What's Gangsta?

You hear all this talk about how "gangsta" rappers are. But let me tell you what's really gangsta:

- Gathering so large a foothold in the US Economy that you can convince the American government that your if your business fails, the US fails. That would be the Notorious AIG.

- Asking the US government for 85 Billion dollars for just your company. Then ask for about 40 billion more. Then spend out 90 billion of that with no real results. Meanwhile, throw a party out West. Then ask for (and get) 30 billion more this quarter, no questions asked. That's gangsta.

- Losing 61.7 BILLION DOLLARS (!) over the last three months of 2008, and kicking back 165 million in retention bonus money to over 60 of your boys in the company, prompting Republican Senator Chuck D, er, Grassley to say "Kill Yo'self!"

When asked, tell the government you did it so they won't leave the company. Then let it leak that you gave some of that retention bonus to 11 folks who already left. That's Gangsta.

Acting ignorant (or being punked) by a broke company who seeks to get more money after all this. Not gangsta.

Feds Will Bust the Clock

Feds Will Bust the Clock!




The great National Debt Clock is running out of numbers. I took this picture of the clock after the government released its budget numbers for the next fiscal year, which will soon push our debt to TEN TRILLION DOLLARS. The debt clock can only go to $9,999,999,999,999. So that means...a NEW RECORD! Woohoo! For those of you who care about such things, and are still reading this, allow me to explain how this will affect you and your future generations.

Think of all the “Big Things” that the government gives out that most citizens think about—Social Security, Medicare, Medicaid, and other programs. Politicians have also tried to talk about other “free” things they want to give out to you like education, tax breaks, stimulus checks, subsidies, federal grants, etc. Nothing on that list is terrible, per se; but all this is often mentioned without how it’s going to be paid for. You see, the government doesn’t have a lot of money stashed away in a bank somewhere to pay for these things. Most of these things are paid for through a tax, which means you are paying for them.

Consider the future of some of our current programs: Medicare is running a large deficit. Social Security will also run a large deficit soon. Remember last week when we talked about when banks fail? Well, the government assumes the debt for those as well. This week, a mortgage bailout bill was passed, adding onto the deficit. But unlike you, when you run a deficit (by putting more things on credit cards than you can pay off at the end of the month), you can max out and the credit companies can call the debt. The government doesn’t “max out” anymore. They simply increase their own debt limit. Can you imagine what you’d do with such power? What if you could set your own credit limit and change it when you got close to maximum, over and over again?



Ballin!



And like a hopeless debt monger, the government doesn’t seem to see any reason to pay for the slew of new programs they are putting forward. Making more money available (by printing more of it or by lowering the rate at which people banks can borrow it) does not solve the problem—an increase in quantity of something usually means a decrease in quality (or value).

So, as we always say, don’t look for the government to take care of you, because at some point it just won’t be able to. Let the politicians debate the finer points of whether Social Security, Medicare, and other such programs will be there for Our Children. Instead, focus on guarding against future shortfalls by getting in the habit of investing (and diversifying those investments) as early as you can. You never know when the next economic shortfall will come, or when the next housing bust will be here.

Worth of Stuff Part 1: Government "Bling"

So before you think that only entertainers, rappers, and the immature members of the class of nouveau riche are the only ones who know how to ball out of control, have I got news for you! These guys have nothing on that ultimate King of Bling, the US Government. For most of you, this should come at no surprise--the government collects your money through taxation, and spend it on various things they think you "need," usually without your input. This week we get a special taxpayer report on the US Department of Justice:

An internal Justice audit,(pdf) released Friday, showed the department spent nearly $7 million to plan, host or send employees to 10 conferences over the last two years. This included paying $4 per meatball at one lavish dinner and spreading an average of $25 worth of snacks around to each participant at a movie-themed party.

The prices above include an 18% service charge, but its beside the point.

First, let me congratulate the US DOJ for putting the audit out there for all to see. What's frustrating is that though the government spending of your tax money its evident that they need some leadership in selecting vendors properly. Think about it--how many of you out there can truly tell the difference in the taste of a $1 meatball and a $4 meatball? This is an important point, because most people can't. And in most cases, there isn't a difference--it's all in marketing (we'll cover this more in a later article).

You can get the report here, (if you're that big of a nerd). The point of reference mentioned above starts on page 76. Under the table of out-of-control spending detail, we find the the costs"...were so expensive that they may not be considered reasonable uses of appropriated funds..."

I bet.

Point being, if the government cannot control its spending with any reasonableness, and won't even try, they're probably not the folks you want to look to for help with your financial future. Now if they're looking to help out with the receptions at the MTV Video Music Awards next year, let them handle it. They've gotten the overspending down.

Next week, we put ourselves on the firing squad. How good at we at determining the true cost of "stuff"? Cars? Houses? Food? We'll take a look at it.

The "Future" of Social Security

The "Future" of Social Security is in doubt.

So this week I wanted to explore in depth the impact of the Social Security issue. I was inspired to write this from an extension of a highly-debated article written over at Free Money Finance. You can read his excellent article in its entirety [here]. To summarize, he looked at the impact of allowing workers take a look at contributing their own money into a fund rather than having the government do it for them. Turns out that the contributor would be entering retirement with a nest egg of nearly 1 Million Dollars! It may not sound like much, but imagine having a million dollars paid to you in retirement assuming that you would've paid off your house and car!

Well, back in Reality, it probably won't happen. Social Security after all is not a retirement program, but I'm not convinced that it's even security. The program is showing signs that it's no longer sustainable, and younger workers are all quite aware that they're paying into a system in which they will see very little benefit.

To illustrate, let's look at Social Security like a pot. You and your friends contribute a portion of your money into a pot, which will be distributed to older folks who have little or no pension and are too old to work—you don't want to put the elderly on the street. The system continues, so when you get older, you get to pull from the pot while younger workers pay in, and the cycle goes on. In theory, at least.

However, you don't get out as much as you put in because there are more people retiring than entering the workforce. More people living longer, and a shrinking ratio of workers are paying in. To exacerbate things, the money distributor (the US Government) decided that the program was working so well, that they can use some of the "surplus" money to pay for other things and write IOUs.

Well, that's the problem we have today. The ratio of those putting in vs. those taking out is shrinking. So the government has tried several "solutions" to keep the system sustainable. One example: raising the age at which you can take money out, and/or lowering the amount of money you can take out. These are only temporary fixes and you can see that as people live longer it gets harder to do that. And if you are a black male, the stats say you'll die before you're eligible to receive SS funds anyway.

Which is why I don't think it's that bad of an idea to allow younger workers to take a portion of their earnings and to place it in an account of their choice to collect a higher return on the money put into the system. At the rate we are moving now, we won't have enough "government security" to ensure any person any respectable amount of money in the future. And remember—government employees are on a totally different plan than most Americans, so don't expect them to take more than a cursory interest in your future.

So, as a younger worker, I encourage you to plan for your future as if the government will stick you with the raw end of the deal. Inquire about 401(k) programs as soon as you start working and also start contributing to IRAs before you budget yourself to a point where you "can't afford" to contribute. Then, if the feds do find a good way to keep Social Security solvent, you won't be depending on that government check.