Will China Help Debt-Stricken Europe?

Introducing writer David Brown, a content manager with a multinational corporation. David writes on a variety of news topics with a strong focus on finance. His interests include money related issues, entertainment news, and a blog The Book Haven.

The European Union might ask for Chinese help to end the ongoing debt crisis. Nicholas Sarkozy has been discussing the sovereign crisis with Chinese president Hu Jintao for quite some time. With Klaus Regling’s (the head of the European Financial Stability Facility — EFSF) visit to Beijing, the speculation has become more intense.

A lot of euro zone countries are trying to persuade China to make investments. It started with Greece and gradually Portugal, Spain and other core members of the euro zone approached China. This reflects the fact that the sovereign debt crisis in the continent is becoming more and more serious.

Renminbi Europe

Renminbi to the rescue?

However, the Chinese have been fairly diplomatic. A lot of encouragement came from their end, but little investment followed.

But the situation is a bit different this time. Previously, investment in the euro zone meant undertaking a lot of risk. But now, China can invest in euro zone debt that is backed by EFSF. This means that China won’t be taking as much risk as the Europeans. However, the Europeans still can’t offer substantial protection in the current situation. China would certainly demand more details before they invest. They would also keep a watch on Greek bond swapping with private creditors.

It is possible that China will join other non-European nations to end this crisis. But will it bargain hard for political advantages for pumping cash into Europe? Not likely. This will make it publicly clear that Europe is not a fit place for investment and China is nothing more than a money machine; the image of Asian big boy will take a hit. Nonetheless, benefits like more representation at the IMF will eventually come because Europe desperately needs Chinese funding, especially for Spanish and Italian debt.

The price of help will also include the recognition of China as a “market economy.” This means that Europe will be vulnerable to cheap Chinese exports in the continent. It is difficult to predict how this will affect the European economy.

The Europeans might also be forced to abolish the export ban of armaments to the Asian economic giant. This might not be safe for world peace, but Europe possibly cannot call off the deal.

6 Money Tips for Married Couples

Edward Stern is a writer on earning your bachelors degree online.

MoneyMarriage is a union between two people who are in love and want to share the rest of their lives together, but boy does money enter into the equation in a big way. Money issues are the #1 reason for divorce in the United States, mostly because people don’t have enough of it. Money is a big deal for a married couple, especially ones with children and other family members to support.

Especially in today’s tough economy, it’s more important than ever to be thrifty and do what you can to save money. Saving money doesn’t mean drastic life changes or eating 10-cent ramen noodles with every meal; instead, just making a few easy cuts here and there can help you save big over the course of a year. Here are six money tips for married couples to help make some easy choices when it comes to money that will help you save, both on bills and on headaches.

  1. Buy store brand as much as possible: Whether it’s at Costco, Target, or Safeway, buy store brand over name brand as much as possible. It’ll save you a good chunk of change and you’ll be getting the same thing as the name brand, really. Big name brands bid on getting the rights to store brands so they can capture different parts of the market. They sell store brands for less and name brands for more to help off-set costs. For basic things like toilet paper, pasta, and bottled water, go with the discount name brand to spend less without sacrificing quality.
  2. Be creative when it comes to childcare: One of the largest expenditures for working parents annually is childcare costs. Putting a child through daycare and after-school care is expensive enough, but when you throw multiple children into the mix, it becomes a financial drain. Figure out creative ways to save on childcare. Ask relatives if they’d be willing to watch children, and compensate by taking them out to dinner every once in a while or treating them to a night out. Swap playdates with other parents, or if you work part time, find another mom with a different schedule from yours to swap shifts. Enroll older children in after-school sports at school.
  3. Cut the crap: In all likelihood, you are paying for things you don’t need or rarely lose. Get rid of them. Magazine subscriptions are a drain on finances, as are newspaper subscriptions; plus, you can view the same content online for free or for a cheaper rate. If you’re not using a gym membership, cancel it, or just go running and create a home gym. Do you really need premium cable? How many of those thousand channels do you watch?
  4. Explore the great outdoors: Family days at an amusement park or at the movies are certainly fun and a good way to spend time together, but they are costly. Instead, have fun at a public park tossing a football or go swimming at a public beach. Go on a day hike, or if it’s snowing have a big snowball fight and build snowmen all day, maybe splurging on a hot chocolate break at the nearest bakery. See what community events are being put on in your neighborhood and city. Family fun days don’t have to be expensive — there’s plenty to do for free.
  5. Get a programmable thermostat: Heating bills are a big cost, and rather than making your family bundle up while keeping the house freezing, install a programmable thermostat. Most people save up to 20 percent on their heating bills by doing so because you can program it to turn off when you’re out and about and to change temperatures in the morning and when you go to bed.
  6. Only buy what you can: After creating a budget stick to it, and only buy what you can afford now — that means no credit cards. You’ll just get yourself into debt and rack up costly interest, having to pay more than you would have before. Spend responsibly and within your means, avoiding credit cards to encourage those habits.

