Kyle at Amateur Asset Allocator hosted this week’s Money Hacks Carnival and selected my post on Dollar Cost Averaging as an editor’s pick.  Thanks, Kyle!

In his introductory comments regarding the nascent economic recovery, Kyle said:

Gone (hopefully) are the days of conspicuous consumption as sound personal finance principles come back in fashion.

While I am equally as hopeful that the economy has indeed turned the corner, I’m not so sure that we, the people, have really changed.

When surfing TV last night, I noticed there are as many silly shopping channels as ever.  Surely, if we had mended our spendthrift ways and sworn off late night calls to buy the latest in vegetable-fashioning technology, there would be fewer channels hawking the stuff. Read the rest of this entry »

Tags: LINTA, QVC, recession

I’m not sure why Uncle Sam waited so long to publish his tax guide for the newly unemployed.  The US unemployment has been above 5% for over a year.  We really could have used this last winter when the rate of new claims was at its peak.

And a note about manners, Uncle Sam.  I don’t expect you to be overly touchy-feely, but after all, the people reading this document will have just suffered a traumatic life event.  Couldn’t you have started a little gently?  Perhaps, something like “the economy is going through difficult times, and many individuals like yourself have temporarily lost employment.”    But nooooh.  Your opening line is:  “Severance pay and unemployment compensation are taxable.”  Ouch.  Harsh. Read the rest of this entry »

Tags: seasonal unemployment, tax tips, unemployed

Why has America not converted to the metric system? Even the English don’t use English units of measure.  We should use this economic doldrum to improve our ability to compete globally.

I know, businesses are going to whine, saying that they couldn’t possibly do this extra work when the economy is so bad.  But, of course, the best companies are doing exactly that — taking advantage of the quiet period to make strategic improvements — to trim programs that weren’t pulling their own weight, to create new products to improve marketshare, or to grow into new markets.

I happen to be familiar with the equipment used to make computer chips.  These platforms often have a vacuum pump — made in Germany or Japan — bolted onto a chamber made in the United States.  The pump uses metric nuts and bolts, and the chamber uses English.  Toolboxes used to develop, manufacture, install, and maintain these systems must have both sets of wrenches.  Equipment made in the US is shipped predominantly to manufacturing sites in Asia.  Good luck finding a 7/16″ wrench at 2 AM in Japan. Read the rest of this entry »

Tags: economic stimulus, metric system

Ever wonder how China has managed to buy up $770 billion of US treasuries?  China is now the leading foreign holder of US debt (and has been for the last 12 months), followed by Japan.

It’s not just the $200 billion they rack up each year in their favorable trade balance with the US but their ability to not spend it.  The national savings rate is about 50%.  Now that doesn’t necessarily mean that the individual family is savings that incredibly high percentage.  The funds may never actually reach them.  The money may stop at the company level.  Of course China is investing in its own infrastructure and technology (witness the recent very successful Beijng Olympics) but in large part, they are exporting their hard-earned cash and putting it into US Treasuries.

China considers internal financial data to be a state secret, so all numbers either published by the country or estimated by outsiders should be taken with a grain of salt.  If the savings rate calculation is correct, it is the highest in the world.

One theory is that the root motivation is China’s one-child rule.  The birth rate in many developing nations is high because it is the de-facto “retirement” system.  You raise children so that at least one of them will take care of you when you get old.  If you’re limited to one child, you better have a back up plan, just in case — hence, savings.  But it’s not clear that this theory holds water, if indeed, the savings are not actually reaching the average person.

Since 2000, the savings rate in the US declined continuously.  In 2007, the US disposable savings rate* reached a low of 0%.   It increased significantly in 2008 and on into 2009.  This April, it shot up to 5.7%, the highest it’s been since 1995.

So, how’s your savings rate?

Photo credit:  flickr

*Disposable income is total income after taxes. Or at least that’s the short version of the definition.  Our Bureau of Economic Analysis managed to write 23 pages on the finer points of disposible income (for example, it includes realized, but not unrealized capital gains).  Our tax dollars at work.

