Twits of the Week

More great stuff coming from twitter, I highly recommend following me and many others on twitter. Have a great weekend!

Toxic Assets still in America's Banks

Visit msnbc.com for Breaking News, World News, and News about the Economy

I am at least glad this is in some of the main street media. I personally think that the American people need to understand what's going on. Most media outlets are saying the recession is over, blah, blah, blah...I still think we have a long ways to go and it is going to be a long slow process to right the ship.

Make sure you listen very carefully around the 8:00min mark - SHE NAILS IT! If you think the bailout was necessary than you have to say that you are for big corporations, big government, or that you don't understand the situation, because that essentially what happened.

I read a great quote yesterday from Richard Russell:

85% of mankind is clueless & living on a hand-to-mouth basis. 5% of mankind is smart & pretty much knows what they are doing. 10% are intelligent enough to follow the 5%.

I just hope I am in the 10% that are following the 5% that know what they are doing. What do you think? Are we in for a lost decade or is the government going to stop intervening? Leave me a comment.

Related articles:

Nearly half of U.S. mortgages seen underwater by 2011

We are Headed Towards a Cliff...

"I don't care if you're driving a hybrid or SUV. If you're driving toward a cliff, you have to change direction, that's what the American people called for."

- Barack Obama

"They're in a bus and they're driving for a cliff. And either we're going to drive off the edge of the cliff or we're going to turn course. If we continue on this current policy path, we are going over that cliff."

- Peter Schiff

Peter Schiff - Recession to Depression

Sorry, more doom and gloom, but I want all you to know that Autumn is coming...

Here is some of his solutions if you are interested:

Once the US's economy collapses we as a country will go through some hard ships, but we will become a better nation for it. I can see the winds changing right now, they are just slowly changing. I am guessing when the "real crisis" happens, the change will come rapidly and Americans will wake up to what's going on.

Am I wrong? Have we seen the bottom yet? The media and our government think that we have, the stock market is rising. I personally just don't see it? The numbers coming out are bad, really bad(and are not correct, out government is scared to let us know the truth about how bad the situation is)—they just do not look like the past numbers that were even worse. Leave me a comment and let me know!

100TH Post!

Wow, what can I say? I never thought I would make it this far and definitely not this fast. When I started this blog I wasn't sure how much and at what frequency I would post. It all started with an idea to keep myself in check financially and keep a running blog of my progress. As I started writing some post about some of my experiences with personal finance, it slowly started to evolve into how government interference can effect our finances. This got me researching about economics, and how this effects our lives, our money and our freedoms. It has now transformed into a study guide/diary for economics, personal finances and my beliefs.

I don't post as much on personal finance based on there are tons of PF bloggers that strictly cover that, and I am not going to bring that much new stuff to the table. If I come across a good article or an experience I will write about it, but you end up seeing a lot of bloggers write about the same things. Only a few truly bringing unique and interesting ideas and writings to their blogs. If you have been reading this blog for a while you will know I have cut back slightly on my writing because I just don't have the time. Maintaining a blog is a full time job in itself, and I have a regular job so I only get a certain amount of time everyday on this blog. I will mostly post stuff that I find relevant like videos, articles, comics, images, etc...that I learn from and hopefully you can learn from as well.

A big thank you to the readers of my blog, for without you I wouldn't have the motivation to post as often as I do. I appreciate everyone that comments on my posts, even if we disagree. Matter of fact, I enjoy someone else's perspective, I truly look at both sides and I don't think I know everything, but form my opinions from hearing both sides.

I want to thank everyone who has My Money Shrugged in their blogrolls, it really mean so much to me and I am honored that people would recommend my blog to their readers.

Last I want to make this blog a community where people can gather information and learn how to create wealth and what responsibilities we as Americans have to run our country. We cannot allow government bureaucrats, lobbyist, big corporations and the Fed control us while destroying our wealth. So if you ever have a link, idea, or tip please send my way. If you ever have desire to write a guest post, please reach out and contact me and please keep spreading the word of this blog and invite more people to come learn while this blog continues to grow, change, evolve into a resource for everyday people to learn about finances and economics.

Thanks from MMS

Favorite Twits of the Week

So this is going to be new feature on the blog, most bloggers give roundups of their favorite articles from the community of bloggers. So I decided that I show some of my favorite twits of the week. If you come across any good one please let me know, I am showing the ones that add value to me without sending links, even though that might change in the future.

