Outside Economics

Market forces in the economy help determine the rental rates in every community. Each landlord worries whether the ad they ran to attract a renter, will actually bring one in who will not only pay the rent on time, but take care of the property. And hopefully not burn the place down as one of my tenants did 20 years ago! In any event, I certainly understand the other side too - people want to live the American Dream and own their own property/house/castle! It is hard to make the leap and buy a home, when we are surrounded with economic turbulence and uncertainty. Home ownership requires a higher level of economic stability.

As banks and financial institutions have been mandated to increase their loan qualifications for home mortgages due to government regulations, more and more families are being forced to rent rather than own. As the demand for rentals has been increasing, the level of home ownership has been falling. Some attribute this dynamic to a low inventory of homes on the market, while others blame excessive government requirements imposed on mortgage lenders.

A lack of available rentals along with the increased demand for rentals has propelled rental costs upward. The number of individuals dedicating at least half of their income towards rent hit a record high of 11 million people in 2014, according to the annual State of the Nation’s Housing Report from the Joint Center for Housing Studies.

As rental prices have been rising faster than wages, losing such a large portion of a paycheck to cover housing, means cutting back on essentials such as food, clothing, and health care. This can be draining on young families trying to save for a down payment on a home and then not knowing if they would be able to get approved or not.

Last year saw the biggest surge in new renters in history, according to the report on Housing Studies, bringing the number of people living in rental units to around 110 million people, accounting for about 36% of households. Middle-aged renters made up a substantial portion of the new demand with 40% of renters aged 30-49.

More affluent renters are staying in the rental market longer and driving up the demand for housing.  Traditionally, the wealthy move on to become homeowners, but tight inventory in the housing market is keeping them in rentals longer.

The median rent on a new apartment was $1,381 in 2015, according to the report, which means that a renter would have to make at least $55,000 a year before taxes in order to be able to afford the rent.

It is important to remember also that many people rent for various reasons, they are in work transition, divorce, personal choice, students, newly immigrated. The fact that so many poeple rent is not such an issue as the percent of their income going to pay for rent - that is where the government gets all bent out of shape. According to their model, housing should not cost more than 30% of household income.

When 11 million people pay upwards of 50% of their income for rent, this is going to add fuel to the fire for raising the minimum wage or some sort of rent controls. Either way there will be those in government that think they need to "solve this problem". Landlords: Watch Out!

Owning a home or renting requires effort to budget your income properly. Any time housing costs reaches close to 50% of income things get really tight. As one of my old financial planning professors use to say, “There are only two things you can do, help people cut expenses or help increase cash flow.” In life there are only so many expenses you can cut, and for many people you can only pound so many nails in a day. But generally increasing income provides the greatest opportunity. It is wonderful to see people transition from barely making ends meet to an abundance!  

Sources: Joint Center For Housing Studies

 

Remember:

Interest rates are the economic rain to the world economy. Like rain, when there is too much, it causes flooding and will swamp growth; not enough and a drought ensues then economies don’t thrive. The Fed controls the spicket. Current rates are hurting savers and the retired. While at the same time allowing the government to borrow trillions to grow at dirt cheap rates.

This causes a dilemma: the government needs the cheap interest rates; the retires and savers need higher rates to maintain a shrinking standard of living. This conflict is a problem the world over: what to do about low stagnant interest rates?  

The events in Europe along with the International Monetary Fund (IMF) report released in June indicating that U.S. economic growth would fall short of expectations. This is one reason that prompted the Federal Reserve to subdue its pursuit of any additional rate increases this summer.

Britain’s vote on the EU exit sent U.S. government bond yields to new multi-year lows as well as dimmed trade growth prospects between Europe and the U.S. The dollar’s recent rise is also a headwind for the U.S. since a rise in the dollar’s value drags on U.S. exports; putting downward pressure on U.S. inflation, which is well below the Fed’s 2% target for inflation.

The problem here is, as other countries have economic “occurrences” they send money to the U.S. to buy our treasuries, which are perceived to be a safe haven for storing cash. When a flood of money comes in, it lowers the interest rates people are willing to take just to park money. After all, getting something is far better than getting nothing or losing money all together. 

As more flows in - it strengthens the dollar, which also makes it harder for us to export our goods and services to other countries. It does make it cheaper for us to buy stuff from other countries and to travel, but that may not be the current objective.

