Wednesday, May 9, 2012

US Government Debt Impact on Social Security

The staggering $15.6 trillion of government debt owed by the United States federal government can be viewed as two separate types of debt.  First, there is the public debt, which amounts to  two-thirds of total federal debt owed.  The U.S. government owes these obligations to businesses, the public, and governments of other nations who have purchased Treasury bonds, notes and bills.  The other one-third is the Government Account, which is essentially debt securities that the government owes it to itself.  

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Artificially Low Interest Rates

For years, the government was borrowing money from the Social Security Trust Fund during years it was running a surplus.  The government was able to borrow this as an interest-free loan, allowing for more deficit spending by the government.  As a result, Treasury Bond interest rates were kept artificially low. A substantial amount of government debt that is owed to the Social Security Trust Fund and will need to be repaid when the Baby Boomers retire.  This will create a sizeable funding need in the market, which could lead to higher interest rates through debt issuance or printing of money.
Since the US is one of the biggest customers of countries like Japan and China, these countries invest in Treasury Bills in an effort to improve their exports. Buying US government debt parks profits in U.S. dollars, keeping their own currency weaker, making their exports more attractive.  This has allowed the U.S. to run a huge tab.  Whether or not these countries believe in the U.S.'s ability to recover and pay back its debt is the question being ignored.  These parties are more interested in keeping the party going. As a result, U.S. government debt is the world's largest right now.

A Mountain of Debt

After the turn of the century, between 2000 and 2007, the US debt grew 50% from $6 trillion to $9 trillion. Since the start of the financial crisis, the federal government debt reached $10.5 trillion by the end of 2008, thanks in part to the $700 billion bailout of Wall Street.  Just the interest on the debt alone amounted to $454 billion in 2011, which was the highest ever, even with a drop in interest rates. 
Since the Reagan Administration, the Federal government has increased its spending while cutting taxes at the same time, leading to larger and larger budget deficits. The accumulation of these budget deficits over the years, due in part to annual military spending of $800 billion and the 2008 government bailout initiatives, not to mention the economic stimulus package have all contributed towards the growth of the debt.
Any hint of the government struggling with debt might trigger an increase in interest rates. While the government tries to contain the debt within a reasonable limits, the government has time and again increased its debt ceiling despite the negative consequences it could have on the government's ability to reign in spending. 

No Debt Relief In Sight

One fear that Baby Boomers face is the Social Security Trust Fund being exhausted during their retirement. This might result in higher taxes and/or a reduction in retirement benefits, including medical benefits for everyone. Without proper management, the government debt could exert significant pressure on the US and world economies, creating a second Great Depression.

Tuesday, May 8, 2012

How Billions of Taxpayer Dollars Are Legally Stolen

Recently, Alan Collinge, founder of, was interviewed on the radio program, "Coast to Coast." Alan is a fervent political activist working to increase awareness of and convince congress to remedy a corrupt federal student loan debt system. During the program he brought to light a number of deceptive practices that lenders routinely use to pad their wallets with outrageous profits while borrowers find themselves saddled with outstanding student loan debt totaling many times more than the original amount owed. Unlike traditional consumer debt, banks want borrowers to default. Lax restrictions and an irresponsible lack of consumer protections all play an integral role in making this possible and it needs to stop.
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As I listened I heard about a $900 a month loan payment going into default as a result of a drop in income and marital trouble. Upon applying for an income based repayment plan the borrower's student loan debt payment jumped to $1600 per month. How is that possible? Someone unable to make the current payment is now expected to pay nearly double? Interestingly, that wasn't even the shocker of this scam. Federal student loans are guaranteed by the government. So when a borrower defaults on the debt, the lender has the right to collect 100% of the outstanding balance from the government. However thanks to a nearly restrictionless market, as a result of congressional loop holes, the bank can instead sell the loan at one hundred cents on the dollar to a collection agency, which is often owned by the original lender. Not only are they taking money from their right pocket and moving it to the left.  They are also asking the government to fill their back pockets. The agency then tacks on outrageous penalties and fees to the outstanding student loan balance. All legally and now also guaranteed to be paid by the United States government.
By moving a defaulted loan to another division, lenders have now manufactured a guaranteed profit by manipulating fees and collections costs. Pull this maneuver for a few years then cash that loan in and the lender can triple their investment, all the while knowing the borrower will never be able to pay that debt. In fact, this is what these lenders count on because no payments from the borrower spells guaranteed payment from Uncle Sam.

