Nothing’s sure but death and taxes.

I just spent a day going through my finances and getting them organized. I filed an extension on my taxes in April – there was no way I was prepared to deal with them less than a month after losing Bryan – and now I need to think about actually getting them done

I actually do my own taxes, with the help of Turbo Tax. Mostly it works really well, but a couple of years ago, I made a minor mistake on a 401(k) over-maximum contribution refund to Bryan. I neglected to report it as income in the proper year, and so the taxes on it are now due.

I’m here to tell you that Bryan may be gone, but his taxes remain. They supersede death.

Nothing’s sure but taxes anymore.

Economic Insights: The Genesis of a Crisis
It would be nice if the cause of the credit crisis could easily be pinned on poor government regulation, greedy lenders, or careless borrowers. Unfortunately, no one actor is to blame and the causes of the crisis extend back in time. This makes developing an understanding of the crisis a bit of a history lesson.

(Click on the title for more.)

It’s long but well worth the read — detailed, even-handed and extremely educational. H/T to Slatrat (Stephanie) for the article.

Many years ago, long before the dot com boom, I invested in growth funds that were heavily oriented toward tech stocks. They did not fare well, and in fact, the market as a whole faltered in 2002-2003, but then recovered. Now, of course, it’s falling again.

It made me think: what if I’d invested that same amount in gold, instead? I ran an analysis – $2,500 in in 29 shares of an index fund (using VFINX) against $2,500 in 9 ounces of gold. Giving both markets the benefit of the doubt, I bought in at the start of 1998, picked the highest price point each year, and the most recent price point in 2009 for this table.

Note: I am having site format problems — scroll down, down, down, down for the uncooperative table that illustrates that I’d have come out slightly less than even in the market but tripled my investment value in gold.

If wishes were horses…

Every day’s newspaper brings new sad stories to the business section – layoffs, bankruptcies, business closures, cutbacks, stock prices plummeting. They should perhaps retitle the business section the “Horror Section”.

More disturbingly, I’m seeing friends and acquaintances impacted by this. I know at least three people who are anticipating being laid off in the next six months, and another within the year – and these are not junior, front-line employees. These are college-educated, licensed, valuable senior professionals with considerable company seniority.

My husband’s employer has been through several layoff cycles, leaving the survivors depressed and and in a state of shell-shock. My employer seems to be operating efficiently for now, although new hiring seems to be pretty minimal.

I am very sad for those who are losing their jobs or needing to make a change during these tough times because prospects for a decent new one would seem grim in this economy.

What would you do if you found out – with decent notice – that you were being laid off? Do you have a contingency plan? While we have a savings cushion and I have several weeks of unused leave, I sure haven’t thought it through beyond that.

Within 24 to 48 hours, it’s usually entirely gone, handed over to one or both teen sons for some immediate need. When I reach for my cash, for a cup of coffee or a ferry fare, the wallet is empty.

Standing in line at the store today, it occurred to me that if I don’t have cash to give them, they get along just fine. So I tapped the “no” button for cash back, left with my cash reserves at zero, and will not be playing George Jetson with my wallet this week.

In February, I wrote about it, certain that we were dipping our toes into the waters of recession.

Our economic free fall has been so swift and sure since spring that it’s defied all attempts to reverse the decline. Now, with:

• the failure of so many major banks (Seattle-area giant WaMu was seized, shut down and sold today)
• the proposed (and unraveling) bailout of Fannie Mae and Freddie Mac
• steadily climbing unemployment rates – 6% in Washington for September
• the rapidly falling housing markets – new permits down 42% and sales down 12%
• the downward spiral of the stock market

All this brings to mind another question. I wonder what defines an economic depression? Per about.com:

A depression is a severe economic downturn that lasts several years. The Great Depression of 1929 lasted ten years. The GDP growth rates were of a magnitude not seen since:

• 1930 -8.6%
• 1931 -6.4%
• 1932 -13%
• 1933 -1.3%.

During the Depression, unemployment was 25% and wages (for those who still had jobs) fell 42%. Total U.S. economic output fell from $103 to $55 billion and world trade plummeted 65% as measured in dollars.

Well, we’re not at that point yet, thank goodness.

An aptly titled book I read long ago, The Coming Economic Earthquake, seems to be pointing to where we are right now. The author, Larry Burkett, talks about the risk of demand-centered economic policies, growing federal deficits and debt, increasing use of debt by business and households, and government regulation gone wrong. He predicts severe consequences. He also has suggestions for minimizing personal catastrophe, like eliminating indebtedness, maintaining local, liquid funds, holding non-cash assets and more.

I hope we’re not anywhere near there, and that I’m just being paranoid. Still, I’ll keep my credit card balances at zero.

Please tell me why I’m wrong.

If you happen to be in California and anywhere near a branch of the aforementioned savings and loan, you might want to drop by and mention this story to them. I’m sure they’re proud of themselves. [/sarcasm]

While you’re on Jim’s blog, stay and read some other stuff too – Jim’s a good writer AND has great photoshop skills, too.

Item: Home Depot announced that it was closing down 15 locations and shelving plans for 50 more that were to be built. This, I understand, is the first time they’ve ever had to close a store and not open a new one nearby. Home Depot is having trouble due to the shaky economic conditions…folks don’t do home improvements when they practically have to take out a loan to buy gas. Now, to me, being the simplistic pragmatist that I am, this news sounds bad if I’m an investor in Home Depot. Things aren’t going good when you have to shrink your business. However, apparently, the investment community disagrees with me. Home Depot’s shares went up 5% on the announcement. Why? Well, they were going to be cutting jobs, which Wall Street loves to hear. Is it me, or is that sort of bas-ackwards? Whatever happened to new of success causing a stock to rise and news of failure causing a stock to fall? We’re banking on failure, folks…and I think that’s a shame.