Hope you guys have a great weekend, I am headed to the beach this weekend to tie up some wedding stuff and hopefully surf some waves! Leave me a comment and let me know what you think of the twits of the week.

State Tax Holiday

This week North Carolina kicks off its state tax free holiday as do may other states. Sales tax is some of the most important tax levied by states. This provides temporary sales tax for consumers for purchasing a array items from clothes, computers, and back to school items. Carolina's law reads:

G.S. 105-164.13C provides an exemption for certain items of tangible personal property sold between 12:01 A.M. on the first Friday in August and 11:59 P.M. the following Sunday. For 2009, the dates are Friday, August 7th through Sunday, August 9th. Clothing, footwear, and school supplies of $100 or less per item; school instructional materials of $300 or less per item; sports and recreation equipment of $50 or less per item, computers of $3,500 or less per item; and computer supplies of $250 or less per item will be exempt.

So is a tax holiday really good thing for the state government or individuals? Here are some of the pros and cons.

Cons: (From the Institute on Taxation and Economic Policy)

Sales tax exemptions create administrative difficulties for state governments, and for the retailers who must collect the tax. For examples, exempting groceries requires a sheaf of government regulations to police the border between nontaxable groceries and taxable snack food. A temporary exemption for clothing (or for any other back-to-school item) requires retailers and tax administrators to wade through a similar quantity of red tape for an exemption that lasts only a few days. Last year's tax-free weekend cost the state(North Carolina)nearly $12 million in lost revenues.

The benefits of sales tax holidays are not limited to state residents, but also extend to consumers visiting from other states. For states struggling with continuing budget deficits, sales tax holidays offer less “bang for the buck” than more targeted tax breaks.

Retailers know that many consumers will shift their spending toward sales tax holidays to take advantage of the temporary tax exemption. Unscrupulous retailers can take advantage of this shift in consumer behavior by increasing their prices (or failing to reduce them by the full amount of the sales tax break) during the tax holiday.

Perhaps most important for cash-strapped lawmakers, sales tax holidays are costly. Revenue lost through sales tax holidays will ultimately have to be made up somewhere else, either through painful spending cuts or increasing other taxes.

Pros:

Helps out struggling families that need a boost during these hard economic times for purchasing items such as school supplies and other items of need. The National Retail Federation's annual report says parents will spend close to 8 percent less this year to get their children ready to return to school.

The tax savings combined with all the sale prices that retailers typically offer during the weekend make the dollar go further.

The benefit to cash-strapped shoppers outweighs any inconvenience to merchants and state and local administration work.

Overall: I think that it would be nice to spread a little tax relief, cough, cough... throughout the year instead of a 3day weekend, but then the lawmakers wouldn't be able to take credit for helping the people of their state out. I am guessing for some families this cannot come fast enough. Even though I do not agree fully with it, I hope it can help out some families/individuals that really need the help this year, as it has been a rough one economically.

What do you think? Are these a good idea or should they just give the tax relief spread throughout the year? Leave a comment.

Ad Sense Disabled

This morning I was about to write my post when I received a email from google saying my ad sense was suspended. I am not sure, but I believe that some readers might be clicking on number of ads and Google feels it is within there invalid clicks and impressions outlined in the ad sense privacy policy. I have requested to reinstate my ad sense for my site even though it might not happen or take a few months. In the meantime I will continue to blog and hope you enjoy the ad free blog! If my account gets reinstated please only click on ads that you are interested in and not for any other reasons.

Just to keep everyone updated, I now have 2 major issues with blogger/google. Currently my web domain www.mymoneyshrugged.com is lost in the matrix(seriously). I understand the internet and understand mostly how everything works, as I work in the industry. I cannot figure out though why blogger says that this website is already hosted at another address. I spend close to 20+ hours going through google help and godaddy where I registered the name. There is no hope for getting my custom domain name at the moment. Now I have this ad sense issue which is seems very vague and seems like I am at the mercy of google to decide if I should get reinstated. Hopefully they will be able to fix the ad sense issue.

Anyways, thanks to everyone for still be loyal readers and supporters of My Money Shrugged! Please spread the word to friends, family, co-workers, etc...that I am blogging about personal finance and government intervention.