Debt Consolidation Offering No Relief

The bottom line here is that the student loan program is nothing shy of legalized fraud. Honest hard working American's who have paid their student debt off or are current on payments may think that forgiving the debt of those that cannot afford it is unfair and a drain on taxpayers, but the cold truth is not forgiving it costs far more and big banks will be the ones cashing in. If a borrower can't afford to pay their debt at the original amount owed, the taxpayers can expect to pay double, triple, or more of the original tab. All of which is a sum of fabricated fees allowed by law.
Alan and his organization are actively advocating for the same consumer protections that are enjoyed by all other consumer debt. The same rights someone who maxes out his credit cards purchasing meaningless desires already is awarded. The only difference here is that borrowers of this money were led to believe they were doing the only thing that would guarantee them a prosperous future. Instead they were thrown into the pool of legalized loan sharks.
With some $1 trillion in outstanding student loan debt and a stagnant jobs market, taxpayers cannot afford to financially support this Mob economy anymore. It's time our elected representatives begin standing up for the citizens that entrusted them and hold banks accountable for making good on their investments. Help Alan and his organization take the burden off hard working Americans and their tax dollars. Check them out at and join in the fight.
As taxpayers we need to take a stand and let our elected officials know that we have had enough. Alan's organization is fighting this fight but they need all of our help to get the message out. Check them out at

Monday, May 7, 2012

National Debt Crisis: Will You Still Have a Pension from the State?

Do you think that you or your spouse's state pension fund for retirement will be affected by the national debt crisis? The United States Office of Management and Budget is forecasting fiscal year 2012 to have a gross national debt of 16.2 trillion dollars. Similarly striking statistics reveal that our nation's state pension funds owe workers up to 3 trillion dollars. Many states will not be able to pay its government workers their earned retirement pensions and the Federal Government is not in any position to assist these states with their obligations. One can only hope that these nearly 15 million local and state government employees throughout the country have a backup plan when their state advises them that they will not be receiving their state pensions.
There are many hard working government employees within our nation including those who protect our safety and well being, respond to emergencies, and educate our children. In exchange for their service the employee receives a salary and benefits package which often includes a pension. Most government employees contribute a portion of their salary to the pension fund and the state or local government is required to also contribute to the fund in order for the employee to receive an income once retired. Although there may be far too many state government employees in our nation not once has it been reported that a government employee has not paid their contribution into their pension fund. Unfortunately, some states have not made their required contributions to these pension funds and many of them are underfunded in the tens of billions of dollars.

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State Governments Struggling with Debt

