A quick administrative update.  I’ve cancelled the email list that I’ve been running for some time – note: you can still subscribe to the site via email through the main link on the top left – I’m referring to the separate email list.  It cost me $20 a month and really didn’t add any value except to make my RSS subscriber count look better.  So, I’m saving some money now, but my count went down about 300 subscribers   Hopefully, I’ll build it back up soon!

Thanks as always for visiting 20smoney.com!

This weekend is potentially an historic weekend.  Whether or not it’s a good weekend depends on your stance.  To help you iron out your stance, check out the article from the other day on whether or not health care is a right.  Be sure to read the comments of the post.

On to the reads…

Jim Rogers says another recession is coming (SHTF) I think it’s debatable whether the first one is over!

Caterpiller (CAT) says that the health care bill will cost them $100 mil the first year (Business news)

Moody’s fear social unrest (Telegraph)

Palm, Inc (PALM) is in trouble (Reuters) I’ve been saying this for a while – see my most recent article here

Sorry for only a few this weekend, I’m very busy right now! Enjoy your weekend.  I’ll definitely be posting some post-health care vote commentary next week, so be sure to check it out.

If you’ve ready anything about the losses on the books of the government housing entities like Fannie & Freddie, the losses are over the $200 billion market for the last couple years.  In recent years, we’ve had a massive increase in FHA loans potentially sowing the seeds for massive losses in coming years (2011-2013).  The overall picture is one of subsidized housing and massive losses in the public sector.  Since losses are just plugged with tax payer dollars, the result is taxpayer funded subsidized housing.

If we move to the health care sector, and start analyzing what a government encroachment into this sector might look like, we should keep in mind the housing picture.  Proponents of health care “reform” say that a public insurance plan is a great way to increase competition, and of course, if you want to keep your insurance, you can.  Well, I can get a private mortgage through Bank of America or I can get one through FHA, but why do more than half of all mortgages now go through FHA?

My point is that by being able to run at an operating loss, government programs or “options” will always slowly take over market share.  In the same way that FHA loans are now almost all new loans being originated, the public health care option would take over most health insurance policies.  Would this be a sustainable or operate without incuring a loss?  Of course not, and if you disagree, you’re extremely naive.

So, yes, we could move towards the government providing everything for us in life.  They could charge less than the private sector which seems wonderful to people who have no clue about economics.  The losses on the government books will pile up.  These losses will be met with either higher taxes (unlikely) or more debt and printing press.  My guess is that the debt will increase and so will the printing press activity (hello, inflation).

This is arguably the most important week in the health care “reform” debacle that has overtaken the political scene for the last year.  I could go on and on about the circus-like performance of our esteemed leaders in Washington, D.C., but I’ll leave that for another day.  For everyone who voted for “change”, the country is definitely changing, that’s for sure.

In a shocking, but not so shocking article for those of us who continue to yell about the broken economy of the United States, CNNMoney talks about the insanely low levels of retirement funds for most Americans.

A few highlights from the article:

• The percentage of workers who have less than $10k in retirement savings grew from 39% to 43% in 2010
• Workers who have less than $1k jumped to 27% from 20%

Factor in unemployment, health care costs, the fact that most Americans are underwater on their homes, insane debt levels, the government is broke, etc. and it all adds up to a simply depressing situation.  And, you’re buying stocks right now?

The way I see it, the typical middle class retirement dream is gone for most people.  It just isn’t going to happen for our generation.  The below table presents the possible solutions to this horrific retirement savings picture.  The problem is that each “solution” comes with a consequence.  The last column will tell you how to prepare for this consequence should the corresponding solution be implemented.

Am I reading this wrong?  Please set me straight if I am.

As I ponder the future for the average 20-something American, I’m not sure if I should be excited about the future since it’s undoubtedly going to be interesting, or if I should stock up on guns and food, or if I should just cry. Either way, we’re going into uncharted territory.

If you’re not too depressed, read my post from yesterday entitled America: Land of the Unsustainable.  This should complete the one-two punch to ruin your day.  God bless.

