Generational Wealth – Fact or Fantasy?

Parents Financially Supporting Adult Children - Generational Wealth – Fact or Fantasy?Generational wealth is assets passed from one generation to another. A family business, stocks, bonds, real estate or other valuables are typical examples. These generally transfer when a family member dies.

This is different from the soft issues like family values, education, love and family, which begin the transfer process at birth and continue through a lifetime.

The Federal Reserve tells us about half of all inheritances are under $50,000, and a mere 2% are over $1 million.

Our friends at WHVP recently wrote a great article on the subject, telling us:

“It’s essential to understand that having family wealth and preserving family wealth are two very different things, and the latter often requires careful and considerate planning. The reality is that around 70 percent of wealthy families lose their wealth by the second generation, and about 90 percent of families lose wealth by the third generation.”

It’s an excellent article directed toward those who have wealth and wish to preserve it for future generations.

The challenge for the middle class is not only using financial discipline in building our own wealth, but also educating our family to do the same – so there is wealth available for those next in line. Quite a task in today’s world for those not in the top 1-2%.

The Rich Get Richer…

Bill Bonner runs the numbers:

“In the period running up to the 1970s, the top 1% got about 8% of national income. Today, it gets 20%.

Incomes for the top 1% have roughly quadrupled since 1970. For the 90% of the middle class, they have been stagnant. And for those with only a high school diploma or less, real incomes have fallen.

If you were born in the 1940s, you were almost certain to earn more than your parents. …. If you were born after 1970, you had barely even odds of earning more than your parents.”

While the middle class may be stagnant, their standard of living has improved substantially. Why? It is built on a mountain of debt, topping $17 trillion.

Total Debt Balance and its Composition - Chart

Major turning point

What happened in 1970 that changed everything? Nixon decided to “temporarily” remove our money from the gold standard. While he may have stopped the flood of gold from the US treasury, 50 years later we’re faced with the consequences of his “temporary” suspension.

The following two charts explain it all.

By removing the gold standard spending restraints, Congress borrowed and spent; sending our national debt to unsustainable levels.

Fred Chart - Federal Debt: Total Public DebtNote the extreme uptick in 2008 when Congress allowed the Fed to bail out the “too big to fail” banks. Banks keep their profits and stick taxpayers with their losses.

Politicians of all flavors got on the spending binge bandwagon, not having the courage to raise taxes or make any reasonable attempt to balance the budget.

The American Institute for Economic Research tracks the inevitable inflation:

“US inflation was not always as persistently high as it has been under the Fed. Before the Fed, the purchasing power of the dollar was determined by supply of and demand for gold. Consequently, the purchasing power of the dollar was relatively stable.”

Market-based Gold Standard ChartThe top 1%, can afford their cadre of economists, accountants, lawyers and lobbyists, and will do everything they can to ensure politicians protect their wealth. The politicos, with help from the elite, look after themselves. The middle class is on their own.

How To Find A Financial AdvisorPundit Bill Bonner tells us:

“In our 2006 book, ‘Empire of Debt,’ we pointed out that empires are typically ruined by a combination of disastrous financial policies (debt and inflation) along with reckless military adventures. We forecast that America would suffer both scourges. The cost of the latter almost guarantees the former. America’s ‘foreign policy’ establishment – …. costs $1.5 trillion per year.”

Empires fall when the political class burdens their budget with welfare to warfare and everything in between.

Pundit Ray Dalio shares a graph, pointing to where he feels our empire is in the process:

The Archetypical Big CycleWe are past step 13, “Large Debts” with no end in sight. Our deficits are projected to rise by over $5 billion per day for the next decade.

With the US Debt Clock projecting our US national debt to surpass $44 trillion in 2027, it not surprising that Fitch downgraded the US debt rating:


Ratings Downgrade: The rating downgrade of the United States reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to ‘AA’ and ‘AAA’ rated peers over the last two decades that has manifested in repeated debt limit standoffs and last-minute resolutions.

Erosion of Governance: In Fitch’s view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters. …. The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management. In addition, the government lacks a medium-term fiscal framework, unlike most peers. …. These factors, along with several economic shocks, as well as tax cuts and new spending initiatives, have contributed to successive debt increases over the last decade. Additionally, there has been only limited progress in tackling medium-term challenges related to rising social security and Medicare costs due to an aging population.”

Interest on the national debt is now more than the military budget, and will continue to grow.

Treasury Secretary Janet Yellen complained about the downgrade:

“I strongly disagree with Fitch’s decision, and I believe it is entirely unwarranted. Its flawed assessment is based on outdated data and fails to reflect improvements across a range of indicators, including those related to governance, that we’ve seen over the past two and a half years.”

Former Fed Chair Yellen continues to mislead the public (a true politician), protecting the elite.

In my childhood many western movies had an Indian chief utter, “Big White Father (US government representative) speaks with forked tongue.” Ms. Yellen continues with the tradition….

Each year Ms. Yellen’s treasury department issues a report, Financial Report of the United States Government. The most recent report tells us:

“An Unsustainable Fiscal Path

An important purpose of the Financial Report is to help citizens understand current fiscal policy and the importance and magnitude of policy reforms necessary to make it sustainable.

