Do you make a point of shopping locally? What about shopping local? While they might sound same, there’s an important distinction — at least in my mind. When I say “shop locally,” I’m referring to the practice of buying from stores in your community. But when I say “shop local,” I’m talking about buying from locally-owned small businesses.

While many people take great pride in shopping locally (vs. buying online from Amazon or some other e-tailer), they miss the point by hitting up Wal-Mart or another big box retailer. Sure, these places employ local citizens and collect local sales taxes, but a significant portion of there revenue goes elsewhere.

This reality was underscored in a study from Maine that I recently ran across. The study, which focuses on a particular section of Midcoast Maine, compares the economic impact of shopping at locally-owned businesses vs. major chains. Yes, it dates back to 2003, but the findings are still quite interesting.

In short, the study’s authors found that for every dollar spent at a locally-owned establishment, nearly 45% of that revenue stayed in the local community with another 9% being spent elsewhere in the state. These expenditures included employee wages/benefits, inventory, supplies, and services from other local local businesses, profits accrued to the local owners, state and local taxes, and charitable contributions.

In contrast, for every dollar spent at a chain store, only 14% of the revenue stayed in the local community, mostly in the form of payroll. The balance of that money flows to out-of-state suppliers, or back to the parent corporation.

Based on these numbers, three times as much money stays in your community when shopping at a locally-owned business vs. shopping at a chain store.

Sadly, in many places, you just don’t have that many options when it comes to patronizing locally-owned businesses. Around here, it’s easy to find a locally-owned restaurant or coffee shop, but for groceries, electronics, etc. most local retailers have been pushed out by their big box brethren.

I still make a point of buying from our local hardware store whenever possible, and I frequent a few of the local businesses in our downtown shopping area, but it’s tough to “buy local” when there are just so few options left.

And when it comes to shopping at a big box vs. shopping online? I let prices and convenience dictate my choices. Yes, there’s a marginal local benefit to shopping at Best Buy vs. Amazon, but it’s not enough to offset the better prices and vastly broader selection.

What about you? Do you make a point of shopping local when you can?

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Do you find that $20 bill in your pocket evaporating faster than ever, and your paychecks taking you shorter and shorter distances? It’s no hallucination. There’s a shift going on. It’s a shift helping ensure the comfortable middle-class lifestyles our parents enjoyed become as obsolete as an eight-track tape player.

Costs once borne by better-heeled folks are increasingly bearing down on the fragile shoulders of American taxpayers. Expenses, burdens, commitments, and responsibilities once assumed by employers are now the obligation of the American wage earner. In short, if you look around, you’ll find things are being shifted. And the more they’re shifted, the more likely you are to be shafted.

Try this: Go to any search engine and type in the phrase “costs shifted to taxpayers.” Next, tweak that line and make it “costs shifted to employees.”

You’ll find article after article bearing the same essential story line. Expenses not so long ago shouldered by someone in corporate America are now being subtly and gradually transitioned to the backs of average folks.

There’s the case in Ohio where the payouts to victims resulting from medical malpractice lawsuits may soon be vacuumed from Buckeye taxpayers’ accounts rather than insurers’. There’s the report from Washington State about a state senate initiative to let employers and insurance companies negotiate with injured workers and pay out less than the workers’ claims are worth, with the logical result that injured, disabled individuals will turn to public assistance.

And of course, there are the instances of mega-rich retail empires that gorge on profits while failing to pay living wages or provide affordable health insurance to their workers, ensuring those workers will turn to taxpayer-financed programs like Medicaid to garner the assistance they or their family members will likely require.

Caught in the crossfire

Your ability to raise kids and build college, home, and retirement savings might not be too badly dented by just one of these shifts. But when the shifts are coming from all directions, well, it’s no surprise editorial cartoons are portraying the U.S. middle class as a chalk line on pavement behind police tape.

Amid the growing library of books examining this phenomenon, one of my favorites is David Cay Johnston’s New York Times bestseller Free Lunch.

What’s that, you say? There’s no such thing as a free lunch? That’s right, someone must pick up the tab when, as the book’s subtitle says, “the wealthiest Americans enrich themselves at government expense.” That someone is you.

In the book, Johnston details how tax subsidies continue to be dispensed to the country’s most-moneyed individuals while jobs for average Americans disappear. Who’s reaping those windfalls? Big box retailers, gigantic shopping complexes, professional sports franchises, and politically-connected companies get the money that’s been shifted. All the while, schools and libraries, police departments, parks and playgrounds, and John Q. Public get shafted.

Johnston maintains a consistently indignant stance throughout the book, but rises to near blood-boiling rage — and takes his readers there as well — when describing a particular category of outdoor sporting goods retailer whose nearly city-sized stores are planted just off the exit ramps of many interstate highways.

These retail corporations (Johnston pinpoints two particular names) seek subsidies from local municipalities that include free land, monetary grants, and recapture of sales, property, and other taxes to build and operate stores, arguing their stores will bring traffic into the town once they arrive.

The only problem is that once they arrive, they usually don’t generate the boomtown commercial atmosphere promised. (One store I pass in the extreme corner of northwest Indiana sticks out in the middle of a one-time cornfield, but the area around it is as bleak as a 1930s-era Dust Bowl hamlet.)

Townsfolk have paid the tab for the store, and are helping fund its continued operation through tax givebacks, while the retailer’s corporate owners reap giant profits. How big? Between 2004 and 2006, one retailer earned $223 million, while collecting almost $294 million in subsidies. I don’t know about you, but I call that elevating the role of shifting and shafting to an art form.

Don’t shaft yourself

So, why all this about the shift and the shaft? I’m not asking you to occupy Wall Street or rage against corporate greed. That’s not going to make one iota of difference in how your personal household finances stack up.

But it could be you’re looking for a reason to put your financial house in order. It might be you’re the type who needs a little righteous indignation to spur you to life-changing action. It may be you can make needed personal spending, saving, and investing transformations only by coming to grips with the full extent of the encroachment into the pants pockets of you and your fellow Americans.

If that’s the case, while you’re not likely to be able to avoid being affected by all the shifting, you may be able to survive some of the shafting.

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If you’ve been unable to refinance your mortgage because your loan is underwater, you’ll be happy to learn that the Obama administration has announced sweeping changes aimed at helping homeowners like you. More specifically, if your loan was sold to Fannie Mae or Freddie Mac on or before May 31, 2009 and your loan-to-value ratio is 80% or higher, you could benefit.

The biggest change here is that they’re removing the old ceiling of 125% LTV ratio from the Home Affordable Refinance Program, which unilaterally excluded even the best borrowers if they lived in an area where home values had plummeted. To qualify, you have to be current on your loan payments, have no late payments in the past six months, or not more than one late payment in the past twelve months, and you cannot have previously refinanced under the HARP program.

As far as the lenders go, they no longer need to warranty their loans, which required them to buy back loans from Fannie Mae or Freddie Mac if the borrowers defaulted. This change will reduce lender liabilities and should make them more willing to work with borrowers. The White House is hoping that increased ability to refinance to a lower mortgage rate will keep people in their homes and spur spending as monthly mortgage obligations decrease.

Specific details will be made available to lenders by November 15th, though certain aspects of the program won’t go into effect until next year.

Source: Chicago Tribune

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The economy stinks. You and I know it, and the Federal Reserve knows it, too. That’s why they announced Operation Twist earlier this week. Operation Twist? What’s that, you say? It’s yet another attempt to drive interest rates down in hopes of spurring economic activity.

This time around, they’re targeting 10-year bond Treasury rates because lots of interest rates, including mortgage rates, are tied to the 10-year bond rate. In short, they’re planning on selling some of the shorter term bonds that they’re holding and using the proceeds to buy longer term bonds.

More specifically, over the next nine months, they intend to sell $400B in short-term government bonds and use the proceed to buy longer-term bonds. As demand for these longer-term bonds rises, their interest rates will fall. This makes sense, as you don’t have to pay as much interest to find buyers in a high demand market.

So… The big question is whether or not this will work. In this case, we can actually look to the past, as the Fed has tried this once before. In the 1961 rendition of Operation Twist, the Fed succeeded in bringing longer-term interest rates down 0.15%. Not much, but more than nothing.

For his part, Fed Chairman Ben Bernanke has previously downplayed the strategy’s potential as a tool for reducing long-term interest rates. So why bother? I guess when you’re running out of ideas, you’ll try anything. The bigger question to me is whether or not an interest rate reduction will have a meaningful economic effect.

Consider for a moment the housing market…

Do you honestly believe that there are legions of prospective homebuyers sitting on the sidelines because mortgage rates are just too darn high? With 30-year fixed rate mortgages hovering around 4% and 15-year fixed rate mortgages below 3.5%, mortgage money is already dirt cheap. What difference will it make if rates drop a bit further?

While the housing market is just one piece of the puzzle — albeit a big one — rates are low across the board and we’re still struggling. Maybe if the Feds would start paying people to borrow, we could get the economy back on track… Then again, in inflation-adjusted terms, they’re practically doing that already.

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When you save your money instead of spending it, you are actually hurting the economy in a small way. It may seem counterintuitive that your savings are adding to our economy’s decline, but they are. Most of us have come to embrace globalism and our intertwining financial lives, but we often fail to realize that saving our money actually has far-reaching, unintended consequences.

Most consider increasing the amount of money you save to be a positive financial attribute, but it can actually work against the greater good when it happens across the board. Economists call this the Paradox of Thrift.

