other three merit
consideration. Basically, when you retire
you can:
n TAkE THE CASH: At your age, there’s no
penalty, but there are tax consequences.
Withdrawals from a 401(k) are taxed as
ordinary income, so this could be a big
initial hit. The Internal Revenue Service
withholds 20 percent right off the top
(this is mandatory) and any remaining
taxes will be factored in when you prepare
your return for the year in which you take
the distribution. On the plus side, you’ll
have immediate access to your money. On
the minus side, your savings will no longer
grow tax-deferred. There is a 60-day
window in which you can still choose to
move your money into a tax-deferred IRA,
but after that time, your only choice is to
put it in a taxable account.
n kEEP YOUR 401(k) WITH YOUR fORMER
EMPLOYER: This is probably the easiest
and does have some benefits. You avoid
income taxes and the mandatory 20
percent withholding; your money
continues to grow tax-deferred; and you
maintain the option of rolling it over,
should you ever decide to go back to
work. The main potential drawback is that
your investment choices are limited to
what’s available in the plan. If you have 15
or so funds to choose from, that could be
just fine. But if you’re limited to three or
four investment selections, you might be
better off moving your money elsewhere.
There also may be limitations on with-
drawals and when and how you invest.
Make sure you get the details.
n ROLL IT OvER TO AN IRA: Like a 401(k),
an IRA keeps your money growing
tax-deferred. It also gives you the
flexibility to choose the types of invest-
ments that you deem best. Plus, you can
invest and access your money whenever
you want, without going through a plan
provider. Those are significant advan-
tages. One possible drawback is that a
401(k) may have more legal protection
from creditors than an IRA.
n DECIDE WHAT TO DO WITH COMPANY
STOCk: If you have appreciated company
stock in your 401(k), there’s another
course of action that could save money
on taxes. No matter what you do with
the rest of your 401(k) assets, you can
transfer your company stock to a taxable
BY CARRIE SCHWAB-POMERANTz
Dear Carrie: I’m 64 and about to retire. I’m starting to get my finances organized, and I’m wondering, should I leave my money in my 401(k) or transfer it to a different account? —a Reader
Ready to Retire: What Should You Do With Your 401(k)?
4 BASIC CHOICESFOR ROLLING OVER YOUR 401K
1. Take the cash
2. Keep your 401(k) with your former employer
3. Roll it over to an IRA
4. Decide what to do with company stock
21GENERATIONAMERICA.ORG
YOUR FINANCES
account and take advantage of what’s
called net unrealized appreciation.
With this strategy, when the shares are
transferred, you pay ordinary income
taxes only on the cost basis of the
stock (the average cost at the time you
received it from your employer), which
could be significantly lower than the
current value. If you sell immediately,
you pay taxes on the appreciation
beyond the cost basis at the long-term
capital gains rate. If you decide not to
sell immediately, you will pay taxes on
any additional appreciation at either
the long- or short-term capital gains
rate, depending on your holding period.
If you were to simply roll this stock over
into an IRA, you’d end up paying
ordinary income taxes on the current
value when you withdraw it, which
could be much higher than long-term
capital gains taxes.
FACTOR IN SOCIAL SECURITYWhether you take your entire 401(k) in
cash at once or withdraw from it over
time, the distributions will be added to
your ordinary income. This, in turn, can
impact how your Social Security
benefits are taxed. Currently, single
filers could pay income taxes on up to
85 percent of benefits if their modified
adjusted gross income (MAGI) is over
$34,000. For married couples filing
jointly, the MAGI threshold is $44,000.
As you can see, there’s a lot to consider.
You’ll also want to look at your 401(k)
in conjunction with your other sources
of retirement income. This might be a
good time to sit down with your tax or
financial advisor to review your entire
financial picture. All the best for a long
and rewarding retirement.G
Carrie Schwab-Pomerantz, Certified Financial
Planner™, is president of Charles Schwab
Foundation and author of “It Pays to Talk.” You
can e-mail Carrie at [email protected]. This
column is no substitute for an individualized
recommendation, tax, legal or personalized
investment advice. © 2012 CHARLES SCHWAB & CO., INC.
MEMBER SIPC. DISTRIBUTED BY CREATORS.COM
short-term market moves is better left to
people who find roller coasters thrilling,
then you might start looking around for
additional historic long-term trends on
which to base your investing philosophy.
