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Posts Tagged ‘Government Overspending’

More about the recession.

Friday, November 13th, 2009

Today’s article is Earth to economists: Recession isn’t over, by Carla Fried.  It’s an interesting look at the divide between the people who believe the recession is over, and those that think we’re still in it for a while.

Conflicting information is what the author cites as a problem.  An advanced estimate of the annualized 3rd quarter GDP was up 3.5%, but consumer spending fell 0.5% in September.  The GDP numbers are a result of government spending, and, as you would expect, unemployment, and the fear of unemployment are the result of the slump in consumer spending.  The fact is, a recent poll showed 58% of people (October)  still believe the recession is hanging on, up from 52% (September).  And while public opinion certainly isn’t the only factor in the economy, it DOES factor into the economy.  This is obvious…if people think the economy is down, it affects the way the go about their daily lives, and what they do and don’t spend.

You see, there are a lot of opinions out there on where this country and it’s citizens are headed thanks to this economic mess.  Some are saying that we are fine and that everything will go back to “normal” soon, and some conspiracy theorists seem to think we’re going to become third world nation.  The truth, thankfully, is probably somewhere in the middle.   If you read the original article, you should check out some of the absolutely ignorant and insane comments posted by readers.  I’m no economist, but I’m also not going to listen to anyone whose claims sound outlandish at best and pray on the fear and ignorance of other people.  My guess is that the economic turmoil will continue for a while…how long? I have no idea.  The economy needs to correct itself from the inflated values that  we placed on our assets (namely, our houses), and until it corrects itself, I don’t think things can get better.  However, I DO think things will get better.  Banks will start lending again, companies will start hiring again and people will start spending again.  Do I think it will go back to the way things were? No, and I hope it doesn’t.  We shouldn’t expect to buy a home and 3 years later move with 50% equity because of the jump in value…that’s not right.  Slow and steady wins the race people.  When things start to improve, you will have to SAVE your money and PAY DOWN your mortgage for there to be equity in it…and that’s the way it SHOULD be!

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Signs point to inflation, but is it happening?

Friday, November 6th, 2009

Today’s article is Where did inflation go? by: Joe Light.  The story is basically that the government now has $2.2 TRILLION dollars in assets, and, as most of us already know, they have given a bunch of money to the banks.  What that means is that the banks have money to lend now, which usually leads to more money in the economy and that drives prices up, aka inflation.  Interestingly, though, that isn’t what’s happening.

Prices are staying the same, and, in some cases, the prices are even going down.  So, what’s the deal?  Unemployment, for one.  People don’t have jobs, and so they can’t spend as much money, so the inventory in stores doesn’t move, and the prices don’t go up, i.e., no inflation.  Also, the lenders’ balance sheets (how many assets and liabilities they have, and their net worth) are still in a place where they are fearful of a too low cash flow, so they aren’t lending as much.  They are trying to keep as much money for themselves as possible, and so that means companies and individuals aren’t getting loans. 

So, what happens in the near future could help or hurt the economy.  When the unemployment rate goes down (hopefully), the banks might lend more.  This will prompt the Fed to try and take some of that money, and depending on it’s timing, we could end up with higher prices, another recession or inflation.  Gee, doesn’t that all sound fun?

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Friday’s Financial News…Entitlement programs!

Friday, May 15th, 2009

Today’s financial news is about something that we all know exists, but not a lot of us think about…Entitlement programs, such as Social Security and Medicare.

Today’s article is The forgotten fiscal problem By: Jeanne Sahadi

Brief summary: The release of a yearly report from the individuals who oversee Social Security will likely spark some debate because Social Security has been in financial trouble for a while, and is likely to be in even more trouble in the years to come.

Thanks to the rise in unemployment, currently at 8.9% nationally, the money paid into the Social Security system has fallen. The article states that the “White House budget office estimates that Social Security will take in less in payroll taxes than it must pay out in benefits for 2009 through 2011. And then the system is expected to start running a small cash surplus for a few years before once again taking in fewer taxes than it pays out in benefits”. What does this mean to you? Potentially, a lot, because when social security runs out of money, the government will try to make up the difference somewhere, and that will more likely be higher taxes and not government spending cuts. And while I am on the subject, I would just like to remind everyone that Social Security is not some money that the government is “giving” you. This is money that you pay in out of every paycheck that the goverment is supposed to give you back when you retire.

According to the trustees who oversee the program, it will start to take in less money then it pays out in 2017 and that the trust fund will be tapped out by 2041 (see below)…remember that the government borrowed the surplus of $2.4 trillion that Social Security had a while back. Without any action, 2041 (revised to 2037 in an article published 1 day after this article was released, which you can read here) is the date after which the system can afford to pay out only 78% of benefits promised to the future retirees, otherwise known as the people who paid into Social Security for decades only to be denied all of their money back when they need it. This is a problem people need to know about. A lack of people paying in is something that will cause problems down the road.

