MONEY 101 - COUNTRIES DEBTS

THIS IS MY 101^ST BLOG ON UNDERSTANDING MONEY TOOLS

I have been very quiet when it comes to writing blogs as there has not been much to comment on, nor can I think of anything new to educate on.

Let me toss this in before we start. The stock markets still boggle my mind as they continue to go up when earnings are coming down, put in fact an old line company like IBM has had falling earnings for over 4 years now.  Verizon now is buying Yahoo at a fraction of value it was worth in year 2000.  Yahoo should have sold out years ago.  Boeing Corporation just announced their first quarterly loss in 7 years, recent years supported by international sales.  We have had the third highest stock market based upon prices to earnings, however I believe it is now the second highest only to 1999-2000.  Again, there is no place to invest safely like CD’s and bonds to get a return, so people are forced into the stock market, when they should be in low risk investments.  How do I feel about land for investment?  Not good.  Housing in general is going to downtown urban and smaller units.  Home ownership this week was announced the lowest in 50 years.  Foreign entities have bought up large parcels of farmland, but companies like Cargill and Monsanto are coming up with genetically altered product producing much more out of less needed acreage. 

We are reaching $20 trillion for US debt exclusive of future obligations and off balance sheet accounting. No matter who wins the presidential election we are going to go much more in debt.  The head of the World Trade Organization (WTO) this week mentioned that Mr. Trump blames a lot of the NAFTA and PTA Agreements however reality is that technology and robotics have done away with the need for human workers no matter what the pay level; I must agree and this is only the start.  What do we do with human beings?  There is also less demand for goods in the world then let’s say the fantastic growth years after WWII.  The other diminishing factor for growth is the significant relationship between debt, taxes and growth. The  fewer dollars in the middle income level wage earners the slower the growth (GDP).  Ir really is all simple and cause and effect!

Now the reason for this blog, we are going to discuss country economics from a standpoint of debt.  This past week (July 25, 2016) several countries like Japan, Australia and the USA have been attempting to sell bonds. As you are aware, countries like Japan have negative interest rates and yet their economies are in poor financial condition.  Enter  “Uber Keynesian” economics still grip the world. If this was a normal free market world to sell debt/bonds to people and institutions they would want a sizable return on bond yield for risk; not in these times.  Bond sales this week have been a flop.

We are playing in dangerous territory.  Most people are oblivious to the situation and non-carrying.  As I have mentioned in previous blogs the world banks now are sitting with debts of around $10-12 trillion and only getting worse.  Let’s use Japan as an example as most economists do. The country has a debt of about 240% of their GDP.  Horrible, but we aren’t far behind especially if we add in personal debt to GDP, as the people of Japan carry less personal debt than we do in the US.

Japan is experimenting with new debt to pay for infrastructure work and development.  Of course, we did something similar to a large degree under President Roosevelt starting in the early 1930’s.  How does Japan and other countries sell their bonds these days?  This is the scenario.  Japan is issuing bonds with little or no interest yield, these may be “zero coupon bonds”.  As few bonds are being sold at no yield the Bank of Japan steps in as the big buyer of their own bonds.  We have the Federal Reserve to act in this capacity.

As you can see, this is a phony situation and all countries are resorting to this to pay bills and keep things running.  The next president will face something similar; spend money we don’t have increasing the debt to attempt to keep employment up, and create GDP.  This week our Federal Reserve said the economy is “fine” although with tepid growth, thus leaving interest rates unchanged.  Election year balony.

In the end there can only be one of three resolves: 1) default on debt/bonds which will kill our reputation including the future sale of bonds 2) continue “kicking the can” of debt down the road until we implode or 3) re-negotiate our current debt with bond holders.  None of these options is a “pretty picture”.  At some point this needs to be addressed.

MONEY 100 - EDUCATION

THIS IS MY 100^TH BLOG ON UNDERSTANDING MONEY TOOLS

Wow!  100 blogs on this site.  Just shows how bored I have been to write so many!

I decided to write a blog that will teach you in one way how to skirt the system and yet be legal.

