The Yen Warns Of The Crashing Dollar

Written by Hank Brock, CPA, MBA, CLU, ChFC
Wednesday, 30 September 2009 09:28

Remember I have told you that the Japanese Yen is the ONE currency that will go inversely to the dollar?  Unlike all the other currencies, there are major reasons why the Yen will see appreciation in years ahead, while ALL other currencies will fall. The dollar will fall the furthest of 1st world nations, with only the currencies of 2nd and 3rd world countries, perhaps, collapsing more.

I could explain this in greater detail, but basically it is because of Japan's deflation of the 1990's when it went for over a decade with their central bank at a zero-near zero interest rate, so people around the world borrowed trillions of Yen at zero, and then invested it elsewhere (especially the U.S. Stock Market and U.S. real estate) to make money on the spread between what they borrowed at and what they could earn.  Now, with the dollar plummeting against the Yen, those people have to sell their dollar-denominated assets and buy back the Yen to pay off their debts now, because if they wait until later, they will get squeezed on the currency exchange rate when they reconvert to Yen.  This puts an escalating cycle of selling pressure on the dollar, and buying pressure on the Yen, driving the Yen up, and the dollar down still further.  No such thing has occurred with any other country or currency over the past 2 decades, and so no other currency will appreciate. And because those investments were primarily in the U.S., no other currency will be sold more as those borrowers rush to pay off their Yen denominated debts.

This is just one more of the dominoes I have been referring to for months.  I guess there are more than 8-9 other major dominoes yet to fall, because as I listed them the other day, they still have yet to make their impact known to the general markets. There are SO many things intertwined, and as one domino falls, it tips the other, and they all go in the SAME direction for the greatest debtor nation in the world (U.S.):  Down!

Let me discuss briefly a number of things that have happened with the Yen in the past couple of months.  Of major political significance was the election on August 30th.  Japan had one of the most significant party changes in 50 years with the election of Yukio Hatoyama.  This election marked a change of the ruling party to the left-of-center Democratic Party of Japan.

As little as a month later, we are seeing the Yen make significant movement against the U.S. Dollar.  Last week we saw the U.S. Dollar drop from 91.27 Yen to 89.63 Yen, or by more than 1.81% in just 24 hours.

I need to emphasize a point here.  When the value of the U.S. dollar crashes globally, your purchasing power falls locally.  We are all intertwined.  The decreased dollar raises the cost on all of the imports into the country, and we are a debtor country.  This means that prices will rise in all major areas of your life.  You will see increases at Wal-Mart, Best Buy, the gas station, and almost everywhere else that we depend on imports.

As the dollar decreases, these countries also begin to pull their money out of our markets.  They begin to look for more attractive investments elsewhere.  When they pull out the markets, what happens to your investments?

I've found that most people missed the two articles published the week before last that: (a) Warren Buffet has used the most recent market climb to sell-off TENS of Billions worth of stocks, to buy fixed investments and gold/silver, and (b) the comment by a repentant former Fed Chairman Alan Greenspan that he now sees a pending world-wide "economic implosion."  As I have been saying for 18 months, the problem is too big for all the world governments to solve. And as Warren Buffet commented a few weeks ago: the worst is still yet ahead of us, the stock market will be up 10 years from now, but for now he sees "very significant" inflation ahead

We have met with many of our clients about how to protect themselves against this, and even profit from it in the months and years ahead. But, there are FAR many more and people that have attended our workshops that we have not met with yet.

Many of them are believing their "money managers" and leaving their dollars in the U.S. stock and real estate markets. They don't understand how those assets, and even CDs, fixed annuities and other dollar assets will be impacted. 

Hank Brock is president of Brock and Associates, LLC, a fee-based financial planning firm specializing in retirement, estate, and tax planning.  For more information on how to protect yourself in the volatile years ahead, we encourage to your schedule a time to meet with our qualified financial advisors.

