Q&A: Why is Gold Increasing?

I received the following question today, and I thought that the question and my reply would be a good topic for a posting:

"Randall, I know you won't agree, but to me it looks like gold is the next bubble. It's value has increased 6 times faster than the SP500 (sic) over the last 5 years." - Jonathan 

(Note: $1,236.50 - Gold Price 5/14/10)

Jonathan, the price of gold is an inverse indicator of the strength of the currency that you will use to purchase it. Gold has skyrocketed of late, because countries are printing fiat currency, as if no day of balancing will ever come.

Let me put it to you this way: If you have an eight-slice pizza that is worth $8, and a case of Pepsi is worth $8, you could conceivably trade one for the other, right? It's an even exchange.

Now, let's say you cut that pizza into 16 slices, but you still claim that the pizza is worth $1 per slice, rather than $8 in total. Nobody in their right mind is going to let you eat half that pizza and give you the case of Pepsi in exchange for the other half, right?

Well, this is exactly how the USD and Gold interact. The government prints more bills, and tells you that they are still worth the same amount. The person selling Gold is on to the game, and makes you pay more dollars to buy the gold.

As long as countries continue to print fiat (counterfeit) money, with no value increase to justify the expansion in the supply of currency, gold and other raw commodities will continue to increase in value.

With all of the additional debt that the US is accumulating through increased spending (e.g. Bailouts, Health Care, Fraud), the only way it will ever be repaid is through the continual printing of new money to pay old debts.

This will cause a dramatic up-tick in inflation, as the costs of all goods will sky-rocket in order to adjust for the diminished value of the dollar. Interest rates will also increase as a result.

Gold is not an item subject to bubble. It has a fixed value. If Gold decreases in value, that is only because the USD has become stronger. Gold is an inflation hedge. It helps you to maintain the purchasing power you had on the day you purchased it.

If Gold increases in value, you still have the same purchasing power as when you started. If Gold decreases in value, you still have the same purchasing power as when you started.

By purchasing Gold, you are stating that you expect the value of the USD to decrease. By not purchasing, or selling, Gold, you are stating that you expect the value of the USD to increase.

Does it make more sense to you now? The hard part for most Americans is coming to the realization that the current administration is hell-bent on destroying our country from within.

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Dear Readers:

You may have noticed a lack of frequency in my postings over the past year or so. I have been quite busy, and I have not made this blog a priority.

Hopefully, I will soon be able to start posting on a regular, even weekly, basis soon. In the meantime, I am working with a number of high-liquidity, high-return investment projects overseas.

If you have an interest in investing in projects with very high returns (5% monthly to 300% annually), please post a response to this blog. All responses are moderated, and your personal information will not be publicized.

Stop HUD From Eliminating Seller Financing!

Every once in a great while, the government steps in to fix a problem, and actually gets the job done. With the proposed changes in HUD's interpretation of the SAFE Mortgage Act, the government again shows that it just does not understand how to fix the problem that the Fed created. HUD proposes to severely limit or eliminate seller financing by placing the following limitations:

1. Limit to five the number of seller-financed loans that one can give, unless one attains a lending license (Attention investors, this means you!)
2. Disallow entirely any partial seller financing for FHA loans (no more 5% seller carry-backs to handle closing costs and/or down payment requirements)
3. Eliminate all seller financing for non-owner-occupied homes.

I have posted my personal opposition to these proposed rules, and my comments to HUD are as follow:

I'm sure that like all Americans, I just love when the government steps in to fix the problems of commerce. Well, not all the time. In the instant case, the proposed regulation goes too far to fix a problem that doesn't really exist, and it does so at the expense of exacerbating the problem it is attempting to fix.

Please, allow me to explain. While everyone understands that something went horribly wrong in the mortgage industry, which led to the financial meltdown of our nation, no one seems to have the spine to direct the problem where it truly lies: At the feet of the Federal Reserve. The Federal Reserve Board is charged with monitoring the lending practices of its member banks, and it also sets primary interest rates, upon which all other lending rates are eventually based. If one wants to get to the heart of the problem, correct the Fed's lack of oversight and the loose banking practices that it promoted that led up to the present crisis. Predicting the outcome from keeping rates at an artificially low level, and lending money, as if it was free, to people that could never qualify for loans under traditional underwriting (i.e. 100% LTV, No Income/No Assets, Neg-Am and Variable Mortgages, etc.) was a recipe for disaster. When the Fed raised rates in order to stave-off the inevitable inflation that arises from a loose monetary policy, the resulting drop in home values and increase in mortgage payments was a given. If I could see that, why did these so-called "experts" not see this coming? As for the proposal at hand, eliminating seller financing will take away from the market one of the strongest forces that is allowing properties to sell. Many people still cannot qualify for loans, and the knee-jerk increases in underwriting standards have made it near impossible. Seller financing is involved in many transactions, and helps with hard-to-finance properties such as vacant land, mobile homes, distressed properties, and more. Please keep it in place!

Now, you can also comment, but the deadline is Tuesday, February 16, 2010, which means you must take action immediately, if you want your voice to be heard. In order to comment on this proposed regulation, please follow the instructions below:

1. Click on the Title of this blog to get to the regulations.gov website.
2. Review the document by clicking the link or just click on "submit comment."
3. Complete the form providing required information and your comments and then submit

I hope that you will take this opportunity to comment on these proposed rules. The quicker the housing market can recover, the sooner that the rest of the economy may follow.

I have serious doubts about the integrity of the U.S. Dollar, and I am recommending investments in hard assets (i.e. Real estate, gold, silver, and other precious metals) as well as investments in foreign currencies and foreign stocks.

