Generational Equity Slides | Stan Druckenmiller

let's talk about what we're here to talk about generational equity you're applying these great powers of predicting the markets and what's going to happen in the world can we get the the slides started so Stan can take us through what we're looking at and Stan out I do want to thank you for not spending all the money on graphics okay you got you got the Berkeley one and it's not my fault it's your fault I sent you the USC one it says September 26 Jeff Canada and Sandra Flores oh okay well nice job Dave thank you attention to detail as a next lawyer I just son they're the same go to the the stage is yours please - shame - shame let's go to the first slide please the the first thing I'd like to say because I I have a message for the students which is Jeff and I grew up in a time when not only were the assassinations and the other problems in our country he talked about occurring there was something called the Vietnam War and it was pretty clear if you were in high school that there was a real threat that in your very near future you go over in the rice paddies getting bullets shot at you and possibly threatened with death and because of that the young people in the United States United started a movement and we brought down a president we brought down Lyndon Johnson and really I think if you look along the lines we sent mr. Nixon on his way - although he certainly helped himself into into that exit but I'm going to present some stuff to you tonight and I really want you to listen carefully because I think your generation faces a clear and present danger it's not as obvious and and as it was with us where we're facing possible death but it's very very serious and instead of them blowing up your house overnight your house may be eaten by termites and it doesn't matter whether it blew up her overnight or it took 15 or 20 years because you still lose your house and I am hoping to inform you tonight I can't start a movement that's up to you I barely even know how to use Facebook in fact I'm not on it if you're looking for me but let's just go through what's been going on which really has been 40 years of wealth transfer from the current elderly generation from you to them and from your future children to them and it's about to get a whole lot worse because of the baby boom and the demographics the share they've been taking from your generation they're about to be a lot more of them taking it so this chart here is simply federal government out budget outlays the percent going back many many years as you can see and when Jeff and I were in high school about 28% of federal outlays went to what we would call transfer payments or entitlements that number over the last 40 years has gone to 68 percent next slide please so where has that money gone well it certainly hasn't gone to the young on the blue line is children aged 15 and under and in the red line is the elderly and as you can see the share of government spending going to the elder link has completely rocketed since 1960 in fact if you go back to 1960 about 20 percent of budget outlays were spent on children and the elderly those numbers in total now are 50 percent and the elderly and 15 percent on children and when you hear the kind of stuff Jeff was talking about earlier that's frankly a tragedy next slide please okay I'd like to look up there it feels more real these are us u.s. poverty rates and as you can see back in the period I'm talking about when we started out the elderly we're about the poverty rate was about 30% because of a lot of the government spending in other programs the poverty rate for the elderly has come down to nine and look I think this is a magnificent accomplishment I think it's one we should all be very very proud of and very happy about the problem is look at what's happened the poverty rate of children it's actually risen from 20% to 23% over that period of time so when you here in the United States how we've geared property and how all the progress we've made it's only been made with the elderly our children poverty rate it's currently higher than it was 30 or 40 years ago next slide please and just to show you how unusual that is Jeff talked about how he wanted to grow up in a fair America look at where the USA stands among the top 35 countries in children's poverty rate we are second given the wealth we have this is a disgrace next chart please so this is a little complicated and if I was from USC I could probably explain it better but for a guy from Bowden I'll see what I can do so the y-axis is age and the x-axis is percentage of spending which I'll get to in a minute but let's go back to 1960 and if if you look at the chart if if those colored lines went up to one a hundred percent of a 45 year olds average income and society would being spent why are we using 45 because 45 is sort of the nexus of what the American workforce is so to take their average income that's a that's a good representative level so if you go back to 1960 let's go to say the 40 year old the 40 year old was spending about 65 percent of what an average 45 year old made and obviously saving the rest of it however a nine-year-old was spending about 50% of what the average 45 year old made in 1960 okay fast-forward to today the 40 year old is still spending about 60% of what a 45 year old makes the 90 year