Warren Buffet and me have one thing in common

While I'm waiting for my mood-elevating soma to arrive from the government, I'll try to reduce my financial meltdown anxiety by griping about what the federal stimulus and bailout plans are doing for us, personally.

In short: nothing.

At least, nothing that I've been able to discern from reading all the newspaper and magazine articles with headlines like, "How you'll benefit from the stimulus package."

Well, the only good news is that this makes me feel like a monetary brother to Warren Buffet, investing guru extraordinaire.

Our net worth and economic knowledge are vastly different, but both Warren and me are ticked at how financial failures -- corporate or individual -- are getting a much better deal than the rest of us.

Here's how Buffet sees things:

Funders that have access to any sort of government guarantee -- banks with FDIC-insured deposits, large entities with commercial paper now backed by the Federal reserve, and others who are using imaginative methods (or lobbying skills) to come under the government's umbrella - have money costs that are minimal.

Conversely, highly-rated companies, such as Berkshire, are experiencing borrowing costs that, in relation to Treasury rates, are at record levels. Moreover, funds are abundant for the government-guaranteed borrower but often scarce for others, no matter how creditworthy they may be. ... Though Berkshire's credit is pristine -- we are one of only seven AAA corporations in the country -- our cost of borrowing is now far higher than competitors with shaky balance sheets but government backing.

Yeah, that's just how I feel. Still-solvent individuals are getting screwed just as much as successful firms like Buffet's Berkshire Hathaway are.

On the income side, money market interest rates are down to just about zero. Our interest-bearing checking account paid us 41 cents last month, even though we had an average daily balance of several thousand dollars.

I feel like telling West Coast Bank, "just keep your damn money." At the end of a year the CEO can buy himself a fancy large latte with the picayune interest. That way somebody will get some evident benefit from it.

Recently Vanguard reported it is closing Treasury money market funds to new investors because the yields are so low.

Money market investors across the industry have seen yields on their funds decline sharply in recent months. For example, the average yield among U.S. Treasury money market funds was only 0.15% as of December 31, 2008, down from 2.71% at the end of 2007 (source: Lipper Inc.). For a hypothetical investor with a $10,000 money market account, that's an annualized difference in income of $256.

So retirees and others who have acted responsibly, building up a decent nest egg of cash, now are getting hardly any income from their savings since the Federal Reserve has reduced short term interest rates to nearly zero.

Searching for a bright spot in the financial meltdown gloom, I figured that if we're getting just about no interest on our savings, then we should be able to borrow money for just about nothing.

Not exactly. Rates for a home equity line of credit are running between 4% and 10% at the MAPS Credit Union that we belong to. Home equity loans, between 5% and 10.6%.

That seems pretty steep, given how little financial institutions are paying out to depositors and, as Buffet says, how minimal money costs are to them.

Meanwhile, failed corporations like AIG keep on raking in big bucks from the government (which means us, the taxpayers, ultimately). This morning I heard Treasury Secretary Tim Geithner tell a congressional hearing, "AIG was able to grow up without any adult supervision."

That was a nice off-the-cuff remark regarding necessary regulation. However, it doesn't negate the fact that the Federal Reserve chairman says AIG acted irresponsibly.

Yet still has gotten $150 billion from the government.

We need a new well. Not wanting to deplete our cash reserves, we're considering borrowing the money for it. It'd be nice if the stimulus or bailout packages threw us a financial bone that we could chew on.

But since we're retired, we don't get a break on payroll taxes. Since we aren't behind on mortgage payments, we don't get low-cost financing. Since we aren't a failed corporation, we don't get an infusion of capital.

What we get is next to zero interest on our savings, and a hefty comparative borrowing cost. Plus being able to watch our net worth sink along with the stock market.

Things would be a lot worse if Bush were still in office, or if McCain had won last November. Still, I'm waiting for the Obama economic bump.

Or failing that, a big box of soma to support my psyche through these tough times.

Comments

[Randy]

Might as well lose that macro view and go micro. Sell what's left of your equities and go to cash. The market will probably go lower. Probably a lot lower. Maybe invest in something that has a chance of going up or keeping value—gold, oil, seed? Keep some cash at home. Get it out of the bank now. It's not earning any interest anyway. Get enough for a few months. Buy some silver coins; some gold coins. Redo that well. Start a garden. Store food like a Mormon. Install some rain cachement. Buy a shotgun.
Obama is fresh air compared to Bush and he will effectively keep up the public morale which buys time. But all the indicators are that we will have to drastically change the way we operate. Everything is likely to be more local. Right now neighbor support groups and local organizations are the key to surviving whatever it is that we are in—Depression; The Great Recession. All of Obama's economic plans are geared to getting us back to where we were when the SHTF, not really change one can believe in. Not change at all. Just very expensive nostalgia about spending what we didn't have.

