Treading Water.....

Lots of clients have been asking me about the debt issues that are sweeping across the European Union, (EU). In the last month, we've seen the resignation of the Greek Prime Minister George Papandreou, after significant pressure from the other European Countries. Greece's Gross Domestic Product (GDP) is about 5.8 Billion. Their debt ratio (External
Debt) is 182% of the GDP. GDP is the value of goods and services that a country produces. Typically, a low % ratio of GDP to debt is considered good and allows for a country to pay back debts and stand up to the risks involved in an increasing debt environment. Italy has been a center point of concern with regard to that ratio. Currently, Italy's GDP is 2.6 Trillion, or 5 times that of Greece, with a debt ratio of 146% of GDP. If Greece's debt issues are a concern for the Euro, then certainly Italy is of greater concern as their economy is much larger and could have a much greater impact on the looming debt issues that face the EU. Now, I'm not trying to be an alarmist here, but if Greece is an issue and Italy's problem is 5 times that size, I would consider that to be pretty serious. As I was writing this, I decided to do a little more research on this topic as it relates to the Euro.

Here are some facts: Spain - GDP 2.4 Trillion, debt ratio - 179%. Portugal - GDP 552 Billion, debt ratio - 223%. France - GDP 5.4 Trillion, debt ratio - 250% and Germany - GDP 5.44 Trillion, debt ratio - 185%. Frankly, I was stunned by what I view to be a house of cards. Now, I'm not an economist and clearly not an expert at world economics, but clearly these figures create an unsustainable amount of debt and the potential for some pretty severe consequences if this does not get cleaned up. The EU cannot fix all of these issues and the United States is certainly not in a position to help out if a real crisis breaks out. Frankly speaking, this is pretty scary stuff and it seems to me that not everyone is being completely truthful on the depth of these problems. This is certainly something you will want to keep your eye on.

I've had several people email me after reading my newsletters and asking why I'm so negative. Honestly, I try not to be, but it's hard when I pick subject matter that is in the headlines, and none of it is positive. I've stated in previous newsletters, and I will restate again here. If you are not doing some definitive income planning and using guarantees on the return of your principle and protecting your assets, it is my opinion that you are making a significant mistake. This recovery is going to take a long time and you need to protect yourself. For those of you that know me well, I am serious about this type of planning, "Wait and See" is not a plan.

Here in the United States, we are supposed to get some action from the "Super Committee" on the deficit reduction by next Wednesday, the day before Thanksgiving. Washington is not a town that keeps secrets very well, and considering we have not really heard much about definitive actions by these folks, I suspect we will experience some "band-aid" type responses that seem to be the status quo by our leadership. It looks to me that politics is coming before pretty much everything these days. Realistically, if we cannot get some deficit reduction agreements in place, any stimulation, extension of unemployment benefits or increased spending to encourage consumer spending is very unlikely. In addition, mandatory cuts in budget will begin 2013.

Estate Planning

Everyone should have the following four documents. Will, Power of Attorney, Healthcare Power of Attorney and Living Will. We all know that a Will is a directive in which you leave assets to heirs and control how those assets are passed down. Items that are not covered by a will are: anything with a beneficiary, like IRA's, 401(k)'s, Life Insurance, etc. Beneficiary designations will always supersede a will. A Power of Attorney is a document whereby you direct a person to perform on your behalf for financial matters if your are incapacitated. For example, if you are unconscious and your tax return needs to be filed, this document allows someone to sign that document on your behalf. It can also allow someone to pay your bills, sign checks for you, etc. A LIving Will, (Advanced Directive) is your right to dictate how you want to be treated in the event you are unable to communicate. Do you want to be on life support, receive artificial nutrition, hydration, etc. The Living Will allows you to state in advance how these events should take place. Finally, a Health Care Power of Attorney is a document where you empower someone to make healthcare decisions on your behalf if you cannot. Most people think that if you are married, that decision automatically goes to the spouse and that is not correct. You must empower your spouse in writing to perform those actions.

Planning Tips

Safe money is still the name of the game in times like this. Guaranteed income planning is critical and can relieve some of the stress and inconsistencies of managing your money. People want to know if they have enough money, and is it going to last long enough for their retirement years.