How to Get a College Degree without the massive, crushing debt inflicted on us by the “Student Loan Industrial Complex.”

Testing Out: How to “Moneyball” Your Way to a Debt-Free College Degree

I don’t know about you, but I’m fed up with the ancient “college savings tips” so-called experts keep force-feeding us:

“Fill out the FAFSA before senior year to maximize aid eligibility!”
“Buy used textbooks, you’ll save hundreds!”
“Apply for scholarships. Try FastWeb.com!”

If you follow this advice, you will be thoroughly and totally prepared for college…in 1995. (You know, just in case that year ever comes back.) But in 2013, these strategies will get you slaughtered by the “Student Loan Industrial Complex.”

[...]

Why You Should Look at College Like an Investment

If this post makes it sound like you’re “Frankensteining” your education, cobbling various exams and credit sources together to form a degree…you’re right. That’s exactly what I’m advocating.

This might seem strange at first, but I encourage you to look at it differently.

Why do we see college as this magical guarantee of financial success? It’s because of these oft-cited studies on how much more graduates earn over their lifetimes than non-grads. We hear sweeping statements (“people with bachelor’s degrees earn $1 million more!”) and assume that it MUST be a great investment, no matter what it costs.

Actually, we don’t just assume it — we’re explicitly told that it’s true:

“Over a lifetime, the gap in earning potential between a high-school diploma and a bachelor of arts is more than $800,000. In other words, whatever sacrifices you and your child make for [a] college education in the short term are more than repaid in the long term.”

That’s from CollegeBoard, the organization that makes the SATs. They’re basically telling you to just pay whatever a degree costs.

It’s horrible advice.

You don’t make huge financial decisions with simplistic rules like “whatever sacrifices you make are worth it in the long-term.” How is that any different than telling you to shoot first and ask questions later? No — you make huge financial decisions is by running the numbers.

Which brings us back to these studies on college graduate earnings. They aren’t “wrong,” but they are misleading.

Here’s why: earning a higher income doesn’t automatically mean you’re getting ahead. You can earn $20,000/year before college, get a $60,000/year job afterwards, and still be no better off. If you spend $100,000 for a degree (and take four years off of work to do it) you have incurred a huge financial and opportunity cost.

You took out a loan against your future earnings which must now be repaid over five, ten, maybe even fifteen or twenty years. Even then, once all the loans are repaid and you’ve earned back all the income you lost by not working, guess what? All you have done is break even!

You’re back at square one. Finally, after years of repaying loans and interest, you can start actually benefiting from the higher income you earned your degree for. Most college students don’t realize that this is what they’ve agreed to until after they graduate. They just see college as a magical guarantee of financial success. Yet whether they realize it or not, their student loans often chain them to a life of indentured servitude.

The return on an investment is inversely proportional to the time and money invested. In plain English: the longer it takes you to graduate, and the more you pay, the less valuable your degree ultimately is. [...]

This is a fascinating article, not only for pointing out the pitfalls of going into debt for an education, but also for the heaps of practical advice for avoiding that debt and still getting your degree.

The comments after the article are just as interesting. The author is criticized for his advice, and he answers his critics. A very lively, informative discussion.

And this isn't theoretical; people are actually doing it:

The DIY Degree: Using Self-Education to Earn a Bachelor’s Degree in 1 Year

“What’s the point of learning, if you don’t get a degree after?”

This has been the biggest criticism of my MIT Challenge, and honestly, it’s not an easy one to avoid. Even if weirdos like me are willing to learn a degree outside of school, the truth is the world still values that piece of paper. Unfortunately, until recently I’ve had little answer to this complaint–it seems if you want the degree, you have to suffer through an often slow and expensive process.

That was before I met Jay Cross. Jay in many ways did a project similar to mine–he completed a bachelor’s degree in less time, mostly through self-study. The only difference? Jay got a real degree for his efforts.

I asked Jay to write a guest post to share his method with you. Not only does it work, but it gets results in the real world as well. Jay has already had career opportunities that would be the envy of a lot of college grads, having staff writing positions for major publications and entrepreneurial ventures. Jay demonstrates that not only can self-education work, it can be a true alternative for many students hesitant about college.

The DIY Degree, by Jay Cross

Today, I’m going to show you a totally new twist on self-education.

We’ve long been told that learning is an “either/or” decision. You can either spend four years in college and earn a degree…OR study on your own with no degree to show for it. But what if you could have the best of both: the credential employers crave, with the speed, personalization and low cost of self-study?

You can.

Using the “degree-by-examination” approach, you can earn a bachelor’s degree by taking tests instead of classes. It works no matter where you live, lets you graduate in one year instead of four, and costs roughly 1/20th the price of a regular degree…with the exact same legitimacy and earning power.

The problem: society DOES still value degrees

Some jobs require degrees no matter how smart you are. Even in more flexible professions (like programming) there’s always one or two “By-The-Book Bob” types who reject non-grads on principle.

This concerned me, even with all I had accomplished already. If there was any way to graduate for minimal time and cost—and eliminate this potential obstacle—it seemed worthwhile to try. Of all the different approaches I researched and read about, degree-by-examination was the college shortcut that actually worked.

