The Fed


I’ve been working on my taxes this year and was sadly disappointed to see that I would have to pay an additional $5,000 on top of the $70,000 I have already paid in taxes for 2016.    It seems that I was hit with multiple bonus taxes for Medicare and the AMT for some reason.  I’m still haven’t received all my tax documents so that number may fluctuate but it looks pretty gloomy nonetheless.

Since the majority of our income comes from W-2 (i.e. our employers), there aren’t too many things we can write off.  Worse than that, our son will start college soon and I doubt we’ll qualify for any tax deductions for higher education as our income limits our too high.

I hope Congress will do something to fix this taxation mess soon.  Having a tax system that penalizes people for hard work is just insane!   Think about it, if I just got lazy and quite my job, I’d be eligible for all sorts of tax deductions and credits.   What the hell kind of system is this?

I came across Robby Soaves “Fired Yelp Millennial  earned what young workers are worth” and it boiled my blood.   What these so called “financial journalists” often fail to realize is that people like Talia Jane are victims of a grander failed policy plan of an organization called the “Federal Reserve” which is THE key enabler of destroying modern society and creating these wage problems from the start.

You see what Robby and Talia both fail to understand is what “young workers are worth” can’t be known until you evaluate the financial ecosystem they live in day to day.    Talia believes she’s worth $15/hr while Robby thinks she’s worth $8.25/hr or maybe even less so what’s the real truth?

Let’s get down to the brass tacks and evaluate this financial ecosystem.    What is Talia worth as a minimum wage employee?

If we use 1980 as a starting point (Minimum Wage History) and pull information on  minimum wage at the time it was $3.10/hour.   If we then assume an annual inflation rate of 3 percent per year then in 2016, the minimum wage should be $8.98/hour.    Is this the correct answer?   In short, no because inflation doesn’t always grow at an exact 3 percent per year.  Inflation can be higher in some years and lower in others so I pulled the actual inflation rates from 1980 through 2015 and calculated the minimum wage based on actual inflation rates.   By doing these calculations, I came up with a minimum wage value of $10.12/hour.  SEE CHART BELOW!

What is Talia worth as a minimum wage employee?  The truth lies somewhere between $8.98/hr and $10.12/hr however there is one last adjustment that needs to be made and that is the calculation used in making the inflation rate calculations (yeah iterative pun intended).    The Federal Reserve and the US Treasury has a vested interested in debasing the currency much like every empire has done so over the past 2000 years so it can continue to spend money that doesn’t exist.

I’m not sure what the Fed fudge factor would be but it’s not a stretch of the imagination to think that minimum wage should probably lie somewhere between $10/hr to $15/hr as it is what most people expect it to be.   After all isn’t inflation an expectation of reality?

After spending some time looking at the minimum wage rates, over the last 30 years it would behoove both Republicans and Democrats alike to simply tie the federal minimum wage to inflation rates and leave it at that because in the end not raising the wage rates regularly causes hate, angst, rage and eventual civil disobedience and makes for miserable living.  How is misery and resentment affecting your business lately?

Is it any wonder that the two leading candidates for President this year are very anti-establishment?  One candidate offers all sorts of goodies and freebies with a higher minimum wage because people can’t survive on their wages while the other hopes to make america great again by building walls, kicking out H1-B visa holders and everyone else, and in essence lowering the population volume which will naturally drive up wages.  It all makes perfect sense to me that those polar opposites are actually different sides of the same coin.

1980 to 2016 inflation

This past Memorial Day Weekend, which I spent at home, I watched an old show on TV that I hadn’t seen in decades, it’s a TV show called the Price is Right.   The premise of the show is for people come up and try to guess the prices of items to win various prizes then vie for a chance to enter the “ShowCase Showdown” for a chance to win a few more prizes.

During the summers of my youth, I watched this show almost daily and was always in awe of the prizes.   A funny thing happened as I was watching the show and the famous spinning of the big wheel to determine who gets to go to the showcase.  The host, Drew Carey, notified the contestants that if they land on the 1.00 mark, they’d win a whopping $1000!   Whoa….wait…what?  Just a measly $1000?

The show started in 1972 and I don’t know if the jackpot for landing on the 1.00 was $1000 back in 1972 or not but by the 80s I’m pretty sure that landing on the 1.00 awarded you a $1000 prize.    I went back and did the calculations and adjusting for inflation at 3% per year for 42 years (1972-2014), the Showcase 1.00 should payout $23,701 today in inflation adjusted dollars.   To be fair, the jackpot does offer $25,000 if you hit the 1.00 mark twice but that’s what the jackpot should be for just landing there once if all things were kept equal and consistent.   You can think about this another way, how much groceries or gasoline do you think you could have bought with $1000 in 1972 with what you can buy today?

