Len Penzo dot Com

The offbeat personal finance blog for responsible people.

Inflation: Why You Should Fear It, And Why The US Wants It

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Ronald Reagan accurately warned us in 1984 to be vigilant against inflation because it can come, "like a thief in the night to rob our savings, rob our earnings, and take the bread off our tables." For this reason, the government is usually on guard against the threat of inflation.   In the simplest terms, this is normally done by controlling the amount of money in circulation.   It's really a matter of supply and demand.   If everybody has more money in their pocket to spend, then too much money chases too few goods and the currency becomes devalued.     This, in turn, drives up the cost of everything from gasoline and furniture to food and the price of a ticket to Disneyland. President Obama's proposed budgets over the next two years call for spending on an unprecedented scale.   His proposed budget has a funding shortfall of almost three trillion dollars over the next two years, an amount equal to a staggering 12% of the entire US gross domestic product and twice the size of the worst deficits on record.   Indeed, President Obama's own budget people are predicting budget deficits during his time in office to exceed that of all the other presidents combined from George Washington. So, Len, just how does the government plan on paying for all of this? In essence, the government has two choices, massive tax increases or high inflation.     Naturally, the government is going to take the political path of least resistance. Indeed, in order to pay its massive bills the United States will have no choice but to abandon its commitment to fight inflation and ramp up the output of the Treasury printing presses.     This, of course, will end up flooding the economy with trillions of additional dollars that will not only drive up the prices of goods and services, but also punish fiscally responsible individuals by diluting the value of their dollar-denominated savings and retirement accounts. Simply put, inflation is taxation without representation. Alan Schram uses the example of a man earning 5% on his savings account, who ends up in exactly the same financial position whether he pays 100% tax on his interest income with zero inflation, or zero income taxes with 5% inflation.  And Schram correctly observes that if Congress tried to pass a 100% tax on anything, the public would be marching on the Capitol steps with pitchforks and torches. The US government's unfettered spending plan is clearly unsustainable with respect to current taxation rates.   But instead of suffering the consequences that would come with overtly increasing the taxes necessary to support these insane budgets and associated bailouts, Congress will be content with letting inflation do its dirty work.   For that reason I believe inflation rates exceeding those seen during the mid to late 1970s are inevitable. If you liked this article, please be sure to subscribe to my RSS feed. ...

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Does Buying Your Gas In The Early Morning Really Save Money?

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I've already written about the folly of trying to save a few cents per gallon when shopping for gas. But did you know there are times when you don't get exactly what you pay for when you fill up your gasoline tank at the local station?   It's not that the gas stations are doing anything illegal.   But they are taking advantage of the laws of physics in a way that permits them to make a little extra money at your expense. Now, for those of you who regularly ditched your high school physics class, let me give you a quick primer on why this is so.   ;-) Gasoline expands when temperatures rise, but the energy content of gasoline is directly related to its weight, not its volume. The end result of this expansion results is less energy per gallon. Now, it's absolutely true that gasoline retailers adjust for hotter weather when they buy fuel at the wholesale level. But it's also true that the very same retailers (at least in the United States), knowingly refuse to make the same warm-weather adjustments when they sell their gasoline to the public on hot days. The result of this is consumers end up paying a "hot fuel premium" every summer in the neighborhood of two billion dollars. This tends to get a lot of nerds who actually enjoyed their physics classes really spun up. But should they really be that upset? There are roughly 300 million people in the United States. Assuming that about half of them drive, the two billion dollar hot fuel premium costs each driver about $16 per year. That probably doesn't amount to even a half tank of gas per year for the average driver, although it ultimately depends on the type of car you drive, and the cost of fuel. Still, if you want to ensure you avoid the summertime hot fuel premium you can move to Hawaii, which  already requires retail stations to install automatic compensation devices on all its gas pumps. For those who don't live in the Aloha State, they  may be happy to know that Costco recently announced that they have agreed to install the same type of gasoline compensation devices at stores in 14 states. Those states are Alabama, Arizona, California, Florida, Georgia, Kentucky, Nevada, New Mexico, North Carolina, South Carolina, Tennessee, Texas, Utah, and Virginia. Then again, if  a trip to Costco is either impractical or a non-option, the effects of the hot fuel premium can be minimized by filling up in the early morning when temperatures are coolest. True, the Costco decision will not result in any significant gasoline savings, but at least you can be assured that when you pull up to the pump you will get what you paid for. If you liked this article, please be sure to subscribe to my RSS feed. ...

