Thursday, August 18, 2011

Shelter - It's the Best Security

The teaser link for this article said: Headed for Recession?

And as I clicked on the link to display the article (the headline of the actual article is: Economists see growing risk of global recession), I was wondering when the recession we've been in for the past several years ended.

Three years ago, I recognized that what we were experiencing would have widespread and long-term effects - essentially, history in the making. This, whatever we want to call it, is changing life as we know it. As such, I started documenting, here on my blog, in a journal, in my book, and by printing pertinent news articles.

On August 15, 2008 a CNN.com headline read: Dreading winter's bitter bill: Heating costs are expected to climb this winter putting additional pressure on Americans already hurt by high gasoline and food prices.

I picked up a copy of one of those free local papers yesterday, because the head line caught my eye. It said: Less help, more need: Food pantries fear heating season could strain supplies.

Three years ... and the headlines are still the same.

But the media is acting as if this is all new. It's not. It's been happening for a lot of years, and it's been coming for even longer. In 1981-82 we experienced a "Recession" that lasted (according to one of the articles I printed) sixteen months. The article, published in March 2009 stated that if the current "recession" lasted into April - as it most surely will - this one will go on record as the longest in the postwar era.

I read the same media fluff that other people read, and then, I take a look outside, and I talk to people, and I read blogs, and I know that any discussion about a recovery is really just wishful thinking. We haven't and aren't recovering, and that article about a global recession being news, as in something new, isn't. The rest of the world is in the same shape as we are.

Riots and civil unrest in the Middle East recently were a direct result of increasing food prices that are due to a rise in the cost of growing and transporting food AND a result of widespread crop failures due to unsettled weather. In short, there's less food available in some parts of the world, and the food that's there is more expensive.

It would not be entirely correct to describe what my family and I have been doing as "preparing" for this sort of thing, because prepping implies that we're getting ready, and really it's a little different. We are aware that our world is changing, and in response to these changes, we've been changing the way to we live our daily lives.

The day of the most recent stock market crash (because the stock market has had more re "accidents" recently than a Crash Test Dummy), Deus Ex Machina came home from work. One of his co-workers has been paying into a 401K - with no employer matching funds - for nearly twenty years. When the market fell, he lost half of his savings. Half of a lifetime's worth of his money. It couldn't have been more tragic if that money had been cash, stored under his mattress at home and then he suffered a house fire.

Gone is gone.

But we all believe that, unlike a house fire that burns up the cash, at least with the stock market, there's a chance that we'll be able to recoup some of the lost funds. People who play the stock market (and think about that phrase for a second) will say things like "you're in it for the long-term" and "the stock market isn't a short-term thing."

The best piece of advice I've ever seen with regard to playing the stock market is don't invest more than you can afford to lose.

In other words, it's okay to put that money into stocks and hope that, over the long term, that money will increase, but if it doesn't, it shouldn't be a devastating loss.

Unfortunately, when it comes to a 401K or an IRA (or social security), that's not the case. People who have invested those funds are depending on having those funds for their future, when they no longer can or no longer wish to work.

When I graduated from high school, as is the tradition, my family members gave me a lot of cash. The hope was that I would use that cash to purchase things I'd need for college in the fall. I went with a date to the traveling carnival that had set-up in the field next to the county high school. It was the usual carny-fare - bright lights, loud music, questionably safe rides, questionably safe food, and the games.

I'm not a gambler, but the boy I was with was, and even better that he didn't have to gamble his money.

The game was some kind of bingo-like dice game. I'm not good with high-pressure sales people, and really, carnies are the best in the world. They know exactly how to keep us playing the game ... and just like their more high-paid counterparts on Wall Street, their promise of fortunes to be made if we just keep investing, keep giving them money, is intoxicating. The lure of easy money is as enticing to us as one of those jiggly things that hooks so many fish.

"So, you can walk away and lose it all, or for just two more dollars, you can keep playing, and this time, you'd win ...."

I hesitated. I was trying, desparately, to keep track of all of the $2 I'd given him. I was pretty sure it was somewhere near $60.

"Come on," my date encouraged. "You could win $300! It's just $2."

Just $2. That's right. Just $2.

I opened my wallet and that fat stack of cash I had entered the fairgrounds with was suddenly incredibly emaciated.

"I can't. I'm done."

"What?" both men exclaimed, in unison. "You can't stop now," my date was saying. "You're just going to walk away from all that money." I swear his brown eyes had turned green in the twenty minutes we stood there.

"Yes. It's time to go." I smiled weakly at the carnie. He was good. He could have made millions in a different play ground.

I entered the carnival with over $100. Like our friend who played the stock market, I left with less than half of my money left in my pocket.

Never invest more than you can afford to lose.

