But isn’t that sad? Why don’t people just temporarily increase it themselves? Or permanently if they can afford it. I think most people with disposable incomes don’t have a problem paying for necessary expenses but they don’t want to put an extra dime into something that is mentally considered discretionary. If employers forcefully increase contribution amounts it would fall into that “necessary expense” category. I’m all for giving people the freedom of choice, but I think the automatic option when you start work is 10% going to retirement accounts.

It shouldn’t be the case that employers play any part in our savings. But even today some employers are the sole providers of retirement savings for their employees with pensions. That’s going the way of the dinosaur, but we’re still in a transition phase, which is what the 401k is all about. It’s possible in the future that employers won’t provide any benefits. But if they continue to do so it’s because the labor market demands it.

And as long as the labor market demands it, we should want those employers to help us make the best choices possible. It’s certainly clear that we aren’t good at making decisions on our own.

Making things easier

If you look at the current system for retirement plans out there, it’s clear not enough has been done to make things easy for the consumer. Most of the people working today at least grew up expecting a pension. The first generation of people that only knows 401ks and IRAs is only in the first shift of their careers. Everyone else (and many young people too) are daunted and confused by all the options available to them.

My employer has, in an attempt to make things easier, has made things harder. Going through the systems at work to check the information of my retirement account takes 5 minutes and at least 2 different log ins. Even after that I’m faced with a website that is difficult for even me to read. I can barely tell the difference between my 401k and the token pension based on the titles of the accounts. Nothing is customizable and nothing is easy to follow.

I used to think that idiots deserve what they get but in the last few years have started to fall in line of at least helping people make the proper decisions. For instance, I know nothing about healthcare and health insurance and would love for all of it to be easier for my monkey brain to make the right decisions. I’d rather not have to pay a stupid tax when it comes to health care.

Employers can do a number of things in addition to automatically enrolling employees and increasing their contributions amounts. They can make the websites easy to understand and be proactive about forcing the providers of the plans to make things less complicated. Even something so simple as having the retirement account website automatically bookmarked on work computers could go a long way.

Read: We Have Ways of Making You Save More (WSJ)

Image: 401K

Related posts:

1. We Need Opt-Out Retirement Plans
2. Kiplinger’s Teaches Us How To Save A Million Bucks In Eight Years
3. Four Features Missing From Your Retirement Accounts

Related posts brought to you by Yet Another Related Posts Plugin.

Please enjoy the list:

