Before we get into that question, let’s step back and take a look a closer look at the unemployment problem for recent grads.

College grad unemployment/underemployment is bad, real bad.

The news has been awash in horror stories about recent college graduates not finding work. Many more are able to find work, but not in their chosen field.

“More than half of America’s recent college graduates are either unemployed or working in a job that doesn’t require a bachelor’s degree”.

This according to the article, 53% of Recent College Grads Are Jobless or Underemployed—How? from The Atlantic.

The Atlantic (as most other sources I’ve seen) doesn’t break the number down, so it’s difficult to tell how many college grads are actually unemployed, vs. how many are considered underemployed.

This is an important question because I think it highlights a big problem in education in America today. It’s easy to point to grads who seem unwilling to take low level jobs that are available and say they’re lazy or have a sense of entitlement, and in some cases that’s certainly true, but there’s also a very real financial reason at play – namely, student loan debt.

But things are different now, and it’s a lot harder to pay off $30,000 in student loans when your working the line at a fast food restaurant.College degrees are more expensive than ever, and students have piled on the debt. There was a time when this was a smart move because the higher level of education would help you find a good paying job, and the debt was affordable over time.

This doesn’t just lead to higher college grad unemployment rates though. This also causes systemic problems in the economy since those highly educated grads are taking low skill jobs that could go to others. Those jobs would traditionally go to less educated workers.

Economy and the job market to blame or just useless degrees?

All of this sounds bad, hopelessly bad. But not all doors lead down College Grad Unemployment Row.

According to this article, Half of recent college grads underemployed or jobless, analysis says , from the AP:

“…students who graduated out of the sciences or other technical fields, such as accounting, were much less likely to be jobless or underemployed than humanities and arts graduates.”

It sounds like going to school for math and science based degrees does still pay off in the end, so this begs the big question:

Is the college grad unemployment problem because the job market stinks and the economy has fundamentally changed? or is it simply due to useless degrees?

It used to be said that going to college was simply paying your dues and doing your time for a fancy piece of paper. Cynics would say that the paper didn’t mean much, but it opened doors because so many jobs were only available to those with a college degree -any college degree.

Times have changed.

It appears that you not only need that fancy piece of paper, but you also need the skills to do the job.

Here’s another quote from that AP article:

“I don’t even know what I’m looking for,” says Michael Bledsoe, who described months of fruitless job searches as he served customers at a Seattle coffeehouse. The 23-year-old graduated in 2010 with a creative writing degree.

They don’t go into how much student loan debt Michael has, but I’d bet it’s a lot – more than he’ll be able to manage on his coffeehouse job. But what was he expecting?

What good is a creative writing degree?

Don’t get me wrong, I admire writers and creative writing is not something many people can do well. It takes a certain innate ability and creativity that can be cultivated but cannot be taught. Not everyone gets to be Stephen King.

I’d say that Michael, and others like him, would be extremely fortunate to get a job somewhere making $30,000 a year with his degree, but what do you want to bet he has that or more in student loan debt?

A simple truth that no one seems to want to discuss is that for some degrees, debt doesn’t make sense.

I ask you, what would full employment be for a graduate with a degree in creative writing and do enough such jobs exist for the number of graduates seeking employment?

As Mish points out on his blog post, 53% of New Graduates are Jobless or Underemployed; Rude Awakening for Class of 2012; Useless Degrees; Who Benefits From Student Aid?:

“Just what job does someone majoring in Political Science, English, History, Social Studies, Creative Writing, Art, etc., etc., etc., expect to get?

Arguably, graduates in those majors (and many more) should be thankful to get any job. … those who do land a job should therefore be considered fully employed, not underemployed.”

Is college education simply less valuable than in the past

I think the college grad unemployment issue raises the bigger question of whether college education is simply less valuable now than in the past.

A few years ago, I asked the question Who Are the Unemployed? The answer I found was largely those without a college degree.

But now it seems that we are seeing the effect of a bubble in college degrees.

When there were fewer graduates, a generic college degree used to be a valuable credential. Now that the market is flooded with applicants holding Bachelors degrees, those degrees count less, and specific skills count more. The result? – High college grad unemployment.

According to the Census (Educational Attainment in the United States: 2011 – Detailed Tables – U.S. Census Bureau),

“the number of Americans under the age of 25 with at least a bachelor’s degree has grown 38 percent since 2000. “

The job market has not been able to keep up with this glut in the highly educated workforce, and this has led to falling wages and college grad unemployment we see today.

Lower student loan rates are not the solution – that only encourages even more debt.

The message here is clear: parents should encourage useful college degrees, or none at all for their children.

It doesn’t take a degree to be an entrepreneur, or the next Stephen King or Picasso. Either follow your passion and make it work, or get a useful degree to fall back on. The free ride is over for college grads.

Related Posts:

• Who Are the Unemployed?
• Unemployment Rate, Cities With Highest and Lowest Growth (Infographic).
• Don’t Look Now, But The Wheels Just Fell Off The Recovery Wagon (With Charts!)
• Is This Why College Costs Keep Rising?
• Why College Tuition Keeps Rising. (video)

College Grad Unemployment and Useless College Degrees. Copyright © Simple Debt-Free Finance

Here is an example of how they discuss this asset in the  Lear Capital commercial:

This asset is up over 100% since 2008 and Morgan Stanly predicts it could rise another 30% for 2012!

Is your curiosity whetted?

If not, the ad department at Lear Capital does their best to do so.

This one asset is not a stock, and not a bond… Call Lear Capital to learn more about this one asset that has returned 18% per year for 11 years… Call Lear Capital to get a special report and video on this “special investment”

This “special asset” is of course gold. Lear Capital is a gold dealer and they’ve been aggressively pushing the precious metal for some time now. I have to say that they do a good job of piquing interest where other gold dealers usually resort to all out fear to sell gold. This Lear Capital commercial doesn’t avoid the fear angle altogether though. They have plenty of elements targeting uncertainty (and rightly so).