One of the reasons sited for the long-term shortfall is that Americans are living longer. The American Academy of Actuaries, a group of people who are experts in evaluating risk, are advising that U.S. lawmakers increase the retirement age for Social Security. This might fix the problem, but unless your benefits increase for every year that they don’t pay your money back, then they are taking advantage of you. Think about it like this: If you retire at 65, and can collect $1500 a month until you are 100 under the current system, then these benefits should increase by at least $250 each month if you are forced to wait until age 70 to start drawing
social security. But that is NOT what they are planning, I assure you.

The article quotes a recent speech the house majority leader, Steny Hoyer gave regarding Social Security. He is quoted as saying “We can bring in more revenues. We can restrain the growth of benefits, particularly for high-income workers, while we strengthen the safety net for lower-income workers. And/or we can raise the retirement age, recognizing our life expectancy is significantly higher. What is missing here is not ideas — we have a lot of ideas — it is the political will.” Now, follow what he says…they can collect more taxes, they can cut back on benefits, especially for high income workers (who, incidentally, paid in MORE Social Security taxes because they earned more…yeah, that’s fair), while increasing benefits for low income workers (which means giving these workers more than they paid in), or raise the retirement age to collect benefits(which I already addressed above).

Overall, I think the article points out a real problem for the citizens of this country. Social Security is not being funded well enough, and those of us paying in now, which pays benefits for those retiring now, are the ones who will suffer in the future when we retire. Let’s hope Social Security will be in the public eye enough to encourage people to make a back up plan, since it’s obvious, we’re going to need it!

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It’s April 15th, I hope you have sent in your Tax Returns!

Wednesday, April 15th, 2009

We will do Step 3, “Can You Get There From Here” next week. Today, we are focusing on taxes.

Since today is April 15th, “Tax Day”, I wanted to share some information with our readers. There are 2 main sides to the “tax situation” for the average person…taxes that we pay in, and what the government does with the revenue (taxes) it collects. I will only be focusing on income taxes for today’s discussion, although there are many other ways the government collects revenue (sales tax as an example).

Every year, people pay their income tax out of every paycheck, and look forward to their “big, fat tax refund”, which is one of the worst things a person can do! First, a person elects to pay their income tax throughout the year (and usually claim dependents so that more is taken out) but they do not have to. When you pay all that money to the government throughout the year, you are giving them an INTEREST FREE LOAN! That “big, fat tax refund” is them giving you back YOUR money, that they have used all year, without paying you a dime! You should adjust your taxes accordingly, so that you are not receiving a large refund every year…keep more of your income throughout the year and use it to help you with your monthly bills, or save it, so that you, and not the government, are earning interest on your money!

Now, for the revenue the government collects…what are they spending it on? Are they using it all, or saving some? If they’re using it all, are they spending more than they have? Well, they are all good questions, and I found some interesting information in the article, Uncle Sam won’t make ends meet on CNNMoney.com. Clearly, the government is spending our money, and lots of it. The budget has rarely been balanced in the last 40 years, and this year is no different. The whole country was up in arms over the previous administrations record breaking budget deficit of $455 billion dollars, but the current deficit is on track for 3 times that number, at $1.67 TRILLION dollars. Hold onto your hats, cause this is going to be a bumpy ride! So, what are they spending the money on? Well, as the graph on the page from the link above indicates, the 4 major spending areas are the new T.A.R.P. Program (isn’t that fun) at $290 Billion, Defense at $317 Billion, Social Security at $321 Billion and OTHER at $546 Billion. The other spending areas are Medicare, Medicaid, net interest on public debt and GSE payments…but T.A.R.P., Defense, Social Security and OTHER and the big spenders. Now, the problem with all this spending is that as a nation, we are in a recession. We are paying in less money (as the article indicates) in taxes because a lot of us are out of work…so, they are spending $1.94 TRILLION and only taking in $986 BILLION! That is almost TWICE the money we’re giving them! On top of that, the proposed budget is weighing in at $3.5 TRILLION dollars, and we are still paying the same…and they wonder how we get into trouble. If individuals ran their finances like that, they would ALL be bankrupt.

So, what should you be doing? Don’t look forward to big “refunds” and instead, use this money throughout the year to better YOUR finances. Pay attention to what the government is doing! They are not only spending ALL the money we are giving them, but they are spending double that amount, while we “common folk” are in a recession. Considering that 24% of people think the government has it’s own money (meaning they don’t get it from the taxpayers…ridiculous I know…find this info at Good Government) we have not been as diligent as we should be about where our tax dollars go, and we should, because a government that is ignored by its people can do what it wants without any accountability.

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