Posted on 09/21/2005 6:35:44 AM PDT by Maria S
"Be prepared" is the Boy Scout motto.
"Be prepared for what?" someone once asked the Scouts' founder, Robert Baden-Powell.
"Why, for any old thing," he replied.
For a people raised on that motto, Americans do remarkably little preparation. This is a nation of grasshoppers, not ants.
As the fable goes: All summer, the ants worked hard, busily storing grain. The grasshopper just played. Come winter, the grasshopper begged the ants for some of their corn. The ants asked him why he hadn't gotten ready for winter. He responded, "I was so busy singing that I hadn't the time."
When it comes to money, many Americans routinely don't think past the next paycheck. They're unprepared for things that are utterly predictable, much less the bolts from the blue.
Recent headline: "Consumer spending rises, savings rate dips." The U.S. personal-savings rate in June was the lowest on record. In fact, it was minus 0.6 percent. That means people are not only failing to save, they're dipping into their reserves to spend money -- or just borrowing more. Which brings us to the next headline:
"Debt load makes Americans vulnerable." Outstanding balances on credit cards now average $7,200 per household. That's more than double the level of a decade ago. And that doesn't include car loans, or mortgages.
For the past year, you couldn't pick up a newspaper without reading about the absurd housing prices in much of the country. Ignoring the alerts about a bubble soon to break, people continue to buy in risky markets. And to pay these high house prices, they are taking out risky mortgages.
Over a third of new or refinanced mortgages are the adjustable-rate type. The monthly payments in such mortgages are tied to changes in various interest rates. They are exactly the kind of mortgage you don't want when interest rates rise, which they will surely do.
As a come-on, lenders offer very low initial rates on these mortgages. The temporary low rates let people borrow more money than they ordinarily could or should. What will happen when their mortgage costs go up and housing values go down? Let's just say that it won't be pretty.
The banks pushing these mortgages are also not prepared. Mortgage-related loans now account for 61 percent of bank credit. Banks are in the bubble big-time. Despite these rising risks, banks are setting aside little money to protect themselves against a tide of bum loans. In 1992, their reserves against losses from bad loans were nearly 3 percent. Now, they're 1.2 percent.
A personal finance rule of thumb is to save six months' worth of wages. The object is to protect the family against the loss of a job. How many of you out there have six months' worth of savings? Don't all raise your hands at once.
President Bush inherited a handsome budget surplus. It could have served as a cushion for the near future, when retiring baby boomers put extra strain on the Treasury. But as the swingers say, "Cash is trash." Our so-called conservatives slashed taxes and spent wildly, turning the surplus into a deep deficit.
Bush apologists like to blame "unforeseen events" for the spending: 9-11, the war in Iraq and now New Orleans. How could Bush have known about any of this?
Of course, he didn't know -- but doesn't "stuff happen"? When in history hasn't it?
The Bush administration may be Bible-friendly, but it learns not from the Good Book. It certainly didn't take anything from the story of Joseph -- the government adviser who urged setting aside grain during the seven fat years to feed people in the seven lean ones.
Frankly, the "events beyond our control" excuse doesn't float. "Even after excluding spending on defense and homeland security," a Cato Institute report says, "Bush is still the biggest-spending president in 30 years."
The report adds, "Since Bush took office, domestic spending has shot up by 36 percent." And that doesn't include the enormously expensive new Medicare drug benefit that will kick in next year.
Be prepared for an economic meltdown -- as rising interest rates sink a people floating on debt. This grasshopper mentality is a plague upon the nation.
That's not true. They took in more than they spent those years. It was a surplus. And even if you don't like the accounting methods, it's under the SAME accounting methods now that we are doing far worse.
Its completely insane. The same idiot RE brokers who try to convince people that these little S$%%^76 shacks are going to two million are the same idiots who said that the business cycle was broken in the late 90's and that anyone and everyone in tech market was going to be millionaires by investing in companies they never even heard of.
The real estate market is do different today. Every idiot wants to be a Carlton Sheets millionaire with never even a basic understanding of RE laws etc etc. These fools will get a rude awakening when they have to pay increasing taxes, finance costs, tenants skip, and prices stay staganant or dip.