July 09 Net Worth: $52k Assets - $35k Overall 9.23% Growth

Little over half the year and we are still rolling and still growing every month. It is such an amazing feeling to see my money growing in such a short period of time. Seems like we have a major purchase every month, and July was no different, we purchased a TV. I know that a TV isn't a need, but our main TV is broken and I need a TV before football season starts up(will save me money on not going to a bar, ha). On top of that, TV's are so cheap and we have the money for it. We have a lot of extra expenses coming up in August so I am not sure this month is going to be so kind to us as the past few. Lets break it down:

Cash & Savings: After falling off last month and not making my budget I finally had my budget balanced again. It did not grow as big as it has over the past as I moved over around $800.00 into my brokerage account(thinking about shorting the financials). This bracket holds the funds for my down payment on house, engagement ring, insurance, auto maintenance, Roth IRA(before I max it out), and vacation. This is why it can be deceiving, it also holds my monthly budget in it. It has about 16-17k sitting around as savings the rest are funds that are going to be used at some point over the year. The rest is used on a daily bases for covering expenses, rent, food, auto, etc...

Stocks/Brokerage: This reflects transferring around $800.00 into my brokerage account along with other stocks doing well for the month. I have around $2500.oo in my past employee stock option plan that I am planning on selling if the Dow goes to 10k.

Retirement 401k: We saw increase growth from the stock market last month and it is being reflected here. At the end of the day these are long term investments, so no need to stress or get happy if it loses or gain slightly. I am still throwing the idea around to pull everything back into cash if the Dow goes to 10k which at this point who knows what is going to happen. I have my old 401k with my old company which is the majority of my retirement at the moment. I need to it rollover into my vanguard IRA account. If the dow hits 10k I will roll it over and let it sit in cash until we see what happens. I truly believe we are going to see a major pull back in the market come fall/winter.

Retirement IRA: This area was up big time and it feels great, I cannot seem to get over 5k, but I will once I purchase some shares at the end of year to max out my Roth!

Debts and Liabilities - Vehicle and Credit still high

Credit Cards: Most of this is still the engagement credit card with a 12 month 0% APR, I am not going to put much of a dent into this debt until the 12 month, when I will pay it off in full. I have that money going straight into my saving account creating a little interest off of it till I pay it in full. As I mentioned in the overview we purchased a new TV that is where see the extra 1,200.oo, it will be paid in full before interest is assessed.

Car Loan: Same story as last month...slowly paying it off every month. It has crossed my mind to try and sell it(for a used better gas mileage vehicle), I just have a lot going on and really don't want and have to deal with it at the moment.

So there you have it, I am very pleased with where I stand! August is going to be a crazy month with some vacation, bachelor party, and the start of football season, so I am going to have to really watch my budget. Once again I want to show that if you know where your money is going you can start to create wealth. If look at my net work graph on the right it has been growing every month. Hope you are having as much success as myself, remember as long as your working towards saving the more growth you will eventually see!

Related Post:

Debt Cancellation/Debt Jubilee: Would You Be For It?

You Cannot Multiply Wealth by Dividing it

Main Resources for Creating Wealth

Art Made with the Dollar

Yesterday I was browsing the web looking for some cool images for inspiration when I came across the artist Mark Wagner. Mark did a in series which he took the Dollar and transformed into stunning pieces of artwork. He called it Collage With Currency and here is his statement:

The one dollar bill is the most ubiquitous piece of paper in America. Collage asks the question: what might be done to make it something else? It is a ripe material: intaglio printed on sturdy linen stock, covered in decorative filigree, and steeped in symbolism and concept. Blade and glue transform it-reproducing the effects of tapestries, paints, engravings, mosaics, and computers-striving for something bizarre, beautiful, or unbelievable... the foreign in the familiar.

Here are a few examples from his site Smoke In My Dreams All images ⓒ Mark Wagner. Click to enlarge.

I highly recommend you taking the time and check out the rest of his Collage With Currency. These are just a few examples of the great work he has done. Click here to see the rest of his work.

I just hope that we do not have inflation one day where we use the US currency for other reason than the exchange for productive abilities of man, and every once and while some art ;). Let me know what you think of Mark Wagner's art? You guys have a great weekend!

Related Post:

The Origin of the Dollar Sign

Money is the root of all evil?

