Episode-912- Two Possible Futures Over the Next 4-12 Years

No this really isn’t about the election or who our next president will be, I think that won’t really matter much anyway.  This is about our role in our own futures, from my view point most of the dice have been already rolled and there are going to be severe economic consequences and we are going to face them.

Join Me Today as I Discuss….

  • How bad the debt really is and how bad it is going to be
  • A bit of debt history and what it can teach us
  • What the economic end game might look like
  • Why people are running to the dollar right now and why its a bad sign
  • What ignoring the current problems will lead to for many
  • Thoughts on where a good place to live is right now
  • Make sure where ever you move to you want to be for 30 years or more
  • Why I would not currently be putting money in most 401Ks
  • Know where you would move your money and make sure you can actually do it

Resources for Today’s Show…

Remember to comment, chime in and tell us your thoughts, this podcast is one man’s opinion, not a lecture or sermon. Also please enter our listener appreciation contest and help spread the word about our show. Also remember you can call in your questions and comments to 866-65-THINK and you might hear yourself on the air.

34 Responses to Episode-912- Two Possible Futures Over the Next 4-12 Years

  1. Jonathan Wong

    Assuming no zombie apocalypse, no pandemic or Mayan Prophecy, the most indebited states go bankrupt and the states that have mineral resources will be able to sell it for hard currency. The owners of oil, gas, coal, farmland may end up running their own private armies and fiefdoms simply because they can pay the bills.

  2. love when you do shows like this. sets the mind to thinking all day about what I’m doin, how I can do it better/more efficient, what more i can do even on a small scale, and beginning new projects. thanks jack for all you do.

  3. The reason the SS is being paid out more than what they have isn’t that younger people are paying for the oldsters, it is because what the oldsters put in was sucked out of the SS system by Congress. Oldsters and Boomers are not the problem

    • Modern Survival

      @Ceworthe first I never said they were the problem, I said there is a problem. Your statement that it was “sucked out” to some degree is true but it doesn’t change the fact that the people under forty today are working support those on SS and paying money in they will likely never get back. Additionally OF COURSE government wasted the money they ALWAYS waste the money. There is no system in which government won’t waste money it has access to, that is the point. Social Security is a disaster because it is managed by government. Retirement funds should be private.

    • @Ceworthe
      You might want to read the article below for a little ‘reality check’ on SS/Medicare math. As stated in the article, the average worker pays $30-40k into the system over their lifetime.. while the average benefit extracted is $393-525k. With a current worker-beneficiary ratio of 1:1, there is no possible way for these systems to continue. (Payouts are 10x taxes)

      http://www.oftwominds.com/blogmay12/unsustainable-Medicare5-12.html

      This is of course according the the GOVERNMENTS numbers.

    • The proverbial lock box would have helped, but it only would have slowed the collapse a little bit, not stopped it. Beyond just SS, the debt mountain this country has gorged on over the past 40-50 years is truly unbelievable and amoral – and boomers and oldsters have been the biggest beneficiaries of the gorge, and now their kids & grandkids get the bill. They put their heads in the sand, elected ponzi operators to run the government, bought the two party dichotomy lie hook line and sinker, lived large, and held their hands out waiting for their “entitlements” to roll in at their kids’ expense.

      • Modern Survival

        @metaforge, yep, pretty accurate. Though let me say Social Security in theory can work, medicare and medicaid can’t. They are the much larger part of the 100 trillion dollar hole between now and 2050.

        If SS was treated like what it is, simply the purchase of Government bonds (a loan to your government due back with interest, the original promise) there is no reason it couldn’t work, save one. We are trusting the government to keep its promise. If you want to know how well that works out, ask a Native American.

        Here is how I would fix social security if I was forced to do so and keep it a “Government Run Program”. All contributions would go into a general purchase fund and monthly purchases would be made of Government Bonds in the name of each participant and set aside in their individual accounts. The bonds would be sold at market rates and would mature at what ever we decide retirement age is.

        As the money was a LOAN to the government the proceeds would be considered 100% non taxable. At maturity the holder of the bonds could continue to hold them drawing interest or cash them out with a monthly amount they set, etc, they could also cash them in full. (understanding that if retirement age is 65 a bond in the workers 64th year would be a one year bond, at 60 they would be 5 year bonds, etc.)