[Condor]

Obama is clueless and we're in trouble:

http://www.businessweek.com/magazine/content/09_10/b4122017811535.htm

[Condor]

You voted for Obama so don't gripe about the erosion of your retirement.

In the last five months, according to the Federal Reserve Board, the money supply in the United States has increased by 271 percent. It has almost tripled.

Have car sales tripled? Home purchases? Consumer spending? Corporate investment? Not only have they not tripled, they have all declined more sharply than they have since at least the recession of 1981-82, and perhaps since the Great Depression.

So where is the money? If it isn’t being spent, where is it?

It is being parked, squirreled away. Consumers are using it to pay down their credit card balances, pay off their mortgages, reduce their student loans, make the payments on the car sitting in their driveway — not the one in the dealer’s lot. Businesspeople are buying T-bills, investing the money and saving it. They aren’t spending, either.

But one day this recession — despite Obama’s best efforts — will end and things will begin to look up again. Then we can expect all of this money to come out of its parking space and get back on the highway of commerce. All at once. The inevitable result will be double-digit hyperinflation.

Since the spending and borrowing splurge is not confined to Washington, but is being mimicked all over the world, the inflation will not strike just one country but will be global in scope. The first global inflation in our history (except, perhaps, right after World Wars I and II), it will confront our policymakers with yet another unprecedented challenge and send them back, once more, to their economics texts. There, they will find that the only remedy for global inflation is global recession. Having just emerged from a ruinous depression, nobody will be in the mood for more unemployment, but that is just what will have to happen to cool off the inflation and break the inflationary psychology that is likely to set in.

The point of this gloom and doom is that all this pain is entirely preventable. It will be caused by Obama’s excessive spending and trillion-dollar-plus deficits. This spending, of questionable utility in overcoming the current depression, is so far out of line with what the economy can handle that it will do more harm than good when the inflation hits.

Proof that his spending will have little impact on the depression is the vast increase in money supply with no commensurate improvement in the economy. Providing money, via spending hikes or tax cuts, does not guarantee that the money will be spent. Tax cuts can be saved and spending increases, while surely spent once (on the initial project), can rapidly lose their multiplier effect as wage-earners on the government payroll bank their money just like those who get tax cuts will do. Getting out of this economic mess depends on consumer and business confidence, a faith that Obama is eroding with his looming tax increases as rapidly as he tries to kindle it with his excessive spending.

None of this should come as any news to Obama. He likely knows all this. But he is determined to pass his agenda of bigger government, nationalized healthcare and vastly greater spending even at the price of inflation and subsequent recession. He puts ideology first and the economy a distant second.

The stock market has figured out his priorities and is responding accordingly. One can only hope that voters also eventually realize what is going on.

[Brian]

Condor, an economy as large as the United States' doesn't turn around overnight, like you seem to believe can happen.

Obama inherited eight years of Bushonomics. Now he's having to unwind policies and a lack of regulation that have been long in the making.

Surveys show that the public is willing to give Obama until mid 2010 or so, before they expect to see the results of what he has set in motion.

Sure, I'd like things to be better immediately. But I really don't believe that will, or can, happen. Obama's economic plans make good sense. I'm confident they will work. As do most of the American people.

[Harry Vanderpool]

Brian Said:
>>> Obama's economic plans make good sense. I'm confident they will work. As do most of the American people.<<<

I'm sure glad I don't live in a glass house.
I'm sure glad I don't live in a house of cards.
Although a registered Dumb-ocrat, I'm sure grateful for my conservative, moderate lifestyle.
As for "most of the American people", lets all say our prayers. Thats about all we can do until the next election.
:-Q

[Condor]

You're a true believer. Odd for a Churchless kind of guy.

Obama's actions have made a bad situation worse. Markets reflect ANTICIPATED economic activity. Obviously they don't anticipate his stimulus package to work.

Many in the public are clueless. A woman in the checkout line next to me exclaimed while looking at a magazine cover of Michelle Obama, "Isn't she beautiful! I'm so glad we have them in office!"

Get me an aspirin. I've got a headache.