Voters say… When the going gets tought, make the going tougher.

March 5, 2008

This post falls somewhere between a political commentary, a rant, and a bunch of angry drivel directed at my fellow Ohioans. As I am sure you already know, Hillary Clinton won the Ohio Democratic Primary yesterday.

With that being said…

I have lived in the state for my entire life. My father has also lived here his whole life. Deep down, I would really, truly like to see Ohio and its citizens do well and prosper, but Ohio has been on a progressive downward spiral since about 1995. If you listen to local radio or read the local Ohio newspapers, all you hear or read is about how everyone is sick of the dwindling economy, stagnant wages, and politicians who don’t seem to care to make any real difference. You would really get the impression that the citizens of Ohio really want things to change for the better. There is, however, one huge problem preventing Ohio from making any headway…

Whenever Ohio’s citizens are presented with an opportunity to change things for the better, they completely blow it. It is as if they are all hell-bent on their own destruction.

Yesterday, the voters of Ohio continued this trend.

NAFTA was passed in January of 1994. Prior to this “free trade agreement”, which was actually more like an incentive for domestic businesses to move their production elsewhere, Ohio’s economy was flourishing… Since NAFTA, Ohio’s economy has progressively (maybe “rapidly” would be more fitting) declined. Why? Ohio’s economy has historically been EXTREMELY dependent on manufacturing. Ohio once had flourishing steel mills, auto manufacturing plants providing good jobs to thousands, and machine shops employing the majority of Ohio’s manufacturing base. After NAFTA, this all went to Mexico.

Many politicians still stand behind this failed trade agreement, justifying their support by citing an increase in the number of U.S. jobs and a lower unemployment rate. When closely examined, the effect on Ohio was devastating. Machine shop jobs that payed upwards of $50,000 a year have been replaced by jobs at Wal-Mart paying $7 an hour. It would seem that the average Ohio citizen doesn’t seem to understand that this is the case, and that NAFTA has been extremely harmful to their way of life… but unsurprisingly, most Ohio citizens do understand the impact of NAFTA, as they have been the people who have had to give up their $50,000/yr. jobs for the $7/hr. jobs.

This fact… the idea that the citizens of Ohio do understand the negative impact of NAFTA… brings me to the point of this post.

HILLARY CLINTON SUPPORTED NAFTA. HER HUSBAND WAS NAFTA’S CHAMPION.

She has conveniently said in her campaign that she has always been against NAFTA… what a joke! I can hear her now… “Bill, please, please don’t pass NAFTA”. She is a socialist! She has ALWAYS supported free trade!

Does she really think that the voters of Ohio are dumb enough to believe that crap?!

I was hopeful that Ohio’s voters would see through her double-talk…

I am now convinced that I am either surrounded by masochists or complete idiots.

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The Next Big Credit Crunch

January 25, 2008

Contrary to what the mass media would have you believe, Generation Y has more on its agenda than obsessing over Britney Spears, Heath Ledger, Amy Winehouse, Paris Hilton, and Facebook. As a matter of fact, most members of Generation Y in the U.S. will attend college, and many will graduate. Many may even continue on to pursue degrees in medicine, law, or other advanced degrees. Along the way, they will develop their understanding of the world around them, make new friends, and possibly even have a good time while doing it. If they are like most other modern college students, they will also rack up a massive amount of debt.

The Expense

College has become somewhat of a necessity for the modern American youth. There was a time in the not-so-distant past when only the most wealthy, driven, or inquisitive people continued their education following high school, but now almost every child from the ‘middle class’ feels compelled to go to college or risk having no real chance at wealth and the ever foggier definition of ‘success’.

But what is the real value of a college education? Does it guarantee a lucrative job offer? Does it truly improve your earning potential over the duration of your career? If so, how much debt does it justify accruing?

Here are the facts:

The average bachelor’s degree recipient will graduate with between $19,000 and $40,000 in debt. The average graduate student will graduate with an additional $31,700 in debt beyond what they accrued during their undergraduate studies. Law and medical students will graduate with $91,700 in debt on average.

At a local State University, the current tuition rate for a full time undergrad student is $4200 a semester. Add to this the expense of a dorm room and meal plan, and you can add an additional $8000 per year. This totals $16400 per year over an average of 5 years for a total cost of $82000. Ouch. You better hope that the lucrative job offer comes through… but will it?

Law students are an excellent case in point. Many, if not most, will graduate with about $100,000 worth of student loans. Payed back over the course of 25 years at an interest rate of 8%, this amounts to a monthly payment of $771.82 a month… no problem for a newly minted lawyer, right?

Wrong.