If the return on your current savings is not up-to-par, I have a limited-time opportunity in which you can earn a fixed 4% monthly (48% APR) return on a six-month investment of $1,000 to $10,000. This is a securities-backed investment and is highly secure. You must act quickly, because when the capital requirement is filled, this opportunity will be gone.

If you need more information on how to attain maximum results on your investments, in spite of the current economic situation, please comment to this post. All comments are moderated, so your personal information will not be displayed publicly.

Blog to you soon!

Bankruptcies Are On the Rise

According to recent news articles, bankruptcies are at their highest level since October 2005, with an average of 5,945 filings per day during the month of March. Adding to this the fact that 663,000 Americans lost their jobs last month, indications appear to be that this number will only increase during the coming months.

While this is a shame, all too many people file bankruptcy when it is not their best financial option.

Bankruptcy comes in two versions that apply to most consumers. Chapter 7 is a total liquidation of assets and near total elimination of debts. Chapter 13 is basically a negotiated repayment plan, with terms set and monitored by the courts.

Certain items cannot be discharged in bankruptcy; notably any tax liabilities for the past three years, federal guaranteed loans (i.e. student loans), and any debts incurred as a result of fraud. Other exceptions vary by state, including what assets can be exempted from bankruptcy. As each state sets its own rules in addition to the federal guidelines, I will not get into that discussion here.

The key point to realize is what exactly is being protected by filing bankruptcy. If no one is suing you or threatening to take anything away from you, then you do not need bankruptcy protection. Filing bankruptcy is a move that shields your assets and income from attachment by creditors. If creditors are not filing lawsuits or taking repossessive action against you, then you do not need to file.

Now, what if you do find yourself facing multiple lawsuits and foreclosure actions? Well, take a moment to evaluate your situation. If you are facing the potential loss of your home, take a look at the numbers before you. If you only have a first mortgage, and the property value is under water, you would likely be best served to either attempt a loan modification with your lender or walk away from the property. Many states are non-recourse states, meaning that the holder of a first mortgage who repossesses your property cannot come after you for a deficiency balance. This does not hold true for auto loans, however.

Should someone file bankruptcy to hold onto their car? Probably not. If you are holding onto a car which you cannot afford, then you do not need it. You can try to negotiate new terms with the lender, and I can guarantee that you will face a lawsuit for any deficiency balance on the sale. You would be better off to sell the car short, and then try to make up any difference. An attorney retained prior to a repossession order would likely be a good investment.

OK, so we try to hold onto the house, and we let go of the car. Now what do we do?

Next, take a look at that stack of bills that you cannot pay. If no one is actively suing you, let them sit for now. If they are suing you, then take a look at what you have at risk. If you have no equity in your house, you won’t lose that. If your car is secured by a loan, other creditors can’t touch it. Your personal property along with any property that you use in your business, trade, or profession, is off-limits in most states also. That leaves your bank accounts and your paycheck as the primary avenues of recourse for a creditor’s attachment.

If you know that judgments exist against you, keeping as little money in the bank as possible should be a given. As far as your paycheck goes, part of your pay is exempt. This varies by state, but you are protected to a minimum of $5.15 (Federal minimum wage) x 30 hours per week. This money cannot be touched. After that, depending again on your state of residence, only 10% to 25% of the remaining Net Pay can be attached for ALL of your garnishments. It does not matter how many judgments or garnishments you may have against you, the limit is what it is.

Many Chapter 13 bankruptcy plans and many plans negotiated by CCCS for their “clients” require payments that can be much higher than that amount. You likely pay more than that now for your unsecured debts, if you are actually in financial trouble.

The problem comes when people facing hard financial times ask a bankruptcy attorney what they should do, and never consult anyone else. Now, I don’t want to upset the legal establishment, but I would venture to guess that at least one bankruptcy attorney out there recommends bankruptcy as the answer almost every time. Just consider how it is they earn their living: If you file, they get paid. If you don’t file, they don’t get paid. What would you recommend in their position?

Some items are not subject to the previously quoted exemptions. They include back taxes owed to the IRS, Federal Student Loans, spousal and child support, and some others that may vary by jurisdiction. However, bankruptcy won’t protect you from these either, so you are stuck with them.

By all means, if you are having financial difficulties, you should consult an attorney. You should also consult an accountant and a financial planner. I would personally do everything in my power to keep you away from CCCS, because they work for your creditors and not for you. That is why I put “clients” in parenthesis earlier. You are not their client, just their potential victim.

Other ways out of a financial crisis include loan modification, debt negotiation, and debt settlements. You can do an Internet search to get information on these types of programs, and I will caution you that a great number of people and companies are employed in these areas of expertise, and not all of them are trustworthy. Tread carefully, and try to deal with reputable firms and organizations for this type of help.

As with any advice you may read in articles, and especially online, keep a discerning eye out for your own best interest. Nothing herein should be regarded as legal advice, and it is not intended as such. Should you need any legal, accounting or financial planning advice, seek the counsel and recommendation of a competent, licensed practitioner in your area.

Flash: Congress Tries to Recapture Bonuses Through Taxes

In what may prove to be one of the most asinine attempts at penalizing people for doing their jobs, each house of Congress has passed (or is considering) new bills that penalize companies that have received Stimulus (Porkulus) money and the employees receiving bonuses under contract.

If you missed the news, the House version of the bill (HR 1586) would impose a 90% tax on companies paying bonuses, and the Senate version would impose an excise tax of 35% each on the company and the employee, if the employee's household compensation exceeds $250,000. One would expect that state taxes would be at least 10%, thus taking away the entire bonus and returning it to government coffers, under the House version.

