Category: Economics

What if Lemonade Stands Were Run Like the United States Healthcare Industry?

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Lemonade would originally start out at twenty-five cents per cup.  A large sign would advertise the price and anyone who was thirsty and had a quarter could purchase a cup of lemonade.

Some people eventually start showing up at the lemonade stands who are very thirsty but do not have any money.  Politicians decide that this is not fair.

The government sets up a system where the neighbors living down the street pay for any of the lemonade that the poor customers cannot afford.   They set the price at a dime per cup.  For the lack of a better term, this government program is called “Lemon-aid.”

The lemonade stand operators begin to sell cheaper lemonade to the low-income customers but they soon realize that they are losing money on each customer because of the cost of the ingredients.  They decide to continue to sell poor people lemonade for a dime but they begin to sell lemonade to everyone else for fifty cents per cup in order to make up the difference.

Poor people from all around the neighborhood find out about the “affordable” lemonade.  They start coming around and ordering multiple cups.  The lemonade stand operators increase prices on paying customers once again to make up the difference due to the increased volume of low-income customers.  Due to the high volume of customers, the lemonade stand operators decide that they need to hire extra employees to help produce the lemonade.  The cost of these new employees is added to the price of the lemonade.

Eventually, a few of the customers get very sick after drinking the lemonade. People believe that some of the lemonade was possibly contaminated.  They sue the lemonade stand operators and each victim is awarded with ten-thousand dollars.  People in the neighborhood hear of this news and other customers start falsely claiming that their lemonade was also contaminated in order to file their own lawsuits.  The lemonade stand owners decide to purchase insurance as protection from future lawsuits.  The cost of this insurance is passed on to the consumer through the price of the lemonade.

Politicians hear the news that multiple people are having issues with possible lemonade contamination.  They require that all lemonade stand operators become licensed.  These lemonade stand operators have to pass a test every seven years to prove that they still know how to make lemonade which is both safe and delicious.  These tests costs one-thousand dollars each and the expense from these exams are then passed on to the consumer.

It is soon discovered that a few lemonade stand operators were billing “Lemon-aid” payments for lemonade that had not actually been sold.  These lemonade stand operators are sent to jail on “Lemon-aid” fraud charges.  Because of this, politicians decide that all lemonade stand operators need to provide extensive documentation for each cup of lemonade that is produced.  Each document needs to have fourteen descriptive bullet points for each cup of lemonade sold or the lemonade stand operator will otherwise not be reimbursed.

Lemonade stand operators subsequently hire extra staff members to deal with required increased documentation of lemonade production.  The costs of these new salaries are added to the cost of the lemonade.  Lemonade stand operators tell the government that they can no longer afford to sell lemonade to low-income customers at just a dime per cup.  The price of everyone’s lemonade begins to climb dramatically.

As prices continue to skyrocket, more and more people find that lemonade has simply become unaffordable.  Some people buy lemonade insurance which will help them to purchase lemonade but only when they really get thirsty.  Others simply go without lemonade.  Prices become so high that lemonade stand operators remove all advertised pricing from their lemonade stands.  Most customers have no idea what lemonade costs any longer because someone else is now paying for it.

The neighbors down the street are gradually becoming bankrupt while trying to pay for everyone else’s “Lemon-aid.”  After maxing out all of their personal credit cards, they set up a counterfeiting ring with printing presses in their basements in order to be able to continue paying for everyone else’s expensive lemonade.

A new mayor named Barry O’Malley is elected during all of this lemonade chaos.  Nobody knows how it happened, but somehow lemonade is over 50 dollars per cup.  He promises real solutions to address the overwhelming price of lemonade.   Mayor O’Malley ultimately decides that lemonade has now become too expensive because there is not enough oversight and government regulation. The community passes a law called the “Affordable Lemonade Act” but most people simply refer to it as O’Malleycare.

Laws go into place stating that everyone must purchase at least one-month worth of lemonade per year even if they don’t plan to come anywhere near a lemonade stand.   The law also states that small cups of lemonade are now illegal.  Everyone much purchase an extra-large 44-ounce cup of lemonade regardless of their individual thirst level.   The government then plans to subsidize people who cannot afford these mandatory payments by providing these people with money from the neighbors down the street who are already broke.   These mandatory payments are established on an insecure 200-million dollar government website which crashes every twenty seconds and retains no data.

