October 2015
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Prepare for Bad Economic Times

While the media often tries to paint a rosy picture of the economy, the reality might not be as good as they want us to think. I personally believe it is much worse than we are being told by the mainstream media. There have been plenty of stories about problems in our larger cities, such as Detroit needing to reduce pension payments due to budget shortfalls. Recently two articles caught my attention.

First there is the state of Illinois not paying lottery winners.

Here is an excerpt from the story:
The state hadn’t been able to pay winners of over $25,000 since July 1, USA Today reports, and on Wednesday the state lowered the threshold to $600.
“Payment delays will occur because there currently is no legal authority for the Illinois Comptroller or the Illinois Lottery to issue checks,” the Illinois Lottery said in a statement, according to USA Today. “Please note that the funding to pay winners exists, but the legal authority to issue checks does not.”
The state is wrestling over passing a budget, caught between the Republican governor and the Democratic General Assembly. Once a budget is passed, the lottery will be able to issue checks to the winners and make good on its IOU’s.

We might not think lottery payments are very important, but it is a sign of the larger problem. Where did the money go in the first place? Shouldn’t the lottery authority set the money aside from ticket sales to pay the winners? Just like social security, most likely it has already been spent elsewhere. They spend it on other things and gamble that they’ll find the money somewhere to pay the future winners. That strategy wouldn’t work for us as individuals, so why would it work for the state of Illinois?

Second there is the story of China selling US debt

From the story:
For all the dire warnings over China’s retreat from U.S. government debt, there’s one simple fact that is being overlooked: American demand is as robust as ever.
Not only are domestic mutual funds buying record amounts of Treasuries at auctions this year, U.S. investors are also increasing their share of the $12.9 trillion market for the first time since 2012, data compiled by Bloomberg show.

More and more US companies are removing cash options from 401K plans and replacing them with bond funds focused on US treasury instruments. Many have done this very quietly. My own employer 401k plan has eliminated the cash option which was mostly made up of certificates of deposit. Now the “safest” option is a bond fund invested heavily in US treasuries. I don’t consider that as safe as it once was. On top of that, I can’t withdraw the funds without leaving the company – even if I am willing to pay the penalties. I don’t know if the shift in investments is being driven by the government or not. I do think it will help prop up the financial markets as countries like China start pulling out.

What Can We Do?
Be prepared for what might be coming. Pay attention to what is happening to your money. Get out of debt. Make sure you have cash reserves you can access in a crisis. Live a frugal lifestyle. Store food. Grow a garden. Every little thing you do makes you that much more prepared for the rainy day. Even if it’s not a widespread collapse, any of us can have our own rainy day. And if the rain never comes, you’ll still be better off.

Resource for this post:
Illinois unable to make payments to lottery winners: http://time.com/4075486/illinois-lottery-ious/
China dumping US debt – Americans buying: http://www.bloomberg.com/news/articles/2015-10-18/china-s-selling-tons-of-u-s-debt-americans-couldn-t-care-less-

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