What the American people are not being told is that most of these bonuses are required as part of compensation packages that were negotiated and signed long before any bailouts occurred. The companies are legally obligated to pay these bonuses, and in some cases, the bonus comprises the majority of an employee's compensation.

The original Stimulus Package contained a provision that would have kept bonuses from being paid by Stimulus Package recipient companies. However, the Obama Administration didn't think that it would be legal to do this, so they removed the limitation from the package, over the howls of Republican lawmakers.

Now, the Administration is pushing for this new tax. Here is my question, "If it would have been illegal to block the bonuses, where is the legality of passing an ex-post-facto tax on this money?"

People have decried executive compensation models for decades. However, the reality is that companies cannot attract top performing executives without these compensation packages. The talent will simply go to another company that offers a better incentive package. This means that the companies that are already failing and that are desperately looking for new leadership will not find many takers.

Regardless of what version of this bill finally passes, look for a number of class-action lawsuits to be filed on behalf of the affected employees. The government will probably spend more money defending itself against the lawsuit than it would raise in new taxes. Since the government already owns 80% of AIG, it seems that Congress should be able to call a special Shareholders' Meeting, elect new Directors, and then voluntarily refund whatever amount of assistance they deem appropriate.

This is just a case of buyer's remorse, and it penalizes the wrong people. Should executives get a bonus for running a company into the ground? Of course not. However, in the AIG example, over 400 people are receiving bonuses. I have to think that not all of these people are in senior management positions of executive-level responsibility. Many of these people are probably regular working stiffs, who depend on this bonus to round out their incomes each year.

I have worked in businesses where I received a bonus based on what I accomplished during the year. I would always work hard to ensure that I qualified for my bonus. If the guys at the top screwed up the company by not doing their jobs, why should I get shafted, when I did the job I was hired to perform, and earned the bonus for which I was eligible? What if this was you?

I invite and welcome your comments.

This is the Perfect Time to Fix Your Credit

We have all read the headlines about the current economic crisis. We have seen the “Stimulus” packages passed. We have all wondered aloud, “What is in it for us?”

Well, on an individual basis, you may have a lot of ways to take advantage of the current economic situation. Opportunities abound if you have a fist full of cash and/or excellent credit. The sad reality is that most of us have neither. While I could write about a number of ways to fill your hands and pockets with cash, this article is about fixing your credit.

You see, if you don’t fix your credit, your ability to put cash together to take advantage of opportunities will be limited. We live in a credit-based society, and many items are overpriced due to the availability of credit. Do you really think that homes and cars would cost so much money if people had to pay cash for them? Of course, they would not cost so much!

The burning question then is “how to fix your credit?” You have two choices: 1) Do it yourself, or 2) Hire a professional. Let’s think this through.

If you opt for the Do-It-Yourself route, you need to do a lot of research. Why? The decks are stacked against you. Every American wants perfect credit. If it was so easy to fix their credit themselves, they would have done it by now. Instead, the average American’s credit score has been dropping each year at a record pace. The average American’s credit score is now 678, when it was over 720 just three years ago.

You could research the credit laws, pore over case histories, and study the various Federal and State Acts and laws that have been enacted to protect your consumer rights. You could write brilliant letters espousing your innocence against the spurious allegations against you that say that you do not honor your commitments and pay your debts. You could keep meticulous records, building evidence for lawsuits that you would later file against your creditors, collection agencies, and credit bureaus.

The sad truth is that you could do all of these things yourself. The sadder truth is that you probably won’t. Most consumers make a brief effort to write a couple of letters and hope their credit reports will magically improve. Unfortunately, these feeble attempts rarely achieve the goals set by these same consumers, and they sadly give up, and face their fate. Even those who get proactive, take all the right steps, keep their documentation in order, and follow-through are in for a battle that could last two years or longer, and still not get the results they desire.

Your creditors, in concert with the credit reporting agencies and others, have spent a lot of money to back those very same Federal Acts and other legislation that supposedly protects your rights. Do you realize that these laws do little to protect you, but do a lot to protect those who disparage your reputation by saying you don’t pay your bills? It’s sad, but true.

In fact, the three major credit bureaus have spent millions of dollars in lobbying for laws that severely restrict the ability of third parties that would help you fix your credit. Nearly every state in the union has laws set-up to make it very difficult for a so-called “credit repair company” to exist and do business. Why would they fight so hard for this? The reason is simple, “The CRAs do not want you to engage professional help, because they know it works!”

Consumer Reporting Agencies exist for one reason only. They exist to protect the creditors and collection agencies who provide data to them and who rely on this data to make credit decisions. It makes sense that the CRAs would rather have inaccurate, negative data against you than to possibly miss something negative. Since your creditors use the data provided by the CRAs to turn down all but the most solid risks, it is in the best interest of the CRAs to ensure that ALL potentially negative information about you is reflected on YOUR credit report. If the CRA told your creditor that you had a very low risk of default, your creditor gave you a loan, and then you defaulted; it makes them look bad!

This is why when you try to get the CRA to remove any adverse information (regardless of merit) they do everything in their power to avoid removing the item. They stall. They force you to jump through hoops. They ask for more information. They simply tell you that the creditor has confirmed the information as accurate. They tell you that your dispute is frivolous.

They do all of these things, because they know that you will probably not follow-up. They count on the fact that you do not know your rights, and that puts you at their mercy.

This is why you need PROFESSIONAL help. A professional has seen all of these tactics. A professional knows the laws that protect consumers. A professional can cut through the stalls, and attack the CRAs and your creditors using the laws in YOUR favor.

Sure, you could do the work yourself. However, I don’t know a single cardiologist who would do her own angioplasty. A professional should be able to get results for you within three to six months, rather than the two years or longer it might take you to do it yourself. Considering the cost of bad credit in higher interest rates and lost opportunities, it is an investment with a very high return.