• 1/31/2012 Homeownership rates fall to 66% as downturn nears a bottom – USA Today
• 1/10/2012 Has The Housing Market Hit Its Bottom? – Forbes
• 12/8/2011 Is the Housing Bottom Finally in Sight? – Kiplinger (my favorite!)
• 9/27/2011 This Has To Be The Housing Bottom – Seeking Alpha
• 6/21/2011 The Housing Bottom Is Here: Economist Russell Price Explains – Daily Finance
• 4/24/2011 We Could Be Near a Housing Bottom – Seeking Alpha
• 2/2/2011 Why the Housing Bottom Might Be Here – US News
• 1/28/2011 U.S. housing bottom seen in mid-2011: poll - Reuters
• 11/19/2010 Housing downturn has hit bottom – The Business Journal
• 10/25/2010 Rising Home Sales Point to a Housing Recovery – Daily Finance
• 10/8/2010 3 Signs the Mortgage Market Has Hit Bottom – Smart Money
• 5/12/2010 US Housing Prices Projected To Reach Bottom In Q3 2010 – NuWire Investor
• 4/27/2010 We Have Met the Housing Bottom, Maybe – The Atlantic
• 4/22/2010 More Signs of a Housing Bottom – Seeking Alpha
• 1/29/2010 In hard-hit markets, some see signs of bottom – MSNBC
• 2/12/2010 Builders: Housing bottom is here – SunSentinal
• 12/15/2009 Builders Say 2009 Marks Housing’s Bottom, 57% Predict Revenues Increase in 2010 (I checked, and a few did have revenue growth, most didn’t, and 2011 was worse) – World Property Channel
• 10/30/2009 Moody’s: No Housing Bottom Until Q3 2010 – Wealth Daily
• 8/21/2009 We Called It: The Housing Bottom – The Street
• 5/13/2009 Yet Another Greenspan Housing Bottom Call – Barry Ritholtz
• 2/9/2009 U.S. Housing Market May Bottom in 2009, Zandi Says – Bloomberg
• 10/27/2008 UCLA sees O.C. housing’s bottom by next summer – OC Register
• 8/27/2009 Cramer Calls the Housing Bottom (Q3 2009) – CNBC
• 8/17/2008 Greenspan sees housing bottom, criticizes bailout – Fosters
• 7/24/2008 The Media Are Missing the Housing Bottom – National Review (Larry Kudlow called this one)
• 2/21/2008 No housing bottom until ’10: CP Morgan – Reuters
• 1/15/2008 Mortgage bankers expect housing market to bottom out in third quarter – BizTimes
• 1/8/2008 Stable Existing-Home Sales Expected in Early 2008, then Gradual Rise – National Association of Realtors
• 12/19/2007 Is Collapse of Home Prices About To Hit the Bottom? – The Sun New York
• 12/1/2007 Will Home Prices Hit Bottom in 2008? Yes, but . . . – Kiplinger (again? of course!)
• 11/26/2007 Deere Sees a Housing Bottom in 2008 – Seeking Alpha
• 9/14/2007 Hovnanian Chief Says Housing Bottom Is `Very Near – Bloomberg
• 8/16/2007 Contradictory News Suggests Housing Bottom Could Be In View – Realty Times
• 5/25/2007 Housing Market Nears Bottom – Forbes
• 4/20/2007 Housing Bottom Callers – Calculated Risk (Hank Paulson here)
• 4/17/2007 IMF believes US housing market may bottom out – Reuters
• 2/17/2007 NAR Says Existing Home Sales Have Hit Bottom – Realty Times
• 2/8/2007 Housing still on down slope Economists say no recovery until midyear; prices face record fall – Market Watch
• 12/21/2006 Housing ‘close to bottom,’ realtor-group economist says – Market Watch
• 12/5/2006 Home builders see bottom of housing slump – CNN Money
• 11/15/2006 Housing slide may deepen; New forecast sees bottom in 2008 – Boston Globe
• 10/6/2006 Greenspan Says `Worst’ May Be Past in U.S. Housing – Bloomberg

When will we see the real bottom? It could be soon, one of the few people I trust to have an unbiased opinion (and someone who has attempted to track all the prior claims for a bottom) explains there are actually two housing bottoms to look for and they may be closer than you think. We’ll see if he’s right, or if he gets added to this list.

If you have more articles you want listed claiming a housing bottom, put them in the comments. While there are many stories that talk about the bottom, for the sake of this list just look for headlines.

Image: Nick Bastian Tempe, AZ

Related posts:

1. Where Does Housing Go From Here?
2. Government Intervention Visualized
3. A Reminder We’re Not Out Of This Recession Yet

Related posts brought to you by Yet Another Related Posts Plugin.

Maybe you could.  Because interest rates aren’t just driven on the likelihood of default, they are also dependent on the market.  And while the US went from being “near perfect” to “perfect-ish”, the global bond market has been in turmoil.  This means that the US is still considered the safest place in the world to park your money, and so rates have fallen.  Just as a person with a 700 credit score today can get a better loan rate than someone with 750 a couple of years ago.

Rates have gotten so low they’ve actually been at zero percent recently and traded at a negative yield in the secondary market. The US Treasury may soon offer some short term Treasury bills with what’s called a negative coupon.  When investors submit bids for the bills they might offer $101 for a bill worth $100.  Under normal circumstances they might bid $99.  In 4 weeks the US would give them $100 back in either circumstance. When investors are allowed to bid $101 for the a $100 bill, that is a negative return, or negative interest rate.  The idea of investors paying for the privilege to lend money to the US is so weird the Treasury systems will have to be updated just to make it possible.  But this is something that has already been happening in the secondary market for these bills and so by updating their systems, the Treasury would either have to borrow less or could perhaps consider taking the proceeds and putting it towards our national debt.

