By Paul Mladjenovic. September 18, 2009.
Copyright 2009. Paul Mladjenovic. All rights reserved.
I first got my Certified Financial Planner (CFP ®) practitioner designation in 1985 and I first started consulting on financial planning issues in a part-time (now full-time) business in March 1981. Since then, I have had the opportunity to watch major changes and trends unfold in financial planning and investing the economy for what is now over 28 years.
Of course, much of this change occurs as responses to changes in the general society as we are affected by economic, financial, political and social trends both big and small. Some ideas have not changed. Think about the following idea:
DO NOT SPEND MORE THAN WHAT YOU TAKE IN.
Isn’t that a simple yet obvious financial idea? It spans 2,000+ years of human experience! What sane person would disagree with that? If you have income (or cash inflow) of $X amount per month then it is an obviously good idea to make sure your expenses (or cash outflow) is equal to or (hopefully) less than $X. Is this not a timeless and obvious piece of financial wisdom that anyone would acknowledge and agree with without hesitation?
Granted, it is not always easy. Sometimes unexpected financial events occur such as a major illness or the loss of a job. That is understandable. However, we strive to have inflow exceed outflow as a desirable and achievable goal. After all, if we spend more than we take in then the shortfall must be covered in some way. This is why we need savings. In recent years, we covered that shortfall differently.
The usual way to cover that shortfall is DEBT.
As the debt grows, the financial balance of “income meeting or exceeding expenses” gets screwed up and we get into financial difficulty. That, of course, can result in economic pain and bankruptcy. It doesn’t take a “financial expert” to see or understand this.
But… is there anyone out there that would purposely disagree with this idea? I mean, is there anyone out there that would intentionally decide that over-spending is a worthy idea? Who would knowingly contradict ancient wisdom and say “I disagree…we should spend more than we take in! Getting into greater debt is a good idea!” As a CFP practitioner, I would obviously reject such a bad idea. Who would say such a thing?!
Enter stage left…a mainstream “economist”.
Now, I won’t mention names here (I am tempted). I am not here to mock a person…I am here to criticize a stupid and dangerous economic idea. I want you to recognize economic stupidity when you hear or read it. Lately, I have read such an idea as espoused by several very prominent “economists” (I put that in quotes because I have a tough time believing a REAL economist would say such things and actually mean it).
Now keep in mind that these “economists” are not giving this dumb advice to a particular private citizen or organization (I hope not!). They are giving this unsolicited “advice” to us collectively as a nation (through the government and the media). These particular “economists” are adherents to the general economic ideas of John Maynard Keynes. “Keynesian Economics” has as a central idea that government should spend and spend and balloon its debt to help “stimulate” the economy. The goal is to get it out of its doldrums and “back on track”. This is quackery.
It doesn’t occur to these “economists” that such an event simply postpones today’s difficulties and ultimately creates greater difficulties later on. Government debt is a forced burden on society and the politicians and bureaucrats merely take a big financial problem today and make it a bigger financial problem tomorrow. The government’s massive trillion-dollar spending binge will cost us dearly!
In my financial & investing seminars (www.ProsperityNetwork.net), I talk to my students about how to manage their money in today’s troubling economy given the economic quackery that we are forced to deal with. Greater economic difficulties are on the way and we need to prepare ourselves. We have to stay a step ahead. Financial changes are here and we need to prepare! Financial security will not be easy.
Hopefully, America’s personal financial planners will help our populace individually offset the great harm that is being done to them collectively as a nation. The irony is very disturbing to me: Our troubling economic conditions have arisen chiefly due to bad advice given to our nation from eloquent quacks that the media presents as “prominent economists”. More on this in a future essay.
Friday, September 18, 2009
Tuesday, August 11, 2009
The Arrogance of Government Spending
If you ever want to see a troubling dichotomy in our economy, look no further than the spending behavior between the private and public sectors. Right now, the private sector is now immersed in "thrift". The topics of consumerism and personal finance are now top-heavy with information and news about "how to save money". More and more folks are turning to frugality and trying to find ways to cut costs and reduce expenses. The major exception is government. Government spending at almost all levels are still too high. The federal government is the worst with trillion-dollar spending gone wild. Even beyond policies that affect all of us, our political leaders are spending more on themselves personally than ever before. I immediately think of an example:
During late 2008, our congressional leaders were basking in the media limelight by scolding auto industry executives for using private jets especially at a time when billion-dollar bailouts were being debated. But...
During 2009, those same politicians are now pushing to spend $550 million of taxpayer money to acquire private jets for their personal travel usage. More lavish travel and lavish entertainment while those actually paying for it are struggling. What expensive hypocrisy!
