Recently I’ve been reading a lot of articles on the housing market and how it’s been impacted by macro economic policy of the U.S. One article that stands out to clear the air on the roots of inflation and it’s so-called “archenemisis” deflation is Frank Shostak’s Is Deflation Really Bad for the Economy.

I spend a lot of time on mises.org. Not because all my ideas on economics fall in the so-called “Libertarian” camp, although I find many of my own views inline with many Libertarian views, but I can get straight non-partisan, non-baised information on what makes the global economy tick from the likes of mises.org.

It’s not for lack of trying to understand the “conventional” mainstream economic wisdom, but at some point you have to let go and look for greener pastures of understanding. So as we all know, the source of our economic woes was a huge bubble in real estate, prices soared beyond their intrinsic value, investors hedged their bets on those inflated prices and when the cheap credit and cash ran out, prices corrected themselves and we are now experiencing a dramatic price correction in the economy. Unfortunately we are experiencing a huge price correction on all areas of the economy because the real estate industry doesn’t happen in a vacuum. There are many industries that are tethered to real estate, so if real estate gets the “financial flu”, everyone else is going to get “financial pneumonia”.

As stated in the title of Shostaks’ article, “Is Deflation Really Bad for the Economy?”. Well..in the case of the U.S economy yes and no, but overall…No. It’s going to be bad for those individuals who were apart of those jobs in industries that experienced “bubble” prices. Meaning those prices weren’t real and any macroeconomic attempt by the Fed to prop up those inflated prices is a recipe for disaster. The prudent way to go is getting an asset back to it’s “real” price and not the fake “bubble” price. You can’t build off of something that was never supposed to be there in the first place. The “Great Recession” that you are seeing in the U.S. and other economies is a price correction. If there are pockets in the economy that are experiencing a value/price correction, then this is a good thing.

How is any economy going to experience any efficiency or proper recovery if you prop up areas of the economy that are correcting themselves? There are only x-amount of savings and investment resources in the economy and propping up “dead areas” of the economy will create artificial demand (i.e. housing) which is just another bubble. A bubble is just a misuse of resources, not something that is healthy for any economy.

I’ll close with Thomas Wood’s wonderful analogy from his book Meltdown: A Free Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse. No better explanation can sum up the danger that lies ahead if we continue to artificially maintain areas of the economy that deserve a value correction:

Consider a circus that comes to town for a few weeks. A restaurant owner may expand his seating capacity in the false expectation that the circus and the related demand for his food that it brings in its wake will last forever. But when the circus leaves town, he’ll find he has “idle resources” on his hands. We should not want to put these idle resources to work. Doing so would only draw labor and other resources away from other sectors of the economy, where they are employed in the satisfaction of real consumer demand. The expansion of the restaurant should not have occurred in the first place. We should want this bubble activity to shrink back down to size, in order that other, non-bubble activities in the economy can be correspondingly strengthened.

In the wake of a previous, unsustainable boom brought about by the central bank’s credit expansion, the market economy and its price system, left to their own devices, will adopt another arrangement of resources that employs available factors in the service of producing goods and services that correspond to real consumer demand. During the bust, free individuals interacting within the market nexus sort out which projects and business ventures are healthy and sustainable, and which are bubble activities that cannot survive without a constant artificial increase in the money supply, and cannot (and should not) survive now that reality has reasserted itself.

• Tooth Fairy Economics by Thomas Woods
• Our Insane System of mortgage finance? by John Papola
• The Fed Can’t Solve Our Economic Woes by Gerald P O’Driscoll Jr.
• Is Deflation Really Bad for the Economy? by Frank Shostak

That’s right, I don’t own a flat screen, I still have my old school 27” RCA Remote Monitor ColorTrak (Picture embedded in the post) that came with the Co-op when I bought it almost 4 years ago. It never went bad, so I never replaced it. Until that day comes, I’m rocking the RCA 27” till the tube explodes like a spark from those old school cameras that used flash powder (aluminum and potassium perchlorate) to light up the pictures. Unfortunately this post is not about my electronic frugality, but close to the topic at hand. Last night my wife and I attended Poetic, People and Power 8th annual show Price Check: How We Became a Culture of Consumption. Here’s a bio from the website:

Poetic People Power was founded by writer/performance poet Tara Bracco in 2003 to create an ongoing project that combines poetry and activism. Each year, a diverse group of poets are commissioned to write new works on a political or social issue. The new poems are then brought to a public audience in April to celebrate National Poetry Month. Poetic People Power entertains and informs. It raises awareness on specific topics and engages audiences through the expressive art of poetry.

Right now it’s 6:52am, and I’m postponing my P90x routine this morning to write about this, because I was so moved by the poet(s) poetry. This particular show was about the power of consumerism and how our society has become somewhat enslaved to an ideology of spending and debt. I touched on this topic in a post I wrote in 2006 called Slave to Fashion Dominatrix to Prices. This is not just about people who overspend, it’s also about the cost of living (healthcare, education, etc) skyrocketing and how wages have stagnated (relative to inflation), while pushing many of us further into debt.

In light of the recent financial crisis, this is extremely important. I cannot find the exact words to explain how last night’s topic is connected to the happiness and financial solvency of the average household, but I’ll leave you with this.

In the foreward of Tim Kasser’s book The High Price of Materialism, Richard M. Ryan summarizes Kasser’s research by stating.

Once people are above poverty levels of income, gains in wealth have little to no incremental payoff in terms of happiness and well-being.

Also check out this very eye opening and disturbing documentary on how our kids are becoming indoctrinated by a new culture of consumerism. I have 1 year old so for those parents out there, keep your third eye open.

Get informed, Get Active, and Become a smarter consumer!. There are resources below for those who are interested:

• Affluenza: The All-Consuming Epidemic ~ John de Graaf (Author), David Wann (Author), Thomas H Naylor (Author), David Horsey (Illustrator), Vicki Robin
• The Overspent American: Why We Want What We Don’t Need ~ Juliet B. Schor
• The Hight Price of Materialism by Tim Kasser
• Credit Card Nation by Robert D. Manning
• The Paradox of Choice: Why More is Less by Barry Schwartz
• Your Money or Your Life by Vicki Robin & Joe Dominquez
• No Logo by Naomi Klein

IMPORTANT DISCLAIMER: In no way shape or form is this post endorsing the use of usury (interest) or gambling when terms like debt, savings, lottery, credit cards, loan, borrow, etc are used. This is merely an explanation of my experiences with saving, debt, and credit cards.

Welcome to Part III of Economics Made Simple. I hope you have enjoyed the the first two parts of this series and if you haven’t had the moment to dig into the first two parts, the links are below.

1. Part I: Renting vs Buying a home
2. Part II: Why Can’t I Make Ends Meet?
   (How I found the Austrian School of Economics)
3. Part III: Saving Money vs Serfdom
4. Part IV: Casino Capitalism

At first I titled this post Saving vs Being an Idiot, To be honest, that title was a bit harsh, and I’m not here to demonize anyone or make them feel bad. What I really want to do is send a message that the alternative to preserving your money (AKA Saving), could potentially be a form of serfdom . Piggying-back of F.A Hayek classic book The Road to Serfdom, it’s important to understand where the road leads if we decide to treat money as if it grows on trees. So what does being a Serf or to be in Serfdom mean? Here is the definition:

A person in bondage or servitude.

