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How Healthy is the Dollar?

January 10th, 2011 | No Comments | Posted in Financial News

The strong dollar policy is long gone, but the greenback isn’t in peril just yet.

A favorite doomsday scenario. Have you heard about the forthcoming collapse of the dollar? Well, if you turn on your computer, your radio and even your TV, you just may. With the Federal Reserve increasing the money supply, the commentary on this topic is heating up again.

The scenario has variations, but the basic outline goes like this: An unexpected political or economic event leaves the dollar so weak that all confidence in it is gone. Foreign nations sell Treasuries in a panic and the Fed becomes the buyer of last resort. Traders and individual investors dump dollars for whatever they can get. Interest rates leap. Next stop: hyperinflation. America’s economy suddenly resembles that of Zimbabwe in 2007 or Germany in 1922.

So is there any validity to this scenario? Could the dollar collapse?

Let’s just say that the odds are very long. While the Federal Reserve will likely ramp up quantitative easing in the near future, it is highly unlikely that the dollar will suddenly become too cheap.

Why it is unlikely to happen. Foreign countries don’t want the dollar to collapse. Fundamentally, that is because some of the world’s biggest manufacturing economies rely on a great customer for their exports – the United States of America.

China and Japan currently hold 41% of America’s debt.1 In the worthless dollar scenario, they are the key dominoes that fall. But what incentive do China and Japan have to sell dollars? Their economies are tied to U.S. consumer spending. Selling dollars would not benefit them – it would drive up the prices of their exports to America, it would wreck the economy of their best customer, and it would harm their own economies in turn.

The dollar is also the world’s reserve currency; it has been so since the U.S. abandoned the gold standard during the Nixon administration. While the central banks of China and Russia have argued that it should be supplanted or replaced, no challenger has knocked it off its pedestal. In spring 2010, the International Monetary Fund concluded that the dollar still accounted for 61.5% of global foreign exchange reserves, with the euro coming in a very distant second at 27.2%.2

In a way, the dollar has “collapsed” – and America is still standing. The dollar is much weaker today than it was in the 1990s, or even in the early 2000s. Its value has gradually declined and may decline further despite recent surges. In mid-October, the U.S. Dollar Index had slipped about 7% since August, and was approaching an all-time low set back in April 2008.3

America’s debt was less than $3 trillion in 1990; it has doubled since, and the federal Office of Management and Budget thinks it will hit $15 trillion by 2015.1 The federal government would certainly rather pay those debts back using a declining dollar.

Of course, analysts also talked about the pound collapsing and the euro collapsing earlier this year. All this talk – and expectations about what the Fed will do – sent many investors toward the precious metals market, where gold and silver futures hit new highs.

A little word about diversification. When you hear commentators talking about the oncoming collapse of the dollar, take it with a grain of salt. This much is true so far: a dollar decline has occurred, and the dollar could weaken further. So it might be worthwhile to consider diversifying your portfolio as a cautionary move.

For Clients of PrimeSOLUTIONS Advisors, we adhere to an investment process that considers your investment style, a rigorous review of money managers and setting up a diversified asset allocation that is rebalanced. Those that are not PSA clients please call us if you would like further consultation. We can be reached at, 877-658-3641 or 877-366-401K.

Citations
1 – azcentral.com/news/articles/2010/09/19/20100919debt-of-us-grows-with-debate.html [9/19/10]
2 – businessweek.com/news/2010-06-30/dollar-share-of-global-reserves-declines-imf-says.html [6/30/10]
3 – bloomberg.com/news/2010-10-19/geithner-weak-dollar-policy-seen-as-path-to-recovery-in-contest-with-brics.html [10/19/10]

The Small Business Jobs Act

January 10th, 2011 | No Comments | Posted in Business

What’s in it for businesses … and participants in 401(k), 403(b) and 457(b) plans.

The long-stalled Small Business Jobs Act cleared a big hurdle on September 16 – it passed by a vote of 61-38 in the Senate.1 The measure will almost certainly pass in the House and become law later this month.

So what is in this bill? Will its perks and offerings really lead employers to step up hiring? And did anybody report on the interesting provision for anyone with a 401(k), 403(b) or 457(b) retirement account?

Let’s take a closer look.