Concurrently, the IMF report released in June suggested that the U.S. faces economic “headwinds” and “pernicious” trends including a shrinking middle class that could slow growth in the long term. 

Labor’s share of U.S. income is about 5% lower today than it was 15 years ago, while the middle class has shrunk to its smallest size in the past 30 years. Demographic changes are slowing potential growth and that in turn, is affecting business investment and leading to a less dynamic labor force. The IMF is estimating that U.S. GDP will grow 2.2% this year, which is down from 2.4% in 2015. This may seem like a small percent, but it works out to be $36.0 billion out of an $18 trillion economy. This much money could employ 720,000 people at $50,000 per year. That is a lot of money and a lot of middle class jobs!

Economists believe that both of these occurrences will foster an elongated low interest rate environment throughout the domestic and international fixed income markets. When factoring in the need for the federal government to keep borrowing such large amounts of money for both the annual deficit, and the rolling over of previous year’s debt obligations low interest rates help “feed the pig” so to say, causing income pain to the retirees and savers!

So how does this affect you and your investment or retirement portfolio? Low rates are generally good for the stock market, companies are able to borrow more to expand and grow. Now would be a good time to refinance any debt that may have higher rates or better yet, get it paid off. When debt is paid off early it is like earning that same interest rate. So for example you pay off a credit card that charges 18 percent then you have just earned that 18 percent on the balance by removing that future interest payment obligation. This is not to say go borrow a bunch of money at a high rate and then work to pay it off.

Rearranging your portfolio to a more balanced strategy may help with market upsets and continued low rates. Participating in several asset classes will properly diversify your portfolio. For more information .  

Tot the extent you can get your own house in order you will be greatly strengthened when the headwinds really hit hard. As the old saying goes, it is nice to “sleep when the wind blows”.

Sources: IMF, Bloomberg, Federal Reserve

 

Remember:

 Those who don't understand interest, pay it; those who do, earn it. - Anonymous

The economy this past quarter has been a great improvement over the first quarter. I am expecting some market stability as we head into the convention season and through this years election cycle. Who is elected will determine much of what happens next. We are however due for a recession soon, depending on which economist you follow. I fully expect we will see something in the next 12 to 24 months. 

Macro Overview 

The British vote to exit the EU (Brexit) was essentially a validation that a disintegration process of the EU is possibly underway, causing destabilization for countries throughout the EU. Britain’s vote may lead to other similar referendums, particularly with the Netherlands and France where populist sentiment is growing.

The British pound fell to a 30-year low versus the U.S. dollar following the outcome of the referendum. Conversely, the fall in value for the British pound can be beneficial for the country as Britain’s exports become cheaper worldwide and tourism increases as stronger foreign currencies come into the country.

The unraveling of Britain from the EU is not expected to be automatic or immediate and may take years for it to finalize. Britain would need to execute a divorce clause titled Article 50 of the EU agreement in order to move forward with the separation from the EU. Several member EU countries, including the IMF, are eager to have Britain expedite the exit in order to minimize uncertainty.

In the wake of the referendum’s outcome, international equity markets tumbled as uncertainty led the course. U.S. financial markets were incredibly resilient following the days after the British EU vote, with U.S. equity and bond prices all propelling to higher levels. 

The Fed’s plan to further increase rates this year took a different course as the repercussions from Britain’s EU vote are expected to lead to slowing economic growth and a sustained low interest rate environment. Some Fed watchers believe that the Fed may ramp up its stimulus efforts again with lowering rates should the EU and Europe’s economy falter.

Overshadowed by the Brexit news, the U.S. Census Bureau reported data that may help solidify the Fed’s wait to raise rates. Durable goods orders fell 2.2% in May, worse than anticipated. Such data is an indicator of whether inflationary pressures are present and if inconsistent expansion exists in the economy due to less capital spending.

In the midst of the Brexit turmoil, the Federal Reserve announced that 33 selected U.S. banks passed an imposed stress test to see how well they would perform under severe circumstances, such as high unemployment, recession, and falling asset prices. The stress test revealed that the 33 banks tested had nearly twice the amount of required capital needed, up significantly from the last stress test conducted.

