Tag Archive | "Debt"

The True Cost of War

The U.S. announced it could launch air strikes against Syria as early as Thursday. That’s because the U.S. believes the Syrian government used chemical weapons on its rebels, killing 1,000 men, women and children.

Defense Secretary Chuck Hagel said any strike would be limited, such as cruise missiles that would strike specific Syrian military targets. These missiles would be launched from U.S. warships that have already been moved to the Mediterranean. It would not be massive bombing on Syrian President Bashar al-Assad. The action would be in partnership with allies in NATO and the Arab League. (Source: New York Times, Momentum Builds for Military Strike in Syria, August 27, 2013

How It Affects You

The Dow dropped 100 points, adding to its decline since August 2. (For more, see Dow Closing History.) Investors flocked to the traditional safe haven investments, gold and Treasuries. As a result, gold prices rose while Treasury yields dropped to 2.76%. Oil prices rose above $108 a barrel, as investors grew worried the conflict could escalate and create shortages. (Source: CNBC, Dow Drops 100 Points, August 27, 2013)

This potential conflict affects you in two ways, one short-term and one long-term. The short-term impact will be felt over the next few months, depending on how involved the U.S. becomes. This, of course, depends on the reaction of Syria and its allies, Iran, Hezbollah and Russia. The current unrest in Egypt could also be worsened, which has investors worried. Therefore, expect volatility in the next few weeks, which will drive stock prices lower and gold, Treasuries and oil prices higher.

The long-term impact may surprise you. Most analysts say that war is good for the economy. The theory is that defense spending creates jobs. This theory is based on the boost in U.S. economic growth from World War II, which many say ended the Great Depression.

However, times have changed. First, military spending is not the way to create jobs. A Brown University study estimated the cost of the Afghanistan, Iraq and Pakistan wars at $3.7 trillion, or $31,000 for every family in America. This counts benefits to disabled vets — nearly half of the 1.25 million who served have made health or disability claims.  It also counts the interest on the debt incurred to finance the wars — $185 billion.

A U Mass/Amherst study showed that $1 billion of military spending created 8,555 jobs and added $565 million to the economy. That sounds great until you compare it to other ways the money could have been spent. That same $1 billion given back to your family as a tax cut would have created 10,779 jobs and put $505 million into the economy as retail spending.

The best way to create jobs? Spend $1 billion on building mass transit. That creates 19,795 construction jobs and puts $880 billion into the economy. If you want to leverage that $1 billion in government spending into the best bang for the buck, try spending it on education. It puts $1.3 billion into the economy, while creating 17,687 jobs.

Even more important than the money are the lives disrupted. A quarter of a million people were killed, half of them Iraqi civilians.  The wounded total 365,000, while 7.8  million have been displaced.

As put so well by Reuters reporter Daniel Trotta:

In one sense, the report measures the cost of 9/11, the American shorthand for the events of September 11, 2001. Nineteen hijackers plus other al Qaeda plotters spent an estimated $400,000 to $500,000 on the plane attacks that killed 2,995 people and caused $50 billion to $100 billion in economic damages.What followed were three wars in which $50 billion amounts to a rounding error. For every person killed on September 11, another 73 have been killed since.

Perhaps it’s time to admit we can no longer afford the true cost of war. Tell us in How Much Should the U.S. Spend on National Security?

Related Articles

  • Current Military Budget
  • How Bin Laden’s Death Could Help the Economy
  • The War on Terror: Facts About Its True Cost

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Source: About.com


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Posted in EconomyComments Off

Congress Has Six Weeks to Avoid Debt Ceiling Crisis

On Monday, Treasury Secretary Jack Lew gave Congress until the middle of October to raise the U.S. debt ceiling, or risk a possible debt default. This means that the rate of currently authorized spending will drive the U.S. debt above the $16.7 trillion debt limit.

What makes this a bit confusing is that it will occur two weeks after Congress must pass the FY 2014 budget, due September 30. Many Republicans said they will only pass a budget that takes away funding (defunds) Obamacare.

What Will Probably Happen

Congress won’t risk a repeat of the 2011 debt ceiling crisis. This was devastating to the economy, and no one won. Instead, it will pass a short-term continuing resolution to raise the debt ceiling by October 15, just like it has throughout history. House Speaker John Boehner can pass this debt ceiling override, even without 100% of Republicans agreeing.

However, this is only a temporary fix. The FY 2014 budget needs to be passed, or many government agencies will run out of money as of the end of September (the end of the Federal fiscal year). This is a bigger issue. Republicans will insist that nothing will be passed unless Obamacare is defunded. Therefore, the budget probably won’t be passed.

This isn’t as dire as it sounds. The FY 2013 budget has never been approved, either. Instead, Congress enacted a continuing spending resolution in October 2012 and March 2013.

That’s probably what will happen with the FY 2014 budget. This means that spending will continue at current levels, continuing the sequestration spending cuts.

