The coming disaster for your savings

Obama says he will pursue an agreement with Congress that  is similar to the way he campaigned—tax only the upper 2% who make over $250K.  Yeah, but he also wants to raise the rates on dividends and capital gains from 15% to 39.6 as regular taxes.  Since Most small businesses or farmers sell out only once and often make all those cap gains which are often over $250,000, this will radically curb selling of businesses.  But while everyone concentrates on tax policy and the fiscal cliff, let me point something out.

      It will only raise a small amount of money.  $50-100 billion over against 1.3 Trillion in deficits.  So if the Dems don’t agree to massive spending cuts, we are doomed to many years of extraordinary deficits.  This means inflation to come.  If you have more national debt than nat. income, the international markets soon ask, “Will we get all our money back?” and demand much higher interest for continued borrowing.  The only way a government can honor their debt is to turn on the printing presses and print more money.  The economists I follow predict this occurs 5-15 years out from the spending spree.  That is, the spending during Vietnam War era, 1967-1972 drove inflation from 1973-1982. The debt crisis usually brings on recession/poor growth so we have “stagflation” as a result.

      So you have a little nest egg.  How do you protect it?  During stagflation you need hard assets—gold, real estate, timber, natural resources—and aggressive pro-growth stocks.  The inflation makes debt smaller by the year, so growth-oriented companies can benefit provided they can make enough cash flow during the tough economic times.  Here’s the killer.  This will likely occur sometime after 2015, unless we reach a debt crisis like Greece in the next couple years.  While this could happen, we hope and pray that the Republican House can hold back the dam on Dem deficits enough that it doesn’t develop into Greece and Spain (25% unemployment, riots in streets, 38% interest).

      Your financial planner will likely suggest an aggressive growth stock  strategy attempting to weather inflation.  Trouble is, there will be so many boomers retiring and thinking they need to be conservative in order not to risk what they have.  And then comes the real killer, Frankendodd.

      Dodd-Frank  Financial Reform Act is basically 273 laws put together in an attempt to nationalize the banking and finance system.  Among the provisions are some which demand “fiduciary responsibility”.  That is, your broker is liable for lawsuit if you lose money. He has a fiduciary responsibility to protect your money and it puts him in an impossible position.  Advise you to invest aggressively which risks loses and lawsuits or conservatively and inflation eats your lunch.  Moreover, what does a broker do with some stubborn client who goes online and trades into Facebook or some other loser?  The broker’s fiduciary duty still leaves him responsible for the client’s bad behavior.  The result of all this is that brokers will soon pressure clients to hand over all trading responsibility in a contract to the brokerage firm.  That way the firm can carefully invest.  Bottom line, you lose your control over your assets or you invest on your own.

      And if that weren’t a mess in itself, consider this.  The solution of Mussolini and the fascists was for the government to own/control certain vital industries.  Health care, transportation,education but most of all, finances and banking were at the top of the list.  Hitler was a part-Jewish German who repudiated his Jewishness in attempt to prove himself a “good German”. When he saw Mussolini’s dream of taking over banks, it was a perfect match for Germany’s blame of how they lost the Armistice and were forced into a terrible surrender, Jews were 90% of Germany’s bankers, and Hitler wanted revenge on the Jews.  Mussolini practiced a politics he called fascism based on ‘group’ (Italian,”fasci”) appeal.  That is you line up certain groups, like blacks, unions, Hispanics, etc. to form a majority and seize control of the government.  So what are the Dems doing today?  “Walks like a duck, talks like a duck, must be a ______.”  I leave that to the reader.