Myth 3: The U.S. is sliding into "socialism"

From Personal Finance News from Yahoo! Finance

For a system allegedly being strangled in its bed, U.S. capitalism seems to be in astonishingly robust shape.

Numbers published by the Federal Reserve a few weeks ago show that corporate profit margins have just hit record levels. Indeed. Andrew Smithers, the well-regarded financial consultant and author of "Wall Street Revalued," calculates from the Fed's latest Flow of Funds report that corporate profit margins rocketed to 36% in the first quarter. Since records began in 1947 they have never been this high. The highest they got under Ronald Reagan was 30%.

The picture is also similar when you exclude financials.

The Dow Jones Industrial Average (^DJI – News) is above 10,000. Small company stocks have rallied astonishingly since early last year: The Russell 2000 index is back to levels seen not long before Lehman imploded. Meanwhile Cap Gemini's latest Wealth Report notes that the North American rich saw an 18% jump in their wealth last year.

Meanwhile, federal spending, about 25% of the economy this year, is expected to fall to about 23% by 2013. In 1983, under Ronald Reagan, it hit 23.5%. In the early 1990s it was around 22%. Some socialism.

These days, three-fifths of the entire budget goes on just three things: Insurance for our old age (through Social Security and Medicare), defense, and debt interest.

Conservatives don't want to cut the $700 billion-plus we spend on defense. We can't cut debt interest payments. And while Social Security and Medicare certainly need reform, the main "problems" are simply rising life expectancy and health care demands. If we didn't provide for the insurance through our taxes we'd have to do it individually.

What about the rest of the budget? It's jumped from around 7% of GDP a few years ago to about 10% now. Out of control? It's been in the 6% to 9% range for decades. It's forecast to fall to about 8% again in a few years.

So much for a revolution. But here comes the counter-revolution just the same.

It's socialism because we have a Democrat in the office of the President. It's "trickle down" when we have a Republican in office. Let's see:

• Corporate profits up – CHECK
• Stock market up – CHECK
• Non-discretionary spending unmovable – CHECK
• Federal budget as a percentage of the economy hasn't changed much (if at all) – CHECK

Seems like nothing's wrong to me. Oh, sure, the federal government spends a lot of money – money it doesn't have – on some stuff we don't need. But try taking away social security, Medicare, or defense. You'll be out of a job real fast if you're a national politician. Nobody has the wherewithal to do anything about any of this stuff.

So this is what I'd tell the Obama administration, if they asked: GROW the damned economy. Get it to 5-8 percent, and all this debt/deficit talk vanishes, people get hired for good jobs, and Obama gets a second term. It really is the economy, stupid, and Obama should have cracked this nut a while ago.

If I've said it once, I've said it a thousand times: The stimulus package was way too small.

And now that both sides of the aisle have either forgotten or dug in their heels on unemployment compensation extensions and further stimulatory legislation, we may be in for a classic double-dip recession.

Only this time, it might drive what seemed to be inevitable and then highly unlikely – a corporate lending and business real estate catastrophe that could dwarf the mortgage meltdown.

Then more cries, this time maybe real, for socialism will come to the forefront. Our brand of market capitalism (highly influenced by the idiots who represent us in Congress) certainly isn't working right now.

I mean, if you're looking for a credit card, you may as well get the best one there is.

Best Credit Card Offers

Economic Myth 2: The markets are panicking about the deficit

From Personal Finance News from Yahoo! Finance

 

To hear the G-20 tell it, the U.S. and other top countries had better slash those budget deficits before the world comes to an end.

And maybe the markets should be panicking about the deficits.

But they're not. It's that simple.

If they were, the interest rate on government bonds would be skyrocketing. That's what happens with risky debt: Lenders demand higher and higher interest payments to compensate them for the dangers.

But the rates on U.S. bonds have been plummeting recently. The yield on the 30-year Treasury bond is down to just 4%. By historic standards that's chickenfeed. Panicked? The bond markets are practically snoring.

They aren't seeing inflation either. On the contrary, they're saying it will average just 2.3% a year over the next three decades. That's the gap between the interest rates on inflation-protected Treasury bonds and the rates on the regular bonds. By any modern standard the forecast is low. Instead of worrying about inflation, some are starting to worry about something even more dangerous: deflation, or falling prices.

If that takes hold, cutting spending and raising taxes would be a bad move.

