The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.

So, that’s what they decided to do.

The ten men ate at the sandwich shop everyday and seemed quite happy with the arrangement, until one day, the owner threw them a curve. “Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily lunch by $20.” Lunch for the ten now cost just $80.

The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still eat for free. But what about the other six men; the paying customers? How could they divide the $20 windfall so that everyone would get his fair share?’ They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to eat his lunch.

So, the owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so the fifth man, like the first four, now paid nothing (100% savings)

The sixth now paid $2 instead of $3 (33% savings).
The seventh now pay $5 instead of $7 (28% savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 ( 22% savings).
The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to eat for free. But once outside the restaurant, the men began to compare their savings.

“I only got a dollar out of the $20,”declared the sixth man. He pointed to the tenth man,” but he got $10!”

“Yeah, that’s right,” exclaimed the fifth man. “I only saved a Dollar, too. It’s unfair that he got ten times more than I!”

“That’s true!!” shouted the seventh man. “Why should he get $10 back when I got only two? The wealthy get all the breaks!”

“Wait a minute,” yelled the first four men in unison. “We didn’t get anything at all. The system exploits the poor!” The nine men surrounded the tenth and beat him up.

The next day the tenth man didn’t show up to eat, so the nine sat down and had lunches without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction.

Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start eating overseas where the atmosphere is somewhat friendlier.

For those who understand, no explanation is needed.

For those who do not understand, no explanation is possible

An economics professor at a local college made a statement that he had never failed a single student before but had once failed an entire class. That class had insisted that socialism worked and that no one would be poor and no one would be rich, a great equalizer.

The professor then said, “OK, we will have an experiment in this class on socialism. All grades would be averaged and everyone would receive the same grade so no one would fail and no one would receive an A. The Class agreed!

After the first test, the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy.

As the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too so they studied little. The second test average was a D! No one was happy.
When the 3rd test rolled around, the average was an F. The scores never increased as bickering, blame and name-calling all resulted in hard feelings and no one would study for the benefit of anyone else.

So what do the feds actually want? It appears now that they want INFLATION! What? I thought inflation was bad. Well it is if it takes off at ground level, but the economist say we are now experiencing deflation, so the feds need inflation to compensate.

Maybe a short economics discussion is in order. Let’s look at the variables in very basic terms.

M=money supply – how much money is available

V=Velocity of money – how fast money moves through the system

P=Price of money – either inflation or deflation

Q=Quantity of Production – GDP

If you reduce V velocity (which is happening today) and if you don’t increase the M supply of money, you are going to have deflation. We are watching the velocity of money slow. People are getting nervous, they are not borrowing and spending as much, either because they can’t or for obvious reasons are using discretionary income to pay off debt or increase their savings. You would think this is a good thing for the family, reduce debt and save more, but not if you’re the government. This entire economy has been based on credit, borrowing, and spending…..velocity….which increases GDP, but this growth has been fictitious because we weren’t spending our money, we were spending our future earnings through debt. You knew it was just a matter of time before we would “max-out” our borrowing power.

The probability of deflation is ever increasing. When we increase M the supply of money and V, velocity stays the same, and if GDP does not grow, that means we’ll have inflation. More money chasing fewer goods…..it’s the old supply and demand equation.

As I said earlier we currently have slower velocity of money and thus slower growth of GDP. Keep this in mind: earnings equal growth. Without spending companies have little to no earnings which results in slower or stagnant growth or what we are experiencing now…..deflation. This scares the FED, so what is there answer? They have to keep printing money M until V velocity kicks in and we begin to see inflation. The feds are calling it “quantitative easing.” They announced $300 billion of easing last week. This will happen every quarter, $300 billion, $500 billion etc….until their achieve their desired result…..inflation. This could become a really big number and a side effect may be another asset bubble in the stock market. One economist said it may take $2 trillion of “easing” to achieve the desired result. However, will this cause the pendulum to swing in the opposite direction and double digit inflation will rear its ugly head? There has to be such a supply of cheap money to encourage lenders to lend and borrowers to borrow to induce a spending to produce inflation. This could take years to accomplish……and I don’t think we’ve hit bottom yet. Bill Fleckenstein is a very famous short trader. He closed a short fund a couple of months ago. He says he doesn’t have as many good opportunities, and basically he’s scared of being short with so much stimulus going on.