There are many solid reasons why the public is angry at politicians and disgraceful, lavish, excessive spending is a primary reason for the justified angry and outrage. The arrogant politicians are squandering the nation's resources at a time when our economy is struggling and millions are dealing with financial pain.
Millions are dealing with financial hardship, bankruptcy, foreclosures and tighter budgets yet our leaders are living lavishly and spending trillions without care or consequence. The payment of these trillions will have to be painfully inflicted on taxpayers and consumers and their children and grandchildren.
Congress and the President should use these tax-payer funded jets to go to Zimbabwe to see what could happen when exorbitant spending and inflating go too far. Remember this when they say to you "Aw gee...we have deficits...we need you to pay more taxes".
It is a important to communicate our dissatisfaction with the politicians running Washington and many of our states and cities. Call them...write them...meet them. Our country needs it.
Paul Mladjenovic
www.ProsperityNetwork.net
During late 2008, our congressional leaders were basking in the media limelight by scolding auto industry executives for using private jets especially at a time when billion-dollar bailouts were being debated. But...
During 2009, those same politicians are now pushing to spend $550 million of taxpayer money to acquire private jets for their personal travel usage. More lavish travel and lavish entertainment while those actually paying for it are struggling. What expensive hypocrisy!
There are many solid reasons why the public is angry at politicians and disgraceful, lavish, excessive spending is a primary reason for the justified angry and outrage. The arrogant politicians are squandering the nation's resources at a time when our economy is struggling and millions are dealing with financial pain.
Millions are dealing with financial hardship, bankruptcy, foreclosures and tighter budgets yet our leaders are living lavishly and spending trillions without care or consequence. The payment of these trillions will have to be painfully inflicted on taxpayers and consumers and their children and grandchildren.
Congress and the President should use these tax-payer funded jets to go to Zimbabwe to see what could happen when exorbitant spending and inflating go too far. Remember this when they say to you "Aw gee...we have deficits...we need you to pay more taxes".
It is a important to communicate our dissatisfaction with the politicians running Washington and many of our states and cities. Call them...write them...meet them. Our country needs it.
Paul Mladjenovic
www.ProsperityNetwork.net
Tuesday, August 4, 2009
"Single Payer Option " is a fallacious idea
Many people like the proposal for what is called the "single payer option". This is the foundation beneath most universal healthcare proposals. Part of the false allure of the "single payer option" is the idea of alleged efficiency. In other words, why have adminstrative costs among many private options when there would be greater efficiency with a "single payer" and therefore less administrative cost. This is WRONG. Let's get some clarity about the "single payer option".
1). People like the idea of the "single payer option" because they think that SOMEONE ELSE will pay for their healthcare; the government. This is tied to the dangerous myth of something called "government money". There is no such thing. Any money that the government has really comes from 3 sources; taxes, borrowing and currency creation. Taxes is money taken by FORCE from the private sector (taxpayers). Borrowing is receiving money today from others (such as the Federal Reserve or countries such as China) and must be paid for in the future (with future taxes). Currency creation means that the Federal Reserve (our central bank) creates money out of thin air and provides it to the federal government or other institutions (this results in inflation which is really a hidden tax paid by consumers).
2) The "single payer option" claim to efficiency is, at best, misleading. What "efficiency" it may or may not generate in adminstrative matters is entirely irrelevant since the single payer option's cost would sky-rocket because it tremenedously warps supply and demand for health goods & services. You see, those that favor the single payer option do so from a "static" point of view and not a "dynamic" point of view. The dynamic point of view takes into effect the changes in behavior that will undoubtedly result as a consequence of the single payer option. If the public believes that they are forced to pay for healthcare and that the government will ultimately provide for the service, then this will stimulate demand and increase consumption of healthcare services. However, it won't stimulate supply. Therefore, even if the alleged administrative savings do mireaculously show up, it wouldn't matter since over-stimulated demand for healthcare would drive costs much higher than expected.
In the private sector, costs are better contained than in any government scheme for obvious reasons. Any company that lets costs get out of control would face eventual bankruptcy. Government costs, however, are FORCED upon others such as current taxpayers, future taxpayers or consumers. In the event that government does contain costs, it can only do so by FORCED rationing. In the long run, government-run healthcare ultimately fails.
1). People like the idea of the "single payer option" because they think that SOMEONE ELSE will pay for their healthcare; the government. This is tied to the dangerous myth of something called "government money". There is no such thing. Any money that the government has really comes from 3 sources; taxes, borrowing and currency creation. Taxes is money taken by FORCE from the private sector (taxpayers). Borrowing is receiving money today from others (such as the Federal Reserve or countries such as China) and must be paid for in the future (with future taxes). Currency creation means that the Federal Reserve (our central bank) creates money out of thin air and provides it to the federal government or other institutions (this results in inflation which is really a hidden tax paid by consumers).