Thrift

Temple Square at General Conference

Temple Square at General Conference

Last month from January 17-23, Philadelphia became the first city in nearly 50 years to reestablish National Thrift Week. National Thrift Week was an American social movement that was begun in 1916 and continued until 1966, when it was abandoned.

Apparently for many, thrift has been a forgotten virtue for the last few decades but it is now making a comeback. Let’s look at what the original National Thrift Week was trying to accomplish and then follow up with quotes from Mormon Church presidents because for Mormons at least, thrift never went out of style.

National Thrift Week

In 1922, according to the New York Times, the committee in charge of National Thrift Week emphasized:

  • Enrolling 500,000 individuals to operate their finances on the budget plan. State Thrift Week committees had quotas.
  • Observance of Benjamin Franklin’s birthday in cooperation with schools, patriotic societies and businesses. Franklin was a keen practitioner of thrift.
  • Thrift is “common sense applied to spending.”
  • Visits by school children to banks and trust companies after school and banking hours.

The National Thrift Week program had a ten-point program such as “work and earn” to increase production; “make a budget” to plan expenditures in advance; “pay your bills promptly” to avoid the curse of debt; “invest in reliable securities” such as Liberty bonds; and “share with others” by giving to the church and other worthy causes.

Mormon Church Presidents Speak on Thrift

While Mormons do not need a National Thrift Week to encourage thrift, nevertheless additional focus on this excellent virtue is welcome. As a Mormon, I have heard thrift and preparedness preached over the pulpit for decades. I suppose that it has been continuously spoken of because not all Mormons have been listening. However, many members have heeded the exhortations of their leaders and have prospered accordingly.

The following are quotes on thrift, self-reliance, and giving by the last eleven presidents of The Church of Jesus Christ of Latter-day Saints from 1901 to the present. These pronouncements carry considerable weight with most members of the Church, even after a president has died.

Joseph F. Smith

6th President, served: 1901–1918

Joseph F. Smith“…I met a brother—I need not call his name, for he is but one among thousands who can bear the same testimony, not only by the word of mouth but by the evidences of thrift, of prosperity, of progress and of improvement which surround him in the midst of the deserts.

This season he has gathered in rich harvests, his farms having produced in abundance, while the farms of many of his neighbors are clogged with weeds, and their harvests have been only one-half or one-third what his has been.

How do you account for it? I account for it in the fact that God has blessed him; and so does he, for he is an intelligent man, a man that not only labors wisely and prudently, but in the fear of God, and in the desire of his heart to obey his laws.”

“Chapter 31: Obedience to the Law of Tithing,” Teachings of Presidents of the Church: Joseph F. Smith


Heber J. Grant

7th President, served: 1918–1945

Heber J. Grant“Our primary purpose was to set up, in so far as it might be possible, a system under which the curse of idleness would be done away with, the evils of a dole abolished, and independence, industry, thrift, and self-respect be once more established amongst our people.

The aim of the Church is to help the people to help themselves. Work is to be re-enthroned as the ruling principle of the lives of our Church membership.”

Conference Report, October 1936, 3


George Albert Smith

8th President, served: 1945–1951

George Albert Smith“The Saints need to give not only of their substance but of themselves. This is the Lord’s work. This is not the work of man. If we desire to be identified with the kingdom of our Lord, the celestial kingdom, this is our opportunity to prepare—with love unfeigned, with industry, with thrift, with perseverance, with a desire to do all that is within our power to bless others, to give—not to be always feeling we must receive, but desire to give, for I say to you: ‘It is more blessed to give than to receive’ (Acts 20:35).

The gospel of Jesus Christ is a gospel of giving, not only of our substance but of ourselves, and I thank my Heavenly Father that I belong to such an organization that has been so instructed.”

Conference Report, October 1934, 52


David O. McKay

9th President, served: 1951–1970

David O. McKay“Giving something for nothing as a grant is contrary to the fundamental teachings of the Church. The real purpose of the Church Security Plan is to produce independence on the part of each individual, to make him self-supporting, to replace idleness with thrift and productivity.”