old by the way who is unemployed is spending a hundred and forty percent of what the 45 year old makes so back in 1960 may 45 a 40 year old used to spend 40 or 50 percent more than a 90 year old now a 90 year old spends almost twice what a 40 year old spends this just shows you the huge shift in wealth and obviously that spending benefits that have gone to the elderly and you can see where it's where a lot of its going in pink and in yellow that's public and private health spending you can't even find in the pink in 1960 next slide please so there's a few consequences there's there's a few reasons for this consequence but this is this is an astounding chart and I think particularly every young person in the room should look at this very carefully this is the change in net worth for certain age groups between 1983 and 2010 and it's pretty wild because the average 30-year old in 1983 is worth was worth more than the average 30-year old in 2010 is think about that over a 30-year period the net worth for the 30 year old of each period has actually dropped now I'm not gonna I'm not going to tell you that the 30 year old today isn't better off I mean he's got iPad he's got internet there's a number of things but his net worth is actually dropped and my guess is that's never happened in the history of this country before now look at the 75 year old a 75 year old in 1983 and take the 75 year old now he's worth a hundred and fifty percent more than the one in 1983 was so over the same time period the net worth of a 30 year old is dry while the net worth of 75 year old has more than doubled so if you're not getting the picture we've had a massive transfer of wealth and spending toward the elderly the last 40 or 50 years next slide please now basically what I've shown you so far imagine a PI and the elderly used to eat this much of it and now they're eating this much of it and children and elderly used to eat about the same well the problem is you're about to get a whole lot more eaters eating the pie than their word than they were previously and the reason is demographics when World War two ended a lot of people came back to the United States and I guess abstinence you know what that does there there was a whole lot of something going on and it was making babies for a while and if you look at the next 20 years the birth rate basically averaged about 3.0 women I'm sorry children per woman and and peaked in 1957 at 3.7 and that has dropped to 2 today to put that in perspective we have a hundred more a hundred million more people in America today than we had in 1957 but they were they made more babies in 1957 than we'll make in 2013 the consequence of this is pretty dire from an economic sense because 1947 you add 65 years as 2012 for the next 22 eath out for the next 22 years 11,000 seniors are going to be added to those entitlement payrolls every day every day in 2030 I know we're in California but how many of you have been to Florida okay in 2030 the average population in the United States is going to be older than the average population in Florida now kind of an ugly sight if you've been to Florida you know you know you see the strollers today you're gonna see walkers in 2030 they're gonna be everywhere next slide please now here's why this is so ugly if you look because of the demographics I just described over the next 30 years the 18 to 64 population is going to grow 17% because you guys aren't doing your job and having babies okay but the 65 and over is going to grow 102 percent and what does that mean economically it means today the working age population there's four point seven one workers for every oldster that that they're working to support in the entitlement system in 2030 there's only going to be 2.4 so literally the number of working people that are there to support the elderly is going to drop in half next slide please so here's the problem in red you have outlays and again this is primarily driven by the entitlements and the demographic boom we just described in blue you have revenues and in blue Izzie is basically where tax rates have yielded in the last 40 years and that's about 18% of revenues as the red continues to climb the gap between those continues to grow now if I lent Jeff some money and he agreed he was going to pay me back at a future date I think most people in the room would agree he has a debt okay well in the United States we have something like a payroll tax I'm sure some of you already paying it but David Jeff and I are paying it and we're paying a payroll tax which means we're giving it to the government and when we're 65 they promise to start paying us that money back we know how the government accounts for that they don't call it a debt they call it revenue so if you took those debts and put them on the government balance sheet next slide please the 17 trillion it says 12 but that's not counting the money that the Fed is bought from the Treasury so you have all these scare mongers running around talking about 17 trillion in debt if you did the accounting that they do for any company in America except for maybe Enron and Fannie and Freddie a few a few years ago the debt today is not 17 trillion it's 205 trillion all I've done here is take that money that's off balance sheet those payments that are promised to meet you and Jeff when when we come of age and put it on the balance