Money, Economy, and Government » The Truth About Money

Becoming Your Own Banker!

admin — Wed, 08 Apr 2009 17:06:57 +0000

Are interest rates being held artificially low?

admin — Sat, 28 Mar 2009 20:33:00 +0000

(recently written by my Father, Dan)

Currently the feds have elected to flood the market with additional funds for mortgages and in particular for refinancing current mortgages. Rates are as low as 4.5%.

But how long can this last?

Let’s look at the junk bond market as a potential indicator of what could happen.

First off what makes a bond a “junk” bond? Think of it as a risk reward proposition. If I were to offer you a very safe, stable, predictable bond with little to no risk, I would be able to offer this bond at a very low rate because the probability of this bond being paid out at maturity is very high. On the other hand if I offer you a more risky bond that has the probability of defaulting, in order to attract you to purchase such a bond I will have to offer you a higher rate for you to accept the risk. Simply put the higher the risk the higher the reward should be.

As our government continues to print money without any real backing and as we auction off more and more debt through the treasury department. The time may soon come when those who are investing in our government bonds will demand a higher rate for those bonds as the probability of default looms ever higher. In other words we are printing money and debt that we simply cannot pay back with our current budget and taxes. Something will have to give at some point.

China is one of the largest purchasers of our debt. As they see our inability to repay these debts increase they will likely demand a more attractive interest rate to continue purchasing our debt. The US Treasury Bonds could soon become a “junk bond” in the investment world. The result could be dramatic. In all probability we would have to increase interest rates to attract new buyers or to keep current buyers investing at maturity.

If this scenario plays out you can be assured that all interest rates will rise. How high? Who knows. But remember we did this once before in the late 70’s and early 80’s. You may want to assess your portfolio and determine how much interest rate risk you are actually taking, maybe even unknowingly.

Remember the general rule; bond values decrease as interest rates increase and vice versa. The longer the duration of the bond the more widely the fluctuation can be. Although the interest rate remains the same, the underlying “market value” of the bond can fluctuate until the bond matures at face value.

For example. Let’s assume I purchase a 20 year bond for $1,000 (par value) today and the interest rate is 4%. Now let’s fast forward 2-3 years and interest rates have climbed to 7%. Now a bond buyer could purchase a $1,000 bond (par value) and get 7%. For my valuation purposes a calculation is made which discounts my $1,000 bond in order to equal the current 7% rates. I won’t go into that yield calculation here, but suffice it to say in order for me to attract someone to buy my 4% bond, when they can buy a 7% bond today, I will have to discount my $1,000 par value in order for them to essentially achieve the same return as they would by buying the 7% bond today.

If interest rates are being held artificially low, and if the chance of interest rate hikes are on the horizon, what are your options?

Dan Thompson – Registered Representative

2502 N. Constance Pl.

Eagle, ID 83616

Phone (208) 939-5910

Securities and investment advice offered through Capital Financial Services, Inc. Broker/Dealer Investment Advisor Member FINRA/SIPC

Posted via email from My Posterous

Government Qualified Plans

admin — Sat, 28 Mar 2009 00:36:00 +0000

Tax the seed or the harvest?

If you were a farmer would you rather pay the tax on the seed, or on the harvest? Obviously the seed would have a much smaller tax proportionately. So why do we contribute to certain qualified plans?

The only way to win in any retirement account is to take the money out at a lower bracket than the one you contribute with. Do you think you will be in a lower tax bracket in the future? This is highly unlikely assuming the fact that you will hopefully only increase your income, and decrease your liabilities, but on top of that, for political reasons that just might not be possible for a very long time.

There are alternatives that are outside the control of the government that are much more attractive that will get your money out of the tax loop completely.

Posted via email from My Posterous

Catching Wild Pigs

admin — Sun, 15 Mar 2009 06:14:00 +0000

“There was a Chemistry professor in a large college that had some
exchange students in the class.

One day, while the class was in the lab, the Prof. noticed one of the
exchange students who kept rubbing his back and stretching as if his
back hurt. The professor asked the young man what the matter was.
The student told him he had a bullet lodged in his back. He had been
shot while fighting communists in his native country who were trying to
overthrow his country’s government and install a communist government.

In the midst of his story he looked at the professor and asked a
strange question. He asked, ‘Do you know how to catch wild pigs?’

The professor thought it was a joke and asked for the punch line.

