Archive for August, 2007

You, Too, Can Live Off Just $480,000 a Year

It is amazing, but it can be done. I know because someone just down the road does the same. You might have to give up a few necessities, but you will survive.

No matter what your expenditures, you can spend less. The proof is the person down the road spending a mere $450,000. This carries all the way down to a family of seven living off of $35,000 a year. I guarantee that there is a family of 8 living off of less, they just don’t manage publicity as well.

When I was going through college(2001-2004), my wife was my sugar mama, bringing home a slick $1050 a month. From this money we paid all our bills, including tithing and saving $100 a month for a rainy day. We thought we were living fairly decently. We had insurance through the school and scholarships to pay for books and tuition. Our apartment wasn’t exactly a palace, but it was warm, dry, and plenty big. Before I had married my wife, I worked 12-14 hours a day 5 days a week and 8 hours on Saturdays all summer to save up money to buy a car, so I wouldn’t have that debt over my head. Our biggest advantage over others is that we knew the difference between a need and a want.

Cell phones are one of my favorite current needs. “What if your car breaks down by the side of the road?” some people ask.  As I recall, 20 years ago, when people’s cars broke down, there was no spontaneous combustion of the stranded. You simply made do. Nowadays you can either use a phone by the side of the road or wave down a driver and ask him if he can call a towing company. A basic cell phone plan runs about $600 a year. Is that really a necessity?

Cable is laughable. I don’t see how people even attempt to justify it as a need, but all over America there are people who get welfare checks every week that can’t live without their boob tube fix.  It costs around $500 a year, depending on your package. There is no way cable is a necessity.

I always am amazed by how much people spend on food.  We now have a family of 4 and we spend $45-$50 a week, and we eat great.  You  just have to base what you eat off of what is on sale , and learn how to cook.

The idea that it takes  $50,000 to support a family of 4 of four is ridiculous.  You can live off much less, you simply have to question your assumptions.  I have no problem with anything that people want to buy.  They should just make sure they buy it because it truly is a necessity (food, shelter, thrift clothing) or because it will provide enough enjoyment to justify the life they used up earning it.

Immigration and your job

Everyone always talks about whether the current immigration is good or bad for society. If you are wealthy, it seems to come out great. If you are poor and uneducated, once again, you are screwed.

When immigrants come to town they bring cheaper labor (as a whole- I know some are very educated). This reduces the cost to produce labor intensive goods, like fruits and vegetables. The first farmer that started using immigrants had the benefit of cheaper labor, and made more money. Within short order the other farmers adopt the same techniques, and, in efforts to sell more goods, reduce their prices. Competition allows the lowest cost highest quality goods to move through the chain. Eventually these reach us. The good news is products are much cheaper in stores. Who benefits from this effect? Those who buy the most. While you can only eat so many fruits and vegetables, other labor intensive services can be consumed extensively. Everyone benefits from the low cost labor, but the more wealthy benefit more because they can buy more.

Economically, lower classes bear a large portion of the difficulties. Generally, there is small mobility in a job slot you are already in. If you are the weed whacker operator doing the landscaping at Intel, you could get moved up to driving the riding lawn mower, but good luck on CEO. Engineers can become project managers, but you won’t find a lot of janitors becoming engineers. You don’t have to take massive steps from day laborer to drywall installer to owner of a drywall company. The costs involved are relatively small, the training necessary to start is very small (although improvement can be done constantly).

When cheap labor comes into town, the supply glut depresses wages in jobs requiring the least skills first. As the wages drop, more and more people decide they won’t work for those wages and look for a better paying job. A secondary supply glut (generally smaller then the 1st) hits the jobs that are slightly more difficult, lowering the wages their also. This continues up until the moat is to difficult to cross due to education, capital requirements, or networking requirements. As a result, the earning power of the lower economic classes are hit hardest by the effects of immigration.

The net effect is that, as a trend, those who benefit the least from lower cost goods are the ones who suffer the most from wage depreciation.

If we want to insulate ourselves from the negative effects of immigration, we must get a moat between us and and competitors. Twenty years ago, the moat of education was sufficient. Now an influx of Indians trained in math and science has started to bridge that moat. We are importing doctors from other countries as well. Specialization has helped some create a sphere in which they do not have massive competition. We need to work on other economic moats if we wish to protect our earning power. Accumulated capital, used wisely, can provide a massive business advantage.

