There is debate stirring about a possible minimum wage increase.  Obama and the Democrats in DC are advocating a proposal to raise the minimum wage from $7.25 per hour to $10.10 per hour.

This would actually be an increase in the minimum wage of 39%, which is extraordinarily high, especially given the already high unemployment rate, particularly among less skilled workers.

Overall, the American people are in a state of naivety about the minimum wage, thinking there is such a thing as a free lunch.  The majority of Americans, who support not only a minimum wage, but also an increase in the minimum wage, do not understand that there will be negative consequences, or they don’t think they will be affected.

Some Republicans will speak out against raising the minimum wage.  You will find fewer who will advocate an elimination of minimum wage laws.  We also have to remember that the last time minimum wage legislation was enacted to raise the amount, it was under George W. Bush.

Neither side is consistent, with the occasional exceptions.  If the Republicans say that raising the minimum wage will cause higher unemployment, then why wouldn’t they advocate getting rid of it?  There are a few who do say that, but not nearly enough.

And if the Democrats think that raising the minimum wage is great and virtually cost free, then why not raise it to $15 per hour or $50 per hour?

The minimum wage simply prevents employment between consenting parties.  It doesn’t mandate that someone be hired or that someone can’t be fired.  It just means that some transactions won’t take place that otherwise would have.

If someone wants to pay another person $6 per hour to do some manual labor and the other person is willing to do the job at that price, then the government is telling them they are not allowed to enter into such an agreement.  If the person willing to pay $6 is not willing to pay $7.25 (maybe soon to be higher), then the transaction will never take place.

Like so many laws, it hurts the people most who it is purported to help.  In this case, it tends to be younger people and those with fewer skills.  These are the people most likely to lose a job or have more difficulty in finding one.

Ironically, it is legal to hire an unpaid intern in many circumstances.  The intern would be willing to work for no pay just to gain experience.  But if the company offered to pay the intern $5 an hour, then the transaction all of a sudden becomes illegal.

There was just a CBO report released saying that raising the minimum wage would lead to the loss of half a million jobs by late 2016.  But the report also said that it would lift 900,000 people out of poverty, meaning it would push them above the designated poverty line.

Of course, these numbers are meaningless.  The CBO has no idea what is going to happen.  They can plug their numbers into graphs, charts, and various computer-modeling programs, but it can’t actually tell you how humans will react.

A 39% increase in the minimum wage could easily lead to greater poverty.  If there are that many more people unable to find work, we really have no idea how bad the effects could be.

The estimate of 500,000 lost jobs could easily end up much higher than that too.

Think of a small business with about 20 employees.  Half of the workers are making around the minimum wage and the other half are making more, maybe even significantly more.

If the employer simply can’t make a big enough profit paying an extra $2.85 per hour per worker, then the employer might just shut his doors for business.  The extra expense might be around $5,000 per month.  And if any of the other workers were making around $10 per hour, how would they feel making the same amount as the other people who have less experience or fewer skills?

If the employer shuts down his business, then it would mean all 20 people would be out of a job, not just the minimum wage workers.

It is also important to point out that there are a lot of other hidden effects from minimum wage laws.  An increase in the minimum wage may not lead to some people being fired, but it could lead to jobs not being filled or jobs never being created in the first place.

In conclusion, minimum wage laws are bad economic policy.  It will cause higher unemployment, assuming that the mandated wage is not lower than what workers would be paid anyway.  It will also cause lower overall productivity and it distorts market activity.

The politicians who push for a higher minimum wage are playing on the economic ignorance of the voting population.  Meanwhile, it is only hurting the people it is supposed to help.

The minimum wage should be abolished and people should be allowed to freely associate.

This may be a recurring theme that annoys some conservative Republicans, but the Republicans in Washington DC are not going to save us.  Most of them are part of the problem.

Last week, Congress passed legislation not only to extend the national debt ceiling, but to essentially remove the ceiling until next year.  This includes the Republican controlled House, where 28 Republicans defected and supported the legislation.

It is always the same story with a different line.  This time, Republicans will point out that most Republicans in the House and Senate opposed the legislation, but that a few centrists are the ones who helped it along.

But that is just the point.  There are always some centrists who will support the big government legislation.  It is almost rigged in that fashion.

