From the Editor’s Desk

Gary Foreman

Finding and Keeping a Balance

Hello to all my Frugal Friends!

It’s fairly common knowledge that our bodies are largely water. About 60% overall and 73% of the brain and heart. Without drinking any water you would die in about 3 days. So water is vital to your life. But we also know that too much water or water in the wrong place (our lungs) can kill you. (source: Medical News Today)

What’s the point? Balance! Like so many things in life, keeping a balance is the key to success and avoiding bad consequences.

Take debt for instance. Very few of us could afford to buy our first home without a mortgage. We believe that particular debt is a good thing. At the same time we know that if we can’t pay our credit card bill in full each month, we’re accumulating bad debt.

So, hopefully, we can agree that there are some things that are good for us, but only if they’re not taken too far. That’s true in life generally and in our finances.

Let’s take that information and apply it to a couple of the questions of the day.

Two current debates come to mind. First, how much aid can the federal government send out without ruining the value of our currency and damaging the economy permanently? Second, how quickly and under what circumstances should areas of the country open up for business?

Let’s look at the first. We all want to help those who have lost their jobs and their businesses to the virus shutdown. That’s simple human kindness.

To help those suffering economic damage from the virus, the federal government has created a number of stimulus packages. The goal was to send money to those who have lost their jobs and small business owners who had to close down or reduce their business. Both good goals.

You can argue whether they did a good job of getting the money to those who were most in need. But that’s not a topic for us today.

The amounts are numbers too big for most of us to understand. The March package was $2.2 trillion. To put that in perspective, the ENTIRE federal budget didn’t top $1 trillion until about 30 years ago. So the bill that was just passed was twice as big as the whole federal government in 1990.

My concern is that the federal government doesn’t have the money to give away. They’re creating it out of thin air. It has to do with how the Federal Reserve lends money to banks, but in its simplest terms, they’re just printing the money.

Some in government say ‘so what’? They’ll claim that we owe it to ourselves. That’s not only not completely true (the Chinese government owns over $1 trillion in federal government bonds/notes/bills). But the ‘we’ that will have to pay the bill are our children and grandchildren.

But beyond that, there’s a more current price to be paid. That price is inflation. Here’s a definition of inflation. “As prices rise, a single unit of currency loses value as it buys fewer goods and services…The consensus view among economists is that sustained inflation occurs when a nation’s money supply growth outpaces economic growth.” (source: Investopedia.com)

Right now the shut down has reduced economic output. There are fewer goods and services being produced. So there’s no economic growth. In fact, there’s contraction. At the same time, we’re increasing the money supply. That increase may be necessary for the immediate crisis to avoid a depression, but should be kept to the minimum necessary to help needy people and small businesses.

There’s also an inflationary price to be paid later. Anyone who has saved money will be hurt. The money that you’ve saved over the years will be worth less because of inflationary price increases. What would provide a comfortable lifestyle or retirement today may be inadequate tomorrow.

Any further stimulus needs to be weighed carefully by all sides. To simply fire up the printing presses without concern for the consequences could cause serious problems later but might also make it harder to survive the current crisis. Remember that the crisis isn’t over until the virus is over AND the economy recovers. Any steps taken now need to keep that in mind.

So can the federal government keep printing more money for more stimulus? Yes, they can. But there will be a price to be paid. And, it might be a very large price indeed.

Now for the second question. The extreme on one side says that you shouldn’t reopen anything until there’s a vaccine or a cure for the virus. On the other extreme there are those who say open up everything right now and let the chips fall where they may.

What’s the balanced position? Let’s start by defining the problem. Unlike much of the media, I don’t think that it’s the economy vs. loss of lives. I think a better way to define it is what course of action does the least amount of damage (medically and economically) and does the best job of protecting as many people as possible.

Let’s agree that every life is valuable. That’s a given. None of us want to die or lose a loved one. But let’s also acknowledge that none of us will live forever. We all have to die at some point. So it’s not possible to keep everyone from dying. At least not in this world.

