THANK GOD FOR GOLD, PART ONE

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Why do we say, “Thank God”, when the world is on fire?  Do we really have anything to be thankful for this Thanksgiving?  And why is gold such an undervalued asset?

While we fight our way through numbness and Weimer hyperinflation posing as a 1930s depression I’m not dumbfounded to learn that debt continues to mount exponentially everywhere I look.  It’s in the tea leaves of global financial stress and it’s the bottom line of every paycheck we earn.  Everybody’s heading for bankruptcy, and nobody seems to have a really solid answer on how to avoid it.

No business or governmental entity appears to be immune.  Financial writer John Rubino says nothing demonstrates the “imminent bankruptcy” problem for cities, states, and countries that are swimming in unrepayable debt better than the financial obligations of New York City.

“They just announced that they have unfunded liabilities for retiree healthcare, just retiree healthcare and not the rest of their pensions, of $100 billion,” Rubino, founder of blog and news aggregation site dollarcollapse.com, says.  “That’s for a city, not a state or a country, and if you add their unfunded liabilities for their pensions, which is another $50 billion or so, and their official debt, which is $50 billion or so, you get $200 billion that New York City is on the hook for that they have not put money away for.”

Across our nation many cities are having major financial problems that run parallel to debt.  Unfunded liabilities for pension funds are a real liability.  Unfunded liabilities for retiree healthcare alone, not the rest of their pensions, can be astronomical, as the New York City example illustrates. 

We’re talking about a city filled with generations of unlimited healthcare for life for those who retire at age sixty, which is a really big expense.  Then you add in the pension fund unfunded liabilities, that cities and states are on the hook for, but have not put the money away for. 

So if you’re a fireman, cop or school teacher, and you worked ten years for New York City, you got health care coverage forever.  Baby Boomer cops, firefighters and teachers are retiring in greater numbers now and they’re going want to get the benefits of that healthcare coverage and retirement pension as cities’ finances fail into bankruptcy, so where’s it going to come from?

Major cities like New York and Chicago and Los Angeles are facing bankruptcy because of these unfunded liabilities, and who’s going to be the first one to blow and how will that affect your family and state?

The city of New York’s problems aren’t my city’s problems, exactly, yet, but they are the type of problem facing pretty much every major city and state tied to every country in the world that’s tied to the U.S. dollar.  Think Puerto Rico, Turkey, and Chicago, Illinois.  Who is going to pay their debt bond holders when their revenue streams dry up?  Who’s going to pay to haul the trash and clean city streets?  It can be difficult trying to be thankful in a world that seems to be at war with everyone while we all go bankrupt.

WHO WILL BE THE FIRST DOMINO TO FALL IN THE PUBLIC PENSION CRISIS?

A hundred other states and cities are in the same position, says John Rubino to Greg Hunter on usawatchdog.com.  When one goes they all go.  At some point, the whole thing blows up.  We’re talking about our financial system here, and it’s all interrelated through debt.

Unfunded liabilities in many cities and states are greater than the amount of official debt.  They are real obligations.    

Financial stresses are cyclical, Rubino says, and the question for New York is will they be able to raise the revenue needed to continue to keep the city going and to pay off their bonds?  Running a city or government is expensive.  Where will NewYork – Chicago, LA, Illinois, Turkey, Puerto Rico or the US – continue to get their revenue from to pay their growing debt?  New York has Wall Street, and New York does well when there’s a bull market and everyone’s making money and paying taxes.  But what happens when there’s a bear market? Where then do they raise the capital to pay their bills? 

Ongoing expenses can eat up a tax revenue quickly, and then you throw in massive public sector obligations like pensions and healthcare that will break the bank for these municipalities.

 States and cities must have the money to take out the trash and keep the water running which can pose tremendous conflict when it comes time to pay their bond holders.  If they don’t they will be closed out of debt markets forever.  Forced to live within their means.  Make cuts, or raise taxes.  Taxes go up, services diminish, and everyone leaves.  The tax base moves out, which is what we see here in the Golden State.  Think San Francisco.

