An article in the WSJ, addressed a late starter’s ability to adequately save for retirement. The author made it clear by suggesting it isn’t easy, but it is certainly possible to achieve some financial security by working a little longer and by being consistent with your saving efforts. He warned about the temptations to pick investments paying a higher rate of return, a strategy that could “backfire” by inflicting losses that may never be recovered! (Do you think anyone has had such an experience lately?). Well stated!
The suggestion of more savings and retiring a little later than originally planned is good advice. The sources of the author’s information fell short, however, as a more complete strategy is necessary. The suggestion of larger percentages of one’s income going to savings may be prohibitive and thus cause the late starter to just give up and do nothing! The suggestion of downsizing your home may be an option, but it should not be a priority in a financial plan, especially in this market. There is so much more to preparing a strategy for such an individual! Let’s start by finding money being transferred away unknowingly and unnecessarily. Is the client paying more taxes than he/she needs to? Are they paying higher rates of interest than they need to? Can money be found in these areas which would lessen the percentage of savings necessary from their income?
By finding money that could be saved for retirement or college savings, one can divert that money directly to savings without any change to their lifestyle. Granted, it may not be enough, but it makes sense to start there! Like many, I am not receptive to a planner whose first comments are to invest my current savings in better investments paying higher rates of return or to suggest that he will find ways to reduce my current lifestyle to save more. Ironically, people in general, think that is what financial planners do. They find ways to cut back on lifestyle so we can save more, something we know we should already be doing! But, most are not ready and / or willing to cut back on their lifestyle to do so. Others have already cut back and cannot tolerate further cuts to the budget. Still others say there is nothing left to cut in their lifestyle budget! So, what to do???
If you work with a planner who understands wealth transfers, is able to find money being transferred away unknowingly and unnecessarily, understands opportunity costs and how to consolidate debt, they will teach you the strategies you need to understand in order to adequately manage your money and save for your future. If you only concentrate on saving more, you will take on unnecessary levels of risk, which is unnecessary! Sadly, your debt, interest payments and opportunity costs will grow right along with your savings, further complicating your financial affairs.
We tell our clients that there are two ways to fill a bucket with holes in it. First, pour more water in or plug the holes and the bucket will fill even if the water is slowed to a trickle. Substitute the water for money and the bucket for savings. The holes represent wealth transfers as mentioned. If you can eliminate the transfers of money, by plugging the holes in the wealth bucket, you will be able to save more and stress less without change to your lifestyle. So, before you seek out investments paying higher rates of return, seek to eliminate the wealth transfers by working with someone who understands the damaging effects those transfers have on your ability to grow your wealth. Watch this seven minute video for more insight on avoiding wealth transfers before you begin putting more money into your financial strategy!
Tuesday, December 06, 2011
Tuesday, October 18, 2011
Effects of the Baby Boomers on the Markets
The oldest baby boomers are now 65! Those that can afford to, are beginning to retire. Others who cannot afford to retire are continuing to work, but one thing might ring true to both camps; they are beginning to draw on their retirement funds, much of which has been invested in the stock markets for the past thirty years! This thought, raised in a recent industry article that I read, caused me to think about the next significant paradigm. The article went into much greater detail, but I wanted to discuss the main point along with my own spin on the subject. The baby boomers have had significant impact in many ways over the years and there appears to be one more on the horizon!
If you think about the general mindset of most Americans, you will probably agree that when it comes to their savings and investments, most leave that to the money managers. In and of itself, that is not a bad thing as long as you understand that you lose control of your money when you put someone else in charge! In one of my recent posts, I used the words of my partner, that people just follow the crowd when it comes to their saving and investments.
The S & P 500 Index was used to illustrate a few points in the article. It shows that very few Americans owned stock in 1950; less than five percent. The index and the number of Americans holding stock or stock funds changed very little over the next thirty years. In 1980, ownership was about twelve percent. In the 1980’s, qualified plans were introduced and the baby boomers, the oldest of whom were in their middle thirties, were encouraged to invest their retirement savings. With perhaps a vague understanding, many thought they would lessen their tax liability by making contributions, so they did! As more baby boomers were introduced to qualified plans, (about half of us were now employed in careers) a large number of us followed the crowd! Money began to flow in to the fund managers.
The S & P 500 Index closed on December 31, 1999 at 1469, due in part to the fact that there were now better than 50% of Americans owning stock or stock funds. The economy was doing well and large numbers of the seventy-five million baby boomers were contributing to plans. There was a continuous flow of new money coming to fund managers to purchase additional stock. That trend continued and the index moved a little higher through 2007, closing at 1565 on October 9, 2007. Although it is unclear if contributions slowed immediately, it is clear that the banking crisis among other disconcerting news caused great volatility for the next two or three years. The S & P 500 Index closed on August 26, 2011 at 1177, approximately 19% lower than its close in 1999! And if you examine the charts through that time period, you will see that the Index had been below the 1999 close for a great majority of the time! As mentioned, the bad news along with a troubling economy has affected the markets. Looking ahead from here, we add the new paradigm to the mix, the baby boomers.
The oldest of the baby boomers are no longer in the accumulation phase of their financial lives. Those who have done well, have retired and have begun to draw on their funds. For the next twenty or so years, the baby boomers will continue to be eligible for retirement and whether they do retire, remains to be seen. But one thing is certain. They too, will begin to draw from their retirement funds. Even those who do not need the money will have to take their required minimum distributions. That cycle will start in a few years! The bottom line… more money coming out of the markets than will be going in as more and more of the baby boomers reach retirement age! Money managers will face new challenges. They are going to have to be more aggressive to produce adequate return on investments for their remaining clients to stay in the markets. Do you think this will have an effect on the market’s performance?
The burden on government is also growing because of the increasing numbers of baby boomers collecting social security and medicare benefits. There are simply not enough Americans to neutralize the effect that the baby boomer’s will have on social security and medicare benefits. And, it doesn’t appear that in our lifetime, that will change! So what can we do? What should we expect? Change is certainly in our future!
If the baby boomers do have such an effect on the markets, the future may mean lower returns on your investment and more underperforming mutual funds! It also might indicate that after taxes and fees, your savings may not be enough to carry you through your retirement years.
One can also expect changes to Social Security and Medicare. Those plans, when enacted were meant to be a supplement for people in their last few years, based on life expectancy of 67 years! The government cannot sustain those programs without considerable cutbacks or changes to eligibility as well as additional taxes. The article I read suggested that even a thirty to forty percent increase in taxes would not be enough to pay the government’s costs for these programs!
So, plan for significant tax increases at some point in the future. They will probably not come as one large increase, but in smaller increments over a longer period of time. Plan also for reductions in social security and medicare benefits. Since the government can no longer sustain those benefits as we know them, there will be changes, especially for those who are younger and have perhaps ten or more years before retirement. This means that if you examine your long term financial plan and if you make adjustments now, there is still time to insure a financially secure retirement. For those who are at or near retirement and even those approaching the age of required minimum distributions (time to pay the taxes you deferred!), there are ways to limit your losses (wealth transfers), and maximize your financial strength. You can insure that your money will last your lifetime or will pass to your heirs without any unnecessary taxation.
Most importantly, you must be in control of your money, not the banks, money managers or the government. Get a complete analysis of what you will need to accumulate in order to maintain your standard of living in retirement. A dollar twenty years from now will not have the buying power it has today! Make sure you understand the difference between saving and investing. Make sure your strategy examines things like taxes and interest you are paying unnecessarily or unknowingly. Determine what savings plans will afford you liquidity, use and control of your money. Having control will give you an unlimited number of options that should include guaranteed tax deferred growth, no loss of principal, tax free withdrawals, tax free retirement income, guaranteed no loss of principal, and no market risk. Remember, savings are not money you can afford to lose. So maintain control and eliminate the risks that so many Americans are currently taking when they look for larger rates of return on their savings and investments!
If your 401K or mutual funds have underperformed the market indexes, you can probably expect more of the same. If you think it is time to take control of your finances, we agree! Let us help you learn the strategies used to grow wealth and enhance your current standard of living. We will show you alternatives to conventional planning for college funding and retirement. Show us what you are doing now, and we will in turn, show you a better today and a financially secure tomorrow!
Contact Jim Dierking or visit his personal web page or the company web page for more information.
If you think about the general mindset of most Americans, you will probably agree that when it comes to their savings and investments, most leave that to the money managers. In and of itself, that is not a bad thing as long as you understand that you lose control of your money when you put someone else in charge! In one of my recent posts, I used the words of my partner, that people just follow the crowd when it comes to their saving and investments.
The S & P 500 Index was used to illustrate a few points in the article. It shows that very few Americans owned stock in 1950; less than five percent. The index and the number of Americans holding stock or stock funds changed very little over the next thirty years. In 1980, ownership was about twelve percent. In the 1980’s, qualified plans were introduced and the baby boomers, the oldest of whom were in their middle thirties, were encouraged to invest their retirement savings. With perhaps a vague understanding, many thought they would lessen their tax liability by making contributions, so they did! As more baby boomers were introduced to qualified plans, (about half of us were now employed in careers) a large number of us followed the crowd! Money began to flow in to the fund managers.
The S & P 500 Index closed on December 31, 1999 at 1469, due in part to the fact that there were now better than 50% of Americans owning stock or stock funds. The economy was doing well and large numbers of the seventy-five million baby boomers were contributing to plans. There was a continuous flow of new money coming to fund managers to purchase additional stock. That trend continued and the index moved a little higher through 2007, closing at 1565 on October 9, 2007. Although it is unclear if contributions slowed immediately, it is clear that the banking crisis among other disconcerting news caused great volatility for the next two or three years. The S & P 500 Index closed on August 26, 2011 at 1177, approximately 19% lower than its close in 1999! And if you examine the charts through that time period, you will see that the Index had been below the 1999 close for a great majority of the time! As mentioned, the bad news along with a troubling economy has affected the markets. Looking ahead from here, we add the new paradigm to the mix, the baby boomers.
The oldest of the baby boomers are no longer in the accumulation phase of their financial lives. Those who have done well, have retired and have begun to draw on their funds. For the next twenty or so years, the baby boomers will continue to be eligible for retirement and whether they do retire, remains to be seen. But one thing is certain. They too, will begin to draw from their retirement funds. Even those who do not need the money will have to take their required minimum distributions. That cycle will start in a few years! The bottom line… more money coming out of the markets than will be going in as more and more of the baby boomers reach retirement age! Money managers will face new challenges. They are going to have to be more aggressive to produce adequate return on investments for their remaining clients to stay in the markets. Do you think this will have an effect on the market’s performance?
The burden on government is also growing because of the increasing numbers of baby boomers collecting social security and medicare benefits. There are simply not enough Americans to neutralize the effect that the baby boomer’s will have on social security and medicare benefits. And, it doesn’t appear that in our lifetime, that will change! So what can we do? What should we expect? Change is certainly in our future!
If the baby boomers do have such an effect on the markets, the future may mean lower returns on your investment and more underperforming mutual funds! It also might indicate that after taxes and fees, your savings may not be enough to carry you through your retirement years.
One can also expect changes to Social Security and Medicare. Those plans, when enacted were meant to be a supplement for people in their last few years, based on life expectancy of 67 years! The government cannot sustain those programs without considerable cutbacks or changes to eligibility as well as additional taxes. The article I read suggested that even a thirty to forty percent increase in taxes would not be enough to pay the government’s costs for these programs!
So, plan for significant tax increases at some point in the future. They will probably not come as one large increase, but in smaller increments over a longer period of time. Plan also for reductions in social security and medicare benefits. Since the government can no longer sustain those benefits as we know them, there will be changes, especially for those who are younger and have perhaps ten or more years before retirement. This means that if you examine your long term financial plan and if you make adjustments now, there is still time to insure a financially secure retirement. For those who are at or near retirement and even those approaching the age of required minimum distributions (time to pay the taxes you deferred!), there are ways to limit your losses (wealth transfers), and maximize your financial strength. You can insure that your money will last your lifetime or will pass to your heirs without any unnecessary taxation.
Most importantly, you must be in control of your money, not the banks, money managers or the government. Get a complete analysis of what you will need to accumulate in order to maintain your standard of living in retirement. A dollar twenty years from now will not have the buying power it has today! Make sure you understand the difference between saving and investing. Make sure your strategy examines things like taxes and interest you are paying unnecessarily or unknowingly. Determine what savings plans will afford you liquidity, use and control of your money. Having control will give you an unlimited number of options that should include guaranteed tax deferred growth, no loss of principal, tax free withdrawals, tax free retirement income, guaranteed no loss of principal, and no market risk. Remember, savings are not money you can afford to lose. So maintain control and eliminate the risks that so many Americans are currently taking when they look for larger rates of return on their savings and investments!
If your 401K or mutual funds have underperformed the market indexes, you can probably expect more of the same. If you think it is time to take control of your finances, we agree! Let us help you learn the strategies used to grow wealth and enhance your current standard of living. We will show you alternatives to conventional planning for college funding and retirement. Show us what you are doing now, and we will in turn, show you a better today and a financially secure tomorrow!
Contact Jim Dierking or visit his personal web page or the company web page for more information.
Monday, October 10, 2011
The Truth About Qualified Plans
I continually have conversations with clients about their perceptions of qualified plans. Some tell me they save on taxes, others say they avoid paying taxes or do not pay as much tax as a result of their contributions to a plan. Still others tell me that the company matches their contributions, so they put the maximum they can into their plan. I even hear from some that they are saving for their retirement and think that is a good way to do so. Basically, they follow the advice of someone in the payroll department or simply do what the crowd is doing!
It is probably a good time to share some simple facts about these investment plans and perhaps dispel some of the untruths! First, let me say that a qualified plan, in and of itself, is not bad. What is bad is the fact that so few who use qualified plans know how their money is treated in these programs. It is important then, to understand exactly what these plans do. In that way, you can make a more sound decision if they are right for you!
There are many rules for qualified plans. But we can set aside most of those rules and focus on a select few that will clearly help you decide if they are right for you. Let’s just mention that depending on the plan the contribution amounts are limited. The funds are not liquid, meaning that you cannot withdraw the money before age 59.5 without penalty. There are some exceptions to the rule. Your tax advisor can advise you about those. Suffice it to say you cannot get at the money easily if you should need it. At age 70.5, you must take distributions, whether you need the money or not. Those are some of the obvious things that most are aware of. From here I want to focus your attention on three things.
First and foremost, traditional qualified plans, whether a 401K, 403B, IRA, SEP, SIMPLE, etc., do two things. They defer the tax and the tax calculation. Better said, they postpone the tax and the tax calculation! Your contribution allows you to delay paying the tax until a time in the future! Since the tax calculation is also postponed until you draw the funds, it is possible that you could pay the tax at a higher rate than when you contributed the money!
