My New Subaru is an Old Dodge Durango

As I departed my previous employer, I had the option to cash out the Roth portion of my 401k without incurring any taxes, but it wasn't really so much an option as a necessity. Since my new job paid less salary, it was necessary to cut down the monthly expenses so that we could afford to trade money for time (an investment which has paid huge dividends and which I could never regret).

The largest and easiest expense to slash was the monthly car payment. I'm think we should consider changing this term to car-tithing instead of payment because we seem to worship new cars as a society (or new anything for that matter) and because the term payment makes it sound like you'll be done making them some day.

For today's debt-enslaved common man, it looks to me like the most you can hope for is the ability to scrounge just enough of your income from the grasp of debtors to enjoy a tiny bit of freedom in the last five years before you die. To those who feel the same, this is my slice of light, not at the end of the tunnel, but the wealth of light you can bathe and soak in by finding the nearest exit and leaving the tunnel all-together.

"Yes there are two paths you can go by, but in the long run, there's still time to change the road you're on."
-Stairway to Heaven, Led Zeppelin

Let's skip to the core of the story; We were about to have a second child and already had two dogs. We take road trips at least once a year, sometimes twice, we frequently browse second hand stores for furniture and other supplies, so flexible space was absolutely required. We live in the Pacific Northwest, home to rain, mud, black ice and (twice a year) formidable snowfall, with wonderful opportunities to go camping, making it a necessity to have a 4x4 or AWD vehicle. I do most of my own mechanical work, so part availability and engine design were also large factors.

This left a large number of options to consider, even within our planned ceiling of less than $5,000, but the only thing we really new for certain was that our beloved Subaru Legacy was no longer going to work. When we bought it we were a couple with two dogs and plans to have two children, but none so far. We were basically buying a car for what we thought would help us the most, but had no clue what that really was. I find that most people shop this way and I believe that it's frankly impossible to get things like this right on the first (or sometimes second or third) try when you haven't been through the thing for which you are trying to prepare. I can't say enough good things about Subaru, they are very well engineered vehicles with engineering principles that everyone could learn from, but that would be an entirely different story, instead I think it's sufficient to say that we had to take a different road this time.

Sometimes when I think about it, I still feel a slight flash of heat through my veins when I consider the way things fall into place sometimes and the way that choices stand right in front of us and nag until we finally see them. At that point we realize that the choice was always there, all we had to do was recognize the choice and make it. After using the cash from my retirement to pay off the car, I saw it in front of me as if I had finally taken a step back to see this more clearly. I could make less money, pay off all of my debt, put a new roof on my house and also get a vehicle that would better serve my family's needs for the current time. All I had to do was step away from the "common sense" that I had given in to a few years earlier.

To be specific, I never thought I would buy a new car, everyone is well aware of how quickly cars depreciate immediately after their initial purchase and for several years there-after, but when we bought our first Subaru Legacy in 2005 we considered it a good buy since the used cars which met our qualifications were priced within a few thousand dollars of the new cars that met our standards. Even now, I think it was the right choice for the time, especially considering that we had planned to use this car for pretty much the rest of our lives. In that situation, knowing that you've owned and maintained the car properly can make this a justifiable expense. Two years later, however, the Subaru dealership offered to pay off our 2006 Legacy and give us a 2008 for the same price, which was also a great deal, but three years later and I was already looking at other options again.

If you are an excellent negotiator, you can definitely buy a new car every two to four years and end up paying pennies per mile (in the case of our two new cars, a net cost of 17 cents per mile is pretty good), but it requires you to dedicate a portion of your monthly income to indefinite debt. The alternative philosophy which I previously and currently utilize works from the other end of the spectrum, where you buy a vehicle that has already depreciated, but still has many miles to offer you with a few repairs along the way. The social philosophy about vehicles in general  seems to be that you should avoid repairs at any cost and that a vehicle which requires repairs, or might require them (especially expensive ones) is not a good buy and should be avoided. The new vehicle (or anything for that matter) philosophy is patently backwards because it expects a complex machine to operate flawlessly, which is like betting on black and red at a roullete table. Eventually the ball has to land on zero and the more time you play, the more likely it is to happen.

