Friday, July 15, 2011

So which is it America? In the Budget Deficit debate this is not Burger King---You can't have it your way.

The first poll shows 50% of Americans want the deficit reduced through spending cuts "only or mostly". The second one shows most Americans want to maintain the level of benefits for THE MOST costly Federal govt programs (look at the brown shaded portion of the pie charts). After these two polls is a pie chart of the Federal Budget and where money is actually allocated...Do you see any contradictions? Most want to cut spending, but not on the programs that disproportionately cost the most and cutting them would actually have the most impact on the deficit. 
Source: Gallup Poll

Source: Pew Research

Source: The Fiscal Times
 The parts of the Federal Budget that are considered mandatory spending programs---Social Security, Medicare, the Interest on the National Debt (this MUST be paid FIRST when bills are paid), "Security Discretionary" is National Defense/The Military. These three programs alone are 61% of the budget. It seems they are sacrosanct and immune to budget cuts.  Some of the other items in the chart are classified as mandatory spending, but for the sake of argument, let's leave them ON the budget cutting table. .  What do you cut?

Thursday, July 14, 2011

Are you getting mostly "A's" in college? You should be according to this graph...

Source: Economix

""Most recently, about 43 percent of all letter grades given were A’s, an increase of 28 percentage points since 1960 and 12 percentage points since 1988. The distribution of B’s has stayed relatively constant; the growing share of A’s instead comes at the expense of a shrinking share of C’s, D’s and F’s. In fact, only about 10 percent of grades awarded are D’s and F’s."" -----Read the whole thing HERE

Budget Solution: "Cut Spending AND Cut Tax Expenditures!" I understand the first one, but what does the second one mean? You are going to hear it a lot. I try to explain it here for you...

There is a two word phrase that has been used a lot recently in the Federal budget debate-- "Tax Expenditures". It has been used like this: "We need to reduce government spending AND reduce tax expenditures in the tax code". The first one is self-evident and needs no explanation.  However, the second one I think passes by people and most believe it is a similar in meaning or related to reducing govt spending.

When the Congress taxes your income it is tax revenue for them.  If Congress decides to grant a tax deduction, your taxable income decreases by the amount of the allowable deduction. As a result the tax revenue to the Federal govt will be less than it otherwise would have been...Quick Simplistic Example:

Assumptions: You are single and rent an apartment.  You do your taxes and you calculate you have a taxable income of $150,000 . Using the  IRS tax tables for 2010 you would owe $35,709 in Federal income tax.  Write your check and be done with it.

Now assume you are still single BUT you own a home and last year you paid $10,000 in interest on the loan you took out to buy the house.  As the tax code is presently written, when you do your taxes you can now subtract that $10,000 from the $150,000. Your taxable income is $140,000.  NOW, your Federal tax bill will be $32,909---$2,800 LESS because of the interest deduction you were allowed to take.

Congress considers this $2,800 a "Tax Expenditure"---tax revenue they otherwise would have received if the interest deduction did not exist.  Instead of being revenue for them to spend, they are "expending" it back to you.

When a politician/pundit talks of reducing "tax expenditures", they are referring to eliminating (or reducing) various tax deductions or tax credits that are currently allowed.  In effect you would be paying a larger tax bill--$2,800 in our example.  BUT your TAX RATE did not increase by eliminating this deduction, only your income that is subjected to tax increased.

Reducing or eliminating the interest you pay on a home mortgage is just one area Congress is looking at to raise more revenue without raising taxes. 

Whether you agree or disagree with how the term is used/interpreted, I hope this brief explanation helps you better understand it when you hear it.

Wednesday, July 13, 2011

The nation's trade deficit increased in May. The "why" is shown in two easy line graphs...

