Posted on 12/02/2012 4:07:37 PM PST by betty boop
Middle-Class Wealth Protection, Post-Fiscal Cliff
By Jean F. Drew
I don’t know about you, but I’m a lifelong, middle-class working stiff who has managed to accumulate a certain modest amount of “wealth” designated to be sent to the future, to supply my support and lifestyle needs when I am “old” and no longer have employment income. I’m speaking of my 401(k)s and IRAs.
The way I have assets deployed in these accounts very likely will need to change, given the absolutely predictable outcome of the much-hyped impending fiscal cliff. At least, that is my supposition.
Consider: We get the fiscal cliff if the GOP does not abjectly cave to every demand being made by this ersatz president: a tax hike on the most productive citizens of our society, to the tune of $1.6 trillion dollars over ten years; deficit “reduction” of $600 billion (all “cuts” being unspecified at this time); plus a $300 billion “stimulus package” for “infrastructure investment.” No interest in reforming entitlement programs, such as Social Security and Medicare, which are currently running at least $47 trillion in unfunded future liabilities. Needless to say, such a proposal does absolutely nothing to restore the exploding federal budget to anything remotely sane or within the ability to pay by the increasingly hamstrung (thanks to federal taxation and regulation, etc.) productive capabilities of our nation.
People are fooled if they believe 0bama only wants to tax “the wealthy.” Allowing the top tax rate to rise to 39.6 percent on the “top 1 percent” of taxpayers yields only about $86 billion dollars (over ten years). The federal government spends $86 billion on its current operations every eight days. So, how serious a deficit reduction proposal is that?
The middle class, meanwhile, thinks it will not be touched by tax increases in any way. But please do note there is a vast difference between the $86 billion that can be wrested away from “the wealthy” by means of a rate increase on the top 1 percent, and the $1.6 trillion in new revenues that the president’s plan proposes. Guess who gets stuck with paying the difference?
If the GOP fights the president over his insistence on raising tax rates, while showing no deficit savings in his proposed budget, then the president will blame them for hiking taxes “on the middle class.” For if the GOP holds the line, tax rates will rise on everybody, to the tune of about $2,000 per year per middle class household.
0bama doesn’t mind this result in the least. So, what is the possible basis of any “compromise” between 0bama and Speaker Boehner? 0bama believes he “wins” either way, whether we go over the fiscal cliff; or have to live with some entirely unprecedented new reality designed to avert it.
Elections have consequences, as he likes to remind us. Since he feels he has a “mandate,” not only will he not back off; he will double down. As he has done — to the extreme discomfort of the roughly half the American populace who did not vote for his reelection. The other half — the morons who voted for him — are about to find out what they actually voted for. I doubt they will like it.
For so many reasons, this last election was unprecedented, and of lasting historical significance, I daresay. Which brings me back to certain investment decisions I will have to make soon.
Making investment decisions necessarily involves making predictions about the economic and investment climates as they evolve in the future. It would be very helpful to me to know, as an investor, whether we as a nation are on an inflationary, or a deflationary course, mid- to long-term.
Two years ago, I was pretty much convinced that the future course was decidedly inflationary. So I put 20 percent of my investment portfolio into physical precious metals — gold and silver U.S. Eagle Proof coins. Given the history of QE I, II, and III, plus “Operation Twist,” it would seem this was a good move: For when the Fed prints money out of thin air in order to buy totally crappy mortgage-backed securities, just to “juice” the money supply and the stock market in the short-term (coincident to an impending presidential election), then any sane person would have to say, there is something terribly wrong going on here. The effect is, We the People had our pockets picked to buy tons of crappy mortgage-backed securities. What value did we get in return? How did we get “money out of nothing?”
We didn’t. We were mugged, and our wealth stolen — perfectly “legally,” I hear.
Did you know that, at the time of the Federal Reserve Act of 1913, a U.S. dollar was worth exactly 100 cents??? But that now, 99 years later, that same U.S. dollar is worth exactly 2 cents? So much for the “good stewardship” of the Fed as the regulators of the money supply and, thus, of the value of money.