It wouldn’t have mattered if those 28 Republicans in Congress had been Tea Party people.  The House still would have found a way to pass legislation to raise the debt limit.  It would have been the next 28 most centrist Republicans then.

It is all a political calculation.  The Republicans in less conservative districts vote for the legislation, knowing they are less likely to suffer consequences back home.  Meanwhile, the more so-called conservative Republicans can go home and say they tried.

Nothing in substance ever changes.  During 8 years of George W. Bush, the majority of which the Republicans controlled the House, there was barely any opposition to raising the debt limit.  Actually, the little opposition there was, came from just a few people, one of them being Senator Obama.

It is only now that there is a Democrat as president that the Republicans show opposition to massive budget deficits.  But it is mostly talk.  The few “cuts” that are ever enacted are not really cuts at all.  They are reductions in the projected increase in spending, years down the road.  And the so-called cuts, that aren’t really cuts, don’t even take place.

I hear some politicians in Washington DC say that they support an amendment to the Constitution to balance the federal budget.  But if these people were really serious about balancing the budget, then they could just refuse to ever raise the debt limit.  This would automatically force a balanced budget.

The problem here is that politicians will talk about balanced budgets, but don’t have the political will to actually cut major specific programs to get anywhere close to a balanced budget.

At the same time, I can’t keep from laying any blame on the American people.  It is a two-way street.  Americans will overwhelmingly say they favor a balanced budget, but then are reluctant to support any major cuts to their favorite federal government programs.  They are only ok if it is somebody else’s subsidy being taken away.

The reality is that we aren’t going to see a balanced budget because of political action.  We will only see a balanced budget when the laws of economics catch up to the whole situation.

When the Federal Reserve finally faces a situation of high inflation and rising interest rates, it will likely stop buying government debt in order to save the U.S. dollar.  It will be at this point that the federal government will not be able to issue debt at low interest rates, unless China and Japan keep foolishly buying more of it.

When the government no longer has anyone to buy its debt at low rates, then spending cuts will be forced.  Something closer to a balanced budget will happen.

They will probably try to raise taxes, but the American people are more resistant when it comes to increasing taxes.  For this reason, Congress will eventually face making tough spending cuts that will hurt both rich and poor in the short term.

Until that time, we can expect more deficits and a rising debt.  The politicians aren’t going to stop it, regardless of which party is in power.

Last Tuesday, new Fed chair Janet Yellen appeared before Congress and answered questions.  It gave us a sneak peek on what we can possibly expect from her and the Fed going forward.

Her statements and demeanor confirmed something to me.  She is towing the political line and she will go along with the establishment, even if it is contrary to her core beliefs.  She is a figurehead for the Fed, just as Obama is a figurehead for the executive branch.

A lot of conservatives were really fearful about Obama and his Marxist/ socialist ideology when he won the presidency.  A lot of conservatives (and some libertarians) are still quite fearful of Obama and his ideology.  While I am fearful of his policies to a certain extent, I can’t say that it is any more so than I would be with an establishment Republican in the White House.

If Obama did half of the things that his predecessor did, Republicans would be ripping him apart, calling him a socialist.  Other than Obamacare, most of Obama’s policies have just been a continuation of Bush.  Even Obamacare could be considered a continuation.

Obama’s ideology probably is Marxist/ socialist, but his politics come first.  He will play ball with the establishment and he won’t make any drastic changes, especially in his second term now.

After Yellen’s appearance before Congress, we can conclude something similar.  She may be a Keynesian or a socialist or whatever, but her ideology is only going to go so far.  Going along with the establishment will take precedent over her ideology.  She is not going to risk her career by strongly going against the establishment.

One of the things Yellen discussed was continuity.  She made it clear that she was not going to alter the Fed’s course set by Bernanke, unless it was warranted by economic changes.

She did admit that the Fed might consider slowing down tapering if the economy showed troubled signs.  But, this could have just as easily been said by Bernanke.

The stock market went up a lot on Tuesday.  Investors seemed to like what Yellen was saying, although we never know how much of the rise in stocks can be attributed to her words.

Gold was also up.  This is an indication that investors are less concerned about the Fed tapering.  Yellen provided reassurance that the Fed may slow down its tapering in the face of a declining economy.

