$3.3 Trillion

$3.3 Trillion | New York Times

An excerpt: "Al Qaeda spent roughly half a million dollars to destroy the World Trade Center and cripple the Pentagon. What has been the cost to the United States? In a survey of estimates by The New York Times, the answer is $3.3 trillion, or about $7 million for every dollar Al Qaeda spent planning and executing the attacks. While not all of the costs have been borne by the government — and some are still to come — this total equals one-fifth of the current national debt. All figures are shown in today’s dollars."

Another link that talks about the opportunity cost that America has squandered: The Price Of Lost Chances | New York Times

An excerpt: "Less than a trillion dollars of the $3.3 trillion was for direct responses — including toppling the Taliban. But what if at least some of the remaining $2 trillion plus had been spent on other, longer-range threats to American national security? Rebuilding a broken education system? Finding more imaginative ways to compete with China? Reducing the national debt? Or delivering on promises, by President George W. Bush and Secretary of State Hillary Rodham Clinton alike, for “Marshall plans” to rebuild societies at risk of letting the next Al Qaeda flourish?"

Marketplace Whiteboard: The Difference Between Fiscal And Monetary Policy

Marketplace.org Senior Editor Paddy Hirsch explains the difference between Fiscal and Monetary Policy.

Warren Buffett: An Economic Indicator?

Marketplace.org Senior Editor, Paddy Hirsch, explains Warren Buffett as an economic indicator.

Rick Perry Calls Ben Bernanke 'Treasonous'

Perry stands by 'treasonous' comment on Bernanke | CNN Money

Bernanke 'treasonous'? I don't think so. Bernanke has a PhD in Economics from MIT. Quantitative Easing was done to combat massive shrinking of the economy (aka 'Deflation'). Bernanke wrote about the effects of deflation in the Bernanke Doctrine.

What I do know is 'treasonous' is a pretty strong word to be used by someone [Perry] with a 2.23 GPA, and who earned a bachelor's degree in animal science.

Bernanke: 1, Perry: dumb

UPDATE: Perry's GPA is actually 2.23 (correction made) using the standard weights for grades (A=4, B=3, C=2, etc). You can read an article regarding his transcript at Texas A&M at the Huffington Post. Better yet, just view his transcript here.

Here's some items that stand out:
Phys Ed 102: B - Really, Perry? You couldn't get an 'A' in this class?
Phys Ed 202: B - For realz?
History of the U.S. (105): C
History of the U.S. (106): C

and most importantly...

Principles of Economics (Econ 203): D

WTF!

And he wants to throw insults at Bernanke?!

GTFOH.

US Debt: Why We Don't Compare Household Finances To Government Finances

I understand the attraction to liken your household finances to government finances. Comparing your income to what you're spending works for households; It's clean, it's neat and it's simple. But comparing Government finances to Household finances is not accurate. The simplicity of our spending (utilities, debt, living expenses) and our income does not apply to the government. Flexo at Consumerism Commentary describes why it’s not at all akin to a family spending more than it earns:

• The government can at any time, at its discretion, increase revenue. It’s not popular, but raising taxes is an option. Households cannot similarly decree that their income increase. People can take certain actions to increase their income, like obtaining more education or training, but these often require even more expenditures. Income-earners can get second or third jobs to help make ends meet, and the farther that goes, it will be emotionally, mentally and emotionally straining on a family. Fact of the matter is, most of us work for money. It's a sad face but it's the hard truth; households aren't as flexible on the revenue side as the government.



• The government can at any time, at its discretion, devalue its debt. Monetary policy comes into play. The Federal Reserve, working alongside the government, purchases government securities, increasing the money supply for banks and consumers. With more money available in the economy, people (but mostly businesses) can afford to pay more, and prices increase, effectively decreasing the purchasing power of a dollar. This is a great position for people who owe money to be in, because the real value of what they owe decreases.
  
  Households, on the other hand, have no control over the money supply and therefore cannot manipulate the real value of their debt.



• Deficit spending helps spur the economy. Throughout the twentieth century, the government was more frequently in a budget deficit than in a budget surplus. The ability for the government to spend freely helped this country become the rich economic powerhouse it is today. With the federal government taking up the slack by investing in the economy during periods in which businesses were gun-shy, the country continued prospering — particularly the middle class. Periods of deficit spending were followed by periods of surplus, but for the most part, deficit spending is linked to this country’s growth.

Is there a risk to printing money? Sure, hyperinflation (very high, rapid monetary inflation) comes to mind. But we are no where near hyperinflation. The U.S. hasn't experienced hyperinflation since the Revolutionary War (when we were 13 colonies) and the Civil War (a divided nation). In fact, we are currently experiencing deflation (more on this in a later post).