The $30 billion fund to encourage loans. To some this is a boon, to others just a discouraging “mini-TARP”. The yet-unnamed fund would lend $30 billion to community banks – and those banks are the drivers behind small business loans. These capital injections would come with financial incentives: while the banks would have to make recurring dividend payments to the U.S. Treasury as a condition of the loans, the payments could be lessened by 1% for each 2.5% expansion in small business lending the bank demonstrates. (Incidentally, any bank that has accepted TARP money from the Treasury could opt to convert to this program.)1

So how will this fund be funded? Over time, a chunk of the money will come from federal taxes resulting from Roth plan contributions. The Small Business Jobs Act contains a provision that would allow more individual investors to go Roth (see below). That would mean more tax revenue for the Treasury. Other money will come as result of diminished tax breaks, stiffer tax penalties and more stringent tax reporting requirements in the years ahead.2,3

$12 billion in projected tax breaks. The bill offers small business owners and small business investors some nice chances for federal tax savings. It would allow business owners to write off 50% of the cost of new equipment immediately, and raise the deduction for startup expenses all the way to $10,000. It would exempt long-term investors in certain small businesses from capital gains taxes. Owners of retail shops and restaurants could even get deductions for remodeling.3,4

Small business owners would also get a chance to deduct health insurance costs (for them and for their families) from self-employment tax for the 2010 tax year.4

Two tax relief items did fall by the wayside as the bill went through the Senate. Republicans wanted to make the R&D tax credit for small firms permanent, and they wanted to ease 1099 reporting requirements that could prove grueling for small businesses starting in 2012. They achieved neither goal.3,5

A news flash for 401(k), 403(b) & 457(b) plan participants. If the Small Business Jobs Act becomes law, participants in 457(b) plans will be able to treat their elective deferrals as Roth plan contributions starting in 2011. Additionally, the bill would permit those with 401(k), 403(b) and 457(b) accounts to roll over their pretax account balances into Roth accounts. According to the bill summary, a plan participant would be able to defer the taxes on the Roth conversion and split them over 2011 and 2012 if the rollover is made in 2010.6

Does this bill really address the issues facing small businesses? Conservatives don’t think so. In their view, all this bill does is offer businesses debt. Customers and cash are what these companies need, and they seldom arrive through government intervention. Liberals contend that the $30 billion loan fund and $12 billion in projected tax breaks will offer small businesses a lifeline at a very tough time, stimulate productivity and innovation, and ultimately lessen joblessness and help turn the economy around.

Citations
1 – marketwatch.com/story/senate-approves-small-business-aid-bill-2010-09-16 [9/16/10]
2 – bloomberg.com/news/2010-09-16/senate-set-to-approve-bill-opening-credit-incentives-to-small-companies.html [9/16/10]
3 – seattletimes.nwsource.com/html/nationworld/2012920552_smallbiz171.html [9/16/10]
4 – washingtonpost.com/wp-dyn/content/article/2010/09/16/AR2010091600568.html [9/16/10]
5 – reuters.com/article/idUSN1616203920100916 [9/16/10]
6 – pionline.com/article/20100916/REG/100919917 [9/16/10]

The DOL Requires More Free Disclosure

January 10th, 2011 | No Comments | Posted in Financial News

Monthly Economic Update

January 10th, 2011 | No Comments | Posted in Monthly Economic Update

10 Steps to a Clutter Free Life

January 10th, 2011 | No Comments | Posted in Lifestyle

Ours is a culture of abundance. Even in this time of economic recession – most of us have more ‘stuff’ than we really, truly, need. Clutter, whether it be too many tasks on our agenda, too many thoughts pulsing through our minds, or too many belongings in our homes, seems to be a societal epidemic. When we slow down a bit and take notice, however, we find that more stuff actually creates more stress. Additionally, the state of having too much stuff to care for, clean, and manage means less time for connecting with family and friends, taking care of yourself, and nurturing your soul and creative spirit.

Reducing physical clutter in the home creates a sense of calm, and allows energy to flow freely throughout. New possibilities emerge and creative solutions to old problems seem to appear from nowhere. Here are some things you can start doing now to make it happen:

1. Designate one spot for all incoming mail/paperwork and go through it daily.

2. Unsubscribe from email newsletters, blogs, and retail email lists that no longer interest you. Its YOUR inbox, after all.

3. Before purchasing anything, from new socks to a new smartphone, ask yourself: “Do I love it?” and “Will I use it?” Think twice unless the answer to both questions is a resounding “Yes!”