It actually puzzles me that investors would have been that excited over her remarks.  Everyone who pays attention knows her ideology and that she thinks creating money out of thin air is the main answer to all of our economic woes.  If anything, her statements before Congress were less extreme than what she would normally say.

At this point, I am not sure that we should be any more scared of a Yellen Fed than a Bernanke Fed.

Bernanke more than quadrupled the adjusted monetary base in 5 years time and he assisted in the biggest bailout ever seen in this world.  Bernanke may not be as outspoken as Yellen on Keynesianism and money printing, but does is really matter?  Can Yellen really be any worse than Bernanke was?

I will take Yellen at her word that she wants continuity.  It is continuity of horrible policies that will lead to a major train wreck down the road.

When the next major financial crisis hits, I’m sure Yellen’s Fed will turn up the monetary inflation if it is within the acceptable bounds of establishment opinion.  But would Bernanke’s Fed have really been any different?

The latest blow to Obamacare is a report from the Congressional Budget Office (CBO) that the Affordable Care Act (Obamacare) will result in the equivalent of 2 million fewer jobs in 2017, and rising to 2.5 million fewer jobs in 2024.

I use the term “equivalent” because the CBO estimate is based on hours.  So it may not mean that 2 million people will lose their job by 2017 because of Obamacare, but that we may see many more millions have reduced hours.

Some of the latest stories on the CBO analysis are saying that the whole thing isn’t as bad as it sounds, because these will be voluntary job reductions.  The CBO’s report is estimating these reductions in hours partially because of Obamacare’s subsidies for those with lower incomes.  Therefore, people will voluntarily reduce their hours and their reportable income so that they can qualify for health insurance subsidies under Obamacare.

While perhaps it seems slightly positive that reduced hours will be voluntary by the employees, as opposed to having hours reduced by the employers, is this really anything to celebrate?

Aside from the moral aspects, this is the main problem with government welfare programs and socialism in general.  They provide perverse incentives.  In this case, the government program – Obamacare – is encouraging people to work less.  It is a distortion of the market and it results in less productivity.

Encouraging less productivity means that we will have a lower standard of living than we otherwise would have had.  It means that we have to spend more on basic needs, while having less in the way of luxuries.  It also means greater poverty.

Unfortunately, we are focused on jobs as a major side effect only because the government has managed to destroy so many jobs in the first place with unemployment benefits, other welfare, minimum wage laws, and other labor regulations.

There should be plenty of jobs for anyone who wants to work in this world.  We live in a world with scarce resources and there is always labor that is needed to improve our standard of living.  Until we have robots and computers doing everything for us, this will always be the case.

We should be concerned about productivity, as that is what ultimately determines the standard of living for a society.  But it is understandable that so many people are concerned about jobs, only because the government has made it so difficult for people to work.

Even with the stories from Obama supporters promoting the idea that the CBO’s estimates are due to voluntary reductions, I still believe that Obamacare will result in a lot of employers cutting jobs.  Plus, there will be a lot of jobs that are never created in the first place because of Obamacare.

Obamacare is just one more regulatory and tax hurdle that employers face and that will affect their decision in hiring.  As a result of Obamacare, there will be certain jobs that will never appear that we will never know about.  There will be certain products and services that are never offered that we will never know about.

I think it is great that the defenders of Obamacare are having to grasp at straws once again.  This is just another major mark against the whole scheme.

If this estimate of lost jobs had come from some libertarian or conservative economist, it would have been dismissed by many.  But since it was put out by the CBO, which ironically was used for projections regarding Obamacare when it was being sold to the American people, the Obamacare defenders can’t dismiss the report as being a partisan attack against their program.

First, it was the dysfunctional website.  Then it was seeing millions of people lose their insurance due to Obamacare mandates.  This CBO report is the third major blow.  We still have more to come, especially as more people start paying increased premiums with decreased benefits.

I have been saying all along that Republicans are not going to defeat Obamacare.  Obamacare is going to defeat Obamacare.

There is a farm bill going through Congress that will likely be signed into law by Obama.  I don’t think I could find a more fitting example of what the government does and how the average American gets the short end of the stick.  This farm bill represents almost everything that is wrong with this country.