You may be thinking that when I retire, I will be in a lower tax bracket, so I will pay less tax. That may be true, but are you planning to cut back on your lifestyle to insure that you will be in a lower bracket? I certainly do not want to lower the standard of living I have become used to; do you? And, because you may earn less in retirement, doesn’t mean you will pay fewer taxes. Look back at history. Since the inception of income taxes, they have varied significantly, especially after wars in which our country has been involved. We are experiencing a very weak economy and our current president that wants to raise taxes to pay for the wars, the national debt and the additional stimulus spending, authorized by Congress. Be honest with yourself. Are taxes going to go up or down?
If you put money into a plan while in a higher tax bracket and you ultimately take distributions (or withdraw the entire amount) at a lower tax bracket, you win. You postponed paying the tax at the higher bracket when you made the contribution and you paid at a lower rate when you withdrew it! If the tax rate is the same, there was no advantage and perhaps another investment or saving plan may have proved more beneficial. If the tax rate is higher, you lose! You will pay more tax than perhaps, you needed to! In this case, had you paid the tax at the time you contributed to your plan and deposited the funds into a different type of tax favored account, you would have paid less tax.
You must also keep in mind that you will probably not have the deductions you have now when you retire. For many, the house is paid for or they move to a smaller house and pay cash for it (another topic for another day!), the kids are gone and so are two of the biggest tax deductions most people have! Education credits are also gone. Another important fact to consider is inflation. Based on a modest 3% inflation rate, you will need two dollars thirty years from now to have the buying power of one dollar today!
So, what tax bracket will you be in at retirement? Even if you may be earning a little less money in retirement, when all factors are considered, you will probably be in a higher tax bracket or at least in the same bracket you were in before retirement. What deductions will you have? Clearly, fewer than you have now. And that assumes no changes to the tax code which is also highly unlikely.
Many believe if they put a dollar into a qualified plan, they have a dollar invested. Assuming a 30% tax bracket, you have $0.70 invested. Thirty cents belongs to the IRS! That is the tax you deferred. And, those thirty cents will now grow inside your account until you withdraw funds. At that time, the IRS will calculate the interest on their money and you will pay the tax at interest. Here is an example that considers a $1,000.00 annual contribution with a 30% tax bracket for both, the deferral and withdrawal periods, and a 5% rate of return for thirty years.
Account Balance $69,761
Your Share $48,833
Tax You Deferred $ 9,000
Amount You Owe IRS $20,928
Company match is also something that is often misunderstood. If you are receiving a company match, I urge you to contribute only enough to your plan to receive the maximum the company match offers. If you do that, the company’s contribution will most times, cover your tax liability. To wrap your mind around this, consider your contribution of one dollar and your company match of 50% or $0.50. You now have $1.50 in your account. If you are deferring at a 30% tax bracket, $0.45 belongs to the IRS. That $0.45 will be paid to the IRS at some point in the future at interest!
One last thing to consider is that mutual funds have historically underperformed the indexes. If you research the history of mutual funds, you will draw that conclusion on your own. So, I am not going to spend any time discussing that. The more important point is that mutual funds are traded on the markets and come with various levels of risk. The potential for loss of principal exists with every fund. And in most cases, we participate in these plans to save for retirement or for college planning. The operative word in the preceding sentence is save. When we save, it suggests that it is money we will eventually need. Can we afford to risk loss of principal with our savings in a very volatile market? Don’t be fooled by the thought of being able to time your withdrawals with market highs. Ask our retirees today how that is working for them! Just look at the losses in the markets since the highs in 2007!
At Integrated Financial Concepts, we insure that our clients understand important factors like those discussed here. We teach them the strategies they need to know in order to insure no loss of principal as well as contractually guaranteed growth of their funds, to minimize their taxes and have complete control of their finances at all times. If your money is not working for you 24/7, contact us for a free, no obligation consultation. Visit our company web page or contact me directly for more information.
Jim Dierking
It is probably a good time to share some simple facts about these investment plans and perhaps dispel some of the untruths! First, let me say that a qualified plan, in and of itself, is not bad. What is bad is the fact that so few who use qualified plans know how their money is treated in these programs. It is important then, to understand exactly what these plans do. In that way, you can make a more sound decision if they are right for you!
There are many rules for qualified plans. But we can set aside most of those rules and focus on a select few that will clearly help you decide if they are right for you. Let’s just mention that depending on the plan the contribution amounts are limited. The funds are not liquid, meaning that you cannot withdraw the money before age 59.5 without penalty. There are some exceptions to the rule. Your tax advisor can advise you about those. Suffice it to say you cannot get at the money easily if you should need it. At age 70.5, you must take distributions, whether you need the money or not. Those are some of the obvious things that most are aware of. From here I want to focus your attention on three things.
First and foremost, traditional qualified plans, whether a 401K, 403B, IRA, SEP, SIMPLE, etc., do two things. They defer the tax and the tax calculation. Better said, they postpone the tax and the tax calculation! Your contribution allows you to delay paying the tax until a time in the future! Since the tax calculation is also postponed until you draw the funds, it is possible that you could pay the tax at a higher rate than when you contributed the money!
You may be thinking that when I retire, I will be in a lower tax bracket, so I will pay less tax. That may be true, but are you planning to cut back on your lifestyle to insure that you will be in a lower bracket? I certainly do not want to lower the standard of living I have become used to; do you? And, because you may earn less in retirement, doesn’t mean you will pay fewer taxes. Look back at history. Since the inception of income taxes, they have varied significantly, especially after wars in which our country has been involved. We are experiencing a very weak economy and our current president that wants to raise taxes to pay for the wars, the national debt and the additional stimulus spending, authorized by Congress. Be honest with yourself. Are taxes going to go up or down?
If you put money into a plan while in a higher tax bracket and you ultimately take distributions (or withdraw the entire amount) at a lower tax bracket, you win. You postponed paying the tax at the higher bracket when you made the contribution and you paid at a lower rate when you withdrew it! If the tax rate is the same, there was no advantage and perhaps another investment or saving plan may have proved more beneficial. If the tax rate is higher, you lose! You will pay more tax than perhaps, you needed to! In this case, had you paid the tax at the time you contributed to your plan and deposited the funds into a different type of tax favored account, you would have paid less tax.
You must also keep in mind that you will probably not have the deductions you have now when you retire. For many, the house is paid for or they move to a smaller house and pay cash for it (another topic for another day!), the kids are gone and so are two of the biggest tax deductions most people have! Education credits are also gone. Another important fact to consider is inflation. Based on a modest 3% inflation rate, you will need two dollars thirty years from now to have the buying power of one dollar today!
So, what tax bracket will you be in at retirement? Even if you may be earning a little less money in retirement, when all factors are considered, you will probably be in a higher tax bracket or at least in the same bracket you were in before retirement. What deductions will you have? Clearly, fewer than you have now. And that assumes no changes to the tax code which is also highly unlikely.
Many believe if they put a dollar into a qualified plan, they have a dollar invested. Assuming a 30% tax bracket, you have $0.70 invested. Thirty cents belongs to the IRS! That is the tax you deferred. And, those thirty cents will now grow inside your account until you withdraw funds. At that time, the IRS will calculate the interest on their money and you will pay the tax at interest. Here is an example that considers a $1,000.00 annual contribution with a 30% tax bracket for both, the deferral and withdrawal periods, and a 5% rate of return for thirty years.
Account Balance $69,761
Your Share $48,833
Tax You Deferred $ 9,000
Amount You Owe IRS $20,928
Company match is also something that is often misunderstood. If you are receiving a company match, I urge you to contribute only enough to your plan to receive the maximum the company match offers. If you do that, the company’s contribution will most times, cover your tax liability. To wrap your mind around this, consider your contribution of one dollar and your company match of 50% or $0.50. You now have $1.50 in your account. If you are deferring at a 30% tax bracket, $0.45 belongs to the IRS. That $0.45 will be paid to the IRS at some point in the future at interest!
One last thing to consider is that mutual funds have historically underperformed the indexes. If you research the history of mutual funds, you will draw that conclusion on your own. So, I am not going to spend any time discussing that. The more important point is that mutual funds are traded on the markets and come with various levels of risk. The potential for loss of principal exists with every fund. And in most cases, we participate in these plans to save for retirement or for college planning. The operative word in the preceding sentence is save. When we save, it suggests that it is money we will eventually need. Can we afford to risk loss of principal with our savings in a very volatile market? Don’t be fooled by the thought of being able to time your withdrawals with market highs. Ask our retirees today how that is working for them! Just look at the losses in the markets since the highs in 2007!
At Integrated Financial Concepts, we insure that our clients understand important factors like those discussed here. We teach them the strategies they need to know in order to insure no loss of principal as well as contractually guaranteed growth of their funds, to minimize their taxes and have complete control of their finances at all times. If your money is not working for you 24/7, contact us for a free, no obligation consultation. Visit our company web page or contact me directly for more information.
Jim Dierking
Tuesday, September 06, 2011
Your Wealth Circle
The circle shown in the image featured in this article represents your circle of wealth. It represents all the money you will ever have in your life. It may be smaller than some people’s, yet larger than others. There is a commonality we all share, however. We all want our circles to grow!
Potential clients see a second circle that is broken into three parts. Those parts categorize the money in your wealth circle; two parts that most money managers focus on (Savings and Lifestyle) and the third part, called transferred funds that Jim Dierking and the members of Integrated Financial Concepts focus on first. (You can view a seven minute video titled "Your Circle of Wealth" in the right margin on this page.)
In order to grow your circle of wealth, conventional wisdom says you must curb your lifestyle to save more or take more risks to earn a higher rate of return with your saving / investments. The Specialists at IFC say you have to stop or reduce the money that is being transferred away from you. Those funds are in the form of interest on debt such as mortgages, credit cards and car payments to name just a few as well as taxes you pay or will pay on savings, qualified plans above and beyond the match, college planning and mandatory distributions. There are several other ways money is transferred away from your circle, but they are too numerous to mention here! One thing rings through to the members of IFC time and again, however. Those transferred funds are most often transferred away unnecessarily and often unknowingly. Jim and other private banking specialists at IFC work to change that!
So you are probably wondering how exactly do they do that! Jim will tell you they have a unique approach to growing their client’s circles of wealth. We look for ways to turn the transferred funds around and redirect them back into your circle, thus adding to your savings and growing your funds for such things as retirement, college planning, asset preservation and your current banking and saving plans without market risk and without effecting your current lifestyle!
If you can, imagine for a moment a water hose pouring water into an old bucket with holes in it. As the water flows in from the hose, it is continually leaking out through the holes. In order to fill the bucket, you have to increase the flow of water so that more is going in than is leaking out. If you plug the holes in the bucket, however, it will fill quite nicely, even with a slower flow of water. Jim believes that to be true when building wealth as well! The funds your designate to savings, represented by the water pouring into the bucket will not grow without doing one of two things. Conventional wisdom says you have to put more money into your accounts, which could affect your current lifestyle, or you must invest in products that yield a higher rate of return on your saving. The problem here is when the rate of return is higher, so is the risk you take! You could lose part or all of your funds!
Alternatively, you can reduce or eliminate the transferred money described earlier, which is analogous to the leaks in the bucket. It is much easier and far less risky to eliminate the funds transfers (plug the holes in the bucket), allowing your money to grow in a safe environment with guaranteed growth. That is the key to the success members of IFC are having is assisting their clients toward a happy and prosperous future as well as a comfortable lifestyle along the way. And, Jim and the members at IFC never charge their clients a fee for their services! They explain that to all of their potential clients during their first exploration meeting.
So, if you are not happy with the size of your wealth circle, if you are making more money than you ever have and you still feel like you are not getting any further along with your financial goals, or if you just want another opinion, contact Jim at Infinite Financial Concepts for a free and confidential conversation about your goals. See for yourself how they can help you establish a plan that will give you better control of your finances, both now and in the future. It is time to plug those holes your wealth bucket and to begin working toward a better future that you richly deserve!
Jim enjoys working with young and middle aged families and couples nearing retirement as well as those already retired who are looking for a way to preserve their assets from unnecessary taxation. He says that young people who are new to the business world are a welcomed challenge. He enjoys assisting them with retirement plans and private banks, much the same as he has done for his children and their peers.
Feel free to contact Jim, using the contact form on our corporate web page, or by email to jim .
Potential clients see a second circle that is broken into three parts. Those parts categorize the money in your wealth circle; two parts that most money managers focus on (Savings and Lifestyle) and the third part, called transferred funds that Jim Dierking and the members of Integrated Financial Concepts focus on first. (You can view a seven minute video titled "Your Circle of Wealth" in the right margin on this page.)
In order to grow your circle of wealth, conventional wisdom says you must curb your lifestyle to save more or take more risks to earn a higher rate of return with your saving / investments. The Specialists at IFC say you have to stop or reduce the money that is being transferred away from you. Those funds are in the form of interest on debt such as mortgages, credit cards and car payments to name just a few as well as taxes you pay or will pay on savings, qualified plans above and beyond the match, college planning and mandatory distributions. There are several other ways money is transferred away from your circle, but they are too numerous to mention here! One thing rings through to the members of IFC time and again, however. Those transferred funds are most often transferred away unnecessarily and often unknowingly. Jim and other private banking specialists at IFC work to change that!
So you are probably wondering how exactly do they do that! Jim will tell you they have a unique approach to growing their client’s circles of wealth. We look for ways to turn the transferred funds around and redirect them back into your circle, thus adding to your savings and growing your funds for such things as retirement, college planning, asset preservation and your current banking and saving plans without market risk and without effecting your current lifestyle!
If you can, imagine for a moment a water hose pouring water into an old bucket with holes in it. As the water flows in from the hose, it is continually leaking out through the holes. In order to fill the bucket, you have to increase the flow of water so that more is going in than is leaking out. If you plug the holes in the bucket, however, it will fill quite nicely, even with a slower flow of water. Jim believes that to be true when building wealth as well! The funds your designate to savings, represented by the water pouring into the bucket will not grow without doing one of two things. Conventional wisdom says you have to put more money into your accounts, which could affect your current lifestyle, or you must invest in products that yield a higher rate of return on your saving. The problem here is when the rate of return is higher, so is the risk you take! You could lose part or all of your funds!
Alternatively, you can reduce or eliminate the transferred money described earlier, which is analogous to the leaks in the bucket. It is much easier and far less risky to eliminate the funds transfers (plug the holes in the bucket), allowing your money to grow in a safe environment with guaranteed growth. That is the key to the success members of IFC are having is assisting their clients toward a happy and prosperous future as well as a comfortable lifestyle along the way. And, Jim and the members at IFC never charge their clients a fee for their services! They explain that to all of their potential clients during their first exploration meeting.
So, if you are not happy with the size of your wealth circle, if you are making more money than you ever have and you still feel like you are not getting any further along with your financial goals, or if you just want another opinion, contact Jim at Infinite Financial Concepts for a free and confidential conversation about your goals. See for yourself how they can help you establish a plan that will give you better control of your finances, both now and in the future. It is time to plug those holes your wealth bucket and to begin working toward a better future that you richly deserve!
