Saturday, 31 December 2011
I am very happy with Ted for cutting 3600 jobs (about 10 per cent) from the Victorian public service. The job cuts will be achieved through voluntary redundancy packages that will effective dangle money in front of public servants, which they can take on the condition that they leave the public service. Some argue that this will remove all the high quality public servants, but I believe this will filter out the greedy public servants who are only in there for the money and power. The public servants who are passionate about their jobs will stay, the ones who are willing to keep working as public servants even though it pays less than an equivalent role in the private sector.
There are some who argue that a desire by the Baillieu government to maintain a surplus is silly given that debt can be good and that most households in Australia have a lot of debt. But this is a poor argument. Just because most households have significant debt it doesn't mean the State of Victoria should have debt. Households have high debt mainly because they need to buy houses to live in. Does the State of Victoria need a house to live in? The State and the individual are completely different. You cannot take the situations of personal finance and apply it to public finance.
In the realms of public finance, the ongoing problems in Europe show that governments should not go into too much debt. The problem with debt is that it creates an additional expense, namely interest expense. Money that could have gone to building hospitals or building roads or funding education is instead wasted because it is channeled instead to paying interest expenses, which doesn't benefit the people.
Wednesday, 28 December 2011
The problem is that there is no objective definition of how much income is enough--until now. According to a Wall Street Journal article that cites a study by Daniel Kahneman, a Nobel prize winning economist, the perfect income is $75,000 per year.
My goal is to earn $75,000 by age 30 and $100,000 by 35. I am currently 27 and earn $60,000, consisting of approximately $55,000 salary and $5,000 investment income. It would be nice if I could get a promotion and earn more, but I am finding that I am just not good enough to get a promotion, which is disappointing. They say you should never give up on yourself, so I will keep trying to get a promotion, but my experience of modern capitalism is that hard work is not always rewarded in the workplace. In my opinion, this is a strong argument as to why you should aim to just have fun in life. If you work really hard and put off leisure, there is a risk that you will throw away your whole youth all for a higher salary that your employer may not even give you. Keeping this in mind, I believe it is essential that you diversify your sources of income. I have come to rely less on work to increase my income, now relying almost exclusively on my investments. My goal to getting $75,000 by 30 and $100,000 by 35 is entirely based on the pessimistic assumption that my employer will give me no promotions and I will remain on the same payscale forever.
Sunday, 6 November 2011
Live in the moment. Seek happiness in the present; be superficial and optimistic. When you turn your thoughts to your past, selectively dwell upon happy moments, and suppress traumatic memories. When you plan for the future, be risk-averse, so as to ensure that your future self does not stumble into grief while having fun.
Live on the surface, and try to rescue those who are up to their necks. Be wary of those who live within the depths, for they, like predators of the sea, will grab on to you, and you will drown in realism.
Saturday, 5 November 2011
"If we don't steal from the rich, they will use government to steal from us just because they can. Who wouldn't steal a million dollars if he could get away with it?"
When I thought about his comment, it made sense. In America, the bailout of the banking sector shows how the rich steal from the poor due to their influence on government. The problem with capitalism is that once it is implemented, capitalists become socialists and use government to steal from taxpayers. Hence capitalism simply doesn't work in practice as it assumes that the capitalist class have the altruism and self-control to not loot the public purse when it would be so easy for them to do so (because they are by definition rich and powerful).
Saturday, 29 October 2011
Above is a trailer for a documentary titled The Micro Debt, which seems to criticize microlending as a tool for alleviating poverty.
I've had a Kiva account for a while. Kiva allows any of us to lend money to entrepreneurs in developing countries. But I've always been unsure about how effective this is because when the money is lent to the entrepreneur in developing countries, it is at extremely high interest rates (around 30 to 40 per cent). Most businesses in developed countries struggle to even produce 10 per cent, so to expect people in the developing world to earn 30 or 40 per cent is highly optimistic.
The answer to poverty, in my opinion, can be found in Asia, especially in China. Institutions need to be in place to create labor-intensive low-skilled jobs. The products are then normally exported to developed countries.
Kiva must change. Instead of lending money to microfinance institutes at zero per cent interest who then relend that money to poor entrepreneur for 40 per cent interest, Kiva should take lenders' money and instead lend it at zero interest rate to large labor-intensive companies like Nike, Adidas, Foxxcon, or HTC on the condition that in return for receiving zero interest loans, these companies must hire people from poor countries. Kiva can then pay auditors like Ernst and Young or PricewaterhouseCoopers to audit these firms to provide to Kiva and microlenders assurance that a certain number of workers are being hired and paid a certain amount and that basic labor rights are maintained, e.g. the right for workers to go to the toilet.
If the venture does not work, the lenders lose money. If the venture works and profits are made, it can be split in half between Kiva and e.g. Nike (or any other proportion the two organizations negotiated). Either way, for labor-intensive companies there is a no-risk venture as all the risk is absorbed by the lenders and all the gains are for the company.
Saturday, 22 October 2011
A man in smart casuals sitting opposite me tried to move his feet. His
knees pressed against mine. We made eye contact with each other for a
moment, and I noticed he had an angry look in his eyes, and he isn’t
afraid to express it. I averted eye contact and justified to myself, in
my mind, that it was not my fault. I cannot help having long legs. It
was the train that was at fault as it was not big enough and there
weren’t enough seats.
A woman who sat to the left of this angry man stared forward like a zombie. White headphones in her ears emitted soft beats. Looking at her was like looking at someone experiencing an intense moment of indulgence while on the toilet taking a dump. She wasn’t the only one enjoying the music. Every third commuter was wired up to his portable music device. Their eyes rolled up into their heads as the music poured into their ears. They were spaced out and out of this world. What are they trying to escape and why is it so scary?
My eyes performed a 180-degree scan of the commuters in front of me. I ignored the men and the old women, focusing instead on the young females. I look at one girl in particular, a blonde schoolgirl who wore dark blue uniform with a light blue ribbon in her hair. She too had white headphones dangling from her eyes. Her eyes stared out the window, and she had the look of a girl who wanted to be somewhere else.
Are you a 99 percenter?
Do you earn less than US$506,553?
