Welcome to the 02-28-2018 update from your Pocono Summit Certified Financial Planner and retirement planner, Mike Savage. Today, Mike discusses the difference between the perceived and documented debt situation and the real debt situation in the United States.
Earlier this week I talked about “money” that we (USA) owe that doesn’t show up on any of our debt statements but yet there are reports that this “money” has been spent. It got me thinking about what else might be out there that might give us a clue about our real fiscal situation.
From the US Treasury website there is a Statement of Social Insurance section. What it says is that the present value of FUTURE EXPENDITURES IN EXCESS OF FUTURE REVENUE (In English- promises to pay with no current assets set aside to pay) is $49,000,000,000,000.00. That is 49 TRILLION dollars. In addition, that number has risen from $39 Trillion in 2013 to the 2017 amount of $49 Trillion.
According to the USdebtclock.org our current account deficit using GAAP (Generally Accepted Accounting Principles) is knocking on the door of $6 trillion dollars for fiscal 2018. With a current deficit like that and higher deficits anticipated as far as the eye can see just how does anyone anticipate that anything can happen other than a default? I am not even bringing up state, local, corporate and personal debt which is also at all time highs along with all time low savings rates.
Now default is a word where many may take it that the USA will just not pay. I doubt that is how it will happen but it is one possibility that someone has the character to step up and say- sorry we screwed up and we will have to start over. That, however would likely be the most painful type of default in the short term and it appears that our elected officials can’t think past an election cycle so I can’t picture that one.
I believe it is more likely that they will “print” our currency and continue to pay their promises in a depreciating currency. They will be able to say “We kept our promise!” Too bad for us their promise may come at a steep price- the purchasing power of our currency.
It is possible that those government checks which are supposed to sustain us for a month may last a day or two. What do you think that would do to any future growth projections as government transfer payments that have been artificially increasing GDP for decades and is a far larger percentage now than it has ever been ceases to be effective? The $49 trillion deficit may look like the bargain basement.
I have seen a lot of Warren Buffett recently in the mainstream media. While I appreciate his investment savvy I really don’t appreciate his being a shill for the government and the Fed. In most of his interviews it is always time to buy and we know his favorite holding period is forever.
I believe Mr. Buffett is the ultimate insider and has knowledge of things that only those at the top may have. I find it interesting that in his annual report he had to mention that Berkshire Hathaway is structured to survive extended market closures. Hmm.
I also believe it is more important to watch what he does and forget most of what he says as he is amassing a huge cash hoard. It is reported to be $116 billion at this time. My guess is that he made no purchases in 2017 because almost all assets are overpriced. I am also guessing that that $116 billion will be used to pick up bargains in the future when asset prices return to a “buy zone”.
As good as Mr. Buffett is his fund has lost between 40-60% of its value 4 times. In the 1970s, 1987, 2000-2002 and 2008-2009. This just shows that even the best can have rough patches. Smart people, however, learn from their mistakes. I am guessing that the $116 billion cash hoard will allow Mr. Buffett to soften the blows of a market pullback and allow him to buy top-notch assets at FAR lower prices than today. This will likely set him up for long-term gains on these assets as he has done in the past.
One thing I would actually listen to carefully that he says is don’t borrow to buy shares.
While things are going good leverage is an asset. When the tide turns loans can be called and you may be forced to sell at a less than opportune time and regardless of the losses incurred. This could throw a wrench into almost any investment plan.
So, are you fearing that you are missing out on something like many on Main Street are, or are you patiently waiting for a far better entry point as it appears Mr. Buffett is?
It really appears to me that many hear that everything is overvalued but disregard it thinking it will just get more overvalued as it has in the recent past. This could be a HUGE mistake.
Would you trust the words of those with an agenda on the financial game shows or the actions of a seasoned veteran who can not only read the tea leaves but also may have more information than we do about the inner-workings of this so-called market?
My belief is that there are very few assets worthy of purchasing at these levels. I believe patience will be rewarded greatly for those who are patient and have a plan to carry out when the opportunities present themselves.
Nobody has to tell me that this has been one heck of a long wait but our time is coming.
Be patient but also BE PREPARED!
Mike Savage, ChFC, Financial Advisor
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