There might be some on the far left who will criticize this bill because it cuts money for food stamps.  While I don’t agree with the federal government handing out food stamps at all, I find it even more despicable when money is handed out to rich farmers and special interests.

In this sense, it is the perfect Republican bill.  They can brag to their constituents that they cut food stamps, while not mentioning the fact that this is a bill costing the American taxpayer about $100 billion per year.

But this will be a bill that passes in bipartisan fashion.  Whenever legislation is bipartisan, it means you should hold on to your wallet.

This means it will cost the average American family about $1,000 per year.  Do you want to pay $1,000 per year funding agricultural subsidies and various other programs, or would you rather keep the money and spend it how you see fit?

It is a bill written for lobbyists, special interests, rich farmers, and insurance companies, while also doling out some welfare to poor people.

The latest provision is to eliminate direct subsidy payments to farmers and instead expand a crop insurance program.  I guess you could say it is the agriculture sector’s version of Obamacare.

Why is the federal government involved with crop insurance?  Why is the federal government subsidizing farmers?  Why is the federal government funding catfish inspections?  Why is the federal government funding wool research?  Why is the federal government involved in the pricing of milk and sugar?  Why is the federal government involved in Christmas tree advertising?

Is this really the role of government?  Much of this goes back to the 1930’s with Franklin Roosevelt.  It just shows that it is hard to get rid of government programs once they come into existence.  They may go through some changes, but the spending and regulating continues.

This farm bill is also a perfect example of legislation that has concentrated benefits and costs that are spread out.  In this sense, it is a classic government program that is almost impossible to defund.

The concentrated benefits are the lobbyists, the farmers, and the other special interests, all of whom will receive millions or billions of dollars because of this legislation.  They have a strong interest in lobbying politicians and lining their pockets to make sure it passes.  The special interests will devote a lot of time and resources because of the high payout.

Meanwhile, the costs are spread out, although in this case they aren’t that minor when taking the whole bill into account.  Most legislation that costs “only” a few million dollars here and there does not get any attention, unless it somehow gains national attention because it carries a particular symbolic message, especially with social issues.

But in most cases, the costs are spread out such that the opposition is not nearly as strong as the proponents.  Even for legislation that will cost you $1,000, you perceive that it is not worth your time and money to try and fight it.  You are probably correct, unless there are thousands or millions of other people willing to contribute to the cause.  The opposition, in most cases, simply won’t be as well organized and as well funded.  The incentives are far greater for the special interests.

This will only change in one of two ways.  One way is for the government to run out of money and be forced to stop or cut back on this type of funding.

The second way is for a large percentage of the American population to demand an end to these government welfare programs.  It is not enough just to say that you oppose them.  You have to stop supporting the people who support such programs.

I use the terms freedom and liberty somewhat interchangeably, as do most people.  I have seen it pointed out that there is a difference.  Liberty means that you are free from others (including government) encroaching on your person or your property.  In this sense, liberty is a political term.

Freedom on the other hand can be more personal.  You may have the right to do something, but it doesn’t mean you can do it.  You may have the liberty to sail around the world, but you don’t really have the freedom to do it because you lack the money and time.

This all depends upon definitions, but it makes a point for this piece.  Many people are at liberty to do many things in life, but they may not have the means to do them.  We do live in a world with scarce resources.  In our world today, a mark of wealth is not necessarily to accumulate resources, but to accumulate money, which can be used to buy resources.

This brings me to the topic of accumulating money.  There are some people in this world who actually look down on it.  They think it is a bad thing to accumulate money.  While many Americans have this attitude, I think Americans tend to have a much better appreciation for wealth accumulation than most other places in the world.  There are a lot of cultures that take an attitude that is negative towards accumulating wealth and even just being successful.  This is one of the reasons parts of the world are so poor.

What amazes me though is that many people, including Americans, do not see a point in saving money.  They want to live for today.  That is why about half of Americans live paycheck to paycheck, or at least one of the reasons.

It is funny to me when I hear someone accuse others of being greedy simply because they save money.  If anything, wouldn’t it be the opposite?  The saver is delaying gratification and is not spending his money on unnecessary things that only bring short-term happiness.