Politicians also pass laws stating that each lemonade stand must purchase its own computer equipment in order to make all lemonade documentation electronic.  Portals must be set up so that any customer can access a computer and see exactly how their lemonade was produced.   Rules are established that ten-percent of all customers must be given “lemonade information handouts” which explains to them exactly how lemonade is made.  Each lemonade stand is responsible for documenting how many information handouts were given to their customers.  More people are hired to deal with all of the new rules and regulations.  These costs are passed down to the cost of the lemonade.

Some of the older lemonade stand operators do not like the new rules and they decide to leave the lemonade making business for good.  In order to save money, these experienced individuals are replaced with trained monkeys who wear tiny hats and are referred to as “lemonade stand assistants”.  The original lemonade stand operators who remain are told that they have to produce lemonade twice as fast as they used to while keeping up with all of the new layers of documentation.  Inexplicably, the quality of lemonade continues to decline while the price of lemonade continues to go up.

The citizens gradually become frustrated and turn their anger towards the lemonade stand operators themselves.  They start referring to lemonade stand operators as “heartless” and “greedy money-grubbers.”

The people turn their attention to politicians who claim that government has not done enough to fix this problem.

They begin to believe that lemonade is a God-given right and that all lemonade should be free for everyone.

They still have not learned the very painful lesson that nothing is ever actually free in our complex and ever-evolving economy.

They still do not understand the important principle that government “help” eventually comes with a very steep cost.

 

 

 

 

 

 

 

 

 

 

 

 

My Name Is Michael But You Can Call Me Henry

Henry

My name is Michael but you can call me Henry.

“Henry” is an acronym for High-Earner-Not-Rich-Yet.

That’s me.

I’m the guy that did everything right.

I come from a family of immigrants who pulled themselves up from far below the poverty line.

My parents stressed to me the importance of a good education.

Neither my wife nor myself have ever been personally provided with a single dime of inheritance.

I took all of the hardest classes in college and studied at least eight hours per day while many others around me goofed off and had a good time.

I went to medical school and became a doctor.

When I was in my 20’s, I often worked over 90 hours per week in residency while making only 33,000 dollars per year.

Even though I worked 90 hour work-weeks during my residency, I still usually would moonlight on most weekends for additional 60 hour shifts in order to rapidly pay down my loans.

I have never asked a union leader to artificially inflate my value in the workplace.

For years, my wife and I lived in an 88,000 dollar home which we quickly paid off and got into the early habit of saving at least 50 percent of our income.

My wife and I stood by and watched people with one sixth of our household income purchase houses at least three times bigger than ours with no money down.

I buy almost all of my clothes at Wal-Mart and many people who do not know me simply assume that I am poor.

My wife and I paid off over 160,000 dollars of debt before I turned twenty eight.

I started my own business and eventually purchased a large apartment complex.  I gradually paid down the mortgage on this property until it was completely paid off.

I have always paid all of my taxes and the only contribution to my lifetime criminal record was a speeding ticket which I received when I was 18-years-old.

I have absolutely no debt.

I did not “cheat” anyone else to get where I am today.

I have never played the “victim card.”

I have never received a single penny of public assistance.

I have never declared bankruptcy or asked for any of my debt to be “forgiven.”

I drive a ten-year-old used pick-up truck and I paid cash for it.

My house is over 40 years old and has a few holes in it but it’s mine.

I took all of my money out of the stock market in 2007 and completely avoided the market collapse.

I would like to say I have been fortunate in life but this is untrue.  I have earned everything I have through planning, education, and hard work.

I usually pick political candidates that get around four percent of the popular vote.

My wife and I paid slightly over 310,000 dollars in federal, state, property, and sales taxes in 2010 alone.

My wife and I have contributed to Social Security for over twenty years with the expectation that we will never see a dime of this money.

I don’t have a personal chef, personal trainer, or butler.  I hire a housekeeper to clean our house twice a month and she drives a car much nicer than the one I drive.

I plan to avoid the upcoming currency collapse by putting many of my assets into commodities and real estate.

