Wow, it has been a hot, dry and smoky summer so far. Hopefully the monsoons will arrive soon and provide some moist relief for our parched State!

National Debt Ceiling and Budget
We are rapidly approaching the date when the U.S. Government is going to run out of money again. Here are some sobering statistics:

  • This year’s shortfall between revenues and spending is heading towards an unbelievable $1.6 trillion. That is $5,145 for each woman, man and child in this country!
  • The Government must borrow 42% of each dollar it is spending.
  • The deficit is at a post World War II record high of 11% of Gross Domestic Product1 (almost double previous record high of 6% in 1983 after that recession).
  • Total U.S. public debt is now $14.3 trillion (or $45,980 for each of us!
  • Future promised, but as yet unfunded, Social Security and Medicare benefits amount to about $60 trillion in present value terms.
  • Combined, the public debt and unfunded obligations come to $75 trillion, which is roughly five times annual Gross Domestic Product.

How are we going to get out of this hole? First of all, our leaders in Washington need to start facing reality and make some tough decisions. American individuals and companies have cut their debt dramatically over the last few years, but the Government has done exactly the opposite. As a nation we need to put a freeze on all government spending for the next few years, even entitlements. Taxes need to be raised, without stifling the recovery. This can be done without actually raising personal or corporate tax rates, but cutting market-disorienting tax deductions and credits would boost revenues (for example the mortgage interest and property tax deductions). Wouldn’t it be wonderful if the annual tax preparation ordeal could be dramatically simplified? It will entail some pain for every one of us. Are we prepared to surrender some of our self-interest for the greater good? If we are not, we are just like the representatives in Washington!

Are we the next Greece? Definitely not, if we are prepared to act now. Greece IS bankrupt, but their politicians and population are not willing to face the facts. The European Union also has its head in the sand, as they are trying to protect the Euro and their large banks that have been lending enormous sums of money to the Greeks under the assumption that the EU will bail them out if Greece fails. Greece needs to leave the EU, default on their debt and start from scratch. The U.S. still has time to get out of the hole and as a last resort we can inflate our way out of trouble by printing more and more dollars. The Greeks cannot print more Euros.

On August 2, the U.S. Government is scheduled to run out of money, if the current debt limit is not raised. Prepare for this day by anticipating problems with Federal Government services like airport delays (TSA), passport services and National Parks. Even Social Security checks may be delayed for a short while, so start building up extra funds, if you are dependent on that income.

Target Asset Allocation
If you are a client of mine, you hear me harping about deciding on a suitable asset allocation for your portfolio. Let’s discuss what this is all about. Another way of looking at asset allocation is to think of it as diversifying your portfolio. We don’t want to have all our eggs in the proverbial basket. We need to have exposure to the major asset classes. The main investment asset classes are large U.S. stocks, mid and small cap stocks, international stocks and bonds. There are obviously many more asset classes or sub classes under the above-mentioned categories. So how do I come up with an allocation that you can be comfortable with? No one knows what the future will bring for any type of investment, so the best way is to look at what has happened in the past. By applying some statistics to past historical returns, we can come up with an allocation that you are comfortable with. The more research I do on the subject it becomes evident that taking on too much risk (a high percentage of stocks) can have a substantial detrimental effect on the long-term performance of a portfolio. We only have to look back to the last downturn in the market (2007 through early 2009) to see that it takes a long time and substantial positive returns just to get back to where you were at the previous market peak. Once you have settled on a target asset allocation you are comfortable with, stick with it unless there is a major life change that necessitates changing the allocation (i.e. approaching retirement, marriage/divorce or substantial inheritance). Periodic rebalancing of the assets in the portfolio then keeps your portfolio on track! Please let me know if you have any questions
about the asset allocation of your portfolio?

Personal Notes
The NAPFA National Conference in Salt Lake City was one of the best that I have attended – the quality of the presentations was extremely high! Roberta’s triathlon in St. George went well and the week before we survived the Santa Fe half Century bike ride. We head off to cool and moist Alaska soon to visit family and my tennis team was fortunate enough to qualify for the USTA Regional’s in Tucson. There is sure to be fierce competition! In August I will be spending a full day in Chicago with my fee-only practice management group again.

Please contact me for a review meeting if needed. As I continue to welcome new clients, please feel free to pass this newsletter on as seems appropriate. My website at has information for those interested in my financial planning services.


1Gross Domestic Product or GDP is the total market value of all final goods and services produced in a country in a given year, equal to total consumer, investment and government spending, plus the value of exports, minus the value of imports.