A couple quick links...

So, what does a trillion dollars look like?

Like this.

Well, unless you're in Zimbabwe.

Just to follow up on that last post...

The crisis explained in one chart

This chart compares total debt (or “credit”) in the U.S. to GDP (or Gross Domestic Product) on a percentage basis. Current total credit-market debt stands at more than 340 percent of total GDP.


So that big spike in the 1930's was during the Great Depression. But it wasn't a run-up in debt that caused that spike. It was the GDP contracting out from under the debt value. (Remember this graph is debt/GDP ratio, so if you shrink the bottom half of the fraction, the line goes up.)

In the current crisis, up until now at least, GDP has not been shrinking. At least not much. The spike is because our debt is increasing. The remedy, supposedly, is even more debt. The line goes up. And what if our economy shrinks and our GDP declines? (What if!) Yes, the line goes up. Put them together, and.... well, hang on, we're already off the freakin' charts here. We're gonna take that line in the red oval, and cause it to spike?

Crap.

Our government is insolvent.

And I was really hoping for some nice tax rebates for solar panels and hybrid cars. And a functional health care system. And money for retirement. Oh well, maybe next time.

So start picking out names for the new country you and your neighbors will be forming.

A few thoughts when you're drafting up new laws: Don't give corporations the same legal status as individuals. Don't let bankers be in charge of banking regulations. Don't let chemical companies be in charge of agricultural policy. And don't have an electoral college.

Feel free to add your own suggestions.

--

Not Investment Advice

I discovered something interesting yesterdayL There are mutual funds that are designed to do the opposite of the stock market. In other words, if the Dow goes down 3%, this fund might go up 3%. Or some will target double the difference. So if the Dow goes down 3% it goes up 6%. Of course this is dangerous, because if the Dow goes up 3%, you lose 6%.

They're called "inverse index funds," or sometimes just "bear funds".

I always assumed you had to be connected and rich to do this kind of stuff - you know, people who can afford to buy into hedge funds, or at least pay an expert stock broker to hook you up with margin accounts and derivatives and other investment voodoo. And all that incomprehensible stuff is what made the financial world such a mess in the first place. Turns out, it's not that complicated. In fact, it's as easy as putting money into a mutual fund. It is putting money into a mutual fund.

Of course all this assumes that the investment bank operating such a fund doesn't go belly up. One person I know lost more than most people get paid for a year's work, on a "safe, conservative" investment managed by the now defunct Lehman Brothers. Poof.

Truthfully, I wouldn't have any money in the market at all if I could help it right now. But I do have half a career's worth of retirement money, which cannot be withdrawn as long as I keep my job. I don't enjoy the idea of profiting from the misfortunes of others, but I also don't enjoy the idea of losing our house.

Though I can't withdraw the money from my retirement account, what I can do is part ways with the pre-packaged investment models ("aggressive", "moderate", "conservative") and even the pre-determined mutual fund list. I have the option to do something called a self-directed brokerage account with my 401k. "Ask about it at work!"

I'd still rather get out completely, but thanks to this small piece of luck (the self-directed brokerage account option), I can at least invest in any mutual fund or stock I want. Or cash. The vast majority of my account has been sitting in cash for more than a year now.

I did some homework, read some books, and was doing pretty well for most of the year - treading water if not coming out slightly ahead ... which is unusual given my poor history of investing. I worked for WorldCom. Nuff said.

Anyway, since right now everything is deflating in value, the fraction I had invested is getting beat up along with everybody and everything else. And I'm not an optimist when it comes to the financial markets. The Powers That Be are using the "kitchen sink" strategy, and things are getting worse instead of better. Auto behemoth General Motors has been given a price target of zero dollars per share by at least one ratings agency. The US Postal Service is about to have its first ever layoffs, to the tune of 40,000 people. Circuit City is praying for a Christmas Miracle to save themselves and all the malls they inhabit. The USA may lose its all-important 'AAA' credit rating, while other countries (entire countries) are on the brink of bankruptcy.

But then, you already knew I have some doomer tendencies.

I've had to accept the fact that I just can't be too attached my retirement funds at this point. But as long as they're held captive anyway, and as long as things look so bleak in the financial markets, let's just say that something called DXD is my friend.


Just remember: Don't ever, ever take stock market advice from a blogger. Or a stock broker. Invest in useful, durable stuff, garden tools, seeds, debt reduction, and family.

--

Secondhand Baby

One day when e5 was particularly frustrated with his sister, he wondered if we couldn't just be done with her and trade her in at the local thrift store. And you know, there are days...

But that's not where I'm going.

Our baby... The new one... The one that's due in a little over a month...

(Jess, since you asked - so far everybody's doing very well, even if the little guy is spending most of his days and nights either having hiccups or playing kickety kick ball. No stories to tell because everything is going just swimmingly on the baby front. But don't worry, the stories will come...)

