Economy Archives - Page 4 of 7 - Lazy Man and Money

Twas the Night Before Christmas 2009

December 24, 2009 by Lazy Man 2 Comments

Quite a few years ago, one of my friends unknowingly started an unusual tradition. He found himself with a little extra time on his hands that holiday season and decided to take advantage of it. With a beer in hand, he set out to write something a little whimsical. It turned into the most entertaining piece of email I’ve ever received. Each year, there’s a request for a new edition.

The e-mail was an adaption of Twas the Night Before Christmas where he recounts the happens of the year of everyone in the whole college crew. I decided I’d borrow the idea, but made it into a year-end financial review.

Twas the Night Before Christmas and all through the States
Nothing was stirring, especially not interest rates.
The year we speak was two thousand and nine
And more people than found themselves in the unemployment line
This was the year Obama had to really perform
We saw stimulus, CARD act, and Healthcare reform
The real estate problem got more exposure
As more homes started to go into foreclosure.
Bernie Madoff was not cool like Fonzie
Instead he reminded us of a man named Charles Ponzi.
Time’s Person of the Year seemed a little wacky
On the cover was a man named Ben Bernacke.
CEOs from car companies wanted bail out from debt
So they all went to Washington in their own private jet.
The insurance company AIG said, “money, please loan us!”
“We have all these international executives that need a big bonus!”
So the Feds granted that bailout and it was quite a ton
Even more, the Feds cried, “give them vaccines for H1N1.”
Cash for Clunkers was really a great plan
It boosted the economy – especially for Japan.
Searching for green electronics became such a pity
Especially as we had to say goodbye to Circuit City
Think positively, the year gave us many a gift
Captain Sully, The Hangover, and country star Taylor Swift.

Wealth Creation: Is it a Myth?

September 13, 2017 by Lazy Man 43 Comments

“Can we really create wealth?”

That was a simple thought that popped in my head on the way to work yesterday. The “we” that I had in mind is the all the people in the earth collectively, not individuals. Surely, one individual can create wealth for him or herself. In Silicon Valley alone, there are numerous examples of that. The “wealth creation” that I am referring to is real dollars – not factoring quality of life improvements.

Why am I looking at the big picture and dollar figures themselves? It occurred to me that many things in life are zero sum games. For those unfamiliar with the concept of zero-sum, it’s a situation where a loss from one party must be an equal gain by another. In school, you may have learned that energy is neither created nor destroyed. That’s an example of a zero-sum game. Also, when your favorite sports team wins, the loss by the other team is balanced (we’ll ignore the unnatural case of hockey overtime wins).

Is Wealth Creation a Zero-Sum Game?

Logically, in my opinion, it seems that wealth (in the terms of this article) can’t be created. I think of a small system of a few people with money providing services. Money can move between the people for the various services they provide, but money isn’t added to the group. Now take the 6 people and expand it to 6 billion. It’s still a closed system where money shifts around, right?

If I buy a Palm Pre, I’m transferring my money to multiple people, Palm’s and Sprint’s employees and shareholders, the person who leases the Sprint store to Palm, etc. On the other hand, if I write this article, and Google’s advertising program determines that it’s about the Palm Pre, Palm and Sprint will be indirectly paying me if I send them traffic. In these scenarios I don’t see where new money is created… except by credit. However, credit is balanced by interest rates. I’m sure some of you might be thinking that the government is literally printing up money every day. That can be explained by inflation. Since there are more dollars around, each dollar buys less product.

Am I wrong? Is money being added into the system and I’m simply missing it? If I am wrong, I apologize. It certainly isn’t the first-time, nor will it be the last one. If I’m right though… what conclusions must we draw?

Every dollar I earn makes someone else (or multiple people) poorer – If wealth is a zero-sum game, that’s the sad truth right?
Every dollar the US makes, makes the rest of the world poorer – I am really starting to depress myself now.
There is no fix for a poor global economy – This is the most interesting one to me. It means that the global economy has no real booms nor real difficulties. It also means that the global economy can’t be too bad – since money can’t disappear.

Look at that last point for a minute. How can one imagine that the global economy is never in a good or bad state? I look back at credit. If credit is flowing around like water, it seems like there’s a lot of money in the system. If credit dries up and everyone wants their money, the lack of free flowing money makes the global economy look bad.

So I don’t leave you on a completely depressing note, I’d like to point to an article of a completely opposite viewpoint. The Coyote Blog says that wealth creation and zero-sum finances is a fallacy. He makes some very interesting points. The biggest one I can see is that the quality of life for everyone globally is much improved… thus we are all wealthier. I wouldn’t argue this point. Obviously advances in technology is going to make life easier. We, as a human race, are becoming more and more informed of our surroundings and are getting better at adapting those surroundings to make lives better.

In that respect, we collectively create more wealth each and every day.

Why is Moderate Inflation Desirable?

