Over the last 3 or 4 months, several news analysts have described the debt and deficit problems of Greece. Many of these same analysts decided to compare Greek debts and deficits to the United States.

They cited data on Greece that shows a high and rising ratio of debt-to-Gross Domestic Product that increases the risk of default on their debt payments.

After admitting the United States is not close to such a high ratio and in no imminent danger of default, they ended by arguing that we will be if we keep our spendthrift ways.

But there is one important difference in Greek finance that makes their government finance different than the United States.

How Greece Lost Control of its Financial System

Before Greece became part of the European Economic Community, they managed their economy with their own currency, which was known as the Drachma.

By joining the European Economic Community, they got easier and cheaper access to European markets, but that advantage required them to replace the Drachma with the European currency known as the Euro.

When the change took place, Greece lost independent control of its financial system. Now they have the same relationship to the EEC that California or New York or any of our states have to the Federal Government.

When Greeks controlled the Drachma, there was no situation where they would be unable to make debt service payments because they could always create more money. Now, they need Euros to pay their debts, but they cannot create them if they run short.

Public Sector Austerity and Private Sector Bankruptcy

In a personal or business bankruptcy, a court wipes out defaulted debt. In exchange, the court can seize remaining assets and sell them to pay creditors.

Countries can wipe out their debts by refusing to pay, but whatever else happens depends on investor confidence and politics, but not bankruptcy law or a court.

Greece was able to successfully raise $2 billion, but at a 4.55% interest rate. Investor confidence has to be paid for with higher interest.

Without outside investors, Greece will have to live within its means, cut spending and get their fellow citizens to pay more taxes or lend to their government. Public sector austerity is the equivalent of private sector bankruptcy.

Could the United States End Up Like Greece?

In the United States, there is no situation where the Federal government would be unable to pay their debts. There will never be a refusal to pay, but paying debts with new money can generate inflation and erode investor confidence very similar to Greece.

Right now, inflation and interest rates remain low and there are many people unemployed. Still, the Federal deficit is ballooning to unprecedented levels — but it is not too big yet.

If debt and deficits get too big, we will not be bankrupt and unable to pay our debts. Instead, inflation and interest rates will rise. Economic change will automatically impose the austerity we are unable to bring about through the political process with changes in taxes and spending.

In that way, we could be just like Greece: public sector austerity equals bankruptcy.

The Obama administration continues to struggle with Chinese currency politics and policy.

Some in Congress are accusing China of currency manipulation, saying the Chinese undervalue their currency, which hurts jobs and companies in the United States.

The Chinese currency is known as the Yuan, although it is officially the Renminbi.

To Americans, the price of Chinese products means nothing until a Yuan price is converted to dollars and exchanged for Yuan.

When the Exchange Rate Increases, the Dollar Depreciates

A recent listing from the Wall Street Journal has the price of Yuan at $.1464 per Yuan. A higher U.S. exchange rate means the dollar depreciates against the Yuan for the same reason higher prices depreciate the dollar during inflation.

If the exchange rate of dollars for corn flakes rises from $2.79 per box to $3.79 per box, the value of the dollar depreciates against corn flakes because it buys less.

Every dollar price of Yuan converts to a Yuan price of a dollar. Divide the $.1464 into the Yuan to get 6.2827 Yuan for a U.S. dollar. If the U.S. exchange rate rises from $.1464 per Yuan to $.15, $.16 or more, the dollar depreciates, and the Yuan appreciates.

An appreciating Yuan will make U.S. products cheaper and encourage American exports and job creation here.

The big question, though, is this: what method do the Chinese use to undervalue the Yuan or keep the dollar price of the Yuan below the market price as people charge?

Exchange Rates, International Trading and Depreciation

From 1948 to 1971, the United States fixed foreign exchange rates with its trading partners by official policy. In that period, the fixed exchange rate overvalued the dollar, creating a large supply of dollars in Europe.

The United States Federal Reserve Bank had to remain ready to buy the dollars back from Europe to keep the dollar from depreciating because the Europeans wanted to sell their dollars for other currencies.

In the current period, the United States has not agreed to overvalue the dollar. Instead, it is the Chinese central bank policy to hold dollars rather than sell them and let the dollar depreciate.

