Conventional wisdom tells us that we should not talk about money, religion, or politics in polite company. That message is even more ramped up when it comes to business. It is foolish to burn bridges with potential customers taking a position on these controversial things and turning someone off who may not do business with us because of it.
During the entirety of my career I followed this thought process with a passion. I took it to the extreme and wouldn't tell anyone I followed Purdue sports to not turn off any Hoosier fans. I wouldn't wear facial hair because there is a certain part of the population this turns off. Vanilla and safe were the goal.
Why today, have I thrown that completely out the window? Because there is a huge difference between having integrity, character, conviction, and courage.
We should always strive to have integrity, we should teach our children to as well. Integrity is not doing something wrong, not cheating, stealing, or misdealing. We should all have integrity. For instance if we saw three big guys beating up someone, we can have integrity just by not taking advantage of this situation. However this isn't enough. We need to step up and show character and stand up and do right. Character will require us to get involved. Character requires courage, courage to take a stand, to take a personal risk. Character could cause pain to come to you because you had the courage to step into the fray. But it requires that you do what is right, not just know what is right.
When you see something happening that you believe is wrong, something that you find yourself under conviction to stand up against it. Then it requires that you have the courage to take the risk of personal harm, be it nothing more than financial harm, to show your true character and step into the fray, to say "this is wrong!" To do something about it.
If you are reading this, like many I know, you cheer from the sidelines, you watch others speaking out, and are glad they do, but fear what might happen to you if you joined in the chorus. Let me ask you to consider moving from integrity to character through courage. Take the risk, step out, follow the example of our founders and become a leader in your sphere of influence. You may lose some "friends", you may have some question you and chastise you, but you will feel good knowing that you are a person of conviction with the courage to speak out, and make a difference.
In my opinion, our freedoms and liberties, and those of our children and grandchildren hang in the balance. Let's roll!!!
Monday, June 6, 2011
Sunday, May 22, 2011
The Conning of The American Economy and Liberty
As a people we discuss politics, we talk about the economy, the Federal Reserve, inflation, money, and more, however, do we know how we got to where we are? Do we know what decisions were made, and by who, and for what? If we do not know, how can we hope to ever make a change?
America, you have been conned. Let's discuss the history of money and see how we have arrived where we are. It isn't so much that we as Americans do not know a lot about our economy, our history, and our government, it is just that like Ronald Reagan once said about liberals, we just know so much that isn't true.
Money was, and has always been, something we have agreed upon to be money. Early on it could have been shells or stones or sheep, later we started using precious metals, like gold, silver, copper and others, mostly gold. This was the basic means of exchange for around six thousand years until 1971 when our money was taken off the gold standard.
When we used gold, there were businessmen known as goldsmiths. These goldsmiths were the bankers of their day, so you wouldn't be in danger of being robbed of your gold, you could deposit it with a goldsmith who would issue you paper receipts or scripts to be able to come back and redeem your gold as you needed it. This evolved to a point where the goldsmith's scripts could be exchanged for purchase and the person you gave it to could redeem it. Soon the goldsmiths realized that only a fraction of the gold they held on deposit ever was redeemed at any given time, so they started printing more scripts against that deposited gold than their was gold held on reserve. This was known as fractional reserve banking, we are still using that same program in our banks today.
Genghis Khan came to the decision that he wanted to use paper money, he had the most powerful and ruthless army on the planet so he enforced that what he said was money was, if you disagreed you died. When Marco Polo explored Asia he came back with stories of this Khan money.
Then in 1715-1720 we saw the impact John Law had on money. A Scot, and son of a banker, John Law was famous for his talents with the ladies. This ended with Law killing a jealous husband in self-defense. He had to leave England and went to France. There at the death of King Louis the 14th, the heir a seven year old Louis the XV inherited the three billion livres of the old king. The currency was devalued by 20% which did no good, those who were accused of hoarding were arrested. John Law showed up with an idea of Fiat money. It was paper money issued by the government secured by land and Royal revenues. He wasn't done yet, he started issuing paper money against land in France's holdings in America, capitalizing on the speculative frenzy the New World held. This created a massive boom the French saw their standard of living escalate as never before known. Many no longer worked, they became full time speculators buying and selling this new paper. Then an angry Prince de Conti arrived and brought wagon loads of this paper and wanted to cash it in for gold. When he did, they gave him his gold, but it caused others to do the same, crashing the bubble.
