It’s time to look back on the most important stories of the year, the ones that changed your world and will change your finances in the years to come
This is my favorite time of year. Besides family dinners and holiday worship, it’s a time to look back on 401kRollover and the stories that shaped our lives in 2015. Looking at the most popular stories helps to put together a picture of where things are heading and a roadmap of how to meet our financial goals.
Unfortunately, the picture we found looking back at the five most read stories was not a pleasant one.
2015: A Worrying Turn of Events
While the economy has not roared ahead since the financial meltdown, there have been signs of improvement since 2008. The Federal Reserve was ending its historic period of monetary manipulation and unemployment had come down to more normal levels. This year brought several events that seem to cue a new crisis on the horizon, one where massive government spending and debt comes to the forefront.
It’s been nearly eight years since the financial crisis and $29 trillion in bank bail-outs funded by tax payers. A new crisis is brewing and it could be ten times worse, bringing the dollar to its knees and changing the way we think about banking.
I’ve worked in finance and can tell you that nothing has changed since the financial crisis. Complicated derivative investments are still used to leverage up a bank’s capital and the next recession will catch the industry off-guard, yet again. The difference is that new regulations have given bankers the authority to cover their losses by raiding deposits. It’s called a bank bail-in and if you’ve got money in a savings account, you need to read this article.
After Detroit became the largest municipal bankruptcy in U.S. history, filing to wipe out its $20 billion in commitments, I have been watching the municipal market really closely. Puerto Rico is on the verge of bankruptcy and Houston’s pension fund is underfunded by more than $5.3 billion.
The story is the same across America and it is going to affect you in ways you may not yet know.
State and local governments will first try to increase your taxes to cover underfunded pensions and other pork spending. Houston has doubled property tax rates over the last 15 years and still hasn’t been able to plug its budget gap.
Budgets for public services will be cut even as taxes increase. Spending on roads and utilities will shrink to nothing and quality of life could suffer.
Finally, local governments will just walk away from their debt and other commitments in nationwide bankruptcies. Banks, insurance companies and most pension funds invest their money in seemingly-safe municipal debt so the bankruptcies will resonate through the rest of the economy and could wipe out trillions in investments.
Just as the government is forcing people to sign up for mandatory health insurance, companies are merging and reducing options available. Shareholders of Anthem and Cigna recently approved the formation of the nation’s largest health insurance company and regulators look to approve the deal within months.
The merger will cut costs for the two companies but will also decrease competition in the health insurance industry. Less competition means companies can more easily increase prices and people will be forced to pay because of mandatory coverage.
Budget gaps aren’t only hitting local communities but the Department of Veteran’s Affairs is also scrambling to cut benefits to the men and women that have fought for our freedoms. Chronic mismanagement led to a $2.5 billion shortfall in the 2015 budget and it’s beginning to look like the situation won’t improve in 2016.
In fact, the Obama administration is looking to make things worse for veterans and their families. The administration has proposed cutting veteran pensions by 20%, forcing military families out of Tricare Health insurance and into private plans and a wide range of other cuts to benefits and pay.
Among all this financial trouble at home, China is making its move to undermine the U.S. dollar as the world’s reserve currency. The world’s second-largest economy has pushed through the creation of its own “World Bank” that will give it overwhelming authority on the world’s financial stage.
The problem with this is that once the Chinese Yuan replaces the greenback as the major holding currency for central banks, a 30-year time bomb will explode. Our national debt is now the same size as the economy and there is nothing that can stop the coming fiscal meltdown. When the dollar is no longer supported by central bank reserve holdings, the value of the greenback will crash and inflation will surge.
The country is in bad financial shape as we enter a new year and there may be nothing that can stop or even postpone the next collapse. Personal protection through self-directed retirement accounts and investments in safe-haven assets like gold may be the only way to ensure your own financial security.
The federal government spends $9.6 billion per year on the Rural Utilities Service, even though this service completed 98% of its electrification goal and 95% of its telephone service goal by 1981. Citizens Against Government Waste (CAGW) projects taxpayer savings of $48 billion over the next 5 years if this part of big government was eliminated.
If you would like to see Congress trim the fat from the budget by eliminating this type of government waste, please Like & Share this post.
Economists David Branchflower (Dartmouth College) and Andrew Levin (International Monetary Fund) have found that the U.S. Department of Labor is calculating the U.S. unemployment rate in a way that falsely advertises a 5.5% rate. They believe that the true jobless rate in the United States is 7%-9% – well above where it should be in a healthy economy.
If you’re fed up with the government lying to you to make the current administration look good, please Like & Share this post.
Citizens Against Government Waste (CAGW) has found that the U.S. government could save taxpayers at least $24 billion over the next 5 years simply by cutting the number of improper Medicare payments in half. Such a move would not affect rightful recipients of Medicare funds whatsoever.
If you think it’s only fair to ask the government to cut down on improper and wasteful spending, please Like & Share this post.
The largest supplier of HIV and AIDS healthcare products in the United States has been accused of scamming Medicare and Medicaid out of at least $20 million in 12 states. The company allegedly tricked those two government agencies into paying kickbacks to employees and patients who brought new patients to the clinic.
If you think it’s time to reel in wasteful Medicare spending and use those funds elsewhere, please Like & Share this post.