If the answer is yes to the question above, you are in the bottom 99 per cent. The New York Times' piece About That 99 Percent... has the following startling facts about the gap between rich and poor in America:
American households right at the 99th percentile (that is, the cut-off for the top 1 percent) will earn about $506,553 in cash income this year, according to a Tax Policy Center analysis. The income curve is very steep at the high end, meaning that people just a few tenths of a percentile point above that make much, much more. A family at the 99.5th percentile, for example, makes $815,868; its neighbor at the 99.9th percentile makes more than double that, at $2,075,574 a year.
Don't these lazy people just want money without having to work?
Many critics of the 99% movement claim that the protesters simply want to make money without working hard for it.
This statement suggests that if you earn less than half a million dollars a year, it is your own fault that you are not rich, and the top 1 per cent who earn more than half a million a year who expect no handout from the government are successful because of they are hardworking. This seems to be a major theme from the 53% movement.
However, a key part of the 99% movement is its focus on Wall Street bankers who on average earn more than half a million a year and are truly in the top 1 per cent. The problem is that the banking sector in America has very close ties with the government, to the point where it seems as if the government is controlled by the banking sector. The left versus right political spectrum is misleading. People on the left of politics blame rich bankers whereas people on the right of politics blame the government. No one seems to notice that rich bankers and the government are one and the same. Here is what the New York Times piece The Guys from "Government Sachs" says on the issue:
Indeed, Goldman’s presence in the department and around the federal response to the financial crisis is so ubiquitous that other bankers and competitors have given the star-studded firm a new nickname: Government Sachs.
The power and influence that Goldman wields at the nexus of politics and finance is no accident. Long regarded as the savviest and most admired firm among the ranks — now decimated — of Wall Street investment banks, it has a history and culture of encouraging its partners to take leadership roles in public service.
It is a widely held view within the bank that no matter how much money you pile up, you are not a true Goldman star until you make your mark in the political sphere.
In the aftermath of the GFC in 2009, the US government bailed out mainly the banking sector. As a result, the U.S. taxpayers now owes as much as $23.7 trillion to fund the bailouts. In other words, the bankers mismanaged their business, the government cleans up the mess, and you pay for it.
If you or I were to start up a business (e.g. a cafe or a restaurant) and we failed because the food was bad or the location was bad or whatever reason, do you think the government will save us? Hardly. The government will tell us that we live in a capitalist society and hence we should not expect any help from the government. But the bankers on the other hand -- if they fail, the government pours trillions of dollars of public money into their pockets.
It's not just the banking sector. After 9/11 (a tragic event) the Republicans led by George W. Bush used the crisis to siphon off public money for the benefit of their friends in not only the banking sector but also the defense sector. Bush then proceeded to cut taxes for the rich. As of 2011, Bush's tax cuts for the top 1 per cent of America have cost U.S. taxpayers more than US$700 billion.
Divide and conquer
If you visit the We Are the 53% site, you will notice that most of these people like to show off that they come from humble backgrounds, they work hard, expect no help from the government, and do not whine.
As I have already explained, the bankers and other members of the top 1 per cent have effectively stolen all the money. To use an analogy, the top 1 per cent have taken the entire cake and have thrown a few crumbs towards the other 99 per cent.
The 99 per cent then proceed to fight among themselves for the crumbs. Those who get the bigger crumbs accuse those who get the smaller crumbs of being lazy and stupid. Sexism, racism, left versus right, differences in religion--all this further divides the 99 per cent, leading to greater conflict and division.
Divide and conquer (or divide and rule) is an old military strategy that has been successful employed since ancient times. Here is what Wikipedia has to say:
In politics and sociology, divide and rule (derived from Latin: divide et impera) (also known as divide and conquer) is a combination of political, military and economic strategy of gaining and maintaining power by breaking up larger concentrations of power into chunks that individually have less power than the one implementing the strategy. The concept refers to a strategy that breaks up existing power structures and prevents smaller power groups from linking up....
In modern times, Traiano Boccalini cites "divide et impera" in La bilancia politica... as a common principle in politics. The use of this technique is meant to empower the sovereign to control subjects, populations, or factions of different interests, who collectively might be able to oppose his rule. Machiavelli identifies a similar application to military strategy, advising in Book VI of The Art of War (Dell'arte della guerra), that a Captain should endeavor with every art to divide the forces of the enemy, either by making him suspicious of his men in whom he trusted, or by giving him cause that he has to separate his forces, and, because of this, become weaker.
How do we lessen the gap between rich and poor?
The answer to this problem is to encourage unity (not conflict) among those who earn less than half a million a year and to use the democratic processes to redistribute wealth from rich to poor.
The rebellion by the Libyan people against their dictator Muammar Gaddafi shows how difficult it is for the people of a country to demand their fair share in a non-democratic country.
But many Americans are lucky to live in a democracy where they can use democratic processes to vote for their fair share of the cake by taxing the rich. The problem is that most Americans, as discussed, are too busy arguing about other issues like race, sexism, abortion, and gay marriage, that they are distracted and do not vote as a united unit for the redistribution of wealth.
Sunday, 25 September 2011
There are some documentaries you watch that are so brilliant that you need to tell others about it. This is one of them. This documentary, part one of four, details the history of today's global financial crisis. The GFC hit in 2009 but was fixed with bailouts and other policy measures designed to provide fiscal stimulus to the economy. But now what we are witnessing is the reality that these policies have uncovered massive debt in the balance sheets of sovereign governments.
While many are quick to point their fingers to bankers, I would like to add that many of us are guilty. Many people I talk to hate bankers. They tell me over and over again how bankers are greedy and evil. However, these same people, although they talk bad about bankers, their actions reveal otherwise. These people invest their money into savings accounts with these bankers. These people borrow money from these bankers to buy houses and cars. If you don't like bankers, don't do business with them. As soon as your salary is deposited into your bank account, withdraw it and put it in under your mattress, or covert it into physical gold and bury it. But nobody does that. Modern banking has become mainstream and normal. The people who detach themselves from the banking system are seen as weird and crazy. Our actions suggest we love the banks, we trust the banks wholeheartedly, yet when things go wrong we want to blame someone else.
I do believe the major bankers are at fault for plundering the public purse when the GFC hit, but what else could the government do when so many people's money was tied up in these banks? People shouldn't have trusted these banks in the first place and shouldn't have put too much money in them.
