Update 05-16-2018

I have many fond memories of growing up in a little town in Illinois. Our town had a phenomenal pool that most of the town could fit in and baseball fields that were the envy of the area. Our local high school football team played in a beautiful, semi-pro stadium.

I remember walking through town- probably in the early 1970s and thought to myself- If I could earn $100.00 per week I could live well! As ridiculous as that sounds today- back then it was true.

Back then one- what we would consider to be very meager salary- could raise a family.

Sadly, as time went on and our dollars became worth less and less the cost to raise a family skyrocketed. The pool lost its high diving board because the liability insurance was too much to pay. Eventually, the pool closed because the cost to maintain it overwhelmed the taxpayers ability to pay.

I have written may times about the pension problems in Illinois and many other places. Don’t worry though- the Chicago Federal Reserve has the answer!

On May 7, 2018 midwest.chicagofedblogs.org released a paper which proposes to fund the underfunded pensions of Illinois-not all of them- but some by…. Wait for it … raising people’s real estate taxes. That would be quite a low blow anyway but the state of Illinois already pays the highest property taxes in the country at 2.67% of assessed value. The proposal would raise the property taxes by 1% of the home’s value. A $250,000.00 home would pay an EXTRA $2500.00, a $500,000.00 home would pay an EXTRA $5000.00 and a million dollar home would pay an additional $10,000.00 over and above what they are already paying. That million dollar house will see property taxes rise from $26,700.00 to $36,700.00 based upon the averages that they published. That is like a mortgage that you can never pay off. And a darned large one at that!

The first casualty is the value of the properties. As the taxes rise the values fall. As a matter of fact, in their presentation they EXPECT a 20% drop in home values. Basically, you are stealing home equity to fund pensions. And guess what? You can’t move the house so you either stay there and pay or sell the house at a loss and get out- then they suppose someone else will pay!

The “plan” is supposed to last for 30 years- maybe like the “temporary” removal of gold backing the dollar in 1971? Even if it ends in 30 years at a tax rate of 3.67% the amount of taxes paid on YOUR house will equal 110% of the value of the home! Sorry, but this sounds like theft to me. First, you are stealing property value and second, you are making it so that as people retire they still have massive monthly bills that they can’t ever retire. There is likely not a more unfair way to fund what will likely be un-fundable no matter what tricks they try.

There are already senior citizens who have to make choices between food, drugs and taxes. If they eat they may not have a place to live. If they take their prescribed drugs they may not have money for food. Who is looking out for these people?

My opinion is that these people are sick! There is no excuse to have taxes like that and would likely lead to an even larger exodus than is already taking place there. I believe that Illinois is in a financial death spiral and should be watched closely as MANY other states are running just behind them. Not surprisingly, many of the states in the largest trouble are states where there are large cities, massive welfare programs, and people voting for handouts.

Wake up folks. The places with the best social safety nets have the highest unemployment. (BLS)

The places with the toughest gun laws have the most gun violence. (Chicago) (CNN, Sun Times)

This stuff doesn’t work. The current state of our major cities should be providing stellar examples of what NOT to do. Homelessness is rampant in many major cities. Drug use and addiction is a national scourge. This is similar to the Soviet Union prior to the collapse when people felt hopeless even though they were told daily how great things were- until they totally collapsed.

My fear is that if we don’t change our direction- and quick- the same fate awaits us in the near future.

I hate to beat a dead horse but if things are so great why:

  • Are subprime auto loans defaulting in record numbers- at a 22-year high (Subprime Chaos-Zerohedge)
  • Why does everything we buy cost more (food, medicine, healthcare, education, etc.) yet we hear inflation is too low?
  • Why do we have full employment according to the financial game shows but we all know many people of all ages who can’t find a job? (Of course when you don’t count nearly a hundred million people that could be working but have given up the numbers can be whatever they want them to be). (USDebtclock.org) Even the monthly jobs reports contain birth/death models that have recently made up most of the jobs created even though more companies are closing in the USA than opening- that is a first in our history and has been going on for the last 3 years. Without the birth/death model we would have LOST jobs in the last report. (BLS)
  • Why are the state and federal governments going deeper and deeper into debt daily- in the case of many states not even paying billions in current bills? This while many pensions are grossly underfunded even after the traditional assets held by these plans- stocks, bonds and real estate are at near all-time highs.
  • Why are major retailers closing a record amount of stores even though the previous record for store closings was in 2017? Clue- it is not just internet buying. The price of healthcare, gas, and the necessities of life are overwhelming those with average salaries and they don’t have disposable income that they had not long ago.
  • Why are interest rates rising (mainly 2-30 year treasuries) even though someone (my guess is the Fed) is spending billions to keep rates low even though they are increasing the overnight rates? My guess is that they may realize that higher rates are not good for any of the major asset classes. It appears that without this intervention rates may have moved far higher and could have caused a rout in the bond market. This would also likely cause major corrections in both stocks and real estate also.

 I could go on and on about the headlines and reality being diametrically opposed but I think you get the point. The entire system appears to me to be a giant illusion. I am also hearing about UBI (Universal Basic Income)- basically taking from those working or maybe just “printing it up” and giving it to people so they would likely have no motivation to find any productive work in their lives. A few years ago this would have been laughed at and discarded immediately- but not today- it appears that ANYTHING goes when it comes to “free stuff”- something for nothing- too bad there is in reality no such thing.

We have been given a great gift of extra time to prepare for the obvious oncoming date with reality that awaits us in the near future. Having some real assets that are not someone else’s liability is likely a real good idea at this time.

Be Prepared!

Mike Savage, ChFC, Financial Advisor

2642 Route 940 Pocono Summit, Pa. 18346

(570) 730-4880

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