The average starting salary for a first year law associate is roughly $46,000 a year. Take out taxes and a 401k contribution and a new lawyer is taking home about $2500 a month. If they plan on starting a family, this could be a real problem. For students who rack up this kind of debt and graduate with a degree in a field like education or the liberal arts, they are screwed.

The Next Credit Meltdown

This all sounds real scary, but most college students aren’t in this position, right?

Wrong again. Look at the facts.

This could be the foundation for an economic crisis larger than the housing crisis that we have been feeling the effects of lately. With so much debt, many of these students will have two options: pay off their student loans and live in an apartment until they are 50, or try to buy a house and start a family. If they go with the latter option, it seems obvious that either the house or the student loans will go into default, and you can bet that both the student loan provider and the bank who owns the mortgage will want their money. Will the government step in with another plan to help Generation Y save their homes? I imagine we will find out in another 10 to 15 years.

‘Ethics’ and ‘Student Loan Provider‘ – Two phrases that don’t belong in the same sentence.

Why hasn’t this issue already been addressed? Because both the schools and the student loan providers stand to benefit from taking advantage of the students.

In mid-2007, a huge scandal involving numerous student loan providers and school officials was exposed. The situation basically involved the student loan providers offering incentives to school financial aid officers for ‘selling’ their loans to students. JPMorgan Chase spent $74,000 wining and dining more than 200 school officials on a cruise ship. They also employed five college student loan officers at the bank while they were still employed at the university. At Columbia University in New York, the head of financial aid was suspended (yes, suspended, not fired) when it was discovered that he had earned $100,000 on stock in a loan company that he regularly recommended to students. The government took measures to ensure that this would be discouraged in the future and to prohibit student loan officers from accepting ‘gifts’ from banks for selling student loans, but the damage had already been done to the countless number of students who had already been sold into loans that they may not have understood or needed. Who are the schools really looking out for, anyway? Shouldn’t they be looking out for what is in the best interest of their students?

In any case, what is done is done. It seems that the legislation that was passed in 2007 was enough to ‘smooth things over’ and get everyone to turn their heads while the future generations of the U.S. are duped into an over-priced education by banks and corrupt university officials looking to make a quick buck. Our politicians will continue to argue about the merits of universal health care and ‘the war against terror’ while Generation Y digs itself into a hole of debt from which there is no escape. Eventually, the misfortune of America’s youth will be the misfortune of America’s economy. Our leaders had better take notice.


What will you do with your $600?

January 24, 2008

Well, the deal of the century has almost been closed. Congress has moved one step closer to giving us back $600 that we gave to them earlier this year. Of course, this is part of the well publicized ’emergency economic stimulus package’ that the geniuses in our government have devised to help fix up our failing economy.

What will you do with your $600? That almost covers a new Playstation 3 plus tax. Or, you could spend it on some new work clothes. I guess it could cover a car payment or two for those of you with an auto loan. Or maybe it would be better spent by going out and getting hammered every night next week… I think that is exactly what Congress has been up to if they think that this will bail us out of this economic disaster that they have caused.

Here is an idea… write to your congressman (or woman) and ask him what exactly he is smoking. $600? That is a smack in the face. I don’t think the economy is hurting because the government over-billed us on our taxes last year by $600.

In any case, feel free to post what you will be spending your $600 on. Heck, if we buy enough PS3’s, maybe the problems in the housing market will disappear.


Have Our Leaders Failed Us?

January 23, 2008

We have all heard the question repeated a thousand times over the past 6 months… Are we in a recession? If not, are we facing one in the near future?

If you have been following the news for the past week, the answer is apparent – not only are we in a recession, we are facing possibly the largest such event in the past 30 years. The question is no longer whether we are in a recession or not, but how we should respond moving forward.

I feel that it is important to understand the root causes that have led up to the extremely serious problems facing the U.S.’s financial markets. Sure, it is easy to blame the previously ignored, terribly underestimated problems caused by the sub-prime lending meltdown over the past five years. Anytime someone borrows more than they can pay back (whether they knew they were doing so or whether they were intentionally mis-lead), you are going to have a potentially serious problem. But we cannot blame the failure of one of the world’s largest economies on bad mortgages alone.

The real problem is 20+ years of ineffective, inefficient leadership from people more concerned with re-election than with setting effective domestic and foreign policy goals to ensure the nation’s future.

It is clear that the world’s financial markets have become extremely integrated and that the market for goods and services is now almost completely flat. To put things into perspective, close to 90% of everything you buy was produced overseas. Free trade agreements have nearly eliminated trade barriers and restrictions on foreign and multi-national corporations selling products within the U.S. At the same time, organizations such as the European Union have set up numerous barriers to restrict or prohibit U.S. companies from gaining market share in their countries in an attempt to protect manufacturers and producers within their home countries. The blame should not be placed on the European Union, however. The blame lies solely on the U.S. politicians who have allowed the EU to set up such restrictions unchecked. The fact of the matter is that our trade deficit is at an all time high (nearly $6 trillion). The value of the U.S. dollar is rapidly falling, which is may be good news for U.S. business – but it is terrible news for the U.S. consumer, who will have to pay increasingly high costs for the foreign goods that we have become increasingly dependent on.

