Be Rich Blog Knowledge is the currency for success

Holy Cow! National Debt Clock Has Run Out of NumbersPosted by ahc99 on October 9th, 2008

If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!

Photo by wallyg

This is just sad. The US is going to build a new National Debt Clock since the one we have now is too small to show all the digits of our national debt. The current one can’t go past $10 trillion. With the double whammy of both the $700 billion bailout and the previously approved $900 billion worth of various bailouts, the national debt is expected to rise above $11 trillion!

Graph by Gaytan

Looking at the above graph, it’s crazy to think that our national debt has risen from $1 trillion to $10 trillion within a twenty-eight year timespan! At the same time, debt as a % of GDP hasn’t been this high for over fifty years. The last time it has been this lofty was back in 1955, 53 years ago.

Maybe if we all just wait a while and let the numbers keep on ticking, they’ll roll over and go back to one and everything will be forgiven. That would be awesome! Either that or armageddon will hit. If it hasn’t already.

Be a Budget Hero!Posted by ahc99 on October 5th, 2008

I just played a pretty new and interesting online flash game called Budget Hero. It’s a funny name but fitting title for this game in which you role play the government and make various budgetary decisions that affect the entire U.S.

In the game you are able to affect the budget through these categories: Defense & Diplomacy, Schools & Kids, Science & Nature, Housing & Living, Misc. XPs, Infra-Structure, Health Care, and Social Security. In each category you have the option of playing a number of Monopoly looking cards, which then have various side effects such as increase/decrease the deficit/surplus, affecting the size of government, and the amount of government I.O.Us to other countries. The game then tells you, based on the budgetary decisions you made, when the U.S. budget is going to go bust and lets you compare your decisions to others that have played the game.

The most interesting part of the game is how comprehensive this simple interactive flash game actually is. Each card that the user can play gives useful and realistic information about how a government decision can affect the U.S. budget. It also contains the Pros and Cons of playing such a card and the overall impact that card will have on the economy and U.S. citizens. So although it is a simple flash game, it is also a deceptively good learning experience about the complexities U.S. government officials face when they need to make various government decisions. In a way, I believe it helps the average user better understand some of the issues that the U.S. government is facing and enable them to better evaluate the policy debates going on in the current election process.

I definitely found this to be interesting and learned something new (or three or four) things about our government’s budget. Hopefully this “game” will help other people get more interested about the platforms of the current candidates and into the election process. Because seriously, although this is just a game, those policies and decisions are real and will affect our collective future.

Life After the Wall Street Bubble Explosion - The Silver LiningPosted by ahc99 on September 21st, 2008

Photo by me'nthedogs

An interesting post from Time Magazine’s blog The Curious Capitalist gives a few observations of how they think life will play out after the bubble:

“By the time we’re done here this is going to be equivalent to the big recessions of the past,” says Harris. “Similar to the recessions of 1974 and 1982.” That’s a lot better than a rerun of the Great Depression. But it still means big-time job losses, and lots of painful retrenchment for consumers and business.

This is not, yet, a unanimously held opinion. There is even still some debate over whether this even is a recession. But I’m thinking that’s going to fade away soon. “All my cousins already know we’re in a recession,” says Bob Barbera, chief economist at ITG and, coincidentally, a former Lehman chief economist. “You need a Ph.D in economics to have a debate about it.” Barbera thinks that, “in the fullness of time,” it will be apparent that the recession began in autumn 2007.

Barbera also believes this recession will end early next year, which is a nice thought. But what comes afterward probably won’t feel so great either. “I’d be very surprised to see a strong recovery in the economy,” says Harris. “The consumer was being spurred along by two big booms, housing and the stock market, and this expansion of debt.” No more. “You’ve got a much more conservative consumer in the next decade,” he says.

