Our Financial Mess

Should We Bother Anymore?

Does It Pay to Be Frugal?

That's a good question in view of the financial meltdown the entire world is going through.

Those who have invested in stocks or mutual funds have suffered an average loss of 40%. Many now claim that their dreams of retirement have evaporated and that they will have to continue to work on.

Homeowners who have faithfully kept up on their payments now know that the value of their home is probably down at least 20% and some may be "under water" - they owe more than their home is worth.

To make matters worse, abandoned and foreclosed homes are becoming a blight on many neighborhoods, further driving down house values.

And the cherry on the cake is that those who should not have qualified for a mortgage in the first place and who have not made their payments are going to be protected - at least temporarily by the government.

The frugal are being made to bail out the profligate and nothing and no one is willing to even try to stop it.

Bailout Nation

Those who have been responsible for the whole financial mess, in Washington and on Wall Street continue in power. They suffer no loss.

Politicians got a pay raise in December as the worst monthly job loss in decades took place.

Bankers and other financial geniuses who created an absolute disaster, almost destroying the free world's financial system, use parts of their bailout money to pay themselves bonuses, buy new corporate jets and enjoy all the perks to which they feel entitled, before they come back and demand more bailout money from the taxpayers.

The House of Cards

It was truly amazing to watch the world unravel at warp speed before our eyes.

It seems that there was no real capital behind our banks, investment houses and major corporations. It was only a house of cards built on phoney exotic debt instruments.

Not only banks, but auto companies, retailers, states, cities, home builders, steel manufactures and on and on ad nauseam didn't have anything to carry them through even a few bad months.

Jobs are the first to go. The jobless are forced to cut spending.

Those with jobs cut back. People save more to protect themselves against even more bad times - unlike our political class who just go on doing what they want and using taxes and the Treasury's printing press to cover their expenses.

In any event we are now in a deflationary spiral that tends to feed on itself. This is the making of a depression. The government thinks that throwing trillions of dollars around will prevent this from happening.

I think the best it will do is delay the inevitable.

What to Do Now

First of all, the stock market will eventually recover. Although a decade of growth was wiped out in the last few months, over the long term you have to invest.

The effect of all this money being injected into the world's finances will result in higher inflation, higher commodity prices and a lower dollar.

So far, the only way to stay ahead has been to be in the stock market.

If you can afford your mortgage payments, forget about moving for a while. If you can't, call up your bank and see what they will do for you. The last thing it wants is another foreclosed house.

Pay down your debt and rely on cash for new purchases. Debt is a bad thing in these uncertain times.

Take advantage of the deflation now going on. If you have to buy big ticket items, they are available in abundance at drastically marked down prices. Don't be afraid to haggle.

The Future

Once the financial stimulus starts to effect the economy - it usually takes about six months - you will probably see a sustained stock market rally.

You might want to sell any iffy investments at that time and put your money in a very solid and diversified portfolio. We will probably be in the midst of another bubble that will burst with even greater intensity than what we went though last year.

Then it will be time to pay the piper. And the price will be enormous in terms of tax increases, job losses, stagflation and a much weaker dollar.

Can Anything Be Done

The die has been cast and there is little to do to stop the negative effects of bad public policy.

It is said that we get the government we deserve. Right now people want quick fixes and bailouts and they overwhelming elected a party that will give them want they want.

A fiscally strong leader might be able to alleviate some of the upcoming problems, but such a leader can only be elected if the people realize that there is so much fundamentally wrong with our economy.

About 40% of the US population doesn't pay any taxes. The political class live like the royalty the founders of this country overthrew in violent revolution. But their votes are equal to those who produce and pay taxes.

[ From 2008 to 2010, the government sector was one of very few to show job growth.]

They will not vote to voluntarily give up their place on the gravy train.

There is too much entitlement spending and not enough spending on true investments that will provide jobs and security for the entire country in the future.

All that I can suggest is to avoid the politicians that promise to take care of you and your problems and vote for the ones - if any still exist - that look to make this county self-reliant again.