Savvy Chinese know the Yuan is undervalued, and there is economic and political pressure to let the Yuan appreciate so American business have a better chance to export.

If they could exchange Yuan for dollars now at $.1464 and hold them in speculation, they would be able to profit when the dollar price of the Yuan rises by reselling the dollars at $.15, $.16 or more.

How Chinese Policies Prevent Dollar Speculation

For the Chinese to adopt a policy to undervalue their currency with the dollar, they have to prevent Chinese businesses, banks and individuals from speculating in dollars.

In other countries, especially in the 20th century, governments tried to prevent currency trading, but they found that trading occurred anyway in black markets.

In the old Soviet Union, authorities arrested people for what they politely called currency violations.

I have not read much about Chinese black markets. Maybe the Chinese have so much economic ownership and political control they are able to eliminate free markets and black markets.

Some of the problem, though, is American hang-ups. The American business community has decided it wants to have a policy of free trade, while the Chinese exploit these foibles to expand their exports with an undervalued Yuan at the expense of American jobs.

Still, the politicians blame the Chinese when what America needs is a little more sense, and a policy of managed trade.

I woke up to a shock as I went online to check my banking.

On the screen, one of the equities in my account was showing a value of $47,025,120.00.

Yes, $47 million.

As delightful a fantasy as that is, I had no real temptation to print off the screen and go take out a loan — I knew something was wrong.

Turns out, the equity is in the process of being taken private, and sometimes when that happens, the stock units get mispriced as the back office software collates outstanding shares in the process of automatically buying them from shareholders.

I knew right away that it was a math error: a "divide by zero" type of thing, and that the bank?s software would correct itself as the purchase process winds along.

The money wasn't real, so I wasn't touching it.

Coincidentally, I?ve known more than one person to whom a bank error has delivered an apparent windfall. Most of us know that fairy tales aren?t real, but thankfully we don't act like this guy, who reportedly gambled away £20,000 in two hours after finding money that had been mistakenly deposited in his bank account.

Look, there's really no major life lesson here, beyond sharing a laugh and remembering that you should always look a gift horse in the mouth.

As I've mentioned in posts over the past few weeks, on April 15 (that's tomorrow — and Tax Day) the price of the Automatic Finances ebook is going up.

The guide that today will cost you a measly $7 will be jumping up to $17 tomorrow.

So if you want to save yourself $10, you need to get your copy now.

Why I'm Raising the Price

Automatic Finances: 17 Days to Your Financial Freedom — the official title of the ebook — has been out for just about a year now. In that time, we've offered it for just $7, making it totally affordable for you to automate your finances.

Sales have been good. So much that I think I've been underpricing the ebook, and can get the same amount of sales (if not more) by pricing it $10 more.

So tomorrow, April 15, the price will jump from to $17. But today, it still costs only $7.

I've put together a whole page describing why the Automatic Finances ebook is right for you, so I won't get into all the details right now.

But if you want to save more for the future, effectively manage your finances, and worry less about money, you need to get your copy of Automatic Finances today.

Or get it tomorrow, and pay $10 more. Whatever you want.

If I were you, I'd want to save the money. But that's just me.

P.S. This isn't a strong arm sales technique. I'd be just as happy if you paid $17 for the ebook, since that's an extra $10 in my debt snowball. It's really your last chance to get it for $7, so do yourself a favor and get it now.

Congress continues to discuss financial reform, but so far have come up with nothing.

Last fall, Senator Dodd of Connecticut introduced long and elaborate legislation to reform America's financial system, but the law and regulation is essentially the same as it was during the 2008 financial collapse.

Lately, though, I keep reading short reviews about the legislation and efforts by the finance industry to exempt derivative contracts like swaps from the legislation.

Until 2008, swaps were something I read about in a finance book. It was like reading a cookbook full of recipes because it was only defined as an insurance contract that reduces risk of financial loss.

How a Credit Default Swap Works

As an insurance policy, a credit default swap buyer pays periodic premiums over the years of the contract to insure against the default of a financial instrument like a bond.

Suppose a pension fund owns a $5 million bond, but wants to insure against default losses. They buy a credit default swap from a bank for 2 percent per year, which means they pay a premium of $100,000 to insure against the loss of $5 million in bond principal.

