One thing that our politicians have correct is that there is a lot of “greed” in this country. But, it’s the politicians who are being greedy, not Wall Street. Saving money used to be simple…but Washington complicated it.
Why, today there is no shortage of finger pointing at whose to blame for the current financial mess. Almost all of those fingers are pointing at Wall Street. At best, some of the blame is being directed at Congress. But, is anyone resting all of the blame on our elected officials? Nope.
Dateline, who is getting to be rather good at spinning the news, aired a special a few days ago called Inside the Financial Fiasco: The Mortgage Crisis. While they did a good job of telling sob stories, they left out a few critical aspects of the real problems that caused this mess.
First, as a general rule, it should be known that extremely low interest rates will have a negative effect on savings rates. If you think about it, this makes perfect sense. As interest rates approach 0%, there is less incentive for you – or anyone else – to save money. If you can get the use of money for low or no interest, fixed for 3, 5, 7, or even 30 years, then why wait to use it (i.e. why save up money)? This is especially true if you can speculate on something that will make you back far more than what it costs you to borrow those funds.
This is exactly what happened in the credit markets – specifically the mortgage market.
Thanks to folks like President Bill Clinton (who strengthened the Community Reinvestment act and set the stage for coercion of banks to lend money to undeserving borrowers), Barney Frank (who pushed the Government subsidized Affordable Housing Program), President George Bush (who pushed Clinton’s policies of assuring everyone who wanted a home would be able to get a home), Alan Greenspan (who betrayed free market principles by providing an unprecedented amount of liquidity to the markets through market manipulation of the credit markets and effectively politicizing the Federal Reserve), Ben Bernanke (who is now exacerbating the problem with massive infusions inflation-prone currency), and President Barack Obama (who did a quick head-fake with his middle class tax cuts that dissolve through his cap-and-trade policies and who sees this as a perfect opportunity to radically expand the size of Government and its spending through onerous taxation of businesses and individuals).
That’s a long list of people, and it really doesn’t cover everyone. Politicians are greedy. They take up to 33% or so of an individual’s income at the federal level alone while they themselves produce nothing. They merely redistribute your money to other people who are deemed “in need”.
These taxes don’t include various State income taxes, national and state sales taxes, property taxes, school taxes, excise taxes, and a whole assortment of licenses and fees for individual and business purposes.
That amounts to quite a bit of money. Money that is spent on programs that don’t benefit you directly, or if they do, are mismanaged so poorly that the expected benefits will be outstripped by the price you pay.
Then, there is inflation. A favorite tool used by many Republican leaders. Reduce taxes and increase spending. It happened under even the “best” of Republican leaders – even Reagan.
Inflation is really a hidden tax on your future income that you pay for through the increased cost of goods and a decrease in the value of your savings.
And, this is also another reason why low interest rates discourage savings. If you knew that your savings were being devalued every day, why save? Why buy assets denominated in U.S. Dollars? It’s a constant battle to fight for the value that you created over many years.
There is an easy answer – but not one that most people want to hear. Start saving money.
Save money in places that provide a good hedge against inflation and taxes. Demand that politicians stop devaluing your savings (after all, you DO vote for them). Unless enough people start saving money and demanding that their savings stop being inflated, these irrational cycles of boom and bust will never end.
I’d go one further and say that they will get worse.
There are two ways you can start saving money right now:
1) Talk to a financial planner – that seems obvious, but many people still have not met with a financial planner to discuss a savings plan. This might be due to the idea that some people don’t believe that they have any money to save. But, this is exactly the reason to talk to a financial professional. They can help you reorganize your finances to help you free up the money you need to start saving right now.
2) Make a budget – This goes hand in hand with talking to a financial planner. Making a sound budget plan is not something everyone does, but they ought to (if money management is important to them). A good budget plan should be a plan to project your values out into the future. You should be able to take your important financial goals and values and put them into a budget that shows you how much you spend, how much you make (in income), allows you to control your cashflow (variable and unpredictable expenses as well as fixed expenses), allows you to make planned payments for expenses and savings commitments, and allocates and tracks current and future savings and investments. If it’s not doing all of those things, it’s time to revamp the budget.
March 24th, 2009 | by David | No Comments