Before I explain, allow me to share the struggles that led me to this discovery in the first place. [...]

See how he did it. This is must reading for anyone who is considering going into deep debt for a college education. There ARE alternatives. I wish I had known this back in the day, when I dropped out of college because it was so enormously expensive. These are alternatives that can really work.


Also see:

Graduate faster and spend less money with DIY Degree’s “Cost-Per-Credit” Calculator
     

Interesting Links about Aging, Working, Retirement or not Retiring

An 8.3 Percent Return for Life, Guaranteed: Real or Imagined?

[...] In finance, the word "annuity" refers to a series of payments made to a person (called the "annuitant") for life or for a set number of periods. In this post we refer to a fixed, life annuity, a plain vanilla annuity that will guarantee a set income each month for the rest of your life, no matter how long you live or what dumb mistakes you make along the way. If this guarantee looks familiar, it should, since it is pretty much what we get from Social Security as well as from a traditional "defined benefit" pension -- if we are lucky enough to have one. Both are forms of life annuities because both pay until you die. [...]

I've been curious about annuities. This article has a large question and answer section, which explains a lot.

New Adventures for Older Workers
Has lots of facts, figures and links about the subject matter; retirement, coming out of retirement, working indefinitely, making it in rural areas, all sorts of things. Videos, with interviews of various people in various situations.

How Social Security Pays You to Work Forever

[...] How long do I intend to "work"? Hopefully, right up to my last day on earth. And, as if I didn't have enough good reasons to work, Social Security, it turns out, adds a significant incentive for doing so. The longer you work, the larger your Social Security benefits. This is due to Social Security's "Recomputation of Benefits" provision. Here's how it works -- for all of us older cowpokes who remain in the saddle indefinitely.

Each year you work, you add to your earnings record, leading Social Security to automatically recalculate your benefits. If you are interested, here are the gory details.

In a nutshell, Social Security averages your highest 35 years of earnings to calculate your Average Indexed Monthly Earnings or AIME. Then it plugs your AIME into a formula that figures out your full retirement benefit, called your Primary Insurance Amount (PIA). What benefits you can get for yourself and your spouse (including your ex-spouse(s) and your children, if they are young enough or are disabled) is all pegged to your PIA.

From age 16 on, Social Security considers all your earnings, up to a ceiling that rises from year to year. It then indexes, based on historic wage growth, all earnings through the year you turn 60.

In other words, Social Security adjusts past earnings upward to account for the growth in the economy. But after age 60, you get credit for your earnings without any adjustment at all. So imagine that there's a sudden surge in inflation and wages after age 60 skyrocket. They're going to look spectacular compared to your wages of the past, even though they've been indexed. And here's the kicker. Social Security bases your benefits on your highest 35 years of earnings.

So now imagine that age 30 was the lowest of those 35 years and you made, say, $40,000, even after indexing. But now inflation takes off and you're suddenly making $200,000, even though $200,000 ain't what it used to be.

But for your Social Security benefits, this is a bonanza. You're suddenly being treated as if you were really earning a lot more, and thus deserving of much higher benefits. So, for every year that your post-60 earnings exceed the lowest of the previous 35 years, bingo! You'll raise your Social Security check (or checks, if your dependents are also collecting). [...]

He continues on, using himself and his earnings as an example. Wow.

Recommendation No. 1 for a Secure Retirement: "Age in Place"

[...] Owning an accessible home in which we can age in place is important to keeping our future core expenses down for many reasons. First, and most obvious, owning a home outright in retirement greatly reduces our need for income since we no longer have to pay the mortgage.

In the United States, paying as much as 40 percent of your income for housing has been considered normal. Many of us did this when we were young with growing families and growing incomes. Think of how much better we could have done if we had owned our homes, outright, through our adult lives. In many cases, by not making mortgage payments, our housing-related expenses could have been cut by 75 percent or more.

Contrary to what others may have told us, our standard of living in retirement is not based on what we make or what we spend. Rather, it is based on what we spend and the benefits we get from the things that we own outright such as housing, cars, appliances, furniture and clothing. Economists call the income that we get from owning our homes and other possessions outright, and not having to pay rent on them, "implicit income." Since we already own so much of what we use in retirement (home, car, furniture, appliances, clothes), the income that we will need to comfortably support ourselves in retirement may be far, far less than the income we earned while we were working and paying for all of these things. So much for fear-mongers who insist that we must have cash retirement income equal to 70 percent of our pre-retirement income! That is just not true.

A second major benefit of owning, outright, an age-in-place home is that it is a wonderful hedge against inflation. Some of our older readers will remember the double-digit inflation of the late 1970s and early 1980s, where costs (including the costs of renting a home) could double in six or seven years. If we own our retirement home outright, or have a fixed-rate mortgage, which I will deal with below, most of our housing costs are protected against inflation and the value of the home is also likely to increase. While there are other ways of protecting against inflation (see my last column on inflation-protected annuities), the cost of inflation-protection is high. Rather than pay for inflation protection, we can save money by reducing our core expenses that are subject to inflation. Much of this can be done by owning a paid-up, low-maintenance, energy-efficient age-in-place home.

