Made in U.S. Dollars: Paper Promises, Real Consequences - BCA February 2011 Newsletter
-
Upload
ron-tadross -
Category
Documents
-
view
95 -
download
0
description
Transcript of Made in U.S. Dollars: Paper Promises, Real Consequences - BCA February 2011 Newsletter
Made in U.S. Dollars:Paper Promises,
Real ConsequencesReal Consequences
Ronald A. Tadross, CFABalance Capital Advisors, Inc.
February 2011
SurrealGovernment PromisesGovernment Promises
Everywhere
Cheap Money Has Helped Promote U.S. Federal Government Entitlement Spending
30%
40%
50%
60%
70%
As %
US
Fed
era
l E
xp
en
dit
ure
s
Entitlement Costs as % Total US Spend
Interest Costs as % Total US Spend
Ronald A. Tadross, CFA www.balancecap.com
3
0%
10%
20%
30%
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010EA
s %
US
Fed
era
l E
xp
en
dit
ure
s
Source: w w w .usgovernmentspending.com, Balance Capital Advisors Inc. estimates.
The States Have Made Enormous Pension Promises Also, Which Will Require Much More Taxpayer Money If Asset Returns Lag
100%
150%
200%
Pe
ns
ion
Lia
bili
tie
s a
s %
Re
ve
nu
e
Unfunded Pension Liability as % Revenues
Pension Assets as % Revenues
Ronald A. Tadross, CFA www.balancecap.com
4
0%
50%
Co
nn
ect
icu
tIn
dia
na
Vir
gin
iaN
. Ca
rolin
aA
lask
aM
ich
iga
nA
lab
am
aO
reg
on
Oh
ioM
inn
eso
taN
ew
Je
rse
yK
en
tuck
yN
ew
Me
xico
Uta
hF
lori
da
Ma
ryla
nd
Ari
zon
aW
isco
nsi
nC
olo
rad
oM
issi
ssip
pi
Ma
ine
We
st V
irg
inia
Okl
ah
om
aH
aw
aii
Mo
nta
na
Ark
an
sas
Iow
aN
. Ha
mp
shir
eW
yom
yin
gN
ew
Yo
rkK
an
sas
Lo
uis
ian
aR
ho
de
Isla
nd
Wa
shin
gto
nIll
ino
isT
exa
sP
en
nsy
lva
nia
Ge
org
iaM
isso
uri
S. C
aro
lina
So
uth
Da
kota
De
law
are
Ida
ho
Ne
vad
aM
ass
acu
setts
Ca
lifo
rnia
Ne
bra
ska
No
rth
Da
kota
Ve
rmo
nt
Te
nn
ess
ee
Pe
ns
ion
Lia
bili
tie
s a
s %
Re
ve
nu
e
Sources: PEW Center on States, w w w .usgovernmentrevenue.com, Balance Capital Advisors
Even Municipalities Have Committed Property Taxpayers To Wage & Benefit Cost Trends That Are Clearly
Unsustainable
59%
91%
50%
60%
70%
80%
90%
100%
1995
-201
0 C
umul
ativ
e P
erce
nt C
hang
e
U.S. Inflation (Consumer Price Index, All Items)
Inc. Village of Garden City Property Taxes
Inc. Village of Garden City Total Labor Costs
Ronald A. Tadross, CFA www.balancecap.com
5
43%
0%
10%
20%
30%
40%
50%
1995-2010 Cumulative Percent Change
1995
-201
0 C
umul
ativ
e P
erce
nt C
hang
e
Sources: Garden City Financial Filings, BLS, w w w .gardencityresidents.org calculations. Note: total labor costs include salaries & benefits.
Consequences of Printingand Borrowing U.S. Dollarsand Borrowing U.S. Dollars
Remain Muted
Taking on Debt to Finance Non-Productive Entitlements Ultimately Requires Money Printing
$1,000
$1,500
$2,000
$2,500
US
Mo
neta
ry B
ase (
$ in
millio
ns)
$8,000
$10,000
$12,000
$14,000
$16,000
US
Tre
asu
ry D
eb
t ($
in
millio
ns)
US Monetary Base
US Treasury Debt
Ronald A. Tadross, CFA www.balancecap.com
7
$-
$500
$1,000
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
E
US
Mo
neta
ry B
ase (
$ in
millio
ns)
$-
$2,000
$4,000
$6,000
US
Tre
asu
ry D
eb
t ($
in
millio
ns)
Source: w w w .usgovernmentspending.com, Balance Capital Advisors Inc. estimates.
