The Housing Bubble

Agreed, but even everyday non IPO “growth” stocks are priced at ridiculous P/E’s. Sure, you can buy Coca-Cola or P&G for the dividends, but most people invest in stocks to the get those elusive 8%+ returns, and you won’t get that from a “value” stock except perhaps in a wild Bull Market.

By wild bull market, I assume you mean, asset price bubble inflation phase.

What you are ignoring is that you are going to have to pay tax eventually.

On the contrary, I am keeping that in mind! Your eventual tax over the long haul is lower. Reread my post. In brief, you have less of a compound tax if you are in as lowest an expense fund and as low a turnover rate fund as you can get. You are even better off in a tax deferred plan.

In a tax differed, okay, you have $100K instead of $80K after tax. Well, when you pull out that $100K, you have to

Yes. You have that $20,000 to work with again in a tax deferred plan. Most likely you can double that in eight years to $40,000. Whereas outside that tax deferred plan, you would have $0 as opposed to $40,000.

Your assumption is that decades from now, the tax rate will be less than 20%. Lots of luck with that

Thanks. You just won my case for low expense low turnover rate stock mutual funds and also for tax deferred plans as opposed to buying individual stocks with capital gains taxes.

As I discovered with the spark of suggestion from PrimeIsContained, there is no compound tax. But dollar cost averaging is still the better way to go to buy stocks outside tax deferred plans in the long haul.

Neuromance, I started regularly investing into the Vanguard 500 index fund in 2000. I never just put a lump sum in and hold. That’s like buying a house and hoping you did not buy at the top. My average cost of VFINX is around $108. The index has rarely if ever had such a bad decade. It had to be bad to make up for the bubble the previous decade. The next decade should average out better. Markets are always cyclic.

Of course I understand it. My assumption is you are putting the 80% back into the market after you sell it and buy another individual stock investing that 80%, only to sell it for a gain later and get taxed again.

Your thinking is seriously flawed if you do not see the compound tax in that.

The untaxed part of the original gain is (0.80) to the fifth after you throw in what is left at the end of five buys and sells, provided you use each gain (after taxes) to reinvest into the market. Hence you have after the fifth time, only 32.7% of the original gain’s investment.

Your thinking is seriously flawed if you do not see the compound tax in that.

There is no compound tax in that. Let’s take some examples. Back in a few min with one.

I’ll be back in a few hours. Going to donate charity for awhile (work for free)

Simple example showing no compound taxation:

Suppose you start with a $100K investment, and it returns 20% over a two year period, at which time you sell and pay the taxes on the gain.

After two years, your investment is worth $120K. After you sell, your gain is $20K. Assuming a 20% capital gains tax rate, your tax is $4K (20% of the $20K gain). After taxes, you now have $116K to re-invest.

Suppose you make the same investment again, for another two years, with the same return.

After another two years, your investment is worth $116K * 1.20 = 139,200. Your basis is $116K, so your gain is 23,200, and your tax on that gain is 4,640.

Note that you paid ZERO taxes on the $100K in the initial time-period, and you paid ZERO taxes on the $116K in the second time-period.

There is no compound taxes. You only pay taxes on the additional (marginal) gain in each case.

Wait a sec:

$100,000 original gain.
20% tax

$80,000 left. Now you invest $80,000 and it turns to $100,000.

Gain is $20,000.

Your tax is $4,000 but not out of the $80,000. Only out of the $20,000

Okay my thinking was seriously flawed. Sorry! I just needed to put this in writing to think aloud.

So your total tax the second time around is still 20% (out of a combined $120,000), amounting to $24,000.

Okay I needed that to help me in making some investing plans. Maybe not a bad idea to finally ditch traditional IRAs and just get matching 401k after all.

Your tax is $4,000 but not out of the $80,000. Only out of the $20,000

Correct. You got it—no compound taxation.

So your total tax the second time around is still 20% (out of a combined $120,000), amounting to $24,000.

I didn’t quite follow you there; your example inputs seem to be different from the ones I suggested above. It sounds like you are assuming a doubling?

Okay I needed that to help me in making some investing plans. Maybe not a bad idea to finally ditch traditional IRAs and just get matching 401k after all.

Glad I could help.

I concluded many moons ago that the deferred taxation of both IRA or 401(k)s is really a wash, and that the only effective difference is in the assumptions about current tax-rates vs future rates. It is a rate arbitrate play, pure and simple.

However, with a match, the 401(k) is a no-brainer.

incredible just incredible. after amassing a million dollars, bil still makes this simple mistake about investing and taxes. and to think that he has an engineering degree. lucky us who have been benefiting from bil’s over payment to the irs.

Well at least I did not buy a house in the bubble. There were accounts of finance professors who bought at the top. So I don’t feel bad.

If I was a full time investor I would not make such an error. This is actually an error over several years. I am not taxed yet on this big 401k because I did not take the money out yet. But I converted a good amount of IRA to Roth.

I suppose Jose does not make any mistake at all.

Prime. What I meant was I would be out $20,000 the first time and $4,000 the second time - total $24,000 paid to the clowns that many people respectively call government.

Prime, I don’t think the deferred savings is a wash at all. I think it’s preferable to contribute only enough to get the maximum match and then put the rest of your money into stocks and stock funds out of tax deferral.

I make slow moves so I will not go radical just yet. Will probably be doing this starting January 1 2013.