The national debt will always be a point of contention but we have to separate the narrative from the facts. My narrative is that I don't believe (based on the bullet points above) that the U.S. Government has a debt problem. I do believe, however, we have inefficiencies in government leadership that leads to ineffective government spending (more government spending to create jobs please, kthanksbai). The fact remains -- we can always print money. And if you continue to compare your household finances to government finances, then ask yourself this:

If you have a machine at your home that can print you money, would you have a debt problem?

Truth bomb go "boom".

Why S.&P.’s Ratings Are Substandard and Porous

Nate Silver had a FANTASTIC piece on Why S.&P.’s Ratings Are Substandard and Porous (many thanks to my buddy, Brad, for finding this). It's a long article, but if you can work your way through it, he has some excellent content.

Boom.

US Downgraded: Americans Demand Leadership

America doesn't have a debt problem.

America has a leadership problem. America's leaders have failed to spend productively albeit with cash and/or with debt and then play a dangerous economic game by arguing about it rather than solving the problem.

Failing public schools (at all levels), overcrowded prisons, medicare/medicaid, social security, roads, and inept politicians have hemorrhaged financial resources. This means that the Government Spending equation of GDP isn't as effective as it needs to be:

GDP = Consumer Spending + Investment Spending + Government Spending + (EXports - Imports)

Government spending can be financed by seigniorage, taxes, or government borrowing. It is important to realize that "G spending" happens at all levels: federal, state, and local.

John Maynard Keynes was one of the first economists to advocate government deficit spending as part of the fiscal policy response to an economic contraction. In Keynesian economics, increased government spending is thought to raise aggregate demand and increase consumption, which in turn leads to increased production. Keynesian economists argue that the Great Depression was ended by government spending programs such as the New Deal and military spending during World War II. According to the Keynesian view, a severe recession or depression may never end if the government does not intervene.

Reducing government spending, in general, doesn't solve the problem in the long-run. It just puts a band-aid on a bullet wound. We need effective government spending; the kind that adds value to America: public schools and infrastructure.

America has been hemorrhaging spending for decades without improving the infrastructure. And with low growth and sloooooow job creation, we may not see pre-recession GDP output and unemployment until 2018. Nate Silver wrote:

Not only is the worst not yet over — the situation is still deteriorating. Every quarter that the economy grows at a rate below 3.5 percent, it loses ground relative to the long-term trend. Although the economy grew at a 3.8 annual percent rate from fall 2009 through summer 2010, over the past year growth has averaged just 1.6 percent, putting us farther behind.

What we need, instead, is above-average growth — in fact, quite a lot of it. Even if the economy were to begin growing at a 5 percent annual rate, it would take until 2018 for it to catch up to the long-term trend.

We need leadership. We need to be galvanized about one idea that will make America competitive. Although I don't agree with each of FDR's policies passed in the New Deal, he had some fantastic ideas: Works Progress Administration, Civil Works Administration, Civilian Conservation Corps. The common theme among these programs is that it was effective government spending while putting Americans to work. Where are those ideas today?

Why we no have speed rail? :-(
or wind power? :-(

Epic. Fail.

Understanding the Ratings Agencies
In early of 2010, Paddy Hirsch of Marketplace.org had one of his whitebaord sessions regarding the credit rating agencies. Although it's dated, there's some good content in there regarding the conflict and possible collusion of these agencies:



Why The Downgrade Happened
At first, I didn't understand Standard & Poor's motivation behind the downgrade. But their job is to inform us if we're going to get our money back if we invest in a certain asset like US Treasuries (hence, the ratings). Although there was an error that inflated U.S. deficits by $2 trillion, John Chambers, head of soveirgn ratings for S&P said:

[the error] "doesn't make a material difference -- it doesn't change the fact that your debt-to-GDP ratio will continue to rise over the next decade," he told "AC360."

So the downgrade happened because the S&P thinks that America will not be able to pay its debtors because of the high debt-to-GDP ratio. Because of this, maybe the downgrade needs to happen.

What The Downgrade Really Means
Besides meaning that our leadership is absolutely atrocious in Washington, the downgrade also means a rise in interest rates across the board. The rising of these rates will vary. CNN Money had a good article on how it affects your money -- everything from your cash to bonds to borrowing. Please do check it out.

