Someone once said “there’s no such thing as a free lunch”. They lied. With $50,000 a year, you can buy yourself 5,000 free lunches thanks to the generosity of the government! What are you talking about, I can hear you thinking. It’s pretty simple really. In addition to giving struggling homeowners a free $50,000 over a course of 5 years, and 99 weeks of unemployment benefits (which we might as well extend to 5 years in my Shock & Awe Yeah! program), the Obama administration has now announced they will require mortgage companies that collect loans backed by the Federal Housing Administration to offer 12 months of forbearance for qualified unemployed owners! In other words, if you qualify, you don’t have to pay your mortgage for a whole year! Is that not sweet sugar or what?!
Think about this scenario. You unfortunately lose your job in 2010 due to a cut in your entire department. You own a home but don’t have much savings to hold you over even though you should have been saving and investing for the past 20 years. The 10% you put down for your home basically wiped out your cash reservers, but you didn’t care because your three kids and spouse deserve the best.
You can literally get 99 weeks of unemployment benefits, a free $50,000 from the government, $3,000 a year in child tax credit and not have to pay your mortgage for a whole year if you qualify! The maximum unemployment benefit is around $1,400/month. Let’s say your mortgage is around $1,800 a month. That’s $38,400 in income you get to receive from the government a year. Add on the $10,000 a year free gift from the government for 5 years, plus the $3,000 a year child tax credit, and that’s equivalent to earning a fantastic $50,000+ a year!
I don’t know about you, but I sure as heck wouldn’t mind receiving $50,000 a year in free assistance from the government. With the median US household income of roughly $50,000 a year, the temptation would be incredible not to work and just spend time traveling or hanging out with family. In essence, “making the most of unemployment” might have some different meanings for different people!
To put $50,000 further into context, you can basically change the figure to equal whatever you are making since $50,000 equals the median US household income. Hence, if you live in Manhattan or San Francisco, where incomes frequently breach $200,000 a year, can you imagine getting a free $200,000+ from the government? Oh man, no wonder why despite all the doom and gloom from the media about unemployment, the malls and restaurants are packed, traffic is horrendous, and real inflation is much higher than expected due to so much demand and spending!
WHEN WILL THE GOOD TIMES END?
We all know that 2012 is a key election year, and the most important thing a politician wants is to get re-elected and maintain power. Therefore, it is perfectly rational that the Obama administration is trying to buy votes with your taxpayer’s money. Remember, as Milton Friedman said, it’s easiest and most fun to spend other people’s money on yourself! I can understand this, and so does everyone else. The question is, when will the madness really end? When will we start helping the unemployed find jobs, instead of just giving them money?
The solution is compelling small businesses, which account for 70%+ of new and existing jobs to start hiring again. If you are a small business, you are currently shell-shocked by all the new taxes being imposed by the state and federal government. Not only that, you’d rather make due with what you have and work a little hard because you fully expect taxes to go up in 2012 once Obama gets re-elected. Let’s lower taxes for new businesses instead. The SF city government did a smart thing by freezing the 1.5% payroll tax of total employee compensation for companies with over $250,000/year in payroll because if they didn’t, Twitter and its entire staff would simply move. Taxes are suffocating because States have mismanaged their budgets!
The REALLY good times will end when Obama gets re-elected in 2012. Thanks to the eradication of Osama Bin Laden and all the bailouts that will be offered up to election night, another 4 years is almost a certainty. Once elected, there will likely be more programs and taxation aimed at redistributing wealth. We need to embrace this fact that our fiscal responsibility and hard work will be siphoned away to those who have been more reckless or simply unlucky. It’s just the way it is. We should help our brothers and sisters out.
Moral hazard is here to stay so long as we keep offering people incentives to take asymmetric risks. Hopefully many of us can take advantage of the government’s generosity with other people’s money. At the same time, it behooves you to try and pay as little taxes as possible because you know the government is fiscally irresponsible. If the government was a normal citizen, they’d be thrown in jail long ago because they stolen from Paul to pay Peter for way too long. Stealing is wrong, at least according to the Bible, Tanakh, Koran, the Dhamapada and thr Hat In The Cat.
In the mean time, let’s safeguard our finances and keep chanting, “USA! USA! USA!!”
Recommendations For Protecting Your Assets And Saving Money
* Check Your Credit Score: Take a moment to check your free TransUnion credit score through GoFreeCredit.com, a company I trust. 30% of credit reports have errors, which could put a serious hamper on your refinancing or new loan borrowing abilities. I had a $8 late payment I didn’t even know I owed crush my score by 100 points come up during my last refinance! The average credit score for rejected mortgage borrowers has risen to 729 due to more stringent lending requirements. Do you know what your score is? If you don’t want the credit monitoring service, simply cancel before the grace period is up.
* Manage Your Finances In One Place: The best way to become financially independent and protect yourself is to get a handle on your finances by signing up with Personal Capital. They are a free online platform which aggregates all your financial accounts in one place so you can see where you can optimize. Before Personal Capital, I had to log into eight different systems to track 25+ difference accounts (brokerage, multiple banks, 401K, etc) to manage my finances. Now, I can just log into Personal Capital to see how my stock accounts are doing and how my net worth is progressing.