It's certainly possible the lenders buying these bonds are being foolish. And it's worth noting that the Treasury market is also subject to political distortions, because foreign are among the heavy buyers of bonds. So it's worth treating its apparent verdicts with some caution. Nonetheless, the burden of proof, as usual, is on those who argue the market is wrong.

It's the age-old "deficits are bad" baloney. Well, deficits can be bad. But in our case, they're not. We've been running deficits since the 40s, regularly. There was a time when we got close to eliminating the yearly difference between tax revenues and federal spending (late 90s very early 2000s), but Alan Greenspan warned that surpluses were bad.

Maybe he was right. The federal government certainly heeded his warning: We've spend trillions over the past 9 1/2 years, well above our "normal."

But most of that spending has come in terms of non-discretionary spending ("entitlements" that no politician has the courage to challenge, social security being one of the biggies, Medicare being the other horn of a really nasty bull) and very discretionary war spending.

Neither of which, I'll add, stimulates growth in the economy or jobs. Surely, soldiers have jobs, but they had those jobs before the economy tanked. What's going to happen if we every withdraw and don't need them any more? Will the government have the courage and discipline to "lay them off?"

I doubt it.

The problem is that, while we did put together a $787 billion stimulus package, it clearly wasn't enough. Yeah, you read that right.

They should have spent $2 trillion on boosting the economy from the get-go. But that's just my opinion. Prove me wrong

Yes, the mortgage market is more rigged against borrowers than ever before. If only PMI had been required on all buyers between 2001 and 2007…what if?

In my last column, I indicated that most mortgage borrowers who need private mortgage insurance are not aware that they have options in the kind of premium plan they select. Almost all are directed into monthly premium plans. Yet for many borrowers, the total cost over the period the borrowers will have the mortgage will be higher on a monthly premium plan than on a single financed-premium plan. In every case, furthermore, the increase in payment will be larger on a monthly premium plan.

A Market Rigged Against Borrowers: Why aren’t borrowers offered the option?

More on Mortgage Market Rigging

mortgage market is rigged against borrowers, private mortgage insurance, mortgage meltdown

NEW YORK (Reuters) – The Securities and Exchange Commission has sued a Utah man for fraudulently misusing $139 million of investor funds on such things as a film about the Cub Scouts' Pinewood Derby car race and development of a "sandwich in a can."

According to a lawsuit filed Thursday in federal court in Salt Lake City, Travis Wright misappropriated all but $6 million of the $145 million he raised from about 175 investors between 2001 and 2009 by selling notes issued by his Waterford Loan Fund LLC.

The SEC said the 47-year-old Draper resident represented to investors that their money would be used for loans secured by commercial real estate.

SEC sues Utah man in 'sandwich in a can' fraud – Yahoo! News

Jaqueline Dornbach presents How to Spend Less on Groceries posted at The Young Pastor's Wife.

educationmediabits presents Make Saving a Habit, Not an Obligation posted at HVAC Training.

Hussein Sumar presents How to Negotiate Debt Obligations with Creditors posted at Debt Consolidation, saying, "If creditors do not receive on time payments from you, they will often report your delinquency status to the major Credit Bureaus (Experian, Equifax and TransUnion). But what if you are willing to make payments to the creditors, but not the full amount they are asking for? For example, you have $15,000 of credit card debt and your minimum monthly payment is $375. However, you can only afford to pay $200 a month at the moment. How do you negotiate with your creditors so as to get the payment terms to your advantage and get negative items deleted off your credit report? That is the purpose of this article."

Sun presents A New Child Means Lots of New Expenses posted at The Sun’s Financial Diary.

educationmediabits presents Taking Care of Air Conditioners and Heaters Will Save Money posted at Respiratory Therapist Schools & Career Guide.

Casey Markee presents 10 Spoiled Kids Who Hate Their Presents [Videos] posted at Party 911 Blog – Tips, Tricks And Helpful Hints For Hosting A Great Party, saying, "We’ve all received a Christmas or birthday gift we really didn’t want. But some people take their displeasure to new extremes. Check out these videos of 10 Spoiled Kids Who Hated their Presents and weren’t shy about expressing their disappointment!"

Leave Debt Behind.com presents Is it Possible to Settle that Student Loan? posted at Leave Debt Behind.

Wise Bread presents Financial Freedom and Using Passion to Budget posted at Wisebread.

Gina @ MoneywiseMoms presents Free & Low-Cost Summer Movies for Kids posted at Not the Jet Set Guest Post on Moneywise Moms.

Jena Ellis presents 30 Rules of Engagement: Who Pays for the Wedding? posted at Online Certificate Programs.