Tired of losing money in the bank? …Artificially low interest rates and high uncertainty have helped this one asset out perform all other investments. You can continue to live with market volatility or invest in a secure asset that’s kept its value.

This  Lear Capital commercial certainly does their best to make gold seem like the “One asset to rule them all.” Over the past 10 years, it has been, but there’s still that line about gold being a “secure asset that’s kept its value” that implies it won’t lose value.

If there’s a bubble in gold, then a lot of people are going to lose a lot of money. The question of course is whether gold is a bubble.

To answer that, you have to consider what has been driving the rise in gold prices, and whether those factors will continue.

What is driving the price of gold?

Gold is typically used as an inflation hedge, and there has certainly been a lot of concern over inflation in the past few years, but prior to the numerous rounds of government “stimulus” and quantitative easing, fear of inflation was not the reason for gold’s rise. Uncertainty was. The War on Terror and general threat of terrorism created great uncertainty in the early half of the 2000′s.

Since the financial crisis though, the fear and uncertainty have revolved around the so called debt bomb of massive public debt and devaluation of the dollar due to the many “stimulus” programs.

What does the future hold for gold – has anything changed?

As an investor in gold, I think you need to ask yourself whether these factors are likely to persist, increase or abate. Is the U.S. government likely to significantly reduce its spending and reign in the deficit? The increase in national debt of 50% in the last 4 years suggests this is not likely.

Another factor at play here is the U. S. dollar as the reserve currency. While this is true, the U. S. government will be able to “monetize” its debt – that is decrease the value of the dollar through inflation and pay the debt down with less valuable dollars.

But what if the dollar is no longer the currency of the world?

Interest rates on the debt would spike and the U. S. government would no longer be able to print its way out of its debt obligation. Think Greece, Spain, Portugal, Italy and all the other bankrupt nations in Europe.

Don’t think it can happen? Check out Is the yuan the new dollar? from MSN Money. China would love to supplant the U. S. currency with its own. If that happens, the price of gold would probably rise greatly.

Is buying gold the right move? I don’t know. I’m no expert, but there certainly seems to be enough reason to at least hold some gold.

Given the reasons outlined above, conventional wisdom would suggest that gold is a necessity to preserve your wealth. Then again, conventional wisdom is often wrong in the end.

Related Posts:

• Rosland Capital – U. S. Gold Eagle Coins in Your IRA.
• U.S. Debt Comparisons (infographic).
• How (and Why) I Added Gold to my IRA.
• To Buy or to Sell Gold?
• How to Survive (and Possibly Thrive during) Stagflation.

Lear Capital Commercial Pushes Mysterious Asset, but is it the One Asset to Rule Them All? Copyright © Simple Debt-Free Finance

Rising rent prices and rental rates across the country

Rental rates rising across the country and prices are expected to increase 3.8% this year and 4% projected for 2013. That’s an average for the nation, which means the rise in rent prices could be much higher in cities with high rental demand.

In NYC for example, the rental vacancy rate is just above 1%. Demand is so great that renting often requires the level of paperwork usually reserved for mortgage applications! Rising rent prices have made the rental market so hot that it’s attracting serious investor capital with returns of 6-8%.

This is good, because it will drive rent prices up as more people get in the game.

How rising rent prices are good.

“How can rising rent prices be good?“, I hear you ask.

It does defy common sense up to a point. I mean, higher rent prices mean more of a financial squeeze on renters, leaving them with less disposable income. But this is a short-term view.

In the long term, this is how markets should work. Rent prices rise to point of excess as investors pile in. Higher rental prices make it more affordable to buy a home than to rent one. Especially when the amount of paperwork required to rent is on par with that required to rent.

It doesn’t take Warren Buffet to do the math at this point. When you’re paying very nearly as much for rent as you would for a mortgage, and you need to meet much of the same requirements to rent that you would to buy, it just makes more sense to get the mortgage.

This is of course assuming your lifestyle is suited to being a homeowner. It still doesn’t make sense to buy a home if you travel a lot or don’t expect to live in it more than 7 years. But if you’ve got strong roots in the community and foresee no geographical changes in your future then higher rent prices may be the nudge you need to get you moving.

This is a great time to buy a house – provided you use it as a long term shelter and aren’t looking for a quick profit.

But don’t just take my word for it, here’s a video from BankRate.com:

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• Worst Foreclosure Rates Found in 4 States – Can You Name Them?

Are Rising Rent Prices in 2012 Good for the Housing Market? (Video) Copyright © Simple Debt-Free Finance

I was reading through an old copy of Eat the Rich: A Treatise on Economics by P. J. O’Rourke and came across this page which pretty much sums up view of the OWS crowd and many of their supporters…

The book was written in the late 1990′s, so it struck me how current and relevant this section is today.

In lighter times, I would have thoroughly enjoyed the above passage but in the current economic and political climate I felt a twinge of unease. It’s a reminder of how far off the rails the country has gone that this has become common discourse and even seems to be the basis of much of the recent State of the Union address.

Perhaps this excerpt should serve as some small consolation because it shows that the Occupy mentality was prevalent in the Universities even in the late 1990′s, when the economy was booming, and that it only has a voice now because of the times.

I suppose it’s always been an undercurrent, and we can hope it returns to that status quickly. Of course, if it truly is indicative of the majority view then we’re in for a much longer time of economic unease, uncertainty and non prosperity. I guess we’ll find out in November….

Related Posts:

• Participatory Economics and Why The Occupy Movement Was Destined To Fail From The Start.

Eat the Rich: From Beatnik to Business Major Back in Fashion Again? Copyright © Simple Debt-Free Finance

Is this social injustice?

Is this even a news story?

It seems from the article that the writer wants to at least give the implication that this portends something inherently unfair:

“According to analysis by the Pew Research Center released Monday, younger Americans have been left behind as the oldest generation has seen wealth surge since the mid-1980s”

 

Just look at some of the statistics on these greedy elderly people:

• Households headed by adults younger than 35 had a median net worth of $3,662 in 2009.
• Households headed by adults ages 65 years and older had a median of $170,494 in 2009.
• The net worth in the less than 35 age bracket declined 68% since 1984.
• The net worth in the 65 and older bracket increased 42% in the same time frame.

