Colorado, the state I live in, currently has over 40,000 homes on the market.  We certainly do not have 30,000 families with the right level of income to purchase these homes, nor do we have any idea where to find families who have the ability to relocate to Colorado and purchase the homes.  Colorado also has a high commercial building vacancy rate, but we are still building new space.   Every state has nearly the same problem, so there is no national source pool from which to draw new jobs or new workers.  The end result is that home values are dropping daily.   As the values drop more and more, people cannot sell their homes because they are upside down on their loan-to-value ratio.  The more days that go by, the further down the prices go and even more families are trapped by low loan-to-value ratios.  This nasty problem, which shows no signs of slowing, makes it impossible for families to move closer to town to reduce their fuel costs or move to another city or state to find better jobs.  When people cannot move, businesses cannot move thus locking every mid and small business into its current local area.

Note: The further the process moves forward, the more trapped homeowners will realize that their dream of owning a home has become a nightmare.  As this happens trapped homeowners will realize that the only way to manage their budgets is to dump their homes in favor of apartments and be able to move, again and again, as both home values and apartment rental prices continue to fall.

3. 401k Good Illusion:  We have all grown up to believe that 401k’s are a good thing because of the employer match and the deferred tax concepts behind them.  In the short term this works; however, as time goes by the 401k becomes a problem for us to manage and we often end up breaking even or losing money over the long term.  The biggest reason for this is that 401k money can only be used to buy stock or mutual funds.  In up markets, this works great.  In down markets it turns against us unless we can predict the downturns and go immediately to cash.  Non- 401k money can make money on the up-swing and on the down-swing.  There are also a number of ways non-401k money can be protected from big swings (kind of like insurance).  This is the secret to why the rich get richer even during market pullbacks.
The next big reason that 401k’s work against us is that they allow the government to forecast their tax revenues because they can see our money and predict when it will come out.  If the economy is slowing down, the government always knows that they can increase taxes to make up for revenue shortfalls without you being able to withdraw your money before taxes are raised.  Since 401k’s are taxed as ordinary income, you will pay a lot more in taxes than the 20% long term capital gains tax on non-401k money.  From the Government’s standpoint, 401k’s take the pressure off of fixing a Social Security process, which requires a large number of workers to support a single older worker.  These actions demonstrate that the government knew about the low population growth rate issues long ago yet does not seem to have sounded the alarm.

Note:  Because of all the outflows, and issues such as escalating Medicare costs, we have created for ourselves, taxes must go up by considerable amounts on all levels of our society (mentioned by German economist in exchange rate session at recent World Trade Day event).

4. Unforgiving New Bankruptcy Law:  This new law ties you and your spouse’s (if married) income together to determine if you individually can file Chapter 7, even if you have never filed joint tax returns.  By setting the median household income at $60,000, the combined minimum makes it extremely difficult for individuals, especially married ones, to file bankruptcy under Chapter 7.  This new law forces individuals into a situation where they must in some way negotiate with creditors to pay off their debts over time.  This scenario completely ignores the primary reasons for filing bankruptcy in the first place - that the individual is so far behind they can never recover.  When we put people in such hopeless circumstances, they are likely to get frustrated and angry.

5. Relentless Tax System:  The saying that “the only things certain are death and taxes” is absolutely true.  In our tax system, we generally cannot get out from under past due taxes, even if we declare bankruptcy.  If we do declare bankruptcy, we must pay our current taxes (last three years) whether we have income or not (guess they assume you will have to go back to work someday).  Furthermore, if you are behind on taxes the Government can simply take what they want, when they want, unless you have an agreement to pay over time with them.  In addition to significant penalties for not paying or filing late, if your spouse has signed your return, whether they have income or not, their individual accounts can be levied.  We should not be fooled by the idea that filing joint returns is a good idea.  More likely, the government gives up a little as insurance for both you and your spouse’s long term tax liabilities. 

6. Out of Control Borders & Ports:  Generally, we are all concerned about illegal immigration made possible by poor border and port control.  Even so, the government has not done anything significant on this issue in over twenty years.  As you think about the low population growth rate issue, how long the government has known about it, low unemployment rates and so on, it is easy to see that loose borders and ports take the pressure off the government to take decisive action to control and manage them.  Whether you are for or against legalization of illegal immigrants currently in the country, controlling and managing the borders and ports is the critical first step that must be done before other efforts can start.  As long as employers can find workers, they are less likely to call foul on the number one issue that we are not dealing with; low population growth rates and worker shortages.  I suspect the government is over-influenced by big multinational companies who want to outsource jobs to foreign workers for profit reasons; the multinational companies have pressured the government to do nothing about the number one issue.  And finally, there is another school of thought suggesting that loose borders and ports allow some in the government to profit from, or in some way benefit from, illegal activities such as drug and human trafficking.