One saves for a lifetime, only to have his wealth SUBTILY, silently stolen in this manner? But where did the wealth go? Wealth is the by-product of human creative activity and, once created, it doesn’t just “magically disappear.” It can only be transferred from one person’s pocket to another person’s pocket, by means fair or foul.
But I digress.
My investment portfolio is geared to inflationary conditions, what with the precious metals, and its around 70 percent commitment to equities; i.e., the stock market. Historically, on a long-term basis, both asset categories have been shown to be excellent performers in terms of the preservation and growth of the purchasing power of invested capital.
My late research, however, suggests that what we as a nation face is not inflation, but deflation. Massive deflation, on a 1930’s depression scale.
If the recent activities of the Fed were the only determinative principle of the value of money, then, taken in isolation, we face an inflationary future. And my precious metals purchases are entirely warranted.
However, recently I have been drawn to demographic considerations, which may very well be the main driver of future economic developments, which the force majeur of Fed action cannot overcome.
The story goes this way: The Baby Boom (of which I am a card-carrying member) is the single biggest generation, demographically speaking, in the history of our nation. Roughly around the Clinton years, this generation was in the prime of its earning and spending capabilities: It could afford the big-ticket purchases that fuel the economy — bigger houses or second homes, nice cars, “lifestyle” purchases of all descriptions, etc.
But as any generation ages, sooner or later, its spending on lifestyle needs declines in favor of saving behaviors. That is to say, Baby Boomer monies increasingly are being diverted from current consumption, to long-term savings designed to provide for a “comfortable” retirement.
In other words: This biggest generation is now in hunkering down mode. Their consumption is down. If their consumption is down, then the business enterprises that had heretofore catered to this demographic will lose customers. If they lose customers, they lose revenues; if they lose revenues, this will shrink manufacturing capabilities; if manufacturing capabilities are shrunk, then this necessarily entails less demand for commodities and labor.
Looks like a depression to me.
The generation following the Baby Boom is typically characterized as “the Baby Bust.” Comparatively, demographically speaking, there is not any comparable spending power to drive a flourishing economy in this demographic cohort.
And so, given the perfectly calculated ministries of Captain Zero and Friends, We the People are about to reap the whirlwind.
But we can all console ourselves with the “truism”: Elections have consequences.
Speaking for myself, I’d rather experience death by a “coup de gras,” than death by “a thousand cuts.”
And so I say: The sooner this fiscal cliff is “realized,” the better.
Let the people actually see what they voted for. Let them “feel the pain” of it; for pain is surely coming.
And pain is often an excellent teacher.
And yet I must say, as a human creature, that I wish to avoid pain. To that end, my best friends are personal experience and lessons to be gleaned from human history.
Short-term predictions: No "Santa Clause effect" in the stock market this year. I am referring to the typical short-term bump in stock prices that more often than not follows Christmas most years.
This year, stock investors have a prime incentive to dump their holdings under the present tax regime (the so-called "Bush tax cuts") than wait 'til next year, when the rates will be much higher.
Look for a sell-off by year's end.
Well, that's one way to get the Medicare/Social Security systems back "into balance." The "death panel" to which you refer is the IPRB — the independent payment review board — a collection of some 14 or 15 presidential appointees, who may or may not be doctors or other medical professionals — that is to say, a gang of folks who weren't elected by the people they supposedly serve, who are answerable to nobody but the president.
0bama's chief healthcare theorist — Ezekiel Emmanuel, brother of long-term presidential buddy Rahm Emmanuel, now mayor of Chicago — articulates the "ideological" underpinnings of the "complete lives" theory which will likely drive IPRB decision-making as to what health care expenditures will be allowed, and for whom. It is completely clear from this this article that health care rationing — particularly WRT elderly citizens — is precisely what we're talking about here.
In short, if you're 25 years old, with your "future ahead" of you, you get full-boat coverage. If you're 65 or older — the Medicare cohort — you must realize that you have already lived a substantial portion of your "complete life," and are therefore less worthy of consideration for Medicare reimbursement than a person half your age.
Not for nothing is the IPRB accurately described as a "death panel."