Is this really a story?

CNNMoney is comparing 2 separate things at the same time and getting them muddled.

First, instead of pitting the two age groups against each other, it should serve as an example of how the American dream is still achievable – you can be better off tomorrow than you are today! People, on average, tend to be better off financially as they move through life. This is a good thing. They accumulate more assets and less liabilities – their net worth improves. Comparing younger and older people in this sense is like saying that older Americans are less young than younger Americans. it may be true, but it’s a pointless comparison.

Secondly, comparing these segments to similar segments from 1984 is wildly inaccurate. Here’s why:

• The economy in 1984 was on an upswing after the brutal recession of 1980-82, while the economy in 2009 was still in the midst of the Great Recession.
• Housing prices were hardest hit in the 2008-2009 recession. Most homeowners in the under 35 age set had recently purchased their homes at high prices and had very little or no equity, in contrast to the over 65 age set who had held homes for longer (on average) and not lost as much equity. This skews the net worth towards the older set.
• Simple demographics are different. People are working and living longer in 2009 than they were in 1984, giving them longer to accumulate more worth.
• Children were deferring there entrance to the workforce longer in 2009 than they did in 1984, staying in school longer and accumulating student loan and credit card debt when they would have been earning a salary and likely saving some money or buying assets like houses.

Maybe I’m cynical, but it seems like this CNNMoney piece is just meant to contribute to the sense of class warfare out there and lead people to assume this ” 47-to-one wealth gap” is the result of unfair tax policies, or greed, or Halliburton or whatever. Then again, maybe it’s just a poorly written, minimally researched piece to fill some deadline for the writer.

Judging by some of the comments on the original article, quite a few are taking the story as a justification for class envy, which is just a sad state of affairs.

What say you?

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• U.S. Mortgage Refinancing Applications Rose in the First Week of 2010.
• A New Wave of Adjustable Rate Mortgages About to Reset.

Older Americans Are 47 Times Richer Than Young – So What Or Injustice? Copyright © Simple Debt-Free Finance

Much of the coverage of the Occupy Wall Street protests has focused on whether there is a single, overall point or purpose to the movement and even whether it is a movement at all.

It’s hard to argue that a gathering – be it a movement or simply a protest – is successful if no one can come to a consensus as to the what it’s all about.

The folks at NPR’s Planet Money went down to see what the OWS protests were about, and they concluded that it is more of a “venue” than a movement. It seems that the OWS group is a loose conglomerate of disparate interests – at least on the surface.

“We went downtown this week to talk to the protesters at Occupy Wall Street. We asked people why they were there. We heard lots of different answers.”

But delve a little deeper and you find that it’s a platform for launching a whole new society. One based on Participatory Economics. More on that in a minute. First, the General Assembly.

The General Assembly.

At the heart of the OWS gathering is what the organizers call the “General Assembly” It takes place nightly, and it’s where everyone goes to discuss topics important to them.

For example:

“Should we buy some sleeping bags? What if we just buy fabric and make our own sleeping bags? How will we keep the sleeping bags clean?”

But in the midst of such discussion, a challenger arises to question the authority of the “facilitators.” Asking if they alone grant the power to be heard – without the general consent of the group body – can they be consider legitimate themselves? That’s right, before the meeting can be facilitated the very framework must be agreed upon and legitimized by the group body!

This led the Planet Money team to conclude that:

“It’s not a movement; it’s a venue. Standing around, talking about what everybody wants — this is a model of how the protesters want society to be.”

But could this ever really work? Could you base a society on this model and have it function better than the current society?

It turns out that an economics professor has been dreaming up such a system for the past 40 years and he calls it Participatory Economics.

Participatory Economics (ParEcon): A Theoretical Alternative to Capitalism

Participatory Economics is the brain child of economics professor Robin Hahnel. Hahnel, a self proclaimed “libertarian socialist” (you figure it out, because I can’t), has spent 40 years developing a new model for economics that is more democratic than capitalism.

The basic theory is that the best system of economics (and society in general) is one that is based upon group participation. In Hahnel’s world, there are no owners, no bosses and everyone is equal. In Participatory Economics, people gather in groups to do business as a worker group.

Businesses would be run by the employees, broken down by committee. There would be a committee to determine what kind of product to make, in what styles. Compensation would be determined by peer review and have little bearing on success of the company.

Supply and demand would be managed by a national network of these worker groups coming together to make requests for more goods and services. Some other committee would employ a computer algorithm developed by Mr. Hahnel that seeks to optimize utilization of resources.

Besides sounding like a plot for some cautionary sci-fi apocalypse tale, it’s likely to fail utterly when dealing with shocks to the system like a natural disaster destroying a food crop or other “unexpected” demands of the supply. In fact, when questioned about this Professor Hahnel admits that his system “may be a little weak” in such situations. He essential goes on to say that it would be worth such problems in the end because it’s a more fair system overall.

This is antithetical to the society the founders created for America and the basis of free market capitalism. The framework which the founders created grants the power to the individual, not groups. Once the power and control moves to groups, the individual is lost. In free market capitalism, supply and demand is managed by the price mechanism which has proven itself to be the fastest and most efficient way to manage the consumption of scarce resources with alternative uses.

In essence, the protestors want a society in which an idea is floated by an individual but everybody gets a say in whether that idea is accepted or not, and to what degree it is accepted. Rule by committee in it’s most benign form, rule by the mob in it’s malignant form.

History shows this is folly.

NPR asks, “But is this effective?”

No. Of course not. In fact, even one of the protestors himself – a former facilitator no less – when interviewed by NPR admitted it’s not effective. But that’s not the point he says. The problem with effective governance is that “some people will feel disenfranchised and that their feelings are not being heard”.

It sounds like the individual is first and foremost, but by structuring decisions based by committee or group quickly absorbs the individual into the collective.

Like the 1825 failed socialist experiment New Harmony of Robert Owen, this model is destined to fail.