My country now runs up huge amounts of debt and turns its eyes to me once again.

I am told that I need to pay my fair share of taxes.

I am told that I should feel grateful for what I have.

I am told that the fruits of my labor will eventually need to be “redistributed.”

I now see large crowds of young Americans attending the political rallies of self-described socialists.

I am told not to complain about my current situation.

I say all of this not to complain… but simply to inform.

I am tired.

I am growing weary of a system that punishes the winners and rewards the losers.

I am growing angry over a system of taxation without representation.

I announced last year that I was officially walking away from the practice of medicine for good.

My country has lost another doctor and another taxpayer.

I do not seek your approval for my life choices and I couldn’t care less about your criticism.

I am going to focus less on making money and more on improving myself by exercising, reading, and teaching myself to become maximally self-sufficient.

I am awaiting our country’s economic collapse.

Most importantly, I am going to teach my son about the principles that this country was founded on.  I pray that he can be the kind of individual who can pick up the pieces and help rebuild this country into something great once again.

Our citizens will soon learn that we all get the country that we deserve.

 

Recessions Are Like Medicine And The Fed Isn’t Mary Poppins

Ben-Bernanke-Mary-Poppins

Just a spoonful of sugar helps the medicine go down.  This was a delightful little song that many of us learned during our childhood years.  Mary Poppins taught us in the movies that by simply planning ahead of time, one could easily circumvent bad experiences. She taught us that bad things don’t have to be bad if you mix them with something good.

I sometimes wonder to myself if this was former Federal Reserve Chairman Ben Bernanke’s favorite song while growing up.  I picture him running around his house as a small child singing this Mary Poppins classic to himself.  I can’t explain it, but I also picture this child version of Ben Bernanke as having classic male-pattern baldness and an impressively stylish beard.  My imagination does have its limits.

Ben Bernanke and the Federal Reserve spent the past seven years trying to help our economic medicine go down… and in the most delightful way.  Except their huge-ass spoonful of sugar has a funny name called “quantitative easing”.  You see… recessions are like the medicine for our economy.  Recessions can taste very unpleasant and make us feel terrible… but underneath the surface, this medicine is actually ridding the body of what ails us.  Antibiotics can rid the human body of bacteria and other types of infection.  Recessions can rid the economy of terrible loans, overleveraged banks, bad politicians, and irresponsible consumer debt.

In 2008, the United States of America went in for a routine check up and received the worst diagnosis possible.  We found out that we did not just need some medicine… we needed chemotherapy.  The biopsy report came back as “Stage III Adenosubprimeloaninoma”.  Surgical extraction and long-term chemotherapy would be required in order to avoid metastasis.

But then something happened… our modern-day Mary Poppins at the Federal Reserve stepped in and told us that recessions are something that must be avoided at all costs.  He warned us that this prescribed chemotherapy would be severe and that it would make us feel awful for the foreseeable future.  He cancelled our chemotherapy completely and told us that all we really needed was a spoonful of sugar.  When we failed to get better, he gave us another spoonful of sugar… and then another.  Then he told us that we should be on an intravenous infusion of sugar until we started feeling better.  Now we feel fat and bloated with serum blood sugars over six hundred and we have a large mass near our liver… we wonder to ourselves why we still feel bad… and then we come to the sudden realization… Ben Bernanke is not a doctor and he sure as hell ain’t Mary Poppins.

 

 

 

The Era of Pseudo-capitalism and The Day That America Blinked

mrmoneybags

Pure capitalism is a beautiful thing when working as designed.  Capitalism works as a catalyst for invention.  The money one strives for through capitalism is the perpetually hanging carrot on a stick.  It motivates people to give extra effort going forward with the expectation of additional rewards in the future.  Capitalism allows the choice for people to live extraordinary lives rather that just ordinary ones should they desire.

Unfettered capitalism has allowed for much of the innovation that the rest of the world has enjoyed over this past century.  Just image what the world would look like today without capitalism.  Much of the technology we use today would look like witchcraft in that parallel universe.  Capitalism makes all of our lives easier over the long run whether we realize it or not.