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Understanding the Stimulus Bill

Written by Anonymous
Wednesday, 04 March 2009 09:25

Shortly after class, an economics student approaches his economics professor and says, "I don't understand this stimulus bill. Can you explain it to me?"

The professor replied, "I don't have any time to explain it at my office, but if you come over to my house on Saturday and help me with my weekend project, I'll be glad to explain it to you." The student agreed.

At the agreed-upon time, the student showed up at the professor's house. The professor stated that the weekend project involved his backyard pool.

They both went out back to the pool, and the professor handed the student a bucket. Demonstrating with his own bucket, the professor said, "First, go over to the deep end, and fill your bucket with as much water as you can." The student did as he was instructed.

The professor then continued, "Follow me over to the shallow end, and then dump all the water from your bucket into it." The student was naturally confused, but did as he was told.

The professor then explained they were going to do this many more times, and began walking back to the deep end of the pool.

The confused student asked, "Excuse me, but why are we doing this?" The professor matter-of-factly stated that he was trying to make the shallow end much deeper.

The student didn't think the economics professor was serious, but figured that he would find out the real story soon enough.

However, after the 6th trip between the shallow end and the deep end, the student began to become worried that his economics professor had gone mad. The student finally replied, "All we're doing is wasting valuable time and effort on unproductive pursuits. Even worse, when this process is all over, everything will be at the same level it was before, so all you'll really have accomplished is the destruction of what could have been truly productive action!"

The professor put down his bucket and replied with a smile, "Congratulations. You now understand the stimulus bill."

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Stimulus act (ARRA) provides substantial tax breaks for businesses and individuals

Thursday, 19 February 2009 09:01

UPDATE: Earlier this week, we sent you a summary of the key tax provisions of the American Recovery and Reinvestment Act of 2009 (ARRA). Ongoing analysis of the act has yielded a small update to the alert's S corporation tax break information. Find the updated information below under "S corporation built-in gains tax relief."

On Feb. 17, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (ARRA). While approximately two-thirds of the nearly $800 billion stimulus act is focused on government spending initiatives intended to create jobs and jumpstart the economy, about one-third provides tax breaks for businesses and individuals.

Businesses will enjoy new tax breaks

The act provides some new breaks that will benefit many businesses:

Reduced estimated tax payment requirements. For 2009, ARRA reduces the estimated tax payment requirements for many small business owners. Owners generally will qualify for the reduced payments if their adjusted gross income (AGI) for 2008 was less than $500,000 and if more than 50% of their 2009 gross income is generated from a "small business," which is defined as a business that, on average, had fewer than 500 employees during 2008.

Deferral of income from cancellation of debt. Taxpayers generally must recognize cancellation-of-debt income (CODI) when they cancel — or repurchase — debt for an amount less than its adjusted issue price. In certain situations, ARRA allows businesses to defer CODI generated from repurchasing business debt after Dec. 31, 2008, and before Jan. 1, 2011, until calendar year 2014 and then report the income ratably over the 2014 through 2018 tax years.

S corporation built-in gains tax relief. Although a C corporation conversion to an S corporation isn't a taxable event, the S corporation normally must hold on to its assets for 10 years to avoid tax on any built-in gains that existed at the time of the conversion. Under ARRA, for tax years beginning in 2009 and 2010, there generally will be no tax on an S corporation's net unrecognized built-in gain if the seventh tax year in the recognition period occurred before the 2009 and 2010 tax years.

The act expands some important tax breaks for businesses:

Net operating loss carryback. Generally, a net operating loss (NOL) may be carried back two years to generate a current tax refund, providing a cash infusion in times of loss. For 2008 (not 2009), ARRA extends the maximum NOL carryback to five years for small businesses with gross receipts of $15 million or less.

Work Opportunity credit. Employers can claim a credit equal to 40% of the first $6,000 of wages paid to employees in certain target groups, such as ex-felons, food stamp recipients and disabled veterans. ARRA expands the eligible target groups to include unemployed veterans and disconnected youth. This expanded benefit applies to such workers hired in 2009 and 2010.