My father, a PE, did landscaping for a change of pace about 13 years ago, mainly sprinkler systems. As illegal immigrants showed up, they started to depress the profit margin in the business. My father jumped to more specialized projects that required greater capital investment and drew more heavily on his engineering knowledge. He is still doing very well, and he recommends that before we get into a business, make sure that illegal immigrants can’t be competing with us 1 week after they cross the border.
I am now thinking about how to widen the economic moat around myself.  I need more skills (bo staff skills, mustache growing skills), more capital (no negative savings rate for me, thank you very much), and more business connections (soon I will have 2).  There are a ton of dollar bills out there looking for a good home, and I want to provide that.

Peace out, hombres.

I’m Broke and Its All Your Fault!

I saw an article in Yahoo news that displayed all the brilliance of America’s media. As I read through the article, I was surprised at the lack of thought, and the use of different phrases to make it look like the borrowers are just people who had bad luck. The borrowers chose to take a great risk when they used “exotic” (reads “you probably can’t afford it”) loans. If they ever read a paper or watched news, they knew that rates were at the bottom, and could not feasibly go lower. Those who sell themselves into slavery and use the proceeds to live high for a day shouldn’t be surprised when the buyer comes. Apparently this writer thinks they should, and states how they are undeserving participants in a massive tragedy over which they had no control.

“I have three borrowers who desperately need to refinance and they aren’t going to be able to do it. They are going to lose their homes,” said Patrick Schwerdtfeger, a Walnut Creek mortgage broker for Windsor Capital.

I will interpret. I have three people who can’t afford their homes and nobody will loan them any money. They need to refinance to a lower rate. They got in at a low teaser rate because they wanted more house than they could afford or because they decided they wanted to spend their money on something else. Now those stinking bankers aren’t going to give loans to people who have a fantastic chance of going bankrupt in the near future. They’ll have to move into a neighborhood they can afford.

The intelligence continues.

Borrowers with blemished credit records and inadequate paperwork to verify their incomes are having the most trouble getting mortgages.

Here is another piece of sage reasoning. The media is all over banks because they made loans that people couldn’t afford to borrowers in the sub prime market. Now, apparently this writer thinks we should do it again. Banks don’t want to lend money to people who haven’t paid their bills on time in the past and those who are not likely to have the resources to pay them in the future (trouble verifying income). Given how many people lied on their loans in the first place, it is hard not to agree with the banks. I have a lot of respect for self employed people, part of it because they are able to work without a regular paycheck. Banks don’t want to assume that risk for free (and that is assuming people are having trouble verifying their income because of paperwork issues instead of the standard lying cheat reason).

The media is sure that the only way out of this mess is for the government to save us. Apparently, the government also has plans to save tourists in Vegas from appalling losses.

Other media stories point toward the trouble that the wealthy have buying a home. If you’re really wealthy, shouldn’t you be able to afford it? People with a $5,000,000 home (and corresponding mortgage) are in the rat race just as much as those with a $100,000 house. The media is claiming that people have learned that people know what they have done wrong, and are all penitent. On the other hand, people are trying to continue to live mortgaged to the hilt.

I read a idiotic article from a “financial adviser” which said you should always have as large a loan as possible out on your house. That is a great idea in the ideal world, where the stock market returns 11.8% a year, no one ever gets laid off or laid up, and real estate appreciates every year. In this world, it is looking like our grandparents aren’t as stupid as we thought they were. Reducing your exposure can help you keep your house during difficult times, and sleep well during all of them. The spring in my step and peace of mind I will get from knowing my house is paid off are worth the few percent a year.

Casino Patrons to be Reimbursed for Losses

Reports are coming from Las Vegas of a massive government effort to help investors that have been betrayed by casinos. These investors have put massive amounts of money into investments, some their entire livelihood, only to end up broke. One investor says, “I was just doing what everyone else was. I knowed that I had to make money at this, cause my cousin, Willy, was here last week and he made 500 smackaroos. Now I’m broke, upside down on my mortgage, and my kids don’t have anything to eat. I just want what’s fair and decent.”

The betrayal by the casinos occurred on a grand scale. At one end of a casino, the lights flashed above the slot machine “Win Car Here”, but poor Harold Hickson walked home. “It just ain’t right,” he says. “It says I should win a car, but I put in my entire savings, and even pawned my mobile home, and I ain’t won crap. I don’t know what Betty Sue will do when she hears. We made this investment in good faith. I heard a bunch of people were here last week and made a bundle.”

Another patron, Graham Wellington said, “It is clear that the practices here have been unethical. As I walked in, the lady who gave me chips said, good luck, I hope you hit it big. The personnel in the industry spread this idea that investing at a blackjack table is a sure way to get a significant payout. There were no warnings that these investments could turn sour. This euphoria caught many up in it, and I cannot afford the losses I have incurred. As a working citizen, I have a right to have someone help me with the losses I face due to this deception.”

