Wednesday, April 30, 2014

Accumulating Real Wealth

There are people out there that are fabulously rich. Usually it’s through sports entertainment or invention. But most people get rich the old fashioned way by saving. They don’t get real rich, but nobody ever has enough money no matter how much they make.

There is a conundrum here that the politicians don’t quite understand. Once you get to the “rich” level, you don’t really spend any more than a poor person. The extra goes into savings. This is where the economy is dragging. The massive infusion of Fed funds into the economy has really gone nowhere. A lot of the funds have made it into retirement fund real estate investing or the stock market. Neither of these creates very many new jobs. Real estate investing in good years returned about 21% on the investment, and in today’s market, 10 percent is a very optimistic expectation. Stocks are doing a lot better than cash in the bank, but there is the question of “Why?” The economy is not in great shape.

Then there is the time element. Given 40 years, $100 a week for 20 years at 8% and then sitting on it for another 20 resulted in a million dollars. That was the expected in the 1960’s. In today’s world a million dollars might buy two tear down homes in Los Angeles. Notice one thing, the people that started saving 40 years ago, don’t have the buying power with their savings from 40 years ago. And it is too late for them to save more now.

We are also at a point with nonexistent interest rates, why even save? There is no added value for surrendering your immediate gratification for later consumption. Buy it now!

So basically we have a bunch of new savers looking down the road to retirement 40 years away, and reality hits them. The money in the bank is going nowhere. Whereas the old people that have saved for 40 years notice that inflation has reduced their buying power of their savings by a great amount. If your 20 years old, this concept is way over your head and makes no sense. Aggravatingly so, if you are over 65 nobody cares when you complain about inflation, you are invisible, you are an “Old Fart,”---- and what do they know.

The thing that really cracks me up lately, is all the ads for medications for the senior citizens. For the drug companies, it is a given, that old people are the target for buying these new pills that they want to sell. Take Preparation H, Cialis, and Viagra. I can’t figure out how the medications know where to go, you certainly don’t want erect hemorrhoids or a member with no sensation. But I digress.

Where to from here? We have a problem, the money not being spent by savers is squirreled away for retirement and is being eaten alive by government printing (inflation). Congress knows the syndrome, too old to complain—nothing to worry about they will die soon, so blow them off. Inflation is only a game; through time you will understand it’s consequences but until then, it will be too late to do anything about it. So grab a deck chair, and move it to another spot on the deck, give yourself that slight feeling that you are still in control.

Monday, April 14, 2014

Let Other People Work

Driving home from work the other day, I heard on the radio someone praise Obamacare, “I have been unemployed for 6 years and now I have health insurance.” For her, one less thing to worry about. You’ll probably bump into her at Walmart. She’s the one talking on a cell phone, a hundred pounds overweight, in tight stretch pants buying groceries with her EBT debit card. Of course, you might turn around and ask me, "Which one is her?" At that point, we can eliminate the "store greeter" and all of the cashiers. . . . . .

Later I was listening to some TV news program about saving for your child’s college education. I heard one parent state that he wasn’t saving for his son’s college expenses because his son wouldn’t qualify for as much financial aid. My eyes rolled on that one.

Then our "Banana Republic Presidente" stated that “We need more young people to sign up for health care, which they don’t consume much of, so the older folks won’t have to pay as much for coverage.” We have given these kids student loans that they can never pay back. Then these kids find that they have to live at home with mom and dad because they can’t find a job. How does higher education work? They give you a diploma when you graduate. Do you have to pay extra, for a brain to go with it?

College math: Graduate + new(health care -health -e) = Graduate + new car (BMW, Mercedes)
Obama math: Graduate + health care + student debt = "Rags to Riches" (indentured servant for life)

Where is the incentive to work? If you earn money, the government wants to tax it and give it to someone less fortunate. Ever hear of a lawyer suing someone that is broke? Deadbeats don’t pay traffic tickets, absolutely nothing will ever happen to them, no jail time, there is no room. And the car they drive is not registered to them; it’s not against the law to drive an uninsured car that belongs to someone else (of course they'll claim they thought it was insured after they hit you).

Getting ready to retire, make sure your savings are depleted (buy your kids a house). Then you qualify for SSI (Supplemental Security Income) and in California, it’s about $950 a month. Plus if you are a legal immigrant of retirement age, you qualify for SSI without ever having worked a day in this country.

Where to from here? There is a race on to prove how poor you are, so you can get a bigger slice of the pie. You don’t have to earn money to be entitled to a slice, but you become more entitled to a slice as you earn less. Our government will reward non productivity as long as it produces more people that vote for Democrats. The odd thing, if you go out and get a job, you lose all of those free benefits. Doesn't that feel like punishment? Who's to blame, those who provide the benefits, or those that take advantage of them?

Below is a cartoon that came out in 2008 that I really enjoyed, it gets more real with each passing day.
(Double click for a bigger picture)