Tag Archives: Debt

Reversing the American trend of borrowing and spending too much

Average college debt is now up to $35,000 and usually for a useless non-STEM degree
Average debt is now up to $35,000, often for a useless non-STEM degree

First, the problem, using this article from New Zealand. It is authored by a self-made millionaire to young people.

Excerpt:

A young property tycoon has hit out at Generation Y claiming they need to stop travelling and spending money on overpriced food if they want to save for their first home.

Tim Gurner, 35, is worth nearly half a billion dollars since buying his first investment property at the age of 19.

The Melbourne millionaire believes it’s time his generation change their spending and lifestyle habits.

“When I was trying to buy my first home, I wasn’t buying smashed avocado for $19 and four coffees at $4 each,” he told Channel Nine’s 60 Minutes program.

“We’re at a point now where the expectations of younger people are very, very high. They want to eat out every day, they want travel to Europe every year.

“This generation is watching the Kardashians and thinking that’s normal – thinking owning a Bentley is normal.”

And how did the millennials respond? With immature, ignorant rebellion:

Gurner’s comments have been met with a backlash on social media will many criticising how he started out in the property – with a loan from his grandfather.

One social media comment read: “Maybe the new home buyers would stand more of a chance if they were given 34K by their grandad… that’s a fair few smashed avos.’

Another added: ‘Nice if you can get it,’ while one commented: ‘Much like Trump’s dad gave him a “small loan of $1Mil.’

Of course, the average college graduate HAS actually borrowed that much money (see graphic above), but they just preferred to blow it all on alcohol, birth control and a degree in English literature.

Speaking of a degree in English literature…

This woman complained to her boss because she wasn’t making enough money. She graduated with a non-STEM degree (English literature), and lives in one of the most expensive cities in America. (The cities that are all run by leftist Democrats who love to spend money on public works and welfare). She didn’t even have roommates to split the rent!

I see this in so many young people – complete disregard for the future in order to have fun, thrills and frivolous travel right now. And all their same-age friends support their decision-making. Young people don’t listen to grown-ups who have experience and real achievements. They listen to their friends. I know one woman who literally flew off to be a missionary in Europe for two years, on the advice of two Christian students, neither of which had ever worked a full-time job or saved money. They were proudly living off their parent’s incomes into their late-20s, and she looked to them for advice on education, career and finances.

Low-income earners can still save money

You don’t have to have a great job to make choices that lead to growing your wealth.

Here is an article from Business Insider about how to build wealth on a minimum wage salary.

Excerpt:

Here are the key expenses that someone on minimum wage can consider cutting, to make an immediate impact:

  • Moving to a more affordable city can cut living expenses considerably. It’s hard to accumulate wealth in Manhattan or San Francisco, but is much more likely in Buffalo or Memphis.
  • Eliminate commuting. Cars are expensive, and it is possible to get a place close enough to work to bike.
  • Cut some wires, particularly cable. After all, it’s 2017 – just go with internet and Netflix.
  • Don’t eat out, unless it’s absolutely necessary.
  • Skip most purchases of new clothes. Instead, make thrift stores your new best friend, and don’t be afraid to mend holes in clothing.
  • Cut expensive activities, and rediscover that the best things in life are free. Playing many sports can be free (or cheap), and public libraries are free (or cheap).

Once that’s done – it’s all about investing in yourself.

The Obama administration set interest rates low for the last eight years, encouraging people to borrow more and more money – money that they could not pay back. Thankfully, the private sector has ways of encouraging people to save money.

This article is from the far-left The Atlantic.

Excerpt:

Late last summer, Dawn Paquin started keeping her money on a prepaid debit card from Walmart instead of in a traditional checking account. The wages from her factory job—she works from 9 p.m. to 5 a.m., inspecting blades on industrial bread-slicing machines—now go directly onto the Visa-branded card, which she can use like a regular debit card, though unlike most debit cards, it is not linked to a checking or savings account.

[…]The card is more convenient, Paquin said, and she doesn’t have to worry about monthly statements; she tracks her money, and pays all her bills, with the card’s associated phone app.

[…]In a 2015 Federal Reserve Board survey, 46 percent of respondents reported that they would have trouble coming up with $400 in an emergency; living paycheck to paycheck is now a commonplace middle-class experience. So while Paquin noticed that her Walmart MoneyCard app asked her from time to time whether she wanted to “stash” some money, she didn’t bother to figure out what that actually meant, let alone respond.

