Those who have taken my note class know I will often go over some of "the tricks of the trade" that lenders and credit card companies use to enhance their position.

Here is the technique that you will often see at this time of the year. To get you into the Holiday Spirit, often mortgage or finance companies will send you a card that says "Ho, Ho, Ho!! Merry Christmas!!! Since you are a valued customer, and we know how Christmas can be a financial burden on you, we are going to play Santa Clause and allow you to skip the December payment, so you will have more money for holiday gifts. We will just add your payment on to your balance, and you can resume making payments in January".

Sounds good, doesn't it? Well, if you are financially embarrassed at Christmas time, it might appear to be a generous offer. Why would they allow you to skip a payment? Out of the goodness of their heart, right? Nope, let's look.

Say you had a $100,000 mortgage @ 7% for 30 years with payments (PI) of $665.30 beginning in January 2010. In November 2010 after 11 payments, your balance is $99,071.58. So you decide to take up the mortgage company's offer and skip the December payment. This innocent act causes $665.30 to be added back to your balance. In January of 2011, instead of your balance being $98,896.32 (with a December payment), your balance is $99,561.60. Not much of a difference you say? Well, plug this amount into PV (Present Value), and look at what happens to N (Number of Payments). You have added 9 more months of payments to your loan. In essence you now have 357 months to pay off this loan, instead of 348 months.

Start playing with your calculator further and you will see that by allowing the payor to skip one payment a year, and adding the payment to the balance, this not only increases the balance, but also increases the amount of time to pay off the loan. When credit card companies or finance companies apply this technique to revolving credit, how long will it take to pay off a debt? I am reminded of a Johnny Mathis song, "Until The Twelfth of Never, and that's a long, long time." Finance companies want a performing note on the books for as long as possible. Every extra payment adds to their cash flow. By allowing you to skip one payment a year, this extends their cash flow. Meaning additional interest for you to pay and pay and pay.

Remember, "Let your money work for you, not against you".

Got questions or comments, be sure to contact me. It is from your comments and questions that I get the ideas from many of my articles.

If you know of anyone who has a Note they want to convert to cash contact me at www.hpnotes.com I do pay referral fees.

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The Democrats are the party that says government will make you smarter, taller, richer, and remove the crabgrass on your lawn. The Republicans are the party that says government doesn't work and then they get elected and prove it.
P.J O'Rourke

Several of my Tea Party friends have asked me if I were more optimistic about our economic situation since the Tea Party had an overwhelming victory in the national elections, and a "new, improved" philosophy has now taken over Washington. My reply is "I know what conservatives are against, but what are they for?". The standard reply is, "We are for "smaller" government." My answer, "HOW ARE YOU GOING TO HAVE A SMALLER GOVERNMENT AND KEEP THE SAME SYSTEM OF ECONOMICS?"

Remember, there are two, and only two, ways to organize an economy.

1.) Through free, voluntary trade of goods and services between individuals, where individual rights are superior to the state (Free Markets)

2.) A political body controlling the means of production and distribution of goods and services, where individual rights are inferior to the "needs" of the state, which falls under the umbrella of collectivism. Collectivism has many forms; socialism, communism, fascism, Nazism, statism, mercantilism etc. As a side note, wealth redistribution is one method of controlling distribution of goods and services; however wealth redistribution can also take on many forms. The point being SMALL GOVERNMENT AND A COLLECTIVE SYSTEM OF ECONOMICS IS A CONTRADICTION IN TERMS.

A few examples of wealth redistribution are subsidies to individuals, subsidies to corporations, guaranteed income, guaranteed wages, guaranteed retirement, estate taxes, subsidies to farmers, subsidies to "non profit" organizations, price controls, price supports, f*ree education, government guaranteed loans, protective tariffs, FRE E medical care, etc. Frederic Bastiat, in his famous treatise "The Law", also defines the numerous characteristics of wealth redistribution. (Scroll down to "Legal Plunder Has Many Names") I strongly suggest everyone take the time to read "The Law" in its entirety. Bastiat was fighting the battle for free markets in the middle 1800's that many of us are fighting now.