January 27, 2009 by Lazy Man 10 Comments

Today’s guest post is from OneMint. OneMint is a website dedicated to providing information on personal finance.

In his speech on – Deflation – in 2002, Ben Bernanke made the reference to Milton Friedman’s – “helicopter drop” of money to fight deflation. Bernanke and most other central bankers around the world would rather drop money from a helicopter (figuratively), than face the negative effects of deflation..

At the other end of the extreme is – hyperinflation. After World War- 1 – hyperinflation gripped Germany so badly, that some people used banknotes as wallpaper!

Clearly, deflation and hyperinflation are two extremes that have to be avoided at all costs.

What lies between the extremes?

Between the extremes of deflation and hyperinflation there lies – Zero, moderate and high Inflation.

Of this – a high inflation rate is not desirable, as it reduces the real purchasing power of the general public.

It is often seen that the poorest segment of the society stands to lose a lot because of a high rate of inflation. Suddenly, basic necessities become out of reach, and their condition becomes miserable.

A zero level of inflation is more of a theoretical condition, and is rarely seen in the real economy anywhere around the globe. A few journals I read, use – Price Stability and Zero Level of Inflation interchangeably – but they are two different things.

Price Stability is a term used to describe an inflation rate – that is low enough, so that it doesn’t affect any business and investment decision. So rather than a zero percent inflation rate – it is more like a very low inflation rate.

Why is a Moderate Level of Inflation Desirable

The real debate is really between – Price Stability and Moderate Inflation.

I believe that a moderate level of inflation is better than a policy that aims at price stability because of the way – wages and salaries are paid, and their impact on the economy.

If a business is not doing well, and it wants to cut costs – one of the prime means that it has at its disposal is – wage cuts.

If a business cuts wages or salaries – that creates a sense of fear among its employees and induces them to spend less.

If each employee spends less – the impact will be a slowdown in the economic activity in the country, and a ripple effect will be seen among other businesses. Since we are in a recession – this point is very easy to understand today.

On the other hand, in the case of moderate inflation – the business doesn’t really need to cut salaries to cut costs. If the inflation rate is 4% and the business gives its employees a 2% hike – in real terms – the business still saves 2%.

If there is low inflation in the economy, then
a business can’t do this and the consequences are accentuated because of the ripple effect.

The second reason I prefer moderate inflation to low inflation is that a moderate level of inflation helps protect against deflation much better.

The US was running a low inflation in the Greenspan era, and that has compounded (or even created?) the housing bust that we face today. Now, with the economy in a free fall – dire steps such as quantitative easing are being talked about, and there is also a lot of talk about an imminent dollar collapse – as a result of steps like quantitative easing.

The third reason is that I believe that like low inflation – a moderate inflation environment doesn’t impact the investment decisions that a business takes. Quite frankly, if an investment is worthwhile at 2% inflation , but not at 5% inflation – you need to get out of that investment altogether.

I think moderate inflation brings to the table the benefit of a low inflation rate, and in addition protects us from economic shocks that can push us in a deflationary environment.

When the focus of the world is away from Deflation – it is going to turn to moderate versus low or zero inflation. I don’t think the debate is going to settle any time soon, but I personally think that moderate inflation will help us more than low inflation in the long run.

If you liked this article and wish to read more about the economy, stocks, investing, credit cards or other topics on personal finance please visit us at OneMint and subscribe to his RSS feed.

How Worried Are You About Being Laid-Off?

January 27, 2009 by Lazy Man 18 Comments

Yesterday, I saw that more than 70,000 people lost their jobs. Using the data on the side panel of that report (and some rough math), that’s 33% of the jobs lost year to date in a single day. Okay, you caught me, it’s still early this year, but that’s still quite a lot for one day.

The news doesn’t get any better. The consumer confidence index was revised down to a 37.7 mark for January. That looks to be a record low since the stat have been compiled (1967). It’s probably because I was so involved in the Internet economy in 2001, but it just seemed a lot worse to me.

Lastly, the economy has hit home. While my mother still has her job, she is turning 65 this year. She has seen a lot of her retirement savings disappear with the market losses. A little more removed, Bible Money Matter’s wife is facing a possible lay-off today (update: seems she kept her job with reduced hours). If you are in a similar situation, I highly suggest you read that article. He has a lot of great information about dealing with all phases of job loss: from prevention to finding a new job.

As I write this I feel a bit of survivor syndrome. Sure, my business here (and elsewhere) is impacted by the economy, but thus far it hasn’t been a big impact. One might even claim that recession is good for people who write about responsible spending – more people should be looking for personal finance information. My wife has the equivalent of tenure at her government/military job, something that has her and her co-workers quite happy the last few days.

Are you worried about being laid-off? Sound off in the comments.

Is Wealth Creation a Zero-Sum Game?

Bernie Madoff

Fed Rate Cut

Social Security