        This is the only way to create a “lock box” that would actually work. It isn’t perfect (getting rid of it fully is) but it would work and make Social Security transparent as to what it really is, a loan of your money to your government.

        Understand the government cannot “set the money aside” then pay it back with interest. You pay people interest on money for the ability to use and leverage it, not for some supposed privilege of “holding onto it for them”.

  4. “Stand at your front door… and look at your neighbor’s houses..” I had a couple of of holy crap moments.. LOL

    • Lidia Seebeck

      I didn’t. Let’s see, Judy and Sean both homestead. They’ll be eating. The Army family to our west is moving soon and the Gods know when that will be bought. The house to our direct east is abandoned, the one to the east of that is our local grease monkey. He, or his widow by that point, might need help. The only one I don’t know about is up on the bluff just because I can’t seem to find a good time to talk to them. Overall, I might just be semi-okay if I have my own homestead in full gear at that point.

    • I did the same thing Dene, but like Lidia, without the “holy crap” moment.

      I can only see three of my neighbors’ houses from my front porch, and the closest is about ¼ mile away. The three I can see are all preppers and of the half-dozen or so I can’t see from here, there’s only one that doesn’t have a basement/barn/root cellar full of preps. They’re clueless but really sweet folks so the rest of us will feed them. :-)

      Gawd, I’m so blessed to have this community around me if times get tough (or even if they don’t).

  5. great show Jack. your educated guesses on long-term results of near-future events make great content.

  6. I really believe you made a lot of good points on today’s podcast. We are in our early 60’s here, my husband and myself. We have already experienced our own Economic downturn: loss of jobs, loss of income, lost a house we owned. We moved to another state where my husband got laid off again. Now we are back in Minnesota, renting a home in rural area on a lake; best we can do right now. We are making things work the best we can. We don’t have any retirement or savings; we lost everything and are starting again. I garden and run my own business; my husband works from home at a much lower wage than he used to. Just saying this because I get what you are saying. We have experienced the economic downturn but we are surviving and I am prepping for hard times, the best I can. I can see all of the elements here am very realistic about what the most likely scenarios are and which are less likely to occur. Thanks for a great podcast!
    Shawnne

  7. Norcal Mike

    I can’t believe that companies would have a 401K without a cash equivalent. It’s like providing a company car, oops with no brakes.

    Here’s an interesting (positive) take on municipal defaults.
    http://blog.alliancebernstein.com/index.php/2012/05/21/what-weve-learned-from-municipal-distress/
    Only the author doesn’t mention how States like California are sucking money from local governments in every way possible.

  8. “eating a lizard & making a fire with a cactus and a piece of wood” Thanks a lot Jack. Coffee shot out my nose while driving. :-)

    Seriously, good show. Lots to think about. When people say to me that we couldn’t possibly have wide spread riots here I point out the NYC 1977 blackout. The cops were simply overwhelmed. I was 10 years old at the time and living on Staten Island, which was probably the borough least affected by violence. But man, it was scary having that much bad stuff going on that close. Urban centers are not the place to be during any kind of stress to society.

    -Barb

  9. I really enjoyed the show. It just backed up many of my own thoughts and gave me assurance with my current position. I am currently moving out to the fringe of the suburbs into a small community. Picked up a foreclosure for a fraction of what it cost the prior owners to build it in 2009. There loss is my gain, 3 acres and a pond (clean slate w/ lots of potential). All last year I had been selling things and piling up as much cash as possible (cut 401K contributions), which was right about the time I started listening to the show. I will be renting my current home which comes with some risk, but Like you said, “If you are going to be paying a mortgage payment you better live where you want to be living during a downturn.” Quick note, bargains are out there but the competition for them is continually growing. Many places we’ve looked at have had 4-5 bids and the prices get run up. Cash is king, but it is still possible with loan programs. (avoid the 203K FHA loans, but the FNMA renovation loans are much better, check out homepath.com for listings)

  10. I believe when we look at the future, the best indication of what will happen is to look at the past. While I agree the current economic and debt situation is not sustainable,
    I do not think running for the hills is the solution for most people. I also do not believe we will see a sudden collapse in the currency.
    This is not the first time we have seen this kind of worldwide economic disaster driven by debt. If history is any example what our future holds is continuing loss of living standard worldwide eventually ending in a cycle of nationalism and wars. That is the real reason for the dollar’s strength, we are in better shape to survive and prosper from war than anyone else.
    We have seen currency devaluation several times in several countries, including fairly recently in Mexico that did not cause the downfall of civilization. The pendulum can only swing so far in one direction, and the forces of nature force it to return. So it is with economic cycles. I am not saying there will not be suffering, I am just saying there will not be a Zombie Apocalypse as some are trying to portray.
    Even in countries with unimaginable poverty, there are still people getting up every day and working jobs and raising families.