Where and how do you find a professional? This is the difficult question. You can hire an attorney to do this for you, but that could cost you thousands of dollars. You could find a company that charges a low monthly fee to do the work (and their motivation to work quickly will be?). You could find an organization that charges a fair amount of money, but actually gets the job done.

Whichever route you choose, choose wisely, because credit repair organizations earned the bad rap they received back in the 90s by not performing. Things are much better now, but you need to choose your solution wisely. Do your homework. Ask the right questions. Contact this author for suggestions.

Help is available, if you know where to look, and whom to ask. Fix your credit, and then we can talk about how to use that access to capital to start building your wealth.

How the Stimulus Package Hurts Real Estate

We all know that the economic stimulus package exists because real estate crashed. Now, I am working on another article that will detail and explain how we got here, but that is a story for another time. The Economic Stimulus (Porkulus) Package contains several key provisions that directly affect real estate.

Now, the National Association of Realtors feels that anything that reduces the prices of houses is a bad deal. Their argument has some justification, because when the price of a house reduces to a value less than the obligations (liens, mortgages) standing against it, then we have a recipe for foreclosure. However, that is not their real motivation. Lower housing prices mean lower commissions, as most commissions are based on a percentage of selling price.


Personally, I think that we should be looking at housing affordability. In other words, what combination of factors will allow MORE people to actually be able to OWN homes? We need a combination of low interest rates, favorable mortgage terms, and low housing prices.

The problem in all of this relates to how housing prices are set by the marketplace. The rental market has an impact on this, because most people who are looking to buy a first home currently rent a house or apartment, and they will be trading a rent payment for a mortgage payment. They will also be divesting themselves of some level of their personal savings for a down payment and/or closing costs.

A person who is accustomed to renting will take a look at the family budget, and determine what amount can be allocated toward a mortgage. Most people overlook all of the extra costs that go into owning a home, including taxes and insurance, maintenance, water, trash collection, etc., but we’ll ignore those costs for the moment.

If a family determines that they can afford $1,200 for a mortgage payment, they will volunteer this fact to their mortgage broker and Realtor®. In turn, a determination will be made as to how much house that family can afford. If interest rates are at 5.75% (a currently available fixed rate), then this relates to a principal amount of about $207,000. Assuming that the family has the proper down payment of 20%, this means that the family can afford a house valued at about $260,000.

Now, the Realtor’s job is to find a house for which the family is willing to spend $1,200 per month. So, the family will look at the marketplace of houses, and determine from the range of homes available, which is worthy of their $1,200 per month budget. As a result, all houses in the market that justify a monthly expenditure of $1,200 will be worth about $260,000. This is a simplistic depiction of how retail housing prices are set.

What can complicate this scenario and formula is when the government (or the Fed) steps in to try and affect the housing market. Here are some items in the budget, which are supposed to help the housing market. Analyze each, and try to determine what effect each will have on the cost of housing. Then, determine the effect each measure has on the affordability of housing:

1. An income tax credit for first-time home buyers of $8,000 2. A reduction in the mortgage interest deduction for families earning over $250,000 per year 3. $100 down payment mortgages on FHA loans to buy HUD repos

1) An income tax credit for first-time home buyers will increase the price of houses by making more money available for the purchase. In other words, no one likes to leave money on the table, and the sellers will grab whatever is there. The downside to the credit is that it is only applicable to purchases that occur by first-time home buyers in 2009, which eliminates a large part of the buyer pool. In addition, the credit won’t be received until 2010, so it is not available for down payment money.

2) Lowering the mortgage interest deduction will actually reduce housing prices, because the net cost of ownership in high-cost areas will increase, when those capable of making the higher payments have a higher net cost of ownership, due to this tax increase (Note: A reduction in tax deduction has the same effect as an increase in tax).

3) $100 down payment mortgages increase the prices of homes by increasing demand. The offset here is that this program only applies to homes that have lost value and been subject to short sale/HUD sale auctions. The lack of a down payment does not reduce the price of the homes, but this will help to provide a bottom for housing prices in some markets.

This gives us three proposals, all of which will increase the net cost of buying houses, and decrease the affordability of those same homes. If the government did not get involved, housing prices would continue to fall, thereby making homes more affordable for everyone. Oh well, at least the government tried to help out.

Can You Smell What the Prez Is Cooking?

Yes, my friends, the bacon is sizzling! The President's "porkulus" (stimulus) package passed with liberal colors during my absence. I'm not sure what kind of "change" this signifies. Democrats spending over $1.2 TRILLION over the next ten years with one swipe of the pen doesn't sound like change to me, unless "bad to worse" counts as change in the Obama dictionary.

I'm not sure what is the "real" crime in this bill. Could it be the fact that somehow they were able to compile over 600 pages of spending so quickly, or the fact that they expected lawmakers to fully digest the bill in about eight hours from delivery to voting? Of course, no one bothered to read the complete bill once it was printed, so just about anything goes as far as spending projects are concerned. Certainly, I have not had time to read the bill, but I hope to spend some time on it over the next couple of weeks. Of course, I have been waiting four days so far for it to finish downloading (just kidding), and I can promise that I will be spending more than eight hours reading and deciphering it.