Jim enjoys working with young and middle aged families and couples nearing retirement as well as those already retired who are looking for a way to preserve their assets from unnecessary taxation. He says that young people who are new to the business world are a welcomed challenge. He enjoys assisting them with retirement plans and private banks, much the same as he has done for his children and their peers.
Feel free to contact Jim, using the contact form on our corporate web page, or by email to jim .
Thursday, August 11, 2011
James Grant make the argument for monetary system tied to a gold standard
Some might say that fiscal conservatives would not be watching CNBC on a regular basis. That may be true, but I will admit that I was watching Sqawk Box this morning and caught a very good interview with James Grant, the publisher of Grant's Interest Rate Observer. Mr. Grant held his own and made a compelling point, as have so many others, to establish a modern day monetary system that is tied to a gold standard.
The banking system has proven more than once in recent years, that it is not working well as it exists and our dollar continues to be weakened by the policies of the FED and the uncontrolled spending of government. Mr. Grant was asked to speak on the volatility affecting every corner of the market and to comment on Joe's question that our prosperity sits on top of a lot of paper money!
The interview can be seen here .
The banking system has proven more than once in recent years, that it is not working well as it exists and our dollar continues to be weakened by the policies of the FED and the uncontrolled spending of government. Mr. Grant was asked to speak on the volatility affecting every corner of the market and to comment on Joe's question that our prosperity sits on top of a lot of paper money!
The interview can be seen here .
Friday, July 29, 2011
College Saving Plans; Are they good investments?
Having two daughters who attended college and graduate school (four years of two in school at the same time!), I feel the pain of those who are putting children through college, or who are approaching that time. I also acknowledge that schools are pricing many of our young people right out of the opportunity to attend college. One might argue that not all young people should go to college and although I do not disagree with that thought, I do think that every child and parent should have the choice and the financial resources, should the child desire a higher education.
You may have read that 529 College Saving Plans are great ways to put money away for your child’s education. You may have also read that not only can you contribute to the plan, but grandparents and even Junior’s rich aunt and uncle can contribute to the same plan. And, you can contribute up to the amount of the anticipated cost of the child’s education. That sounds pretty good, right? But, let’s look at the bigger picture. Although your funds grow tax deferred and you can withdraw funds for qualified college expenses tax free, (not all expenses are considered qualified) money managers tell you to make sure you time your withdrawals with the tuition credits and market movements.
It is important to know your money is typically invested in mutual funds. Research the decline in values of the major 529 plans in recent years. (And, if you haven’t read my post comparing saving versus investing, you should!) So, having your money invested with market risk prevailing, I cannot help but ask why you would put money away for college that may or may not grow? Even worse, it may actually be worth less when you need it. Just one more thought. What if Junior decides not to go to college? You now have to go through the trouble of applying to change the beneficiary or you are going back to school… or face taxation and possible penalty on those funds when you withdraw them! Remember, the government crafted all qualified plans. And, government doesn’t craft anything that they do not receive financial benefit from!
With savings in a privatie reserve account, there is no limit on how much you can put into your account. The money is contractually guaranteed to grow, there is no exposure to the market. Your money grows tax deferred and can be withdrawn or borrowed afgainst tax and penalty free. And, if Junior decides not to go on to college, no problem! Your money can be used for any purpose and eventually become a supplemental, tax free income in retirement years!
Infinite Banking or privatized banking as we at Integrated Financial Concepts like to call it, was developed by R. Nelson Nash about thirty years ago. He developed a concept based on what banks and credit unions have been doing for about 200 years. He began teaching others how banks work and how we could mimic what banks do.
Two of the biggest drains on our wealth are taxes and market risk. You can eliminate those two concerns from your long term savings, college savings and retirement savings. In addition, you can have the following benefits:
• Recapture the interest you now pay to the banks
• Contractually guaranteed growth with no loss of principal
• Penalty and Tax Free Access to your money at any age
• NO Government control
• Tax Free Retirement Income
• Your money is creditor and lawsuit proof
• You pay NO fees, ever!
If you think that what I have described here sounds too good to be true, then I will just say thank you for reading my post! If you want to know how I use my money in my private reserve account, then contact me. Or, simply view the 7 minute video to the right. Start plugging the holes in your wealth bucket and allow your money to work for you instead of the banks and government! Let us show you how and guide you through the discovery process. You can also view our corporate web page.
You may have read that 529 College Saving Plans are great ways to put money away for your child’s education. You may have also read that not only can you contribute to the plan, but grandparents and even Junior’s rich aunt and uncle can contribute to the same plan. And, you can contribute up to the amount of the anticipated cost of the child’s education. That sounds pretty good, right? But, let’s look at the bigger picture. Although your funds grow tax deferred and you can withdraw funds for qualified college expenses tax free, (not all expenses are considered qualified) money managers tell you to make sure you time your withdrawals with the tuition credits and market movements.
It is important to know your money is typically invested in mutual funds. Research the decline in values of the major 529 plans in recent years. (And, if you haven’t read my post comparing saving versus investing, you should!) So, having your money invested with market risk prevailing, I cannot help but ask why you would put money away for college that may or may not grow? Even worse, it may actually be worth less when you need it. Just one more thought. What if Junior decides not to go to college? You now have to go through the trouble of applying to change the beneficiary or you are going back to school… or face taxation and possible penalty on those funds when you withdraw them! Remember, the government crafted all qualified plans. And, government doesn’t craft anything that they do not receive financial benefit from!
With savings in a privatie reserve account, there is no limit on how much you can put into your account. The money is contractually guaranteed to grow, there is no exposure to the market. Your money grows tax deferred and can be withdrawn or borrowed afgainst tax and penalty free. And, if Junior decides not to go on to college, no problem! Your money can be used for any purpose and eventually become a supplemental, tax free income in retirement years!
Infinite Banking or privatized banking as we at Integrated Financial Concepts like to call it, was developed by R. Nelson Nash about thirty years ago. He developed a concept based on what banks and credit unions have been doing for about 200 years. He began teaching others how banks work and how we could mimic what banks do.
Two of the biggest drains on our wealth are taxes and market risk. You can eliminate those two concerns from your long term savings, college savings and retirement savings. In addition, you can have the following benefits:
• Recapture the interest you now pay to the banks
• Contractually guaranteed growth with no loss of principal
• Penalty and Tax Free Access to your money at any age
• NO Government control
• Tax Free Retirement Income
• Your money is creditor and lawsuit proof
• You pay NO fees, ever!
If you think that what I have described here sounds too good to be true, then I will just say thank you for reading my post! If you want to know how I use my money in my private reserve account, then contact me. Or, simply view the 7 minute video to the right. Start plugging the holes in your wealth bucket and allow your money to work for you instead of the banks and government! Let us show you how and guide you through the discovery process. You can also view our corporate web page.
Monday, July 18, 2011
Saving or Investment; What is the Difference
I often ask business people if they share my philosophy about preserving their capital and saving for retirement. Most people, business or otherwise would agree that it is important to preserve capital, especially those who are approaching retirement in the next few years!
Might I suggest you watch the 7 minute video, titled Your Cirle of Wealth on the right side of this page before you read any further?
Second, I want to point out the difference between saving and investment. Investments are funds we can afford to lose! Savings are funds that we depend on, either now or in the future, but are not funds that we can afford to lose! I mention this because in general, Americans have become enamored by the stock market over the past 50 years and as a result, have invested funds with the hope of considerable gains. What has also happened is that money managers have convinced us that there is no difference between saving and investing, much to their advantage! They get paid no matter what our investment does! Stocks, bonds, 401K, 403B, IRA, Mutual Funds, etc., are all subject to market risk. With markets as they are and with a desire to maintain our lifestyle in retirement, is that what we want to do with our savings? I think banking, a system that has been in existence since 2000 BC, is a safe alternative and one that I teach clients to make the most of!
It is true our money earns little interest in the bank, however, I am not suggesting that you simply put your money in a local banking institution or credit union. Think about it for a minute; the names on some of the biggest buildings across the country are banks, right? Why? Well, the Golden Rule comes to mind; those with the gold make the rules! Banks have us trained to deposit money, allowing them to use it in their sweep accounts, while paying us very little for the use but making a considerable profit from our deposits. We are also taught to go to the bank for a loan when we need money. Banks love us when we are the borrower about 9 times more than they love us a saver (another topic for another post!). But… What if you were the bank? What if you had a source for expenses throughout your life that could grow into a considerable TAX FREE supplemental retirement income and a legacy for your heirs?
When you borrow money from the bank, you pay your banking institution volumes of interest. When you withdraw funds from your savings to make a purchase, you lose interest on your savings. You become a victim of “lost opportunity costs”, a major wealth transfer we describe in our training.
It is analogous to the individual that withdraws money to purchase a new car. Once the money is out of his/her account, it no longer has the potential to grow and build wealth for them. Let’s say after a four year period, the individual has a depreciated asset and nothing more unless they faithfully put the money back into their savings account over that four years. Even still, the opportunity to grow wealth was limited by the pace at which the money was returned to savings, not to mention the interest they lost whiel the money was out of their account. What if you could use the money from your savings and continue to receive the full benefit of interest and dividends as if you had never taken the money out of your account?
The reality is this. For fifty or so years, money managers and our government have encouraged us to use investment vehicles that put our hard earned money at risk in the stock market. And, the only one that benefits by this strategy is the government (via the taxes we pay when we withdraw funds), the money managers and large corporations. If it is money that you can afford to lose, than good luck with the investment! But if it is retirement, long or short term savings, then consider that banking has been around and working well for thousands of years. The difference between banking with the banks and privatized banking is that we now teach you principals that the banks never wanted you to know!
So, what happens to your money? First, it is not invested and has little or no risk, since it is not in the market. It will be contractually guaranteed to grow and you will have penalty free and tax free access to the cash whenever you want it or need it. You can pay it back and use it again and again. There are no loan applications, no credit checks and no jumping through hoops to get the money. It is lawsuit and creditor proof and there is no government control. (Read the article printed in Forbes.com.) Banks use this same savings vehicle as one of their core assets. And, there is no fee for our services, ever!
If you would like some additional information, let us set up a no cost seminar for you to view over the internet. Simply use the contact form on the corporate web page to participate from the comfort of your home. I welcome the opportunity to speak to those who have an interest in privatized banking and wish you continued success in your endeavors.
There are many great published resources available for you to learn more. One such book is “A Path To Financial Peace of Mind” by Dwayne Burnell and can be purchased on the Internet. Feel free to peruse the FAQ’s or my personal web site as well at http://www.jdierking.com/ .
Jim Dierking
Might I suggest you watch the 7 minute video, titled Your Cirle of Wealth on the right side of this page before you read any further?
Second, I want to point out the difference between saving and investment. Investments are funds we can afford to lose! Savings are funds that we depend on, either now or in the future, but are not funds that we can afford to lose! I mention this because in general, Americans have become enamored by the stock market over the past 50 years and as a result, have invested funds with the hope of considerable gains. What has also happened is that money managers have convinced us that there is no difference between saving and investing, much to their advantage! They get paid no matter what our investment does! Stocks, bonds, 401K, 403B, IRA, Mutual Funds, etc., are all subject to market risk. With markets as they are and with a desire to maintain our lifestyle in retirement, is that what we want to do with our savings? I think banking, a system that has been in existence since 2000 BC, is a safe alternative and one that I teach clients to make the most of!
It is true our money earns little interest in the bank, however, I am not suggesting that you simply put your money in a local banking institution or credit union. Think about it for a minute; the names on some of the biggest buildings across the country are banks, right? Why? Well, the Golden Rule comes to mind; those with the gold make the rules! Banks have us trained to deposit money, allowing them to use it in their sweep accounts, while paying us very little for the use but making a considerable profit from our deposits. We are also taught to go to the bank for a loan when we need money. Banks love us when we are the borrower about 9 times more than they love us a saver (another topic for another post!). But… What if you were the bank? What if you had a source for expenses throughout your life that could grow into a considerable TAX FREE supplemental retirement income and a legacy for your heirs?
When you borrow money from the bank, you pay your banking institution volumes of interest. When you withdraw funds from your savings to make a purchase, you lose interest on your savings. You become a victim of “lost opportunity costs”, a major wealth transfer we describe in our training.
It is analogous to the individual that withdraws money to purchase a new car. Once the money is out of his/her account, it no longer has the potential to grow and build wealth for them. Let’s say after a four year period, the individual has a depreciated asset and nothing more unless they faithfully put the money back into their savings account over that four years. Even still, the opportunity to grow wealth was limited by the pace at which the money was returned to savings, not to mention the interest they lost whiel the money was out of their account. What if you could use the money from your savings and continue to receive the full benefit of interest and dividends as if you had never taken the money out of your account?
The reality is this. For fifty or so years, money managers and our government have encouraged us to use investment vehicles that put our hard earned money at risk in the stock market. And, the only one that benefits by this strategy is the government (via the taxes we pay when we withdraw funds), the money managers and large corporations. If it is money that you can afford to lose, than good luck with the investment! But if it is retirement, long or short term savings, then consider that banking has been around and working well for thousands of years. The difference between banking with the banks and privatized banking is that we now teach you principals that the banks never wanted you to know!
So, what happens to your money? First, it is not invested and has little or no risk, since it is not in the market. It will be contractually guaranteed to grow and you will have penalty free and tax free access to the cash whenever you want it or need it. You can pay it back and use it again and again. There are no loan applications, no credit checks and no jumping through hoops to get the money. It is lawsuit and creditor proof and there is no government control. (Read the article printed in Forbes.com.) Banks use this same savings vehicle as one of their core assets. And, there is no fee for our services, ever!
If you would like some additional information, let us set up a no cost seminar for you to view over the internet. Simply use the contact form on the corporate web page to participate from the comfort of your home. I welcome the opportunity to speak to those who have an interest in privatized banking and wish you continued success in your endeavors.
There are many great published resources available for you to learn more. One such book is “A Path To Financial Peace of Mind” by Dwayne Burnell and can be purchased on the Internet. Feel free to peruse the FAQ’s or my personal web site as well at http://www.jdierking.com/ .
Jim Dierking
Sunday, July 17, 2011
The following article appeared on the Mises Institute Web page and is the daily newsletter to subscribers for Friday, July 15, 2011. If you are curious about the potential default of the US Treasury and how it will affect your saving or banking activities, the article is a good read. It speaks for itself.
July 15, 2011
Mises Daily
A Short History of US Credit Defaults
by John S. Chamberlain on July 15, 2011
On July 13th, the president of the United States angrily walked out of ongoing negotiations over the raising of the debt ceiling from its legislated maximum of $14.294 trillion dollars. This prompted a new round of speculation over whether the United States might default on its financial obligations. In these circumstances, it is useful to recall the previous instances in which this has occurred and the effects of those defaults. By studying the defaults of the past, we can gain insights into what future defaults might portend.
