Skip to comments.Middle-Class Wealth Protection, Post-Fiscal Cliff
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 dont know about you, but Im 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. Im 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 presidents 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 doesnt 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 didnt. 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 doesnt just magically disappear. It can only be transferred from one persons pocket to another persons 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 1930s 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, Id 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.
What could go wrong with that???
I'd love to hear your views, dear friends!
I am clueless, dear Betty, and am too poor to do anything. But, I love to read about all this stuff.
If I had any spare CASH, I would be buying (and taking personal possession of) silver coins, in various sizes. Probably what is commonly called “junk” silver, which you can buy in bags.
Obviously, you need to keep “fiat” paper on hand to pay bills, etc., but the rest - something that has true value.
In really bad times nothing is as valuable as a can of black beans, a bag of rice, a roll of toilet paper, water, tools, a toothbrush. All the basic things we take for granted will be invaluable if it really his the fan.
What could go wrong with all cash?
One word; inflation.
If I could I’d do some metals; however all my assets are in a 401k which does not have that option....
We’ve offset any baby bust effects with immigration.
target retirement funds (vtinx and others )did worse than the market in the 08 meltdown.
my 3 fund hold forever asset allocation
>>I’m going ALL CASH by year’s end???
What could go wrong with that???
I’d love to hear your views, dear friends!<<
If by that you mean precious metals, you probably have a good plan. But, as always, diversify.
Just cash and bonds aren’t making squat.
That is the best comedy, very funny
Our government has broken faith with us. One of the ways that it has done so is to corrupt our currency. By printing so much “funny money” that is mere paper, they undermine the value of money in circulation, including that in your bank account and 401(K). The dollar is no longer the store of wealth that it was two or three years ago and you can see this every time you visit the grocery store or gas up your car. With Obama doubling down on his failed economic policies, this situation will continue to get worse until reality intrudes in some dramatic way. The nly reason the dollar is holding up right now is that things are worse elsewhere.
This was the situation in Germany between WW1 & WW2. The Germans lost WW1 and were ordered to pay the allies reparations. They also had a lot of widows & orphans to take care from WW1. Since it was politically unpopular to pay reparations, the Germans just printed the money. The predictable result was a period of hyperinflation, which spawned politcal and civil unrest which gave rise to Hitler and the Nazis, who restored order by imposing a rigid socialism. The parallels with our situation today is sobering. Read “The Coming of the 3rd Reich” by
Here are a few things you can do to protect yourself:
Be nice to your kids - they may have to take you in.
Have a few friends you can trust and count on.
Have some precious metals on hand: this is an alternate currency that will hold it’s value and may be a godsend at a critical time. During WW2, diamonds were a good and compact store of wealth and used by spies to bribe enemy officials. It often worked.
Stocking up on canned goods, guns, ammo, and drinking water is always a good idea. Like in many 3rd-world countries, outages and shortages may become commonplace. Stealing and street violence will also become more common. You don’t want to be a clueless victim like the people in New Orleans Stadium after Katrina.
For the short term, meaning the next year or so, you might want to consider investing in energy and shorting all but the big industrial stocks. The government is making it difficult to do business and so the smaller and less efficient are bound to go under, but whatever happens, they are going to need energy and the Dow Big Boys have the clout and global presence to play along with mendacious politicians.
Work hard. As long as you can do a days work or have a valuable skill, the government and its agents will think twice about consigning you to a FEMA camp or designating you as a “useless eater” and making you disappear.
Make your peace with God - now, today - don’t wait. The world is unraveling and the time of tribulation and return of Christ is imminent. Read Revelation Chapter 13 for a preview of what’s coming to a neighborhood near you.
I would welcome your thoughts.
If the Kenyan wins a one party rule in 2014, he is going to nationalize 401ks and replace real value with worthless treasuries.
Then all the prissy libertarians will see that winning is better than being dickheads.
Give them nothing but the ashes of a past consumed by fire. For that is their future and their sustenance.
Pay off all debts, such as your home mortgage and credit card debt. This has a guaranteed rate of return equal to the interest rate you were paying.
You could diversify by buying nearby real estate to rent out. Real estate prices I expect will plunge in January when the Medicare surtax and higher income taxes kick in.
Stocking up has some value. A cache of canned meat, bottled water and valuable trade goods that you too will consume is invaluable, since it is both a form of savings and protection against disaster.
I know people investing in lead (bullets / guns), but I don’t know if that is a bubble about to burst.
thats ok ytd avg rtrn for me is 6.4 I ll take it
401k, I am still a long-term retirement investor, where I think my dividends are re-invested tax free, and its one way to beat inflation. One family of funds had a mining company option, and from one thing I learned, own the thing that owns the thing.
scuse me total rtrn for me 6.4
I think my dividends are re-invested tax free