I've illustrated that this can work at the expense of perpetual debt, now let's talk about the freedom that the inverse strategy offers. It requires discipline both in building cash savings to start with and in spending that cash savings on expensive repairs when the time comes. The idea is simple, you don't have to drive a pile of junk, just find a reasonable car that is in wide use (part availability and price advantage) and which is easy to work on (labor costs advantage). It will work with a car that you haven't selected for these qualities, but the more effort you put into selecting the best vehicle, the more you save, buy this vehicle outright, or if you have to finance it, you need to be able to make the payments while you save up for the next inevitable failure(Paying in cash also gives you flexibility with your insurance, since most cars, even new ones, aren't worth what full coverage insurance costs vs. the events they will pay for, it's an easy way to save).

Assuming you now have your car, stop and envision your car as what it is, a complex machine that has parts which will break down, some faster than others. Don't panic! Just breathe, all of these parts will not fail at the same time, most of these parts will last longer than the life of the vehicle, some of them will have to be rebuilt or replaced, it's alright, your car is not a ticking time bomb, just a machine. If you don't know about motors yourself, spend some time finding a mechanic shop that you are comfortable with. Despite what many people believe, most mechanics are completely honest and fair, but they get a bad reputation from people who don't understand the technical complexities and assume they must be getting scammed. You will have to define your own level of comfort and expectations, but unless you plan to do the repairs yourself (which I applaud), you need to build a working relationship with a shop you like.

Now that you have come to accept and understand that your vehicle will require maintenance and repairs you need to start saving money for these events. This seems to be one of the hardest parts for many individuals, but it should be easy to do. You used to pay $350 a month for a car with modest luxury options, saving $150 or $200 each month should be painless in comparison, especially since you get to keep the money until/when/if you need it. I personally use a separate savings account that is only for vehicle maintenance and I write that amount into my budget as a planned expense. Not only does this make cash readily available for unexpected repairs, it makes it easier to justify to myself when I need to do an oil change or a brake job. I know many people who put off regular maintenance like this to hold on to their precious dollars, but then end up paying more later to repair serious problems, or buy a new car. Ironically they usually feel as though their car has betrayed them, when the opposite is true and they should appreciate that their car was able to run so miraculously well without clean lubrication for five years (true stories). If you acknowledge this need up front and set aside money for that specific purpose, it may be easier for you to come to terms with.
In the end, after looking at different vehicles for a few months, we selected a 2000 Dodge Durango since it matched all of our criteria and had the bonus of being an (mostly) American made product. It also has the same motor that my Dodge Ram 1500 has, which raises my level of familiarity and makes buying certain parts very simple. The more time we have it, the more I like it, it's kind of like someone took a Jeep and put a station wagon on top of it and for all the extra room inside, it is only 16 inches longer and four inches wider than our Subaru was, so it fits right in our garage. It seats 8 if you use the front and middle center seats, so six adults fit very comfortably. The rear and middle seats fold down flush for cargo hauling, offering more interior hauling space than a small Ford Ranger with a canopy. Roof racks and a class 3 trailer hitch are standard as well, in case it wasn't utilitarian enough already.

It came with one big draw-back that turns many people away and that is fuel economy, we average about 15mpg in town and for general use. We haven't taken any long trips yet, but expect to get around 20mpg when we do since that's what the truck gets. This is enough for most people to disqualify it immediately and that's fair, but for us, it works fine. If I was commuting to Tacoma daily, I'd obviously be broke, but we rarely leave the county as is and I generally take my motorcycle as often as humanly possible, so we don't even notice. It is also noteworthy that many smaller SUV's with smaller and newer engines get the same mileage. The Jeep Cherokee, Nissan Xterra, Jeep Wrangler, Chevy Suburban and Ford explorer, for example, all ring in with similar or even worse mileage. Even among the more compact SUV's of the world, like the Subaru Forester, Ford Escape and Toyota CRV, the mileage is only a little better (at a big sacrifice for space).

As a cost comparison, if we were driving our Subaru to Arcata to visit Brandy's family, we would have to pack very carefully, cram every last bit of luggage in and still wouldn't be able to take the dogs for a $30 fuel savings each way. That's fairly easy to justify for the comfort and versatility we get in exchange.