But it is especially strange to me that so many people don’t understand why others would save so much.  They don’t understand that it can bring a person security and freedom, all at the same time.  Of course, people who tend to be critical of savers tend to be people who don’t have any money themselves, and are also very short-term oriented.  They cannot delay gratification for the future.

Having money can give you security for various reasons.  Obviously, if you lose your job or main source of income, having money means having a cushion.  You aren’t going to starve.  You may not even have to cut back on your lifestyle if you have enough in reserves.

There are even more extreme examples where having money provides security.  If you get sick and need the best treatment in the world, don’t count on your health insurance to cover it for you.  If you have money, you have the means to try an alternative doctor halfway around the world.  You have the means to try special therapies that may be expensive.

But the biggest thing that shocks me about those who are critical of savers is that they don’t understand the huge benefit of freedom.

If you ask most people what they would do first if they won the lotto, what is the number one answer you would hear?  The first thing most people would do with the money is use it to support themselves so that they can quit their job.  That is the number one reason people want to win the lotto.  They want to say goodbye to their job.

This is freedom.  If you accumulate a lot of money, it allows you to do things that others simply cannot do.  Even if you don’t have enough to retire, you can always quit a stressful job and find something easier, even if it means less pay.  And having money also means that you can pursue work that is more meaningful to you.

I think the reason that this doesn’t occur to the saving critics is because they can’t fathom the idea.  They live paycheck to paycheck and they have absolutely no hope of retiring before the age of 65 (or even later) unless they do win the lottery, especially since big pensions are becoming a thing of the past.  They cannot understand someone accumulating enough capital to actually have the freedom to walk away from a job.

In terms of the distinct definitions of freedom and liberty, it is clear that money doesn’t buy you liberty, unless you count hiring good lawyers and accountants to help you legally avoid taxes and other government dictates.

But having money does give you freedom, as long as there is still some degree of liberty.  Even if you are not anywhere close to being able to retire, having at least some money gives you a cushion and some peace of mind.  It certainly doesn’t make you greedy.  It means you can somewhat prepare for an uncertain future and it means you have a little more freedom in reserve for when you may need it.

The Federal Open Market Committee (FOMC) released its latest statement on Wednesday January 29, 2014.  Its statement was very similar to the previous one in December.

The main thing of interest coming out of the meeting was the Fed’s rate of asset purchases (money creation).  At the last meeting, it was announced that the Fed would “taper” by $10 billion per month.  Instead of inflating at $85 billion per month, it would inflate at $75 billion per month.

With the latest statement, the FOMC announced it would taper by another $10 billion.  So starting in February, the Fed will add “just” $65 billion per month to its holdings.

While this was widely expected, there were growing doubts about the continuation of the taper because of the bad economic news over the last couple of weeks.  The unemployment rate dropped, but it became evident that it was only because people stopped looking for work.

In the last week, the stock market has been doing terrible with news of weakening in China, as well as currency crises going on in various countries.  It seems that a lot of fear has quickly returned, and this time it included investor fears.

This was Bernanke’s final act as Fed chairman.  He will pass over the reigns to Janet Yellen this weekend.  I find the situation quite ironic.

When Bernanke took over from Greenspan, the economy seemed to be booming.  Bernanke has a bad reputation now as a money printer (even though most of it is done digitally and not by actually printing money).  But when Bernanke first became Fed chairman, he actually took a tight monetary stance.  It was under Bernanke’s watch that the Fed stopped inflating and kept the monetary base fairly steady.

It was these actions that triggered the whole crash, but it was not the cause.  Real estate started to go bust and then we hit the fall of 2008 when stocks collapsed and the whole financial system seemed to be on the edge of a cliff.

This was mostly due to the easy money and low interest rate policies of the Fed under Greenspan.  This is what caused all of the malinvestment, including the housing bubble.  Bernanke’s action of tightening is what exposed the malinvestment.  It wasn’t until after the whole financial crisis became evident that Bernanke started to inflate like crazy.

It seems that Bernanke may now be doing to Yellen what Greenspan did to him.  He is setting her up for a fall.  Under his watch, the Fed has more than quadrupled the monetary base since 2008.  It has caused a stock bubble and a huge misallocation of resources.  As the rate of monetary inflation goes down, these malinvestments will be exposed.  If the Fed keeps tapering and sticks to it, then we are likely to see a severe recession.