Failed Leadership
The downgrade does mean something for all of us. It means that America has failed leadership. As a Veteran, I am angered by their lack of basic leadership skills: working as a team, implementing ideas, compromising, making effective decisions, disseminating information, and most importantly, accomplishing the objective. In my opinion, we need leaders that know the following:

• basic economics


• allocate (cash & debt) spending effectively


• leadership

The image of our nation is damaged internally and externally. Retired General Russel L. Honoré said:

It's time to get draconian. But not with the helpless elderly who need their Social Security payments, not with the powerless Army private supporting a family. I mean it's time to load our elected officials on troop planes and send them to Camp Shelby, Mississippi. Put them in tents with no air conditioning, have Army drill sergeants teach them teamwork and physical sacrifice. When they recognize their responsibility to the people of America, they can return to D.C., their upscale restaurants, and military plane trips, as though they were royalty.

I couldn't agree more. We need a better way to assess the strong from the weak in our leadership. To accomplish an objective, you don't wait on the weak. And unfortunately, the weak are in Washington.

You Too Can Understand The Debt-Ceiling Debate!!!

Marketplace Senior Editor, Paddy Hirsch, (successfully) explains the debt-ceiling debate in less than 4 minutes:



As one commenter explained, here's the rundown:

airport = economy
cloud/storm = debt debate
planes = investors
passengers = consumers
control tower = American government

Salman Khan, founder of the AMAZING khanacademy.org, explains the difference between the deficit, debt, and their effect on the debt-ceiling:

It's Not That Hard To Do The Right Thing

On Tuesday, I went into the Walgreen's on Clark and Monroe and noticed a dog outside. It was cute. It was tied up to the bike rack, luckily there was some shade. I go into "The 'Greens" and spend my usual 10-15 minutes looking for something but finding absolutely nothing. I leave and I still see the dog tied up. But this time, it looks sad, hungry and hot (at this point the shade was gone).

It was panting heavily.
No food.
No water.

Its owner was nowhere to be found. I get closer to the dog (it was non aggressive). It didn't have any dog tags (identification). I immediately thought, "this dog was left here by its piece-of-sh*t owner because (s)he cant take care of it anymore." I go back inside "The 'Greens" and ask them if they know whose dog it is or if they can announce it over the intercom. I talk to the Streetwise vendor as him and I are looking for police and trying to contemplate where this dog's owner is.

I call animal control - no answer.

I call the Chicago Police Department. After speaking to three different officers, I'm told that an officer is "on their way" though they could not provide an ETA. I had to get back to work -- I had a meeting to facilitate at 1pm. It's now 12:50. At this point it's been about 25 minutes since I first arrived and STILL no sign of the owner.

The police still hadn't arrived.

I'm starting to contemplate taking the dog home (though Payton would kill me).

Finally, the owner shows up.

It's a female (if it would have been a male, I probably would have kicked his ass). and I told her I called animal control and the CPD because the dog had no tags, no food or water and I couldn't tell if it was a stray or not.

"Oh, really? Hahahahahahahahahahaha. That's sooo funny!", she laughs.

I didn't find the humor in any of this. So I told her she may want to stick around to explain to the police as I am flabbergasted how this woman can spend 35 minutes in "The 'Greens" and not have a single bag in her hand. I leave to get back to work (at this point, I'm going to be late for my meeting).

Yesterday (Wednesday) morning, I ran to the McDonald's across the street from Walgreen's and the same Streetwise vendor sees me. We converse about the situation from the previous day and how effed up it was of that girl to leave her dog out there like that.

I go into McDonald's and buy a mocha coffee (love this thing!), two has browns and an orange juice. This wasn't all for me. One of the hash browns and the orange juice was for the Streetwise vendor for his help on Tuesday.

Infinite Loop

I come home, mentally exhausted from the work day -- 8hrs, 12hrs, it doesn't matter. It's all the same. I come home exhauseted -- ready for the routine: change clothes, feed Payton, start laundry, run, take a shower, cook something unhealthy on the Foreman, read some business topics, stream something on Netflix (still waiting on you, Limitless), waste time surf the web for no reason, play guitar, pay the occasional bill or two, layout my clothes for the next day (iron if need be), go to bed, lay in bed for an hour, not fall asleep for two hours, wake up, hit the snooze, hit the snooze again, Payton's meowing, jump in the shower, get ready, run to catch the L, arrive at work, deal with emails and projects that won't mean anything to anyone a month from now, decide if I should take my talents to South Beach, do work, contemplate the weekend, yearn for danger, come home, and do it all over again.

My life feels like an infinite loop.

