101 Ways to Stop Spending (Musical Tribute)

Trim Expenses While You Trim the Tree
The holidays are typically a time we think about spending money, not cutting expenses. But let's face it, you're going to have to pay for all those shiny new packages under the tree (or whatever holiday icon you choose to celebrate).

Unfortunately, what is good for each of us individually (spending less) might not be so good for us as a group (recession).

That might require Ben Bernanke to convince us to spend again, and he's pretty much just got one way to do it.

World Food Prices to Jump

Report: World food prices to jump
"The last time the world experienced such food price increases was in 1973 to 1974 ... but today the situation is completely different. For one, the climate risk and climate change situation has increased, the climate vulnerability has increased," von Braun told reporters in Beijing.

I wouldn't be so sure the situation today is completely different. What is it about 1973 to 1974 that rings a bell? Oh yeah, now I remember. There was an oil crisis in 1973, the world was very much into hoarding hard assets, and we were preparing for one of the worst recessions the United States has ever faced.

October 28, 1974
The Year That the Building Stopped
The moves now in prospect seem unlikely to do much more than keep the housing slump from getting still worse —if they accomplish even that. Fundamentally, the industry is caught in a terrible dilemma. It is peculiarly vulnerable to inflation; housing is the pressure point at which soaring costs of land, labor, materials and maintenance all converge. But housing is even more vulnerable to federal efforts to fight inflation by restricting the supply of credit, because both home builders and buyers rely so heavily on borrowed money. And a continuing squeeze on credit by the Federal Reserve Board—though a slightly less brutal one than was in effect during the summer—remains central to the Administration's whole anti-inflation strategy. "In this fight against inflation, we end up being the fist," says a Chicago contractor, "and let me tell you, there are a lot of bruised knuckles around." Adds Atlanta Builder Charles Sheron: "The country is in a recession; the housing industry is in a depression."

That is not much of an exaggeration. Housing has always been a boom-and-bust business; builders tend to put up too many homes when money is available, operating not on careful demand estimates but on blind faith that there will always be buyers. This year there are not, and 1974 could almost be called the year the building stopped. In January 1973, housing starts ran at an annual rate of almost 2.5 million, a high point in a succession of three unusually fat years for the industry. Since then, starts have plummeted to an annual rate of about 1.1 million, the lowest level in almost five years. The current collapse already is more than twice as bad as the industry's last bust—in 1969, when home building dropped off 25% in 12 months while the new Nixon Administration fought to get the Viet Nam inflation under control—and is worse than the 37% slide that followed the outbreak of the Korean War in 1950.

The Cost of Melting a Copper Penny

Let's start with up to $10,000 and add up to five years in prison. That's the base rate in a welfare state.

December 14, 2006
U.S. Mint Moves to Ban Penny Melting
Effective today, the U.S. Mint has implemented an interim rule that makes it illegal to melt nickels and pennies, or to export them in mass quantities.

Violators of these new regulations face up to a $10,000 fine, imprisonment of up to five years, or both.

The Department of the Treasury implemented similar regulations prohibiting the exportation, melting or treatment of silver coins between 1967 and 1969, and 1-cent coins between 1974 and 1978.

This combined with the new restrictions on I-Bonds must mean the welfare state is working overtime lately.

The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. - Alan Greenspan

Surely there must be something we can do. What if I...

There is no safe store of value. - Alan Greenspan

The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which — through a complex series of steps — the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy's books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion. - Alan Greenspan

Heck, those other purposes might even be an Iraq War over oil. Stranger things have happened. I am SO stagflationist today. Just thought I'd share that.

See Also:
Gold and Economic Freedom, Alan Greenspan, 1966

Extremely Bad News for I-Bonds!

The government has apparently decided that I-Bonds might help protect some of us from the ravages of inflation. Can't have that.

Annual Purchase Limit For Savings Bonds Set at $5,000
The annual limitation on purchases of United States Savings Bonds will be set at $5,000 per Social Security Number, effective January 1, 2008. The limit applies separately to Series EE and Series I savings bonds, and separately to bonds issued in paper or electronic form. Under the new rules, an individual can buy a maximum of $5,000 worth of electronic and paper bonds of each series in a single calendar year, or a total of $20,000, in single ownership form. If paper bonds are issued in co-ownership form, the limit applies to the first-named co-owner. All limits are based on the issue price of the securities.

