Sushi Money

Disheartening.  Among other things.  It seems that the government intends to punish those who would work hard to build and achieve in life while rewarding those who do not.  It seems we are intent on rewarding failure, or the status quo, and punishing success.

It is shocking to consider that the new administration has proposed more spending in the past six weeks, than all other U.S. government spending from the founding of the country to January of this year.  Some of this spending may indeed do great things.  Yet most of this spending is money that we and our children’s children will long carry the burden for.   We call it spending, but it’s really borrowing.

Is all of this spending and new legislation really designed to fix the economy over the short term?  Or is it something more, something greater- a design or framework of spending established to foster a new political structure for the future?    It doesn’t seem that the stock market has any degree of confidence over the direction of government policies and support for free enterprise.  The past couple of months have seen nothing but great uncertainty and fear. 

The stock market has lost 25% since the beginning of the year… 3,000 points since the November ‘08 elections!  And the President is running out of people to blame.

“What is new is the unveiling of Mr. Obama’s agenda and his approach to governance. Every new President has a finite stock of capital — financial and political — to deploy, and amid recession Mr. Obama has more than most. But one negative revelation has been the way he has chosen to spend his scarce resources on income transfers rather than growth promotion. Most of his “stimulus” spending was devoted to social programs, rather than public works, and nearly all of the tax cuts were devoted to income maintenance rather than to improving incentives to work or invest.”

Incentives to work or invest… that, coupled with hard-working people, is what has made America great, through a framework of capitalism under the umbrella of freedom and liberty to pursue one’s dreams.  That is why people have always seen America as the Land of Opportunity.  How do we foster business growth and entreprenuership, hence jobs, profit and spending, when we become the Land of Income Transfer and Social Programs?   Ultimately we would become a wasteland of mediocrity.  

Would you buy a home or even want to live somewhere that didn’t have the structural vibrancy of free enterprise to support the citizen’s needs?  Where business failed and crime became rampant?  Where people were leaving in droves because there was no reason to stay? Look around… there’s a city or two across the nation well on their way to that eventuality.   What does that say about the path for our nation?

In very specific language for example, the pending legislation on the budget reduces taxable deductions for charity and mortgages for those making $200,000 (individual) or $250,000 (family)  per year.  To be perfectly candid, I do not make that much money each year.  But I know many people who do… and they are not rich. 

Certainly they live more comfortably than someone making $35,000 per year, especially with a family.   But most of these are people who have also worked incredibly hard in life becoming educated, growing a business, or taking risks in order to provide a home for their family and often a business in a small community.  And we are increasing taxes in key areas that may dissuade these people from giving to charity or deducting interest expenses on their home mortgage.  Those extra tax dollars they pay will need to come from somewhere- for a business, maybe one less employee.

Will this legislation help charities?  Will it help support home sales across the nation?   Maybe you believe the taxes are too low to really matter, and these folks can afford it.  Well they probably can afford it, but it doesn’t change the fact that they will be paying more money to the government who in turn will be redistributing it to people, or institutions, who can’t.  Some folks think that’s a good thing, and it’s only for a short while. Let’s hope so, because it cannot last.   

It’s not just those making a lot of money who will pay of course.  We will all pay. More importantly, who will finance this tidal wave of income transfer and spending?  We, the people, will.  Those who work the hardest to grow and achieve things in life.  Taking things away from achievers and giving it to those who are not is simply unsustainable.

So the market has dropped about 50% from its 2007 highs, and nearly 25% across the board from the November 2008 elections.  We’re in a heck of a recession and everyone’s throwing in the towel.  Seriously, people are running for the hills, buying gold and stuffing the mattress with the rest of their money.  

Have you been along for the downward ride the whole time?  Most folks with mutual funds and employer retirement funds have.  Buy and hold was the mantra that worked for many years… but it didn’t help over the past six months at all.  Diversification is the other mantra we hear about.  That didn’t help much at all in late 2008, but diversification has helped people this year, somewhat.  And yet on days like today, February 23rd, when the market sells off 250 points on the Dow, it’s just a mess across the board.

Is it time to bail out, give up and save what cash you have left?  If you’ve ridden the market down this far, I think the answer is no… it’s not the time to sell.  Why?  Because you’ll probably be selling close to the bottom somewhere.

Oh, that doesn’t matter to you anymore?  Well then fine, go ahead and sell.  Especially if you need the money. But if you’re redeeming that 401(k) or IRA to get to the cash, don’t forget about possible penalties and taxes you may have to pay.   Seriously- think hard about your employment status and if you can afford to keep the money there.  