If a financial default occurs, the insured party presents the defaulted bond in exchange for the predetermined payment like any insurance loss.

Credit default swaps are not regulated as insurance, so it is up to the buyer and seller to discuss the seller's reserves or ability to pay if there is a default. But that's a problem: credit default swaps proliferated as speculators began to create them without having a bond to insure.

Here's the Problem

To see the risk in this, think of managing a hedge fund that decides to speculate on the ability to make debt payments by a corporation.

The hedge fund does not need to insure against a debt they own, but they can enter into a contract to BUY a credit default swap because they expect, or hope, a company will default.

Say the contract is worth $5 million at 2 percent, which means they pay $100,000 a year for the right to receive $5 million in a default. If nothing happens, they pay $100,000 and get nothing, or they get a $5 million payoff from a default.

But there's another possibility.

If, over time, others in the market decide the corporation named in the credit default swap is more likely to default, then the premium price will be bid up above 2 percent. If it goes to 3 percent, the hedge fund could SELL a credit default swap at the higher premium.

On $5 million, they would receive $150,000 in premiums as they pay $100,000 for the other contract. The difference is their profit: $50,000.

Of course, the premium price could drop below $150,000 and speculators would only be able to reduce their loss below $100,000.

When Insurance Turns Into Speculation

Because there has never been a requirement for a credit default swap buyer to be insuring themselves against the default of a bond they actually own, the notion of insurance turned into speculation on the credit risk of default.

Speculating got so popular for a time there were more credit default swaps than bonds and debts to default. However, some banks sold swaps to collect premiums while pledging to use their reserves to pay speculators in the event of default. Hedge funds borrowed money to buy swaps.

A labyrinthine maze of trillions in unregulated default swap obligations got so big some began to worry it would all collapse. It did, which is why financial reform requires that swaps should be regulated as insurance.

The latest figures from the Federal Reserve show that U.S. consumer debt fell by $11.5 billion (5.6%) in February, with revolving credit down $9.4 billion — the third largest drop during the past 32 years, according to MarketWatch.

This sounds like good news, right? People are paying down their debts and not relying on their credit cards as much, improving their financial situation … right?

Well, while this is hopefully the answer, there's another possibility.

Buried a bit beneath the headline of the story is this crucial sentence (emphasis mine): "Outstanding debts can fall because consumers paid back more than they borrowed or because lenders wrote down the debt as uncollectable."

I don't want to be the guy to rain on the parade, but that last part worries me.

It's great news if debt is dropping because people have stopped using their credit cards like ATMs and are focused on paying off what they owe, but it's not as good news if debt has dropped because lenders figured they'd never be able to recover what they're owed.

Maybe I'm just being a little nervous, especially since the American Bankers Association is reporting that debt delinquencies are also falling (3.19% in the fourth quarter from 3.23% in the third).

But there's a bit of common sense "if-then" reasoning involved in my worries.

If people are in debt, and if they lose their job, and if they do not have the emergency fund or savings to live off of, then their only option is to dip into their credit and go further into debt.

It doesn't seem like an unreasonable line of thought.

I hope I'm wrong. What do you think?

Leave a comment below and share your thoughts.

P.S. There's literally only one week left to get your copy of the Automatic Finances ebook for $7 before the price jumps up to $17 on April 15. Want to save yourself $10? Get your copy now.

Will health care reform really keep costs down? In order to find out, we need to know exactly where costs keep on increasing.

Shortly before the passage of the new health care bill, a spokesman for Anthem Blue Cross of California said this: "All health plans are in the same situation in trying to deal with the steadily increasing costs in the delivery system, which are not sustainable."

In other words, the health insurance industry is only responding to cost increases beyond its control.

Cutting Out the Middle Man

The premiums that individuals and families pay for insurance cover the costs of the delivery system and the burden of supporting separate industry bureaucracies with a separate set of transactions.

In other sectors of the economy, bills tend to be a two-party transaction between a customer and a vender, but seldom so in health care.