2) The "single payer option" claim to efficiency is, at best, misleading. What "efficiency" it may or may not generate in adminstrative matters is entirely irrelevant since the single payer option's cost would sky-rocket because it tremenedously warps supply and demand for health goods & services. You see, those that favor the single payer option do so from a "static" point of view and not a "dynamic" point of view. The dynamic point of view takes into effect the changes in behavior that will undoubtedly result as a consequence of the single payer option. If the public believes that they are forced to pay for healthcare and that the government will ultimately provide for the service, then this will stimulate demand and increase consumption of healthcare services. However, it won't stimulate supply. Therefore, even if the alleged administrative savings do mireaculously show up, it wouldn't matter since over-stimulated demand for healthcare would drive costs much higher than expected.
In the private sector, costs are better contained than in any government scheme for obvious reasons. Any company that lets costs get out of control would face eventual bankruptcy. Government costs, however, are FORCED upon others such as current taxpayers, future taxpayers or consumers. In the event that government does contain costs, it can only do so by FORCED rationing. In the long run, government-run healthcare ultimately fails.
Thursday, July 23, 2009
Understanding Healthcare costs
Whenever we think that something "costs too much", it is helpful to understand how costs become costs. What goes into the price of (in this case) healthcare? After all, the great policy debate of healthcare is about "lowering costs"? Congress's Speaker of the House, Nancy Pelosi said that healthcare reform can be summed up in two words..."Lowering cost".
In healthcare, the costs have skyrocketed in recent years due to factors above and beyond the simple calculation of a medicine or health service. two things come to mind quickly:
1) Bureaucracy -There are medical practices in America that have on staff more people that do administrative work than there are people to provide healthcare service. Our healthcare system is overloaded with paperwork. Insurance forms, medicaid, medicare, federal reports, state & local reports and so on. This massive cost ends up as part of "healthcare costs".
2) Legal costs- We live in a litiginous society, unfortunately. granted, some of it is necessary. But in recent years costs tied to legality and lawsuits have risen dramatically. It is now very common for many in the medical profession to pay malpractice insurance that is in six digits (or even seven). In other words, part of being a medical professional is to pay over $100,000 per year just to keep yourself from being sued out of your job!
Current healthcare proposals will do little (nothing?) to address these two very expensive components of "healthcare costs". But...if you think healthcare costs are high now, what do you think it will be after so-called "reform"? Here...do the "math"...
Before "Reform": Healthcare costs
After "Reform": Healthcare costs + 31 new federal bureaucracies
Ask your representatives in Congress to come up with the "new costs".
Hint: the total amount will be north of $1 trillion on top of current costs.
I can sum up my feelings about healthcare reform with one word: YIKES!
In healthcare, the costs have skyrocketed in recent years due to factors above and beyond the simple calculation of a medicine or health service. two things come to mind quickly:
1) Bureaucracy -There are medical practices in America that have on staff more people that do administrative work than there are people to provide healthcare service. Our healthcare system is overloaded with paperwork. Insurance forms, medicaid, medicare, federal reports, state & local reports and so on. This massive cost ends up as part of "healthcare costs".
2) Legal costs- We live in a litiginous society, unfortunately. granted, some of it is necessary. But in recent years costs tied to legality and lawsuits have risen dramatically. It is now very common for many in the medical profession to pay malpractice insurance that is in six digits (or even seven). In other words, part of being a medical professional is to pay over $100,000 per year just to keep yourself from being sued out of your job!
Current healthcare proposals will do little (nothing?) to address these two very expensive components of "healthcare costs". But...if you think healthcare costs are high now, what do you think it will be after so-called "reform"? Here...do the "math"...
Before "Reform": Healthcare costs
After "Reform": Healthcare costs + 31 new federal bureaucracies
Ask your representatives in Congress to come up with the "new costs".
Hint: the total amount will be north of $1 trillion on top of current costs.
I can sum up my feelings about healthcare reform with one word: YIKES!
Wednesday, July 15, 2009
Paul Mladjenovic
Hello everyone!
There is so much happening that I wanted to get this blog going so that I can share what I can about the economy and financial markets. new postings will come soon...
Stay well,
Paul Mladjenovic
http://www.prosperitynetwork.net/
There is so much happening that I wanted to get this blog going so that I can share what I can about the economy and financial markets. new postings will come soon...
Stay well,
Paul Mladjenovic
http://www.prosperitynetwork.net/
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