The Fat Lady Begins To Sing

And so it begins…

The most recent national election declared the passion of the American people for the Nanny State.

Of the almost 127 million voters, a majority preferred a governing system that favors high taxes, a saturated welfare system, forced health care, and an abundance of government dependent workers.

Apparently we have learned nothing from the real-time occurrences in Europe, most recently in Greece.

So here we go on the carnival ride of our lives. As Congress very predictably followed the president down the rabbit hole, we are in for the spending spree of the century.

As Oliver DeMille put it in a recent article, “Make no mistake. Whatever the pundits say, we fell off the fiscal cliff on January 1, 2013.

‘Until House Republicans stand up and simply say “no” to the Obama super-spending agenda, the Spendocracy will grow and a depression is looming.

Indeed, conspiracy theories aside, those who want government to grow are actually benefited by recession and depression because they gain even more demand for increased government involvement.”

There is no turning back; in fact, according to a recent Forbes article titled “Do You Live In A Death Spiral State?”,this government growth and spending frenzy is not just a national government phenomena; the state and municipal governments are joining the party as fast as they can.

Face it, with more than 20% of the states already upside down, this is our new reality; and the sooner we warm up to it and adjust our thinking, the better for us in the long term.

Quoting from the Forbes article:

Don’t buy a house in a state where private sector workers are outnumbered by folks dependent on government.

Thinking about buying a house? Or a municipal bond? Be careful where you put your capital. Don’t put it in a state at high risk of a fiscal tailspin.

Eleven states make our list of danger spots for investors.

They can look forward to a rising tax burden, deteriorating state finances and an exodus of employers.

If your career takes you to Los Angeles or Chicago, don’t buy a house. Rent.

If you have money in municipal bonds, clean up the portfolio.

Sell holdings from the sick states and reinvest where you’re less likely to get clipped. Nebraska and Virginia are unlikely to give their bondholders a Greek haircut.

California and New York are comparatively risky.

Two factors determine whether a state makes this elite list of fiscal hellholes. The first is whether it has more takers than makers. A taker is someone who draws money from the government, as an employee, pensioner or welfare recipient. A maker is someone gainfully employed in the private sector.

Let us give those takers the benefit of our sympathy and assume that every single one of them is a deserving soul. This person is either genuinely needy or a dedicated public servant or the recipient of a well-­earned pension.

But what happens when these needy types outnumber the providers?

Taxes get too high.

Prosperous citizens decamp. Employers decamp. That just makes matters worse for the taxpayers left behind.

Let’s say you are a software entrepreneur with 100 on your payroll.

If you stay in San Francisco, your crew will support 139 takers. In Texas, they would support only 82. Austin looks very attractive.

Ranked on the taker/maker ratio, our 11 death spiral states range from New Mexico, with 1.53 takers for every maker, down to Ohio, with a 1­to­1 ratio.

The taker count is the number of state and local government workers plus the number of people on Medicaid plus 1 for each $100,000 of unfunded pension liabilities.

(Sources: the Bureau of Labor Statistics, the Kaiser Commission on Medicaid and a study of state worker pensions done in 2009 by two academics, Joshua Rauh and Rovert Novy­Marx. Professor Rauh estimates that the shortage in pension funding is on average a third higher today.)

The second element in the death spiral list is a scorecard of state credit­ worthiness done by Conning & Co., a money manager known for its measures of risk in insurance company portfolios.

Conning’s analysis focuses more on dollars than body counts. Its formula downgrades states for large debts, an uncompetitive business climate, weak home prices and bad trends in employment.

Conning rates North Dakota the safest state to lend money to, Connecticut the most hazardous. A state qualifies for the Forbes death spiral list if its taker/maker ratio exceeds 1.0 and it resides in the bottom half of Conning’s ranking.

A final word.

Ideas have consequences, and the consequences of the ideas that are shaping our fast approaching fiscal reality could not be any more obvious. Sure, go ahead, hope and pray that a miracle will occur or that government will come to its senses and stop all new spending and cut deeply into current spending (yes, that means real budget cuts such as reducing or stopping all non-vital services, no new construction projects, and pay raises).

And while you are waiting for that miracle or change of heart, you might consider entertaining the same steps that we have been suggesting for at least two years:

1. Read at least one of the depression books listed below within the next 30 days (no really, just do it).

2. Re-evaluate your current economic and family situation and make hard choices to re-position with a better strategy (down-size, more family time, grow a family or community garden, food storage instead of family vacation).

3. Get as liquid as possible and out of debt as soon as possible.  Fire sale opportunities will be on the rise over the next 5-10 years.

4. Start a mini-factory (develop multiple streams of income – home-based business, a cottage industry, enhanced education to shift to more flexible income, parallel incomes, CSA, Network marketing business, etc.) and be as creative and optimistic as possible.  These sentiments will soon be in short supply.

5. Create a culture and community of service

6. Create a family legacy. This means lay the groundwork for a multi-generational organization that unifies and protects your family — come what may (true happiness can only be found in family).

Take a look at this list of books to help adjust your thinking and position yourself to succeed during economic hard times at a level we have not experienced in our lifetime:

The Great Depression Ahead – Dent

America’s Great Depression – Rothbard

The Fourth Turning – Howe and Straus

The Third Wave  – Toffler

5,000 Year Leap – Skousen

The Cube and the Cathedral – Wiegel

The Servile State – Belloc

A Thomas Jefferson Education for Teens – DeMille/Brooks

 

P.S. Please be sure to do your own research.  I am ok if you don’t believe me, but for heaven’s sake, do not believe those who are saying “don’t worry, things are just fine.”  Get your own sense of truth by doing your own investigation.