Can you see where I’m going with this? Rather than bore you with a whole bunch of “savings rules”, (that most people ignore anyway), I’m going to go into a story about myself and how I went from a destroyer of money to preserver of money. Let’s begin, shall we?

Table of Contents

1. Mi av chree job (Patios to English translation: I have three jobs)
2. Syra-cash University
3. Rockbottom
4. Conclusion
5. Articles that will scare you into saving Money

Mi av chree job

So growing up in a West Indian/Jamaican family the importance of saving money or as my mother says “Saving for a Rainy Day” is one of those things that is drilled into your head as soon as you come out of the womb. I wouldn’t be surprised if my parents handed me a shovel and newborn work permit to get started at the nearest construction site. Although I jest a bit here, this ideology was one of the most important life skills that my parents gave to me. So as soon as I hit fifteen I got my work permit and started to get busy on the work grind. Very strange things start happening when you start working and you live in a Jamaican household. Similar to the parody of the Jamaican family called the Headley’s on In Living Colour, where having dozens of jobs was the joke, in real life, things aren’t so different.

No, I didn’t have 10 concurrent jobs, but I most certainly could not have 1 job. If you have 1 job in a Jamaican household, you might as well be seen as someone who is unemployed. With 2 jobs you are officially working, and with 3 jobs you are doing extra credit, if you will. So I started working at Waldbaums Supermarket in East Meadow, NY (Long Island) pushing carts. Not a very exciting job, but the $4.25 an hour was better than no dollars a hour. Right after school I would rush to do my 4:00pm to 9:30pm shift. Having 1 job was good during high school, but as the summer approaches, in probably the most natural and normal voice, my mother says “Su, wen ya start ya sekon job?” (Patios to English Translation So, when do you start your second job?”). As if that was what in the plans for my summer! Rather than dodge the question with, “What second job?”, I said “Oh, yeah..I’ll..um look around.”.

So my mother worked at EAB (European American Back) at the time, it is now Ciitbank, and I was able to get into the teller program at the bank. By the time the summer hit, I was promoted to cashier at Waldbaums, so I had a bit of experience handling money. Getting the teller job was not only a natural transition for me, but double the money I was making at Waldbaums. So I would work at the bank during the day (8am to 4pm) then rush over to Waldbaums to do my 6pm to 10pm shift. I always worked on weekends at Waldbaums and especially Sunday to get the time and a half. My weekend shift at Waldbaums started to get later and later. They needed me for the night shift, the 4pm to 11pm shift. Sometimes up until midnight. So that left a huge pocket of time during the day on weekends. Uh oh, step in mom dukes “Yu hav nuff tyme ina di day, huh?”. (Patios to English Translation: You have a lot of time in the day, huh?”. This my friends is a very passive aggressive way of saying “Hey, you have way to much time during the day, time for another job”.

So a friend of my mother, Bobby, big Italian guy that was known as “The Grape”, had a construction business. He needed help cutting down trees and busting up concrete for contract jobs around Long Island. I have no idea where Bobby is today, but let me tell you, this dude was the sweetest and nicest guy ever. He would bring fresh “muzzerallla” for my mother that was probably the best “muzzerella” I ever had. He’d buy lunch for the working crew and was just really easy going guy. Of course you had to work your behind off, but that was expected from a guy like Bobby. The job was roughly $100 bucks a day. At this point I feel like the Jamaican version of the Rothschild’s children. I had never seen or made so much money in one day. So I did a couple jobs with Bobby during the summers until it was time to go to college.

So there you have it folks, 3 jobs. I was a great saver then. I would save about 80% of my paycheck and use the rest for cds, clothes, and movies. With those jobs I was able to save about $4,000 to $5,000 dollars. That’s about $6,500 dollars in today’s dollars. Not bad. I would end up using this money for books for college, but during college I would reverse all my diligent and prudent savings practices which I will elaborate in the next section.

Syra-cash University

There is something very strange about going to college. It’s like the anticipation of going on a roller coaster for the first time. Although the anticipation of being sky-rocketed to 2-3 gs of force has you laced with fear and excitement, you can’t wait till the moment where you are at the top of the peak, and you are driven down at over 100 miles an hour down the track. Like any roller coaster with cork screws and swift roundabouts, if you are not careful you can get sick or even injure yourself. College is no different. Syracuse U. (or as I like to jokingly say Syra-cash University) was by far one of the most expensive, beneficial, and culturally diverse experiences I’ve every had in my life. Although I’m very close to paying off my school loans completely, one of the first experiences I’ll never forget is walking up on campus and seeing a row of tables with these professionally looking men and women standing before a stack of several dozen crispy white t-shirts. Before I can even blink, The nice women with the blonde hair and pearly whites says, “Sign-up for this credit card and get a FREE T-shirt”. Wow, I’ve only been on campus less than 10 minutes and I’m already getting “free” stuff. Not only do I get 10K in credit, but I get a t-shirt out it of it. Little did I know that this so-called “free” t-shirt was going to cost me almost 14K in credit card debt later on. That was the most expensive free gift anyone has given me, thanks a lot!

One of the most seductive parts of the credit card is it’s ability to fulfill the desire of instant gratification. In less than 1/100th of a second you can get whatever your heart desires. Need new shoes or clothes?, no problem, need new T.V.? no problem, need to go eat a nice restaurant? no problem, get depressed or sad and need to feel better, no problem, need to pay off the blasted credit card that got me into debt, PROBLEM. Here is a good example of what I’m talking about. There was this great little sandwich spot called Kostas. I mean, their cheesesteaks were the best. Yes, no disrespect to Philly but better than your cheesesteaks. Yes, Syracuse makes better cheesesteaks than you, get over it. However these cheesy steak subs of delight (Cheesesteak with onions, peppers, lettuce, tomato and mayo) cost me $1,000 dollars in one semester! I was to Kostas what a drug addict is to a heroin dealer. My mother called me, “Yu maad? Cyan spen dis tipe a muny an jus sanwige” (Patios to English Translation: Are you crazy?!! You can’t spend this type of money on sandwiches). Of course she was right, and there would be a host of other little subtle weekly expenses that would eventually balloon my credit card debt to 10K after I graduated from college.

After I graduated from college, my addiction to debt wasn’t getting any better. Now keep in mind that I always made the minimum payment aka share cropping payment. Like a share cropper you never ever grow or earn enough to make ends meets. All you are doing is rolling yourself into more and more debt, which was very typical of the share croppers during the 19th century. I never missed a payment, but my debt burden was not getting any smaller. Now it time to hit rock bottom.

Rock Bottom

So you would think getting a fancy job at one of the largest health care companies would stop the debt spiral, right? No. So instead of batting down the “cost of living” hatches and paying off my debts, I increased my standard of living, hence plunging me into more debt. To be honest, I wasn’t one of those debtors that buy huge expensive items. I was the most dangerous kind. I’m was what you call the “here and there” credit card user. I just used to it here and there for things I really didn’t need. My expenses, (car note, insurance, rent, etc) at the time were pretty manageable but it was the other “here and there” type of expenses that was doing me in. To be honest I can’t even remember half the stuff I bought, but by the time I was ready to move back in NY in 2000, I had less saved in my bank account than what I had saved in high school with over 12K in credit card debt. I couldn’t believe it. No only did I not have anything saved for a “rainy day”, but even a puddle of water could wipe me out. Although I was “cash poor”, I did have money in my retirement investments, but relative to how much I was making, it was a sad state of affairs.

