Three Economic Myths: Part 2

This is part 2 of a 3 part series on economic myths.

Economic Myth 2: The markets are panicking about the deficit


From Personal Finance News from Yahoo! Finance


To hear the G-20 tell it, the U.S. and other top countries had better slash those budget deficits before the world comes to an end.

And maybe the markets should be panicking about the deficits.

But they're not. It's that simple.

If they were, the interest rate on government bonds would be skyrocketing. That's what happens with risky debt: Lenders demand higher and higher interest payments to compensate them for the dangers.

But the rates on U.S. bonds have been plummeting recently. The yield on the 30-year Treasury bond is down to just 4%. By historic standards that's chickenfeed. Panicked? The bond markets are practically snoring.

They aren't seeing inflation either. On the contrary, they're saying it will average just 2.3% a year over the next three decades. That's the gap between the interest rates on inflation-protected Treasury bonds and the rates on the regular bonds. By any modern standard the forecast is low. Instead of worrying about inflation, some are starting to worry about something even more dangerous: deflation, or falling prices.

If that takes hold, cutting spending and raising taxes would be a bad move.

It's certainly possible the lenders buying these bonds are being foolish. And it's worth noting that the Treasury market is also subject to political distortions, because foreign are among the heavy buyers of bonds. So it's worth treating its apparent verdicts with some caution. Nonetheless, the burden of proof, as usual, is on those who argue the market is wrong.

It's the age-old "deficits are bad" baloney. Well, deficits can be bad. But in our case, they're not. We've been running deficits since the 40s, regularly. There was a time when we got close to eliminating the yearly difference between tax revenues and federal spending (late 90s very early 2000s), but Alan Greenspan warned that surpluses were bad.

Maybe he was right. The federal government certainly heeded his warning: We've spend trillions over the past 9 1/2 years, well above our "normal."

But most of that spending has come in terms of non-discretionary spending ("entitlements" that no politician has the courage to challenge, social security being one of the biggies, Medicare being the other horn of a really nasty bull) and very discretionary war spending.

Neither of which, I'll add, stimulates growth in the economy or jobs. Surely, soldiers have jobs, but they had those jobs before the economy tanked. What's going to happen if we every withdraw and don't need them any more? Will the government have the courage and discipline to "lay them off?"

I doubt it.

The problem is that, while we did put together a $787 billion stimulus package, it clearly wasn't enough. Yeah, you read that right.

They should have spent $2 trillion on boosting the economy from the get-go. But that's just my opinion. Prove me wrong 🙂


The Mortgage Market Is Rigged Against Borrowers

by Jack Guttentag

Yes, the mortgage market is more rigged against borrowers than ever before. If only PMI had been required on all buyers between 2001 and 2007…what if?

In my last column, I indicated that most mortgage borrowers who need private mortgage insurance are not aware that they have options in the kind of premium plan they select. Almost all are directed into monthly premium plans. Yet for many borrowers, the total cost over the period the borrowers will have the mortgage will be higher on a monthly premium plan than on a single financed-premium plan. In every case, furthermore, the increase in payment will be larger on a monthly premium plan.

A Market Rigged Against Borrowers: Why aren’t borrowers offered the option?

More on Mortgage Market Rigging

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Candwich Man Sued by SEC

"Investors" seem to be getting burned more and more often nowadays. This time, silly people invested in a company whose owner instead used their funds to buy stuff and make silly investments such as "canned sandwiches." That's funny.

NEW YORK (Reuters) – The Securities and Exchange Commission has sued a Utah man for fraudulently misusing $139 million of investor funds on such things as a film about the Cub Scouts' Pinewood Derby car race and development of a "sandwich in a can."

According to a lawsuit filed Thursday in federal court in Salt Lake City, Travis Wright misappropriated all but $6 million of the $145 million he raised from about 175 investors between 2001 and 2009 by selling notes issued by his Waterford Loan Fund LLC.

The SEC said the 47-year-old Draper resident represented to investors that their money would be used for loans secured by commercial real estate.

SEC sues Utah man in 'sandwich in a can' fraud – Yahoo! News

Kids and Money Blog Carnival July 2010 Edition

Welcome to the July 2, 2010 edition of kids and money.

Jaqueline Dornbach presents How to Spend Less on Groceries posted at The Young Pastor's Wife.

educationmediabits presents Make Saving a Habit, Not an Obligation posted at HVAC Training.

Hussein Sumar presents How to Negotiate Debt Obligations with Creditors posted at Debt Consolidation, saying, "If creditors do not receive on time payments from you, they will often report your delinquency status to the major Credit Bureaus (Experian, Equifax and TransUnion). But what if you are willing to make payments to the creditors, but not the full amount they are asking for? For example, you have $15,000 of credit card debt and your minimum monthly payment is $375. However, you can only afford to pay $200 a month at the moment. How do you negotiate with your creditors so as to get the payment terms to your advantage and get negative items deleted off your credit report? That is the purpose of this article."

Sun presents A New Child Means Lots of New Expenses posted at The Sun’s Financial Diary.

educationmediabits presents Taking Care of Air Conditioners and Heaters Will Save Money posted at Respiratory Therapist Schools & Career Guide.