Then, late last year, she got an email saying that a “prize savings” feature had been added to her card. If she kept some of her balance in a virtual “vault,” meaning that it would not show up in her available funds, she would be eligible to win a cash prize in a monthly drawing—up to $1,000. Every dollar in the MoneyCard Vault would equal an entry in that month’s drawing. This caught her interest. A prize would go a long way toward her being able to buy a car. It also made her focus on what all those “stash” requests were about. “Oh, cool, this can work as a savings account, too,” she remembers realizing. So when she got paid, she started setting aside “10 bucks, 20 bucks, whatever I could.”’

[…]The program was launched to a limited number of MoneyCard holders in August, offering 500 prizes a month—one for $1,000, the rest $25 each. In December, the company reported that the number of Vault users had grown more than 130 percent, to more than 100,000, and that the average savings had grown from $413 to $572, a 38 percent increase.

Paquin actually did end up winning the $1000 prize for stashing some of her earnings. And she saved most of it, of course. Because she learned from the incentives.

Millennials who elected Obama will face high taxes, poverty and unemployment

We can't raise taxes enough to fix this overspending
We can’t raise taxes high enough to fix this much overspending

My regular readers have probably noticed that I have stopped blogging about day-to-day politics, ever since the Republican primary candidates with conservative records (Cruz, Jindal, Walker) were eliminated from the GOP primary. I have heard though that the mainstream media is going all in to elect Hillary Clinton. My concern is that many people rely on television news and will never think about two really important issues. First, Obama has been the worst President in the history of the country and has destroyed the economy for decades to come. Second, his disregard for national security and weak foreign policy has emboldened the enemies of Western democracies, e.g.  Russia, Iran, etc. We will see the consequences of this (wars and terrorism) for years to come. Those are the real challenges we face as a nation.

This Hoover Institute article by Victor Davis Hanson explains the big picture that the mainstream media doesn’t care about.

Excerpt:

Consider the $20-trillion national debt. Most Americans accept that current annual $500 billion budget deficits are not sustainable—but they also see them as less extreme than the recently more normal $1 trillion in annual red ink. Americans also accept that the Obama administration doubled the national debt on the expectation of permanent near-zero interest rates, which cannot continue. When interest rates return to more normal historical levels of 4-5% per annum, the costs of servicing the debt—along with unsustainable Social Security and Medicare entitlement costs—will begin to undermine the entire budget.

Count up current local, state and federal income taxes, payroll taxes, property and sales taxes, and new health care taxes, and it will be hard to find the necessary additional revenue from a strapped and overtaxed middle class, much less from the forty-seven percent of Americans who currently pay no federal income taxes. The Obama administration has tried to reduce the budget by issuing defense cuts and tax hikes—but it has refused to touch entitlement spending, where the real gains could be made. The result is more debt, even as, paradoxically, our military was weakened, taxes rose, revenue increased, and economic growth remained anemic at well below 2% per annum.

The national debt is one ticking time bomb, but there are others. Illegal immigration and Muslim refugees create additional financial problems for the next generation of entrepreneurs and workers:

Illegal immigration poses a similar dilemma. No nation can remain stable when 10-20 million foreign nationals have crashed through what has become an open border and reside unlawfully in the United States—any more than a homeowner can have neighbors traipsing through and camping in his unfenced yard.

Likewise, there are few multiracial societies of the past that have avoided descending into destructive ethnic chauvinism and tribalism once assimilation and integration were replaced by salad-bowl identity politics. Common words and phrases such as “illegal alien” or “deportation” are now considered taboo, while “sanctuary city” is a euphemism for a neo-Confederate nullification of federal immigration laws by renegade states and municipalities.

Illegal immigration, like the deficits, must cease, but stopping it would be too politically incorrect and painful even to ponder. The mess in Europe—millions of indigent and illegal immigrants who have fled their own failed states to become dependent on the largess of their generous adopted countries, but without any desire to embrace their hosts’ culture—is apparently America’s future.

Progressive Christians and  left-leaning Republicans join Democrats in imposing costs on the next generation of taxpayers with open borders immigration policies. The bill for importing people who take more in welfare than they pay in taxes has to be paid by someone. Not only will taxes on individuals go up, but taxes on businesses will cause them to create fewer jobs, or move their production to countries that have lower taxes on business.