In today’s world where wages are stagnant and minimum wage barely pays for substandard living, it’s important to understand the real enemy: Federal Reserve fictitious interest rate policy to inflate currencies.     Dim-witted people that call themselves “Republicans” or “Democrats” with hopes of working through a “political process” to solve problems don’t ever seem willing to handle the real cause of all economic problems.   Don’t expect any changes any time soon for as long as clowns are in charge, that ShowCase jackpot will continue to be worth $1000 and people will laugh in a decade or two when $1000 buys a can of Coke.

 

The latest travesty from the IRS seems to be limiting 401k contributions to the same amount as last year at $17,500 with no adjustments for inflation. Did I miss something where inflation was put on hold this year?

Here is an historical look at 401k contributions for the last few years:

2005 – $14,000 for 49 and younger and $4000 more for those 50 or over
2006 – $15,000 for 49 and younger and $5000 more for those 50 or over
2007 – $15,500 for 49 and younger and $5000 more for those 50 or over
2008 – Same as 2007
2009 to 2011 – $16,500 for 49 and younger and $5500 more for those 50 or over
2012 – $17,000 for 49 and younger and $5500 more for those 50 or over
2013 – $17,500 for 49 and younger and $5500 more for those 50 or over
2014 – same as 2013

If I go back to 2005 and apply a simple 3 pct inflation adjustment to the original 2005 contribution limits and used that as a basis then the 401k limits should have been

2006 – $14,420 and $4,120
2007 – $14,852 and $4,244
2008 – $15,298 and $4,371
2009 – $15,757 and $4,502
2010 – $16,230 and $4,637
2011 – $16,716 and $4,776
2012 – $17,218 and $4,919
2013 – $17,735 and $5,067
2014 – $18,266 and $5,219

The overall trend does not bode well for the average retiree. The IRS limits are trending downward not in favor of the average worker when factored against inflation for the last four years. For 2014 the variance from $18,266 to $17,500 is $767 in income excluded from 401k contribution on an inflation adjusted basis.

So now let’s take a look at the social security wage limits.

2005 – taxes on $90,000 of income
2006 – $94,200
2007 – $97,500
2008 – $102,000
2009 – $106,800
2010 – $106,800
2011 – $106,800
2012 – $110,100
2013 – $113,700
2014 – $117,000

Interestingly, if I take the 2005 amount of $90,000 and apply a 3 pct inflation adjustment, The 2014 value is magically $117,430. It seems when it comes to social security income taxes inflation is alive and well!

When it comes to helping taxpayers save money using 401k, the US government screws the taxpayer. When it comes to taking money for social security, the US government screws taxpayers yet again.

And now you know why I won’t be voting for donkeys next election cycle!

Not too long ago, I wrote a post about my dystopia-like feeling  of the next election and hinting that I had no idea who or what I would support but it is becoming clear now.   For starters, I couldn’t support McCain in the GOP in 2008 because Bush turned out to be a miserable failure with the near total collapse of the global economy under his watch.     I accepted the fact that the world needed hope and change but in all honesty, Obama has been a failure, not a miserable failure but a failure nonetheless.

This brings us to the 2012 election and after reviewing material on Romney, I cannot bring myself to support this guy.    It was bad enough he seems to flip flop on positions as easily as the wind changes direction and it bothered me that he didn’t want to release his tax returns but the final nail in the coffin for Mitt was the fact that he’s hiding money overseas.   I simply cannot bring myself to vote or support a man that is running to be the leader of the United States of America who stashes most of his money in the Cayman Islands and Luxemburg or whatever other caches he has to hide money.    The whole notion to me seems very anti-American to be hiding money in foreign countries.   This is the type of behavior I would expect from drug lords, criminal syndicates, terrorist groups, and unscrupulous corporations but not a man running for the greatest office in the world.

Unfortunately, while I can’t support Romney, this doesn’t default into a win for democrats because I view the democratic party as a miserable failure these past four years.   I can’t name anything that has been done over the last four years that’s a positive for democrats.

So what’s a personal finance blogger to do?   Well, it’s clear that since I can’t support Romney and since I can’t support Democrat candidates at the congressional level it’s going to be an even split.    I suspect if I can help keep gridlock in capitol hill, this might actually buy the economy enough time to recover on its own.

 

The stock market drop yesterday essentially translates into a loss of $1.3 trillion in wealth and I had the good fortune to capture profits on FAZ holdings and, as always, I buy long and sell short (via calls on ETFs) so I continue to make money in the market.   Where do we go from here?

I see Dow 10,000 in the future but don’t go betting your money on it just yet since the Fed seems to be poised to go QE3 and I just got a balance check transfer from a credit card company offering 0% for 12 months and a 1% transfer fee.   These are generous terms and banks are clearly wanting to hook people on easy money again.    I may take up the credit card company on the offer and pull $20,000.   At 1% fee, that’s a $200 fee but I’ll probably use the money to pay off my student loans and convert undischargeable debt into unsecured debt which can be discharged in a worst case bankruptcy scenario!