It is obvious we do not live under the economic system of free markets, but rather under a collectivist system where many forms of wealth distribution has crept into the fabric of our society. Have not the Republicans and newly elected Tea Partyers accepted wealth redistribution as being both sustainable and moral, but argue only the degree of wealth redistribution? Is this their answer to "smaller government"? For example, the Repubs are now touting "AWAY WITH EARMARKS". Is this not treating the symptom, and not the disease? In other words, let's keep our system of wealth redistribution, but limit how politicians can use the system of wealth redistribution to their particular advantage? Who in the Republican Party has exclaimed, "We are in economic turmoil because of government programs. All wealth redistribution programs should be eliminated IMMEDIATELY?" I know of none. I know of no politician that objects on philosophical grounds the concept of wealth redistribution. So we are back to my basic question I ask my Tea Party friends. "How you do have a smaller government and keep the same economic system?" It is an illusion and fantasy that government spending will not increase if we keep the same collectivist system of economics, but merely change the politicians.

Tom's Axiom: When wealth redistribution has been deemed moral, the only thing left to do in a democracy is to vote to determine who is to be plundered and who is to receive the plunder. The newest fiasco of the "Obama/Republican Compromise" on extending tax cuts proves my point. The Republicans did not argue that wealth redistribution was neither moral nor sustainable, but rather the Republicans debated who is going to be plundered and who is to receive the plunder.

It appears that those businesses making over $250,000 a year have received a temporary reprieve of having their property confiscated for redistribution. However, those who have earned wealth of over $5mil will have 35% of their wealth confiscated at death. And moreover, we are suppose to rejoice because the politicians do not confiscate over 50% of our wealth when we die. (Please tell me what moral code gives politicians and bureaucrats the right to confiscate an individual's property at death) Do I hear voices from the Republicans challenging the morality of politicians confiscating property upon the death of the owner? No; only how much. Is this not debating "who is to be plundered", while accepting the tenets of wealth redistribution?

On the other hand, those who are not working, nor producing can now enjoy and extension of "benefits", at the expense of those who do produce and will have to pay for it. Conservatively, this political "compromise" will cost around $180 billion; to be paid for by whom is not discussed, so it is not clear what group will actually be plundered. Clearly this "compromise" proves Republicans consider wealth redistribution to be both moral and sustainable, and the only debate was who is going to be plundered and who is to receive the plunder.

The insanity deepens when both parties proudly proclaim, "This compromise is the "stimulus" needed for economic growth!" Are we at the point where not raising taxes and letting individuals keep the fruits of their labor is now deemed to be a "stimulus"? Is this not like politicians saying, "Rejoice, we are not going to raise your taxes to 50% of your earnings, therefore we are creating an economic stimulus and you should be thankful".

The economic turmoil we are experiencing, not only here in America, but world wide is the result of over a century abandoning the concepts of free markets and embracing the tenets of collectivism. The nature of all collectivist systems is to consume without producing. We have reached the saturation point where consumption has exceeded production. Without even delving in Europe's collapse, here at home Social Security is broke, Medicare is broke, states and municipalities are broke, public pension funds are broke, yet I am suppose to be optimistic because politicians that want "smaller government" have been elected to office. Herein lies the fantasy that there can be "smaller government" while keeping the same system of wealth redistribution. It cannot be done.

P.S. Since I started this article, a new measure was added to the "compromise" which is another case in point. It appears subsidies for ethanol have been included in the final package. No matter that ethanol is inefficient, and does not cut down on emission, the ethanol industry will be protected by both subsidies and protective tariffs. We, the consumer and tax payer will be plundered by financing this "compromise" by higher taxes and higher gas prices, but corporations like Arthur Daniel Midland will be the recipient of both subsides and price protection. Where is the outrage from the Tea Party Movement?

Summary: A change in politicians, while keeping the same system of wealth redistribution, creates an illusion of improvement. When wealth redistribution has been deemed moral, the only thing left to do in a democracy is to vote to decide who is going to be plundered and who is to receive the plunder. The Tea Party movement has not condemned wealth redistribution on a philosophical level, only in the manner the wealth is being redistributed. This does not make me optimistic.

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