Spend, save, or invest

When you earn money, there are three basic things that you can do with it. You can either spend it, save it, or invest it. With the American economy treading water, the nation’s savings rate has been steadily creeping up. Historically, Americans have not saved or invested much of their paychecks. In fact, the savings rate in America has typically hovered around 1% of a person’s take home pay.

But with today’s economy struggling and unemployment high, the nation’s savings rate has recently risen to 5-6%. With people saving more money from each of their paychecks, less is being spent on consumer goods. While an increased savings rate is typically seen as a positive financial trait, it can create unintended problems.

What is the Paradox Of Thrift?

In the early 20th century, the famous economist John Maynard Keynes wrote about what he called the Paradox of Thrift which ultimately states that saving more money instead of spending it can exacerbate a troubled economy like the one we currently find ourselves in. Consumer spending drives 70% of the American economy. If more people are saving and investing their money instead of spending it at our nation’s malls and other retailers, the entire economy suffers.

This can turn into a vicious, self-perpetuating cycle. More savings results in less spending. Less spending on consumer goods reduces the revenues that American companies earn. When companies’ earnings decrease, they typically lay off workers. When workers lose their jobs, they tend to tighten their belts and try to save more money — though they might actually have less to save (or spend) at this point.

In other words… Saving money and being thrifty results in less spending, fewer jobs, a declining economy, and an aggregate decrease in savings. Quite the paradox.

What should you do with your money?

Given the above, what should you be doing with your own money in the current economy? In my view, even with interest rates at all-time lows, you should continue saving and investing for your future and your financial goals. Honestly, even a 6% savings rate isn’t good enough. Many financial planners encourage people to save 10% or more for retirement alone — and that doesn’t include other financial goals such as buying a new home or helping your children pay for college.

Why you shouldn’t care about the Paradox Of Thrift

Your money — and what you choose to do with it — is just a small part of the economy. In the grand scheme of things, it really doesn’t matter what any one person does with their money. It only matters what we all do as a collective group. Should large-scale, macroeconomic factors such as this dictate what we do as individuals? Should second and third order effects bother us if we are looking out for our own wellbeing? Not in my book.

So… Do you feel bad about hurting the economy when you stash some money in your savings account or buy a CD? Bad enough to go out and start spending? More generally, do you believe in the Paradox of Thrift — that saving more of your money contributes to an overall economic decline?

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By now, I’m sure you’ve heard that Standard & Poor’s rating agency downgraded the US credit rating from Aaa to Aa+. While the other two ratings agencies (Moody’s and Fitch) have upheld the Aaa rating – at least for now – S&P’s decision to downgrade has sent shockwaves across the investing world.

While I don’t want this to devolve into a political argument, I do think it’s worth noting that S&P partly based their downgrade on the political dysfunction surrounding the debt ceiling debate in Washington. More specifically:

“The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed.”

Who cares about credit ratings?

Okay, aside from bragging rights, who really cares? After all, the US Treasury is just as safe (or unsafe) today as it was on Friday before the downgrade. Right? While that may be technically true, it’s all about perception.

The problem is that, if people start to lose faith in the “risk-free” nature of Treasury securities, borrowing prices will rise. In other words, investors could begin demanding higher interest rates to compensate them for the higher risk (real or perceived) associated with Treasuries.

Okay, got it. Higher rates. But who really cares about that? All of us should. Higher borrowing costs means that more of our Federal budget will have to be devoted debt service, and we’ll have to cut even deeper (and/or revisit the revenue [tax] issue) in order to get the deficit under control.

As for investors, rising interest rates will devalue existing bonds, causing losses in the bond market – though resulting in higher yields, and thus higher income per dollar invested. Also, the downgrade could create problems for money funds that are required to hold Aaa-grade investments.

Note: In the short term, Treasuries might actually benefit, as spooked investors flee the stock market in search of safer investments – in fact, that’s exactly what happened overnight, as bond buying on the international markets pushed rates lower (and prices higher).

And finally, for consumers… The downgrade could translate into higher mortgage rates, putting further pressure on an already weak real estate market. The same goes for interest rates on car loans, credit cards, etc. So yes, you probably should care about this, though it’s still unclear exactly how much of an impact the downgrade will have.

Which countries still have Aaa credit?

Now that the downgrade has occurred, you might be wondering who does have a Aaa credit rating. According to S&P, these are the 18 countries that still have sterling credit:

• Australia
• Austria
• Canada
• Denmark
• Finland
• France
• Germany
• Guernsey
• Hong Kong
• Isle of Man
• Liechtenstein
• Luxembourg
• Netherlands
• Norway
• Singapore
• Sweden
• Switzerland
• United Kingdom

If you’re interested in seeing the full list, as well as the Moody’s and Fitch ratings, check Wikipedia’s list of countries by credit ratings.

Are credit ratings reliable?

As an interesting aside, there are now four US companies that have higher credit ratings than the Federal government: Microsoft (MSFT), Exxon Mobil (XOM), Johnson & Johnson (JNJ), and Automatic Data Processing (ADP). Then Enron, Global Crossing, Bear Sterns, and others also had Aaa ratings right up to the bitter end.

Thus, you might want to view this whole ratings game with a healthy dose of skepticism. After all, ratings changes often appear to be reactionary – being based on things that have already happened – as opposed to offering a forward-looking perspective.

In the case of the US credit downgrade, it was no secret that a downgrade was looming. Thus, while the occurrence of the downgrade itself was unsettling, investors have had plenty of time to digest the likelihood that it would happen, and it should already be at least partially “priced into” the market.

This isn’t to say that the stock market won’t swoon – it probably will, at least a bit – but we’ve known for awhile now that the debt ceiling deal didn’t add up to the $4T in deficit reductions that S&P was looking for, and we already saw a lot of selling in the wake of that deal.

Note: I will wield a heavy hand on political rants, name-calling, etc. in the comments. Thus, while I encourage you to discuss the economic implications of the downgrade, I’m asking that you keep your comments respectful and on-topic, and that you steer clear of political discussion.

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Municipal bonds, which are issued by states and local communities, are a popular choice for those who are looking for a fixed income investment in a taxable account. The reason for this is that the income generated by muni bonds is tax exempt, which boosts their effective yield as compared to taxable bonds.

Beyond being a boon to investors, this tax break is a great help to the communities that issue the bonds, as they can pay a lower interest rate and still be competitive with higher rate bonds that don’t share this tax advantage. But this all comes at a price… According to the Joint Committee on Taxation, the federal government will lose out on over $200B in tax revenue due to the muni bond tax exemption between 2010-2014.

Given the above, it’s perhaps not surprising that lawmakers are talking about reforming the tax treatment of municipal bonds. Of course, according to Jason Zweig, this has been talked about over 100 times since 1918, and it’s never happened. But with all the recent interest in reducing the deficit, it seems that more people are talking about it than in the past.

Aside from taking away a well-loved tax shelter from investors, the taxation of municipal bonds would essentially equate to the federal government taking money away from local communities, as those communities would have to start paying higher interest rates to make their bonds attractive enough to draw investors.

Given the rough shape that many states are currently in, it’s hard to imagine Congress acting to make things worse, but you never know. One possibility is that, if the tax exemption was taken away, the feds would provide subsidies to local communities to help offset the added cost, but at a rate lower than the tax exemption.

Who knows… As I noted above, this has been debated multiple times in the past and has never gone anywhere but, given the current economic climate, it’s probably worth keeping an eye on these discussions.

Source: CNN/Money

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According to a recent report from NPR, the Federal Reserve has $1B worth of dollar coins just sitting around. The production of these coins stems from a 2005 Congressional mandate to produce a new series of coins honoring past Presidents. Unfortunately, the general public doesn’t seem to like them and very few people are using them.

The argument in favor of these coins is that they’re more cost-effective than paper bills. These coins have an estimated life in circulation of 30 years vs. 4 years for a paper bill. Moreover, according to the General Accountability Office, the net benefit of switching from paper to coins would be on the order of $5.5B over 30 years – not too shabby, huh?

While this sounds like a significant savings, it could more properly be described as a “profit.” The reason for this is that it only costs $0.30 to make a coin that has a $1.00 face value. To be fair, it costs even less to produce a dollar bill, but still… If you factor out this profit, which is essentially an invisible tax, the paper-to-coin transition is expected to end up costing taxpayers money.

As an interesting sidebar, the Fed has estimated that they will need to issue 1.5 dollar coins for every dollar bill they are meant to replace. This is due to differences in how people handle coins vs. bills. In other words, there’s a tendency for people to allow coins to pile up in change jars, cup holders, etc. such that they circulate more slowly than bills.

With that as a backdrop, here are some stats:

• To date, 2.4B Presidential dollar coins have been minted
• The total cost to mint these coins was $720M
• Just 1.4B of them have made into circulation
• 1B of these coins are sitting unused in Fed vaults

The big problem here appears to be that people just don’t like dollar coins. Thus, unless dollar bills are withdrawn from the market, it seems unlikely that we’ll see widespread adoption of dollar coins. In fact, according to the Fed:

“We have no reason to expect demand to improve. We also note that a 2008 Harris poll found that more than three fourths of people questioned continue to prefer the $1 note.”

What do you think? Do you like dollar coins? Why or why not?

As for me, I kind of like them though, to be honest, the only reason I have them is because I bought a bunch from the US Mint to break through a credit card reward tier last year. While I’ve spent quite a few of them, I’ve never actually received one in a transaction of any sort.

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One thing that amazes me is the conviction of so many people that things will be about the same economically – or maybe better – in the future as they are today.

