Housing Rental Expense killing DC contributions?

Despite the fact that inflation, as measured by the CPI, seems to be contained, rental expense for housing has jumped significantly in the US during the last decade.  As a country we are moving away from being a home ownership society to one that rents housing, as home ownership is now at its lowest since 1967! Furthermore, the only reason the home ownership rate is as “high” as it is, is due to homeowners in the 65 and over age group. For everyone else, home ownership rates are now the lowest recorded.

Compounding this problem is the fact that US household incomes are 7.2% less than they were in 1999. The lower incomes are being crushed by rising housing costs, medical expenses / insurance and education. Is it no wonder that folks don’t have any additional resources to fund their DC plans? What percentage of the US population really has discretionary income at this time?

According to the “State of the Nation’s Housing” report released by the Center for Housing Studies at Harvard, which showed that while inflation among most products and services may indeed be roughly as the Fed and BLS represent it, when it comes to rent things have never been worse.

According to the report, 2013 marked another year with a record-high number of cost burdened households – those paying more than 30 percent of income for housing. In the United States, 20.7 million renter households (49.0 percent) were cost burdened in 2013.  Alarmingly, 11.2 million (25%) all renter households, had “severe cost burdens, paying more than half of income for housing.” The median US renter household earned $32,700 in 2013 and spent $900 per month on housing costs.

So, do you still believe that the failure to fund defined contribution plans is because we have a population hellbent on consumption? The demise of the DB plan means that a significant percentage of our population will never be able to make adequate contributions (if any) into their retirement plan. The social and economic consequences for our country will be grave.

Retire the US Treasury debt on the Federal Reserve’s balance sheet

An interesting idea floating around, most recently heard through Mark Grant, is that the US Treasury should retire the Treasury debt currently held on the Federal Reserve’s balance sheet.  Mark believes that the retirement of $1 trillion of the slightly more than $2 trillion in Treasury notes and Bonds on the balance sheet would eliminate near-term debt ceiling discussions and potentially reduce rates in the short-term.  We at Kamp Consulting Solutions like this idea very much.  Chuck DuBois, a former partner of mine while we were both at Invesco, has been touting this idea for a while, too.  We believe that the entire debt could be retired at once, but there are many investors who like the idea of holding US Treasury bonds and notes for investment purposes.

There are many market participants who fear that the retirement of the US debt would be inflationary, but in reality the swap of bonds with reserves actually reduces liquidity because the bonds are higher yielding.  Furthermore, many of the bonds are being used as longer-term investments, and it is likely that the reserves received in the swap would be reinvested in longer-dated securities and not used for short-term economic activity.

I’m tired of hearing about the debt ceiling, and the debates in DC as to whether this artificial ceiling should be raised.  I suspect that you may be, too.  Let’s retire some of the debt today, and eliminate this conversation from happening for a while.