Anyway, nothing but the best for this kid. We've gathered together the finest hand-crafted mahogany crib suite, with embroidered silk bedding and matching curtains, a personal HD DVD player with satellite link to The Baby Channel... you know, all the usual stuff. And since we sold or gave away all of e5 and Amelia's stuff the last time we moved, we had to buy it all again new.

Of course, you know I'm lying. This poor kid is going to live a deprived, unfulfilling life, and we'll have huge counseling bills when he reaches his teenage years, because as far as I can remember, we have not bought a single thing new for this kid.

My friend Morgan is Central Hub for Baby Things. If you have baby stuff you don't need, let Morgan know and she will either take it or find it a home. On the other hand, if you need baby stuff, ask Morgan and she will deliver a small truckload. If she doesn't have it, she finds someone who does. She remembers who's having a baby and who's kids are old enough to be outgrowing their baby gear. And she knows a lot of people. I kind of think she should start a business doing this and charging money for it. Everybody needs a Morgan.

I mean seriously, how much wear does a pair of baby pants actually get in the two months it spends occasionally adorning a baby? What is the life expectancy of a crib? Do baby-themed lamps routinely stop working when the baby outgrows the nursery decor?

After we combined Morgan's services with the local thrift store, Craigslist, Freecycle, and the occasional yard sale, we've got a crib, a mattress, bedding, gender-appropriate and gender neutral clothing, a huge pile of onesies, a breast pump with all accessories, blankets, a front carrier, a sling, a swing, baby monitor, bouncy seat, booster seat, car seat, pack-n-play... heck, even a pile of cloth diapers.

Once again, you can call it green, or you can call it frugal. Wise, pragmatic, or just plain cheap. I don't think this kid's really gonna care. He'll have his hands full just trying to navigate his way among his crazy siblings and his wacky parents.

--

Frozen assets

When we started this little farmlet adventure, we knew that there would be some expenses up front, and some ongoing expenses for a while. But due to some combination of inexperience, ignorance, impatience, poor planning, and bad luck, we exceeded whatever budget we had set aside. We accumulated more credit card debt than we were comfortable with. Call it farm college tuition.

We also killed two pickup trucks in the space of a year. And we found that we didn't have sufficient storage space for the various items (like hay) that we needed to keep things running smoothly.

An uncomfortable position: Too much debt and a couple significant expenses staring us in the face. What to do, what to do?

Well, we've been doing a variety of things to cut expenses: conservation, a big veggie garden, eliminating some discretionary spending, exploring local thrift stores, bartering, etc. But we were still slated to give a good bit of our money to the bank, in the form of interest, for a good while. So we looked for some creative options.

Thanks to some good advice very early in my career, I began contributing a tiny percentage of my income to a 401k retirement account. Through the magic of compound interest, over the years it grew fairly big. [According to Wikipedia, if the Native American tribe that accepted goods worth 60 guilders for the sale of Manhattan in 1626 had invested the money in a Dutch bank at 6.5% interest, compounded annually, then in 2005 their investment would be worth over €700 billion (around US$820 billion), more than the assessed value of the real estate in all five boroughs of New York City.]

Of course, since the money in question is intended for retirement, and since you don't pay income taxes on it, they make it pretty hard to just take that money and do whatever you want with it. If you try to take it out, if you're even allowed, you'll usuall forfeit more than half of it.

While I can't take the money out of the retirement account, I can take a loan against it. What's the difference? Well, there are several good things and a couple bad things.

First, the good:

• We'd be paying interest to ourselves instead of some financial institution.
  
  
• It provides guaranteed interest to my retirement account. With the stock market at all-time highs despite a variety of what look to me like huge risk factors, I moved my retirement money out of mutual funds into a "cash" account, because I'm not confident that the market will go forever upward from here. Buy low, sell high and all that. A loan would mean that my money was earning a fixed rate - granted it's coming out of our own pockets, but that's a fair trade-off to me.
  
  
• If something goes horribly wrong and I lose my job or can't pay off the loan, it apparently doesn't affect my credit, since it's my own money.
• Since the payments are taken right off the top of my paycheck, which fits in with the debt reduction maxim of "pay yourself first."
  

Now the bad:

• If I do lose my job, or change jobs, the remainder of the loan comes due.


• If I can't cover the remainder under such a circumstance, there's a big tax penalty.


• My employer only allows one loan at a time, which means we can't borrow from it again until this one is paid off.

The ideal solution would be not to have debt. But we do. In fact, we're adding a little more with all this, though our monthly expense will stay the same.

We'll also have a simple pole barn, a somewhat more reliable truck, and no credit card debt at all. In fact, as of right now, outside of our mortgage, the only interest we'll be paying on debt will be to ourselves. And hopefully in five years, the mortgage will be the only one left.

But remember, I'm not a financial expert. Far from it. Never take financial advice from random people on the Internet.

So what's with the photo at the top? That's our credit card, sequestered in a block of ice. If an emergency comes along, we can use it. Until then, it'll be in the freezer.