Negative interest rates are not common, but you can effectively see them all around you.  Think about your checking account.  When you deposit money into a bank you are loaning it to them.  They will pay you a small rate (if at all) for allowing them to borrow it.  But then the bank slaps you with a couple of fees every month and even if you are getting interest the fees more than offset it.  So you’re paying the bank for the privilege to lend them your money.  Banks don’t see it this way because of all their overhead, but essentially that’s what you got.

Does it make you kind of wish banks would just get rid of fees and charge a negative interest rate?  Part of me feels that way.  Ditch all the fees, just charge 1% per year based on some kind of average balance.  But that will never fly because each account has a basic fixed cost.  If it costs $100 a year (it’s actually more) to keep a checking account going and they need $20k in balances to make that back then they aren’t going to charge wealthier customers for their business.  They wouldn’t need to because they could make the money back elsewhere.  People with balances below that line will just cost the bank money.  So you’d end up with a segregated population that is divided by the people who pay for the privilege to lend the bank money and have access to their  cash, and the people that are paid to have the same access.

Banks know that middle and lower-income demographics won’t respond well to that, so instead you have the al la cart menu fees which, while annoying, have the appearance of being fairer.  Plus no consumer is going to park $50k in a place that pays -1%.  So while the Treasury is looking forward to indulge in a little negative interest rate territory don’t expect to see it show up on your banking documents for a long time.

Read: Treasury may let investors pay to lend to U.S. government (Reuters)

Negative Bill Auction Yields Would Avoid ‘Grab-a-Thon’ (Bloomberg)

Image: SqueakyMarmot

Related posts:

1. What Happens When The Banks Pay Back TARP Money?
2. The Near-Term Future Of Deposits
3. Are Interest Rates Too Low?

Related posts brought to you by Yet Another Related Posts Plugin.

And when that happens he’s no different than any other house pet. And what do they all have in common? They all barf, and they all barf in the same place.

The carpet. Our humble abode is blessed with hardwood, tile, vinyl, and carpeted floors. Additionally there are rugs. Given all these options where should our dog choose to let dinner fly but the carpet floors of course! And while we clean that up we do what any responsible pet owner does and shove them in the bathroom in case they throw up again. This is where we have tile. So we’re safe. Or so we thought.

In the bathroom is a bathmat which takes up less than 10% of the space. And our dog wasn’t finished… Where did he go? Where else?

Such is the life of pet ownership.  Totally worth it.

Related posts:

1. How Much Would You Spend To Save Your Pet?
2. Weakend: The Plutus Awards, Don’t Vote For Me
3. Weakend: Gratitude

Related posts brought to you by Yet Another Related Posts Plugin.

And for some reason I already know they’re doing another Star Wars commercial this year. In fact, I know just about everything that’s going to be shown at this year’s Super Bowl because every company advertising has already “leaked” their commercials.

Of course it isn’t a leak, they do it on purpose. And why wouldn’t they? People love the commercials so much that they’re willing to watch them online. Posting the videos to YouTube and having every blog out there show it is tons of free advertising.

But are we really so sad that we watch commercials before they’re supposed to air? I for one have refused to watch a single commercial because I intend to enjoy them during the Super Bowl on Sunday. Join me, don’t be the kind of person that watches commercials before they’re supposed to be on TV.

They will be good, and they will be funny. And if you’re sitting there watching the commercials with all your friends and you already know what happens you’re really going to be that guy we all hate.

Related posts:

1. Super Bowl Economics
2. Weakonomics Weekend Edition: Super Bowl XLIII Edition
3. Weakend: Super Bowl Weekend

Related posts brought to you by Yet Another Related Posts Plugin.

The year of 2011 may go down in history as the year that never was. Our financial markets, despite a rollercoaster ride throughout much of the period, ended the year amazingly enough at roughly the same levels as where they started. The S&P 500 index concluded 2012 at 1,257, the same as a year ago. The Euro versus the Dollar was still at $1.30, a figure difficult to accept with all of the dour news pouring across the Atlantic, and the Yen remained strong in spite of a horrific earthquake and devastating tsunami.

