Next week is Thanksgiving. Thanksgiving is a great time to catch-up with friends and family, but I am worried that this year’s big point of discussion is going to be the economy and the stock market. In this volatile time I wanted to provide you with some objective and analytical data that will help you think of the current situation more rationally. I also wanted to open a dialogue with my listeners on what could help solve some the financial problems that we are facing.
The Powerful and Successful Money Guy audience:
I am always amazed at who listens to the Money Guy show. You guys are the Do’ers (if that is a word) of society. We have educators, technology executives, successful entrepreneurs, financial advisers, and even people who work directly with some of our national leaders. I want this show to be a fresh voice in a movement to change the way people look at their personal finances. The more I look around me at what is going on, I feel this is the time to take action.
Let’s see if we can make a difference:
I have been feeling like much of what has been going on in Washington recently to deal with the financial crisis is to reward people who have made bad decisions. I understand that with every new policy there will be some winners and some losers, but it would be nice if policy aligned with what has made this country great. If our leaders continue to reward bad behavior those of us that live below our income, save for the future, and take risks to start small businesses are going to wonder why we are swimming up stream? Two of my listeners have provided me with emails that I thought were brilliant.
Mark in Colorado – Email on Providing money to banks through Mortgage Principal Deduction:
Mark provided a suggestion that I am having a hard time finding a problem with. He suggested the following… A tax deduction for those who pay extra principal on home loans. If one million Americans were able to pay an extra $1,000 dollars in principal, that would be $1 billion of capital released from stagnant savings accounts or declining investments. What if $10,000 could be free from the same number of individuals or more people were able to find extra money to apply to their debt? This may not significantly effect federal tax receipts since much of this money is sitting in low interest savings account of which the federal government will only receive a low percentage as interest income tax.
Tim in Atlanta – Op-Ed… Letter to the New President:
Focus on the economy. Job One is to get the economy moving in the right direction:
- Do not over-tax entrepreneurs that take risk, innovate, and create value and jobs.
- Reform corporate taxation: lower taxes, while closing loop-holes
- Do not over-regulate. Regulation begets regulation. Regulation often creates complexity, which creates loopholes, inviting waste and abuse. Pursue light and prudent regulation
- Keep low the cost of capital to business. Re-evaluate your positions on capital gains taxes.
- Strive to keep America competitive. For example, maintain neutrality on unionization efforts
- Focus on equality of opportunity, not equality of outcomes, for all Americans.
Tim closes out his Op-Ed piece with the following statement… Recognize government’s limitation and its dark side. Government cannot solve all that ails us, nor should it. Often, government makes matters worse. Remember the words of George Washington: Government is a dangerous servant and a fearful master.
If any of this discussion motivates you please consider taking action by contacting your elected officials. That is everyone… our President-Elect Obama, Your Senators, and Congressional Leadership and your Representative. If you are unsure who represents you or you need a physical or email address than use the following site: www.votesmart.org to determine who to contact.
I close out the show with a few thoughts on what happened in the markets this week.
Hi Brian,
Love your show! I listen to your podcast every week. A couple of months back you mentioned the Morningstar podcast, but I can’t find it anywhere. I am a Morningstar premium member, and have looked several times for it. Can you tell your listeners the URL to subscribe? I found the Morningstar Advisor podcast, is this the same one you recommended?
Also, do you think that 2008 is the year “buy and hold” investing died? That might be a good topic for your show, b/c that is what many people are thinking. We have lost confidence in the system, especially when we do everything right (DCA into 401K, buy and hold, then lose 50% ) and then we see that the high-paid Wall Street gamblers who caused this mess get bailed out, and paid bonuses to boot! And though our small businesses fail if we do not produce value for the marketplace, the GMs and Fords and AIGs ask us, the taxpayers, for a handout all the while taking home tens of millions a year in salary and bonuses. In short, do you think 2008 is the year capitalism died?
Finally, do you like TIPS now, for the long-run? (In other words, do you see high inflation in the next 5 or 10 years?, perhaps after a brief deflationary period?)
Thank you, and keep up the great work.
John L
I really liked the idea about debt paydown tax credits. It’s fresh ideas like these that I think can help us get back to a healthy economy without having to mortgage our future. Thanks to Brian for mentioning this on the podcast I listed to today, and thanks to Mark in Colorado for the great idea. I’m sure more good ideas are out there and I hope people continue to discuss them
I think the tax incentive to reduce make additional contributions towards your mortgage principal would be a win-win for all parties. Because this is privately-held money, the banks could use the cash any way they choose, including to buy other distressed assets (Banks without liquidity) for pennies on the dollar in lieu of lending the money or modifying their existing loans already in default but not yet foreclosed. However, banks make their profit by giving loans, and they will start doing this again as soon as they have liquidity and reasonable risk-reward ratios exist. I believe there is already much demand for loans with reasonable risk-reward ratios; liquidity is what’s missing.
A program was recently introduced to me that allows people to rapidly build-equity by paying-off their mortgage (and other debts) in 1/3 – 1/2 the time without refinancing and with little to no change in their lifestyle/cash flow. Do you think this is possible? If not, I understand how you feel. I felt the same way. Can I tell you what I learned when I did my due diligence? Information is available at http://U1stFinancial.net/TomScheu. This is an incredible program that helps the average American solve one of the biggest problems facing us today: overwhelming debt. Help be part of the solution. help yourself get out of debt, and if you want to help others get out of debt without spending your money, tell them about this program.
Hi Brian,
Thank you for the excellent work you do. It appears that it is no longer possible to “download” mp3’s of your older podcasts via your web site. iTunes only goes back to 7/10/08. Is there a way to download the older podcasts from your site in MP3 form? Thanks, Sam
Hi Brian
I do not have an economics background, but my 2cents on Mark’s idea is that it is not how the monitory system work.
When you ‘pay down’ the loan, it ‘destroys’ wealth – in other words, the amount that you pay down reduces the total available currency supply by that amount – in other words, the banks dont have the money to work with.
I work for a bank, so this much I understand.
Money is created from thin air (practically) by the banks when a loan is made out. This is subject to Reserve Ratio requirements ofcourse. This money when deposited in a low or no interest savings account, becomes a free gift TO the bank. I.e. the bank uses the money to lend out, invest etc and make money off the money you keep in the bank.
When you take the money from your no interest savings account – first you are starving the bank of the free cash. Second when you pay down the principal with it, you are removing the currency from the supply.
Double Wammy. No offenses, but bad Idea Mark/Brian.