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The Big Lie about Gas Price Inflation

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The Big Lie about Gas Price Inflation

History was made on the tenth of June when the United States crossed the gas price rubicon. The cost for a gallon of gas soared above $5 for consumers across the country, forcing the United States to take one more step towards a devastating financial recession. The rapid rise in gas prices is not only damaging American’s pocketbooks at the pump, but also weighing down their purchasing power for other items ranging from electronics to cosmetics. Unfortunately, the severity of this issue has been politicized and deflected, and rather than put an actionable plan in place to address the problem, lawmakers have instead opted to lie to the American people. 

Inflation reached 8.6% in June, which was an unexpected increase for economists and politicians who hedged their bets that inflation peaked at 8.5% in March. As the stream of misinformation flows through legacy media, here are just a few of the lies being told to deflect blame from the current administration’s lack of effort to address the growing energy crisis. 

From the White House: “Americans face rising prices at the pump because of Putin’s Price Hike.” Perhaps one of the biggest misleading claims coming from lawmakers and the current administration is that the gas price increase is a result of Putin’s unprovoked invasion of Ukraine. While the invasion had a significant global impact on the supply and demand of oil and other products, such as food, the fact of the matter is that the price of gasoline was on the rise well before Putin’s invasion. According to the U.S. Energy Information Administration gas prices were $2.42 when Biden took office (January 2021) and increased to $2.89 two months later. By the end of February 2022, less than a week into Russia’s invasion of Ukraine, the price of gas had risen to $3.61 — a 49% increase in 12 full months. Based on the available data it is clear that Russia’s invasion did not cause the price of gasoline to rise, rather it accelerated its inevitable rise. Remember, this was the administration that promised to make evidenced based decisions and encouraged the public to trust the science

Let’s entertain the Biden administration’s assertion that the rise in gas prices is a direct causation of Russia’s invasion into Ukraine. Banning Russian oil and natural gas from being imported into the United States and Europe, as well as other parts of the world caused the available supply to dwindle. The obvious solution to filling that supply gap would be to ramp up production elsewhere to counter the sharp increase in price and thus avoid the notorious Putin Price Hike. Unfortunately, the Biden administration’s Department of Interior announced in May of 2022 that they were canceling several drilling leases on more than one-million acres of land in the United States, because there was a “lack of industry interest.” Perhaps that interest was diminished by the administration’s efforts to increase environmental regulations and royalties that must be paid to the government; not to mention the 80% reduction in available federal land for drilling

While handcuffing the American energy industry, the Biden administration has continually lambasted oil companies for their greediness while parroting a popular exaggeration that oil companies determine the price of gasoline for consumers — even though only 1% of the nation’s gas stations are owned by major oil companies. This politically perilous rhetoric will likely cost Biden and his Democrat party their control of Congress come November. Determining the price of gasoline is not as basic as lawmakers would lead consumers to believe. For starters, gas prices are governed by the laws of supply and demand. Consumers are paying a price that is based on the future expectation of supply. So, as the expectation for future oil supply decreases, the price of gas is naturally going to increase. Additionally, there are several components that are baked into the price of gasoline including the price of the oil, the cost of refining that oil into gasoline, transportation costs, and federal, state, and local taxes. This would explain why a tax-heavy state like California has gas prices exceeding $6.40 per gallon, while a state like Georgia, which suspended their gas tax, has the lowest price per gallon of $4.43. 

Economists share in this strategic sleight of hand to pass financial responsibility onto someone else and mislead investors about the direction of the economy. Responding to national gas prices inflation beyond $5 per gallon, a CNBC reporter cited an economist stating, “While consumers are feeling the pain, prices are not yet at a level that would tip the economy into a recession.” The article went on to surmise that gas prices alone would not be enough to start a recession; therefore, other economic components must be involved, neglecting that oil is used for much more than producing gasoline. Ultimately, this lip service continues to threaten the security of investors’ nest eggs, and the proof is in the bear market that Wall Street reentered on June 10th (the stock market first entered bear market territory in May 2022). 

The heavy-handed price of the big lie about big oil influences every part of the United States economy, beyond consumers filling up at the pump, heating their homes or making investments. Most of what consumers purchase rely on products that were made using oil or natural gas. These include, but are not limited to toothbrushes, lipstick and other cosmetics, dentures, garden hoses, car parts, clothing, and electronics. Once again, the laws of supply and demand come into effect and as the Biden Price Hike continues, consumers will reduce their spending on goods and services and therein lies the road to recession. 

Economic Symptoms of the Ivory Tower Syndrome

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Recession
Newspaper headlines depicting the economic depression

It is hard to argue that Americans are not struggling in this economy, but politicians and the mainstream media are certainly trying. Sitting atop their ivory towers, Wall Street propagandists tout labor market misinformation to paint America’s decline as an economic recovery. This calloused view, is a contagious symptom of a larger financial epidemic, which ignores conclusive evidence that suggests the United States is on the verge of entering a dark period of economic pain — worse than what consumers have already experienced with record high inflation.

In the first quarter of 2022, real Gross Domestic Product (GDP) from the St. Louis Federal Reserve fell by a rate of 1.4% due to the United States recording a historic trade deficit as imports increased nearly 18% while exports decreased more than 5%. Economists foolishly touted that the trade deficit was financial noise and not to be taken too seriously and used this as further evidence that the country was not heading toward a recession. While the media was quick to dismiss the troubling GDP report, they joined the chorus of misinformation to say that inflation also reached a peak

Additionally, while the Biden administration spins tales about monthly job reports, Nela Richardson, the Chief Economist at ADP poured cold water on the administration’s claims that they are responsible for creating new jobs. The fact of the matter, as Richardson noted, is that the increase in labor market activity is due to jobs being recovered, not created. As a guest on CNBC, Richardson stated that the economy “hasn’t added one single job from the 2019 high water mark.” The 2019 high water mark is a reference to the record low unemployment and strong labor market conditions experienced during the previous Trump administration. She went on to say, “All the jobs that we have seen gain are recovered jobs that we lost. We are not producing new jobs…so these wage gains are coming on top of a shrinking workforce, and it’s not being fueled by productivity enhancements.” 

