The past two days, we looked at a variety of factors which could derail our economy and destroy the value of the dollar, along with all of your wealth. Today we’ll look at a few more bombs set to go off in the near future.
1) Tax Increases. President Bush and the Congress of that time put in place tax cuts during their terms. These tax cuts are scheduled to expire January 1, 2011. If they are allowed to expire, they will constitute the largest tax cut in history on the American people. President Obama came into office promising to raise taxes on “wealthy” Americans. Once in office, he had to admit that this would hurt the economy and has not yet done so. Since we expect the economy will show signs of growth in the coming year, the question here is, will that spur the government into thinking it will be okay to allow the previous tax cuts to expire, which will constitute a massive tax increase on people’s pocket books? Or could there be other, different tax increases? These could be serious issues for a feeble economy.
2) Credit Card defaults. There is close to $1 Trillion of credit card debt owed by the American public. If things get tough, there could be major default here. This is a significant destroyer of wealth which is part of the US economy. Its evaporation would be very costly.
3) Social Security, Medicare, & Medicaid promises must be paid. We’ve talked about the $12-15 trillion dollar US debt. But we owe about 3 times this in unfunded promises. The baby boomers are just now getting to “retirement age.” Who’s going to pay for the promises we’ve made to them?
4) Derivatives? I threw this in there because of the potential for problems. I’ve seen it estimated that the world’s economies are worth about $60 trillion (which makes it all the more amazing that we owe one quarter of that to others!) The total of the derivatives on the market is $600 Trillion. Hardly anyone understands these things. Most of them are perfectly good financial instruments and most of them cancel each other out. However, before AIG went under, none of us knew that they had created this instrument – one that guaranteed mortgage backed securities which they had not funded at all. It was simply a fancy idea a guy in a suit came up with. And it took down the world’s financial system so that the US government (and others) felt they had to step in and “save” it. Could there be another one of these unknowns? Who knows?
Could anyone of these things push our economy over the edge? This is probably not an exhaustive list, but could several of them combine to bring a cataclysmic change to life as we know it? It seems that there’s a very good chance that something worse than a “recession” could happen. Tomorrow we’ll look at what that would look like.
You’re invited to a free event November 18th in Austin to discuss these things in greater detail. If you would like more ideas on how to prepare for this coming storm, please sign up for our free newsletter here.
If you’d like to read more about the spiritual realities behind what’s happening, read the series we just finished on Daniel.
This post is Part 8 in the series Financial Outlook of the United States. To continue with this series, click on Pt 9. To gain more insight, you can read about the coming storm here, in Pt 1, Pt 2, Pt 3, Pt 4, Pt 5, Pt 6 , and Pt 7.
Photo credit: suburbandollar