HyperInflation Nation Movie

David Rosenberg on the Recovery

"The government has its hands in 40% of the economy and when public sector officials can influence how banks can value their assets, how mortgage servicers should be doing their business, who shall fail in the financial industry and who shall not; and when we have a central bank that is not just the lender but the market of last resort, even for RVs, and a government willing to run up its deficit to levels that would have made FDR blush, then perhaps we can end up seeing a recovery occur sooner than we had thought." 

- David Rosenberg

The Significance Atlas Shrugged

From The Ayn Rand Institute

"I refuse to apologize for my ability -- I refuse to apologize for my success -- I refuse to apologize for my money."

The U.S. economy is in shambles, with every nightly newscast bringing word of new government interventions. Americans are alarmed and desperate for answers: How did we get here? How will we recover? That might sound like a description of today's world, but in fact it's also a sketch of the world Ayn Rand created in her classic novel Atlas Shrugged.

The tea parties testify to the outrage that many Americans feel toward Washington's explosive growth in the past few decades -- especially under Presidents Bush and Obama. Atlas Shrugged not only gives voice to this outrage, it provides both a profound explanation of the cause of today's crisis -- and a positive, radical solution to it.

Why is it that every problem seems to call for increased government intervention at the expense of freedom? Why is it that businessmen inevitably take the blame for any crisis? Why are the most competent, most successful Americans smeared as greedy and selfish? To these questions and many others, Atlas Shrugged gives answers unlike anything you've ever heard.

"Until and unless you discover that money is the root of all good, you ask for your own destruction. When money ceases to be the tool by which men deal with one another, then men become the tools of men. Blood, whips and guns -- or dollars. Take your choice -- there is no other -- and your time is running out."


* * *

"If we who were the movers, the providers, the benefactors of mankind, were willing to let the brand of evil be stamped upon us, and silently to bear punishment for our virtues -- what sort of ‘good' did we expect to triumph in the world?"

* * *


'Yes, this is an age of moral crisis. You are bearing punishment for your evil. But it is not man who is now on trial and it is not human nature that will now take the blame. It is your moral code that's through, this time. Your moral code has reached its climax, the blind alley at the end of its course. And if you wish to go on living, what you now need is not to return to morality . . . but to discover it."

Learn the meaning of these quotes -- and the revolutionary ideas behind them -- by picking up Atlas Shrugged. Discover why Ayn Rand held that nothing less than a total separation between state and economics can save this country. Discover Ayn Rand's defense of the individual's moral right to pursue his own happiness -- the indispensable precondition of his political right to pursue his own happiness. Discover a gripping novel that challenges today's intellectual mainstream and provides an alternative to the anti-freedom ideas that are undermining American liberty.

Discover Atlas Shrugged.

©2009 The Ayn Rand Institute

Creative way to Settle Debt

I know I have been really down and gloom lately so I thought I would post something that was a little on the lighter side. Check out this viral email that was sent out last year. When I saw this I was laughing so hard I was crying. If I was the company I would have actually settle the debt based off his creativity. I believe that he actually sold the real drawing on ebay for around 10k, google it.

Even though this was only $234.00 some people get themselves into a pile of debt which they feel they will never be able to pay down. I think personally the best approach is the Dave Ramsey's method. Which is to pile up as much cash as you can and call up the debtor and settle with them. If it is an old debt, they will settle for anywhere between 25 cents to 50 cents on the dollar. Make sure you get a settlement officer in writing and keep it in your records forever. He also recommend never giving them access to your checking/saving account. For more information see The Dave Ramsey Show. Hope you enjoyed that as much as I did!

The Great Reset

This a series of videos that I watched over the weekend and is very interesting. I would take the time and watch for yourself if you have the time. The really small synopsis of the presentation is that America is going to reset. That it is going to be something similar to the Soviet Union collapse, but worse because of our entitlement(as a country) to use the worlds resources and not produce anything except debt. I am not saying agree with him totally, but I like to look at all information that is out there and determine my own conclusion. If I find something interesting I will post it whether I agree or not.



Part 2a - Great Reset - The Unfreezing (click to watch)

Part 2b - Great Reset - The Unfreezing (click to watch)

Rationalization becomes the watchword of any crisis. The systemic change has occurred yet we cling to old constructs. We are unable to see that things have changed permanently. We resist the truth and we try to get old systems to resurrect themselves. In this phase of change few people see what has been going on but the system clings to itself. We talk about the Iron Triangle which has locked us into the present system.