Ultimately it was greed that led us to where we are now. It was greed from people who in partnership with banks and government tried to extract as much cash as possible from residential real estate. We had too much faith in real estate. This is a good old fashioned bubble just like the bubbles of the old days, such as tulip mania. It does not matter whether debt is transferred from banks to government to taxpayers. Regardless of where the debt goes, there are three options: (1) the debt needs to be paid off (2) the debt needs to be defaulted on, and (3) the debt needs to be inflated away with money printing. The prices of stocks and other assets will go up and down depending which the relative magnitudes of these actions. Because it is difficult to know what direction government will take with regards to how much money it will print, how much spending it will cut, etc, the best we can do to protect our wealth is to diversify.
Sunday, 28 August 2011
While reading this article, I couldn't help thinking, "What do these parents expect?" It is no surprise that there are some very expensive private schools out there, some charging over $20,000 per year. If these parents were complaining about a government school, it would make sense. However, they have already signed on the bottom line and agreed to pay the fees. This is how things work in the private sector (i.e. the seller sets the prices and the buyer accepts it by entering into an agreement or rejects it by walking away). These are private schools that set their own prices. I would have thought that private enterprises have the right to set their own prices. If parents believes these fees are too high, they could demant that the government intervene to set prices. But if government sets prices, these private schools wouldn't really be private.
Would I send my children to a private school? The answer to that is yes. There is one private school that I consider to be a good school mainly because I spent eight years in there as a student. I then spent five years in a Catholic school and noticed a drop in quality. The quality of the first private school is not really in terms of good teachers or good methods of teaching. Rather, the original school had better facilities and students engaged in much more extra-curricular activities. Some people argue that it would be cheaper to bring your child to a government school and, with the savings, get the child to do these extra-curricular activities outside of school hours. This is not practical as there is limited time outside of school to do these activities and, secondly, the child would be performing these activities with his school colleagues, which is a missed opportunity in terms of building social skills.
But of course I don't have children yet and maybe I won't ever have children. The reasons why I would put my own child through a private school was because of positive experience that I myself had in the school. But I do believe that in terms of academic performance, much of it has to do with the talent of the child himself and furthermore how much support the parents give the child.
Saturday, 27 August 2011
So why then do people keep investing? Why do shareholders keep plowing money into the company only to see it being plundered? Because they are sold a dream. By telling investors to invest for the long term, there is no accountability. Index fund investors keep plowing money into stocks like lottery players keep plowing money into tickets.
Buying and holding in equity index funds worked in the past because we were living in an era when the size of government was small. Today, the size of government is large and, let's face it, government is controlled by a network of executives and directors of big corporations whose objective is to create wealth for themselves. Hence they use the power of government to seize the revenue of corporations and distribute it among themselves. They are looting shareholders and selling them the opiate of the investor masses (i.e. "in the long run everything will be okay").
If you don't believe me, look at the statistics on the size of government. It has increased massively. Furthermore, the dividend yield on S&P500 companies used to be high but has fallen to almost nothing.
Sunday, 14 August 2011
The video above questions the common wisdom that you will get ahead if you go to university. Going to university normally leaves the student will massive debts that need to be paid off upon graduation, and going ot university simply does not guarantee that your pay will even be much better than that of someone who never went to university.
I have spent a long time in university, completely believing the common wisdom that you must go to university and that only losers became construction workers, plumbers, or carpenters. My parents would look down upon these tradies, commenting that they are uneducated people who got where they are because they lack university education. But after graduation I found myself with a fairly average job that the typical university graduate would get, but look over at the tradies and they are earning big bucks (see cashed up bogans).
I don't see anything wrong with going to university to get knowledge for its own sake, but if that is what you want then going to an expensive and elite university is not necessary as you can effectively get the same knowledge in libraries or even online. The university degree not only gives you the knowledge but it also gives the piece of paper that brands you, and that piece of paper is used by the graduate to secure himself or herself a better job. University was and is mainly a snob tool.
Even if I were in high school again and thought about what I wanted to do for a living, I would probably still go to university mainly because I don't think I'd be a good plumber, but young people out there ought to think twice before going to university. It may not be worth it.
If you rent, you can live for cheaper and you can invest the difference in shares, managed funds, or property syndicates. If you buy the bank, you pay off the mortgage to the bank and hope the value of the family home rises steeply. The decision to buy or rent is quite an even match if you do the numbers, but the problem with making an economic forecast is that you are making massive assumptions over long period of time (the average mortgage lasts for about 30 years). After many of these buy vs rent calculations are done, renting and buying are normally about the same.
When you are buying a house, you are assuming many things working in your favour, namely that interest rates are low, house prices go up steeply, you keep your job and don't get a pay cut, and you live in the same place forever. This, in my opinion, is the deal breaker. Far from providing security and stability, buying a house actually locks you in and limits you. It denies you freedom to move to get a better job or to take a risk in your career. A home owership culture, in my opinion, does little in a country other than encourage wage slavery. When you get a mortgage, the bankers have you by the balls, and you stay quiet and work hard for them for the next thirty years of your life.
The benefit of renting is the flexibility. I spend about $10 per day to eat out at restaurants for lunch. If McDonald's offered to give you a $10 meal every single day for the rest of your life for a lump sum of $50,000, would you take it? I certainly wouldn't because I don't know if I will continue to like McDonald's for the rest of my life. Furthermore, if I give $50,000 to McDonald's then they have no incentive to work hard because they have all their money. They can produce poor quality food and it wouldn't matter because I have already paid the $50,000. This analogy is supposed to be similar to buying vs renting a house. If you buy a house, you lock yourself in because moving have immense costs (due to high stamp duty). Furthermore, if you buy a house, you are responsible for everything, for all the repairs and you even suffer is something goes wrong in the neighborhood that impacts the house price (e.g. if the council approves for a tip to be built next to your home). Buy renting allows you to shop around for the best product. Like the restaurants who fight over your money, lordlords will fight over your rent money.
This story continues on from the original story and sees Dick being blessed with a respectable job by the father of a boy whose life he saved. The generosity of this man as well as this new job of Dick's ensures that a number of people are jealous of him. As a result, those who are envious of Dick's success plot to frame him for a crime he did not commit.