There is also a very important downside to capitalism that is often overlooked.  True capitalism punishes bad decisions.  It quickly separates the fools from their money.  Private enterprise is supposed to act as the unforgiving graveyard where bad ideas go off to die.  Well functioning capitalism works like a giant reset button that periodically levels the playing field for intelligent young go-getters on the bottom rung of the economy.  When true capitalism is working as designed, it is supposed to eventually weed out the idiots and the bad apples.

A few years ago, the rules of capitalism in the United States were changed forever.  The origin of this change is rooted in the 1999 repeal of the Glass-Steagall Act.  This law had been in place ever since the Great Depression.  This law allowed for banks to take deposits and make loans and it also allowed for investment brokers to underwrite and sell securities.  However, this law restricted ONE single entity from performing BOTH tasks at the same time due to an inherent conflict of interest.  After repeated lobbying from big banks, Democratic President Bill Clinton and Republican Phil Gramm worked together to successfully repeal Glass-Steagall in 1999… and capitalism as previously known in the United States would NEVER be the same.  This was an exercise in bipartisan stupidity.

A few years after being unshackled by Glass-Steagall, investment banks on Wall Street started making a series of ridiculously bad bets on the subprime mortgage industry.  They were granting large mortgage loans to the poorest among us and were even being encouraged to do so by our government.  They leveraged themselves beyond idiocy.  Investment bankers with small penises and large egos got into a pissing contest with other people’s money.  They started making bets that low-income people with no savings would be able to continue making enormous mortgage payments in perpetuity.  Were these poor fools with no money and large mortgages partially to blame for this problem?  You bet they were!  But these investment bankers did not even seem to care if the whole system was rigged… because they were getting rich.  Bankers would bundle these bad loans into small packages and then sell them to third parties.  They would basically create these steaming investment turds, light them on fire, and then leave them at someone else’s doorstep.

Eventually, this house of cards came crashing down.  The collapse of Lehman Brothers was the canary in the coal mine.  Other investment banks and insurance companies soon came crashing down as well.  The whole economic system started to look like it was about to go under.  Credit markets became frozen and global panic quickly set in.

Goldman Sachs was the Wall Street investment bank that almost had this whole thing figured out… almost.  Goldman Sachs saw much of this subprime mortgage disaster coming and attempted to invest in such a way to profit handsomely from it.  They purchased a high volume of “credit default swaps” from the insurance company AIG that insured against a subprime mortgage meltdown.  This is like you buying insurance just in case your neighbor’s house burns down.  This is not insurance designed to protect you from individual loss.  Credit default swaps are basically a means of placing bets on an external market… and in this analogy it even ENCOURAGES you to go burn your neighbor’s house down in order to get paid.  Goldman Sachs made very large bets via credit default swaps that the subprime mortgage market would collapse and when they made the correct bet… they wanted their bookie named AIG to pay up!

There was one glaring problem with Goldman Sachs and their brilliant strategy.  AIG was about to go “belly up” and assume room temperature along with Lehman Brothers.  It appeared that there would be no giant insurance company remaining in the near future to reward Goldman Sachs for their wise investment move.  These capitalist masterminds had lined themselves up like a row of dominos and they were all about to knock each other down.

There would be one man to save them all.  His name was Hank Paulson.  He was the Secretary of the Treasury and the top economic advisor to President Bush.  In an instant, he became the “Chicken Little” of the President’s cabinet.  Hank Paulson approached the President and told him that our economic sky was falling.  Hank Paulson joined forces with the Federal Reserve to establish a plan of action in order to prop up the banking system.  Hank Paulson literally got down on his hands and knees and begged the Speaker of the House to pass a trillion-dollar stimulus package to save the banking industry.  Oh by the way, you DO know what Hank Paulson did for a living before becoming the Secretary of the Treasury right?  If not, you are going to absolutely LOVE this!  Before becoming a top advisor to the President of the United States… Hank Paulson was the CEO of Goldman Sachs!  Small world, right?