Equity Update – Domestic & Global Stock Markets

U.S. stocks fared better than international stocks following Britain’s announcement on leaving the EU. U.S. equity markets were resilient once the surprise of Brexit unfolded, with the S&P 500 Index and the Dow Jones Industrial Index both positive for the year.

Domestic equities are more insulated from global developments and any other major equity markets since American companies generate 70% of the revenues from the United States. Japanese companies generate 50% from within their economy only and European companies generating a mere 49% from Europe only.

U.S. equities are considered attractive relative to negative yielding government bonds in Asia and parts of Europe, even as the U.S. 10-year note finished below 1.5% in June. The S&P 500 index currently carries 60% of its stocks with a dividend yield higher than the 10-year treasury bond yield.

The primary British equity index, the FTSE 100, tumbled in June following the Brexit vote. Companies within the index generate about 75% of their revenues outside the U.K., with many maintaining contracts and arrangements with other companies based in other EU countries. Since the actual extraction of Britain from the EU may take years, decisions for capital spending and expansion by European companies may be hindered.

Certain equity sectors are becoming increasingly sensitive to what the presidential candidates are proposing.  Concerns lie with those sectors where newly enacted regulatory policy can inhibit growth and profits. Other sectors are being adversely affected by low rates, such as banks whose earnings are hindered by low rates, which limits the amount of profits they can earn as deposits fall and loan rates drop.

Precious Metals, Oil & Gas, and Wages

Precious metals have increased dramatically this past quarter. Economist, Mark Skousen, said, “I think they (Federal Reserve officials) are working overtime to bring inflation back. Gold, which is finally moving, is the best indicator of future inflation. So we may see a return of inflation here if the gold market continues to rise. So that's what I'm looking at more than the bond market.”

Silver has rallied this year increasing nearly about $6.30 per ounce over the $13.83 at the start of the year. That is a 45.55 percent increase in price. For the past several days it has reacted independently of gold as gold prices have come down a bit; Silver has continued to go up. It seems there may be some hedging going on due to Silver’s expanded use in industrial applications. These are the highest prices for silver since the summer of 2014.  

Oil and Natural Gas are also on the rise. According to Dan Steffens, President of Energy Prospectus Group, (EPG) of Houston, TX, “The combination of rising demand and falling production has pushed the natural gas prices up from $1.70/mmbtu in February to near $3.00 at the end of June. My prediction is now we will see gas trading for more than $4.00/mmbtu by December.” If that is the case, lets hope all the global warming kicks in so we have a mild winter or we will be paying more than double for heat.  

With U.S. oil production down from last year, we are back to importing about 50% of our oil. Other countries are having production issues too, which may cause an increase up to about $70/bbl by the end of the year. Third quarter typically sees an increase in oil demand due to summer travel, which could easily eat up the surplus that has been keeping oil prices low. Some analyst think that oil will remain fairly steady around $50/bbl for the near future.

The Department of Labor reported that average hourly earnings grew by 2.5% over the past year, thus placing pressure on corporate earnings as wages move up. Many analysts believe that wages will continue to increase as unemployment rates remain below 5%, enticing companies to keep performing workers and paying them more.

After a market run up as we have seen this past quarter, I would not be surprised to see some profit taking in the next couple months, particularly if this earnings season does not produce any great results. If inflation takes off  then expect oil, precious metals, wages and other commodities to increase, which will certainly put pressure on corporate profits, and will also stress the markets. Now is a good time to continue to get out of debt and put a little extra away for a rainy day. 

Kind Regards,

Your Arm-Chair Economist

 

Sources: Eurostat, Department of Labor, S&P, Bloomberg, Federal Reserve, U.S. Census Bureau, EPG

Fear and panic have hit the markets as if a massive earthquake hit the shores of the UK, as the Brexit vote has been tallied in favor of leaving the European Union (EU). The vote was very close, however most of the UK voted to leave. Scotland, North Ireland and London voted to stay. The vote was enough to send Prime Minister David Cameron to the podium to announce his resignation after the next party convention in October. The Pound Sterling was sent crashing to its lowest levels in 30 years, and other markets are reacting in a free-fall around the world.

Voter turnout was a record high of 72.2% passing the exit bill at 52% to 48% in favor of leaving the EU. 