This sequal is very much like the first story Ragged Dick (and probably like every other Horatio Alger story) in that this story is very much a fantasy and a moralistic story (some have described Horatio Alger fiction as male Cinderalla stories) about how even the poorest and disadvantaged man can gain riches and respectability through honesty and hard work. Nevertheless, I believe that the lessons taught in this book are very positive, and I would not hesitate to encourage young people (children and teenagers) to read it because of the lessons it is meant to teach.
Some of the negative points about this book and this idea that honesty and hard work will result in success is that it does not address the possibility that in some areas and in some instances hard work does not pay off. Although the rags to riches story is very popular in America, there is some evidence to suggest that there is not much social mobility in America, a country that is characterised by an immense gap between rich and poor.
Download Fame and Fortune at Project Gutenberg
Buy Fame and Fortune at Book Depository
This is the story of a young virgin girl who is the daughter of a rector and her fascination with a big and masculine gypsy man. This story is short and intense, unlike the meandering and boring David Copperfield by Charles Dickens (a book I am also currently reading but struggling to finish).
I enjoyed Virgin and the Gypsy immensely and high recommend it. Read or download the ebook below for free:
The Virgin and the Gyspy, eBooks@Adelaide
Saturday, 13 August 2011
You can imagine a struggling family living in social housing. The son may be a rebellous teenager who spends his time rioting and looting. But then suddenly the whole family, including the mother and father, the daughter, the baby, the dog, etc are evicted from the house and left to fend for themselves on the streets simply because the son commits a crime.
This strikes me as grossly unjust.
Sunday, 7 August 2011
According to Transparency International, Singapore is not a corrupt country, but according to many Singaporeans I actually talk to, Singapore is a highly corrupt country.
From what I hear, the corruption perceptions index merely gives surveys out to people and asks them about their perceptions on how corrupt a country is. This is hardly a rigourous measure of corruption. Some have suggested that a measure of the amount of bribes you need to pay is a better measure, but the problem with this is that I don't think corruption can be measured by bribe payments alone. We first have to look at the definition of corruption. Most academics define it as follows: "The use of government power for private gain."
It is my opinion that most of the time people's perceptions of corruption is itself corrupted by snobbery. That is, most people believe that rich countries are not corrupt while poor countries are corrupt because rich people have integrity and are honest whereas poor people are dishonest and have no integrity.
Based on this definition of corruption (corruption is "the use of government power for private gain."), let's face it, virtually all politicians and public servants are corrupt, even politicians and public servants in rich countries. Most politicians and bureaucrats use their position as a career, and large companies make non-transparent political donations to parties to effectively bribe them. Even in developed democracies politicians are driven by private gain, trying as hard as possible to stay in power, whether it is by accepting political donations from large interest groups and lobbies but also by pandering to voters' demands. A politician giving to voter demand is, by the definition of corruption we agreed to above, is corrupt.
It is clear that in all countries government responds to the demand of whoever is most powerful. The only difference between a democracy and a dictatorship is that power is not concentrated. In most healthy democracies, the country is still ruled by an elite but a little bit of power is given up to the people as a compromise.
My point is that perhaps we should not worry too much about corruption. There are numerous stories about corruption in China and India, yet these two countries are growing rapidly, more rapidly than the growth of Western economies when they were developing.
A particular public official in a developing country may not approve of some development unless he receives a bribe from a company. This public official may hold out for the highest bribe so he can make the most money possible. Companies offer him cash in briefcases under the table and the public official accept a particular company. This may occur in many developing countries, but it also occurs in developed countries. It is no different to the government allowing projects based on auctions.
If a dispute occurs in a developing country between two parties, the richer party will pay off the public official. This is no different to developed countries whereby disputes between two parties are settled in courts whereby the richer party hires better lawyers and drags the case on for long periods to bankrupt the other party.
Corruption in the form of bribes is merely the replacement of "might makes right" with "wealth makes right." It provides a non-violent means of conflict resolution.
But one area that bothers me is how much US debt China holds: US$1.2 trillion worth (source: NPR, China Blasts US over Credit Rating Downgrade). If the US is unable to pay off this massive debt and defaults, the US$5 trillion Chinese economy will have a substantial amount of its wealth wiped out. This would have an enormous impact on the demand for Australian resources and hence the Australian economy. Even if the US were to avoid default by printing money, the outcome would be similar. The Americans would print money and hand these dollars to the Chinese. The printing of money will cause massive inflation thereby causing the American dollar to drop in value. Even though the Chinese hold US$1.2 trillion worth of US debt, if the US dollar is worthless then that will drop demand for Australian resources.
Many newspaper economists are going on about how China is now Australia's master and not the US. Be that as it may, these newspaper economists do not seem to give much description of the linkages between the US economy and the Chinese economy.
Saturday, 30 July 2011
Regardless, it is clear that the Americans need to both increase taxes and cut spending, especially on useless expenditure. That Republicans are not willing to allow increases in taxes is outrageous. In my opinion, the Democrats should just allow a default to occur and let the American people see just how horrible it will be. Th government can cut spending and not built roads, abandon hospitals, stop paying pensioners, and let banks gouge homeowners and businesses with high interest rates. The Democrats can then blame the Republicans for destroying the economy and in the next election should comfortably win.
Saturday, 16 July 2011
My hope is that as the income from my APN fund increases, I can devote more of my salary income to investments and rely on the income produced by APN to fund all my living expenses. This means that ultimately I will be able to live without working, which for me is very appealing!
It turns out that I am not the only person who noticed this massive distribution on the bond fund. Over at the Bogleheads forums, there is a forum post about the bond fund's massive distribution payout, as well as an associated massive drop in unit prices. The Bloomberg chart below shows the extent of this fall in unit prices.
A Bogleheads member named Tonens gives the following explanation for the anomoly, saying that the large distribution was the product of the strong Aussie dollar.
... [T]he Vanguard Diversified Bond fund is 60% International Bonds, with that proportion hedged to the Australian dollar. The hedging gains as the Aussie dollar appreciated over the last year rather than interest earned likely accounted for the majority of that large distribution.
The total distribution for the fund over the last 12 months its close to 16c (ie about 16%). If the currency goes the other way, it'll contract accordingly.