To those who believe that the economy is recovering, the consensus is clear — it is not. Food and energy shortages are causing complications for consumers as the price of gas seemingly sets a new record every day, and many food prices are up over double-digits in the latest Consumer Price Index report. Although consumer spending increased in the face of high inflation, this trend will soon reverse itself. Former Chief Economist for the Securities and Exchange Commission, Larry Harris, said to CNBC that it would be exceedingly difficult for the Federal Reserve to fight inflation without causing a recession in the process. Even if the Fed were to avoid a recession, it is even more likely that it will be caused by consumers repurposing their spending. 

Gas prices reached a new record of $4.91 on June 7th, which is 60% more expensive than in 2021 when gas prices were $3.06 and 136% more expensive than May of 2020 when the price of a gallon of gas was $2.08. Labor costs are also increasing throughout the United States as there are more jobs available than unemployed to fill them, and since wage increases can’t keep up with the high rate of inflation, Americans are actually losing money. The logical argument suggests that if consumers’ purchasing power decreases while prices rise, the natural reaction from Americans would be to streamline their spending as much as possible to avoid racking up massive amounts of debt. Wall Street insiders and politicians have refused to acknowledge this rational view of microeconomics. 

The same argument holds true from a macroeconomic perspective. Debt is a dead weight on a country and since the start of the pandemic, the American people have accumulated historic levels of debt. A rapid increase in housing costs forced homebuyers into more expensive mortgages as housing prices surged over 20% compared to prices in 2021, according to the CoreLogic Case-Shiller Home Price Index. Worse than the rising price for homes is the debt that comes with the home purchase. While prices have increased so have mortgage rates, which are now at 5% or more for a 30-year mortgage. The Washington Post recently reported on Americans who purchased new homes that were under construction, who signed contracts expecting one interest rate for their mortgage and are now facing a rate that is 40- to 50% higher due to rising interest rates. 

To make matters worse, while rates and prices continue to rise, the demand for housing plummeted over 16% causing economists to become fearful of a massive housing market bubble burst, adding more financial obstacles to an already troubled economy. Additionally, as the Federal Reserve embarks on their interest rate hike campaign — and subsequent tightening of their balance sheets — credit cards and other variable forms of debt are becoming more expensive for consumers to finance, which presents a dangerous situation that could lead to a wave of financial defaults in the short to medium term. A recent report indicated that for every basis point that the Federal Reserve raises interest rates, it adds one extra dollar to every $10,000 in debt. For example, if the Fed reaches 2% interest rates before the end of 2022 — a 200-basis point increase —this would add an additional $200 in interest on every $10,000 of debt. 

Rising interest rates also have an adverse effect on the stock market and at-risk investors have lost approximately $5- to $8 trillion dollars in response to volatility on Wall Street as a result of recent economic problems and the threat of a recession. Ultimately, Americans are being financially ambushed from all fronts and the consensus is clear, the only path forward is through a deep economic recession. While politicians and Wall Street media insiders focus on pulling the wool over the eyes of at-risk American investors, the reality is that food and energy shortages, crippling inflation, and an incredibly poor stock market performance has forced the economy into a nosedive towards a financial collapse.

A Path to Follow Amidst Financial Uncertainty

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Senior couple of tourists looking at map in forest
Senior couple looking at the map during the hike in forest.

Past performance is not a guarantee of future results. This statement, often echoed by brokers in the securities industry, underscores a common tautology — you either make money or you lose money. In simpler terms, this is how Wall Street deflects the risk of investing in assets that are tantamount to spinning a roulette wheel, or betting on a horse race. For younger Americans, this long-term gamble has a higher probability of succeeding, despite dealing with significant losses along the way. Eventually, however, the accumulation phase of an investor’s working career ends, and the investor no longer has ample recovery time when the market crashes. 

The problem that investors encounter while transitioning from the accumulation phase to the retirement phase is the threat of the unknown. Predicting the future path of the stock market is one of the biggest unknowns in the financial industry, yet financial experts conjure forecasts and spread misinformation to keep investors blinded by the lust and vanity of risk investments. As a result, brokers are woefully ill-equipped to manage the transition into the retirement phase. When the market experiences a sharp decline, as it has in 2022, retirees who are stuck with Wall Street advisors find themselves in a helpless situation as their nest eggs erode without any education on how to prevent their nest eggs from experiencing losses in the first place. This phenomenon, known as the lost grow back time, exemplifies how investors accumulated wealth, gave it back during a market crash, and then had to spend time — years in most cases — trying to earn back what was lost. This period of gain and loss represents years of stagnation in investors’ portfolios. 

To address this phenomenon, retirement phase experts utilize an economic theory known as the Look Back Principle to visibly explain how the stock market historically submerged accumulation phase investors in volatility. Investors who had their money in the S&P 500 from 2000 to 2002 would have lost nearly 50% or more of their portfolio on Wall Street and would have waited several years to regain most of what they lost (if they were lucky) before their accounts were slashed in half again during the 2008 crash. Although the index fully recovered by 2013 (14 years in total), many investors were never able to regain what they lost, for several reasons including: hidden charges and fees charged by their securities advisors that further eroded their accounts and trying to foolishly time the market. 

Investors who are in the retirement phase of their lives are in a comparable situation today. After experiencing the 2020 market crash and recovery, investors are now watching the stock market meltdown at glacier speed. As of May 20th, the stock market had collectively lost over 20% while battling volatility for several months. Factors such as high inflation — reaching 8.3% in May — supply chain delays resulting from shutdowns in China, global conflicts, and Federal Reserve interest rate hikes, have all contributed to the stock market’s steady decline. The unknowns of present time question whether the market will find a bottom, while so-called experts encourage at-risk investors to buy the dip and try to discredit those who are sounding the alarm about the threat of a debilitating financial recession. 