Aside from the financial benefits of reducing cash flow needs and hedging against inflation, another huge saving from having an age-in-place home is likely to be the reduction or elimination of very expensive nursing home costs in the future. With an age-in-place home, an incapacitated spouse or single person may be able to live in a comfortable, familiar environment with some outside help for a long period of time at a fraction of the cost of a nursing home. Staying at home can also reduce the need for increasingly expensive long-term care insurance whose maximum daily benefits are often just $150 or so, a fraction of nursing home costs, leaving patients and their families to make up the huge difference. [...]

The article also goes into reverse mortgages and many other things. A good resource to read.

I'll probably be referring back to many of these links. Good stuff to know.
     

Financial Savvy Peaks at Age 53?

So say some:

Financial Savvy Peaks at Age 53: What to Do When You Get Stupid

[...] Lew Mandell: As we move through middle age, our ability to manage our finances tends to peak, on average, shortly after our 53rd birthday, and declines thereafter. By the time we hit 70, this rate of decline steepens precipitously. This is the opening theme of my new book "What to Do When I Get Stupid."

The relationship between age and financial capability is a function of two offsetting aspects of intelligence. As we get older, experience makes us better able to cope with a variety of familiar problems. This is called "crystallized intelligence." However, past the age of 20, the analytical ability we need to perform new tasks declines steadily. This is called "fluid intelligence." Since the intelligence we gain from experience increases more and more slowly after some three decades of adult experience, our steadily declining fluid intelligence ultimately offsets the gains from experience, causing most of the decline in our mental capacities including financial capability. (Check out Paul Solman's animated explanation of Harvard's economist David Laibson's graph demonstrating this relationship and see Making Sen$e's full segment below.)


At a certain point, declining "fluid intelligence," or our analytical ability, offsets gains in our experiential intelligence, putting our financial decision-making at risk.

Adding to this decline is the beginning of age-related neurological problems including dementia and other types of cognitive impairment. Overall cognitive impairment affects 21 percent of us in our 70s, increasing to 53 percent of those in our 80s and 76 percent of those over 90.

The ability to make investment decisions has been found to peak at about age 70, somewhat later than other types of financial decisions such as those that relate to the use of debt. This is probably due to the fact that many adults focus on their investments only later in life when they have both assets and the time to think about them. Experience with investments tends to come later, thus abilities peak later.

Unfortunately, studies have found that as people get older, their confidence in their abilities to make good investment and insurance choices actually increases as their measured ability decreases, leading to the likelihood of poor outcomes. [...]

The rest of the article talks about what you can do about this, as well as embedded links to other articles with retirement advice.
     

Who knows finance best? We the People, or the government?

The title of this article is rather patronizing:

Americans think they know personal finance -- even if they don't

[...] Americans are pessimistic about the future of the country; only 23 percent believe the country is headed in the right direction and a majority isn't convinced President Barack Obama's economic policies have helped the economy, according to the latest Allstate/National Journal Heartland Monitor Poll. About half think we're still in a recession.

But ask Americans about their understanding of financial decisions, and it's a different story. Americans are much more confident in their own financial faculties. Almost 90 percent believe they understand what they need to know to make financial decisions.

But what kind of financial decisions are they making? If you believe 58 percent of Americans, participating in the financial system is still the safest way to secure their families' financial futures, even if they don't think that future will be so secure. Most have checking and savings accounts and credit cards; employee-sponsored 401(k) plans are more rare, as are personal investment accounts. Yet how can one retire without them?

In other words, just because Americans think they know what the right financial decisions are, that doesn't mean they're even close to making them. For example, three-quarters of Americans say they understand what it takes to save for retirement, but nearly half (44 percent) believe they're behind in that saving.

That's not surprising, especially for older folks, said Eleanor Blayney, the consumer advocate for the Certified Financial Planner Board, speaking about the results of the poll on a panel at Washington's Newseum, Nov. 22. Admitting you can no longer drive happens last; the ability to make financial decisions goes first, she said. (Check out Paul Solman's animated explanation of Harvard economist David Laibson's research on the relationship between age and fluid intelligence. Lew Mandell, author of "What to Do When You Get Stupid," has taken to the Business Desk several times to explain how to close the retirement income gap -- before it's too late.)

But if you don't have the wages to begin with, no amount of financial planning will make a difference, Heidi Shierholz, an economist at the Economic Policy Institute, said. The recession impacted different demographics in different ways. Older Americans' savings may have taken a hit. But for young people, she explained, the biggest effect is in weaker job opportunities. [...]

See the full article for embedded links. Anyway, is it surprising, in this economy, that people aren't saving more, even though they think they should? I think Heidi nailed it; you can't save what you don't have. That hardly makes people stupid. Yet the government continues to spend money it doesn't have, and continues to borrow/print up more, faster than they can pay it back. What's THEIR excuse?

I rather enjoyed this comment, that was made below the article:

Let's think about experts vs. "regular Americans."

Experts have been in charge of an economy with $17 trillion in debt and unemployment of 13.8% (we should use the U6 number). Experts tell us not to worry about funding for Social Security even though only 3 pay in for every 1 who takes out. Experts have created the Affordable Care Act to help us all buy health insurance.

"Americans" have to balance their budget and pay their taxes, and they will be in legal trouble if they don't.