The rest of the article talks about more ticking time bombs created by young leftist voters. Obama’s anti-police rhetoric has created a crime crisis that will require more police, more incarceration and higher insurance premiums. Obama’s anti-school-choice policies have made it harder for the next generation to get the education they will need to offer value to employers. Without skills, you won’t have a job, and you will be poor – poorer than your parents’ generation.

Although most young leftists are ignorant about foreign policy, that did not stop them from voting to cause crises that will harm our economy, and may also draw us into war. Territorial disputes involving strong countries like Russia and China could easily lead to war. Sponsors of terrorism like North Korea and Iran have gained strength during Obama’s reign of stupidity. Wars that impact trading partners or allies will cost taxpayers money. And millennials are the ones who are going to get the bill for a failed foreign policy.

The article doesn’t mention other crises like the trillion dollar student loan bubble, or the next mortgage lending crisis, or the unfunded pension programs crisis, or Medicare going bankrupt, and then Social Security shortly after, etc. No one in the mainstream media mentions these things, and the millennials aren’t aware of these problems. It’s not in their culture to put financial concerns above having a good time. But closing your eyes doesn’t make a threat disappear. Millennials can’t study English in college, rack up student loans, spend all their money on alcohol, work minimum wage jobs, then travel to Europe in their 20s, and expect everything to work out when they get serious about career and savings at age 30. These crises – which millennials voted for – are going to make their lives harder than their parents’ lives ever were.

Two Blue Cross plans out of Obamacare, Obama wants taxpayer bailout for insurers

Investors Business Daily reports on the latest big health insurer to drop out of Obamacare.:

Two Blue Cross plans made the stunning announcement in the past week that they were dropping out of ObamaCare markets. If even the Blues — the backbone of the individual insurance market for decades — can’t make it, ObamaCare is truly on the road to ruin.

[…]Despite getting approval on an eye-popping rate hike of nearly 60% for 2017, Blue Cross Blue Shield of Tennessee announced that it was quitting three of the largest ObamaCare markets in the state, which will leave 100,000 enrollees to scramble for an alternative coverage next year.

The state’s Blue Cross had lost half a billion dollars in ObamaCare’s first three years, and the company’s spokesman said “there are too many uncertainties to continue participating on a statewide level as we have before.”

That decision came shortly after Blue Cross Blue Shield of Nebraska’s announcement that it was pulling out of ObamaCare entirely in that state — stranding some 20,000 ObamaCare enrollees — after losing $140 million. “We can’t take another hit,” said CEO Steve Martin last Friday. The decision came after the company had won approval for a 42% premium increase.

These dropouts are on top of the June announcement that Minnesota’s Blue Cross was abandoning the states individual market entirely in the wake of $500 million in losses, which means more than 100,000 people in the state will be looking for a new insurer for next year.

That same month, Arizona’s Blue Cross announced that it was dropping out of two counties — Maricopa and Pinal. It later decided to get back into Pinal County after Aetna fled the state, which would have left Pinal with zero insurers in the ObamaCare exchange.

In North Carolina, Blue Cross was contemplating an exit until other insurers dropped out, leaving it the sole carrier in much of the state.

[…]Even before the latest pullbacks, 974 counties in the U.S. — which represent 31% of all counties — were down to one ObamaCare insurer after Aetna, UnitedHealth, Humana and others pulled out of various states, and after most of the ObamaCare-created insurance co-ops failed, according to the Kaiser Family Foundation. Another 31% of counties will be stuck with just two insurers.

Fewer choices means less competition means higher prices for consumers.

Bloomberg News explains:

Minnesota will let the health insurers in its Obamacare market raise rates by at least 50 percent next year, after the individual market there came to the brink of collapse, the state’s commerce commissioner said Friday.

The increases range from 50 percent to 67 percent, Commissioner Mike Rothman’s office said in a statement. Rothman, who regulates the state’s insurers, is an appointee under Governor Mark Dayton, a Democrat. The rate hike follows increases for this year of 14 percent to 49 percent.

[…]On average, rates in the state will rise by about 60 percent, said Shane Delaney, a spokesman for MNSure, the state’s marketplace for Obamacare plans.

Wow, this is a lot different than what Obama promised in his campaign speeches, isn’t it?

A lot of young people believed Obama’s promises in 2008 and again in 2012:

And you can keep your doctor! And you can keep your health plan! Because Obama! Everything will be fine, don’t ask for evidence that he has ever achieved anything in his life. He’s handsome! He has a nice voice! He’s confident!