I’ve got bad news for them. They’re dreaming. For many or most Americans, things aren’t likely to be as good or as easy years from now as they are today. The cost of living will climb. Wages will stagnate or fall. Our standard of living won’t be as high. Today’s kids won’t have life as good as their parents did, and they won’t have a prayer of living the kind of life that their grandparents led just two generations ago. The American dream of things being better for our kids than ourselves has been turned on its head.

How can I say this? Well, for one thing, I was around in the 1960s, in a world where mom stayed home and minded the kids, while dad trudged off to the salt mines, punched a clock, and earned the shekels that kept the household humming. That was the norm back then. How many families like this do you know today? Almost none.

The reason for this sea change is that it’s become increasingly difficult to raise a family and manage a household’s finances on the income from just one job. Many households require two income streams, and based on the number of folks moonlighting, maybe three or four.

Do you think it will be easier 20 years from now? With globalization siphoning more jobs? With gargantuan populations in Brazil, Russia, India, China, and elsewhere clamoring for a slice of the pie long gorged upon by Americans? Assuming it will makes as much sense as seeking out Charlie Sheen for sage career guidance.

You don’t have a chance, unless…

Is this a bad thing? Are you kidding? It’s a good thing! Good in the way the scary events of 1942 were for galvanizing our efforts to take World War II. Good in the way the Soviets’ early lead in the space race ultimately propelled us to the moon.

There’s a silver lining in this reverse American dream. If folks stop assuming things can’t get worse, and that they’ll fund retirement by plucking dollars off trees, and that they can finance their kids’ educations by starting saving in the kids’ junior years of high school, and that they’re all entitled to a chicken in every pot and a Lexus SUV in every garage, then maybe we’ll all do a better job of shepherding our money.

And if we don’t? As Larry Bird used to tell the lesser lights that he matched up against on the NBA hardwoods, “You don’t have a chance.” Not when you consider how much higher health care, energy, food, tuition, transportation, and other life expenses are likely to balloon, especially when compared to our ability to pull down greenbacks.

So I hereby call for a new mindset to take hold and sweep the nation. Rather than embracing “keeping up with the Joneses” as our approach to consumerism, let’s try instead a mantra that might be called “Keeping up with the Buffetts.”

I’m not urging folks to try to out-earn Warren Buffett, a guy who’s commandeered every fifth dollar on the planet. Instead, I’m beseeching them to consider that almost as well known as Mr. B’s wealth is his apparent delight in living below his means.

Years after he’d earned the right to move to Park Avenue, he went on living in non-glitzy Nebraska. Long after he could afford a custom-built Taj Mahal, he stayed in the unassuming domicile that he purchased 35 years ago. Some say he’s been known to motor around his hometown in a sumptuous Chevy Cavalier. Maybe he even does anniversaries with his wife in a cozy, romantic booth at Old Country Buffet.

Being like Buffett

I maintain that we could all be a bit more like the Omaha Oracle without killing our consumer-driven economy. This doesn’t mean you have to give up your comfortable four-bedroom house for a lean-to under a viaduct, or that you need to scavenge for meals in dumpsters. You don’t have to make the Salvation Army thrift store you go-to spot for business suits, either.

But rather than crowing about landing that garage-door-sized big screen TV, maybe folks could boast about finding the best rates on CDs. Rather than trying to one-up each other with the latest combo cell phone-Swiss army knife, maybe they could flaunt the fact that they’ve learned how to save on life insurance, how to save on car insurance, or that they’re up on the latest mortgage or best savings account rates.

In pro sports, it’s said that the best trade is sometimes the one not made. Just as the best top-of-the-line, super luxury stainless steel kitchen range is the one not bought by someone whose culinary skills have never progressed much beyond making toast. Do yourself a favor, and starting living below your means.

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When it comes to planning for your financial future, inflation is a huge issue. In fact, given the historic annual inflation rate of 3.75% a million dollars today will be worth just over $190k in 50 years. Moreover, using that historic rate along with the rule of 72, we can further conclude that prices will double every 19.2 years.

CPI vs. the true cost of living

Of course, it’s also been argued that the true cost of living is increasing faster than the official inflation rate. One problem is that gas and groceries are omitted from the so-called “core inflation rate,” meaning that when food and fuel prices spike, this particular inflation indicator might not budge. For this and other reasons, it has been argued that official inflation estimates understate the true situation.

The motivations for underestimating inflation are obvious. Because numerous governmental programs, as well as estimates of “real” economic growth are indexed to inflation, the federal government can (at least in theory) save money and paint a rosier economic picture by understating inflation. I’m not going to wander of into the weeds and debate whether or not this is happening. Rather, I’m just pointing out the potential benefits of inflation manipulation.

Note: Just to clear up any confusion, inflation-indexed government programs typically use the CPI-U, which does include food and fuel prices. The point here was just that, for a variety of reasons, the various inflation estimated have been criticized as inaccurate, with a tendency to understate the real situation.

If inflation were to be understated, however, this would be a huge deal from an investor’s perspective. After all, if you think that inflation is running at X% and it’s really running at Y% (where Y > X), then you’re likely to fall well short of your goals – at least in real terms. The reason for this is that, even though your portfolio may be growing, the value of each dollar is shrinking faster than you expected.

Estimating inflation in the real world

With that as a backdrop, I wanted to point out an interesting website that I ran across this past weekend. It’s called The Billion Prices Project (BPP). The BPP is an academic project based at MIT which seeks to use prices collected at hundreds of online retailers to estimate a daily price index.

As of now, they are still well short of covering all of the goods and services that go into the CPI. If you click through and look at the graph, you’ll see that there is a rough correlation between the BPP index and the CPI. Since late 2009, however, it appears that the BPP index has been running ahead of the CPI.

Given the differences in what the two indices cover, it’s difficult to say if this difference is real, but this is (to me at least) a fascinating project with a lot of potential. It would be great if they can tweak the BPP to the point that it converges on the CPI. It would be especially nice to see a real-world calculation that includes the cost of fuel.

While fuel prices aren’t easy to come by online, and thus aren’t part of the BPP index, it seems like they could partner with a crowd-sourced database such as Fuelly (which I’ve written about before) to get real-time estimates of fuel prices from throughout the country.

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In case you haven’t heard, the House of Representatives voted yesterday to extend the Bush-era tax cuts into 2011, but only for individuals making less than $200k and married couples making less than $250k. The bill passed 234-188 with strong Democratic support.

Not only would income tax rates remain unchanged for those below the $200k/$250k thresholds, but those individuals would also retain a 15% tax rate on dividends and capital gains. At the high end, however, the top income tax rate would increase from 35% to 39.6%, with the capital gains rate increasing to 20% and dividends being taxed as ordinary income.

For their part, Senate Republicans have threatened to block nearly all legislation that comes their way until the tax cuts have been extended. It seems very unlikely, however, that this particular bill will make it through the Senate, as Republicans have vowed to filibuster anything that falls short of extending the tax cuts for everyone, regardless of income.

What do you think? Should the Bush tax cuts be allowed to expire? Extended for those below a certain income threshold? Or extended for everyone?

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Have you been paying more than you could probably get away with? Do you know that not everyone pays the same price for the same service that you received? How can you find the best deal for what you buy?

Price targeting is a tool that sellers often use, but if you’re aware of how it works, you can often get a better deal. The first question people ask when hearing about it is usually, “what exactly is price targeting?”

What is price targeting?

Price targeting is a method to get consumers to pay as close to their maximum price, when they decide to buy, as possible. Retailers love this approach because they can sell the same (or a very similar) product or service at different price points to different customers, thereby increasing revenue and profits. In essence, they’re trying to capture the so-called consumer surplus.

Why do they do this? Buyers are generally looking for the lowest price, and most consumers aren’t willing to tell the stores the most they’re willing to pay for an item. They’re looking to get a deal from the retailer, but their definition of a “good deal” is often subjective.

Price targeting in our lives

Organizations that use this method effectively include universities, coffee shops, and airlines. What’s the difference in education between in-state students and out-of-state students? Nothing, they share the same teachers, labs, and resources. Yet out-of-state students can pay 3x the price for the same education.

If you’re a high school senior or parents of college bound kids, check your state’s schools to if there are any high quality options. You could save quite a bit of money without sacrificing a solid education.

When you’re grabbing some coffee at the coffee shop, ask yourself if there’s a big difference between menu items. My husband spends around $2 for his Venti brewed coffee compared to my tall frappuccino for about $3.50 before taxes. Being aware of small things that like can help you decide what you’re willing to pay for and what you can cut back on.

And the next time you’re on a flight, take a look around yourself and realize that just about everyone paid a different price to be on your flight. These price fluctuations, along with subtle pricing difference between similar flight schedules, are meant to maximize revenue.

Take advantage of price targeting

How can you arm yourself and get a great deal? The big key is information. When more information is readily available, you have the power to make some more financially advantageous decisions.

Find out what other consumers are paying. Admittedly, you’re not going to be able to find that for everything, but the web has made it possible for you to get a tremendous amount of information. If you check out discussion forums in areas that interest you, there are usually people who are willing to share details related to deals that they’ve snagged.

Depending on the item you’re looking at, eBay can also be a helpful resource, as you can see what buyers are paying for at the auctions.

If you’re traveling, Better Bidding is a great resource finding out about successful bids on Priceline or Hotwire. That information can make all the difference between getting a good deal and getting a great deal.

When trying to find the bottom of the market when bidding on Priceline, we start by going low (usually half the best advertised priced) and then slowly increase our bid until it’s accepted – note that you can only re-bid on the same deal once every 24 hours, so give yourself time.