One illness or injury starts a billing shuffle through separate bureaucracies at hospitals, laboratories, clinics, imaging centers, Preferred Provider Organizations (PPOs), Independent Panel Associations, private insurance companies, independent billing agencies and bureaucracies at Medicare, Medicaid, Social Security, and workmen's compensation or the Veterans Administration.

Medicare, Medicaid and workmen's compensation are federal programs with federal bureaucracy, but also administered by the states through 50 separate bureaucracies.

Private insurance companies accept premiums paid into a risk pool that generates a reserve fund to pay losses. Insurance companies analyze actuarial data on accidents, sickness, disability and other risks to construct probability tables that will determine the premiums that will generate reserves to pay future losses.

Otherwise, insurance companies do not provide health care; that is left to doctors, hospitals and medical venders.

All those separate entities in medicine have an incentive to bill higher amounts; all the insurance companies have an incentive to pay lower amounts. The two sides maintain bureaucracies with staff to argue and negotiate over the bills from millions of transactions nationwide.

But what does the insurance industry do that the health care industry cannot do for itself?

Can the Medical Industry Cut Out Insurers?

The actuarial data for health insurance policies comes from the medical industry, so they could employ their own actuaries and do the necessary risk assessment without insurance companies.

If the medical vendors were organized together as regional or metropolitan entities setting their own premiums to provide their own health care, then millions of transactions would be eliminated, along with the perverse incentives to overcharge and underpay.

If the health care industry was organized with its separate components brought together into comprehensive health care providers, the insurance industry would be unnecessary. It would become a redundant component.

You may recognize the combination I mentioned above as an HMO, or a health maintenance organization, but that is the rub.

Many Americans have the idea, aided by the health insurance industry, that health maintenance organizations restrict choice or might deny treatment, even though they have the facility and staff to provide it.

The private insurance industry exists because enough people believe private insurance gives them more choices and better choices. It is a very expensive choice, which is why President Obama is going easy on the health insurance industry when he attacks their increase in premiums.

If he was going to get tough, he would tell us how we can rid ourselves of the health insurance industry.

We tend not to focus on ongoing themes or topics here at Automatic Finances, but if there's one idea that tied together the month of March, it was fundamental personal finance advice.

You may be used to hearing all of the basics: spend less than you make, prepare for emergencies, and save for the future. But everyone has a little twist on it — and, as we've found by looking at the advice of personal finance pundits and celebrities, it can't all be trusted.

Here's the best of Automatic Finances for March 2010.

The Best of Automatic Finances: March 2010

1. Can Any Personal Finance Pundit Be Trusted?
2. Inside Robert Kiyosaki's Rich Dad Seminars
3. The Scary Truth About Saving For Retirement
4. It's Time for an Employment Revolution
5. Why Bank of America Fired Me
6. How Much are Replacement Jobs Helping the Economy?
7. Please Don't Listen to Celebrities for Financial Advice
8. The Upside to Celebrity Financial Advice
9. The Lamest Argument Against Index Funds
10. Where's the Real Financial Reform?

If you're looking to get your dose of smart personal finance and money management, subscribe to the RSS feed (or via email) now!

P.S. In case you forgot, the cost of the Automatic Finances ebook will be doubling in price (and then some) on April 15. If you want to automate your finances — and save some money at the same time — get your copy right now.

It?s often said that trouble comes in threes. This past weekend, I narrowly avoided not one, but three expensive bills.

On Friday, the washing machine broke down; it wouldn?t drain, leaving the drum and the laundry full of water. Fortunately, I was able to open it up and disconnect the pump from the hoses.

Inside, I found a wooden splinter obstructing the pump. After reassembling it, the washer was working fine.

On Saturday, our furnace stopped working. When the guy from the gas company came, he said that the sensor had crapped out and would need to be replaced. The cost of getting the part, and getting another tech to come on the weekend, would run several hundred dollars.

But just as he said that, he spied an object sitting on top of the hot water tank, right next to the furnace.

It was the part we needed! It was covered in dust, and honestly, was there when we bought the house five years ago. I have no idea how or why the original homeowner left it there in plain sight, but it was only my basic laziness that meant I had never moved it or thrown it away. Saved!

On Sunday, the toilet in the master bathroom was leaking. In order to provide some back-story, I?ve replaced various parts on that toilet repeatedly over the past five years, so much so that I started to wonder if it was cursed or haunted.