With health care all over the media, I figured let’s get some discussion going here.  The primary issue at the core of much of the health care debate is whether or not health care is an entitlement or a right.

If you believe it is an entitlement/right, then what about food & housing?  Education?

Please add your thoughts in the comments below.

America… The land of the free unsustainable.  There was a good article recently on the length of unemployment benefits from the Washington Post.  Incredibly, you can now collect unemployment benefits for just under 2 years.  Yes, 2 years.  Through a number of extensions (no thanks to that rich, hateful Jim Bunning from Kentucky of course!), the government has made it easier to be without a job for up to 99 weeks.

The morality of the legisation can be debated.  The sustainability (along with the numerous other government programs these days that continue to grow) of the legislation cannot.  Simply put, the government is facing widening deficits as far as the eye can see.  For those of you who don’t know what that means, it means the revenues aren’t enough to fund the programs that are in place. To make up for the gap, we sell Treasuries or borrow money.  Unfortunately, not enough people want to lend us the money to fill the entire gap.  So, as a result, we print money to make up the last gap (called quantitative easing).

We don’t need to get into a whole shouting match here about not caring about those are in need, because frankly, I actually do care about those who are in need while at the same time I think that most people who think they are in need aren’t really in need.  I don’t feel that bad for people who are losing their 4000 sq. ft. home.  I’m sorry, but you can live in a smaller house or an apartment.  In fact, I am pissed that my tax dollars are being used to help you keep your giant McMansion while you still go out to eat a few times a week and drive a $20,000 car.  There are greater tragedies in life.

The problem is that the extended unemployment benefits will actually do more harm than good.  These benefits will cause people to avoid making the necessary changes in life.  Additionally, it allows the economy as a whole to avoid making the necessary changes it needs to make in order to get back on a sound foundation.  An example of such a change is the  following:

• Propped up consumer spending keeps companies in business that should go out of business - Why would I want businesses to go out of business?  I want businesses that can’t survive on their own to go out of business because it unwinds the misallocation of resources (people + money) and allocates them towards actual productive uses that will benefit our economy for years to come.

We’re more and more becoming a nation of people dependent on the Federal government.  More people are on food stamps, unemployment benefits and other assistance than ever before in this country.  Is this a stat that we are proud of?

Did you know China has no welfare?  I’m not saying this is the solution, but I would guess that in China, families take care of eachother much more than in this country.

The harsh reality is that the standard of living is going to move lower for many, many people in the United States.  Eventually, even government programs will fail to prop people up.  The market forces always have and always will eventually overwhelm even the most fierce government intervention.  The government can move our economy against the current for a short time, but eventually the current becomes too strong.  Whether a currency crisis, or a double-dip recession, or a deflationary death spiral, eventually this thing will reverse.  It doesn’t matter exactly what it looks like.  What matters is that reality will set in and for people who are unprepared, it will be ugly.  Unemployment benefits can last indefinitely, and it won’t matter.

Although it will still be painful, these economic realities can be faced on our own terms.  Yet, our path is clear.  We refuse to acknowledge the flawed economy that we continue to prop up.  Eventually, we will have to face the reality, but not on our own terms.  Until then, I will prepare for that day.  What are you doing?

The following question has been debated for years:  What you should do with your money? Work on paying off your mortgage or invest the money in stocks?  Most people go the stocks route since the mortgage rates these days are so low, and people are still buy into the mentality that over time stocks will always bring a nice return.

I was listening to Dave Ramsey the other day and he actually made some pretty interesting points about this whole debate.  They are:

• If your home were paid off, would you borrow against it to invest in the stock market? Almost all people would undoubtedly say no to this question, yet it’s essentially the same thing as paying off your mortgage vs buying stocks.  If you answer no to the question, then you should still attempt to pay off your mortgage versus buying more stocks.
• After doing financial counseling for decades, Ramsey believes that people who pay off their mortgage actually end up wealthier in the long run even despite potential greater returns in stocks.  The reason for this is that by having their residence paid off, these people are pushed to make continuous sound financial decisions and also take other risks in the area of careers and business.  These actions tend to result in greater wealth down the road.
• Ramsey said 100 out of 100 times he would recommend people to pay off their mortgage before investing that money in the stock market. A pretty convincing argument!

