There is so much instability in the current economy. The writing is on the wall for major changes in the U.S. over the next 10 years, and the global economy will also see major changes. The old ways of thinking which include investing in mutual funds, stocks, bonds and savings accounts are going to cause 99% of the baby boomers to lose half if not more of their wealth over the next decade. I know, you are thinking, ya right, that will never happen, this guy is crazy, how could he make a statement like that, I am diversified so it doesn’t apply to me, who is this loon. Well check out what is really going on based on the statistics not based on the media and what Bernanke’s next “consumer easing” statement is.
(1) The U.S. is close to 100% debt to Gross Domestic Product. That is like the average American making $50,000 a year, with $50,000 in debt and $60,000 per year in expenses. Something has to change in order to sustain. There are already warnings from China and other countries saying that we are going to lose our triple A credit rating which means interest rates will rise in order for them to want to loan more money to the U.S.
(2) If you look at a chart of U.S. debt spending and the amount of funny money pushed into the economy it would leave you shaking your head and running for cover. Since 2007 the U.S. debt has increased by 84%. The only way for the government to pay back the money they owe is to make more funny money which will cause massive inflation and a major weakening of the dollar. If the U.S. measured inflation like they did in 1982 before they changed the measurement method to make it look better and more easily manipulated, we would be showing inflation at 8% not 1% that Bernanke’s likes to tout.
(3)The largest amount of commercial property loans are coming due in 2012 – 2017 and many of these loans will not be able to be refinanced causing another rift in the already unstable U.S. economy. The banks have new adjusted risk underwriting standards that differ from how they were 5 years ago when these loans were underwritten. This can be a huge problem if the commercial lenders do not work something out with the owners of the properties. We could have a huge influx of commercial property going back to the banks.
(4) The largest bond fund, Pimco and Bill Gross, just sold off almost 100% of its U.S. bonds. Why would they do that? They are doing it because they see the writing on the wall for rates to be higher in the future. Over the next 2 years 50% of the governments bonds that are funded primarily from China and Japan are coming due. Once we hit 100% debt to GDP all of a sudden China and Japan will demand a higher rate of interest in order to buy U.S. debt because the risk is higher. On top of that Japan is not going to be willing to loan the U.S. much more money because they are trying to raise capital themselves for the earthquake and nuclear crisis they have had. This is going to put the squeeze on bond rates even further. Pimco is basically selling so that they can re-invest at higher rates later on.
(5) Food stamps have doubled since 2009 from approximately $25 million in 2009 to $45 million in 2011. 33% of U.S. wages are based on public assistance when in 2000 it was close to 21%. That is over a 55% increase! The U.S. is turning the nation into people that are dependent on the U.S. government. If that is not a scary statistic I don’t know what is.
(6) Food and oil prices are skyrocketing. We have seen massive increases in food prices and oil prices in the last year. This all shows a weakening of the U.S. dollar. Last month alone food prices have risen 3.9% and energy prices rose 3.3%. Can you imagine it costing $20 for a loaf of bread? Well that is where we are headed if something does not change. Around the world it already costs over $10 per gallon, except for the U.S., we are still complaining about $4 per gallon.
(7) The Dollar’s reign is near and end. Hedge funds are betting record amounts against the dollar, showing a growing belief that the U.S. dollar has lost its appeal. The dollar is about to have real rivals in the international currency sphere for the first time in 50 years. There will soon be two viable alternatives, the Euro and China’s yuan. China is moving quickly to internationalize that yuan and hopes to settle nationwide trade in yuan by 2011. This coupled with the fear that the U.S. will not be able to stay current on its debt obligations due to the financial crisis is helping these currencies gain momentum even further.
So why do I say that savers are losers?
With massive inflation looming retiree’s cash is going to be worth a whole lot less. Every major country in the world has depleted their currency and when the government took the U.S. dollar off of the gold standard in the 70′s it gave them the license to print money and the U.S. Dollar has been getting devalued ever since. The dollar is a horrible investment.
So how do you protect yourself?
Invest in assets that rise with inflation like real estate. Real estate is one of the best investments you can make right now. You are buying at an all time low. But do not get caught like everyone else did investing in properties that do not produce positive cash flow and make sure you invest in the right market with the right economic indicators.
For example if you look at the California economy you will see major economic challenges. The California municipality is way over leveraged and is close to going under. There is over a $20 Billion gap in the California budget, it’s an unfriendly business state, tax rates are rising, it’s a hugely volatile real estate market and it’s still over valued compared to the median income.
In Memphis Tennessee where we see major economic stability there is job growth with companies like Electrolux and Mitsubishi opening manufacturing plants there. Job growth along with being able to pick up discount real estate and a high rent to price ratio (meaning more cash flow for your money) you can create a great return on your money.
Investing in passive cash flow real estate investments can be your floatation device when the entire economy is sinking. Start thinking of ways to protect yourself. You are either going to lose a large chunk of your savings and retirement or you are going to be on the winning side by taking action and investing to take advantage of the major changes that are coming at us from all directions. If you sit still you will not be able to retire and will probably be working the rest of your life unless you start to protect yourself now. It looks like we have less than 6 months or a year to put your money to work until we hit 100% debt to GDP, unless the government stops spending. Like that is ever going to happen.