What I really enjoy is seeing President Obama speak with a straight face and tell the American People that this bill does not have a single earmark in it! What a laugh! The definition of earmark is that money is allocated for a specific purpose, generally for a pet project of a senator or congressman, who brings money back home to the district, which will later result in reelection votes. Now, I'm not sure, but I heard that we are spending $8 billion to see if a mag-lev rail from Disneyland to Las Vegas would make any sense. (I'm sure that Harry Reid (NV) and Nancy Pelosi (CA) put this one together.) Give me half of that, and I'll give you the answer right now. (Uh, no!) See how easy it is to save money in America? I just cut $4 billion from the budget in mere seconds! Why can't the Democrats figure this one out? Now, before my Democrat-registered readers get up in arms, this bill was clearly a Democrat Party concoction, as less than a handful of Republicans supported the measure. I already have spoken on the failure of the previous bailout attempts, and why they were doomed for failure. What I find interesting is that we are going to have to borrow $2 TRILLION in order to fund all of this spending, between the new porkulus bill and the previous "bailouts." This money is going to have to come from the Chinese, to whom we already owe over $1 TRILLION from previous borrowing. What will happen when they foreclose? Perhaps, we should all brush-up on our Mandarin. By next week, I expect to have had some time to work on some of these issues. Perhaps, I will find a few issues to post sooner, so keep checking your inbox (if you are a subscriber) or check back here often.

---- On a personal note, please allow me a moment to thank many of my friends, fans, and readers who expressed condolences over the past week, since the passing of my mother. I appreciate all of the heartfelt support. Having been a financial planner for over ten years now, it is interesting that this is the first death claim I have had to handle in all that time. ----- Until next week, I wish you all well. Hang on to your wallets! It's going to be a bumpy ride!

Announcement

To the loyal readers of "Personal Finance for Real People." Randall Parker's article will not appear this week, as he is mourning the loss of his mother, Ann Brown Parker, who passed away in the early morning hours of February 19. She was 83 years of age. 

Coincidentally, February 20 would have been Randall's father's 89th birthday. He passed June 21, 2006, at the age of 86. Randall hopes to have an article prepared for next Saturday, February 28, 2009. 

Thank you for your understanding, kindness, and condolences. Randall does have a new website for the mortgage side of his business, which just launched this past week. Please visit the site, when you have the opportunity.

Special: Bailout Update

Early edition this week. I just received information on where some of the early bailout money went, and how it is allocated. I seem to recall hearing that the monies were to be invested in such a way that taxpayers would be repaid as quickly as possible by those to whom help was given. I didn't believe it then, and given the new information that I have found, I certainly don't believe it now.

Here is a partial listing from the original $350 billion in allocations:

• $250 Billion for purchases of Senior Preferred Shares under the Capital Purchase Program (This is the money we are supposed to get back right away, when things turn around)
• $ 20 Billion to Bank of America - The government is to share in the losses on a $118 billion package of assets. (If we are sharing in the losses, how do we get this money back later?)
• $ 20 Billion to Citigroup, same as BofA above, where the government (you and me, folks) will share in losses on a $301 billion package of assets. (Again, same question as above.)
• $ 5 Billion to Citigroup to cover additional losses with TARP funds.
• $ 40 Billion to AIG Insurance. (This is certainly money well spent!)
• $ 21 Billion to prop-up the US Auto Industry. (Of course, the industry doesn't have to make any substantive changes, but GM is offering $20K buy-outs to ALL employees and a $15K new car voucher, if they will retire or quit early. Why not just offer $20K to every taxpayer to buy an American-made car?)
• $ 20 Billion to the Federal Reserve to improve consumer access to credit. (Really? Do we need this? Isn't loose credit what got us into this mess in the first place? Also, doesn't the Fed already control all of the money supply?)

This just explains where about $376 Billion of our dollars went. With over $1.5 Trillion to $2.0 Trillion in total bailout money, which will be added to our current $1.0 Trillion deficit; where, when, and how will we ever pay this money back?

The answer is, we won't! The Fed will have to print new money in order to make these payments on behalf of the government. They are trying now to sell $2 Trillion worth of Treasury Securities in order to fund these programs. Who still has money left, and who is going to lend to the US government now? Good luck with that!

This is just another example of your government screwing you big-time! While you can't fight back against the government, you can use the bailouts of financial companies to your benefit.


The National Consumer Rights Alliance (NCRA) offers the following services, all of which will help you to lower your outstanding debt, reduce your interest rates, improve your cash flow, and potentially save your home:

• Mortgage Modification / Forbearance / Short Sale / Recission - These are all tools offered by the association to help protect you from your mortgage lender. You may qualify for a reduction of principle in your mortgage, a reduced interest rate, postponement of late payments and penalties, conversion from an adjustable to a fixed rate, a short-refinance, or other concessions from your lender. The NCRA offers these services at much lower costs to its members than you will find anywhere else.
• Debt Settlement / Renegotiation / Bankruptcy - Debt Settlement can reduce your unsecured debts by 50% or more, and enable you to become debt free within three years, in most cases. Renegotiation can help you lower your interest rates. If you absolutely cannot pay your bills, or you have judgments or extended liabilities that have wreaked havoc on your finances, or if you just have no other way to save your home, the NCRA can refer you to a local bankruptcy attorney who will represent you at drastically reduced rates. We rarely recommend bankruptcy, but if it is your only way out, at least we can save you money.
• Credit Restoration / Secured Credit Lines / Bank Accounts - NCRA now offers NO-COST Credit Restoration services to its members. They used to charge a $5.00 fee per deletion, but they have now waived this charge, in order to further assist members in the current economy. NCRA can also provide referrals to secured credit accounts, which will help to reestablish credit, and if you have found yourself in the ChexSystems database, NCRA can refer you to a local financial institution that will let you open a checking account without a ChexSystems verification.