On the morning of the most recent stock market crash, when Deus Ex Machina's co-worker checked his balance, he said to Deus Ex Machina, "The rules have changed, but we don't know the new ones."

Indeed. Unfortunately, too many of us may never figure them out.

As for me, I'm tired of playing the game. Since my first experience at carnival games, I have never again been tempted to repeat the fiasco. I know that I will not be permitted to win. Taking my money is how they earn a living, and we can think what we will about the ethics of their chosen profession, but I stood there, consciously, giving him $2 and $2 and $2, until there was very little left in my purse. He didn't steal that money from me. I gave it to him, in the hopes that I could make a fast buck, in the hopes I could get something for nothing. My greed was no less odious than his. I was not a victim. I was an active, and willing, participant, and that the outcome was bad for me was no one's fault by my own. I could have stopped giving him my money, and eventually, I did.

I would have done better, though, to have never allowed my desire for more than I was entitled to color my good judgment.

That's the lesson of the stock market. The average investor, the guy with the 401K, is not going to make a lot of money, and if history is to teach us anything, we should learn that, for the most part, the guy with the 401K will be lucky to retire with half of what he tried to save over a lifetime of working.

There is one thing we can do with our money to secure our futures, however, and that's to pay off our homes. History teaches that those with a place to live during the worst financial crises will come out, if not the victor, at least a survivor. I've mentioned Dmitry Orlov's Reinventing Collapse on a couple of occasions. A really important example he gives to illustrate why Russia was better situated to weather a collapse than the US is the fact that the Russians had housing. They weren't displaced when they lost jobs, and the lucky ones, who also had a small yard, had a place to grow some food.

I've had a lot of discussions over the years with people about whether to use their cash to pay their mortgage, and I always hear the same sorts of answers about how, as an investment, paying off our homes is a bad choice. The first thing we need to change is the idea that our homes are simply investments.

In this country, the fact is that there is no place we can live, mostly free, unless we own our homes (and I say "mostly", because there is still a tax on any property, but compared to rent or a mortgage, it's negligible), and if something happens to our income, the first thing we stop being able to afford is our rent or our mortgage.

I know I must be missing something, because no economist would EVER recommend to pay off the house and *then* start saving toward retirement. I've never even had a class on economics, and so I guess I just don't understand how it all works.

What I do understand, though, is that I need a place to live, and if I can live there, mostly, free, then I end up having a lot more money for other things - like food ... or heat.

Investing our money in the hopes that we might reap some benefit can only be seen as a fool's errand (as in a fool and his money are soon parted).

But our homes. Paying off our homes, owning the place where we live. That's something real ... something tangible ... something that will serve as a buffer against hard times.

We've been duped, as a society, by con men and glorified carnies.

The rules have changed, but we don't know what they are. The best thing we can do is to refuse to continue playing.

2 comments:

  1. This is the thing - I don't think I'm particularly smart, particularly savvy, particularly well connected to sources of real news. Nor was a brought up with a deep abhorrence for debt. But I think most ordinary people can, like me, feel it in their bones that something is deeply amiss in our economy. Maybe as you say, the rules have changed and we can't understand or articulate exactly what is happening or what the facts are. But we KNOW there's something wrong. We know we haven't been in a recovery in any real sense of the word these past three years. Which only makes me wonder at the power of the media to whitewash said reality. After all, it's not as though we're being helped to see things clearly. Or is it perhaps that it's different up there among the clouds? Could the past three years really have looked like legitimate recovery to those at the top of the heap? I don't know.

    But I know I'm glad I closed my IRA's last year and put what little was in there towards the mortgage. It means I haven't lost anything this past month, and that we're that much closer to being debt free. We're getting close enough to taste it!

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  2. I have to agree with you. Food, water and shelter are the most important elements of survival. We're still trying desperately to buy a short-sale home that will be on 3 acres of garden...I mean land ;) The house is being sold to us for less than it is actually worth (or at least less than the seller owes on his mortgage). It's big enough for all our needs, and even big enough to rent out a room or two if times dictated that necessity.

    We found out this year something that you never hear about on the news or even from your bank: if you pay your mortgage in 2 monthly payments instead of 1, you save THOUSANDS of dollars over the life of your payments on the cost of your home. For example, if your mortgage is $900/mo, you can pay $450 near the beginning of the month and then another $450 in the middle of the month - so basically you are making payments of $450 every 2 weeks instead of $900 every 4 weeks.

    This saves you money because, since interest is compounded daily, you whittle away at your principal more often. This means that it is possible to pay off your home in, say 20 years instead of 30, without increasing the amount you pay out each month by a single penny. Something to pass along to friends, to be sure.

    Anyway, I just wanted to say that I agree that owning your home and car outright is the New American Dream (as Suze Orman says). Living within our means and living our lives so that we ensure we have what we need for years to come. Now THAT is security.

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