Should we pick a candidate based on our emotional response to his confidence?
Should we pick a candidate based on our emotional response to his confident words?

Yes, OK. But what about this problem of health insurance companies taking huge losses and pulling out of Obamacare? I don’t think that the program works as well, if all the health insurance providers stop selling health insurance.

Well, don’t worry! Because Obama has a plan to give all his insurance company friends a big bailout from his private stash of taxpayer dollars.

The Weekly Standard explains:

Obamacare’s “risk corridor” program was designed to redistribute money in the Obamacare exchanges from health insurers who made money to those who lost money. Profitable insurers would pay in; unprofitable insurers would get paid out. With so many insurers losing money under Obamacare, however, the program was positioned to become a bailout, as there was no guarantee in Obamacare’s text that the money paid out wouldn’t exceed the money paid in.

[…][I]n late 2014, congressional Republican leadership took action. Congress put an end to Obamacare’s insurer bailout, as it added language to the CRomnibus spending package stipulating that the risk corridors must be budget-neutral: No more could be paid out to insurers than was paid in by insurers. Taxpayers would no longer be on the hook for bailing out insurance companies. In December of 2014, Obama signed that legislation into law.

Congress had acted just in time. Whereas the Obama administration and the CBO both claimed the risk-corridor program would pay for itself, insurers paid $362 million into the program in 2014 and—if not for Congress’s having stopped the bailout—would have been paid out a cool $2.87 billion. For every $1 that was paid in, about $8 would have been paid out. Instead, insurers received only $362 million, and Congress saved taxpayers $2.5 billion.

Obama now seems determined to change that. He is reportedly planning another end-run around Congress—and the Constitution—by bailout out insurers with taxpayer money that Congress hasn’t appropriated. The Post reports, “Justice Department officials have privately told several health plans suing over the unpaid money that they are eager to negotiate a broad settlement, which could end up offering payments to about 175 health plans.” […]In other words, the administration is “eager” to settle with insurers and provide them the bailout that Congress, with Obama’s signature, expressly denied.

Oh, that’s fine then. Obama is going to give the big insurance companies the bailout they deserve. He is such a generous man!

Obama already doubled the national debt from $10 trillion to $20 trillion in 8 years. We have another $1 trillion in student loan debt, thanks to his nationalization of the student loan administration. And another housing bubble of unknown value on the horizon. When will voters understand that they need to vote for competent people?

Every immigrant without a high school degree will cost taxpayers $640,000

Major welfare programs as of 2012
Major welfare programs as of 2012

I am very much in favor of expanding and streamlining immigration processes for skilled immigrants, especially for areas where there is more demand than supply. But I am not in favor of letting in refugees or other unskilled immigrants, especially if they will be eligible to collect benefits paid for by other working taxpayers.

The Daily Signal explains what the cost is:

On Thursday, the National Academies of Sciences, Engineering, and Medicine will release its report on “The Economic and Fiscal Consequences of Immigration.” According to the report, first generation immigrants as a group increase the nation’s fiscal deficit. In other words, the government benefits they receive exceed the taxes paid.

The National Academies’ report provides 75-year fiscal projections for new immigrants and their descendants. The fiscal impact varies greatly according to the education level of the immigrant. Low-skill immigrants are shown to impose substantial fiscal costs that extend far into the future. The future government benefits they will receive greatly exceed the taxes they will pay.

On average, a nonelderly adult immigrant without a high school diploma entering the U.S. will create a net fiscal cost (benefits received will exceed taxes paid) in both the current generation and second generation. The average net present value of the fiscal cost of such an immigrant is estimated at $231,000, a cost that must be paid by U.S. taxpayers.

The concept of “net present value” is complex: it places a much lower value on future expenditures than on current expenditures.

One way to grasp net present value is that it represents the total amount of money that government would have to raise today and put in a bank account earning interest at 3 percent above the inflation rate in order to cover future costs.

Thus, as each adult immigrant without a high school diploma enters the country, the government would need to immediately put aside and invest $231,000 to cover the future net fiscal cost (total benefits minus total taxes) of that immigrant.

Converting a net present value figure into future outlays requires information on the exact distribution of costs over time. That data is not provided by the National Academies.

