The current financial and social crisis in the United States has been building for years. Nothing I have heard during this entire election cycle tells me that things will not continue as they have before.
The election will come and go but the reality of our circumstances remain. So post-election, what are we to do?
All I can say to my clients is to structure their investments into those assets that will focus on two goals. First, to make investments that will maintain equality of purchasing power regardless of inflation, deflation, or anything else that means an economic threat to hard-earned wealth. Second, to structure those investments in a manner which counteracts the ever-present danger of loss because of legal liability.
The economic crisis that is the backdrop to the election is the result of both legislative and regulatory misjudgments made over many years by many Congresses and administrations, as well as fundamental misconceptions as to the role of the United States in relation to the rest of the world.
I am told over and over again that things are getting better because the stock market, that is the DOW for example, is going up. Our news reporters, pundits, talking-heads, and politicians endlessly talk about "The Market." All follow the assumption that "The Market" is the major indicator that investors should use to gauge whether the economy is doing better or not. This is nonsense.
The publicly traded markets are valued in U.S. dollars which are of diminishing purchasing power. What would the charts of "The Market" show if they were based on gold or the euro?
The charts don't take into account, for example, the thin trading volume, the program trading effect, or the impact that our hostile tax compliance policy has on foreign investors who are limiting, if not abandoning, investing in the U.S.
Critically, this focus on just publicly traded markets also reflects the basic misunderstanding of the nature of wealth in the United States. Most people have a substantial part of their net worth invested in privately held real estate or closely held companies. Not the publicly traded stock, bond, and commodity markets.
Let me be clear. The publicly traded markets are good for making short-term money by trading. That is, if you believe that you are getting a fair shot and not just some sucker playing in a rigged Wall Street game. No matter, trading is quite different from investing when it comes to long-term economic survival.
And regardless of what market you are playing in, or your assets are invested in, everyone is exposed to the risk of being wiped out because of lawsuits. The litigation industry shows no sign of backing off. And tort-reform legislation in Congress can be expected to continue to be DOA. If nothing else, a divorce can easily wipe out a life-time of hard work.
Anyone with any amount of retained wealth has a target on their back. The plaintiffs Bar and government lawyers have little restraint or effective accountability in pressing their ever-more clever theories of liability.The litigation industry is alive and well, and prospering at the expense of the economy.
Greedy lawyers and political ambition make for a powerful combination. The current hyper- flap over mortgage foreclosures is merely symptomatic of this disease.
Regardless of the outcome of the election, the U.S. government is already committed to spending trillions of dollars more than its revenues. What is needed most of all is something that nobody running for Congress has said they would do. That is, change the rules by which Congress regulates itself and passes legislation.
If the rules of the game that is played by Congress don't change, then I think it is fair to say that there will be no change in the legislative outcome. As for the president and the rest of his administration, I think they well understand that everything they want to do to advance their agenda they can do through regulation.
For the president, Congress is effectively irrelevant. That is, unless the political will arises in Congress to cut off funding to the administrative agencies that can issue regulations that have the force of law without congressional approval.
Do we really need the Energy Department or the Education Department? How about the Office of Information and Regulatory Affairs? And why are we paying for gasohol? And why are we giving away billions upon billions of dollars — to nations hostile to our economic interests — for foreign aid, the World Bank, or the United Nations when we have to borrow short-term money at increasing interest rates from the Chinese to do it?
The big test will come next year. Then Congress, with its incoming class of newly elected legislators, will face the fact of either raising the debt ceiling and continue to exacerbate the debt crisis, or face cutting spending. Which do you think it will be?
Regardless of the outcome of the election, the investment risks of today's crisis environment will not change. The two critical factors for investors are to make investments that will maintain purchasing power parity, through ownership structures that will protect those assets from lawsuit liability.
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