I’m talking about the kinds of very
long-term cycles that are hidden in the
shorter (one- and two-year) immediacy
of the financial markets.
So what do we know about what histori-
cally happens to paper currencies? Very
simply, we know that when an empire or
a country runs up debt, the rulers
eventually resort to “printing” more
currency to pay down that debt—as
opposed to trying to balance their
budgets through policies that will
generate economic growth. Rulers won’t
cut spending and raise taxes if they are
trying to “buy” support or compliance
from the populace.
Once debt gets out of hand, they will
“print.”
The problem in Europe now is that the
individual countries cannot “create” the
Euro currency. They are all bound to its
standards. Only Germany has enough
power to acquiesce in “printing” to
rescue the banking system. And Germans
have horrific memories of the currency
printing spree in the late 1920s, which
helped bring Hitler to power. While the
United States remembers the Great
Depression, Germany remembers the
Great Inflation—and stands resolutely
against a European bailout.
America, on the other hand, has a
generational insecurity about recessions
and depressions. We’ve seen what can
happen when the government demands
austerity as a solution to debt problems.
And we’re hoping to avoid that at all
costs. Eventually, that cost may be
inflation—money printing—especially if
our government cannot organize around
policies that promote economic growth.
Remember, these are not short-term
political issues but longer-term economic
trends that will defy politicians of both
parties. And if you step back and take the
larger perspective, you’ll want some
protection against that possibility.
Historically, that protection has been
gold—currently trading around $1600 an
ounce. The idea of buying gold now may
seem as outrageous as buying stocks in
March 2009 at Dow 6547. But stocks
doubled from that point, when no one
was looking and few were buying. If our
country doesn’t get its financial act
together, you could see a similar percent-
age move in gold—the historic “hedge”
against inflation.
Let me make my point clear. Gold could
double from the current $1,600 an ounce
if Congress doesn’t get its act together.
I have no time frame on that possibility,
no deadline—and despite taking my own
advice, I devoutly hope it won’t happen.
Soaring gold prices would mean that
something important has broken down in
the American political and financial
system, and that our paper currency—the
U.S. dollar—would no longer be the safe
haven the entire world seeks today.
It’s tough to think about but not impos-
sible. And that’s The Savage Truth.G
Terry Savage is a registered investment adviser
and is on the board of the Chicago Mercantile
exchange. She appears weekly on wMaQ-Channel
5’s 4:30 p.m. newscast, and can be reached at
terrysavage.com. © 2012 TERRY SAVAGE PRODUCTIONS.
DISTRIBUTED BY CREATORS.COM
STOCK MARKETCONTINUED FROM PG 20
ERY SIMPLY, WE
KNOW THAT WHEN
AN EMPIRE OR A COUNTRY
RUNS UP DEBT, THE
RULERS EVENTUALLY
RESORT TO “PRINTING”
MORE CURRENCY TO PAY
DOWN THAT DEBT...
V
23GENERATIONAMERICA.ORG
FALL 2012
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6GENERATIONAMERICA.ORGMEMBER BENEFITS
Maintain Your Health: reduce Your risk of Falling
HEALTH WELLNESS
BY DR. DAvID LIPSCHITz
After age 65, about 30 percent of people
fall at least once annually. If a hip
fracture occurs, 25 percent will die in a year
and 50 percent will become dependent—
frequently requiring nursing-home care.
Fortunately, much can be done to reduce the
risk of a fall, the need for lengthy hospital
stays or the loss of independence.
The risk of falling frequently is due to declines
in balance, mobility and gait, as well as a high
risk of fainting caused by a blood pressure
drop when attempting to stand up. Visual
difficulties, dizziness, inappropriate shoe choic-
es and drug side effects often contribute to
falls. Tripping due to environmental hazards in
the home or elsewhere remains the major
cause of falls at any age.
For a person at risk of falling, an evaluation by
a physician is essential. Medical conditions that
contribute to falls must be identified and
treated, and problems with gait and balance
should be evaluated. Medications that increase
the risk of falling should be avoided. Wherever
possible, keep medications to a minimum and
avoid sleeping pills, tranquilizers and alcohol.
