We looked at one depression solution last week: lower or suspend capital gains tax.
The common thinking about the recent economic collapse is that financial instruments, like derivatives and quantification formulas, were the reason for the collapse. This might be like blaming the fuel tank for running out of gas.
To solve our economic malaise, we need more financial innovation, not less.
pic from jacreative @ Flickr
Another day, another Dow drop.
It’s obvious that all the maneuvering and stimulating have done little to stave off rapidly deteriorating global economic conditions. Like injecting a heart with adrenaline, the programs designed to re-start the economy gave it a boost, but only treated a symptom temporarily and never addressed the disease.
Why? Government money is too diluted. It probably takes almost as much money administering stimulus funds than the actual amount that will seep into the economy.
Austerity programs will only stunt or retract an economy. It’s a great gesture, but growth is the key.
To promote growth, governments should drastically cut, if not totally suspend capital gains tax.
The move would:
Instantly boost the market.
You could reasonably expect a 10 to 20 percent rise in the stock market. You could also expect new companies striving for initial public offerings to come out in full force.
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pic by woodleywonderworks @ Flickr
To say that pessimism reigns in the market misses the mark.
Fear and panic is a better description.
Conventional theory states that cool heads prevail in periods of excessive fear, just as hot heads lose during stretches of irrational exuberance.
There are essentially four scenarios of how this economy will play out over the next few years. At least one of them will flout the conventional notion that bad economies are time to make money.
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Pic from alancleaver @ Flickr
Taxation with representation turns out to be pretty bad, too. And Investors and traders have enough to worry about in the taxation categories. They also have enough to complain about.
There’s capital gains tax and income tax for starters.
Then, there’s the ever-controversial double taxation of dividends.
According to an article from Yahoo, governments are just getting warmed up and while investors won’t necessarily bear the brunt of most of these taxes, they won’t escape them either.
In the ever-expanding need to buoy struggling governments, politicians are discovering some weird ways to bring in money.
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pic by mmmOU812 @ Flickr
Recent information indicates (to me, at least) that the U.S. is gearing up for a modest recovery. But can we sustain a recovery without learning critical economic lessons?
This upswing is perhaps part of a cyclical recovery pattern. Severe downturns lead to growth–because, basically, how far down can we go, right?
But, that’s not the vibe on Main Street. Most people think the economy is in the tank and will stay there for a long time. What’s with the disconnect?
One reason, our economy hasn’t appeared to come up with any solutions to the problems of the poor economy. We had the software revolution to lead us out of the 70s stagnation. We had the internet boom in the 90s.
Depression is more than just a name for sliding GDP numbers. True, it may be an economic condition; but, it can also be a mass psychological effect that turns into an dire economic feedback loop.
People are depressed and the economy suffers; the economy suffers and people get more depressed. And so on. Think of Japan in the 1980s.
Forget profits and jobs. We know they have been damaged. What is more frightening–and far more devastating–is that the psyche has been damaged because of the recent financial turmoil. Factories can be rebuilt and jobs can be created, but when people stop believing, the chances for recovery are slim.
There’s one more sign that our collective conscious is slipping into a deeper funk.
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Ms. President @ Flickr
The rose-colored glasses aren’t always on.
We’ve talked about the current economic problems and possible future ills… here and here.
But that doesn’t mean that the bad times are here to stay. There are some fundamental reasons to be positive about the future.
As we covered recently, recessions teach. Once we’ve cleared this dip–or double dip–we have it in our power to have an even stronger economy. This isn’t guaranteed. We can flub things up for a long, long time, but eventually markets self-repair. If you let them.
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sneakerdog @ Flickr
I’m not a big fan of spinach.
It doesn’t looks good. It doesn’t taste good. It rarely smells good.
But I can’t deny the healthy boost it gives you. (And I’m not even referring to the power it gives under-sized Popeye the power to take on over-sized bullies.) It has lots of protein and vitamins. No denying it.
Sometimes it’s necessary to put up with short-term pain to create long-term strength. Same thing goes for your financial health.
In the world of personal finance, there’s no more willing taskmaster than a recession. A recession is painful and stressful. But it might also be the impetus that leads to our long-term financial freedom and well-being.