Don’t listen to jose, Bill… It’s always easy to criticize from the cheap-seats! I think you’re doing just fine. And if most of your savings are in tax-deferred accounts, then this probably hasn’t affected your tax filings yet.

Let’s talk through the deferred vs non-deferred savings another day. I think my reasoning there is sound, but it’s always possible I’ve made an error in my thinking—taxes over time is certainly a sufficiently complex subject.

I tend not to participate in these tedious and tendentious endless debates about parties largely because they are both boring and a waste of time.

However, you’d be hard-pressed to not call into account the almost overwhelmingly criminal behavior of Kissinger.

Let’s see - he destroyed an entire generation of Americans, and one of Vietnam as well (with Cambodia thrown in for sh*ts and giggles!)

The list is just jaw-breakingly long - Vietnam, Cambodia, East Timor, Bangladesh (then: East Pakistan), India, Pakistan, Israel, Chile, Argentina, Angola.

That’s off the top of my head. I bet I’m missing a few.

How can anyone, and I do mean anyone independent of political association take the Peace Prize seriously?

What Obama is doing, personally picking assassination targets, and starting the very “hacker” war we’ve been worried about (And aren’t prepared to fight effectively, as seen by the Stuxnet screwups), is abominable, regardless of what fictional political party you follow or lead the cheer for. Your response is to complain about Kissinger? You have no opinion on the current events, you’d rather complain about events and people 40 years ago, that we can’t change after the fact? Really? This is truly flabbergasting to me.

Only a matter of time before it happens here…

+1. All signs point to the increased use of drones at home.

p.s. But when there is collateral damage here at home, will all military-service-aged males that are killed be considered presumed combatants, so as to keep our civilian death-toll numbers down? That’s how we apparently do the accounting in the rest of the world…

We had to kill him with hellfire missiles before he got to The Children! Most of The Children even survived the blast.

To the naivest people in the whole wide world.

i think they’ve run out of anyone else to market them to (the naive).

it’s huge problem that i think will be foisted on the taxpayer again.

“it’s huge problem that i think will be foisted on the taxpayer again.”

Yep. And the form I expect the foisting to take (if it is not already in place) is federal guarantees that make lenders and bond owners whole, regardless of debt default.

Since this already happened with GSE & FHA loans, why not student loans? Take away the lenders’ and investors’ risk of making loans, and pretty soon you will have a mountain of debt piled on to the tax base, which all Americans owe to those who made the loans.

Yep. And the form I expect the foisting to take (if it is not already in place) is federal guarantees that make lenders and bond owners whole, regardless of debt default.

Aren’t most student loans already federally-guaranteed? I thought they were…

Aren’t most student loans already federally-guaranteed? I thought they were…

yes they are. but they will never be paid back. once the politicians realize that fact, they’ll shove the debt once again on all of us that had nothing to do with it. the only question is what form the tax payer abuse will take. the bomb thrower was just guessing the form. good probability he’s right.

one way or another, all the rest of us are going to pay.. again.

“yes they are. but they will never be paid back. once the politicians realize that fact, they’ll shove the debt once again on all of us that had nothing to do with it.”

If they are already federally guaranteed, then hasn’t the debt already been shoved on all of us that had nothing to do with it?

I’m missing the point of your post…

If they are already federally guaranteed, then hasn’t the debt already been shoved on all of us that had nothing to do with it?

+1, Prof.

The abuse is in the issuing of the guarantee, not the honoring of it. Once the debt has been guaranteed, standing behind that guaranteed is the “right thing” to do.

The error is in issuing the guarantee in the first place, and the error occurred a long time ago.

If they are already federally guaranteed, then hasn’t the debt already been shoved on all of us that had nothing to do with it?

It doesn’t land on the taxpayer until after default when the guarantee kicks in.

Guarantees are fluid though, look at Solyndra, we, the taxpayers were in front of the creditors but somehow we moved to the end of the line and took the whole loss.

“The error is in issuing the guarantee in the first place, and the error occurred a long time ago.”

This error also explains why lenders have so eagerly pushed the taxpayers’ collective student debt burden towards $1 trillion: the debt is guaranteed by other people’s money.

“It doesn’t land on the taxpayer until after default when the guarantee kicks in.”

Take a look at any insurance company’s balance sheet, then get back to us…

Guarantees are fluid though, look at Solyndra, we, the taxpayers were in front of the creditors but somehow we moved to the end of the line and took the whole loss.

Whoa, somehow I missed that bit of outright theft!

Reference?

I’m missing the point of your post…

we’re not paying for it yet (most of it). most student loans used to get paid back. and they are never forgiven. when they run out of money, and they know they have a big problem, they’re going to tax us more for it. that’s all i’m saying..

The error is allowing free trade to destroy the job prospects of these people that are trying to become working, productive members of our society, making large scale default inevitable.

I suppose the alternative, destroying millions of current jobs, along with the future employment prospects of future generations, is believed to be the better solution.

Race to the bottom. We can’t all be rich, until we’re all 3rd-world-poor first.

While looking for a reference I did find this little gem:

In addition, according to the Washington Post, the Obama administration continued to allow Solyndra to receive taxpayer money even after it had defaulted on its $535 million loan.[27] Department of Energy spokesman Damien LaVera said, “Ultimately, the choice was between imminent liquidation or giving the company and its workers a fighting chance to succeed.”

http://en.wikipedia.org/wiki/Solyndra_loan_controversy

Comment by Prime_Is_Contained
2012-06-03 10:00:42

Reference?