The young man said this was no joke. ’You catch wild pigs by finding
a suitable place in the woods and putting corn on the ground. The pigs
find it and begin to come every day to eat the free corn. When they are
used to coming every day, you put a fence down one side of the place
where they are used to coming. When they get used to the fence, they
begin to eat the corn again and you put up another side of the fence.
They get used to that and start to eat again. You continue until you
have all four sides of the fence up with a gate in the last side. The
pigs, who are used to the free corn, start to come through the gate to
eat, then you slam the gate on them and catch the whole herd.

’Suddenly the wild pigs have lost their freedom. They run around and
around inside the fence, but they are caught. Soon they go back to
eating the free corn. They are so used to it that they have forgotten
how to forage in the woods for themselves, so they accept their
captivity.’

The young man then told the professor….that was exactly what he was seeing
happening in America.

’The government keeps pushing the people toward socialism and keeps
spreading the free corn out in the form of programs such as supplemental
income, tax credit for unearned income, tobacco subsidies, dairy
subsidies, payments not to plant crops (CRP), welfare, medicine ,
drugs, etc, etc, etc. while the people continue to lose their freedom -
just a little at a time. One should always remember: There is no such
thing as a free Lunch ! Also, a politician will never provide a
service for you cheaper than you can do it yourself.’

I hope you see that all of this wonderful government ‘help’ is a
problem confronting the future of democracy in America. God help us when

the gates slam shut! Listen closely to what the
politicians are promising you – just maybe you will be able to tell who
is about to slam the gate on America”

The Infinite Banking Concept

admin — Fri, 13 Mar 2009 03:58:00 +0000

The essence of the Infinite Banking Concept is how to recover the interest that you normally pay to a banking institution through the use of dividend paying life insurance, so that the policy owner makes what a banking institution does. It is a third alternative to making a purchase. Instead of losing opportunity cost on cash, or the finance cost of using someone else’s bank, this alternative provides a way to do what you would normally do anyway, but recapture the cost of those purchases. Earnings grow within the policy tax deferred. You are both reducing your tax burden and capturing monies for yourself that a banking institution normally would receive. And by the way, you have a death benefit thrown in on the side!

Anytime you can cut your payment of interest to others and direct that same market rate of interest to an entity you own and control, which are subject to minimal taxation then you will have improved your wealth generating potential significantly.

The Infinite Banking Concept is not about investing, it is about financing, and financing is a process not a product. Financing involves both the creation of and maintenance of a pool of money and its use. However, when a financing system is combined with an investment system the combination of the two will always out perform an investment system. When the system combines reduced tax liability with a financing engine and allows complete control over your investments there appears to be no system capable of generating wealth with as much consistency or speed.

A primary concept or principal is that you finance everything. You either finance by: Paying interest to someone else – a bank, lender, etc. Or giving up interest you could have earned otherwise. (When you pay cash the interest the money could have earned is forfeited).For these reasons when we are discussing investment alternatives we must not only weigh the return we will receive but we must also evaluate what we are forfeiting or giving up. This mind set will become more important as we evaluate the “Infinite Banking Concept.” For all of the reasons mentioned above every person should be fully engaged in two businesses – Your occupation and Banking.

Becoming Your Own Banker

admin — Fri, 13 Mar 2009 03:54:00 +0000

We have our new website up and running. Check it out at www.BecomingYourOwnBank.com

The Basics of Infinite Banking

admin — Mon, 23 Jun 2008 16:05:00 +0000

Infinite Banking is a process that allows you to recapture the purchase price of any purchase you make and pay yourself the interest that normally would be paid to another financial institution. Many Americans are searching for safe ways to create wealth. At the same time these individuals search for products and investments with higher rates of return, they need money for things like cars, homes, medical/dental, vacations and so forth. The process of becoming your own banker is a way to utilize your capital as a bank would, but this time you are not only the banker, but the borrower.

By controlling your capital, loaning it out, paying it back diligently and honestly wealth is created almost by accident.

You need to understand that even using your own money and paying cash for an item has a cost to it. You either give up the interest that you could have earned by paying cash, often referred to as opportunity cost, or you pay someone else interest to use their money, there is no other way.

By becoming your own banker you pay yourself the interest, recapture the purchase price of the item, and keep complete control over your assets. Incidentally, use these banking concepts in a business structure and you gain additional tax benefits that make the concept even better.

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