Pathways to Happiness, David O. McKay, 374





Joseph Fielding Smith

10th President, served: 1970–1972

Joseph Fielding SmithAt a press conference the day following his appointment as president of the Church he had expressed amazement at all the “fuss” being made over him. As the months wore on he had cause to feel even more amazed.

One minor recognition that caught his fancy, however, was that he was the holder of the oldest savings deposit account in the Zion’s Savings Bank (now Zion’s First National Bank). His father had opened an account there in his name when he was born in 1876, just three years after the bank was begun. And the account remained intact until his death in 1972.

President Smith was always a strong believer in thrift and the savings account was symbolic of that thrift.

Life of Joseph Fielding Smith, John J. Stewart


Harold B. Lee

11th President, served: 1972–1973

Harold B. Lee“In what we might liken unto a great ‘pincer movement’ of enemy forces to encircle us, we are being surfeited with the doctrine that we can get ‘something for nothing.’

When the smoke of the present frenzied social conflict has cleared away and the carnage resulting therefrom carefully counted, we shall have had proved again that we cannot get something for nothing and continue to prosper, and that the habit of giving instead of getting is the way to happiness. Then our faith in those tried and trusted virtues of thrift, self-sacrifice, and frugality will have triumphed over the vices of reckless spending, selfishness, and a disregard for decent standards of common civic virtue and morality.”

Stand Ye In Holy Places, Harold B. Lee, 337


Spencer W. Kimball

12th President, served: 1973–1985

Spencer W. Kimball“Now, when I was a little boy in Southern Arizona our Latter-day Saints were the pioneers. They were struggling to get their feet planted in the soil-to establish themselves. They were largely employed by others, often at pitifully low levels of income. They were the post-hole diggers, the hewers of wood and the drawers of water. They were the farm hands, the mill workers, domestic servants in the homes, the railroad section hands.

Now, I would not have you think that such work was dishonorable, nor unholy, nor improper, but it is limiting. But in my short life I have seen this people through education and thrift rise to new planes and become the leaders in the communities and hold high places in government, business, professional, social, and political affairs. I have seen them become the landowners and many of them become independent and financially secure, as well as faithful spiritually.”

Teachings of Spencer W. Kimball, Spencer W. Kimball, 381


Ezra Taft Benson

13th President, served: 1985–1994

Ezra Taft Benson“A sterling virtue which builds manliness and independence is frugality of thrift. ‘Waste not, want not’ has long been the clarion call.

In more recent years, however, this maxim has given way to so-called ‘deficit spending.’ Many have been teaching that we must spend our way into prosperity. How do you regard this philosophy? Have you stopped to analyze its effect upon the independence, self-reliance, and character of the individual? And what of its possible effect upon the very existence of this nation as a haven for freedom-loving men and women?

No man in debt is truly free. He who has not learned thrift and economy is constantly beset with problems and misgivings about the future. His own freedom and peace of mind are endangered. Those dependent upon him are likewise jeopardized in their self-respect and freedom.

So Shall Ye Reap, Ezra Taft Benson, 165

Howard W. Hunter

14th President, served: 1994–1995

Howard W. Hunter“The basic virtues of thrift, self-reliance, independence, enterprise, diligence, integrity, morality, faith in God and in His Son, Jesus Christ, were the principles upon which this, the greatest nation in the world, has been built.

We must not sell this priceless, divine heritage which was largely paid for by the blood of patriots and prophets for a mess of pottage, for a counterfeit, a false doctrine parading under the cloak of love and compassion, of humanitarianism, even of Christianity.”

“The Law of the Harvest: As a Man Sows, So Shall He Reap”, Howard W. Hunter, BYU Devotional, March 8, 1966


Gordon B. Hinckley

15th President, served: 1995–2008

Gordon B. Hinckley“I commend to you the virtues of thrift and industry. In doing so, I do not wish you to be a ‘tightwad,’ if you will pardon that expression, or to be a freeloader, or anything of the kind.

But it is the labor and the thrift of people that make a nation strong. It is work and thrift that make the family independent.

Debt can be a terrible thing. It is so easy to incur and so difficult to repay. Borrowed money is had only at a price, and that price can be burdensome. Bankruptcy generally is the bitter fruit of debt. It is a tragic fulfillment of a simple process.”