In California our problem is that we rely on Silicon Valley and tech IPO capital gains and when that goes away during a bear market our tax revenues plunge too, Rubino says.  What happens when the cash flow simply isn’t there for us anymore?  Do we all have to move to Reno?  If we get to the point of where nobody can pay their debts and the bondholders get stiffed, then what?

The government comes and bails everybody out, right.  When major companies like GE or a state or locality goes bankrupt the government usually steps in and assumes the bankrupt balance sheet of that company, municipality or state.  This has been the American way of doing business for many decades.  The taxpayers take on the burden, having assumed all of the risk, and our national debt expands.

WHAT IF NO ONE BAILS THEM OUT THIS TIME?

We don’t have to bail out failing cities or corporations.  We can allow them to go belly up and learn their lessons.  That’s how it goes with capitalism.  There’s room for failure.  It’s called bankruptcy. 

Of course even if the federal government doesn’t bail them out the Federal Reserve could step in with loan guarantees or some other kind of tools to bail out bankrupt entities, Rubino says.

President Trump can help teach a lesson to those who control the financial system, but will he?  Or are the numbers too great and will the threat to destabilize the entire system be too scary to most?  Everyone wants to know who will be the next Lehman Brothers.  Will it be Chicago?  Goldman Sachs?  Apple?  PG&E?  New York City?

Due to all the debt America has taken on we’re going to see a collapse in the U.S. dollar, the financial writer tells Greg Hunter.  That much is clear.  There’s too much pressure on the system.  That pressure has to be released somehow.  It could be released through the deflationary path, where we let them go bankrupt.  Or we could bail them out.

But is that a legitimate solution to our financial issues at this time?  Rubino says that it only masks the problem.  “If you bail out all that debt, you shift the pressure over to the currency markets,” Rubino says.  “In other words, we’re creating trillions and trillions of new dollars, dumping them in the system propping up the bond market.  And then people realize the currency itself is in oversupply.”

That’s when people convert their currencies into hard assets like farmland, rental properties, or gold and silver.  The currency has collapsed and smart investors want value.

But the economic model is still going to have to be replaced.  The present system is destroyed beyond repair.  That’s why Russia, China and other Asian countries are bailing on the U.S. dollar and buying up all the gold.

“You reinstitute some kind of sound money,” Rubino says.  “So that is the most likely way out of this for us.  This is what happens when people understand fiat currencies and that giving government an unlimited printing press is a bad idea and we have to rectify that.”

How we rectify that will be discussed in part two of Thank God for gold.

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PROPERTY DIVISION IN DIVORCE IS ABOUT ASSET PRESERVATION

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One of the primary issues a family law specialist deals with in divorce is helping his or her clients resolve their financial issues.  An experienced family law attorney can help you not only divide your property and assets, but your debt and liabilities as well.  A divorce attorney will utilize the best methods to put your entire family in the best financial position possible as you move forward into unfamiliar post-divorce territory.

Sometimes the community possesses complicated financial assets, like investment and retirement accounts or stock options, and a forensic accountant might be brought in to help analyze, value, and divide your property.  A forensic accountant can help unravel the essential financial formulas that might affect not only the division of community assets, but also child support and spousal support.  Forensic accountants can be expensive, however, and they’re not right for all divorces.  In a divorce case, a little common sense can go a long way when it comes to dividing community property.  The key is to think about how you’re going to preserve what you have in this dramatically volatile economic environment we live in.

My belief is that we are in the middle of the greatest economic free fall that we’ve ever experienced in this country during my lifetime.  The United States Congress says that the U.S. dollar has lost 96% percent of its value since its inception in 1913.  Some economists say that we are in the middle of witnessing 90% percent of the global wealth changing hands of ownership.  Whose hands are your wealth going into?  Will you and your family have anything left?

The purchasing power of the U.S. dollar, which is what we live and eat on, is down to an all time low, so low, in fact, that the U.S. Congress is contemplating bringing back the gold standard to back it.  At this time, more than ever, income, expenses, assets, debts, savings, and investments, should all be at the forefront of the minds of family law attorneys helping you divide your community assets in a divorce.  If you as a divorcing spouse aren’t considering your personal state of financial affairs, as it relates to your family’s future financial reality, and the value of the assets that you can take with you in your split, you could be in for some major surprises and disappointment.