The reduction from the $30,000 annual limit in effect for both series since 2003 was made to refocus the savings bond program on its original purpose of making these non-marketable Treasury securities available to individuals with relatively small sums to invest. Approximately 98 percent of all annual purchases of savings bonds by individuals are for $5,000 or less. The minimum purchase price for Series EE bonds is $25, whether purchased electronically or in paper form; the I bond minimum purchase is $25 for bonds issued in electronic form and $50 for those in paper form.

Savings bond purchases have been subject to an annual limit since Series E Bonds were first issued in 1941. Over the years, limits have been adjusted by the Treasury Department several times and have ranged from a low of $3,750 (at issue price) for Series E bonds from 1941 through 1947 to the $30,000 (issue price) limit that most recently applied to both Series EE and Series I bonds. The limit was last set at $5,000 (issue price) in 1973.

In my opinion, anyone who thinks the government lowered the limit based on the reasons given is whistling in the stagflationary graveyard. 1973 sure rings a bell though.

Flow of Funds Fun! v.8

This chart shows the domestic financial corporate profits (as opposed to non-financial corporate profits) divided by the total compensation of employees as seen in Table F.7 Distribution of National Income in the Flow of Funds Accounts.

The chart clearly turned parabolic and has seemingly stopped its climb. That tends to be the most dangerous part of any parabola. The red 6th order polynomial trend line wants to continue higher. In my opinion though, look out below!

I would also like to point out that the only period on this chart when domestic financial corporate profits fell hard and in a sustainable manner relative to wages was from September, 1978 to March, 1982. I can say with utmost confidence that it was not a deflationary period, using the benefit of hindsight.

Inflation averaged 10.6% annually over that long 3 1/2 year period, narrowly missing the 3 1/2 year record set between March, 1978 to Septmember, 1981 of 11.6% annually. Further, the 1970s housing boom seemingly peaked in January, 1979 as seen here. This might all be a coincidence, but then again maybe it isn't.

One is almost inclined to believe that the Federal Reserve Board is in the banking business and their primary motivation above all others is to rescue the banks. If true, one wonders why they threw the banks such a huge life preserver in 2003-2004. Not only are the banks currently depending on that first life preserver but it seems they are begging for yet another one. There must be a seriously large anchor tied to their feet. Too bad we can't see what's underwater (pun intended).

The Federal Reserve System: Purposes and Functions
The Federal Reserve System is the central bank of the United States. It was founded by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system. Over the years, its role in banking and the economy has expanded.

We can't very well have a stable financial system if all the banks go belly up, now can we?

And lastly, my short-term deflationary mood only applies if we actually get a recession (a coin toss at best to me). Otherwise, I'm stagflationary all the way.

See Also:
Flow of Funds Fun! v.7 (Musical Tribute)
Trend Line Disclaimer

Source Data:
FRB: Flow of Funds Accounts
BLS: Consumer Price Indexes (CPI)

Christmas Shopping Made Easy (An I-Bond Story)

Christmas Shopping Made Easy
In 1970, my cousin Betty gave me Creedence Clearwater Revival's "Bayou Country" for Christmas. You couldn't do much better than that for a teenager. But it was easy to do much worse -- another gift was an album by the Archies, which was not on my list for Santa.

There's that 1970 reference again. Okay, I'm listening.

We buy I-bonds in their names. I-bonds are savings bonds issued by the U.S. Treasury. Kids can't open their own accounts with the Treasury, but adults can buy bonds for them in their names. Every December, a $25 I-bond is put into a Gift Box linked to Uncle Buz's (a.k.a. "St. Nick") Treasury Direct account. It stays there, safe, sound, and earning interest based on the inflation rate -- well after some more fashionable gift has been broken, lost, or forgotten.

$25 to protect the kids? Okay, sounds good. At $25 a year, you'll be able to protect a good $500 in 20 years. Meanwhile, you keep swinging for the fences with your own money apparently.

Of course, a broad-market exchange-traded fund such as the iShares series offered by Barclays (NYSE: BCS), would be a better option ... for them. But paying a $10 commission for a single share of an ETF is a bit much for me. My hope is that when they turn 18, they can take that bond money and make some more diversified investments.

Of course it would be a better option? What arrogance! I'm doing everything in my power to get my money into I-Bonds. It is most certainly NOT a guarantee that I-Bonds will underperform his alternatives. This is yet another case of staring at the last 25+ years in the rear view mirror and expecting it to continue. Don't bring up 1970 and cousin Betty if you aren't at least willing to entertain 1970s style inflation though. Had I-Bonds existed in the 1970s, they would have outperformed every other type of U.S. Treasury and the vast majority, if not all, of the corporate bond funds as well. I am 100% convinced of that.