Josiah Warren (original participant in New Harmony) wrote:

“It seemed that the difference of opinion, tastes and purposes increased just in proportion to the demand for conformity. Two years were worn out in this way; at the end of which, I believe that not more than three persons had the least hope of success. Most of the experimenters left in despair of all reforms, and conservatism felt itself confirmed. We had tried every conceivable form of organization and government. We had a world in miniature. –we had enacted the French revolution over again with despairing hearts instead of corpses as a result. …It appeared that it was nature’s own inherent law of diversity that had conquered us …our ‘united interests’ were directly at war with the individualities of persons and circumstances and the instinct of self-preservation… and it was evident that just in proportion to the contact of persons or interests, so are concessions and compromises indispensable.” (Periodical Letter II 1856).

Participatory Economics. Mutualism. Socialism. Call it what you like, it amounts to Collectivism and it doesn’t work. It aims to replace an imperfect system (Capitalism) with an even more imperfect system.

No system is perfect. The best we can do is devise a system that provides the individual with the most latitude and freedom to make of his own life what he wishes (provided he does not harm others in the process).

That’s capitalism. Not the crony capitalism of Washington D.C., but free market capitalism.

The founding fathers new such collectivist systems were doomed to fail. They considered many forms of government throughout history and after careful deliberation and much spirited debate settled upon a representative republic as the surest way to promote prosperity and preserve liberty and freedom of the individual. Pure democracy devolves to mob rule (Greece, anybody?) and monarchy is dictatorship by a different name. At either end of the spectrum, individual liberty and freedom cannot exist.

The founding fathers knew that there was no single, perfect system. It’s why the preamble of the constitution states:

“We the people of the United States, in order to form a more perfect union, ..”

It’s a more perfect union, not a perfect union.

Collectivism fails every time it’s tried, and the Occupy movement is no different.

The saddest part of this whole episode is that it is fueled by people who are frustrated with the current system as they see it, and feel the only solution is to riot for revolution. While the solution already exists and has been hiding in plain sight.

Perhaps if their education had been a bit more complete and less radical, they would focus their efforts on occupying the voting booth instead of everything else.

For more about what made America great and how it can be again, check out The 5000 Year Leap (Original Authorized Edition)

For more of NPR’s Planet Money interview, listen to the NPR Planet Money podcast from October 7th:

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• This is Why Most American Millionaires Did *Not* Inherit their Fortunes…

Participatory Economics and Why The Occupy Movement Was Destined To Fail From The Start. Copyright © Simple Debt-Free Finance

You can see that despite the rhetoric (and trillions of dollars in spending), the unemployment rate hasn’t moved much. This first graph covers the unemployment rate from the start of the recession to August, 2011. The August figure is important because it’s the first time in over 40 years that the U.S. economy produced a net 0 new jobs.

The second graphic shows major U.S. cities that are losing or gaining the most jobs. It’s important to note that this data is NOT seasonally adjusted.

All the data is from the U.S. Bureau of Labor Statistics and presented as an infographic courtesy of the folks at Visual.ly

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• Don’t Look Now, But The Wheels Just Fell Off The Recovery Wagon (With Charts!)
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• How Can the NBER Claim the Great Recession is Over?
• Could You Live off Credit Card Rewards Points? This man is. (VIDEO)

Unemployment Rate, Cities With Highest and Lowest Growth (Infographic). Copyright © Simple Debt-Free Finance

“My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice,” The 80-year-old “Oracle of Omaha” wrote in an opinion article in The New York Times.

Aw, poor Warren and his buds want to step up to the plate and give more money to those paragons of fiscal prudence in the Capitol, but Congress just won’t tear off the shackles of financial freedom darn it.

Now don’t get me wrong, I’m no Buffett hater. Far from it. I respect the man immensely for his investing and business acumen. But every time he opens his mouth on government policy it seems to me he makes startlingly weak and misplaced arguments for what would only result in bigger government with more spending and bigger deficits.

Let’s consider his parroting of the “shared sacrifice” mantra of the big government, big spenders in Washington D. C.. Is it really a sacrifice if the government makes you pay more in taxes? Isn’t that really just obeying the tax law? If Mr. Buffett and the wealthy in America really want to sacrifice, let them pay extra taxes.Make it in the form of a donation to the federal government that they can enter in whatever amount they see as fair “sacrifice” for the greater good.

This argument that higher tax rates need to be enforced so the rich can do their part is insulting, and misleading.

Speaking of his recent $6,938,744 tax bill, Buffett said this:

“That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income – and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent,” he said.

A large part of why Buffett’s tax burden is so much lower (as a percentage) than his employees is that his employees work for a salary, and most likely don’t take full use of tax-advantaged moves like investing in an IRA or 401(k) or health savings accounts,etc.. that allow people to “spend” that money before taxes – thus lowering their taxable income and their overall tax burden.

Just think about this logically for a minute. In this brief quote, Buffett wants you to believe that the tax rate on the wealthy is somehow higher than the rate on the middle and lower class wage earners. It’s not. It’s only effectively higher.The wealthy have a better sense of the tax code and they know how to minimize their tax bill using it.

This is key to understanding Buffett’s argument for Congress raising income tax rates. He puts out a public plea and Congress raises tax rates on “the rich.” Buffett and the wealthy know how to work the system to limit their taxable income and would likely pay only a nominal increase in real taxes if the rate were increased – but it lets him appear willing to “sacrifice”. What a great guy! Plus, if congress simply raises the rates, he pays far less in taxes than if they implement a flatter tax system and eliminate some of those perks he uses to lower his taxable income today.

He’s made similar pleas to raise the so-called death tax ( estate tax), because guys like Buffett know how to protect their assets from such a tax. He’s said as much in interviews – that the only people who would pay more if there was an increase in the estate tax are those who are not savvy enough to avoid it, and therefore don’t deserve to pass that down to their beneficiary.

By letting people “donate” more than their required tax bill, we would be giving Buffett and his friends who are tired of being “coddled” by the government a chance to really open their pocket books and make a true sacrifice to the government they so dearly love, and no longer hide behind Congress.