Depreciation breaks extended.  To spur additional investment, ARRA extends the increase in the Section 179 limit for initial year expensing to $250,000 (from $125,000 indexed for inflation). The expensing election begins to phase out dollar for dollar when total asset acquisitions for the tax year exceed $800,000 (up from $500,000 indexed for inflation). The new higher limit applies for calendar year 2009 or a business's fiscal year that begins in 2009.

Another depreciation-related provision extends the special allowance for certain property, generally if acquired in 2009. For eligible property, the special depreciation amount is equal to 50% of its adjusted basis. For passenger automobiles that are eligible property under the 50% bonus depreciation rules, the $8,000 increase for the first-year limit on depreciation also is extended to new vehicles placed in service in 2009.

Last year, corporate taxpayers were also allowed to accelerate their alternative minimum tax (AMT) and research and development (R&D) credits in lieu of taking the 50% bonus depreciation. That break has now been extended through 2009.

Energy-related breaks for businesses expanded.  ARRA creates or expands several energy-related breaks for businesses, such as the:

• Advanced energy investment credit,
• Renewable electricity production credit, and
• Alternative fuel pump tax credit.

Individuals also enjoy new tax breaks

ARRA also provides some new tax breaks for individuals:

New relief for most workers, retirees and other Social Security recipients. For 2009 and 2010, ARRA creates the Making Work Pay credit of up to $800 for joint filers and $400 for other filers. The credit generally is phased out for joint filers with AGIs exceeding $150,000 and for other filers with AGIs exceeding $75,000. Unlike last year's "recovery rebate," which was distributed via checks mailed to taxpayers, the new credit will generally be "paid" through a reduction in income tax withholding.

The act also provides a one-time payment of $250 to many people on fixed incomes, such as Social Security recipients and disabled veterans. Similarly, it provides a one-time refundable tax credit of $250 to certain government retirees who aren't eligible for Social Security benefits. Both the $250 payment and the $250 credit reduce any allowable Making Work Pay credit.

New sales tax deduction for vehicle purchases. ARRA creates a new above-the-line deduction for state and local sales and excise taxes paid on the purchase of new cars, light trucks, motorcycles and recreational vehicles. The deduction is available for vehicles purchased from Feb. 17, 2009, through Dec. 31, 2009.

The deduction is not, however, available for tax attributable to vehicle value in excess of $49,500. The deduction also phases out based on AGI, but the limits are higher than those for the Making Work Pay credit: The phaseout begins for joint filers with AGIs exceeding $250,000 and for other filers with AGIs exceeding $125,000.

Other individual breaks expanded

The bulk of the tax relief for individuals involves expanding existing breaks. Here are the key changes to be aware of:

Credit for first-time homebuyers. Last year, a refundable credit equal to 10% of the purchase price of a principal residence was made available to qualified first-time homebuyers. This credit was set to expire July 1, 2009, but ARRA extends its availability to purchases made before Dec. 1, 2009. For qualifying purchases made after Dec. 31, 2008, the act also increases the maximum credit from $7,500 to $8,000. Perhaps most significant, the act eliminates the repayment obligation for taxpayers whose qualifying purchase occurs after Dec. 31, 2008 — except in situations where a home is sold within three years of purchase.

American Opportunity education credit (previously called the Hope credit). For 2009 and 2010, ARRA expands this credit to cover 100% of the first $2,000 of tuition and related expenses (including books) and 25% of the next $2,000 of such expenses. The maximum credit is $2,500 per year for the first four years of postsecondary education. (The maximum Hope credit was $1,800 and applied to only the first two years of postsecondary education.) The credit phases out for joint filers with AGIs exceeding $160,000 and for other filers with AGIs exceeding $80,000.

