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Posts Tagged ‘529’

One year ago, the entire American banking system was on life support.  It was only through the intervention of the Federal government, using the promise of a semi-infinite supply of tax dollars that some of the banks survived.  If this infusion of billions and billions of dollars of cash had not been made our entire banking system would certainly have collapsed. The question we need to ask – but we haven’t – is this: is there a message here?

Thanks to the extreme measures the Federal Government took with the TARP program we still have some functioning banks, but a more important thing to consider is this: do we have a functioning economy?  The answer to that question is to be found in the history of the Dow Jones Industrials average for the past forty years.  The thing to note is the behavior of the Dow before the year 2000 and after the year 2000.  Notice anything? How about those two massive bumps?  I mean the one about ten years ago and the one a year ago. You know what those are? Those are bubbles, the signs of an economy that is being artificially and irrationally stimulated – an economy on drugs.

The other thing to note is that Bump #1 didn’t start in the year 2000, it started long before, its roots were in the 1980’s. Until then the Dow had been pretty tame, slowly inching upward ever since World War II. So what happened in the 80’s? The government created 401k plans and artificially stimulated massive investment in the stock market by average people who would have otherwise never invested in the market.  The same thing happened again with the 529 plans.

However, for the people who run our government that wasn’t enough. So they changed the tax laws again to provide a massive income tax credit for anyone who sold their house – and they made a provision so that you could do that every two years. That artificially fired up the housing market.  Then we had also the tech boom – a boom that the Fed actually opposed.  They didn’t like all these upstart companies on the NASDAQ sucking up all the investment money from the old money firms that made up the DOW.  So, the Fed killed Tech by ratcheting up interest rates until Tech collapsed.  After Tech was a smoking ruin, the Fed drastically cut interest rates and thereby fueled the housing bubble even more.

The thing to realize is that our economy, for the past twenty or thirty years has been a dying economy, kept alive by infusions of money from unsuspecting citizens contributing to their 401k plans and their 529 plans. It has been kept alive by people buying and flipping houses every two years.  It has been kept alive by one scheme or another while the true engine of our economy, manufacturing, was exported to China.  But nobody cared because you could buy Chinese stuff cheap at Wal-Mart and everyone was doing well in the stock market or the housing market.

Well, the party’s over, isn’t it?  True, the banks are alive again, having dined on the lifeblood of the taxpayers.  However, there are very few green shoots out there. Does anyone have an idea where our new economic engine will come from? Is it possible for our government to think of another economic scam that will power the country for another ten years? Or, are they running out of ideas?  Does anyone really think we can get by on our American manufacturing capability?  Let’s face it we just don’t make enough stuff anymore.  The future of manufacturing, at least for the next twenty years or so is in Asia, not North America. So what is our government thinking? Well, since the only thing they saved is the banks, one must assume that they figure that’s where the money will come from – i.e. lending at interest. But, let’s face it, the lendees are unlikely to be Americans, are they? No, the money (that’s your tax dollars that you gave them as TARP rescue money) will go to developing countries so they can develop their businesses and then pay back the banks at high interest rates.

Meanwhile, back at the ranch, what can we expect?  The truth is: not much. Our Capitalist engine doesn’t have a transmission anymore. In fact we lost it a long time ago.  We’ve just been coasting along.  The thing we don’t want to…don’t like to…admit, is that we are witnessing the failure of Capitalism.  Unregulated Capitalism – something we have had from many years – soon morphs into Predation: the strong preying on the weak. We have witnessed that. The Predators in our society, i.e. the financial community, have feasted on us.  There’s not much blood left to drink anymore.  They’ll move on, looking for victims in other countries – still propped up by our government.

Here, in the USA, we won’t admit Capitalism has failed – we can’t – it’s like denying religion or something. It’s like being unpatriotic.  It’s like stepping on the flag.  Capitalism is sacred in America – beyond criticism. It’s hard to figure why – after all, can’t we all see that it doesn’t work?  We can’t we simply acknowledge that it is an economic theory and system that just doesn’t work?  I know, I know ,we’re all afraid of the other two “isms”, Socialism and Communism. So we stick with our belief in Capitalism, even though the wheels have come off and we no longer have an engine for our economy – we still believe. We believe. We believe even though we are in a screaming nose dive.

If the past twenty or thirty years have proved anything, they have proved that unfettered Capitalism is a disaster. For proof just look at your bank account.  If we can’t bear to consider Socialism or Communism, then there is only one solution.  We need a new “ism”.  Call it Americanism if you like.  We need a new approach to economics. We need creative minds in our government who can see beyond the payoffs from lobbyists and the pressures of the fat cat bankers.  We need a new voice in economics, a voice of intelligence who can lead our economic recovery with a sound understanding of what went wrong. We don’t need idealogues, whether they are Capitalists, Socialists, or Communists; we need realists: practical, intelligent people who can understand what is broken and fix it. We simply need a new way of running our economy, a new economic theory for the 21st Century.

The question is this: do we have the intelligence and the courage to change the way we do business? Because if we don’t, it won’t be long before we don’t have any business.

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I think I’m beginning to see a trend here, one cow said to the other. Have you noticed that whenever any our friends go into that red building over there that they never come out again? I think I figured out why: I don’t think the farmer is entirely on our side…

How many people would rather not look at their 401k statement these days? Most probably. We’ve heard a lot about the economic meltdown, the collapse of the stock market, and the resulting devastation of the average American’s 401k. For people who are close to retirement the loss of 40-50% of the value of their 401k is devastating news and means that many will not be able to retire.  Many of those who have recently retired are now wondering if they will have to go back to work and if there is any work available for them.

We haven’t heard much about the devastation of people’s 529 funds. These funds are similar to 401k plans in that they encourage people to put money into them that will then be invested in the stock market. 529 plans are intended to be used as a way to save money for children’s college tuition expenses. Last year Congress passed legislation making these plans even more attractive by making 529 contributions and the earnings exempt from income tax.  People poured money into these plans hoping to thereby have enough money to send their kids to college.  Now their 529 plans are pretty much in ruins, just like their 401k plans.

Our Republican President and Republican members of Congress have repeatedly tried to alter the present Social Security System of guaranteed government pensions to one where people would invest their Social Security contributions in the stock market, just like the 401k and 529 plans.  Imagine the devastation that such a modification would have had for our nation’s retirees, especially those who depend completely on their Social Security check for all of their expenses.  Taken collectively, these actions and proposed actions by our government might seem only stupid or irrationally exuberant – as Alan Greenspan might say. Maybe they were just dangerously optimistic. There is however another way of looking at it.

It is my contention that the ultra wealthy class of America – the top 5% of the population who are overwhelmingly Republican – and who control our present government, feel no sense of responsibility for the average American. Rather, like the farmer, they look at us as sheep to be shorn or cattle to be led to slaughter.  So it is that they make new laws and entice us into the trap of investing in their businesses, knowing that the stock market is anything but a sure thing and is the last place you should put money that you know you will need in the future.  These wealthy students of Machiavelli look at the general population as a source of money for them – period. And they use the power of government to enable their schemes to lure innocent, untrained, trusting citizens to put their hard-earned dollars into stock that will inevitably fail – but not before the ultra-wealthy sell off their own shares. Don’t worry about them- most of them (except maybe the incredibly greedy financial guys) know when to sell.

Now our government is using billions of taxpayer dollars to bail out the banks and insurance companies that are owned by the wealthy, and to make loans to businesses.  It just goes on and on.  Come to think of it, calling the current Republican-led government Machiavellian would probably be an insult to Machiavelli.  These people are in a league of their own.

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