US Independence Day!

I’ve always loved this holiday. As a patriotic American and a former US Army Soldier, I feel a rush of pride on this day, as the US “laid down a marker” on the kind of society they wanted to have. There was a long war to fight, and then hundreds of years of trial and error as we attempt to move to that kind of society – to live up to the promise of the Declaration. While we still have a long way to go, we have come a long way, and as a society we can be proud of what we and our forefathers have created.

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.–That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed…

Such a radical concept at the time, the idea that governments derive their power from the people, not from a ruler, a divinity, or some small minority. We the people are the ones that get to decide our own fates. It is very much in line with the concepts of FIRE that we have control of our own lives and of our government.

Today, we celebrate it with barbeques, parades, and fireworks. We will have a few friends over on our back porch for BBQ, good discussions and good times. We may go out and purchase a few fireworks (small, safe ones like sparklers) to celebrate our good fortune. Go out and enjoy your freedom!

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Mr. 39 Months

What to do for the potential of hyper-inflation in the US?

For some folks in the US (including myself) there is a major concern with the size and scope of the US deficit (now over $20T and approaching 100% of GDP). The latest round of “stimulus” put us another $2Trillion in debt, further pushing the day of reckoning up. At some point, the US is going to find that it can’t get people to buy their debt. When that happens – look out!

Wheelbarrow of marks to buy bread

A lot of folks are not that worried, because the cost of borrowing for the US is incredibly low In one of their recent podcasts, Stacking Benjamins talked about how the cost of borrowing for the US government is incredibly low (0.68% for the latest round of bonds recently) – so why not borrow at this incredible rate? The concern I have is that, no matter what the rate is, we are still borrowing a crapload of money, and that will need to be paid! It may be 10 years, 20 years, 30 years from now, but we are going to have to pay it off – or put out new bonds. What happens when the rate on those bonds is 4%? 6%? 8%? Each of those rates have been paid at some point by the US government.

The FIRE community is all about generating cash flow and using debt strategically. This isn’t strategic. So what is a person to do when their government is addicted to debt, and you can see the train wreck coming? Over the next several weeks, I’m going to go through some periods of history where countries had this happen, and what were the areas where someone could have at least done some items in advance to mitigate it. Maybe we can do some of these now to prepare.

The issues with Germany’s 1923 financial collapse starts at the beginning of World War I. While Britain had large financial resources, and France imposed their first income tax to pay for the war, Germany “decided to fund the war entirely by borrowing.” The idea was to pay for the war from the spoils of war, gained from France, Russia, etc. At the start of the war, the mark (German currency) was valued at 4.2 marks to the dollar, but as the war progressed without success, it dropped down to 7.9 marks per dollar.

As we all know, German eventually lost the war, with one of the reasons being the economic collapse of the country. By 1919, the mark was valued at around 48 to the dollar. For the next several years, the mark slowly drifted down, as Germany tried to come out of the war, eventually landing around 90 marks to the dollar by 1921. Germany’s industry hadn’t been damaged during the war (unlike France) but the reparations decision in 1921 ordered Germany to pay their reparations in gold or foreign currency (not cheaper marks). While there were arguments about this, eventually Germany had to comply, which led to more and more devaluations of the German mark. By 1922, the mark was valued at 320 to the dollar.

Germany tried to work out a better reparations method (including working with J.P. Morgan Jr) but it failed, and hyper-inflation was kicked off, with the mark falling to 7,400 to the dollar by the end of 1922. When Germany couldn’t pay reparations, Belgium and France occupied the Ruhr Valley industrial area. In trying to work this out, Germany printed more and more notes, further devaluing the currency. “A loaf of bread in Berlin that cost around 160 Marks at the end of 1922 cost 200,000,000,000 Marks by late 1923. By November 1923, the US dollar was worth 4,210,500,000,000 German marks.”

In late 1923, Germany issued a new currency, backed by bonds indexed to the market price of gold – based on the same price of marks-to-gold as it was pre-war. The central bank was no longer allowed to discount government treasury bills. The new marks were allowed to be exchanged with the old marks (at a rate of 1-trillion paper marks to one new Reichmark). By 1924, one dollar was the equivalent of 4.2 of the new marks (i.e. back to pre-war levels)

So what were the lessons we can learn from this experience?
• The link to a real asset, gold, was broken at the beginning of the war, unleashing inflation. Since the US got off the gold standard, inflation has eaten up 80% of its buying power, as of 1971. There are numerous tradeoffs that the gold standard has created, so that is a topic for another time
• When you lose a war, the victors can be very punitive (see Versailles 1919).
• Political Fragility and infighting can prevent a positive solution to the problem (anyone see that as an issue in the US today?)
• Hyperinflation destroys savings and fixed return assets (bonds). Since a large number of people save this way, hyperinflation can lead to riots and societal collapse
• All these issues can easily lead to the creation of a dictatorship or rule-by-decree. People will do anything to lessen the pain
• The items that maintained (somewhat) their value were good quality company stocks and real assets (gold, real estate, etc.) For those concerned about hyperinflation, invest wisely, start growing some of your own food, and be prepared for society to go through some rough spots.

My plan is to look at other historical issues in the past to get some guidance for long-term planning in the US

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Mr. 39 Months

Watching Your Weight While on Lock Down

Like many folks in the world, we have been on lock-down/self-quarantine here at Casa 39Months for the last month or more. Both of us are lucky (unlucky?) enough to be able to do our work from home, so we have been busy for 8+ hours a day just getting our normal work done. We are also lucky enough to have the room in our house for each of us to have a “home workstation” setup without having to take over the kitchen table.