Big Name Investors Behind Obama’s Failed Green Tech Bet First in Line to Recoup Losses

Read more: http://swampland.time.com/2011/09/03/big-name-investors-to-recoup-losses-before-taxpayers-in-obamas-failed-green-tech-bet/#ixzz1wkhMgaYw

So why did the administration agree to the restructuring? The short answer, in poker terms, is that it felt pot-committed. It had already made a big bet; it didn’t want to fold if there was still a chance of winning.

What about cutting the interest rate in half? Isn’t that a direct subsidy by the taxpayer?

What about cutting the interest rate in half? Isn’t that a direct subsidy by the taxpayer?

we need to let the market set interest rates. no person on the planet is smart enough to know where they should be. they should be higher, but no one knows the exact number.

I’m talking about the interest rate on student loans, didn’t it get cut from 6.8% to 3.4%, then get extended at its recent expiration?

Isn’t the taxpayer picking up the 3.4% that hasn’t been getting paid?

Congress is still negotiating, I thought the republicans had already agreed to extend the subsidy.

So not only do we guarentee the loans we have been paying 1/2 the interest too.

http://articles.philly.com/2012-06-01/news/31960267_1_stafford-loans-interest-rates-outstanding-student-loans

WASHINGTON - Top congressional Republicans made a new offer to President Obama on Thursday in their fight over heading off a doubling of interest rates on federal college loans for 7.4 million students, proposing fresh ways to cover the $6 billion cost.

The error is allowing free trade to destroy the job prospects of these people that are trying to become working, productive members of our society, making large scale default inevitable.

the error is in thinking that free trade destroys more jobs than it creates.

I suppose the alternative, destroying millions of current jobs, along with the future employment prospects of future generations, is believed to be the better solution.

free trade creates more jobs than it destroys. you only look at a small segment of what happens and declare that it’s an overall bad thing. you’re wrong again.

Race to the bottom. We can’t all be rich, until we’re all 3rd-world-poor first.

you’re spectacularly wrong here too. with free trade, free markets and property rights, even the poorest on the planet could be living better than the middle class in the states lives right now.

“free trade creates more jobs than it destroys.”

Comments like this is why that taboo topic is SOOOOOO important.

Free trade can only create more jobs that it destroys for as long as we can increase total debt/money at an unsustainable pace.

Instead of dollars circulating in the economy from consumers who fund their consumption from selling what they produce, free trade creates an economy based on dollars flowing out and debt/money generation, management and consumers buying things with debt they can not possibly afford to pay back (unless the trade imbalances created by free trade reverse).

If we do not accept that the money flowing out of the country via trade imbalances, which are inevitable in a free trade economy where wages vary by an order of magnitude, was borrowed into existence, and that creates a fundamentally unsound economy, then we have no hope of understanding why those trade imbalances are bad.

It has taken 40 years for the chickens of excess debt to come home to roost, and those 4 decades obfuscate the direct link between the trade imbalances, and the excess debt generation that funded them.

Isn’t the taxpayer picking up the 3.4% that hasn’t been getting paid?

it’ll cut the cushion, so eventually we’ll pay for it. i don’t think we’re paying anything yet.

there have always been some students that have never paid their loans back. some of them probably became disabled or even died. but it wasn’t a big problem until recently, because the cost of education used to be much lower.

Free trade can only create more jobs that it destroys for as long as we can increase total debt/money at an unsustainable pace.

you don’t have a clue how jobs are created.

Instead of dollars circulating in the economy from consumers who fund their consumption

dollars don’t get ‘consumed’.

free trade creates an economy based on dollars flowing out and debt/money generation

free trade creates an economy based on production.

management and consumers buying things with debt they can not possibly afford to pay back

if they do, they simply go broke. it happens all the time. don’t worry Darrell, someone else has their former money and they’ll spend or save it. nothing magical happens to it.

If we do not accept that the money flowing out of the country via trade imbalances, which are inevitable in a free trade economy where wages vary by an order of magnitude, was borrowed into existence, and that creates a fundamentally unsound economy, then we have no hope of understanding why those trade imbalances are bad.

trade deficits are temporary unless you weaken an economy with socialistic policies. and trade is never balanced, as you mean it.

It has taken 40 years for the chickens of excess debt to come home to roost, and those 4 decades obfuscate the direct link between the trade imbalances, and the excess debt generation that funded them.

the link is obscure because there isn’t any link.

There is a $6B cost to legislation that extends this discounted rate so it has to be a pay [ taxpayer ] as you go plan.

“we need to let the market set interest rates. no person on the planet is smart enough to know where they should be. they should be higher, but no one knows the exact number.”

Good luck with that plan so long as the FOMC as presently constituted is in charge of interest rate policy.

The Downside of the Fed’s Zero Interest Rate Policy
By David Shulman
April 30, 2012

David Shulman is a retired Wall Street executive who is now a senior economist at the UCLA Anderson Forecast. He is also affiliated with Baruch College (CUNY) and the University of Wisconsin.