  11. I’m willing to make a prediction about the future: the elites currently in power will keep the system going for as long as they possibly can, so they can keep their power. This pretty much assures a sudden economic collapse, once it is no longer in their power to stop it, unless of course a revolution takes them out of power, which engenders a different sort of collapse.

    • Norcal Mike

      I thought the same re your first sentence but figure that it’d assure a painfully slow economic dwindle where the collapse is more like Indiana Jones hitting every canopy on the way down and never really hitting the ground that hard. If the elites can pull that off then there may not be any one spark for a revolution and they remain safe – a smart play for them.

  12. Spot on about Las Vegas – used to live there – my friends & I have a nickname for it: The Death Bowl. 2M+ people in a scorched barren desert with hardly any resources. My friend who still lives there plans to drink water left over sitting in the neighbors’ sprinkler systems if and when it all goes down – lol!

    Anyway great show. It has me thinking though – isn’t a rural place to get away from it all the whole point of a BOL? Why does it have to be your primary residence? Assuming you are able to reach the BOL if necessary.

  13. Very good show, puts the purpose of prepping into perspective. I do not however grasp the notion that, if I heard this right, after a devaluation if you had saved your money you’d be able to pick up stuff a lot cheaper. Wouldn’t everything be more expensive? I’m loading up on stuff now before the crash comes because afterwards the vendors won’t be around or prices will be increased. Also, what is with the price of silver? It’s down around $27 oz, time to buy?

    • Norcal Mike

      I think Jack was saying that nice 2nd hand items from grasshopper-types will go on fire sale because the owners are over-leveraged with debt and stuck needing a stack of cash to buy overpriced foodstuffs from the store (the only place to get food in their mind). Ants could have a garden and local food connections, no debt, and a big stack of cash to capitalize on the situation.

      I’m trying to buy silver at $27/oz, but bidders on Ebay are still paying $32+/oz so I’m losing lots of auctions…

      • Modern Survival

        @Norcal Mike

        Yep exactly people have read to many fan fiction novels at this point where the script always starts with run away inflation. That isn’t very probable, what is more likely is massive in ability to pay debt and unemployment FIRST, this will cause a dumping of goods as people try to just keep the lights on and the roof over the heads of their families. During this period those with cash will have massive purchasing power. At some point this purchasing power will likely dwindle and those with assets like silver and gold become those with the most purchasing power.

        Collapses are generally spirals, they only seem sudden because most people keep their eyes and ears shut until the tail end.

        Yet based on your other comments I think the final flop is going to be worse then you personally expect it to be. Keep your powder dry Mike.

  14. Another sobering fact: over the past 4 years fedgov is overspending each year by roughly 7% of our existing debt, and yet GDP is growing at only about 2% annually. Debt saturation point, where additional deficit spending does not spur additional growth that exceeds or matches the spending, has been reached. It is not a pretty picture.

  15. It’s easy to look at other people’s situation and wish I was them, being much more prepared, but the sword cuts both ways. Thank God I’m not a college freshman right now. Or one of those people who got suckered into going back to school. They are going to come out on the other end between a rock and a hard place.

  16. Jack, it isn’t at all a new thing for a person’s 401(k) funds to be non-accessible while still employed. That was the original setup of such plans going all the way back to the year 1980 when 401(k) plans were first conceived. I used to work for one of the top 3 largest mutual fund companies in the world, and I specifically worked for 7 years in the department that handled 401(k) plans, and I administered the running of such plans for 2 of those 7 years. I had a hand in the administrtaion of several dozen plans during that 2 years, and prior to my promotion to administrator, I also performed “Participant Servicing Duties” for several thousand plans [ie, my initial entry-level job was to answer the in-bound 800-telephone number to answer questions people had about their401(k) accounts, and I make no exaggeration when I say I was answering phone calls on behalf of several thousand different 401(k) plans]. I have seen the rules governing those several thousand plans, and they all have a handful of key traits that are absoluetly identical from one plan to the next simply because the law mandates the uniformity. And the inability of an employee to get at MOST (if not all) of the money while still employed is universal.