So, I think Ramsey makes some pretty good points here.  The common arguments against this approach are that people like to have a cash reserve available or the liquidity of stocks (to access the cash if they need it) and it’s dumb to pay down a 30 year loan at 5% because you can easily make more than 5% on your money.

My two arguments against these common points are that you shouldn’t pay off your mortgage if you dont have a cash reserve.  Ramsey wouldn’t advise this if you look at his “baby steps” plan.  To the second point, the idea of long term guaranteed returns in stocks is way overplayed in my opinion and there are bigger advantages than just the guaranteed return of paying off your mortgage (emotional satisfaction, great sense of stability, guaranteed financial returns, your risks are much lower if you’re unemployed, etc.).

So, what say you on this question of paying off the mortgage vs investing in stocks?  Does Ramsey’s points above change your mind at all?

One of the biggest “life events” many of us experience during our 20s (or 30s) is the arrival of a new member of the family.  A new baby can bring a great deal of excitement and responsibility.  The great thing about a new baby is that you have about 9 months to prepare for him or her.  Your financial preperations are very important.  Here’s what I’ve learned going through the process.

There are a number of expenses that come with a new baby.  Some of the major ones are:

• Medical expenses with repeated doctor visits as well as costs of the birth / hospital stay – Estimate $750 – $2,000
• Setting up a nursery can vary big time depending on how overboard you go, but most people will buy the basics such as a crib, rocking chair, and some other basics – Estimate: $300 – $1,500
• Clothes and other baby essentials such as bottles, diapers, changing pads, blankets, etc. - Estimate: $300 – $500
• Safety items such as strollers and car seats can also get expensive and might not be items you want to skimp on – Estimate: $200 – $800

Additionally, you can count on an increase in your monthly spending.  Items such as diapers, formula and clothes will need to be continually purchased since they’re being consumed or out-grown. I estimate between $200 and $300 a month on the day-to-day needs of a baby.

The wonderful thing is that some of the upfront costs might be saved due to the generosity of family and friends during this exciting time.  Events like baby showers sometimes end up being generous gift giving events where you get many of the items you will need.

I’ve definitely left out many items in the above list, but it’s a pretty good starting point.  I suggest estimating out the total costs of a new baby along with 3-6 months of anticipated day-to-day costs.  Total that number up and start putting money away during the pregnancy to attempt to reach that number.  There are plenty of new stresses with a new baby ( especially if it’s your first baby) so do your best to eliminate the uncertainty over the financial aspect of this process.

If this isn’t your first baby, then you likely have many of the major items that you purchased for your first baby.  While this will help for some of the up-front costs, you will still need to buy the day-to-day stuff for a new baby (in addition to your other children’s needs).  Multiple kids can definitely add up!

If you’ve gone through this process, what are some tips you would share with a soon-to-be parent?

If you’re curious about the Yakezie Challenge, I describe it in my Allure of Alexa article.  Here are some great articles from some of the participants.

• I love Net worth statements.  Check out Money Funk’s February net worth statement
• Punch Debt In The Face asks the question: Are you an account whore?
• Check out the Hidden Gem of Life Insurance over at the Evolution of Wealth
• Savings Account or Buying Shares? Good article at Planting Dollars
• Find our your magic number at Eliminate the Muda
• Life in the cheap lane at Sweating The Big Stuff
• Financial Samurai presents The Art of the Interview
• Well Heeled Blog looks at Shopping For A Mattress
• An interesting take on the mortgage tax deduction at Rainy Day Saver
• Read several posts at a new blog that I enjoyed checking out: Downturn Living

Enjoy your weekend!

An entire city built by the government in China is empty. A clear example of the disaster of non-market driven projects.

The following video shows the world’s largest mall called the South China Mall. It has over 1500 stores, and almost all are… completely empty. A colossal commercial real estate debacle.

While I’m definitely bullish on China over the long term (real long term), there are definite bubbles and massive misallocations of capital and resources that need to be worked out in China. Follow my China investments on my Major Trends page.