Showing posts from 2009

Tax Savings at Home

The holidays are here and it’s a time of gathering family and friends. Do you feel that itch for a bigger homestead? Tax incentives make the jump even more enticing. On 11/6/2009, the homebuyer credit was expanded. Under the new law, you may be eligible for up to an $8,000 credit if you purchase a home in 2009 or enter into a binding contract to buy a principal residence before May 1 of 2010 and close by June 30, 2010. For qualifying purchases in 2010, you have the option of claiming the credit on either your 2009 or 2010 tax return.
The new law opened up the credit to long-time homeowners buying a replacement principal residence as well as raised the income limitations. The full tax credit is available to taxpayers with modified adjusted gross incomes (MAGI) up to $125,000, or $225,000 for joint filers. Those with MAGI between $125,000 and $145,000, or $225,000 and $245,000 for joint filers, are eligible for a reduced credit.
For more detail on eligibility and how to take advantage o…

Vehicle Tax Savings

Do holiday trips and gas prices get you thinking about a new ride? There are a few tax advantages you may want to consider under the American Recovery and Reinvestment Act of 2009 when looking at your new vehicle options:
1. Plug-in Electric Drive Vehicle. Purchasing a plug-in, 4 or more wheeled electric drive vehicle after 12/31/2009 can earn a tax credit between $2,500 and $7,500, depending on the battery capacity of the vehicle.
2. Low Speed Plug-Ins. Certain low-speed electric vehicles and two- or three-wheeled vehicles can earn a credit of 10% of the cost of the vehicle (up to $2,500) for purchases made between 2/18/2009-12/31/2011.
3. Conversion Kits. You can earn a tax credit of 10% of the conversion cost (up to $4,000) for converting a vehicle to a qualified plug-in electric drive motor vehicle between 2/18/2009-12/31/2011. A taxpayer may claim this credit even if the taxpayer claimed a hybrid vehicle credit for the same vehicle in an earlier year.
4. Lowering Alternative Minim…

Tis the Season

It is the holiday season. Are you worried about it being a budget breaker? Do you hate fighting the crowds at the shopping malls? Consider going away on a family retreat in place of exchanging gifts. All the stress about the right size, color or spending money on something they won’t like goes away.
At our household, we go away as a family each Christmas. It is such a gift to focus on time and having fun with one another. We do a few trinkets in a stocking and sometimes draw names at Thanksgiving for a Secret Santa to carry out over the days on the trip, but the days of gifting have to total less than $25. Spending the holiday on a vacation with family, whether at a pricy ski resort, tent camping on a beach or a long weekend at an indoor water park, you are creating memories, relaxation and fun as well as staying in the spirit of the season.

Fun Friday Nights

In the past, we use to kick off the weekend with dinner out with friends. Once we all started having kids, the logistics of getting a sitter and leaving the kiddos, on top of the cost of eating out made for more stress than fun. We soon learned that it was more enjoyable and economical to collect at one of our homes, kids in tow and experiment with new recipes.
Last Friday, we fixed Anaheim Shrimp Scampi. Costs of our evening with friends amounted to $20 for 2 lbs of shrimp, spaghetti squash, an avocado and assiago cheese. Adding in the bottle of wine for $8, we fed four adults for $7 each. Our recipe was from George Stella's "Livin' Low Carb" cookbook which was both scrumptious and easy to make. This meal at a restaurant would have easily been $20 a person, a savings of greater than $80 long before you add in the wine and a tip. Culinary nights at home with friends are laid back, fun and frugal and make for a good way to start your weekend.


Imagine your life 10, 20 or 30 years from now. Imagine you never have to worry about money. There are no arguments about money. Imagine being in control of your money, not your money in control of you. Imagine that you are working where you want because you find meaning in the work, not working for the paycheck. Imagine how you are living your life the way you want, in sync with your values. You are able to do what you want, when you want. You are able to give back to your community through giving of your time, talent and financial resources. Imagine your life full of purpose.
This blog invites you to look at your personal finances and think about different ways to achieve your goals. What is your definition of financial success? Financial success is unique for each individual. It may be living in a big house, driving fancy cars or traveling the world. It may be working in developing nations to help feed the hungry, inoculate people against preventable disease; or it may be living com…

Fractional Naked Shorting

Every dollar-denominated loan can be viewed functionally as a partial naked short position in FRNs (Federal Reserve Notes, 1.e. cash). The extent of the naked short is the inverse of the reserve ratio, so at 10% reserve, the position is written as 90% naked short. The entry is created where the bank shorts notional dollars into existence where none existed before. The Fed is a mechanism for supporting those naked shorts against margin calls that would otherwise happen in the real world - that's what a bank run really is, a margin call by lenders (depositors).

