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THE RESILIENCE RETIREMENT SYSTEM (IRA, 401K, etc.)

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Here's a think piece on how to generate the huge funds required for a shift to resilient communities.  Still need to work this through, but it offers some amazing opportunities for financially bootstrapping local organizations working on community resilience.  

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The American consumer is likely dead.  A new frugality has swept the nation in an attempt to ward off lower standards of living in the future.  The question now becomes: what comes after frugality?  The answer is based on the following observations/assumptions:

  • High debt (up to 375% of GDP, 85% over the peak in 1929, in the US and still growing) and the death of the American consumer will lead to slow or negative growth in GDP for years to come.  This means that liquid financial assets will generate low returns for as far as the eye can see.
  • Financial markets are only suitable for sophisticated participants (despite claims to the contrary) and not accessible by the average citizen. Scams, booms/busts, and all sorts of predatory behavior abounds -- and the government has become completely unable to mitigate it.   
  • Costs, for most basic elements of life such as food/energy, will rapidly increase over the next decade.  Whether it is peak oil (or its cousin, faster growth in demand for energy than supply is able to provide), out of control inflation (the fed attempts to inflate our way out of our debts), a weak job market (which depresses incomes), etc. these costs will likely outpace incomes.
The solution on an idea that should be apparent, but maybe not to most.  Simply, that the ownership of productive assets (essentially, those assets that generate goods/services that can be sold) is vastly superior to ownership their financial derivatives (stock funds, retirement accounts, etc.) -- we once were a nation of entrepreneurs, now we are a nation of indentured servants.  

A Real Ownership Society

The judo move to pull this off is the creation of community -- county, town, neighborhood, etc. -- funds/mechanisms that enable individuals to move a portion of their tattered/depleted tax protected savings in IRAs/401ks into accounts that build/own/operate local solar energy production and food production.  At the entry level, the capacity required is only aimed at one customer: the investor.   With the long lead time and preferential treatment of tax deferred retirement savings, this mechanism has the ability to offset the extremely long payoff cycles of local solar/food investments and thereby turn cost centers into savings vehicles.

The typical solar transaction would look like this (I'm using aggressive numbers):

Cost per kWh:  $0.20 

Installation of a 8,400 watt solar PV system (able to generate 10,000 kWh per year in New England):  $62k after tax treatment

Return on investment (if retail rates are paid):  $2,000 per year or 2.4% on the investment.

If the payment to the account for the electricity is tax deductible (assuming a 20% bracket) as an investment, that return jumps to:  $2,400 or 3.9%.

Not a bad rate of return, if you can achieve it, particularly if you consider the benefits of turning a cost center (the money you pay for electrical energy currently) into a savings mechanism.  Further, as returns accumulate, it makes possible new investments in productive systems with additional cash flow opportunity.  

Apply the same methodology to lawn gardening or farm "shares/subscriptions" and the same results are likely to apply.  Food expenses are turned into savings.  Ownership of local food production is the result.

Please feel free to critique this concept: or provide new insight that could make it better. 


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