Last week the Federal Reserve Board announced, once again, that it was committed to maintaining its zero interest rate policy through 2014. Nearly four years have passed since the Fed adopted the policy. What began as an emergency measure to support the entire financial system in late 2008 has seemingly become permanent policy at the Fed. The current rationale for the policy is that extraordinarily low interest rates are required for the Fed to fulfill its full employment mandate. With the unemployment rate above 8 percent as it has been for the past four years, the economy is far away from full employment which implies an unemployment rate in the 5-6 percent range. Simply put, we are short about 5 million jobs.

The Fed’s policymakers rightly assume that an environment of low interest rates stimulates business investment and enables consumers to more easily finance big ticket purchases such as housing and automobiles. Over time it also lessens the burden of existing debts to free up cash to make additional purchases. Moreover lower short-term rates have the effect of forcing investors to reach for income by lengthening the maturities of their portfolios and by taking on more risk. To make sure that investors actually behave in this manner the Fed has adopted a policy of quantitative easing where it goes in the market place to buy long dated securities and mortgage backed bonds to directly lower their interest rates. This process raises both stock and bond prices. As a result through lower financing costs and higher asset prices more goods and services are demanded and unemployment declines.

All of the above is consistent with what passes for macroeconomic theory today. However, the theory behind the zero interest rate policy leaves out quite a bit of downside scenarios that act contradictory to policy. There are two very real negative aspects to the current policy. First the very low interest rate environment forces current retirees who rely on interest income to support themselves to reduce their spending. More importantly the low rate environment plays havoc with retirement planning for both individuals and pension plans.
…

“Free trade can only create more jobs that it destroys for as long as we can increase total debt/money at an unsustainable pace.”

Whah…huh?

tj —

Thanks so much for the effort to confront Darrell’s anti-trade rant head on. I simply haven’t the energy or the patience to do it, but I am happy somebody does!

Cantankerous Intellectual Bomb Thrower, you’re welcome. i’m glad there are things we agree on.

Good luck with that plan so long as the FOMC as presently constituted is in charge of interest rate policy.

i believe they started targeting interest rates again some time in the 90s. it’s strange that they did, because they tried it before with disastrous results. they were forced to give it up, but they didn’t learn their lesson. the whole housing debacle would have never got started if there had been a free market in money.

You have to be kidding me.

1. Free Trade certainly doesn’t improve the plight of the middle class in America. The evidence speaks for itself.

2. Free Trade may actually decrease jobs in the future. The race to the bottom for workers via printing press and wage cuts will drive down wages. As all workers are reduced to working for food and fuel they will consume fewer manufactured goods this combined with technology will drive consumption into the ground. Natural resource depletion will also put a cap on what is consumed.

1. Free Trade certainly doesn’t improve the plight of the middle class in America.

why not?

The evidence speaks for itself.

what evidence?

2. Free Trade may actually decrease jobs in the future.

how?

The race to the bottom for workers via printing press

what does the printing press have to do with free trade?

and wage cuts will drive down wages.

? wage cuts will drive down wages.. a tautology if ever there was one.

As all workers are reduced to working for food and fuel they will consume fewer manufactured goods this combined with technology will drive consumption into the ground.

how does free trade cause this?

Natural resource depletion will also put a cap on what is consumed.

there are lots of natural resources. i don’t know which one you’re talking about, but i’ll assume it’s oil.

we’ll never consume all the oil we’ve already found. technology will take us off oil long before it’s gone.

Well, maybe. A bigger school means more people in the area are alums. But, a bigger school also means less interaction with faculty, and faculty are also social capital (e.g., faculty write letters of recommendation). And, the Zuckerberg story notwithstanding, for most students, for post-school entry into the labor force, social capital in the form of connections with faculty will be more important than social capital in the form of connections with other students.

We can go back and forth on this for hours because there are a million ways to turn this, and scholars have been debating these issues since the 1960’s. My point was only that one can tell a plausible story that explains “Why anyone would go there [USD] as opposed to a Cal State or UC school”.

IAT

Let’s just say I didn’t get all that much “social capital” when I attended USD.

What there is a lot of at USD are really rich kids. I wasn’t one of them (remember, I was a scholarship kid). Maybe that’s why I didn’t make those juicy connections that one is supposed to make at such schools.

From one scholarship/loan/work kid to another, I hear ya.

IAT

Which government services would you propose to scrap?

it can’t be scrapped all at once. but i’d scrap just about everything eventually.

i’d keep the military and the courts. i’d keep the FBI and the CIA, and any other agencies needed to protect the country. i’d probably even keep one of my most hated agencies, the EPA. but it would be scaled down and stripped of it’s enforcement power. it would have to go through judicial power to get law enforcement. i’d want to do reasonable things to protect the environment. but i wouldn’t put anyone out of business or attack citizens like it’s doing now.

A real property/net worth tax does the opposite, proving no incentive to convert the debt/money into hard assets.

After the government takes it in the form of taxes, it would spend it; so it certainly does seem to get that money into circulation.

I get that you want an even more aggressive incentive to spend, though.

But wealth locked up in real assets also is not “flowing”. All you are giving is an incentive for the wealthy to hold their wealth in a different form.

But wealth locked up in real assets also is not “flowing”. All you are giving is an incentive for the wealthy to hold their wealth in a different form.

But the cash used to buy them IS flowing…through other people’s hands.

But the cash used to buy them IS flowing…through other people’s hands.

Only with the acquisition of NEW assets.

What about all of the ones that the wealthy are ALREADY holding?

We are addressing different aspects of the same problem, but both would help the situation.