The Continental-Currency Default
The first default of the United States was on its first issuance of debt: the currency emitted by the Continental Congress of 1775. In June of 1775 the Continental Congress of the United States of America, located in Philadelphia, representing the 13 states of the union, issued bills of credit amounting to 2 million Spanish milled dollars to be paid four years hence in four annual installments.
The next month an additional 1 million was issued. A third issue of 3 million followed. The next year they issued an additional 13 million dollars of notes. These were the first of the "Continental dollars," which were used to fund the war of revolution against Great Britain. The issues continued until an estimated 241 million dollars were outstanding, not including British forgeries.
Congress had no power of taxation, so it made each of the several states responsible for redeeming a proportion of the notes according to population. The administration of these notes was delegated to a "Board of the Treasury" in 1776. To refuse the notes or receive them below par was punishable by having your ears cut off and other horrible penalties.
The notes progressively depreciated as the public began to realize that neither the states nor their Congress had the will or capacity to redeem them. In November of 1779, Congress announced a devaluation of 38.5 to 1 on the Continentals, which amounted to an admission of default. In this year refusal to accept the notes became widespread, and trade was reduced to barter — causing sporadic famines and other privations.
Eventually, Congress agreed to redeem the notes at 1,000 to 1. At a rate of 0.82 troy ounces to the Spanish milled dollar, if we take the current (July 2011) price of silver, $36 to the troy ounce, this first default resulted in a cumulative loss of approximately $7 billion dollars to the American public.
Benjamin Franklin characterized the loss as a tax. Memory of the suffering and economic disruption caused by this "tax" and similar bills of credit issued by the states influenced the contract clause of the Constitution, which was adopted in 1789:
No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts.
The Default on Continental Domestic Loans
In addition to its currency issuance, the Continental Congress borrowed money both domestically and abroad. The domestic debt totaled approximately $11 million Spanish dollars. The interest on this debt was paid primarily by money received from France and Holland as part of separate borrowings. When this source of funding dried up, Congress defaulted on its domestic debt, starting on March 1, 1782. Partial satisfaction of these debts was made later by accepting the notes for payments of taxes and other indirect considerations.
In an act of 1790, Congress repudiated these loans entirely, but offered to convert them to new ones with less favorable terms, thereby memorializing the default in the form of a Federal law.
The Greenback Default of 1862
After the Revolutionary War, the Congress of the United States made only limited issuance of debt and currency, leaving the problems of public finance largely to the states and private banks. (These entities defaulted on a regular basis up to the Panic of 1837, in which a crescendo of state defaults led to the invention of the term "repudiation of debts.")
In August of 1861, this balance between local and federal finance switched forever; the Civil War induced Congress to create a new currency, which became known as the "greenback" due to the green color of its ink. The original greenbacks were $60 million in demand notes in denominations of $5, $10, and $20. These were redeemable in specie at any time at a rate of 0.048375 troy ounces of gold per dollar. Less than five months later, in January of 1862, the US Treasury defaulted on these notes by failing to redeem them on demand.
After this failure, the Treasury made subsequent issues of greenbacks as "legal-tender" notes, which were not redeemable on demand, except through foreign exchange, and could not be used to pay customs duties. Depending on the fortunes of war, these notes traded for gold at a discount ranging from 20 percent to 40 percent. By the stratagem of monetizing this currency with bonds and paying only the interest on those bonds in gold acquired through customs fees, Lincoln's party financed the Civil War with no further defaults.
The Liberty Bond Default of 1934
The financing of the United States government stepped up to a whole new level upon its entry into the Great War, now known as World War I. The new enterprises of the government included merchant-fleet maintenance and operation, production of ammunition, feeding and equipping soldiers entirely at its own expense, and many other expensive things it had never done before or done only on a much smaller scale.
To finance these activities, Congress issued a series of debentures known as "Liberty Bonds" starting in 1917. The preliminary series were convertible into issues of later series at progressively more favorable terms until the debt was rolled into the fourth Liberty Bond, dated October 24, 1918, which was a $7 billion dollar, 20-year, 4.25 percent issue, payable in gold at a rate of $20.67 per troy ounce.
By the time Franklin Roosevelt entered office in 1933, the interest payments alone were draining the treasury of gold; and because the treasury had only $4.2 billion in gold it was obvious there would be no way to pay the principal when it became due in 1938, not to mention meet expenses and other debt obligations.
These other debt obligations were substantial. Ever since the 1890s the Treasury had been gold short and had financed this deficit by making new bond issues to attract gold for paying the interest of previous issues. The result was that by 1933 the total debt was $22 billion and the amount of gold needed to pay even the interest on it was soon going to be insufficient.
In this exigency, Roosevelt decided to default on the whole of the domestically held debt by refusing to redeem in gold to Americans and devaluing the dollar by 40 percent against foreign exchange. By taking these steps the Treasury was able to make a partial payment and maintain foreign exchange with the critical trade partners of the United States.
If we price gold at the present-day value of $1,550 per troy ounce, the total loss to investors by the devaluation was approximately $640 billion in 2011 dollars. The overall result of the default was to intensify the depression and trade reductions of the 1930s and to contribute to fomenting World War II.
The Momentary Default of 1979
The Treasury of the United States accidentally defaulted on a small number of bills during the 1979 debt-limit crisis. Due to administrative confusion, $120 million in bills coming due on April 26, May 3, and May 10 were not paid according to the stated terms. The Treasury eventually paid the face value of the bills, but nevertheless a class-action lawsuit, Claire G. Barton v. United States, was filed in the Federal court of the Central District of California over whether the treasury should pay additional interest for the delay.
The government decided to avoid any further publicity by giving the jilted investors what they wanted rather than ride the high horse of sovereign immunity. An economic study of the affair concluded that the net result was a tiny permanent increase in the interest rates of T-bills.
What Will Happen in August of 2011?
Many people are wondering about the possibility of a default by the Treasury on August 3, 2011, when, according to the Treasury's projections, it will no longer be able to meet all expenses without additional borrowing.
$25 $18
In this event, it is unlikely a default will occur. Historically, governments prioritize debt service above all other expenses. If the expansion of funds via debt becomes ipossible, the Treasury will cease paying other expenses first, starting with "nonessential" discretionary expenditures, and then it will move on to mandatory expenditures and entitlements as a last resort.
In extremis, what will happen is that all the losses will be foisted onto the Federal Reserve. The Fed holds something on the order of $1.6 trillion in debt issued by the Treasury of the United States. By having the Federal Reserve purchase blocks of Treasury debt and defaulting on these non-investor-held securities, the United States can postpone a default against real investors essentially forever.
John S. Chamberlain lives in Natick, Massachusetts, and works as a software engineer specializing in earth science and artificial intelligence. He has an A.B. in politics from Princeton University and an M.S. in computer science from Northeastern University. Send him mail. See John S. Chamberlain's article archives.
You can subscribe to future articles by John S. Chamberlain via this RSS feed.
July 15, 2011
Mises Daily
A Short History of US Credit Defaults
by John S. Chamberlain on July 15, 2011
On July 13th, the president of the United States angrily walked out of ongoing negotiations over the raising of the debt ceiling from its legislated maximum of $14.294 trillion dollars. This prompted a new round of speculation over whether the United States might default on its financial obligations. In these circumstances, it is useful to recall the previous instances in which this has occurred and the effects of those defaults. By studying the defaults of the past, we can gain insights into what future defaults might portend.
The Continental-Currency Default
The first default of the United States was on its first issuance of debt: the currency emitted by the Continental Congress of 1775. In June of 1775 the Continental Congress of the United States of America, located in Philadelphia, representing the 13 states of the union, issued bills of credit amounting to 2 million Spanish milled dollars to be paid four years hence in four annual installments.
The next month an additional 1 million was issued. A third issue of 3 million followed. The next year they issued an additional 13 million dollars of notes. These were the first of the "Continental dollars," which were used to fund the war of revolution against Great Britain. The issues continued until an estimated 241 million dollars were outstanding, not including British forgeries.
Congress had no power of taxation, so it made each of the several states responsible for redeeming a proportion of the notes according to population. The administration of these notes was delegated to a "Board of the Treasury" in 1776. To refuse the notes or receive them below par was punishable by having your ears cut off and other horrible penalties.
The notes progressively depreciated as the public began to realize that neither the states nor their Congress had the will or capacity to redeem them. In November of 1779, Congress announced a devaluation of 38.5 to 1 on the Continentals, which amounted to an admission of default. In this year refusal to accept the notes became widespread, and trade was reduced to barter — causing sporadic famines and other privations.
Eventually, Congress agreed to redeem the notes at 1,000 to 1. At a rate of 0.82 troy ounces to the Spanish milled dollar, if we take the current (July 2011) price of silver, $36 to the troy ounce, this first default resulted in a cumulative loss of approximately $7 billion dollars to the American public.
Benjamin Franklin characterized the loss as a tax. Memory of the suffering and economic disruption caused by this "tax" and similar bills of credit issued by the states influenced the contract clause of the Constitution, which was adopted in 1789:
No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts.
The Default on Continental Domestic Loans
In addition to its currency issuance, the Continental Congress borrowed money both domestically and abroad. The domestic debt totaled approximately $11 million Spanish dollars. The interest on this debt was paid primarily by money received from France and Holland as part of separate borrowings. When this source of funding dried up, Congress defaulted on its domestic debt, starting on March 1, 1782. Partial satisfaction of these debts was made later by accepting the notes for payments of taxes and other indirect considerations.
In an act of 1790, Congress repudiated these loans entirely, but offered to convert them to new ones with less favorable terms, thereby memorializing the default in the form of a Federal law.
The Greenback Default of 1862
After the Revolutionary War, the Congress of the United States made only limited issuance of debt and currency, leaving the problems of public finance largely to the states and private banks. (These entities defaulted on a regular basis up to the Panic of 1837, in which a crescendo of state defaults led to the invention of the term "repudiation of debts.")
In August of 1861, this balance between local and federal finance switched forever; the Civil War induced Congress to create a new currency, which became known as the "greenback" due to the green color of its ink. The original greenbacks were $60 million in demand notes in denominations of $5, $10, and $20. These were redeemable in specie at any time at a rate of 0.048375 troy ounces of gold per dollar. Less than five months later, in January of 1862, the US Treasury defaulted on these notes by failing to redeem them on demand.
After this failure, the Treasury made subsequent issues of greenbacks as "legal-tender" notes, which were not redeemable on demand, except through foreign exchange, and could not be used to pay customs duties. Depending on the fortunes of war, these notes traded for gold at a discount ranging from 20 percent to 40 percent. By the stratagem of monetizing this currency with bonds and paying only the interest on those bonds in gold acquired through customs fees, Lincoln's party financed the Civil War with no further defaults.
The Liberty Bond Default of 1934
The financing of the United States government stepped up to a whole new level upon its entry into the Great War, now known as World War I. The new enterprises of the government included merchant-fleet maintenance and operation, production of ammunition, feeding and equipping soldiers entirely at its own expense, and many other expensive things it had never done before or done only on a much smaller scale.
To finance these activities, Congress issued a series of debentures known as "Liberty Bonds" starting in 1917. The preliminary series were convertible into issues of later series at progressively more favorable terms until the debt was rolled into the fourth Liberty Bond, dated October 24, 1918, which was a $7 billion dollar, 20-year, 4.25 percent issue, payable in gold at a rate of $20.67 per troy ounce.
By the time Franklin Roosevelt entered office in 1933, the interest payments alone were draining the treasury of gold; and because the treasury had only $4.2 billion in gold it was obvious there would be no way to pay the principal when it became due in 1938, not to mention meet expenses and other debt obligations.
These other debt obligations were substantial. Ever since the 1890s the Treasury had been gold short and had financed this deficit by making new bond issues to attract gold for paying the interest of previous issues. The result was that by 1933 the total debt was $22 billion and the amount of gold needed to pay even the interest on it was soon going to be insufficient.
In this exigency, Roosevelt decided to default on the whole of the domestically held debt by refusing to redeem in gold to Americans and devaluing the dollar by 40 percent against foreign exchange. By taking these steps the Treasury was able to make a partial payment and maintain foreign exchange with the critical trade partners of the United States.
If we price gold at the present-day value of $1,550 per troy ounce, the total loss to investors by the devaluation was approximately $640 billion in 2011 dollars. The overall result of the default was to intensify the depression and trade reductions of the 1930s and to contribute to fomenting World War II.
The Momentary Default of 1979
The Treasury of the United States accidentally defaulted on a small number of bills during the 1979 debt-limit crisis. Due to administrative confusion, $120 million in bills coming due on April 26, May 3, and May 10 were not paid according to the stated terms. The Treasury eventually paid the face value of the bills, but nevertheless a class-action lawsuit, Claire G. Barton v. United States, was filed in the Federal court of the Central District of California over whether the treasury should pay additional interest for the delay.
The government decided to avoid any further publicity by giving the jilted investors what they wanted rather than ride the high horse of sovereign immunity. An economic study of the affair concluded that the net result was a tiny permanent increase in the interest rates of T-bills.
What Will Happen in August of 2011?
Many people are wondering about the possibility of a default by the Treasury on August 3, 2011, when, according to the Treasury's projections, it will no longer be able to meet all expenses without additional borrowing.
$25 $18
In this event, it is unlikely a default will occur. Historically, governments prioritize debt service above all other expenses. If the expansion of funds via debt becomes ipossible, the Treasury will cease paying other expenses first, starting with "nonessential" discretionary expenditures, and then it will move on to mandatory expenditures and entitlements as a last resort.
In extremis, what will happen is that all the losses will be foisted onto the Federal Reserve. The Fed holds something on the order of $1.6 trillion in debt issued by the Treasury of the United States. By having the Federal Reserve purchase blocks of Treasury debt and defaulting on these non-investor-held securities, the United States can postpone a default against real investors essentially forever.
John S. Chamberlain lives in Natick, Massachusetts, and works as a software engineer specializing in earth science and artificial intelligence. He has an A.B. in politics from Princeton University and an M.S. in computer science from Northeastern University. Send him mail. See John S. Chamberlain's article archives.
You can subscribe to future articles by John S. Chamberlain via this RSS feed.
Tuesday, July 12, 2011
A.M. Best Affirms Mutual Trust's Rating as A- (Excellent)
One of the Company's that I use for our Privatized Banking Clients is Mutual Trust Life, part of the Mutual Trust Financial Group. In the company newsletter to agents, the following quote was printed. I have copied it to my blog so that my clients can see the continued progress and successes of MTL!