Several of my friends who are around or over 60 years old are now finding that they need to continue working as the corporate world has left them behind and they can’t afford to retire.  This might be you!  To keep up they are going back to college for both knowledge and another degree, mostly around technology industry.

I think the best way to define all this is with a hypothetical situation, albeit true.

Let’s call the person John.  John is financially stuck, needs to get another degree and with that credential hopes to specialize and get outsourced consulting work with small companies. The “catch 22” here is that it takes money to go back to school, and without a degree he is limping along with temporary jobs paying little.

Here’s some advice.  Colleges in the past 15 years have gone into the money-making business, I believe taking precedence over the educational business.  Change your mindset, go back to college, start making a list of colleges.  These don’t need to be local colleges and see if they offer subjects that might apply to your goals; check out tuition costs for the degree.  Students don’t need to be local, teachers don’t need to be local; everything accomplished “on-line”.  Colleges want students, mainly “on-line”, students don’t occupy space,  low overhead cost and schools can have hundreds of students in a class.  Some colleges offer classes where you work on a team basis, 4-6 people on a team.  The school will help you get a student loan no matter your age (I have one friend at 62 another 57 who have new low interest student loans).  These loans are paid monthly and in the $1,800-2,000/month income range.  This gets the financial monkey off your back, as it did John, when you combine this money with part time work that you have been doing.

Here is where we start manipulating the system more.  For easy calculations let’s say the loan is $2,000 per month.  Let’s also assume it will take 18 months to 2 years to get your new degree as you most likely will need to take additional courses because you haven’t been to college now for 40 years. At the completion of your new schooling your student loan might be $48,000 plus interest.  Your repayment of the student loans will be on a monthly basis figured upon your earned income.  Here is the strategy, and why America is in deep trouble with student loans now well over $1 trillion and not being paid back.  The concept is to keep your earned income down to bare bones for repayment calculations.   During your college term, or after, set up a “C” Corporation.  Everyone should have a corporation if they are in business! The only negative to a corporation is paperwork on state filings and electing officers, a board, etc.  The major difference between a “C” Corporation and today’s popular Limited Liability Corporation (LLC) is that with a “C” you can retain earnings and not have to distribute almost all income within a given year.  It does have the negative of double taxation, that means you pay taxes on the income flowing into the corporation at the taxable rate and then personal income tax when/if you take a salary of distributed money.  I recommend naming the company something other than your name to distance yourself from it.  If you control all the stock in the corporation you only need one officer. This person does not need to be you.  The stock can be in another entity’s name, perhaps another corporation that you control.  Don’t re-create the wheel.  Look at how the wealthy get around taxes and copy what they do.  They retain the best law and accounting firms.

In this situation, as you now have graduated from college and earning income as a consultant you flow your income through the corporation.  As with an LLC you have normal business expenses and those can be deducted from gross income.  As your student loan is based upon your earned income, you place yourself on a low salary from the corporation and pay your income taxes. (your accountant can advise you on approximately how much income you should take each year so as not to trigger a tax audit).  If additional personal money is needed to live take that as a stock dividend from your corporation, as dividend income is at a lower tax rate and not subject to FICA.  The balance of the money in your corporation carried forward can be invested.  (As an actual situation one of these friends has a student loan from year’s back and because of his low income pays $57/month, that is only $684. a year).  In conjunction with the corporation I recommend that you see an aggressive Certified Financial Planner or Account to set up various retirement plans under ERISA, (Employee Retirement Income Security Act), such as a 401-K Plan, SEP, IRA, or Roth IRA to delay paying more taxes. Legal counsel may advice the use of trusts.  Everyone should have a “living trust” including medical wishes. Many doctor’s offices and hospitals now require one. Living trust assets avoid going through probate at death.  Rather than continually transferring assets into this trust you can have a “pour-over trust” from your living trust.  Other common trusts are revocable, irrevocable and charitable remainder.