During this time of financial uncertainty, investors in or near the retirement phase of their lives need financial guidance that prioritizes safety and security. Any advisor that cannot accomplish this simple goal is more interested in earning a paycheck from investor fees, which are paid in full regardless of whether their client earns an unrealized return. Unfortunately, many investors are unaware of safe alternatives that guarantee principal protection of an investment. This is due to brokers and investment advisors purposefully pointing their investors in the opposite direction, saying that safe financial instruments are a fraud. 

In lieu of investing in vehicles that could protect an investor’s nest egg, securities advisors encourage their clients to have a backup plan in the event that the stock market experiences a correction or crash. Even the media promotes this financially incompetent point-of-view, suggesting that retirees could transition to part-time employment, downsize from the home they’ve cultivated over the years and relocate, or simply reduce their living expenses. All of these suggestions dismiss the effect that inflation has in diminishing purchasing power. 

Although brokers and the mainstream media propagate misleading information, leaders in Davos, Switzerland were singing a different tune at the World Economic Forum. International Monetary Fund Director Kristalina Georgieva said that the global economy faces the “biggest test since the Second World War,” which serves as a significant warning for investors in at-risk assets given the amount of social, political, and economic instability just in the United States alone. Instead of waiting for these cataclysmic events to occur, investors should be prudent with their hard-earned nest eggs and learn about vehicles that can protect their money without having to worry about the stock market’s risk and fees. When analyzing the known, unknown, and yet to be discovered portions of the financial industry, Americans in or near retirement should err on the side of caution and eliminate unnecessary risk from their portfolios by meeting with a licensed retirement phase expert. Retirees are often led to believe that they must keep their assets tethered to the stock market in order to grow their nest egg, but this is simply false. With a growing number of Americans (56% according to the National Institute of Retirement Security) concerned that they will outlive their savings, the inherent risk of the stock market is counterintuitive to the established goal of security and peace of mind in retirement.

Controlling Your Nest Egg

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controlling your nest egg
Closeup of a stock market broker working with graphs on digital tablet at office. Rear view of stock agent reading bad report and graph. Back view of multiethnic businessman analyzing fall sales.

Investors do not have control of their retirement investments when their nest egg is gambled on Wall Street. This is becoming abundantly clear as the government is now trying to address their climate change agenda through the power of investing. Known as ESG Funds, the government is incentivizing asset fund managers to think of climate-related financial risks when making allocations in pension and 401(k) plans under regulations in the Employee Retirement Income Security Act (ERISA). ESG is a form of sustainable investing, in which companies are put under a microscope and analyzed to be given a score based on their Environmental, Social, and Corporate Governance risks — hence ESG. 

Financial activists pushed ESG analyses into the forefront of investing conversations to encourage more ethical investing that not only benefits the stakeholders but ensures that money is being invested in companies that are helping the environment, serving the communities in which they do business, and taking care of their employees. Supporters of ESG and sustainable investing argue that these factors are often overlooked in traditional financial planning, which is primarily focused on earning a consistent return. Opponents to this type of financial analysis argue that ESG is nothing more than a gimmick used to boost marketing and public relations. For example, Tesla, who revolutionized the electric car business, was removed from the S&P 500 ESG Index from the sustainability benchmark over allegations of employees being mistreated in the workplace. Critics of the decision were quick to point out that Amazon, ExxonMobil, and Walmart all remained within the top 30 holdings on the ESG Index despite their substantial amounts of carbon emissions and allegations of workplace misconduct. 

Despite sentiment surrounding ESG investing, the Biden administration sided with the financial activists by issuing an executive order in 2021 instructing the federal government to treat climate change as a financial threat to Americans’ retirement security. In response, the Department of Labor proposed a rule that would “make investment decisions that reflect climate change and other environmental, social, or governance (ESG) considerations, including climate-related financial risk,” according to over thirty Attorney Generals, State Auditors, State Treasury officials, and more, from across the country. Opponents to the rule believe that this could hurt investor returns by using non-financial variables to determine asset allocation in defined benefit and contribution plans. Additionally, former Blackrock CIO Tariq Fancy, raised the concern about potential conflicts of interest for fund managers who may be put into a situation where they can follow ESG guidelines at the risk of losing money, or not follow the guidelines and increase their chances of earning a higher return. 

At the end of the day, the Biden administration and the Department of Labor is taking their first steps in turning asset managers — whose responsibility should be to the clients they represent to maximize their returns — into activist investors, who prioritize non-financial factors. Many who fear the economic policies of the current administration have additional concerns about this DOL rule evolving into activist investors picking winners and losers based on non-financial data, while strong-arming companies to fit the ESG mold at the potential detriment to their company’s bottom line, which in turn hurts average investors. 

Although the sustainable investment market has seen billions of dollars flow into the coffers of companies listed on the ESG Index, researchers have determined that their returns have been less than impressive. The Harvard Business Review released a report that highlighted multiple studies across several different reputable financial journals and found that while ESG portfolios were supposed to promote sustainable and ethical investing, researchers found that this was not the case. Researchers at Columbia University and the London School of Economics reported that ESG portfolios actually had a worse compliance record for following environmental, labor, and corporate governance regulations. Furthermore, the University of Chicago published a paper in the Journal of Finance in which they compared the performance of the highest rated ESG funds to the lowest rated funds, and although ESG funds brought in more capital during the time of their study, their returns on investment were worse. Additional studies conducted on this comparison between ESG and non-ESG funds uncovered that ESG funds have higher investment fees which further erodes investors’ nest eggs. 

Despite their intent for good, the result of investing in an ESG fund increases the risk of losses and exposes investors to higher fees. The government’s push to force more of these funds into investors’ portfolios establishes a responsibility among asset managers to consider climate related risks when making recommendations and allocations. Doing so presents a greater possibility of running into a conflict of interest as ESG funds sacrifice financial returns for a facade of environmental sustainability. 

