Bringing Back Debtors Prisons!

In a recent article of MasterPo’s the old concept of the “Debtors Prison” was mentioned merely in passing as an institution no longer practiced. Surprisingly that one comment instigated a rash of negative comments as readers greatly misunderstood the reference.

But this got MasterPo thinking: Why not re-institute Debtors Prisons?

From medieval times through the middle of the 19th century people with debts they couldn’t pay when due where often put in these prisons. Conditions were harsh as it was a form of punishment meant to repudiate someone who couldn’t immediately pay back what was owed as well as a symbol to the rest of society to encourage reasonable thinking when borrowing (and lending).

But in spite of the term “prison” in many cases after a brief bit of incarceration under true prison conditions in many cases the debtor and lender would meet (in the prison) to work out a repayment plan. Often this meant the debtor working for the lender in some capacity for a period of time until the value of the labor or production repaid the funds lent out. The debtor basically lived a “work-release” program, working for the lender during the day and returning to prison when not at work.

The intent was as much punishment as it was to ensure the debtor did in fact hold to the repayment agreement.

There is logic in this. Left to their own devices many people will only give lip service to repaying debt. Or even when a true effort is made but falls short the debtor still indulges in some extras and frivolity – money that could be and should be used to repay the debt instead.

Considering the massive amounts of personal debt in today’s society, Debtors Prison may not be such a bad idea.

Before you send the hate mails and comments, follow this:

In a great many cases the debt is based not on buying necessities of life (food, basic clothing, basic transportation, medical etc) but on pleasures and accessories of life like bid screen TV’s, Xbox, vacations, meals out, latest fashion etc. All nice stuff. But hardly an example of a person just scraping by.

(Not that un-repayable debt to pay for food, clothing, medical etc. is an excuse either.)

The worst part is that for a great many people the concept of even trying to repay the debt just isn’t in the cards for them.

Sue them? They have little or nothing of value.
Attach wages? Same thing.
Repossess the items? Kinda hard to repossess dinner.

And even more, these people continue to spend money on crap like super grande mocca whatever lattes and the latest Halo or WOW games.

So why not some form of Debtors Prison?

As an effort to ensure these people concentrate on repaying the debt, and, as a symbolic warning to others not to bite off more than they can chew.

The current ways of trying to ensure debt repayment are failing. How about something else?

Show Me The Green?

While writing this MasterPo is looking at a new bottle of Aquafina.

It is “new” because it says it’s made with 50% less plastic.

And it feels it. Very very flimsy. Nearly ripped the top of the bottle off breaking the initial seal!

Not just Aquafina. Other companies too are touting how their bottles are now made with 20-30% less plastic.

Save the world and all.

But it occurs to MasterPo: Plastic is a material in the product.. Use 20-30-50% less and the cost of the product should be less because there’s less material going into the manufacturing. Right?

So why hasn’t the price come down?!?!?

Before you rush off a response along the lines of “corporate greed” ask yourself: Isn’t this a lot like the rest of the “green” agenda policy - Pay more, get less?

Advancement.
Yea, right.

Daniel Webster is rolling over in his gave.

Aspirations Of A Dark Suite

Recently MasterPo had yet another very troubling conversation.

At MasterPo’s workplace there is a lunch room with a TV. Typically during the day the TV is set to CNBC or MSNBC for financial news (or Fox for general news). A lot of small/personal investors work in MasterPo’s office.

This morning MasterPo had gone in to check the market. A co-worker comes in and starts to chat about the market. MasterPo asked if the co-work was aware that (as of writing this – it was finally extended late December 2010) it appears Congress is not going to extend the Bush tax cuts. The co-work said he wasn’t aware but it didn’t matter as we are part of the 98% of Americans who earn under $250,000 so we wouldn’t be impacted. MasterPo informed him they aren’t going to extend the tax cuts for anyone regardless of income level! Then added “Don’t you aspire to $250,000 or better?” The co-worker responded “When I get to that level then I will fight for those people.”

This is very sad!