Nobody knows when the market will stabilize or better yet when it may begin to recover.  But it will- eventually.  The problem is folks are downright scared by this recession.   I’ll admit straight up I’m worried too- but more about the direction of the nation itself.  I know the current administration and Congress are doing what they think is necessary to get us back on track, but it doesn’t inspire a lot of confidence.

The stimulus package doesn’t do a heck of a lot towards short-term immediate help.  What they tried to build into it was some help, and even more about a strong wind of political spending for years to come.   People are wondering what is going to help change the short term- what’s going to get us back on track?  Some folks think we’re moving fast toward socialism… I don’t know about that, but it bothers me to see so much government involvement in the free market.

“When the government has its dirty little fingers on vital elements of our economy, it has its hands around the throat of capitalism itself, and it’s squeezing hard…”   Glenn Beck

Personally I think the market panic has more to due with consumer confidence and faith in our financial system than any other thing.  Without it, we have no legs to stand upon and people are scared to death about how to plan for the future.  How can anyone invest confidently if they think the market is full of crooks and that the government is going to continue taking over institutions?

Honestly, with the President and Speaker of the House running around preaching crisis and disaster the past two months, is that really helping Americans look towards a positive future for the nation?  No.  It’s time for leadership and standing tall, regardless of the institutions or business sectors that you like or don’t like.  We can’t be pulling the rug out from under business and at the same time hope that they will prosper, hence that the market and employment will grow. 

One of the provisions of the stimulus bill helps the unemployed get an extension on COBRA coverage.  If someone has been laid off as far back as September ‘08 for example, it looks like they can get an extension for another year.  COBRA health coverage is very expensive, and the stimulus now requires employers to pay for 65% of that COBRA coverage- for all the employees laid off who choose it.  That may be doable for larger corporations, but it’s a heck of cost for a small company.  Will the government pay them back for providing those funds for former employees?  Probably, a little at a time over the next few years in the form of tax credits.  It’s great that those unemployed can get the help, but it seems a little heavy handed in terms of government mandates.

But the business cycle will return eventually.  People will save money and begin to spend again at some point.  Employment numbers will pick up and profits will begin to grow again.   It may not be for another year or more, but it’ll come.  And when that happens I’m going to be invested and ready to go. 

Some people believe this is the buying opportunity of a lifetime.  A lot of us thought that was true a thousand points ago on the Dow.   They may be right… if I had some extra cash to invest there’s some great companies out there right now.   Smart people with smart money are picking and choosing the best of them.

Okay, time’s up.  Raise your hand if you’re a supporter of the bailout, or the stimulus… at least to the degree that it once was?  The hands are becoming fewer as the bailout and stimulus have currently been shaped.  In fact, it’s hard to decide what to really support with the current stimulus debate, other than a strong desire to see our elected leaders get their act together and stop preaching catastrophic disaster every other day.   How about a little leadership?  Working with each other quietly and confidently, reminding the nation of our strengths and showing how we can overcome these challenges in a strong, united fashion?  Alas, that’s not what we’re seeing.

I mean really… does it inspire anyone to see the President and other folks pushing their version of the stimulus package so ardently that they believe resorting to scare tactics is in the best interest of the nation?  Taking the scare parade on a national circuit? Yes, they must really believe what they say.  Which is even scarier.   We are all concerned, and we all feel for those most affected by the economic crisis.  But town hall meetings across the nation to drum up support for the stimulus?  A lost decade? 

“The plan is not perfect. No plan is. I can’t tell you for sure that everything in this plan will work exactly as we hope, but I can tell you with complete confidence that a failure to act will only deepen this crisis as well as the pain felt by millions of Americans,” he [President Obama] said.

All I want to know is why the President and the Democrats think, with complete confidence mind you, that their plan is the best plan?  Don’t get me wrong- I like the fact that our government is working hard to do something, but what that something is has people staying up at night.

It’s enough to make you think that the “do nothing” side of the debate has merit, as in “First do no harm…”   But the harm has already been done by action or inaction, depending upon your viewpoint.   We don’t need more potential harm.

In my view, a super giant political spending bill code named a “stimulus plan” isn’t something that seems appropriate for the crisis at hand.  How President Obama can defend Senator Pelosi’s grand ambitions is beyond me.   We’ve been there before, and instant replay isn’t going to make it better.  And the Honorable Ms. Pelosi’s party has been in power since the 2006 elections after all.

“In the afterglow of President Obama’s inauguration, it’s easy to forget that Mrs. Pelosi’s similarly historic elevation to the speaker’s chair just two years ago had its own elements of a coronation — and its own claims of change we were to believe in.”