Another member named Asset Chaos explains why the unit price colapsed:
I think you'll find that the price of a unit of diversified bond is not constant. It fluctuates daily in line with the market prices of the bonds held in the fund. The reason that the unit price drops after a distribution is the fund gets paid some interest on its bonds on many days in between the dates on which the fund distributes this income to the unit holders. That accumulating interest is an asset of the fund and so is reflected in the unit price, which is just the total value of the fund divided by the total number of units outstanding. When the fund distributes the interest income, that money is no longer in the fund, so the fund's value drops suddenly on the distribution date. But you as a unit holder still have the same value: you've got a unit's worth of value still in the fund plus the value of the distribution, which you have in the form of cash in hand or in the form of additional units.It worries me when an investment pays out large distributions accompanied by a fall in unit prices. This is because the fund may be paying for the distributions by eating up capital. However, the explanation that the massive distribution payout is the product of the strong Aussie dollar makes sense.
Sunday, 10 July 2011
To deliver the tax cuts, the tax-free threshold will triple from $6000 to $18,200 when the carbon tax begins on July 1 next year.
The first an second points are easy to understand. But the third point about most taxpayers will get a tax cut of at least $300 doesn't make sense. The way the income tax system works currently is that you pay nothing for any income you earn up to $6000. Then from $6000 to $37000 you pay 15 per cent. If the tax-free threshold were to increase from $6000 to $18200 then this means that if you earn at least $18200 per year you will save (18200-6000)*0.15 = $1830, and everyone earning over $18200 per year will get this.
A second round of tax cuts will occur in 2015, when the carbon tax switches to an emissions trading scheme, with the threshold lifted to $19,400.
Most taxpayers will enjoy a tax cut of at least $300.
But news article talk about most people getting tax cuts of only $300 and that people earning below $80,000 will not benefit!
This makes no sense. Perhaps the government is trying to obfuscate what looks like a tax rise for people in higher tax brackets. My guess is that although the tax-free threshold will increase, to compensate for this the government will increase income taxes in other areas. For example, for every dollar you earn between $18200 to $37000 you may be required to pay 30 per cent rather than 15 per cent.
I wish the government were clearer on this. It does not look good when the government tries to hide detail. If anything it makes me suspicious.
Update 16 July 2011: I have finally worked it out! It's disappointing that the increase in income tax rates was not clearly highlighted in the mainstream media, but the changes are as follows:
- Tax-free threshold will increase from $6000 to $18200
- The 15% income tax rate will be lifted to 19%
- The 30% income tax rate will be lifted to 32.5% in 2012 and then 33% at 2015.
I have complained about the carbon tax because there are many problems with it. It doesn't address the problem of jobs moving overseas and it exempts petrol. Furthermore, carbon tax compensation doesn't all go to poor people. Much of it goes to industries. Nevertheless, I completely understand that the job of politician entails compromise. It is no point letting best get in the way of better, as the Greens would have found out when they opposed the CPRS. With a Parliament made up of independents and the Labor party being heavily influenced by trade unions and voters who struggle with rising petrol costs, it makes sense that Gillard make these compromises to ensure that at least something gets through Parliament. All in all, this is a step in the right direction. Taxing big business for their carbon emissions is a much better idea than paying big business to reduce emissions, which is what Tony Abbott plans to do. If Abbott had his way, the money necessary to pay off big business to reduce emissions would need to come from somewhere, and chances are he would introduce some form of carbon tax e.g. by increasing income taxes. Simply increasing income taxes would not punish people who use more electricity, it only punishes people who earn more. By increasing carbon tax you are punishing those people who commit the sin of emitting more carbon and with the proceeds of the carbon tax you can reduce income tax, which encourages single mothers and students to work.
Finally the full details of Julia Gillard's carbon tax has been released, but as soon as I checked the Commonwealth Treasury website and was diverted to an Australian government website about the new policy, I became annoyed because it was just not clear how much I was going to get. Like the Budget that Labor introduced that cut little bits of spending on a thousand different things, thereby spreading out the pain, it seems as if the carbon tax follows the same philosophy whereby the compensation is spread out over a large number of people, not just low-income people but also pensioners, people with children, people with certain welfare cards, and so forth. It was really confusing.
One of the main features of the compensation is that the tax-free threshold would increase from $6000 to $18000. For someone earning over $18000 per year this is an extra $1800 per year in your pocket ((18000-6000)*0.15=$1800). In my opinion, this is not ideal because this $1800 would go to everyone earning over $18000 a year, including those who earn millions of dollars per year. I have stated in another blog post that I would have preferred to see an increase in the low income tax offset so that millionaires are not compensated.
In addition to this increase in the tax free threshold, there will also be, according to this Herald Sun article on the carbon tax, additional compensation that presumably will come from tax cuts that will be paid to singles earning below $50000: "Individuals will get all extra costs compensated up to an income of $50,000. The compensation means an individual now on $50,000 a year will get $303 in assistance, to cover a $304 rise in their cost of living."
This carbon tax compensation system is far too complicated. I have no idea how much I will get and when I will get it, and I suspect many other Australians will not bother to figure out what they will get because it seems to be dribs and drabs from all sorts of places. The government seems to have divided the benefits into a million different categories.
Furthermore, as I feared, the tax will be levied on only 500 emitters and will only apply if the material is burned. This I fear will mean that companies can dodge the tax by exporting it to countries that have lax environmental laws. What would have been better is a mining tax based on the energy content of what is dug out of the ground. Given that Labor caved in to the big miners and the mining tax discussion is now dead, we must live with what we have, which is the carbon tax and the future transition into an ETS. The system will also be linked in to the international carbon price, and this will hopefully coordinate carbon emission reduction objectives all around the world and hopefully cut off the loophole whereby companies export resources to other countries to dodge the carbon tax.
Sunday, 26 June 2011
Saturday, 25 June 2011
- petrol will not be included in the carbon tax
- people earning over $150,000 will get no compensation
- there will be cuts in income tax
- there will be family payment increases
- there will be increases in pensions
Many of these points are very worrying. Firstly, let me tell you how I think carbon tax and carbon tax compensation should be structured. The carbon tax is designed to reduce our carbon emissions. To do this it will increase the price of carbon emissions, thereby punishing people for polluting. However, increasing the cost of living will hit poor people hard. Rich people can survive if cost of living increases but poor people may not be able to. To fix this problem, carbon tax compensation is necessary. The best way to structure carbon tax compensation, in my opinion, is via the low income tax offset (LITO). The LITO actually targets poor people. If you are poor (i.e. you earn less than $30,000 per annum) the government will hand you $1500 as of 2010-11. If you are middle-class (i.e. you earn between $30,000 and $67,500) the government will give you a portion of this $1500. If you are rich (i.e. you earn over $67,000 you get nothing). To target poor people, the government should think about increasing the amount paid to low-income individuals via LITO, i.e. increasing the amount paid from $1500 to, say, $3000 or more. The government can also increase the LITO threshold so that middle-income people who will become poorer because of the carbon tax will have the purchasing power of their money compensated for by getting higher net pay.