That said, one of the concerns I have had (and many people I have talked to) is getting a good diet while working from home. Most folks can go to work and only eat during lunch or breaks, but when you are at home, you can just get up, walk to the fridge or shelves, and grab something. In times of stress, folks also have a tendency to eat snacks & fatty foods to help deal with it (survival response from 100,000 years ago?). So how do you deal with this issue?

As a numbers geek, I chose to approach it by doing some tracking and charting! Taking a page from various low-carb/keto plans, I started March 1st, tracking the carbs I have been eating on a daily basis and tracking my performance. Just like with the finances, this helps me judge my performance and motivates me to keep the carbs low.

For many of the books I read, if you get your daily carbs in the 100-150 range, you can slowly lower your weight, while under 100 can cause dramatic weight gain (though you should only do this for a short span of time). It is also different for each sex (women need more carbs, apparently). How have I done?

  • March average: 143
  • April average (to date): 156
  • Weight loss/gain to date: Loss of 1 lbs.

As for exercise, the self-quarantine has put a damper on my workouts/lifting, but I do get out daily for long-walks, and I stretch every morning. I think some of the weight loss/lack of weight gain is muscle atrophy. Since muscle is heavier than fat, I am concerned that I am losing muscle tone and not the fat. We will have to see once I get back to the gym.

Therefore, I am doing my best to keep the “Quarantine 15” off. How are you doing?

Mr. 39 Months

What are you thinking of doing with your stimulus check?

          

The US Federal Government is looking to send out checks to US citizens as part of their stimulus package for the Chinese Corona Virus, and the effect it has had on the economy. The objective of these checks is to assist individuals who have been laid out, or who are having difficulties with their bills. The hope is that individuals will spend this money and keep the economy going, rather than having it “seize up” with folks saving and holding off spending.

If you think about it, a lot of folks (mostly non-FIRE folks) live paycheck-to-paycheck, and use debt to help fund their lifestyle. If you shut off their paycheck for even a week, they’re hurting – and they aren’t spending money on food, clothes, etc. If it kept up, then even folks with decent finances will find themselves hurting, because their businesses will have lost too much revenue.

Retire by 40 had a good article on this, in which he discusses the stimulus checks, unemployment insurance, and potential ways he is planning on spending it (some of it he actual intends to potentially use to help his tenants if they are in need).  

How much will you get?

  • $1,200 for single tax filers that make less than $75,00 adjusted gross income. It will be reduced if you make more, up to $99,000
  • $2,400 for married, filing jointless, up to $150,000 AGI. If you make over $198,000 AGI, no stimulus
  • $500 for each qualifying child.

Unfortunately, we did a $50K Roth conversion last year, so our AGI is around $188,000. This pushed us almost up to the max. Based on a calculator available from Kiplinger’s, it looks like we’ll only be getting $500 for the two of us. Still, its useful money to help stimulate the economy, and I’d prefer the money got spent on folks in worse financial straights than we are.

We’re already doing what we can while in self-quaranteen at home (everyone in New Jersey has been asked to stay home unless in essential industries). Both of us can do our jobs from home, so “no skin off either of our noses.” We are ordering takeout from our favorite restaurants, to try to help them stay in business. We continue to grocery shop, and we are helping out where we can (just gave $1,000 to our local Southern New Jersey food bank). Trying to help where we can, while staying out of trouble and not contributing to the sickness/panic.

Hopefully everyone is healthy and contributing where they can!

Mr. 39 Month

Did you ever wonder…..

Life if full of mysteries and part of the joy of life is exploring them and trying to find out the answers. Some of crazy complicated, and you can never figure them out (ex. The human heart and its emotions). Some it just takes some real world experience to identify why things are.

I have always contributed to my retirement savings on a regular basis, through payroll deductions either to my 401K, or through monthly payments to my IRA. I think I have been doing since my first post-military job. Even when I was a young lieutenant making $25,657/year, we were putting away almost $1,000/month in savings (Note that this was because we were on military base housing, so rent & utilities were paid for).

I always wondered why you could contribute to your IRA all the way into April of the following year – i.e. I could be putting money into my IRA for 2018 as late as April 2019. Could even deduct it on my taxes, as if I had already done it (though you would get into a lot of trouble if you said you would to the IRS, but did not). Yet, I asked why people would wait until the following year, and miss the benefits of a year of growth, and the potential upside of dollar cost averaging. Did not make sense to me.

Well, as of this year, I finally figured out why. I stumbled on it when we did our Roth conversion last year, and I discovered that we had overdone it, and because our income was now too high, we could do our regular monthly ROTH investments. I had to pull that money back and place it in our normal IRAs. Ouch! Major paperwork issue – though it has been sorted out.

Therefore, I stopped contributing monthly to our Roth IRAs, and instead put the money into our normal, post-tax investments. Fast forward to November, and we are considering doing a smaller ($40k) Roth rollover. Why so small? Because if we do more, it may dump us over the threshold of being able to contribute. Therefore, we are going to keep it at $40K, and then, when we do our taxes in early 2020, we will see if we can contribute to our Roth for 2019.

Thus, in March of 2020, I will be contributing funds to my 2019 Roth IRA. Now I know why.

Mr. 39 Months

Excellent post from Go Curry Cracker on 2000 and 2008 retiree status

We’ve all seen the articles and data on ‘sequence of return risk’ where, depending on how the markets do in the first couple of years of retirement, you can be in great shape, or you can be in a world of hurt.

Go Curry Cracker has spent the time to do the numbers on how things are going for folks that retired right around the time of our two most recent “crashes.” An excellent read!

I know there is a lot of talk about a pending recession in the US. All I can say is, its going to happen sometime, so don’t panic too much. Stick with your plan, and be flexible depending on the market.

Mr. 39 Months