From whom should we take advice? If people don't have retirement accounts, is that worse than what our government has been doing to our economy for the past 30 years? If you want to write a thoughtful article on who is not thinking ahead, please criticize the "experts."

Really. We the People get into legal trouble with our government, if we don't pay our taxes. Most of us follow a budget, so we can do that and stay out of trouble.

But our government seems to think it doesn't need a budget anymore. What consequences do they face, if they don't act financially responsibly? None that I can see.

Anyway, aren't We the People supposed to BE the government? A government by the people, for the people? Something seems to have gotten lost along the way.


Here are some other links about finance, from people who learned from their mistakes:

How Not to Make Your Parents’ Money Mistakes

I work as a financial planner, a money blogger, and a personal finance writer.

But by all rights, I should not have the career and financial stability that I do.

That’s because my parents were bad role models when it came to teaching me how to handle money. Not only did my mother and father each ruin their financial lives through filing bankruptcy (twice in my father’s case), but my mother also lost her shirt investing in Las Vegas real estate right before the housing collapse. To top it off, neither of my parents saved anything for retirement. For quite some time, I followed their examples without realizing how damaging it could be.

So how did I overcome the negative financial lessons I grew up with?

I can tell you it wasn’t easy. Your parents are your first and most influential teachers, and many of the lessons they impart are subconsciously taught and learned. It can be very difficult to reverse those lessons once you reach adulthood — but it can be done.

My struggles to overcome my parents’ negative financial lessons have shown me that there are several important steps to becoming financially stable after a tough financial childhood: [...]

It's very instructive, experience from someone who's been there. One embedded link lead to this:

The 5 Stupidest Habits You Develop Growing Up Poor

As some of you know, until the last couple of years, I was poor as shit. The first 18 years, I was a kid and couldn't do anything about it. The next 17, I was still a kid and wouldn't do anything about it. I take full responsibility for that, and I don't point a finger at anyone for the way I lived. I dug my own hole.

But along the way, a few miracles happened (including landing a job that doesn't suck), and I've finally found myself living the way I always pictured a normal person would: bills paid, groceries in the fridge and two gold-plated nude statues of myself standing proudly in my front yard.

But as anybody who's been through the poverty gauntlet can tell you, it changes a person. And it doesn't go away just because you're no longer fighting hobos for their moonshine. For instance ... [...]

Follow the link for the five examples.
     

Taxes on Credit Unions?

It's a possibility, as government looks for more tax revenues:

www.donttaxmycreditunion.org/learn-more/

Credit unions promote the economic well being of their members, especially those of modest means, through a system that is member-owned, volunteer-directed and not-for-profit.

The credit union mission has always been to ensure secure financial choices at lower costs for their members. That’s why credit unions offer financial products that provide better returns on savings, reduced rates on loans and lower or no fees on services.

While credit unions are regulated by the federal and state governments, they are also governed by volunteer boards elected by their membership. Credit unions don’t answer to stockholders, but to each of their 96 million members.

Credit unions invest in people by helping those who have been traditionally underserved by banks. Groups like seniors on fixed incomes, single working moms, minority communities needing greater community investment, and small business owners struggling to raise capital all rely on credit unions for important financial services at reasonable costs.

While the big banks have abandoned small businesses in droves because they just can’t make enough money, credit unions promote their small business members in a struggling economy by providing low cost credit alternatives. This credit union investment means millions of jobs across America.

Unfortunately, the big banks and some in Congress want to raise taxes and impose new fees on 96 million credit union members who represent 40% of all Americans, yet represent only 6% of the assets in financial institutions. And, they want to do this despite the fact that credit unions are not-for-profit and meeting their core mission every day.

That’s wrong and will imperil the credit union movement that so many have come to depend on for real financial choice.

Don’t let Congress raise taxes on 96 million credit union members. Don’t let Congress eliminate real financial choice. Don’t let Congress destroy our credit unions.

To learn even more about credit unions in your community, or join a credit union please visit http://www.asmarterchoice.org/.

     

"A person should not go to sleep at night until the debits equal the credits"

Luca Pacioli: The Father of Accounting

In 1494, the first book on double-entry accounting was published. The author was an Italian friar, Luca Pacioli. His impact on accounting was so great that five centuries later, accountants from around the world gathered in the Italian village of San Sepulcro to celebrate the anniversary of the book's publication.The first accounting book actually was one of five sections in Pacioli's mathematics book titled "Everything about Arithmetic, Geometry, and Proportions." This section on accounting served as the world's only accounting textbook until well into the 16th century.

Since Pacioli was a Franciscan friar, he might be referred to simply as Friar Luca. While Friar Luca is often called the "Father of Accounting," he did not invent the system. Instead, he simply described a method used by merchants in Venice during the Italian Renaissance period. His system included most of the accounting cycle as we know it today. For example, he described the use journals and ledgers, and he warned that a person should not go to sleep at night until the debits equalled the credits! His ledger included assets (including receivables and inventories), liabilities, capital, income, and expense accounts. Friar Luca demonstrated year-end closing entries and proposed that a trial balance be used to prove a balanced ledger. Also, his treatise alludes to a wide range of topics from accounting ethics to cost accounting.