As Wall Street got down on its knees and begged Congress for its forgiveness… America was at a crossroads.  Our society was staring down into the dark uncharted abyss that was the downside of capitalism.  I was frantically writing letters to my representatives begging them not to pass this trillion-dollar stimulus package for the banking industry.   I recommended that any and all stimulus money should go to help provide a backstop for FDIC insurance so that most individuals could at least recuperate some of their savings in a few months.  Fate had its hand firmly planted over capitalism’s large reset button.  The idiots and the bad apples were about to be weeded out.  The intelligent young go-getters were about to get their chance in this land of opportunity to start the process of rebuilding our economy from the ground up.

But in an instant… America blinked.  Capitalism looked too frightening from so high up with no safe place to land.  Our leaders allowed for almost a trillion dollars of taxpayer stimulus money to be distributed among all of the losers on Wall Street.  We were told that these institutions were “too big to fail”.  AIG was given over 182 billion dollars, much of which was then repaid to Goldman Sachs.  Within the span of just a few days, capitalism in the United States was officially dead.  What is now left in its place is some bastardized form of “pseudo-capitalism” in which a few undeserving investment bankers on Wall Street gather up the last remaining “hanging carrots of motivation” while the intelligent young go-getters spend their time looking for jobs on the internet while living in their parent’s basement.  These brilliant investment bankers now know that they are too big too fail which makes crushing their opposition even easier.

Nowadays when I complain about the current state of capitalism and Wall Street in the United States, some people look at me like I’m some kind of communist.  There are other people like many in the “Occupy Wall Street” crowd who tend to vilify rich people simply because they are rich and uninformed onlookers tend to lump people like me in together with them.  I would like to announce to everyone that I am not an “Occupy Wall Street” guy.  I am not a fan of “pseudo-capitalism” but I have absolutely no problem with rich people.  In fact, I have always aspired to join the ranks of the rich.  I will still chase an occasional hanging carrot on a stick on the rare occasion that I can actually find one.  I would also like to state for the record that I was raised to believe in the American dream and I still love the concept of capitalism… I just don’t see it anywhere.  Real capitalism in the United States apparently died a few years ago when it was somehow caught in the careless crossfire between unfettered greed and unfathomable stupidity.

The Currency Wars And The International Race To The Bottom

Coins from all over the world

Do you all realize what is actually going on right now?  The global economy is in a conundrum. Seven years ago, the economies around the world fell off a cliff.  It caught many people off guard, but I can honestly say that I was not one of them.  I pulled my entire net worth out of the stock market in 2007 and was watching from the sidelines when this crash occurred.

We started to see a collapse of our entire economic system in 2008. Even some money market funds “broke the buck” and started to lose money.  The global economy was in full meltdown mode.  Most of the countries in the civilized world were already deeply in debt when this financial earthquake occurred. Asset prices started to sink into a deflationary spiral.  This economic catastrophe looked like it was going to be bigger than the Great Depression.  However, the immediate disaster was somehow averted.

The United States took the lead in this so-called “recovery”.  After passing an almost trillion-dollar stimulus passage, the United States Federal Reserve began to engage in repeated rounds of quantitative easing.  Many people refer to this activity as “money printing” which is actually a misnomer.  Extra money is not actually being printed.

The Federal Reserve creates a set amount of theoretical currency that it refers to as the “money supply”.  This is best classified by a term that the Federal Reserve calls “M2”.  In June of 2008, the United States money supply was just around 862 billion dollars.  By June of 2014, this amount had ballooned to just over 4 trillion!  Remember, this money was not actually printed onto paper currency… our government gradually proclaimed it into existence through quantitative easing.

Most people think that we now pay our bills by borrowing money from China.  For the most part, China stopped loaning the United States money a few years ago along with most other countries.  Each time the United States government runs out of money they will proceed to take out loans in the form of treasury bonds. Guess who is now the primary purchaser of these bonds?  You guessed it… The Federal Reserve!

Each time the Federal Reserve increases the money supply this gradually decreases the value of the U.S. Dollar. Now here comes the fun part.  All the countries around the globe will pick one stable currency to be the global reserve currency.  The reserve currency is held in large quantities by governments and large institutions as part of their foreign exchange reserves.  This currency is frequently used in international transactions and is often considered to be the world’s safe haven currency.  Guess whose currency is currently considered the entire planet’s global reserve currency?  The answer is the United States! Isn’t this hilarious?