The US trade deficit increased last month from the prior month. A trade deficit occurs when a nation's exports are LESS THAN its imports. This means its Net Exports (N(x)) are negative.  Look at the right-most tips of the lines on the graph below.  The BLUE line shows the US had a total trade (goods and services) deficit of roughly $52 Billion dollars just for the month of May. The import of crude oil (BLACK Line) is roughly $32 Billion of the total trade deficit, or 62% (32/52=.615)!! The difference between these two lines is represented by the RED line. What are we doing to minimize our dependency on this stuff? Rhetorical question--we all know the answer...
Source: Calculated Risk
It is not because of a lack of effort on the export side of the equation (goods and services we make and sell to foreigners), as shown in the graph below. Our exports are recovering nicely (RED line) and almost back to a historical high.  As we recover, we are either consuming more oil overall (domestic production + Foriegn imports) OR we are producing less domestically, hence importing more. I am not sure which it is, to be honest....Any ideas???

Source: Calculated Risk

Tuesday, July 12, 2011

How Hot is it?? Surface heat map of the US...CODE RED, CODE RED! No, I cannot handle the truth.

Source: NOAA

The "Carry-Trade" explained---Short lesson on how to make money in the Foreign Exchange Market. Don't try this at home!

Here is a quick lesson on the "Carry Trade". In its most simplest terms, this is borrowing money in one currency (i.e. US dollars) at a low interest rate and investing it in another country that currently offers savers/investors a high interest rate (i.e. Brazil--currency called the "Real").  I will use Brazil because it does in fact offer relatively high interests rates to savers/investors.  Of course, we will have to exchange our dollars for the foreign country currency in order to do this so we have to take into consideration the prevailing exchange rate for the two currencies.

There are 2 ways for the holders of dollars to make money--(1) the difference on the spread between the interest rate at which you borrowed the money and interest rate you received from the investment you put the money in (assume the exchange rate stays constant), and (2) IF the foreign currency you currently have the money invested in APPRECIATES in value during the time you hold the investment. 

Look at the first scenario first.  Right now it is "cheap" to borrow money in the US and the interest rates that Brazilian banks offer savers in relatively high.  I am going to use ballpark numbers because, well frankly, the math is easier.  Assume I can borrow money in the US at a 5% interest rate for one year.  If I borrow $1,000 I will have to pay the bank back $1,000 plus $50 after 1 year ($1,000 times 5% = $50)) for a total of $1,050.  I am going to invest this $1,000 in a bank in Brazil because it offers 10% interest rate to savers. 

First, I have to exchange my US Dollars for Brazilian Reals. Assume today the exchange rate is $1.00  = 1.76 Reals. With my $1.000 US dollars I can "purchase" 1,760 Reals. I put those Reals in the bank and start earning my 10% interest.

After one year I will have 1,936 Reals in my Brazilian bank (1,760 + 176 (10% of 1,760). I must withdraw this money so I can pay back the US bank for the money I originally borrowed.  ASSUME the exchange rate did not change at all (it did, but more on that in a minute).  To go from Reals to Dollars, I have to calculate the reciprocal of the exchange rate. The reciprocal of $1.00 = 1.76 Reals is 1.00 Real = $.5681 cents.   If we multiply 1,936 Reals by $.5681 we get $1,100 (rounded). We now take $1,050 of this and repay the bank what we owe them.  We have $50 left over! In real life, we would have to pay a fee for the currency transaction when we bought and sold, so we would have to subtract that from our $50.  BUT, you can see how you can make money by borrowing in one currency and saving/investing in another.

Now, what if the exchange rate changed while you had your money in the Brazilian bank? The exchange rate I used above for the Real was the exchange rate from July 12, 2010, one year ago.  TODAY the exchange rate is $1.00 = 1.58 Reals.  Now $1.00 US buys FEWER Brazilian Reals which means the inverse is true---The Brazilian Real buys MORE US Dollars than before (1.00 Real =$.6329 cents). Let's use this to see how our investment fared.

If today we exchange our 1,936 Reals for dollars we get 1,936 times $.6229 cents = $1,225 (rounded). NOW, when we pay back the loan plus interest of $1050 we will have $75 left over (minus fees).  We have an additional $25 just because to the change in the exchange rate between the Dollar and the Real. Easy money, right???