Another unintended consequence of printing so much money will be a weaker dollar…..this is an entirely different discussion but can we afford to have a weaker dollar globally? Who will buy our debt?

The real answer is staring us in the face, but we seem to overlook it. We have to get the FED’s out of the equation. Let the markets dictate interest rates, velocity, price, and growth. We can’t keep manipulating the country’s economy. It doesn’t work, hasn’t worked and will not work long term. This stimulus “fix” will probably end up being more of a disaster and make for a harder landing then would have otherwise been by letting the markets run their course. We will experience deflation followed by inflation followed by more manipulation so put on your neck brace because this economy is going to make your head spin!

Some of you may have seen these graphics floating around the internet lately, but if you haven’t you need to take a visual look at a Trillion dollars.

First off a Trillion is a 1 with 12 zeros, it looks like this: $1,000,000,000,000. Okay, so it’s a big number, but let’s put it into perspective.

Before we get to what a trillion dollars looks like visually, here are a couple of interesting statistics:

1. If the printing presses ran from 8-5 every working day, 5 days a week, it would take 72 years to print 1 trillion dollar bills.

2. Stacked on top of one another a trillion dollar bills would be 70,000 MILES high.

3. If you could have spent 1 million dollars per day since the birth of Christ (2009 years ago) you would still need another 740 years to spend a Trillion dollars.

4. One million seconds ago was 10 or 11 days ago
One billion seconds ago was during the Nixon administration
One trillion seconds ago was 30,000 years BC…..wow!

5. To count out One Trillion ($1,000,000,000,000) dollars nonstop without sleeping or eating it would take Thirty-Nine Thousand (39,000) years.

6. If your annual salary or wage is $50,000 it would take you 20 million years to earn a trillion dollars.

7. We could wrap the earth about 4700 times with a trillion one-dollar bills laid end to end around the globe.

8. Assuming there was a roll of 1 trillion – $1 dollar bills, it would take a military jet flying at the speed of sound, reeling out dollar bills behind it, 14 years before it reeled out one trillion dollar bills.

So there’s a little “Trillion Dollar Trivia” for you!

Okay, now let’s look at a Trillion dollars visually.

Here we have a man standing next to 1,000,000 (1 million bucks!) You could put a million in your backpack and have lots of fun!

Notice how small it is compared to an average man.

Next we have $100 million dollars. This can be neatly stacked on a pallet about 4 feet high.

Now we have $1 Billion dollars. This is 10 pallets of $100 million each. This used to be a lot of money…..but to congress a billion dollars falls out of Uncle Sam’s pockets like change.

Although a billion would be a lot of fun to spend……how does it look compared to 1 trillion?

HERE IS 1 TRILLION DOLLARS!

Look at this……what we have here is 10,000 pallets (double stacked so they are about 8 feet high) and each pallet has 100 million dollars on it.

Can you see the little man now in the bottom left corner?

So maybe now we can get a glimpse of the burden government is putting on us in terms of long term debt for this “stimulus” package. Anyone want to run a credit check on the borrower? Oh I forgot, most of the borrowers aren’t even born yet!

Has the economy taken away years of gains in your retirement plan? Is there a better way?

I read a report in US News that over 2 TRILLION dollars have been lost within retirement plans. How many built in a 30-40% market decline and are still able to reach their financial objectives? Most 401K’s and other retirement plans have seen better days to say the least. Not only do they tie up your money until you are 59 ½, but you or someone else needs to constantly manage the investments they are in and then hope that the markets perform.

Company matching has always been the lure to participating in the company retirement plan. Lately though, many companies have reduced and even eliminated the company match. If this has happened to you should you continue to contribute?

And what about taxes on retirement plans?