Non-Productive Capital Use Does Not Generate Wealth
$2,000
$2,500
$3,000
$3,500
US
Fed
era
l T
ax R
eceip
ts (
$ m
illio
ns)
$80,000
$100,000
$120,000
$140,000
To
tal US
Deb
t (ex. corp
orate d
ebt, $ m
illion
s)
Federal Tax Receipts
Total US Debt (ex. Corporations)
Ronald A. Tadross, CFA www.balancecap.com
8
$500
$1,000
$1,500
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
E
US
Fed
era
l T
ax R
eceip
ts (
$ m
illio
ns)
$20,000
$40,000
$60,000
To
tal US
Deb
t (ex. corp
orate d
ebt, $ m
illion
s)
Source: w w w .usgovernmentspending.com, Balance Capital Advisors Inc. estimates.
The Mountain of U.S. Debt Has Yet to Have Borrowing Cost Consequences
8%
10%
12%
14%
16%
U.S
. 10-y
ear
Tre
asu
ry B
on
d Y
ield
$8,000
$10,000
$12,000
$14,000
$16,000
U.S
. Treasu
ry Deb
t ($ millio
ns)
10-year Treasury Bond Yield
US Treasury Debt
Ronald A. Tadross, CFA www.balancecap.com
9
0%
2%
4%
6%
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
E
U.S
. 10-y
ear
Tre
asu
ry B
on
d Y
ield
$0
$2,000
$4,000
$6,000
U.S
. Treasu
ry Deb
t ($ millio
ns)
Source: U.S. Federal Reserve, w w w .usgovernmentspending.com, Balance Capital Advisors. Inc. estimates.
Total State Debts are at Unmanageable Levels and Continue to Grow
150%
200%
250%
300%
De
bts
as
% R
ev
en
ue
s
Unfunded Pension Liability as % Revenues
Unfunded Healthcare Liability as % Revenues
Bonded Debt as % Revenues
Ronald A. Tadross, CFA www.balancecap.com
10
0%
50%
100%
Ne
w M
exi
coW
isco
nsi
nO
reg
on
Mis
siss
ipp
iO
hio
Okl
ah
om
aA
lab
am
aH
aw
aii
Ne
w J
ers
ey
Ma
ine
Ne
vad
aM
isso
uri
Co
nn
ect
icu
tM
on
tan
aS
ou
th D
ako
taM
inn
eso
taA
rka
nsa
sK
en
tuck
yC
alif
orn
iaIll
ino
isS
. Ca
rolin
aId
ah
oM
ich
iga
nL
ou
isia
na
Ma
ryla
nd
Co
lora
do
Vir
gin
iaG
eo
rgia
Uta
hIo
wa
N. C
aro
lina
Pe
nn
sylv
an
iaR
ho
de
Isla
nd
Ala
ska
Ari
zon
aF
lori
da
Wa
shin
gto
nK
an
sas
N. H
am
psh
ire
Ind
ian
aT
exa
sW
yom
yin
gV
erm
on
tM
ass
acu
setts
Te
nn
ess
ee
Ne
w Y
ork
No
rth
Da
kota
We
st V
irg
inia
Ne
bra
ska
De
law
are
De
bts
as
% R
ev
en
ue
s
Sources: PEW Center on States, w w w .usgovernmentrevenue.com, Balance Capital Advisors
Municipalities View Borrowing as a Solution Too, And In Most Cases Do Not Need a Public Referendum To Borrow
$15
$20
$25
$30
Vill
age
of G
arde
n C
ity T
otal
Bon
ded
Deb
t ($
in m
illio
ns)
Garden City Total Bonded Debt
Ronald A. Tadross, CFA www.balancecap.com
11
$0
$5
$10
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011B
Vill
age
of G
arde
n C
ity T
otal
Bon
ded
Deb
t ($
in m
illio
ns)
Sources: Garden City f inancial f ilings, w w w .gardencityresidents.org calculations.
The $19,000 a day borrowing rate is based on a $6.8 million bond issued in May 2010 and another
similarly sized bond expected by May 2011.
Note: includes general government, w ater, pool & tennis.
Municipalities Are Behind States and Counties in Bonding Pension and Health Care Liabilities, But Not Far Behind
150%
200%
250%
300%
Bo
nde
d a
nd
Hea
lth
care
Deb
t as
% R
even
ues
Health Care Liabilities/Debt as % Revenues
Bonded Debt as % Revenues
Ronald A. Tadross, CFA www.balancecap.com
12
0%
50%
100%
Garden City Rockville Centre Nassau County New York State
Bo
nde
d a
nd
Hea
lth
care
Deb
t as
% R
even
ues
Sources: PEW Center on States, NY state financial filings, w w w .gardencityresidents.org calculations.
Many Taxpayers are Agnostic to Government Borrowing Because They Do Not See It and Borrowing Limit's Tax
Increases
$2
$4
$6
$8
$10
Yr.