"We are pleased to announce that A.M. Best, the largest and longest-established credit rating organization serving the financial services industry, has affirmed—effective June 14, 2011—Mutual Trust Financial Group's rating as A- (Excellent), with a stable outlook. A rating of A- is assigned to companies that have, in A.M. Best's opinion, an excellent ability to meet their ongoing obligations to policyholders"
TAre you saving for retirement? Are your retirement plans performing well? Are your retirement saving plans tied to the market? With Privatized Banking, you control your money. There is guaranteed no loss of principal and your funds are accessible whenever you need them! To know more about privatized banking, watch our Online seminar
"We are pleased to announce that A.M. Best, the largest and longest-established credit rating organization serving the financial services industry, has affirmed—effective June 14, 2011—Mutual Trust Financial Group's rating as A- (Excellent), with a stable outlook. A rating of A- is assigned to companies that have, in A.M. Best's opinion, an excellent ability to meet their ongoing obligations to policyholders"
TAre you saving for retirement? Are your retirement plans performing well? Are your retirement saving plans tied to the market? With Privatized Banking, you control your money. There is guaranteed no loss of principal and your funds are accessible whenever you need them! To know more about privatized banking, watch our Online seminar
Tuesday, June 28, 2011
Making your money work for you is hard work!
Today I read an article in USA Today, authored by Sandra Block. You can read the whole article here. Basically, the author was outlining a number of ways you could see better returns on your money. In the words of the author, "There's a reason most banks don't promote their CD rates: They're horrible. The average rate for a one-year CD last week was 0.44%, according to Bankrate.com. Most big banks are paying less than 1% on their savings accounts."
She goes on to say that some seniors who depend on the income from their saving accounts buy the long term CD's to get a little higher interest rate, only to cash them in if they need the money and pay the penalty for the surrender prior to the cd's maturity. Now that could be considered cleaver, but what if the penalty is more than the interest they received? The author points out that some banking institutions and perhaps your local credit union charge as much as one year's interest as a penalty for early surrender!
She points out that there are now instuments such as bump up CD's, I Bonds, premier checking accounts and online saving accounts that can help you to get more interest on your savings. That is all well and good. But ask yourself how many people have the time to shop for such financial instuments amidst their busy schedules! I cannot imagine having to do all that work just to get a few dollars more per month and let's face it, neither will most of you!
No, the author has not missed the boat. Rather, she is right on and makes great points of suggestion. She implies (or I have inferred!) that it is no longer just one trip to the local credit union and you are done. The problem is that you have to work hard for those few extra dollars and in the end, is it worth it? Who has that kind of time or the discipline to conduct all those transactions required to get a slightly higher interest rate? That said, the idea of banking is not a bad one. It is a great one. But, the vehicle you choose for your banking is key!
You want your saving plan, especially your retirement saving plan to have features like:
She goes on to say that some seniors who depend on the income from their saving accounts buy the long term CD's to get a little higher interest rate, only to cash them in if they need the money and pay the penalty for the surrender prior to the cd's maturity. Now that could be considered cleaver, but what if the penalty is more than the interest they received? The author points out that some banking institutions and perhaps your local credit union charge as much as one year's interest as a penalty for early surrender!
She points out that there are now instuments such as bump up CD's, I Bonds, premier checking accounts and online saving accounts that can help you to get more interest on your savings. That is all well and good. But ask yourself how many people have the time to shop for such financial instuments amidst their busy schedules! I cannot imagine having to do all that work just to get a few dollars more per month and let's face it, neither will most of you!
No, the author has not missed the boat. Rather, she is right on and makes great points of suggestion. She implies (or I have inferred!) that it is no longer just one trip to the local credit union and you are done. The problem is that you have to work hard for those few extra dollars and in the end, is it worth it? Who has that kind of time or the discipline to conduct all those transactions required to get a slightly higher interest rate? That said, the idea of banking is not a bad one. It is a great one. But, the vehicle you choose for your banking is key!
You want your saving plan, especially your retirement saving plan to have features like:
- Guaranteed Growth with No Loss of Principal
- Have Penalty Free and Tax Free Access to the money at any time regardless of your age
- Have no Government Control. It is your money to use as you see fit.
- Have your saving plan be Creditor and Lawsuit proof
- Never have to pay any fees to a financial planner
I believe that many of you have the ability to bank more efficiently but do not have the information you need to get started! There is a free Online seminar that you can watch. It will explain how banks lend and how privatized banking works as well. Learn the secrets of banking that the big banks will not tell you and learn how to take control of and manage your money so that it works for you 24/7. This is not rocket science. Rather, it is learning the practices that have beensucessfully used by many for hundreds of years. View the seminar !
Friday, June 17, 2011
What would Thomas Jefferson think?
Having just completed my colleague Jeff Mendenhall’s book, “Your Economic Destiny”, I was reminded of some of the many profound writings of Thomsa Jefferson. The following quotes appeared in Jeff’s book and no need to restate Jeff’s point for this post, since Jefferson’s words speak very clearly on debt!
“Then I say, the earth belongs to each of these generations during its course, fully and in its own right. The second generation receives it clear of the debts and incumbrances of the first, the third of the second, and so on. For if the first could charge it with a debt, then the earth would belong to the dead and not to the living generation. Then, no generation can contract debts greater than may be paid during the course of its own existence.” –Thomas Jefferson to James Madison, 1789. ME 7:455
“The conclusion then, is, that neither the representatives of a nation, nor the whole nation itself assembled, can validly engage debts beyond what they may pay in their own time.” –Thomas Jefferson to James Madison, 1789. ME 7:457
In his book, Jeff warned of a potential economic storm that is still ahead if our nation does not take immediate measures to reduce the national debt. His points in the book are well taken, but all those years ago, Thomas Jefferson spoke the words above, warning future generations not to incur debt beyond what could be paid in their lifetime. Perhaps our current govenment officials should read and reflect on some of Jefferson’s writings and teachings!
I am enjoying reading about him once again. Suggest you engage some of your free time doing so as well!
Jim Dierking
“Then I say, the earth belongs to each of these generations during its course, fully and in its own right. The second generation receives it clear of the debts and incumbrances of the first, the third of the second, and so on. For if the first could charge it with a debt, then the earth would belong to the dead and not to the living generation. Then, no generation can contract debts greater than may be paid during the course of its own existence.” –Thomas Jefferson to James Madison, 1789. ME 7:455
“The conclusion then, is, that neither the representatives of a nation, nor the whole nation itself assembled, can validly engage debts beyond what they may pay in their own time.” –Thomas Jefferson to James Madison, 1789. ME 7:457
In his book, Jeff warned of a potential economic storm that is still ahead if our nation does not take immediate measures to reduce the national debt. His points in the book are well taken, but all those years ago, Thomas Jefferson spoke the words above, warning future generations not to incur debt beyond what could be paid in their lifetime. Perhaps our current govenment officials should read and reflect on some of Jefferson’s writings and teachings!
I am enjoying reading about him once again. Suggest you engage some of your free time doing so as well!
Jim Dierking
Friday, June 10, 2011
Home Equity Lowest Since World War 2
In past years, even as a child, I remember hearing adults speak about the growing equity in their homes and that someday, they would take the one time exemption (the tax laws at the time), sell the big house and downsize to something smaller, thus using the cash as a supplement for retirement. I grew up with that forced sense of saving in mind and with a somewhat similar plan in the back of my mind.
Banking on the equity that came from faithful payments of one's mortgage loan, a goal that most of my parent's generation sought. Things have changed! Most today, even before the real estate market meltdown, did not think that way. Many of my clients would say, they just convince themsleves that they would always have a mortgage payment. I always worked to try and help them see things from the prospective of debt free living, not always successful, I might add! Some of that probably is a result of the instant gratification society that we live in today, but I am digressing and want to get back to my point.
For those who may still have had the thought that the equity in their home would supplement their retirement someday (even if they have been faithful in making their payments and have not taken cash out refinances or equity loans), the market meltdown has erased the hope of that! To no fault of the individual homeowner, an article in the USA Today indicates that home equity has sunk to nearly the lowest point since World War 2. If you are in my generation and you are thinking about retirement in the next several years, the housing market wows are probably on your mind regularly...
There are alternatives and it is not too late for you to recover from this and all saving meltdowns. The stock and bond markets have not been in your favor either. But the reality is that for most, the markets other than the real estate market, have not been in your favor. In another article I read recently the author suggested that most individual investors get in the market at or near the top and sell at or near the bottom, not the way it is supposed to work!
Ironically, people who understand the power of banking will have done better saving the monty they invested in the market at their local bank or credit union! But there is more to understanding banking than to simply deposit your money. R. Nelso Nash, the founder and engineer of the Infinite Banking Concept says that everyone should be in two businesses; the one you make your living with and banking! Privatized Banking not only gives you the ability to capitalize on compound interest, but it gives you the ability to reverse the trends of our money flow, allowing you to keep more of your hard earned money. And, it works no matter what the economy does!
Take some time to educate yourself about the power of privatized banking and do it now! Click here to view our Online Seminar on How Privatized Banking Really Works. Or enter your question on the contact form and I will respond to you promptly. There is still time to build your nestegg.
Finally, young people working and contributing to 401K's, 403B's, etc. watch the seminar . And if you are facing mandatory distribution from your qualified accounts, use the contact form. Let us help you avoid double taxation of your hard earned money!
Jim Dierking
Banking on the equity that came from faithful payments of one's mortgage loan, a goal that most of my parent's generation sought. Things have changed! Most today, even before the real estate market meltdown, did not think that way. Many of my clients would say, they just convince themsleves that they would always have a mortgage payment. I always worked to try and help them see things from the prospective of debt free living, not always successful, I might add! Some of that probably is a result of the instant gratification society that we live in today, but I am digressing and want to get back to my point.
For those who may still have had the thought that the equity in their home would supplement their retirement someday (even if they have been faithful in making their payments and have not taken cash out refinances or equity loans), the market meltdown has erased the hope of that! To no fault of the individual homeowner, an article in the USA Today indicates that home equity has sunk to nearly the lowest point since World War 2. If you are in my generation and you are thinking about retirement in the next several years, the housing market wows are probably on your mind regularly...
There are alternatives and it is not too late for you to recover from this and all saving meltdowns. The stock and bond markets have not been in your favor either. But the reality is that for most, the markets other than the real estate market, have not been in your favor. In another article I read recently the author suggested that most individual investors get in the market at or near the top and sell at or near the bottom, not the way it is supposed to work!
Ironically, people who understand the power of banking will have done better saving the monty they invested in the market at their local bank or credit union! But there is more to understanding banking than to simply deposit your money. R. Nelso Nash, the founder and engineer of the Infinite Banking Concept says that everyone should be in two businesses; the one you make your living with and banking! Privatized Banking not only gives you the ability to capitalize on compound interest, but it gives you the ability to reverse the trends of our money flow, allowing you to keep more of your hard earned money. And, it works no matter what the economy does!
Take some time to educate yourself about the power of privatized banking and do it now! Click here to view our Online Seminar on How Privatized Banking Really Works. Or enter your question on the contact form and I will respond to you promptly. There is still time to build your nestegg.
Finally, young people working and contributing to 401K's, 403B's, etc. watch the seminar . And if you are facing mandatory distribution from your qualified accounts, use the contact form. Let us help you avoid double taxation of your hard earned money!
Jim Dierking
Friday, June 03, 2011
Still Banking on the Market for Retirement Saving Accounts?
The weekly jobless numbers indicated an increase in unemployment, up from 9.0% to 9.1%. The market bulls are suggesting that the slowing economy is temporary. Their view is that weather, higher than normal gas prices and climbing food prices are pulling down the economy. (If gas prices and food are having such a negative impact on our economy, why then is food and energy always “X’ed” out of the equation when the government reports benchmark numbers like CPI and PPI???).
The question of whether the Fed will entertain a QE 3 was bantered about on the morning financial networks, while the author of a morning mortgage market alert suggests the more appropriate question should be whether a QE 3 will do any good. His suggestion is that consumers continue to lose faith in their political leaders (are they really? !!!) and the housing market continues to lose value. Until the housing market begins to stabilize and consumer’s confidence begins to increase again, businesses will not increase their hiring, unemployment thus, will remain high and the economy will probably have minimal if any, growth.
And the good news is that it is Friday! Sorry, not much more that can be said about good news when it comes to the markets and the economy. Listen long enough to the financial news and you will hear the trader that thinks we are still in a depression, not a recession or the one that says get back into the markets on the market pause or you will miss the next upswing!
I had the pleasure to be in the audience when author and motivational speaker Mark Victor Hansen made a presentation to a rather large group of people. Mark suggested that the television is full of bad news and it can really be a drag on people’s ability to be productive. He suggested that we turn off the television and only watch the absolute minimum when it comes to the news. He handed out a rather thick rubber band to everyone and suggested we put it on our wrist. Each time we get off track or begin to think negatively, we should pull back on the rubber band and let it go to snap out of it and get back to being productive! So, I do turn the financial news off during the day and only check the markets at strategic times, since what happens on wall street does effect part of my business. Suggest you do the same, but not until you get a good look at what is happening.
How long can one endure the intestinal fortitude it takes to watch these markets day in and day out? How much more will your investments decline before the economy stabilizes? Are you ready for change? Putting your money in a CD, Qualified Plan or the safe bet, in the credit union or local bank is an alternative, but not the answer. Privatized Banking offers you piece of mind with contractually guaranteed growth, no loss of principal and tremendous benefits regarding taxation, to name just a few. Illustrations are free and will demonstrate how your money will grow… and watch this 2 minute video…
The question of whether the Fed will entertain a QE 3 was bantered about on the morning financial networks, while the author of a morning mortgage market alert suggests the more appropriate question should be whether a QE 3 will do any good. His suggestion is that consumers continue to lose faith in their political leaders (are they really? !!!) and the housing market continues to lose value. Until the housing market begins to stabilize and consumer’s confidence begins to increase again, businesses will not increase their hiring, unemployment thus, will remain high and the economy will probably have minimal if any, growth.
And the good news is that it is Friday! Sorry, not much more that can be said about good news when it comes to the markets and the economy. Listen long enough to the financial news and you will hear the trader that thinks we are still in a depression, not a recession or the one that says get back into the markets on the market pause or you will miss the next upswing!
I had the pleasure to be in the audience when author and motivational speaker Mark Victor Hansen made a presentation to a rather large group of people. Mark suggested that the television is full of bad news and it can really be a drag on people’s ability to be productive. He suggested that we turn off the television and only watch the absolute minimum when it comes to the news. He handed out a rather thick rubber band to everyone and suggested we put it on our wrist. Each time we get off track or begin to think negatively, we should pull back on the rubber band and let it go to snap out of it and get back to being productive! So, I do turn the financial news off during the day and only check the markets at strategic times, since what happens on wall street does effect part of my business. Suggest you do the same, but not until you get a good look at what is happening.
How long can one endure the intestinal fortitude it takes to watch these markets day in and day out? How much more will your investments decline before the economy stabilizes? Are you ready for change? Putting your money in a CD, Qualified Plan or the safe bet, in the credit union or local bank is an alternative, but not the answer. Privatized Banking offers you piece of mind with contractually guaranteed growth, no loss of principal and tremendous benefits regarding taxation, to name just a few. Illustrations are free and will demonstrate how your money will grow… and watch this 2 minute video…
Thursday, May 26, 2011
College conspiracy ???