    The law takes a look at all the money in your 401(k) account and divides the money into myriad different “buckets” of money depending upon where the money originated from. The two main sub-cataegores are “Employee Contributed Money” (also known as “EE money”) and then the “Employer Contributed Money” (also known as “ER money”). The most common buckets that virtually all plans have are “Pre-Tax EE,” and “ER Match,” both of which are buckets of money that have never been taxed. Those two buckets are pretty much ALWAYS utterly unable to be accessed during employment. Any type of bucket beyond those two are less common, and usually have all kinds of extra restrictions placed upon them.

    The ability to access ANY bucket of money while you are still employed is always heavily governed by a New York City phone book’s thickness of rules and regulations. One bright spot in all this is the possibility that MAYBE your plan might make an allowance for there to be money in a not-so-common bucket called “Post-Tax EE.” That money has already been subject to taxation, and so it’s USUALLY able to accessed with few problems while you are still employed. But not all plans even allow a “Post-Tax EE” bucket to exist. And even if they do, I have seen more often than not that a plan will deliberately limit the ability to get at it the “Post-Tax EE” money to (say) only twice per year, or only if the value of the bucket exceeds $500. And the law very specifically mandates that the “Post-Tax EE” bucket be FURTHER separated so that one bucket is called “Post-Tax EE Contributions” and a second is called “Post-Tax EE Interest” so that the base amount you actually put in is always kept discernable from the amount of interest it accrued over the years (and hopefully you haven’t taken a loss on it over the years). The reason a 401(k) plan must separate between the base contribution amount and the interest earned is so that when you quit your job and cash in the plan, you don’t pay taxes a second time on the part you already paid taxes upon.

    Meanwhile, IF a plan allows for you take some money while still employed from that not-so-common bucket called “Post-Tax EE” (and some do not, which I think is stupid), you will either a) pay taxes (and penalties) on the portion of that bucket that earned interest and thus was never taxed, or b) will only be allowed to talke hold of the part already taxed and will be forbidden to touch the not-yet-taxed interest that’s accrued on it. As for other restrictions against taking that money while still employed, the sky’s the limit on how creative an employer can get in barring you from it. It all comes down to what was originally written into the Plan Document, a legal document which governs the plan. The Plan Document is the Bible on your 401(k) plan. Such documents used to be custom written by tax lawyers with all kinds of speciality items incorporated into them, but now there are cookie-cutter versions available (called “prototype plan documents”) that you just fill-in-the-blanks with the name of your company and the dates you intend to adopt the document. (Really huge companies still have custom-written documents, but mid-sized companies and smaller usually opt for the prootypes.) NOTHING can trump the Plan Document, and a kind-hearted HR officer who tries to circumvent the rules of a Plan Document is in danger of getting the whole plan “disqualified” by the IRS. I have seen few instances of an actual “plan disqualification” but they DO happen, and when they do, every last dollar in the plan suddenly no longer qualifies for tax-exemption, and then all the employees at that HR officer’s company who have money in the plan suddenly get hit with the full brunt of taxation all in one year for all their many years of hard savings, and they also must pay the penalties as well — all because that HR officer wanted to be nice and offer an (utterly illegal!) exception to a hard-up employee. Not only will that HR officer get fired, and not only will she never work again in the field of HR, but she could very well get sued by her former employer and possibly by all the employees of that company (in a class-action lawsuit, in addition to her former employer’s lawsuit), employees who innocently got screwed with taxes and penalties because of her one fatal mistake of trying to be nice.

    I almost never saw a plan that didn’t deliberately have MULTIPLE obstacles meant to keep people from raiding the kitty. And the rules are slavishly protected in order to protect the plan itself. When I was answering the phone lines, I had people yell at me about the rules preventing them from getting to the money. I have had people cry on the phone. I had people threaten to get their lawyers. But these rules ARE pretty standard. Any plan which allows free access to the money while still employed is either very rare with a bizarro set of buckets in them, or isn’t a true 401(k) and in fact falls under an entirely different section of the IRS Code other than Section 401, Paragraph (k).