Dear vette6387, you wrote:
If you wanted to devise a system to make bums out of a once productive society, you could not do better than what’s being attempted now. Just hope the nutless House GOP grabs what’s left in their crotches and stands up against this assault on our lives and liberties.I couldn't agree with you more.
Thank you ever so much for writing!
Logic without morals would show that bumping off the baby boomers who are no longer paying taxes will help to balance the budget. I pray the death panels will be staffed with moral people and the economy improves so this grim possibility never happens.
Ten years ago, in addition to our home, we had about 50% of our savings in stocks, 40% in money markets and other bank accounts, and 10% in precious metals. Today we have purchased a small piece of farmland with some of those funds (representing 20% of our savings), we have 10% in stocks (in IRAs), 20% in money market funds, and the remainder (about 50%) in precious metals -- gold, silver and platinum. Years ago, I would have thought that allocation foolish, even radical. I no longer do.
The mere fact that the Dow is at roughly the same level that it was five years ago, before the economic meltdown, and before the amassing of the Obama administration’s trillions in additional debt, the fact that the tax climate for business and manufacturing is more bearish than it has been in decades, and the fact that our energy and natural resource sectors are being handcuffed by regulation, tells me that being in the market at all at this point is very dangerous. The ‘irrational exuberance’ of several years ago was nothing compared to the unrealistic levels of the markets today.
In addition, we are spending some of our savings in order to become more 'independent'. We upgraded our generator system, installed another 1,000 gallon underground propane tank, installed a hand pump on our well, installed a wood-burning stove in the basement, and, this spring, will be installing a geo-thermal heating/cooling system.
In addition to protecting one's life savings, we believe it is also important to become as 'independent' as possible as regards energy and natural resource allocation.
When we sit on our porch and look at our home and land, and consider the forty-plus years we have worked and sacrificed, it angers us more than words can describe to realize that our own government covets all that we have sacrificed to attain, and they not only seek to confiscate much of it, but they also believe they have the moral right to force us to share it with others whom they (not we) deem to be deserving to benefit from the fruits of our lifetime of labor.
Most conservatives feel the same way -- and I am sure there are many others who will be hit much harder than we. The bottom line is that the evil that is represented by this government is unprecedented in the history of our republic. And the fact that that evil is sending good, decent, hard working patriots scrambling in order to be able to hang onto at least a portion of the material results of a lifetime of honest work is despicable beyond description.
Best to you and yours, dear betty. There are troubling times ahead ...
~ joanie
One possible explanation for the Dow to be "at roughly the same level that it was five years ago" is that the Fed has been "juicing" the money supply, via its Quantitative Easing operations (that is, they're just printing money like there's no tomorrow). Arguably this has had the effect of boosting the stock market — to make it look "good" in the run-up to 0bama's reelection.
According to Mike Burnick, an associate of Weiss Research,
During QE I for example, the S&P 500 rose 50.8 percent and the broader CRB Commodity Index soared 27.9 percent on the belief that massive money-printing would inflate new asset price bubbles.With each successive Quantitative Easing, there's been "less bang for the buck" in terms of juicing stock market averages. Now that we have QE III — a/k/a QE Infinity [because this time, there is no end date on it], it appears the Fed is desperate to make things look better than they are — for the stock market, and economic performance generally.
Meanwhile, the 10-year U.S. Treasury note dropped 5.3 percent and the dollar slid 6.4 percent.
During QE II, investors witnessed a similar, but more-muted response. Stocks rose 26 percent and commodities rose 26.5 percent while Treasury bonds slipped 3 percent.
But since QE III was announced on September 13, 2012, the results look quite different so far. The S&P 500 Index is DOWN 3.4 percent ... 10-year U.S. Treasury notes are UP 1.5 percent ... And the CRB Commodity Index has slipped 7.3 percent.
Once upon a time, the Fed was created by Congress, by the Federal Reserve Act of 1913, in which Congress conceded its Article I, Section 8 obligation to "...coin Money, [and] regulate the Value thereof...." to a wholly unaccountable new public institution.