“The way Mrs. Pelosi handled Iraq has some interesting parallels to the way she is now handling the stimulus. In the early months of her speakership, the Democratic Congress faced its first test on Iraq in the form of a war funding bill. Mrs. Pelosi’s response? To lard it up with billions in unrelated domestic spending — including a now infamous provision that would have spent $74 million for peanut storage.”

Honestly I think there are some positive, constructive things we can do- and that both political parties should have a stake in crafting this enormous legislation.  But adding billions of tax-payer dollars for “do-good” initiatives and “nice-to-have” goals is not something that’s going to make a difference in the immediate future.  Why not focus on the crucial and necessary things… and then examine and revise as you go along?  Why spend decades of our children’s futures all at once?  Why risk making things worse? 

 ”If you find yourself in a hole… the first thing to do is stop digging.“   Texas Bix Bender

That’s my greatest concern… we’re going to exacerbate the problems and prolong the recession… or worse, foster an economic climate that leads to the Big D.   None other than Jim Rogers sees precisely that, and believes our leaders will indeed make things worse.

Rogers said Geithner, who was president of the New York Federal Reserve Bank, “has been dead wrong about everything for 15 years in a row,” and so was President Barack Obama’s economic advisor Lawrence Summers, who acted as Treasury Secretary at the turn of the century.

“It is mind-boggling to me, if I were on your show 15 weeks in a row and was wrong, you’d probably never invite me back. These guys have been wrong year after year after year consistently and here they are making the same mistakes again. This is not going to solve the problem, it’s going to make it worse.”

He said he was not contemplating investing into financials, as bankruptcies were still possible, and banks were still trying to find out how affected they were by the crisis.

“What’s happening is they’ve all panicked, cutting back everything, trying to see what they’ve got,” Rogers said.   “Everybody is frozen, trying to figure out ok, what are we worth, what do we do?”

In addition, the recent shifts towards protectionism are harmful, Rogers warned.   “This is very dangerous, that’s what caused the great depression in the 1930s. If it happens again, then you’d better sell all the stocks, you’d better sell a lot of everything and bunker down,” he said.

“We already have a lot of social unrest developing. If protectionism comes back, you’d better be really, really careful.”

Oh boy… with opposing views like that it’s hard to swallow the President’s “complete confidence” statement.   And although the Fed Chairman is pledging transparency (it’s about time…), many believe that won’t make any difference. 

And even Treasury Secretary Geithner’s plan… whatever it really is, hasn’t been very well received.

“Investors greeted Mr. Geithner’s speech with dismay and the Dow Jones Industrial Average shed 300 points. Lawmakers Monday night, on being briefed by Treasury officials, were also irked by the lack of details, according to people present.”

“The absence of detail speaks to the thorny issues that lie at the heart of the financial crisis: how to value the toxic assets causing banks to report losses and how to shuffle aid to homeowners and stem the rise of foreclosures. Many of the potential solutions come with a host of fresh problems, which Obama officials have grappled with much as their predecessors did.”

But there are some potential winners and losers in the stimulus plan, and money is sure to go to a lot of places we don’t really understand.  Whether those places really do anything to help us climb out of this economic pit is the real question.  I’m not holding my breath.

Catching up the past few weeks on some much needed organization, and a little more focus on priorities at home.   Most of those priorities involve looking very hard at our financial picture.   Congress is doing the same thing, but I’m not sure their priorities are all financial.  It’s politics after all, and the stimulus plan has now become a political spending platform.  Lately it seems that Congress wants to spend billions on a host of programs that may or may not help over the short-term, or that we may not see for decades.   Economists know that Components of the Stimulus will Vary in Speed and Efficiency.

“Devising any economic stimulus plan is tricky: initiatives that can be carried out relatively fast, like tax cuts, tend to provide less bang for the buck in terms of generating jobs and economic growth, while initiatives likely to spur more robust activity, like public works projects, can take so long to get under way that they arrive too late.”

But the country is trying to claw it’s way out of this recession, and today’s news reflects the magnitude of the challenge with the largest drop in GDP since 1982.   Now the debate is whether we’ve seen the worst, or that this drop in GDP is just a preview of worse economic conditions to come.  Consumers have really tightened their belts:

“Hit by tight credit and soaring job losses, Americans slammed the brakes on spending in the quarter.”

“Consumer spending fell at a 3.5% annual rate, which was the seventh biggest drop on record. Spending on big-ticket durable goods plunged at a 22% pace, the largest decline since 1987. Consumer spending accounts for more than two-thirds of overall economic activity.”