It may be time to buckle your seatbelts or resort to taking a long-lasting sleeping potion. Most experts believe that we will see a repeat of 2011 right before our very eyes in 2012. Hopefully, we learned a few lessons along the way, but here is a brief recap of a few significant events that transpired over the past twelve months:

• We learned to broaden our definition of the word “crisis”. The European debt crisis actually began to surface in November of 2009, and it is now entering its third year on the global stage. The word “crisis”, as a matter of fact, comes to us from the Greeks and is supposed to represent a situation that has reached a critical phase. Perhaps, things move more slowly in Europe or the “critical phase” keeps being delayed by political machinations, but the officials in the know are now telling us that the so-called crisis may last for years. It is hard to believe that a country with an economy no larger that that for Dallas-Ft. Worth could cause such a stir, but credit default swaps may be the “culprit” once again, this time on sovereign bond issues instead of toxic mortgages;
• In Japan, we witnessed a true natural and national crisis occur back in March. For some of the hardest working people on the planet, an earthquake and a subsequent tsunami was the last thing anyone expected for a country still trying to recover from two decades of recession. Living on the “Rim of Fire” is far more risky than living in California, as “24/7” news cameras revealed. The national grid came to a screeching halt, export trade froze in its tracks, yet the Yen strengthened, even after several interventions by the Bank of Japan and other central banks. A weaker currency would bolster the rebuilding effort in progress;
• On our shores, the Fed was successful in expanding the money supply by its buyback of $600 billion in securities with its quantitative easing program, dubbed “QE2” by the press. Banks were still hesitant to loan the funds to small businesses, stalling the modest recovery that began to take shape before June. What will make commercial banks focus on lending instead of transaction–based bonus compensation? Bring back “Glass-Steagall” was often heard in many corridors, but political gridlock blocked the debate on any new initiatives and resulted in a credit-rating downgrade, to boot;
• We learned that uncertainty begets volatility in our financial markets. Equities, commodities, and currencies gyrated wildly during the year, yet the Euro and Yen maintained strong positions despite numerous shorting attempts by forex traders. The lesson was that, in a time of crisis, banks, companies, and individuals repatriate their private “stashes” of assets overseas for survival of the home front. These capital flows thwarted major forex hedge funds and retail traders alike, leaving both groups speechless and recording losses.

Hope you paid attention in 2011 – the “record” is stuck in “repeat” and still playing!

Related posts:

1. Debunking Three Myths About The Cause Of The Crisis
2. Weakonomics Links: The Next Financial Crisis?
3. You know I rocked my 2011 predictions

Related posts brought to you by Yet Another Related Posts Plugin.

I estimate that there are 2.5 million households or nearly 2.2% of the total that have annual realized incomes of $250,000 or more. Using Ms. Muller’s estimates that 39% of “the rich” buy luxury brands, one can estimate the number who do so, approximately 975,000. Ah, but this population is much smaller than those households who drive prestige makes but have annual incomes under $100,000. About 30 million households have annual incomes in the $50,000 to under $100,000 bracket alone. Translated: 8% of 30 million = 2.4 million who are buying luxury cars but are not in the so-called “rich” category. This population is nearly 2.5 times the size of the high income/luxury vehicle buyer.

In other words, most of the people buying luxury cars make less than $100,000 a year. That alone is interesting but we can go back into the numbers and learn more.

Dr. Stanley discusses in his post that the average price paid for a car by a millionaire is just over $30 grand. For the decamillionaire: $40 grand. So when someones wealth increases by factors, their spending on vehicles increases by fractions. That means that at some point on the wealth stream we stop spending more on our cars. But with so many people buying luxury brands with lower incomes it’s clear that until we reach that point, we’re overspending on cars. It sounds like that many people are faking being rich, until they actually are. Then they scale back.

This implies two things about rich people:

• After a certain point projecting status becomes less important and money is spent on things with more value (maybe a second home, private school for the grandkids, charity).
• Once we cross a certain point we start saving a greater percentage of our incomes

These two things are not mutually exclusive.

But what does it all mean? These numbers tell me a story about people that live beyond their means, and it’s not just with cars. It’s with purses, vacations, clothes, jewelry, food and even gifts. Most displays of economic status are not likely to be proportionate to the actual status. It is only and indicator of willingness to pay.