Anyone have a guess what would happen to the deficit if guys like Buffett paid more in taxes? Would the government put that extra income toward paying down the deficit, or spend it (and then some) on new programs or budget increases in already bloated programs?

If you honestly think more tax revenue will result in a lower deficit, please leave me your name and number in the comment section… I have a wonderful deal on an historic bridge I’d love to sell to you.

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Anyone Else Tired of Hearing the Rich Whining About Taxes? Copyright © Simple Debt-Free Finance

Planned layoffs: June vs. July, 2011

That’s 59.4% higher than the same time last year:

Planned layoffs July, 2010 vs. July, 2011

Job cuts at Merck, Borders, Cisco Systems, Lockheed Martin and Boston Scientific accounted for 57% of the July total. July marks the first month in the last seven when the private sector shed more jobs than the government sector did.

Pharma and retail make up the largest sectors.

What makes this latest report so ominous is that the majority of these cuts come from industries that have experienced low levels of layoffs compared to other industries.

All of this leads Challanger to quip:

“A casual observer certainly might conclude that the wheels just fell off the recovery wagon.”

Source

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• Unemployment Rate, Cities With Highest and Lowest Growth (Infographic).
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• Are Rising Rent Prices in 2012 Good for the Housing Market? (Video)

Don’t Look Now, But The Wheels Just Fell Off The Recovery Wagon (With Charts!) Copyright © Simple Debt-Free Finance

At least that’s the implication in the CNN Money story titled: Recession worsens racial wealth gap

It all revolves around the “wealth gap.” There’s been much chatter about the gap between rich and poor since 2008, and the writers of this CNNMoney story (and others) seem to think the gap is due to race.

Can a recession be racist? Is the wealth gap really race based?

Here’s the breakdown of the effects of the recession along “race lines”…

The wealth gap (2009).

The story relies on data from a 2009 study by the Pew Research Center, which found that:

“[T]he median wealth of white households was 20 times that of black households and 18 times that of Hispanic households.”

The study defines household wealth as:

“the sum of a family’s assets minus the sum of its debts.”

Assets include:

• homes
• cars
• savings accounts
• financial investments

Debts include:

• mortgages
• auto loans
• credit card debt
• “other things”

I’m not sure what they group into “other things”. Presumably other debt?

Regardless, the study found that while the Great Recession hammered just about everyone’s wealth, the gap between white households and black or Hispanic households is the widest it has been since 1984, when the government began publishing such data by ethnicity.

The AP puts it differently:

“The recession and uneven recovery have erased decades of minority gains, leaving whites on average with 20 times the net worth of blacks and 18 times that of Hispanics, according to an analysis of new Census data.”

The wealth of blacks vs. whites.

The Pew study uses the data from the Census Bureau to highlight the disproportionate effect of the housing market on blacks and Hispanics.

The study acknowledges that:

“The wealth of white households in America has always been greater than black and Hispanic households. But the recession widened the gap significantly”

Why would the recession widen the gap significantly? That implies that those at the bottom fell farther or those at the top rose greater or a combination of both?

Remember that talk above about an “uneven recovery”?

Why it isn’t a race thing.

Dig a little deep and you start to see inklings that even the AP and CNN know that this is not a race-based issue:

“the wealth of white households has probably benefited from the rise in stock prices over the last few years, since a much higher share of whites own stocks.”

If this were really due to race, then we’d be seeing ads from ETrade, Scott Trade, Fidelity, etc.. stating things like:

“$7 online trades*”

* Whites only

or using phrases like

“Minorities need not apply”

Since this is clearly not happening, I submit a better use of the Pew and media’s time and energy would be to conduct a study analyzing the wealth gap in terms of general education and financial education.

Outright racial discrimination is simply not legal, and not present in the majority of the U.S. any longer. Certainly not to the extent that would be necessary to “keep minorities down” in the wealth gap on purpose.

The real problem with these kinds of reports and studies is that it allows people to remain distracted by issues that are no longer real (i.e. racial discrimination) at the expense of ignore real causes of the problem like education and general financial savvy.

I may be going out on a limb here, but I think that most blacks don’t invest in the stock market because they simply don’t hear family members or community leaders talking about assets and investing and building wealth. They get no exposure to that. Instead, they hear about racial discrimination and how white people want to keep them down, all while they can’t do it alone and need a government program to do it for them.

Nobody ever got wealthy living on public assistance.

Further evidence

The study goes on to make the following points:

• The main asset of minorities is their home
• older whites are more likely to have 401(k) retirement accounts or other stock holdings.

If your biggest asset was your home, then you’re definitely at the lower end of the wealth scale after the historic housing bubble burst. But is that a racial thing?

The AP article points to the “uneven recovery” as the culprit to the wealth gap being so large this time around:

“What’s pushing the wealth of whites is the rebound in the stock market and corporate savings, while younger Hispanics and African-Americans who bought homes in the last decade… are seeing big declines”

Also according to the study, Hispanics are more likely to be employed in the construction industry and more likely to live and buy homes in states such as California, Florida, Nevada and Arizona – each at the forefront of the real estate bubble.

Again, is that a race thing? Is there a law stipulating that Hispanics can only go into construction?

The media and government policy wonks are now lamenting that this pushes our country further into “what the Kerner Commission characterized as ‘two societies, separate and unequal,’”

Focusing on race does nothing but perpetuate this. Instead, we should focus on introducing concepts of personal finance to more minorities. Educate them instead of indoctrinate them into believing that they need a government handout to survive.

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• Could You Live off Credit Card Rewards Points? This man is. (VIDEO)

Is the Recession Racist? Copyright © Simple Debt-Free Finance

Believe it or not, many Americans today think the constitution was simply a document that was created to help start the United States of America, but has since lost relevance. This belief could not be more wrong. The Constitution is as relevant to America today as it was when it was first codified by the fledgling U. S..

This Saturday, April 16, Hillsdale College is hosting a free townhall discussion on the role of the constitution in securing economic liberty.

Speakers include Indiana U.S. Representative Mike Pence, Associate Professor of History Paul Moreno, and the President of Hillsdale College, Larry P. Arnn.