“But it wasn’t just consumers pulling back. Fixed investment in equipment and software, taken as an indication of business spending, plunged at an annual 28% rate. That’s the biggest drop in 50 years.”

So this certainly gives momentum to the stimulus package.   Honestly, most Americans just want the government to do whatever is necessary to get our economic engine restarted.  Exactly how you define the “whatever” is the problem.  Increase spending?  Cut taxes?  It’s the age old debate, and even Rush Limbaugh opines in the Wall Street Journal that there could be compromise… we could do a little of both.  

“There’s a serious debate in this country as to how best to end the recession. The average recession will last five to 11 months; the average recovery will last six years. Recessions will end on their own if they’re left alone. What can make the recession worse is the wrong kind of government intervention.”

“Keynesian economists believe government spending on “shovel-ready” infrastructure projects — schools, roads, bridges — is the best way to stimulate our staggering economy. Supply-side economists make an equally persuasive case that tax cuts are the surest and quickest way to create permanent jobs and cause an economy to rebound. That happened under JFK, Ronald Reagan and George W. Bush. We know that when tax rates are cut in a recession, it brings an economy back.”

“Recent polling indicates that the American people are in favor of both approaches.”

“Notwithstanding the media blitz in support of the Obama stimulus plan, most Americans, according to a new Rasmussen poll, are skeptical. Rasmussen finds that 59% fear that Congress and the president will increase government spending too much. Only 17% worry they will cut taxes too much. Since the American people are not certain that the Obama stimulus plan is the way to go, it seems to me there’s an opportunity for genuine compromise. At the same time, we can garner evidence on how to deal with future recessions, so every occurrence will no longer become a matter of partisan debate.”

I believe we need to do whatever fosters business and job growth- expanding economic activity- and both spending and tax cuts can achieve those goals if used effectively.  What effectively means is the real question.  Between job insecurity and the challenges of winter, energy costs and taxes- consumers have got enough to deal with over the next few months.  Let’s hope our elected leaders get it mostly right.

“Out with the old, in with the new” as the saying goes.  Timely words for welcoming a new year that will hopefully be a far cry from last year, at least financially speaking.    For many of us the new year also means a new commitment to getting rid of debt and increasing savings.  In short, through circumstance or necessity, many of our priorities have changed.  

Jim Citrin looks at Getting Back to Basics in 2009, describing how changing priorities have affected business perspectives:

“The era of unchecked consumerism and financial excess had the insidious effect of devaluing everything. Why save money when you could borrow to get whatever you wanted? Why hang on to clothes and appliances when you could just go to the store and buy new ones? Why make structural improvements to your business operations or deepen customer relationships when you could push more stuff to get the growth that Wall Street demanded?”

“In one fell swoop, these attitudes have ground to a halt. They’ve been replaced by millions of healthier conversations in conference rooms and around kitchen tables about how to save, conserve, and prioritize.”

The article looks for a silver lining, examining how we can reconnect and make the best of the difficult times we live in.  I appreciate his views because it makes the simple point that we have a choice with how to respond to the current economic environment.  Sit around and wring our hands?  No. We need to get up and do something about our situation, and work to improve our lives and fortunes.

Admittedly the really tough part of the economic challenge we face is how far it has reached into people’s lives.  Between housing, the stock market and the credit crunch, the financial challenges have touched every level of the socio-economic spectrum.   For those who have lived too long on debt and excessive borrowing, the money faucet has been turned off.  Now they’re struggling to save, get by and get rid of that debt.  Others are struggling with layoffs and trying to find a job.  And even for those who saved and invested diligently through the years, the stock market’s downward spiral has demoralized investors into wondering why they ever invested in the first place.

A lot of frugal and industrious folks today are wondering if they should have just spent more of their money when they had it, instead of scrimping and saving through the years only to watch it disappear in a few months.

Most of all it’s just hard to feel confident about our choices right now.  And we’re shocked when reading about financial scandals and corruption.  It’s no surprise that many people have moved their assets to cash in CDs and savings accounts, deciding that something is better than nothing.   Nothing wrong with that, especially if you need the money in 3-5 years, or you are already retired and may need that money for healthcare or living expenses.   But the rate of return on those accounts is really low, and most planners will still target a growth or dividend component in the overall allocation mix if possible. 

Dividends are also king right now for investors, and there’s nothing like getting paid to hold a good company in stock.  Fixed income investments also may offer some of the best opportunities in the next few years.  Cash-wise I’m at least putting some money into a good quality high-yield savings account such as with ING, and money market accounts such as Vanguard Prime.  If you want treasuries (who doesn’t!?), Vanguard also has several treasury mutual funds.