So I moved back home and spent a couple years rebuilding my savings and getting back on track. Started reading tons of books on savings, investing, managing debt, and got so good at it, I could actually start giving advice to other people. My debt situation was self-inflicted. Through all the years I had a credit card, I never had any financial emergency where I had to wipe my savings out and go to my credit cards. I was living a way of life that I could not afford. I wasn’t living withing my means, and my debt was getting so overwhelming that every dollar I had was going to my debts. I’m happy to say I don’t have any credit card debt.

Conclusion

Every person’s debt story is different, but if there is one area that we need to be mindful of, is our psychology towards money. All the “getting rid of debt” guidelines in the world won’t mean anything, if you don’t have a hold on your desires, behavior, and a understanding of how you view material objects and self. In addition, many of us need to up our financial literacy. I’ve heard of people who literally did not know that they had to pay the debt back on their credit cards. They just thought is was free money. Nor did they know what compounding interest, debt-to-equity ratio, or what a FICO score is. If you don’t know what these things are, then you should not have a credit card.

Not only was my debt burden financially debilitating, but it also took away my freedom of mobility. It was like carrying around a ton of bricks on my back with fetters on my legs. Just think about all the opportunities that you miss out on. At the time, I couldn’t give as much to charity, help family when needed, not to mention I did not have money around if an emergency happened, and could not re-invest any resources in myself/career or even other entrepreneurial endeavors. However you look at it, it’s a Road to Serfdom, and if I can help it (Inshallah), I hope to never experience that type of slavery again. Man, 1st Financial Bank got me good, but it was one of the most important lessons of financial wherewithal and debt management that I have ever experienced.

Before I bring this post to a close, I’ll leave you with two very significant quotes from Nassim Nicholas Taleb’s Black Swan: The Impact of the Highly Improbable that should heighten your awareness on some of the very dangerous psychological ideologies that many times, have led us to stray into making poor financial decisions. One is “Cheap Signaling and the other is the “Prediction error”.

Cheap Signaling, pg 6

There were some obvious benefits in showing one’s ability to act on one’s opinions, and not compromising an inch to avoid “offending” or bothering others. I was in a state of rage and didn’t care what my parents (and grandfather) thought of me. This made them quite scared of me, so I could not afford to back down, or even blink. Had I concealed my participation in the riot (as many friends did) and been discovered, instead of being openly defiant, I am certain that I would have been treated as a black sheep. It is one thing to be cosmetically defiant of authority by wearing unconventional clothes—what social scientists and economists call “cheap signaling”—and another to prove willingness to translate belief into action.

Prediction error, pg 194-195

I searched the literature of cognitive science for any research on “future blindness” and found nothing. But in literature on happiness I did find an examination of our chronic errors in prediction that will make us happy.

This prediction error works as follows. You are about to buy a new car. It is going to change your life, elevate your status, and make your commute a vacation. It is so quiet that you can hardly tell if the engine is on, so you can listen to Rachimanioff’s nocturnes on the highway. This new car will bring you to a permanently elevated plateau of contentment. People will think, he has a great car, every time they see you. Yet you forget the last time you bought a car, you also had the same expectations. You do not anticipate that the effect of the new car will eventually wane and that you will revert to the initial condition, as you did last time. A few weeks after you drive you new car out of the showroom, it will become dull. If you had expected this, you probably would not have bought it.

You are about to commit a prediction error that you have already made. Yet it would cost so little to introspect!

Articles that will scare you into saving money

• The Collapse of Personal Savings Rate in America
  http://www.billshrink.com/blog/personal-savings-rate/
• Why do so many NFL players go bankrupt?
  http://sports.yahoo.com/nfl/blog/shutdown_corner/post/Why-do-so-many-NFL-players-go-bankrupt-?urn=nfl,190555
• Income Inequality Is At An All-Time High
  http://www.huffingtonpost.com/2009/08/14/income-inequality-is-at-a_n_259516.html
• Winning Lotto numbers not always the ticket to dreams, success
  http://www2.tbo.com/content/2009/oct/01/winning-lotto-numbers-not-always-ticket-dreams-suc/

IMPORTANT DISCLAIMER: In no way shape or form is this post endorsing the use of usury (interest) when terms like FED funds rate, credit, mortgage, stock market, investment, savings, loan, borrow, etc are used. This is merely an explanation of my fact finding mission on the different economic theories that have impacted the thinking of different economist across the world, and how this thinking has impacted the economic policy of the United States of America.

WIHTJ fans, sorry it took me so long to write Part II of Economics Made Simple. The series covers the following topics:

1. Part I: Renting vs Buying a home
2. Part II: Why Can’t I Make Ends Meet?
   (How I found the Austrian School of Economics)
3. Part III: Saving Money vs Serfdom
4. Part IV: Casino Capitalism

Table of Contents

1. Introduction
2. The Austrians and Mises
3. John Maynard Keynes
4. Conclusion
5. Economic Resources that will increase your Financial Neurons

After completing the first version of this blog post, I decided to send it to my good friend JP, who does the blog But What the Hell do I Know I wanted to get some honest feed back on my Keynesian vs Austrian School post. In so many nice and friendly words he was able to tell me…well..it sucked. Every now and then it’s good to eat some humble pie. So I did (that pie was pretty good), and I went back to the drawing board. Keep in mind that I consider my boy JP quite a seasoned economist, albeit unofficial, when it comes to the Keynesian and Austrian school, so I knew I had to go back to the drawing board.

In the first version, I tried to make a case for which economic school is a better approach (which I failed at) or attempt at framing what each school is (which I failed to do) or not distort what the Austrian or Keynes school is (which I mistakenly did). Unfortunately I lost track of what I really wanted to do. I will forgo the Herculean tasks of comparing each school and explain how I found the Austrian School of Economics. What I really wanted to do was frame the following rhetorical and general questions:

• Hey did you know that there is this economic school of thought that was driven by John Maynard Keynes, and this same school of thought dominates a lot of economic policy in the United States of America?
• In addition, did you know that the Federal Reserve Bank (FED) dominates economic policy in the United States of America? Do you know what the Federal Reserve Bank does?
• Why do we have financial crises and what is the root of how they get started, what caused them, and what fixed them?
• Did you know that there is a school of economic thought called the Austrian School of Economics, that is actually trying to offer a model that explains how the economic world works around us, but at the same time being humble enough to know they can’t understand every single move in the economy because it is a dynamic amoeba-like entity that has way too many variables to track?
• Are you aware that to understand this economic mess that it will take more than reading this short blog, but months and months, if not years of grueling eye-busting reading of books, articles, podcasts, etc.
• Are you aware that you are about to stop reading this blog post, because of what I said in the previous bullet?
• Are you aware that making the sacrifice to acquire this knowledge will make you probably make you more informed about why U.S. policy is the way that it is and when you vote (hopefully), you’ll actually have a clue (better) about why you are voting?
• Do you want to understand what true Healthcare reform means?
• Is it important for you to understand the true pros and cons of government policy decisions in the United Sates of America?

Now that you know the precursor, lets give it another go….

Introduction

I was probably hit by the “financial education” bug when I started cleaning up my debt situation around 2000. I’ve been waving the “Hey Folks, America’s household debt is unsustainable” flag for more than 10 years. I never knew what the source of the problem was, but watching the debt-to-asset ratio skyrocket while concurrently seeing the personal savings rate plummet was not a sign of good times to come. To be honest, I had no idea what was in store for the U.S Economy 8 years later. All I knew was that this is not a good situation. An eye opener for me was two things. The stock market bubble of 2000 and the last years financial collapse in October of 2008.