Our level of debt has generally been declining, IF and only IF, you count paying down our house which is on a 15 year mortgage, so is down from $185k to $140K over the last 4.5 years.

Credit card and other debt has been flat.

At 35 I got divorced and was ordered to pay $800 a month alimony for 5 years and $1000 child support for 8 years. No debt before the divorce had grown to $10K during the split, and legal costs of the divorce. That grew to $30K during those first 5 years when fully half my take home pay was going to the ex.

Another $10k of the debt came from legal fees from a custody battle my wife got into with her ex husband. He was ordered to repay, $7K of our legal fees since he was the one in contempt, but went bankrupt and got the award discharged.

The big increases to our debt have come from vehicles. 2 years ago when the son started driving, my wife got a $18K car, handed her truck down to me, and my truck was handed down to my son. A year later, he wrapped that truck around a power pole. We had to take on debt to buy him a new car.

There is 1 year left on son’s replacement car. 2 years left on the wife’s car.

The other big debt expense was orthodontics for both kids that cost us a tad over $6K which we paid off over the last couple years. Last payment was a couple months ago.

But, yeah, there is a HUGE risk that even if we pay off the credit cards, the debt could come back. We have to be very, very committed to not letting that happen.

But, yeah, there is a HUGE risk that even if we pay off the credit cards, the debt could come back. We have to be very, very committed to not letting that happen.

This risk is one reason that a LONG, SLOW pay-off of the debts (rather than having them instantly vanish with a large one-time transaction) may be a better choice.

When it takes years to accomplish something, you tend to have developed a habit that is trending you in the right direction.

Think about people who lose weight with a crash diet, vs those who lose it slowly over several years of healthy diet and exercise. Which is more likely to stick?

Regardless, I wish you well in either case, Darrell. You are striving to move in the right direction.

The one example above that I personally might have done differently was the “son wraps car around pole” example. In my world-view, that’s a perfect time to show him that choices/mistakes/carelessness have consequences. I would have either not bought him a car at all (if he could possibly get around by bus), or bought him the cheapest POS that would get him to point B (preferably with really embarrassing-to-be-seen-in-public mismatched body-work). And his pay would have been docked for even the cheap POS. He broke it, he bought it.

I am a bit confused about your cc debt: is it 30k debt at 10% and a total 45k debt at 5~11%? I did a quick calc by using your 3k per year as the interest that you have to pay and as Prime & FPSS mentioned above, you will be ahead (by 6k in savings & 30k in 401k) if you stop funding your 401k for 4 years.
At the end of 4 years you will pay off the 30k debt. your overall loss is $34.5k (from company contribution & interest) versus a net loss of 40.5K (from 35% tax and 10% penalty). But your 401k balance will be 175k compared to 145k if you take the loan. Overall you will be ahead if you pay off the debt monthly.

“In my world-view, that’s a perfect time to show him that choices/mistakes/carelessness have consequences.”

He was car less for a couple months. However, as the school year approached, he was enrolled in a duel enrollment class at the jr college that counts as both college and high school.

Didn’t want to force him to withdraw from that class, nor could we come up with a way for him to get 5 miles from college to high school in 15 mins he had between classes.

I did look for a crud car that was far worse that the vehicle he had, but I could not find anything that was less than 14 years old and had less than 200K miles in that price range. So, I had to go with a car as good as what he had, just to get something that wouldn’t become a repair and maintenance nightmare.

“I would have either not bought him a car at all (if he could possibly get around by bus), or bought him the cheapest POS that would get him to point B (preferably with really embarrassing-to-be-seen-in-public mismatched body-work).”

Wife and I are engaged in major warfare with our teenage daughter, who was mistakenly handed the keys to our seven-year-old car earlier this year. She now feels extremely possessive of it, and seems to believe she should be able to drive it wherever she wants, whenever she wants, with us obligated to fill the tank with gas on our dime whenever necessary. Today she left the house in a huff on foot when we would not let her have the keys. When we told her she will not be bringing the car with her to college next year, she threatened to not go to college, but instead “get a job and move in to an apartment.” Thinking about the employment options facing a teenage girl with no college degree trying to come up with rent money is enough to make a father’s skin crawl. I’m thinking her outlandish, utterly disrespectful attacks on my wife and me for trying to set limits on her car use are a passing phase, but it is nonetheless a major PITA to deal with her antics.

45K total debt, but much of that well below the 10% that I am targeting to pay off.

It is not 35% plus 10% that I will pay on early withdrawal. It is 25% + 3% +10% for a total of 38%.

If I stop funding my 401(k) for 4 years, my take home goes up by $7500 a year, minus 28% fed and state income tax, = $5400 a year. After 4 years, I will have paid off only $21600. interest savings may be $300 the first year, $800, $1400, $2000 = $3500. I still have $5K debt.

Not stop funding the 401(k) and instead pull out 50K, netting a bit over $30K after 38% tax. $7500 in contributions plus $7500 match = $60K goes back into the 401(k). The debt is paid off, and I have $12K saved interest on top of the $10K extra in the 401(k).

I do not see how $5K debt and a flat 401(k) is better than $0 debt, $10K increase in 401(k) and $12K interest savings.

Prof.

I can literally hear my parents laughing in my face if I’d ever tried to pull that bs on them. They wouldn’t even let me buy my own car with money I earned and saved from my after school, evening, and weekend jobs. They sat down and showed me how the car part of the equation was the very least of it (insurance, gas, maintenance, liability, etc.) and told me in no uncertain terms that the car belonged to the family.