Now back to the cost of repairs. The single biggest repair expenses that could come up could cost as much as $3,000, which is about what we paid for the vehicle, but what we paid or what it is worth is irrelevant in this scenario, it is about how many miles you will get out of the repair you make. A new transmission or one properly rebuilt should give you 100,000 miles of service, which translates to $.03 per mile. At minimum, it's safe to assume that you won't be paying $3,000 every year, more like a few hundred most years with the occasional $3,000, that's a bargain compared to the $4,200 you would pay every year for that modest new car which didn't need any repairs.  Even if you did spend $3,000 a year on repairs (which is pretty much impossible, even if you drive a very rare and hard to fix vehicle), you would still be saving money without adding to our consumer waste problem.

Aside from all of these benefits, the one I like the most is the freedom from indebtedness. Until you experience it for yourself, it's hard to understand, but to put it simply, it is a healthy load off my mind to know that I could sell this vehicle and buy another, or smash it into a tree without being on the hook for a single dime. I would say that this is the kind of freedom that money can't buy, but it wouldn't be true, because well spent money can absolutely buy this freedom.

The first step is a desire to get out of the mouse wheel and stop caring about the reward, then you'll see that the reward was an illusion all along and you will be ready to begin looking for the real and attainable things in life.

Revisiting the Case; For Gold

A few months ago I recorded some of my thoughts and feelings on monetary policy. You can view that HERE if you didn't get a chance to see it initially. I have finished reading Ron Paul's "The Case for Gold" and I'm ready to revisit my thoughts to see what may have changed.

Overall, the book isn't something everyone could read, you need a good base understanding of how the money system operates before you can get any useful information. That being said, there are a few good short videos and articles which can bring you up to speed quickly. I consider this type of self-education essential for all citizens if we have any hope of avoiding future economic problems and also solving the problems we face right now. It should be clear to everyone, at this point, that it is not as easy as simply cutting one type of spending and increasing another, nor will any amount of so called quanititative easing, bailing out or austerity measures reconcile problems when the system, at it's core, is incapable of growth without constant inflation. Thusly, I encourage everyone to read up on this for themselves, including Dr. Paul's book, which is certainly unparalleled in useful information regarding the former success and failures of free market monetary systems within and without the United States, along with the consistent failures of fiat based paper money.

To digest the book as much as possible for the sake of this discussion, Ron Paul's basic case revolves around examples of every government controlled paper money system in recorded history becoming debased, first to the point of worthlessness, then collapse. He then contrasts that with systems that used specie directly or had paper money that was backed by specie, all of which were very efficient and well regulated through free-market principles, leading to extremely prosperous economies. Contrary to what many people believe, he does not propose resolving this through an abrupt dismantling of the Federal Reserve Bank and an instant return to a gold standard dollar or specie alone. His plan is actually very balanced and can be implemented in a way where it either works or fails, we don't really have anything to lose.

The idea is that the U.S. Treasury would begin minting gold and silver coins as a competing currency to the Federal Reserve's dollar. At the same time, laws which currently ban citizens from keeping savings or making payments in specie will be lifted so that private citizens can choose the currency they wish to use. In response to this, the Federal Reserve would be forced to set a real value on the dollar, or at least to allow free markets to set the value. With the value of gold remaining constant in the face of an ever fluctuating dollar, people would naturally begin using and saving in gold as an alternative. There are many more details which I hope you choose to read for yourself. As I said, the plan offers no downside, if it doesn't work we are still using worthless paper money, but if it does, we can reap the rewards of a system based on tangible goods.

On to my original thoughts.

1.The Federal Reserve was only created to act as an executive credit card that could bypass a notoriously stingy congress.

Dr. Paul does touch on this topic, but he also shows many other past examples in our country and others where centralized banking have used similar agencies to increase executive access to money. This is almost unanimously done in times of war, or economic distress following expensive wars. He definitely supports the graceful dismantling of the Federal Reserve Bank (state sanctioned) monopoly, not to put them out of business, but to allow for the free creation of banks which can offer competing currency. Such an action would help keep all banks more competitive, honest and will make times of regression less severe, evenly spread and over quickly. He doesn't spend much time discussing the corruption of the Federal Reserve, or it's creation, I believe, because the error in allowing it to monopolize our currency seems self evident and also because it is only the latest flavor of the larger problem of worthless, debased currency (of which he has provides many other examples).

2. Paying interest to the Federal Reserve as a private institution is pointless since we could do everything they do, but without the added cost of interest and with the added benefit of running it with elected officials.