Someone on the internet made the argument that compensation for the poor will not work becuase rich people will compensate for a rise in cost of living by demanding higher pay. Companies will then give in to these demands and to compensate they will increase prices, which will further hurt poor people. This argument assumes that everyone has perfect ability to negotiate what they want without compromise to maintain their profits or standards of living. If this were true it would lead to prices increasing ad infinitum. If companies do increase prices of their goods as a result of rich people demanding higher pay, then all workers, seeing that prices are going up, will then demand higher pay, companies will give in and increase prices even more, which will see workers demanding even higher pay, and this continues on and on until prices and wages increase all the time. In the real world, when workers demand higher wages, they may get it but they may not because companies may reject the demand. When companies have a reduction in profit, they may increase the price of goods to compensate, but this might scare away customers to a rival company. When many companies and individuals face lower profits or standards of living, many of them take it because there is no other option.
What is wrong with the policies of the major parties?
A major worry is that petrol will not be included in the carbon tax. I assume that this will mean that coal companies and gas companies will be taxed but oil companies will not be taxed. The government may claim that this policy helps low-income people who need petrol to drive to work. However, if the government would just increase LITO, poor people would have more money to be able to take a rise in petrol prices. The problem with exempting petrol is that it doesn't discourage people from driving less and many companies that previously may have used natural gas or coal will simply switch to petrol. We will see petrol being use to power up a barbeque and petrol being used in power plants rather than coal. I am worried that people will see this as a loophole and pollute at the same rate by simply using petrol.
Another worry I have is with the way the tax is collected. The tax will alledgedly be levied on companies as they emit the carbon in Australia. For example, if a company burns coal, it has to pay. But what if this company exports that coal to, say, Indonesia, burns it there under a jurisdiction with no carbon tax? Companies will move overseas and coal, gas, and oil will simply be exported and emitted overseas to avoid the tax. To fix this problem, a carbon tax needs to be levied on the energy content of exports. This will counter the argument many people have that the carbon tax will have no impact because Australia makes up only 2 per cent of the world's economy. If a carbon tax is levied on energy content of exports, this will raise the world price of energy since Australia is a major resource exporter. A higher world price of energy will reduce carbon emissions all over the world, and it will send a signal to other major energy-exporting countries like Saudi Arabia, Russia, and Brazil that governments can collect good revenue from a carbon or energy tax. It is within the interests of those in power to have a carbon tax. Some argue that if China and India, the world's most populous countries, do not agree to reductions in emissions, there can be no progress on worldwide emission reduction. I disagree. China and India are not major energy exporters. They are net buyers of energy, and buyers do not set prices. Sellers set prices. What matters is that Russia, Saudi Arabia, Australia, Canada, and Brazil do with the price of energy. If the price of energy is increased with a carbon or energy tax, there is nothing India or China can do but accept it. An agreement to increase the price of energy worldwide does not need the consent of all countries. It only needs the consent of a few major energy exporters, and because these countries have a lot to gain from what is essentially price fixing and anti-competitive behaviour in order to increase government revenue, there is no reason why they wouldn't do it.
Tony Abbott said the following: ''At the next election, the Coalition will deliver tax cuts that are not just compensation. It will be a tax cut without a carbon tax. Our tax cuts will recognise the cost of living pressures that are hitting families and small business hard. Our tax cuts will be designed to restore people's hope, to reward harder work with higher pay.''
Essentially, the carbon tax is starting to look like a tax that takes money from the rich and give it to the poor. The Liberals, on the other hand, will simply cut taxes, and the rhetoric above that the tax will "reward harder work with higher pay" suggests that there will be greater tax cuts for the rich.
Sunday, 12 June 2011
I would like to talk about the importance of investment income, e.g. dividends on shares. In these tough economic times, many stock market investors are starting to realize how important dividends are. When I talk about dividends, I am referring to shares or stocks, but I also value income from other types of investments, e.g. interest from term deposits or bank savings accounts and rental income from real estate.
A bird in hand
Why focus on income? Why not focus on capital gains when investing in shares? Income you receive when you buy shares is a tangible sum of money that you receive from the company, a signal from the company that they are financially secure. Capital gains, on the other hand, is normally out of the hands of company management and is the result of complex external forces. A company can be poorly managed yet still have massive increases in capital gains.
If you invest in shares and get double-digit capital gains every year, just before you retire you will be sitting on a comfortable nest egg, but then the stock market crashes and you lose everything. If you invested in shares that had negligible capital gains but paid out double-digit dividend yields (e.g. some utility and telecommunications stocks pay high dividends) then even if share prices go down, you still would have received regular income for fifty years that went towards improving your standing of living. Income is safer. When a company pays you regular income, it is a signal from them that they are profitable
There is also another reason why I believe income investing is important, and that reason is because income investing gives you freedom.
When we look around, we see people working hard to earn income. We see the Aussie battler working 60 hours a week as a garbageman to pay off the mortgage and feed the kids. We see the laborer toiling away in China assembling mobile phones for $100 per month. There are a small number of people who love their jobs, but surveys show that for the vast majority of us, work is painful. Why do we put ourselves through this torture? Why don't we say no? The answer is that most of us are wage slaves. We work because we have to pay off debt. If it is not credit card debt, car payment, or mortgage debt, it is to feed the kids or to feed yourself. When I talk about debt in this blog, I talk about more than credit cards and mortgages. I use the broad definition of debt, which is the "future obligation to pay." That is, having children puts you into debt. If you are born and you need to eat, you are in debt. Because we all need to eat and because we all need shelter, we are all from the moment we are born denied freedom and we become wage slaves.