Here’s how.
In Pennsylvania, where I’m writing this, the leaves are now tipped with deep reds and flashes of yellows. On the mountains, a brush stroke of orange has exploded in spots.
There’s also a chill in the air.
Autumn officially arrived and so did the first thoughts of winter.
Historically, fall was the time you made preparations for winter. People stored up food and prepared their homes to keep out the invasion of cold weather that would soon be on the way.
This week, I’d like to pass on some financial preparation, so you’ll survive any monetary challenges that pass your way.
Here are some things to think about… but most of all act on.
Start your reading off with this post on It’s What You Do, Not What You Say from Fiscal Fizzle.
Scott Adams, the guy who created Dilbert, is dead-on when he writes about office life. Who knew he could be so perceptive about personal finance. Check out Dilbert’s Unified Financial Theory.Thanks to Joe Taxpayer for this.
When I went to high school, three of us rode in my friend’s 20-year-old Ford Fairlane. And loved every mile of it. So, I have some sympathy for FiscalGeek and this post on making his kids drive a piece of crap.
My Money Minute offers Five Things Jay Leno Has Taught Me About Finances.
Need to save money? Make money? Make some money to save? Here are some five minute financial fixes from Dumb Little Man.
Need a little more time in your life. Try cutting down on the Top Five Time Wasters, according to Five Cent Nickle.
Always a good spot for financial advice, Wallet Pop offers a few ways people are thriving in a recession. (Although the image of the ukulele nerds that accompanies the story has me a bit perplexed. Do I have to take up the uke to thrive? Anyhoo. Check it out.)
The Adventurous Writer offers five ways to make more money as a writer.
Dividend stocks are a popular investment for buy-and-holders and are good ideas for tempestuous markets. Seeking Alpha has a look at the best double-digi dividend stocks. If you’re new to investing, options can be a bit confusing. Check out Moolanomy for an introduction to options and put calls.
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Now that the recession appears to have abated and everyone is saying that we can relax, I think it’s time to reevaluate the situation. If you consider that the country’s financial situation has worsened significantly, it’s pretty clear that we are not out of the proverbial woods. The government spending of trillions of dollars may have stopped the recession, but it may also have set us up for a worldwide depression.
Think I am full of doom and gloom? Absolutely not. Both Matt and I are extreme optimists. But consider these facts: depressions happen on average once per lifetime, or every 80 years or so. It’s been 80 years since the last depression. The government is running budget deficits on a scale that has never been seen before, and has no way of paying back the money. The housing market has leveled off, but there is nothing to help it recover after the current first time house buyer’s stimulus wears off. The unemployment rate is getting higher, and there is nothing to slow that down. The US automakers have recovered for this month, but only because of $3 billion dollars of free money for (mostly American) clunkers. As soon as that stimulus effect wears off, the American car manufacturers will be in even worse shape than they were last month.
The future is here.
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The Singularity is Near by Ray Kurzweil is the book that started it all. If you want to know about the future, it is the best book I've found. Absolutely fascinating.
Rich Dad Poor Dad by Robert Kiyosaki. This is one of the most popular personal finance books of all time. A must read for anyone who wants to become financially successful.
The Millionaire's Secrets
is one of my favorite financial books of all time. It's an allegory about a guy who has a terrible job, and how he overcomes challenges to achieve his dreams.
The One Minute Millionaire is a great book about how to become a millionaire. Written by Mark Victor Hansen and Robert G. Allen, this book combines an inspirational story with practical everyday skills.
The Art of Learning is the fascinating story of Josh Waitzkin, the world champion in both chess and Pushing Hands. His style is mesmerizing, and the strategies for learning are priceless.
The Alchemist is one of the best-selling and most inspirational books of all time. Anyone who has ever had a dream in life needs to read it. Perhaps my favorite book of all time.
Love is the Killer App is a powerful, step-by-step book about how to have a wonderful experience and spread love in any working environment. Think the office has to be a source of bad energy? Think again.
The 4-Hour Workweek is a powerful book full of strategies about how to get more done in less time. For anyone who is looking for leverage or wants to achieve success quickly, this book is absolutely invaluable.