sheet and therein lies the problem so that fiscal gap is 205 trillion and guess who's going to pay for that next slide please the young people so this money that my generation has been getting this transfer that's going on for 30-40 years I said in the number in the beginning we are actually because we've had this great lobbying arm called the AARP we are actually going to be ahead of the game we're going to get 327 thousand dollars more in benefits than we put in but the unborn my great-great my great-grandchildren I'm not too worried about them by the way talking about mine I'm worried about my he's gonna be okay they're gonna be net pairs of 420,000 so when you hear President Obama say we got to do something fair and balanced and we don't want to do this on the back of seniors how can they look you in this straight face when there's a $700,000 inequity between today's seniors versus future seniors and in the meantime the Republicans on their side they're talking about all these great cuts they're doing they're not touching entitlements and this is where the money is I said earlier they're cutting into H grants they're cutting head start they're cutting food stamps the only thing that's not being touched is the only place there's any real money which is entitlements and I think you can see it's not exactly a fair picture and we say entitlements you're talking about Social Security and Medicare and the largest and a bigger part of Medicaid than you would think so that first slide which was 67% when you net out Medicaid and unemployment benefits and like that about 51 percent goes to the elderly so I've presented a pretty static picture and then a dynamic picture but let's just look at 2013 and look 10 years forward after they've already taken this big piece of pie ok so here's what's going to happen the next 10 years in the CBO budget Dorst by the administration spending goes up a trillion dollars ok I'm ok with that of the trillion dollars 875 billion goes to Medicare Medicaid and Social Security how much do you think goes to children 6 billion and that includes what they're gonna get from Medicaid because education spending is going down so you net that out 875 billion when they've already been at the trough for 40 years relative to children and 6 billion in the next 10 years this whole budget fight is a fraud this is where the money is not where you're hearing about in the newscast next chart please so one of the things you'll hear out there is this debt bomb doesn't hit for 10 or 15 years first of all I don't think you need to worry about a debt bomb to justify fixing this thing it's just grossly unfair as I've shown the inequity but if you want to talk about why you need to act now as opposed to later because there's plenty of pundits out there and say wow the problem really doesn't hit for 10 or 15 years that's when the demographic storm gets big enough we get overwhelmed on the debt it's not really true that fiscal gap I've shown of 205 trillion you could actually fix it well not really but here's what you'd have to do to fix it if you raise all taxes 55 percent payroll income capital gains dividends raise them all 55% the problem would go away supposedly economy would probably tank and then you'd have another problem or you could cut all spending 36% all of it President Obama's limousine military transfer payments everything cutted 36% but that's not why I've got this chart up here what I've got up here is to show you if you wait 30 years you don't have to raise taxes 55 percent to solve the problem you have to raise them seventy one point six percent and you wouldn't have to cut expenditures 36 percent you don't have to cut them 44 percent very simple anybody here have a credit card you pay 18 percent on if you wait three or four years you pay more money than if you pay it now that's exactly the analogy here so this gap is so big the sooner we address it the better and the later we address it the bigger the problem becomes next slide please this is a final slide I'm gonna I'm going to talk about but this is probably the most heart wrenching the ball to me the red line is the first chart I showed you this is government outlays payments to individuals basically transfer payments the blue line is investments investments includes education infrastructure and Rd by the government now I understand them at the only university United States that has a lot of Republicans in it and I know a lot of Republicans are too high on government investments but the blue line let me tell you what came of the blue line the last 40 or 50 years under Eisenhower the interstate highway system pretty good deal when you think about the transportation everything that goes across it oh there's another thing that came out of it GPS anybody here use GPS the Internet no I'll Gordon invented but it was funded all the R&D was funded by a government program NIH grants the Human Genome Project all these were government investments whether you like them or not I think we can all agree transfer payments the elderly who already doing as I showed you awfully well to cut out these kind of investments and the stuff we mentioned in Jeff's programs is is pretty is a pretty tough deal so well done professor Druckenmiller

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Length: 20min 6sec (1206 seconds)

Published: Sat Oct 26 2013