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Evaluate Your Options Before Selling Gold Jewelry

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I was watching a King of Queens marathon late last night and my viewing enjoyment was continually being disrupted by those ubiquitous Cash4Gold ads that urge viewers to collect their unwanted jewelry so it can be turned into "cold, hard, cash!" After the 40th commercial, I finally decided to give up and TiVo the rest of the marathon. This cash for gold thing would have made a great episode of the King of Queens. I could see it now:   Doug and Carrie kick Arthur out of the house and, in order to make up for the lost rent, they decide to collect some of their old gold jewelry so they can turn it into a quick buck.   Of course, Doug would accidentally include Carrie's wedding ring in the return envelope and be forced to spend the rest of the episode trying to get the ring back. The Los Angeles Times recently wrote a piece on Cash4Gold that revealed, not surprisingly, their promise to pay “top dollar” doesn’t always translate into big bucks. In fairness, Jeff Aronson, CEO of Cash4Gold, defends the gold refinery on several grounds.   In the Times' article, he points out that melting down jewelry is “not always the right way for somebody to monetize,” and that his website makes this clear. Yes, when it comes to converting gold to cash you have multiple alternatives from which to choose. But which one is the best option?     Well, unfortunately there is no right answer as each has its own advantages and disadvantages. If you decide that you do want to convert your old gold jewelry to cash, you should first take a minute to consider the time, effort, and monetary trade-offs that your available options offer.     A quick-look summary of my evaluation and overview of the five alternatives follows (click on the image to make it larger): Gold Refiners Refiners such as Cash4Gold can get you money quickly with very little effort.   The trade off is their payout is very poor, typically no more than 10% of retail, although price-per-ounce payouts tend to be higher when you have more than 10 ounces of gold to sell.   They send you an envelope, and you return your gold to them.   The refiners then determine a value and send you a check about a week later.   If you're happy, you cash it.   Otherwise you have 15 days to return the check and get your gold back. If you are in a real hurry, there is also a "fast cash" option that allows you to deposit your payment directly into your checking account within 24 hours. Pawn Shops Pawn shops will evaluate your gold jewelry and offer you a price that is often two to three times higher than what the refiners will offer you.     Convenience wise, you actually have to get off your butt and drive into what are usually the seedier parts of town.   You may also have to go to multiple shops to get a somewhat decent offer. Local Jewelry Stores Oftentimes antique jewelry and/or jewelry of quality craftsmanship can be worth more than the value of the actual metal it contains.   If your jewelry falls into either of those categories, jewelry stores will usually provide you with higher compensation than refiners and, to a lesser extent, pawn shops.     The drawback is that you will most likely have to drive around to multiple stores to get the best price. Ebay Ebay also allows you to take advantage of the added value of your antique and/or high-craftsmanship gold jewelry.   The nice thing about selling your gold jewelry on eBay is that you can ensure you will get a higher price than you would from the refiner by listing it with a minimum reserve price that is above the price of scrap gold.     This option may be a bit easier than driving around to various jewelers, but the payout time is dependent on how long it takes to find a buyer. Gold Parties Gold parties such as My Gold Party and Party 4 Gold are the latest craze where friends get together, share some party snacks and meet with a gold buyer who assesses their jewelry.   In many cases, cash is paid on the spot.   The host or hostess gets a commission based upon the party's total take.   If you are selling, it doesn't get much easier than this.   However, payouts are not much better than other refiners. Personally, I have no intention of selling my gold.   It is my opinion that the value of gold is destined to go higher over the long run. Besides, gold is an inflation hedge that protects your wealth against the declining value of the dollar -- so it makes sense to hold on to it if the government is going to continue to debase our national currency by conjuring trillions of new dollars out of thin air. But hey, if you need to raise some quick cash, it may be your only alternative. With that, I see the TiVo has finished recording the marathon.   It's time to break open a bag of Cheetos (the puffed kind, of course) and a pour myself a cold drink, because I plan on watching Kevin James and Leah Rimini with no further commercial interruptions. If you liked this article, please be sure to subscribe to my RSS feed. ...