Thou Shalt Not Covet,” Ensign, March 1990, 4


Thomas S. Monson

16th President, served: 2008-

Thomas S. Monson“Industry, thrift, self-reliance continue as guiding principles of this effort. As a people, we should avoid unreasonable debt.”

Thomas S. Monson, “Goal beyond Victory“, Ensign, Nov. 1988, 44

“Many more people could ride out the storm-tossed waves in their economic lives if they had their year’s supply of food and clothing and were debt-free. Today we find that many have followed this counsel in reverse: they have at least a year’s supply of debt and are food-free.”

President Thomas S. Monson, “That Noble Gift—Love at Home,” Church News, May 12, 2001, 7

Sources

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Are There More PIIGS in the Sty?

The acronym PIIGS refers to the economies of Portugal, Italy, Ireland, Greece and Spain especially in regards to matters relating to sovereign debt and government deficits. These economies are seen to have high government debt levels and high government deficits relative to annual gross domestic product (GDP), despite being comparable with the Eurozone as a whole.

Some economies with similar financial problems, often notably the United Kingdom, are arbitrarily excluded. European Union member states are obliged to ensure their debt does not exceed 60 percent of their GDP.

It will be interesting to examine the debt levels of the PIIGS compared with other countries in the European Union (EU). For this I am using Google Public Data Explorer with the Eurostat dataset. First the PIIGS government debt as a percentage of GDP:

PIIGS debt to GDP

PIIGS general government debt as a percentage of GDP (click to enlarge)

Government debt is not supposed to exceed 60% of GDP. The PIIGS all exceed this except for Spain. But what of the EU as a whole? Observe:

PIIGS and EU debt to GDP

PIIGS and EU general government debt as a percentage of GDP (click to enlarge)

The EU weighs in with a hefty 73.6%, worse than Ireland and Spain. Methinks there are more PIIGS in the sty.

PIIGS and EU debt to GDP over 60 percent

PIIGS and EU general government debt over 60% of GDP in 2009 (click to enlarge)

We see that there are 12 EU countries over the 60% limit at the end of 2009. Spain, one of the PIIGS, is lower than them all and hence is not labelled. There are some large non-PIIGS economies in the top 12, namely France, Germany, and the United Kingdom. Notice that Belgium, Hungary, and France are at a higher percentage than PIIGS Portugal. Germany, Malta, the United Kingdom, and Austria also weigh in higher than PIIGS Ireland.

Is it any wonder that the Euro is dropping in value? The whole Eurozone is practically one gigantic PIIGS sty. But the EU is not alone — the U.S. gross debt is 87% of GDP.

Play with the numbers yourself at Google Public Data Explorer. I have set it up to start with the PIIGS economies but you can add in more of the EU countries.

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500 Billion Dinara

500 billion dinara banknote

I hold a 500 billion dinara banknote, worth $6 when first issued

Millions of U.S. citizens are concerned about deficit spending and the possibility of high inflation and even hyperinflation. To illustrate how easily fiat money can become hyperinflated, I have been highlighting the top four countries that have had hyperinflation. They are:

  1. Hungary, 207% daily inflation rate in July 1946
  2. Zimbabwe, 98% daily inflation rate in November 2008
  3. Yugoslavia, 65% daily inflation rate in January 1994
  4. Germany, 21% daily inflation rate in October 1923

Note that the inflation rates cited are daily. O my, I am glad I didn’t have to live through hyperinflation. Also observe that these countries are not confined to Europe. China is not listed but if they were they would come in at number 6. Anywhere fiat currencies are used (that’s basically everywhere) the danger of hyperinflation is forever present.

To complete the gang of four, today I am discussing Yugoslavia.

The 500 billion dinar banknote was introduced on December 23, 1993, and was worth $6. By noon it was worth only $5. By evening its value was less than $3. There was 5,000,000,000,000,000,000 percent inflation from October 1, 1993 to January 24, 1994 (prices doubled every 1.4 days).

From when the 100 dinara coin was struck in 1989 until the 500 billion banknote was issued on December 23, 1993, the currency declined in value 100 billion to one. The note was the largest nominal value ever issued by Yugoslavia. Children’s poet Jovan Jovanovich Amaj adorned the obverse of the bill.

Also see 34 Examples of Hyperinflation.
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The Power Of Zero In Finance

CheckbookI became acquainted with the power of zero early in life. The power of zero was my financial plan. Very simple really. The nearer my balance approaches zero the slower my spending. Worth repeating, in bold, italicized, and indented:

The nearer my balance approaches zero the slower my spending.