The deception is all over. Claims of million dollar payouts were spread far and wide. These losses aren’t flukes, but a scheme by those no good dealers to get fat off of their pay. Rick Henson, a college student majoring in economics, reports, “I was always good at investing back at college, and got my friends good and wasted before I cleaned them out. It’s gotta be a fraud, because I toasted my student loans in one day of investing in poker here. I saw a billboard that says people hit it big in Vegas, false advertising if I’ve ever seen it. This disaster is too big for individuals. The government needs to intervene and help the market out of this crisis.”

A spokesman from the heartless bastards at The Von Mises Institute said, “Their unwise speculations did not result in the outcome they expected. The risk management was skewed by years of being taken care of by the government, resulting in expectations of large payouts with little aversion to downside risk. If the government mitigates these consequences, it will perpetuate this poor judgment, and these types of incidents will occur with greater frequency.”

Someone from the back yelled, “What he’s saying is they gambled and lost their shirts because they were greedy. If we bail them out they won’t learn their lesson, and we will have to keep bailing people out.”

The Center for Compassionate Government rebutted these outrageous insults.  “These are people who trusted the advice of these casinos, and were provided an environment where they could simply get more chips. There was nothing that told them about the impending losses.  Serious sanctions must be taken against these corporate bosses. One investor told us that they thought they could simply get back all of their money after they were done gambling, assuming that the casino was just holding the money for safety purposes.  He never signed anything that said he would not get his money back.  He was duped.  The thought of losses had never entered his head.”

“Now he and his family don’t have the money to pay next month’s rent.  We need to help them.  After all, it’s for the children.  We are proposing that people be allowed to be reimbursed in a way that will be fair to all parties. We don’t think anyone should be locked out of the American Dream.  Now we recognize that the casino owners don’t have the means to deliver what they promised, but I am sure that no true American wants little Bobby to go hungry.  The government has the means to support this, and we demand they help the poorest,  who were tricked into precarious financial situations.”

The president of Evil Conservative Industries, Gren Bock, said, “What the heck did they expect? They were gambling at a freakin’ casino. It’s sad that the kids are in such trouble, but come on. Everyone knows that in speculations you have ebbs and flows. There is no free lunch. My father was a baker, and he worked his rear off for every cent he got. These guys think it will fall into their laps just because their friends got lucky, well, they are in for a surprise.”

It is clear that despite the heartlessness of the rich evil conservatives, something must be done to help those that invested in at these well known establishments in good faith. Americans are obligated to help those who have been tricked and swindled. Presidential candidates promise that relief is coming. We couldn’t suppport them more strongly. Everyone has a right to the American dream!

Government Waste- Paying the government for the privilege of paying

The government is once again showing its incredible business acumen, using their superior knowledge to dictate what we should do with our money.  Apparently we should give it to New York so they can charge us more to visit.  According to the associated press, Bloomberg is getting 354 Million federal dollars to set up a toll system to lower traffic in the city.  I have a better idea.

There are a lot of unemployed people in NYC.  Just equip them all with baseball bats.  Anytime anyone drives past, they should go up to the car and tell them it’s ten bucks to get down this street.  If they don’t pay, have them start wailing on the car.  Traffic is guaranteed to go down.  People could have frequent driver passes- They just give the guy $200 at the beginning of the month.  The city could even rent out the collection spots, funneling the money through some union hands, some bureaucrats, and finally have at least 3% left over for road repair.  No cost to the city, and they would even see profits. 

That solution isn’t perfect, but I have trouble seeing why my family of 4 should contribute around five dollars through taxes so they can charge me to drive through NYC, should I visit.   Does it make sense for me to go door to door in by neighborhood and demand 25 bucks from each citizen so I can build a tollbooth at the entrance to the neighborhood?  I could claim it would keep people from taking a shortcut through our neighborhood and thus reduce traffic, but when push comes to shove, I am making them pay for the privilege of giving them money.  I seriously think you could auction off this ability to collect tolls, and resell the lease every 7 years to the highest bidder.  The first bid would come in low because of the cost of the infrastructure (tollbooths), but given how much the New Yorkers pay for everything car related, businesses could make a good profit anyway- until the bureaucrats and union bosses got involved.  If they are really doing this to reduce traffic and not to generate revenue, I don’t see why this wouldn’t be a good solution.

In San Francisco and Miami, subsidies are similarly used to create other driving lanes.  I especially like how Joe taxpayer is bearing the cost for the rich in Miami, where hot lanes, paid express lanes, will ferry those with money to pay for the privilege.  Those who use the lanes will only be bearing a fraction of the cost.  You know because the federal government (reads “Joe taxpayer”) has to inject almost 70 million for the project.  If the project provided enough benefits to the users, it could be supported by the tolls alone.  Instead, the middle class is supporting the upper middle class and the rich.  Who will be able to pay the tolls in NYC everyday? The rich.  We are going to be subsidizing their transportation system- paying to have its usefulness to Joe citizen reduced.  The parade of the special interest groups in full force, and as always, the middle and upper middle class taxpayers are the ones who are carrying more than their share of the burden.