Patients must be made aware that medications
to treat hypertension can lead to dangerous
drops in blood pressure, with changes in
posture. Never stand up suddenly and always
have something to hold on to.
29GENERATIONAMERICA.ORG
HEALTH & WELLNESS
No matter your health, aging is associated with a
relentless loss of muscle mass, an increased
proportion of weight as fat, and progressive
weakness that slows gait speed, affects balance
and increases the risk of falls. It follows that the
more we do to maintain strength the better.
Physical therapy can help reduce falls. Treatment
includes balance exercises and working with
weights that build muscle, bones and most
importantly, strength. The older the patient, the
longer the time taken to see tangible improve-
ments, but they will occur and in the long term,
the results are well worth the effort. When
physical therapy ends, keep moving and consider
joining a health club to maintain and improve
strength and balance.
If needed, do not be embarrassed to use a cane,
walker or wheelchair. But walk as much as
possible. The more time spent being immobile or
sitting in a wheelchair, the greater the loss of
muscle and the increased chance of a fall.
Most serious falls occur in the bathroom.
Carefully review the bathroom and make
sure slippery surfaces can be avoided, that water
does not leak from the shower or tub, and if
possible, install handrails from the bed all the way
into the bathroom. Often a raised toilet seat with
armrests can prove helpful. A sturdy plastic seat
should be placed in the tub or shower and use a
hand-held shower to bathe. If a wheelchair is
needed or gait and balance is significantly
impaired, a uniquely designed bathtub or shower
may be necessary.
Fall-proof the home by clearing walking areas of
boxes and electrical and phone cords. Remove low
coffee tables and move magazine and plant
stands out of the way. Loose rugs should be
removed or taped to the floor; uneven wooden
floorboards or carpeting must be repaired; and
skidproof materials should be used for cleaning.
Many falls are caused by standing on a chair or
attempting to remove something from an
out-of-reach cupboard. For this reason, clothing,
cleaning materials, dishes, utensils and food must
be accessible and stored within easy reach.
Adequate lighting decreases the risk of a fall.
Assure that each room has ambient light from
outside during the day, is well lighted at night and
use nightlights liberally. Always switch on a light
before climbing the stairs and install glow-in-the-
dark or illuminating light switches.
If the risk of a fall is too great, consider whether
living alone in a large house with stairs is appropri-
ate. It may be time to move to a one-level home or
assisted-living facility, where help is available and
people surround you. And as you grow older, no
matter your health, live as close as possible to
immediate family.
Accidents due to falls are a major cause of
physical disability, the need for nursing-home care
and poor quality of life. The earlier precautions are
taken to reduce the risk of a fall, the better.G
Dr. David lipschitz is the author of the book Breaking
the Rules of Aging; more information is available at:
drdavidhealth.com. To find out more about Dr. David
lipschitz and read features by other Creators Syndicate
writers, visit creators.com. © 2012 CREATORS.COM
...walk as much as possible. The more time spent being immobile or sitting in a wheelchair, the greater the loss of muscle and the increased chance of a fall.
The food and Drug Administration recently denied a petition by the Corn Refiners Associa-tion to rename high fructose corn syrup “corn sugar.” Soon after that, the mayor of New York
City proposed prohibiting the sale of large sodas
and other sugary drinks (“large” defined as more
than 16 fluid ounces).
These two events could be viewed as big
government regulating what should be personal
choice. However, to me, they demonstrate our
conflicted feelings about the sweet stuff.
Whether sweetness is in the form of table sugar
(sucrose) or high fructose corn syrup (HFCS),
both contain fairly equal amounts of fructose.
As a sweetener, HFCS has been controversial.
Food scientists are exploring how the body
handles it and if there are differences from table
sugar. It’s great that we can distinguish HFCS
from sugar on food labels. Especially because
there are people with fructose intolerance who
absolutely must avoid HCFS.
Soft drink makers are even switching from HFCS
back to sugar. After all, sugar seems more natural
and even healthier—right?
Nope.
Sugar-containing drinks, such as fruit drinks, sodas,
energy drinks, sports drinks and sweetened bottled
waters, are the major source of added sugar in the
American diet. About half of the U.S. population—
adults and children 2 years old and over—have
sugary drinks on any given day.