As the United States gradually decreased the value of the global reserve currency, the value of other currencies around the globe started to rise.  This is a good thing for those countries, right?  WRONG!  Leaders of these other countries became concerned that if their currencies became too strong that this would drastically hurt their ability to export their own goods.  Their products would be too expensive on the global stage.  This could also negatively affect tourism.

One by one, these countries around the globe began to “peg” their currencies to other weak currencies like the U.S. Dollar and the Euro.  Japan and Switzerland joined in on the fun.  This started their own versions of quantitative easing in a competitive little game of currency limbo with each nation trying to see how low they could go.  Over time, when you compared the U.S. Dollar to other currencies, it didn’t look so bad.  The U.S. Dollar was doing an amazing job staying afloat in this global toilet bowl full of currency turds!  However, if you compared the U.S. Dollar to hard assets like gold, silver, and oil, its weakness was quite obvious.

But then what the hell happened?  The price of gold exploded to over 1700 dollars per ounce but then it started going back down.  Some of this downturn in gold was obviously due to the end of a fear trade as global markets stabilized and people felt confident to invest again.  A bigger reason for gold’s demise was due to the creation of a brand new asset bubble brought to you by the so-called brilliant economists at the Federal Reserve.

The Federal Reserve did not just start spending its pretend money on government debt.  Over the past few years, they have poured over a trillion extra dollars into mortgage-backed securities and “other assets”.  The Fed has basically been pouring new money into investment banking. What do investment banks do best?  If your answer was “drive the economy into the crapper”… that was an excellent guess but I was looking for “invest”.  Money started pouring into the stock market.  Individual investors started seeing the stock market rise as gold started to turn downward.  People wanted a piece of the action.  The Federal Reserve also intentionally drove down interest rates which indirectly “forced” more people into the stock market.

Investors continue to feel safe to keep pouring their own money into the stock market for as long as the Federal Reserve continues to expand the money supply.  In this upside-down economic environment, bad news usually makes the stock market go up and good economic news often makes the stock market go down.  The United States and the Federal Reserve have created a situation where the value of the U.S. Stock Market is falsely elevated while the value of gold is falsely depressed.

The big fear right now is inflation.  The Federal Reserve has fired all of their interventional bullets.  If inflation starts to go out of control, then the Fed will have no choice but to increase interest rates and to slow the rate of their quantitative easing.  If they stop creating money out of thin air then who will loan money to the United States?  We don’t have many good options left.  On top of all that, the only way our country can afford the debt we currently have is because interest rates have been held so low.  If interest rates rise even slightly, then our treasury debt that we eventually have to refinance will quickly become an overwhelming percentage of our federal budget.

Today we get a shocking announcement from Switzerland.  They have grown tired of this global economic shell game.  The Swiss have announced today that they are going to take their ball and go home.  After putting up with years of financial nonsense, Switzerland just told the world that they are done intentionally devaluing their currency along with everyone else just to fit in.  In one single day, the Swiss Franc is absolutely skyrocketing.  Switzerland has decided that they will no longer participate in our international “race to the bottom”.  Nobody knows for sure what will happen next… but you better get ready for a bumpy ride.

 

 

Preparing for Deflation and Hyperinflation at the Same Time

money toilet paper

What would you do if somebody held a gun to your head and forced you to put all of your life’s savings on a roulette wheel for one spin?  What would be the smart move?  I already know what I would do.  I would put 45 percent of my money on black… 45 percent of my money on red… and then put the last 10 percent on green.   I would not get rich but I would make damn sure that I did not lose everything. This is the type of unwinnable scenario that we may all soon face in our fragile economy.

Our global economy is facing pressure that is simply unsustainable.  There are now too many large countries trying to manage too much debt.  I strongly believe that we will face a global economic collapse at some point in our lives. The question that I still cannot completely answer is whether this will be a deflationary collapse or a hyperinflationary collapse.   Most collapses in the past have been deflationary such as what happened in the Great Depression.   The price of stocks, goods, and real estate suddenly drop and credit markets freeze up.  The value of the dollar actually increases and it’s purchasing power goes up, but there are very few dollars moving around.