Law gambling his remaining authority he abolished coin as a medium of exchange, and then in February 1720 declared it illegal to own more than the tiniest of sums in gold in any form. Then he closed the borders, and sent instructions to all coach-houses to refuse fresh horses to anyone travelling to foreign lands until an inspector had examined their baggage. The substantial fines imposed were shared with the public spirited individual who filed the report.
By August of that year it was all over, and John Law was the most hated man in France. Fortunately he was living in Venice. Like all good gamblers he had gone on to the next game, by which means he continued his existence for another 9 years. Much of the money he won at this time would have been that which had earlier escaped him in the capital flight which he had outlawed.
This is truly a story of Booms and Busts, or otherwise known as Inflation and Deflation.
Inflation is not, as most believe, rising prices, demand can cause prices to rise. It is when the money supply is increased too large for demand. It causes prices to go up two ways, one by lowering the value of the money you are using. The other is that those selling goods see an opportunity to raise prices when people have a lot of money in their pockets.
Inflation is actually a secret tax, governments love inflation, and do it intentionally. Inflation is a tax on the people that is hidden, it is actually a reverse graduated tax because it hits the poor and middle class harder as a much higher percentage of their money is used for consumption. It shrinks the buying power of your savings, and as Americans have had repeated attacks on the value of their money for most of their lives it has trained them to not save money.
However, again governments love it, they get to see increased exporting of goods since foreign currencies can buy our goods cheaper than we can. Further it allows them to pay back the massive government debt with cheaper devalued dollars. If wages increase, it will push people into higher tax brackets again raising taxes without the political hit of a tax increase.
Deflation is the opposite, this is the thing governments fear the most. It is caused with the shrinking of money supplies and causes real prices to drop. If you lost your job and then had your one hundred thousand dollar home foreclosed where it resold for fifty thousand, what happened to the other fifty thousand dollars? It is simply gone, it is out of the economy, and the economy was deflated of that purchasing power. Prices going down is good for buying food and energy, but bad if you bought something speculating it would go up in value.
Today the value of the dollar is imaginary and in the hands of the Federal Reserve who manipulates it by pouring money into the market or not. We no longer have a stable money tied to gold or anything else.
How did we get here?
Our founders gave Congress the power to declare what money would be, they only gave the states the power to coin money. The founders had already had an experiment with paper fiat money called the Continental. They printed this paper money to help pay for the war, it wasn't tied to anything of value other than the new government said it was money. It devalued so much that no one would take it, even today we sometimes hear the phrase "It isn't worth a Continental" used.
We then went to a Gold/Silver standard and the nation's money was stable for years. Then another expensive war came about with the Civil War, and we printed money again to pay for it. We also had an Income Tax imposed and a way of collecting in with the IRS in 1862. The income tax was declared Un-Constitutional in 1894, but the IRS remained.
Then the Panic of 1907 came about. Speculation still contends it was done intentionally by a group of big bankers did it on purpose to cause panic and give them and the government the opportunity to "fix it." What we do know is that it started with a failed attempt to corner the copper market. The stock market crashed by 50% in a year, and banks across America failed. It was likely it would have been much worse if not for J.P. Morgan pledging vasts sums of his own money to shore up the banking system. At the time America didn't have a central banking system to shore up the system in crisis. We had two National Banks earlier both highly unpopular with the American people. The last one was the singular purpose of Andrew Jackson to remove. Senator Nelson Aldredge was given the task to find a way to "fix this."
