The Financial Riddler 1-16-24

Don't Let This One Depress You. It's Particularly Tough.

1. How many times higher is the murder rate — homicides per 100,000 people — in Honduras than in the U.S.?

   a. 1 Time

   b. 3 Times

   c. 10 Times

   d. 18 Times

   e. 25 Times

And the answer is …

The answer is 18 times. In Mexico, it’s four times higher. In Africa its more than twice our rate. In Europe, it’s only one third as high.

2. Is India experiencing a boom in

   a. Manufacturing?

   b. Agriculture?

And the answer is …

The answer is agriculture. Indian employment in agriculture is growing by tens of millions. Employment in manufacturing is flat. Almost a quarter of a billion Indians work in Agriculture. That’s compared to a population of 1.4 billion, which is even larger than China’s.

3. How large is GDP per capita in India? U.S. per capita GDP is, for reference, over $70,000.

   a. Over $30,000

   b. $20,000 to 30,000

   c. $10,000 to $20,000

   d. $5,000 to $10,000

   e. Under $5,0000

And the answer is …

India’s per capita GDP is just $2,600. The country is extraordinarily poor on a per-person basis. Yet, it’s per capital GDP has been growing very rapidly in recent years. Given its massive population — the world’s largest, its GDP is almost $4 trillion. That’s extraordinary for an impoverished country. Still, China’s GDP is almost five times higher. However, if India’s per capital GDP — a crude measure of worker productivity — continues to grow rapidly, India will have the world’s first or second largest economy by the end of the century.

4. How many of the Republican Party’s 2,429 delegates are chosen in the Iowa Caucus?

   a. 321

   b. 266

   c. 130

   d. 82

   e. 40

   f. 16

And the answer is …

The answer is 40. Plenty of Republican candidates have won in Iowa only to lose their party’s nomination. Just ask Rick Santorum and Ted Cruz.

5. What was the inflation rate last year?

   a. 7.1 percent

   b. 5.3 percent

   c. 4.6 percent

   d. 3.4 percent

   e. 2.6 percent

And the answer is …

The answer is 3.4 percent. It was 8.3 percent in 2022.

6. Why are mortgage rates so high — close to 7 percent — even though inflation has dropped dramatically? And why are they projected to fall very gradually?

   a. Lenders are demanding a much higher inflation-risk premium.

   b. Lenders are demanding a much higher inflation-risk premium.

   c. Lenders are demanding a much higher inflation-risk premium.

And the answer is …

Lenders are demanding a much higher inflation-risk premium. Mortgages they issued several years ago — at extremely low rates — are being repaid and will continue to be repaid in watered-down dollars. As one of our most articulate former presidents, George W. Bush, put it, “There's an old saying in Tennessee — I know it's in Texas, probably in Tennessee — that says, fool me once, shame on — shame on you. Fool me — you can't get fooled again.” Lenders were fooled very badly by unexpected inflation. They don’t want to be fooled again. Their only way to protect themselves is to lend at a higher interest rate. This said, mortgage rates may come down faster than predicted. The likely causes for the post-COVID inflation — supply-side bottlenecks and excessive government transfer payments — aren’t likely to be repeated anytime soon. In addition, lenders can hedge inflation by buying as well as a selling IOUs.

7. What share of Americans take their Social Security retirement benefit at age 62? Note: It’s 76 percent higher adjusted for inflation if you start collecting at age 70.

   a. Less than 10 percent

   b. 15 percent

   c. 20 percent

   d. 25 percent

   e. Over 30 percent

And the answer is …

The answer is over 30 percent. Indeed, almost one in three covered workers claim their retirement benefit at 62, when it’s first available. Others collect widow(er), divorce widow(er), spousal, and divorce spousal benefits early even though these benefits are also dramatically reduced when taken early. In some cases, taking reduced benefits early is exactly the correct thing to do.

Run my company’s $39 tool — maximizemysocialsecurity.com — to explore how best to maximize your lifetime benefits. Collecting the right benefits at the right time is far more complicated than you might think and the only way to make sure you get a fully correct answer from Social Security, by either visiting their offices, calling them on the phone, or using their on-line calculators is to not visit their offices, don’t call them on the phone, and don’t use their calculators. In short, tell Social Security what to do, don’t ask Social Security what to do. Document (tape calls, send certified letters, etc.) to have proof that you told them X when they tell you years later you told them Y. And use either maximizemysocialsecurity.com or maxifiplanner.com (which does full lifetime planning, but the same Social Security calculations) to check you aren’t being over or underpaid.