There is a much more rare event which is equally destructive called a hyperinflationary collapse.  This occurs when governments and central bankers try to avoid deflationary pressures by expanding their balance sheets and printing more money to solve their financial woes.   Recent examples of this have been in 1930s Germany and more recently in Zimbabwe.  The price of everything including real estate, food, and commodities start to rise rapidly as the value of the currency starts to fall.

What we face now is the mother of all global economic collapses.  The world is now interconnected like never before. The U.S. dollar is the world reserve currency and the Federal Reserve controls its quantity in the global market.  The Fed works in coordination with the International Monetary Fund and the European Central Bank to help manage the money supply and to control the rate of inflation or deflation around the world.   If central banks around the globe decide that they want to avoid deflationary pressures at any cost, they could actually push the planet into global hyperinflationary territory like we have never seen before.

These are the questions that we are left with.  Will my property suddenly become much more valuable or suddenly lose most of its value?  Will my cash suddenly become much more valuable or actually lose most of its purchasing power?  Ultimately, it all depends on what a few central bankers decide and how quickly they act. One thing that I have decided to do is to hedge my bets.  I put some of our assets in physical property, some into commodities, and much of it into physical cash in multiple different currencies.  I keep some money invested in stocks and some invested in gold.  I intend to be on both sides of the seesaw.  I gain on one side as the other side goes down.  I don’t profit wildly but I don’t lose everything either.  It keeps me from obsessing over all of these wild market swings.

I have a couple of points when it comes to planning for deflationary collapse.  When deflation occurs this can lead to wide spread banking collapse where credit becomes frozen.  It becomes impossible to get a loan and very difficult to get access to cash.  This makes most real estate temporarily unsellable.  Throughout history when this occurs, real estate can suddenly lose most of its value because no one is able to sell anything.  There is no market.  Just think about it.  If you owned a house that is normally worth 120,000 dollars but you could not sell it and your family was starving, suddenly a cheeseburger could become more valuable than your home.  The markets become extremely distorted during this period.  However, if you place yourself in the position due to poor planning where you eventually want to trade your house for a cheeseburger, then you are totally screwed.

If you pay close attention, you will see however that these extreme market processes are almost always very short lived.  People who hold on to their real estate through a deflationary collapse will usually see a return to previous market value in 3 to 5 years.  If you had enough physical cash at the bottom of this collapse, you could buy up property at this level and make a huge profit. The problem is trying to make sure you have cash available to do this if the entire banking system goes completely under.

Many people just assume that as long as they hold their money in a bank with FDIC insurance that they will be safe but this is just simply not the case.  The last time I checked, the FDIC only had about 50 billion in reserve funds.  This is not enough money to bail out Bank of America or Citibank by themselves.  I believe that many depositors will lose their savings regardless of FDIC insurance should global collapse occur and multiple banks fail simultaneously.  Without access to cash, many people with mortgages could lose their property to banks over the subsequent months by no fault of their own.

I have decided that the best thing that anyone can do is to pay down any secured debt.  I would recommend keeping an emergency savings in a regular savings account of a stable bank.  I would avoid money market accounts because they may not be very secure during a global financial panic.  I want to own anything I need outright including my home and food storage.  Beyond the basics, I intend to split my financial planning right down the middle… half prepared for deflationary collapse and half for a hyperinflationary melt up.  I want to make sure that no matter what happens that I already have what I need and already own what I have.  This advice may not be for everyone but it helps me sleep like a baby.

 

The Attack Of The Falling Gas Prices And The Secret War For Your Money

oil prices

Pop quiz, hot shot… What country is currently the largest oil producer in the world?  Saudi Arabia?  Russia, perhaps?  Oh, please… those guesses are so 2008.

The International Energy Agency announced in June of 2014 that the United States of America is currently the single biggest producer of both crude oil and natural gas in the world.  Oil extraction in the United States is now soaring at shale formations in places like North Dakota and Texas, ever since the recent development of the process of hydraulic fracturing of rocks using high-pressured liquid.  This process is more commonly referred to as “fracking”.

A few months ago, Saudi Arabia and their partners in OPEC decided to declare war on the United States.  They did not do this by wagging their fingers at the United States or by pounding their chests.  Saudi Arabia silently declared war on the United States through inaction.