For years we’ve been under the assumption that we would put money in our retirement plans at a higher tax bracket than when we take it out, after all that is the only way to really come out ahead. However, that does not seem to be the case with most retirees.

I spoke with a 71 year old single woman the other day who said her income, at just under $40,000 per year plus social security, is putting her near a 33% tax bracket with federal and state. In addition 85% of her social security is taxed because of her income. The majority of the problem is caused because she has no deductions, no kids, no mortgage, no business, and most of her income is coming from retirement plans that have never been taxed. The result is she wishes she had never put money in a retirement plan and had paid the tax years ago at a lower tax bracket. Its cost her more to “postpone” the tax and pay it today than it would have to pay it years ago.

Maybe now is the time to change the way you are preparing for retirement. There are alternatives that may be more attractive than the traditional retirement plans created by the government. It’s funny, in a sick sort of way, that the government who created this massive and confusing tax system is the same government who created the “retirement plan” loopholes such as 401(k)’s and IRA’s. Should we trust them? At any time those who make the rules can change the rules.

Do you think taxes are going to go up? How are we going to make our way out of an 11 Trillion dollar national debt? Take a look at the National Debt Clock: http://www.brillig.com/debt_clock/ and it grows by $3.71 billion per day.

The bottom line is that if tax rates are on the rise, which seems inevitable, than why do we want to wait and postpone the tax to pay later at a higher tax rate? It doesn’t make much since does it?

Is there a better way? There most certainly is.

Most are not familiar with other with strategies that create guaranteed growth and tax advantages, especially when these strategies don’t involve government created plans. If you would like more information about one of these strategies please click here to watch our free video. ]]> http://blog.becomingyourownbank.com/is-your-401k-now-a-201k/feed/ 0 http://blog.becomingyourownbank.com/are-interest-rates-being-held-artificially-low/ http://blog.becomingyourownbank.com/are-interest-rates-being-held-artificially-low/#comments Sat, 28 Mar 2009 20:33:00 +0000 admin http://thebankingprocess.com/?p=11

Posted via email from My Posterous

Posted via email from My Posterous

One day, while the class was in the lab, the Prof. noticed one of the
exchange students who kept rubbing his back and stretching as if his
back hurt. The professor asked the young man what the matter was.
The student told him he had a bullet lodged in his back. He had been
shot while fighting communists in his native country who were trying to
overthrow his country’s government and install a communist government.

In the midst of his story he looked at the professor and asked a
strange question. He asked, ‘Do you know how to catch wild pigs?’

The professor thought it was a joke and asked for the punch line.

The young man said this was no joke. ’You catch wild pigs by finding
a suitable place in the woods and putting corn on the ground. The pigs
find it and begin to come every day to eat the free corn. When they are
used to coming every day, you put a fence down one side of the place
where they are used to coming. When they get used to the fence, they
begin to eat the corn again and you put up another side of the fence.
They get used to that and start to eat again. You continue until you
have all four sides of the fence up with a gate in the last side. The
pigs, who are used to the free corn, start to come through the gate to
eat, then you slam the gate on them and catch the whole herd.

’Suddenly the wild pigs have lost their freedom. They run around and
around inside the fence, but they are caught. Soon they go back to
eating the free corn. They are so used to it that they have forgotten
how to forage in the woods for themselves, so they accept their
captivity.’

The young man then told the professor….that was exactly what he was seeing
happening in America.

’The government keeps pushing the people toward socialism and keeps
spreading the free corn out in the form of programs such as supplemental
income, tax credit for unearned income, tobacco subsidies, dairy
subsidies, payments not to plant crops (CRP), welfare, medicine ,
drugs, etc, etc, etc. while the people continue to lose their freedom -
just a little at a time. One should always remember: There is no such
thing as a free Lunch ! Also, a politician will never provide a
service for you cheaper than you can do it yourself.’

I hope you see that all of this wonderful government ‘help’ is a
problem confronting the future of democracy in America. God help us when

the gates slam shut! Listen closely to what the
politicians are promising you – just maybe you will be able to tell who
is about to slam the gate on America”