Let’s also acknowledge that we can’t keep the economy shut down indefinitely. Each day/week/month that we keep quarantined, we do a little more damage to the economy and everyone’s ability to earn a living. And the longer we quarantine the longer it will take for the economy to recover.

And it’s not just the general economy. The quarantine is hurting individuals. Very few people have an emergency fund that they can fall back on. Small businesses may close and never reopen.

That causes stress and other side effects. “The growing unemployment crisis, the stress of self-isolation and the fear of contracting the novel coronavirus are likely to lead to as many as 75,000 deaths due to drug or alcohol misuse and suicide, according to an analysis conducted by the national public health group Well Being Trust and reported on by CNN.” (source: EcoWatch.com) Let’s call that collateral damage.

Another relevant fact is that the virus is most deadly for the elderly. Especially those with other conditions, primarily heart and lung issues. Very few younger people have succumbed to this virus.

A final fact to consider is that it’s unlikely that we’ll have a vaccine or cure for the virus for a number of months. Perhaps later in 2020? 2021? Nothing on the immediate horizon.

OK, so what’s the balanced position? It’s not either extreme position. I’d argue that it’s various locales determining their risk factor and gradually opening up as appropriate. Taking steps to protect the elderly and those with cardiovascular issues.

Let’s cautiously open places where incidence of the virus is low. Let’s let people who are young and healthy get on with their lives. Monitor those areas to see if the virus is spreading.

Once again let me say that the crisis isn’t over until the virus has passed and the economy has recovered. That’s not going to happen quickly. So let’s encourage our leaders to take responsible steps that will protect the greatest number of people and do the least amount of damage.

I understand that some people will say that I’ve left the financial realm and ventured into politics. In response I’d argue that I’m discussing how we live and that politics can have a huge influence on that. You may not agree with my analysis. And that’s your right. But don’t disagree because you don’t like the politics. Disagree because you can disprove the facts or the logic.

We may not all agree on what action is appropriate. That’s unavoidable. But we can avoid some of the name calling and anger that’s becoming more prevalent on some social media, cable news and websites. This is not time for that. The louder our voices the less likely we are to come through this crisis with minimal damage.

Keep on Stretching those Dollars!
Gary

Watch Out for Herd Mentality

Hello to all my Frugal Friends!

Lately we’ve be reintroduced to a previously little used word – herd. Since it’s a bit uncommon, I looked it up. It can be used as a noun (a large group of animals, especially hoofed mammals, that live, feed, or migrate together or are kept together as livestock). Or as a verb (1. move in a particular direction. 2. keep or look after livestock).

We’re seeing herd being used in the phrase ‘herd immunity’ which means “a form of indirect protection from infectious disease that occurs when a large percentage of a population has become immune to an infection, whether through previous infections or vaccination.”

Sometimes two separate, distinct ideas come together to create a new third thought. That happened to me with the word herd. Let me explain.

When I think of herd, I remember a book I read when I was a rookie stock broker in 1982. It was called Manias, Panics and Crashes: A History of Financial Crises. Reading it convinced me that there were times that people would act like a herd – everyone running in fear or greed in the same direction. And, that when that happens, they’ll make very bad economic decisions.

We’ve seen some evidence of herd mentality in the virus response. I won’t go into the medical issues because I have no expertise there. But I did recognize that rushing out to buy toilet paper was a herd reaction. The media loudly and often screamed “shortage!” Sure there was a temporary shortage, but it wasn’t likely to last long. And, it didn’t. The herd wasted time, effort and money.

For the past few weeks, the media has been all about a meat shortage. Yet just this morning I bought a beef roast at my local grocer. And I could have bought pork, chicken, and fish if I wanted.

To be fair, some things weren’t available, like some specific cuts of meat or my favorite muenster cheese. So I bought a little larger roast and some colbyjack cheese.

What’s my point? In this virus environment we’re wise to watch out for herd mentality. The media is perfectly willing to stir up a panic. It profits their bottom line.

