The View From 1776
In Coke We Trust
Investors now view a default by the U.S. Treasury as more likely than a default by the Coca-Cola Company.
- In a recent post on "The View," when we wandered off into investment strategy, I suggested that our multi-national corporations, especially consumer oriented ones, may be the safest place to invest. Such companies as Colgate, P&G, Kimberly Clark, Kraft, Pepsi and Coke will be selling their "essential" products all around the world even if America crumbles.
Billions of people in the rapidly growing Third World nations will want these products. Those nations have adopted our free enterprise systems and consumers are going wild with their new affluence and disposable incomes. And, these companies pay 3-5% in dividends which are raised regularly! Why would anyone lock their money into U. S. Treasuries with that choice?Posted by bill greene on 01/30 at 11:44 PM
- Correct Bill.
2.5 billion middle class consumers now create the demand or lack of demand for most items. The U.S. is no longer the driving force in the world. While many of those 2.5 billion consumers don't have as high a standard of living (roads, sewer and water systems, etc.), they have income.
India adds about 30 millionaires a day and a billionaire a month. The Chinese now have 250 million middle class consumers buying TV's, washers, computers, cell phones, cars, homes, etc.
The international companies are going for their business. Many companies that leave the U.S. for Asia don't go to China. They go to other nations but the reasoning is often the same, new consumers in the area want their products. Often they are building plants in many locations with growing consumer demand to reduce shipping costs.
The globalization of the economy from developed nations to emerging markets means we will never return to even what existed 10 years ago let alone a few decades ago.
The U.S. is not alone in this crisis. Several of the developed nations built their economic plans around bad policies and abuse of debt and assumptions that they were warned were flawed.
For at least 30 years I have been reading the warnings of this crisis we have now and what was going to lead us to it. Most got the timing wrong for various reasons but, the trend right.
They may have the timing wrong yet as some believe the government can delay things for a couple years if they can just get another "bubble" going. It will make things worse but, could delay a depression or default of debt.
Much of the "balanced budget" under Clinton was a result of the tech bubble that, when it fell apart, led to a "jobless recovery," debt and housing bubble, and billions in lost tax revenue. The deficits we have are often more due to lost tax revenues than big ramp ups in spending until this time. This time we are doing both; losing tax revenues and ramping up spending.
This is, of course, adding risk of either outright default or hyper-inflation to the mix.
The interest on debt could become the largest item in the budget once interest rates return to normal. We now have to roll over 1/3 of the public debt about every year. That means over $2 trillion in loans to replace maturing bonds and bills and notes, have to be found on top of the $1.5 trillion in new debt each year.
If we don't consume enough to ship enough dollars overseas, they don't have the money to lend us nor as much desire. Why lend to a nation that is no longer your main source of export business. We are approaching that day as the 2.5 billion global consumers grow by 10's of millions a month.
There is no easy way around this since we can't grow or tax out of this crisis. We can only borrow, spend, and delay what has to come eventually.Posted by JanPBurr on 01/31 at 11:02 AM
- Jan--It is a scary scenario you paint and I agree we are in a bad spot. Our ancestors, wherever they may have lived around the world, had an "escape" we do not have. They all had a simple solution thoughout the past 400 years--whenever things got too oppressive or devoid of opportunity, they could simply pull up stakes and go to America. But, I ask you, "Where can we go?"
The opportunity to relocate to a more open and free society has generally been available throughout history to those individuals with the gumption to vote with their feet. The most famous exception was when the Roman Empire Fell--there were very few good alternative places to go, as the ensuing 500 year "Dark Ages" demonstrated. We may be faced with a similar situation.Posted by bill greene on 01/31 at 12:18 PM
- According to the Census Bureau, 10 million Americans have already left. Many are retirees living in retirement communities with good, low cost health care, low crime, low prices, and stable government.
A publication, "International Living" lists most nations and the risks, taxes, costs, citizenship requirements, etc.
It isn't so much that they are better in a standard of living now but will be and are lower in cost for seniors who keep seeing their buying power eroded here.