Zero was that grand guardian against excess. The magical cipher to hold one solvent. Admittedly, I did the work. I was the one who was disciplined to keep myself from falling into the abyss of interest payments. There was nothing to it really. Of course with any simple plan there are pragmatic principles present on the periphery. The power of zero is bolstered by these simple truths:

  • Borrow only for home, health, and education.
  • Debt is worse than the plague.
  • Be charitable.
  • A bargain is not a bargain if you don’t need it.

Once you absorb this power into your life be careful to always be true to zero. I once went against my own rule of borrowing by getting a loan to take my family to Disney World. I borrowed thousands of dollars that then had to be laboriously paid back over several years, with interest. This is where I learned that once the zero barrier is broken, there is no resistance to further spending.

There is only one zero, nothing else has the power of nil. Fortunately I came to my senses, paid back the loan, and got on the positive side of zero again.

No, there is naught like the power of zero.
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One Hundred Million Marks

100 million marks

Weimar Republic 100 million mark banknote

The 100 million mark banknote I am holding was mere pocket change compared to the value of the banknotes yet to be issued in 1923. In early 1921 German currency was trading at 60 marks to the U.S. dollar. By November 1921 there were 330 marks to the dollar. A year later a dollar bought 8,000 marks. In December 1923 the exchange rate was 4,200,000,000,000 marks to the U.S. dollar.

The Wiemar Republic did not have the worst hyperinflation in history — Hungary holds that “honor”. Zimbabwe was the second worst offender, followed by Yugoslavia, and then Germany. Greece and China round up the top six hyperinflators of all time.

The highest denomination in Germany was a 100,000,000,000,000 mark banknote issued in 1923. Workers were paid three times a day and wives would meet them to rush to the store to pay 200 billion marks for a loaf of bread.

The hyperinflation was caused by the government issuing massive amounts of new money. This caused prices to rise. Germans with money saved had it wiped out, making them destitute. The German government essentially monetized its debt, much like the U.S. is doing of late. Germany failed to raise its interest rate sufficiently, just as in the U.S. at present.

The main force in the 1920s which gave the nightmare German inflation its momentum was the relentless decrease in the real value of currency in circulation.

Just like in the United States in 2010.
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One Hundred Thousand Milpengo

Hungarian Milpengo

Hungarian 100,000 Milpengo banknote

I recently wrote that I was concerned about the increased deficit spending by the Obama Administration. I showed what happened to Zimbabwe when the government failed to control their currency and their spending. Although hyperinflation destroyed their currency and their citizens lives, the worst offender of all time was Hungary.

Above is a 100,000 Milpengo banknote if I am reading it correctly. A Milpego is a million pengos. So this note is a 100 billion pengo banknote. However this is small change. The largest denomination banknote in history was in circulation in Hungary in 1946. It was for 100 quintillion pengo or 100,000,000,000,000,000,000 pengo.

Hungary had the highest monthly inflation rate ever — 41,900,000,000,000,000% in July, 1946. Prices doubled every 13.5 hours.

When I show friends this banknote and the Zimbabwe note, handling them brings home the fragility of our own Federal Reserve Notes. They know that our printing presses are bigger and faster than any that Zimbabwe or Hungary ever ran. Their economies were destroyed by hyperinflation.

And the same fate could befall us.

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One Hundred Trillion Dollars

100 trillion dollars

When announced, the note I hold was worth 30 US dollars but would quickly lose value

Recently I have been concerned about the increased deficit spending by the Obama Administration. The risk of inflation, even hyperinflation, seems to be in our future. With a little study I was surprised to learn scores of countries have experienced hyperinflation.

In November 2008, Zimbabwe had a monthly inflation rate of 79,600,000,000% and an annual rate of 89,700,000,000,000,000,000,000%. The daily inflation rate was 98% and prices doubled every 24.7 hours.

Even these horrendous numbers do not equal those of Hungary in 1946 that had an daily inflation rate of 195% with prices doubling every 15.6 hours. Other notable hyperinflators were Yugoslavia in 1994 with prices doubling every 1.4 days, Germany in 1923 doubling prices every 3.7 days, Greece every 4.5 days (1944), and China every 5.6 days (1949).

One would hope that we are not headed for the same fate as Zimbabwe. Perhaps this November, by voting out of office members of Congress that are the worst spenders, we can strengthen the dollar and make it worthy of reserve status.
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