The primary goal of investing is to accumulate wealth and maximize returns to generate a larger nest egg for retirement. This is no longer the intended goal of investing based on the actions taken by the Biden administration to force asset managers to consider non-financial factors in making investment decisions. Sustainable investing and ESG standards not only threaten investors’ ability to retire with security and peace of mind, but risks worsening a growing retirement crisis here in the United States.

When Americans transition into the retirement phase of investing, they have the opportunity to take advantage of strategies that put their interests first by guaranteeing the protection of the wealth that they have accumulated during their working careers.

Increased Regulations for Brokers

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Increased regulation for brokers
Liadership, difference and standing out of crowd concept. 3D rendered illustration.

A surprise ruling from the Securities and Exchange Commission will start to put brokerages and investment professionals from the securities industry in the hot seat as the agency seeks to increase protections for consumers. Dating back to 2019, the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) have attempted to impose stricter regulation guidelines on investment advisors and the firms that employ them to crack down on firms with a history of regulatory disclosure issues. In an attempt to provide more consumer protections in the securities industry, the SEC passed FINRA’s proposed Rule 4111 which establishes monetary punishments for firms and their advisors if FINRA designates them as a risk to the investing public. 

Misconduct in the financial securities industry includes violations of securities laws and regulations, criminal or civil litigations, client arbitrations, and other forms of financial harm. If it was found that a firm had a long history of misconduct, Rule 4111 mandates that the firm put cash or qualified security assets into a Restricted Deposit Requirement (RDR) fund that will be used as an insurance policy to cover the costs of pending and unpaid regulatory issues, such as arbitration awards. In 2019, nearly 30% of cases (totaling $19 million) that were awarded damages from firms went unpaid and nearly 35% (totaling $31 million) went unpaid in 2018, according to FINRA. The average balance of an unpaid consumer arbitration in 2019 was just south of $500,000 and stretched well north or $700,000 in 2018. 

Firms that are seen as a red flag, or in other words, are a risk to the investing public, would be subject to these mandates. The size of the disciplinary deposit would be determined based on the severity of the misconduct, how many disclosures are held by the firm and the individuals involved, while also considering the size of the firm. With that said however, FINRA will not assess financial penalties that would put a firm at risk of becoming insolvent. To determine whether these financial firms should be designated as a risk or not, FINRA intends on analyzing the companies each year to determine the proper course of action. When FINRA designates a firm as restricted, those firms will have the ability to appeal these decisions made by FINRA, but outside of the appeals process, FINRA obtains sole discretion when it comes to assessing the disciplinary actions for red flag firms and the monetary penalties required to be deposited. 

To address the restricted firm designation, these firms can release advisors that are high-risk to potentially mitigate their RDR penalty. While assessing monetary penalties and putting firms—particularly smaller firms—in the hot seat to unload advisors with records of financial misconduct is a step in the right direction, experts have pointed out that this kind of regulatory action does not go far enough to solve the industry-wide problem. Even if a firm were to fire a risky advisor, it doesn’t preclude that individual from being rehired by another firm, nor does it address advisors from other firms who may have slipped under the radar that also have a history of misconduct in the securities industry. 

Opponents of the newly adopted rule argued that FINRA is targeting smaller firms and the forced removal of staff could ultimately lead to legal challenges and other complications. Firms that are faced with a restricted designation from FINRA will have only two choices according to legal experts in the field. The first option is to simply accept the penalty for having advisors with regulatory issues working for the company and pay the RDR, or the firm can release the advisors who have a history of misconduct. Legal experts believe that this ties the hands of smaller investment firms. 

While opponents to the new rule raise a legitimate concern about the impact this will have on smaller investment firms, the importance of Rule 4111 is to establish credibility in the securities industry and crack down on rogue brokers while also identifying them to the public. For years, industry professionals and regulators have warned about red flags in the industry and brokers with a history of regulatory issues moving from throughout the industry. These include recidivist brokers who slip under the radar and are high-risk for consumers in the investment industry. In a joint public statement, SEC Commissioners Allison Herren Lee and Caroline A. Crenshaw stated, “A firm’s high-risk status is important information and will help investors make informed choices about the firms they select.” They also said that they are pleased to have FINRA “disclose the identities of high-risk firms to the public.” 

Establishing consumer protections in an industry that is known for putting investors at risk is a step in the right direction but there is certainly more that the financial industry can do to protect investors. Despite the benefits of Rule 4111, the objections raised by investment firms and some legal experts about how the new regulations will impact the business of small firms speaks volumes to whom the industry is more concerned about representing. Investors young and old can utilize FINRAs online Broker Check to determine if their broker and investment firm are a risk to their investments by checking their regulatory disclosures. While retirees can utilize these tools there are no protections in the securities industry to protect nest eggs from the market risk and fees of Wall Street that threaten the retirement security of millions of investors every day. 

China’s Growing Debt Crisis

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A pile of RMB banknotes Chinese yuan money
A pile of RMB banknotes Chinese yuan money

The threat of another global financial crisis sank equity markets on September 20, 2021, after news broke of a Chinese development company that was on the verge of defaulting on more than $300 billion dollars’ worth of debt. This event contributed to a growing tension in the United States surrounding the potential of defaulting on the country’s national debt that is fast approaching $29 trillion dollars. The combination of domestic and global debt issues creates a lethal mixture for Wall Street investors that could potentially cause one of the most disastrous market events in history—especially if the United States government defaults on their national debt. 

Evergrande Group, one of the largest development companies in China, was under increasing pressure to make interest payments to bondholders as they stated in a financial filing earlier in September that they could not guarantee that those payments would be made. This uncertainty spread fear among investors in China and Hong Kong as Asian market indices lost 3% or more. The fear of default quickly spread all the way to Wall Street, which shed 2% on September 20, 2021, and caused American investors to lose tens of thousands of dollars in one day before rebounding in the days that followed. 