There’s no reason a teen can’t walk a couple of miles to school, catch a ride home with a friend, take a bus, get dropped off on the way to work, bicycle….

I really have to wonder about parents these days. Life is no more or less fraught today than it was when I was in high school, but kids are a damned sight fatter.

So I am only going to do traditional IRAs (and only contribute enough to my 401k to get the full match).

I’m confused by your “traditional IRA vs 401k” statement. Both have the same RMD rules, don’t they? (I’m not an expert here, but I thought they did.) If so, both would boost your income while you are still earning.

I’m also a bit puzzled by your choice of traditional IRAs, if you would prefer to convert in the future. Why not just contribute to an after-tax Roth today if you would prefer to pay the income taxes sooner rather than later?

A. My after tax contributions to a traditional IRA that is non-deductible will not be taxed on a future conversion. However if I switch jobs and convert my 401k to an IRA, all my contributions are pre-tax. Hence it’s better to contribute to a non-deductible IRA with after tax money. I think there will be more opportunities to convert in the future.

B. I make too much income to contribute to a Roth IRA. This year if I did not pay the tax on my $81,000 conversion, I would probably qualify to recharacterize my traditional IRA to a Roth.

In the good years I earn too much money even with my $60,000 (sometimes over $70,000) tax break - to contribute to a Roth.

I get $ for $ up to 5% and am fully vested.

My wife gets $ for $ and is 50% vested, with 100% vesting in 2 more years.

IF, and this is the HUGE IF, that has prevented me from doing this before now, we get disciplined on spending and do not just run back up the debt!

Assuming that you’ve reached the formal operations stage of development this should be easy.

Darrel, have you considered borrowing the money against your 401K? The repayment interest rate is generally massively low, and you will not have to eat the 10% tax bite.

All 401Ks have the borrowing option. You have acument, please consider running the numbers to see how you might make out.

“…considered borrowing the money…”

That thought crossed my mind, too, but then I realized that a monetary and trade theorist like Darrell would have known about and already pursued that option if his 401(K) plan offered it.

Jerry Brown has more money than God and so does his wife. (She started Gap, IIRC). Private gain is not a motivator for this man. When he was governor the first time, he eschewed the State limo in favor of driving himself around LA in a beat up old Ford Falcon, and lived up in Laurel Canyon with a roommate.

Whatever his faults, (prickly arrogance for one) greed isn’t one of them.

$1.5T a year leaks out of circulation in the form of international trade imbalances and the rich getting richer.

what nonsense! we don’t even have 1T in base money!

NO money ‘leaks’ out of circulation. most of it gets exchanged for the the country’s currency that the dollars are in, and then sent back to the sellers here in the states. almost ALL money comes back. and NONE of it is ‘out of circulation’. it can be spent in some countries or simply exchanged at any time.

almost ALL money comes back.

Except for all the money that China keeps in the form of Treasuries. Of course the _cash_ came back, but those Treasuries still have value, right?

Except for all the money that China keeps in the form of Treasuries. Of course the _cash_ came back, but those Treasuries still have value, right?

Prime, he was talking about trade deficits.

i’m not saying that our dollars aren’t going down in value. i’m saying trade deficits have nothing to do with it.

“i’m not saying that our dollars aren’t going down in value.”

Are they? My impression is that unless the Fed invokes QE3, the dollar should be one of the few asset classes certain to rise in value for the foreseeable future.

US dollar firms
08:05 AEDT
Fri Jun 1 2012

The US dollar has risen against the euro as investors seek safety from fears that debt-riddled Greece may leave the eurozone and Spain’s banking troubles may require an international rescue.

The euro hit a fresh 23-month low at $US1.2337, before recovering slightly around 2100 Thursday GMT (0700 Friday AEST) to trade at $US1.2361, down from $US1.2366 at the same time Wednesday.

“Hopes that Spain will manage without a bailout (are) all but fizzling out,” said analyst Brenda Kelly at CMC Markets.
…

Are they? My impression is that unless the Fed invokes QE3, the dollar should be one of the few asset classes certain to rise in value for the foreseeable future.

the dollar is falling in value. other currencies are just falling faster. that makes the dollar look stronger.

“…the dollar is falling in value.”

What numeraire did you use to determine this?

What numeraire did you use to determine this?

i withdraw my claim. the dollar must surely be getting stronger.

Don’t let me scare you into withdrawing your claim; I believe your point may hold up with the right numeraire. For instance, California gasoline, cheap wine, food or college tuition might all work well…

June 4, 2012, 12:44 a.m. EDT
Dollar climbs back in Asia, stays above ¥78
By V. Phani Kumar, MarketWatch

HONG KONG (MarketWatch) — The U.S. dollar bounced back during Asian hours Monday, recovering losses suffered after Friday’s disappointing jobs report, as a sell-off in commodity and Asian equity markets pushed investors toward the currency’s safe-haven appeal.

The dollar’s gain included a rebound against the Japanese yen, with the greenback returning above the ¥78 level — despite heightened investor risk-aversion and steep losses for Japanese equities — amid caution Tokyo may intervene against the yen’s appreciation.

