Be Prepared: A Big Tax Increase
Is Coming
By Dr. Steve Sjuggerud
December 16, 2008
The current economic crisis is terrible. But something much worse is going on in Washington... a nearly inescapable problem.
I try to be an optimist. I believe there's always somewhere you can make money. But this nearly inescapable problem is hard to get optimistic about.
I'm talking about the problem of government financial promises. The promises our government has made simply can't be kept without bankrupting our country.
According to the excellent documentary film I.O.U.S.A., "Our country would need $53 trillion invested today – which is about $175,000 per person – to deliver on the government's obligations and promises. How much of this $53 trillion do we have? Zip."
My wife and I watched an advance copy of the DVD this weekend. We were hooked from the start, and we're passing the film along to friends.
I.O.U.S.A. leads off with televised excerpts of presidential promises. Every president (since the beginning of television) has promised they won't leave our growing national debt to future generations. But look at the truth:
U.S. government debt, in
billions of dollars |
1930 |
$16 |
1940 |
$43 |
1950 |
$257 |
1960 |
$290 |
1970 |
$389 |
1980 |
$930 |
1990 |
$3,233 |
2000 |
$5,674 |
2008 |
$11,000 (roughly) |
|
At the end of 2008, our government debt – ultimately paid by taxpayer money – will reach nearly $11 trillion!
And while that sounds like a lot, it's only a portion of the true debts... That $11 trillion doesn't include Social Security promises, Medicare, and Medicaid. When you add in those liabilities, the total U.S. government promises rise to over $50 trillion – $175,000 per man, woman, and child in America.
In order to fulfill these promises, government spending will have to soar. There are two ways out of this: Drastically cutting government spending and reneging on these promises... or increasing taxes. Which way out do you think is more likely?
I.O.U.S.A. tells us we are "facing a doubling of taxes if we continue on our present path... The problem is bigger than people understand."
The thought of doubling taxes gives me the shivers... It means my son's standard of living probably won't be as high as mine. And it's not just my son who could face a decreased standard of living – it's every American.
So what can you do?
If you haven't done so already, you should act immediately to minimize your future tax burden. And as we've noted in other essays, another likely way the government will "pay" its tab is through inflated dollars. So you want to own gold and other assets that increase as the dollar's value declines.
It's coming. Be prepared and get informed on the facts. I.O.U.S.A. is a great place to start.
Good investing,
Steve
P.S. The I.O.U.S.A. DVD is not available to the public. But I'll share a way that you can receive a free copy of it right now... The DVD is included as part of my friend Chris Mayer's "Emergency Personal Bailout Bundle." Chris is one of the best analysts I know.
The movie (along with the companion book) explains the dire situation. And Chris is the ideal person to show how to get through this situation safely, with more money than you started with. Click here for the details.
Editor's note: Steve Sjuggerud is a regular contributor to DailyWealth, a free investment newsletter focused on the world's best contrarian opportunities. We write with a simple belief in mind: You don't have to take big risks to make big money with your investments.
Sign up today to read more investment ideas from Steve Sjuggerud.
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A POTENTIAL "MOONSHOT" IN 2009 AND BEYOND
For DailyWealth readers who believe precious metals will rise over the next few years, we have an index you'll want to watch...
As we've covered several times in the past few weeks, some of our favorite "rebound" assets are shares in gold mining companies. These stocks were hammered in the market crash... but have huge potential for gains when inflation creeps back up. The big-cap gold mining fund is up 28% since we mentioned it on December 4.
But if you want even more "juice" from a rise in gold and silver, keep an eye on the S&P/TSX Venture Index. The "Venture" is the most commonly used gauge of small, speculative resource stocks... companies that can soar 20- or 50-fold after hitting big mineral or petroleum discoveries.
Folks have abandoned anything associated with risk in 2008... so much so that the Venture is down 75% in the past six months. As you can see, there's no "rebound" in this index yet. But when gold and silver start climbing, these tiny stocks have the potential to be "moonshots" in the next few years.
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The U.S. Federal Reserve is expected to drop interest rates close to zero on Tuesday, but anticipated remarks on unconventional methods to dispel a year-old recession are what will really matter.
A half-point cut would take the bellwether federal funds rate to just 0.5 percent, the lowest on records dating to July 1954, as the central bank battles a recession many think will stretch well into next year. |
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Government efforts to provide easier credit to consumers and jump-start flagging home sales could push mortgage rates "well below 4 percent," a federal regulator said Wednesday.
James Lockhart, whose agency
oversees government-controlled mortgage giants Fannie Mae and Freddie Mac, made the comments at a meeting of Women in Housing & Finance, an industry group.
Treasury Department officials have been considering a program to lower mortgage rates, which would not apply to refinanced loans. Real estate agents and builders have been lobbying intensely in Washington for government efforts to spur home sales amid a severe decline in the U.S. housing market. |
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One thing to consider is that after the dot-com bubble burst, it took the corporate sector five years to get back to the 2000 peak for capital expenditures, and employment never got back to that level.
And the tech bubble was nothing as a share of total assets compared to housing on household balance sheets. This is so much larger. If it took the corporate sector five years to recover from the bursting of the dot-com bubble, to suggest that it would take five years for consumers to recover from this seems like a very conservative call. |
– Stephanie Pomboy,
as told to Barron's
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