Economics 101

Economics 101

 Recent news reports indicate that we are finally starting to see noticeable economic recovery in various meaningful sectors.  Most of us start believing when it begins to affect us personally, either directly or amongst our immediate family and friends.  You can read all the happy (I’m sure that some of the news articles are planted) news but unless it becomes easier to meet the mortgage payment, and return to a semblance of what life used to be like prior to 2008, we are not buying it.  I am not a person that has ever had an interest in the stock market, so just like before it means nothing to me that the stock market is climbing once again, after all the option of falling drastically is still there.

During a time of expanding Globalization all of our local and personal gains (economic) can be wiped out overnight by some international incident or event. Some obvious examples are the tensions with North Korea, the recent computer hacking of the Defense Department’s weapons systems (believed to be from China).  Banks and credit card companies (financial institutions) are constantly under attack by hackers (almost always from places other than the United States).  All of this attacks are directly tied to us individually, because it’s our property that this Global criminals are after.

The latest good news is that in some sectors of the US property values have started to climb from as little as 2% to as high as 22%.  The Las Vegas area showed some improvement of as high as 20%.  However, when put into perspective, Las Vegas was one of the hardest hit areas with regard to real estate values.  The best way to maintain individual (economic) stability is not to rush out and take the equity out of your property.  I’ve noticed an increase of credit card offers in the mail once again.  My policy is that if I get a mailer offering 40% discount at a store, I stay home and save 100%.  I buy when I need something not when someone offers me a savings on an item I don’t need.

Once upon a time, there was such stability that if you owned a house for 20 years and sold it to upgrade or downsize, you may receive $5,000 more than what you paid originally.  Even if you sold it for what you paid originally, you felt fortunate that you live at your house for free for 20 years.

My sister once asked me what was meant by; “the rich get richer and the poor get poorer.”  I decided to give her a lesson in economics, and actually spent a half day literally doing so.  At the time (about 20 some years ago) we stopped at a grocery store and I picked a product that we were both familiar with.  A one pound bag of pinto beans was .39 cents per pound, we then drove about a mile to grain mill store and found that I could buy a 100 pound sack of pinto beans for $19 dollars.  I explained to her that if her budget only allowed for $25 dollars weekly on groceries she couldn’t afford the $19 dollars for the sack of beans. She would eventually pay twice as much as I would buying it at a pound per week.

Next we went to the local Sears store, and we went straight to the appliance section.  The price tag was $249 for a nice clothes washer.  We checked with the appliance sales man and he was ready to sell it to us on the easy payment plan at just 12% interest rate.  I explained to my sister that if she couldn’t afford to pay the $249 plus sales tax she would have to make payments ($12.71 per month) and would end up costing her well over $300.  Once again the person that can least afford it pays the most.  My recommendation was that she save the money and pay cash or put a large down payment to minimize the amount of interest paid.  There are no free rides or there shouldn’t be, sooner or later we pay the price.  The best is yet to come…