This habitual sipping of sugary drinks has been
linked to poor diet, weight gain, obesity and type
2 diabetes.
So don’t be fooled. The recent decision to not
allow HFCS to be called sugar is fine by me. But
the trend away from HFCS to sugar in soft drinks
is no improvement.G
As the temperature rises so does our excite-ment over picnics and grilling. Unfortunately,
the number of foodborne illnesses rise too.
Most people know to keep potato salad cold. But
beyond that, are you thinking about food safety?
Consider the following food for thought as you
plan your summer outings.
Check the forecast. You know to refrigerate
perishable food within two hours. But did you
know that drops to one hour when the tempera-
ture is above 90 F (32 C)? Serve, eat and get
food back in the cooler.
Come clean. If your picnic spot doesn’t have
clean running water, bring some with you. Bring
wipes or sanitizing gel for surfaces and hands.
Wash hands before food prep and after handling
raw meats.
Keep your cool. Use an insulated cooler with ice,
ice packs or partially frozen items to keep food at
40 F (4 C) or cooler.
Pack smart. Keep separate coolers for food and
beverages. Chances are people will be in and
out of the beverage cooler, which lets cold air
escape. To keep food as cold as possible, keep
that cooler closed until you’re ready to cook.
Pack meat in plastic and put it on the bottom of
the cooler to prevent it from leaking on other
foods. Pack two platters—one for raw meat and
one for cooked meat.
Use a thermometer. Don’t rely on the color of
meat to judge when it’s cooked enough. Use a
food thermometer to check the temperature.
Safe minimum temperatures are:
165°F (74°C) for any type of poultry
160°F (71°C) for ground meat other than poultry
145°F (63°C) for solid cuts, such as steaks, of
meat or fish
What are you packing in your picnic cooler?
What are you grilling? And how are you doing it
safely?
To your health,
Katherine G
SUGAR IS SUGAR—DON’T BE FOOLED
WARM WEATHER FOOD SAFETY TIPS
JENNIFER NELSON, M.S., R.D. AND KATHERINE ZERATSKY, R.D., FOR THE MAYO CLINIC
31GENERATIONAMERICA.ORG
TRAVEL
BY kATHRYN LEMMON
Just before setting out for Fredericksburg, Texas, I happened to see a news item
on the Texas tradition of taking photos of youngsters among bluebonnets.
When I arrived, I got my first glimpse of these beautiful blue flowers. What a
lucky connection—and what a great start to my visit.
Fredericksburg is a manageable city with a thriving main street in an area
known as Texas Hill Country. Regardless of its size, however, it packs in a number
of diverse attractions. From German and World War II history to wine, fine art
and presidents, it’s all here.
The region was first settled by Germans, and it proudly retains the heritage. A
popular landmark in town is the Vereins Kirche (Society’s Church) Museum.
Regional names such as New Braunfels and Luckenbach, made famous by the
Waylon Jennings and Willie Nelson song, also indicate the German connection.
In those early days residents obtained land both outside of town and a small
FredricksburgTexas
Home to German Heritage, Pacific War Museum
WHEN YOU GO:
When it’s time for a break,
replenish at:
fredericksburg Brewing Co. yourbrewery.com
farm Haus Bistro fredericksburgherbfarm.com
Der Lindenbaum Authentic German cuisine
derlindenbaum.com
Fredericksburg is a 75-minute
drive from the San Antonio
airport. For more information,
visitvisitfredericksburgtx.com
Above: Quaint Main Street
in Fredricksburg
Far left: Blue Bonnet is the
Texas state flower and is a
popular subject of photos.
Left: The Texas White
House, Lyndon B. Johnson
National Historical Park
33GENERATIONAMERICA.ORG
plot in town. An interesting holdover from that
time period are homes known as Sunday Houses.
Whether for church, shopping or trading, the
Sunday House provided practical shelter for a
short stay. Before making the time-consuming
wagon journey back to the farm, this gave the
rural folks a place to rest.
Today visitors can still see a well-preserved
Sunday House at the Pioneer Museum Complex.
This complex is a collection of authentic struc-
tures preserved from the 19th century that
includes the Weber Sunday House. The Weber
family had a seven-mile trek to town, no small
distance with a horse-drawn wagon and children
in tow. The Sunday House typically had just one
room with a lean-to kitchen downstairs plus a
half-story above, usually only reachable by an
outside stairway. The children most often were
assigned to the upper portion.