The dollar (USDJPY +0.0896%) fetched ¥78.168 early Monday afternoon in Tokyo after briefly trading below the ¥78 mark earlier in the day.
…

Clearly tj did not have oil in mind when he suggested the dollar is getting weaker. A few more 2% drops will send oil crashing through the 52-week floor.

The flip side of this is the oil-denominated value of the dollar is currently at 1 barrel / $81.70 = 1.224 barrels / $100 and increasing.

Crude Oil - Electronic (NYMEX) Jul 2012
NMN: CLN2
$81.70
Change -$1.53 -1.84%
Volume 17,802
Jun 4, 2012, 12:50 a.m.
Previous close $83.23
Day low $81.59
Day high $83.38
Open: $82.96
52 week low $77.40
52 week high $110.85

And means testing Social Security?

keep dreaming bil

oops. The $33,000 includes some principle, so my cap gains tax, which is long term, would be somewhat less. I will check my brokerage for it.

DiPh,

I was kidding with the out of context quote. Relax.

My point, though, is that if you do not punish the fraudsters, you have no hope of pushing through your economic changes, because they’ll use all that money to stop you. They’ll run a propaganda campaign against anything you propose. You must de-fang them first.

There’s widespread support for punishing the fraudsters, but the PTB — many of them fraudsters themselves — won’t do it. So, the first programmatic order of business is to motivate the masses to move against any who won’t punish the fraudsters. After that is done, then maybe all those dreams you have can be realized. That’s still a big IF, but it’s in the realm of possibility if the fraudsters are punished, the realm of fantasy if they are not.

In sum, if you really believe that punishing the fraudsters isn’t part of the solution to the problem you seem obsessed about, then you really don’t understand the problem you seem obsessed about.

IAT

And my point is that punishing the fraudsters will do nothing to fix the economy, since it is not fraud, but the excess debt generation coming from the growing money supply, needed to fund trade imbalances.

I think that punishing fraud is the right thing to do, but that it will not reverse trade imbalances, so is not a solution to the problems.

Unless, you can explain to me how punishing the fraudsters will reverse the trade imbalances. How will punishing fraud reduce imports, increase exports or slash the flow of money into the hands of people that have incomes far above their expenses?

I am not saying we should not punish the fraudsters. I am saying they are the puddle of blood on the ground under the bleeding gunshot victim. They are the result of the real problem, not the real problem.

Dear Darrell in Phoenix,

Perhaps two step-by-step charts will be helpful:

Chart 1:

1)You amazingly are asked to speak at both the Republican and Democratic National Conventions.

2)You get up on both stages, and you give a speech outlining all your end-free-trade policies.

3)The day after your speech the headlines read:

DARRELL IN PHOENIX DECLARED INSANE
Top Politicos Attempting to Dodge Scandal!

4)You and (most important to everyone else) your policies are totally discredited.

5)Decades later evidence is unearthed that reveals how key early 21st century fraudsters mobilized against you before you knew what hit you.

Chart 2

1)A successful campaign to punish the fraudsters is waged.

2)Now that they have been rendered powerless, a serious debate about the country’s economy is being conducted.

3)You amazingly are asked to speak at both the Republican and Democratic National Conventions.

4)You get up on both stages, and you give a speech outlining all your end-free-trade policies.

5)The day after your speech the headlines read:

DARRELL IN PHOENIX PROPOSES MAJOR CHANGE
Top Politicos Attempting to Assess the Ideas!

Is that a concrete enough link between punishing (and delegitimating) the fraudsters and the change you seem to desire?

IAT

You really think that any significant portion of those with a vested interest in rapidly expanding money supply could possible be prosecuted?

The budget of the department of justice would have to increase to that of the current entire US Budget.

Either way, 40+ years of dogmatic propaganda convincing people that trade imbalances are good, will prevent and serious discussion of the underlying fundamental flaws in our economy.

Heck, we can’t even talk about how the money that we count as being in the money supply is borrowed into existence and is offset by an equal amount of debt. Without that first fundamental step, we can’t move beyond as to understanding why trade imbalances create a fundamentally unsound economy.

I’d get up at one of those conventions, say that money is borrowed into existence, and be booed off the stage LONG before I got to the point of talking about why we need to attack and reverse trade imbalances.

Nice way to dodge the issue. Of course there are multiple impediments to change. However, the fraudsters and their enablers (the latter which apparently includes you) are a key one. Getting rid of those two obstacles won’t guarantee success, but it certainly improves the chances. Claiming that it won’t matter at all which, if I recall, is what you have continued to imply.

IAT

i already answered a post like this of yours above. it’s a waste of time to say the same thing over again. refute my reply to you there and i’ll answer your response.

“i already answered a post like this of yours above. it’s a waste of time to say the same thing over again. refute my reply to you there and i’ll answer your response.”

In reading your response above, where you start by saying I have no idea how jobs are created, I have decided that you and I do not even speak the same language.

Your assertion that free trade creates more jobs than it destroys has me convinced that ANY attempt at further discussion of economics between you are I, is doomed to failure.

I think it best if you refrain from questioning any of my posts on how trade imbalances cause unsustainable debt growth, and I won’t bother to point out the flaws in your dogmatic devotion to the economic philosophy that has brought us to the brink of economic collapse into Greater Depression.

Either you are too far gone to listen to logical argument contrary to your beliefs, I am too far gone, or both of us are.