This is what the aftermath of an epic credit bubble looks like. For the financial sector, never very good at retrenching in an orderly fashion, it’s a time fraught with risk of collapse. But even if collapse is averted, the bubble still has to deflate. And it is deflating: Household debt, which grew at double-digit rates from 2002 through 2006, rose at just a 1.4% pace in the second quarter, according to data released Thursday by the Federal Reserve. This is, for the long-run financial health of Americans, a good thing. It just means there won’t be much economic fun anytime soon.

I think they are correct that the attitudes of consumers will change. People will not buy as much now that the job market is depressed, the credit industry is in danger, the stock market is down, and the housing sector is troubled. Truthfully, attitudes will change because consumers have no more places to pull out cash and use as an ATM. Good luck trying to get a lender to give you an unending supply of credit, they’re all working hard themselves to hoard cash so they won’t go under. At the same time if your house isn’t worth as much as before, you can’t expect to refinance it and get a wad of cash. The stock market will take a few years to recover so there’s no money there either. With all their previous lines of credit cut off, the consumer has nothing to do but to sit idly on their hands until things get turned around.

I believe this is the silver lining to the recent chaos: the American consumer is being forced to learn fiscal responsibility. It is definitely a good thing that the rate of household debt is deflating, falling from double-digit growth to a measly 1.4%. There was no way consumers could have kept up that growth when their real wages were not growing as fast without declaring bankruptcy. I think this was the rude awakening that was needed to prevent economic collapse of the average American household. And it couldn’t have come any sooner.

Generation Y is Broke and How to Fix itPosted by ahc99 on September 10th, 2008

Photo by SqueakyMarmot

According to this article from MSN Money, many 20- and 30-somethings are in a financial mess.

Current statistics indicate that Generation Y’s financial literacy is abysmal, with personal finances to match. Only 52% of high school seniors passed a recent national financial literacy test, meaning adults entering the work force do not know enough about basic budgeting, interest rates or taxes to make sound decisions for their own lives. In addition, studies have revealed:

• The median credit-card debt of low- and middle-income people aged 18 to 34 is $8,200.
• The average college debt for recent grads is more than $20,000 and rising.
• People between the ages of 25 and 34 make up 22.7% of all U.S. bankruptcies (but just 14% of the population at large), according to a recent report.

The article chalks up the reason that we are in this mess to these probable causes:

• We grew up in an environment in which parents coddle their children - We’re in a generation that was kind of shielded from a lot of financial responsibilities
• Bank deregulation has made the financial landscape confusingly complicated - Twenty years ago, when you were in college you didn’t have a credit card, and (now) all of a sudden we had to take on debt to go to college
• Consumerism rules - We have to have that handbag and an iPod
• New financial products have introduced a new complexity - Now there are all types of mortgages from fixed rate, interest only, ARMs, to Balloon payments

I agree with this article that these can all be factors resulting in Generation Y having a negative savings rate and be encumbered with debt. However, I am personally also part of Generation Y and for some reason just didn’t end up in the above described situation. The only debt I have is a student loan. I never maintain credit card debt cause I pay it off every month. And generally I have a savings rate of almost 30%. I don’t buy the fact that just because of those factors, Generation Y-ers need to be broke, there obviously is a way out. Part of the reason I might be different than other Generation Y people could be because my parents have always told me it is important to budget and save for the future. I’ll admit I am more financially savvy than most other people my age. In this regard, I agree with the article’s suggestion of having people take financial illiteracy more seriously. Like the article states, once people have an education in finance and learn how to plan financially, they will start to feel empowered.

In addition to that, I would say that younger people should try to save more, build an emergency fund, build a network of people that can help you both professionally and personally, start saving in a Roth IRA and your company’s 401k. Don’t come out of college and just blow through all your money and/or take on piles of debt by buying a brand new car, going on luxurious vacations, wearing expensive clothes, expecting to already keep up with the Jones on your entry level job. Read a few economic books and understand the difference between needs and wants. Make a monthly budget and stick to it. And this last one is especially important, pay ALL of your credit card bills on time every single month, or you’ll just dig yourself into a hole that will be very hard to get out of.