Pacioli was about 49 years old in 1494 - just two years after Columbus discovered America - when he returned to Venice for the publication of his fifth book, Summa de Arithmetica, Geometria, Proportioni et Proportionalita (Everything About Arithmetic, Geometry and Proportion). It was written as a digest and guide to existing mathematical knowledge, and bookkeeping was only one of five topics covered. The Summa's 36 short chapters on bookkeeping, entitled De Computis et Scripturis (Of Reckonings and Writings) were added "in order that the subjects of the most gracious Duke of Urbino may have complete instructions in the conduct of business," and to "give the trader without delay information as to his assets and liabilities" (All quotes from the translation by J.B. Geijsbeek, Ancient Double Entry Bookkeeping: Lucas Pacioli's Treatise, 1914).

Numerous tiny details of bookkeeping technique set forth by Pacioli were followed in texts and the profession for at least the next four centuries, as accounting historian Henry Rand Hatfield put it, "persisting like buttons on our coat sleeves, long after their significance had disappeared." Perhaps the best proof that Pacioli's work was considered potentially significant even at the time of publication was the very fact that it was printed on November 10, 1494. Guttenberg had just a quarter-century earlier invented metal type, and it was still an extremely expensive proposition to print a book.[...]

Follow the link above for references. I'm just about to complete an online course about using the Double-entry bookkeeping system, and I think the system is brilliant. So I found this history interesting. More historical facts from Wikipedia:

[...] The earliest extant accounting records that follow the modern double-entry form are those of Amatino Manucci, a Florentine merchant at the end of the 13th century.[1] Another old extant evidence of full double-entry bookkeeping is the Farolfi ledger of 1299-1300. Giovanino Farolfi & Company were a firm of Florentine merchants whose head office was in Nîmes who also acted as moneylenders to the Archbishop of Arles, their most important customer.[2] Some sources suggest that Giovanni di Bicci de' Medici introduced this method for the Medici bank in the 14th century.

However, the oldest discovered record of a complete double-entry system is the Messari (Italian: Treasurer's) accounts of the Republic of Genoa in 1340. The Messari accounts contain debits and credits journalised in a bilateral form, and contains balances carried forward from the preceding year, and therefore enjoy general recognition as a double-entry system.[3] By the end of the 15th century, the bankers and merchants of Florence, Genoa, Venice and Lübeck used this system widely.

Luca Pacioli, a Franciscan friar and collaborator of Leonardo da Vinci, first codified the system in his mathematics textbook Summa de arithmetica, geometria, proportioni et proportionalità published in Venice in 1494.[4] Pacioli is often called the "father of accounting" because he was the first to publish a detailed description of the double-entry system, thus enabling others to study and use it.[5][6] There is however controversy among scholars lately that Benedetto Cotrugli wrote the first manual on a double-entry bookkeeping system in his 1458 treatise Della mercatura e del mercante perfetto.[7][8][9][9][1 [...]

So perhaps it was the Florentine Merchants who invented the system? Well whoever it was, I'm a fan!

Follow the link for embedded links and more information.

     

Solve Financial Crisis with a single coin?

Yeah, sure. Geithner's just gotta mint one before he leaves the Treasury Department:

A Trillion-Dollar Coin Brings a Jackpot of Jests

[...] WASHINGTON — A bizarre but seemingly legal idea to get around the country’s debt ceiling using a trillion-dollar coin is having its day in Washington.

The proposal, which originated in economics and business blogs and has a vanishingly remote chance of happening, has won ample attention and garnered new controversy as Republicans and the White House seem to be headed for yet another standoff over a legal limit on the country’s debt — a fight that may come as soon as next month.

[...]

The workaround would come from exploiting a 1997 law that allows the Treasury to “mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the secretary, in the secretary’s discretion, may prescribe from time to time.”

The idea was that a secretary might authorize the creation of a commemorative eagle coin, for instance, to be put on sale for collectors. But the law inadvertently gave the Treasury secretary the power to mint, say, a $1 trillion coin, or even a $5 trillion coin, or even a $1 quadrillion coin.

Rather than selling it, he might deposit it at the Federal Reserve. Presto! The shiny new asset would erase a trillion dollars in debt liabilities. Then, the Treasury could carry out its spending — including disbursing Social Security checks and Medicare payments — without hitting the ceiling, a cap on total debt issuance that currently stands at about $16.4 trillion.

When Congress raised the ceiling again, the administration could then take the platinum coin and destroy it. With a token the size of a penny, the White House could head off another round of Congressional brinkmanship and another run at a fiscal cliff.

Blog commentators came up with the idea in 2010, and it gained some attention from financial writers and monetary policy followers during the 2011 debt ceiling standoff. Now, with Republicans and the White House again at odds, the country is expected to run out of spare cash sometime between mid-February and early March. [...]

I find it unbelievable that ADULTS can even talk like this. Talk about clueless. And people wonder why we're in sh*t street.

How about a REAL solution:

Reforming a Congress that spends like teenagers

It used to be called common sense. Remember common sense? I do. And I say, bring it back!
   

Who sucks, S&P or our Government?

I'd say, our overspending government:

Ouch! U.S. booted from Triple-A debt club

[...] On Friday, S&P downgraded the United States to AA+, an investment grade level just one notch below triple-A. It marked the first time the world's largest economy has been downgraded, since Moody's first gave the country a credit rating in 1917.