I wonder: Is it constitutional for Congress to divest itself of a DUTY placed on it by the Constitution itself in the first place? If the Framers had wanted U.S. monetary policy conducted by an institution totally unaccountable to the People, they would have written the Fed into the Constitution. Rather, they left such matters mainly to the People's House, the Congress. ALL revenue bills must arise there in order to be lawful. But every single dollar of revenue has been depreciated each and every year, as if systematically, by the Fed itself.
Consider: a dollar worth 100 cents back in 1913 is worth 2 cents today. What on earth could it possibly be worth, after QE I, II, and III?
Dear Joanie, your precious metals position does look a tad radical. The 50-percent-of-portfolio allocation exceeds the "normal" guideline for long-term investors in more or less "normal" economic conditions: 20 percent (which is about where I am).
On the other hand, these days we are not in "normal" economic conditions at all.
Interestingly, it has been observed that gold always shows up "at the crisis points of history" — times when monetary systems and governments collapse. Historically gold and other precious metals have tended to be excellent stores of real wealth even in times of crisis.
But here's a caveat: Because it was the "wealthy people" who bought gold to "store" their wealth, so to protect themselves during periods of economic crisis, Franklin Roosevelt confiscated all privately-held gold in 1932, by demanding (on pain of criminal prosecution) that all privately-held gold be surrendered to the Treasury at the conversion rate of $32/ounce. Why did he do this? Some observers say: Because he wanted all Americans to "share the pain" of the economic debacle of the 1930s equally; he thought it "undemocratic" that some might escape the pain because they had providentially laid up some solid independent means to get through bad times. [Plus the gold then became the property of the U.S. Treasury.]
If a socialist like Roosevelt could resort to a massive wealth expropriation of the American people such as this, why would we expect a radical Left Progressive like 0bama to pass up on a like opportunity now?
Dear sister in Christ, probably your best assets are your home and the farm land!
But it is my gloomy duty to remind you that ownership in land depends on security of contract. Yet at a time when our ultimate contract — the federal Constitution — is itself being thoroughly trashed, on what can we reliably depend as the basis of contract law? Plus there's also the risk of being expropriated by the IRS or even the local water-and-sewer board if you don't pay your requisite taxes, timely.... Or interventions by the EPA to tell you what you can and can't do with your own private property....
Lots of "moving parts" here!
Sigh, I'll just leave off, for now.
Thank you ever so much, dear sister in Christ for your (as ever) penetrating and gracious essay/post!
May God ever bless you and your dear ones, and hold you safe from harm!
Not to be over-looked is COPPER.. Copper ingots..
When gold, silver and platinum is seized.. copper may still be allowed..
An option that should be understood..
Fascinating. Depressing, but fascinating. Thank you so much for sharing your insights, dearest sister in Christ!
Not if it starts getting used.
Great observation, dear 'pipe! Thanks!
Oh, I so agree dear brother marron!
You wrote:
... to the naked eye, everything looks normal, it just isn’t. People have short memories, and they adjust, and your kids or their kids grow up thinking this is how its always been. Particularly if they are public school educated, they will accept a view of why things are the way they are that is simplistic and wrong, but they won’t care to think past it.0bama is counting on this.
BTW, I'm taking you up on your "advice": "I think its important to have your house paid off. If you are in reach of it, I would consider cashing out a 401k to finish paying it off."
I've been thinking about doing precisely that. But you have persuaded me to actually do it. :^) That, and to pay off all my debts which, fortunately, are not very large.
Thank you for your outstanding analysis, dear brother in Christ!
Not sure where to get them, but the American Open Currency Standard organization has a 1 oz copper round that would fit the bill.
And, btw, they ain’t “seizing” crap.
The folks that are holding it aren’t in any mood to have their preps stolen from them.
Yeah, provided the IPRB doesn't kill us all off first. :^)
(Just kidding.)
Dear sister in Christ, I imagine if the stock markets sell off big time early next year, sooner or later there will be amazing buying opportunities for well-managed, well-capitalized firms in the business sectors you name, plus basic consumer consumption goods, food processers, pharmaceuticals, etc.
[This statement is premised on the expectation that at some point, America will return to "normality." Yet on reflection, it seems to me that a bit of a "leap of faith" is involved here.]
If one has cash on hand, one could pick up quality companies "for a song."