I played around in the stock market for several years. (Buying individual stocks) By following a true value investing/contrarian approach I was able to do pretty well. By adhering to those principles of investing prudence, raking across the 8-K and the 10-K while taking into account the intrinsic value of a companies stock, I was able to avoid a lot of the pitfalls that lured people into the “speculation” stock market bubble of 2000. Yes I made mistakes, but not deal breakers. I never cared whether we were in a bear or bull market. Bear and Bull markets do and don’t matter. (It depends on the situation). Stock market bubbles get headlines, but it’s the diligent investor who spends time understanding what he or she is investing in who wins in the end. This type of effort takes work, which is why most people will invest in whatever is coming from the “water cooler”

After 2000 I didn’t get into anything more than just personal finance. Around 2007 to 2008, the calamity started with Bear Sterns, Lehman Brothers, AIG, the housing market bubble, billion dollar bailouts for banks, investment houses, etc, and thats when it all started. Before these events, I was not aware of how tightly wound the FED was around the U.S. government. Other than the FED moving the fed funds rate up and down to allegedly “cool” or “heat up” the economy, that’s pretty much all I knew. I didn’t know the history of the FED, when the FED was started, not to mention what type of batting average the FED had in stabilizing the economy. I grew some “Rothbardian” legs, if you will, and the rest is history.

Mises and the Austrians

My first entrance into understanding the tip of “Austrian Economic” iceberg was a site called Mises.org. If the Austrian School of Economics was a trunk of a tree, this would be one of many branches off the trunk. For the sake of not making the same mistake twice, I’m going to leave it to you to go to mises.org and assess whether the information is useful or not. They have a wonderful blog called Mises Daily and it’s chock full of morsels of econ delights that will whet your appetite for information.

Lets be honest. Even at the introductory level, this is pretty heavy stuff, but that shouldn’t deter you. I do believe that one of the reasons why Americans are in the fog of economic war when it comes to U.S economic policy is they don’t understand the “whys” of a particular policy decision. Nor do we know where to go to get that information. If you go to the FED website, and click on one of their documents you would need a phd in economics to understand what they are talking about. We often fall back on our ideological partisan heels, without trying to truly understand the merits and consequences of certain policy decision. Should we have a minimum wage tax? What are the impacts of having a central bank that dials the economy up and down at will? What is the true impact of the Cash for Clunkers initiative on the economy? What was the involvement of the FED with past and present financial crises? What are the economic solutions available for bringing countries out of poverty and what examples do we have of countries that have already achieved this?

I could go on and on, but these are just a sample of questions about the things that impact our day-to-day lives. Now check out the latest Google Trends. Do you see any broad searches like “Federal Reserve Bank’, “Keynesian Economics”, “Austrian Business Cycle Theory” etc? These are three very powerful terms that you should familiarize yourself with, yet they never ever enter into our stratosphere of topics. Are we surprised that the FED can swoop in and not have any idea where 9 trillion dollars went and the Americans are more concerned about fictitious “death panels” in healthcare or whether the Obama earned the right to get the Nobel Peace Prize? We have bigger fish to fry, check out this shocker:

John Maynard Keynes

The first time I heard about anything related to Keynes was through mises.org. I had no intentions of investigating the ideologies of Keynesian Economics, but many of the ideologies from Keynes have weaved themselves into the current economic policy of the United States of America. I wanted to get at the heart of what inspires the U.S. government to do what they do. I’ll provide resources at the end of this blog post that will get you up to speed on who Keynes is and how his ideologies have influenced U.S. economic policy. There is a lot of history there, and it will take you a while to churn through all the books, articles, and videos about Keynes. Here is a good start: http://en.wikipedia.org/wiki/Keynesian_economics (Keynesians Economics).

Clearly Keynesian economics has made a huge comeback in recent years due to the current collapse of the economy. Are We All Keynesians Now?. I wonder what Keynes would say if he saw this current crisis? I’m sure Paul Krugman would be delighted. Keynes most famous work is the The General Theory of Employment Interest and Money. This is what what put Keynes on the map.

Conclusion

This post is about awareness. I have come to realize that not understanding the history of U.S. economic policy has not served me, or anyone else well. Especially those who consider themselves poor, downtrodden or apathetic about the political process. How are we to make educated decisions about government policy if we don’t understand what it is and how it works? How are to support bills that are created in the house and senate if we don’t understand what is being passed into law? I felt that my understanding about presidential candidates, tax policy, U.S economic policy decisions, local state regulations, etc could be compromised by not understanding the context of these economic policies I mentioned above. As a matter of fact, this is more important than what your party affiliation is. This is not a left or right wing post. This is not a pro free-market or pro socialism post. This is a post about making informed decisions and holding our government accountable, including ourselves. Regardless of whether you consider yourself someone on the left, conservative, right, republican, democrat, independent, rich, poor, middle-class, wealthy, religious, atheist, deprived, a victim, a power broker, keynesian, austrian, libertarian, socialist, indifferent, etc, you should consider what I just wrote in this post. Being a blind ideologue is easy, but spending the time to understand things properly is more difficult which is why most people choose the former instead of the latter. Two things to remember, there is no such thing as a free lunch and a government is only as good as the people who support it.

Books

• Economics in One Lesson by Henry Hazlitt
• The General Theory of Employment, Interest, and Money by John Maynard Keynes
• Road to Serfdom by F.A. Hayek
• Wealth of Nations by Adam Smith
• The Return of Depression Economics and the Crisis of 2008 by Paul Krugman
• America’s Great Depression by Murray N. Rothbard
• Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse by Thomas E. Woods Jr. and Ron Paul

IMPORTANT DISCLAIMER: In no way shape or form is this post endorsing the use of usury (interest) when terms like mortgage, investment, savings, loan, borrow, etc are used. This is merely an explanation of how I became a home owner and some of the choices I made to get out of renting an apartment.

Hello Ladies and Gentlemen, Welcome to Part I: Renting vs Buying a Home of my 4 part series Economics made Simple by Malik. With my blogs, I always like to set the tone of the post so there is no misunderstandings about what this post is about. The series will cover the following topics:

1. Part I: Renting vs Buying a home
2. Part II: Why Can’t I Make Ends Meet?
   (How I found the Austrian School of Economics)
3. Part III: Saving Money vs Serfdom
4. Part IV: Casino Capitalism

There is a lot of information in this post so for the sake of time I’ve chopped up the blog into sections. Feel free to jump to any section you want. For you convinence I’ve added “back to top” links that will send you to the Table of Contents. Enjoy!

Table of Contents

1. Malik’s home buying story
2. What you need to buy a home
3. Why are we selling our home?
4. Conclusion
5. Home buying tools and resources to help you buy your house

What this ISN’T, plain and simple:

1. Some get rich quick scheme where after you read this blog series you will become a mega-quadrillionaire in 24 hours. (BTW, no matter what you see on the lackof-Infomericals at 2am, there is no program that will turn you into a millionaire without hard work, thinking rationally, and the proper financial plan.
2. A forum for me (Malik) to spew some ideological financially driven nonsense while making myself feel good
3. A place where you will learn how to build a particle transporter, find out if aliens really exist, or whether there was some hidden plot for the U.S to fake landing on the moon

However, what this IS about:

1. A place where you will get practical advice on day-to-day financial concerns.
2. A place that serves as a spring board into understanding more complicated financial matters, which you will inevitable encounter throughout your life. Consider this series the beginning of the ginger bread path.
3. Remove some of your fears about the word “economics”. Understand that the economic world around you has every bit to do with your own life.