Topics include:

• “Choosing Liberty” : Today citizens must choose whether they will live as citizens, or subjects.
• “How Our Economic Liberty Has Been Diminished” : How the Founding Fathers enshrined the principals of economic liberty and property rights, and how progressives have fought to undue those rights for over a hundred years.
• “How Our Economic Liberty Can Be Restored” : A restoration of constitutional principles cannot happen without citizen understanding and vigilant defense of the principles of the Declaration of Independence and Constitution.

Registration is free and the webcast starts at 10:00 AM (EDT).

Register here.

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• Unemployment Rate, Cities With Highest and Lowest Growth (Infographic).
• Don’t Look Now, But The Wheels Just Fell Off The Recovery Wagon (With Charts!)

“Economic Liberty and the Constitution”, a Free Townhall Webcast. Copyright © Simple Debt-Free Finance

Fighting in Libya causes higher gas prices.

Wapo’s line:

“Libya is not a big enough global oil supplier for the battles there to have a meaningful effect on gas prices”

The truth:

It’s Libya so much as general unrest in the middle east that causes wide swings in oil prices. If too many oil producing countries fall into the wrong hands (i.e. those who don’t like the U.S.) then supply becomes limited, and the price goes up. Speculators cause this effect at the mere suspicion of a disruption in the oil supply, hence the rise in price accompanying any rise in unrest.

Tapping Strategic Petroleum Reserve is a good way to reduce gas prices.

Here, Wapo correctly calls New York Democrat Senator Chuck Schumer out on his ridiculous position on the Strategic Petroleum Reserve (SPR):

“Sen. Charles Schumer (D-N.Y.), for instance, has been calling for oil releases from the SPR for more than a decade. In a letter to President Bill Clinton in 1999, he endorsed the release of several hundred thousand barrels a day from the SPR because, according to a news release about the letter, oil prices had made a “meteoric ascent to nearly $25 per barrel.””

Schumer’s short-sighted political game illustrates the general thought behind calls to tap the Strategic Petroleum Reserve any time prices rise.

The SPR exists for cases when there is no oil available, not for times when the price is not as low as we’d like. It’s to limit or prevent effects like the gas lines of the 1970′s when the OPEC Nations began to manipulate production.

All in all, this one seems like a pretty common belief and since using the SPR to lower prices at the pump is a bad idea, it clearly falls into the realm of myth.

Oil companies produce less in the spring to make prices rise.

Production does go down in the spring, but not because of conspiracy. It’s because heating oil is chemically different from gasoline, and refineries switch production from a majority of heating oil to a majority of gasoline at the end of winter.

Again, a pretty common myth.

Obama is driving up gas prices.

This one is silly because it’s only part myth – the part they presented.

Wapo calls out Sarah Palin and Mitch McConnell for saying that the Obama Administrations policies affect oil and gas prices in a negative way for the U.S..

Wapo’s line:

“Just one problem: Even if domestic supplies were developed, American presidents couldn’t really control oil prices. “

The real problem here is that neither Palin nor McConnell accuse Obama of “controlling oil prices.” They merely state that the administration’s energy policies have a negative effect on prices. It’s true that no U.S. President can set the price of gas, but it’s also true that denying permits to drill, enacting moratoriums on current drilling activity and importing less foreign oil without increasing domestic production all contribute to less supply than demand and will cause the price to rise.

Americans can’t live without cheap gas.

This one is just plain stupid.

Wapo’s line:

“Yes, Americans love to drive, and Americans love cheap gas. But across an ocean, there’s a continent filled with people a lot like us who’ve lived with high gas prices for years. They’re called Europeans.”

Of course American can live without cheap gas, but it’s not as easy as it may be for Europeans. For starters, America is much more diverse than most European countries, geographically speaking. Public mass transit simply isn’t a reality nor is it likely to become one anytime soon for much of the country.

The other fallacy here is that Europeans pay more for gas than Americans because it somehow costs more to get the oil to them. The reason they pay high gas prices is due to taxes. Just because Europeans are willing to pay high taxes doesn’t mean Americans should.

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5 (Mostly Silly) Myths About Gas Prices. Copyright © Simple Debt-Free Finance

I’m not going to pretend that this is one of those trick questions designed to make you consider your priorities in life and there’s no right or wrong answer.

There is definitely a right and wrong answer here.

Check out this AP article about a Nevada family’s everyday struggles amplified by Poor Choices.

The AP tries to make the case that Tera Berbank and John Clark are in the dire financial straights they’re in because the state of Nevada is nearing an economic depression , but that’s only half of the story.

The economic state of Nevada makes the couple’s situation harder, but it is only part of the problem. The rest of their problem is poor priorities and bad choices.

Priorities

For Burbank, surviving means ensuring her children’s success and protecting the one place they could ever call home.

“It’s our everything,” said Burbank, 34, of the family dwelling. “They can take the car and we will eat cat or dog food. Come what may I’ll keep that house.”

There’s a case of priorities that are way out of line. If you’re OK with your kids eating cat food just so you can keep your house, you need to seriously re-evaluate your situation.

She may think she’s “ensuring her children’s success” but her children’s performance in school tells a different story:

The oldest daughter, 14-year-old Brooke, earned D’s and F’s at school. Amalea’s guidance counselor asked about problems at home.

It looks like their current path isn’t working. In the article, she talks about the impact of the family financial situation on her marriage, and it isn’t pretty. She wonders how long it will be before they get a divorce.

Bad choices

Her poor choices started when she was young – she dropped out of school at 14. Fast forward to 2009, and she and her now husband were married and bought a new home. The home they bought wasn’t ridiculously expensive. It was about 2x their combined annual income, which is well within the usually recommended norm. It obviously turned out to be a bad time to buy, and especially in Nevada. But what made this even more risky was the fact that both she and her husband worked in construction.

I don’t mean to come down too hard on her because she made some bad choice early in life, Everybody makes mistakes. But when I read stories like this I always put myself in that position. I ask, “What would I do if I woke up one day in this life?”