Infernios The Hoarding Dragon presents The dragon?s girth-staggering difference in investing early posted at ThunderDrake, saying, "This post elaborates on the staggering (girth staggering, even) difference between starting at different age gaps. It urges readers to begin investing (or through the alter ego's word, hoarding) sooner than later. Time is perhaps one of the most crucial elements to financial independence. Perhaps this is tangential at best, but it's true to the most important element of investing; starting younger than older. I appreciate the consideration. May the ambitions of my writing fuel your carnival's success. <3"

Gabriella White presents Kids Summer Activity List: 100 Creative and Cheap Summer Activities For Your Kids posted at Associate Degree Online, saying, "If you are lucky enough to get to be with your kids during the summertime, instead of packing them off to day care every day, you will have to deal with the inevitable cries of, “I’m bored.” Here are 100 creative, fun, and cheap things that you can do with your kids over the summer."

Andrea presents How kids Handle Money posted at Savings Scoop.

Amanda L. Grossman presents 9 Ideas for Some Frugal Family Fun posted at Frugal Confessions, saying, "As an adult I occasionally daydream about certain times during my childhood. When I’m in my cubicle on a summer afternoon, it’s not nostalgia for Nintendo, Gameboy, or shows from TGIF that puts a smile on my face; it’s the more homegrown fun we had."

Elizabeth presents Debt Consolidation Works Best When Financial Discipline Is Adhered To posted at Payday Loan Debt Consolidation Blog, saying, "You are happy after availing the services of a debt consolidation company and hope that now it will be convenient for you to pay off the debts. Further, you might heave a sigh of relief since all the creditors will now be handled by that company. You might be mistaken."

Anand presents Ontario Shows the Way in Payday Loan Reforms Process posted at Best Payday Loan, saying, "Online lending companies have made borrowing easy loans have become very accessible. You don’t need to worry about your credit history anymore. With the fast easy cash advance, you can repay the borrowed amount on the salary day and that will be the end of it."

Ashley Jacobs presents Paying Your Child? Here are Six Ways to do it posted at Cash Flow Sherpas.

Jaqueline Dornbach presents How Old Should My Child Be Before I Return To Work posted at The Young Pastor's Wife.

jacqjolie presents Charging adult kids rent – to do or not to do? posted at Single Mom, Rich Mom, saying, "When or when not to charge adult kids rent."

Isabella Smith presents 100 Tips & Tricks for Raising Seriously Smart Kids posted at Online University Lowdown, saying, "The list in the article provides a few eclectic suggestions on how to bolster a kid’s brain to keep him or her happy, healthy, and constantly growing in his or her education."

BWL presents Deciding If You Can Afford Christian School Tuition posted at Christian Personal Finance, saying, "This article looks at the challenge of affording private school tuition for your kids…"

Nathan Richardson presents Money & Life Lessons from Toy Story 3 (without spoilers) posted at Deals & Tips, saying, "Thanks for your consideration."

MoneyNing presents Learning to Say “No” to Your Kids posted at Money Ning, saying, "How do you say no to kids who want everything?"

June Tree presents College Education Costs: Is College Worth What You Pay For It? posted at The Digerati Life, saying, "Lots of parents think about the costs of college. Here is a closer look at those costs."

Michael Pruser presents Best Savings Account for Children | Online Banking for Kids posted at The Dough Roller, saying, "Children can start a savings account anytime and the sooner the better. Here are a few great options to get them started."

Christien presents Impact of the Credit Card Act on different types of cards posted at Credit Cards Truthiness.

Karen Anderson presents 13 Timeless Finance Tips From The Bible posted at Online Christian Colleges, saying, "In fact, the Bible has over 1,000 verses that discuss money. In this article, we’ll discuss thirteen timeless pieces of financial advice straight from the Bible, as well as give you the actual Scripture references."

Random Jan presents Homeschool Headstart Bazaar 2010 posted at Creative Hemispheres, saying, "My son and I sold some of our crafts at a homeschool bazaar where he made, demonstrated, and sold his own merchandise."

Case Ernsting presents The Summer Help: Jobs in the Midwest posted at FinditLocal411 Blog, saying, "Summer jobs are a great way to teach kids responsibility and work ethic. For some great inspiration and "how-to" tips for finding these jobs, check out this post."

Debra Jacobson presents How To Be Frugal: Saving on Child Entertainment posted at All Things Frugal, saying, "Children's entertainment does not have to be expensive."

That concludes this edition. Submit your blog article to the next edition of kids and money using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page.

