Money

[Danielle La Belle]

Hi Girls:

Since this is an area to post just about anything, I thought that MONEY would a topic that we can all share.

Everyone will have an opinion on this subject I am sure. Mostly because it seems that we never have enough of the stuff! I was told many years ago that there is plenty of money in circulation, it just seems never enough in my own personal accounts.

I read recently a very good article highlighting the cost of vehicles today and our insatiable appetite for large and more expensive forms of transportation. I mean really, A Hummer! Come on! We used to kid about driving a “Tank” in the Washington Metro area anytime we were out on the “beltway” risking life and limb!

But the cost of vehicles has risen so much since the 70’s where you would pay around $140.00/mo for a top of the line vehicle for 48 months. Now, well, it almost takes two loans for that level of drivability. My current vehicle, a 2003 Ford Explorer, (we have 3 grandchildren 5 minutes away) so we have a good excuse, I think. It runs me $450/mo for 6 years. My purchase total was around $25,000.00 USD as it was 1 year old and 15,000 miles at the time. Of course it is “fully loaded” with dual everything, (no in-house theater as my grand’s noted to me upon showing off our new purchase in November 2003).

Well, we are now at 49,000 miles, new battery and new tires, $300.00, we only needed 2 new tires as the spare was a factory new tire and we got a new one after the accident this past spring. Phew! My older cars of past used smaller tires for about $60.00/each, 40,000 mile tires. The higher the wear mileage rating, the harder the rubber the rougher the ride but the Ford uses independent suspension thank goodness.

Well, I must admit that the newer vehicles seem to last longer and ride better. On the other hand, I have always gotten 200,000 miles on all of my vehicles with the exception of one, a 1975 Volkswagen Beetle that was a lemon. That year they went to hybrid fuel injection using the old carb chimney for air mixture and the throttle plate would stick right out of the factory. No fix so I removed the plate and lightly sanded the disk then adjusted the air-flow screw for a balanced mixture. Never did like that idea, but then, it worked. I sold it after the project that I was on was completed.

So, MONEY, we never seem to have enough. Everything goes up when we get a raise. Typical if you live in Washington, D.C., and work for the Federal Government. Each year, when they would get their raise (cost of living), you could walk down the street in the Triangle area and walk into a drug store etc, seeing them mark up the prices the same percentage you just got the COL for. Easy come, easy go!

Today, more than ever, the middle class is getting squeezed. Some admit in Washington that the middle class have actually moved downward in the area of buying power. I agree 100%. I see it everyday here in Florida. People retiring and they come here with high expectations of buying cheap new housing and land. “CHEAP” is on their lips! “NOT” is on those of the local real-estate people and holders of such land and housing including yours truly with 6.5 acres just outside of a major town in Central Florida.

I lived on $40,000.00 last year and found that I was about $200.00 per month short of what I was spending. Two adults, not really doing much of anything on $40k and short! So I went to my “Quicken Home and Business” software and asked that genie WHY!

Oh my GOD! You should see my “Pie Chart.” OUCH! Direct TV is right up there with the phone service and power bill. I used to spend $60.00/mo on electric in the winter, now it is $117.00/mo. My old phone bill years ago as $23.00, now with two phone lines, it is $72.00 with LD calls. Direct TV is $89.00 (was $39.00 - basic only) with tax and 2 special channels (HBO and Cinnemax). Gosh! 500 channels to watch but barely anything really worth watching with exception for the various Nature and Discovery channels. In 7 years we have spent $5200.00 on the satelittle provider "Direct TV!" That's about $62.00/mo average. I tell my spouse but she falls fast asleep in her easychair.... like you right now, your eyes are growing heavy, very heavy, you are feeling sleepy, sleepy....WAKE UP! I am not done yet!

I am a “reader,” the spouse is a “watcher.” Thus Direct TV connection.

I still use dialup, $18.00/mo for the internet of course and I am a Computer Network Consulting Engineer! Do not tell anyone please!

Things would be radically different if I were living alone. I put the [S] in Miser! My spouse takes out her money gun and puts a hole in that idea. I am of course guilty as well of using some of the services that I bark about.

MONEY, it is not what it used to be girls!

A great book to learn from…really……!!!!

“The Truth About Money,” by Ric Edelman….

ISBN 0-06-273642-6 (hardcover)

ISBN 0-06-095636-4 (pbk.)

A great guide to financial planning. Wish I had it 30 years ago. Bottom line advice and explanations about money!

