Money. An article from the archive about getting real

by Richard @ Bizmarts – Dec. 2011


Every day we see another article in the media about the positive signs in the economy; from the decline in the number of new unemployment claims, to a decline in the number of new foreclosures, to the claims that the world economy as a whole can expect another year of strong growth,to the reported rebound in stock prices, or that the U.S. can expect a real GDP growth of 4%.

Pardon my French, but this is bullshit – this macro-economic blather is meaningless drivel from the perspective of individual citizens.

Home prices continue to fall nationwide, small business loans are back to 2004-2005 levels, credit card companies and banks are continuing to raise interest rates and fees. Food, fuel, clothing, health care, and service charges escalate daily. Fees and provisions from utilities and large-scale service providers are up to and beyond rates considered immoral, or illegal in other times.

For the banking industry, 55% of bank securities are still in the form of mortgages, there has been a decline of 25% in the number of FDIC insured banks in America while the total value of assets held by these banks almost doubled. Which means increasing difficulty for small businesses to borrow, and small neighborhood banks and credit unions to survive. Just yesterday, two more Georgia banks failed and were taken over by the FDIC.

Evidence supports the observation that personal income for over 80% of Americans has actually declined over the past decade, even without the mortgage fueled depression of 2007-20xx. The typical small investor and home owner experienced a loss of 31% of their net worth since 2007, and yet the half empty/half full glass chimera is still a viable public stance for politicians, and those who benefited from the housing bubble collapse.

Over 20 million citizens are unemployed, with at least another 10 million underemployed. The average hourly earnings for all nonfarm employees in March 2011 was $22.87 with a norm of 34.3 hours worked per week, which comes to a gross of $784.00 per week. Subtracting payroll and withholding costs, these workers take home about $30k/yr. Comparing this to the “take home” from previous decades in actual buying power, after adjusting for inflation, demonstrates clearly that over 70% in the middle economic distribution are doing worse financially then at almost anytime in our recent history.

So what can you or I do to deal with this issue?

Well, the number one thing you -should- do is to not take this as a minor issue that only affects others. It affects everyone. No-one can afford to be nonchalant about the fallout when the full repercussion of the Worldwide financial meltdown reaches the tipping point, or comes home to roost where one lives. Acting as if “this will all be over soon and we’ll be back to normal” is the height of naivety. It’s way past time to make some changes to deal with the present and future elements of your financial, and social condition.

Right off the bat: get your service fees readjusted. First, call your credit card company and ask politely for a lowering of your APR on your credit balance. Remind the agent that in your opinion, your rate is higher than is justified, and you want it adjusted to a better rate, or failing that, you want to know the payout amount required to transfer your balance to another credit provider, whether or not another provider exists.

Just this alone will help in several ways. And most likely your APR rate will be reduced, or at minimum the miscellaneous fees charged to your account will not be higher than charged to most other customers.

Second, consider all those attachments to your income stream. Do you really need all the auto-deducts from your income, and at their present levels? I will argue it is silly to ignore the automatic monthly payments you make, for water/sewage, electrical power, mortgages and rents, land line phones, cell phone and Internet connections, since every dollar you don’t spend is one less dollar you need to earn to be in the same relative position.

Again, the mindset one adopts toward controlling excessive personal spending is highly beneficial as a social virtue, and incidentally is a common feature of most wealthy individuals. Scrooge was initially portrayed as dysfunctional; but he could pay his bills, and those of many others too if he chose to do so. If you can’t pay your bills the world becomes a rather unpleasant place. Plus it’s bad for your physical and mental health.

Americans in general are incredibly rich. The majority of Earth’s inhabitants live on a small portion of Global annual output compared to the profligacy of the average U.S. citizen. We throw away more food from our refrigerators than many others can obtain in any condition.

Food is another area ripe for intercession. Looking at the typical grocery store reveals about twenty aisles: 1-2 for produce, 1-2 for meats, 1-2 for dairy, 1 for baked goods, 1 for dietary go-withs like pasta, and rice. All these are fundamentally necessary; but what of the other 10-12 aisles? Stuff…and other stuff as an adjunct to the stuff itself!  Pre-packaged goop your body would be much better off by never coming in contact with. Junk that catches you eye because you saw it on TV – so you toss it in the buggy – but why? Are you buying something necessary or useful for yourself or your family, or are you buying it as a result of conditioning?

Not spending money foolishly is only part of the micro-economic issue…an equal component is what you do with the funds you didn’t waste. Just ignoring the savings and not doing something with it means you will not fully appreciate your efforts. Unfortunately the Banking industry is of little use for micro-finance. They want nothing to do with the dollar you saved here, the five dollars from there. Even if you add to the figurative piggy bank for a year to deposit in a “savings account” or Certificate of Deposit, the buying power of the savings, minus fees paid to the Bank, will be less than the NPV of the money when you saved it.

This factor alone is partially why we have such a dismal savings rate. The typical family pays more for home entertainment annually then what they save or invest. Financial institutions give you 1-2% APR on deposits, loan that out via credit cards at 14-24% and build glass and marble cathedrals to their skill as financial managers. The huge disparity between the numbers of participants, and their resources obey the principle best expressed by Willie Sutton.

Back in the 1950 and early 60’s, Bank Savings Accounts paid roughly 4-5% annual interest – but there were no credit cards for most individuals. What has happened in the past half century is a substitution of credit for actual cash, with the attendant decline in the real value of cash. Companies are prohibited by legal means of offering a discount for purchasers who pay in cash rather than credit at the consumer level – but not in high finance. Service fees rise at least partially due to the “overhead” associated with handling credit transactions, and the base purchase price is higher as well to compensate.

With the ever increasing dominance of large firms in the marketplace, to the active monopoly power many firms have, individual consumers have little to no bargaining power – except again, at the higher levels of purchasing activity.

So what avenue is available for individuals in micro-finance? One that -should- is for the USPS to sell a “Stamp Security” – a kind of S&H Green Stamp for the modern world, which would not only address the savings issue; but keep the Postal Service in the “Black” without having to resort to continuous fee increases on private mail.  The chances of this happening in the current mode are probably nil – not because it’s a bad idea; but rather because of the power of those who would be opposed to such a mechanism.

The US Postal Service has the facilities, they have the equipment, and they have the resources currently available to make this option available on very short notice, without the need for major changes. Unlike a private entity, such a program would have the “full faith and trust” of the U.S. Government. Money deposited by purchase of the “Stamps” could be used for worthwhile national infrastructure programs, a reasonable rate of return could be paid to buyers, and it avoids any issue with “the Government taking over Banks”. In addition, the USPS is already doing this – to a limited degree as evidenced by “Stamp Collections”.

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