I have nothing about the rich having their own road, but I don’t think we should subsidize it.  If a private company wants to build roads and rent them to the rich, fantastic! I hope the rich enjoy the fruits of their labors in the form of a quicker commute.  On the other hand, a taxpayer in Kansas should not be supporting toll booths that will make it more expensive for them to drive in NYC, or lanes for the rich in Miami. 

Here is the story I referenced, by the way.

http://news.yahoo.com/s/ap/20070814/ap_on_re_us/traffic_fee;_ylt=ArZWHMged9vUp2JACBTTylVH2ocA

Lack of liquidity in the markets, and inflation

When I was at work today, an employee who likes to follow the markets talked about the the liquidity issues that a lot of the banks are facing.  They have loaned out a ton of money that people are having trouble repaying.  Here is a quote.

“Extraordinary optimism sustained an orgy of speculation.  Books were written to prove that economic crisis was a phase which expanding business organization and science had at last mastered.  ‘We are apparently finished and done with economic cycles as we have known them,’ said the President of the New York Stock Exchange.”

When was this from?  September 1929.  The whole passage was pulled from Churchill’s The Gathering storm (1948).  I believe that the modern day comparison is “irrational exuberance”.   We have spent money that we do not have, and the whole country is mortgaged up to the hilt.  The US still wants to be big and bad, but economics are what provide worldwide power. 

Karl von Clausewitz said, “To secure peace is to prepare for war.”  Instead of preparing for future wars that we could win decisively, we have slowly whittled away our strength in piecemeal wars.  Foreign governments are emboldened as they see us stretched to the breaking point.  The number of people employed by the government leviathon are people that can’t be employed in contructive industry or in the military.  Those killed and maimed in war represent permanent losses to the country economically (not to mention their families met someone in a hospital or in a body bag.)  Those people permanently injured in action also require permanent benefits, including medical care with its escalating costs. 

We could afford these type of expenses if we weren’t hemoraging money in every other sector.  If in San Francisco the cost of illegal immigrants is not high enough, some people can fix that.   They wish to raise taxes to pay for the green cards of the illegal aliens.  It’s natural that we want to be the benefactor of poor nations, but we do not have the resources to take care of the problems of the world.  After we get our own house in order, from the federal government level down to the individual household, we can and should individually use our resources to help others.  Until then, we are like people buying gifts for everyone with our credit card, while planning to go bankrupt.  The polititians are afraid to tell Americans that the way out might require a bit of hard work and sacrifice.  They’d rather cheat their way out, through the magic of inflation.

The central banks of the world pumped over $300 billion into the world markets during 48 hours on Thursday and Friday (cough cough inflation).  What happens to the global econonmy when fiat money is pumped into the system?  It steadies temporarily, but we are delusional if we think that this is a permament fix.  This is a bandaid over a wound that is festering.  It has been festering for years, and it will take a major surgery to clean it up.  I’m not looking forward to it. 

America Has No Trade Deficit

Everybody says that America has a massive trade deficit, and I will agree that it looks that way.  On closer examination, I realized that America was sending just has much value abroad as we are receiving here.  If this wasn’t the case, why would people send us the goods?  The big question is, what are we sending abroad?

 We are exporting faith in the government.  As we send more and more dollars abroad, our government is exporting the faith that its citizens have in her.  The dollar has fallen rapidly.  China is being forced to keep exert efforts to keep the value of its yuan low.  All of the dollars that China has accumulated have turned faith in the US government into faith in the government of the People’s Republic of China.  The US is still the head on international finance, but her pre-eminence is slowly being sold away for televisions and video games.  They will not sell back cheaply what they have paid so dearly for. 

Why do I even care about faith in the government?  Well respected governments attract the best businesses and the cheapest capital.  The US attracts the best and the brightest from around the world, with their ideas and expertise.   Investors all over the world accept below average returns from the US because of the below average risks.  A secure, stable, and low tax  environment for operations is one the best resources available.  The US has eliminated the work and thrift ethics that first lead to the accumulation of capital here, and now they are selling away the trusted environment that was built up through years of steady work, thrift, and available capital. 

There are  a lot of things that we could leave for our children.  The beautiful environment, education, and happiness are all fantastic, but they will be bought from underneath our children unless we leave them work ethic, thriftiness, and a little capital in the country that we haven’t sold to the chinese.