The continued existence of this naked shorting depends utterly on the willingness of the lenders to accept repayment in virtual instead of real dollars. Wire transfers, checks and book entries are all dollar substitutes, not actual dollars. An entire massive infrastructure has been erected to push people towards the conclusion that these are actually identical to FRNs. Banks will freely exchange your book entry with them…

The Great Reversal

It's been a while since I've had the time to add to the blog. Thanks to everyone for their patience and hopefully it was worth the wait.

Sometimes changes occur occur quickly and other times they seem to happen in geologic time. The later are usually referred to as secular changes and the former as cyclical, at varying degrees of trend. The distinction is somewhat arbitrary and depends on the perspective of the observer. Being admittedly human ourselves, we will generally refer to a trend playing out over a generation or longer as secular but many brilliant minds will refer to even longer-term trends as cyclical - such as the Kondratieff Wave Cycle. With that definition in mind let's move on to the subject of today's blog entry.

The Big ShiftOver the last two generations we have seen an enormous shift in social attitudes and structure, with women and especially married women entering the job market. This shows up in many ways in the labor statistics but the most stable m…


This weekend we would like to take a look back at the economic contraction that the talking heads would have you believe is already over. Of course there is no way that it true. The extreme deficit spending we referred to in Federal Funhouse could result in a short euphoria before the creditors pull the plug - just like maxing out your credit cards before declaring bankruptcy. But the real economy is in horrible shape and nowhere is this more apparent than in the labor market.

Today's critical data comes from the Bureau of Labor Statistics (BLS). Their unemployment data released Friday was loudly trumpeted as good news when all it really said is we're bleeding to death a little slower. Others have commented on and analyzed this data so we'd like to take a longer view of things - examining the size of the pool of blood on the ground as it were.

We're going to use the BLS monthly data for the last two years. Note that at the end of 2007, the potential labor pool (civilian …

Command and Control?

Much is made of the rebound in China's 2nd quarter GDP and the drivers certainly merit a closer look. We are going to focus on just one key metric today - credit. In an effort to reach escape velocity from the global collapse, China has ordered its banks to make lots of loans and the banks have complied. So just how much lending has occurred and what is the scale of the likely impact. Let's look at the numbers, shall we? Various sources have reported the lending numbers and this article from the Globe and Mail is typical:

Chinese banks lent 1.5 trillion yuan ($220-billion U.S.) in June, the central bank reported on its Web site Wednesday. That exceeded forecasts and was up from May's 665 billion yuan ($97-billion) in lending and April's 590 billion yuan ($86-billion).Keep in mind that the entire Chinese economy was approximately 30 trillion yuan in 2008. Another way to look at things is that China's economic output is roughly 2.5 trillion yuan per month and in June

The Federal Funhouse

Washington DC has now become the linchpin of lies regarding the US economy. When one looks at the numbers, it is easy to see why this must be so. The Federal budget deficit is now running at somewhere between 14% and 15% of GDP. Because the administration has postponed the budget update past the mandatory deadline, we do not have any official figures so we must estimate based on other data but Americans should be quite used to that by now.

The latest Monthly Treasury Statement through June 30 gives us a lot of very useful data. Tax receipts are falling rapidly; for the fiscal year to date, taxes are down from $1,934 billion to $1,589 billion - a drop of 17.8%. The trend has been for the monthly numbers to get worse as the FY has gone on but if that applies to the full year then revenues will be $2,073 billion. The current budget estimate is just under $4,000 billion but will likely be higher as unemployment and related expense rise with a tanking economy. This leaves the US government …

The Price of Ponzi

Faking Bank
First let's be clear that prices for the majority of asset classes around the world are unsustainably high. This is an obvious corollary to the very inflated state of the global financial system and economy due to the excessive leverage that we have commented upon many times. It bears repeating that central banks (CBs) have little actual power, they merely serve as rallying points and fetish-totems for optimistic, true-believing speculators. The evidence is quite clear that CBs often fail to accomplish their goals, in recent cases despite extraordinary actions to "inspire confidence" - i.e. reignite speculation.