Sunday Houses aren’t the only structures special
to “Fred.” Tank Houses are another type that still
stands from times past,
and local residents are
naturally protective of
them. Prior to the time of
public utilities, home-
owners had to supply
and store their own
water. Generally the
tanks were made up of
two sections, the lower
support portion and the upper tank portion. Today
the remaining tanks have been creatively con-
verted into garden sheds or offices, and one is
large enough to act as a bedroom at a bed-and-
breakfast inn.
The National Museum of the Pacific War is also
located in Fredericksburg. Like so many aspects
of Texas, it is larger than life. It’s so extensive that
tickets are issued for 48 hours to allow time to
cover the entire place. The spread of buildings
and exhibits covers six acres and has more than
50,000 square feet of indoor space.
Since both my father-in-law and my father spent
time in the Pacific during the war, I was especially
eager to explore the exhibits. Individual sections
cover the well-known areas of activity, such as
Pearl Harbor and the Coral Sea, along with
lesser-known areas such as Leyte and Peleliu. The
museum follows a timeline of the events leading
up to, during and after the war in the Pacific.
One of the displays is a two-man Japanese
submarine that was one of only five similar
vessels that took part in the Pearl Harbor attack.
Special lighting and sound techniques provide a
dramatic exhibit.
The unusual location—a long haul from the
ocean—for a comprehensive museum about the
war in the Pacific is due to Adm. Chester Nimitz,
who spent the first six years of his life in a hotel
operated by his grandfather on Main Street.
Eventually he left Texas for the U.S. Naval
Academy. Later he became the commander-in-
chief of the Pacific during World War II. The
restored Nimitz Hotel today houses the Admiral
Nimitz Museum, showcasing the life and career of
Nimitz as well as early life in Fredericksburg.
Based on the population of the town, Fred has a
surprisingly large number of art galleries. The
InSight Gallery features
fine art with a Western
focus in a beautifully
restored downtown
building that dates from
1907. The Artisans at
Rocky Hill Gallery was
easily my favorite. The
gallery displays the
works of specialized
artisans who work their magic in reclaimed
metals, fabric, ceramics, copper and carved
wood, to name just a few. One of them has
created a one-of-a-kind horse sculpture from
metal gun parts.
A Texas-style welcome awaits at the Lyndon B.
Johnson National Historical Park east of Freder-
icksburg. This park has two distinct visitor areas
separated by 14 miles and split between Johnson
City and the LBJ Ranch. At the Johnson City
Visitors Center, park rangers can help plan a visit.
It is possible to tour the Texas White House where
the 36th president conducted much of his business.
The house was first opened for tours in 2008, and
additional rooms were opened in 2011. Lady Bird’s
necklaces still hang on the bathroom wall, and her
clothing is still in the closet. G© 2012 CREATORS.COM.
NATIONAL MUSEUM OF THE PACIFIC WAR
G PLEASANTLY ALL-AMERICAN g SurpriSingly Varied
BY STEvE BERGSMAN
My visit began with a nature hike at Whitefish Dunes State Park on a cool spring day in bright sun and with few
other visitors. I was in Door County, Wis., a
forested peninsula that separates Lake Michigan
from Green Bay. Similar to the way the eastern tip
of Massachusetts geologically breaks away from
the mainland to form a haphazard and extended
peninsula called Cape Cod, near to the football-
crazed city of Green Bay, Wisconsin’s Lake
Michigan coastline uncharacteristically and
haphazardly breaks its solid shores with a long jut
of land, forming a less-heralded but equally
beautiful vacation land. In fact, Door County is
often called Wisconsin’s Cape Cod.
If the dramatic shoreline, beaches and traditional
New England locale attract summer vacationers
and weekend travelers to Cape Cod from the East
Coast, Door County does the same for Midwest-erners. The difference is that Door County’s isolation on the Great Lakes makes it virtually unknown outside of the Midwest.