In 1910 there was a meeting on Jekyll Island Club off the coast of Georgia. Aldrich convened a secret conference with a number of the nation's leading financiers to discuss monetary policy and the banking system. Aldrich and A. P. Andrew (Assistant Secretary of the Treasury Department), Paul Warburg (representing Kuhn, Loeb & Co.), Frank A. Vanderlip (James Stillman's successor as president of the National City Bank of New York), Henry P. Davison (senior partner of J. P. Morgan Company), Charles D. Norton (president of the Morgan-dominated First National Bank of New York), and Benjamin Strong (representing J. P. Morgan), produced a design for a "National Reserve Bank".
Forbes magazine founder B. C. Forbes wrote several years later:
Picture a party of the nation’s greatest bankers stealing out of New York on a private railroad car under cover of darkness, stealthily riding hundreds of miles South, embarking on a mysterious launch, sneaking onto an island deserted by all but a few servants, living there a full week under such rigid secrecy that the names of not one of them was once mentioned, lest the servants learn the identity and disclose to the world this strangest, most secret expedition in the history of American finance. I am not romancing; I am giving to the world, for the first time, the real story of how the famous Aldrich currency report, the foundation of our new currency system, was written.
The final report of the National Monetary Commission was published on January 11, 1911. For nearly two years legislators debated the proposal and it was not until December 22, 1913, that Congress passed the Federal Reserve Act. President Woodrow Wilson signed the legislation immediately and the legislation was enacted on the same day, December 22, 1913, creating the Federal Reserve System. At the time it was a secret national bank.
The Federal Reserve is not Federal and it has no reserves.
1913 was maybe the most pivotal year in our economic and Republic's history since it's founding. Also in 1913 the Income tax was brought back, even after it had been found Un-Constitutional twenty years earlier. The government needed to pay the 6% interest to the Federal Reserve. One congressman filibustered on the floor of the House trying to stop the income tax, he said that there could come a time when it would be as high as 20%, the other congressmen laughed him off the floor as a radical an extremist, and an alarmist.
Now the government doesn't take need to take away liberty and freedoms by force, they know that they only have to get the camel's nose into the tent. 1913 was that year. Another gem brought to us in 1913 was the 17th Amendment where unlike the Founder's intent of the Senators being selected by the State representatives of each state to represent the state's interest, they became popularly elected making them part of that buying the constituency vote as well as the House.
1913 was the Birth of an Empire and death of the Republic.
Now, we hear a lot about the Federal Reserve, but do you know how it works?
Basically it is like this. The government sells a bond to the Federal Reserve, the Reserve hands a check to the government written on an account that doesn't exist. The government then deposits that check into an electronic account and the money appears out of thin air, and the Federal Reserve holds the Bond. Every time the Reserve buys bonds from the government money flows out and increases the supply causing inflation and lowering interest rates.
Wars are expensive, they are golden opportunities for government to print more money. W.W.I comes along, Wilson and the Fed pumps money into the supply, inflation and devaluation come right with it. After the war, the soldiers come home, need to find jobs, war machines are no longer being made, and we see a recession. France is demanding gold to pay back our debt to them, so what do we do? Pump more money into the system creating inflation, and the Roaring 20s, everyone had money, life was good, people started speculating in the market that was booming until... Herbert Hoover was hinting about something called the Smoot Hawley Tariff. Just the talk about it caused businessmen to start pulling in their resources, this caused the stock market to crash.
Of course you have heard about the stock market crash, how the market crashed, people committed suicide, and no one had any money for a long time, right? Wrong.
Very few committed suicide, just one year after the crash the market was back where it was before. (Sound familiar) However, this was a perfect crisis for the government to "do something" and they did.
The reason the market crashed is that when businessmen heard, and believed, the government was going to impose tariffs they knew it would be destructive to business and they pulled in their capital.
The government did something:
1932 the Smoot Hawley Tariffs were imposed creating a trade war pushing the recession into the Great Depression.
1934 the Gold Reserve Act made it illegal for any American to own gold, this lasted until the mid 70s.
1935 the Wagner Act gave us unions and collective bargaining. While some of this was needed at the time, we see today how it has become a destructive monster to our Republic and our freedom along with our economy.