So what does it all mean? What this means is a lot of changes, and markets do not like change, they like stability. The main change will be Britain will have its sovereignty back and will be allowed to make its own laws without the fear of the EU overturning those laws. 

This will come at a cost, the EU provided several benefits, namely the freedom of movement of people and goods and services. The 28 member states of the EU offered each country’s citizens to move freely between each country without a visa, people could travel freely, live, or work where ever they wanted in any EU country. Similar to the USA, where a person from California could move to New York and live and work there. 

A problem with the “free movement of people” was the refugee crisis, the people of the UK were feeling like their social system was already at max capacity and the EU was going to cram millions more people into the system. As refugees are brought into one EU country and processed, they then have free movement to all the countries and access to the jobs of those countries, along with new passports, etc. The UK felt this to be unwise for long-term political and social stability, since there was virtually no vetting of these immigrants.  

The UK will now have to renegotiate with each country the ability of its citizens to move about the EU. The Brits abroad may have to make applications to those countries they are currently living and working in to be able to stay, similar to any immigrant from another country. Or maybe they will come up with some grandfather clause to make it easier on those folks. 

The movement of goods and services will have to be renegotiated as well. The many products that are produced in the UK and moved about Europe freely without any tariffs or other import/export restrictions may change, some of those products may be replaced by other countries in the EU thus hurting British businesses.  

With the markets in a free-fall over this important vote, it may spell buying opportunities. Such political uncertainties always cause market turmoil, which spells opportunity. One headline this morning reads: Soros looks set to make a killing on Brexit result. 

Overall it will be hard to tell the from this vantage point the long term results of this vote, however, it will be a spectacle to watch as it unfolds around the world. The UK is a critical country on the world stage and one of our most important allies. Perhaps this will provide opportunity to make our relationship even stronger.

One thing we do know is the sun will rise on the UK again as it will the world over - a new day will dawn - its not the end yet! So keep calm and look for the good opportunities to work together and continue to make the world a better place.

Last week we looked at our inflation, now we will take a looks at what hyper inflation looks like  for one of our neighbors to the south. The price of oil has affected many economies around the world. It has hurt our economy in many ways, and helped in many other ways. But our economy is we diversified which is why the low price of oil has had such a balancing effect in our economy - other countries are not so blessed. 

One major oil exporter, Venezuela, is particularly hurting because of the low oil prices. As oil became the main income source, the country began to ignore other industries, like agriculture, and thus requires most of their food to be imported from Columbia and the United States. 

Before the 1950s agriculture was greater than 50 percent of Venezuela’s GDP, now it accounts for approximately five percent of GDP. This is a serious problem for the country’s leadership. As oil prices drop they are truly hurting. Its like still needing to feed the family on half the income; some things you can no longer afford and you don't have the economic base to find the income from other sources.

With oil exports accounting for over 95% of Venezuela’s revenue, the 50% collapse of oil prices in the past two years has thrown the country into fiscal and political turmoil. In order to raise critical cash to keep the government operational, officials have started to sell the country’s gold reserves. 

Even though the country is a major exporter of oil, it is also a major importer of essential goods for its citizens. The country’s currency, the bolivar, has collapsed to the value of one U.S. cent, creating hyperinflation which led to prices soaring over 121% in 2015, and expected to rise nearly 500% in 2016, as estimated by the IMF.

Inflation of this magnitude is similar to having a massive heart attack after twenty years of high blood pressure! It can really kill an economy!

In addition to its fiscal woes, the country is also suffering from little rain, which has brought about severe electricity shortages due to its main source of power generation, a dam whose water levels have dropped to historical lows. In late April, the country’s president ordered a two-day work week for government employees, in order to stem the consumption of electricity. The government workweek now is down to Mondays and Tuesdays, affecting roughly 2.6 million employees, representing 20% of the nation’s workforce.

Economic conditions have worsened, as the economy shrank 5.7% in 2015 and is projected to shrink another 8% in 2016, as estimated by the IMF. Such dire circumstances have created concern among U.S. officials, which are increasingly worried about an unraveling socialist economy and a political meltdown. Such an occurrence could lead to social unrest, chaos and political instability, causing tensions to rise with neighboring countries in South America.