S&P cited estimates that U.S. government debt would balloon to 79% of the size of the entire U.S. economy by 2015, and 85% by 2021 -- a level S&P says is consistent with AA+ rated countries.

In comparison, estimates from the International Monetary Fund show triple-A rated Canada's debt is likely to only rise to 34% of its economy by 2015, and Germany's is forecast to rise to 52%. (The IMF does not publish forecasts out to 2021).
Your money in a AA-rated U.S.

The debt of Belgium, another AA+ rated country on S&P's list, is expected to grow to 85% of GDP by 2015, according to the IMF. [...]

If the growth of debt as a portion of GDP is the criteria they use for assigning ratings, and we are on a par with Belgium, which is also rated AA+, then isn't the changing of the rating for the United States justified? People and nations who over-extend themselves by borrowing too much, lower their credit ratings. Sad but true.

Yet, I know there are other nations on that 15 member AAA list that are having financial troubles too. The article didn't mention all their Debt as a portion of GDP growth projections, I'd like to see those.

Meanwhile, we are going to have to deal with the repercussions of this:

Dollar Weakens to Record Versus Franc as S&P Lowers U.S. Rating

[...] “The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics,” S&P said.

Moody’s Investors Service and Fitch Ratings affirmed their AAA credit ratings for the U.S. on Aug. 2, the day President Barack Obama signed a bill that ended the debt-ceiling impasse which had pushed the Treasury to the edge of default. Moody’s and Fitch also said downgrades were possible if lawmakers fail to enact debt reduction measures and the economy weakens.

S&P’s move “highlights the much-less advanced pace of fiscal consolidation in the U.S., relative to Europe and the U.K.,” John Normand, the London-based global head of foreign- exchange strategy at JPMorgan Chase & Co., wrote in a report to clients.

Haven Rally

Foreign exchange strategists at Barclays Capital said in a note to clients that S&P’s move may initially lead to a rally in assets and currencies perceived to be a haven, such as the franc and yen, while causing currencies of economies that are depend on commodities to weaken. The dollar may also benefit from the “risk impact of the shock,” though longer-term U.S. “fiscal problems are likely to mean a weaker dollar.”

“S&P had been very clear about what it wanted to see in order for the U.S. to maintain its AAA rating, and the agreement reached last week had not met those criteria,” Paul Robinson, a strategist at Barclays in London, wrote in a note to clients. “Commodity currencies look most vulnerable in the short run, again because of the risk element.” [...]

This is what happens when you keep spending money you don't have. It's not politics, it's MATH.
     

Is it worth saving money anymore?

I still believe in keeping some savings, but what about long term financial planning?



I'm 31. Where should I be financially?

[...] Once you have a retirement goal in mind, you want to be able to refer to benchmarks along the way to see how you're doing. Otherwise, you could find yourself at the end of your career well short of the savings you'll need.

The best yardstick is the size of your nest egg relative to your income. To quit working at 65 with a decent shot at replacing 80% of your pre-retirement earnings, you'll need savings equal to roughly 12 times your income (that assumes you'll collect Social Security but no pension). [...]

I used to believe in this kind of advice. I still do, in theory. But is it worth doing NOW, when our money is being devaluated?

In my youth, till I learned to manage my money properly, I went hungry a few times between paychecks. Then, after going into debt with credit cards, I learned to save money to pay off the debt. After that, I was good at saving money so I kept doing it, enabling me to buy property. Since then, I've always had savings. But nowadays, I keep thinking I need to spend it, before it becomes worthless. Like it happened in Germany in the 1920's, where people's entire life savings were wiped out overnight.

James Turk did the following interview with Moneychanger.com. Turk maintains that our currency has already collapsed, that we are already in the "process", and it just hasn't reached critical mass yet. The interviewer argues forcefully against Turks assessments, but Turk holds his ground, answering a lot of good questions by the interviewer. Here's a sample:

JAMES TURK ON THE DOLLAR’S COMING COLLAPSE

[...]
Moneychanger Since, at least the New Deal and the succession of Roosevelt and all his monetary/inflationary tricks, people have been predicting that the dollar would collapse. Aren’t you ashamed to come along 70 years later and predict again that the dollar is going to collapse?

Turk By any logical interpretation the dollar has already collapsed. Today’s dollar only purchases five cents of what it purchased in the 1930s, ten cents of what it purchased in the 1960-70s, and maybe 50 cents of what it purchased in the 1980s. So inflation has already brought the dollar to an ongoing collapse. The sound money people have been warning about this through the decades: the dollar is no longer an effective form of currency.

That raises another question: will the dollar’s problems become more severe? That’s where it becomes a bit more troublesome in terms of projecting and looking at the future. Can this decades-long situation continue, or must it end in some cataclysm? In our view it must come to end in a cataclysm, and that’s what we lay out in the book.

Moneychanger But isn’t the word “collapse” misleading? The people who mange the dollar, the Federal Reserve and the Treasury, have managed the collapse from 1934 until 2004, 70 years, so that the economy did not collapse along with the dollar. Can you really call that a collapse? Also, what’s to prevent their managing it a bit longer, through this decade? Even if it loses (as I expect) at least 75% of its value in this decade -- and it’s already lost nearly 30% from February 2002 to March 2004 -- it still won’t disrupt the economy too terribly.