I subscribe to and receive email reports from the National Inflation Association. Recently I viewed the video they created on the “College Conspiracy”. It can be viewed at their site but the information that follows comes from one of their email newsletters.
I find the results of the surveys done by various media sources rather interesting and somewhat saddening. That a young person is encouraged to attend college and get a degree, only to end up with thousands of dollars of debt and a job that barely pays them enough to live day to day, never mind pay back the mountain of debt they incurred! Read the comments below and draw your own conclusions!
On Thursday's cover of the New York Times, Catherine Rampell wrote an article entitled 'Many With New College Degree Find the Job Market Humbling'. According to the New York Times article, only 56% of college graduates in 2010 were able to get a job by this spring, compared to 90% of the graduates in years 2006 and 2007. Only half of those finding a job, found a job where their degree was required. The median starting salary for college graduates last year was $27,000, down 10% from the $30,000 starting income in years 2006 to 2008.
One of NIA's expert guests in 'College Conspiracy' was Brian Mackey, a national recruitment manager for GEI Consultants. He said in our movie that 60% of college graduates are now being employed in low skill jobs where their college degree wasn't even required. NIA's research has uncovered that 70% of high school graduates have been successful at getting these exact same jobs without even needing a college degree. Mackey also pointed out in 'College Conspiracy' that 20% all new waiter and waitress positions are being filled by college graduates. The New York Times article added to Mackey's point, reporting in their cover story that college graduates aged 25 to 34 working in the food service industry at bars and restaurants increased 17% in 2009 over 2008.
Bloomberg aired a live television segment on Thursday, 'Is a 4-Year College Degree Worth the Cost?' and cited a poll that shows 57% of U.S. adults say college is not worth the price with 75% of U.S. adults saying college is unaffordable. Bloomberg had on a guest Alexis Ohanian, co-founder of Reddit.com, who said, "there are plenty of students out there who would really benefit from just avoiding a lot of the college stuff and just trying to create something". NIA agrees with Ohanian that the experience of trying to create a job in the real world will do most Americans a lot more good than getting deeply into debt to attend college. Ohanian says that his company and other firms in Silicon Valley hire employees based entirely on their experience and past accomplishments and not a college degree.
NBC News anchor Brian Williams came out with a report Thursday night about the college bubble in a segment entitled, 'Education Nation'. Williams reported many of the basic facts from 'College Conspiracy' including that student loans are one of the few types of debts you can't get rid of in bankruptcy and that total student loan debt is now above $800 billion and exceeds credit card debt. NBC News spoke to one prospective student who has chosen to attend a community college rather than the prestigious $50,000 per year school she was accepted to, saying, "I don't want to graduate with a bachelor's degree with $80,000 worth of debt."
I find the results of the surveys done by various media sources rather interesting and somewhat saddening. That a young person is encouraged to attend college and get a degree, only to end up with thousands of dollars of debt and a job that barely pays them enough to live day to day, never mind pay back the mountain of debt they incurred! Read the comments below and draw your own conclusions!
On Thursday's cover of the New York Times, Catherine Rampell wrote an article entitled 'Many With New College Degree Find the Job Market Humbling'. According to the New York Times article, only 56% of college graduates in 2010 were able to get a job by this spring, compared to 90% of the graduates in years 2006 and 2007. Only half of those finding a job, found a job where their degree was required. The median starting salary for college graduates last year was $27,000, down 10% from the $30,000 starting income in years 2006 to 2008.
One of NIA's expert guests in 'College Conspiracy' was Brian Mackey, a national recruitment manager for GEI Consultants. He said in our movie that 60% of college graduates are now being employed in low skill jobs where their college degree wasn't even required. NIA's research has uncovered that 70% of high school graduates have been successful at getting these exact same jobs without even needing a college degree. Mackey also pointed out in 'College Conspiracy' that 20% all new waiter and waitress positions are being filled by college graduates. The New York Times article added to Mackey's point, reporting in their cover story that college graduates aged 25 to 34 working in the food service industry at bars and restaurants increased 17% in 2009 over 2008.
Bloomberg aired a live television segment on Thursday, 'Is a 4-Year College Degree Worth the Cost?' and cited a poll that shows 57% of U.S. adults say college is not worth the price with 75% of U.S. adults saying college is unaffordable. Bloomberg had on a guest Alexis Ohanian, co-founder of Reddit.com, who said, "there are plenty of students out there who would really benefit from just avoiding a lot of the college stuff and just trying to create something". NIA agrees with Ohanian that the experience of trying to create a job in the real world will do most Americans a lot more good than getting deeply into debt to attend college. Ohanian says that his company and other firms in Silicon Valley hire employees based entirely on their experience and past accomplishments and not a college degree.
NBC News anchor Brian Williams came out with a report Thursday night about the college bubble in a segment entitled, 'Education Nation'. Williams reported many of the basic facts from 'College Conspiracy' including that student loans are one of the few types of debts you can't get rid of in bankruptcy and that total student loan debt is now above $800 billion and exceeds credit card debt. NBC News spoke to one prospective student who has chosen to attend a community college rather than the prestigious $50,000 per year school she was accepted to, saying, "I don't want to graduate with a bachelor's degree with $80,000 worth of debt."
Wednesday, May 18, 2011
Rates of Return on Investments: Don’t be Fooled!
First, if you look up rates of return, you will see that many fund managers use an arithmetic return average and not a compound or geometric return calculation. So, the formula that is used is something like this:
Return (–) Original Capital (/) Original Capital (x) 100% = Rate of Return.
The formula for multiple years is simply, the rate of return for the first year + rate of return for second year + rate of return for the third year (and so on) (/) number of years.
Plug in the numbers and here it is:
200,000 – 100,000 / 100,000 x 100% = 100% or
more realistically… using numbers that make are more in line with what one could hope for…
110,000 – 100,000 / 100,000 x 100% = 10% return on investment
So, let’s do a multi-year calculation with the initial investment of $100,000. Say it grew to $200,000 at the end of year one; a 100% return. At the end of year two, the account has only $100,000; a gain of -50%. At the end of year three, value is at $200,000; a 100% gain for that year. In year four, the account shows a value of $100,000; once again a gain of -50%. You and I would say, you have no gain over the four year period. But… a money manager would say that the average rate of return was 25%! As the title of this post says, “don’t be fooled”!!!
If we use a geometric or compounded calculations, we would realize we had a “0%” gain. And if we consider that four years have passed and calculate inflation factors, we clearly are in a worse position than we were four years earlier!
If you are in a mutual fund that is not performing very well or considering investing in a fund, do not let yourself be fooled by money manager’s average rates of return!
Before you invest any more of your hard earned money, watch this 2 minute video!
Thursday, May 05, 2011
Mortgage Rates Moving Lower Once Again!
Well, another ride on the economic rollercoaster is leading to lower mortgage rates once again. But for how long is anyone's guess. One might say that it is a result of slow growth or slower than expected growth, the continued employment concerns, the end of QE2 or the lack of home sales, just to name a few. It could be one of those reasons or all of the above. As I said, anyone's guess!
So, as I have indicated in the past, home prices are still very low and interest rates are back down in the 4.5% to 4.75% for a thirty year fixed rate loan and good credit! So, if you are looking to purchase, stop thinking about it and DO IT! The market analysis will always tell you that you will rarely buy at the lowest and rarely sell at the absolute highest prices in the stock market. Why should you expect it to be different in the houseing market? I believe that it is about as good as it gets!
There is another side to this that comes to mind. When the bonds are rallying to cause rates to go lower, equities are usually headed south too. Well, that brings us to another round of volatilty in the market and the need for additional intestinal fortitude! Had enough market volatilty?? Read the executive report found here.
So, as I have indicated in the past, home prices are still very low and interest rates are back down in the 4.5% to 4.75% for a thirty year fixed rate loan and good credit! So, if you are looking to purchase, stop thinking about it and DO IT! The market analysis will always tell you that you will rarely buy at the lowest and rarely sell at the absolute highest prices in the stock market. Why should you expect it to be different in the houseing market? I believe that it is about as good as it gets!
There is another side to this that comes to mind. When the bonds are rallying to cause rates to go lower, equities are usually headed south too. Well, that brings us to another round of volatilty in the market and the need for additional intestinal fortitude! Had enough market volatilty?? Read the executive report found here.
Tuesday, May 03, 2011
Another Reason to End the Fed
The article that follows is copied from the Mises Institute web site. You can find the article and web page at http://mises.org/daily/5255/Another-Reason-to-End-the-Fed. The article speaks for itself; no need for commentary from me!
Another Reason to End the Fed
Mises Daily: Tuesday, May 03, 2011 by Mark Brandly
In his first press conference as chairman of the Federal Reserve, Ben Bernanke discussed rising gasoline prices, blaming higher demand from emerging economies and Mideast oil-supply disruptions as the cause of the zooming prices. Bernanke did not mention the US government's role in the higher energy prices,[1] and he explicitly absolved the Federal Reserve of any blame.
According to Bernanke, "there's not much the Federal Reserve can do about gas prices, per se, at least not without derailing growth entirely, which is certainly not the right way to go. After all, the Fed can't create more oil. We don't control the growth rates of emerging market economies." (Here is a transcript and a video of Bernanke's press conference and here is a video of his remarks about gasoline.)
Bernanke's deceitfulness is appalling, although not unexpected. He knows that Federal Reserve monetary policy plays a significant role in gasoline prices. Expansionary monetary policy leads to more dollars being available in world currency markets and weakens the dollar. The weaker dollar results in higher import prices. More than half of the oil consumed in the United States comes from foreign producers, and because oil is the main input needed to produce gasoline, higher oil prices mean higher gasoline prices.
In the last decade, the Federal Reserve has engaged in almost-unprecedented easy monetary policies. The broadest measure of the money supply is called M3. According to estimates at Shadowstats.com, until the financial collapse of 2008, M3 was continuously increasing at a rate anywhere from 5 to 15 percent annually. This money creation by the Federal Reserve led to the unsustainable boom of the Bush years and the economic meltdown that we have experienced in the last three years.
In addition, this rapid monetary expansion led to the decline of the dollar in currency markets.[2] The value of the dollar peaked in the summer of 2001. From June 2001 to the end of March 2011, the dollar depreciated 40 percent relative to the euro, from €1.18/$1 to €.704/$1. During this period, the US spot price of oil increased 348 percent in terms of dollars (from $23.38 to $104.64 per barrel). But in terms of euros, those same oil prices only increased 167 percent (from €27.59 to €73.67 euros per barrel). If the dollar had held steady relative to the euro at the exchange rate of 1.18 euros per dollar, then the US spot price for oil at the end of March would have been $62.42 per barrel.
Consider the impact that this has had on gasoline prices. To make the calculations easy, let's say that the current price of gasoline is $4 per gallon. Oil costs are 68 percent of the price of gasoline. That means that oil costs make up $2.72 of the $4 gasoline price. The dollar's depreciation relative to the euro in the last decade was 40 percent; and 40 percent of $2.72 is $1.09.
Therefore, if the dollar had held steady with the euro, we would be paying roughly $2.91 for a gallon of gasoline that now costs us $4. Gasoline prices would be 27 percent lower today if the dollar had held its value relative to the euro over the last decade. It's true that there is little the Federal Reserve can do to bring oil and gasoline prices down. Federal Reserve policies have already weakened the dollar leading to higher oil prices, and this damage cannot be undone. However, over a long period of time, the Federal Reserve has had a major impact on energy prices. And things are going to get worse. Due to the Federal Reserve's bank bailouts and quantitative-easing policies, we should anticipate much higher gasoline prices.
Barack Obama and his attorney general blame high gasoline prices on oil speculators. The chairman of the Federal Reserve blames supply disruptions and the growing economies of the world. We see this all the time. Elected officials and other agents of the state never accept any blame for the destruction created by their policies. Others are always at fault. In this case, however, we can clearly see that the Federal Reserve bears much of the responsibility for the economic damage of high gasoline prices. We can add high oil and gasoline prices to our long list of reasons why we should end the Fed.
Mark Brandly is a professor of economics at Ferris State University and an adjunct scholar of the Ludwig von Mises Institute. Send him mail. See Mark Brandly's article archives.
Another Reason to End the Fed
Mises Daily: Tuesday, May 03, 2011 by Mark Brandly
In his first press conference as chairman of the Federal Reserve, Ben Bernanke discussed rising gasoline prices, blaming higher demand from emerging economies and Mideast oil-supply disruptions as the cause of the zooming prices. Bernanke did not mention the US government's role in the higher energy prices,[1] and he explicitly absolved the Federal Reserve of any blame.
According to Bernanke, "there's not much the Federal Reserve can do about gas prices, per se, at least not without derailing growth entirely, which is certainly not the right way to go. After all, the Fed can't create more oil. We don't control the growth rates of emerging market economies." (Here is a transcript and a video of Bernanke's press conference and here is a video of his remarks about gasoline.)
Bernanke's deceitfulness is appalling, although not unexpected. He knows that Federal Reserve monetary policy plays a significant role in gasoline prices. Expansionary monetary policy leads to more dollars being available in world currency markets and weakens the dollar. The weaker dollar results in higher import prices. More than half of the oil consumed in the United States comes from foreign producers, and because oil is the main input needed to produce gasoline, higher oil prices mean higher gasoline prices.
In the last decade, the Federal Reserve has engaged in almost-unprecedented easy monetary policies. The broadest measure of the money supply is called M3. According to estimates at Shadowstats.com, until the financial collapse of 2008, M3 was continuously increasing at a rate anywhere from 5 to 15 percent annually. This money creation by the Federal Reserve led to the unsustainable boom of the Bush years and the economic meltdown that we have experienced in the last three years.
In addition, this rapid monetary expansion led to the decline of the dollar in currency markets.[2] The value of the dollar peaked in the summer of 2001. From June 2001 to the end of March 2011, the dollar depreciated 40 percent relative to the euro, from €1.18/$1 to €.704/$1. During this period, the US spot price of oil increased 348 percent in terms of dollars (from $23.38 to $104.64 per barrel). But in terms of euros, those same oil prices only increased 167 percent (from €27.59 to €73.67 euros per barrel). If the dollar had held steady relative to the euro at the exchange rate of 1.18 euros per dollar, then the US spot price for oil at the end of March would have been $62.42 per barrel.
Consider the impact that this has had on gasoline prices. To make the calculations easy, let's say that the current price of gasoline is $4 per gallon. Oil costs are 68 percent of the price of gasoline. That means that oil costs make up $2.72 of the $4 gasoline price. The dollar's depreciation relative to the euro in the last decade was 40 percent; and 40 percent of $2.72 is $1.09.
