Hard Truth Week in Review – Uncertain Recovery Edition
Chicago’s rejection by the U.S. Olympic Committee may be a metaphor for what’s happening with our economy: our belief that we were in the early stages of recovery was actually wishful thinking. The terrible news about unemployment continues unabated by the effects of stimulus spending. As the Penny Jobs blog wrote this week, a jobless recovery is no recovery at all. Now for some more reading suggestions:
Although economists in government have not exactly been stellar performers in recent years, I still enjoy reading the comments of those on the outside. In this round table discussion from the Economist, the idea that certain institutions are “too big to fail” is really more about being “too connected to fail.” Politics trumps all.
Personal Finance Advice wrote about life of owning a house with no mortgage. I enjoy the comments on posts covering mortgage payoff. On commenter argued this:
So if you have a fixed rate of 5% and you assume long term inflation of 2%, it is really only costing you 3% per year to carry the debt. Can you find long term investments that can beat 3% interest? I think I can.
So if I follow this logic, we should all be borrowing as much as possible at 5% on an extended payback program because inflation makes it free money. That argument makes a lot of dangerous assumptions. Here are four: (1) That you will remain gainfully employed throughout the borrowing period, with no disruptions; (2) that your income will keep pace with inflation year after year; (3) that you can find secure investments with a guaranteed real return (after inflation return) of 3%; (4) That if you want to sell your house and move, you will have enough home equity to make that happen. Now consider what has happened just in the last 18 months and tell me how valid those assumptions are. I rest my case.
Budgets are Sexy published a round-up of comments from folks who have been ridiculed for their frugality. Being a contrarian myself on many personal finance issues, I know what it is like to be a target of the “normal” people.
Enjoy the rest of your weekend.