For many getting in right now. Even if prices rise at 5% per year many will not be able to sell the property for a profit for even a few years when one considers the cost of a realtor and closing costs.
Do you really mean 'rent'? I call my mortgage payment 'rent' just from habit, but I would say rent is a waste of money compared to a mortgage payment.
No one said there is no inflation. They said inflation is tame. Anyone who says something like you did, and doesn't back it up with any facts, must be parroting the delusional MSM who want us to believe the worst economy since Hoover is just around the corner.
Learn vegitable gardening and canning like great-grandmother.
My point is simply that when it comes to "being prepared", 401 is not the vehicle for that. "Savings", in terms of being prepared for emergency or hard times, is not about getting a good return. That's what investments are about: putting money at risk in exchange for expected reward. Saving for emergency is about sheltering money from risk so that it will definitely be available for emergency. I have plenty in 401k and I dont consider ANY of it savings.
HUGE SIGH!
Rolling my eyes now ... .
Savings in a 401K (which could be bonds, stocks, etc). You give someone money and they give you a reward for using that money. BUT YOU PAY A HEAVY PENALTY FOR ACCESSING THE MONEY BEFORE IT'S 'DUE', AND YOU DAMAGE YOUR RETIREMENT INVESTMENTS BY TAKING MONEY INTENDED FOR LONG TERM INVESTMENT AND USING IT FOR IMMEDIATE NEEDS.
Get the difference? It's not insignificant.
Maybe we should define our terms. I say savings is anything that accrues interest. If my 401(k) is invested in instruments that accrue interest, why wouldn't that be considered savings? Can I not borrow against my 401(k)?
You do that.
Let's see if you agree with my facts:
1. The cost to run your car has shot up 50% in a very short period of time;
2. Property Taxes and insurances for most people have gone up significantly with no end in sight considering the huge appetite by the government for our cash;
3. Home heating prices this winter will be huge. I sit on a coop board and the cost is 50% higher than last year.
4. Medical insurance premiums and education costs have skyrocketed beyond all norms.
Oh I forgot, the cost of milk and eggs have not gone up that much to make a difference. Thus, inflation is tamed.
The stats used by the government are a joke since they are not picking up many areas affecting people's paycheck.
401K is fine, but it's got serious strings attached. You can call it "retirement savings", but it's not what I think of as savings. It's an investment that is at risk, and that has strings attached designed to force you to not touch it til you reach a certain age. So for me, savings means low or no risk, and no strings. Of course you don't get a great return; that's not the point of savings, the way I use the term. I think you need to do all of it: invest and save.
I guess we define "facts' differently. All the things you listed are considered when the CPI is calculated. If you don't trust the government's methodology please offer some of your own that other than just your observations.
I would suggest looking at the bond market. The 10-year note is yielding about 4.2%. I'd say that's a solid indication that inflation, at least at this time, is pretty tame. 30-year mortgages can still be found for about 6%. That means that the future expectation for inflation is also low.
During the surplus years, we took in more than we spent, and actually paid down some of the debt.
I think that until there is some real spending cuts there should be no talk of a surplus. Its simply unacceptable to have such pork barrel spending.
Hey! That's way too deep for most American voters to think about. I mean shucks... with the "Motor Voter" laws... truck/bus loads of voters aren't even Americans after all!!! Cheer UP!!! (smirk)
And unfortunately that's exactly what people will expect from gvt when if things go belly up. The result: huge transfer payments from those who saved to those who squandered.
Such is always the case w/ socialism. Perverse incentives like that are preciswhy why its less productive than capitalism.
I listen to Bob Brinker who clearly explained that rising taxes are not part of the index as well as many other items one would naturally think should be.
I am in the collections business and hear from the ground level from business people that there is indeed a lot of inflation with energy prices that are being either passed through to customers or as red ink on the balance sheet. Its not a good scenario that is playing out since many people are curbing spending to afford higher energy and tax costs.
"America's savings rate is berated as low compared to high-savings countries like Japan."
Actually, its berated as well in comprison to its historical avg here at home.
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