Turk Let’s look at the first part of that question, the claim that the economy hasn’t collapsed. You’re widening the point that I was making earlier about the dollar collapsing in terms of purchasing power. When you bring the economy into the discussion you have to ask yourself another question. Are people better off now than they were 20-30 years ago? Looking at real wealth and adjusting for the dollar’s debasement, people are less wealthy today than they were 20-30 years ago. Incomes are lower today than they were 20-30 years ago, partly because the dollar’s been debased, partly because people take home less money after taxes. By any logical measure, I don’t think people are as well off as they were in the 1960s or 1950s when the dollar problems weren’t as severe as they’ve become in recent decades.

But there’s more to that question: we’ve created a debt mountain, a debt bubble. Bubbles always pop. We mortgaged our future trying to maintain standards of living by debasing the currency and borrowing. This is unsustainable and will ultimately bring about the dollar’s collapse.

Moneychanger But the Federal Reserve and the Treasury have managed the collapse. That’s what they do. They are crisis managers. They exist to manage the debasement of the dollar so that this infection does not give the whole economy a fever resulting in death. Would you agree?

Turk Yes, and as a clear result of their managing an unsustainable situation, we have less and less freedom. The Patriot Act just presents the latest example. Look at US financial history. They continue to erode and encumber our freedom. Why? Because they recognise that the present system is not sustainable and they are trying to keep the bubble in the air.

Moneychanger You claim the present system is not sustainable. Allan Greenspan says it is. George Bush says it is.

Turk Well, are they going to tell you that it’s not sustainable?

Moneychanger No, but they have 70 years of success to argue on their side. What makes it different this time? In the dollar’s darkest hours of 1980, when gold hit $850 and silver $50 and they pushed interest rates over 20%, well, yes, it’s a crisis, but we’ll muddle through this one, too. They’ve been muddling through since 1934. What is to prevent their muddling through this time? What specific things will make the dollar collapse this time? By “collapse” I don’t mean “erode” or even “erode quickly”, but I mean collapse in the sense that currency collapsed in Germany in 1923 or Argentina in 2002.

Turk That is exactly what I envision for the dollar. To answer your question we have to consider both supply and demand. In recent decades demand for the dollar has been, more or less, fairly consistent. As the financial bubble has been inflated and the Debt Mountain was built, people have continued to demand the dollar. They still use it for their day to day transactions. But what happened in Argentina and in Germany in the 1920s? Eventually, in a very short period of time, people realised that the hollow promises they were using for currency weren't worth what they had previously valued them to be. Then began the flight from the currency. The demand for those currencies dropped dramatically. In a long-term time frame, you could say almost overnight, but it was really over a period of weeks and months. People moved out of that currency as quickly as they could into other alternatives.

Demand for the dollar will ultimately drop for essentially the same reasons that demand for the Argentine peso and the Reichsmark dropped: they were fiat currencies oversupplied to the market.

Today far too many dollars are sloshing around the global economy. All it takes is a little break in confidence, then people quickly understand that the dollar is not worth the paper it’s printed on. There are a lot of hollow promises backing your dollar. That will lead to the flight from the currency that will ultimately bring the dollar down. But it’s the same outcome for every fiat currency. That’s the point that Americans don’t yet get. There is no logical reason why the dollar should end any differently than any other fiat currency.

Moneychanger But help me see the unseen. In 1923 Germany the people had already suffered through the inflation of World War I. They had seen their currency lose value as prices rose 800%, they had caught on. That “catching on” was necessary to precipitate the flight from the currency.

In Argentina in the decades of the 1980s and 90s, they had three different currencies, if I’m not mistaken. It may have been four, I can’t keep up with it. All Latin America has a century-long tradition of monetary instability. In the U.S. the last two generations have grown up without seeing gold in circulation, the last generation has grown up without seeing silver in circulation. Since 1971, the whole world has been on a fiat standard. Every currency has been inconvertible, backed by nothing. So why would American confidence break now? They don’t know anything else. They have only known a regime of inflation and ever-depreciating dollars. What will put the idea in their mind now that they have to flee out of dollars?

Turk What will trigger the flight from the dollar? We can’t really predict that. It could be some geopolitical event, some domestic financial event, a bankruptcy of Freddie Mac or Fannie Mae. We just don’t know what the specific trigger will be.

Look at the overall picture of what the dollar is today, and ask yourself a question. Do I want to prepare for this coming event by moving assets out of dollars into other alternatives – other currencies, precious metals, tangible assets. Never mind asking what specific event will starts the flight.

Where we stand today in this country is not unlike where Russians stood in the Soviet Union in the late 1980s. If you had possessed the terrific foresight to say that in two years the Russian Rouble will collapse and the Soviet Union will be history, the average Russian would have just laughed at you. And you know what he would have said? “The government will never let that happen.” Exactly what Americans say today.

“The government will never let that happen.”