The best thing to do is continue to pay down secured debt and sit tight on cash.   My reserves are currently in the 60k range with additional emergency reserves stashed here and there and credit lines of another 100k.

 

At my current rate and my recent change to get two MBA’s for the price of one, I anticipate I’ll be done by 2013 instead of 2012.   Of course, I could take a bigger course load, go to school during the summer and be done sooner but I love getting student loan money semester after semester dirt cheap.   In the final analysis, the student loan money is my ticket to hedge against any type of government gold seizures, confiscation of accounts, etc.     I won’t go into details into exactly what I’m doing but if you’re smart enough, you can figure it out.

It is perfectly easy to me to see how people get 100k in debt going to school because although my tuition is generally a couple of grand each semester, the finance department sees fit to allocate well over 10k per semester to me.  I take the money and use it wisely while I get a tax write off and hedge.   Of course, idiots go and spend the money on crap which is why they can’t get out of the black hole.

I have to admit, I’m still not convinced the MBA is worth anything and my only reason to continue on now is to get the student loan money.    Hell I may even get into buying rental houses as it’s the last undiscovered fountain of subsidized money.   If this keeps up, perhaps I’ll stay in school forever and use the money to put my kids through college…lol that would really be a good way to stick it to the man!

It is with near mathematical certainty that the stock market is going to crash and crash hard in the near future.   The Fed continues to pump money and talk of QE2 and QE3 ad infinitum.  Just ask yourself one thing:   What is going to happen when the funny money spigot is shut off?

The ONLY thing supporting this stock market is essentially free money the fed is pumping into the economy which gets recycled back into the financial markets to support more paper.   It’s all totally worthless or at the very least worth less than it should be now.   I consider the market recovery from when the Dow crashed down to 6000 a blessing but the recent recovery is not sustainable by any measure.    I have been slowly cashing out at every opportunity while continuing to sell short the market.

Yes, the Dow may rise and even hit 12k or above again and it may as the Fed continues to pump money but at some point, it is going to get real, very real for everyone and those that aren’t preparing are going to hurt the most.    Quite a few people I know have cashed out and I plan on using my next employer bonus to pay off remaining debt and shoring up savings and emergency funds.   I remain mostly in cash with a few exceptions such as commodities to hedge against inflation or a hard crash.

If you recall from December 2008, the Fed was injecting money into the “system” back then and by March the Dow had crashed down to 6k.   We’re in December 2010 and the Fed continues to pump money into the “system” yet again.  I won’t go so far as to say March is when the next crash will hit because QE3 may be right around the corner but rest assured I think there are greater odds of the Mayan end of the world prophecy to come true than for a miraculous economic recovery.   Oh well the Mayans end date was December 2012 so we’re only two years away!

The Fed announced a $600 billion dollar planned Treasury purchase and may decide to pump more money if “necessary” in the future.  This essentially now lays the groundwork for the next bubble.   The Dow is already showing signs of resurrection as it soared to 11.5k and while there may be a few pull backs I have no doubt we’re on our way to Dow 12k and maybe 13k.   I also have no doubt that all bubbles end in only one way: hard crash.

So the only obvious question that is begged here is when to get out?    Dow 12k or 13k  or maybe tempt fate and try to ride it all the way to Dow 14k?   This will be my last ride up and I suspect it may be a ride through December 2012 but I have no plans on “investing for the long term” in the Wall Street Casino.    There are just too many baby boomers that are starved for cash and whatever money they have in the “market” will simply be pulled out over the next decade.   Generation Y and below is saddled with poor job prospects and trying to get by TODAY much less planning for 40 years into the future.   Generation X is a bit disillusioned and trying to find their footing as the crash of 87, 2001, 2007 have left a bitter taste in their mouth.

So there you have it from Boomers to Millenials, the stock market is dead.   You’re all getting one last ride; Enjoy it; Profit from it; Cash out before the fall.

If Uncle Sam thinks I’m going to “voluntarily” buy Treasury bonds with my 401k, he’s going to have a big surprise when I simply stop contributing and opt out, assuming that option is even available.    For decades third world countries have been nationalizing and seizing pension plans and now the U.S. seems to be headed down the path of nationalizing 401k plans.

Oh sure, it’ll start off slowly, just 1% here or 3% there then it’ll get to 10% or 20% then the government will fiddle it all away like social security.  If this rule is enacted I think I will be done with ever investing in the 401k.  What about the free match you ask?   Well there’s nothing for free and especially if the government is going to take it.   We’ll see what happens in a couple of weeks…

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