Though, regrettably, not surprising in this day and age when “the rich” (since when was $250,000 “rich” anyway?!) are Public Enemy #1.

There is a saying: Being successful without recognition or reward is like relieving yourself in a dark suite – you get a warm feeling but no one notices.

It may not be everyone’s cup of tea but the quest for increased income and wealth is the motivating inspiration for a large number of people’s willingness for taking on hard work. All well and good to say achievement, production and ‘helping people’ is the goal. But without proportional award that grows as your achievements grow there is nothing to aspire a great many people to in fact be creative and hard working. In that regard Gordon Gecko was right.

MasterPo is sure people are going to comment that doing well and producing is award itself.

Definitely the feeling of accomplishment is needed. No one likes to toil away without someone saying “Good job!” at least once in awhile.

But don’t deceive yourself! No one who is honest with themselves is going to willfully seek out the added work, effort, accountability, stress and risk of striving without aspiring to greater and greater income. No one. Anyone who says the work is all that matters to them and not the money, if not already independently wealthy, is either a fool or a liar. Period.

On a greater societal scale it simply is amazing how many people care about the situation of their fellow man solely on the basis of something as superficial as how much money they earn.

Who is one person to say what another person should make?

Is this the America your parents dreamed of?

Thus is born out of the “entitlement society” for if someone has more than you it must be an unnatural imbalance brought by abuse and cheating of others, never by risk and hard work, and you are entitled to a growing share of their pie.

If more people concentrated on building themselves up rather than pulling down someone else we would be so much better off.

A Snowball’s Chance?

Rhetoric aside, a great many well respected people in finance and public policy believe a great financial drop – let’s call it for what it is: a disaster – is on the near horizon for the United States. Certainly no one with an open mind can honestly say things are going well and definitely not up to the promises that were made during and soon after the 2008 elections.

Many factors play into it:

- 10% unemployment (U6 is over 17% as of writing this)
- Soaring commodities
- Increasing taxes during an economic stall
- Real estate – both homes and businesses – at all time foreclosure highs
- The value of the dollar falling like a stone (and on purpose by our government!)
- The Federal Reserve openly pursuing a policy of trying to encourage inflation(!)
- $13.8 trillion in national debt (as of writing this)
- $1+ trillion in annual Federal budget deficits projects for the next 10 years at least
- Individual states with multi billion dollar budget shortfalls, include but not limited to state pension liabilities

And so on.

Nothing new to report for anyone who’s been awake these past 2 years or so.

But the fact also remains that bad things rarely happen in singular events. They saying that bad news comes in 3’s often is true (though the act figure varies). That is, very rarely is it that just one single bad event happens. Usually one bad events dominos into another, then another, etc. And that’s presuming everything else in the surrounding environment is stable and benign.

But what if the rest of the world isn’t so passive and non-threatening if/when trouble does come?

What if China or Russia or Iran or Venezuela or Al Qaeda see an economic crash as an opportunity to move against the U.S. and/or U.S. interests?

Kick ‘em when they are down is a strategy.

The $3.00 Limit And Beyond

It is said that every man has his price.

For MasterPo that price is $3.00. Specifically, $3.00 and above per gallon for gasoline. It is at this level that MasterPo significantly begins to alter his travel plans and life style.

MasterPo acknowledges it is a psychological barrier more than a financial barrier (though not by much). But when it cost $40 to full the tank after a day trip to the Eastern end of Long Island – before spending more money on food, activities, etc – that is spending which cannot be performed on a weekly basis.

Nevertheless, MasterPo simply cannot be the only one feeling this way.

In the macro economic sense it isn’t just the purchase of gasoline but all the other purchases MasterPo and people like MasterPo will not be making as simple travel becomes more and more expensive.

All the hotels/motels not stayed in.
All the amusement park admissions not purchased.
All the food and souvenirs not bought.
All the clothing, cameras and other supplies people by in preparation for day trips and short term/weekend trips.etc.