In short, what I’d do in this situation is everything I could to ensure the survival of my family – as a family.

I’d say “to hell with the house”, find out where there were jobs and what kind of jobs they were – and move there. I wouldn’t care if it was in another state. I wouldn’t care if I had to lose everything and start over – as long as my family was together and I was doing what I could to provide for them. But that’s just me.

Instead, Tera Berbank seems focused on doing everything she can to hold onto her house, which she will likely lose along with her family.

If this is truly representative of America today, then we are in dire straights indeed.

Let this be a wake up call.

Let this be a reminder that an education is as important as location when it comes to finding and keeping a job.

Let this be the motivation we need to put a financial plan in place.

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• Inflation Winners And Losers.
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• Up Next: A Social Security Bailout?

Is Your House More Important Than Your Family? Copyright © Simple Debt-Free Finance

The items in the typical budget that rise the fastest are: Gas/fuel, food, health care and education.

This got me thinking about why those items experience inflation. Gas and food are pretty obvious. They’re essentially affected by supply and demand, with uncertainty and fear contributing to major spikes. The global economy as a whole is experiencing increased demand for food and fuel (oil) due to a increase in the number of previously undeveloped and communist countries opening the doors to capitalism, with riots and unrest in the middle east causes spikes in the price due to fear and uncertainty.

A lack of domestic oil production also serves to curb supply and drive up costs. Likewise with using food for fuel with such initiatives as ethanol (crops that would otherwise be used to produce food are used instead to produce fuel-grade corn to be converted into ethanol).

But what causes the cost of healthcare and education to rise faster than anything else? Is the underlying supply of required goods in those fields insufficient to meet the demand? Are there not enough teachers or schools, or doctors or nurses? In some areas, that is the case. But I don’t think the shortage is so bad as to explain the exponential growth is costs.

I think the root causes in both cases is essentially the same – the middle man.

The end consumer is shielded from the real cost of the service, so the costs get distorted beyond all sense. If you or a relative has ever spent time in a hospital and you ask to see a detailed breakdown of the bill you’ll see what I mean. Hospital beds costs $1,000′s per night, and Advil or Tylenol goes for 100′s dollars per pill.

How does this continue? Because patients never see the cost, and if they do they don’t have to pay it. We all pay for it. Patients pay their health insurance provider, or in

most cases the money is taken out of their paycheck before they ever see it (unless they work for a public sector union). This 3rd party insurance provider insulates the patient for the true cost, leaving hospitals to charge whatever they can, usually to make up for some other budgetary shortfall.

Education is the same way. Students get student loans, grants and scholarships that all go to offset and defer the cost while the universities continue to hike the tuition because students (and parents) have accepted the premise that they’ll be paying for decades to come anyway, what’s another year or two. Besides, they never see where the money goes.

But how many schools waste money on things like this: Thousands turn out for Bill Clinton appearance ? The University at Albany hosted former president, Bill Clinton, last week. He spoke to nearly 5,000 students for an undisclosed amount.

“UAlbany’s Student Association still hasn’t disclosed how much it paid Clinton for the event but the former president reportedly earns $100,000 for a single speaking engagement.”

The money was taken out of the student’s $85 “activity fee” for the semester, and possibly elsewhere in their fees and tuition.

Maybe if schools didn’t spend 6 figures for speakers like this, tuition wouldn’t grow at double digits every year. I don’t know. But it does seem like a waste and unfair use of student money. Why don’t they sell tickets and charge admission for those who truly want to see the speaker?

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• How to Survive (and Possibly Thrive during) Stagflation.
• 15 Scholarship Application Tips.
• Non-Tuition College Costs. (Infographic)

Is This Why College Costs Keep Rising? Copyright © Simple Debt-Free Finance

Ron Paul is obviously not a fan of the U.S. Federal Reserve. In fact, you could say he wrote wrote the book on why we should end the fed. I’m not a big supporter of Ron Paul on some issues, but he’s sounding more and more like a lone voice of sanity in an increasingly financially insane world.

Here’s a video where Ron Paul talks with Fox Business’ Judge Andrew Napolitano about debt, deficits, taxes and more. The first half of the interview focuses on the economy, federal reserve money policy and inflation (i.e. why the Fed seeks to create inflation, and how we all pay for it). The second half is where he loses me. That part of the interview focuses on foreign policy, and we part ways when he claims that Iraq is a failed state with a U.S. puppet government (Iraq is one of the few Mid-East countries to hold actual elections, for crying out loud!).

Anyway, love him or hate him he offers some food for thought.

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Ron Paul on the Game The Federal Reserve Plays, and Why. (VIDEO) Copyright © Simple Debt-Free Finance

Only it’s not.

It’s real.

President Obama has submitted his $3.73 TRILLION budget to Congress on Monday. The President’s own budget is projecting $1.65 trillion in new debt for this fiscal year alone, but that’s not really being talked about. Instead, the media is focusing on the fantasy that this budget will reduce the deficit by $1.1 trillion – over 10 years!

First of all, every 10 -year budget projection is meaningless because there are just too many unknowns and when you’re dealing with a budget as big as that of the U.S., even small miscalculation or mistaken assumptions add up to billions.

Second, does the media (and the white house) think we’ve forgotten that President Obama and his party added nearly $5 trillion to the deficit in his first two years alone? Now we’re supposed to be happy that he’s going to add $1 trillion less after ten years than he wanted to?

He’s also projecting another $1.1 trillion deficit for 2012.

He keeps talking about making “tough choices and sacrifices” but I just don’t see it happening. does anyone see it happening? Does anyone out there see any seriousness on his part to reduce spending?

In fact, what we get is a budget that is loaded with gimmicks and tricks played on the American people:

1. Redefining Pell grants as mandatory spending. Stripped of this gimmick, discretionary spending jumps by $14 billion in 2012.[2]
2. Reclassifying $54 billion of surface transportation spending from discretionary spending to mandatory spending.[3]
3. Spending the peace dividend. The budget proposal includes spending for military operations in Iraq and Afghanistan, referred to as “overseas contingency operations,” as discretionary spending and reduces funding for these operations by $38.2 billion in 2012.[4]

The newly elected Republicans have shown some interest, but even they seem reluctant to make serious cuts.