Capital One: 43 Cents And The Straw That Broke The Camel's Back

Earlier in the month I published a piece regarding Capital One charging me a membership fee ($49) and how, after being a loyal customer (7 years) and receiving zero – ZERO – benefits, perks, etc I was contemplating cutting the cord.
I wish I could tell you the story ended there but it doesn’t.

Today, I logged into Mint because I received an email notification saying I was being charged a fee. Curious, I log in and see Capital One was charging me a Late Fee of $15 on a balance of .43 (that’s, cents, mind you)

Yup.

Here’s how this breaks down:

When I was charged the $49, I was also being charged a flat fee for “Payment Protection” of .43. Well, Capital One waived the membership fee, but they failed to waive the .43 (don’t get me started on how this could happen – just know that it did happen). So essentially I had a balance of .43, which no one informed me about when I had the membership fee waived. So unbeknownst to me, I had a balance of .43.

There is a small fraction of ignorance on my part as I should’ve known about this balance. I am usually very cognizant of the balances I owe (especially on the cards I use). This specific account of Capital One (and the .43 balance) slipped through the cracks – mostly because I do not use this card; it sits in my dresser, collecting dust inbetween my widowed socks (socks that no longer have a matching partner) and a TI-83 (don’t ask).

So I called Capital One this morning; furious, I had to call twice to calm myself down. At this point, my concern is my credit score (which I have worked hard to protect and get to a respectable/competitive number). After talking to three people and using expletives I haven’t used since the Military, I finally get a senior account rep:

AR: Sorry Mr. Smith for the inconvenience. But we usually don’t waive the membership fee and we only did that because you had such a long history with us –

ME [interrupting]: Stop. Stop acting like you did me a [expletive] favor. Fact of the matter is, I’ve been a customer of yours for 7 years – 7 YEARS – and ZERO activity has happened on my account (credit limit increase, APR decrease). And not only did you have the AUDACITY of charging me a membership fee like your card is some exclusive credit card, but then you charge me .43 on a balance that YOU waived. And NOW you want to charge me a late fee? You do realize that this doesn’t make sense, correct?

AR: Yes, Mr. Smith and we greatly apologize for the inconvenience. This was an accident (error) on our part -

ME [interrupting, again]: Save your speech for someone else. I’m in no [expletive] mood to hear this [expletive]. I am on the edge ready to jump and I know you can’t do anything about it to keep me as a customer. You cannot increase my limit, nor can you lower my rate, offer benefits and/or some type of reimbursement for this inconvenience. Cancel my account. Better yet, cancel my account and send me paperwork that specifically states that I cancelled this account and it has a zero balance.

AR: Yes, Sir.

ME: Will any of this (late fee, outstanding balance of .43) be on my credit report?

AR: No, Sir.

ME: It better not be. If it is, come hell or high-water, I will find a way to short your company.

I know what you’re thinking: “Will, was that language necessary?”

My answer is: “Absolutely.”

I have been patient with them. They took advantage of the customer. I highly doubt this was an “accident” as the account rep was informing me over the phone. Being charged .43 after a $49 fee is waived doesn’t sound like an accident, it sounds like ignorance. It’s hard for me to believe that someone just “failed” to waive this .43. It just seems too ridiculous to be true.

Afterwards, I felt good, refreshed. My relationship with Capital One is finally over.

When I get home, I’ll open my drawer, move my widowed socks, grab the card, cut it and then put it in my safe.

This should’ve been done a long time ago...

…as my widowed socks didn't enjoy its company either.

The Gold Standard

I've been giving gold a lot of thought lately. Mostly because I don't own it (I do think it's extremely speculative right now), but yet, I am fascinated by its value (perceived or otherwise). I have reached out to two friends (Shawn, Brad) to help better understand The Gold Standard. Thankfully, NPR's Planet Money has two AWESOME podcasts regarding the topic. To understand the Gold Standard, you need to understand both sides of the argument coin (pun intended).


Part 1

On today's show, we visit the charming curmudgeon and respected finance writer James Grant. He says we should go back on the gold standard.

His basic argument: Under the gold standard, money holds its value. Central banks can't create (or destroy) money at a whim.

Part 2

Franklin Delano Roosevelt ignores the advice of America's big-name economists — and listens instead to a guy who helped take care of the trees on his estate.

Montagu Norman, head of the Bank of England, gets a coded message at a critical moment — and completely misunderstands what it means.

On today's Planet Money: The gold standard and the Great Depression.

Double-Dip Recession

There's been some talk about a double-dip recession. Paddy Hirsh whiteboards a double-dip recession and equates it to surfing.

Brilliant!