So what is economics anyway? By definition it is the following:
The social science that deals with the production, distribution, and consumption of goods and services and with the theory and management of economies or economic systems.

For the sake of this discussion I would like to call this “Personal” or “Household” Economics. Envision yourself as a small country. Your house is the country, the people in your house are the citizens, and the companies (Supermarket, clothing stores, car companies, dry cleaners, banks, etc) are other countries that you do business with. Your job is what you export/produce, and what you buy (products that you haven’t created yourself) are your imports. The capital (salary) you bring into your home annually is your GDP (Gross Domestic Product). As you can clearly see, you are a microcosm of a large country or continent. Put together all those little personal economies and you have a nationally economy. All the decisions that we do on a day-to-day basis impact the overall performance of the economy.

Malik’s home buying story

So back in 2005 I was living in Brooklyn, Williamsburg to be exact. Now known as hipster/heroine capital of New York. At the time I was paying about $800 a month. Towards the end of 2005 I was ready to move out and a good friend of mine was selling the Coop that I live in now. He said to me, “Well bro, if you got 20K cash I can get you into the Coop. I’ll give it to you at a discount because I’m saving tons by not going through a real estate broker”. From my perspective the deal was perfect. I’ll be a home owner, no more throwing rent money out the window, and I can do whatever I feel like to the apartment (break walls down, add new appliances, redo the bathroom/kitchen, etc). Normally, the Coop organization will ask for about 20% down, but because I was a first time buyer, and my salary was pretty descent, I only had to put down 10% (Later on I realize this was somewhat of a mistake, but not a deal breaker. Should have put 20% down. I’ll explain why later)

Before I get into the crux of renting vs buying a home, I have to give you bit of background information. Presently, my wife and I own a 1 bedroom Coop (An apartment that is treated like a house with a mortgage) in the Bronx. The Coop was purchased in 2005 for $175,000. Today, the value of the Coop is roughly 250K or more. If you include the amount of equity (Amount of the value of the house in 2005 minus the remainder of the loan in 2009) we have in the house, we should walk away with roughly 100K or more. So that is an increase in house value of about 75K over 3 years and 8 months. If I calculate the yield that is roughly 10% a year. Pretty good, even for the NYC national house appreciation averages. Considering I bought a piece of real estate in one of the most inflated real estate markets in history, not to mention during one of the worst financial collapses in history, while walking away with a profit, is not that bad. At the same time, had I not gone through a hook-up, I would have overpaid for a similar 1 bedroom Coop by about 15-20K. For my financial circumstances and situation, it really was the deal of the century. I was able to get into the home ownership world with no red tape, no hassle, and minimum upfront expenses. All I had to pay was the lawyer and closing fees. In addition, I could stem the financial bleeding of rent. That is money out the window that I would never ever see again. Had I rented the $1000 a month 1 bedroom (this is what I was about to rent until my friend came to me) the total in lost savings from rent would have been $52840. Here is the breakdown of what I would have paid with assumed rent increases because the apartment was not rent stabilized:

$12000 $1000 (year 1)
$12840 $1070 (year 2)
$13560 $1130 (year 3)
$14400 $1200 (year 4)
————
$52800

I would have thrown away almost 53K out the window. Not so fast ladies and gentlemen. This is true but we are not done yet. I never calculated the cost of Coop maintenance which is the fee you pay to maintain the building roof, landscaping, certifications, lobby, super who manages the building, etc). That was $470 a month which brings my maintenance costs for 3 years and 8 months to about $20,680 dollars. Now I have to minus that from the potential 100k profit (the amount I should walk away with after I sell my house [including closing fees). Now I'm left with around 80K. yes when i sell the house I'll still walk away with roughly 100K but I'm trying to calculate my TRUE profit margin.

What you need to buy a home

Whew!, lots of numbers. Are you still with me? I hope so. Lets remember that buying a house CAN be an investment. It's no different than any other investment. You have to know how much money you are putting in and get a sense of what your potential return is. Clearly during the last 3 years. Americans have spent a substantial amount of effort turning their houses into big fat credit cards by squeezing equity out of their homes without re-investing that equity back into the house. Bad idea. I'm going to split this section into three areas.

1. Prerequisites for buying a home: 20-30-10 Rule
2. Descent credit
3. Steady income
4. Benefits of buying a home
5. Benefits of renting
6. Patience

Prerequisites for buying a home: 20-30-10 Rule

My 20-30-10 rule is 20% down, the mortgage (no interest) should be no more than 30% of your take home pay, and you should have at least 10% of the value of the house in cash in some bank account. Yes this is after you put the 20% down on the house. So one of the biggest prerequisites for buying a home is to have 20% down. As I sated earlier I put 10% down, because at the time I didn't have the 20% and it was not worth passing up on the opportunity to own a Coop that was marked down 15%. From my perspective I started with a bit of equity from the beginning by getting the Coop at a discount. In addition to that, I had a steady income and enough disposable income to make extra payments each year on my mortgage so I don't get hit with too much interest from the additional 10% that I didn't put down. I also did something that no financial adviser would suggest any of their clients doing which is borrowing from your 401K. You are allowed to borrow from your 401K to buy a home, but if you leave your job before you pay back the full amount, you have two options:

1. Pay back the full amount.
2. Pay taxes on the amount you borrowed come tax time.

Now keep in mind that the 20-30-10 rule is a GENERAL guide. Meaning you can be flexible on the rule, but don't be so flexible that you bend the branch so far that you snap it in two. In my conclusion I'll explain why I broke just about every rule in the book when it comes to buying a home but it's all about your situation. Everyone has different circumstances and what works for me, might not work for you. You have to be smart enough to weigh the pros, cons, and risks of your decisions. There is no book or personal finance guru that will be able to give you the exact answer to you home buying choices. In the end, its up to you to weigh all the pieces to your home buying puzzle and put them together.

Descent credit

What does it mean to have "descent credit" in regards to buying a home? Descent credit means a FICO score that is at least above 700. If you don't know what a FICO score is, then go here and here. This number will impact how much you are able to borrow and how likely (risky) a financial organization sees you in regards to your potential to pay back the organization.

Steady Income

Make sure you have a steady income. Don't do things like "hope for the best" or "hope for a raise" that is supposed to give you the financial wherewithal to buy a home. Buying a home is a huge responsibility. This is not a game. A home is not one big credit card or some asset that you can use to hypothetically create unrealistic lines of income. You should make enough that you can pay for the mortgage, utilities, other monthly expenses, and you better make sure you can SAVE at least 5% of your take home income. I'm really leaning on 5% as the "I don't have a choice in the matter", but you should be shooting for 10-15% of your take home pay.

Benefits of Buying a home

This is pretty easy. First off, you are not throwing money out the window like rent and every payment you make towards your mortgage is just building more equity into your house. Second, owning real estate is one of the fastest ways to increase your net worth and build up your credit rating. (of course that is assuming you pay your mortgage on time, make extra payments a year, and didn't pay too much for the house, and it is likely that the house will appreciate in value). Unlike renting, you can use the equity in your house to re-invest in other money increasing investments. Notice how I said "money increasing" investments. Not clothes, sending your kids to private school, buying a car, or a flat screen or some depreciating asset that will erode what you just borrowed which is the equity in your house.