As an older person going back to school and taking this direction you can play the numbers game on how long you figure you will live and never pay back the money on your loans.  If you want to go further with this thinking, you could set up your corporation with a lawyer in one of the states that does not have personal income tax and use an address your legal counsel would recommend.  If you do become financially successful in your new endeavors you might want to move your more expensive assets and titles to cars/RV/boats, etc. into your corporation.  Some states like California, Arizona, Colorado, Connecticut, New York and others have high fees for licenses and taxes.  Other states like Montana, South Dakota, and North Dakota are very low.  Register these expensive “toys” and your corporation in those states and save money.  For this reason many large boats are  registered in Delaware.

Another way to get lost in the system is to have one corporation owning partnerships and stock from other corporations.  In the real estate development business and oil and gas business we had many companies set up for every development in case one had financial problems or a lawsuit pending; one would not detract from the other businesses.  Just smart business!

I dropped out of the business world in 1992, but before that played around with some big money.  If you start making a lot of money you might go further on sheltering income.  Even though I am dated on tax law, I might mention a method that we used.  It was a “partnership” structure (controlled by one individual, not partners) thus avoiding corporate, personal taxes and FICA.  We set up corporations outside the US in places like the Grand Cayman Islands at a bank to avoid taxation.  (Banks will always help you as long as you remain within the law.)  Other places that protect such investments and welcome money as a tax haven would be the Isle of Jersey off England and the city of Zug in Switzerland.  You need a good law firm setting everything up and remaining within the law.  With today’s computers and technology all money is tracked carefully.

Companies continue to leave the US with their headquarters for lower taxes.  Coming from Wisconsin one recent move was Johnson Controls from Milwaukee to Ireland.  Wisconsin as well as other states cannot afford this to continue and we need much lower tax rates.

I hope this scenario has brought some value to you, and perhaps can save you money.

MONEY 99 - BREXIT

THIS IS MY 99^TH BLOG ON UNDERSTANDING MONEY TOOLS

With Britain’s exit from the European Union I thought I would write this blog including a few facts about the European Union, and render some of my very opinionated feelings in regard to the mess.  Let’s start out with the bottom line first.  I think in the long run it will prove beneficial for Britain that they exited; short-term volatility is going to be the baseline, along with a drop in the Pound Sterling.

The old expression that “things are never as good, nor as bad as they seem” I think is in line here.  To begin with let’s start by looking at this misconceived idea for a Union.  There were 28 countries in the European Union, now 27.  There are a few good things that simplified life with this Union. There are two distinct benefits, one a common currency so one does not need to exchange currencies with each trade or crossing borders.  The second would be business and trading of goods without varying taxations and trade agreements with each country.  Trading priorities between Union countries first and foremost.

The most obvious reason for the failures occurring today with the Union is the financial imbalances of the countries that have always existed.  You have very strong countries like England, Germany and several Scandinavian countries holding it together supporting weak countries like Greece.  As we all know Greece was financially bailed out in 2015 with severe financial disciplines placed into the agreement.   Then, you have the ever-growing financial problems of Italy, Spain, France and others, and it will only be a matter of time before they default on debt.

Another problem that exists but only now is really surfacing is control over individuality and nationalism/varying cultures.  In the US we have 50 states that seem to work together pretty well, but have many commonalities. Perhaps our biggest difference with the states still exists a bit between the North and South, but we have similar cultures, religions, backgrounds, etc. and a common language.  The European Union does not have these commonalities.

Britain’s exit was mainly voted on by people outside of London, and an older population. The young people of London like many places have a different baseline; they don’t remember the Gulf Wars let alone the damage done from WWII.  Let’s draw a bit from history.  The Desert Storm War with Iraq caused by Saddam Hussein reaching across the border into Kuwait cost billions of dollars for Britain, the US and other nations.  Then, along comes 9/11 and President George W. Bush decides to enter Iraq even though no one from Iraq was involved in 9/11. The attack was financed by Saudi Arabia and Syria, and Iraq was totally contained on the ground and in the air. They were no problems and Saddam Hussein hated Bin Laden and saw him as a threat.  We talked Britain and the Prime Minister, Tony Blair, along with other countries into joining us in the war and it cost Britain billions along with the loss of life of many troops.  In the long term it cost Tony Blair his nice job!  The English don’t forget and I think many countries want to distance themselves from the control and influence of the USA.