This effect gets expanded because with current levels of technology it electric, compressed gas, and fuel cell vehicles simply do not offer the kind of size, range and features someone with a family needs (you can’t fit 2 adults, 2 kids, car seats, bags etc. in a Volt and go on a 100 mile round trip in a day).

Free movement about the land is the corner stone of American liberty. But people have to choose between travel and food, housing, clothes etc. Some people have no choice but to drive for work and personal commitments. But for a great many others driving is more an option and when faced with rising costs and stagnant (more or less) wages something has to give.

For MasterPo most of driving is for pleasure not for work (other than the daily commute to/from work). So when push comes to shove pleasure can and will be reduced for the necessities of life.

But multiply that out and the ripples throughout the economy will be vast and deep reaching.

Maybe a horse would do better?

Which Way Did He Go George? Which Way Did He Go?

Remember that classic scene from the old Bugs Bunny cartoons? The rabbit would reply “He went that at-way!” while pointing fingers in opposite directions. Following the financial and economic opinions these days reminds MasterPo of that scenario. No one seems to have a solid clue where things are much less where things are going.

When the stock market is going up the pundits talk of growth and strong recovery.

When the stock market is going down the pundits talk of slow down and maybe more stimulus.

Even intraday on several financial websites and news services there will be 2-3 articles about how strong the market is, how it’s poised for a break out, how well things are going etc. But then followed by an article or two about how there is no recovery, the employment landscape is a desert, Europe and the PIIGS are getting worse etc.

Come on guys - So which is it??

How about a little consistency with your point of view. Even if you’re blowing sunshine up our backsides either keep doing it. Or at a minimum give acknowledgement to the opposite you were just reporting and explain why now your opinion has changed!

We are living in very uncertain times and people are looking to you for some direction. If you don’t have any directions fine – say so! Just don’t keep changing your mind depending on the next uptick or downtick.

You’re supposed to be “analysts” – go analyze, conclude and report!

Headlines You Will NEVER See : The Shit Has Hit The Fan!

In recent weeks (as of writing this) certain commentators, most notably Glenn Beck, have really stepped up the rhetoric about how bad they believe the national economy and forecast is.

Specifically, how bad for the country QE2 and debt monetization is/will be.

Inflation
Hyperinflation
Food/clothing/energy inflation
Austere cuts in government services including police, fire departments, and schools
etc.

Naturally, they have come under immense criticism to say the least about their stance.

Fair enough. No one has a crystal ball. You don’t have to agree or even agree but not to the same extent.

This article is not about if they are right or wrong. MasterPo has written about that before, the position is very clear.

The point of this article is simply this:

In terms of what Beck and others are predicting while no one else in the main media is saying a thing like it, the scenario begs the question: Do you really think the media at large - CNN, CNBC, MSNBC, ABC, CBS, NPR, NYT, Washington Post, even WSJ - would EVER announce to the public how bad it is and getting worse??

For example, can you imagine watching your Monday night football and all of sudden the channel goes blank and a voice says "We interrupt your regularly scheduled programming for this urgent news, we go live to our Washington/New York/whatever studios - Ladies and gentlemen: The shit has hit the fan! Inflation is rising so fast by this time next week milk will be $7/gal and bread $5/loaf.

Thousands if not millions of Americans will be losing their jobs in the weeks and months to come while millions more, already struggling to just to stay afloat, will have to make tough decisions about buying food or paying for heat this winter. The President has authorized a $100 billion more for the food stamp program this week alone and more is expected. More on this at our 11 o'clock broadcast. Now back to your regularly scheduled programming."

Or, can you imagine the morning NYT, USA Today, et al having a front page banner "Fed Gambled on QE2 and Lost: Weimar Republic Here We Come!" ??

Of course not.

Inflation can be 10%, unemployment 20% and millions of otherwise middle class American people cold and hungry in the dark of winter and they still won't talk much about it.

MasterPo understands and accepts the need not to add to a general panic (the proverbial not making a bad situation worse). It is the role of leadership and the media to help calm people, not inflame them or target their deepest fears.