Benefits of Renting

Most times if somebody is renting, it's not by choice, unless you are Peter Schiff. Peter Schiff mentions some good points. He basically saying that he can utilize the mortgage and associated costs of a house better, by investing that money. There is something to say for all the overhead the comes with buying a home, not to mention the ridiculous maintenance fees that come with buying a Condo or a Coop. In New York, the real estate market is way more stable than the rest of the country, not to mention it's one of the hottest real estate markets in the world, but it's the exception. Renting has many perks. One plus is piece of mind. All the maintenance of the building, including the room you are renting is taken care of by the owner. The only unfortunate part of renting is the money you pay is money lost, but it depends? When you think about how many people are going under in their own homes, it makes you wonder whether those individuals should have rented in the first place. Renting is also a good option, if not the only option to use when you don't have enough money to buy a home. I don't think it's wise to rent indefinitely but it serves as a good pit stop before you can sum up the courage to buy a home, if that is your plan.

Patience

Before you cut that check to buy your first home make sure you have spent the necessary time researching all your buying and renting options, that you understand what a mortgage is and your financial obligations towards that potential house. Too many people get bit by the "He or she has a house, why not I?" or "It's the American dream" bug and do very little research resulting in financial ruin and sometimes bankruptcy. I've said this over and over in this post, do the proper research so you know what you are doing. Walking into a contract that's hundreds of thousands of dollars is not a small thing. Weigh all your buying and renting options before you take the plunge.

Why are we selling our home?

This past April we had a son (Saud) which means we need more space. For the past 2 months we have been looking to buy a 2-3 bedroom house, but there are a whole host of circumstances that played into why I bought the first Coop in 2005.

One other very important reason that started the whole decision of looking for a new apartment (prior to Saud being born) was getting out of an interest bearing mortgage. In Islam, interest (usury) is prohibited. Whether you are taking it or paying for it. So the plan is to so sell the house, releasing us from the interest and use an Islamic bank. Now you are probably asking, "Um, how does the Islamic bank make money if there is no interest?". Well in Islam you cannot make money off of money. [Don't worry, I'll be short because I know you want to finish this blog post] Very similar to an interest bearing mortgage a non-Islamic and Islamic bank actually start off the same way. They both cut a check for what you are borrowing from the bank, but the difference with an Islamic bank is they buy the house then add their profit on top of the house which you pay for 15 to 30 years. Here is a simple scenario:

1. House is 200K
2. I put 20% down, 40K
3. Islamic bank buys the house for the remainder, 160K
4. Bank calculates what I should pay based on future appreciation values, the current housing market, etc.
5. They say, “Hey we will sell this house back to your for 280K.”
6. They chop up the 280K over 30 years and that would be my monthly mortgage. It doesn’t matter how much interest rate fluctuate because there is no interest, just fixed payments of the agreed upon amount.

Here is another scenario, know as Ijara with diminishing Musharaka:

1. House is 200K
2. I put 20% down, 40K
3. Islamic bank buys the remainding share of the house, 160K
4. Islamic bank now owns 80% and I own 20%
5. The Islamic bank chops up my 160K over 30 years.
6. As I pay down the mortgage I increase my share of ownership.
7. Let’s say 10 years go by, and I’ve paid 60K in payments which means there is 100K of value that I own and 100K from the bank.
8. So the shares have changed, it’s now 50% and 50%. Let say the value of the house is now 350K
9. If I sold today, me and bank would split the profit by 50%. The total profit is 150K. Each of us would get 75K out of the deal
10. As you can see the house is treated as a true partnership. As I buy more shares I get more profit.

Conclusion

As you can see in 2005 I pretty much broke every rule in the book, but rules are made to be broken ONLY if you know the amount of risk you expose yourself to when you break the rule. In 2005, from my perspective, all I needed was about 6 months more to cover the remainder of what I borrowed from my 401K. As I stated earlier, I made a descent amount of money so I could afford the risk. I knew I wasn’t going to be jobless in 6 months, so I was at least okay in regards to my 401K loan obligations. It was not worth passing up on home ownership because I did not have the 20% I would have liked to put down, not to mention the house was being sold at a 15%-20% discount, fully furnished too. The owner sold me everything, so I did not have to deal with the burden of buying new furniture, tvs, appliances, etc. All I had to do was literally move in. All I had was a room of stuff from my Brooklyn apartment. A bed, some bedroom furniture, my weight set, and some clothes.

In regards to my 30-20-10 rule I broke 2 out of 3 rules in 2005. I broke the 20% down rule and I broke the mortgage should be no more than 30% of your take home pay. I think it was somewhere around 35%-40% at the time. I put 10% instead of 20% down. So how is that I broke my own rules but yet remained on solid financial ground? Remember what I said earlier. These rules are flexible, as are many rules in life. I didn’t bend my financial branch so far that it snapped. I needed a bit more wiggle room and I used it to my advantage. An example of snapping the branch is someone who puts 5% down and the mortgage is 60%-70% of their take home pay with less than 5% saving of your take home pay. Not only would this person have snapped the branch in half but they put the branches in the fire never to be seen again.

If there is anything that you should get out of this post is this. There is no clear cut straight answer to most problems, especially home buying. You have to weigh your personal situation, preferences, willingness to compromise, financial intelligence, practicality, and common sense to know whether you can or should buy a home. As you can see there were a multitude of things that I had to take into an account. A lot of it had to do with my financial situation, but one nice benefit is the neighborhood I live in is nice and very quiet. Young aspiring families, multi-cultural with access to the city in less than 40 minutes. You can’t beat that. Good luck on you home buying /renting travels and if you have any questions hit me up on Facebook. Just search for Malik Oxford or go here

Tools and Resources

• Home affordability calculator:
  http://homeloans.bankofamerica.com/en/home-loan-experience.html
• Buying vs Renting calculator
  http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html
• Home appreciation calculator
  http://www.moneytoys.com/home-sellers-profit-calculator.php
• Time to tackle the real evil: too much debt
  http://www.ft.com/cms/s/0/4e02aeba-6fd8-11de-b835-00144feabdc0.html
• Jackson’s Money Woes Can Teach Us About the Dangers of Entitlement
  http://www.washingtonpost.com/wp-dyn/content/article/2009/07/01/AR2009070103640.html?nav=rss_opinion/columns
• Less pay, same mortgage payment
  http://money.cnn.com/2009/08/06/pf/pay_cut.moneymag/index.htm?section=money_pf
• Bakes hereself out of financial ruin
  http://www.huffingtonpost.com/2009/07/28/woman-bakes-herself-out-o_n_246417.html

I have been pondering over the last several weeks on what my next blog post should be. I actually have a really juicy post coming up on my 6-month fact finding mission on what the Austrian School of Economics is and how it shaped my views on what the economic business cycle should be (or could be). It’s my John Maynard Keynes vs Austrian Business School post. But before I do that post, I wanted to get into several myths that people seem to believe are true, but don’t actually have any empirical knowledge to support their theories. As if thoughts about falsified ideas don’t have a negative meta-physical impact on the brain. As if the truthfulness of an idea does not matter. Yes, people holding on to ideas that are wrapped in falsehood have a negative impact on your mind, not to mention your life. Yes, people who don’t seek the empirical truth behind things and are too inebriated by apathy tend to be less happy.

