How's the economy looking

As Boston Gal put it.  It's just fraking bad.

Keep on pumping - FEDS CUT RATE 0.50%

Keep on adding water into a sinking ship. The US economy is toast ...buh-bye!

WHOPEE $500 from the government

Tax rebate to help simulate the economy. Instead of controlling inflation - they choose to pump more funny money. Can't wait till it all boils over.

THE MARKET DROPS, THE MARKET RISES

Same old news. Markets move up and markets move down. If you don't know what you are doing - stay away from the market.
If you think you know what you are doing - stay away from the market - you don't know.
If you know what you are doing - be very cautious.

Thank God for $800 from Mr. Bush - whopee - that'll save my retirement - or help me buy an iPod -

MONEY CRUNCH - THE SKY IS FALLING

What's a money crunch? This term is current mentioned over and over in the media - yet it isn't clearly defined anywhere.

Quite simply, a money crunch (or crisis if you want to call it that) occurs when you "feel" that you are short of money. In simpler terms, money is simply a mode for doing trade. Thus, if you want to buy something, you give money in return. Simple laws of supply and demand. So a crunch occurs when the money you have isn't enough to get the item you need/want. Well how do you solve a crunch? A few ways actually:

1. Don't do the trade (i.e. don't buy what you wanted to buy in the first place). Happens all the time - just be more open to not getting everything you think you need/want.
2. Increase your money - which simply means increase your skills so you can produce more.
3. Make sure you get more for your money. E.g. if you are renting, negotiate a better deal with your landlord. If you have a mortgage, try and refinance (assuming you have have good credit rating).

Banks and the US government

Citibank announced another $10 billion write-off in their portfolio attributing the mortgage meltdown. I am starting to believe that the next big entity to default on their loans will be the US government. The trade deficit (which doesn't include numbers for Social Security and Medicare by the way) continues to grow. The national debt is just funny money business to me anyway.

Also, depending on who you ask some see the debt as too high whereas others will compare it as a ratio of the GDP and claim that it is within limits. See the following as an example. Others claim that simply raising taxes by 3% for one year is enough to wipe off the current debt (again I haven't done the math yet to prove/disprove this).

Further, from what I've read, others claim that historically, the stock markets have done rather well in years where we had a debt as opposed to a surplus.

So in short, the national debt is just that ... a big number.

What worries me is economy slowdowns, recessions, unemployment, diminishing company profits and inflation because these things can wipe off significant percentages of savings of individuals. When this gets reflected back as less tax collections, the government changes the laws to raise taxes when what they should be doing is lowering the taxes.

One alternative (yes you may laugh at this) to clear the national debt is that the lenders to the US (Japan/China) will one day have to just write off the entire amount. Yes, just like that ... whoosh ... the US is debt free.
They might have to do this because it will be a cleaner/less painful alternative then having a global long recession period. Imagine, China/Japan producing their goods with no buyers :-) --- so what do they do? Forgive prior debts, let us borrow more money and then make us buy their goods with the money we just borrowed ... world goes on ... everyone is happy ;-)

Banks are doing it right now with the shady sub-prime loans that they made. Actually we don't have numbers that it's only people with poor credit who are defaulting only - but that's another story. We're seeing this in the US Housing Sector already. Wait till it bubbles over to a national level!

The biggest problem I see with the national debt is that about half the $9 trillion amount in the national debt is the Social Security trust fund which isn't money the government has borrowed from investors but where it notionally parks the surplus social security taxes. This is government borrowing from itself and in effect from future taxpayers - i.e. it gives IOUs to the social security trust fund and then spends the money it receives from the fund in return.

The Social Security and Medicare IOU fiasco is a disaster waiting to happen! It's going to take a few generations of suffering to clear it all up.

TO INVEST OR NOT TO INVEST - THAT IS THE QUESTION

My employer offers 401k. They match 50% of the contributions dollar for dollar. I'd be "stupid" NOT to participate in such a plan!
I've heard this argument for investing in 401k over and over again. The "so called" financial gurus tout 401k as the best thing since sliced bread and the best way for the common Aamerican to get rich. Suze ORMAN has been bombarding the airwaves (wire-waves for internet) with this message. See here, here and here
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The financial experts say, "you're stupid" if you don't participate in the 401k plan. You're stupid to leave that employer match out on the table.

Don't get me wrong, I don't have any problem with the employer match. Also the tax benefit of investing in a 401k are astounding. I ask the following simple questions to anyone participating in 401k plans.

1. Is it possible for you to lose 50% of your money in a 401k plan? What steps are you taking (or can you take) to ensure that it doesn't happen to you? Does the saying "easy come easy go" sound eerily applicable to you
2. Is it possible for the 401k administrators of your plan to conspire so that they maximize their own profits?
3. Does it cost your anything to re-balance your 401k portfolio? Can you buy and sell funds in your 401k on a daily basis with no penalties?
4. How sure are you that the prices of the funds that you are buying are not over-inflated? How sure are you that you are getting a good deal?
5. Could you do better with the "after-tax" money minus the employer match than investing it in a 401k?

On a side note, it is interesting to note that most (if not all) government agencies still stick to the good ol' pension plan. Your senator, for example, are eligible for a full pension with 5 years of service after 62 years of age (source).

I used to contribute religiously to a 401k plan. I soon decided that the 401k plan was not for me. I've first hand seen my account drop 2%-3% on a daily basis. Of course I've also seen it go up a few percent points in a day. The part I don't like is that lack of control I have over such events. Do I know when the market is going to go up or down? HECK NO. Do I know whether we are in a recession or not? Do I know if the dollar will continue to fall or inflation will rise or fall? HELL NO! Do I know if the new president will wage a costly war against IRAN? I DON'T KNOW? With so many factors that "may" be influencing the markets and with the uncertainty in the US market, I'd much rather not take the risk. I strongly believe that I can do better with the money that I would have otherwise contributed to my 401k and have stopped adding into the plan since.

So in short, be very CAREFUL with what you do with your money. Don't follow the crowds. The best that you can do is learn to hold onto your money and don't let anyone tell you what to do with it!