Hugs

Danielle Marie

[Absaroka]

A very interesting and complicated subject to be sure and one I am sure that will get many comments.

There is no denying that earning power in the middle class has not kept pace with costs. We could go on a long rant about corporate greed, taxes, lack of union power, globalization, cheap immigrant labor and a myriad of other reasons. It's good to remember that the $40,000 you made is a lot less than what a lot of families live on also.

THere is another side to all this which is pervasive and I am never sure how I want to address it in my personal life. It has to do with our wants and desires. You mentioned your television bill. Great example. We didn't have that when I was a kid. TV was free, all 4 channels! Likewise there was no internet bill, no cell phone bill, and a lot of other things. I think my whole wardrobe consisted of 3 pairs of pants and 4 shirts along with a few teeshirts and my mom was adamant that once I put on a shirt I wear it till it was dirty, which would be several days later in the winter. Of course I think this was different for girls.

I see this a lot in my work. I design homes for people, I am an architect. I grew up in the 50's and 60's in a quintessential middle class neighborhood. In a ranch with 1 bathroom which will all managed to share peacefully. No one felt the need for a shower in the morning-you took one at night when you were dirty. So no morning bathroom crunch. Most folks didn't have air conditioning yet. Having your own room meant you were an only child, or at least the only child of your gender in the family. A one car garage was fine and a 2 car garage was a real luxury. We had a solar clothes drier and my siblings and I were the dishwashing machine. Nowadays a solar clothes drier is considered a sign of blight and there are ordinances in some places prohibiting them......

Might be a good time to bring up Virginia reminiscing about sweeping the dirt floor here......

I guess my point is that many of the things the middle class now complains about the cost of were considered luxuries back then. And so there are at least two dynamics going on here.

Absaroka

[Kyra]

Hi Ladies,

Here's a point to ponder...

Why do we have inflation at all? Yes, because cost of living goes up, wages go up, etc.

But why? Why?

If it costs $1.00 worth of material to make a flugelbinder in 1950, why does it cost 20 times as much today? (Not exact figures, just using the example to prove my point) What is the difference between then and now? Why is it necessary to raise prices at all?

I know, Kyra's small mind just can't fathom the complexities of economics and the world market.

Sigh.

I guess I just get frustrated at the greed I see in everything around me. Yes, I guess I get pulled into it as well. Wanting more than I can afford, I follow typical American fashion and buy on CREDIT!!

Hmm, all this talk of money makes me want to go shopping.
Hugs,
Kyra

[Danielle La Belle]

Hi Kyra:

I think I can give you a rather straight forward answer to [WHY].

Consider the earth. It spins around the sun in an eliptical orbit. One full rotation is what we call a year. As long as the earth rotates on it's axis and makes it's way around the sun, no one directly freezes and no one burns up from too much exposure either way.

As long as money is on the move, it does not sit idle and gather moss. "A rolling stone gathers no moss." As long as there is movement with money (currency of the realm) there will be someone in the chain that says, "up the ante." Once this happens, the snowball is headed down hill, rolling faster and faster and picking up "inflation" as it rolls.

Credit: buying on future dollars will only eventually if not careful, sink your proverbial financial ship. Eventually, your immediate needs will crash into your immdeiate wants. Credit is the bane of one's existence.

Have not. Want not. Get not. Cash only, credit for emergencies.

My fica score is 780 - 800.

Hugs

Danielle Marie

[Charlotte]

Why do we have inflation. Well the answer is very simple. Too much money sloshing around the globe. Too much fiat paper chasing hard assets. The Federal Reserve creates mega Billions of new dollars out of thin air every year and whenever there is too much of anything the value of that thing goes down. When the value goes down you need more of that thing to purchase a hard asset. That's what created the housing bubble that is just now winding down because many unfortunates are finding they can't carry their mortgage.

There is some very interesting reading on hyperinflation. That's what happened in Germany in the 1920's. At that time German marks became almost worthless because the government was printing so much new money. Millions of marks were required to buy a simple loaf of bread. If anyone wants more information I suggest Google "Weimar Republic" or German hyperinflation.

There are some astute economists that now suggesting that the USA is heading down that same road. To cover the budgest deficit and current account deficit the Fed has had to print more money with no end in sight so things could get worse before they get better.

[Charlotte]

I came across the following article that helps flush out the how and why of inflation. I got it from an investment site I sometimes visit.