Normally when oil prices start to fall, OPEC will cut back on oil production and prop these oil prices back up.  Much to everyone’s surprise, Saudi Arabia did nothing to intervene last year when oil prices started to plummet.  Saudi Arabia has intentionally flooded the global market with cheap oil over the past few months.

What the hell is Saudi Arabia thinking?  Their plan is actually quite solid and would actually make big corporations like Wal-Mart very proud.  The Saudi government is the big business bully in this global scenario.  They believe that they are positioned to absorb these self-inflicted financial losses over the long-term. Saudi Arabia has even built up massive foreign-exchange reserves to finance their deficits.  The Saudi Arabian government has declared a financial war with the private oil enterprise of the United States.  As with the case in any war, the ultimate goal of Saudi Arabia is to completely destroy the other side.

These recent actions of Saudi Arabia have already caused the entire Russian economy to implode.  It may only be a matter of time before private fracking companies in the United States go “belly up” due to these falling oil prices.  The last time oil prices fell this far and this fast was in 2008 when the entire United States economy went “belly up” as well.  Saudi Arabia plans to bring down everyone around them in an effort to eventually be the “last man standing”.  If they ever gain majority control over the oil market once again, you can bet that oil prices will quickly go back above $115 dollars per barrel.

Just remember, the next time you smile at the sight of the unbelievably low prices at your nearest gas pump… what you are really cheering for is a secret war initiated by Saudi Arabia to once again make the United States their oil-dependent little bitch.  I hope you enjoy your cheap gas for now… because it will come at an incredibly steep price.

 

 

 

Working With Large Numbers

Each kilobyte holds a thousand bytes of electronic storage. Megabytes hold one million and gigabytes hold one billion bytes. Now we are measuring data storage in terabytes which holds one trillion bytes of data each! I now own a network attached storage device which holds twenty terabytes… That is twenty trillion bytes of code! Do you have any idea how big twenty trillion actually is? To give you a general idea, it is approximately the number of dollars of debt we will be in by the year 2016. That concludes your lesson for today. Wake up, America!

Rising College Tuition Explained

I am going to try to explain what is going on with the cost of higher education in this country. Let’s pretend that you walk into a 1st grade classroom with a box full on candy bars to auction off. Given that the children only have the money in their own pockets, you would probably only get about 25 cents to a dollar for each bar. Now let’s pretend that the next time you attempt to do this, each child is handed 10 dollars beforehand. You would soon discover that the value of your candy bars have gone up to about 5 to 10 dollars per bar. The next time time around the children are given 1000 dollars each and you discover that your candy bars are “worth” a few hundred dollars each. People soon reach the conclusion that no one can afford candy bars without external financial assistance. This is EXACTLY what is going on with all of the funding being pumped into higher education right now. This limitless federal funding of education is falsely inflating the cost of the product and is doing serious financial damage to an entire generation. Twenty-somethings are going to be left with a lifetime of debt for something of limited actual value. This is how asset bubbles work and college tuition is in one right now. Just as the housing bubble collapsed a few year ago, this one is about to come crashing down as well.

United States Quick Fix

How to fix the United States – First remove all current income and property taxes so that everyone is starting with much more their earned income. Then you abolish the IRS. Then have a sales tax on a federal, state and municipal level. Yes, everything you purchase would cost more but you would have more purchasing power because of your increased take home pay. By doing this you would capture extra revenue from tourists, foreigners, drug dealers, and illegal immigrants. You could then scale the tax so that it would be capped for necessary items like food but there would be much higher limits on “luxury items”. You then hold a constitutional convention and create a constitutional amendment requiring a balanced federal budget by law. Then you abolish the Federal Reserve and start drilling for oil like crazy in Alaska. Then you get the global economic powers to agree to create import tariffs on all countries like China that engage in unethical slave labor practices. Then you lower the corporate tax rate from one of the highest on the planet to one of the lowest. Then you will start to see an influx of manufacturing jobs back into the United States. Now the tax system is simple and fair. Everyone that wants a job in the United States can find one. And Vladimir Putin is over in a corner sobbing into his empty bottle of vodka! How hard was that? USA! USA! USA!