"The rich rule over the poor, and the borrower is slave to the lender." Proverbs 22:7
Debt is the currency of slaves. If you earn $100 per week and you owe $100 a week, you will always be a slave. But if you earn $100 per week and you owe $99 per week, there is hope for escape. You can invest $1 per week in shares that pay high dividends. You keep working and keep investing and over time your shares will generate $99 per week, which means your shares can pay off your debt, and you are a free man.
With regards to my own life, I am at the stage now where I am still working and investing, hoping to one day generate enough income from my investments so that I can cover the costs of living. This attitude towards life is not easy. The cost of living can change, and income from investments is not always predictable, but nevertheless it is better to attempt to escape from slavery than the be picky about the minor problems associated with living as a free man.
Saturday, 28 May 2011
I have watched the next 25 minutes of the movie but have switched off because the movie seems to be getting into a very gruesome part.
This movie 127 Hours is the true story about a man who goes hiking in the canyons, falls, and then unluckily a large boulder crashes on his arm, trapping him. In order to save himself, he amputates his own arm and escapes.
I watched the movie up to the part when he looked like he was going to attempt to cut off his own arm, and when that looked like it was going to being, I switched off and decided not to watch. It just makes no sense for me to watch a movie that is essentially a torture movie.
Many critics love this movie, saying it is very realistic and painful to watch, but these reasons why the critics love the movie are the reasons why I hate to watch it.
Sunday, 15 May 2011
It is my opinion that class warfare in a country is a good and healthy thing, but first let me define what I mean by class warfare. Within any country there is a distribution of wealth and as a result there can be classified different classes of people based on wealth. Within most countries there are poor people, middle-class people, and rich or upper-class people.
Under authoritarian regimes, rich people tend to own slaves and oppress the poor, using them to run their businesses. The democratic system gives poor people a voice through the government, allowing the poor to push back at the rich so that they are not fully enslaved. This is class warfare. When the poor push back, they get benefits like public holidays, sick leave, maternity leave, recreation leave, and a host of other benefits that workers in authoritarian countries don't have.
To ensure that poor people get these benefits, they need to be constantly aware of class divisions and to vote for their own class interests in elections.
Unfortunately, in many democracies, while the majority of poor people are class conscious, a significant number of poor people actually vote for parties that implement policies that disadvantage them economically. In American following the 9/11 terrorist attacks, 80 per cent of Americans voted kept George Bush in power, allowing him to implement tax cuts to the rich. Under his presidency, public debt soared and the gap between rich and poor accelerated dramatically. In Australia, refugees tried to hop on a boat and come into Australia. The Prime Minister John Howard turned the boat back. His tough stance saw just about everyone, including the poor, vote for him. When he came in, he implemented policies that diverted public money to the rich e.g. by giving tax breaks through superannuation funds, family tax benefits that even high-income households were eligible for, and of course WorkChoices. In countries like Thailand and Cambodia, the leaders there clash in small-scale wars along the border, both leaders afraid of starting an all-out war but both still very willing to talk tough in an effort to appear nationalistic. This tough stance wins votes and distracts the voting population from the immense wealth held by the elite in both countries. The King of Thailand is the wealthiest royal in the world with a net worth of $30 billion, over sixty times higher than the net worth of the Queen of England (around $450 million).
For many centuries, history shows that the rich often use nationalism to win broad support in democratic systems. Once in power, they implement policies that benefit themselves at the expense of the poor. A poor working-class American will continue to be loyal to the rich as long as he views everyone in the world as being either American or non-American. He feels united to his employer, the one who is exploiting him.
Class warfare allows poor people to suddenly realise that there are indeed divisions within countries. Class warfare allows the poor to demand policies that work in their own interests.
Further reading: Rich and poor divide underestimated
Saturday, 14 May 2011
In the world of FBT, the budget gets rid of the loophole that allows tax benefits to be accrued if you drive your work car more than 25,000 kilometres per year. This horrendous loophool meant that many small businesses actually deliberately drove their company cars more than they needed to in order to get tax concessions.
A number of people complained that there were no increases in family tax benefits for those earning over $150,000, which I thought was incredibly surprising as those on $150,000 are definitely rich given that the average household earns around $70,000. For Australia to get back into surplus, spending cuts need to be made or taxes need to be raised, and cutting spending or increasing taxes on the poor is not only highly immoral but could actually kill them. Therefore, the rich need to be sacrificed. I am surprised that there was so much opposition to this idea, even among religious people and poor people.
The budget contianed no details about the coming carbon tax, which is disappointing. I am happy with the carbon tax as I think it is one of the best ways of cutting carbon emissions in Australia. It gives me great pleasure when I look at those people driving large SUVs and live in large McMansions and know that they will soon be punished for their behaviour. The carbon tax is understandable unpopular with many people believe most people don't like the idea of cost of living increase. This is why I believe that Prime Minister Gillard needs to give very generous compensation to low-income people. It is already disappointing to hear that only half of the revenue raised will actually go to compensating low-income people (it should ideally be 100 per cent). If I were Prime Minister Gillard or if I were her adviser, I would suggest that the way she go about compensating people is to made amendments to the low income tax offset (LITO). Specifically, she should increase the LITO payout and increase the threshold when you are no longer eligible for it. This will put money back into the hands of the poor and give a moderate amount to the middle-class. If the compensation is large enough, I am sure just about every single Labor supporter will be happy and a substantial number of Liberal voters will switch sides and vote Labor to secure for themselves the compensation, and Prime Minister Gillard will win the next election.
We'll see what she does.
Sunday, 1 May 2011
That the fraud was caught by World Vision's internal audit should give World Vision donors most confidence that the money they provide to the non-profit organisation is being used legitimately. If a humanitarian agency has no bad news, it is likely that the organisation has no internal or external audit function. World Vision has not only an internal audit function but is also externally audited by PwC.
Saturday, 30 April 2011
My advice to first home buyers is to live with your parents for longer and to pay them rent. Usually parents are willing to charge lower rent to their children because they have been living with you for decades and know that you are trustworthy tenants. With the money you save from living with parents you could take advantage of the high Australian dollar and invest in overseas companies or you could buy shares in Australian banks.
If Australians continue to want to buy houses, this will only result in more bank profits as perpetual demand for housing will result in perpetually rising house prices, which will mean home buyers will need to go into more debt to fund their purchases. Greater demand for debt will mean that banks are able to charge higher prices for mortgages. They can increase interest rates or charge higher fees. This should lead to greater profits, all else equal, will lead to greater shareholder return.