So why is this important? Well hopefully two reasons: 1. perhaps it will bring about a political change, which will move the country back to a democracy and a free market economy and away from its current socialist/communist government. 2. hopefully they will begin to expand their industrial base and grow into other industries besides oil. Any time an economy is based on a single product the risk goes way up for future economic troubles.  

Additionally, it would be great for our two countries to get along better - geographically we are very close to Venezuela (less than 1400 miles) and the several people I know from Venezuela are wonderful people!

Sources: IMF

 

Remember:

There are plenty of good five cent cigars in the country. The trouble is they cost a quarter.
Franklin Pierce Adams

 

The Federal Reserve operates under a dual mandate, with three key objectives for monetary policy (which the Fed sets) to accomplish: Maximum employment, moderate long-term interest rates, and stable prices. Two of these three have been validated for the most part, with unemployment at 5%, and long term bond yields above short term bond yields. Stable prices (also known as inflation control) is monitored and released by the Consumer Price Index (CPI) each month and has been fairly subdued for sometime, until now. The Bureau of Labor Statistics which tracks the CPI reported that prices, as measured by the CPI, increased at the highest rate in three years as of April 2016. This latest report showed prices increasing at annual rate of 1.1%. 

A 1.1% inflation rate may not sound like much, but the data hidden within this number reveals something that the Fed may be concerned with. When broken down, the categories with the largest price increases nationwide were medical care services, transportation, and rent. What’s amazing is that the CPI increase would have been much higher if it wasn’t for the dramatic drop in energy and oil prices. 

The Fed considers various aspects of the economy and the country’s demographics when drafting its monetary policy. The fact that American’s are aging and are requiring more medical attention is an inflationary threat for retirees. In addition, many younger American’s are still having a very difficult time in securing mortgage loans, thus forcing young families to rent rather than buy. Such a dynamic has increased demand for rentals nationwide, forcing rents to rise until more supply is made available.

One cause of the medical inflation is the fact that Medicare, in an effort to control costs, continues to reduce payments to hospitals and doctors. The reduction in payments causes these businesses to look for other more profitable lines of business - meaning they stop seeing medicare patients altogether. This lowers the supply of services, thus raising the costs - it is simple economics. The additional problem is the enrollment in medical schools are down since the passing of Obamacare - meaning we are producing fewer doctors. 

While demand for rentals is high, so are sales of new homes. Housing is always challenging because of the time it takes to bring new home developments on line. The housing standards and regulations are so difficult, that it leaves fewer opportunities for low income housing. Gone are the days when a 1 bath, 3 bedrooms, 1000 square foot house is considered adequate. And yet for many first time home buyers maybe this is what the market needs (except I would opt for at least two bathrooms!).  

I think the next CPI report will have inflation at a much higher level, due to the recent large price increases in the energy sector. It is certainly affecting many people on the expense side, while at the same time it is good for the oil companies, who are starting to see a future in their business and maybe an opportunity to employ more people. 

It has been said that high blood pressure is a "silent killer"; Inflation is the silent killer of personal finances. Many may be asking how this will affect their investment portfolios and plans for retirement or issues with their own businesses. As inflation heats up, people need to be prepared. Helping people get prepared for these events are what I do - so if you want to be more prepared or you want a second opion on your current level of preparation call me for a no obligation free consultation. Click here for .

Sources: Bureau of Labor Statistics, Federal Reserve

 

Remember:

Inflation is one form of taxation that can be imposed without legislation.
Milton Friedman

A new form of digital currency has received tremendous media coverage this past year, Bitcoin, which is essentially virtual money that is traded digitally by exchanges. Bitcoins can only be purchased and sold with legitimate currency, such as dollars or euros making it available worldwide. The total estimated value of Bitcoins worldwide is about 9 ½ billion dollars.

Bitcoins exist as software, not physical currency, and are not regulated by any country or banking authority. Even though U.S. Senate hearings disclosed that Bitcoin could be a means of exchange, it gave no assurance that it would actually become an accepted medium of exchange. Government regulations would need to be created and then enforced in order for Bitcoin to become accepted by other government entities. The currency can be traded without being tracked, thus raising the potential for illicit activity, such as involving weapons, drugs, and prostitution. Bitcoins are not illegal, but it is also not legally recognized by governments as a currency. 