As we start to have the rolling blackouts, riots, civil unrest, we will begin to be more like 3rd world nations. Our major cities are already becoming like 3rd world nations due to the growing number of people who depend on government spending and benefit checks.
When the loans to the U.S. stop, we either default or hyperinflate and neither will stop the riots in the cities or the lack of funds for police, fire, education, health care, etc. If it is hyperinflation then the funds will be there but no buying power for those funds.
It will be like Germany or Argentina where the currency isn't accepted by other nations and the citizens can burn the currency cheaper than trying to buy fuel with it for heat.
A wealthy friend of mine says people he knows with net worth of $30 million or more are also buying homes in other nations to move to when it gets bad here.
They aren't moving yet but, they are getting prepared by also moving their assets out of the U.S. I have traveled some on cruises and was pleasantly surprised at the many modern places there are to choose from for retirees. Naturally, you would want to use all kinds of research into where you first think you would want to live.
I believe a stable government, low inflation, good economic growth, rising standards of living, good health care and low crime rates are all factors to consider. What is sad is that those things are all in decline here and none of the policies we are using will make them better and most will make them worse even if we don't have a collapse.
Just ending the dollar as the world's reserve currency will cause huge losses in our standard of living. And that looks to be dyed in the wool to happen. Even the World Bank we appoint the President of has that President saying the reign of the dollar must end if we are to have global financial stability.Posted by JanPBurr on 01/31 at 03:49 PM
That is the online link to "International Living."
I selected Uruguay as the opening page because of several good things I have heard about it. I hadn't been to the site for months and when I opened it to copy the link, this is the title of an article for members (I am not a member) that greeted me.
Uruguay--Where You Can Live in First World Comfort...Without Paying for it.
Climate: Warm temperate; freezing temperatures almost unknown
Here is the link they have for Uruguay health care
International Living's Overview of Health Care in Uruguay
Most people who can afford to subscribe to a private medical plan in Uruguay do so. There are basically two kinds of plans you can subscribe to.
The first one is provided by a private hospital itself. By becoming a member, you will benefit from inpatient as well as outpatient services. Members are provided with a list of doctors they can consult within the hospital or at their private practice. In some cases, depending on the level of coverage, the plan will cover consultations with doctors outside of the medical plan. Health coverage cost with a private hospital depends on the hospital and the level of coverage one has chosen. Monthly fees vary between $50 to $85. For some hospitals, age can be a factor affecting the cost of the health coverage (deductibles may apply).
The second option is to join a health company that offers different health-care coverage alternatives, giving the choice of national and international benefits. Members have access to some of the best physicians and hospitals nationally and internationally, and are given the chance to select the country of treatment, the institution, and the physician they want depending on the coverage they have chosen. Monthly fees vary according to the type of coverage chosen and the age of the applicant (deductibles may apply). A medical report will be required before you can acquire such plans. Monthly fees are between $90 and $260.
I just picked that country because I had heard some about it but, each country in the list has free links to much of the information you would want to know.
Also, it isn't so much what they are now as what we will become. Having a plan and knowing where you would go doesn't mean it has to be used.
Also, our own government accounting agencies are the most "doom and gloom" places you will encounter when it comes to real facts. The current burden on each family is over $450,000 according to the GAO and CBO is projecting a quadrupling of interest on debt and that is assuming no more recessions in the next 10 years.Posted by JanPBurr on 01/31 at 03:59 PM
- Jan, I can just sail around the BVI's and spend my Coke and Colgate dividends. It's my fifteen grandchildren I worry about.
Posted by bill greene on 01/31 at 05:23 PM
- Check with a good tax attorney. The U.S. has some really tight laws about people who leave the U.S. as they are supposed to keep paying all taxes even on money they earn elsewhere and if you give up citizenship they have really terrible laws and taxes on your estate at that time.
The new tax regime applies to certain individuals who relinquish their US citizenship and certain long-term U.S. residents (i.e., green card holders) who terminate their U.S. residence (hereafter referred to asPosted by JanPBurr on 01/31 at 09:13 PM