Bidenomics -- May 11, 2024

Locator: 47124ECON.

And the Michigan Consumer Index folks are unhappy, depressed, worried, pessimistic. 

This speaks volumes of "talking about one thing, experiencing something else." 

Link here. 

But there's more, from Carl Q and Yardeni:

Those complaining most about the economy (? -- needs to be fact-checked) saw an increase in their household wealth to the tune of $114 trillion by end of last year -- 2023 -- nearly 70% of all households' wealth.

It gets tedious separating memes from the facts. 

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The Source

Link here.

Some observations:

• I don't like graphs like this. It's hard to tell which of the four cohorts add the greatest growth. One has to look at each cohort separately and closely:
• if one overlays the Dow (stock market) over this graphic, the story becomes interesting; by cohort:
  
• first, those under forty: as a percent, the dark blue band increases very, very little over the last thirty years (2023 - 30 = 1993)
• thirty years ago, these folks were ten years old and have not been able to save / invest much money between the ages of 10 and 40
• then, those between the ages of 40 and 54: not much better until the last three years -- under Biden -- and then, not by much
• look at the third cohort, ages 55 to 69 -- compare the width of that light blue band in 1990 to 2023 -- astounding; absolutely astounding. Roughly $5 trillion in 1990 (?) to $70 trillion in 2023;
• finally, the fourth cohort, those over 70 years old: from almost nothing (maybe $3 trillion in 1990) to about $48 trillion in 2023.
• Demographics:
• between ages 40 to 69, each year of age, about 0.60% of the US population
• then age 70: 0.54%, female; 0.48%, male;
• then age 75: 0.45%, female; 0.38%, male;
• then age 80: 0.30%, female; 0.24%, male;
• then age 85: 0.17%, female; 0.12%, male.
• Those over 70, are proportionally much better off than the 40 to 69 year olds, the second and third cohorts combined, but even much better off than the 55 to 69, the third cohort. 
• The third cohort has the most trillions (1990 to 2023) but they are also a huge cohort in terms of number of folks between the ages of 55 and 69.

Link here.

As noted earlier, placing the Dow (stock market) over this graphic explains a lot.

But there's even something else, which I've talked about many times.

Thirty years of investing with tax-free accounts: those now 69 years old were 39 years old. 

Thirty years ago (2023 - 30 = 1993). What happened -- or better said, what was happening in 1993? 

Previously posted:

January 22, 2023

Key dates to remember with regard to IRAs:

• 1970
• 1981
• 1997

When did IRAs truly start to impact the economy? I would argue, 1995, to some extent, but then took off in 2007:

• 1970: traditional IRA introduced
• 1980: folks became comfortable with IRAs
• 1997: IRAs improved significantly with the introduction of Roth IRAs
• 2007: another ten years of traditional IRA / Roth IRA growth in popularity

Now, look at this graph:

 Same chart with markers and comments:

What was happening in 1993? In 1970 the traditional IRA was introduced. By 1985, the traditional IRA was beginning to make an impact. But then in 1997, although it didn't matter much at the time, Congress made the IRA even better by introducing the Roth IRA. Ten years later, 2007, the stock market began to take off, and all that money being invested in the market was growing tax-free. 

There's going to be a bit of a bow wave effect as folks start taking RMDs but by the early 2000s, folks finally figured it out that the Roth IRA was the way to go. The net worth of those who figured that out -- the value of the Roth IRA vs the traditional IRA -- will result in the third cohort -- the light blue cohort growing even more than the fourth cohort most of whom had much less time to start investing in IRAs, traditional or Roth.

Congress will continue to make the IRAs even better. Most recently they moved the age of first RMDs to age 73; and to age 75 starting in 2033 for many of those (but not all) that have traditional IRAs. It is likely that Congress will add more incentives to encourage saving for retirement.