First, I-Bonds have a very difficult time defaulting. The government will print money in your honor. Corporations do not have that luxury on their bonds. Seeing as how we are still in a credit crisis of unknown magnitude, this alone could be worth a lot.

Second, I-Bonds earn an inflation adjusted return. If inflation rises, so does the earnings rate. Most bonds do not do that. You are stuck with the rate you started with. End of story.

Third, the interest is tax deferred up to 30 years. Should inflation rise and interest rates with it, deferring those taxes can have a huge impact on the overall return (as I have tried to show in previous charts).

Fourth, I-Bonds do not have any management fees. Why pay Barclays for what you can get for free directly from the government? How can you start with the premise that you want something for nothing, then also expect to pay someone else to give it to you for free? *baffled expression*

Fifth, while I-Bonds must be held one year you also have the option to hold them up to 30 years. If you cash them out before five years there is a slight penalty. After five years there is no penalty at all. If you decide later that you don't like the rate you were originally offered, presumably because better rates came along, you can sell them back with absolutely no loss (even after one year, since you simply lose some interest, not the principal). Try that with other bonds if things don't go your way. I can't easily put a price on what that safety's worth, but it is certainly worth something!

Sixth, there is a $30k annual maximum limit on I-Bonds. Why do you suppose that is? Why won't the government allow you to buy more than that? In my opinion, it is because the government isn't completely stupid. If it goes down the inflationary path it can't very well have every rich person in America protecting his or her entire net worth. That's why. It is the same line of thought that goes into putting caps on tax deferred IRAs.

Good grief. Of course Barclays is better? Is that how brainwashed we've become? Barclays is somehow adding a service that will enhance the returns on government debt? Now don't get me wrong. I like the Barclays funds. They've got reasonable fees compared to the others. In fact, the only funds I own are Barclays funds. I should say fund, since I'm entirely in TIP (Barclay's Treasury Inflation Protected Securities fund). The rest of my money is with the U.S. Government directly (short-term treasuries, TIPS, and I-Bonds).

As a side note, I just opened up a Treasury Direct account today. I already have a Legacy Direct Treasury Account (uses the Postal Service). I believe I can double the rate of my I-Bond purchases (since paper I-Bonds and Treausury Direct I-Bonds appear to have their own individual annual maximums).

I feel like the David Lereah of I-Bonds. There's never been a better time to buy! (Which isn't quite true, since 2000 was a fantastic time to buy. Oh how I wish there wouldn't have been an annual maximum then. I can honestly say my entire net worth would be in them earning that 3.4% real rate I was offered, since that's exactly what I was saying then.)

Speaking of the government not being completely stupid, I am extremely impressed with the safety features provided when setting up my new Treasury Direct account. Wall Street isn't nearly as concerned by comparsion.

This is not investment advice. I'm "betting" on stagflation and do not expect to make a dime in the upcoming years. I hope to merely hold onto at least some of what I have. I could be wrong on both counts of course.

Mud Will Fly!

Competition is the facilitator of innovation. And creative destruction, the process by which less-productive capital is displaced with innovative cutting-edge technologies, is the driving force of wealth creation. - Alan Greenspan, 2002

Yes, I do believe creative destruction is the "driving" force. So let's get to it.

Sunday, Sunday, Sunday! This ain't no mama's boy Sunday picnic!

We're turning the financial arena into a giant mud pit! For the first time ever in the coliseum we are building a 200-feet-long, 4-feet deep pit of financially frozen asset-backed paper, then we're turning the bankers loose to blast their way through the muck and mud!

They'll be racing against the clock to see how fast and far they can negotiate the mud pit. There will also be a pro and amateur class for all risk takers.

This is a competition that anyone can enter! And I do mean anyone! Check the fine print on your money market fund! You are competing whether you want to or not!!

Apologies to Mud will fly inside Hardy Murphy Coliseum for my brutal paraphrasing of their work.

Korean Cheese Crisis

Cheese 'Crisis' Curdles Profits for Korea's Pizza Makers
Korean pizza restaurants are in the midst of a "cheese crisis", as soaring demand for dairy products in China has the price of cheese sky-rocketing. Unable to bear the increasing costs, a great number of small pizzerias have gone out of business. Many survivors have been forced to hike prices even though they know that will cost them customers.

Behold the power of cheese!

The cheese shortage has also triggered other problems, such as greater circulation of cheese products nearing their expiration dates and more low-quality cheeses made from high percentages of imitation cheese.



An Asel Food employee said that the situation facing the pizza industry is more serious than was the financial crisis of 1997.