Tags: China, economic recovery, savings

The concept of risk underlies much of finance.  We expect that riskier investments will have higher returns.  The riskiness of a corporate bond is one of the main determinants of its price.  But measuring — truly quantifying — risk is hard to do.

Sure, companies like Moody and Fitch assign companies risk letter grades akin to schoolgrades.  But, in college, my sister used to bake brownies for her teaching assistant to get better grades.  And if brownies can give one a boost, just imagine what you can get for the millions of dollars paid by the companies being rated to the companies doing the ratings.  It’s not hard to see (in hindsight) why we’re in the mess we are today.

Enter Freerisk.org.  A couple of slide-rule wielding financial guys who want to throw open the data and crowdsource a better solution.

While I applaud their intentions, isn’t asymmetric data the root problem?  Only the guys inside the company know the true financial picture.  The data reported in the SEC filings are the most optimistic view (within GAAP) of the true situation.  If the data is skewed, how can the result be straight?

I am intrigued by the creation of a large public financial dataset.  Could one use it to investigate things other than risk?  Expected market returns?  Geopolitical stability?  The flow of illicit funds?  If you’re interested, there a Google group forming –get in on the ground floor.

Tip ‘o the green shade to Wired Magazine (June 2009, p. 28) and to Garrison Keillor’s Lake Wobegon for the title phrase.

Photo credit:  Flickr

Tags: risk

This is the third post in a series on non-governmental initiatives to improve a local community.

We live in a time of tremendous economic uncertainty.  Newspapers shout about what the government is doing (or should be doing, or should not be doing…) to fix the situation.  But surely there is something that the average Joe (or Joanne) can do, too.  We have empowered our government to spend trillions on our behalf, but have we, in the process, disempowered ourselves?

Here, then, is a link to the history of local scrip — currency printed, circulated and traded like dollars, but backed only by the good faith and credit of the local townspeople.  The purpose of the scrip is to keep transactions local, stimulating the local economy.  Read the rest of this entry »

Tags: economic stimulus, local initiatives, local scrip

Keep Out Of Debt

In the 1930′s, during the last Great Depression, financier Roger Babson personally funded the carving of moralistic slogans into boulders in his boyhood stomping grounds near Gloucester, Massachusetts.  By employing several rock carvers, he helped support the local economy.  Judging from the messages he chose to carve, he preferred to spread his largesse through employment rather than donations.  Sort of a personal WPA project.

Do you think we’ll see such civic support soon?

Photo from The Dacrons.

Tags: economic stimulus, Massachusetts, Roger Babson

Danny Cottrell, a pharmacist in Brewton, Alabama gave $700 to each of his dozen employees.  The catch?  He handed it out in $2 bills.  He asked them to give 15% to a person in need and then spend the rest locally.  Since $2 bills are unusual, the town could see the effect of the money circulating around town.  What a fabulous idea!  Let’s just hope someone doesn’t try to recreate it with Susan B. Anthony dollar coins, or our pockets will be sagging.

Tip o’ the green shade to J.D. at GetRichSlowly.

Tags: Danny Cottrell, economic stimulus

Jonathan Jarvis put together a great video explaining the recent credit crisis as part of his M.S. thesis work in the Media Design Program at the Art Center College of Design.  Not only is the movie visually appealing, it unravels the mess into a comprehensible story of financial folly. Either he’s a hedge fund genius who doodles in his free time, or he has a darn good technical expert to back him up.

Check out his other work, and the work of some of the other students.   This is what the future may look like.

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

Tags: credit crisis, crisis of credit, economic recovery, Jonathan Jarvis

Yesterday, the Massachusetts Department of Revenue announced that it will offer amnesty to over 159,000 individuals who owe back taxes to the Commonwealth.  The selected individuals will receive a notice that they are eligible to participate.  They still need to pay the tax, but the DOR will waive the penalties.

A small but welcome break in these troubled times.

Massachusetts DOR Announcement, 2/23/2009.

Tags: Massachusetts, tax amnesty