Smart (and obvious) investing advice: When Warren Buffett speaks, you listen.
Something Warren Buffett said the other day caught our attention.
In a CNBC interview, Warren Buffett warned companies to avoid states with unfunded pension liabilities.
It is sound advice. And it has implications for individuals as well.
Unfunded public pension liabilities are a “disaster,” said the Oracle of Omaha.
“If I were relocating into some state that had a huge unfunded pension plan, I am walking into liabilities,” Buffett warned. “Because I mean, who knows whether they’re going to get it from the corporate income tax or my employees — you know, with personal income taxes or what. But that — that liability isn’t going — you can’t ship it offshore or anything like that. And those are big numbers, really big numbers…. they will come after corporations, they’ll come after individuals. They — just — they’re going to have to raise a lotta money.”
They will come after the money
Buffett’s logic must be applied to the financial behavior of the United States government. Because the problem of a state’s unfunded pension liabilities are chickenfeed compared to the unfunded pension liabilities of the US.
You know that the US national debt is now $22 trillion dollars. But that’s just the visible part of the debt. The hidden debt includes the government’s unfunded pension and other liabilities. These are IOUs and other promises the government has made to workers, retirees, and others that are inadequately funded.
An honest measure of its indebtedness should include promises the government has made to pay for things. That’s how we reckon debts in the real world. Instead, the US uses Bernie Madoff accounting. More about the fanciful world of government accounting HERE.
US unfunded liabilities are estimated to range between $123 trillion and $210 trillion.
That’s not chickenfeed.
Now, Buffett is right. State will seek to solve their problem of unfunded liabilities with income taxes and corporate taxes.
But, oh, how the states would love to be able to do what the US government can do. How envious they must be of the federal government’s ability to just print the money.
It’s a time-honored technique of governments throughout history. And while everybody notices when the tax bite gets bigger, most people don’t understand that the declining purchasing power of their money is a tax on them as well. The new money the government prints to pay its bills takes on purchasing power to the exact extent the money you have in your pocket or in the bank.
It’s taxation by sleight of hand.
Buffett warns that states with unfunded liabilities are money pit that can be avoided by staying away from those states. But the US government money pit is not as easily avoided by Americans. Most of us can’t just pack up and move away and most of us don’t want to.
But we can take prudent steps to insulate ourselves from the government’s inevitable currency destruction.
Find out how by speaking with an RME Gold associate.