Therefore, if the dollar had held steady with the euro, we would be paying roughly $2.91 for a gallon of gasoline that now costs us $4. Gasoline prices would be 27 percent lower today if the dollar had held its value relative to the euro over the last decade. It's true that there is little the Federal Reserve can do to bring oil and gasoline prices down. Federal Reserve policies have already weakened the dollar leading to higher oil prices, and this damage cannot be undone. However, over a long period of time, the Federal Reserve has had a major impact on energy prices. And things are going to get worse. Due to the Federal Reserve's bank bailouts and quantitative-easing policies, we should anticipate much higher gasoline prices.
Barack Obama and his attorney general blame high gasoline prices on oil speculators. The chairman of the Federal Reserve blames supply disruptions and the growing economies of the world. We see this all the time. Elected officials and other agents of the state never accept any blame for the destruction created by their policies. Others are always at fault. In this case, however, we can clearly see that the Federal Reserve bears much of the responsibility for the economic damage of high gasoline prices. We can add high oil and gasoline prices to our long list of reasons why we should end the Fed.
Mark Brandly is a professor of economics at Ferris State University and an adjunct scholar of the Ludwig von Mises Institute. Send him mail. See Mark Brandly's article archives.
Monday, May 02, 2011
War on Terror Doesn't End today. Neither Does Market Volatility!
I have listened to a lot of news today and have been asked if I think the death of Bin Laden will effect oil prices. I can say that I did hear one expert suggest that nothing has really changed in the oil markets. However, that expert suggests that if the Libian leadership is outsted, oil prices could become more bearish, meaning prices will drop. In short, oil may drop some and might be enough to see some relief at the gas pumps, but I do not think a stronger dollar will result. Other countires that have already begun to tighten on monetary policy would have to stop tightening in order for the dollar to rally and that is probably a long shot.
There are too many other factors to consider, such as employment, manufacturing, housing, banking, etc. that need to improve before we can really see a stronger currency and a stronger economy. So, more of the same in the markets. Be prepared for the volatility and if you are getting close to retirement, protect your assets! Watch our Tuesday evening Online seminar about banking and lean more about how to protect your finances.
There are too many other factors to consider, such as employment, manufacturing, housing, banking, etc. that need to improve before we can really see a stronger currency and a stronger economy. So, more of the same in the markets. Be prepared for the volatility and if you are getting close to retirement, protect your assets! Watch our Tuesday evening Online seminar about banking and lean more about how to protect your finances.
Wednesday, April 27, 2011
More of the Same... Rates may be Stable through end of the year...
With great anticipation, many tuned in to see and hear Ben Bernanke in his first new conference following the FOMC meeting. I must admit, had it on in the background and zeroed in as I heard things that caught me attention! But, one must ask, do we know anything more now than we did before the conference? I am not sure that we do! I think the only thing he made clear is that he is going to stick to his plan, that it is working and he believes it will continue to help the economy grow...
I wonder what the traders are really feeling? The dollar is once again weaker and precious metals have spiked. As the dollar gets weaker, our money doesn't go as far... fears of inflation continue to haunt us and the dollar will probably not see and gains for months to come! So, am thinking that at least through the end of the year, more of the same. If anything can be good about this it is that interest rates will probably not move much, giving buyers a little more time to find and close on the purchase of a home.
This also leads me to believe that although the market may go higher for the short term, it is setting up for a correction and your investments will once again take the hit! Be cautious, look for investments that do not put your money at risk with every bit of news that hits the press! Learn and understand how banking really works. There are a wealth of books on the topic and that insight will help you to find a way to invest your hard earned money while minimizing or eliminating risk!
Our Tuesday evening Online seminar is a great place to start. An hour of your time will give you great insight into how banks work and how they make money!It will help you to see how you can mimic the banks and grow your investments with little or no risk!
I wonder what the traders are really feeling? The dollar is once again weaker and precious metals have spiked. As the dollar gets weaker, our money doesn't go as far... fears of inflation continue to haunt us and the dollar will probably not see and gains for months to come! So, am thinking that at least through the end of the year, more of the same. If anything can be good about this it is that interest rates will probably not move much, giving buyers a little more time to find and close on the purchase of a home.
This also leads me to believe that although the market may go higher for the short term, it is setting up for a correction and your investments will once again take the hit! Be cautious, look for investments that do not put your money at risk with every bit of news that hits the press! Learn and understand how banking really works. There are a wealth of books on the topic and that insight will help you to find a way to invest your hard earned money while minimizing or eliminating risk!
Our Tuesday evening Online seminar is a great place to start. An hour of your time will give you great insight into how banks work and how they make money!It will help you to see how you can mimic the banks and grow your investments with little or no risk!
Monday, April 25, 2011
The Article read: "Tax Me Now or Tax Me Later" !
I just read an article from Smart Money titled “Tax Me Now or Tax Me Later”. The article discusses the merits of shifting money from the traditional IRA to a Roth IRA. It suggests that the Roth IRA will preserve your retirement savings and make those savings go further by taking advantage of an opportunity that before 2010, was not available for individuals making more than $100,000. Although the article was written last year, it is still rather appropriate.
The article suggests that the best place to preserve your money for retirement is in a Roth IRA. The author’s argument is that taxes in the future will be much higher than they are today! And, by converting from the traditional IRA to the Roth will allow you to pay taxes based on today’s tax structure, rather than the tax rate 30 years from now. Well, I agree! But my ability to agree ends with the argument of taxes being higher in 2040! If you only have few thousand dollars to invest and you make less than $120,000 as an individual, then maybe the Roth is the place for you. But for those looking to invest significant savings on an annual basis, you are out of luck! The limit on contributions is $6,000 for individuals over 50 and $5,000 for individuals under 50.
It is true that the Roth is an “after tax” investment, but the money is not liquid and is not easily accessed, except for a few reasons such as a deposit for first time home buyers or for education (ask your tax advisor for specific details), until you are 59 ½. Well if it is for Retirement you say, why do I need it before then? I can think of a multitude of reasons. But let me ask this question: If you could borrow the money in your retirement account, pay it back and receive guaranteed growth on your investment, even during the time that the money was being used, would that interest you? The bad news is that the Roth will not allow you to do that, but the good news… it is possible with a very safe, guaranteed preservation of principal and guaranteed tax free growth investment vehicle. And, like the Roth, you can draw tax free supplemental retirement income, but unlike the Roth, you can begin to draw the supplement income at any age vs. 59 ½ with the Roth!
Participating or Dividend paying whole life insurance, set up for maximum accumulation of the cash value is the vehicle I use to build a privatized banking program for my clients. Allow me to introduce you to two brothers, Joe with a privatized bank and Pete, who has a relationship with the local banker in town.
Both brothers are going to purchase a car and intend to borrow $25,000 for the purchase. Both brothers buy the same car for the same dollar amount, the same loan term and the same interest rate. Both brothers will pay $587.00 a month for 48 months and in the end, will have made payments in the amount of $28,176.00. But here is where the similarities end. Pete has a four year old asset, and hopefully, a good payment history so that he can continue a borrowing relationship with his local bank.
Joe on the other hand, has every penny he spent for the car plus the interest he would have otherwise paid to a lender! That money was paid back to his cash value over the four year payment plan. Joe has the depreciated asset as well, but if he sells the car and buys another he could see a net positive gain of upwards of $39,000.00. Which brother made the wiser choice? This is a very basic explanation of how privatized banking works. If Joe buys another car and still another car, do you see how he is growing his retirement?
If you would like to know more about privatized banking, join us for a FREE Seminar on Tuesday evenings. The article suggests that the tax rates in future years will be much higher than they are today. If you believe that to be true, you owe it to yourself to learn more about how the banking industry really works! Register for the seminar!
The article suggests that the best place to preserve your money for retirement is in a Roth IRA. The author’s argument is that taxes in the future will be much higher than they are today! And, by converting from the traditional IRA to the Roth will allow you to pay taxes based on today’s tax structure, rather than the tax rate 30 years from now. Well, I agree! But my ability to agree ends with the argument of taxes being higher in 2040! If you only have few thousand dollars to invest and you make less than $120,000 as an individual, then maybe the Roth is the place for you. But for those looking to invest significant savings on an annual basis, you are out of luck! The limit on contributions is $6,000 for individuals over 50 and $5,000 for individuals under 50.
It is true that the Roth is an “after tax” investment, but the money is not liquid and is not easily accessed, except for a few reasons such as a deposit for first time home buyers or for education (ask your tax advisor for specific details), until you are 59 ½. Well if it is for Retirement you say, why do I need it before then? I can think of a multitude of reasons. But let me ask this question: If you could borrow the money in your retirement account, pay it back and receive guaranteed growth on your investment, even during the time that the money was being used, would that interest you? The bad news is that the Roth will not allow you to do that, but the good news… it is possible with a very safe, guaranteed preservation of principal and guaranteed tax free growth investment vehicle. And, like the Roth, you can draw tax free supplemental retirement income, but unlike the Roth, you can begin to draw the supplement income at any age vs. 59 ½ with the Roth!
Participating or Dividend paying whole life insurance, set up for maximum accumulation of the cash value is the vehicle I use to build a privatized banking program for my clients. Allow me to introduce you to two brothers, Joe with a privatized bank and Pete, who has a relationship with the local banker in town.
Both brothers are going to purchase a car and intend to borrow $25,000 for the purchase. Both brothers buy the same car for the same dollar amount, the same loan term and the same interest rate. Both brothers will pay $587.00 a month for 48 months and in the end, will have made payments in the amount of $28,176.00. But here is where the similarities end. Pete has a four year old asset, and hopefully, a good payment history so that he can continue a borrowing relationship with his local bank.
Joe on the other hand, has every penny he spent for the car plus the interest he would have otherwise paid to a lender! That money was paid back to his cash value over the four year payment plan. Joe has the depreciated asset as well, but if he sells the car and buys another he could see a net positive gain of upwards of $39,000.00. Which brother made the wiser choice? This is a very basic explanation of how privatized banking works. If Joe buys another car and still another car, do you see how he is growing his retirement?
If you would like to know more about privatized banking, join us for a FREE Seminar on Tuesday evenings. The article suggests that the tax rates in future years will be much higher than they are today. If you believe that to be true, you owe it to yourself to learn more about how the banking industry really works! Register for the seminar!
Thursday, April 14, 2011
Great Example of Privatized Banking!
The following was written by R. Nelson Nash, the person responsible for the Infinite Banking Concept and to this day a great mentor for those using privatized banking. As you read this, ask yourself if you could do what Jeanette did if your funds were in a qualified plan such as an IRA, 401K, 403B, or a 529 college planning account! Give you a hint... answer is a two letter word!
Nelson Nash's article follows:
Jeanettes’s Banking System By R. Nelson Nash
My oldest grand-daughter, Jeanette, finished Nursing School in May of 2003. She got a job right away. She bought her first car, a Toyota Celica, for $21,500 and paid cash for it with a policy loan on a policy her parents bought on her when she was 2 years old. (I bought one on her at the same time that is three times greater premium).
Jeanette set up an amortization table to repay the loan over five years at 10% interest. In making the “car payments” she is even accelerating her own high interest schedule. This means she is going to repay the loan “before she runs out of the amortization schedule.”
If she doesn’t finish the schedule -- then she is “stealing from her banking system.” This means -- sometime in the next five years -- she needs to see a life insurance agent and buy another policy to accommodate that extra money she is paying on her car. The earlier she makes that move, the better, because the earlier you start a policy and the longer it stays in force, the more efficient it gets.
When she completes the schedule, she will have proved to me that she fully understands the essentials of “being your own banker.” She will have “graduated from the Nash School of Finance” Summa cum Laude! At that point I will give to her the policy that I bought on her when she was age 2. My wife will have to join me in the gift and we will have to spread it over more than two years because of the IRS gifting limitations.
(Note: at this point she will have at least three policies.)
When she buys the next car, she simply repeats the process. When she is 40 years old, we can assume that buying a house is a high priority in her financial life. All she has to do to pay cash for it is call her life agent and say, “Get me a policy loan of $350,000 on my policies.” The agent needs to deliver the checks -- along with an amortization table for 30 years at 10% interest. (The more interest she pays her banking system, the better, because she will get back all her cost basis at retirement time, tax-free!).
The agent also needs to tell her, “Jeanette, your next door neighbor bought his house last month -- and he had to pay $12,000 in closing costs. You didn’t have to do that! To play ‘honest banker’ with yourself, you need to pay $12,000 back to your policies now to emulate what everyone else has to do in such transactions.”
This all means that she is going to pay off that “house loan” before she finishes the 30 year schedule. And this means she must buy another policy to accommodate that extra cash flow. And,remember, the earlier she does it, the better the whole system performs.
NOW -- when she gets to be 70 years old, she can stop all premium payments and begin to withdraw dividend income in the neighborhood of $150,000 for the rest of her life. This won’t diminish the death benefit of about $3,000,000 regardless of how much longer she lives.
Copyright - The Infinite Banking Concept©
If this intrigues you, contact me and I will run a free analysis for you. My clients and prospective clients never pay me a fee for my services! Send me your questions!
Nelson Nash's article follows:
Jeanettes’s Banking System By R. Nelson Nash
My oldest grand-daughter, Jeanette, finished Nursing School in May of 2003. She got a job right away. She bought her first car, a Toyota Celica, for $21,500 and paid cash for it with a policy loan on a policy her parents bought on her when she was 2 years old. (I bought one on her at the same time that is three times greater premium).
Jeanette set up an amortization table to repay the loan over five years at 10% interest. In making the “car payments” she is even accelerating her own high interest schedule. This means she is going to repay the loan “before she runs out of the amortization schedule.”
If she doesn’t finish the schedule -- then she is “stealing from her banking system.” This means -- sometime in the next five years -- she needs to see a life insurance agent and buy another policy to accommodate that extra money she is paying on her car. The earlier she makes that move, the better, because the earlier you start a policy and the longer it stays in force, the more efficient it gets.
When she completes the schedule, she will have proved to me that she fully understands the essentials of “being your own banker.” She will have “graduated from the Nash School of Finance” Summa cum Laude! At that point I will give to her the policy that I bought on her when she was age 2. My wife will have to join me in the gift and we will have to spread it over more than two years because of the IRS gifting limitations.
(Note: at this point she will have at least three policies.)
When she buys the next car, she simply repeats the process. When she is 40 years old, we can assume that buying a house is a high priority in her financial life. All she has to do to pay cash for it is call her life agent and say, “Get me a policy loan of $350,000 on my policies.” The agent needs to deliver the checks -- along with an amortization table for 30 years at 10% interest. (The more interest she pays her banking system, the better, because she will get back all her cost basis at retirement time, tax-free!).
The agent also needs to tell her, “Jeanette, your next door neighbor bought his house last month -- and he had to pay $12,000 in closing costs. You didn’t have to do that! To play ‘honest banker’ with yourself, you need to pay $12,000 back to your policies now to emulate what everyone else has to do in such transactions.”
This all means that she is going to pay off that “house loan” before she finishes the 30 year schedule. And this means she must buy another policy to accommodate that extra cash flow. And,remember, the earlier she does it, the better the whole system performs.