In late December, the price of Bitcoins fell more than 50% from recent highs as the world's biggest bit coin exchange, BTC China, said it would stop allowing its customers to use the Chinese currency to buy the virtual currency. This in turn removed a big source of cash that had been fueling Bitcoin prices. At one point in November 2013, the price of one Bitcoin was almost identical to the price of one ounce of gold, both being valued at approximately $1200.

The price appreciation of Bitcoin has been a result of speculation, and hasn’t been used as a store of value or as a medium of exchange to any extent. Some compare Bitcoin to the tulip craze in Holland of 1637, when speculators pushed the price of tulip bulbs to incredible levels, followed then by a collapse in the tulip bulb market.

Bitcoin has surged on speculation that perhaps one day digital money will eventually become a legitimate global currency, and even replacing currencies from certain countries.

Bitcoins are mined by powerful computers that calculate complex, mathematical functions. Total Bitcoin quantity is capped at 21 million, and currently there are about 12 million that exist worldwide. Circulating physical coins only represent Bitcoin, and are not a store of value as is legitimate currency.

The growing mobile payment industry could be a big benefactor to the acceptance of Bitcoin, as new and creative applications are being devised to accept digital currency. Bitcoin transactions are very popular among mobile users, where rather than using a credit card or cash to make a purchase, all you’d need is your phone.

Bitcoins emerged in 2008 designed by a programmer or group of programmers under the name of Nakamoto, whose real identity remains unknown. New Bitcoins can only be created by solving complex math problems embedded in the currency keeping total growth limited.

The value of Bitcoins fell by about fifty percent in mid December following remarks by China and Norway to not recognize the digital currency as legal tender. The government of Norway ruled that Bitcoin does not qualify as real currency, but rather qualifies as an asset, producing taxable capital gains. Norway said that Bitcoins don’t fall under the normal definition of money or currency.

More and more nations have been taking an official stance as the popularity of Bitcoins has evolved. The European Banking Authority has warned about the risks of trading digital money and being subject to losses where consumers are not protected by any government entity or authority.

As digital currency evolves, some believe that it will eventually be accepted as a legitimate currency. But for the time being, others believe that its time hasn’t arrived yet. Various studies have recently emerged with different opinions, such as

a Stern School of Business study conducted by David Yermack, which concluded that Bitcoin behaves more like a speculative investment than a currency, and has no currency attributes at all. For additionall information on bitcoins read Understanding Bitcoin.

 

Sources: Bloomberg, Reuters

 

REMEMBER:

"What we plant in our subconscious mind and nourish with repetition and emotion will one day become reality" - Earl Nightningale

With this being memorial day weekend perhaps it is appropriate to address the idea of mourning or grieving with those who have lost loved ones. So, what can you do when you or someone you know loses a family member or a close friend is a topic that I think everyone needs to pay attention to. Grief is real. It is intensely personal and can only be moved forward by the person feeling the loss. Helping someone through the grieving process is not instinctive and can be very hard - learn what you can so you can be of more assistance. 

Understanding this I thought I would relate a few personal examples. I am the youngest of seven children, five boys and two girls. My father passed away when I was 23 years old, I was single and in college. Fast forward nearly 30 years and my oldest daughter got married and the day after we arrived home, the first phone call was from a lady I had never met informing me that my very good friend and business partner had passed away from a heart attack the night before. There was a funeral to help plan and a elegy to write.

Within a span of 22 months I lost four people I was very close with, my close friend and  business partner, my brother-in-law, who was my best friend and help keep me on the right path as a teenager, we backpacked the John Muir Trail together; my oldest brother, who was my first business partner; and my angel mother, who continues to bless my life by her example of faith and strength. 

Considering my business of financial planning at times I have had to deal with the passing of a client or a family member and help people through the financial stresses of settling an estate (not probate). All the life insurance claims, filed changing accounts to the beneficiary, etc. The over-riding element others should express to those who are grieving is kindness.

Karen de la Cruz, Professor of Nursing says, “Researchers have suggested many grief models over the years, such as Elizabeth Kubler-Ross’s five stages of grief (denial, anger, bargaining, depression, acceptance), but these are just constructs for trying to make sense of an experience that usually doesn’t make much sense. And they can do harm when used to dictate how a person “ought” to grieve.”

de la Cruz continues, “The five stages are rough guidelines. They don't happen in order and they’re much more fluid than was originally thought. You can go back and forth between them, you can be in more than one stage at once, and not everyone goes through every stage.” 