Where am I going with this?  War makes billionaires. The Iraq War was no different.  People like Vice-president Dick Cheney personally made well over $100 million with Halliburton stock options (please read commentary and writings by ex-Secretary of the Treasury, Paul O’Neill, on Dick Cheney/Halliburton and the Iraq War.  Cheney was drooling out of one side of his mouth over the oil in Iraq, while on the morning news in the USA stating that debt did not matter to our economy).  We tried to over-turn other countries including Afghanistan, then Syria, Libya and turmoil in Ukraine. Cause and effect. Our hegemony and imperialistic actions have caused most of the immigrations to Europe and Britain is one of the first countries to say enough is enough, this is taking us down and we want out.  Now, several other countries are also becoming outspoken and may leave the European Union, all with good justification.

The world leaders like President Obama and Chancellor Merkel are all in favor of immigration and globalization.  Globalization has started and really can’t be stopped. Let’s take a look at it.  In this country profound action toward Globalization was taken by President George Bush designing the NAFTA Agreement between 1988-1992.  Then President Clinton pushed it through Congress during his tenure.  Lately another step in similar direction is the Pacific Trade Agreement passed recently by President Obama.  Who is really behind these agreements are the wealthy and large corporations that want cheaper labor, trade agreements, the ability to get US taxpayers to assist in paying for factories and plants in foreign countries and the ability to set up legal financial off-shore trusts so that profits can be held off-shore thus avoiding US taxes.  Great for the American people?!  You purchase things at Walmart and Target for less money, but little is made here in the USA anymore.  Raise the standard of living in third world countries and lower our standard of living.  Donald Trump says he will bring jobs back.  Can’t be done. Yes, we could penalize for off-shore business and set up tarrifs but if manufacturing comes back here it will be robotic, not needing human labor to any degree.

Similarities arise in Britain and the European Union. All these countries have high unemployment, and immigration is just a further drag. I will only touch upon the next topic that is probably Europe’s biggest problem and that is immigration from Middle East and Northern African countries with totally different cultures and health standards. As reported we now have tuberculosis,  measles and HIV, to name only three diseases popping up from immigrants in Europe as well as the USA.  With immigration these people are bringing in their standards in the form of morality, ethics and traditions.  This includes the abuse and rape of women, as women are considered possessions.  A prime example of this is Malmo, Sweden.  Malmo is the third largest city in Sweden and now the “rape capitol” of the world because of immigrants!

Okay, so I think the Brexit is not going to be harmful long term, and I hope better for England preserving their heritage.  Things to watch here are other countries wanting out of the Euro and this is picking up the attention in Brussels and Chancellor Merkel; good at long last!  Keep an eye out for Scotland again and Northern Ireland.  Britain may have been an “eye” for Israel watching Germany and the Arabs; that may have weakened.  Also, I am surprised how our government has kept the huge multi-billion in losses the major banks took on speculative investments like derivatives and currency arbitrage thinking the British Pound Sterling would go higher assuming England’s vote would be to stay in the European Union.  I’m sure George Soros was perfectly hedged, then upon news of vote count instantly pulled his long position, shorting the Pound thus making a fortune.

In the USA we had more and better employment before NAFTA when we had various trade agreements with various countries.  Now, all countries are ever manipulating. Lately China just devalued the Yuan again, our US dollar just rose, and interest rates are reaching zero and negative in some countries. To weaken our dollar do we print more money again for dilution?  What a mess.   Most people are blind to the effect.  Our older population can’t retire, we have no savings and what little we have returns nothing.  In 2000 we had 4.2 million Americans age 65 and older working.  Today, we have 9 million Americans over 65 working and most need to work to financially survive (PEW Research Center).  Hard to tell me things are better from what we have accomplished.  The wealthy have become wealthier, the biggest corporations bigger.