NOW -- when she gets to be 70 years old, she can stop all premium payments and begin to withdraw dividend income in the neighborhood of $150,000 for the rest of her life. This won’t diminish the death benefit of about $3,000,000 regardless of how much longer she lives.
Copyright - The Infinite Banking Concept©
If this intrigues you, contact me and I will run a free analysis for you. My clients and prospective clients never pay me a fee for my services! Send me your questions!
Saturday, April 09, 2011
Are Your Investments Liquid? Safe? Free of Government Control?
"I am confident that this country will default on its debt," Bill Gross wrote recently.
Bill Gross, if you do not know, manages the world's biggest bond fund. As the founder and chief investment officer of PIMCO, he's responsible for over $1.2 trillion in assets – mostly in bonds. And last month, in his main bond fund, he got rid of all of his U.S. government bonds.
"[I've] been selling Treasurys because they have little value within the context of a $75 trillion total debt burden," Bill said. "Unless entitlements [namely Social Security, Medicare, and Medicaid] are substantially reformed, I am confident that this country will default on its debt."
How would that happen? "Not in conventional ways," he explained, "but by picking the pockets of savers." He says the government will pick your pocket through "inflation, currency devaluation, and low to negative real interest rates." So, what does that mean for you and me? If bonds are no longer a good place to invest, are there any safe investments?
So what to do with your money, you ask? Well, my first questions to you are where is your money invested currently? Is it accessible/liquid? Are there penalties for you to access it? If you answer yes to any of those questions, you probably are invested in a qualified plan! Qualified plans are under Government control and subject to taxation at the will of the government...
There is really no good reason to invest your hard earned money into the Government Impound! That is my name for the qualified plans set up through Government legislation! You can put your pre tax money in and save a few dollars on what we will call the seed money, only to sit back and wait until you are old enough to access the money without penalty and then pay the tax you deferred years before, not on the seed amount, but on the full amount. And by the way, that tax rate has not been set yet!
So, at the time that you decide to access your funds, and if the scenario that Bill Gross suggests comes to pass, do you think the tax rate will be a modest number? Hardly! And, all the while, you have not had access to your funds without a ten percent penalty for a withdrawal. So, another question... why are you doing that to yourself? Why are you willing to give the government more of your hard earned money?
My recommendation is to get your funds into something that is liquid, has tax deferred growth, tax free withdrawals, no fees, guaranteed growth, creditor and judgment proof and NO Government control! On our Tuesday evening Online presentations, we offer you an alternative to conventional banking/investing. Give us an hour of your time and we will show you a tried and tested system that has been used successfully by many over the years to build wealth and financial independence.
Want to stop wondering if Social Security will still be there when you retire or if there will be enough left in your retirement account (after taxes are deducted) to support you in retirement? Do you want to maintain your lifestyle in retirement? Let us address those issues for you and much more...
Take a hour on Tuesday evening and register for our Online Seminar. You will learn how banking really works and why you want to have your own privatized banking system. Register by clicking on the "Night of Clarity" icon.
Bill Gross, if you do not know, manages the world's biggest bond fund. As the founder and chief investment officer of PIMCO, he's responsible for over $1.2 trillion in assets – mostly in bonds. And last month, in his main bond fund, he got rid of all of his U.S. government bonds.
"[I've] been selling Treasurys because they have little value within the context of a $75 trillion total debt burden," Bill said. "Unless entitlements [namely Social Security, Medicare, and Medicaid] are substantially reformed, I am confident that this country will default on its debt."
How would that happen? "Not in conventional ways," he explained, "but by picking the pockets of savers." He says the government will pick your pocket through "inflation, currency devaluation, and low to negative real interest rates." So, what does that mean for you and me? If bonds are no longer a good place to invest, are there any safe investments?
So what to do with your money, you ask? Well, my first questions to you are where is your money invested currently? Is it accessible/liquid? Are there penalties for you to access it? If you answer yes to any of those questions, you probably are invested in a qualified plan! Qualified plans are under Government control and subject to taxation at the will of the government...
There is really no good reason to invest your hard earned money into the Government Impound! That is my name for the qualified plans set up through Government legislation! You can put your pre tax money in and save a few dollars on what we will call the seed money, only to sit back and wait until you are old enough to access the money without penalty and then pay the tax you deferred years before, not on the seed amount, but on the full amount. And by the way, that tax rate has not been set yet!
So, at the time that you decide to access your funds, and if the scenario that Bill Gross suggests comes to pass, do you think the tax rate will be a modest number? Hardly! And, all the while, you have not had access to your funds without a ten percent penalty for a withdrawal. So, another question... why are you doing that to yourself? Why are you willing to give the government more of your hard earned money?
My recommendation is to get your funds into something that is liquid, has tax deferred growth, tax free withdrawals, no fees, guaranteed growth, creditor and judgment proof and NO Government control! On our Tuesday evening Online presentations, we offer you an alternative to conventional banking/investing. Give us an hour of your time and we will show you a tried and tested system that has been used successfully by many over the years to build wealth and financial independence.
Want to stop wondering if Social Security will still be there when you retire or if there will be enough left in your retirement account (after taxes are deducted) to support you in retirement? Do you want to maintain your lifestyle in retirement? Let us address those issues for you and much more...
Take a hour on Tuesday evening and register for our Online Seminar. You will learn how banking really works and why you want to have your own privatized banking system. Register by clicking on the "Night of Clarity" icon.
Tuesday, April 05, 2011
Deceptive (Persuasive) Marketing Practices...
Have you ever watched a television commercial where there are beautiful people on the beach having fun using product “X” and they tease you into thinking that if you bought the product "X", your life would be more like those on the commercial; that suddenly, your life would be transformed? Then you buy the product, but nothing … absolutely nothing happens.
Well, you are not alone … in being duped by a deceptive advertising ploy.
False or deceptive advertising is the blatant use of false or misleading statements in all forms of advertising — radio, television, print and digital. Advertising is easily capable of going beyond informing the public that your product exists to the ability to persuade consumers into transactions that they might otherwise never consider.
This deception in various contexts is illegal in most countries. However, some companies still encourage their advertising branch to find ways to deceive consumers in ways that are not illegal. So, perhaps we should say those instances are not deceptive but rather, persuasive! Here are some of the most common types:
Patriotism: Suggestion that the product proves the customer loves their country.
Snob Appeal: Suggestion that use of product will ensure the customer’s place as part of an elite or luxurious group.
Bribery: Suggestions that the customer will receive more than they paid for.
Have you ever been drawn in over the years to think that your financial strategies could change for the best by moving your investments to a highly recommended fund that shows great rates of return! In my younger and more naive years, I fell for those suggestions. And, sadly, as I talk to many new clients, I hear that they too, have been deceived... or persuaded!
Speaking of rates of return, keep an eye out for an upcoming post! How deceptive they can be!
Well, you are not alone … in being duped by a deceptive advertising ploy.
False or deceptive advertising is the blatant use of false or misleading statements in all forms of advertising — radio, television, print and digital. Advertising is easily capable of going beyond informing the public that your product exists to the ability to persuade consumers into transactions that they might otherwise never consider.
This deception in various contexts is illegal in most countries. However, some companies still encourage their advertising branch to find ways to deceive consumers in ways that are not illegal. So, perhaps we should say those instances are not deceptive but rather, persuasive! Here are some of the most common types:
Patriotism: Suggestion that the product proves the customer loves their country.
Snob Appeal: Suggestion that use of product will ensure the customer’s place as part of an elite or luxurious group.
Bribery: Suggestions that the customer will receive more than they paid for.
Have you ever been drawn in over the years to think that your financial strategies could change for the best by moving your investments to a highly recommended fund that shows great rates of return! In my younger and more naive years, I fell for those suggestions. And, sadly, as I talk to many new clients, I hear that they too, have been deceived... or persuaded!
Speaking of rates of return, keep an eye out for an upcoming post! How deceptive they can be!
Tuesday, March 29, 2011
National Debt Calculator
I was just making some changes to my blog site when the National Debt clock caught my eye. In less than 4 minutes, we added a million dollars to the National Debt. Now I am not sure exactly how accurate the calculator records the debt and if it is to the minute accurate, but it is inconceivable to me how quickly one million dollars goes!
Stop for a minute and watch the debt climb. Ask yourself, who is going to pay for this debt? Us? Our Children? Our Grandchildren? The answer... YES to all of the above!
One could debate the merits of what our government does for us and what entitlements we are "entitled" to. One could also debate the many financial handouts that immigrants receive when they come here, whether they become citizens or not; whether they ever pay a penny in taxes! But the reality is that our government is giving away the candy store and many of the entitlement programs may go away or drastically change in order to make up for the deficit! Who will pay for the debt?
Our government has contributed to the problem of rising debt and with every problem, they have a solution. Find another way to bring more money to Washington or to the State level... How? The easiest way is to simply raise taxes, right? Well, government has been cutting taxes recently to stimulate the economy, but spending has not been curtailed to equal the lower taxes. So, the debt continues to mount.
But our government has provided an answer for this too. It is called a qualified retirement plan! Take your pick, 401K, 403B, IRA, ... What they have done is suggested that we can put away pre-taxed money into these plans and pay the taxes later. Money managers will tell you that you will be making less when you retire, so you will pay less tax. The problem with this process is we no idea what the tax rate will be when it is time to pay the piper! We can certainly guess that if anything tax rates will be higher than they are today! The question once again, who is going to pay? And, how much will we pay? So do you think it might be better to pay the tax on the seed, the money you are putting away and then never pay tax again on that money? Uncle Sam doesn't! That is why there are qualified plans!
There are some exceptions to my objections to qualified savings plans, such as the Roth IRA, however, you are limited to what you can contribute from year to year. Never the less, it is something better than the traditional plans. The other exception is employer matched funds. If your employer matches your contributions, you might consider contributions to the maximum employer match. That is after all, free money! I would not contribute another dime beyond employer matches, however!
Finally, how much will your estate be worth? If you don't want to see a large portion of it taxed before your children and grandchildren receive their inheritance, protect those assets now or... guess who will pay?
A night of clarity will give you some insight into what I do and how we can assist you in obtaining financial piece of mind. To the right of this post, you will see the image. Click on it and register for the FREE seminar on how privatized banking really works. The time to protect your assets is now! The seminar is free and will help you in making informed decisions about your finances and how much of them will go to the payment of the National Debt!
Stop for a minute and watch the debt climb. Ask yourself, who is going to pay for this debt? Us? Our Children? Our Grandchildren? The answer... YES to all of the above!
One could debate the merits of what our government does for us and what entitlements we are "entitled" to. One could also debate the many financial handouts that immigrants receive when they come here, whether they become citizens or not; whether they ever pay a penny in taxes! But the reality is that our government is giving away the candy store and many of the entitlement programs may go away or drastically change in order to make up for the deficit! Who will pay for the debt?
Our government has contributed to the problem of rising debt and with every problem, they have a solution. Find another way to bring more money to Washington or to the State level... How? The easiest way is to simply raise taxes, right? Well, government has been cutting taxes recently to stimulate the economy, but spending has not been curtailed to equal the lower taxes. So, the debt continues to mount.
But our government has provided an answer for this too. It is called a qualified retirement plan! Take your pick, 401K, 403B, IRA, ... What they have done is suggested that we can put away pre-taxed money into these plans and pay the taxes later. Money managers will tell you that you will be making less when you retire, so you will pay less tax. The problem with this process is we no idea what the tax rate will be when it is time to pay the piper! We can certainly guess that if anything tax rates will be higher than they are today! The question once again, who is going to pay? And, how much will we pay? So do you think it might be better to pay the tax on the seed, the money you are putting away and then never pay tax again on that money? Uncle Sam doesn't! That is why there are qualified plans!
There are some exceptions to my objections to qualified savings plans, such as the Roth IRA, however, you are limited to what you can contribute from year to year. Never the less, it is something better than the traditional plans. The other exception is employer matched funds. If your employer matches your contributions, you might consider contributions to the maximum employer match. That is after all, free money! I would not contribute another dime beyond employer matches, however!
Finally, how much will your estate be worth? If you don't want to see a large portion of it taxed before your children and grandchildren receive their inheritance, protect those assets now or... guess who will pay?
A night of clarity will give you some insight into what I do and how we can assist you in obtaining financial piece of mind. To the right of this post, you will see the image. Click on it and register for the FREE seminar on how privatized banking really works. The time to protect your assets is now! The seminar is free and will help you in making informed decisions about your finances and how much of them will go to the payment of the National Debt!
Thursday, March 24, 2011
Improving your credit scores.
Some time ago, I published a post that directed you to the Fed’s guide to credit and protecting your credit. It was a good place to start regarding understanding your credit and how it is reported!
Credit is not an entitlement. We earn the right to have it! And, if we are careless about our spending habits and run up high balances on accounts, we are going to be less likely to get credit in the future, perhaps when we most need it!
It is especially important with the way things have gone in the banking industry over the past few years, that we be mindful of our credit privilege and to preserve it. While it is true that banks are in the business to lend, they have become particular about who they are lending to! Here a a few things that may help you to keep your credit scores high, some very basic, a one or two most do not know.
Although no one really know the exact formula that the credit bureaus use to determine your credit score, but a few things may help to keep them higher. So most of what I say here has been told to me or I have observed and learned from looking at a multitude of reports!
1- Limit your credit spending to what you can afford to pay off at the end of the month when the bill arrives in the mail
2- Limit the number of accounts or trade lines that you have open.
3- If you are not using an account and have no intention of using it, call the lender and close the account, even if there is still a balance. Trust me here, the lender will allow you to close the account and they will still send you the bill until it is paid!
4- It is my experience that you really only need a few credit accounts to build a good credit history. If you own a home, a mortgage is the best account to build your scores. But, one late payment can bring down your scores by fifty to ninety points. That is correct, one late payment.
5- If you have a car loan and two or three other types of credit, installment or revolving, you have enough to build a strong credit history.
6- Know that having high balances on revolving accounts (credit cards) will be detrimental to your credit scores, even if all payments are made on time! Believe it or not, you are better off having three accounts with balances lower that 50% of your high credit limit than you are if you have one account maxed out and two accounts with”0” balances. Best advice here is read number one again! Keep your balances to a minimum or to what you are able to pay to “0” at the end of the month.
7- You do not need to carry balances on your credit cards from month to month to get them to count as active and to contribute to improving your credit status. Using the card and paying the balance in full when the bill comes will work! And by paying in full before the end of the grace period, you get to use the banks money free for a number of days. What could be better that that!
8- Understand that a payment is not considered late in the eyes of the credit bureaus until it is 30 days or more past due. So, always strive to make sure you get your payment to the lender, allowing enough time to post it. I know many clients that use electronic bill paying services and have their payment for their mortgages made on the 14th of the month. Yes the lender says it is due on the first, but there is no penalty as long as it is received on or before the 15th of the month. Auto bill pay can help you preserve your credit!
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