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Friday, March 26, 2010

Financial Maneuvering

I want to "connect the dots" with some financial maneuvering that is going on.  There are a number of things happening domestically and internationally that should be considered for our individual financial security.

I saw this article titled, "Social Security Will Begin Going Broke This Year, Congress Warned". In it, they state the obvious: Social Security is now paying out more than it's taking in.

When we started the SSI system, there was a huge multiple of people paying into the system, versus people drawing from the system.  It's now something like 2 people make payments for every one person that is drawing from the system.
This year, the system will pay out more in benefits than it receives in payroll taxes, an important threshold it was not expected to cross until at least 2016, according to the Congressional Budget Office.

Stephen Goss, chief actuary of the Social Security Administration, said that although the CBO projection would probably be borne out, the change would have no effect on benefits in 2010 and retirees would keep receiving their checks as usual.

The problem, he said, is that payments have risen more than expected during the downturn, because jobs disappeared and people applied for benefits sooner than they had planned.
Alright.  Big shock.  The federal government can't manage our money.  What will they need to do to pay all of the Baby Boomers that are coming online over the next 15 years or so?  They'll have to borrow the funds.  Big time.

Again, no big shock.

I followed that article up with another one where Fed Chairman (Uncle Ben) Bernanke is telling us that we need to keep rates artificially low to help "continue" the "recovery" [please note the purposeful use of quotes on those two words - they're fantasy].
Record-low interest rates are still needed to rev up the economic recovery, Federal Reserve Chairman Ben Bernanke told Congress on Thursday.
So.  On one hand, with things as they are right now, we have an unprecedented need to borrow funds.  On the other hand, we need to artificially keep rates low.

The world is saying, "Pass!," to the low rates we're paying on our Treasury debt.  I wrote about this in February ("US Treasuries?  No Thanks!"), and the trend is continuing.

Partly because of the low rates, buyers of debt just don't think the risk/reward calculation makes sense.  They also seeing us adding to a system that is increasing the need for debt.  According to the article, "Experts: Investors Avoid U.S. Bonds, Sensing Pricey Obamacare Disaster," the world is recognizing we're out of control with our borrowing, and no one with two brain cells to rub together believes that the health care plan is going to reduce our deficit.

Quite the opposite.
David Zervos, head of fixed-income strategy at Jeffries, told CNBC that the dismal results [of recent Treasury auctions - .ed] may be an indication of how uneasy investors are feeling about the fiscal soundness of the United States, amid big government spending for healthcare and other expensive programs.

“It’s the healthcare-realization trade,” Zervos told CNBC. “We’re coming to grips with the fact that we have a Congress that’s ready to go, and spend.”

Zervos called the Obama White House’s recent initiatives a “fiscal train wreck,” reflecting a lack of restraint.
We see this mind-boggling need for cash by our government.  No one will lend us the money.  At least in the short-term, we will need to monetize our own debt - the Federal Reserve will buy the debt of the Treasury Department - to keep the cash a-flowin'.

In short, that will mean the Fed will create money out of thin air, devaluing the dollar and increasing inflation in its wake.  The Fed keeps poo-pooing this, but the world doesn't believe the tripe any more.

World governments are moving - in a significant way - into precious metals.  As "Central Banks Stashing Away Gold at Brisk Pace," notes -
Central banks around the world added 425.4 metric tons of gold to their reserves last year, the biggest increase since 1964, according to the World Gold Council.
I can't even conceive of such a large amount of gold, yet that is the addition they made to their reserves in the past year.  At $1,000+ per ounce, that is just  a staggering amount of money.

Why would they do this?  Obviously, they have little confidence in the world economy in general, and the US economy specifically.

So what's a prepper to do? 

Accept The Challenge

Do your own financial maneuvering.  Firstly, don't pay attention to what the talking heads are saying, pay attention to what they're doing.

If you've taken care of your other tangible needs - food, water, equipment, medical - then consider buying some precious metals as an inflation hedge.

Regardless of the shape of your personal finances, it IS going to get worse before it gets better.  Whatever you can do NOW will help you in the future.

Pre-pay major expenses where possible.  Get your dental work done.  Get a physical and fix what ails you.  Reduce your debt.  Employ your cash in ways that will benefit you in the future.

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Copyright 2010 Bison Risk Management Associates. All rights reserved. You are encouraged to repost this information so long as it is credited to Bison Risk Management Associates.


theotherryan said...

Wish I could stash gold that fast! Good on dental and physical stuff, got stable (if not perfect) health care just in case. Have stashed some cash on hand (dollars and euro's) and in the bank. Got a modest stash of PM's. We are working to get entirely out of debt (low interest fixed rate student loan).

I think too many people ignore money stuff because instead of being fun fantasy type preps it forces people to look at real boring life.

Chief Instructor said...

TOR, exactly. We'd all rather sharpen our shooting skills, or show that we can make a raging fire out of two wet clumps of tissue paper, but we retreat when it comes to thinking and ACTING about finances.

I keep preaching my mantra: Money gives you options.