/Yr.
Cha
nge
Bon
ds &
Tax
es ($
mil.
)
5%
10%
15%
20%
Year/T
ear % C
han
ge in
Tru
e Taxes
Yr./Yr. Bonded Debt (Reduction)/Increase
Yr./Yr. Property Tax Increase/(Decrease)
True Tax Increase (Yr./Yr % Change)
Ronald A. Tadross, CFA www.balancecap.com
13
($8)
($6)
($4)
($2)
$01996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011B
Yr.
/Yr.
Cha
nge
Bon
ds &
Tax
es ($
mil.
)
-10%
-5%
0%
5%
Year/T
ear % C
han
ge in
Tru
e Taxes
Sources: Garden City f inancial f ilings, w w w .gardencityresidents.org calculations.
Service Cuts IndicateBorrowing Is Reaching ItsBorrowing Is Reaching Its
Limit
Employee Pension and Health Care Costs Are Devouring More and More Taxpayer Funds, and are Compounding
$0.12
$0.14
$0.16
$0.18
$0.20
$0.22
$0.24
Po
rtio
n o
f E
ach
$1
in V
illag
e T
axes
th
at g
oes
to
Pen
sio
n &
Hea
lth
care
Ronald A. Tadross, CFA www.balancecap.com
15
$0.00
$0.02
$0.04
$0.06
$0.08
$0.10
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011B 2012E 2013E
Po
rtio
n o
f E
ach
$1
in V
illag
e T
axes
th
at g
oes
to
Pen
sio
n &
Hea
lth
care
Sources: Garden City financial filings, NY State forecast, w w w .gardencityresidents.org calculations and estimates.
Garden City Village employees have been constant at approximately 300, but the portion of your tax dollars
going to employee pension and healthcare costs has nearly tripled.
Infrastructure Maintentance Has Taken a Backseat to Labor Costs, Including Pension and Health Care Costs
4%
5%
6%
7%
Str
eet M
iles
Res
urfa
ced
as %
Tot
al
60%
65%
70%
Labor C
ost a
s %
Revenues
Street Miles Resurfaced as % Total Street Miles
Labor Cost as % Revenues
Ronald A. Tadross, CFA www.balancecap.com
16
0%
1%
2%
3%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011B
Str
eet M
iles
Res
urfa
ced
as %
Tot
al
45%
50%
55%
Labor C
ost a
s %
Revenues
Sources: Garden City f inancial filings, w w w .gardencityresidents.org Note: labor costs include w ages, benefits, and w orkers comp.
Municipal Governments Have Looked Under Every Rock (and Tree), Instead of Addressing The Entitlement
Problem
350
400
450
500
550
600
Gar
den
City
, NY
Tre
es P
lant
ed
60%
65%
70%
Labor C
ost a
s %
Revenues
Trees Planted Each Year
Labor Cost as % Revenues
Ronald A. Tadross, CFA www.balancecap.com
17
100
150
200
250
300
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Gar
den
City
, NY
Tre
es P
lant
ed
45%
50%
55%
Labor C
ost a
s %
Revenues
Sources: Garden City financial f ilings, w w w .gardencityresidents.org Note: labor costs include w ages, benefits, and w orkers comp.
Despite Cuts in Infrastructure Maintenance, Municipalities Cannot Balance The Budget and Look Forward to Raising
Taxes
$45
$50
$55
$60
$ in
mill
ions
Garden City Village Tax Revenues
Garden City Village Expenses
Ronald A. Tadross, CFA www.balancecap.com
18
$30
$35
$40
$45
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011B
$ in
mill
ions
Sources: Garden City financial f ilings, w w w .gardencityresidents.org calculations. Note: includes capital spending, excludes all w ater financials.
In Many Cases, Borrowing For Capital Expenditures Is Necessary To Maintain Social Order
$4
$6
$8
$10
Dol
lars
in M
illio
ns, G
arde
n C
ity, N
Y
Bonded Debt Year/Year $ Change (incl. Water)
Capital Spending (incl. Water)
Ronald A. Tadross, CFA www.balancecap.com
19
-$4
-$2
$0
$2
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011BDol
lars
in M
illio
ns, G
arde
n C
ity, N
Y
Sources: Garden City financial f ilings, w w w .gardencityresidents.org calculations.
Printing Money isIncreasingly Driving PaperIncreasingly Driving Paper
Money to Real Assets
Global Paper Currency In Circulation Is Up 150% Since 2000, and Gold Has Gone Up Similarly
3.0
4.0
5.0
6.0
US$
Trill
ions
3.0
4.0
5.0
6.0
Ronald A. Tadross, CFA www.balancecap.com
21
0.0
1.0
2.0
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
US$
Trill
ions
0.0
1.0
2.0
USD JPY EUR CNY Others (96) Value of All Mined GoldSource: w w w .dollardaze.org, Balance Capital Advisors, Inc.