    • And just for clarification’s sake, 401(k) plans are a very strange animal which get governed by a vast body of laws, and are constantly under the scrutiny of several powerful and scary often times governmental entities:

      — The IRS
      — The Depertment of Labor
      — The Securties and Excgange Commission
      — The National Association of Securities Dealers
      — The Federal Banking Commission

      A very grand set of laws was developed and compiled to try and orchestrate the interests of all of the above governmental entities when it comes toi these plans. That monstrous tome of laws was incorpoarted into an already-existing Act of Congress called ERISA which stands for “Employee Retirement Income Security Act.” ERISA was already a hefty tonnage of paper when it was first encated back in the 1970’s. But when 401(k) plans came along in the 1980’s, yet more trees were killed to further refine that law and make provisions for the new fangled 401(k) plans.

      The IRS regulations combined with the ERISA regulations make for a fearsome burden for any financial firm that hopes to enter the industry of managing 401(k) money. And out of all the different categories of money that a financial firm might venture to try and manage (estate money, trust fund money, etc), 401(k) money is easilly THE most burdensome. Having to answer to ALL of those different legal entities at every single turn is a costly undertaking. The amount of reporting that must be done each yearper plan to satisfy all of the above entities requires extensive manpower. So because of just how complex it all is, a lot of firms no longer even want to manage 401(k) plans. Or if they do, they want small, gentle little plans with fewer employees and ever fewer buckets to worry about, and thus fewer legal landmines to stumble over.

      • Modern Survival

        @Oil Lady, thanks for all the great info but I fear I may not have been clear, I did fell “off” on this episode.

        So here is what I more accurately mean. You can’t get to your money while employed by the managing employer, that is basically how it always was, true.

        What is new to me anyway is not having a cash style fund in a 401K, so that is my issue with them at this point. Not only can’t I get my money even with penalties and interest, now I can’t keep it safe inside the investment vehicle.

        I find this totally unacceptable. In all my years as an employee and an employer I never saw a plan without a cash stye fund, I have seen several different types. Some are simply like a very low interest savings, some are like a money market with a better rate sort of for waiting in between buys and sells in your account, I have even seen some with a “dollar fund”, the pay nothing and just hold dollars.

        So my point is, you can’t get the money out while employed and NOW you can’t even protect the funds. To me that is quite new, like in the last few years.

        Do you have any information that is counter to that?

        • Hi Jack,

          I understand your original intended point now.

          In response to your question, I distinctly recall that you did a podcast about 18 months ago where you likewise brought up your disgust over the evidence being brought to you by listeners whereby those listerners were in 401(k) plans which did not have a “cash equivalent investment option” among the lineup of choices in their plans. I also recall you saying in that older podcast that you were perplexed over the lack of wisdom in NOT having a cash option, and you even voiced your suspicion that perhaps it was maybe even illegal for there to be no cash option.

          So I replied to that in the comments section of that podcast from 18 months ago. I regret I do not recall which episode it was. But here’s a repeat of the general gist of what I said:

          It is NOT illegal to leave out a cash option in the investment lineup of a 401(k) plan [or at least it wasn’t when I was a 401(k) administrator back in the late 1990’s, and I don’t know about nowadays]. Of the several thousand 401(k) plans whose composition and rules and investment lineups I had regular exposure to, I saw less than 20 (once again, that is out of several thousand) which had no cash investment. Whenever I saw such a plan with such a skimpy (and dumb-ass) investment lineup, I was always flatout appalled. And you were correct to state it EXACTLY as you stated in today’s podcast: there SHOULD be a “safe harbor” investment in each and every 401(k) in this nation, but there are some which (for all intents and purposes) do not. As a bullsh-t substitute for a TRUE “cash equivalent” or “safe harbor” investment, I repeatedly saw either a) a lower-risk bond fund (like a treasury bond fund, but thankfully NEVER a junk bond fund), or else b) I saw the dreaded category of invetsment called an “investment contract fund.” I personally detest investment contracts because even though they are always a dollar per share (just like a typical cash equivalent fund), investment contracts pose considerably more risk, especially during turmoiled economic times. I have seen only 2 investment contracts collapse and fall into banruptcy court. It was a pain the arse whenever an ICF collapsed because it meant the assets in that portion of the 401(k) plan had to be frozen and then it would drag out in court for years. It didn’t happen very often that an ICF would “break the dollar,” but when those funds go down, they go down HARD! Investment contract funds are wolves in sheep’s clothing IMO, capable of truly taking people to the cleaners in the event that the fund might crash and burn, all the while LOOKING so deceptively as if they are a safe harbor. The whole dollar-per-share thing isn’t enough of a safe harbor, IMO. The potential to lose everything in an investment contract is way too high. So I believe that to grant such an investment the covested “safe harbor” status is irresponsible.