529 savings plans. 529 plan distributions used to pay qualified education expenses — tuition, room, board, mandatory fees and books — are generally tax free. For expenses paid in 2009 and 2010, ARRA expands the definition of qualified education expenses to include computers and computer technology.

Qualified small business stock gain exclusion. Generally, taxpayers selling qualified small business (QSB) stock are allowed to exclude 50% of their gain as long as they've held the stock for at least five years. ARRA increases the exclusion to 75% if the stock is issued after Feb. 17, 2009, and before Jan. 1, 2011.

AMT relief granted early this year.  One tax provision affecting individuals that many thought wouldn't be enacted until later in the year is the extension of alternative minimum tax (AMT) relief. ARRA provides a one-year "patch" that increases the AMT exemption. For married couples filing jointly, the 2009 exemption is $70,950. For singles and heads of households, it's $46,700, and for married filing separately, it's $35,475.

The patch also expands the AMT income ranges over which the exemptions phase out and only partial exemptions are available. The 2009 phaseout ranges are now $150,000 to $433,800 for married filing jointly, $112,500 to $299,300 for singles and heads of households, and $75,000 to $216,900 for married filing separately. The exemption is completely phased out if AMT income exceeds the top of the applicable range.

Additionally, ARRA extends a provision through 2009 that allows certain nonrefundable personal tax credits to provide a benefit against the AMT. These include the dependent care credit, the American Opportunity credit and the Lifetime Learning credit. The act also excludes from the AMT any income from tax-exempt bonds issued in 2009 and 2010, along with 2009 and 2010 refundings of bonds issued after Dec. 31, 2002, and before Jan. 1, 2009.

Energy-related breaks expanded for individuals

ARRA creates or expands several energy-related breaks for individuals, such as:

• Transit benefits,
• Residential energy property credit,
• Residential energy-efficient property credit, and
• Plug-in electric vehicles credit.

Help given to laid-off workers. Although much of ARRA focuses on working Americans, it also provides some tax relief for laid-off workers. For 2009, the act suspends federal income tax on the first $2,400 of unemployment benefits per recipient.

Take full advantage

ARRA may significantly affect your tax liability in a variety of ways. If you would like more detailed information about this new tax law, please give us a call or sign up for a free consultation. We would be glad to help you determine exactly how ARRA will affect your tax liability — and what you should do to take full advantage of the act.

Best regards,

Brock and Associates, LLC
435.673.9599

Brock and Associates, LLC is a financial planning firm specializing in asset protection and generational wealth preservation.

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Gold Confiscation Order of 1933

Wednesday, 14 January 2009 09:16

This is a transcript of the Gold Confiscation Order of 1933.  President Roosevelt gave the public 25 days to turn in their gold or face a hefty fine and up to 10 years imprisonement.  After the transcript is a link to see the actual order in pdf format.

UNDER EXECUTIVE ORDER OF THE PRESIDENT
Issued April 5, 1933
all persons are required to deliver
ON OR BEFORE MAY 1, 1933
all GOLD COIN, GOLD BULLION, AND
GOLD CERTIFICATES now owned by them to
a Federal Reserve Bank, branch or agency, or to
any member bank of the Federal Reserve System.

By virtue of the authority vested in me by Secion 5 (b) of the Act of October 6, 1917, as amended by Secion 1 of the Act of March 9, 1933 entitled "An act to provide relief in the existing national emergency in banking, and for other purposes", in which amendatory Act Congress declared that a serious emergency exists. I, Franklin D. Roosevelt, President of the Unitted States of America, do declare that said national emergency still continues to exist and pursuant to said section do hereby prohibit the hoarding of gold coin, gold bullion, and gold certificates within the continental United States by individuals, partnerships, associations and corporations and hereby prescribe the following regulations for carrying out the purpose of this order.

Section 1. For the purposes of this regulation the term "hoarding" means the withdrawal and withholding of gold coin, gold bullion or gold certificates from the recognized and customary channels of trade. The term "person" means any individual, partnership, association or corporation.