If you want to invest in an Australian bank, I recommend one of the big four: Commonwealth Bank, Westpac, ANZ, or NAB.
In this episode of Survivor, the former Ometepe tribe members (also known as the Mariano Crime Syndicate) continued to vote off former Zapatera tribe members. In this episode there was a double elimination at tribal council, and the Ometepes finished off the Zapatera tribe by voting off Steve and Ralph. I personally feel like this is justice as the Zapateras threw a challenge early on in the game in order to vote off Russell. Immediately after the merge, what is important in the game of Survivor is numbers, which makes throwing challenges a very dangerous move. That the Zapateras are punished for this very swiftly is very satisfying.
There are now six players left in the game: the three men (Rob, Grant, and Philip) and the three women (Andrea, Natalie, and Ashley). Rob is a former Survivor player who just about everyone looks up to. It would make sense for others to vote him out because he is such a threat. However, Rob has never won the million-dollar grand prize and in my opinion, if he gets to the top two or top three, like Russell, he will find it difficult to convince members of the jury to vote for him. The last time Rob made it to the final two the jury voted against him and instead decided to give the million dollars to his future wife Amber (this happen in Survivor All Stars). In my opinion, the jury voted against Rob because he so clearly backstabbed members of the jury. In Survivor Redemption Island, it is not clear whether the jury will blame him. Many may actually vote for him because they think he played well and deserves the money.
Rob has stated many times that he wants to take crazy Philip to the end because he believes there is no chance that Philip will receive any votes from the jury. Because Rob wants to protect Philip and because he is close to Grant, I believe that there is a good chance that the key alliance in the Ometepe tribe is among the three men. The person at the bottom is clearly Andrea. Once they vote off Andrea I believe then that the men will vote off the women simply because they are women. If you keep a woman till the end then there is a good chance that the jury members will vote for her simply because she is a woman. The men will want to vote off the women to get rid of this threat. From then who is voted off among the men will depend on the immunity challenge. I predict that either Rob or Grant will win the million dollars.
Friday, 29 April 2011
Even though I watched the wedding, many of my friends criticised me for watching, saying that monarchism is authoritarianism. My friends point to the cost of the wedding. Studies done by economists found that because the wedding is declared a public holiday, the impact of Britain taking the whole day off rather than working will cost the British economy about $50 billion and that this loss dwarfs the expected gains from increased tourism and merchandise sales, both of which are expected to result in a $2 billion gain.
I find that many of my female friends are interested in the wedding, many admitting that they wished that they were married to Prince William or at least married to royalty so that they can be princesses. It seems as if all females have a desire to marry high-status men. My observation is that it tends to be females who want to marry princes and not the other way around. Men tend to be happy if they can find a kind and pretty girl, regardless of her social status.
Monday, 25 April 2011
An argument can be made for a country to go into debt to build infrastructure like roads and freeways. Infrastructure can attract business into the state, which increases economic growth and tax revenue. But the problem with funding infrastructure with debt rather than with surplus cash is you need to pay interest, and would it make much of a difference if we waited until the financial position of the state is healthier rather than spend now?
The Baillieu government has promised $100 million in surplus per year. It will be interesting to see if he is able to keep that promise.
Saturday, 23 April 2011
The idea of romantic love, that is, being in a monogomous intimate relationship with someone, and then marrying him or her and being committed to that person for eternity--it is a very spiritual concept based on supernatural ideas such as the belief in a one and only true love and the belief that each party to the partnership is meant to be together.
Atheists are not supposed to believe this. Atheists are non-religious and non-spiritual. They do not believe in anything that cannot be verified by scientific experiments. The view of science is that humans are mere animals. As animals we procreate to keep the species alive because evolution and natural selection select for traits in humans that allow us to perpetuate our genes. Hence we follow our natural instincts, which for a man is to find a woman, rape her, get tired of her, move on to another woman, and then rape her, and so on and so forth. As atheists believe in science and science cannot prove morality then it follows logically that atheists cannot believe in a woman's right to not be raped. Atheists have no morality, that is, they have no concept of what is right or wrong. True atheists will rape, pillage, and plunder.
But most atheists don't do this. Most atheists don't rape. Most atheists are not true atheists because even atheists want to believe in those concepts not proven by scientific experiment. They want to believe in human rights and justice. They want to believe in the sanctity of marriage and they want to believe that women deserve respect.
To be a proper atheists, to actually start from the premise that you cannot believe in anything that cannot be proven by science and then extend that to all areas of your life--you will live a very sad and lonely life. There will be no meaning, no purpose, and no hope. You may as well hide in the corner and cry, if not just quietly kill yourself. Some atheists may be at this final stage of despair (and if you are one of them I encourage you to seek out help from a therapist, preferably a theist) but most atheists are young and immature atheists, still simply rebelling against some easily-identifiable organised religion because they need to channel their anger at something. But at the end of the day these young atheists still hold onto many other spiritual concepts like justice, purpose, romantic love, and marriage.
Friday, 22 April 2011
I have not written about Survivor 22 (Redemption Island) in a long time mainly because I was on holidays. But now that I am back I have caught up with with the current Survivor season. In episode 10, Dave was eliminated from Redemption Island and Julie was voted off at tribal council into Redemption Island.
Basically the season started with two tribes, one tribe had Boston Rob on it and the other tribe has Russell on it. These two castaways are from previous Survivor episodes. Both these players are known for being very good players, although they have never actually won the million dollars. Rob got along well with his tribe but Russell did not get along well with his tribe. Russell's tribe actually threw a challenge just so they could vote him out, and then when they kept losing challenges thereafter, proceeded to vote off the women who had aligned themselves to him. As a result, Russell's tribe went into the merge with one man down and right now they are being picked off one after another by Rob's tribe.
With Russell gone, there really are no interesting players other than Rob and Phillip. Phillip is wacky former federal agent. His craziness and antagonism may actually help him because it provides an incentive for players to keep him till the end since nobody will vote for him. After Julie has been voted off and the tribe that was once Russell's tribe dwindles down to only two people, I think it is likely that these two will be voted off in the next two episodes and then Rob's alliance will start to cannibalise. It's difficult to know what will happen after that.