We apply for a mortgage for various reasons. But when you do apply for a mortgage, you need to have an idea about “how much mortgage can I afford” because no one wants to lose his house to foreclosure. Basically, it depends on two factors: income and the amount of debt.

Factors determining mortgage affordability
The factors which determine “how much mortgage can I afford” are given below:
 

• Basic earning: Lenders normally lend 3 to 3.5 times your gross annual income. Your gross annual income is your basic salary plus any guaranteed bonuses. Some people earn a basic salary. While some people such as recruitment consultants, working in a marketing division, earn a low basic salary but they earn lot of money through commission that is not guaranteed. Lenders will only look at the guaranteed chunk of income. 

• Debts: Lenders also look at your regular monthly debts and obligations such as instalments loans (bank loans, auto loans, etc), real estate loans, revolving accounts, etc. Your housing expenses and long-term debts must not be more than 33 percent to 36 percent of your gross monthly income. For Federal Housing Administration (FHA) loans, this figure must not be more than 41 percent of your gross monthly income. Lenders consider monthly expenses extending more than 10 months as long-term debt.

If you analyze these two factors then you can get the answer to your question “how much mortgage can I afford”. However, there are various other factors that determine how much mortgage you can afford to borrow in reality. The mortgage calculator also helps in determining how much mortgage can you afford in reality.

Role of the mortgage calculator
There are many mortgage calculators available in the market (interest-only calculator, online-mortgage calculator, refinancing calculator, amortization calculator) that can give an idea about “how much mortgage can I afford to borrow”. The loan mortgage calculator helps you to calculate home loans and compare the cost options. You have to simply put the necessary data (total amount of loan, rate of interest and the total term of the mortgage loan) into the calculator. Then the calculator will help you to know about your monthly payment amount, length of time it will take to pay back your loan. It compares your monthly income with your upcoming monthly payments, how much of your payment will go towards repaying the principal and how much towards the interest. Thereby you will get can estimate about how much mortgage you can afford to borrow.

Economic Myth 1: Unemployment is below 10%

From Personal Finance News from Yahoo! Finance

What nonsense that is. The official jobless rate, at 9.7%, is a fiction and should be treated as such. It doesn't even count lots of unemployed people. The so-called "underemployment" or U-6 rate is an improvement: For example it counts discouraged job seekers, and those forced to work part-time because they can't get a full-time job.

That rate right now is 16.6%, just below its recent high and twice the level it was a few years ago.

And even that may not tell the full story. Many people have simply dropped out of the labor force statistics.

Consider, for example, the situation among men of prime working age. An analysis of data at the U.S. Labor Department shows that there are 79 million men in America between the ages of 25 and 65. And nearly 18 million of them, or 22%, are out of work completely. (The rate in the 1950s was less than 10%.) And that doesn't even count those who are working part-time because they can't get full-time work. Add those to the mix and about one in four men of prime working age lacks a full-time job.

Dean Baker, economist at the Center for Economic and Policy Research in Washington, D.C., says the numbers may be even worse than that. His research suggests a growing number of men, especially in deprived, urban and minority neighborhoods, have vanished from the statistical rolls altogether.

The verbiage above tells the right story. The official unemployment rate has always been a poor gauge of the employment picture. Only now, it's worse. I'll try to find data to back it up, but my gut tells me there are a lot of people underemployed (not working full time but who need or want to).

By "underemployed," I also mean that people aren't getting paid what they need to survive. Perhaps you lost your cushy 9 to 5 six-figure banking job and now you're working as a retail store manager (big pay cut there). You're working longer and harder but getting paid significantly less than you had been.

That's underemployed. Yes, you have a job and good for you! But you've certainly had to make some lifestyle changes, wouldn't you say?

A lot of personal finance bloggers would tell you that you should always live the frugal life; that's a great opinion to have and if you walk your talk, you're good to go. However, many people cannot live the way you do.

They are married and are the sole providers of their families. Or they have kids or parents to care for. Obligations that they may have acquired at a younger, less financially-aware age.

No matter. For the average man or woman on the street, having a job that fits their basic lifestyle needs is hard to come by right now. And I don't really see any relief on the horizon.

I will say, though, that lots of times the turn in the business cycle is unseen until it happens right in front of your eyes. That is to say, often times nobody sees it coming. Leading indicators are only so good. As they say, "hindsight is 20-10."

Let me know your thoughts in the comments.

Next up: Deficits are bad

unemployment, economy, economic myths, three economic myths