The so-called recovery is only built on debt and printed cash declares our own Byron King. In the long term, the only option for the government to continue financing it's operations is to print too many dollars. Money printing has it's limits, however. It's Byron's opinion that at some point, perhaps very soon, the government will have to turn to more desperate measures. Namely, capital controls. In the following featured essay, Byron outlines 4 probably ways the government will take your cash and one play you can buy through your broker to prepare today. Read on...
When’s the best time to invest in something? When everyone else is trying to get their money out of it. It might go against conventional thinking, but following the crowd usually makes you miss the real opportunities. At one monetary metal conference recently, the smartest guys in the industry sat down to discuss where these real hidden gems lay.
In a 2009 article, the Huffington Post went into considerable detail about the number of people with PhD degrees in economics employed by the Board of Governors of the Federal Reserve System. This is the government’s branch of the Federal Reserve. It is not one of the 12 regional Federal Reserve banks, all of which […]
Greetings from Maine! Right now, I’m writing from within foghorn distance of the sea. And this gives me an opportunity to tell you a down east tale that should serve as a warning to every investor: Maine’s Great Gold Swindle.I’m not talking about central banks, or manipulation of today’s markets. I’m talking about something from […]
The U.S. dollar is the dominant global reserve currency. All markets, including stocks, bonds, commodities, and foreign exchange are affected by the value of the dollar.The value of the dollar, in effect, its “price” is determined by interest rates. When the Federal Reserve manipulates interest rates, it is manipulating, and therefore distorting, every market in […]
Let’s head back in time…In 2004, a mere decade ago, the US national debt rang the register at $7.4 trillion. That represents “debt per citizen” of over $25,000. You, me, your neighbor, your 4-yr old grandson, you name it and they’re portion of the U.S. debt is $25k.But flash forward to today and you’ll see […]
Alexander Hamilton was America’s first Secretary of Treasury under President George Washington. When he first entered office in 1789, America was an agricultural nation of just 4 million still broke from its financially costly victory over the British Empire in the Revolutionary War.The states had accumulated relatively massive debts to finance that war, which mostly […]
Remember that correction we’ve been quietly talking about over the past couple of months?Well, it might be right around the corner. Stocks waited until the last day of the month to nose-dive. The S&P 500 posted its first 2% down day since April — and the Dow wasn’t far behind. Early this morning, futures continue […]
A great technology solves a problem that we didn’t know we had. It makes us aware of deprivations we didn’t know existed until we discover the new thing. Once discovered, we can’t go back.People in the 1950s, for example, never missed the smart phone. They were pleased to have a phone at all. But today, […]
In early July 1944, delegates from 44 countries gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire. A three-week summit took place, at which a new system was agreed to regulate the international monetary and financial order after the Second World War.The U.S. was already the world’s commercial powerhouse, having eclipsed the British […]
When you type a website address into a browser, you might have noticed that the letters “http” appear at the front. “HTTP” stands for Hypertext Transfer Protocol. In typing a Web address, you are actually sending an HTTP command to transmit that website to you. Hypertext Transfer Protocol is the means by which information is […]
In 2012, money mandarins running the European Union chose stagnation over restructuring. Here’s a consequence of that choice: expectations for a self-sustaining economic recovery keep getting crushed.Two years ago, European Central Bank (ECB) chief Mario Draghi promised to do “whatever it takes” to hold the eurozone together. He bluffed nervous investors into believing in a […]
Here’s a fun fact: Although we all hate the U.S. dollar, as it continues to hemorrhage wealth, its foothold as the world’s reserve currency isn’t going to disappear overnight.A Russian gas deal with China won’t change that — as we’ll highlight below.But before we get to the nitty-gritty, let’s dive into a story that’s right […]
Franklin Delano Roosevelt famously used the term “forgotten man” in a 1932 speech to describe those at the bottom of the economic pyramid who, he felt, government should aid.But the originator of the phrase “forgotten man” had a whole different meaning in mind. He aimed to expose the seeming good intentions of government to reveal […]
“As the nation’s central bank, the Federal Reserve derives its authority from the Congress of the United States. It is considered an independent central bank because its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government, it does not receive funding […]
The Keynesian disaster recovery plan has been to lower rates, force people to take more risk in search of yield, and entice others to borrow and spend and, magically, more jobs will be created. If people won’t buy stocks, central banks will.Back in 2011, Ben Bernanke, when asked if QE2 was driving up stock prices, […]
According to the Bureau of Labor Statistics, consumer prices are rising at a 2.1% annual rate. This suggests to us that the current stock market boom will die with a bang, rather than a whimper.Fed economists say they don’t think inflation rates are rising. They think the most recent reading is a fluke. But why […]
Real progress happens through real people, ideas, and innovations. Not by legislation argued and debated in Congress. Right now, one of the most influential technologies is changing the way people do business. And reinventing the future in the process.
As the world gets more digital, people forget about the benefits of transacting in cash. And government officials know that.
The experts will tell you the recession is over, but they’re only torturing the data to hide the truth. The economy never recovered from the downturn it experienced. But the downturn happened in 2000, not 2008. The country’s been in the middle of a 14 year recession and hardly anyone knows the truth.
Every time Bitcoin crashes, it winds up at a price greater than it’s previous high. Yet the experts still call it a currency fad that will fade away. But a little over a year since it really took up, the digital currency is still going strong, and is once again seeing its price rise. But is there another reason why people are buying Bitcoins.
All paper currency has a shelf life. It could be 5 years or 500 years, but at some point, the value of any paper currency eventually reaches zero. That's why, for centuries, people have turned to one shiny metal to safeguard their personal store of wealth. And, as Jim Rickards explains, you still have that option. Read on...
