Where are we how did we get here and where are we going
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Where Are We, How Did We get Here, and Where Are We Going?. Estate Planning Forum Roger P Bey January 8, 2013. Where Are We. Fiscal Cliff Debt – $16.5 trillion Deficit -- $1.3 trillion Tax Reform Personal income Corporate income Estate Property. Market Conditions

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Where are we how did we get here and where are we going

Where Are We, How Did We get Here, and Where Are We Going?

Estate Planning Forum

Roger P Bey

January 8, 2013


Where are we

Where Are We

Fiscal Cliff

Debt – $16.5 trillion

Deficit -- $1.3 trillion

Tax Reform

Personal income

Corporate income

Estate

Property


Where are we con t

Market Conditions

2012 equity markets -- 16% return

10 yr. bond yields -- 1.91%

30 yr. mortgages –- 3.25%

Junk bonds – 6%

Home Foreclosures

30% (16M) mortgages underwater

2M in foreclosure

Where Are We con’t


Where are we con t1

Unemployment – 7.8%

Health Care

$2.8 trillion

17% of GDP

Energy

Fossil Fuel – 82%

Other sources – 18%

Where Are We con’t


Where are we con t2

Where Are Wecon’t

Education

Costs

Funding

Ability & number of graduates

Corporate governance

Financial regulation

Collapse of the financial markets

Dysfunctional government


Where are we con t3

Income distribution

Top 1% 8% of total income

Top 10% 41% of total income

Forbes 400 $200+ million average income

Wealth distribution

Top 1% 35% of total wealth

Top 10% 88% of total wealth

Forbes 400 1.7T; $4.2B each

Will Rogers

Where Are We con’t


How did we get here

New England 1700’s

Saw mills, grist mills, iron mills, pulling mills, salt works, and glassworks

Infrastructure – roads, bridges, inns, and ferries; provinces and towns subsidized foregoing

New occupations for women – weaving, teaching, and tailoring

How Did We Get Here


How did we get here con t

American Revolution 1775-1783

No available funding

Refused to tax

Volunteer army with promise of land grants

Issued $400 million in paper money

$242 million repaid 1791 at 1 cent on the dollar

Debt -- $37 million national; $114 million state

How Did We Get Here con’t


How did we get here con t1

New Nation

1787 Constitution – no internal tariffs or taxes on interstate commerce

1791-1811 Hamilton – 1st national bank

Hamilton – Jefferson conflict

Hamilton – Burr

1816-1836 2nd national bank

Jackson – let bank charter expire, opposed paper money, & demanded government be paid in gold and silver

How Did We Get Here con’t


How did we get here con t2

Panic of 1837 stopped growth for 3 years

Railroad projects & homesteading grants opposed

Civil War 1861-1865

Railroad expansion

30 yr. government bonds

Land grants

1850 – 9,000 miles of track

1890 – 130,000

1862 Morrill Land Grant Act

How Did We Get Here con’t


How did we get here con t3

Costs - $3.1 billion

New taxes (excise-value added) & bonds

First income tax, only on the wealthy

3% - $600; 5% - $5,000; 10% -$10,000

Repealed at end of the war

Lincoln – “Radical Republicans demeaned harsher treatment of the South. War Democrats desired more compromise. Copperheads despised him, and irreconcilable secessionists plotted his death.”

