Projected U.S. Budget Deficits Understated

Can there be a subject more dry than that of the U.S. Budget? But this is something that affects all of us. If the United States continues to run high levels of budget deficits into the forseeable future, it can lead only to higher interest rates and the depressing effects of those high rates on our economy. The 2010 budget is on the web at http://tiny.cc/U4qmp. If you visit this site be sure to click on the "Updated Summary Tables". Go to table S-1 where after a projected deficit for the fiscal year ending 9-30-2010 of $1.8 billion the ratio of debt to GDP is forecast to be 59.9%. Now look out to 2019 where the debt to GDP is forecast at 70.1% which could be acceptable, but still a substantial increase from 9-30-2008 when it was 40.8%. No, the real concern is the level of GDP growth that the Obama administration has assumed in getting to these results. For that you must go to table S-13. There you can see projected GDP growth for 2010 of 3.2%, 2011 through 2013 all in excess of 4%. No responsible expert has indicated growth anything like this. So we can count on lower GDP growth, much higher deficits and much higher debt to GDP ratios. And this will lead to higher interest rates. You can see in table S-13 that the rate assumption for the 10-year Treasury note is 5.2% for years 2013 and after. We question if anybody will lend the U.S. money at that rate if our budget deficit (and therefore our borrowing) is growing as rapidly as it would in a low GDP growth environment. With higher levels of debt and higher interest rates, the mere interest cost on the national debt will begin to crowd out other important items. It seems Congress and the administration are content to leave that problem for others to figure out in the future. How very unfortunate.

Obama's plan includes fiduciary standard for brokers

http://tinyurl.com/kvza6l

One of the outcomes of this financial upheaval is a revisit of regulatory governance at all levels of financial services. Although this is just in the proposal stage, and must work its way through Congress, it is encouraging to see the White House this week advocate for a fiduciary standard for brokers-- meaning they must act in the best interest of their clients. Presently, brokers are governed by a much lower "suitability" standard. Registered invesment advisers (such as Payne Wealth Partners) are required to operate to a fiduciary standard. For more on the subject of fiduciary, visit http://www.focusonfiduciary.com/.

Retirement at the Tipping Point

http://www.agewave.com/RetirementTippingPoint.pdf

The link above is to a May 2009 published study titled "Retirement at the Tipping Point" and co-authored by Ken Dychtwald PhD, CEO and founder of Age Wage, a firm founded to study aging and its implications. Interesting in the responses from the 2,082 people surveyed was (1) those not yet retired now plan to postpone their retirement an additional 4.2 years, (2) an estimate of 7 years will be required to return their investment portfolios to previous peak levels, and (3) the most important advice to next generation is to "live within your means". It is notable that only 18% had actively planned for and were confident about their financial future.