Since the Federal Government is giving so much money to financial institutions, they have been mandated to work closely with debtors to work out arrangements for debts. Since the government has agreed to cover the losses, it only makes sense for an intelligent consumer (that would be you, dear reader) to take advantage of this situation for your own gain. After all, it is OUR tax dollars that these companies are receiving. Take advantage of the help that is being afforded you. Until next post, I wish you well, and I hope that this information will help you. Spend wisely, and sleep well!

Here is a Special Offer from the NCRA for my readers, so listen up! 

For a limited time, just for readers of my blog, the NCRA will give you a family membership for the same price as an individual membership, for full payment upfront. This is a savings of up to $800 over the price of purchasing a family membership under their payment plan! 

Again, this is only for readers of this blog. In order to avail of this special, send an email to administrator@ncramembers.org, mention that you are a reader of this blog, and that you would like this special pricing. NCRA accepts PayPal, bank check, and credit card. Your benefits will begin immediately upon joining. This special pricing is not noted on the website, so be sure to request this special via email. This offer is good for the month of February 2009, and is subject to revocation without notice. In other words, this is a limited time offer. NCRA has promised this pricing for the first 100 readers who sign-up for the special. I suggest you send your email today!

Stimulus Package: WillI It Fix the Economy?

I am saddened by the fact that the people we choose to lead our country are trying to fix the economy when none of them has any clue about basic economic principles.

If you want to fix the economy, here is how you do it:

1) Let the banks fail. We already have the FDIC and Federal Reserve to bail them out and protect depositors.
2) Let non-competitive companies fail. The automakers have not been competitive for years, because the unions have ruined their cost structures with inflated salaries and unrealistic retirement and health benefits.
3) Give money to the consumers, and let them choose where to spend it. Let the people vote with their wallets for which companies and industries are offering the best combination of value and service.

The United States was established on sound economic principles and good morals. The productivity and ingenuity of the American people has long been our steadfast advantage. Unfortunately, our lame educational system and overzealous (greedy) unions have conspired to encourage stupidity and laziness.

The founding fathers would probably puke if they saw us today. We have gotten fat and lazy, and we have lost our ambition. People did not travel half-way around the world over 300 years ago, to an uncertain future, so that they could have a job at the local 7-11.

The Free Enterprise system is geared toward business ownership, not indentured servitude (jobs). The American Dream is not about home ownership, it is about business ownership.

Our people have been deceived, and it is about time that some REAL change is made. The country is destined to fail, and this fact is belied by the government trying to steer the economy by spending money it doesn't have.

Get ready for high interest rates, a very tough credit market, a continued housing crash, and rampant inflation. The government will have to start printing money in order to cover its debts. This will increase the prices of imports, drive inflation, cost jobs, and reduce purchasing power.

I hope everyone is happy with the CHANGE for which they thought they voted.

BTW, where is the change, when all I see is the same old people being appointed to important jobs? What changed, exactly? Democrats are still spending money, and Obama lied about the tax thing (we all knew he was lying, right?).

While you are waiting for the economy to correct, fix your credit!

Your Way Out - Personal Economic Recovery

Judging from the record number of comments that I received from all of you this week, I realized two things:

1) I have a lot more readers than I suspected.
2) You are an impatient bunch! OK, perhaps it was cruel to make you wait, but the last post was so long that I wanted to ensure that it got enough time to be read, and I didn't want to put so much into one post, that no one would read it all the way through.

The Four "I"s

This topic has nothing to do with wearing glasses. Last week, I asked you to gather all of your financial data from the last year. Since most of you didn't do it, do it now.... I'll wait....   

Welcome back! Now, the Four "I"s consist of Income, Investments, Insurance, and Interest. In order to succeed financially, you must have all four of these items in place in your life. Most likely, you don't, but we can fix that.

Income consists of all inflows to your household, regardless of source. Primarily, this consists of profits from your business or your salary or wages from employment. You may also have income from investments or savings, hobbies, and avocations. You need to maximize this aspect of your life. To the extent that your income derives directly from the "amount of time" you spend on an activity, you need to maximize your return on that time (i.e. Become more efficient).

Investments consist of continuing returns on prior income. In other words, first you worked for your money, and now your money is working for you. To the extent that you are successful with your investing, you are now using time to compound your return on your original labor.

Insurance is the method by which you protect everything that you have accomplished in your life to date. Some methods are obvious, while others are not. I have written a few articles about insurance, which you may peruse. The less obvious insurances may include unemployment insurance and workers' compensation, which protect your income. Life insurance protects your family by replacing your income, while property and casualty insurance protects your accumulated assets. Liability insurance protects everything you own against the claims of others.

Interest will either work for you, or it will work against you. You may derive interest on savings or investments in debt securities (bonds or corporate notes payable) and you may lose interest on borrowing (mortgages, auto loans, credit cards, etc.). Albert Einstein said something along the lines of "Those who understand compound interest will be investors, and those who don't will be borrowers." Which of these describes you?

Using the Current Situation to Your Advantage

At present, financial institutions in the United States are reeling. They cannot possibly keep up with all of the issues that they face. Approximately 16% of mortgages will foreclose this year. This will keep real estate prices low, which contributes to foreclosures. Yes, this is a vicious cycle. As people see their credit ratings destroyed due to non-payment of their mortgage obligations, they will tend to care less about paying for unsecured debt (credit cards), which will take away the banks' most profitable income center. A record number of bankruptcies is expected this year (well over two million cases).

Since I do not wish to create a forty page blog posting, I will lightly cover the areas that you need to address in order to solve your financial issues. This is not a do-it-yourself posting, as I cannot give you all of the information, skills, and tools needed to solve this problem yourself, in the space of a single blog posting. I will ask that you contact this week's sponsor, as they are in a position to help you accomplish all of these tasks, and as an advocacy organization, can do it much more efficiently and more cost-effectively than you can handle them yourself.