4. Commit to clearing clutter from one area of your home each day for a week and schedule ten minutes daily to do it. Start with something totally feasible, like your coat rack or medicine chest.

5. Meditate for five minutes each day. This will help de-clutter your mind and give you the clarity to keep what’s essential and part with the rest.

6. Eliminate clothing from your closet and dresser that hasn’t been worn in the last calendar year.

7. Find a home for clutter-prone items, you know, the things that wind up on the kitchen table, living room floor, and bedroom dresser. Designate a place for them and make a habit of putting them there, every single day.

8. Create clutter-free zones in your home. The entryway is a great place to start. If there is clutter in the entrance, 98% of the time there is clutter throughout the house. The kitchen table is another good choice. Keep what you love and use, recycle, donate or toss everything else. Be ruthless!

9. Use “maybe” boxes. If, in the course of de-cluttering, you’re not sure what to do with an item, put it in the maybe box. Note the date on the box and store it out of sight. If you don’t go looking for those items within six months to a year, it’s time to get rid of those things.

10. Evaluate your commitments. Most of us are over-scheduled, which is it’s own form of clutter. Make sure your commitments are reflective of your values and your priorities. Say no to new commitments without guilt and drop whatever commitments no longer serve you. Your life needs space for free flowing energy, just like your home.

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Resolutions for an Online Family

January 10th, 2011 | No Comments | Posted in Lifestyle

Resolutions for an Online Family

I discovered over the holidays that my husband is a bigger nerd than I realized. How nerdy? Well, he finally hooked up our Wii to the Internet — and that’s not the nerdy part. Our new Web-enabled Wii brings the number of devices that can go online in our house up to 10. Thanks to his techno prowess, we now have four laptops, three TVs, a desktop computer, an iPhone, and an iPod Touch.

Needless to say, my hubby is in geek heaven. And I admit I love the ability to buy a book on Amazon or check Epicurious from every square inch of my house. But with a game-obsessed, Facebook-curious, cell phone-wielding, YouTube-loving 12-year-old son (and his friends) to keep an eye on, the Wii hook-up seriously ups the ante. It’s one more device that I have to patrol to make sure no one’s downloading age-inappropriate games, buying stuff, or watching girl fight videos.

Don’t get me wrong. I love the Wii, and I hate the idea of it being an object of torment rather than a source of fun. But how will I be able to maintain our family’s healthy electronic pursuits and balance my husband’s weakness for new gadgets, my fondness for online shopping, and my son’s curiosity for everything on the Internet? Time for some good old fashioned New Year’s resolutions.

And not the garden-variety “no Twinkies” resolutions. This year, with the Internet encroaching from literally every angle and my son’s yearning for games and burgeoning interest in social media, I know that I need to redouble my vigilance to help keep his online world safe, smart, and sound. At the rate we’re acquiring digital paraphernalia, the online temptations will only increase, so my New Year’s resolutions focus on embracing — within reason — the opportunities, while still asserting my own parental authority. My husband? He’s on his own.

What I Pledge for the New Year

Play games with my kid. Playing games with him occasionally is the best way to get to know what he’s doing, what he likes, and even who he’s playing against in multiplayer games.

Discuss responsible online behavior — seriously.
Now that MMO and IM are a part of my son’s vocabulary, he needs to understand respectful online communication.

However awkward, continue to talk to my kid’s friends’ parents about my media rules. Whether the kids play at my house or theirs, I bring up gaming time restrictions, which sites are off-limits, and what movie ratings I’m comfortable with.

Resist the urge to be the “Internet Police.”
Since my son is on the verge of becoming a teen, I want to empower him to regulate his own usage.

Talk about commercials.
Help my kid recognize the tricks that advertisers use — including ad placements all over his favorite websites — so he’ll be a savvier consumer.

Say “yes” a little bit more.
He needs to know that I trust his judgment on his media choices. I may not love everything he loves (like The Simpsons), but if I know what he’s watching and playing, I can still talk to him about it.

No texting and driving.
OK, this one’s for me. I know that the way I interact with media influences his behavior. My phone is now riding in the back seat.

Insist on outdoor playtime.
Grand Slam Tennis and Baseball Blast just aren’t the same. To truly appreciate the joys of the tech world, you’ve gotta be rooted in the real world.

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