Big, Not Little Lies

As interested people searching for policies that just might work, we’re keenly aware of how important finding some bedrock facts on which to build. So it has shaken us to find the contempt facts are held in by some wishing to lead us into the future. Two cases especially are “nails on the blackboard” cringe-worthy. Our President endlessly tells us China, not American importers are paying his tariffs and two leading Democratic Presidential candidates inform us Michal Brown of Ferguson, Mo infamy was murdered. Lies such as these are just plain toxic to good policy. A closer look will show the devastating effect these two falsehoods will have going forward.

We warned if Trump was elected, Republicans would ultimately face a major dilemma. Judges, lower taxes, and regulatory reform could go a long way for many to hold their noses and go along with the President. We warned at some point, though, the other parts making up Trump’s policy views, protectionism, free-spending, favoritism, and a schizophrenic world view had more in common with the Democrats. Now that these have come to the fore, Republicans have to ask themselves what they actually stand. Worse they threaten to undo any good accomplished. The world economy appears to be slowing across the no small part because of Trump’s ongoing trade wars. Remember, trade is one of the three ways we get More” and anything that impedes it will ultimately result in “Less.’ By slapping on tariffs willy-nilly, he has upset world trading and investment patterns without an apparent long-range plan. This weapon is an especially strange as it ‘s a large tax paid by Americans. Regardless of Trump’s claims otherwise, only US registered firms sending money to US Customs. Other than Trump, no one believes otherwise. Even his own Director of the National Economic Council, Larry Kudlow, distanced himself from this whopper. He and most other economists are well aware of the harmful contributions tariff wars and their accompanying competitive devaluations made to the great depression. These weapons have been described as a gun with two barrels, one firing forward and one firing back at you. A truly foolish weapon to use.

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The Worth of “Net Worth”

With rising wages for the entire spectrum of workers, the professional faultfinders have had to find something else to complain about. They seem to have found it in the wide disparity in net worth. After all, 90% of the population has only 25% of the wealth (net worth), while 10% has 75%. How unfair is that? We agree, on the surface, it seems a small number of people are leading a decent life and the rest has bupkis. A closer look, however, might lead to a different conclusion.

First, it is good to renumber how we calculate wealth, Assets-liabilities=Net worth or wealth. What is important to realize is in many cases net worth has little or nothing to do with income. It has everything to do with what we have left after we deduct what we owe. For instance, X earns $50,000 a year, but rents, owns a fully paid for a clunker and pay all bills in full on time. X has some savings and contributes to an employer-sponsored retirement plan. These savings total approx. $10,000. With no debt that amount constitutes X’s net worth. Y earns $100,000 a year, has a $500,000 residence with a $400,000 mortgage, is paying off a $50,000 BMW over 5yrs and has $25,000 in student debt. With the payments required Y has put aside only $5,000. On paper X has more wealth than the deeply underwater Y. The later actually has a negative net worth of well over $400,000. Yet, who do you think appears wealthier? Early on in life, we obtain many of the good things in life by borrowing. As our life goes on many of us pay down our debt, as our assets such as our homes, retirement and savings accounts, investments, and maybe ownership in a business gain in value. Our net worth changes from negative to positive. This accounts for much of the wealth disparity between households. 20-35 olds average net worth is $100.800 and the 52-70 group’s 1,210,100. Of course, some simply continue to borrow against any appreciated assets and never get positive which drags down both group averages.

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