Section 2. All person are hereby required to deliver on or before May 1, 1933, to a Federal reserve bank or branch or agency thereof or to any member bank of the Federal Reserve System all gold coin, gold bullion and gold certificates now owned by them or coming into their ownership on or before April 28, 1932, except the following:

(a) Such amount of gold that may be required for legitimate and customary use in industry, profession or art within a rea- sonable time, including gold prior to refining and stocks of gold in reasonable amounts for the usual trade requirements of owners mining and refining such gold.

(b) Gold coin and gold certiicate in an amount not exceeding in the aggregate $100.00 belonging to any one person; and gold coins having a recognized special value to collectors of rare and unusual coins.

(c) Gold coin and bullion earmarked or held in trust for a recognized foreign government or foreign central bank or the Bank for International Settlements.

(d) Gold coin and bullion licensed for other proper trans- actions (not involving hoarding) including gold coin and bullion imported for re-export or held pending action on application for export licenses.

Section 3. Until otherwise ordered by any person becoming the owner of any gold coin, gold bullion or gold certificates after April 23, 1933, shall within three days after receipt thereof, deliver the same in the manner prescribed in Section 2; unless such gold coin, gold bullion or gold certificates are held for any of the pur- poses specified in paragraphs (a), (b), or (c) of Section 2; or unless such gold coin, or gold bullion is held for purposes specified in paragraph (d) of Section 2 and the person holding it is, iwth respect to such gold coin or bullion, a licensee or applicant for license pending action thereon.

Section 4. Upon receipt of gold coin, gold bullion or gold certificates delivered to it in accordance with Sections 2 or 3, the Federal reserve bank or member bank will pay therefor an equivalent amount of any form of coin or currency coined or issued under the laws of the United States.

Section 5. Member banks shall deliver all gold coin, gold bullion and gold certificates owned or received by them (other than as exempted under the provision of Section 2) to the Federal reserve units of their respective districts and receive credit or payment therefor.

Section 6. The Secretary of the Treasury, out of the sum made available to the President in Section 501 of the Act of March 9, 1931, will in all proper cases pay the reasonable costs of transportation of gold coin, gold bullion or gold certificates delivered to a member bank or Federal reserve bank in accordance with Sections 2, 3, or 5 hereof, including the cost of insurance, protection, and such other incidental costs as may be necessary, upon production of satisfactory evidence of such costs. Voucher forms for this purpose may be procured from Federal reserve banks.

Section 7. In cases wehre the delivery of gold coin, gold bullion or gold certificates by the owners thereof within the time set forth above will involve extraordinary hardship or difficulty, the Secretary of the Treasury may, in his discretion, extend the time within which such delivery must be made. Applications for such extensions must be made in writing under oath, addressed to the Secretary of the Treasury and filed with a Federal reserve bank. Each application must state the date to which the extension is desired, the amount and location of the gold coin, gold bullion and gold certificates in respect of which such application is made and the facts showing extenstion to be necessary to avoid extraordinary hardship or difficulty.

Section 8. The Secretary of the Treasury is hereby authorized and empowered to issue such further regulations as he may deem necessary to carry out the purposes of this order and to issue licenses thereunder, through such offices or agencies as he may designate, including licesnses permitting the Federal reserve banks and member banks of the Federal Reserve System, in return for an equivalent amount of other coins, currency or credit, to deliver, earmark or hold in trust gold coin and bullion to or for persons shoing the need for the same for any of the purposes specified in Paragraphs (a), (c) and (d) of Section 2 of these regulations.

Seciton 9. Whoever wilfully violates any provision of this Executive Order or of these regulations or any rule, regulation or license issued thereunder may be fined not more than $10,000 or if a natural person, may be imprisoned for not more than ten years, or both; and any officer, director or agency of any corporation who knowingly participates in any such violation may be punished by a like fine, imprisonment or both.     This order and these regulations may be modified or revoked at any time.