If you lined up all the myths, there are enough myths out there to wrap around the world 50 times. No matter how much evidence you reveal, some people stubbornly hold on to these ideologies. Lets, just get into the list, this should be fun.

1. The Illuminati, Trial Lateral Commission, Council of Foreign Affairs, The Jason Society, Bilderbergs, Rothschild’s, 33rd Degree Masons, 13 families control the world NWO conspiracies
Let me be honest, I sometimes have a soft spot for conspiracies. I actually own some of these books. By far, Behold the Pale Horse is probably one of the most read conspiracy books out there. Considering the author is now dead (not by natural causes) makes believing in conspiracies even more enticing. Most times these conspiracies are so dubious and deliciously tyrannical that being the only one who has insider information about this secret tyranny makes us feel warm and fuzzy inside. The problem with conspiracies is that they are hard to prove, not to mention cannot be stopped. Guess what? If you know of a so-called conspiracy, it’s not a conspiracy anymore so stop wasting your time. In most cases you are seen as a “ham-fisted clown” [see Alan Moore] anyway and will further ostracize yourself by running up on your friends and family every minute with your, “I know something you don’t know” conspiracies. Living your life in the shadows of a conspiracy distorts your reality, makes you paranoid and often leads to poor decision-making. Please find a new hobby.

2. What he/she doesn’t know, won’t hurt him/her.
I have one question: How long do you think your lie is going to last? I’m not talking about coming home late and your significant other asking you why you came home late and you said, “Oh, I had some extra work at the office”, to cover up the two dozen roses that you had to pick up from this special flower shop to surprise your wife as a gesture of appreciation to her. I’m talking about the infidelity, affairs, relationship dishonesty and cheating that has now become the norm in so many relationships.

Let me be clear on this issue, before you get into a relationship or marriage, know what you are getting into. Personally, I think too many people discount this life changing event. As if they are just going by the Lindt Lindor Chocolate store, pick a flavor, then move on to the next chocolate. How would you like it if someone deceived you like that? It’s not a matter of if they will find out, it’s when. Save yourself the embarrassment of ending up on the show Cheaters, get out of the relationship and move on. Breaking up marriages, deceiving your significant other is…wel….pure cowardice.

3. Understanding Economics and Personal Finance is too difficult
It really pains me when people say this. Whether you are buying a $3 tube of toothpaste or a 300K house, you need to have a certain level of financial literacy to get through the day-to-day grinds of life. Understanding your liabilities and your assets, while living within your means is not optional, it is actually a requirement. I will dig a bit deeper on this topic in my next blog post on economics, but one of the main reasons why we experienced the economic collapse of 2008 is companies, governments, and citizens do not understand the dynamics of leverage (debt), risk aversion (investments), accountability (research) and liquidity (cash). As made very clear in this Wall Street Journal article New Evidence on the Foreclosure Crisis, even so-called “Prime” borrowers were the main culprits behind the Foreclosure crisis, NOT subprime borrowers. We just don’t seem to understand that all four variables impact the type of decisions we make on a day-to-day basis. Or it could just be that we are aware of these things, but we just don’t give a damn. Just Google, “Financial Literacy” and start with this link http://www.360financialliteracy.org/. Here’s yet another great article describing the importance of living within your means: http://money.cnn.com/2009/02/19/pf/expert/below_means.moneymag/index.htm See how simple that was.

4. If you believe or don’t believe in God, you’re an idiot
Regardless of what side of the religious or non-religious fence you’re on, demonizing someone because of their belief system is not doing you or the person you are vilifying any good. I mean, what are you actually getting out of verbally smashing others who have a different belief than you? Just let the right guidance fall on those who have an open mind and K.I.M (Keep it Moving).

5. My race, tribe, nationality or ethnicity is more superior to yours
Oh boy, if there is one thing that really kills me, is people who walk around as ____________ (plug in race of choice here) supremacists. They come in all walks of life, touting the accomplishments of their so-called uber intelligent group. Of course, we all have accomplishments within each respective corner of the globe, but to believe that one race, tribe, nationality, or ethnicity has cornered the market on intelligence is just…well..unintelligent. Over the centuries, every culture has borrowed (in some instances stolen and then said they are the creators) the creativity of others. Some see an original concept of one culture, and then enhance the foundation of that invention into something more productive. So why is behaving in racially loony and supremacist fashion so dangerous?

Well for starters, you ostracized yourself into a corner by limiting your interactions to just your “trusted” group of people. Not to mention the lost amount of collaboration time, friendships, and relationships you could have built with others, but you were too close minded to offer the olive branch. If you consider yourself religious, you are even a bigger hypocrite. Get over yourself. For those who are religious, Re-read your Quran, Bible, Torah, etc. (correctly). For those non-religious foks just google Secular Humanism. I don’t believe in the SH movement’s philosophy of rejecting the supernatural and the spiritual as the basis for reason, ethics, and justice, but upholding these three principles is the exact opposite of being a cultural supremacist. Always gauge someone by the content of their character, you’ll get further in life.

6. I’m proud of being known as a female dog (yes the B-word)
You all know what I’m talking about. Those women who walk around who actually revel in being known as the b-word. They’ll actually say to their friends, “I’m a b______”. Alright then, lets look at some of the definitions of the b-word:

1. A female canine animal, especially a dog.
2. Offensive.
   1. A woman considered to be spiteful or overbearing.
   2. A lewd woman.
   3. A man considered to be weak or contemptible.
3. Slang. A complaint.
4. Slang. Something very unpleasant or difficult.

How far in life do you think you are going to get by being associated with any of these things? Case closed.

7. Gender stereotypes: Nice guys finish last, all men are dogs, women are gold diggers
I would like to actually complete the first sentence. Nice guys finish last in the “I want to be in a relationship with a maniac women who will lead me to a divorce, take all my money, demonize me, and destroy me” race of life. That’s actually a race worth being last in. Nice guys are actually Beyond Stage One Thinkers See Thomas Sowell Applied Economics: Beyond Stage One. I don’t have anything against bad boys. To be honest, I was a closet bad boy in the past. Today I’m a nice guy from the inside to the outside. I have shed my closet, so-called bad boy antics. Don’t be fooled women, nice guys are cool. Yes, he might be a little geeky and nerdy [See Obama: Full-on-geek or just "nerd-adjacent'] around the edges, but you can share a roof over your head, money in the bank, loving person, unselfish and this person will be faithful to you. Do you really want to be in a marriage with the “other side”? You’ll just be a doormat. Don’t be a fool.

Now lets address the second part. “All men are dogs”. Incorrect, maybe it’s the type of men you attract? Maybe it’s how you carry yourself? Maybe it’s your behavior? I used to think that it was true what women said men being dogs until I started analyzing woman’s behavior. Trust me, they were dogs from the start, but you just didn’t do the science on the natural ebb and flow of how genders are supposed to interact with each other.

Third part. Are women all gold diggers? Of course they are…every last one of them…okay, Nah, siked your mind. I know there were some e-fumes for a hot minute. LOL. Personally I can speak to this issue, because I was a enabler. It’s not that women are gold diggers, we men are dumb enough to use our material power (or what appears to be material power) as an extension of defining ourselves. It takes two to tango. No women can just jump into your checking account and start spending your money, and if that is happening to you right now, you are a fool. She is just exploiting your ignorance and naivety. Just like men exploit woman’s naivety regarding “men being dogs”. Clearly money has become the central focus for most relationships. It’s disastrous way of thinking. See my blog post Why are our relationships so disastrous?

