Part 4: Good Advice, Bad Advice, and News About Investment People (continued)
Trade in your Clunker and get a cash rebate – Bad Advice if you don’t
really need a new car
Here’s an interesting article about the Cash for Clunkers
program that was recently terminated by the government.
Cash
for Clunkers' Impact on Economy and Environment Is Negligible
The article basically tells you that the government’s stated
reasons for this program will not actually happen.
On the other hand, the program was a great deal for people
with cars that were just about dead and had to be replaced anyway.
I have a 13 year old Volvo with 130,000 miles. It’s still good for another 130,000
miles, provided I take care of it and don’t use it as my primary vehicle for
long trips. It’s got lots of dents
and chips, and it will probably need another timing chain, transmission and
engine if I want to get those additional 130,000 miles. Should I have traded in this clunker
and buy a new car?
Of course not!
Why would I spend money I don’t need to spend, just because the
government will give me a rebate?
What about replacing all the windows in your house? You can get a rebate if the new windows
are energy efficient. If you were
planning to replace the windows anyway, then go ahead and do it so you can get
the rebate. But if your windows
are OK, and you really had no plans to replace them in the near future, don’t spend
the money just because there’s a rebate.
Here’s the thing.
Our government likes to complain that we don’t save enough. But to get re-elected, the politicians
need the economy to start humming.
It won’t hum unless people start spending money. So they are dangling these lollipops in
front of your eyes to get you to spend money you should be saving and
investing.
Which is more important to you? Is it better to have no debt and be able to save 20% of your
gross salary each year? Or is it
better to spend your money on new windows and a new car if you don’t need
them? You already know the answer
to that.
But it is more important to our politicians that you spend
money now. They will be gone by
the time you reach retirement age.
They don’t really care if you have enough money at retirement, because
it has no impact on their re-election bids.
Let’s switch gears slightly.
Do you think the American public is entering a long term
phase of responsible saving? Has
the recent meltdown scared everyone enough so they will practice fiscal
restraint for the rest of their lives?
NO! NO!! NO!!! The current restraint by American consumers is just a
passing fad.Most people (the irresponsibles) will eventually continue to
spend more than they earn. The frugals
(me and you) will continue to save our money. The frugals are a small minority.
What will happen to the economy? Eventually, it will start humming again, since the
irresponsibles will be spending.
This will improve the price of our equity holdings. And every once in a
while (like last year) the economy will come to a jolting, shuddering near
collapse because of some ridiculous excess or other. When the economy jolts, the frugals will be hurt worse than
the irresponsibles. But it will be
a temporary hurt. In the long run,
the irresponsibles’ overspending will actually allow the frugals to retire with
a larger pile of cash. That’s
because the markets will be higher than they would be if everyone spent less.
The quid pro quo (latin for “this is where the frugals get
screwed”) is that when we are older, we will be forced to pay for the
entitlements given to irresponsibles.
Politicians know that the irresponsibles outnumber the frugals by a
whopping margin. Future government
policies (which are designed to get the politicians re-elected) will be geared
to help the majority. So
your pile of cash will be taxed at higher rates than we have today.
How does that grab you? Because most people blew their money on big screen TV sets
and boats, you will pay higher taxes in your old age. They will get government support that you won’t qualify for,
because you have more money than they do.
(I’m assuming that social security and Medicare benefits will be based
on income when you retire).
You can’t run from this responsibility. If you try to sneak your funds into
offshore accounts, you will be caught.
The US wants very badly to catch you. In fact, we are embroiled in a fight with Switzerland to try
to get the names and addresses of the people who have hidden their funds in
illegal accounts sponsored by the United Bank of Switzerland. Eventually we will have to invade
Switzerland to get that list of names, but I guarantee the US will get those
names. And then heads will roll.
Yeah, it stinks. But that doesn’t mean you should switch from the frugal tribe to the irresponsible tribe. Yes, you will have to support the old irresponsibles to some degree, but they will not be living in luxury. Your retirement years will be way more satisfying and easy if you stick with the frugals.
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