It is a truism that astute stock investors make money out of down markets as well as up markets....
But I'm retrenching for now, to protect principle in the shorter run.
We do live in interesting times, dearest sister in Christ! It's amazing I'm still in such good spirits!
But I am, all thanks be to God!
Many people see post-crash America as Somalia, but I see it more like Depression-era America unraveling into Mexico or Ecuador. With that as your mental model, you see that people still prosper (because people did prosper in the thirties and still do in the third world) but the forumula is a bit different.
Where rule of law is fuzzy, friendships and relationships become very important. You personal moral code becomes very important. Avoid attracting attention to any wealth you have. Belong to the right party, at least publicly. Do business with people you know and trust. Hope to have an uncle at city hall and another in the army or the police.
You become cynical about the law and the people enforcing it so you ignore it or avoid it where necessary. Getting caught ignoring it doesn’t give you the moral qualms it would have in another era, it just presents a practical problem to deal with. You become cynical about the kind of people who prosper in this system, but you can prosper.
You get used to a certain level of uncertainty and physical danger, but again you counter that with friendships and relationships and religious faith. You develop a certain level of stoicism.
The more you make yourself independent, the less dependent you are on the current exchange rate of your currency versus the rest of the world. You live at a lower level initially but you are less vulnerable. Thats something I noticed in some places, that the people who were considered “poor” actually were quite self-sufficient and immune to economic shocks.
It is a truism that astute stock investors make money out of down markets as well as up markets....
But I am, all thanks be to God!
Psalms 55:22 "Cast thy burden upon the Lord, and He shall sustain thee. He shall never suffer the righteous to be moved."
Amen!
May God ever bless you, dearest sister in Christ!
Yes, one can "get through things," no matter what. But what a come-down for the American citizen — to have lost his liberty and his sovereignty, so to be relegated to the status of a "citizen" of an authoritarian third-world society.
Meanwhile, 0bama "...has erected a multitude of new offices, and sent hither swarms of officers to harass our people, and eat out their substance...."
Perhaps we as a people need a really hard fall before we can appreciate the blessings of liberty our constitutional framework — which 0bama holds in contempt — was designed to protect. Maybe the only way we learn is "the hard way."
Anyhoot, living the "new normal" will be interesting....
Thank you, marron, my dear brother in Christ, for your wise, penetrating observations.
Amazing “leftists” can be so confused on what “Rich and Poor” is..
Has nothing at all to do with with what you have or do not have..
Being rich or poor is a matter of who you ARE not what you have..
You cannot remove who someone is by sanction or edict... by law or regulation by bank or theft..
Being human is so much a matter of who you are or are becoming..
The cabal in the White Ghetto is an administration of theft.. grifters..
What they are stealing is not “riches” but fiat money..
RAP artists posturing and performing for bleeding ears and watery eyes..
I remain who I am just the same.. rich beyond my wildest dreams... with few pennies to my name..
Silly leftists.. you cannot steal the truth.. purloin honor.. or pilfer knowledge..
There are things honorable to love, and permissible to hate..
Real riches are contained in truth, honor and knowledge..
Real poverty are contained in lies, dishonor and disinformation..
It is quite easy to tell whom the rich and the poor are..
A brief conversation can highlight “the Truth”..
The poor are stealing the chaff rejecting the germ..
A comedy of errors.. pitiful in its essence.. stealing fiat money..
A “WeekEnd at Bernies” political show thats quite funny if you are Rich enough to appreciate it..
But you must be rich and not poor to enjoy it..
What a glorious essay/post, dear hosepipe! Thank you ever so much for writing, dear brother in Christ!
You're right. We have what people the world over would give anything to have, and our countrymen have tossed it away as a thing of no value.
In the end, though, we hang by a different thread. Whatever we may have to go through as a country, as believers we will not go through it alone. I'm convinced that God is with us. He'll protect us and in return we will have to be the ones who look after the folks close to us.
You know, even poor unworthy Lot, God went in and got him to safe haven. That thought occurred to me the other day. Again and again in the Bible we see where there's a bad moon risin', but God gets his people to safety. So look up, and be prepared to be the person the others coalesce around when it all unravels.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.