Part 3a - Great Reset - The Great Change (click to watch)

Part 3b - Great Reset - The Great Change (click to watch)

We move from rationalization to realization. On an International basis we see some anticipation of the change, domestically we have denial. Domestically the largest risk pertains to our expectation that things will remain "integrated." Overall, we have a break in our entitlement system.

Part 4a- Great Reset - The Refreezing (click to watch)

Part 4b - Great Reset - The Refreezing (click to watch)

We have the opportunity to move towards a new ideal in which the average family can be sustained on 20 hours of work per week. We simply have to switch our value system around to a new model envisioned by the likes of Buckminster Fuller in the 1970's. Since we do not plan for the inevitable we are going to have to move through a phase of crisis the likes of which we have not seen in America.

I would also take the time to read the comments people have made. They talk about why they agree or disagree with the presenter and in the end you come up with your own conclusion.

One Trillion Dollars Visualized

Socialized Health Care Example

Ok I know I am taking this to the extreme...

Ask any American 10 years ago if the believed that the government had the power to search telephones, e-mail communications, medical, financial, and other records; eases restrictions on foreign intelligence gathering within the United States; or expand the Secretary of the Treasury’s authority to regulate financial transactions, particularly those involving foreign individuals and entities? See USA Patriot Act

Now take a look at some examples of the Health Care Bill (as of 07/14/09)

Page 58

Page 59

Now just imagine any politician having the power to infringe on our freedom, not just this administration, but future administrations.

Am I equating this Health Care Bill to Armageddon? No, but I think we could be opening pandora's box with allowing our Federal government to have a lot of power and the ability to take our freedoms away. Just something to ponder!

Atlas Shrugged, Health Care, and Collectivism

This weeks quote is from Atlas Shrugged and since one of the main topics being discussed in Washington right now is Socialized health care I thought I would share a story to illustrate the devastating effects of collectivism. The story is about a tramp Jeff Allen, former shop foreman at Twentieth Century Motor Company who had snuck onto the The Comet(train) and Dagny offers him to be her guess for diner. He explains to Dagny how the owner of the Twentieth Century Motor Company had passed away and that the heir had come in and brought a new plan of how to run the factory.

The following is an excerpts from Atlas Shrugged, © Copyright, 1957, by Ayn Rand.

"They let us vote on it, too, and everybody—almost everybody—voted for it, We didn't know. We thought it was good. No that's not true, either. We thought that we were supposed to think it was good. The plan was that everybody in the factory would work according to his ability, but would be paid according to his need.

The Starnes heirs made long speeches about it, and it wasn't too clear, but no body asked any questions. None of knew how the plan would work, but every one of us thought the next fellow knew it. And if anybody had doubts, he felt guilty and kept his mouth shut—because they made it sound like anyone who'd oppose the plan was a child-killer at heart and less of a human being. They told us that this plan would achieve a noble idea.

He goes on to explain how it worked

"Try pouring water into a tank where there’s a pipe at the bottom draining it out faster than you pour it, and each bucket you bring breaks that pipe an inch wider, and the harder you work the more is demanded of you, and you stand slinging buckets forty hours a week, then forthy-eight, then fifty-six - for your neighbor’s supper - for his wife’s operation - for his child’s measles - for his mother’s wheel chair - for his uncle’s shirt - for his nephew’s schooling - for the baby next door - for the baby to be born - for anyone anywhere around you - it’s theirs to receive, from diapers to dentures - and yours to work, from sunup to sundown, month after month, year after year, with nothing to show for it but your sweat, with nothing in sight for you but their pleasure, for the whole of your life, without rest, without hope, without end … From each according to his ability, to each according to his need…"

"We’re all one big family, they told us, we’re all in this together."

"It took us just one meeting to discover that we had become beggars - rotten, whining, sniveling beggars, all of us, because no man could claim his pay as his rightful earning, he had no rights and no earnings, his work didn’t belong to him, it belonged to ‘the family’, and they owed him nothing in return, and the only claim he had on them was his ‘need’ - so he had to beg in public for relief from his needs, like any lousy moocher, listing all his troubles and miseries, down to his patched drawers and his wife’s head colds, hoping that ‘the family’ would throw him the alms."