…. A sustainable fiscal policy is defined as one where the debt-to-GDP ratio is stable or declining over the long term. The projections based on the assumptions in this Financial Report indicate that current policy is not sustainable.

Older Cinderella shocked looking at a clock…. If current policy is left unchanged and based on this report’s assumptions, the debt-to-GDP ratio is projected to exceed 200 percent by 2046 and reach 566 percent in 2097.

Preventing the debt-to-GDP ratio from rising over the next 75 years is estimated to require some combination of spending reductions and revenue increases…. While this estimate…is highly uncertain, it is nevertheless nearly certain that current fiscal policies cannot be sustained indefinitely.

The projections discussed here assume current policy remains unchanged, and hence, are neither forecasts nor predictions. Nevertheless, the projections demonstrate that policy changes must be enacted to move towards fiscal sustainability.”

This isn’t advanced economics; it is common-sense arithmetic. The ever-growing interest on the national debt will cause an economic collapse:

Historical and Current Policy Projections ChartThe collapse will come long before their 75-year projection.

The report’s proposed solution is to formulate a policy to produce a budget surplus; paying down the debt.

Cost of Delaying Fiscal Reform ChartThe current political class doesn’t have the courage to raise taxes, cut spending and create a budget surplus. Fixing the unfunded political promises like Social Security and Medicare is unfathomable to them. The politicos know a collapse is inevitable, preferring to kick the can down the road; leaving future generations to deal with the problem.


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Forked tongue?

Ms. Yellen talks publicly about “improvements” over the last couple years. What a cruel joke! Meanwhile, the government is increasing the deficit by over $5 billion per day, adding to the burden for future generations. Ms. Yellen’s report should be the headline news, yet the media keeps it quiet.

theft design over gray background vector,illustrationThe biggest obstacle to creating and sharing generational wealth is the government. Astronomical government borrowing, to be paid back in future generations, is GENERATIONAL THEFT!

What can we do?

Former Fed Chairman Alan Greenspan suggests:

“The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value.

Deficit spending is simply a scheme for the hidden confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.”

Building and preserving generational wealth is done through education; common sense, kitchen table economics. Live below your means, save your money, invest in hard assets, and above all – do not rely on the government to help you. You MUST invest in assets that protect from inflation, as the government has no choice but to try to inflate away the debt.

Dan Denning commented on the Fitch downgrade:

“But Fitch is right in the long term, the ‘fiscal deterioration’ in the US stems from the know-nothing, do-nothing, spend-everything Congress. Has to be good for gold.”

Got Gold?

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On The Lighter Side

With the calendar changing to September, our Indiana weather has turned on a dime, much cooler. Not too long ago, temperatures hit triple digits and the AC was having trouble keeping up. The electric meter was spinning like a helicopter blade.

For the last several days, all has been turned off and the windows are wide open with a nice, refreshing breeze. I’ve never been one for allergies but….after the yard was mowed the other day, I couldn’t stop blowing my nose and sneezing. Wonder if it is possible to develop allergies in your 80’s? The good news is Benadryl did the trick.

Happy Labor DayI hope everyone enjoyed their Labor Day Weekend, considered the last weekend of summer in many parts of the country. The symbolism of starting the college football season fits right in.

It was a sad story that Northwestern fired their football coach a few weeks ago. I’ll continue to pull for them, hopefully the program will continue to get better.

Quote of the Week…

Golden rectangle with check mark“You have to choose between trusting to the natural stability of gold and the natural stability and intelligence of the members of the government. And with due respect to these gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold.”George Bernard Shaw

And Finally…

Friend Phil C. sent us information titled “1%” for our enjoyment.

99% of those born between 1930 and 1946 (worldwide) are now dead. If you were born in this time span, you are one of the rare surviving one percenters of this special group. Their ages range is between 77 and 93 years old, a 16-year age span.

Here are just a few facts:

  • You are the smallest group of children born since the early 1900’s.
  • You are the last generation, climbing out of the depression, who can remember the winds of war and the impact of a world at war that rattled the structure of our daily lives for years.
  • You are the last to remember ration books for everything from gas to sugar to shoes to stoves.
  • You saved tin foil and poured fried meat fat into tin cans.
  • You can remember milk being delivered to your house early in the morning and placed in the “milk box” on the porch.
  • You are the last generation who spent childhood without television; instead, you “imagined” what you heard on the radio.
  • With no TV, you spent your childhood “playing outside”.
  • There was no Little League.
  • There was no city playground for kids.
  • The lack of television in your early years meant that you had little real understanding of what the world was like.
  • We got “black-and-white” TV in the late 40s that had 3 stations and no remote.
  • Telephones were one to a house, often shared (party lines), and hung on the wall in the kitchen (no cares about privacy).
  • Computers were called calculators; they were hand-cranked.
  • Typewriters were driven by pounding fingers, throwing the carriage, and changing the ribbon.

And my favorite:

  • Discipline was enforced by parents and teachers.

Until next time…

Dennis Miller

“Economic independence is the foundation of the only sort of freedom worth a damn.” – H. L. Mencken


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