Topic: Economics
Non-Socialized Responsible Non-Investing Actions speak much louder than words!by Gene DeNardo
(centrist liberal libertarian)
Thursday, February 26, 2009
There is little that says more about our worldview than how we spend or invest our money. Money represents our "action". All the ideals, opinions and beliefs we hold hardly tip the scale in comparison to one action. We certainly can "act" without money, but there is no doubt that money is action.
Non-Socialized Responsible Non-Investment [definitely tongue in cheek!] describes a form of investment [or non-investment] that attempts to disconnect sound principles based on social justice and free markets from questionable business enterprises and institutions that promote opposite goals. The pervasive and socialized web of corporate control is difficult to avoid when it comes to money and conscious effort is needed to let our money take actions that our beliefs condone. Many of the so called "green" investments are simply referring to the color of your money.
Any investment is simply a function of the creditor-debtor relationship or a derivative [there's that word!] of it. When you invest, you credit someone or something and you hope for a return greater than your principal. You may receive more, you may not, it depends completely on how your debtor cared for your money. It is as simple as that!
There are three types of investor:
1. Debtors
2. Debtors-Creditors
3. Creditors
A very large percentage of Americans fall into the first category, that of debtor. We owe money and to stay solvent we need to service our debt and make the payments required of us. This is the worst possible type of investment.
As debtor, one is funding the return that parasitical companies subsist and prosper on. Many of these corporations, such as banks, mortgage institutions and credit banks employ the fraudulent practice of leveraging a client's own money to draw interest on. This usury has been legitimized and become a large part of our economy. These institutions are no better than "payday" loan fronts and participation in this is not only detrimental to one's personal finance but perpetuates a corrupt system.
Credit card companies are a good example. Credit cards are fundamentally a debt currency. Backed by banks, the consumer is allowed to create debt at will, as long as the minimum monthly payments and fees are met. Since banks are performing these services, the depositors of the particular bank, not the bank who never invest their own money, is making the loan to the consumer. It is the bank depositor's money that pays the merchant during the interim between your purchase and your payment. This is a very successful method banks utilize to quickly coup 15 or 20% interest from the depositor's money, rather than slowly extracting 6% on a long term mortgage. The credit bank also utilizes a convenience or transaction fee of 4% on the merchant to be certain they also collect something on that end. Whose convenience might we ask?
Looked at from this angle, you are the credit bank's investment, financed by the bank's depositors, with the outlandish fees, interest and other charges going to the bank. The true supplier of capital for this venture, the depositor, receives the usual two bit low return. Extended credit card balances are not only compliance in this act of deception but extremely detrimental to your finances. Credit card debt should be the first to go.
Often the merchant himself will arrange for consumer debt. Car dealers, furniture stores, almost anyone who sells product on a large scale will offer some kind of financing. The important thing to remember is that consumer debt is just that; the inability of the consumer to afford and pay for what he consumes from his earnings. There are only two solutions, earn more or consume less. Once that is truly understood, the way home is easy.
The largest and most important form of private debt is the home mortgage. Paying down your mortgage, not that long ago considered a common goal, is hardly thought about anymore. Still, freedom from mortgage debt represents the most fundamental source of individual financial security and independence.
Once you have eliminated consumer debt from your life, eventually becoming free of a mortgage payment is a possibility. Most of your advantage in this situation arises out of your purchase, so careful consideration should be given to affordability at the time of purchase. Remember that while a house may eventually turn out to be a good investment, a mortgage is always a good investment, if you just happen to be a bank or mortgage company!
Debt can at times be necessary to provide a buffer of solvency and insure cash reserves and this should be kept in mind. But Non-Investment begins with the elimination of debt. Debt is always a burden and your loss through your payment almost always facilitates the profits, much unearned, of heartless financial conglomerates. Think of debt as devestment: as each moment passes your principal loses value through amortization of interest. You may eventually realize the whole principal, but you will have paid the actual amount two or three times over. Becoming debt free is an investment in ourselves.
A common situation American investors find themselves in is that of creditor-debtor. One might have a home mortgage and also have a 401 K plan at work. While this seems perfectly normal at first glance it actually is fairly absurd. Why would someone want to borrow from a bank and at the same time lend to a mutual fund who in turn invests in numerous corporations hoping the fund will return an amount that ends up being greater than the interest and other costs of the mortgage? Mutual fund and stock returns are "adjustable" and can, as we know so well from recent events, go down or up while a mortgage is either "fixed" or "adjustable", which is another word for "low now and higher later"!
Government intervention is one big reason to be both creditor and debtor. You probably receive an "interest" deduction on your home mortgage interest and are allowed pretax deposits into your 401K. The State is directing our money, paying us to deposit it in certain areas of the financial sector and encouraging us to take two positions simultaneously, at odds with each other, that of creditor and debtor. This is another form of money creation, a way to make the same money work more than once.
