Tax Stimulus is Steroids for the Economy

Move over Roger Clemens, Congress has taken a lesson from “The Rocket” by injecting an artificial stimulus (tax rebate) into the economy. Lowering interest rates to provide cheap credit wasn’t enough of a stimulus, so this administration has given us a direct hit into the vein, sending cash right into the consumers pocket with instructions to spend it pronto.

It seems a little ironic, but as Congress shows their dismay and disappointment with Roger for using steroids to pump up his performance, they follow his lead to artificially stimulate the economy. Everyone cheered as Roger was pumping up and winning seven Cy Young awards, while ignoring the unnatural physical changes – see Roger’s physique when he entered the league (Photo on right) as compared to more recently (below).

The doping of the economy has been going on for a long time with the administration cheering the growth of the GDP. It was growth at any cost. Who cares about trade deficits, dollar devaluation, inflationary prices, skyrocketing home prices? Cheap and easy credit was the mantra.

This stimulus package is a temporary fix, another quick high, that will increase inflation and fall short of fixing anything. It’s time to cut the junkie off and let the natural market forces go to work. Instead of giving consumers more juice, congress should ask them to live and play within their means. The withdrawal symptoms (a recession) will be excruciating for those speculators and victims of rate scams, but it’s the only way to allow the free market to wring out all of the bad debt and begin the healing process.

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Are we about to lose another Industry?

Given the current global financial crisis, which was created on Wall Street, is it possible that the mighty financial industry could go the way of the US manufacturing industries?

Take a trip back to the East coast and you will see the remnants of a huge industry that the US once dominated. Now only the buildings remain of the textile companies that once employed thousands. The mills were shuttered and the work sent abroad where cheaper labor and less restrictions on businesses allowed better profit margins.

Take another trip to the MidWest and you will see the people and cities that were devastated by the exodus of the auto industry. Competition has taken away an industry that was once dominated by the US and employed even more thousands.

It’s happened before to mighty industries. Who would have ever believed the auto industry would falter to this extent? Good paying jobs were lost forever.

Today, we are witnessing the struggles of yet another powerful industry. The financial services industry has managed to grow incredibly over the last 50 years. At one time, the US was the largest creditor nation in the world and it was only natural that the center of finance was located in New York where the largest suppliers of capital could be found.

That has all changed now. The US is a debtor nation and most of the new capital is coming from Asia and the Middle East. Read any paper and you will see that these new financiers are buying out America.

What has happened to cause this turn of events? Several things have contributed to the current situation.

For starters, government fiscal irresponsibility. Under Bush, the nation's debt has mushroomed. Secondly, the investment banks have gone from private ownership to public allowing risk to be transferred to shareholders.

As a result, the financial institutions were driven to find greater profits and take on riskier sources such as sub prime debt vehicles. In the frenzy, the US financial industry spread billions of dollars in losses around the world shattering it's standing with customers. You lose customers when you sell them junk, just like the auto industry lost its reputation for high quality cars.

Another factor is the devaluing dollar. In the past the dollar was the most stable currency around. It was the standard to measure everything against. Nearly everyone wanted to be paid in US dollars or have their money in US banks. That is no longer the case.

It is very possible that the financial industry, like manufacturing, will be yet another industry lost to foreign competition. In the end, the financial capital could move away, leaving New York a minor role to play and a shadow of it's former self!

Somehow, I don’t think interest rate cuts and tax refunds are the answer….

How I paid off my Home with a Home Equity Line of Credit!

I used a HELOC to pay off my home mortgage! How convoluted is that? I used the equity in my home to qualify for a loan. I then used that loan money to pay off the remaining mortgage amount.

The whole thing started when my mortgage lender, Washington Mutual, called me to re-finance. Their new rates were slightly lower than my loan. However, I already had plans to pay it off early and when I ran the numbers it just was not worth the drive to their office to do the paperwork. The loan officer on the other end of the phone was in disbelief. She said over and over that “It won’t cost you anything, it’s a free refinance!” I held my ground, I wanted a better rate or nothing at all.

The next day, the loan officer called back. She said she had just the deal for me. Now, I was really suspicious. She suggested that I pay off my mortgage with a HELOC that was 2.5 pts less than my mortgage rate. With this new low rate, it was definitely worth looking into. I made certain that I could pay off the HELOC early and that there were no fees. In addition, I ran the amortization numbers for several different increasing interest rates, because the HELOC rate is based on the prime rate which can change.

My intentions were to pay off my home loan within the next year, so I knew that it was very likely I would have it paid off before rates could climb back up to my original mortgage rate. That is exactly what happened. Rates did increase, but it never reached the level of my original rate before the loan was closed out.

That turned out to be a real benefit, because as the rate was increasing, I had the extra incentive to save and get the HELOC paid off within that year. The only downside of the HELOC is that I suspect it had a negative impact on my credit, at the time. Unlike a mortgage, a HELOC is a loan that can be used for anything and accordingly it presents more risk to the lender. I did some research on this and found some interesting facts.

• HELOCs are structured as interest-only loans, so the minimum payments can be enticingly small. Case in point, I borrowed nearly $40,000 and the minimum monthly payment was less than $130 bucks.



• HELOCs can affect your credit score. How much depends on the amount you borrow. A sizable HELOC of $100,000 is counted as an installment loan, while a small HELOC around $2,000 is considered revolving credit. For installment loans, like a large HELOC or an auto loan, FICO takes the ratio of the original loan amount to your outstanding balance on the loan to calculate a credit-utilization ratio. So a new loan can drag your score down for the first year or so. Whereas revolving credit, like credit cards, is treated a little more kindly - the ratio is the credit limit to your current monthly balance.

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My beloved Supra has become a money pit

I don’t have any traditional debt. I own my house, my two cars and I pay off my credit card every month. I must be carefree and debt free, right?

Well, not exactly, I own a 1989 Toyota Supra that has become a money pit. The car does start - occasionally. Unfortunately, I do not trust it anymore and I don’t want to get stranded somewhere away from home, so it just sits in my driveway - looking great, by the way. It doesn’t move or provide any service to me, but it costs me money all of the time. I keep auto insurance on the car (liability-only at $486/year), state registration tags ($45), and now it needs an emissions test ($50). It’s a little money pit. Oh, by the way this is the first car I ever purchased and because I have had it since it was brand new in 1989, I am emotionally involved.

Because it’s so old and of little monetary value, I don’t want to take it to a repair shop. If I did, the shop would probably come back with an extensive repair bill and then I would be forced to make a decision. I already know what that decision must be – it’s time to let go of the car, its time to donate it.

So, instead it sits in my driveway and I tinker with it. I have replaced spark plugs ($10), and checked the ignition coil, distributor wiring, ignition switch, ignition relay, replaced battery terminals ($5); all of this while chasing this electrical problem. I am just about stumped.

So far, I have been using the excuse that by doing all this tinkering, I may actually gain some knowledge about auto ignition systems. I even joined a Supramania website where I can ask "Supra experts" questions to help me with the diagnosis. Only problem with that is they get a little tired of dealing with rookies like me. LOL

My debt reduction plan begins with writing this post in hope that once I re-read the saga and take note of the money that the car is burning through, I will be spurred into action!

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