He touches the fact that we pay interest to the Federal Reserve for the money we use. His main focus is on the fact that this is an unfair and unnecessary monopoly. In the past, in our own country and in many others, free marketplaces which have been operated on a truly level playing field have allowed banks to create their own notes (essentially money) backed by specie, which allowed consumers to choose their bank based on the reputation they had for being honest. the bigger underlying problem in those systems was when the lending pyramid (fractional reserve lending) became too big to support. Even with fractional reserve lending, however, truly free-market banks were still able to run functional systems through the use of private clearing houses and banking networks which ensured that consumers could trust an institution based on their reputation for providing specie upon request. More on fractional reserve lending in a little while...

Although he doesn't come out and say it explicitly, I think that Dr. Paul would not support paper money issued by the government directly, even if it was backed by specie, because the system would allow for too much corruption without any level of separation for the public who theoretically owned and was responsible for any mistakes. That is to say, if elected officials began debasing the currency, the taxpayer has to pay for their mistakes. When a private bank debases their own promisary notes, the investors in that bank have to pay for their mistakes. This degree of separation doesn't give our elected officials direct control, but it also gives us a layer of security in general. If this was done in a system with the appropriate number of national banks (thousands at minimum), the impact of even a few hundred corrupt banks failing would barely be noticed. He doesn't truly support the complete de-regulation of banking, he supports the right amount of regulation to maintain a level playing field. Since failure is more or less innevitable given enough time, we should adopt a system which allows failure to happen gracefully with the least impact to everyone.

3. The fractional reserve banking system is completely unfair and only makes higher profit for banks at the expense of greater, impractical debts for the people.

For those who don't understand how our current banking system works, I will explain as briefly as possible, for everyone else, here is a short review.

Fractional reserve lending gives private banking institutions the legal right to lend out more money than they have. A bank receives money from investors, depositors and payments made by the indebted. With a pyramid of 10-1, they can then loan out 90% of that money, holding only 10% of it in reserve for despositors who wish to make a withdrawl. In reality, they don't actually loan out money as cash, they write mortgages and promisary notes which only exist as contracts. So when if I make a $1000 payment on my mortgage, part to principle and part in interest, a bank is able to loan out (after expenses) 10 times that amount. They may have never actually possessed that money, they are simply allowed to make contracts of debt for that amount as long as they have 10% of what they are actually obligated to pay out in reserve. In a few months of operation, it's easy to see how quickly this system could get out of hand. At that, why permit a bank to more or less create funds that don't exist when your average citizen has no such ability?

There is a benefit to this system offers, which is flexible and rapid growth due to the widely available access to funding. A major industrial change is made easier to facilitate in a proven industry with an organization that has good credit history. That benefit, however, also rewards monopoly and in itself comes with great dangers to all of the investors, depositors and those who hold debt. In my opinion, the system allows too much risk for one benefit. The streak of 'bubbles' we have experienced in the last two decades are obviously exacerbated by credit which was too easy to come by and agencies who had no incentive to lend wisely.

4. Attempting to control inflation with interest rates does not work.

Dr. Paul didn't really cover this topic in any depth. If you are interested, however, there are many research articles on this topic which show that the control of the prime rate has had virtually none of the desired outcomes in control. We are in the midst of a perfect example of this since the rate is astoundingly low, but lending and borrowing are still suffering drasticaly.

5. Money is a representation of debt, in this case, money should circulate because the government prints it to pay for goods and services rendered. It is removed from circulation by taxes. This works kind of like an investment, where the money paid is reused exponential times so that when it is collected again through a tax, it should have served numerous people with beneficial exchanges before being collected as a tax. That being the case, even a high tax rate (which shouldn't be necessary in a balanced system) should reflect an equally high output of products.

This sentiment remains unchanged, Dr. Paul suggests moderating this by restricting the government to their constitutionally specified role of minting coins with silver and gold, making all payments in specie and accepting specie for payments of debt. Doing so would keep our government on a narrow path of honesty, where corruption will become obvious quickly.

6. In order to use government minted money as currency, it needs to be readily available to everyone. This means that annual spending (investment) should be very high, but that they should also succesfully balance debts using short terms. Instead of a system of unmitigated and substantial debt growth, it should be a system of frequent monetary rotation, but with controlled thought regarding our next moves.

Dr. Paul strongly advocates controlled debt, at the time of it's creation, our debt was nothing in comparison to what it is now and his predictions of out of control spending, booms and busts have all come true to a degree even greater than he suggested.