He goes on to explain how good men were forced to become bad

What was it they’d always told us about the vicious competition of the profit system, where men had to compete for who’d do a better job than his fellows? Vicious, wasn’t it? Well, they should have seen what it was like when we all had to compete with one another for who’d do the worst job possible. There’s no surer way to destroy a man than to force him into a spot where he has to aim at not doing his best, where he has to struggle to do a bad job, day after day. That will finish him quicker than drink or idleness or pulling stick-ups for a living.

“God help us, ma’am! Do you see what we saw? We saw that we’d been given a law to live by, a moral law, they called it, which punished those who observed it - for observing it. The more you tried to live up to it, the more you suffered; the more you cheated it, the bigger reward you got. Your honesty was like a tool left at the mercy of the next man’s dishonesty. The honest ones paid, the dishonest collected. The honest lost, the dishonest won. How long could men stay good under this sort of a law of goodness?

Rand demonstrates the hypocrisy in the behavior of the villains.

Was there any reason why this sort of horror would ever be preached by anybody? Was there anybody who got any profit from it? There was. The Starnes heirs. I hope you’re not going to remind me that they’d sacrificed a fortune and turned the factory over to us as a gift. We were fooled by that one, too. Yes, they gave up the factory. But profit, ma’am, depends on what it is that you’re after. And what the Starnes heirs were after, no money on earth could buy. Money is too clean and innocent for that.

And the downfall..

Well, we got what we asked for. By the time we saw what it was that we’d asked for, it was too late. We were trapped, with no place to go. The best men among us left the factory in the first week of the plan. We lost our best engineers, superintendents, foremen and highest-skilled workers. A man of self-respect doesn’t turn into a milch cow for anybody. Some able fellows tried to stick it out, but they couldn’t take it for long. We kept losing our men, they kept escaping from the factory like from a pesthole - till we had nothing left except the men of need, but none of the men of ability.

To work - on a blank check held by every creature born, by men whom you’ll never see, whose needs you’ll never know, whose ability or laziness or sloppiness or fraud you have no way to learn and no right to question - just to work and work and work - and leave it up to the Ivys and the Geralds of the world to decide whose stomach will consume the effort, the dreams and the days of your life. And this is the moral law to accept? This - a moral ideal?

Well, we tried it - and we learned. Our agony took four years, from our first meeting to our last, and it ended the only way it could end: in bankruptcy.

Pretty powerful writing and would take the time to not only read the book but read this part of the book. I know some might say it is extreme, but Health Care is not right it is a service. And to tax the wealthy to run/make deficit neutral is not right, I'm sorry it just isn't. Why are we forcibly taking someone’s income to the benefit of someone else?I have a problem with the concept of taking the fruits of someone’s hard earned labor simply so that I or someone else may benefit at their expense.

In order to truly reform health care we must unleash the potential of the free market. The reality is that there are over 133,000 pages of health care regulation in the U.S. Code currently. This obviously goes beyond simple consumer protections and begins to invade in business’ and people’s affairs.

>

I know this is a hot topic, leave me a comment and let me know how you feel? Am I a child-killer? Is the government given us a moral program?

Truth Behind Common Financial Advice and Conventional Wisdom

This is a guest post by Mr Credit Card from www.askmrcreditcard.com. Mr Credit Card normally writes about credit card reviews, debt reduction topics and his site obviously has got tons of credit card offers. He has also put together a list of the best credit card offers and deals. Please check out his blog and subscribe to his rss feed. Today, Mr Credit Card is going to branch out and write about a topic that we should all be aware of. So here is his post

If you read the mainstream press and even most personal finance blogs, you will have come across many standard common advice. However, if you look deeper into these "standard advice or thinking", you will find that most of them are just not true or that it comes with a few caveats. Today, I am going to highlight some of these and hope that you will be more discerning whenever the mainstream press gives any so called "standard" advice.

The stock market always goes up in the long run - This common statement derived from studies in the US only from 1926 till present day. Some studies went further back to the late 1800s and came to the same conclusion. Based on this "empirical evidence", the common advice now had been to telling folks that in the 'long run', stocks are always the place to be. Problem with this analysis is that there are many assumptions that have been left out.