You can also use this principle for insurance quotes for yourself and your family. Use online resources to see what the major companies are offering and research the details on the policies. You may find that you can cut your bill drastically with a little legwork from home.

For those hunting for an apartment, rentometer can let you know the average prices for apartments in your designated area. Since housing is usually a big chunk of expenses for most people, you can save some considerable money here.

Your thoughts on price targeting

When I first discovered it, I thought this was a fascinating topic, and I’m sure you guys have some great ideas on it. Since some people are willing to pay more than others for certain goods or services, businesses would be foolish not to try to sell at multiple price points.

At the same time, if you want to cut costs, you can use price targeting to your advantage to get goods and services for significantly less than others are paying.

How about you? Are you aware of the practice of price targeting? What are your favorite tricks for cutting through the confusion and getting a great deal?

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The ultimate goal of QE2 is to pump more money into our financial system to avoid deflation. On Thursday, USA Today took a closer look at what this is likely to mean to you.

A weaker dollar

If the Fed starts circulating more dollars, then it stands to reason that each dollar with be worth less. If you’re a manufacturer, this is good news, as it makes US exports cheaper. Of course, a weak dollar also means that things like foreign oil imports may well end up costing more.

Low mortgage rates

Mortgage rates generally follow Treasury rates. Because the Fed is taking steps to keep Treasury rates low, mortgage rates are likewise expected to remain low.

Higher inflation

What’s the opposite of deflation? Inflation! As long as it doesn’t spiral out of control, inflation will lift stocks, though it will punish bond investors. It will also punish retirees, or anyone else living on a fixed income.

Low savings rates

As long as interest rates remain low, there won’t be much interest to be made by keeping your money in a savings account. In fact, these low rates may contribute to improved stock performance as people flee low yielding bonds and perhaps start investing money that they might otherwise leave in the bank.

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While there are clear signs that the economy is improving, it looks like it will be a long, slow recovery. Indeed, unemployment has continued to hover near 10%, and people are understandably antsy.

Which brings me to this… A poll asking about your personal employment outlook. As always, please feel free to leave a comment to add some context to your response.

Note: If you’re reading this via the RSS feed or e-mail, you may need to click through to the site to respond or see the results.

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At the time, I suggested that these sorts of fees are a one-way street in that they get added when times are tough, and they never go away. Well…

Here we are, over 1.5 years later. Gas prices are still in the mid-$2 range and there are still tons of businesses charging fuel surcharges. For example, we recently had our septic tank pumped, and guess what? When the bill showed up, they had included a $15 fuel surcharge.

Don’t get me wrong… I’m more than happy to pay someone to pump our septic tank, but a $15 fuel surcharge? Come on. If you’re having trouble making ends meet, just be honest and raise your prices. Enough with the nickel and dime surcharges!

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Since that time, the stock market has rebounded nicely, though it’s been a pretty rough ride over the past six weeks, and we’re still nowhere near pre-crash levels). At the same time, the Federal Reserve is reporting that all parts of the country are showing signs of economic growth.

At the same time, unemployment rates are still very high, and European economies have started sputtering. With these things in mind, today’s poll focuses on whether or not you guys think things are really getting better…

As always, please also feel free to chime in with a comment to add some context to or otherwise clarify your answer.

Note: If you’re reading this in the RSS feed, you might have to click through to participate and/or view the results.

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Under the terms of the Home Star program, retailers or contractors would provide an upfront discount to consumers and then submit documentation to a central processing office. Once approved, the request would then be forwarded to the Department of Energy for reimbursement.

Eligible upgrades

So what types of upgrades are eligible for “Cash-for-Caulkers” discounts? Essentially anything that blocks air intrusion, including sealants, foams, gaskets, weather stripping, etc. Attic and wall insulation are also eligible, assuming they live up to the standards outlined in the bill.

Window replacements are eligible if you replace at least eight windows, or a minimum of 75% of your exterior windows and skylights. Storm windows and window film sealants are also covered assuming they cover the majority of your windows. The bar is even lower for door replacements, as you only have to swap out one door to qualify for a rebate.

New furnaces and heat pumps are likewise covered as long as they meet specific energy-efficiency criteria. The same goes for air conditioners and water heaters.

Rebate details

Under the terms of the House bill, you can take advantage of the Home Star program in one of two ways. The “Silver Star” program would provide rebates totaling up to $3,000 for energy-efficient house retrofits, capped at 50% of the total project cost. Individual appliance being eligible for a $250 rebate.

The “Gold Star” program would provide homeowners with a rebate of up to $3,000 if they conduct a whole-house energy analysis and install upgrades that increase their overall energy-efficiency by at least 20%. Beyond this, they’d be eligible for an additional $1,000 rebate for each additional 5% efficiency improvement, up to a grand total of $8,000 in rebates.

Your thoughts

What do you think? Is the Cash-for-Caulkers program a good way to stimulate the construction industry? Will it succeed in making the United States a wee bit greener? Or is it just an overpriced stimulatory boondoggle?

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“Economic activity is stabilizing or improving in the vast majority of the country, according to a new government survey, adding to evidence that the worst recession since the 1930s is over.”

Apparently eleven of the Fed’s twelve regions have shown signs of economic stabilization. The lone outlier is the St. Louis region, in which the rate of decline in economic activity has decreased, but things are still in negative territory.

So, dear readers, what do you think? Are we on the road to recovery?

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We’ve decided to use the recession as a time to simplify our lives and build a better financial system for our family. What follows are some of the steps we’ve been taking to shore up our finances.

Seek additional income sources

If your emergency fund is small (or non-existent), or you simply feel a need to improve your safety net to protect against possible job loss, look for ways to generate extra income. You might be skeptical due to the high unemployment rate, but that doesn’t mean it can’t be done.

In order to succeed, you’ll need to think creatively and be willing to try something new. Consider the following…

• Get a part-time/temporary job, or do odd jobs. This option can be time-consuming, so be sure any opportunity that you pursue fits your existing work schedule.
• Sell used stuff on eBay. You can reduce clutter and raise some cash for yourself and your family.
• Look at your skills and freelance. I’ve personally found this to be a practical way of generating some income and beefing up my resume.

At a loss for specific ideas? Check out this list of ways to earn extra money.

Organize your finances

Now is the time to reduce your unnecessary expenses. Your goal should be to increase the difference between your income and expenses, thereby giving you the leeway to build a financial cushion. One great way to start is to simply create an automatic transfer that puts a bit of extra money into savings every pay period.

• Review your recurring expenses. If you’re paying a monthly fee for something that you’re not using, or not using enough, then get rid of it.
• See if you can reduce your bills. Start looking at your expenses to see if you can reduce any of them. You can often save money by negotiating your bills, even without reducing your service.
• Pay your bills on time. Having a good credit history can help you in a variety of areas, such as finding a job, saving money on insurance, reducing your interest rates, etc.
• Automate your bills. We automated our bill payments to save time and reduce late fees. Many banks and credit unions now have free online bill pay, so it’s cheap and easy.

Be careful with your credit cards

As convenient as they are, credit cards can be a dangerous thing. Don’t fall into the credit card trap when times are tight.

• Don’t use credit cards to make ends meet. You might be tempted to use your credit cards to get through tough times. Don’t do it. If you can’t afford something, then wait and save before spending.
• Get a better rate. If you carry a balance, call your credit card companies and ask them to reduce your interest rates and/or work on a doable payment plan.
• Review your monthly statements. Identity theft and other types of fraud are becoming more common, so be sure to look closely at your statements every month. You might also want to check your credit report.
• Keep your credit payments in check. If you’re unable to pay the minimum amount due, call your credit card company and talk to them about setting up an affordable plan.

Don’t rush to use government programs

With the Cash for Clunkers program and the First Time Homebuyers Tax Credit all over the news, you might be tempted to jump on the bandwagon. Don’t do it.

Instead of making a rash decision, carefully weigh the costs and ask yourself if this is something that you really need (and can afford). These programs can be a great deal for those who were already looking to buy, but they shouldn’t be used as a justification to buy.

Your thoughts?

What steps have you taken to solidify your finances in the face of the recession? Do you have any tips you can share?

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According to AP reports, nearly 23k vehicles had been sold under the program by late Wednesday, using up nearly $96M of the budget. However, many dealers have reported that large numbers of claims had yet to be processed by the government, thereby prompting the suspension.

According to Bailey Wood, spokesman for the National Automobile Dealers Association, “There’s a significant backlog of ‘cash for clunkers’ deals that make us question how much funding is still available in the program.”

For those that have taken advantage of this program, White House spokesman Robert Gibbs has gone on record that “all valid CARS transactions that have taken place to-date will be honored.”

Assuming that the money truly is exhausted, Congress is looking for ways to extend the program. Thus, it’s quite possible that it will be revived in the coming days. What do you think? Should it be brought back to life? Or should it stay dead?

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There’s always someone trying to find a silver lining when the skies are gloomy and gray. So it is with home foreclosures. Amidst all of the hand-wringing and sad tales of people who have lost their homes, there are those who see half-full glasses sitting on the counters of empty houses.

Some say that it’s time to buy these foreclosures. After all, properties that have been foreclosed upon are often sold by banks for a fraction of their full value. With the real estate market somewhere near its probable bottom, this is a good time to stock up on investment properties at a cut rate.

It’s enough to get a would-be real estate tycoon excited. And it does. Encouraged by those who advocating foreclosure purchases (and who are often selling guides or putting on seminars to teach you how), many novice players in the real estate field are gambling on bank-owned homes.

Is buying a foreclosure a good idea?

