Tuesday, July 26, 2011

Inflation, Anyone?

This week's topic is about the current inflation rate in the United States and how the reported inflation rate does not give an accurate picture of what is going on in households.

Inflation is the overall general upward price movement of goods and services in an economy (often caused by a increase in the supply of money), usually as measured by the Consumer Price Index and the Producer Price Index. Over time, as the cost of goods and services increase, the value of a dollar is going to fall because a person won't be able to purchase as much with that dollar as he/she previously could. While the annual rate of inflation has fluctuated greatly over the last half century, ranging from nearly zero inflation to 23% inflation, the Fed actively tries to maintain a specific rate of inflation, which is usually 2-3% but can vary depending on circumstances. The opposite of deflation.
Our current rate of inflation is 3.56%. The Consumer Price Index (CPI) is what the Department of Labor's Bureau of Labor Statistics uses to calculate the inflation rate. The CPI rates everything from fuel, to food, to medical expenses.

I have linked the BLS's CPI report for the month of June 2011. Interestingly, they release a CPI monthly. I find this interesting because I don't think it's an especially useful tool monthly. It's more useful as a yearly indicator of what has occurred in an economy.

However, let's look at the CPI for energy and food. Let's look at food. The BLS reports that although the index for food dropped a tad from May to June, overall, "The index for food at home has risen 4.7 percent over the last 12 months, with all the major groups increasing 3.2 percent or more." Oh, we're feeling that one, aren't we? It sounds so non-threatening in a report like that doesn't it? But let that sink in.

Food has gone up in price by nearly 5% in 12 months. We are paying about 5% MORE this June for the same things we bought last June.

On to energy. The energy index fell in June 4.4% from May, the largest drop since December of 2008. But keep in mind that gasoline prices have fallen partly because the Strategic Oil Reserves are being used to keep our prices artificially low. (I say artificially because it's not a true indicator of a reduction in prices because we have a temporary alternative supply. The Strategic Oil Reserves can't supply forever.)

Here's the money quote:

Despite the recent declines, the gasoline index has increased 35.6 percent over the past 12 months. The index for household energy also decreased in June, falling 1.2 percent after rising 0.5 percent in May. The index for natural gas rose 0.4 percent, but the electricity index declined 1.6 percent and the index for fuel oil fell 2.2 percent. The household energy index has risen 2.8 percent over the last 12 months, with the fuel oil index up 37.3 percent and the electricity index up 1.5 percent but the index for natural gas down 0.8 percent.

So, there it is. In ONE YEAR we are paying 37.3% MORE for gasoline.

This makes me so mad I could spit. And here we are sitting upon some of the richest oil sources in the entire world and President Obama remains unmoved! He hasn't lifted the moratorium on drilling for oil. And we are drying up financially because of it.

Anyways, this post was about inflation. We have a relatively low inflation rate across all goods and services, but where it counts, in food and fuel, we are being killed.

15 more months...15 more months...15 more months...

Tuesday, July 19, 2011

Why the Debt Ceiling Doesn't Concern Me

Have you been hearing the talks about the debt ceiling? About how bad it's going to be if the government actually defaults on their debt come August 2?

Well, that's been the latest topic/argument coming from Washington. We are scheduled to exceed the debt limit that Congress has already raised twice this year, on August 1. Basically, under Obama's leadership and the Democratic Congress that brought us two "bailouts", Obama-care, and the takeover of two auto-makers (GM & Chrysler), we will exceed the limit of 14.3 trillion dollars. What will happen,theoretically, is that the US would not be able to borrow any more money to make the payments on the existing entitlements. (Entitlements are Medicare, Social Security, food stamps, etc.)

A lot of this argument is hyped up to scare Americans. "Oh no! Social Security payments won't go out if they don't raise the debt ceiling!" This is not accurate. The federal government takes in taxes monthly to pay for the Medicare and Social Security. The government will take in enough money to make the minimum payments on the debt.

The real issue is that without raising the debt-ceiling our credit rating will go down, making it more of a risk to loan to the US.

Well, hello. It is a risk to lend to the US. We are spending the money of my children's children's children. We are in debt to like four generations, people. Should we be considered a safe loan? Shouldn't it be more difficult to borrow money for the US?

I love to think about this in terms of a family budget. Let's say Erik has a job and makes $50,000. And our expenses are running about $43,000 a year. So we're saving $7,000 a year. And then, oops, we're having another baby. Our expenses are about to jump to $52,000 a year. But Erik's only bringing in $50,000. What to do? We have two options: 1) Borrow and pay our expenses on credit or 2) reduce the expenditures to within $50,000.

We will quickly go through our savings. And then we'll need to make the hard decisions. So, we decide to use credit. I mean, who wants to say no to themselves? And you know, Erik will probably get a raise this year. So, we can start paying it back.

But then the interest payments start catching up with us. Oh no! Now our expenses have gone up to $58,000 a year. And then, bummer, we can't really pay the interest, so we take out another loan to pay that one. And then another... Now our expenses are out of control. Not to mention that at this point I've enrolled the girls in ballet, tap & jazz, Erik and I both have new cars every two years, and I'm constantly shopping. Those are needs, right?

The bank eventually cuts us off. We are no longer allowed to take any more credit. We are such a credit risk that our credit score has tanked, thereby alerting any other would-be creditors that we probably can't be trusted with credit.