And I’m certainly still investing in mutual funds and selective stocks, taking advantage of low prices and increasing savings and investments where I can afford it.  Is that a gamble?  Not for me, since I don’t plan to need the money for 10+ years.  If you feel like it’s gambling, then that should tell you something about your risk tolerance, and you should look for a more conservative asset mix. 

But if you’ve got decades until retirement, there’s no better time than right now to accumulate investment shares.  As long as your financial life is in order of course.  I call it my Big Three, and they remain the central focus of our financial lives:  Cut Spending, Pay down Debt, and Increase Savings.  After the first two are under control, then I think about investing.

If you’re feeling bad about your mutual fund losses, most of us can be glad we didn’t join the Dubious 60% Club, and that’s not 60% up…  Bill Miller was a high-flyer for about 15 years as a leading mutual fund manager, but for the past few years- well mostly last year- he has crashed and burned.   It just goes to show that anyone can make poor choices and lose money in the market.  Does that mean he’s sulking in some corner office, licking his wounds?  Absolutely not.  He’s still in their fighting and even managed to beat the S&P 500 for December 2008.   

As we ring in the new year, there’s a host of excellent pracitical advice out there.  Here’s a rundown on some of my favorites:

• The Wall Street Journal offers an eclectic mix of insight for How to Fix Your Life in 2009.  “Exuberance and excess have made way for prudence and pragmatism. Frugality is, once again, a virtue. To help you settle into this strange new world, our reporters have dug deep into their beats…”

• SmartMoney.com shows us 7 Ways to Save in 2009.   “Reducing monthly expenses and saving more money is the must-make resolution for 2009.”

• Kiplinger.com offers a classic article from a few years go reviewing 8 Keys to Financial Security. “Pay yourself first. Protect your loved ones. Borrow sparingly. And don’t go for the home run…”  What a great, timeless article.

• Laura Rowley takes an heady look at the psychology of Understanding Money Behavior in a Financial Crisis.  “One of the keys to surviving the economic crisis, at least from a psychological perspective, is recognizing what you can and can’t control. And not doing destructive things while you’re powerless.”

I wish you a healthy and prosperous new year for 2009.  Sushi Money is two years old this month, and it’s been a grand experiment in the personal finance blogging world.  I don’t how long I’ll continue to write here, and I may look for a different financial niche.  But its been a lot of fun.  One of my goals includes are greater focus on philanthropy.  I’m in little position personally to make significant philantrophic gifts, but I am very thankful for the time and resources I do have available. Maybe there’s some kind of venture in the making.  

In times like these it’s important not to forget those who are struggling.  The economy will gain traction slowly, but there will be many who are left behind.  As we strengthen our own financial lives, it seems a good time to try and help a few others along the way.

It’s been a busy month with the holidays, and equally busy keeping up with the economic news, most of which isn’t very good.  But at the pump we’re all smiles these days with gas prices hitting five year lows.  Believe it or not I saw gas selling for $1.29 yesterday.  That is amazing, and to think of how much money Americans have wasted over the past couple of years in terms of fuel is even more amazing. 

Maybe wasted is a poor choice of words, but at least we’re not giving billions to third-world crazies anymore while the global recession has reduced demand (and speculation) incredibly.  The good news is how much we’re now saving here at home, and ”Tom Kloza of the Oil Price Information Service says Americans are paying about a billion dollars per day less than in July.”

At least that’s money people can use for other needs during one of the greatest recessions in decades.  But oil prices won’t stay this low forever, and some analysts see prices recovering later in 2009 or 2010 based on greatly reduced oil refinining capacity.  I hope that’s not the case- seems to me we got into the mess partly due to the fact that we didn’t have enough refineries or production capacity.  The big oil companies have little incentive at this point to expand their capacity however, so eventually demand and speculation will increase again.

Maybe we’ll be helped by better mileage cars and alternative energy?  Maybe.  I wouldn’t count on it, but every little bit helps.  That’s especially true in today’s economy, where many people are finding it difficult to juggle income against debt.  I hope you’re doing well at the end of such a tumultuous year, and that 2009 will be a whole lot better for all of us.

Bail-out this, and bail-out that.  I know it’s serious and the country is facing so many challenges.  But I’ve got to admit I’m tired of hearing about it all.  You would think Congress holds hearings and press conferences simply to amuse themselves.  Either that or they don’t have a clue about what to do at this point and are hoping for some magical consensus as a way out of the mess. 