A contagion of fear was the culprit for the decline on Wall Street and despite the rebound in the days that followed the 2% crash, an unsettling sentiment remained that this may just be the calm before the storm. Evergrande had multiple bond interest payments to make on September 22 and September 23 and missing either of those payments would bring the company to the brink of collapse and threaten to destabilize China’s economy. Investors are split on their speculation of a potential default from Evergrande as some believe that a default on more than $300 billion dollars will not have a global effect, encouraging Wall Street investors to remain steadfast in their holdings. Other experts, however, have drawn sharp comparisons between the Evergrande situation in China and the Lehman Brothers group, whose collapse in the late 2000s served as a catalyst for the 2008 global financial crisis. It should be noted however, that Evergrande is not the only Chinese company that is facing debt concerns. Another Chinese development company, Fantasia Holdings, is also having debt concerns.  

If Evergrande were to collapse on their $300 billion dollars of debt, it would be the second largest debt default in history, even outpacing Greece who restructured $200 billion dollars of debt during their 2012 collapse. The largest to date occurred in 2008 when the Lehman Brothers group defaulted on more than $600 billion dollars of debt and ignited a spark that led to the global financial crisis. Currently, there are some economists that dismiss the Evergrande situation as having the ability to cause a global financial crisis, but others are not so sure. Wall Street investors quickly panicked and even if the selloff was based on a contagion of fear, the fact of the matter is that the stock market still suffered critical losses as a result. If Evergrande and other companies in China start to default on their debt payments, it absolutely would have a broad impact on global equities, especially if the situation grows. This is a developing situation that could last for several months as bond interest payments will be due for the debt-laden development company every month for the remainder of the year. 

On top of the Evergrande Group situation, federal officials in the United States are racing against the clock to come up with a plan to avoid what would be the largest default in history. In 2019, former President Trump suspended the debt ceiling for two years. At the time, the national debt was roughly $22 trillion dollars and was signed several months prior to the start of the coronavirus pandemic. When the debt ceiling suspension officially came to an end during the summer of 2021, the national debt had increased $6 trillion dollars and was fast approaching a total of $29 trillion dollars. Congress failed to pass a budget proposition with a debt ceiling provision prior to their summer recess and this forced Treasury Secretary Janet Yellen to implement extraordinary measures to maintain the government’s financial obligations while congress attempted to find a solution. The problem that lawmakers are waking up to today is the exhaustion of those extraordinary measures and a fast-approaching October 18 deadline to avoid a national default. 

Secretary Yellen has pleaded with members in both parties in the House and Senate to pass an official resolution to avoid what she believes will be the most catastrophic financial crisis in history, potentially sending the United States into another recession. Federal Reserve Chairman, Jerome Powell, also expressed concern about the national debt during a press conference where he made the point that it’s difficult to contemplate the consequences of failing to raise the debt ceiling, but the United States should not wait to find out. To make progress in the debt debate, President Biden met with Congressional Democrats and progressives to discuss his $3.5 trillion dollar spending package, including the debt ceiling, but no progress has been made and Republicans in Congress have stated that they have no intention of voting to raise the debt ceiling any further.

The United States faces a very real possibility that the government will default on its national debt despite having raised or suspended the debt ceiling countless times over the last several decades. The outcome of this worst-case scenario is inconceivable for investors with at-risk assets. In conjunction with these domestic issues, investors must now keep a watchful eye on the debt crises occurring in other parts of the world, especially in China where multiple companies are now struggling with debt obligations. What was anticipated to be a year of progress and recovery quickly unraveled into an uncertain mess that clouds future expectations for the economy, investing, and even the state of politics, as lawmakers will soon shift from a legislative mindset to a campaigning mindset for the 2022 midterm elections—if they haven’t done so already.

The Social Security Inflation Problem

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Shocked senior man looking at bills copy space
Shocked senior man looking at bills in disbelief, holding his glasses on forehead, copy space

Inflation continues to persist into the early Fall months of 2021 and Americans are facing more economic risks, including higher taxes on top of a reduction in purchasing power. Economists are currently predicting that the Social Security Administration will have to significantly increase social security benefits to counteract the rising rate of inflation. In doing so however, financial experts warn of a potential tax nightmare for retirees who exceed the Internal Revenue Service’s retirement income threshold. The official cost-of-living adjustment is expected to be announced later this month, but retirees should be prepared for the potential tax consequences of receiving increased social security benefits in 2022 and beyond. 

With inflation currently locked in at 5.3% year-over-year in August 2021, the Social Security Administration (SSA) is scheduled to announce what is projected to be the largest cost-of-living adjustment (COLA) to social security benefits in nearly 40 years. Currently, experts are estimating that the increase will exceed 6% to counteract the meteoric rise of inflation during the COVID pandemic. The last time the COLA was increased at a rate this large was in 1982, when the SSA increased benefits more than 7% during a year when inflation stretched above 6%. In recent years, inflation has not posed much of a threat to consumer spending and cost adjustments made by the Social Security Administration have not made a significant impact on received benefits. In fact, in 2019 and 2020, the COLA for social security benefits were increased by less than 2%. 

There are several reasons why this year’s COLA increase may cause some concerns for seniors who receive social security benefits. The first call for concern is the potential that increasing the COLA will subsequently cause retirees taxes to increase. Based on the tax regulation rules from the Internal Revenue Service (IRS), if a single, married, or joint tax filer has a combined income that exceeds the IRS income threshold, then their social security benefit will be subjected to income taxes. There are three income tiers that retirees can fall into in this scenario which dictate what percentage of their social security benefits will be subject to taxes—the first tier is 0% for any single filer that makes less than $25,000 in their combined income each year, or for any married couple who earns less than $32,000 a year. The second and third tier indicates that 50% or 85% of the recipients’ total benefit will be subjected to income taxes. 