National Consumer Rights Alliance, Inc.

The NCRA is an advocacy organization dedicated to the protection of Consumer Rights for all Americans. They provide a number of benefits to their members, including credit repair services, a nationwide legal network, IRS Audit Defense, debt settlement assistance (not bankruptcy), mortgage modifications, and mortgage attainment assistance. They also assist with second chance bank accounts (no ChexSystems verification) and second chance (secured) credit cards. I believe so much in this organization that I have accepted a position as its President, in order to help drive their mission forward. I know of no better organization, public or private, that is in a better position to assist consumers in the ways that I suggest below. Of course, you may take all of these steps on your own, but I think you will find better results by allowing their experts to work on your behalf. Even if you were a skilled surgeon, you still wouldn't perform your own appendectomy, would you? Save time and money by joining the organization today.

Your Personal Recovery Steps

Income - You need to find ways to increase and diversify your income. In the current job environment, changing jobs is probably not the best option. In fact, you may be doing all you can to hold onto the job you have. Perhaps, you have lost your job, and find yourself in a very difficult spot. Try to find ways to supplement your income. Most online methods are scams, so be careful. It is possible to make money on E-Bay or Google and with certain blogging opportunities, but most people fail. NCRA has a referral program that can provide a good second income, so that might be worth investigating. 

Investments - Assuming that you still have some money invested, you need to find a way to build back up. If you are still able to invest each month, I suggest that you continue to invest. In most cases, the companies in which you are invested lost value due to the overall market, and not due to anything directly related to the performance of the company with respect to its peers. If this is the case, continue to invest in the same companies, and allow dollar-cost averaging to work for you. If you need to realign your investments, speak to your investment advisor.

Insurance - Be sure that your insurance policies are up-to-date. Is your life insurance protection adequate to replace your income for at least twenty years? If not, reevaluate. Be sure you are getting the best value for your health insurance as well. Many individual and family policies now provide benefits as good or better than your workplace may provide. Oftentimes, these policies are cheaper if your family is in good health, due to the elimination of "adverse selection" that exists with group policies. 

Interest - Good news! This is the area in which you have the most control at present. These are the areas that we can address here, which will help you to solve the majority of your financial problems. Of course, if you have no income, that is a severe issue, but you can still work on alleviating much of the pressure you face by addressing these issues.

Reducing Interest and Credit Liabilities

Mortgage Modification is a great way to reduce your mortgage liability, payments, interest rate, or a combination of the three. I highly recommend that you NOT DO this yourself. Even if you are not behind on your mortgage, you may be able to renegotiate your mortgage into a better interest rate, longer terms to lower your payments, reduction in pricipal, and other options that can help you save your home and/or lifestyle. I have seen instances where individuals have lowered their monthly obligation by as much as 75%, reduced interest rates to as low as 3%, and had tens of thousands of principal balance forgiven. This is not an area for do-it-yourself. Help will cost you one mortgage payment on average, but you will have one month in which you will not owe a mortgage payment to your lender, so it is a service generally provided at no net cash flow loss to you. NCRA can connect you with a law firm to handle this for you. 

Debt Settlement is another way to greatly improve your cash flow. What would it mean to you if you could slash your total outstanding debt by 50% or more, reduce your interest rates to single digits, be debt free in 36 months, and actually come out of the process with excellent credit? Even if you have good credit and can afford to pay your debts now, this may be a great way to free up money for investment. Again, this is a service provided by attorneys, and you don't want to play this game on your own. 

Credit Repair/Restoration can help you qualify for much better terms on mortgages, auto loans, and credit cards. Do you have old collection accounts, chargeoffs, or even some late payments showing on your credit report? These items can cost you dearly when it is time to obtain financing for any purpose. NCRA provides attorney-assisted credit services at almost no cost to its members, as a benefit of membership. You only pay $5 per deletion obtained. 

Mortgage Refinancing is available if you can prove your income, have a debt-to-income ratio of 45% or less, including your mortgage, and have a credit score higher than 720. If you have these attributes, then you can probably refinance in the low 5% range on a 30-year fixed mortgage. If not, then take some of the steps above before trying to refinance. A mortgage modification may be a better deal anyway, as the cost of modifying a mortgage may be much lower than the cost of obtaining a mortgage. 

Margin Account Borrowing is available to investors who have active trading accounts with the major wirehouses. If you have been purchasing stocks without borrowing against them, you can open an account, which will allow you to borrow up to 80% of the value of the shares at rates as low as 2%-3% per annum. If you take this money, and payoff your high interest credit cards, your savings could be significant. If you will take this tact, I advise that you only borrow 50% of what is available to you, and then repay the monthly payments that you would have made on the credit cards back to your margin account. In the alternative, you can take that monthly payment to reduce the liability on other high interest accounts, but be sure that as you accumulate these payments that you eventually pay off the margin account. 

That's all for now. Once you take these steps, keep me apprised of your results. Of course, I am always here to help, so keep those comments coming. If you need individual help, let me know. If I receive similar questions from a number of readers, I will post my comments, so that we can all benefit. See you soon!

Happy New Year - Time to Catch-Up

Please allow me to begin by apologizing for the severe lack of posts over the past six months. Between a major move, having my first child, taking on two new administrative positions, several consulting projects, the college football season, my mother's moving and health issues, and more; things have been quite busy for me lately. I have also taken responsibility as co-owner for two CBS Sports Official Fanatics sites as indicated below:

CBS' Official USC Football Fanatics Group


CBS' Official CSU Bakersfield Basketball Fanatics Group

Please click on the links above to join each site.