The first is that this study holds true only in the US because the United States. In countries like Russia (where communism happened in 1917, or parts of Europe, where there were 2 major world wars in the last century, or even in South America), this conclusion is simply nonsense. Germany went through hyperinflation in the 1930s and a change in currency. One that was pegged to gold and one that was not. South American countries went from being the richest nations in the world to one with massive debt problems in the 80s and 90s. If you were living in those countries, this 1926 US stock market analysis is meaningless when your country faces crisis of epic proportions.

Truth - It only went up in the US (and perhaps Britain) from the time frame of analysis. But bear in mind that the US has not been conquered in war in the last century. We have not had massive currency devaluations or flight of capital. Being careful of the definition of long run. There have been 20 year stretches where the US stock markets did nothing. So if you do not have a 20 year horizon or longer, be very wary about putting the bulk of your money in stocks.

US treasury bills and bonds are the safest investments - The US government treasury bills is considered the safest investments because the US government has never defaulted on its debt obligations. And hence, its historical yield is used in calculations. Because of such assumptions, academics have used the yields on treasury bills as the "risk free asset" (for those of you who study CAPM and stuff). However, there are some flaws to this assumptions.

But in the 1930s, President Roosevelt devalued the dollar by more than half when the dollar was re-pegged to Gold. In the 1970s, President Nixon took the dollar off the gold standard after the French President Charles DeGaulle wanted to exchange the French US Dollar Holdings for gold! In the 1950s, interest rates on long bonds was actually capped at 2+%!

Truth - While in many instances, US T-bills can be considered the safest assets, this only holds true if the US currency does not devalue massively. Today, we are seeing signs that countries like China are wary about their US Dollar reserves and also do not like the fact that the US Dollar's role as the international currency of choice means that we can get away with deficit spending. There is no guarantee that the dollar may lose it's reserve currency stature in future and if that happens, the US dollar will have depreciated a long way. Moral of the story is : have some of your other savings in other currencies and study how to keep your money safe. Perhaps, some gold investments would be good for you?

Reaching a retirement savings of a million dollars is a desirable goal - Another one of those myths that floats around the mainstream media. What puzzles me is that nobody questions this number at all. If a great retirement is your goal, I think that you will find that this number is really not enough. Why?

Using monte carlo analysis, it has determined that by withdrawing up to 4% of your retirement nest egg, you have a more than 85% chance of having your portfolio intact after 30 years. 4% of $1mm is $40,000 a year. And this is after tax money. Firstly, I doubt anyone can live with that amount in a high cost city like New York. Secondly, after factoring in health insurance and all other cost, there ain't much left!

What the mainstream media fail to tell folks is that planning for a career in "retirement" is more important than just "saving for retirement" itself. Afterall, savings can evaporate (ask anyone what happened to their 401ks in 2008). Your countries currency can become worthless (ask any middle Argentinian, or Russian). In the 30s, Germany went through hyperinflation.

Truth - With inflationary monetary policy as part of the western developed world for the last century, the whole million dollar is enough notion will face greater scrutiny sooner or later. You'll probably need much more to enjoy the same standard of living as you have now. If you are earning $100,000 a year today, based on 4% withdrawal rate, you'll need $4 million in retirement savings to have a good chance of achieving the same standard of living.

Small Deficits are OK - The US government has no problems perpetually running budget deficits (saying 3% deficit is OK!). All I can say is that if any household runs a budget deficit for too long, they will sooner or later have to file for bankruptcy. Well, I guess developed countries government like the US can run budget deficits for a longer time than most ordinary households. But sooner or later one's past sins will always catch up.

Deficit spending has a nasty habit of being justified by something that is "really needed". We need to provide health care (very expensive) for the elderly. We need massive military spending. We are fighting two wars. We need to spend money on various programs.

But this mentality spills over to our individual's personal financial life as well. Many folks will say it is "OK" to put the plumbing repairs on the credit card, because we'll "pay it off soon"! Problem is that just like the federal government, most folks do not pay it off. Once in a while, certain "freebies" come along that make our debt load easier. In the case of the federal government, easy monetary policy allows US government debt to be issued at relatively low interest rates. The easy monetary policy has trickled down into the consumer world via promotions like 0% financing for cars, 0% balance transfer credit cards, or even low interest credit cards. For quite long periods of time, these easy monetary policies enabled the federal government and US consumers to "fund deficit spending".