However, a rough estimate of the future net outlays to be paid by taxpayers (in constant 2012 dollars) for immigrants without a high school diploma appears to be around $640,000 per immigrant over 75 years. The average fiscal loss is around $7,551 per year (in constant 2012 dollars).

Slightly more than 4 million adult immigrants without a high school diploma have entered the U.S. since 2000 and continue to reside here. According to the estimates in the National Academies report, the net present value of the future fiscal costs of those immigrants is $920 billion.

If you want to take in refugees or unskilled immigrants or sponsor elderly family members, then they should not be allowed to collect benefits paid by other taxpayers. The family that is here already must provide for them, and be held accountable should anything go wrong. Unfortunately, that’s not how the system works now, and it’s not what the Democrats want. They want to import more people who will depend on big government, and then give them the right to vote.

Now, you might think that young American students who expect to find jobs will also expect to keep most of what they earn. It’s very surprising then that they keep voting for a party (the Democrats) that seeks to enslave them with the obligation to pay for other people. I know that the next generation will be paying more in taxes than I ever did during my lifetime.

How exposed is your state to the problem of underfunded pensions?

I am thinking about moving to a new state in the future, and one of the factors I am considering is underfunded pension liabilities. This basically refers to the ability of a state to pay out pensions to retiring public sector employees going forward. I’m going to tell you everything you need to know to solve this problem in this post.

First, Investors Business Daily explains the problem:

A new report by Hoover Institution Senior Fellow Joshua Rauh shows that, unless action is taken soon, many local governments could face bankruptcy because they can’t meet their pension obligations.

[…]The problem is surprisingly simple: States and cities overestimate returns on their pension fund investments, while systematically underfunding them. The result is a growing deficit that will require massive tax hikes or dramatic and painful cuts in government services and promised pensions to public workers.

Rauh’s study looked at 564 state and local pension systems, representing $4.8 trillion in pension liabilities and $3.6 trillion in assets — for an apparent current deficit of just $1.19 trillion.

So far, so good. But Rauh notes the average expected return on pension assets is about 7.6% — which means a doubling every 9.5 years. He calls that assumption “wildly optimistic,” and says a more realistic assumption would be the Treasury bond rate of 3% or lower — less than half the expected return.

Unless pension managers, politicians and voters do something now, the unfunded liabilities of the national system will continue to grow out of control, reaching $3.4 trillion in just 10 years. States and cities across the country would have to raise taxes massively to keep from becoming insolvent.

Right now, state and local governments set aside about 7.3% of revenues for public pensions. To keep the funding gap from exploding and taking down governments across the nation, pension spending would have to rise to  17.5% of revenues on average — roughly equal to a 240% tax increase.

How did things get so bad? Generations of feckless politicians have refused to face down public employee unions, which have negotiated massively expensive pensions for their members while concealing their true cost. Politicians have gone along with it because, heck, it’s not their money and anyway, the problems will take place long after they’re out of office. That’s where we are now.

States and cities will come under intense pressure to raise taxes on local citizens to pay for this travesty. Instead, they should get rid of the public employee unions that have plundered the public for too long and have made local government inefficient, expensive and dysfunctional. If not, they can expect to face the same economy-crippling effects as Detroit, San Bernardino and a number of other cities have — financial insolvency.

Now, obviously states with kick-ass governors like Scott Walker of Wisconsin are not going to have the same exposure to such problems as incompetent governors like Maggie Hassan of New Hampshire. Scott Walker know how to rein in public sector unions.

Let’s get the numbers to confirm this hypothesis.

Bloomberg has the numbers:

Bloomberg ranked 49 U.S. states based on their pension funding ratios in 2014 under GASB 25. (Delaware is not included because of insufficient data for GASB 25.)

Here are the best states… Wisconsin is 100% funded:

States with the best-funded pension liiabilities
States with the best-funded pension liiabilities

And actually there is a comprehensive analysis of the fiscal solvency of all the states right here from George Mason University.

Here’s the map:

Overall fiscal solvency by state
Overall fiscal solvency by state

I notice that the deep blue states like California, Massachusetts, Illinois, Connecticut, New Jersey, etc. are just horrible states. No wonder everyone is fleeing them in droves. Socialism doesn’t work. Eventually, the money runs out.

So, if you’re thinking of moving to a new state, look at that. And if you don’t want to move, then vote for governors like Scott Walker who will take on public sector unions – otherwise, you’re headed for a big tax hike in the future, to pay for the big spending liberals of the past.