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OK, now that we have all of that out of the way, let's get on to real issues. Apparently, this may not be the best design for a blog site, as I know that a lot of you have commented, but approved comments do not appear to be showing on the site. Perhaps, I am doing something wrong or the design is flawed, I'm not sure. Please, continue to post your comments, so that I can keep up with what you are doing, and so that I am able to help. If you would like your comment to appear, do not place any personally identifiable information in the comment (i.e. Real name, phone number, email, SSN#, etc.). You may make two comments, one with your public comments and the second with your contact information, if you would like a response. I will ensure that your personal information does not appear on the site.

State of the Economy (How Did We Get Here?)

We are SCREWED! OK, well maybe it is not that bad for everyone, but we certainly have issues, and our government can't seem to get out of its own way. One of my biggest complaints about the educational system in the United States is that we do not teach our own system of economics to our young people. Columbus and the Pilgrims did not board wooden ships, and sail half-way around the world (and risk going over the edge) in order to set-up camp and find jobs at the local 7-11. The early settlers to our country left their birthplaces to avoid persecution, prison, to gain religious freedom, and to have the freedom to choose their own type of work and profession. In the late 18th Century, most women did not work outside the home, 95% of men who worked had some kind of a trade or profession, and the 5% or so who did work for someone else were generally working in some sort of an apprentice capacity in order to learn a trade or skill, which would allow them to become self-sufficient and self-employed. Towards the end of the 19th Century, the golden spike was driven into the East/West railroad, and our economic system changed forever. Up until that point, every community had to be largely self-sufficient. That means that anything needed by the town had to be grown or produced there, or brought in by inefficient means, such as carriages, carried on foot, or horseback. That limited the availability for many products and materials. It also created opportunity for those within the town or village to provide services or manufacture products for the town. We had tailors, seamstresses, metal workers, printers, hobbyists, carpenters, etc. serving the needs of the local town. Now that the railroad was in place, enterprising souls could take these seamstresses, carpenters, and other tradespeople from the small towns, move them into a factory setting, and mass-produce these same items for a fraction of the cost. The rail system could then distribute these goods nationwide, and make them available to towns that did not have locals to produce them. In some cases, the local providers were displaced by this competition (way before Wal-Mart, folks!). As manufacturing companies proliferated, they realized that they needed an educated labor pool in order to ensure that those incoming employees had at least the ability to read, write, and calculate (Think Reading, 'Riting, and 'Rithmetic). Prior to this time, most education was handled by churches or community centers that providing a "School Marm" to teach all grades on a daily basis. Watch some old episodes of "Little House on the Prairie," if you would like to see an example of this. Since education had to be made consistent nationwide, the government (God Bless Them) stepped in and created our current educational system. Curricula were decided, teachers hired, and funding provided to establish schools across our nation. Education was made compulsory shortly thereafter. The problem with this whole scenario is that the schools were not created to promote our system of economics (Capitalism), but rather to train students to become employees of these new factories and other centralized companies (Socialism). The new mantra became, "Get a good education and go to college, so you can get a good JOB!" (Many thanks to Dave Severn, who provided a similar historical account years ago on a mass-produced tape entitled, "Pigs Don't Know Pigs Stink!") This brings me back to my point. Since we have systematically destroyed the system of economics upon which this country was founded, and we have spent over 100 years not teaching the fundamentals of capitalism, we find ourselves at a point where the electorate (We the People) have no clue about whom we should elect to office, and the fools that we do elect have no clue about fixing the problem.

How Do We Fix It?

The only way to fix the problem now is to allow everything to crash, and let private businesses find the solution to prop it back up. This whole situation was caused by unrestrained greed. If we bailout the idiots who got us into this mess by providing capital to them, we only exacerbate the problem. Giving more money to banks will not fix things at the consumer level. Giving more money to auto makers will not give them an incentive to correct their issues. They need to be allowed to go bankrupt, reduce their liabilities and labor costs, and then give money to consumers to use for down payments, so that the public may choose which automaker should survive based on their ability to serve the demands of the consuming public. Better yet, just give out $700 billion in tax refunds, and let the consumers make all of the decisions as to whom should survive. I was disappointed with the $700 billion bailout. I understood the argument that providing $700 billion was better than allowing the market to lose trillions in market capital by allowing things to fall, but before the first dollar of the $700 billion was advanced, the market had lost $6 trillion dollars already, and the real estate market has lost over $2 trillion more. If the bailout is not going to fix anything, recall it! It is now too late for that, as much of the money has already been advanced. No matter what method is used to try and correct this situation, we are all going to feel some pain. The only answer that I can provide is how to protect and enhance your own (or your family's) situation. Unfortunately, I am going to make you wait one week for the answer. In the meantime, I will ask you to spend this week analyzing your current financial position. Gather together all of your investment account statements, your tax information, your banking and savings information, and all of your bills. Then, start a fire (just kidding). Bring all of this information together. Have it ready by the time my blog posts next week, and I will tell you how you can get rid of all of your debts and be on your way to financial recovery in the next five years. No fooling! Now, is the best time to take advantage of this situation, and to use it to your advantage.

Investment Opportunities (By Popular Request)

With the current economic meltdown, several of you have asked me for specific investment advice. While I refrain from making global suggestions for individual stock issues, I do have some worthwhile opportunities on my desk for the right investors. If you have interest in seeing these, and the ability to act quickly (i.e. Be able to wire money within two business days), you may place a comment here with your contact information, and I will forward information to you. These are private placement opportunities available only to accredited investors. Minimum investment is $25,000 and maximum investment is $10 million. However, you will not be allowed to participate if your participation constitutes more than 25% of your invested assets (not including your home).

That's all for this week. Happy New Year! See you next week, for real!