Saturday, December 31, 2016

Wealth Creation / Maintinance In the Coming Times (Saving and keeping the value of your savings)

Well....I have written about this in the past, and things have barely changed....but that is (in some senses) a good things.

DEFINING THE PROBLEM:
The world is awash in debt, and I am talking about public as well as private debt.....the old saying is:
"we owe, we owe, so off to work we go...."

Well.....IMHO, the problem is that given the low interest rate environment we have had for the last 8 years or so, we might have "piled-up"more debt than we can actually service (pay for) in more normal times. Normal times...what do I mean by that.....I mean in times when interest rates are more normal!

What do I say this....because debtors need to at the very least pay the interest on their loans......if they could pay off the principle, they would not be in debt after all.

We are currently just coming out of our ZERO interest rate environment......the Federal Reserved has not raised their interbank lending rate to about 0.5%....still crazy low....and the market rates say for 30 year fixed mortgages ave risen from a low of about 3.65% up to around say 4.1%....still not a high rate, but moving closer to what might be more "normal"....say perhaps say 7%. (IMHO)

I am quoting mortgage rates, but the rate that the government pays for its finance is the thing I most fear......because the government needs to pay that debt, and they do so by extracting it from taxpayers. (or from everyone by debasing the currency via inflation....which is a sort of TAX on everyone)

So why does this bother me.....well, because I am a saver.....and as the old saying goes: "You can't extract blood from a stone"....when it comes to paying the debt, the government can't take money from those who don't have it. (As the bank robber once said: "Why do I rob banks, because that is where the money is!"....ditto for government tax collectors)

SO WHAT CAN I DO:
This is something that is difficult to fully appreciate because we are NOT really sure of how the government will "extract" their pound of flesh on savers.....they can do it directly by raising existing taxes......and one would be wise to find the various "incentives" government creates to get around that. (think along the lines of the tax-free growth of a ROTH IRA) But then the government might just throw us all a curve ball and create a NEW tax like a VAT or SALES tax that scrapes money from you whenever you spend or move it!

Worst than that, they might just crank up inflation and strip it from us by just making the value of ALL money less. (so that the dollars they pay back are worth less...easier for them to gather)

CREATE A PRODUCTIVE CAPACITY (Adding Value to the world):
One thing that is for sure.....no one wants to see progress grind to a halt.....we need things, and we want to see progress like cancer cures and higher efficiency cars and homes. No matter how things go regarding government tax collections, they would dare NOT kill the goose that is laying the golden egg....the goose that is producing!

So....as over simplified as this sounds, I suggest we all consider transforming our savings into something with a productive capacity.....think in terms of a marketable business. or skill.....think in terms of income property. Think in terms of production / service capability in the form of a business.

LIQUIDITY.....THE TRICKY BALANCING ACT:
Now if you think my statement above is far too vague, then you will really get turned off by this next point.....given that we don't know how the wealth "scraping" will come to us, nor at what pace, it will be difficult to know exactly where, how and how fast to invest in one thing or another. Investment has a certain "stickiness" to it....it often takes time to grow and generate profit.....and especially if you need to be side-stepping the various taxation schemes that will be creating what might be a less than fully stable investment climate.....and there is ONE thing for sure....business needs to make payroll....to have the cash flow to exist tomorrow......you need to have some level of "margin" or liquidity as things change.....so putting all one's eggs in one basket in one trip might not be the wisest move......being agile....


How this all comes to roost...no one knows. But I believe just sitting on vast sums of savings is NOT a safe place to me....you are an EASY target for a society hell bent on "redistribution of wealth" ....but even those people see the value of their landscaper, their grocer or their snow plowing company. Adding value to the lives of people will always be popular and in need.


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