Single individuals who have a combined earned income between $25,000 and $34,000 have up to 50% of their social security benefit subjected to income taxation according to IRS rules. Anything above $34,000 would increase the applicable percentage from 50% to 85%. Married couples’ income thresholds are slightly higher. A married couple earning between $32,000 and $44,000 each year would have up to 50% of their benefits subject to income taxes, and up to 85% if they earn more than $44,000 a year. Congress first approved this double tax into social security during the Reagan administration in the 1980s and the tax was later increased during the Clinton administration in the 1990s. 

This double tax is problematic for two reasons. First, Americans worked their entire lives and paid into the social security system with money that was taken from their paychecks with the intention of getting it back in the form of a fixed income when they reach retirement age. Essentially, Americans are paying a fee to the government to hold onto their money and then paying another fee when they activate their income stream—which is no better than how brokers treat retirement nest eggs. Secondly, the IRS income thresholds which determine what percentage of social security benefits are taxable are not inflation adjusted. Therefore, the percentage of households that will pay taxes on their social security benefits will inevitably increase over time unless the IRS either boosts their income thresholds or makes them inflation adjustable. 

As of 2020, the Center for Retirement Research estimated that 56% of households that receive social security benefits are anticipated to pay income taxes on the benefits that they receive. The percentage of households subject to this taxation is only going to increase as time passes because the income tax regulations that dictate when and how much of social security benefits are taxed are not inflation adjusted. As a result, in years with high rates of inflation (such as 2021), it can serve as a double-edged sword for retirees. Additionally, as social security COLA’s increase, so do premiums for Medicare Part B which is funded through social security benefits. In recent history, Medicare Part B premiums have risen at an average rate of 5.9% each year. 

Between inflation, taxes, and the rise of Medicare Part B premiums, the net social security benefit that retirees receive in 2022 may be canceled out, ultimately making a bad economic situation worse. Despite this, social security recipients will soon find out what the COLA will be for 2022 when the Social Security Administration makes their announcement in the next few weeks. One way that concerned or at-risk retirees can preemptively address this financial situation is by establishing a financial plan that reduces their overall tax liability to keep their money out of the government’s pockets and put back into their own. 

The Crash Proof Retirement System – A Safer Way to Save for Retirement

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crash proof retirement system

There are many strategies that Americans use to save for retirement and each one has different benefits and drawbacks. Some of these options include 401(k) plans, Individual Retirement Accounts (IRAs), mutual funds, target-date funds, and many other financial vehicles. In general, retirement savings vehicles fall into one of two categories: high-risk securities-based investments and fixed investments, most of which exist outside the securities industry. As you get closer to retirement, you should focus on mitigating risk to ensure your nest egg will still be there when you need it. 

Concerned About Your Retirement Investments?

If you are concerned about the safety of your retirement investments, you should know that it is possible to achieve a secure retirement. Crash Proof Retirement has helped more than 5,000 consumers in or near retirement take their nest eggs out of the risky securities industry and place it into guaranteed financial vehicles that protect and grow their money without the risk and fees of Wall Street. Read on to find out more about the Crash Proof Retirement System and how it can help you achieve the retirement of your dreams.

What is the Crash Proof Retirement System?

When the stock market crashed in 2008, millions of Americans all over the country lost an immense portion of their retirement savings. IRA and 401(k) plans alone lost more than 20% of their value – a combined $2.4 trillion. While younger investors were able to continue working and wait for the markets to recover, older workers who were nearing retirement had to delay and alter their plans and some unfortunately were never able to recover what they had lost.

Some Americans were forced to retire due to illness, injury, or other factors, such as losing their job and not being able to find new work. As a result, millions of Americans have entered retirement in the years since the 2008 financial crisis without the necessary financial resources. Although millions of Americans were left at risk with securities on Wall Street, others were protected from the crash. These investors had peace of mind while watching the stock market rollercoaster because they were protected with the Crash Proof Retirement System and continued to feel secure all throughout the 2010s, while remaining whole during the coronavirus crash of 2020.

So, how does the Crash Proof Retirement System work? 

Learn How the Crash Proof Retirement System Works

At Crash Proof Retirement, their team of licensed retirement phase experts have a fiduciary duty to analyze and educate investors about financial vehicles that are proven to be safe for consumers in or near retirement. They call these Crash Proof Vehicles because they guarantee that you will never lose your principal due to a stock market downturn. While the value of high-risk security investments can fluctuate wildly along with the stock market, Crash Proof Vehicles credit interest when the market is up and prevent you from losing your principal during market crashes.

The Crash Proof Retirement System provides other benefits for retirement phase investors like tax-deferred growth and the ability to activate guaranteed Crash Proof Income when you retire. Each vehicle in the Crash Proof Retirement System has a specific purpose and works in concert with the other vehicles in each individually tailored system, much in the same way that the individual components of an orchestra come together to create a beautiful melody. When you choose a Crash Proof Retirement, you can have peace of mind knowing that your nest egg will be safe no matter what is happening in the world.

Highlights of Crash Proof Retirement System & Education

Visit the homepage of Crash Proof Retirement to see videos on the following:

  • Peace of Mind with Crash Proof Retirement
  • Double Digit Interest Returns with Crash Proof Retirement
  • The Dangers of Variable Annuities
  • The Hidden Secrets of Mutual Funds
  • Investing with no Fees
  • Crash Proof Retirement Educational Process
  • Liquidity of the Crash Proof Retirement System
  • Crash Proof Consumers Who Missed the Crash of 2008

Learn More about Crash Proof Retirement

It is possible for anyone to have a Crash Proof Retirement. When you are ready, the licensed retirement phase experts at Crash Proof Retirement are ready to educate you about the proprietary Crash Proof Vehicles and how they can help you achieve peace of mind in retirement.

To learn more about the Exclusive Crash Proof Retirement System visit crashproofretirement.com or call 1-800-722-9728 and schedule your complimentary personal financial checkup today! 