In some cases, it probably is a good idea to buy foreclosed properties. There are amazing bargains during a market downturn like the one we’re currently experiencing and there’s a strong probability that some of these cheap buys will turn into high-margin moneymakers for their owners within a year or two.

Those success stories, however, will be tempered with some very disturbing tales of woe. Buying a foreclosed home comes with a special set of risks and may not be an appropriate investment for those with little or no experience in the field.

Maintenance nightmares

There’s the question of upkeep, of course. This is a serious issue with foreclosure properties on multiple levels. First, by the very nature of the situation, you’re dealing with a property that was maintained by someone who was unable to make mortgage payments. It’s not a stretch to imagine that maintenance concerns weren’t addressed when the owner wasn’t able to make his or her payments.

Second, the banks who hold foreclosed property don’t have that old “pride in ownership” thing working for them. Banks are property managers and they often allow foreclosure properties to slip in terms of care and maintenance. By the time a home is “up to snuff” it may no longer be a bargain.

The ugly economy that has contributed to the rash of foreclosures we’ve seen adds another risk to the purchase process. Many homes are partially or completely gutted by owners during the foreclosure process in order to raise money.

There are homes in which floors have been completely removed, cabinets have been torn from the walls, and even kitchen sinks have been yanked out and sold. These owner-gutted properties often don’t turn out to be a great bargain after the new owners handle necessary renovation and repair.

Foreclosed homes are generally sold “as is”, meaning that the buyer assumes a great deal of risk in the transaction. An example of this is the story of a couple who bought a foreclosure only to discover that it had a serious mold problem. A lawsuit ensued, and this foray into foreclosure-land failed to turn into a profitable investment.

Look before you leap

If you’re a newcomer to the world of foreclosures, you might want to think twice before jumping in. If you’re convinced that you can find that perfect investment property, however, enter the arena with the right plan. Be careful, demand a full inspection prior to escrow, and consult with realty professionals who’ll help you to mitigate your risks.

It’s wonderful that some people will find that half-full glass on the kitchen counter of a foreclosure property. Unfortunately, too many buyers will learn that the kitchen counters, and maybe even the pipes beneath them, have been ripped out.

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A recent article in Forbes highlighted the lengths to which some states are going. They’ve been slashing budgets to the bone, but you can only cut so deep without compromising basic services. Thus, they’ve gotten creative when it comes to generating revenue.

Here are some of my favorites:

• California has proposed changing the date on state paychecks from June 30th to July 1st to “save” $1.2B (on paper) during the current fiscal year. It’s unclear what would happen next next fiscal year, when that $1.2B hits the balance sheets.
• Georgia lawmakers have proposed a “pole tax” — a $5 fee levied on strip club patrons. It didn’t pass.
• New York has proposed to put ads on garbage trucks and to institute an 18% tax on “sugary” drinks. The governor has approved a 46% increased in tobacco taxes and a 58% increase in wine taxes.
• An Oregon lawmaker proposed a $98 per ounce tax on medical marijuana, and even pushed to have the state do the growing. These measures never made it out of committee.
• A Michigan Senator introduced a bill to levy a $250 fee on strippers. The state might also agree to house California prisoners to make extra money, though it’s unclear to me how California would be able to pay.
• Nevada increased hotel taxes from 9% to 12%, and a Senator from Las Vegas has proposed a $5 tax on prostitute tricks. The latter measure didn’t pass. Even if it had, I’d think it would pretty tough to enforce.

Now… Just imagine what this list would look like if the Federal government wasn’t allowed to run a deficit!

Source: Forbes.com

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If you lose your job, hear rumors of layoffs at your company, or pick up just about any other indication that you job may be in jeopardy, you’re gut reaction may be to launch a job search. While doing so makes sense, you should direct some of your efforts to other areas, as well. In fact, you may even want to do this if your job is “secure” (whatever that means nowadays).

The nature of employment is changing, and you need to adjust with those changes. Three areas which should be at the center of your efforts going forward are skills development, networking, and pursuing opportunities.

Skills development

One disadvantage to having the same job for a long period of time is that your skill set can get rusty. The longer you’re with one employer, the more likely you are to have skills that are of value to just that one company. If you lose your job, that custom skill set can become excess baggage.

Start by inventorying the skills you have, including those that have gotten a bit stale from lack of use, and work on getting yourself back up to speed with them. At a minimum, make sure that you know what you know.

It’s also important to add in new skills whenever possible. While we should all be doing this all the time, life sometimes gets in the way. In an economy such as the one we’re now in, however, you need to make learning new skills a top priority.

If you’re currently employed, try to arrange your schedule to create regular blocks of time for this sort of learning. If you’re already unemployed (or under-employed), this effort is worthy of equal time alongside your job search efforts.

What kind of skills you need to develop will depend largely on what field you work in, or would like to enter in the near future. Some common skills include public speaking, HTML/web design, accounting, customer relations, general business software (Excel, PowerPoint, etc.), industry specific software, foreign languages, repairs, web marketing, and interviewing skills. Start by picking one or two, work to master them, and then add more over time.

Fortunately there are all kinds of how-to programs available on the web as well as at the bookstore. You can engage in self-study with a book, software system, or web download. All of these are relatively inexpensive, and you can do them on your own time. For more challenging skills, consider taking a class as a local community college. An alternative approach would be to work a part-time job that will allow you to hone your skills while you’re getting paid.

Remember… You don’t necessarily have to be an expert — just having working knowledge in a particular area can shift the job selection process in your favor.

Networking

Most of us are pretty good at networking within our own field, but it pays to get outside your usual network. Being active in networks that aren’t directly related to your own field can give you access to new opportunities, especially since your skill set will be somewhat unique amongst your peers.

Fortunately, the internet has made networking in virtually any career or business area easier than ever. There are thousands of blogs and forums covering just about any industry, and a large number of these are very welcoming to outsiders. You should also consider joining local network groups and/or general business networks, as face-to-face networking can be even more effective than joining web groups.

When interacting with others, be prepared to share your story and let other know what you’re looking for; in sales, this is called “asking for the order.” Just remember that networking works both ways. Be sure to offer support and relevant leads to others. After all, the more value you can offer, the more value you’ll receive.

Pursuing opportunities

Consider dropping the word “job” from your vocabulary, and replacing it with “opportunity.” After all, that’s what you’re really looking for.

What’s the difference? A job is typically a full-time, fully-benefited source of permanent employment that represents a clearly defined place on a company organizational chart. This version of employment is gradually disappearing, a trend that was developing even before the recession.

Nowadays, many employers are scaling back their employee benefits, including 401(k) plans and company paid health insurance. Many other employers have switched to the heavy use of contract employees. With traditional jobs disappearing, it’s to your advantage to seek opportunities whenever and wherever you might find them.

Be open to contract work, even if you’ve never done it before. Likewise, consider part-time work, partnerships, affiliate arrangements, and temporary situations. None of those are jobs per se, but all provide you with an opportunity to earn income, learn new skills, and develop valuable new contacts.

You might also consider the possibility of balancing two or more opportunities. For example, a contract arrangement combined with a credible business venture might get you back to the level of pay you’ve had in the past, even though you haven’t been able to find an equivalent job in your field.

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In simple terms, higher values reflect a relatively more free-spending society, with each dollar cycling through the economy more quickly. Lower values, on the other hand, indicate a relatively stingier society, in which each dollar circulates through the economy more slowly.

Wikipedia has a nice example of this… Consider the case of a very small economy consisting of a farmer and a mechanic, with just $50 between them. Further assume that, over the course of a year, they buy goods and services from each other as follows:

• Mechanic buys $40 of corn from farmer
• Farmer spends $50 on tractor repair
• Mechanic spends $10 on barn cats from farmer

Even though there is just $50 in play, $100 exchanged hands over the course of the year. This is because each dollar was spent twice, such that the velocity of money in this economy was two.

With that as a backdrop, I wanted to highlight a graph of the veolcity of money over the past 30 years that I ran across in a recent article in Forbes.

Notice anything unique about the very recent past? Of course you do. In late 2008, the velocity of money in the United States dropped by roughly 50%. In other words, due to a slowdown in lending, a decrease in consumer spending, and increase in the money supply, and so on, the typical dollar was spent just half as often as normal.

So… The answer to our economic problems is clear. Get out there and start spending! Take your money out of the bank, and go buy something. Anything. Just spend.

(I kid, I kid.)

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It’s no secret that our economy is cyclical. Whether you like it or not, there will be good times and times that couldn’t be possibly described as good. But it’s what happens in the not-so-good times that dictates how and when the economy recovers. Many mega-corporations have been at the epicenter of this meltdown, but it will be small business that brings us back.

Millions of people have been laid-off, and the fear of unemployment continues to be real. But if you dig a little deeper and try to understand the basics of business, then you will see some forgotten truths once again show their face. More importantly, though, you will see how the unemployed will actually drag us out of this financial quagmire.

Any time that you choose to have a conversation about money and/or commerce, then the discussion must begin with risk. Risk is the forgotten element. I’m not talking about market risk, which is where most people’s mind goes to. I’m talking about risk in its purest form. The essence of risk is that there is a possibility that something unwanted or unpleasant will happen. Yet it’s those people that take and manage risk that actually help create commerce. And when you have lost your job and you are unemployed, then your tolerance for risk is reset, and you are in a great position to take a calculated risk and start a new business.

The truth is that there aren’t a great deal of surplus jobs out there. In fact, there is a job shortage. Therefore, many people are forced into finding a way to make a living. Thousands of laid-off workers are starting their own businesses. If you think about it, almost all big businesses started out as small businesses. They began with an idea, and a person that was willing to take a risk. And when you are unemployed, and you don’t have much to risk, then you are in a great position to build something great. Our entire capitalistic system was built on ingenuity and risk-taking. Over time, however, the risks being taken have shifted primarily to big business.