FRANKLIN D. ROOSEVELT   
The White House
April 5, 1933

For Further Information Consult Your Local Bank

GOLD CERTIFICATES may be identified by the words "GOLD CERTIFICATE" appearing thereon. The serial number and the Treasury seal on the face of a GOLD CERTIFICATE are printed in YELLOW. Be careful not to confuse GOLD CERTIFICATES with other issues which are redeemable in gold but which are not GOLD CERTIFICATES. Federal Reserve Notes and United States Notes are "redeemable in gold" but are not "GOLD CERTIFICATES" and are not required to be surrendered

Special attention is directed to the exceptions allowed under
Section 2 fo the Executive Order CRIMINAL PENALTIES FOR VIOLATION OF EXECUTIVE ORDER
$10,000 fine or 10 years imprisonment, or both, as
provided in Section 9 of the order

Secretary of the Treasury

Click here to see the actual Gold Confiscation Order of 1933.

Brock and Associates, LLC specializes in retirement, estate, tax, and business planning.

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How Big is the Bailout really? ...So far?

Written by Hank Brock, CPA, MBA, CLU, ChFC
Thursday, 04 December 2008 10:47

As more and more come to the Fed begging for cash, the costs are adding up... According to Barry Ritholz, author of The Big Picture, total federal aid (including the Citi bailout) now equals $4.6 trillion – making the credit-crisis rescue the largest government project in history.

Unfortunately, there are four major concerns I see with the analysis below. First, expenditures from the old "New Deal" of 75 years ago haven't ended yet, and so the figures below are grossly understated, and we are facing an expansion of them once again in economic policy. We still have the agencies, authorities, laws, programs, regulations, and other expenditures and drag on economic growth that has perpetuated since those days. Repeated economic studies have shown that The New Deal actually exacerbated the depth and prolonged the length of The Great Depression.

Second, when we consider where and how to deploy assets today, we must look at the period of increasing regulation and tax rates during the 1960's and throughout the 1970's, resulting in a stagnant economy for over 15 years. The increasing regulatory environment probably killed business growth more than did the high tax rates. This is pendulum swing-back is facing us again today.

Third, one program left out of the costs below would the the 2nd war launched by President Johnson, simultaneous with the War in Vietnam, and that is the War on Poverty. It would be interesting to see what the cost of these entitlement programs have totaled. Some would say the War on Poverty, along with Medicare and Social Security, are simply a continuation of The New Deal Keynesian economics, which ultimately blow-up because they are based on a pyramid scheme of ever-increasing newcomers into the bottom level of the pyramid. This worked fine after WWII, until the baby boomers stopped having children. Fortunately, the U.S. is not in the position of Europe and Japan, where their social programs are causing the government to go bust because there is a declining population, and the pyramid is inverted with more retirees at the top than there are workers to support them. 

Fourth, while this study attempts to equalize the cost of these programs by adjusting them into today's dollars, it would be interesting to see the cost of these programs if those dollars had been invested into the private sector, and instead of growing the dollars at the inflation rate, growing those dollars at the growth rate of the stock market, the businesses that create real wealth in an economy, and that hire and employ people off the streets. That might give a different cost to these items.  To this end, these expenditures need to be categorized into a column for investments (such as the Louisiana Purchase and perhaps NASA), versus wars which are purely consumptive (not to say they aren't necessary), versus expenditures that fall somewhere in the middle, like the Marshall Plan and the New Deal.            

At any rate, it is interesting to put the cost in perspective.  James Bianco of Bianco Research calculated the inflation-adjusted costs of other large government programs throughout history. The current bailout is bigger than the following nine programs... combined.  Total cost: $3.925 Trillion.

Hank Brock is president of Brock and Associates, LLC, a financial consulting firm specializing in asset protection and generational wealth preservation.

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