But at the same time it is the moral, ethical, and adult thing to let people really know how bad a situation is and how much worse it might get. It’s also moral and ethical – and the job of leadership – to inform people what they can try to do to help themselves (don’t think for a moment the government at any level will be able to help all who need it if such a cataclysm occurs).

Imagine a major hurricane like Katrina coming towards you community and the leaders tell you there’s nothing to worry about. It’s just a bit of rain. We’ve handled rain before.

It’s a matter of maturity. Whether the American people in this day and age can handle being treated like mature adults is, unfortunately, questionable. But that is the job of leadership.

When MasterPo’s small children cry for no apparent reason MasterPo consoles them saying “Don’t cry. It’s not that bad. Daddy will let you know when it’s that bad.”

At least the kids have someone who will tell them the truth about how good or bad the situation is.

Do you?

Will Time Make Us All “Rich”?

In today’s social and political environment harping on “the rich” seems like a daily sport. Never mind that most of the pundits and commentators lambasting “the rich” are themselves among the highest rich in the country by anyone’s definition! But let us not digress…

As it stands, at the time of writing this the commonly accepted and PC way of definition “the rich” are those with incomes of $250,000 or more. (In some conversation that number is reduced to $200k, $150k, $125k, and even $85,000(!).) It is unclear to MasterPo how or why such a line in the proverbial sand is used (and certainly not clear how or why such persons are now considered public enemy #1!) but that seems to be the standard of the day so let’s work with that figure.

The question is: As time marches on will $250,000 still be considered “rich” after applying years even decades of inflation erosion on purchasing power?

MasterPo normally doesn’t like to resort to number crunching models to make a point. But math is absolute and unquestionable. And a subject like this requires clear illustrations.

The time value of money should be SOP to all investors. As such the basic compound growth formula should also be so basic to all investor as to be able to do the math in yourself:

T = P(1+i)^t

Where “P” is the starting amount (principle), “I” is the rate of growth (annualized), “t” is the number of periods in years, and “T” is the final total after compounding. It’s just basic high school algebra.

Now let’s apply this to the thesis of “the rich”, time, and a real world example.

According to the National Association of Colleges and Employers (as reported by the U.S. Bureau of Labor Statistics) the average starting salary for a college graduate with a Bachelor’s degree in Computer Science is $61.407 as of July 2009 (latest statistics available as of writing this).

So if we presume a mere 3% annual inflation, applying the above formula, then someone born today and graduating college at age 20 would need a starting salary of $111,000 (rounded) to be equal to today’s starting salary.

Let us go further and presume someone graduating 20 years from now and starting with $111,000 salary works for 10 years and receives an annual raise of just 3%, also matching inflation only. At the end of 10 years that person will be making $150,000 (rounded).

That’s pretty darn close to the magical $200,000 mark knocking on the doors of “the rich”.

Take it one step further: Let us now presume this person meets someone else of similar career background, one thing leads to another, and it’s wedding bells time. Now you have a married couple each making $150,000, or now $300,000 combined income – well over the $250,000 “rich” mark!

And if we presume 4% annual inflation then the numbers become $135k, $199k, and $399k respectively in the scenario above.

Plus this does not take into consideration any massive jump in inflation or hyper inflation. Just one year of 10% inflation throws these figures even higher!

MasterPo knows some critics of this scenario will try to make the argument that by that time government will have adjusted tax brackets and various other thresholds to account for inflation adjustments. Can you really count on that? History proves that thresholds for determining “the rich” are coming down and not going up! (MasterPo won’t even go into a discussion of misleading if not outright false inflation calculations.)

Too many people today, either by short sightedness or sheer class envy, just don’t think about policy ramifications on income levels higher than their own. Not really much of a surprise as people are constantly being hounded that anyone who makes more then they must have stolen it somehow.

But as this illustration shows just the power of inflation, as low as it may be, can and will raise people will into levels of “the rich” without actually being “rich”.

It’s always amusing to blame your woes on someone who has more than you. But sit back, relax, have a beer and play some Xbox. You don’t have to worry. You will never be “rich” – or will you?