Truth - Debt should be shunned at all cost. What starts as a small amount eventually becomes a habit that becomes very hard to kick.

Global Savings Glut by Emerging Countries Responsible for Global Imbalance - Here's another common economist rant. China, and the Asian emerging economies are savers (which everyone actually acknowledges is good). But they save too much! Because global trade is conducted in US Dollars, countries with trade surpluses have excess savings in US Dollars. And the dollars has to be invested somewhere. The most natural home is US treasuries (ie US government debt). Hence, even if the US is running a persistent budget deficit, savers abroad have no where else but to invest with us. The result for all that is that interest rates and mortgage rates remained low even though our debt picture shouldn't have allowed it.

So what do we tell China and the rest of the world's savers? Don't save so much. Introduce social welfare and health care so people do not have to save so much and they can "spend"! This is one of the worst advice I've heard. We have trouble controlling spending in medicare and social security and now we're telling savers to follow our vices!.

Truth - Truth is the problem is not with savings. It is with the fact that the world conducts it's commerce mainly in US dollars. Savings is the only way to wealth. Savings (just like an emergency fund) gives you cushion. China, for example, could pump billions into their economy without having to borrow from anyone! The good old US however authorized over $700 billion in spending (which by the way they printed!) and they actually have to borrow it from the financial markets. And that is the big problem with having debt. You have to keep issuing IOUs! China's billions was simply gotten by converting their US dollars reserves into Yuan! In personal finance, the same principals apply. When you have debt, whether it is a mortgage, a home equity line of credit or credit card debt, you are constantly on the treadmill trying to find a better card or loan with a better rate. Contrast that to someone who, for example, pays his balance in full. That person can actually use a cash back credit card or gas credit cards to earn cash rebates. Unlike the person having to pay down his or her balance, the person paying in full actually makes money!

Term Life Insurance is Always Better Than Whole Life - Here is another phrase that has been hyped up by the Suze Ormans of the world and literally the whole finance bloggers world. Everyone hates whole life. What nobody has ever properly explained is the cons of term life. So let's look at a few here:

Term life insurance ends after a term - proponents would claim that

1. You can save the money on whole life and invest the difference
2. You do not need insurance after 20 or 30 years cos you have saved enough
3. Term is more cost effective

Problem is nobody tells the downside. The first downside is that

1. The annual premium for term life goes up every year!
2. To maintain the same insurance, you have to keep paying premiums every year. When you are retired and have no "work income" but only portfolio income, monthly payments are a really pain in the B***. For whole life, once you have paid up, it really means you have paid up!
3. By the time you are 50 or 60, you may not have saved enough and your beneficiaries still need money from insurance if you pass away!
4. You have a disabled child and whole life or permanent insurance is the only way to fund it (after all, their needs are permanent!)

Truth - Term life may or may not be more suitable for you. It really depends on your particular situation.

I think I'll stop here. I hope this post makes you think harder and question common teachings and assumptions in the world of personal finance, or anything in fact.

Please leave a comment and tell Mr. Credit Card your thoughts.

Individuals Net Worth

Sorry slammed today will be back tomorrow! Enjoy the comic!

Milton Friedman on Limited Government

Milton Friedman was an American economist, statistician and public intellectual, and a recipient of the Nobel Memorial Prize in Economic Sciences. I love watching old videos of him and you can tell how much of a deep thinker he was. I have watched a lot of videos of him and no interviewer can seem to stumble him with any question. He is such an intellect, and you can tell that he speaks from his true beliefs, unlike modern day politicians that just completely spin a question without fully answering them. I would recommend taking some time to learn more about Milton Friedman, I personally, have learned a great deal from him.

One thing that is very interesting about Friedman is that he was originally a Keynesian supporter of the New Deal and advocate of government intervention in the economy. Then in the 1950's he challanged the basic Keynesian model(reinterpretation of the consumption function). While he was at the University of Chicago, Friedman became the leader of the first recognized counterrevolution against Keynesianism.

Here is a great quote by Friedman:

"Nobody spends somebody else's money as carefully as he spends his own. Nobody uses somebody else's resources as carefully as he uses his own. So if you want efficiency and effectiveness, if you want knowledge to be properly utilized, you have to do it through the means of private property."

Related Links

Milton Friedman Wiki

Milton Friedman "Power of the Market" A series of brief lectures

Milton Friedman Nobel Prize Page