          What I have found again and again is that when a brand new 401(k) gets laucnhed by a company [like maybe they have been dreaming of having a 401(k) for years, and then they finally had enough employees with enough interest to actually do it] the HR officers generally don’t know which investments to select for the fund lineup. And sometimes I have found that some officer in the company who is NOT an HR person has some “favorite” fund he has a personal fondness for, and he manages to get his way and force that fund into the plan. I mention that only to say that the actual selectin of investments can be somewhat arbitrary, and a skillful and diplomatic employee from my former financial firm’s New Plans Department would work hard to make sure the fund lineup for a brand new 401(k) plan woudn’t be a complete disaster.

          As an interesting sidenote, the plans classified under the law as 403(b)(7) plans tend to have many scores of investment choices in them–anywhere from 60 to 90 investment choiices was quite typical for 403(b)(7) plans. But 401(k) plans tend to have maybe a dozen investment options at best. The 403(b)(7) plans are for non-profit employers such as hospitals and universities and research labs, and there is an assumption made by HR officers that employees at such places are more highly educated (lots of doctorates floating around among the enployees), and so it is deemed permissible to allow a vast sea of choices to such employees, believing they will sort it out for themselves. However, the assumption made by HR officers at the for-profit companies is that you will have a less-educated employee base in a 401(k) and so if you give them too many choices you will overwhelm them. So keeping the choices limited to just a baker’s dozen is the preferred way to go when starting up a new 401(k). This ultimately meant that whenever I was sitting at my computer and I opened up my screen to view the plan rules and investment lineup for any given 403(b)(7) plan, I typically saw 60 investment options, and at least 5 of those 60 choices were true cash equivalents/safe harbors. (The other 55 invetsment would be roughly 40 stock choices, and then 10 or 15 bond choices, and then there’d usually be an investment contract or two tossed in.) But if I opened up any given 401(k) plan on my screen, I usually saw maybe 10 or 14 investments total — 8 or 9 would be stock funds, 2 or 3 might be bond funds, 1 or 2 might be cash equivalent funds, and then the oddball leftover or 2 might be the “company stock fund” (if there even was such a thing as a company stock fund –something more typical only of larger corporations really) and then that accursed investment contract fund.

          I was never given an explanation as to why we had that small number of 401(k) plans with no safe harbor. But they do exist. I don’t know if they were ancient plans from the dinosaur days of the early 1980’s when 401(k) plans were starting out. Or if mahybe they were perhaps not even true 401(k) plans where “Pre-Tax EE” money was the primary bucket of money in the plan (like maybe these were only “supplemental plans” where only the annual bonus money got deposited, which meant “Pre-Tax EE” wasn’t involved, but instead “Bonus and Profit Sharing” contributions were the only investejmnt allowed, and therefore, the regular rules from the IRS Code didn’t apply). Either way, those plans do exist.

  17. I enjoyed this. Peter Schiff would be an interesting guest on this issue… I think he has a new book out.

  18. Episode 646, “The Big Bugout” (April 19)- You suggested to readers now might be the time to bug out.
    Episode 912, “Two Possible Futures Over the Next 4-12 Years” (May 31)- You suggest readers get out of the urban areas/high-density suburbs.
    The warnings are coming in loud and clear. Thanks for that.

  19. Rubber_necker1776

    I know that I am arriving at the dance several songs late, but Jack mentioned a riot of sorts that happened in Atlanta due to food stamp cards being refilled a day late. I have heard that before, but haven’t been able to find a news story about it. Anyone have a link?