How Did We Get Here con’t


How did we get here con t4

How Did We Get Here con’t

1865-1900 Gilded Age

Greatest period of economic growth

1873-1879 Long Depression

NYSE closed for 10 days

89 of 364 railroads bankrupt

14% unemployment

18,000 business failures

1880’s 500% increase capital investment; capital formation doubled

1890 passed Britain in manufacturing output


How did we get here con t5

1900-1945

Mass production

Wilson, Roosevelt, Taft

1916 16th Amendment

1917-18 World War I

First real U.S. world leadership

1919 19th Amendment

1920’s ended wartime taxes, raised tariffs, reduced debt by one third

How Did We Get Here con’t


How did we get here con t6

1929 stock market crash

PE – 15

Gov. bonds 3.4%

Corp. bonds 5.1%

9% drop in October

90% by 1932

Bank holiday

Gold standard

Social Security 1935

How Did We Get Here con’t


How did we get here con t7

Depression data

How Did We Get Here con’t


How did we get here con t8

World War II 1941-1945

Price controls

Rationing

12 million men drafted

6 million women enter the work force

Costs $4.1 trillion

Marshall plan

How Did We Get Here con’t


How did we get here con t9

1945-1973 Postwar Prosperity

Pent-up demand

$200 billion in war bonds matured

GI Bill

2.2 million college

6.6 million other training

Baby boom 1946-1964 66 million babies

Income tax reduction from 94% 1944 to 70% 1965

How Did We Get Here con’t


How did we get here con t10

1975 – 2012

Globalization

1990’s 18%/yr. equity return

IPO bubble crash – 50-75% drop

Long Term Capital

Equity $4.72 billion

Debt $125 billion

Off balance sheet $1.25 trillion

1998 collapse

How Did We Get Here con’t


How did we get here con t11

2008

Perfect storm – housing bubble & financial markets

Market dropped 40%

AIG

$170 billion bailout

$165 million in bonuses

TARP $700 billion

General Motors & Chrysler

Stimulus $787 billion

Unemployment 10.2% Oct. 2009

How Did We Get Here con’t


Historical tax rates

Historical Tax Rates


Federal spending deficit debt and gdp billions of dollars

Federal Spending, Deficit, Debt and GDP Billions of Dollars


Federal spending deficit debt and gdp billions of dollars1

Federal Spending, Deficit, Debt and GDP Billions of Dollars


Federal spending deficit debt and gdp billions of dollars2

Federal Spending, Deficit, Debt and GDP Billions of Dollars


Federal spending deficit debt and gdp billions of dollars3

Federal Spending, Deficit, Debt and GDP Billions of Dollars


Cost of war 2011 dollars

Cost of War2011 Dollars


Federal budget major sectors billions of dollars

Federal Budget Major SectorsBillions of Dollars


Where are we going

Where Are We Going

2013 Financial Market Outlook

Equities Up

Individuals $600B in withdrawals

Corporate cash $2T

High bond prices to go down

Housing market recovery continues

Mortgage will increase a little

Bank lending will ease

Frozen by fear of uncertainty


Where are we going con t

Where Are We Going con’t

2013 Labor markets

Small declines in unemployment

Structural realignment required

Demand for skilled labor – machinists, welders, etc.

Reshoring but a new generation of manufacturing

Maybe Mexico and Brazil


Where are we going con t1

2013 Energy

Natural gas – high production

U.S. $3.25MCF

World $12.00MCF

Crude oil

U.S. $90.00/barrel expect to decline

High production

Increase in pipelines

Coal

Cost advantage declining

Clean air/global warming

Other

Where Are We Going con’t


Where are we going con t2

World markets

Largest GDP 2011 Trillions/2013 Growth

Where Are We Going con’t


Where are we going con t3

Who to watch

Mexico

1960 GDP $13B

1990 GDP $262B

2011 GDP $1.16T

Exports – 4th in autos; 1st in big screen TVs

NAFTA

Where Are We Going con’t


Where are we going con t4

Age

Middle East – good luck

Where Are We Going con’t


What can should we do

What can/should we do?

Dysfunctional government

Avoid electing the extremes – cancerous

Term limits

Electoral college

Voting privilege or requirements

Ranked voting

Balance budget amendment

Public financing of elections

Citizens United

What Can/Should We Do?


What can should we do con t

Tax/Spending Reform

Government spends $31,000 per household

Government collects $19,000 per household

Tax breaks or expenditures $10,000 per household

What Can/Should We Do? Con’t


What can should we do con t1

$1 expenditure for $1 of revenue

Revenue 2012-2016

Health insurance $200B/yr.

Mortgage interest $120B/yr.

Step-up capital gains $70B/yr.

401K $70B/yr.

State & local taxes $60B

Employee pensions $50B

Charity $50B

Capital gains on houses $44B

Increase Social Security cap to $150K = $75 - $100B

Wealth tax -- $70T @1% = $700B

Value added tax – national sales tax 1% of GDP = $150B

What Can/Should We Do? Con’t


What can should we do con t2

What Can/Should We Do? Con’t

What can we cut?

Suggestions

Homeland Security 2013 budget $59B; $3.4B for 40 buildings 14,000 employees; 200,000 employees in total

War on drugs $40B/yr. for 30 years

Cocaine 74% cheaper

1.6 million inmates

$63B costs


What can should we do con t3

What Can/Should We Do? Con’t

Defense budget $900B

50% of the world

China $150B

Russia $75B

Greater than requested


What can should we do con t4

Healthcare

Administrative costs 15% ($450B) ; France 5%

Obesity 7% $190B; more than smoking

Frist – 30% of Medicare on last few months of life

Another report – 25% of Medicare for 5% of recipient's in last year of life

Expected life 51st -78.9yrs.; Japan 3rd 83.9;Canada, Italy, Spain, Greece all ahead of us

Infant morality 34th right behind Cuba

Maternal deaths 47th just ahead of Chile and Lebanon

What Can/Should We Do? Con’t


What can should we do con t5

Debt interest – must reduce debt

There must be more

What Can/Should We Do? Con’t


What can should we do con t6

Education

Problems

Noncompetitive work force

14th in terms of per capita graduates; had been 1st

Costs increasing faster than health care

Administrative and facility costs

Public education is a misnomer

OU 15-20% state funded

Penn State, Michigan less than 10%

Student loans $1T

What Can/Should We Do? Con’t


What can should we do con t7

Quality

Majors

Haven’t found a way to be scalable

Athletics

What Can/Should We Do? Con’t


What can should we do con t8

Suggestions

Educational disruption

Kahn Institute; MOOC’s

No direct entry from high school

Major support for 2 year vocational schools

Science, computer science, engineering,

Higher expectations

Growth thru public/private partnership

Corporate taxes

What Can Should We Do? Con’t


Why should we be optimistic

World is most peaceful in hundreds of years

Richest countries are not in geopolitical competition

Fewest people dying from war, civil war, & terrorism in at least 100 years

Why Should We Be Optimistic?


Why should we be optimistic con t

Global economy growth

10-20 percent faster than previous decade

60 percent faster than decade before

5 times as fast as three decades ago

Poverty

UN estimates reduced more in last 50 years than previous 500

Chinese – 10 times richer than 50 years ago, live 25 years longer

Why Should We Be Optimistic?con’t


Why should we be optimistic con t1

College graduates globally last 40 years

Men 4 fold

Women 7 fold

Implications for U.S.

A rising tide lifts all boats, i.e., opportunities

We have

Dynamic economy

Dominate age of technology

Deepest capital markets

Home for world’s greatest companies

Most of the worlds greatest universities

Why Should We Be Optimistic?con’t


Thank you

Thank You


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