Don’t Quit Your Day Job – Personal Finance, Economics and Investing

… is higher than credit card debt in our country (hat tip: Wall Street Journal). How can this be?, you may ask, when the number of news stories on credit cards seem to vastly outweigh the corresponding reports on student loans. Well, yes, credit card stories seem to outnumber student loan stories by a ratio of about 15 to 1, according to StudentLoanJustice.org. How did this happen?

Credit card issuance was down significantly in 2009. In hard numbers, through October issuance was down 46%. Simultaneously, debit card usage was up between 10 and 20% worldwide according to Visa and Mastercard’s Results. The trend is evident; consumers are moving away from debt and trying to make purchases out of funds they already have.

… isn’t always good for the individual investor. For example, the S&P 500 has rallied back more than 400 points since March, but the Federal Lending Rate is somewhere between 0 and 0.25%. The rate has all sorts of consequences for Main Street- it mostly affects short term rates. In the carnage, even asset classes that were once expected to provide a little more return have suffered- as of today, the average money market rate is a mere 1.07%.

I’d be remiss if I didn’t highlight Warren Buffet’s post today in the New York Times. Buffet is never lacking with a quote or an opinion, and on the topic of deficit spending he’s no different. Hilariously, he refers to the massive influx of liquidity into the economy as “Greenback Emissions”. I definitely agree with Buffet on this topic; we’re in for a pretty good amount of inflation if the government doesn’t dial back it’s money printing efforts.

A recent unemployment report from the Bureau of Labor Statistics introduced some light into the dreary situation in which the economy finds itself. Yes; the official U-3 unemployment numbers are in- and the headline unemployment number is now 9.4% unemployment compared to the previous 9.5%. U-6, a broader measure of unemployment (specifically the total employed, marginally attached workers and part time workers who want to work full time in the civilian labor force and marginally attached workers) ticked down from 16.5% to 16.3%. On the surface, a pretty good report. However, some signs of weakness are right below the surface.

There are 12 branches of the Federal Reserve Bank: Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco. Eight times a year they get together and compile a report, the Summary of Commentary on Current Economic Conditions, better known as the ‘Beige Book’. On July 29, the most recent version of the Beige Book was posted. The summary reports, anecdotally, that conditions are moderating since the report issued June 10.

There are three ways for a government to pay for debt: issue new debt, collect taxes, and cause inflation. Inflation is a ‘hidden tax’ on a populace- it decreases the value of future money, and allows governments to pay off their current debt with devalued money. The United States dollar, as the world’s reserve currency, gives the United States a unique temptation (opportunity?) to pay off their debts in a currency it can print. What exactly is inflation, though? And if you believe inflation is on the way, how do you set yourself up to counteract it?