Bernanke started the tapering just before leaving office.  Now Yellen will have to deal with it.  This isn’t to say that the Fed can’t reverse course.  If the economy starts to get really bad, then I don’t think it will shock any of us if Yellen starts increasing monetary inflation back to $85 billion per month, or even more.

When things finally fall apart, I am glad that it will be someone like Yellen who will take the blame.  She is a Keynesian (or worse) and she believes that more monetary inflation is the answer to most of our problems.  When things go bad, her philosophy can take the blame, just as it should.

I have to confess that I did not watch the State of the Union speech.  I will read the highlights.  There are too many reasons not to watch the State of the Union.

First, half of the time is taken up by the entrance, the exit, and the applause.  Maybe it is more than half.  If you are really interested in what is being said, you can probably read a transcript in 20 minutes.

Second, I don’t really want to look at the expressions of the Vice President and the Speaker of the House, who are sitting behind the president.  It doesn’t seem to matter who they are.  I just tend not to like them.  I like them less than the average politician, which is pretty bad.

Third, I don’t believe a word that is coming out of the president’s mouth.  It is not that everything he says is untrue, but anything that I am not sure about, he is probably lying.  I am not just talking about Obama.  I am also referring to his predecessors.  It seems you have to basically be a liar to get to the top position in politics.

A fourth reason I don’t like the whole event is that it is all so phony.  Sometimes just one side will stand and applaud.  Other times, the whole room will stand and applaud.  It is a show for the American people to make them believe that they have real disagreements over critical issues.

The two major parties will disagree over whether to have 50,000 troops in Afghanistan or 70,000 troops (or pick a number).  They will disagree on whether the tax rate should be 36% or 39%.  They will disagree over cultural issues, just to get their bases impassioned.

But then the two parties will agree and hold hands on certain issues such as fighting terrorists, saving Social Security, getting benefits for veterans, and saving puppies from falling trees.  While I may have exaggerated on that last item, Obama could have mentioned it in his speech and everyone would have felt compelled to stand.

The politicians of both major parties are in complete agreement over making government bigger and more powerful.  They will frame it in different ways to appeal to their bases, but don’t be fooled by the rhetoric.

And that leads me to my fifth point about why I don’t pay attention to the State of the Union speech.  Most of what is said, even if it were well intentioned, will likely never happen anyway.

I can remember Bush talking about partially privatizing Social Security.  It was all rhetoric in an attempt to placate his base.  He knew this would never happen and he had no intention of it happening.

The State of the Union speech is nothing more than campaign propaganda.  The president will attempt to take all of the credit for all of the good things happening.  He will also blame all of the bad things on the opposing party for being “obstructionist”, or difficult to work with, or too rigid.

It doesn’t seem to matter who is president.  And even if the same party controls the presidency and both houses of Congress, the president will still try to blame the problems on the other party.  It happened under both Obama and Bush.

I will read the headlines to make sure I didn’t miss anything important, but that is unlikely.  It is even more unlikely given that Obama is a lame duck now.  Even if he had anything interesting to say, I wouldn’t believe it anyway.

Money management can be a tricky subject.  Everyone’s situation is unique, but there are a lot of situations that are similar and can often be an issue of debate on how best to handle them.

For instance, let’s say that someone has $50,000 in savings in a bank account (with no other significant savings and assets) and also has $50,000 in student loan debt.  Should the person use the savings to pay off the student loan debt?

From a numbers standpoint, it is far better to pay off the debt, assuming that the interest rate is higher than what the money would be earning in the bank.  At today’s rates, it would be safe to assume that the interest rate on the debt will be higher.

The problem here is the uncertainty of the future.  Let’s say the person lost his job and could not find other work right away.  He would need an emergency fund.  So in that situation, he would be better off with $50,000 in the bank and student loan debt.

If he had used up all of his savings to pay off the debt, he wouldn’t have any cushion.  He might end up using credit cards, ultimately making his situation possibly worse than having the original student loan debt.  Or worse, he might end up living in virtual poverty until finding a new job.