There is a lot of upside for those people that have nothing to lose, and it will be their ability to look at risk a little differently that will pull us out of this recession. Competition is alive again. Price and service finally matter again. These factors all contribute to the inevitable success of small business. Remember, those that take the risk get the reward. And when you don’t have a lot to risk, then the reward is that much sweeter.

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Does anybody feel like the 2008 stock market crash has been one of the worst ever? Unfortunately, the crash in 2008 was the first collision and now 2009 just rear ended you when you thought the wreck was over. If you feel that the the market turmoils are like a severe car wreck, it leads us to wonder how to rehab our way back from such a serious injury.

As you may know, effective rehab is simple and repetitious. The improvements are almost imperceptible, and the real benefit is only recognizable in hindsight. It may take six, twelve, or even more months, but eventually that limp you had will be just a memory.

For those that feel like the recent market crash has left you with more than just a simple limp, here are some pointers that can keep you going as the market attempts to figure itself out.

Continue Funding Your IRA and 401(k)

Yes, I know that sounds insane considering how ugly the market is right now, but you have to have some faith in the U.S. economy. Just because I’m suggesting that you fund your retirement accounts doesn’t mean you have to put in all in the market. You will want to at least fund your retirement accounts to either get the 401(k) match or the tax free savings of the Roth. Even if it’s invested in bonds right now, you’ll be able to transition to stocks later on when you feel more comfortable.

Make Roth Conversions Now or in 2010

If you’ve been wanting to get money into a Roth IRA, now might the opportunity. If your AGI is below $100,000, you are able to convert traditional IRA’s and old 401k’s this year. If not, you’ll have to wait until the 2010 conversion event. Why is this time to do it? You’ll pay less tax on the conversion because most likely your account balances are down (whose isn’t, right?) and you’ll have less of a tax liability on the amount to convert. If you have to wait until 2010, the one upside is that you’ll be able to spread the tax over a two year period.

Diversify Asset Classes

Is diversifying really dead? There’s no question that even a well-diversified portfolio took a substantial hit over the past 6 months. But what about alternative asset classes? Managed futures returned double digit gains last year, showing that only do we need to diversify with stock and bonds, but we also need to consider non-correlated assets. One thing that you must consider is that although alternative assets classes can reduce risk in a portfolio, that doesn’t mean they decreases volatility (ups and downs of the market). That’s a common misconception with most investors that needs to be known.

Review Your Retirement Plan

Face it, things change and you have to adapt and overcome. If you had a well thought out retirement plan last year, it needs to be revisited. A lot has changed in a short amount of time and you need to act accordingly. It’s not time to panic, but you need to be proactive in what is going on around you. Don’t let an opportunity pass you by that could make a serious impact to your retirement plan.

Put Money to Work

I know that this seems almost impossible nowadays. The stock market loses a hundred points every other day it seems and savings account interest rates are dropping just as fast. But even still, there are opportunities to take advantage of.

If your 401(k) has a match, keep contributing and get your free money. If you have a credit card with a 8.9% APR (just as an example), pay it off and you just made 8.9% on your money. Maybe you have a significant amount in your checking or savings accounts and you’re only earning 0.25% (yes, I’ve seen it that low). If so, consider moving your money to an online savings account (just make sure that they are FDIC insured). It may only pay you 2%, but you’ve still increased your payout by 8 times.

It all sounds simple, but these are the kinds of simple things that we can do to get ourselves back on the road to financial health. What about you? What are you doing to recover from the crash?

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1. Don’t panic — assess where you stand

When you lose your job, you should try to remain as calm as you can and see exactly what the situation is. Ask yourself:

• How much money do we have in the bank?
• How much are our monthly bills?
• How much am I receiving for severance?
• What do we need to modify in the budget?

2. Update your friends and family about the situation

You may feel embarrassed or ashamed by what happened. Do not let that negative thinking stop you from getting emotional support. Ask your network to please keep their eyes and ears open for any employment opportunities that they might hear about.

You should also ask your family to help you come up with ideas to earn extra money and/or decrease your expenses. Having everyone on the same page will allow you to work through this challenge together as a family.

3. Open your mind to different jobs

You need to cast a wide net, so don’t just look for jobs exactly like your last one. Being too focused on one particular job may decrease your chances of finding work. You might also consider taking on part-time work to keep you from hemorrhaging financially. Until you find a suitable job, working part time can generate income and provide you with a schedule that allows you to go on job interviews.

4. Update your budget

At this point you should try to focus on cutting any nonessential expense from your budget. Living within your means is going to be tougher as you make this transition. Update your budget with the new income amount and see where you can adjust accordingly.

If you can’t pay all your bills, then prioritize where your money goes. First and foremost, your money should go to housing and food. Utilities such as electricity are also important so focus on those next. You should also give priority to medical bills and expenses when updating your budget.

5. Stay away from credit cards

You might be tempted to put your expenses on a credit card until you can find a job. Don’t do it. Credit cards should be a last resort. Instead, see if you qualify for any sort of government assistance to help make ends meet.

This could mean filing for unemployment or applying for state insurance. Remember, this is only temporary — you’ll eventually get out of this predicament. Relying on credit cards can put you in an even deeper hold given the high interest rates and fees associated with them.

Now it’s your turn…

Losing a job can be a very painful experience, especially if you have a family. Remember, you can’t do this alone. Rather, you should seek the help of others when getting back on your feet.

Do you have any tips for dealing with job loss? What’s the most important step?

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Sure, you could argue that these states (or at least California and Florida) are quite large, and thus account for a disproportionate number of housing units, rendering these numbers meaningless, but consider this… California accounts for just 10% of the nation’s housing units, but it had 34% of the foreclosures in 2008.

You might also argue that expressing this in terms of dollar losses as opposed to actual foreclosures tends to skew things a bit. For example, the median home value in California in 2007 was 8.3x the median income, whereas the median home value nationally was just 3.2x the median income. In other words, prices had farther to fall in California than elsewhere, so perhaps the dollar amounts are inflated.

Looking at the raw numbers, however, reveals that these four states still account for a disproportionate number of actual foreclosures. In fact, there were just over 2.3M properties foreclosed on nationwide during 2008, with nearly half of these (just over 1.1M) happening in these four states alone.

This kind of puts things in perspective, doesn’t it? Sure, there are still other locales that are really hurting, and the housing market sucks in general, but the foreclosure crisis doesn’t appear to be nearly as widespread as the media would have us believe.

Hat tip: Reason.com

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“We could always say that the market will do this or that based on history. But based on what is going on now and the conditions we are in, is that history valuable?”

While I understand where Neal is coming from, I’m always hesitant to jump on board when people claim that the rules have changed. Remember the late 1990s, when stock prices just keep going up, up, up as we approached the pinnacle of the dot com boom?

The pundits told us that the rules had changed, that the old view of stock valuations no longer held, but… We all know what happened next. The bubble burst and things came crashing back down to Earth. The old rules held.

So, dear readers, what do you think? Given recent events, have the rules changed? Are we witnessing a paradigm shift, or is this just another blip?

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What is a Recession?

According to Wikipedia, a recession is “a decline in a country’s gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year. Some economists prefer a more robust definition of a 1.5% rise in unemployment within 12 months.” Whichever definition you prefer, we’re living it.

Since 1854, we’ve had 32 cycles of economic expansion and contraction, with an average of 38 months per expansion and 17 months per contraction. Since 1980, however, there have only been eight period of negative economic growth that have lasted for one fiscal quarter or longer, and just four of those have been recessions. In the early 1980s, we had a 17 month recession, in the early 1990s we had an nine month recession, in 2001 we had another nine month recession, and now this.

When Will the Recession End?

While there are no concrete answers as to when the current recession will end, a recent survey of leading economists has provided some insight into what we might expect. According to the survey, which was conducted by the National Association of Business Economics, the recession is expected to worsen during the first half of 2009. However, things will start to look up in the second half of 2009, and we should see a solid recovery in 2010.

Are they right? Only time will tell. But it’s worth noting that data from the New York Fed are likewise pointing to an end of the recession sometime during the middle of this year. Keep your fingers crossed.

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In hopes of answering a few FAQs, here are some tidbits from the instructions:

Who Can Claim the Credit

In general, you can claim this credit if you purchased you main home located in the United States after April 8, 2008, and before December 1, 2009 and you (and/or your spouse if you are married) did not own any other main home during the 3-year period ending on the date of purchase. If you build a home, you are assumed to have purchased it on the first day that you occupied it.

Who Cannot Claim the Credit

You cannot claim the credit if your modified adjusted gross income (MAGI) is $95k or more ($170k or more for married filing jointly). You are also excluded if you are a non-resident alien, your home is located outside the United States, you acquired the home gift or inheritance, or you purchased it from a related person. There are also a few other somewhat esoteric exclusion, so be sure to read the form carefully.

Details of the Credit

For homes purchased in 2008… The credit will still be little more than an interest-free loan which will have to be paid back in 15 equal installments starting in 2010. If your home ceases to be your main home before the 15 years is up, you’ll have to pay back the balance in the year in which you move.

For homes purchased in 2009… The repayment requirement is waived as long as it’s your main home for the 36 month period beginning on the purchase date. If your home ceases to be your main home within that 36 month period, you’ll have to pay back the credit in the year in which that happens. There are some exceptions, so be sure to read the instructions carefully.

