Can I Buy You a Drink?

Sometimes I feel like we are living in George Orwell’s “1984”. Over the past few weeks we have now heard Obama and Geitner call for a major overhaul of the US tax code with an emphasis on LOWERING the corporate tax rate.

Wait a minute. Didn’t we just spend the last few months listening to those guys talk about how we needed to RAISE taxes to shore up the federal deficits? Yes, yes, I know. They were talking about the Bush era tax cuts set to expire at the end of 2010, but doesn’t it feel just a bit odd to hear them speak of decreasing tax rates?

And now Illinois, Obama’s training grounds, has just raised its personal and corporate tax rates. As I type this I keep scratching my head in disbelief. If the revenue department in Illinois would just look back at recent history it would discover that states like Maryland, Oregon and New York all saw sudden drops in tax revenue when they raised the tax rate.

Taking a quick glance today at the US Debt Clock provides a rather shocking revelation. The total US national debt is over $14,000,000,000,000 ($14T, I just used the zeros for effect here). That places our current debt at over $44,000 per US citizen. Our federal spending runs about $3.5T while our tax revenue only comes in at about $2.1T, leaving us with a $1.4T deficit.

Keep in mind this is just this year’s deficit. Not cumulative. And I haven’t even discussed the states. Take Illinois for example; $141B in current debt, $140B in annual spending, but only $87B in tax revenue. Hmmm, interesting. Do you think you could manage your personal finances the same way the Federal government or the states do? Not for long, I would imagine.

Quite frankly, this scenario scares the hell out of me. I am downright fearful for the future generations of Americans. And I hope you are too.

But what does all of this federal and state debt have to do with you, dear citizen? This is a fair question and one I hope you are asking of yourself.

The reality is, this has dire effects on all of us. Imagine paying your Amex bill with your Mastercard. Then next month you pay the Mastercard bill with your Visa. Then you pay the Visa with the Amex, and so on. Each month you are spending more than you can afford to pay off each month, but you continue to roll the debt forward.

This can only continue so long. Eventually your creditors catch on to your scheme and shut you down. Now you or I may be able to pull this off for a few months, maybe even a year. But the US government has a little buddy that helps him carry this one for much longer; The Federal Reserve (aka, the Fed).

But you and I cannot just print money to pay our bills like the Fed can for the US government. However as the Fed continues to print more money, it devalues all of the dollar bills that are already in circulation, effectively robbing your buying power. Sure, you make more money each year, but as the dollar loses its value, you lose buying power.

Doesn’t that just make you sick? Imagine, a bank that is owned by the large Wall Street banks run by the President’s anointed one, has the power to rob you of your wealth without ever taking a vote. The least he could do is buy you a drink first…

Eventually the US creditors are going to get just as fed up with this as you are. And when that happens, hold on to your hat. Remember, the Federal government only has 2 ways to pay its bills; taxes and debt.

The states are in a similar situation, except they cannot call on the Fed to print money into existence in order to buy their debt. Hence, Illinois raises corporate tax rates from 4.8% to 7% and personal tax rates from 3% to 5%.

Let me be clear. The US government is going to continue printing money to bail out failed institutions, states, municipalities and European countries. This will dramatically decrease the value of your cash. The states are nearly all bankrupt now and will continue to raise tax rates further squeezing your lifestyle.

Your kids and grandkids are going to wonder what happened to the ‘American dream’ of living a better life than their previous generations.

The productive members of society (aka, current taxpayers) are going to find ways to shelter income and move to more tax friendly countries, leaving the bag for those that are still sitting around watching TV wondering, “What happened?”

Now the question is, “What are you doing about it?” I hate to paint such a dire picture, but I see no other possible scenario. As the cliché goes, “Things must get worse before they get better.”

Just a few suggestions you may want to consider;

• Open a foreign bank account
• Register a foreign LLC/IBC
• Set up an offshore trust
• Buy some real estate in a foreign country
• Buy precious metals stored locally and abroad
• Invest in hard assets, things with tangible value
• Invest in companies that provide necessary products and services
• Establish foreign residency and/or citizenship
• Educate yourself for tomorrow’s economy, not yesterday’s

Some of these things you may consider to be ‘doomsday’ decisions and too farfetched to ever be necessary. However, most of these things are much easier to accomplish than you may actually realize. Even if the ‘doomsday’ event never happens, none of these things are bad for your long term health, wealth or survival. I would encourage each of you to seriously consider this list.

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