Of course, if the person had a low paying job and had very low living expenses, then maybe using a good portion of the $50,000 to pay off the debt would be a good idea.  The person figures that if he loses his job, he can probably find another one quickly due to the already low wages.  Or maybe he lives with family and knows that he would not be out on the street if he lost his job.

Again, this just shows that each situation really is unique.

Another interesting scenario is if someone has an employer-sponsored 401k plan and also has credit card debt or student loan debt.

Let’s say that someone has $20,000 in credit card debt and has to choose on whether to contribute to his 401k plan.  If he contributes, he will get a 5% match from his company.

While some people see the 5% as free money that should not be turned away, it is also hard to argue with the concept of getting rid of credit card debt first.  If the person can only make the minimum payments on the debt, then perhaps he is better off not contributing to the 401k for a while and getting the debt paid off, assuming he is disciplined enough to do so.

If you put money into a 401k, you are really locking up your money.  You can’t really access it in most cases.  If you lose your job, you could take a withdrawal, but then you would pay taxes and a penalty on top of it.

It is also important to acknowledge that there is an emotional aspect about money management.  It is not all numbers.  Most people will gain great satisfaction from paying off their credit card debt.  It is like new found freedom when it finally happens.  And having credit card debt can be a great burden and cause some people a lot of emotional stress.

Even if contributing to a 401k is better in terms of the numbers, it might be worth the emotional benefit of getting rid of the credit card debt.

So while there isn’t always a right answer to certain questions about money management, the right answer often lies in the emotional well being of the person.  Every situation is unique and every person’s attitude and personality are different.

If you are ever having trouble making a financial decision, figure out which one will help you sleep the best at night.  In most cases (not all), that will be the best decision.

On Thursday, January 23, the Dow sank over 175 points, losing more than 1% on the day.  While it was a bad day for the overall stock market, it was a good day for bonds and gold.

The 10-year yield went down to 2.77%, meaning bond prices went up.  Meanwhile, gold went up almost 2% to go over the $1,260 per ounce level.

Stocks were supposedly down because of fears over a slowing economy in China.  But while that news is interesting, I would like to focus on bonds and gold.

It is noteworthy that they are moving somewhat in tandem.  This has not always historically been the case.  In the 1970’s, during a period of increasing inflation, gold performed well and bonds performed poorly with increasing interest rates.

In the 1980’s, things switched up.  As inflation fears faded, gold went down and interest rates also went down, driving bond prices up.

It has only been in the 21^st century that the two have been more highly correlated.  Gold finally started to do well again at the turn of the century, after having been a terrible investment for the previous 20 years.

Meanwhile, bonds continued to do well, as interest rates went to historic lows.  While bonds have not done as well as gold over the last 12 to 14 years, they have still been a decent holding.

As stocks went down on Thursday, investors turned to both bonds and gold.  One thing that the two investments have in common is that they are both sought after for safety.  When investors are fearful, they will tend to go to one or the other.

The difference is that fearful investors will turn to gold when the fear is inflation.  Investors will turn to bonds for safety when the fear is recession, depression, or deflation.

While Thursday’s market in no way makes a trend, what if investors continue to sell stocks?  Where will they go?

Right now, it looks as if they may be undecided.  Perhaps a better way of stating it is that different investors are fearful of different scenarios.  The people buying gold are worried about more Fed inflation and a depreciating currency.  People buying bonds are worried about another major downturn in the economy.

We don’t know which ones will turn out to be right.  Maybe both bonds and gold will continue to do well.  Or maybe Thursday was a trick and we will see stocks regain their footing and eventually surge to new highs.

2014 could be an interesting year.  The Fed has created quite a mess with all of its so-called quantitative easing, which is nothing more than creating money out of thin air.

If the economy hits another major downturn, will we see the 1970’s again with rising inflation and rising interest rates?  Or will we see 2008 again with a major recession and relatively low price inflation and low interest rates?

If stocks do poorly in 2014, it will be interesting to see who wins the battle for the money looking for safety.  Will it be the bond buyers or the gold buyers?  Maybe it will be both, at least in the short run.

UPDATE:  As an additional note, this post was first written on Thursday night.  Following that, on Friday, January 24, the stock market tumbled even more.  Bonds were up again and gold was up slightly.