You Should Save Money Right Now

This is not the most interesting or even the most exciting topic in the world, but for people of any age, it is one of the most important of your life (with the fate of your immortal soul being unarguably more important). Whether you are 61 or 21, saving money can make a big difference in your later years.

For those older folks, this is much more of a reality than to those in their 20s like myself; you have to prepare for retirement. Social Security is broke. You cannot rely on the government to provide for your retirement. The treasury is broke, your state is broke, your municipality is broke. Years of fat contracts to union workers, welfare spending, and fascist economic management has deprived our governments of any possibility of fulfilling future contracts. The US budget alone pays nearly 25% of all expenditures to maintenance of federal debt. In other words, a quarter of all expenditures are just interest payments. Try to imagine that you had so much debt that 25% of your income (and actually more than that since government is always running a deficit) went to interest payments on your credit cards. You would declare bankruptcy in no time. The government is essentially bankrupt, so you have to prepare for your own retirement, and the sooner you do it, the better.

There is only one way to become rich: save and invest. Sure, there are those who live off of an inheritance or who stumbled upon an oil field in their backyard, but it's time to get real, that isn't going to happen for you or for me. Part of being an adult is being responsible, and one of the easiest ways to become responsible is to grow your wealth and save money. The best reason to save money is for a rainy day. You never know when you will have a job loss, an illness, or any big expense. If you are living paycheck to paycheck, you will have no way of dealing with these issues besides going in debt. Remember, debt is the biggest hindrance to growing your wealth. When you owe people money, and that sum gets bigger just because of interest payments, you're going the wrong direction. So have a rainy day fund. Second of all, with savings, you get the benefit of compound interest. For instance, if you save just $100 a year, in 25 years you will have saved $2500. With 8% interest (a big underestimate), you will have an extra $5000. That's basically $5000 in free money! And all you had to do was save $100 a month.

It is all well and good to be mindful of your future, but don't ignore the present either. Sure, you could save money by eating really bad food, working all the time, and just being miserable, but at some point present losses outweigh future gains. Ask yourself whether going without something is worth your future expected earnings. In general it is better to do without, but not always. Make a plan and be prepared for your future, and you will have security for yourself and your children. Don't put this off for some day, start budgeting now!

Create Jobs or Create Wealth?

This has been going on for years. All that we hear from politicians and their ilk is that we need to create jobs. It seems simple enough. We have high unemployment, so creating more jobs would help that. It sounds innocuous enough, and it is true that more jobs are better than less, but I think that we are focusing on the wrong subject. Yes, jobs are a problem, but what about production?

We could have full employment by paying everyone to dig holes in the ground and then refilling them. However, we would all be poorer in the scenario. Instead of those people eventually finding jobs and doing something productive, they would be creating new wealth and we would be paying them for it!

With investment, we measure success by seeing if we earn more than we put in. Thus, if we put $100,000 into a business, but get only $50,000 in value back, then we consider this a loss. Hiring someone, along these lines, is much like an investment. It is only worthwhile if you get more than you put in. So when we hire people for a freeway project or a rail project, are we getting more money back than we put in? I do not think that this is usually the case (at least we have no way to measure the success of this, so maybe government intrusion here has lead to the absolute failure of rational economic calculation).

So sure, we can create full employment, but we need to make sure that the investment is worthwhile. If not, then this focus on employment is just making us all poorer.

Time to End the FDIC

As most people are already aware, J.P. Morgan Chase lost some money. Well, maybe this is how the congress would put it, since $2 billion is chump change to them, but this is a big deal. Chase may go down for this one. They invested poorly and are now in pretty bad shape.

So what does this have to do with FDIC? Well, how many people who have money saved with Chase have looked into their business plan, their profit margin, their investments, or anything? They do not need to. Savers just put money into a bank and do not care how the bank is run because they are covered by FDIC. In essence, this allows banks to do whatever they want as long as the savers keep coming in. Banks then only need to market well to stay in business. Is it any surprise that the big banks have stayed as the big banks for as long as they have?

What does this mean for economic efficiency? If banks can do whatever they want, then they are not interested in making the best investments. This is a net loss for the capital structure of our economy. Instead of loans going to the best projects, it goes to whoever the banks like most. This is pretty similar to the problem that we have with government spending.

And the alternative? Without FDIC, savers would need to look at the business practices of banks to determine who is doing the best and where their money would be safest. This would ensure that at least we are tending toward optimal investment.

This is a great opportunity to open up a debate about the merits of FDIC. Without FDIC, would Chase have been big enough to have had this great of a loss? I doubt it. It is time for FDIC to end and allow for more competition in the banking industry.