The government has proposed an economic stimulus package to try to prevent further recession. An important question to ask yourself: How will a one time, $400 tax rebate effect you? I’m not sure if our politicians are really that out-of-touch, but this is 2008. $400 won’t change much of anything for the modern American college student, not to mention a 4 person family. As far as stimulating the economy goes, the $400 rebate may work if it is spent SOLELY on U.S. produced goods and services… but let me direct you back to the fact that 90% of everything we purchase is produced overseas. It seems obvious that $360 of the $400 rebate will be sent overseas and have no effect other than to stimulate the economy in OTHER countries.

A country that does not produce anything, be it goods or services, will have a hard time sustaining economic growth. It seems that our politicians have completely missed this fact. While Hillary and Barack are engaging in heated debates about whether or not Mr. Obama inhaled, the country that our founding fathers fought so hard for is failing. As the election nears, I have not yet heard mention of any of the real issues facing the U.S.

How will we deal with the increasing power of the European Union? How will the emergence of China and India as a global economic force effect the domestic economy as we move forward? How will we deal with real domestic issues, such as the failing social security system? Is it fair to ask the next generation of the American workforce to pay into a system that will not exist when they retire?

One fact is clear and indisputable. Our leaders have failed us. The economy is in shambles. While Bill Clinton was passing free trade agreements and receiving ‘favors’ from White House interns, leaders in other countries were calculating how they could improve the situation for their citizens. While Ms. Clinton and Mr. Obama (both ACTIVE U.S. senators) are debating how to provide health care for everyone in the country and focusing on getting elected, our economy is falling apart.

It is time to hold are leaders accountable. It is time to be informed and to know what issues are actually important as we move into the new century. Hopefully our next generation of leaders will take notice.


Fed Funds? Discount Rate? Huh?

January 22, 2008

If you have looked at the news today, then you already know that the Federal Reserve announced that it is cutting the Federal Funds Rate from 4.25% to 3.5% and the Discount Rate (window) from 4.75% to 4%. As a matter of fact, you can’t visit yahoo.com, msn.com, cnn.com, or any major news TV station without seeing it, which made me wonder… how many people have the slightest idea what this means?

I’ve got to admit… until last year I had no idea what all of this government mumbo-jumbo meant either. Discount rates? Isn’t that what you get at Wal-Mart or Marc’s? Discount window? Isn’t that what that asshole on the info-mercial keeps trying to sell me at 2:30am?

This post is for anyone who is unsure of what the hell all of these terms mean. I by no means intend to cover all of the implications of this crap, but hopefully this will be insightful enough to make at least a little bit of sense.

The Federal Funds rate is simply the rate at which banks borrow money (funds) from other banks. In order to protect depositors (you and me) from banks lending all of our checking accounts and savings accounts out to other people (and hence us bouncing our checks), the Federal Reserve (the head-honcho bank) requires that banks keep a minimum amount of reserve funds at the Federal Reserve (currently 10%). So here is the deal:

If the bank wants to make a loan but doesn’t have enough reserves without going below their reserve requirement, they can borrow money from another bank with excess reserves at the Federal Reserve (the Fed from here on out). The rate that they will pay for the loan is called the Federal Funds Rate. Basically, the lower the Fed Funds Rate, the easier (cheaper) it is for banks to borrow money from each other to make loans, meet reserve requirements, etc… This has the effect of basically adding additional money to the economy (increases the money supply).

The other rate that was lowered was the discount rate or ‘discount window’. This is the rate at which banks can borrow not from other banks but directly from the Federal Reserve. It is usually about a percentage point higher than the Fed Funds Rate (naturally, the Fed doesn’t want to lend its money to banks, so it is cheaper for banks to borrow from each other).

You will hear these rates referred to as monetary targets for open market operations. Open market operations are simply the means by which the Fed controls the supply of money in the economy.

Note:

When these two key interest rates are low, it often signals ‘easy money’, and can lead to inflation. When inflation is high, the Fed usually raises these two key interest rates in an effort to ‘cool’ the overheating economy. When economic growth is low (like what we are seeing in the economy presently), the Fed will lower interest rates in an effort to make funds easier to obtain, hence stimulating a slow economy.

Here is the catch… what do you do if the economy is slow and inflation is high?

Think about it…