But when I look into my heart of hearts, beyond my concerns about the wise use of taxpayer dollars and the exponential increase in the national debt, I also have to admit that I really hope we can put together some kind of a bailout package for the big-three U.S. auto makers- Ford, GM and Chrysler. 

It was hard to put those feelings into words exactly, but after watching banks fail and huge bailouts for the big Wall Street institutions, I was shaking my head wondering why we couldn’t put something together for the auto makers- the icons of American industrial greatness through generations.  After all- if these guys go bankrupt, then what about every supplier and finance company that are so deeply tied to them?  What about the untold thousands of employees whose jobs are linked to the auto industry?  What about all the mom and pop businesses that support and rely on those workers and companies?  And who (else?) is going to want to buy American cars, especially if they are worried about warranty’s, maintenance and a car company still being around in a few years?   

I could go on and on, but today I came across Ben Stein’s article, Bail Out Detroit – Now and I just couldn’t say it any better. 

“I get sick when I hear about how this or that professor says we cannot have bailouts in a free market. Really? How about the bailouts the professors get because gifts to colleges are tax free? How about the bailout they get because if they have to teach six hours a week they feel overwhelmed, while the guy on the line in Dearborn works a grueling forty and doesn’t whine about it?”

“Somehow, we can give bailouts to investment banks where the top dogs make hundreds of millions a year for running the company into the ditch and wrecking the whole credit picture in America. Somehow we can have bailouts for Fannie Mae and Freddie Mac, whose bosses were trading on the credit of the taxpayers to make themselves rich while pumping up a serious housing bubble.”

“Amazingly, we can have whole fleets of C-130’s fly to remote areas of Iraq and Afghanistan with pallets of hundred dollar bills piled from floor to ceiling. Then we can pass them out to warlords who make tea for our soldiers one hour and blow their guts out the next. We can send CIA operatives into Somalia and give millions, maybe hundreds of millions, to warlords to fight other killers.”

“But we cannot find it in our hearts to save our fellow Americans in Ohio and Michigan and Indiana who make the cars and trucks that about half of us buy? We can send billions to Germany and Japan to bail them out after they bombed us and killed our POWs and killed six million Jews. But we cannot help the children and grandchildren of the men and women who fought our war and made us the arsenal of democracy?”

“Something is very wrong here.”

“…And why are we so angry at the car companies’ executives? They get miserable pay by Wall Street standards and have much harder jobs. Why are we so angry at the unions? They negotiated their deals in good faith. It’s not their fault that roller coaster gasoline prices messed up their world. They are our brothers and sisters. They fight our wars. They maintain our middle class lives. Maybe they get paid a lot, but they have been giving back for years. When will it ever be enough? And what about the retirees? They get the benefits they were promised. If those can be taken away, then whose benefits are safe? And do you think it will be cheaper if the government takes on those costs directly?”

“Let’s stop the Depression before it starts. Let’s show some fairness and good faith to our own. Let’s bail out the Big Three, help them slim down, shape up, and keep making great cars and trucks. The Big Three are us and if we cannot help ourselves, who can we help?”

 Bailing out Ford, GM and Chrysler is the right answer, and I hope our legislators get it right- or at least get it started right.  It’s not going to be an easy road, or the final answer.  It will take time and the taxpayers are going to pony up for a lot of it.  But it’s who we are, and in the end- if we let these guys fail altogether, it’s going to cost us a heck of lot more.

*** Update ***  Apparently the Treasury Secretary’s plan does NOT include plans for current homeowners to refinance their loans.  So while many of us may sit on mortgage loans at greater than 6% or 7%, this plan would allow neighbors to move in to their house with a new mortgage loan with much lower payments.   This seems wrong… it may be a temporary fix, but how will it help millions of current homeowners who are having trouble making payments on their current mortgage loans? 

This week we found out we’re officially in a recession, and have been since around December, 2007.  The market has been wallowing at multi-year lows and layoffs have been increasing.  In light of so many economic challenges, it’s hard to see any bright spots that can move us forward.  But what about a lower mortgage payment?  Would a couple hundred extra bucks each month really make a difference, or help people purchase a house?

For many of us, it just might.  That’s the focus area of the government recently- mortgage loans and the possibility that a U.S. sponsored wave of mortgage activity and refinancing could bolster both the housing market and the economy as a whole. 

“The plan, which is in the development stage, would temporarily use the clout of mortgage giants Fannie Mae and Freddie Mac to encourage banks to lend at rates as low as 4.5%, more than a full point lower than prevailing rates for standard 30-year fixed-rate mortgages.”