The Social Security Administration (SSA) now expects workers to pay more into the program that they could ever hope to receive in retirement, and the U.S. government owns over $876 billion in Social Security debt. Nevertheless, U.S. Senators Elizabeth Warren and Joe Manchin are attempting to pass legislation that would expand Social Security.
If you think increasing the scope of Social Security will only lead to more government waste, please Like and Share this post. You CAN make a difference!
Due to improper payments handed out by the U.S. government to Affordable Care Act (ACA) recipients, millions of Americans owe the IRS an average of $794.
If you think this is just the latest example of how government over-regulation causes waste that citizens end up paying for, please Like & Share this post.
The Government Accountability Office (GAO) recently announced that $124.7 billion in improper government payments were made in 2014. This is a 17% increase over the $105.8 billion in incorrect payments made by the government over the previous year.
If a 17% annual increase in wasted government money is unacceptable to you, please Like and Share this post.
Economic growth of the U.S. economy in terms of GDP grew just 2.4% in 2014, continuing the trend of 2.2% average annual growth for the last 10 years. Countries with similar “growth” last year include Afghanistan, El Salvador and Ukraine.
If averaging just 2.2% growth per year is unacceptable to you when compared to inflation, please Like & Share this post.
Some Benefits May Disappear Within The Next 2 Years
The Congressional Budget Office (CBO) has issued its review of the United State’s Social Security programs and the report is nothing short of a “Doomsday Prophecy.” The so-called “trust fund,” which is basically just a federal line item, is consuming an ever-growing piece of the federal budget pie, while costing far more than the country can afford, according to J.D. Tuccille, the managing editor of Reason.com.
How Does Social Security Work?
The two entitlement branches of Social Security are Disability Insurance (DI) and Old Age and Survivors Insurance (OASI). These branches are funded through tax revenues. The CBO analysis projects that under current regulations, the DI trust fund will be exhausted in fiscal year 2017, and the OASI trust fund will run out by 2032. Once a trust fund’s balance reaches zero, if current tax revenues are insufficient to cover the amount of benefits owed to the citizens, the Social Security Administration has no legal authority to pay out full benefits when they come due.
The downward slide has already started. According to the Social Security and Medicare Board of Trustees, Social Security payments began exceeding tax revenues for the program in 2010. The CBO report also warned, “As more members of the baby-boom generation retire, outlays will increase relative to the size of the economy, whereas tax revenues will remain at an almost constant share of the economy. As a result, the gap will grow larger in the 2020s…”
Are These New Concerns?
This is not the first time Social Security has faced funding concerns. These programs have been in a dire condition for many years. According to the CBO, legislation was passed in 1994 to take revenues from the OASI trust fund and transfer them into the DI trust fund to keep the DI fund from going belly up. Since then, the DI and OASI trust funds are commonly considered a combined fund. As a result, the CBO analysis cautions that if future legislation shifts resources back from OASI to the DI fund, the combined OASDI trust funds will be exhausted in 2030.
How Does This Affect the National Debt?
Cato Institute senior fellow Michael Tanner, who heads research for Reason.com with a particular emphasis on Social Security, reports that earlier this year the national debt officially topped $18 trillion, which is roughly 101 percent of GDP. This means that we now have more debt than the combined value of all goods and services produced in this country in a year. The CBO predicts the debt will climb to almost $27.3 trillion within the next 10 years.
If you think these numbers sound bad, well brace yourself, they don’t even tell the whole story. These overall debt figures don’t include the unfunded liabilities of programs like Social Security and Medicare. Keep in mind that even though these liabilities don’t show up on the country’s official balance sheet, they are still legal obligations of the US government. If we include the expected shortfall from these programs in the nation debt, the true debt jumps to an astronomical $90.6 trillion.
How can we address these shortfalls?
Politicians either ignore the issue, or suggest it will go away if the wealthy pay more taxes. However, it is simply impossible to increase taxes enough to close the budget gap. More specifically, raising taxes on the wealthy falls far short of what would be required to pay for our current and future obligations.
“The simple truth is that there is no way to address America’s debt problem without reforming entitlements, notably Social Security, Medicare, Medicaid, and our newest entitlement program, Obamacare. Social Security, Medicare, and Medicaid alone account for 47 percent of federal spending today, a portion that will only grow larger in the future. And although the spending for Obamacare has just begun, it, too, will soon consume an ever larger portion of the federal budget,” according to Mr. Tanner.
Social Security is expected to run a $69 billion cash-flow deficit in 2015. That’s the good news. In every year after, that shortfall will worsen. Altogether, Social Security is facing future shortfalls of more than $24.9 trillion. The frustrating part is that Social Security and Medicare seem immune to reform, in large part because seniors, who tend to vote, receive the benefits, while young people, who don’t vote, get to pay the bill.
What Steps Should You Take Now?
Jason Pye of FreedomWorks.org summarizes, “Absent meaningful reforms that encourage economic growth and private ownership of retirement accounts, as more Americans retire and become eligible for Social Security benefits and Medicare (the other elephant in the room), there will be less for Congress to spend on other areas of the budget.”
Taxpayers who hope to retire someday can’t depend on governmental reforms, new legislation or some sort of miracle to occur. We need real answers. We need to take control of our own retirement through private ownership of retirement accounts by establishing self-directed IRAs, which give us the freedom to invest in a variety of options the government cannot destroy. Talk to one of our friendly experts at (whichever website this article is posted) today to learn how you can stop relying on the government and start realizing your true retirement potential.
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