Congress Builds on the Foundations of the SECURE Act

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Congress is officially set to move forward with legislation that will alter the retirement saving landscape once again, more than a year after passing landmark legislation that rattled Americans in and near retirement as well as their retirement savings plans. Coined as the SECURE Act 2.0, the House Ways and Means Committee unanimously approved a markup of the legislation to be sent to the House floor for a full vote before it makes its way to the Senate Chambers. The legislation’s official title is,
Securing a Strong Retirement Act of 2021 and it looks to advance on much of the progress that was included in the original SECURE Act.

The original SECURE Act, titled Setting Every Community Up for Retirement Enhancement Act, was passed in December of 2019, and was signed into law by former President Donald Trump. At the time of its passing, the legislation was one of the biggest retirement reforms in recent years eliminating the stretch-IRA, raising the required minimum distribution age, and eliminating the age limit for retirement plan contributions, among other items. The new legislation looks to expand on some of these provisions such as increasing the required minimum distribution (RMD) age again, but incrementally over the next ten years.

By raising the RMD age, retirees will have more time to allow their accounts to grow before being mandated to make withdrawals. Prior to 2020, the RMD age was 70 and a half years old which was then raised to 72 in the first SECURE Act. Should the SECURE Act 2.0 pass through Congress and be signed into law by President Biden, the RMD age would immediately increase to 73 as of January 1, 2022. According to the current language of the proposed legislation, it would then take several more years for the RMD age to rise to age 74 on January 1, 2029, and then finally reaching 75 on January 1, 2032. If this legislation does become law, individuals who are 63 or younger in 2021 would be able to delay their RMDs to age 75 once the full increase is in place.

Ultimately, by raising the RMD age investors who have money in traditional IRA vehicles will have more time (if their age qualifies) to increase the total amount of their investment by not having to take withdrawals. Even just a few extra years can help a retiree build their nest egg, especially since traditional IRA accounts are tax deferred. The potential issues that could arise from these incremental increases is confusion among retirees about when to take their RMDs and making sure that they do so correctly to avoid penalties for withdrawing too early or late or simply not accepting their required payments because they have no guidance of when they should take them. If these provisions are rolled out for the public, it will be important for investors to ensure that they are receiving the proper advice to handle their retirement investments and take full advantage of the age increase.

Another important update in the proposed SECURE Act 2.0 is increasing the catch-up contribution which gives older workers over the age of 50 the ability to invest more money, above the limits set by the Internal Revenue Service (IRS), to bolster their nest egg in the years before they reach retirement. The additional benefit of making a catch-up contribution is that investors will also be lowering the amount of taxable income for that tax year, ultimately reducing the amount of money owed to the IRS. As of January 1, 2021, the catch-up contributions set by the IRS are $1,000 for IRA accounts, $6,500 for traditional 401(k) and other workplace retirement plans, and $3,000 for SIMPLE retirement plans. What legislators hope to achieve with the SECURE Act 2.0 is to raise those contribution limits from $6,500 to $10,000 starting at age 62 through 64 and from $3,000 to $5,000 for SIMPLE plans. The legislation would keep current contribution limits starting at age 50 with the additional increases coming into effect starting at age 62.

Legislators have stated that these proposed increases will also be indexed for inflation and will go into effect starting in 2023. It is unclear whether the additional increases will remain after age 65, or if the contribution limits will revert to the original contribution limits for individuals over the age of 50. Now, the language of the proposed legislation seems to indicate that the increases for catch-up contributions will only impact those who have reached the ages of 62 through 64 to provide a few brief years of extra support to strengthen their retirement nest egg.

The SECURE Act 2.0 legislation also looks to expand access to 401(k) plans by setting up automatic enrollment for employees in new company plans along with other provisions dealing with matched contributions to assist with student loan repayments. Currently, the language of this bill is subject to change as it was first sent to the House of Representatives on May 5, 2021 and must go through more legislative channels before it can finally be sent to the Senate and eventually to President Biden’s desk for signature. Proponents of this legislation are confident that the bill will be passed with overwhelming bipartisan support in the Congress, but with the current state of domestic political affairs, bipartisanship is never a given, especially with policy decisions involving economic issues.

Two of the foundational aspects of the SECURE Act 2.0 deals with the raising of the RMD age and the three-year period where investors will be able to contribute exponentially more in terms of a catch-up contribution. This combination will enable retirement investors to grow their nest egg for a longer period than previously allowed which may lessen some of the retirement strain that many Americans have and are currently experiencing. Delaying the RMD age to 75 over the next ten years will create larger income payments for retirees in tandem with their Social Security benefits and any other investments that they may have.

Sponsors of the legislation also anticipate that the SECURE Act 2.0 will help generate more than $27 billion in tax revenues over the next ten years. It is important to remember however that if this legislation is signed into law, individuals already receiving RMDs from their investments will continue as the provisions in the bill are not retroactive to include those who already had their RMDs delayed to age 72. If this legislation does become law, retirees and those nearing retirement should make sure they get educated about the changes that will directly impact their retirement goals to ensure their retirement strategy still aligns with their best interest and to take advantage of boosting their savings if applicable when the time comes.

President Biden Steps-Up on Taxes

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President Biden Steps-Up on Taxes

Congress alongside first year President Biden are planning major tax overhauls that would create several issues for beneficiaries. Raising taxes on wealthy Americans has become a focal point of the majority party in Congress and for President Biden, as Democrats plan to increase taxes to address certain inequalities in the economy. At the top of the list is an elimination of the step-up in basis estate tax provision, which is considered by some economists and lawmakers to be a tax loophole that allows individuals to avoid paying taxes on inherited assets. Economists have cited that this provision has allowed billions of dollars each year, that would have otherwise been taxable, to be swept under the rug, exempt from capital gains tax. 