Personal Car Advice:

Should you be the type that struggles with figuring out exactly how much money to put towards a car, here’s my little formula. Take your total household income and subtract out any debt payments that aren’t for a mortgage. Take half of that and you’ll have the total maximum value one should ever have for their vehicles. An example is in order.

Say your household makes $90k and after student loan and credit card payments you clear $80k. Half of that is $40k so you should never have cars totaling in value beyond that. For a family with two adults that’s two cars worth $20k each. That is not to be confused always having cars worth that much. Each car should be owned for at least five years and new purchases should have at least 50% down and paid off within 2 years.  Buy a car where you can do that. Get all that?

Now, spending more than $30k on any one car should be considered a luxury purchase and made in all cash. If you can’t swing those things then you can’t afford the car you want. If you can’t follow all that definitely just buy a car that costs 25% of your income, all cash.

Related posts:

1. Consumption Junction
2. A Case For A Consumption Tax
3. A Case Against The Consumption Tax

Related posts brought to you by Yet Another Related Posts Plugin.

Over time savings rates do cover inflation.

Now if you actually watched the press conference you’ll know Bernanke fumbled with his words a little bit and some people could interpret his statements as implying savings rates always cover inflation. But he’s not so stupid.

Nevertheless, people pounced on the idea to prove they are capable of basic subtraction. Yes, if you look at the current rates offered on CDs or savings accounts and compared that to the current level of inflation, you will find that as of this moment in time you will not get enough returns to cover the inflation.

But Bernanke said that over time savings rates do cover inflation. We certainly know we are not in normal times, but charts always do a much better job of illustrating the point.

What you’re seeing here is the inflation rate (in red) and the rate on a 6 month CD graphed over time. Not only is it clear these two items are closely correlated, but it’s also obvious that for most of the last 40 years even a 6 month CD pays better than inflation. 12 month CDs are usually higher than 6, but that data was unavailable. The difference would have been even wider.

Now why is this? In finance interest rates are made up of a few components. The most basic are the cost of funds, the expected inflation rate, a premium for time, and a premium for risk. In simple terms, if a bank offers you a 5% mortgage, that rate accounts for all of these things. The blue line in the chart represents a cost of funds, and the red line represent inflation. By combing these rates with others banks are able to calculate how much interest to charge (at a minimum) in order to make it worth their time to lend money.

It stands to reason that the cost of funds (the blue line) would be more than the rate of inflation most of the time. This is because when you deposit money at a bank you are essentially lending it to them much like they will lend it out in a mortgage. You aren’t worried about risk due to FDIC insurance, and your cost of funds is zero since it’s yours. So you are compensated for time and inflation.

Even if that doesn’t make sense to you, the chart should. The Fed Chair understands that the interest rates on deposits are practically nothing these days. But, when the economy recovers the rates will go up again and you will again be compensated for inflation.

Related posts:

1. Ben Bernanke is Punishing Savers
2. Are Interest Rates Too Low?
3. When Will Interest Rates Go Up Again?

Related posts brought to you by Yet Another Related Posts Plugin.

It’s quite simple really. Communist China and the USSR were close allies during the Cold War. Of course the US spent much of the cold war trying to spread democracy around the world. With it came capitalism too. In the 1970s some in China started to realize that the Communist system wasn’t going to survive in its current state.

They proposed reforms that through the last 3 decades have lead us to where China is today. Russia stayed the course and suffered a collapse. China slowly reformed its economy and now you can get stuff for next to nothing.

Think about it this way, many manufacturers in the US actually outsource the production to a Chinese factory. Chinese labor is cheap and American companies can enter into a contract with them because of the reforms in China. As a result goods in the US are very cheap. We get free toys with our Happy Meals, Walmart allows you to get whatever you want at whatever price you want so long as it came from China, and every weekend we go out shopping for more crap to put into our McMansions.

Because stuff has gotten so cheap, we’ve been able to buy more of it. If laptops cost $2000 for a basic machine again, we wouldn’t be able to waste money on new trays for the silverware, or that fifth vase.