If the CBs were as powerful as most think, they could not possibly fail to accomplish their goals. Like voodoo, it is the BELIEF of the victim that causes the damage - a negative application of the well-documented placebo effect. While they have succeeded in restarting speculation to some extent in equities and commodities, they have utterly failed to d…

Great Pyramid of Geezer

An update by Karl Denninger at Market Ticker today got the old synapses firing. Denninger points out that pension plans are in trouble and cites a Wall Street Journal article strongly suggesting accounting fraud in public pension plans. The WSJ says:

Based on their preferred accounting methods -- which discount future liabilities based on high but uncertain returns projected for investments -- these plans are underfunded nationally by around $310 billion.The numbers are worse using market valuation methods (the methods private-sector plans must use), which discount benefit liabilities at lower interest rates to reflect the chance that the expected returns won't be realized.Last year we warned about the same phenomenon in private sector pensions in Some Key Questions and The Limits of Optimism. In every case the culprit was the same - overly optimistic assumptions about investment returns allowed a financially deficient structure to be sold to key constituencies as safe and sound. T…

Over Extended

We note with some amusement all of the talk about cash "on the sidelines" as if it's ready to pour into the stock market at the drop of a hat and take us to new highs. Nobody wants to admit that this is the cash that doesn't really exist. That fact was recognized by the market last year and earlier this year but has been obscured by a massive campaign of deception, propaganda and guarantees from Washington and Wall Street. Because the current mutant economic system depends on citizens digging themselves ever deeper into debt slavery, anything which causes them to save instead of borrow and spend is seen as the enemy and this includes the truth.

Much of the "cash" is in banks and money market mutual funds, both of which invest in debt that has become extremely dubious. The truth is that none of the "assets" (loans) that are backing the "cash" have gotten better and most have gotten significantly worse over the last 3-4 months. Credit card …

Printing Currency, Not Money

This sounds like an academic distinction but it is not. Especially at times like these, knowing the difference is key to understanding the behavior of financial systems.

What is Money?
Let's start with a textbook definition of money and proceed from there. Most definitions include two parts, some add a third. According to them, money is:
a medium of exchangea store of valuea standard of value or unit of account (widely but not universally accepted)If you look closely at the first two definitions, you will see that money exists in the minds of those who use it. This is partially true for the third definition as well. (note: For all of you monetary theory geeks, please relax. These are deliberate simplifications designed to make the ideas accessible to a general audience, not a detailed exposition of precise financial models.)I can exchange my money for stuff.I can exchange my money for stuff later.I can exchange my money for a predictable amount of stuff later.Let's think …

The Circle of Lies

Circular Money(TM): at least that's the PG-version of what several correspondents are calling it and we'll explain later. But first a little background. Quite a few folks have expressed concern about the Fed "printing" massive amounts of dollars and putting them into the economy, which will trigger inflation. This is certainly a reasonable fear given the numbers being thrown around and the rhetoric coming out of the Treasury and the Fed. However, we do not believe that the fear is well-founded and our evidence come from the Fed itself. Consider the latest report on reserve balances.

The total balance sheet has expanded by an alarming $1 trillion or 110% in 12 months - very disturbing. But the key question would be is any of this actually printed into existence? To determine this, look at the other side of the balance sheet - the liabilities and capital. Liabilities have expanded by $1,032 billion and capital by $3 billion. Liabilities mean the the assets are …

Smaller Piece of a Smaller Pie

We would just like to summarize the macro picture of the era we are leaving in order to understand the era we are entering. We have been blogging about the credit dangers on Financial Jenga since 2007 and warning about them even longer than that. The global scope of the financial crisis should surprise no one. Didn't we hear all about "globalization" for many years during the synchronized boom? That level of integration virtually guaranteed that any bust would be synchronized as well.

Nearly all other economic ills stem from the mainspring of a deformed and distorted credit system. For many years now, the foundation of the entire world economic system has been the willingness of the average American to spend their entire income - and more besides. This blog described the magnitude of that "more" in its very first entry. That foundation is collapsing and the global system is flying apart as American households suddenly realize that they are in a hole and stop dig…

Trade Grinds to a Halt

Over the last 6-9 months, we have seen many indicators of weakening demand and the impact on trade. For example, the collapse of the Baltic Dry Index - down more than 90%. This reflected lease rates for freighters and indirectly demand for bulk cargo capacity. The initial drops in shipping volume were modest but had a severe impact on commodity prices and shipping rates as the global economy swung from a sellers market to a buyers market. Now we are starting to see the full impact of credit withdrawal. Our thesis has long been that excessive and EZ credit (TM) were the root cause of massive false demand that radically distorted the consumer economies, those who manufactured and exported to them and the raw material suppliers to the manufacturers. The chain of causation has proven out and now we will see just how large that distortion was.

Domestic Strife
Our back of the envelope calculation is that first-order effects in the US will be 10% of GDP, with further ripple effects from there.…