As I result, I wondered if this was going to be the time that a band-aid solution wasn?t going to work, and I would have to replace the toilet with a new one. This time, it was just that the nut connecting the water line to the flow valve was loose, and required tightening.

Preparing for the Worst

I had three strikes of bad luck this past weekend, balanced out by three strokes of good luck. But it got me to thinking: what if each of those situations had ended up to be worse than that?

What if I needed a service call and a new part for the washing machine, the furnace, and I needed to go buy a new toilet and install it, all at the same time?

Financially, that would suck. It wouldn?t be the end of the world, but it would mean spending close to a thousand dollars that I don?t just have lying around ?just in case.? That means it would have to come out of another budget, probably one earmarked for a new furnace, since the current one is fifteen years old, low efficiency and at a stage where it?s living on borrowed time.

Having to shell out for three catastrophes in one weekend would set back my new furnace plans.

The bottom line is that, as a responsible adult, you need to have an emergency fund for when unexpected bad situations occur. Alternately, having access to an open line of credit is another resource, although not as good a one as using cash.

Preparing for the worst doesn?t necessarily mean living in a bunker with a supply of canned food, guns, and ammo. But it does mean keeping funds earmarked for emergencies around.

And ?we?re out of beer!? isn?t the kind of emergency I mean.

America?s high unemployment rate will come down as total spending picks up and the economy recovers.

Some of the unemployment is the result of the recession, but some is the result of long-term trends. Since 2000, manufacturing jobs have fallen by 5.4 million, and when the economy comes back, manufacturing will not recover much ? if at all.

Jobs in other service industries will replace the ones lost in manufacturing, but the new jobs are completely different than the ones we are losing.

How the Food Business Supports American Jobs

The 20-year evolution of America?s eating habits is a good illustration of the differences in the new jobs.

In the production-marketing chain of food, restaurants help to grow jobs ? probably more than most people realize.

If we start on the farm, we begin with farmers, then all the jobs in pesticide, fertilizer and agricultural chemicals, and all of the jobs in agricultural implement manufacturing. Then we add in the jobs at farm supply wholesalers and farm raw material wholesalers.

We can then move on to food manufacturing. Add all the manufacturing jobs: milling, canning, freezing, bottling, refining, slaughtering, baking, brewing, distilling, fermenting and packaging. Add them to grocery store merchant wholesaler jobs and all the jobs at grocery stores, convenience stores, liquor stores and food stores.

The total comes to 6.7 million jobs.

In 2009 ? a recession year — there were 9.3 million jobs in the restaurant business, including fast food outlets, bars, and caterers. During 2007 and 2008, the monthly average was 9.6 million. The total does not include food service workers at school cafeterias, hospitals, retail stores or ballparks, museums and other recreation facilities.

Add them to the total and it comes to almost 11.4 million food service jobs.

But jobs from the farm to the supermarket continue to decline due to productivity growth and imports in the global economy.

Restaurants are the only part of the food chain Americans can count on for more jobs.

Gambling, like restaurants, is another market where Americans spend themselves into jobs as gaming dealers, gaming cage workers, slot key persons, and sports book writers and runners.

Gambling employment reached a high of 426,000 in the private gambling industry in 2007, including casino hotels. These jobs dropped 8% in the recession, after nearly two decades of rapid growth.

Are the New Jobs as Good as the Old Ones?

Work in gambling and restaurants is not the high tech and high wage employment the politicians keep promising for the future, but they are becoming the replacement jobs for manufacturing.

The 5.4 million jobs lost in manufacturing are up to 4% of America?s jobs, but the replacement jobs pay less and drop faster in recessions than the manufacturing jobs they replace.

The politicians expect more spending to bring more jobs and restore full employment, but they are ignoring the trend to a higher percentage of jobs in restaurants, gambling, fitness centers, pet care, landscaping, temp work, security, prisons, business and personal services that take the place of manufacturing employment and support millions of jobs.

Politicians are good at counting jobs, but they act like the new jobs are as good as the old ones.

The next time you hear the unemployment rate went down, remember the trends in replacement jobs and wonder if we are better off.