Item: U. S. Senator Arlen Specter (R-Heinz Field in Pittsburgh) has decided that he’s not satisfied with the National Football League’s investigation and punishment of the New England Patriots in the “Spygate” scandal. “Spygate” involved the Patriots taping signals from coaches of opposing teams to their players on the field…a no-no by league rule as well as being, well, unsporting. The NFL whacked the Patriots for doing this. Specter, a fan of a Patriots’ rival, the Pittsburgh Steelers, thinks that fining the Patriots coach $500K, the team $250K, and taking their first pick away in the last college player draft just isn’t good enough for him, and is calling for an investigation. Look, I don’t know whether the punishment was enough or not…but hey, Arlen, how about a little investigation of how the oil companies are killing the economy with $4 a gallon gas while scoring record profits? If I hear one more story about Congress investigating a sports issue (and the other proposed investigations are into the college football bowl system and the steroids problem in Major League Baseball) I am going to write in Terry Bradshaw for every office I vote for until he wins something, which will never happen, since Terry is smarter than most politicians anyway. It makes me cringe to think that we’re guaranteed that a sitting Senator will be our next President. :::sigh:::

Imagine, if you will, handing a late model used car over to the IRS, just because.

I just did – or, at least, the equivalent tax payment.

Are we at or near that point in the US? I’m sure hearing an awful lot of negative economic news lately, some items global and others personal. Some of the signs that economists watch include:

Federal Reserve Direction

US Federal Reserve Board Chairman Ben Bernanke warned in mid-January that the US economy is slowing dramatically. He hinted that the Fed would aggressively cut interest rates in response.

Wall Street appears to be demanding a rate cut of half a point this month, followed by further cuts to bring the federal funds rate down to 3 percent or even lower – even less than the inflation rate.

Inflation Increases

While the consumer price index showed a 4% inflation rate throughout 2007, the core inflation rate (less food & energy) is less worrisome, with a fairly pedestrian 2.4% increase over that same period.

Energy Prices Rise

Oil hit a record $100 a barrel in early January. While gas prices have dropped a little from their most recent high, analysts are suggesting that the price of gas may skyrocket to more than $4/gallon by summer.

Oil giant Exxon set a U.S. record for the biggest quarterly profit for 4th quarter 2007, posting net income of $11.7 billion. At the same time, the company has appealed its multi-billion dollar punitive damages for the 1994 Exxon Valdez disaster to the Supreme Court.

Analysts say we should not look to oil companies to pull us out of our current economic trend. Gee, you think? Big oil appears to be primarily interested in profiting at the expense of the consumer and the environment.

In our household, we’re selling our ½ ton pickup truck and buying a fuel-efficient MINI to help manage ever-increasing fuel costs.

Consumer Spending Slows

Retail spending for the 2007 holiday season was the lowest it’s been in five years, actually posting a .04% drop from the previous year.

This wasn’t due to any personal lack of spending this last holiday season.

Unemployment Rate Grows

An unemployment equal or greater than 5% is an indicator of a recession. In December 2007 the US reached that number. The job market is soft. Fewer jobs are being created, job openings are down across the nation, and employers are tightening their belts.

I work in the slowing technology industry. My prospects for continued employment look decent, but I can see the impact everywhere; vendors are laying off, buyouts and mergers are rampant, capital is tight, and “doing more with less” is reaching a level of statistical improbability.

Housing Market Drops

In the savings and loan crisis of the late 1980s, people with homes worth less than their mortgages just stopped paying, and foreclosures were epidemic. We’re seeing symptoms of the same problem now, with a couple of the nation’s biggest lenders posting huge losses last quarter.

Homeowners with adjustable mortage rates and/or subprime mortgages find themselves unable to afford their payments, and home equity loans have exacerbated the problem. Housing values are starting to decline, as much as 20% in some areas. Our house’s value seems to have dropped about 7% from last year’s high, but thankfully we still have plenty of equity.

Stock Market Weakens

A 20% decline from the high is an indicator we’re in a bear market, yet another indicator that we’ve entered a recession. Current figures indicate that representative index funds have seen a drop of around 15%.

My employer has seen its stock prices drop dramatically and we are operating frugally. My 401(k) dropped 15% in value in the last year, in spite of significant salary and employer match contributions.

International Issues

Some analysts indicate that massive levels of debt underlying the world economy system are about to impact countries throughout the world in a profound and persistent way. The most anxious are concerned about the possibility of a worldwide economic collapse.

Many countries around the world are showing signs of a possible recession in early 2008. Ten minutes on Google helped me compile this short and non-inclusive list of countries with their own economic challenges:

– Australia
– Singapore
– Phillipines
– Thailand
– Taiwan
– Hong Kong
– Japan
– Britain
– Russia
– Eastern Europe

Personal Impact

Should we need to endure a recession, my husband and I are relatively fortunate. We are both employed in relatively secure professional positions, we have significant equity in our home and we have both short term and retirement savings. Offsetting that, our oldest is starting college in a couple of months.

We hope for the best, but are preparing for the worst. What are your thoughts on the economy? Can the feds help avert a more catastrophic downturn, or are we in for a bumpy ride?