“People grieve according to their own temperament, coping style, age or stage of life, relationship with the deceased, and previous experiences with death,” says de la Cruz.  

While there is no right way to grieve, there are wrong ways to treat those who are grieving. A friend who lost her father a week ago, commented that Monday night she was out with some friends and her boy friend, when someone happened to play a song that was played at her father’s funeral. She got a little teary eyed about and one of the fellows in the group said, “@#*^ life happens, get the @#*^ over it!” Clearly a horribly wrong thing to say. (Not to mention the fact that using foul language is inappropriate.) 

Sue Bergin’s, a hospice chaplain and bereavement counselor, for 10 years, shares a list of what to do and what not to do - to support grieving friends or family.

• Don’t assume you have to talk. A hug or a squeeze of the hand can be more comforting than words.
• Don’t tell your own grief story unless asked.
• Don’t offer advice - of any kind.
• Don’t assume that if someone has faith in the next life, they will have less need to grieve.
• Don’t say things like “He’s in a better place” or “At least her suffering is over”. Any sentence that begins with the phrase “at least” is received as minimizing and isn’t comforting.
• Don’t impose your personal beliefs about death and the afterlife on the griever.
• Do give grievers your full, focused attention.
• Do share your memories of the loved one and encourage grievers to share theirs.
• Do invite grievers to short, low-intensity activities, such as a lunch, family home evening, or a walk or bike ride.
• Do allow a griever to express his or her honest feelings, including anger at God and anger at the deceased.
• Do share a book or other resource that has helped you with grief.”

I like this list, it provides some great counsel and clear thinking about what to do and what not to do. It reminds me of a talk I heard years ago by Sally Karioth, Ph.D., she said something to the effect, don’t say to the person “if there is anything I can do please just let me know?” The griever will never call and impose, after all often they don’t know what they need. She said the best thing is to “jump in and do something”… go mow their lawn if it needs it, bring them a bottle of soda pop, or a meal, clean their house, just don’t get in the way, try to do things that do not impose on the person too much as they need their space too. 

My favorite is to take or send a big bag of Peanut M&M’s with a note that says, “here is something to share when people come calling.” However you can show kindness and give a listening ear is best. I hope that we will all be a little more sensitive to those who have lost someone dear in this life. While this topic does not have much to do with economics, it does matter deeply to the people affected by a loss.

Source BYU Magazine

 

REMEMBER:

 "Empty pockets never held anyone back. Only empty heads and empty hearts can do that."  - Norman Vincent Peale

 

Now that you are recovering from the pain of settling your tax bill with the federal government, Taxpayers often wonder, where does all their tax money go? The Office of Management & Budget breaks down where tax payments go each year, allowing Americans to see what they’re getting.

For fiscal 2015, the federal government took in over $3.2 trillion in tax payments (that’s $3,200,000,000,000) a record year compared to previous fiscal years. The federal budget for fiscal year 2015 ran from October 1, 2014, to September 30, 2015. The total figure amounts to approximately $21,833 for every person in the United States. 

Its important to note that the what is paid in taxes and what the federal government budgets are two different numbers - the difference is the deficit and is borrowed from the federal reserve bank and other countries around the world. The 2015 deficit was $439 billion. While the 2015 deficit has come down from previous years, the total public debt continues to rise. The debt continues to rise because every year we add the current year’s debt to the pile already on the books. Bringing our total debt to over $14 trillion dollars today, which is clearly unsustainable. Our nation’s debt is at the level of our GDP - meaning that if we the public spent an entire year working and producing everything this country produces and paid 100% it on the debt we might pay it off, depending on interest rates.

Another area of spending that is interesting is federal civilian employees, their wages and benefits. I am never one to complain about what someone earns, after all that is the free market we live in, which I completely support. However, it takes a lot of tax payers to support just one federal worker. The average take home wages for federal employees are $83,034 per year. Benefits cost the tax payers another $35,532 per employee; bringing the total compensation for 2015, to $118,566 per employee. (These figures do not include the military.) This is quite a bit higher than the average american employee of the average american company.

