Reality Check Q&A #17

Gary North

Nov. 6, 2009

NEW BUSINESS

I have had a small commercial cleaning service for nearly 25 years. I am 43 years old. At one point in time had 60 employees. After years of nightmares with over 100+ W2's at the end of each year (extremely high turnover), employees were burning me out. I sold the business and a year later started another.

This time I taught people how to get into the cleaning business, got them established, contracted their services, provided them with customers and equipment and training. I now have over 12 subcontractors (I call them operators) and continue to develop the markets for the expansion of their business. In short, I am mimicking a franchise.

I have had success starting new people from ground zero, or helped a small service to grow. I enjoy this and would like to become a franchisor. There are several other large franchises that do exactly what I do and are very successful.

Is now a good time to risk close to $80K that would have to be borrowed? I wouldn't do it without a great plan, but regardless of how great my plan is, is now a good time to take this risk with our economy in the state that it's in?

If we are in a sustainable recovery, now is a good time. The reason is widespread fear by bankers and entrepreneurs.

Is this a sustainable recovery? I don't think so. I think this recession will falter because of rising unemployment, falling real estate prices, and rising taxes.

You have a good business. You should continue your plan to create a franchise. But beware of lawsuits, regulators, etc. Your legal bills must be budgeted for.

Are the existing franchises growing? If so, that is a good sign.

My attitude is that you should continue to expand. If I were you, I would start a subscription-based site for people who want to get into the field. Sell information. Charge an initial fee high enough to compensate you for your time. Then have a yearly subscription fee for access to questions and answers.

The start-up costs are under $5,000. The legal risk is minimal. I recommend MemberGate. It works well for my site, www.GaryNorth.com.

SAVINGS

What should my wife and I (both 72 years old) do with our savings and checking accounts NOW?

At your age, you want safety. The FDIC insures bank accounts. Congress will provide any bailout money needed to keep the FDIC in "business."

I think your best decision is to do nothing new.

INFLATION VS. DEFLATION

Regarding deflation versus Inflation, your position seems to be Inflation, but others favor Deflation, It appears to me that Deflation is what is happening and being made worse by deficit spending and money printing. Who's right?

I am. (Never ask a barber if you need a haircut.)

Deficit spending and money printing are what we have had cintinually ever since 1933. This has led to rising prices. We have greater Federal deficits than ever before. Over the last year, we have had greater money creation. All that is holding back a doubling of prices is excess reserves held by commercial banks at the Federal Reserve.

We will bet more of the same. This includes rising prices.

RETIREMENT

I have a 403b with my company, a non profit research institution. I put away 20% of my pre tax earnings. The 403b is with TIAA/CREF. Like most pre packaged products, I have limited choices available. About a year and a half ago, I moved my money from stocks, equities, and growth funds to a safe guaranteed fixed interest fund. For now, my money is "safe". I'd like to at least, preserve my savings or grow it if possible.

I think my job is safe for now. The institution would have to go down before I'd loose my position there. We had a defined benefit retirement plan which is now being restructured into a defined contribution plan. Any benefit I've accrued in my 18+ years will be added to my contribution style plan. What this means exactly, I don't know yet. The details have not been finalized yet.

For me to continue my lifestyle, I think I'll need 50K+ in 2009 dollars. My 403b now sits at about 250K. This is only 5 years at present value. If I keep working for another 16 years and keep up my 20% contribution, that will add another 4 years for a total of just over 9 years. That's if my account keeps up with inflation and the tax obligations. My accrued benefit will add something to this total, but I don't know how much.

It seems to me, I won't have enough money for my planned retirement. The way I see it, I could lower my standard of living, earn extra money now to add to my retirement fund, plan to continue working on a part time basis during my retirement, or find a way to make a better return on my retirement fund. The last option would be to move to a lower cost of living country.

Question: Am I on track? If not, what do you recommend?

You will not have enough money to retire.

You had better plan on working part-time after your retirement . . . at age 80.

FUNDING THE DEFICIT

Is the government printing money right now to cover indebtedness or is it borrowing it or both? How does someone know when the Fed prints money instead of borrowing it?

I provide a series of charts on my site, www.GaryNorth.com. A have a department, "Federal Reserve Charts." If you search for "Federal Reserve Charts," mine is the top Google ranking.

The chart to monotor is the Adjusdted Monetary Base: Short- term. The latest chart us here: http://tinyurl.com/2jyul. As you can see, the chart shows rapd growth in recent weeks.

However, the deficit's growth of $100+ billion a month far exceeds the growth in the monetary base. Most of this deficit is borrowed from outside the Federal Reserve.