As China was liberalizing economically, we were growing, physically. We got fatter and our houses got bigger. Laptops dropped to less than $1000, we could get coffee tables for the price of a family dinner at Subway, and our houses got filled with stuff.

If we hadn’t won the cold war, we would probably still be making most of our stuff in the US. That stuff would be pricier and we wouldn’t be able to afford as much crap. But it is just crap, and we’d be perfectly fine, or arguable better, with out it.

Now someone reading this will question whether we won the Cold War. Allow me to clarify. We didn’t win so much as communism lost. Communism was replaced by capitalism, which was a catalyst for globalization.

We could all choose to buy less stuff, but you can’t expect an entire population to do that. What you can expect is that over time the price of crap will become expensive again. Cheap labor is becoming harder and hard to come by. And the cost of a global supply chain is too pricey to ship goods half-way across the globe.

Consider the last twenty years the prize for the consumer winning over the communist. Of course, this all came at the expense of the American manufacturing worker.  Enjoy your crap America.

Related posts:

1. “Why Pulling Out of Iraq Won’t Save Money”
2. The Failed War On Drugs
3. How High Oil Prices can be the Downfall of Asian Economies, and the Savior for the West

Related posts brought to you by Yet Another Related Posts Plugin.

Please don’t consider me an Apple fanboy. This post is being written on a Samsung/Windows machine using a Google document and by the time you’re reading this I’ll be in a world of Windows XP and Blackberry. A world I prefer. But between The Sheconomist and me, we’ve owned 4 iPods, 4 iPhones, and a Macbook Pro. These are all Apple products and very rarely have we ever had an issue with them.

Which brings me to my issue. The Sheconomist got me a brand new iPod Nano for Christmas, a wondrous and highly desired surprise. This iPod is touted for fitness types with a built in tool for tracking your jogging and is light enough to not be felt. It even has a convenient clip. Ahh the clip.

There is a problem with the clip. It’s not a manufacturing one but one of design. It doesn’t grip things easily. And just barely a month after I received this prized possession, the clip slipped off my shorts during a routine walk and the following happened.

Tragedy!

An accident, some asphalt, and a heartbroken Weakonomist. Knowing how expensive consumer electronics are I’ve always bought protective cases. My original iPod Nano doesn’t have a scratch on it. Because this device was so small and had a clip, I never bothered to acquire a case for it. As a matter of fact, my local Apple store only sold one case that protected it, and the case was an ugly thing with a carabiner attached to it. Apple appeared to be sending the message this device was durable enough for its intended purpose.

This was the cusp of my plea to my local Apple store for help. Apple is smart, they looked up my account and can see all my activity. This essentially allows them to determine if I’m profitable enough to help out. My service history with them has been zilch, other than a replacement iPhone that was defective. My relationship is profitable to them. And so, much to my delight, they replaced my Nano free of charge!

That last sentence alone sets apart Apple from most other companies I’ve ever had a relationship with. Apple does this for two reasons. First, they’re willing to eat some profit on the hope that I will reward them in the future with more business, which I will. Second, they’re able to price their goods in such a way they can build in the cost of such consumer friendly behavior.

What further sets them apart is their empowerment of the workforce on the ground to make these decisions. Surely a tool probably helps them, but the final decision is likely theirs. I didn’t have to ask for a manager, I just presented my case.

Why aren’t more companies operating this way?  Surely Apple isn’t just a diamond in the rough.  In some ways Apple is.  For too long companies have been focused on short term results.  It’s easy to make a chart showing how great margins will be this quarter if we just cut a couple of corners on outstanding customer service.  And when profits start to suffer, going the extra mile for the customer is the first thing to go.

For the last decade or so Apple has been able to avoid short-term thinking.  Many times the pressure to thin short-term comes from Wall Street, and the late Steve Jobs wasn’t a fan of “the analysts”.  Should Jobs’s successor have a similar disdain for the street I would expect such high levels of service to continue.  So thank you Apple.  I am impressed.

Related posts:

1. Weakend: Thank You Apple
2. Weakend: Good Customer Service
3. In Remembrance

Related posts brought to you by Yet Another Related Posts Plugin.