The wage gap between federal employees and the private sector continues to grow according to the CATO Institute. Using 2014 numbers: federal employees earned an average of $84,153 and the average private sector employee earned only $56,350. When considering wages and benefits, the gap is larger: $119,934 for federal employees and $67,246 for private sector employees. I could not find the private sector earnings for 2015, but I don’t think they caught up to the federal employees compensation in one year. 

I remember as a teenager my father explaining to me why it was wrong for the federal government to allow federal employees to unionize. He explained that in the future wages would be out of control and that the employees of the federal government would stop being true public servants.    

The mandate to reign in federal spending and to balance the budget must be accomplished. We simply can’t go on for ever running up such deficits and incurring so much debt. Congress and the president must stand up and do what is right. Period. All of these little pet projects of a million here or a million there have been adding up and now they have caught up to create an uncontrollable flood of debt that soon will wash away everything in its path. We all need to stop hanging onto these pet projects and shutter a few federal agencies. 

And the public needs to learn more self-reliance so they can stop thinking they “need the federal government to solve all their problems.”

Source: Office of Management & Budget, CATO Institute

 

REMEMBER:

The penalty good men pay for indifference to public affairs is to be ruled by evil men. Attributed to Plato

 

The other day I was in a store that was having a closing sale nearly everything was 70% off. I struck up a conversation with the manager who was losing his job. I asked him about what he was going to do next. He told me that he had been with the company for 21 years and he was not sure, but he was going to just hang out until he decided and found the right opportunity. Then he said this, “when I learned that the two companies merged, and in the future there was a chance I might lose my job, my wife and I decided to get completely out of debt. So we have no debt and can live on very little.”  It was just over two years after the merger that we spoke and the store he managed was now closing. I though how insightful. I was thrilled to learn of another person who was debt free and had the freedom to choose what to do next.

Becoming debt free should be a goal of each person. I have seen young college graduates who have finished school with well over $200,000 in student loans. As one client was telling me it is “discouraging”. The bondage of debt is discouraging! And what do many young graduates do - load up more debt and buy a new automobile! This debt can be extremely onerous! Read more about auto debt here.

This weeks article is mostly coming from a friend, Shawn Lane who is the Chief Operations Officer at Financial Renovations Solutions, (FRS). His company has helped many people improve their credit score and at the same time get more of their debt paid off. Being debt free greatly strengthens your financial position. Simply put, It is FREEDOM. 

Unfortunately some people find that they have slipped so much into debt that creditors start calling and some accounts get sent to collections. Shawn provides some answers in those difficult situations:

 

Will paying off a collection account improve my credit score?

I get this question a lot. Although I would never suggest NOT paying your debts, you need to be very careful when paying a collection account. If you are 100% sure you owe it, then maybe you should pay it (more on this later). However, if your goal is to improve your credit score, paying it will likely have the opposite, negative effect.

The FICO scoring model treats collection accounts as closed accounts, and the balance on these accounts have no impact on your credit score. What matters most is “the date of last activity”, which is the date the original debt went bad, or the date of your last payment to the collection agency. This means that a $150 collection account from last month has more negative impact to your credit score than a $3,000 collection account from last year. Therefore, paying it will not increase your credit score. In fact, often times paying it will drop your credit score even more by creating new and more recent activity on this account. 

Further, paying a collection account does NOT remove it from your credit report. You end up spending your money and reducing your credit score.

If you plan to pay a collection account, first secure an agreement with the collection agency to remove the entire collection account from your credit report upon receipt of payment. Better yet, make them first prove you owe the debt by sending them a debt validation letter AND make the credit bureaus prove they are reporting the account 100% accurately on your credit report. If they can’t prove it, they must remove it! Utilize the Fair Credit Reporting Act and the Fair Debt Collection Practices Act, as these protect consumers like you and me! You will have a very good chance of getting the account deleted from your credit report, which WILL increase your credit score.

I know Shawn has worked with people all over and is straight up honest in what he does. He truly cares about his clients. If you would like to contact him, , he will provide a free consultation. Everyone of us knows someone who needs help with their debts, pass this article on to them, you never know what will really flip a switch with someone. I wish you the best of luck in obtaining real freedom, by becoming debt free.

 

Remember:

"Continuous effort - not strength or intelligence - is the key to unlocking our potential." ~ Winston Churchill