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Revisit Your Planning Assumptions!

The world that we have known since the end of WW11 with its stability, economic growth and improving lifestyles is coming to a close. A new era is dawning with new opportunities and challenges that will impact you, your family, and your approach to financial planning.

The Rubicon has been crossed, so to speak, as the US and likely soon Canada and other G7 countries, find that their tax revenues are running far short of their cash flow needs to meet operating costs and entitlement programs promised to you.

The US Government and others will now need to create money, currency or whatever else you wish to call it, in increasing amounts in the coming years. This change will create new and unexpected distortions in the economy and your personal assets.

US macro economist and commentator Luke Gromen noted in early October the following about the US financial condition: "The punchline is that right now, as of the third quarter of 2021, true interest expenses for the United States – Treasury spending plus entitlement spending on pay-as-you-go spending (ed. Note: Social Security etc.) is 111% of tax receipts, even though U.S. tax receipts are at all time highs and these all time highs are influenced by all time high asset prices across the board."

He said the same number, as recently as 2018 was around 70%-75% tax receipts were consumed by true interest costs and entitlement spending.

"The Fed (Federal Reserve Bank) needs to print 11% of tax receipts just to cover true interest expense let alone all other spending requirements for U.S. Government programs – Defence at $800 Billion, Veteran’s Affairs, Labour Department, Education Department and Veteran Affairs benefits are now $200 Billion per year, are not included in the amount of money created just to cover true interest costs."

Effectively, the US and soon Canada given its record spending and borrowings for covid, are creating money just to cover the interest on their debt never mind their operating costs. In the early 1980’s these type of countries were laughingly referred to in the business press as "Banana Republics" as it applied to mostly South American countries.

This condition will likely last and take a few years to resolve itself. You have some time to make adjustments to your lifestyle, spending, savings, and debt management starting today. Your mix of debt and assets, along with your personal age and time to retirement will need to be reviewed and changes made soon.

Your personal ability to ride the coming waves of disruption and change, think inflation and deflation happening at the same time, will depend upon your own personal resilience. This will include if self-employed, being indispensable to your clients, if you are an employee, make sure the company will fall apart without you, take care of your health, eat well, exercise, build a strong social circle and build up your social capital, have reserves of goods, just like your Grand Parents did, with a larder, or cantina, to smooth out your cash flow needs.

And prepare yourself so that when the economic system has adjusted and normalized you will be able to invest and buy quality assets at reasonable prices. Keep in mind that a key element of financial planning is what options you have, to buy goods and invest, at any given point in time. It is not what the price of goods or assets are that counts, but whether you can buy or own them compared to the people around you.

Call us today to do a complete review of your situation, what MBA students are taught to do: a SWOT analysis – strengths, weaknesses, opportunities, and threats. The time for planning has never been greater!

After all, who ever came up with a scenario that included shutting down the entire economy as part of their planning process?


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