Republicans want to cut $61 billion, but that’s a drop in the bucket and doesn’t address any of the real problems inherent in the structure of the budget – namely the “non-discretionary” spending… the unfunded entitlement programs that are due to bankrupt the country in the next few decades unless some major changes are made.

I’m not seeing the change anywhere, are you?

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Obama Requests An Additional $1.65 Trillion In New Debt! Copyright © Simple Debt-Free Finance

If you agree with those statements, come a little closer so I can slap you!

It’s got to be the most idiotic idea of all time, yet there’s a growing push in the media and capitol hill for just such a thing. The most recent one that caught my attention was this one. They talk about the support the idea has on Capitol hill, and from naive citizens concerned about the run-away spending in Washington and the $14 Trillion deficit. That’s fine enough, I expect the drunken sailors of Capitol Hill (that’d be a great band name, by the way) to push a new tax. But you naive Americans out there who think the government has a revenue problem need to wake up.

The fundamental reason no new tax, no increase in tax rates and no national sales tax would solve the deficit problem is because the deficit is a result of out of control spending.

More money in, only means more money out.

Portugal, Spain, Ireland and Greece all have a Value Added Tax – most over 20%! It should come as no surprise that they all also have crushing public debt, sky-high deficits and hundreds of billions in unfunded entitlements. Sound familiar?

Congress needs to spend less than they bring in. Until that happens, any increase in taxes will mean even more spending and only exacerbate the deficit.

Besides, increased taxes result in decreased economic activity. Higher income taxes discourages upward mobility. Higher sales taxes, discourage buying. That’s not the way to grow an economy. That’s economics 101.

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• How to Get Your Tax Refund Now!
• How Warren Buffett’s Tax Rate is Lower Than His Secretary’s.

Fix the Deficit With a National Sales Tax? Copyright © Simple Debt-Free Finance

“The longest recession the country has endured since the Great Depression ended in June 2009, a group that dates the beginning and end of recessions declared Monday.”

According to The National Bureau of Economics (NBER), the recession ended last year, in June 2009. Not only does this ring hollow with near 10% unemployment and no sign of it falling any time soon, but it just doesn’t make sense when you look at the data and match it to the start and end dates given by NBER.

I understand that unemployment is a lagging indicator and it will take a while for it to come back down. I get that. But I also understood a recession as being defined by “2 or more consecutive quarters of negative GDP growth”. In other words, a shrinking economy.

But as this data shows the U.S. economy didn’t have 2 consecutive quarters of negative growth until the second half of 2008 – fully 6 months after the NBER’s claim of December 2007 as the start of the recession!

US GDP 2006-2010

However, if you look at when unemployment began to rise, it was 2007 ( data  from the U.S. Bureau of Labor Statistics):

But if we’re using the unemployment rate to determine the start of recession, shouldn’t we use that to determine the end? Or, conversely, if we use GDP to determine the end, shouldn’t that be the metric for the start?

I’m really trying to reconcile this with some sort of impartial logic, but I can’t help but wonder if the reason is really political.

Paragraphs like this one from an AP article make me wonder if the dates and data are being chosen simply to place 2 recessions under one unpopular republican president:

“In President George W. Bush’s eight years in office, the United States fell into two recessions. The first started in March 2001 and ended that November. The second one started in December 2007”

Somebody tell me I’m wrong. Someone explain to me how the recession can impartially and objectively be said to have started in December 2007, and end in July of 2009, because it just doesn’t add up to me.

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• U. S. Repeats mistakes of The Great Depression.

How Can the NBER Claim the Great Recession is Over? Copyright © Simple Debt-Free Finance

The news of the day seems to be that Stocks slip after new-home sales tumble . Really? I mean, I just don’t get this, This assumes that investors were expecting home sales to remain steady, possibly even rising. But that doesn’t make any sense.

I’m not an expert or an economist by any stretch, but even I called this back in May! I don’t point that out to say “I told you so,” rather to illustrate that it’s really common sense that when the government stops paying people to buy something, they buy less of it or stop altogether.

The Homebuyer Tax Credit ended and home sales went down 33% and hit a record low. What happened?

All those people who were thinking of buying a home in the 1st half of 2010 made sure they got in before the credit expired. Essentially, the government failed to stimulate anything and only motivated buyers to shift their timeframe of purchase by a month or two.

The rest of 2010 will be little more than limping through with even less buyers than might otherwise have been there.

I just don’t get how these people get so caught up in their bubble and believe their own spin even when it is in direct opposition to reality. It’s simply amazing…

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• Older Americans Are 47 Times Richer Than Young – So What Or Injustice?

Why Are Investors Surprised By Housing Slump? Copyright © Simple Debt-Free Finance

This is a pretty good indicator because the number of refinances rose 14.5%, while applications for new home purchase dropped 20% over the previous month. Rates are still very low, so it’s a logical conclusion that people are no longer as motivated to buy a house since the new home buyer tax credit expired in April.

In fact that is the conclusion of the Mortgage Bankers Association:

” The data continue to suggest that the tax credit pulled sales into April at the expense of the remainder of the spring buying season. In fact, this drop occurred even as rates on 30-year fixed-rate mortgages continued to fall, and at 4.83 percent are at their lowest level since November 2009,”

This is exactly why government subsidies and stimulus don’t work. They only provide artificial economic activity over the short term, but they cannot correct for imbalances in the market. They cannot prevent a recession or a pullback in economic activity, they can only postpone it.

Things have been looking good lately – on the surface. But how much of that economic “recovery” has been an illusion created by stimulus spending that only masks the underlying problems?

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• U.S. Mortgage Refinancing Applications Rose in the First Week of 2010.
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• New Home Sales Down 7.6% In December.
• Why The Tax Credit For First Time Home Buyers May Be A Bad Deal For You.

Government Stimulus Doesn’t Work in Housing Either. Copyright © Simple Debt-Free Finance