The amount of the credit is the smaller of $7500 ($8000 for homes purchased in 2009) or 10% of the purchase price of the home. You get the full amount if your MAGI is less than $75k ($150k for married filing jointly). The credit is gradually phased out from $75k-$95k ($150k-$170k for married filing jointly).

What This Means for You

If you’re using a tax pro, make sure they’re up to speed on these changes. They should be, but you can never be too careful. If you’re using tax prep software such as TurboTax or TaxCut, be sure to download any updates (the online versions should be automatically updated). If you do your taxes by hand, be sure to download and use the latest version of IRS Form 5405.

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“Making Work Pay” Credit

While you won’t be getting a stimulus check, individuals earning less than $75k/year (and couples earning less than $150k per year) qualify for a $400 per individual ($800 per couple) tax credit. This credit will be doled out in the form of reduced withholding increasing your take home pay by an estimated $8-$13 per week. Social Security recipients who don’t qualify because they don’t work will receive a one-time $250 payment.

First-Time Homebuyer Credit

I’ve written about this extensively over the past few weeks, so it should come as no surprise that the stimulus package includes an $8,000 tax credit for first-time homebuyers. This credit is available to first-time homebuyers that purchase a home between January 1st 2009 and November 30th, 2009. This is a refundable tax credit that is phased out for individuals with AGI of $75k or higher and couples with AGI of $150k or higher.

Alternative Minimum Tax Relief

This is a bit of a red herring, as the Alternative Minimum Tax (AMT) would’ve undoubtedly been patched sometime this year whether or not it was included in the the stimulus package. Nonetheless, the fix is in, and a number of “middle income” taxpayers that otherwise might have been snagged will instead escape the evil clutches of the AMT.

Education Tax Credits

The “American Opportunity” education tax credit will take the place of the Hope Credit in 2009/2010. This credit, which is available for the first four years following high school graduation, covers up to $2,500 in tuition and related costs per year (including school-related book and computer purchases). This credit phases out for single taxpayers with AGI of $80k-$90k and married taxpayers with AGI of $160k-$180k.

Earned Income and Child Tax Credits

The Earned Income Credit (EIC) will be temporarily expanded for families with three or more children. The $1,000 Child Tax Credit will also be extended to additional low-income families.

Unemployment Tax Break

Individuals receiving unemployment benefits in 2009 won’t have to pay federal income tax on the first $2400 that they receive. Moreover, unemployment benefits will increase by $25/week and will also last longer. There will also be a 65% subsidy of health insurance premiums for the unemployed under the COBRA program.

Sales Tax Deduction for Vehicle Purchases

Individual tax payers with an AGI of less than $125k ($250k for joint filers) will be able to deduct state, local, and excise taxes on the purchase of a new car or truck in 2009 even if they don’t itemize. This deduction applies to the taxes paid on the first $49,500 of the vehicle’s purchase price.

Energy Incentives

Purchasers of plug-in hybrid vehicles can qualify for a tax credit of as much as $9,100. In addition, there will be a number of incentives for individuals who make energy-efficient home improvements.

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Okay, details regarding the House/Senate compromise on the economic stimulus package are starting to come out. As I noted yesterday, the Senate’s $15,000 homebuyer tax credit has been stripped from the final version. In it’s place is an $8,000 tax credit for first-time homebuyers. Note that this credit does not need to be paid back, unlike the original $7,500 first-time homebuyer tax credit. To qualify, the purchase has to be made between January 1st, 2009 and before November 30th, 2009 and you have to stay in your home for three years. This is a refundable tax credit, and it’s phased out for individuals with AGI of $75k or higher or couples with AGI of $150k or higher.

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Working to accommodate the new, lower overall limit of the bill, negotiators effectively wiped out a Senate-passed provision for a new $15,000 tax credit to defray the cost of buying a home…

There aren’t a lot of details yet, but it looks like they’ll be falling back to the $7,500 house version of this credit (presumably with no repayment requirement, but only available to first-time homebuyers).

Update: Looks like it will be an $8,000 tax credit for first-time homebuyers.

Source: Yahoo! News

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The “Recovery Rebate Credit” is a one-time tax credit that’s intended to make up for the unpaid portion of your stimulus payment if (and only if) you received less than you were due. Viewed another way, the stimulus checks that were sent out last year were simply a prepayment of this credit, such that you may not qualify for any additional payment at this time. Confused? Read on.

Eligibility for the Recovery Rebate Credit

If you fall into one of the following categories, you may be eligible for the credit:

• Individuals who did not receive a stimulus check
• Individuals who received less than the maximum amount
• Families that gained a qualifying child during 2008
• Individuals that were claimed as a dependent on someone else’s return in 2007, but not in 2008
• Individuals who did not have a valid Social Security number in 2007, but received on in 2008

Note that membership in one of these groups does not necessarily qualify you for this tax credit. Keep reading to learn how you can determine the amount of your Recovery Rebate Credit (if any).

Claiming the Recovery Rebate Credit

The Recovery Rebate Credit can be claimed IRS Form 1040, 1040A, or 1040EZ. Note that the instructions for all three forms include a worksheet to help you calculate the total credit that you are due for tax year 2008. Once you have this number in hand, simply subtract from it the amount of your stimulus check (if you received one). If you can’t recall how much you received, you can look it up on the IRS website.

Still with me? Good. If you do this and you wind up with a positive number, then you can claim a credit for this amount. The instructions for your particular tax form will tell you where to enter this amount. If you wind up with zero or a negative number, you won’t be receiving an additional credit. The good news here is that you won’t have to pay back any overage if you received too much in the first place.

If you don’t wish to run these calculations yourself, you can simply enter “RRC” on the appropriate line on your tax form and the IRS will figure the credit for you. Alternatively, if you’re using tax prep software, the necessary values should be automatically figured for you.

Avoiding Errors

The IRS has reported that upwards of 15% of returns that have been filed thus far have errors when it comes to the Recovery Rebate Credit. Thus, they have published some tips for avoiding problems. In general, they say that:

Some tax returns erroneously claim the credit, do not claim the proper amount of recovery rebate credit or mistakenly enter the amount of the stimulus payment they received on the recovery rebate credit line.

To avoid delays in tax refunds, it is critical that taxpayers know the correct amount of the stimulus payment they received last year, if any, to help determine whether they qualify for the recovery rebate credit now.

The amount of the stimulus payment will not be entered directly on the tax return. For people using a paper tax return, the stimulus payment amount will be required when completing a related worksheet. For people using tax software, the stimulus payment amount will be needed as part of the return preparation process.

The amount of your stimulus payment will be noted on Notice 1378, which the IRS mailed to everyone that received a stimulus payment last year. Alternatively, as noted above, you can lookup the amount of your stimulus check on the IRS website. If neither of these work for you, then you can call the IRS at 1-866-234-2942 and ask them how much you got.

Note that, for most filers, the correct value for this credit will be zero, as most taxpayers received what they were due in the form of their stimulus payment. Once again, if you are unsure how to proceed, you can always let the IRS calculate the amount of the credit for you.

More details: IRS.gov

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Update: From Isakson’s press release:

Specifically, Isakson’s amendment to the pending economic stimulus bill would provide a direct tax credit to any homebuyer who purchases any home. The amount of the tax credit would be $15,000 or 10 percent of the purchase price, whichever is less. Purchases must be made within one year of the legislation’s enactment, and the tax credit would not have to be repaid.

The amendment would allow taxpayers to claim the credit on their 2008 income tax return. It also seeks to prevent misuse by only allowing purchases of a principle residence and by recapturing the credit if the home is sold within two years of purchase. The amendment would sunset the current $7,500 housing tax credit on the date of enactment.

So… It sounds like that people who already bought might be out of luck. This reads like they’ll be subject to the rules that were in place when they bought. It’s still possible, of course, that the repayment requirement on the $7500 tax credit will be waived. Of course, none of this means anything until it’s actually signed into law.

Update: The Senate version of the $15,000 homebuyer credit has been removed from the stimulus package.

Update: Looks like it will be an $8,000 tax credit for first-time homebuyers.

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Why the Sudden Interest?

I’m guessing that recent interest in this topic has been driven by publicity surrounding the forthcoming economic stimulus package. Prior to that, President Obama (at the time, Candidate Obama) mentioned the possibility of a second round of checks while campaigning back in July, and Fed Chairman Bernanke lent his support to another stimulus check (among other things) back in October.

Will There be a Second Stimulus Check?

As it turns out, there’s no mention of stimulus checks of any sort in the “American Recovery and Reinvestment Plan” (that’s the official name of the forthcoming stimulus bill). Beyond that, I asked my Magic 8 Ball if there will be a second check, and the response that I got was “OUTLOOK NOT SO GOOD.”

Okay, okay… I’m lying about the Magic 8 Ball, but it seems that the underlying message is on point. As of right now, there’s no evidence to suggest that a second stimulus check is on the way.

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According to the press release, the package contains $275 billion in economic recovery tax cuts and $550 billion in “thoughtful and carefully targeted priority investments with unprecedented accountability measures built in.” The efforts are targeted to areas such as:

• Clean, efficient, American energy
• Transforming our economy with science & technology
• Modernizing roads, bridges, transit, and waterways
• Education for the 21st Century
• Tax cuts to make work pay and create jobs
• Lowering healthcare costs
• Helping workers hurt by the economy
• Saving public sector jobs and protecting vital services

While I realize that $825,000,000,000 is a lot of money, I was still taken aback when I saw that the “Executive Summary” of this plan spans 12 jam-packed, typewritten pages. Given the number of zeroes involved, I probably shouldn’t have been surprised, but I was. It’s also worth noting that there’s no mention of a second stimulus check.