Edward Snowden’s one year visa in Russia expires at the end of next month. With only a few weeks left before he finds himself without a safe country to live in, he sat down to give an exclusive interview. Here are the most important things he wants you to remember from his recent sacrifice.
It’s a destructive cycle that comes around everytime your politicians ask you to take to the polls. The government’s meddling creates unexpected problems that eventually overshadow the planners’ original intentions. But that only leads the way for even more interventions.
Politicians love inflation. It’s a way to pay for the government’s debts without upsetting the public by raising taxes, or their special interests by cutting government. So they’ll flood the economy with easy money and eat away at your savings. But that’s only part of the story...
Obama recently claimed this was the “Decade of the Brain”. But it not the first time the government made that promise. The last time they did it, they wasted millions of your tax dollars. Now they’re back for round two. But this time, their failure could mean more than squandered money. It could mean making Alzheimer’s even worse for those who suffer from it.
“So we have, indeed, had a disappointingly slow recovery, and our consistent expectations for a pickup in growth have been dashed over a number of years… And the labor market is behaving in some perplexing ways and showing patterns that are novel.”–Federal Reserve Chairperson Janet Yellen in a speech to the Economic Club of New […]
A new assessment of state pension obligations suggests the problem is even worse than it already appears.
How much worse?
Using a more conservative method of accounting for financial gains in the marketplace, there is a $4.1 trillion gap between assets and liabilities — known as the “unfunded liability” — of all state-level pension systems in the United States, according to State Budget Solutions, a fiscally conservative think tank that deals with tax and spending issues at the state level.
On a per-capita basis, each American would have to fork over about $13,100 to fill that gap and fulfill the promises made to current and retired state workers.
The new survey makes the pension crisis look worse than in other reports because of the way State Budget Solutions calculates the plans’ unfunded liabilities.
The group uses a measure called “market value liability,” which assumes that pension funds will earn about 3.22% annually — in line with what long-term U.S. Treasury bonds pay. That measure is more accurate than often bloated assumptions that underpin most state pension plans.
“They are able to make the unfunded liability seem lower, and that means they have to put less money into the pension systems each year,” said Cory Eucalitto, who authored the State Budget Solutions report.
Many states use an assumed return of 7% or 8%, though some are beginning to adjust those expectations downward. But every time the investments miss that mark, it widens the gap between the pension fund’s assets and liabilities.
For example, in Pennsylvania, the official unfunded liability reported by the state’s two major pension systems is a combined $49 billion. That assumes pension funds will grow at a rate of 7.5% every year in perpetuity.
Using the lower, safer growth rate of 3.22%, the unfunded liability in Pennsylvania’s two pension plans grows to a combined $156 billion.
This different form of measuring liabilities produces some truly scary results. In five states, State Budget Solutions calculates pension liabilities represent more than 40% of the entire state economy. In two states — Ohio and Mississippi — the pension costs are equal to more than half the state’s gross production.
On a per-capita basis, it’s equally worrisome. There are five states where the unfunded pension liability would represent a per capita cost of more than $20,000, with Alaska leading the way, at more than $32,000 per person.
Even Tennessee, on the low end of spectrum, would have to ask each and every resident to pay $5,676 to cover the full cost of its state pension liabilities.
Many states are struggling to find the political will to deal with the tsunami of pension costs poised to wreck budgets for decades to come.
In Illinois, where the state is dealing with the nation’s highest official unfunded liability, of $100 billion — State Budget Solutions says it’s really more like $287 billion — Gov. Pat Quinn made an effort at reform this year.
The plan landed with a thud in the state legislature.
A similar effort by Pennsylvania Gov. Tom Corbett went nowhere during the spring session. He wanted to move all new state workers into a 401(k)-style pension system, but lawmakers expressed little interest in the face of surefire union opposition.
Conservative groups and state finance experts point to Wisconsin as an example of where pension reform is paying dividends. Changes to public employee benefits that were pushed by Gov. Scott Walker — resulting in massive union-led protests and an unsuccessful recall effort — have saved the state $110 million this year, according to one measure.
Kansas and Alaska have recently reformed their pension systems to include a 401(k)-style plan for new hires, helping to ease the burden of long-term pension costs.
Eucalitto said that should be the end goal, because it saves taxpayers’ money and makes the system easier for states to manage without the risk of underfunding plans.
It’s also better for employees, he said, because they have individual accounts, and if they are getting shortchanged by the state, it will be readily apparent to them.
“For public employees, they are given greater control over their own retirement and it makes it harder for states to break their promises to their retirees,” Eucalitto said.
Using a different method of accounting for unfunded state pension liabilities, a recent report from Pew Charitable Trusts estimated the gap between states’ assets and obligations at around $750 billion.
Add to that an additional $620 billion in unfunded liabilities for retiree health care coverage, which many states promise to provide to their retired workers in a separate system from traditional pensions.
“Though states have enough cash to cover retiree benefits in the short term, many of them — even with strong market returns — will not be able to keep up in the long term without some combination of higher contributions from taxpayers and employees, deep benefit cuts, and, in some cases, changes in how retirement plans are structured and benefits are distributed,” concluded researchers at Pew.
While both Pew and State Budget Solutions express concerns over higher taxes and cuts to workers’ benefits, states could have other unseen consequences from running up high levels of pension debt.
Earlier this year, Moody’s Investors Service, a bond rating agency, warned that high levels of pension debt could hurt states’ credit ratings and make it more expensive to borrow money via the bond market.
“Pension underfunding has been driven by weaker-than-expected investment results, previous benefit enhancements, and, in some states, failure to pay the annual required contribution to the pension fund,” said Moody’s analyst Ted Hampton.
Moody’s is now assessing states’ pension liabilities and their overall debt levels, he said.
Of the 50 states, those with the highest debt and pension funding needs include Connecticut, Hawaii, Massachusetts and Illinois.