But the reality is that the market is bigger than the government. Truth can be hid for only so long, and we have been hiding the truth. We’ve been creating illusions of prosperity, while in reality we’ve been consuming infrastructure and building a debt mountain. The Debt Mountain is ultimately going to be the problem that causes the dollar to collapse. [...]

Turk claims that we have not had a sound currency since 1934, even though a sound currency was written into our constitution. He also predicts the American people will demand that we go back to it.

This interview was made in 2004. Yet he predicts some things that have since happened, or are happening now. Read the whole thing, it's a real eye-opener.

What can we DO about any of it? Idaknow. Do what we can, I suppose, to get ready for the Brave New World of Finance that seems to be inexorably coming our way?


Related Links:

Commentary: Stimulate the economy, not government

What would a U.S. currency collapse look like?

Argentina's Example: Are we heading there?

Our true national debt: $130,000,000,000,000.
     

Is it growth, or inflation?

Is job growth slow, because the economy isn't growing as much as they say it is?

Another view on why there is no robust job growth

[...] there's something else that almost nobody is considering: perhaps the economic recovery just isn't as strong as Washington thinks (which, incidentally, isn't very strong to begin with.)

Nobody, of course, wants to hear this. But let me make the case.

[...]

The December estimates put into the GDP are about as solid as a Jello mold.

Worse, according to economist John Williams, 3.44 percentage points of the annualized growth in the fourth quarter -- more than the total 3.2 percent reported -- came from a sudden, inexplicable decline in imports.

Without the reduction in imports GDP would have been down in the fourth quarter and we'd be hearing talk right now -- again -- about a possible double-dip recession!

The Commerce Dept. also attributed a lot of the gain in fourth quarter GDP to retail spending.

But we already know -- from a column I did during the holiday shopping season -- that much of the sales increase in December wasn't coming from a sudden burst in consumerism, but instead from rising prices on things like energy.

That isn't growth; it is inflation. And inflation is bad.

Despite all the inflation that you and I see in the real world, the Commerce Dept. barely noticed that prices were rising in its GDP calculations.

It used 0.3 percent as the annualized deflator in the GDP report when the consumer price index (the CPI, which itself understates inflation) is up 2.6 percent from a year earlier.

Let me explain it a different way.

Each point that inflation rises decreases the GDP by a point.

So, for instance, if the GDP deflator had simply stayed at the 2.0 percent reported in the third quarter the annualized GDP growth in the final three months of the year would have been an extremely modest 1.2 percent annualized, not 3.2 percent.

Countries get them selves into trouble when they publicize false economic data, whether the deceit is intentional or not. [...]

     

Why it's important to have savings, and budget

Reason #1 is, so you don't end up like THIS:

Funding cuts leave many without home heating assistance in Macon

Showing her Georgia Power bills in the one warm room of her home, Raymeica Kelly explains how her mother, sister and herself were turned away from the Energy Assistance Program on Wednesday morning after standing in line for four hours. All three complained that the system the Macon-Bibb County Economic Opportunity Council uses to give out the assistance needs improving.

Notice the expensive large screen TV, and the gaming console underneath. I'd like to have those things too, but I don't. I also pay my own power bills, and buy my own heath insurance, etc. It wouldn't occur to me to expect anyone else to.

The article says this lady was employed, but then lost her job. Now she's employed again, but has fallen behind on her bills, and wants the government to pick up the slack. And of course if they do, she will then EXPECT the government to do so, every time she falls behind. That's human nature.

Her actual problem is, she didn't plan her finances well enough. When she was working, she should have been saving money in case a hardship like this came along. A hardship like this should, in fact, teach her that she needs to do so.

When I was young, I ran out of money between paychecks a few times. I went hungry for a day or two. It was awful, a hardship, but it taught me to be more careful with my spending. It taught me to SAVE money, so I wouldn't go through that experience again.

Saving money means spending less, and foregoing luxuries like Huge flat screen TV's and gaming consoles. You can even attain those luxuries too, eventually, by planning for them; but it means you can't get everything you want immediately.

In my youth I also got into credit card debt. It took me two years of frugal living to pay them off. By then I was good at frugal living, so I kept doing it and put the money in my savings account, until I had enough for a downpayment on a house.

To do that I had to make some sacrifices; no fancy vacations or clothes, hardly ever eating at restaurants, seldom going to movies. No new cars or expensive computers. But the sacrifices paid off in the end, helped me to get what I wanted, with planning.

By planning purchases I've been able to attain some luxuries too, over time. And maintain some savings. For most of my adult life now, I've always had some money in the bank, for unexpected expenses. You have to make sacrifices to keep savings, but you get security and independence in return.

Most people nowadays want instant gratification; they buy things on credit, and live from paycheck to paycheck, without saving anything. They spend their money on luxuries, then when something happens and they can't pay for essential goods or services, they want someone else to pay. They seem to think their security is someone else's responsibility.

I say, they need to learn from the hardship, and change their spending habits. I did, and I don't see why other people can't too. I sympathize with the suffering, but it happens for a reason. Shielding people from the consequences of their own poor planning just encourages them to keep planning poorly, instead of learning from their mistakes. And when our whole society perpetuates that, it drags us all down. We are meant to learn from hardship and use the contrast to make changes accordingly to improve our lives, to learn to make wise choices.