How It Affects You

You will hear a lot of reports in the news that there could be another crisis brewing. This could disrupt the stock market, and your investments. Gold prices will probably rise, like they did in 2011.

However, in all likelihood, it will pass over by November. Your best bet is to focus on leading economic indicators, to see how the real economy is performing. For example, yesterday’s Durable Goods Orders report showed there could be a temporary soft spot.

Related Articles

  • Who Owns the U.S. Debt?
  • Watch the Video: What Is the National Debt?
  • The History of the U.S. Debt Clock

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Source: About.com


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Posted in EconomyComments Off

Text Message Scams: Don’t Text Back

The Federal Trade Commission (FTC) is warning of a new identity theft scam that attacks you through text messages on smart-phones. While the scam is dangerous, the defense is simple, according to the FTC, “Don’t text back.”

The scarily convincing scam works like this: You get an unexpected text message informing you that your email account has been hacked into and deactivated “for your protection.” The message will tell you to reply or “text back” in order to reactivate your account.

Here is an example of one of the scam texts:

User #25384: Your Gmail profile has been compromised. Text back SENDNOW in order to reactivate your account.

Don’t do it, advises the FTC, warning that the messages are really trying to take advantage of security weaknesses in your smart-phone or other online devices in order to steal your personal information.

How to Handle This

Do not reply or text back to messages like that because, “Legitimate companies won’t ask you to verify your identity through unsecure channels, like text or email, ” warns the FTC.

Do not click on any links that might be included in the message. The links may install malware on your device and take you to spoofing or phishing websites that will try to get you to provide your personal information.

Do report the suspect message to your cell phone service carrier’s spam/scam text reporting number. AT&T, T-Mobile, Verizon, Sprint and Bell customers can forward the text message free of charge to 7726 (SPAM).

Do File an online complaint with the FTC at https://econsumer.ftccomplaintassistant.gov/.

If your email account ever is really hacked, chances are you’ll know it. But what can you do about it? The FTC offers a great article, “Hacked Email,” that explains the telltale signs of a hacked email account and how to fix it safely.

Also See:
Big Debt Collector to Pay Big Fine
FTC Strengthens Kids’ Online Privacy
Mobile Apps Failing to Protect Kids, FTC Says

Source: About.com


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Posted in EconomyComments Off

Lift the Debt Ceiling or Cut Spending?

A reader asks:

Economists, such as Paul Krugman, argue the US Government and Federal Reserve should initiate further stimulus, acquiring more debt / widening the monetary base, to bring the economy out of a recession. His argument is that whilst there is a long-term debt problem, unemployment is affecting people’s lives and stagnating the economic recovery now and therefore this issue takes priority over the debt problem. Of course, this would be a viable solution under Keynesian thinking; bolstered by the US being the reserve currency and showing signs of a recovery (even if the economic data is manipulated) which is much better than the U.K. or Europe which have implemented austerity. My question is: if the US continue to “lift” the debt ceiling and provide expansionary monetary policy this will:

  1. Weaken the dollar’s strength as a reserve currency.
  2. Decrease the image of US as a safe haven for foreign investors (pushing up interest rates).
  3. Perhaps bring the economy to a speedier recovery.
  4. Perhaps lead to too much inflation (which could be delayed) “Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.” – last FOMC STATEMENT JULY 2013.

If the US decide to increase taxes (implement restrictive fiscal policies) to combat the debt problem and baby boomer issue and the Federal Reserve taper drastically or remove stimulus this will:

  1. Send bond yields higher; again raising the value of debt owed (decreasing the US’s image as a safe haven).
  2. Dampen the economic recovery making the ability to pay off the debt harder as GDP decreases and surplus cash used by US  to pay their debt will also decrease.
  3. Again weaken the US currency (because of a lack of confidence from investors).
  4. Strengthen the dollar as other countries eg. Japan seek to weaken their own currency – weakening trade.
  5. Lead to more deflation  (James Bullard [FOMC] wary of low inflation & wants to continue bond buying).
  6. OR cause stagflation as producers decide to go to developing countries where disposable income is higher and the price of goods is rising (using the law of supply; lower price = lower ambition to supply) ; lack of supply will then increase prices (stagflation).

Which is the better option?

Option 1 is the best until GDP growth is solidly in the 2-3% ideal growth range. Once growth goes to 4%, then option 2 is best.

It all depends on which phase of the business cycle you’re in. Right now, the U.S. is still struggling to shake off the remnants of the Great Recession. Unemployment must be reduced to spur more consumer spending and demand. Weaker U.S. currency can help spur exports, and attract foreign investors. Once growth reaches the “Peak” phase of the business cycle, then raise taxes and interest rates, and cut spending, to tone down “irrational exuberance.”

How It Affects You

Before making any financial decision, know where you are in the business cycle. The expansionary phase can last years, and you’re better off if growth is 2-3%, not 4-5%. When GDP growth reaches those high levels, get ready for the recession that’s sure to follow.