TRUE INVESTMENT CAPITAL ONLY COMES FROM SAVINGS

Unemployment in this country is at an all time high.  Even if you have a job, inflation affecting everything you buy probably keeps you from being able to actually save money.  One of the greatest issues for family law attorneys in dealing with divorce is financial disagreement between the spouses, which is compounded by the fact spouses just aren’t saving enough in real value, so they end up fighting each other tooth-and-nail to squeeze every ounce of wealth they can out of whatever community asset they have left.  So be it for inflated assets.  Sets of silverware are being split down the middle because divorcing spouses have not been saving.  They’ve barely considered the true valuation of their assets up to this point in their lives.

Savings are important because they form the cash cushion that gets us through difficult economic times.  We get the best value out of our assets by saving for them first.  A lack of savings is one of the major problems we face not only as individuals but as a country during these economically challenging times.  Economic researcher Chris Martenson, PhD, MBA, says that savings are important nationally because they are utilized for the formation of investment capital; that is, the property, plant and equipment that create actual future wealth.

Same thing applies to spouses in a marriage.  If you are going to want to be able to invest in the “property, plant and equipment” of your future, so you  have some future wealth to be able to preserve for your family, without having a giant debt load attached to it, you’re going to have to save for it first.  True investment capital can only come from savings.

INDIVIDUAL’S SAVINGS RATES AT ALL TIME LOW

According to Martenson, savings rates have plunged to historic lows, “levels last associated with the Great Depression.”  Martenson says the personal American savings rate has steadily declined in America since 1985 to the present.  The decline we have experienced as a country and as individuals has resulted from “a culmination of a multi-decade erosion of savings as a cultural attribute of American citizens,” Martenson says.  Now, many of you are realizing this in your own lives, where you’re having problems making ends meet on a week-to-week basis, with nary the time nor thought given toward investing in yours or your children’s futures.  The truth is, you can barely deal with financing the now.  And you’ve probably got a lot of debt to go with it.

Martenson, a futurist and co-founder at PeakProsperity.com, believes that what a history of persistently declining savings tells us is that there is an “implicit assumption” by the majority of people in this country that unlimited credit will be available in the future, and so we don’t need to save now.  We have assumed a lifestyle where we have largely substituted a “save and spend” mentality, with “a buy it now on credit” mentality.

All debt across all sectors in this country, and personal savings of individuals, shifted in opposite directions in 1985, with the gap widening dramatically ever since.  “Our national tolerance of debt shifted drastically upwards beginning in 1985 right as our national approach to savings was beginning its long decline towards zero,” Martenson says.

The marketing of our financial system has created in us a belief that in order to have a grander and brighter future, we are going to need more money, which equates to greater debt, so we can buy things.  We have become a country of mass consumers fueled by credit availability.  Everything is about beating the Joneses, now, the future be damned, and the Joneses have a lot of credit at their disposal.  The idea has been ingrained in us that low savings plus high debt equals prosperity, or what Chris Martenson calls, “at least a perpetual feature of our future economic landscape.”

THE BOTTOM LINE FOR DIVORCING COUPLES

The bottom line for most Americans has become that of low savings rate and high debt, which is a major problem because it means that most divorcing spouses have a very thin safety cushion to ride out the economic hardship we are experiencing at this time.  This equates to the fact that most people have failed to invest in their families’ futures.  Dealing with the present while preparing for the future has posed a difficult task for most Americans, and, as a result, divorcing spouses have little left to divide.  They’re not alone in this.  A lack of savings is a nationwide problem.

Our bottom financial line to get through these difficult times has to be pretty straight forward from here.  Save as much as possible, now, and get out of debt.  Many financial forecasters predict that a credit freeze is imminent.  Prepare for it.  Know the truth of what’s really going on in the world, and with our banks.  When possible, move those hard-earned savings into assets that will hold or increase in value during this time of the declining U.S. dollar.  The theory behind hard earned savings, and the investment thereof, should include a ‘smart plan’ on how to preserve those assets for future family needs.