“The plan is very similar to an idea floated in October by R. Glenn Hubbard and Christopher Mayer, academics at Columbia University’s Business School. “I think a program to substantially bring down rates for homebuyers would be an incredibly valuable program, and I think it captures a real part of solving what has been an incredibly challenging dislocation in the credit markets,” Mr. Mayer said in an interview. He estimated the idea under consideration could quickly help 1.5 million to 2.5 million people buy homes, giving a major boost to the housing market and broader economy.”

Certainly people would still need to qualify for the mortgage and have decent credit ratings to do so.  But a 30-year loan at 4.5% ?  Sign me up… not only would the monthly payment for many of us decrease, we would be able to focus more on reducing debt levels and increasing consumer spending.  *** Not for current homeowners! ***

“…Treasury Secretary Henry Paulson views lowering mortgage rates as key to fixing the housing crisis; hence the mortgage-security-buying program announced last week.  The most important thing we can do to mitigate foreclosures and progress through the housing correction,” Mr. Paulson said in a speech Monday, “is to reduce the cost of mortgage finance, so more families can afford to buy a home and so homeowners can refinance into more affordable mortgages.”

I have to agree (for once) with Secretary Paulson- making homeownership more affordable for credit-worthy families sounds like a great idea.  As long as we aren’t handing out loans to people that can’t repay them… hopefully we’ve learned that lesson already. 

Just for kicks I ran the numbers on the difference between the monthly payment for a 6.5% 30 year fixed-rate loan, and the same loan at 4.5%.  These numbers are for principal and interest only and don’t include taxes or insurance payments:

• 6.5% 30-year fixed-rate loan:   Monthly payment of $1,137.72
• 4.5% 30-year fixed-rate loan:   Monthly payment of $ 912.03

Okay, so we save about $225 bucks a month with the new mortgage. That’s not chump-change, and lots of folks can qualify for a 4.5% loan that would not otherwise qualify for a 6.5% loan.  Even refinancing is a great idea as long as we’re planning to stay in that house for a few years or more.   *** Not for current homeowners! ***

A Rush Into Refinancing may be just what the country needs right now however. But the new plan may not even include this option!  

I thought that’s what the Treasury Secretary was aiming for, and how they believe it can help dig out the country from the current housing mess.  Get more people into homes sitting empty out there, and make those monthly payments more affordable for all of us.  Good idea, but if they exclude current homeowners, then I don’t see how it helps the economy en masse.

By the way, what’s even more important over the long term on that interest rate scenario?  Think about how much interest you would be saving. 

• 6.5% 30-year fixed-rate loan:  Total interest paid $229,587
• 4.5% 30-year fixed-rate loan:  Total interest paid $148,336

That lower rate loan would save us over $81,000 dollars!!!

Sounds pretty good to me- that would pay for a kitchen and bath remodel, or even a few new cars over the lifetime of that mortgage loan. 

So is it time to buy that house you’ve been looking for?  Time to wade into real estate again?  Well, the real estate debate continues, and there are many opinions.   Even if a lot of us can think of several really good real estate deals out there, the money’s just not there right now.  And that’s part of the problem- with the stock market down, real income down, and folks losing their jobs, we’re running out of people that can qualify to purchase real estate.  

Maybe, just maybe, lower long term mortgage rates will help us climb out of this whirlpool?  Hard to say- that whirlpool is also a downward spiral… and deflation can take a long time to work out of.  Just ask the Japanese.

It’s been a busy couple of weeks and a nice break over the weekend.  Amazingly it’s already December… I’m all for supporting the economy, but I didn’t join the shopping melee last Friday.  I find myself holding back and shopping a little more carefully these days.  In fact I’ll shop more on the internet than in retail stores, looking for bargains here and there.   Today is supposed to be Cyber Monday for shopping online, but it looks more like Red Monday with the stock market after a key manufacturing index fell to a 26 year low.

Beyond the economic news there’s incredible unrest around the world these days, and now travelers have much to be concerned about.  If the events in India tell us anything, it’s that we must keep up the fight for freedom and against terrorism.  How can we live and grow as free nations around the world if we allow other countries such as Pakistan and Somalia to harbor or export such people?  This is not a simple fix, but will require generational change to overcome.  Hopefully we’ll see it happen in our lifetime.

In Thailand there are hundreds of thousands of travelers stranded at airports around the country trying to get home because of protesting within the nation.  And this at nearly the peak of the tourist season.   Civil unrest in Thailand and other countries is going to impact tourism in a huge way, and deepen the economic crisis for many people.  But the Thai government recognizes the impact and is trying to support tourists through lodging and food allowances while the protests continue.