The contractionary phase, usually a recession, normally lasts 18 – 24 months. The Great Recession was unusual in that it’s lasted much longer. The official definition of a recession is when GDP growth is negative. However, by then it’s too late to do anything.

You can’t time the market, but you can assess where you are in the business cycle, and take appropriate action. When times are good, pay off debt, sell your house, and save money. When times are bad, you can use these assets to support you if you lose your job. If you’ve saved enough, you can increase your wealth by buying things cheap, like real estate, stocks and loans.

Related Articles

  • Who Owns the U.S. Debt?
  • Watch the Video: What Is the National Debt?
  • Beware the Asset Bubble

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Source: About.com


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Posted in EconomyComments Off

Splitting Up Debt After a Split Up

Breaking up with a spouse or partner often means you have to separate things you once shared, including debt. It’s typically better to separate debts before the divorce is final. That way you leave the marriage with only the debts you’re responsible for.

How you divide up the debts will largely depend on whether you live in a community property state, where the debts are split down the middle, or an equitable distribution state, where the debts belong to the person who incurred them. Your divorce attorney can give you more details on your legal liability for debts based on state law.

Here are some tips on dealing with debt in a divorce. For more help with your breakup, visit About.com Divorce Support.

Source: About.com


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Posted in FinanceComments Off

Home Business on a Budget

The saying, “You have to spend money to make money,” isn’t necessarily true. The statement should read, “You need to spend resources to make money,” because while you need to invest something to start a business, it’s not necessarily money or at least a lot of money. You can also invest time and existing resources to start your business. Here are some tips to starting a business on a budget:

1. Start a business that uses your existing skills and experience. This way you don’t have to learn anything new. You can be up and running as quickly as you can get your business license and find your first customer. Service businesses, in particular are fast, easy and low-cost to start.

2. Use tools, equipment and supplies you already have. It’s fun to shop for new stuff, but not necessary, particularly if you start a business using skills you have because odds are you already have what you need. If you feel like you’d do better with newer equipment, start with what you have and invest your profits into better equipment instead of going into debt or using your savings.

3. Barter services. After I wrote my first mystery (under a pen name), I bartered for editing services with a friend of mine wanting to start her own freelance business. She edited the book and I built her a website. Tap your network to see if you can find someone to barter with for needed services.

4. Use free and low cost tools. There are some services I feel you should absolutely pay for such as a domain name, web hosting and a list service, but other services and tools can be had for free or nearly free. For example, you can get free word processing, spreadsheet and presentation software through Open Office. You can get free graphic and photo editing tools through GIMP.

5. Use free marketing tactics. While I do recommend building an email list using a reputable service, there are other marketing strategies that are free, yet still very effective. This includes social media, article marketing and publicity.

What free and low cost strategies did you use to start your business?

Source: About.com


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Posted in BusinessComments Off

School Loans Drive U.S. Debt — But It’s Worth It for Many

Source: About.com


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Posted in EconomyComments Off

5 Things to Know About Bankruptcy and Retirement

Debt knows no age. But recent statistics indicate debt may affect older Americans differently. More seniors age 65 and older have been declaring bankruptcy than ever before–it’s increased nearly three-fold since 1991. In fact, Chapter 7 and Chapter 13 bankruptcies are being filed by members of this age group more than any other segment of the US population.

So what would bankruptcy mean to your retirement? Does it make sense for all or any seniors? Find out the answers with these 5 answers to common questions about retirement and bankruptcy.

Source: About.com


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Posted in FinanceComments Off

Use financial software to keep a budget in college.

College Students Spend Less, Find Deals with Apps and Software

Use financial software to keep a budget in college.Don’t leave college broke! I put together a list of software and mobile apps for helping college students keep their spending in line with present and future financial goals. Most people get a degree in hopes of gaining greater earning power, but rack up too much debt while you’re hitting the books and you won’t be enjoying a higher standard of living. Whether you prefer desktop software, online personal finance tools or mobile apps, you’ll find many helpful tech tools for finding savings and tracking your money.

See Tech Tools for Managing Money in College for my picks.

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Source: About.com


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Posted in SoftwareComments Off

The True Cost of Debt

The cost of debt goes beyond the dollars and cents you may spend on interest and fees. The true cost of debt is in the opportunity cost – the things and experiences you miss out on because you’re too much in debt to enjoy them. Think grad school, vacation, early retirement.

Paying off your debt faster might let you get back to enjoying life – the way you did before debt crept in. Read What is Debt Really Costing You to get an idea of how much you could be losing because of debt.

More Debt Management Articles

  • 9 Reasons to Pay Off Your Debt
  • 5 Factors That Affect Debt Payoff Time
  • 10 Ways to Get Out of Debt
Source: About.com


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Posted in FinanceComments Off

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