If you look like this and spend all of your meals eating fatty fast food, then eventually your heart will go. We just do not know when. Analogously, the US government is one Big Fat Person, consuming more than it takes in, spending way more than it has, and getting way more in debt than it can handle. Some day it will get a heart attack.
There are daily riots and social unrest in Egypt. The citizens are unsatsfied with the current government and it seems like every year or so there is a new government. Don't worry, they will probably overthrow the current government by the end of the year and replace it with another government, which that in turn will be overthrown.
What's happening in Egypt could be a harbinger of what will happen in Egypt. See, they are in a deadly cycle. Poor leadership brings a trouble economy. A troubled econmy then brings on a call to new leadership. The new leadership then goes ahead and promises goodies. When the politicians can't deliver on the goods a call for a new leadership surfaces and the vicious cycle repeats itself.
Worldwide, the situatiion is similar. Currenty governments have brought on usustainable debt, ruined financial systems, entitlements and pensions that can't be paid, devalued currency, and coming soon higher interest rates and unmanageable inflation. What happens when people can't get their pensions promised to them, or if inflation devalues any currency they have, or if people have no jobs and can't afford food. What happens is you get a break down in scociety and social unrest liek what is happening in Egypt.
How nations handle this chaos will determine their future. The prudent thing to do is take the defaults, cut spending, and let the bad decisions purge themselves and let there be some short term pain. The likely scenario is that in the face of this chaos, will emerge leaders who promise things will be different if you elect them. They promise that their obligations will be met, that people will ahve jobs, that their assets will keep rising, and that they will get all of their promised pensions and retirements. The problem is that they cannot and will not be able to meet to promises. The voters will vote out the prudent ones and vote in the ones who make the dream promises. The problem is there will be no real money any more to dole out. You'll see more capital controls, a rise in protectionism to preserve national interests, and other economically detrimental policies.
The overall chaos will bring about short term low life span governments and turbulent constant changing governments.
The question to the investor will be how to best survive and thrive in this chaos.
Chicago’s dire finances highlight the city’s union problem 8/2/2013
Paul Kersey Director of Labor Policy
a year ago, the city of Chicago released its 2012 Annual Financial
Analysis. Back then I noted that many of the city’s challenges,
especially high employee costs and growing pension debt, were aggravated
by a heavily unionized workforce. With a new year comes newer, more disturbing financial figures – and the same old union problem is still there.
Rahm Emanuel’s financial team estimates that personnel costs make up 78
percent of government expenditures. Base wages alone are about
two-thirds of all government spending, and health care makes up another 9
percent. With wages and benefits making up such a huge part of the
budget, seemingly small changes can have a big effect.
there certainly have been changes. Aside from police and fire, most
city workers saw their pay go up by 16 percent over the same period
between 2005 and 2012. All of that has a noticeable effect on the cost
of government: Chicago cut its workforce by about a fifth between 2003
and 2012, but total personnel costs went up by 15 percent.
city still has serious trouble with its pension funds as well. In
total, its four main pension funds have only about 36 percent of the
assets they should have to cover the benefits they are expected to pay
out. The police and fire pensions are in especially bad shape, with
funding levels at 31 percent and 25 percent, respectively.
Chicago has just one more year to go before pension costs shoot through the roof.... more