Under the previous administration, President Trump and Republicans in Congress passed the Tax Cuts and Jobs Act (TCJA, 2017), which increased the tax exemption on inherited assets to $11 million and is set to sunset in 2026 unless repealed by the Biden administration. President Biden has repeatedly stated that he would like to see estate tax exemptions reduced to their 2017 levels of $5 million or reduced further to $3.5 million. By reducing the tax exemption cap, more individuals would be subject to pay taxes on estates and gifts by the Internal Revenue Service (IRS), effectively bringing in more revenue for the Federal government to help pay for other initiatives. 

On top of reducing the tax exemption, Biden and Congressional Democrats have proposed the idea of eliminating the step-up in basis provision, which has commonly been used to pass on certain assets to a beneficiary, while avoiding massive capital gains tax burdens. If the basis were to be eliminated, inherited assets like property, equities, collectibles, and gifts would be subject to massive capital gains taxes if they are sold by the beneficiary. For example, a property purchased for $250,000 is passed on to a beneficiary who inherits the property with a current market value of $525,000. The stepped-up basis dictates that if the beneficiary sold the property, their capital gains would be taxed starting at the fair market value of $525,000 instead of the original purchase price — significantly reducing the capital gain tax burden for the beneficiary compared to a carry-over basis, which is applied when a beneficiary has an asset transferred to them before the death of the owner.

If the beneficiary sold the house at the same price that it was inherited, they would not owe any capital gains taxes because the value of the sale would be equal to the inherited price. Therefore, the $275,000 increase in property value prior to being inherited would not be taxable to the beneficiary. Under the current law, if the beneficiary sold the property for $550,000, the stepped-up basis would calculate capital gains on a profit of $25,000 (since the property was inherited at a price of $525,000.) By eliminating the stepped-up basis estate tax law, the beneficiary would have to pay capital gains on any inherited asset that is sold using the original purchase price. As a result, a property that was purchased for $250,000, inherited at $525,000, and then sold by the beneficiary for $550,000 would have to pay capital gains taxes on what would be considered a $300,000 profit (current selling price minus original purchase price). 

When it comes to capital gains taxes, the majority of taxpayers would likely fall into the 15% capital gains tax bracket based on earned income with single and married filers falling in the 20% capital gains tax bracket if they earn more than $450,000 and $502,000 each year respectively. President Biden has also promoted the idea of raising capital gains taxes, specifically targeting filers who earn more than $1 million in income each year by placing a 39% capital gains tax on those individuals. Capital gains are also considered income, so an individual who makes $100,000 a year would have the profit of their capital gains for the year added to their income, which could send them into a higher income tax bracket and, in turn, a higher capital gains tax bracket. An income of $100,000 a year would have a capital gain of $25,000 taxed at a rate of 15%, resulting in capital gains tax of $3,750 and a net profit of $21,250 after selling the inherited asset. 

Purchase PriceFair Market ValueSelling PriceCapital Gains (Step-up)Capital Gain Tax RateTaxes Paid on Capital GainsNet Capital Gain
$250,000$525,000$550,000$25,00015%$3,750$21,250

Single beneficiary inherits an asset using a stepped-up basis with $100,000 annual income. 

Should President Biden eliminate the stepped-up basis, that same individual making $100,000 a year would now be taxed at a rate of 15% on a profit of $300,000. 

Purchase PriceFair Market ValueSelling PriceCapital Gains (No Step-up)Capital Gain Tax RateTaxes Paid on Capital GainsNet Gain
$250,000$525,000$550,000$300,00015%$45,000$255,000

Single beneficiary inherits an asset without a stepped-up basis with $100,000 annual income.  

If the taxpayer were married and jointly earned more than $225,000 for the year, the $300,000 profit added to their income would push the married couple into the 20% capital gains tax bracket resulting in a tax bill of $60,000. Should the Congress and President Biden increase the top capital gains rate from 20% to 39.6%, as they have proposed, the tax bill for this married couple would be a staggering $118,800 and nearly cut their net gain in half. 

Purchase PriceFair Market ValueSelling PriceCapital Gains (No Step-up)Capital Gain Tax RateTaxes Paid on Capital GainsNet Gain
$250,000$525,000$550,000$300,00020%$60,000$240,000

Married beneficiary (filed jointly) inherits an asset without a stepped-up basis with joint annual income of $225,000. 

The step-up in basis provision saves more than $56,000 in taxes for married couples (filing jointly) who inherit assets in this scenario and more than $41,250 for single tax filers. Economists and lawmakers who have audited situations like this have concluded that billions of dollars of taxable income are voided because of the step-up in basis provision and have gone as far as alleging that the provision is a loophole rather than a tax strategy. Eliminating the provision however would cause an immense tax burden for all taxpayers, not just wealthy taxpayers as some lawmakers have purported.

In the previous Democratic administration, President Obama and then Vice President Biden attempted to eliminate the step-up in basis provision but were unsuccessful in large part due to a Republican controlled House and Senate. With a fully controlled legislature and executive branch, this initiative may have a better chance of making its way through Congress along with several other tax hikes and a partial or full repeal of the TCJA. These tax increases and changes are aimed to help finance other programs related to education and student loans, but they will impact how seniors plan to handle their assets and estates as they get older. Although the aim is to prevent mega-wealthy Americans from avoiding taxes, the elimination and reduction of certain provisions and exemption caps will have undue effects on the middle class — especially if step-up in basis is eliminated. 

With the filibuster rule still intact, Senators need more than a simple majority to pass major legislation, such as those dealing with overhauling taxes, making the elimination of the stepped-up basis unlikely — unless the rules are changed. If Democrats in the Senate move to change or dissolve the filibuster, a simple majority vote would pass most if not all of President Biden’s tax agenda, which could cause major tax burdens for seniors and their beneficiaries when passing on legacy assets. A change of this nature can potentially open other loopholes for retirees and those planning for retirement to take advantage of moving assets into other tax favorable accounts like a trust. Should these tax changes be made, many seniors across the country may benefit from updating their plans to pass along assets to their beneficiaries. 

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