The trick to this is to (1) find a country where the interests are higher relative to the US, (2) it is stable enough to invest in, and (3) the currency appreciates while it is earning interest.  Of these number 3 is the most risky and difficult to predict. If the Real had DEPRECIATED in this time period, you could have lost not only the interest you earned BUT some of the principle as well.

Even if the exchange rates stay relatively constant, you can see how you can make money in the "carry-trade". The appreciation of the Real was a bonus.  However, this strategy is risky and is not recommended by professional financial advisers unless your investment portfolio can withstand the risk.

Monday, July 11, 2011

A Man gets disability payments from the Swedish Govt for listening to Heavy Metal music...As Chris Rock says "I don't agree, but I understand"...

I wonder if listening to Zamfir will get me the same benefits as this Swedish man...

""A Swedish heavy metal fan has had his musical preferences officially classified as a disability. The results of a psychological analysis mean that the metal lover can now count on having his income supplemented by state benefits.

 Roger Tullgren (Photo#1, Photo#2, Photo#3, Photo#4, Photo#5), 42, from Hässleholm in southern Sweden, has just got a new job as a dishwasher at a local restaurant.
Because heavy metal dominates so many aspects of his life, the Employment Service has agreed to pay part of Tullgren's salary. His new boss meanwhile has given him a special dispensation to play loud music at work.
"The fact that I am so into music has affected my work situation to the extent that I have had to quit some jobs," he said.

[Watch video footage of Roger Tullgren talking (in Swedish) about his heavy metal addiction at this location.]

Roger Tullgren first developed an interest in heavy metal when his older brother came home with a BLACK SABBATH album in 1971.

Since then little else has mattered for the 42-year-old, who has long black hair, a collection of tattoos and wears skull and crossbones jewelry.

Last year the ageing rocker claims to have attended almost three hundred shows, often skipping work in the process.

Eventually his last employer tired of his absences and Tullgren was left jobless and reliant on welfare handouts.

But a series of sessions with a psychologist soon led to a solution of sorts: Tullgren signed a piece of paper on which his heavy metal lifestyle was classified as a disability, an assessment that entitles him to a wage supplement from the job centre.

The manager at his new workplace allows him to go to concerts as long as he makes up for lost time at a later point. He is also allowed to dress as he likes and listen to heavy metal while washing up.

"But not too loud when there are guests," said Tullgren.

The Local spoke to an occupational psychologist in Stockolm who admitted to being baffled by the decision.

"I think it's extremely strange. Unless there is an underlying diagnosis it is absolutely unbelievable that the job centre would pay pay out.

"If somebody has a gambling addiction, we don't send them down to the racetrack. We try to cure the addiction, not encourage it," he said.

Henrietta Stein, deputy employment director for the Skåne region, is also puzzled by the move; "an interest in music" is not usually sufficient to qualify for wage benefits.

"Certain cases are confidential but in general there is always a medical reason that is well-documented," she said.

Tullgren currently plays bass and guitar in two rock bands (including SILVERLAND; MySpace) and says that he tends to get a lot of positive reactions for daring to be himself.

"Some might say that I should grow up and learn to listen to other types of music but I can't. Heavy metal is my lifestyle," he said. ""

Sunday, July 10, 2011

3D Printing---Am I the last to know about this? This is going to change the way we make stuff dramatically...Two short videos here to give you the what-for's and how-to's. AMAZING!

I have heard of this technology called "3D Printing" but had no idea of how it worked until I viewed these two videos.  As a non-techie but someone who can see potential, this is amazing!  It is in its infancy, but I believe we will all see this in the near future. It will change the nature of how manufacturing and how we make stuff. There will be more control at a end user level. HT: Carpe Diem)

The first video shows an example of 3D Printing. The second one is a slightly more technical explanation of the process. You WILL be fascinated!

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