Whichever of these possibilities is correct is irrelevant to the probability of achieving nothing but frustration for both of us, and anyone reading the pointless doomed attempts at communication.

think it best if you refrain from questioning any of my posts on how trade imbalances cause unsustainable debt growth

i don’t care what you think is best. i’ll question any post i feel like questioning.

and I won’t bother to point out the flaws in your dogmatic devotion to the economic philosophy that has brought us to the brink of economic collapse into Greater Depression.

feel free to point them out. i’ll still debunk your drivel if i feel like it.

the way it works is, we each answer or question, if we feel like it.

if i don’t feel like answering you, i won’t. if you don’t feel like answering me, then don’t. but i will still point out how dopey your anti-free trade arguments are.. even if you don’t like it.

Well tj, since I have both hands tied behind my back by Ben decry that I not talk about what money is and where it comes from, it will be exceptionally difficult for me to return rocks tossed at my arguments.

This stuff that we buy imports with. What is it? Where does it come from? It there an unlimited supply of it? Are there any negative side effects that comes from the creation of, whatever this stuff is that we buy these imports with?

Is it pure coincidence that as trade imbalances increased, the rate of debt creation also increased to unsustainable levels?

Is it pure coincidence that virtually every nation in the world on the negative side of trade imbalances also has unsustainable debt buildup?

I tried to see if we could play nice. You declined. Looks like I’m going to have to backdoor you instead. Your arguments that is. Nothing personal, you’re just pathetically wrong about this thing called free trade in a world where labor wages vary by an order of magnitude.

Or, do you expect the labor wage in the developed word to fall to that of the third world, to correct the unsustainable, debt generating, trade imbalances? I’d like to see a politician run on that platform… Vote for me and I’ll ensure the wage of the American worker falls to $2 an hour.

“This stuff that we buy imports with. What is it? Where does it come from? It there an unlimited supply of it?”

It is exports, and no, there is not an unlimited supply of it.

Well tj, since I have both hands tied behind my back by Ben decry that I not talk about what money is and where it comes from, it will be exceptionally difficult for me to return rocks tossed at my arguments.

who’s Ben decry? anyway, it’s good advice, because you demonstrated you don’t know either.

This stuff that we buy imports with. What is it? Where does it come from? It there an unlimited supply of it? Are there any negative side effects that comes from the creation of, whatever this stuff is that we buy these imports with?

you tell me.

Is it pure coincidence that as trade imbalances increased, the rate of debt creation also increased to unsustainable levels?

you made the claim. don’t blame me if you can’t support it.

Is it pure coincidence that virtually every nation in the world on the negative side of trade imbalances also has unsustainable debt buildup?

you mean to say not all of them do? why’s that?

Nothing personal, you’re just pathetically wrong about this thing called free trade in a world where labor wages vary by an order of magnitude.

more drivel with nothing to back it up.

Or, do you expect the labor wage in the developed word to fall to that of the third world, to correct the unsustainable, debt generating, trade imbalances?

no. the value of fiat currencies will fall as economies weaken from steadily increasing socialism.

I’d like to see a politician run on that platform… Vote for me and I’ll ensure the wage of the American worker falls to $2 an hour.

keep voting for socialist politicians and we’ll get there..

Or, do you expect the labor wage in the developed word to fall to that of the third world, to correct the unsustainable, debt generating, trade imbalances?

You hit the nail on the head here, Darrell.

We won’t fall all the way to third-world standards, but we will meet them in the middle.

The other option, of course, would be to just take a 401(k) loan of $30K rather than a withdrawal of $50K to get $30K.

In that case, I’m putting money I’ve already paid interest on, into my 401(k), where I will have to pay interest on it again.

Now, it is WAY better to pay myself that interest, and only get 70-80% back later, then to pay the interest to a bank and get none of it back later. But, I’m not sure I want even more money in 401(k)s and less in after tax savings.

Depending on how means is counted in the means testing that I think is coming to Social Security, having more pre-tax savings that must be withdrawn in retirement, could be really ugly.

The primary goal remains to have ALL debt paid off by 55, 10 years from now and at least $250K in savings by then, then $400K-$500K in savings by 65.

That can ONLY happen if we do not run back up any debt.

That can ONLY happen if we do not run back up any debt.

Not to heap scorn upon the fallen, that looks like an EPIC FAIL right there.

You have no clue what you’re doing. Seriously. This is what financial seppuku looks like.

Just get out of the debt somehow. And keep that 401(k) sacrosanct.

“That can ONLY happen if we do not run back up any debt.”

A poor bet for one addicted to debt. It would probably take an actual crash and burn to make such a radical change.

Individual and collective debt is what actually enables trade imbalance, and personal and collective impoverishment. Debt destroys wealth.

Debt destroys wealth.

I know what you are trying to get at but at a technical level you are just flat-out wrong.

Debt destroys wealth when used for consumption. (This is what you seem to be arguing about.)

When used for investment, it actually enhances both debtor and debtee.

I can’t let such gross mischaracterization go uncorrected.

“But, I’m not sure I want even more money in 401(k)s and less in after tax savings.”

I guess that depends upon whether you want to pay taxes every year on the returns on your after-tax savings, or would rather enjoy the magic of tax-free compounding on your 401(K) investment returns.

“Debt destroys wealth.”

Rants destroy reason.

14% is way too high, but it isn’t 35%.

Agreed, maybe I was thinking of the USDA school lunch program participation rate.