8. I don’t have to read books
This myth is up there with “I think the moon is made out of cheese”. To be honest, I think most people read books, but it’s the type of books that people read which is more important. Personally I’m a big fan of non-fiction. Most of the books on my shelf are non-fiction. If I’m reading any fiction (As I’m presently reading Atlas Shrugged by Ayn Rand), these are books that are close to real world-life experiences. It’s never a bad idea to drop in a “clear the smog” book in your reading rotation. In my view, “clear the smog” books are those books that can give you cleaner perspective on an already existing idea or concept. My favorite is Black Swan: The Impact of the Highly Improbable by Nassim Nicholas Taleb. Some other books that fall into this are the following:

• American Creation by Joseph J. Ellis
• Millionaire Mind by Thomas J Stanley
• Naked Economics: Undressing the Dismal Science by Charles Wheelan
• J Curve by Ian Bremmer
• Amusing Ourselves to Death: Public Discourse in the Age of Show Business by Neil Postman
• The African Origin of Civilization: Myth or Reality by Cheikh Anta Diop and Mercer Cook
• Ishmael: An Adventure in the Mind and Spirit by Daniel Quinn
• Collapse: How Societies Choose to Fail or Succeed by Jared Diamond
• America’s Great Depression by Murray N. Rothbard
• Buckminster Fuller’s Universe: His Life and Work by Llyod Sieden

Thanks for listening. Feel free to post a comment with your favorite myths.

I think the economic verdict on the global economy is in, The Age of Thrift is here. Not the technology age, or the industrial age, not even the age of Aquarius. The Joneses are now officially out of power. The citizens of America and the world are getting a dose of reality that they haven’t seen since the Great Depression. Is this the Great Depression for the vast majority of folks? No, but it depends who you talk to. To be honest, I don’t know, but people are hurting out there, even the well to do are getting hammered too. Should we really have sympathy for someone who has to get a Caramel Macchito once a month instead of everyday? Should we have sympathy for someone who has to forgo buying a Mercedes Benz for a Honda Accord? Probably not.

So what exactly is the Age of Thrift? Simply, less spending more saving. Less dependency on credit, if not none. Unfortunately all the financial analyst, economic think tanks and fancy economists in the world were unable to influence the government on properly managing the economy. Even the czars of Wall Street were intoxicated by greed, wait a minute, did I just say that?. LOL I applaud the Obama administration for trying to rescue the economy from a prolonged economic catastrophe, but I feel the damage has already been done. Let me be clear on this issue, you don’t need a Phd to understand that Cash is King. Typically used as a term to highlight the importance of having the proper cash flow in a business, a household is no different. The American people are getting the message, the personal savings rate is around 3.8%. We shouldn’t be celebrating yet, Americans still have spending and debt problem. Not to mention the personal savings rate should be more around 10%.

Keep in mind that the last time the Dow Jones Industrial Average was around 7900, was in September of 2002. Everyone is asking, “What will it take to get out of this?”. No one knows (not even the $3,000 dollar suit wearing financial professionals), but it’s time to get your “thrift on”. The global economy will have to contract further before it gets back on track. We have too much stuff in the economy, and not enough people with the proper disposable income to buy all the stuff. Hopefully being frugal will become a badge of honor and not a badge of ostracization. If it hasn’t set in how important saving is, check out this video from Citigroup CEO Vikram Pandit who watched the value of Citigroup go crashing and burning in 2008. Even the billion dollar entity isn’t immune to thrift (at least on a corporate level). Lets welcome the Age of Thrift.

Currently I’ve been reading Age of Turbulence by Alan Greenspan, former Fed Reserve chairman. The book is basically about his life growing up and the decisions he made on economic policy during Nixon, Ford, Bush I and II, and Clinton administration. The more I read this book the more I realize that if the American public does not get more informed about how the US government spends our tax dollars, preserving our personal wealth, and the power of marketing on our buying patterns and behavior, we will not be able to achieve fiscal responsibility in our lives.

If the Fed did not facilitate the bail out of Bear Stearns there probably would be a domino effect of pain that would have led to other investment firms being financially compromised. Not to mention the psychological trauma and financial panic that would of happened with tons of investors moving their assets out of BS [and others] (Which was already happening, but the Fed bail out, lessened the run on the bank). How ironic is the same predatory lending practices from many of these banking firms practiced was the nail in the coffin that did them in. So what does Bear Stearns have to do with you?

To put things in more simple terms, Bear Stearns did not have enough liquid assets (cash) to pay its bills (clients/investors). A similar problem that many American households suffer from. They don’t have a lot of cash to get through financial emergencies, hence causing them to borrow against the equity (yet another loan) on their house (if they own) and/or use credit cards (yet another loan) to shore up the cash deficit in the household. So a good friend of mine put me on to a documentary called The Secret History of the Credit Card. A Frontline documentary done in 2004 about how the credit card was created. Here is the video link:

and

The Day of the Dollar (a fictional hour by hour presentation of what would happen if the dollar collapsed)

Basically the Marquette Decision in 1978 opened up the flood gates for consumer credit with banking companies as they did not need to follow the state laws that the company was chartered in, but the card issuer need only follow the law of the state in which its credit card operations are located.

Some interesting Credit card facts..
- Universal default..If you look at the credit card contract (that folded piece paper with the -8 font size and questionable law jargon), you might see something called universal default which is gives the credit card company the ability to increase your interest rate if you are late on any payment from any lender that is unrelated to the credit card company. So you could be late on, let say, your insurance payment, or car loan, or gas bill, etc and if the credit card company finds out you were late they have the authority to increase your interest rate on your credit card..say what? Word..check it out:

- 50% of revenue from the lender (Bank) on many credit cards is fee income (late fee, bounced check fee, finance charge fee, over-limit fee, etc)
- Ed Yingling (Banking Lobbyist) and Andrew Kahr (Credit Card consultant) are two of the most dangerous and influential people in the banking world who are responsible for many of the questionable credit card practices that you see today.

Last year was one of the most financially trying times of my working history. After all was said and done, I experienced thousands and thousands of dollars in unexpected expenses that needed to be immediately taken care of. To be honest, a lot of my finances are tied up in non-liquid assets (Like Bear Stearns), but unlike Bears Stearns I had a enough liquidity (cash) to whether the storm. Most people who know me, know that I’m quite an obnoxious saver and I sometimes wonder if all this frugality really matters. Then the emergency hits and all those years of saving for a rainy day pay off. Had I not prepared for the unexpected, I might have been in the same dire financial situation that a lot of Americans across the nation are in.

The last and final part of this email is the impact of corporations and marketing companies on our buying patterns. This has contributed to normalizing a debt consumption lifestyle. I’m sure I’ve posted this before, but there was a blog I posted in November 2006 on the impact the corporations and how it affects our behavior:

A GOVERNMENT IS ONLY AS GOOD AS THE PEOPLE WHO SUPPORT IT!

• The Age of Turbulence: Adventures in a New World by Alan Greenspan
• The Millionaire Mind by Thomas J. Stanley
• Naked Economics: Undressing the Dismal Science by Charles Wheelan
• The Third House: Lobbyists and Lobbying in the States by Alan Rosenthal
• The Automatic Millionaire : A Powerful One-Step Plan to Live and Finish Rich by David Bach
• The Money Masters: How International Bankers Gained Control of America
• by Bill Still (Author), Patrick S.J. Carmack (Author)