US Money Printing Has Driven The Dollar Value Down For Decades, But Now The Money Is Leaving The U.S...
$0.40
$0.50
$0.60
$0.70
$0.80
$0.90
$1.00
US
$ V
alu
e in
Go
ld T
erm
s (
1971=1)
$8,000
$10,000
$12,000
$14,000
$16,000
Dollar Value in Gold Terms (1971=$1)
US Monetary Base
Ronald A. Tadross, CFA www.balancecap.com
22
$0.00
$0.10
$0.20
$0.30
$0.40
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010E
US
$ V
alu
e in
Go
ld T
erm
s (
1971=1)
$-
$2,000
$4,000
$6,000
Source: U.S. Federal Reserve, World Gold Council, Balance Capital Advisors Inc. estimates.
…And Foreign Countries May Have An Uncomfortably High Amount of Paper Dollar Foreign Exchange Reserves
2,500
3,000
3,500
4,000
4,500
Fo
reig
n E
xch
an
ge R
eserv
es (
$ in
billio
ns)
India Foreign Exchange Reserves ($ bil.)
Taiwan Foreign Exchange Reserves ($ bil.)Japan Foreign Exchange Reserves ($ bil.)
China Foreign Exchange Reserves ($ bil.)
Ronald A. Tadross, CFA www.balancecap.com
23
0
500
1,000
1,500
2,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E
Fo
reig
n E
xch
an
ge R
eserv
es (
$ in
billio
ns)
Source: World Gold Council, Balance Capital Advisors Inc. estimates.
China Is Already Starting To Move More of Its Paper Dollar Foreign Exchange Reserves To Gold and Other Real Assets
150%
200%
250%
300%
350%
Chin
a G
old
as %
Fore
ign E
xchange R
eserv
es
600
700
800
900
1,000
1,100
1,200
China G
old Holdings (T
onnes)
% China Foreign Exchange Reserves in Gold
China Gold Tonnes
Ronald A. Tadross, CFA www.balancecap.com
24
0%
50%
100%
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
E
Chin
a G
old
as %
Fore
ign E
xchange R
eserv
es
200
300
400
500
600
China G
old Holdings (T
onnes)
Source: World Gold Council, People's Republic of China, Balance Capital Advisors. Inc.
If Gold Holdings Are Any Indication, Numerous Foreign Developing Nations Need To Buy Gold and Other Vital Real Assets
30%
40%
50%
60%
70%
80%
90%
Go
ld a
s %
Fo
reig
n E
xch
an
ge R
eserv
es
Ronald A. Tadross, CFA www.balancecap.com
25
0%
10%
20%
30%
Port
ugal
Unite
d S
tate
s
Germ
any
Italy
Fra
nce
Neth
erlands
Austr
ia
Venezuela
Spain
Belg
ium
EC
B
Lebanon
Unite
d K
ingdom
Sw
itzerland
Philipin
es
India
Russia
Lib
ya
Alg
eria
Taiw
an
Japan
Saudi A
rabia
Sin
gapore
Chin
a
Go
ld a
s %
Fo
reig
n E
xch
an
ge R
eserv
es
Source: World Gold Council, Balance Capital Advisors. Inc. estimates.
Paper Promises To Real Assets
Entitlement spending and printing/borrowing money are unproductive uses of capital, which should sustain high U.S. national and local budget and trade deficits.
Data points continue to support that U.S. borrowing and taxing are reaching high limits.
At some point the U.S. Government will likely print a lot more money, in order to maintain U.S. social order.
Over the medium term, U.S. Dollar reserves of foreign countries will need to be invested to preserve wealth and develop local economies.
Real assets and foreign stocks should ultimately benefit the most from additional money printing.
The U.S. Dollar-related high quality of life and increasing global commodity prices are contributors to international tensions, like in Egypt. Such unintended consequences should intensify.
DISCLAIMER: THIS RESEARCH REPORT DOES NOT INTEND TO MAKE AN OFFER OR SOLICITATION FOR THE SALE OR PURCHASE OF ANY SECURITIES. INVESTMENTS INVOLVE RISK AND UNLESS OTHERWISE STATED, ARE NOT GUARANTEED. BE SURE TO FIRST
Ronald A. Tadross, CFA www.balancecap.com
27
NOT GUARANTEED. BE SURE TO FIRST CONSULT WITH A QUALIFIED TAX AND/OR FINANCIAL ADVISER BEFORE IMPLEMENTING ANY STRATEGY DISCUSSED IN THIS RESEARCH REPORT.