Inflation's non-uniform modus operandi

Steve Saville

Below is an extract from a commentary originally posted at www.speculative-investor.com on 15th February 2007.

Few commentators on the financial markets have a better understanding of inflation/deflation than Paul van Eeden. We do, however, take issue with the following extract from Mr van Eeden's 28th January commentary (www.paulvaneeden.com/pebble.asp?relid=641):

"In a hypothetical situation of monetary inflation with no change in the production of goods and services, prices would increase in direct proportion to the inflation rate: a 10% increase in the supply of money would cause a 10% increase in prices for all goods and services."

If inflation actually did operate in the way described above then it would be much less problematic than it is in the real world. To be specific, if inflation (growth in the supply of money) resulted in a uniform increase in prices throughout the economy in proportion to the rate of money-supply growth then anyone with basic math skills could easily anticipate its effects and plan/act accordingly. For example, lenders and savers could ensure that they weren't being disadvantaged by inflation by demanding that interest rates be adjusted in proportion to the rate of change in the money supply; and salaried workers would know exactly how much their salaries would have to be increased each year to ensure that they weren't going backwards in real terms. Also (and perhaps most importantly), it would be relatively easy to determine which price increases were due to inflation and which were due to other factors, meaning that price -- the mechanism via which information on what to produce and how much to produce gets transmitted through the economy -- would still provide reliable guidance to the producers of goods and services.

In the real world, however, inflation almost always operates in a non-uniform manner in that some prices don't rise at all in response to the inflation whereas other prices experience disproportionately-large increases. Furthermore, the non-uniformity itself is non-uniform in that the prices that are first to move and that move the most in response to inflation during one cycle will often be amongst the latest/slowest movers during the next cycle. At least, this is the way inflation tends to operate prior to the point where confidence in the official currency breaks down completely.

An effect of the above-described non-uniformity is that price signals become confused, leading to the misdirection of investment and, eventually, to a general fall in productivity (businesses respond to price signals as they always do, but they have no way of knowing whether prices are rising due to inflation or due to a real need for greater supply). Another effect is that the link between cause (money supply growth) and effect (a fall in the purchasing power of the money) becomes obscured, resulting in attention being diverted away from the true source of the problem.

The difficulty of seeing the link between cause and effect made possible by the non-uniform way in which the effects of inflation spread through the economy is what makes inflation both sustainable over long periods and desirable -- desirable, that is, from the point of view of those who want the ability to gain votes by making promises that can only be financed via inflation and those who are in a position to financially benefit from the inflation.

As mentioned by Mr van Eeden in the above-linked commentary, the large and growing wealth gap is a consequence of inflation. This is because the people who will generally be in a position to benefit from the inflation -- at least, up until the point where monetary confidence begins to decline at an accelerated pace -- are the ones who are already well-off, whereas those at the lower rungs of the economic ladder will be hit the hardest by the associated declines in productivity and real wages. There's some irony here in that a large chunk of the inflation stems from financing the Welfare State, and yet the very people that the Welfare State purports to help are the ones who tend to be most disadvantaged by inflation. But, of course, there is nothing unusual about the actual effects of a government program being the opposite of the intended effects.

Like many of the problems sharing the same cause, barely one in one-thousand people will correctly view the growing wealth gap as a consequence of the inflationary policies implemented by the central bank and the government. Therefore, to the extent that the wealth gap becomes a political football we should expect that the proposed 'solutions' will involve government programs designed to improve the lots of the groups perceived to be amongst the most disadvantaged; that is, we should expect the proposed solutions to involve more inflation-financed government spending.

Which brings us to our final point: inflation sets in motion a positive feedback loop in that it causes problems and these problems are used to justify more inflation, which leads to bigger problems, and so on. But this loop could not exist if the link between inflation and the pernicious effects of inflation were readily apparent to most people. That the link is not readily apparent is, in turn, a consequence of the non-uniform way in which inflationary effects ripple through the economy.



21 February 2007

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[Danielle La Belle]

Great info Charlotte.

I took Economics in College of course but as with others, I did not major in it. We live in the "NOW" and spend in the "NOW" to serve our immediate needs. Tomorrow will come but far too many do not see it that way until tomorrow is here in the "NOW." I think that was the reasoning for an individual to get a job and let the "Company manage their retirment plan" years ago. Same goes with Federal Government here in the USA with their GSA retirement system in place.

Hugs

Danielle Marie