If you think this is done for the citizen's benefit you are easily fooled. The mortgage interest deduction is for the benefit of the banks, every dollar you deduct is financed by other taxpayers without the deduction and the resulting calculation enables larger mortgages which artificially bloats housing prices. The IRS favoring certain retirement programs, such as 401Ks, is a payoff to mutual funds and a restriction of our right to invest equitably in what we feel is right for each individual's specific situation.
In this particular commonplace predicament the investor is participating in deceptive bank practices where a depositor is shortchanged when his funds are used to fund a mortgage without the resulting return and also willingly handing over funds that he hopes will be for retirement to an investment corporation that will in turn give them to other corporations who engage in who knows what activities, who knows where? Why not just direct the funds to paying off the mortgage? Definitely a move towards simplicity if nothing else.
Of course, it is important to consider the financial impacts of a move like this and always maintain a liquid reserve for rainy days [or years!]. With stocks and portfolios currently at low levels it may be unwise to cash the funds in at this exact point in time, so prudence is your best guide. Weighing mortgage interest rates and mutual fund return rates, as mentioned above, are important and an adviser [other than your mutual fund representative!] can be very helpful in this respect. For me, not having to be concerned with a fickle stock market I have little love for or faith in and a cartelized banking system I perceive as fraudulent is all the motivation I need to work in this direction regardless of whether I will end up with a few dollars more or less. Sound sleep is very valuable!
The smallest group of investor is that of creditor. These fortunate folks have absolutely no debt and are loaning their funds to others. Undoubtedly the most powerful investing situation, one should think long and hard about where the money ends up. We are compliant and partake in any actions our money takes. When congress votes to fund war, they vote to kill and maim. Likewise, if your money gains return from defense contractors you have helped foster destruction of life and property. Producers of toxic waste byproducts or products are funded by stockholders, investors and banks. It is the simple rule of cause and effect. It may make investing a bit more challenging but there are good places for money to be that still earn a fine return.
Anytime we are speaking of personal investment it would be emissive not to bring up government policy. Under the guise of "caring" for its citizens, the government intervenes and meddles in the investment markets in a multitude of ways. We, and the capital markets, should be left alone to make our own decisions, with the government providing a minimum safety net for those who reach a ripe age and haven't been fortunate enough or never obtained the where with all to provide for themselves when their work life ceased. This approach would cost a fraction of what the government spends now on market subsidies and programs like Social Security which is in actuality a Federal Debt subsidy.
Speaking of, the most fundamental action the federal government could take to aid our investments and our eventual retirement is to provide sound money. This is something which all governments throughout history have had a difficult time accomplishing. It would fall under the category of "non-action" rather than action. Hands off the money supply and miraculously inflation, the enemy of relaxed sunset years for the majority of citizens, would rarely enter the conversation.
But here is the catch 22: without inflation, with our great wealth creation, it would be relatively easy to obtain the means in a relatively short time span to provide for oneself and one's immediate family without fulfilling the grind of a fifty year, forty to fifty hour work week career. For example, if a worker put aside 15%, which just happens to be the "tax" government charges for Social Security, for a period of thirty years he would already have a nice nest egg. A salary of $50,000, a contribution of $7,500 per annum, a "safe" 5% interest rate and thirty years later the result is over a half million dollars. And that is only considering one worker in a society where two per family is the norm.
Add a few more factors to this stew, a sound money policy would most likely bring deflation of prices and the loss of the availability of created fictitious capital would probably push returns up and things might look quite rosy. Not to mention a greatly reduced need for taxes should allow taxpayers to have more money to facilitate investment. The catch 22 is who would lose out: big government and the corporate cartels that monopolize the capital markets and direct wealth away from the producers towards the moneychangers! The exact same people responsible for the decision making in this area!
To summarize: debtors can only prosper by striving to unburden themselves. Debtor-Creditors should analyze their position. Is it more advantageous to transfer credit and rid yourself of debt or is the return and tax breaks enough to justify your present situation? And creditors have the most freedom to follow their ideals. They can choose who will benefit from their funds without the fear of being swallowed by debt.
The original meaning of invest was "to clothe". Make sure your own clothes are comfortable and long lasting and once that is achieved you can concentrate on whether the "clothes" you are helping to provide for others [in exchange for a return] are fashioned to your personal value system. If that isn't happening, it might be time for some new threads!
The views expressed in this
article are those of Gene DeNardo only and do not represent
the views of Nolan Chart, LLC or its affiliates. Gene DeNardo is
solely responsible for the contents of this article and is not an
employee or otherwise affiliated with Nolan Chart, LLC in his/her role as a columnist.
Want to comment on this
article? Leave your comment here. Your email address is
required to track your comment. However, we will neither
publish your email address nor distribute it to other
organizations or persons. The only reason we might use
it would be if we needed to contact you regarding your
comment. All comments are subject to our
terms of use policy.