It is hard to believe that almost all of our nation's states have debt levels in the billions of dollars and yet the accounting practices of these states are so inaccurate that the discrepancy between how much they claim to owe the pension funds and the actual amount owed to these funds is over two trillion dollars. The public sector accounting methods fail to take into consideration that when a state invests the pension money in stocks, bonds, and other investments that it will not always receive forecasted rates of return. Fortunately, there is a push for government agencies to begin utilizing more accurate accounting practices but these changes cannot happen soon enough.
Unfortunately most people do not begin to realize how important it is for them to have a backup plan. They probably think the federal government will bail out their state pension fund if the pensions cannot be fully paid. It is not wise to make this assumption. The United States is already in debt approximately 15 trillion dollars and the Federal Reserve does not plan to assist states with their pension funds. Many people will not be able to understand why the United States can send billions of dollars to other nations year after year yet not assist their own working citizens who have worked for the government for decades.
When millions of people are told they will not be receiving their pension incomes they will wish they had not put all of their eggs in one basket. More people need to realize that state pensions are a thing of the past and begin educating themselves on how to make a living without promised government pensions. Our nation will see their government employees lose their pensions as they exist today but it is not too late for state and national government to begin more accurate and transparent accounting practices which will benefit everyone. It is also not too late for existing and retired state workers to begin adding additional sources of income in order to protect themselves from massive layoffs, devalued pensions, and the national debt crisis
Government employees should strongly consider educating themselves on the stability of their current pensions and seek more modern sources of passive income which does not rely solely on government agencies to protect their livelihoods. American state government employees can cast blame and point fingers at government agencies regarding their lost pensions but that will not help matters. Waiting until the pension is totally gone and then saying "This isn't fair" will not make things any better. All states should adopt more transparency regarding pension liabilities and other budgeting processes. Likewise, more state employees should embrace change even if their devalued state pension fund is not their fault.
Jay Rogers wants more people to see how F.A.C.T. based budgeting can provide state governments with linked accounting and budgeting systems which helps ensure a less indebted nation and its states.
Learn how state government employees who rely on their pensions can bailout of their underfunded pension and create passive income for life.

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Sunday, May 6, 2012

Do Our Politicians Need to Visit the Debt Advisory Centre?

In the coming years, the U.S. will be struggling with debt to the point where it will devour a substantial proportion of disposable income and personal wealth, leading to a sharp decline in overall economic output.
At the moment, we are seeing the warning signs in Europe as three members of the 17-country Eurozone experience serious government debt management issues - Greece, Ireland and Portugal.  All three have already needed to be bailed out (Greece twice), while other economic powerhouses such as Spain, Italy, France and even the United Kingdom have needed the national-equivalent of calling the debt advisory hotline.  The result has been painful austerity programs, similar to the types of plans consumers are put on when undergoing debt loan consolidation plans.
One good thing to come from this is that the world has finally woken up to a serious debt habit, something we've long denied—similar to how a gambler denies he has a problem.  There's no question about it, 2012 is going to be a pivotal year.  And the question remains, where should you invest your money?

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Should You Hold Bonds?

We are facing two risks.  First, central banks around the world are working hard to manage their interest rate exposure on government debt.  This is proving harder as their measures only work to increase the risk inflation.  This is leading many investors to move away from debt issuances and into equities.
The second risk is a shift in power from central bankers to the markets.  Like the pure natural force of water, the markets will flood the trading floors with unwanted debt securities, leaving governments scrambling to prop up the value of their debt and keep their interest rates low. It's already happening in Portugal, Spain, Italy and other EU countries and could be on it's way to the U.S.
History has shown that few nations have ever paid off their debts, preferring to inflate their way out of them. It's unlikely to be any different this time. The savvy investor will move away from debt-based securities and opt for inflation hedges such as equity products, precious metals, and commodities.  In addition, investors must become more comfortable with the emerging BRICS (Brazil, Russia, India, China, South Africa).  These economies have shown tremendous resilience.  The recent accords they've struck to begin trading in their own currencies could all but eliminate the U.S. dollar as the world's reserve currency.

Shower Me In Debt

If you must bathe in debt, you don't have to take a bath. Few countries better-positioned to compete in this global debt crisis than Canada. No longer can Canada be viewed as the spoilt, deficit-ridden, debt-bloated country of the 1990's.  It can compete with the world's best, and leverage the growth in the developing Asian market like no other.
While Canada future is not a slam dunk, it's increasingly interconnected economic agenda makes it a credible investment-friendly landscape for investors interested in capitalizing on natural resource plays. Canada's emergence as an energy superpower means it also has the ability to support the widest array of world-class non-resource sectors such as banking and financial services, consumer and manufacturing, communications, and electronics.
While America was the cheapest and best-performing market in the world in stock market terms during 2011, hold onto your seats as Canada's train beings to depart from the station.  If you need to add debt to your portfolios, consider Canadian denominated debt.