Note: Someplace between out of control borders & ports and free trade, I place finding ways to start wars in the name of national security when they are really attempts to gain access to, control or stabilize something our country’s big businesses need for growth in profits.   Since there is not nearly as much profit for big business in controlling our borders and ports, they simply get no attention in the scheme of things.

7. Free Trade Regardless:  Free trade, regardless of its impact on our country or the living conditions in the countries we deal with, has been and continues to be our unstated policy.  The problem is that when we trade with Third World Countries we only benefit from the already wealthy in those countries.  If you check the poverty levels of the Third World Countries we trade with, you will see little or no improvement.  In addition, if you look at the corruption levels of these countries, they are also unchanged from their abysmal horrible numbers.  If you want to know how this is possible, read my book and attend one of my seminars on the subject.  Because the corruption and poverty levels have not changed, the number of illegal immigrants coming to the United States from these counties has not, and will not, ease.  The other problem with free trade is that we are now dependant on other countries for goods and a lot of our food, which comes to us with higher prices because of fuel costs. 

Note: We cannot produce more at home because we are short of people.  For example, a company in our country was the recent beneficiary of a large number of orders from overseas customers, due to the drop in value of the U.S. dollar; it was then maxed out on its production capacity and can take no more orders until it clears its current three month backlog.  My bet is that this company will be looking overseas as it tries to deal with its capacity issue, which will not go away because the U.S. dollar will continue to decline in value.  At best, the U.S. dollar will stabilize over the next three to five years according to official forecasts made at World Trade Day by economists in the know.
Note:  Adding to the problem is that the State and Federal governments tax gas on a per gallon basis and therefore do not have an incentive to reduce our consumption.

8. Outsourcing Regardless (including temporary worker programs):  Outsourcing, regardless of the long-term dependencies it creates on our country for anything manufactured, is the biggest mistake we have ever made.  Every item that we previously made and consumed in our country, which we now produce through outsourced manufacturing and import back into our country, we pay higher prices for due to the fuel costs.  In addition, we have failed to position our country for the future, in that other countries are developing the human and other resources necessary for the next round of global expansion.   Without trained and experienced people, all we can do now is watch while other countries develop the expertise and skills necessary to design, build and operate the infrastructure required to deal with climate change or compete in many other global markets.

Note:  See Chapter 19, Page 246 of my book and you will see that every job outsourced costs 3 to 4 other jobs and enormous damage to the economy because of 5 to 7 times spending and re-spending factors.  This makes outsourcing extremely different from trade!  To be clear, trade is beneficial to both parties; outsourcing is negative to one side and positive to the other and then the effects are multiplied by at least 5.  See Chapter 17, page 217 of my book for a simple discussion of this subject.  As I put this paper together, it occurred to me that outsourcing has the same horrific financial effect as the massive corruption outflows going on in Third World Countries described in my book.  Also, if you look at the information from transparency international (http://www.transparency.org/policy_research/surveys_indices/cpi) you will see that corruption levels have remained the same over all the years we have been outsourcing.  This means the corrupt leaders and business people continue to get more tax free cash into their pockets at the same time they are building up their countries’ economies.  Read my book “Corruption Arts in Third World International Business: Traps, Swizzles, and Swindles Used by the Master Players, hardcover, ISBN: 0-9766996-0-5 (only available through amazon.com) to get a feel for the large amounts of cash taken by these people and discover how easily they do it.

With regard to being in the perfect prison, a few individuals can escape their geographical constraints, so long as they do not own houses, have no investments and have little or no combined income in their households.  For the rest of us, escaping the Perfect Prison is only possible if we are able to work together at all levels of society and government. 

If you look at the inflows and outflows in the Perfect Prison diagram, you can begin to figure out what needs to be attacked first.  In my opinion, growing the population and getting control of our borders and ports should be the first on our priority list.  We will see some improvements in the other six areas as we make progress on these two.  In another publication on Strategic Survival Initiatives for the United States, I will outline bold new ways to move forward.

How and who is responsible for us being in a Perfect Prison will always be a matter for debate; however, look at who has been in power over the past twenty years and then think about which of their private and public friends benefitted from each of the eight forces.  You can get a good idea. 

In closing, how do we use the information above to tell friend from foe in the coming elections?  The simplest way is to listen to which candidates understand and have a passion about fixing the eight forces holding us in the Perfect Prison.  If they do not bring these items up, then ask them what they think about the eight and how they would go about fixing them.  As for myself, I will not vote for anyone who has been seriously saying that low unemployment numbers are good, because such views show a fundamental problem with the individual’s understanding of basic economics.

It’s a long, hard road back for our country; unfortunately, it cannot even be started without the right leaders in Washington.
Questions regarding any of this material can be emailed to rich.gottbreht@globalinisghts.biz. 

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