credit card debt

Higher Education Myth

Higher Education Myth (7/6/2011)

My daughter is 15, just finished her freshman year of high school. Like many parents with a high school student I am carefully watching her grades and doing everything I can to ensure she will make it to college. Over the last four decades the number of students going to college has increased, and so have the costs. I was the first in my family to attend college, earning my way on a scholarship and understanding the path in front of me: attend school, work hard, get good grades, and graduate expecting to find a good paying job. Even in the 1980s I was puzzled by the choice of major some would make, possibly liberal arts related and then wonder why they could not find a job. As an Engineer I was showered with job offers and an excellent starting salary (nearly $39,000 in 1990).

Today it appears college has become an entitlement program, fueled by readily available public financing and a willing consumer unqualified to receive a “real education.” In 2011 the average public university cost will be $20,000 per year, and a private school twice that much. Assume your son or daughter is following their passion into liberal arts and a 4-year degree will approach $160,000 with income prospects of $25-30,000 per year; if they are lucky. Sadly, there is an assumption these students are qualified for education, and more so entitled to a job at graduation. I recently heard this anecdote Continue reading…

July 6, 2011 by Big Government Capitalism Depression Great Recession

My two cents…

The fed is between a rock and a hard place:

– no more QE: the stock market will crash, no easy credit, brakes on economy
– continue QE: rising inflation, real wages dropping, angry voters.

Furthermore the Administration is not supposed to be part of the monetary policy but Obama will politically pay for the decision either way.

What should we do:
– keep your gas tanks full (I filled the RV in January, $2.90/gallon, today driving home it is $3.80/gallon — $60 savings
– keep your pantry full — anything you buy today is cheaper than tomorrow
– understand the stock market is like going to Vegas. Best trading option is probably futures contracts
– pay down debt that costs more than 6%-8% to improve cash flow. Anything else is about to become cheap money. Free up the expensive money to invest in CD’s, dividend paying accounts when interest rates go back to 10-12-14%
– Remember, as interest rates go up bond prices go down. why do you think PIMCO sold ALL of their treasury bonds?
– Remember the government has $4 trillion in short-term treasuries coming due in the next 18 months

April 17, 2011 by Capitalism Depression Great Recession preparedness

Destroying Futures

Imagine earning $30,000 (3 Trillion) per year but having bills and obligations of $42,000 (4.2 Trillion) per year. Additionally, let’s assume you have a spouse and two children with wants and desires. With your income falling short you would know radical changes in your lifestyle must be made and if you are a Dave Ramsey fan you know every expenditure would have to be considered and nearly one-fourth must be cut. However, the kids will complain if you cut their movies, food, school activities, clothes and even iTunes budget (government spending). Your spouse does not want to discuss the issue because she feels the problem will go away, as if by magic, and there is no reason to upset the kids (political debate).

However, there is an answer: debt. Of course, a loan to create a source of “income” can be created (deficit spending). For instance, a second mortgage on your home could fund the shortfall and maybe allow you to buy a new big-screen television or car, a hugely popular decision at home. But this only works for a while, quickly you discover the interest only payments add another $500 per month to your obligations, thus you are now using the debt taken on to pay for the original shortfall and the new debt (treasury auctions)! You have looked for ways to increase income, but the economy isn’t growing and no one is hiring (tax revenue). Your anxiety increases because you know this cannot keep going and bankruptcy may be the only way out.

One day however, your neighbor Fred (Federal Reserve) knocks on your door and explains his multi-level marketing business is doing well and as long as he keeps getting new people involved his success will grow and he would like to help you. Hesitantly you agree to his proposal: he will paper over your debt (purchase bonds), and you can repay him in 30-years. Thoughtfully you think his proposed near zero interest rate and 30-year offer has to work. At age 50 it is even unlikely you will be here in 30 years to deal with the repercussions. With a wink, Fred explains your children will assume the entire debt, with interest. After contemplation you feel it is better to risk your children’s future than to reign in your lifestyle today, and hurt their feelings, and since they do not get an opinion (can’t vote) they will never know. Like a deal with the devil, you know there is no way out.

March 4, 2011 by Capitalism Depression Great Recession preparedness taxes

Wisconsin

I debated whether to offer an opinion regarding Wisconsin, but knew I could not let go of this protest. I am impressed with the 65,000 plus protesters that believe in something strong enough to brave the cold. More important to see debate with such passion engaging on our own soil gives me hope toward future revolution against our government and the tyranny we face. It appears the press – from the left and right, have managed to blur the issue at hand as there only appears two possible opposing views when tapping MSNBC or Fox News. I hypothesize three parties are now at war in this country: Public Servants, the Ruling Elite (executive pay), and the Private Sector. Thus, a two pointed perspective does not work and furthermore the issue at hand is not about trimming union rights, but re-aligning public servant compensation.