“Tourism Minister Weerasak said the government will set aside as much as 400 million baht ($11 million) from its budget to pay for hotels and food for stranded tourists. Tourism generates about 1 trillion baht in revenue each year, he said.”

œThe government will pay 2,000 baht per person per day for hotels and food, Weerasak said. œWe think we need to spend this to take good care of the tourists. We will try our best to make them feel taken care of.

When I read such news I must say I am thankful in so many ways.  Doesn’t quite give one the travel bug does it?!  And it puts the economic challenges we face in a better perspective.  We’ve got work to do certainly, but we’ve got a strong foundation to build upon and people willing to work.  Soon we’ll have a new President and administration, as well as a host of minions running around Washington D.C. trying to get things going in a new direction.  Between all the new economic experts and a January stimulus bill, the news is bound to get better eventually.  What happens between now and then is a good question!

With the holidays upon us it’s time to decorate and focus more on home and family.  We won’t be doing much traveling, except perhaps closer to home.  Gas prices are helping the budget immensely, and that’s one more reason to be thankful.  Have a great week.

That’s pantry fellas, okay?  You know, that closet or cupboard where you keep your food and canned goods?  I looked around ours recently and discovered we’ve got a lot more food on hand than we realized.  Maybe not fresh foods like milk and eggs, but if push came to shove we could probably go a month without a major shopping trip.  That’s not even counting what’s in the freezer.   With thoughts like these it’s no wonder we’re reading about consumer spending taking a huge dive last month:

“The Commerce Department reported Friday that retail sales fell by 2.8 percent last month, the biggest drop on record, surpassing the old mark of a 2.65 percent plunge in November 2001 that occurred after the terrorist attacks. The October sales decline was led by a huge fall in auto purchases, but sales of all types of products suffered as consumers, worried about their jobs and the market turbulence, cut back sharply on spending.”

“The dismal report on retail sales was worse than the 2 percent decline that analysts expected. It marked the fourth straight decrease, the longest stretch of weakness on record. Retailers are braced for what could be the worst holiday shopping season in decades with economists forecasting a recession that could turn out to be the steepest since the 1981-82 downturn.”

“A survey of the nation’s big chain retail stores found that retailers suffered through the weakest October in at least 39 years even though they tried to gin up more sales by a frenzied round of price cutting.”

Of course there’s a bright side to a retail downturn…  discounts and sales everywhere.   Now retail doesn’t usually include grocery stores, but I know folks are cutting back there too.  The stores are quieter and emptier.  Except for Wal-Mart.  I made the mistake of going to Wal-Mart on a Friday a week ago- holy cow!

Having grown up through the ‘81-’82 downturn, I’m not sure I learned anything of significance either, especially because I was young and single, and didn’t have a family or home to support.  But we scrambled with multiple jobs and did what we had to do… worked, saved and pinched pennies.  I do remember running out of gas a few times… that was embarassing, but more a reflection of my lack of foresight than anything else.   You know what else was lack of foresight?  Not investing on a disciplined basis each year at the time- I probably gave up a decade or more of investment returns over the length of the 1980’s bull market.   But that’s another story.

As I ponder the current state of affairs it strikes me that most of us have a lot more resources at hand than we may realize.  And that’s also because most of us plan ahead a little bit, and try to stay prepared for whatever might come.  If I look in the pantry, the garage and a few other places, I realize we have a lot of stuff.  Some of it is even useful.  If things get really tough, we’ll be fine for a while.  We’ve already cut back, and we have room to cut back more if we need to.  Admittedly lots of other folks may not, and we’ll need to help them where we can. 

All across America starting this weekend the Boy Scouts and Cub Scouts have their annual food drive to gather donations and help people.  So many of the local food pantry and shelters really need the donations.  Looking at our household pantry I know we have a lot of cans we can give to help another family with Thanskgiving this month.

But if you’ve read Sushi Money at all before, you know I’m not one who believes we’re falling into another Great Depression.  Heck they haven’t even called it a recession formally yet.  But when they do (oh, they most assuredly will!), the recession will probably have started around the middle of 2008. 

We don’t know when this recession will end.  We don’t know how deep it will be, or what will help trigger the turnaround.  But to get the nation moving and growing again means we’ve got to foster business and public works.  And James Stewart’s approach to How Obama Can Fix the Economy makes as much sense as anything I’ve heard from Congress or the Treasury Secretary.  The new President will have a full plate, and a lot of motivation for changing the economic course we’re on right now.   I don’t envy his job, but is there a better time to be a new President than with the economy on the ropes?  Looks like opportunity to me.