We need to think through what they’re hyping. A few weeks ago I wrote a piece on shortages and how the supply chain affects them. You might find it informative.

Whether the hype is over the virus’ spread, shortages or economic forecasts, we should examine and evaluate the situation before we get herded into a panic. We’re fools if we get overly worked up and stand in line to buy something that will be available shortly.

We also need to recognize that even the experts get things wrong. Just because someone with letters after their name says something on TV doesn’t make it fact. Remember when they told us 2 million Americans would die from the virus? That caused unneeded fear.

Note that I’m not saying that we shouldn’t be appropriately cautious. It would be foolhardy to pretend that we didn’t have a dangerous strain of virus out there.

But I am saying that we shouldn’t let the news or the so-called experts herd us into a panic. Not only will that cause us to waste money, but it’ll also cause unnecessary stress and worry.

Finally, an addition to last week’s intro on reading product labels. I learned something new thanks to Barbara K. I wasn’t aware that there was a code for country of origin. Made in USA are codes 100-139. Made in China codes are 690-699. source: wikipedia.com. I haven’t had a chance to research how to read the barcode. I’m also not sure if the ‘country of origin’ is where something was made or just where the company is headquartered. So if anyone has knowledge on those subjects, please send me an email.

Keep on Stretching those Dollars!
Gary

It’s Time to Look at Product Labels

Hello to all my Frugal Friends!

I have a confession to make. It won’t surprise anyone. For all of my life (especially for the last 25 years with The Dollar Stretcher), I’ve focused on getting value for my money. Often that meant finding the lowest price for an item.

Along the way I learned that price wasn’t the only thing to consider if you wanted value for your money. Depending on the item and how you planned on using it, sometimes quality and durability were equally, if not more important, than price. For instance, a cheap washing machine that won’t last isn’t a bargain. Especially if you have a large family and lots of laundry.

Recent events have caused me to add something new to my product comparison – where an item was made.

Last week I wrote about Just In Time (JIT) inventory management and how it was effecting shortages in the economy (see What You Need to Know about Shortages). JIT means that there’s rarely a large supply of anything sitting in a local warehouse. Only a small supply is waiting for immediate delivery.

This isn’t so critical if you’re talking about t-shirts made overseas. If there were a shortage of t-shirts, we’d probably all survive without losing sleep.

But other items are more critical. For instance, our food supplies, medical supplies and other essential items. We can’t afford to be without them for an extended period.

JIT inventory assumes that there’s a small supply that can be quickly delivered. That might not be true if the supply is coming from outside the country. That should be a concern for all of us. It’s reported that critical medical supplies are only available from overseas. That shouldn’t be.

What can you and I do about it? The easy answer is to demand that Congress pass a law. And, we should do that.

But we should also take steps as consumers to encourage businesses to buy domestically. We can do that with each purchase we make. Look at the label to see where something was made or processed. Ask the question. Even if you’re buying online, you can contact the store. It only takes a minute. Choose domestic products wherever you can.

It’ll take a little extra effort. And sometimes cost a little bit more. But I see two major benefits. First, you’ll be helping to keep a neighbor employed. Second, you’ll make it easier to avoid supply chain shortages like what we’re seeing in the meat isle today.

Can any one of us do it alone? No, we can’t. But if enough consumers begin to buy American and find out where our products are made, smart stores will begin to get the idea and join the effort. I know there have been rumbles about the country reopening after this trying time, you can even find a list of which states are reopened, or at least, will be opening in the near future. However, we still have to keep our heads on and look out for each other.

Keep on Stretching those Dollars!
Gary

About the Author

Gary Foreman is a former financial planner and purchasing manager who founded The Dollar Stretcher.com website and newsletters in 1996. He's the author of How to Conquer Debt No Matter How Much You Have and he's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, Credit.com and CreditCards.com. Gary shares his philosophy of money here. Gary is available for audio, video or print interviews. For more info see his media page.

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