Anyway, I encourage you to at least skim over the summary and to share your thoughts. I’m guessing that I’m not the only one having trouble getting my head around the implications of all of this. I’ll say this much… At least it looks like they have a plan, which is more than I can say for the original bailout package.

Update: A visual representation of the proposed spending. Thanks Brack!

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“Refundable first-time home buyer credit. Last year, Congress provided taxpayers with a refundable tax credit that was equivalent to an interest-free loan equal to 10 percent of the purchase of a home (up to $7,500) by first-time home buyers. The provision applies to homes purchased on or after April 9, 2008 and before July 1, 2009. Taxpayers receiving this tax credit are currently required to repay any amount received under this provision back to the government over 15 years in equal installments, or, if earlier, when the home is sold. The credit phases out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 in the case of a joint return). The bill would eliminate the repayment obligation for taxpayers that purchase homes after January 1, 2009. The provision would retain the credit recapture if the house is sold within three years of purchase. This proposal is estimated to cost $2.562 billion over 10 years.”

As frustrating and unfair as this change will seem to people that took advantage of the credit in 2008, the limitation of this change to 2009 actually makes sense. After all, the goal is to get people to go out and buy houses, which means that people that have already taken the plunge aren’t the target audience.

Thanks to Ross for digging this up!

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We are debating about whether or not to take the $7500 from the government for being first time home owners. In 2 years, we will have to start paying “them” back $500 for the next 15 years. If we were to sell our house in that time and not make a profit, the debt would be forgiven. I’m not sure I want to owe anyone anything, but hubby thinks of it as an interest free loan… What’s your take on this?

Oddly enough, I was in the process of writing about the first time homebuyer credit when her question rolled in. Weird. Anyway…

The First Time Homebuyer Tax Credit

When it was first proposed in the “Housing Rescue Bill,” the first time homebuyer tax credit was, as Heather noted, little more than an interest free loan (more on this below).

According to IRS guidance, the credit:

• Applies to homes purchased after April 8, 2008 and before July 1, 2009
• Reduced a taxpayer’s tax bill or increases their refund dollar-for-dollar
• Is fully refundable, meaning that you can get it even if you owe not taxes

The amount of the credit is 10% of the purchase price of the home in question, up to a maximum of $7,500 for single taxpayers, or married couples filing jointly. There are, however, a couple of catches…

For starters, the credit is phased out based on your modified adjusted gross income (MAGI). For married couples filing jointly, the credit phases out between $150k-$170k. For all others, the phase out range is $75k-$95k.

The other problem is that it’s not really a credit. Rather, this “credit” has to be paid back in equal installments over the next 15 years along with your taxes. Not such a great credit anymore, huh?

That’s the bad news. The good news is that changes may be afoot…

Conversion to a True Credit?

House Democrats recently outlined their $835 billion economic stimulus package, and one of the things that they’re hoping to do is make the homebuyer tax credit a true credit — with no repayment necessary. Of course, this is still subject to negotiations between the House and Senate, and to passage of the economic stimulus package itself, but…

If it happens, buyers who qualified for the credit in 2008, or those who do so in 2009, will be relieved of the repayment requirement. Is this enough to make you go out and buy a house? Probably not. But if you’re buying one anyway, be sure to take advantage.

Update: The Senate just passed an amendment to the stimulus bill that would create a $15,000 tax credit with no repayment requirement. Moreover, it would be available to all purchasers, not just first-time homebuyers.

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“…we need an American Recovery and Reinvestment Plan that not only creates jobs in the short-term but spurs economic growth and competitiveness in the long-term. And this plan must be designed in a new way—we can’t just fall into the old Washington habit of throwing money at the problem. We must make strategic investments that will serve as a down payment on our long-term economic future. We must demand vigorous oversight and strict accountability for achieving results. And we must restore fiscal responsibility and make the tough choices so that as the economy recovers, the deficit starts to come down. That is how we will achieve the number one goal of my plan—which is to create three million new jobs, more than eighty percent of them in the private sector.”

So… It appears that the primary focus will be on job creation. Another major focus (not mentioned in the above snippet) is reducing dependence on foreign oil. Both of these are laudable goals, but how will we achieve them?

Here’s a list of initiatives that he’s proposing:

• Doubling of renewable energy production
• Renovation of public buildings to make them more energy efficient
• Rebuilding of American infrastructure (roads, bridges, and schools)
• Updating and computerizing our healthcare system
• Modernizing classrooms, labs, and libraries
• Providing “direct tax relief” to 95% of American workers

Taken together, the components of this plan are estimated (by Obama’s advisors) to cost somewhere between $675 billion and $775 billion, though other expect the costs to be closer to $1 trillion. It’ll be interesting to see how much pork gets piled on top while these things are making their way through Congress. Note that there’s no mention of a second stimulus check.

If you’re interested in seeing his address firsthand, here’s the video:

Source: Change.gov

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If you don’t laugh, you’ll cry. Enjoy!

Source: Buffalo Beast

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It’ll be interesting to see what this does to interest rates for online savings accounts. Once again, now might be a good time to consider buying CDs before banks drop their rates.

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Source: Yahoo! News

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Health Care

The health care industry is expanding rapidly as our population ages. Jobs with particularly stable prospects include doctors, nurses, pharmacists, physical therapists, and physician’s assistants. For those without a 4-year degree,

Education

Teachers in high-demand fields such as math, science, or bilingual education should have a relatively easy time finding and keeping a job, especially in high-growth areas of the country. College enrollment is also on the rise, which is good news for college instructors.

Security

Layoffs in this industry are rare, meaning that police officers, detectives, private security guards, and other types of security workers have very stable job prospects. And even if you do lose your job in one of these areas, it will be relatively easy to find a new position regardless of the economic climate.

Environmental Sciences

The Bureau of Labor Statistics expects opportunities in environmental careers, including positions for ecologists, hydrologists, and environmental chemists, to grow 25% over the next decade, well ahead of the average for other fields.

Government

Firings and layoffs are much rarer in the federal government that in other sectors of the job market. Even when the economy hits the skids, the government doesn’t typically downsize.

Other Options

For those without a four-year degree, look for jobs that can’t easily be outsourced. In the health care industry, jobs as a health aid, or medical or dental assistant are solid bets. Becoming an electrician or mechanic are also solid choices.

Source: Kiplinger.com

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…a peak in economic activity occurred in the U.S. economy in December 2007. The peak marks the end of the expansion that began in November 2001 and the beginning of a recession. The expansion lasted 73 months; the previous expansion of the 1990s lasted 120 months… A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion.

The Wall Street Journal notes that, if the recession lasts beyond April 2009, it will be the longest recession since the Great Depression. The 1990-1991 and 2000-2001 economic downturns lasted 8 months apiece, and the major downturns in the 1970s and 1980s lasted 16 months apiece. The good news is that we’re already 12 months in, so hopefully things will start looking up soon. Until then, I hope you have a recession-proof job.

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This increase seems particularly significant given that a recent Gallup poll indicated that shoppers expected to spend 29% less this year. Of course, there are no guarantees that a better than expected Black Friday will translate into a strong holiday shopping season overall. All of this begs the question…

Is the economy really doing better than we’ve been led to believe? Or are people simply blowing their cash early in search of the hottest deals, only to tighten their belts as Christmas draws nearer. Another factor to consider is that there are only 27 shopping days between Black Friday and Christmas this year compared to 32 in 2007. Perhaps the shorter shopping season has kicked shoppers into high gear.

What about you?

Are you cutting back this year? Or is it business as usual?

Hat Tip: NoCreditNeeded

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According to Senate Majority Leader Harry Reid, the larger plan was slated to include unemployment benefits, auto industry help, aid to states and a large increase in infrastructure spending. The total package would have cost $61B to $150B. There was no mention of a second stimulus check.

Source: Mercury News

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On whether or not the US can maintain its position as a global economic leader…

Yes. There’ll probably be an evening out of the wealth somewhat. But I still think that the United States has so much momentum going for it. If we do the right things, there’s no reason we shoudln’t still be the global leader economically. You know, we had a great run on borrowed money for 30 or 40 years, but you can only go so long living beyond your means. And that’s what we’ve been doing.

On the $700 billion bailout plan…

When I was running CNN we never had any money and I never asked for a bailout. Where does it end? AIG, you know, they need $40 billion more and we only have them $100 billion last week, didn’t we? It’s just ridiculous. And now General Motors. They said we’re goin to give them $25 billion to retool. Retool what? They’ll run through that money so fast they’ll be back wanting more. We can’t keep every loser alive.

On whether or not “immense” wealth brings peace of mind…

When I did have it, I gave over half of it away. I lost 85%. And I’ve lost 12% of what was left in the last couple of months. But I never worshipped money. I started middle class. I didn’t finish college because I couldn’t afford to. I didn’t really have it for very long, because I made it real fast when CNN turned the corner, and that’s when I gave much of it away. Then right after that we did the AOL merger and it went down the toilet.

As far as our current economic woes go, I think he nailed it on the head. We’ve been living well beyond our means, and we’re just now starting pay the piper. As for the bailout, I likewise share his sentiment. It’s incredibly maddening to be put in the position off having to bailout bad businesses simply because their collapse would have catastrophic effects. What good will a bailout of GM do? While it would be nice if they turned the corner, it’s more likely that this will amount to little more than an expensive stay of execution.

In case you’re interested, Time.com has a full transcript of the interview, and AOL has the video.

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