Austerity measures will generate class warfare and in this Great Recession the compensation of the three parties has diverged greatly. Executive pay remained safe and increased greatly and Public Service payrolls have increased far greater than private payrolls. On the other hand, the Private Sector has suffered irreplaceable job losses, flat wages and lives in fear of a pink slip delivery tomorrow. At the same time the Private Sector is asked to pay more income tax, more sales tax, more property tax, and more fees to pay for the perpetuation of Public Service compensation programs and to bailout reckless executives who lost gambling bets against the masses during the debt fueled frenzy.

Ancient Rome succeeded through an ever expanding territorial economy fueling the wants and desires of Caesar. The masses found relief through entertainment at the Coliseum and a sense of safety, but yet traded liberty for trite compensation. Similarly, America is like Rome; rich Senators, a small ruling class, and wealth obtained for a few due to the destruction of others. Our masses are entertained by media and sports, not taking time to understand the reason behind the need for change. Like Rome our public servants are protected by a never ending spigot of tax dollars and turn against the working class and income earners for whom they supposedly serve.

It is forgotten that our children will ultimately pay the price. Something is happening in America right now, and it started with the bursting of the debt bubble three years ago. Denial has not worked and protests will become more common, maybe leading to revolution. I am concerned for my children’s future and cannot imagine the tax burden, inflation, and tyranny they will face if we do not stop opposing the protesters in Wisconsin.

March 4, 2011 by Big Government Depression Great Recession Health care taxes

The Good Old Days

The Good Old Days

In my lifetime I never thought I would refer to “when times were good”, or “the good old days,” terms I always thought were left to my grandparents. Of course, some life experience is required before such a reference can be made and this might also mean I am getting older. Without a doubt we can now have conversations that start with the statement, “when times were good” and instantly pinpoint a reference we all understand. Curiously, when riding the euphoria of economic success it is easy to ignore the impending potential crash. Although the one year anniversary of the stock market low was just last week, it was the peak of November 2007 that defines the tombstone of good times. Since then personal experience through home loss, job loss, bankruptcy, asset sales, and moving have defined America. Most of us know someone touched by the recession and we will forever be influenced by what is happening around us.

Just recently I have been in several conversations where the words “when times were good” were stated. The first time I paused momentarily, but everyone present understood what was said. The next day the same scenario similarly repeated itself and I realized something important had happened. Essentially, the most recent economic downturn has cemented in our minds a change and we are living through a time which only the rearview mirror of history will provide a true opinion. Unlike Pearl Harbor Day or September 11th, it will take years to understand the Great Recession of 2008-2010. Although hardships are upon many Americans, a theme of ignoring mainstreet has developed. Looking at history of the Great Depression of the 1930s brings similar observations. For example, 1930 and 1931 provide numerous examples of President Hoover and Treasury Secretary Andrew Mellon assuring the people the worst was over and prosperity was right around the corner. In a May 1, 1930 statement, Hoover said, “While the crash only took place six months ago, I am convinced we have now passed the worst and with continued unity of effort we shall rapidly recover. There is one certainty of the future of a people of the resources, intelligence and character of the people of the United States – that is, prosperity.”

History has an uncanny ability to repeat itself, but yet we fail to learn from our experiences. At one level those living in the government and financial centers of our country seem to enjoy uncontrolled spending, record deficits, market highs, profits, and record bonuses. For the rest of us, business closings, vacant office space, abandoned homes, increasing food and fuel costs, and unemployment seem to be the norm. “I see no reason why 1931 should not be an extremely good year.” – Alfred P. Sloan, Jr. of General Motors Co. stated in November 1930. Week after week we see conflicting economic news streaming at us, reports of increased consumer spending for February indicate despite snowstorms we reached in our pockets to spend money, but contradictorily consumer sentiment dropped.

My point is we have to wonder how the current economic environment will shape our own lives and futures. Our children may never know “when times were good” if our economy stagnates like the 1930s. My confidence in massive spending at levels never before seen is low, because there are always consequences to every action. Future generations will have to pay for this administration’s actions either through taxes or inflation as there is no other way to slow the velocity of increase in the money supply. A cloud hangs over our economy and future; I wish things were like “the good old days.”

March 20, 2010 by Capitalism Depression Great Recession