Exposing the Federal Reserve – A Must See

It is hard to imagine a more stupid or more dangerous way of making decisions than by putting those decisions in the hands of people who pay no price for being wrong. ~ Dr. Thomas Sowell

This video covers a 100+ years of banking history in under 30 minutes. Very well done.  A must see.

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How to Get a Stellar Credit Rating

You will never be as good as you are as when you are broke. ~ Carl Weisman

I recently went to purchase some bedroom furniture from one of the national retail chains. They had a deal that was too good to turn down. The deal was, if I applied for their in-store credit card and put my purchase on that card, I could take up to one year to pay it back, interest free.

I did not need to the put the purchase on credit, I could have paid cash. And I certainly did not need another credit card, but several thousand dollars interest free for a year, I would be crazy not to, so I did. Of course before I could get the credit, I had to give the sales clerk my social security number and she had to run a credit worthiness check on me—you know, the FICO score.

The score came back 845 or some such number. I did not pay particular attention to the number. But I do recall the sales clerk telling my that my credit score put me in the hundred percentile. Basically, I was as good a credit risk as there is.

Now with a score like that you might think I had the wealth of Bill Gates. Regrettably I don’t. Which just goes to show you that it is not you wealth that gets you a high credit score, but your (historically derived) trustworthiness.

What is interesting is not that my credit score is so high. What is interesting is that I “earned” that score during the worst financial period of my life. I had little to no income and owed thousands of dollars to the IRS and a few credit cards. It was how I chose to deal with those debts that created my “trustworthiness.”

At the time of my deep indebtedness, it was during a period, like now, with low interest rates. There were a lot of credit cards that offered twelve month teaser rates on balance transfers. Some offered 1.99%, but others offered 0%. Now there was almost always a transfer fee of $50 or so, but when you owe five or ten thousand dollars on a credit card, paying $50 for 0% interest is a steal. So that is what I did, year after year. Always transferring the balance to a new card just as the old card’s teaser rate was about to expire. And all the time paying whatever I could, usually a couple hundred dollars, month after month. During all those years it took to pay off my debts, the very last thing on my mind was my credit score. I was trying to get out of debt, not take on more. It just so happened that a byproduct of my financial gymnastics displayed to the financial gods my trustworthiness and boosted the heck out of my credit score.

I never expect to be in that financial condition again, but it taught me a lot. If I owed $50,000 to fifty different creditors and all I had in my checking account was $50, I would send each of them a buck toward my debt. It may not save my credit rating, but it would let them know I am alive, I have not forgotten them, I care about what I owe them and that I can be trusted to pay them back, eventually. After all, credit worthiness is not about money, it’s about trust.

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Lesson One: Everyone is Replaceable

Life’s not fair—get over it. ~ Many

I love watching NFL football, and I have to admit the replacement referees are not as quick or as consistent as the “real” referees. If you have not been following it, the real referees are on strike (they are actually locked out, but that is just semantics). Their union is striking over several issues, but apparently the key issue is that the league wants to freeze the referee’s long-running pension plans and switch them to less attractive 401(k)-style retirement plans. According the Huffington Post, “The key is the pension issue.” The pensions have been around since the mid-1970s and “a lot of guys have made life-career decisions based on assuming that pension would be there.”

Pensions were a bad idea from the beginning. Not the idea of pensions, but the math of pensions. They are referred to as a defined benefit plan, which means they guarantee the recipient a certain monthly income, no matter what. The problem of course is the “no matter what.” Most of us cannot guarantee what we will be making next year, how can a retirement plan guarantee what you will be receiving in thirty years. So, the NFL did the prudent thing (which many other firms are doing) and switched to the more-than-fair 401(k) plan. These plans, which are referred to as a defined contribution plan, depend on the individual saving their own money for retirement—a very self reliant thing to do. You want a comfortable retirement, save a lot of money.

I do not really care which side you take on the pension issue because there is a much bigger issue at stake here for the striking referees: the replacement referees are getting better, each week, little by little. At some point, in the not-so-distant future, the difference between the real referees and the replacement referees will be indistinguishable. And on that day, the striking referees are going to learn a very harsh lesson: everyone is replaceable. A lesson the air traffic controllers learned all too well back in the ‘80s.

Their failure will not be lack of foresight, but lack of flexibility. Years ago, when organizations felt pensions were viable, they offered them to the NFL referees. And now they don’t, so they are being flexible and switching to a more sustainable business model. If the referees were smart, they would match that flexibility and take the new retirement plan. Especially in this economy.

Because of their unwillingness to remain flexible in the face of life changes, the NFL referees may soon be demonstrating the ultimate act of flexibility by changing from striking union workers to the permanently unemployed. Their life decisions were based on their pension, now their life decisions will be based on being without a job. Everyone is replaceable; never forget it. And that is why at the apex on the Pyramid of Self Reliance you will find Flexibility. The final piece to the self reliant life.

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