What should we do? Start trimming the expenses. The credit has to be paid. It's all stuff we've already bought. The only way out of that one is bankruptcy (i.e. Greece-this is what's going on over there! Our future if we don't change!). The only real solution is to cut down on all the "entitlements", like cable, dance classes, sell the cars and buy cheaper ones, decide if we really need a home phone and cell phones, etc. It's the responsible way.

I think it's high-time that the government start acting like everyone else in this country. Stop spending. My goodness. JUST.STOP.

And yes, it hurts to cut yourself off from things that you love. But you have to start and keep in mind that financial health goes MILES towards mental peace.

Although the scenario above is hypothetical, I'm not the perfect picture of financial health. But I can recognize an addiction when I see one and the Federal Government is addicted to spending.

The reason the debt ceiling breach doesn't bother me is because it bothers me more that Congress is actually thinking about raising it again. For the third time. This year.

What should bother us is that we apparently need this money to keep paying Social Security and Medicare. We are giving out money that we don't even have. How irresponsible is that?

Tuesday, July 12, 2011

Smart Girl Talks Corporate Taxes

I was at Bunco last week when my friend the Queen called me smart. This occurred because one of our friends was surprised that I didn't like Barrack Obama.

After the Queen's compliment, I basically biffed the rest of the conversation. I was horribly inarticulate about why Barrack Obama is a terrible President. And I was even less convincing about my single most passionate issue: the beauty of free-markets! I hung my head in shame. I only have a few moments like those to attempt to convince someone of the truth.

But do I? Don't I have a blog? Why, if free market economic principles are so interesting and important, don't I talk about them more often?

I think I should commemorate this tongue-tied occurrence with a weekly post about capitalism, free-markets and how it relates to current events. I'm going to call it, "Capitalizing on Tuesday" or "Capitalism Tuesday", or "Free-Market Tuesday". Do you have a suggestion? I'm terrible with names.

So, today's topic is about how awesome it would be if Arizona slashed it's Corporate Tax Rate. Currently, we have one of larger corporate tax rates. According to the Tax Foundation, Arizona's corporate tax rate is 6.9% on all moneys earned. Whether you earn $1 or $1,000,000, you have to pay the state 6.9%.

I'm bringing this up because couple of weeks ago, California enacted the California Internet Sales Tax. All online purchases, irregardless of if the vendor has a brick-and-mortar store, is now subject to sales tax in the state of California. This is a hit for online merchants based in California. The article ended with an interview, "One affiliate, Ken Rockwell of San Diego, the owner of a 12-year-old photography website, said he planned to move out of state.

"Will it be Las Vegas or Scottsdale or Ensenada?" he said. "It's a question of where, not if."

Dear State of Arizona, I have a few suggestions.

1. Start recruiting businesses from California. They want to move! Arizona is the perfect place for businesses to start over. We have very few natural disasters and shipping interruptions. We are very accessible internationally. Yes, it's a tad hot for a few months. So what? Instead of paying higher taxes, you can afford to take vacations!

2. Slash the corporate tax rate to below 5% . This will entice the businesses. They will bring their existing customers, their employees, and hopefully, they will start hiring new people once their business grows.

3. Watch businesses grow! Arizona's unemployment rate is, preliminary, at 9.1%. (Expect that to be adjusted upwards. That rate has been adjusted upwards for the past 2 years.) The real unemployment is probably at 9.5%. Well, the easy fix for this is bring in more businesses for our people to work in. More jobs available means more people working and lower unemployment.

Anyways, if you know your state reps, I would pass along this information. Encourage them to try and find a way to lower the corporate tax rate. Capitalize on California's idiocy.

Friday, July 8, 2011

What I'm Thinking About Right Now

I was sitting down on a Friday night, not to curl up with my honey because he's out on a 36-hour Nazi Zombie marathon with his guy friends as a birthday present from me to him, but instead I decided to blog about Casey Anthony and my thoughts on her acquittal.

Except, that's not what I'm doing. I'm watching 17 Again with the adorable Zac Effron, and checking my Netflix queue. And that's a weird word: Queue. Say it with me: Queue. And I totally spelled it correctly the first time. Yes! I've still got mad spelling-grammar skillz! So, the movie is cute. But so is Zac. And if you tell my kids I will call you a liar.

So, Casey Anthony is not cute. And she is a liar. However, bald-face lying does not a murderer make. But it sure does make one wonder why she would lie if she had nothing to do with Caylee's death.

I think why I'm so upset about the thing is because my soul cries out for justice. I want to see someone punished in my lifetime for something so tragic. I believe we all have a need for justice. The only way to reconcile this heinous action and the coinciding acquittal of Casey is that I know that nothing is secret from God. There is nowhere that His light does not shine. Things done in the cover of darkness are not hid from him. I also take comfort that God will exact His revenge.

So, I've made peace with the death of Caylee Anthony.

Of course, there's a legal aspect to this that I want to discuss. I am becoming concerned that cases built on circumstantial evidence do not convict. I mean, the woman lied to police over and over. And then what's with the whole Dad issue? Daddy issues are not a license to kill! I'm not a lawyer, so I have no idea how a defendant can use Daddy-issues for a defense. I just know that most women have Daddy issues, and yet still are accountable for their actions. Right?

Well, I'm back to Zac and 17 Again.