Casey Markee presents 10 Spoiled Kids Who Hate Their Presents [Videos] posted at Party 911 Blog – Tips, Tricks And Helpful Hints For Hosting A Great Party, saying, "We’ve all received a Christmas or birthday gift we really didn’t want. But some people take their displeasure to new extremes. Check out these videos of 10 Spoiled Kids Who Hated their Presents and weren’t shy about expressing their disappointment!"

Leave Debt presents Is it Possible to Settle that Student Loan? posted at Leave Debt Behind.

Wise Bread presents Financial Freedom and Using Passion to Budget posted at Wisebread.

Gina @ MoneywiseMoms presents Free & Low-Cost Summer Movies for Kids posted at Not the Jet Set Guest Post on Moneywise Moms.

Jena Ellis presents 30 Rules of Engagement: Who Pays for the Wedding? posted at Online Certificate Programs.

Infernios The Hoarding Dragon presents The dragon?s girth-staggering difference in investing early posted at ThunderDrake, saying, "This post elaborates on the staggering (girth staggering, even) difference between starting at different age gaps. It urges readers to begin investing (or through the alter ego's word, hoarding) sooner than later. Time is perhaps one of the most crucial elements to financial independence. Perhaps this is tangential at best, but it's true to the most important element of investing; starting younger than older. I appreciate the consideration. May the ambitions of my writing fuel your carnival's success. <3"

Gabriella White presents Kids Summer Activity List: 100 Creative and Cheap Summer Activities For Your Kids posted at Associate Degree Online, saying, "If you are lucky enough to get to be with your kids during the summertime, instead of packing them off to day care every day, you will have to deal with the inevitable cries of, “I’m bored.” Here are 100 creative, fun, and cheap things that you can do with your kids over the summer."

Andrea presents How kids Handle Money posted at Savings Scoop.

Amanda L. Grossman presents 9 Ideas for Some Frugal Family Fun posted at Frugal Confessions, saying, "As an adult I occasionally daydream about certain times during my childhood. When I’m in my cubicle on a summer afternoon, it’s not nostalgia for Nintendo, Gameboy, or shows from TGIF that puts a smile on my face; it’s the more homegrown fun we had."

Elizabeth presents Debt Consolidation Works Best When Financial Discipline Is Adhered To posted at Payday Loan Debt Consolidation Blog, saying, "You are happy after availing the services of a debt consolidation company and hope that now it will be convenient for you to pay off the debts. Further, you might heave a sigh of relief since all the creditors will now be handled by that company. You might be mistaken."

Anand presents Ontario Shows the Way in Payday Loan Reforms Process posted at Best Payday Loan, saying, "Online lending companies have made borrowing easy loans have become very accessible. You don’t need to worry about your credit history anymore. With the fast easy cash advance, you can repay the borrowed amount on the salary day and that will be the end of it."

Ashley Jacobs presents Paying Your Child? Here are Six Ways to do it posted at Cash Flow Sherpas.

Jaqueline Dornbach presents How Old Should My Child Be Before I Return To Work posted at The Young Pastor's Wife.

jacqjolie presents Charging adult kids rent – to do or not to do? posted at Single Mom, Rich Mom, saying, "When or when not to charge adult kids rent."

Isabella Smith presents 100 Tips & Tricks for Raising Seriously Smart Kids posted at Online University Lowdown, saying, "The list in the article provides a few eclectic suggestions on how to bolster a kid’s brain to keep him or her happy, healthy, and constantly growing in his or her education."

BWL presents Deciding If You Can Afford Christian School Tuition posted at Christian Personal Finance, saying, "This article looks at the challenge of affording private school tuition for your kids…"

Nathan Richardson presents Money & Life Lessons from Toy Story 3 (without spoilers) posted at Deals & Tips, saying, "Thanks for your consideration."

MoneyNing presents Learning to Say “No” to Your Kids posted at Money Ning, saying, "How do you say no to kids who want everything?"

June Tree presents College Education Costs: Is College Worth What You Pay For It? posted at The Digerati Life, saying, "Lots of parents think about the costs of college. Here is a closer look at those costs."

Michael Pruser presents Best Savings Account for Children | Online Banking for Kids posted at The Dough Roller, saying, "Children can start a savings account anytime and the sooner the better. Here are a few great options to get them started."

Christien presents Impact of the Credit Card Act on different types of cards posted at Credit Cards Truthiness.

Karen Anderson presents 13 Timeless Finance Tips From The Bible posted at Online Christian Colleges, saying, "In fact, the Bible has over 1,000 verses that discuss money. In this article, we’ll discuss thirteen timeless pieces of financial advice straight from the Bible, as well as give you the actual Scripture references."

Random Jan presents Homeschool Headstart Bazaar 2010 posted at Creative Hemispheres, saying, "My son and I sold some of our crafts at a homeschool bazaar where he made, demonstrated, and sold his own merchandise."

Case Ernsting presents The Summer Help: Jobs in the Midwest posted at FinditLocal411 Blog, saying, "Summer jobs are a great way to teach kids responsibility and work ethic. For some great inspiration and "how-to" tips for finding these jobs, check out this post."

Debra Jacobson presents How To Be Frugal: Saving on Child Entertainment posted at All Things Frugal, saying, "Children's entertainment does not have to be expensive."

That concludes this edition. Submit your blog article to the next edition of kids and money using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page.

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