The Hidden Demons of High Achievers

I've been reassessing my personal and long-term career goals. In doing so, I have realized that I am very impatient and I seem to pile a plethora of projects in addition to my regular workload. The impatience, projects, interests, passion, anxiety it all can lead to an extreme amount of frustration and it can sabotage my career. So when I heard The Hidden Demons of High Achievers from Harvard's Ideacast, I realized that I am a high achiever but I need to realize that I cannot do everything.

Thank God for this podcast because I thought I was going crazy.

When It’s Time To Cut The Credit Card Cord

I logged into Mint.com today (I love me some Mint) and I saw that one of my credit cards, of which I have a zero balance and have owned for 7, years has decided to charge me a $50 “membership fee”. My credit limit is…$500.

They are charging me 10% for essentially, nothing. They offer me no services, rewards, points, laxatives, hookers, etc…nothing.

Naw, playa.

The sheer audacity of this company, Capital One, to charge me this membership fee is ridiculous on many levels. Mainly because they haven’t treated me like a valued customer; they haven’t increased my rate in 7 years (yes, I have asked). Frankly, a $500 credit limit is a drop in the bucket to the credit cards I carry on a daily basis (AMEX Starwood, Chase Freedom).

I’ve heard not to cancel your oldest credit cards -- it shows more credit history. But I believe alleviating the hassle of holding onto this card, and straight-up insulting nature of Capital One’s membership fee, far outweighs the slight ding on my credit score. It's time to separate fact from fiction. George Mannes wrote

The most important point made by [FICO] spokesman Craig Watts is that it's a myth that if you close a credit-card account, all trace of it disappears from your credit score. In fact, he says, the credit agencies from which FICO draws information used to calculate your score hold on to payment history for years -- the positive stuff for about a decade and the negative stuff usually for seven years.

You've read -- perhaps from well-meaning people on FICO's own message boards -- that you should never close your oldest credit card because your length-of-credit-history measurement will immediately plummet? Again, that's a myth, says Watts. (Dropping it might affect your credit score a decade from now, he grants, but the impact will be small potatoes compared to that of your credit-related behavior in the interim.)

Like all things, there must be a strategy involved and credit cards are no different.

If your credit card rate, balance aren’t in your long-term plans,

1. Prepare an Exit Strategy – if you do cancel this card, what happens next? Will you still have a respectable line of credit? Are you still able to get credit? Checking your credit score may be a good idea at this point so you can understand your leverage


2. Contact the credit issuer and see what can be arranged. NOTE-any limit request increase and/or APR decrease will affect your credit score in the short term(because they will judge this by conducting a hard inquiry against your credit score)


3. Evaluate its usage – How often are you using this card? If not very often you may have to conduct the standard cost-benefit analysis


4. Cost-Benefit Analysis – Everything has a cost and a benefit. Some benefits range from superb customer service to balance, APR and cash back. Evaluate these and prioritize them -- keep in mind there may be a cost (fees, protection, etc)


5. Cut the Cord – after all measures mentioned above are exhausted, and the cost outweighs the benefit, it may be time to walk away.

You should be selective about what type of credit cards you receive (try to cut back on the store cards). Your expectations should be met throughout the duration of the relationship and you set these expectations.

No Tags

After (almost) 6 months, I'm back. I've decided to incorporate more "life" things in this blog instead of finance and economics all day, everyday. I have discovered that these two topics can be uninteresting to people...go figure.

I had an appointment to see an apartment today. I was walking down Taylor Street and I had just crossed Racine as I see a khaki colored blur running on the other side of the street. This blur was going fast; full speed. I look behind it and I saw nothing. This blur was a dog and its owner was nowhere. As I look back at the dog, I see it dart out into the street.

I see the SUV.

I see the dog.

SUV.
Dog.

BAM!

The SUV comes to a halt. A crowd gathered at the intersection. I walk to see the dog hoping for a miracle. It was still alive. Blood coming out of its nose and mouth. Its leg was twitching.

Still breathing.

A man, his wife and son come to see the dog. It's not theirs. The dog was severely hurt.

Suffering.

I tell the man we have to put the dog out of its misery. We couldn't let it suffer. I mentioned His son kept his distance. The man picked up the dog and we carried it to the sidewalk. Blood still coming out of its nose.

Still breathing.

We didn't know what to do.

The driver came -- she's frantic and upset. We look at the dog's collar - no tags. Damn. The stranger and myself are petting the dog, doing what we can. I look at his son, he had his hand over his mouth, with his brow raised, looking sad.

Down the street we see a policeman's SUV. Perhaps they would know what to do.

I look back at the dog... nothing.

No leg twitching. No breathing.

No tags.