Once you drive past Sturgeon Bay and head north on the peninsula there are no chain restaurants or hotels. It’s like the America of the late 1800s and early 1900s. You’ll pass small harbor towns of interesting names—Egg Harbor, Fish Creek, Ephraim, Baileys Harbor and Whitefish Bay—all stranded in an architectural time warp of a more innocent era. Inns, lodges and bed-and-breakfasts proliferate, each one fantastically idiosyncratic. The restaurants and eateries are family-owned and finely tuned to the local ambience. Take for example Wilson’s Restaurant and Ice Cream Parlor, which has the familiar 1950s look new restaurants often try to re-create. The difference is that Wilson’s has been around since 1906, so the 1950s ambience is a real part of its history.
You’ll pass small harbor towns of interesting names—Egg Harbor, fish Creek, Ephraim, Baileys Harbor and Whitefish Bay—all stranded in an architectural time warp of a more innocent era.
oaaaaaaaaaaaaapW I S CO N S I NCOUNTYDOOR
35GENERATIONAMERICA.ORG
There are no Starbucks shops in northern Door County, so one morning I traveled to Door Country Coffee and Tea, where I had heard I could get a baked-egg breakfast and taste the some of the best coffee in the state. This place commercially brews its own brand onsite besides making a host of flavored coffees. While I’m not usually a fan of flavored coffee, the cookie-dough- and pumpkin-flavored coffees were definitely worth trying.
What also makes Door County the epitome of All-Americanism is its focus on cherries. As with
Washington, D.C., in the spring, many Midwesterners come here just for the cherry blossoms. At one time Door County was the largest cherry producer in the country, with about 95 percent of the market. Alas, today it only produces about 5 percent as other states, such as neighboring Michigan, have begun to dominate. Still, in the spring everything comes up cherries in Door County.
First of all, you couldn’t call yourself a restaurant here if you didn’t offer cherry pie for dessert. At breakfast, my hotel offered cherries and yogurt or for dessert a cherry petite. My first stop when I arrived was Country Ovens, which produces Cherry DeLite products and offers the
dried cherries and bottled cherry juice that I picked up for a snack. I also had a cherry ice cream sundae, cherry wine and at a place called Julie’s Park Cafe, ribs cooked in cherry barbecue sauce.
Door County also produces apples, grapes and other fruit, and now there is a growing wine business. That being the case, the area offers a number of places to do wine tastings. One of the more interesting is the Orchard Country Winery and Market, which was built on the acreage of an old family farm where the huge original barn still dominates the landscape. The cherry orchard is accessible, and visitors can try their hand—or their
puckered lips—in the cherry-pit-spitting competition area.
Door County counts 298 miles of shoreline. At its widest point, the land mass stretches about 11 miles. It’s not mountainous, but the land is ruggedly uneven, with rises and bluffs, beaches and coves, farmland and village. Before traveling about, I would strongly suggest taking the Door County Trolley tour, which lasts about an hour and half and provides an overview and a history of the area.
The landscape is heavily wooded now, but between the 1850s and 1890s, the peninsula was laid bare of vegeta-tion, with almost every tree cut for the lumber market and shipped to the fast-growing cities of Chicago and Milwaukee. But when I took my 2.8-mile Red Trail hike around Whitefish Dunes State Park I was able to experi-ence a thick forest of white pine, white cedar, sugar maple and hemlock while strolling past the dune thistle and rare flowers like the dwarf lake iris. The naturalist leading my walk listed porcupine, red fox, deer, coyote, otter and the occasional bear as wildlife she sees in the park.
Sand dunes aren’t common in Wisconsin, and those in the park are some of the highest in state. The Red
Trail hike includes a walk up Old Baldy, the tallest dune in the park at 93 feet. Indeed, surrounded by forest, I thought I was walking through hill country, but no, everything beneath my feet was sand.
Afterward, I was telling a Wisconsin down-stater that I was from Arizona, where the hard sand desert land can’t support tall vegetation such as trees and what a nice surprise my hike had been.
“Door County is like Sedona, Ariz.,” he told me. “There’s
something in the atmosphere that makes you feel better.”
G© 2012 CREATORS.COM.
TRAVEL
GETTING THERE:
The Appleton and Green Bay airports are close
to Door County and serviced by several of
the major carriers. I flew from Phoenix, through
Minneapolis and on to Green Bay.
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Midwesterners come here just for the cherry blossoms. At one time Door County was the largest cherry producer in the country, with about 95 percent of the market.