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An Easy Way to Compare Credit Card Reward Programs

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I always assumed the cash-back card to be a better value than the one passing out airline miles, but I never did a detailed analysis to confirm my suspicions.   For me it just made better sense to get a dividend check a couple times per year that I could put to use for whatever I wanted. Since we always pay the card off in full at the end of the month, this is pure profit.   At a penny for every dollar I spend, the dividend isn't much -- but, hey, it's free money!     And who doesn't like free money?   ;-) In 2008, we charged $21,089.93 on our dividend credit card.   That is an average of $1757.49 per month.   The charges resulted in dividend payments to us of $210.89 just for buying things on the card.     :-) But what if I had chose airline miles instead? With my particular card, I would have been entitled to 1 mile for each dollar spent.   At that rate it comes down to a trade between a $250 dividend check for a round-trip ticket to anywhere in the continental US, or a $400 dividend check for a round-trip ticket to Hawaii.     Of course the airlines would restrict the days and times I could use those tickets, assuming I could get them at all, but that's life.   Right?   :-) A recent check on a national travel website showed round-trip airfare from Los Angeles to Hawaii for as little as $374.     Based on this unscientific survey I would clearly be better off collecting the dividend miles than saving for a flight to Hawaii. When it comes to cashing in miles for a trip within the continental US, this is not necessarily the case, as it all depends on the desired destination.   For example, at the time of this writing, the cheapest round-trip ticket from Los Angeles to Boston cost $414 -- clearly a better deal than the $250 rebate.   Then again, trips could be had to many other parts of the country for less than $250. Based on that observation, those of you who live near airline hub cities such as Dallas, Atlanta, Denver, and Salt Lake City may decide that the airline miles option would be less desirable because hub cities tend to have lower airfares.   It might not be a slam dunk rule of thumb, but it is worth considering. For those who are considering applying for a new credit card but are not so inclined to do all of this analysis themselves, there is good news.   While surfing the net the other day I came across this handy credit card rewards comparison tool at CreditCardFlyers.com. You simply enter a breakdown of your credit card spending habits and it returns a listing and complete description of the best rewards cards on the market.   After entering data such as how much money I charge per month, and estimating how I distributed that spending (e.g., how much I spent on groceries, how much I charged on gasoline, etc), it gave me a rated list of 17 different cards to compare. For those who don't want to break down their spending, it is sufficient to simply give your estimate of how much you charge per month.   Keep in mind, though, that this can affect the analysis because many cards give additional bonuses for buying groceries or gas, for example. The resulting credit card summary separated the winners by the type of rewards offered, be it rebate, points, or miles.   It also provided an estimated first year payout for each of the cards.     The payouts included bonuses and other incentives for signing up. CreditCardFlyers.com also includes comprehensive reviews on various credit card programs, including information on interest rates and annual fees, and a summary of credit card perks and benefits.   Although there are some low rated cards, the majority of the reviews seem to have a lot of 4.5- and 5-star ratings; still, all of the information is there for you to make an informed decision. Hopefully, CreditCardFlyers.com will take a lot of the mystery out of deciding which credit card program is the right one for you. If you liked this article, please be sure to subscribe to my RSS feed. ...

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