1935 the Unemployment Act brings us unemployment insurance.
1937 the Social Security Act, the largest Ponzi scheme in history. This is nothing but a giant pyramid scheme and would be illegal if not run by the government. There was never any money set in reserves in it.
1938 brought us Fannie Mae, the government took started carrying the notes on our mortgages.
If 1913 under Wilson the Camel's nose got under the tent of our freedom and Republic, in the 30s the camel got inside. If our Republic died in 1913 and the Empire was born, the Empire was wearing big boy pants now.
Of course the event that brought us out of the Great Depression was W.W.II. What happens during war? We pump more money into the system devalue the dollar with inflation, and away we went. Then in 1944 there was a conference held called the Brenton Woods Conference. This was the birth of the International Monetary Fund and the World Bank, even though it didn't become fully operational until 1959. This was just the ticket for the Fed and the government, the U.S. Dollar became the reserve currency for world financial markets. This way the U.S. government could dump trillions of dollars into the IMF and the world without causing the massive inflation it would have caused if dumped in the United States economy. This system has worked for years, but have you heard recently that there i growing talk of removing the dollar as the reserve currency? If that happens, and it is actually very possible, the Housing Bubble Pop will look like a blip on the economy compared to the Dollar bubble pop that would surely follow.
Have you heard about government's Guns and Butter Programs?
What were they? They were 1. The Kennedy Space Race, 2. LBJ's Great Society, and 3. Vietnam. All very expensive, all great opportunities for government to pump more money out.
In 1965 we added Medicare and Medicaid along with Freddie Mac in 1970.
With our government's habit of manipulating the money supply to keep driving down the value of our dollar to pay back debt cheaper, the Arab Oil states revolted at selling us oil with dollars that gave them less than they bargained for. Now we have skyrocketing prices as they would no longer sell to us, we would buy it through other countries who bought Arab oil and resold to us taking out middleman pricing.
American voters said "Do Something" Nixon wanted to be reelected he did something. He gave us price controls, this created shortages and producers refuse to produce if they can't make a profit. So to fix this let's add tariffs, they worked as well this time as before.
Now in 1974 we add the ERISA laws, this is where our retirement plans were changed from defined benefit plans to defined contribution plans or IRAs, 401ks, and other deferred tax plans. What we did was take the little guy and put him in the stock market. Of course we didn't teach him what to do when there. Now the big banking system not only got to create our money, they now held our savings as well. The little guy got slaughtered.
In 1979 we got a short reprieve. Paul Volker started pulling money out of the system and brought back some value to our dollar. Then Ronald Reagan dramatically cut taxes, and between those two things it created the greatest economic boom we have seen and sustained longer than any in any of our lifetimes.
However, Alan Greenspan took over the Fed in 86 changing our monetary policy once again. Then in the 90s we had the technology boom, money was flowing, people started day trading, Wall Street was rewarding short term profits not long term manufacturing gains, this drove our manufacturing base out of America. Then it turned to 2000 and Pop goes the Tech Bubble.
When the Tech bubble burst the herd starting looking for the next big thing, the next fix, the next easy short team profit. It found Real Estate. Boom Baby, off they went buying, flipping, refinancing, using their home like a ATM machine to buy cars, jewelry, electronics, vacations, and more Real Estate to flip. The hot market towns in the Sun belt had entire subdivisions purchased by those who had no intention of ever living in the home, but just flipping it. When the bubble burst we heard the sad stories of the people losing their homes, but the media didn't talk much of the novice speculators who took out 125% loans on their homes to buy several others to flip and then lost them all after the bubble burst in 2008.
Okay, now we know how we got here. What do we do about it?
There is a three step process we must do to save things.
1. We need Stable Money, be it back to the Gold standard or something else, it must be stable.
2. We need to lower taxes, we must reward, not punish the producers. Last year 50% of Americans did not pay Federal Income taxes. When that number reaches 51% the game is over.
3. We must deregulate, reduce the amount of laws and rules on businesses.
Government will kick and scream about those three ideas. They now have an entire herd of camels in the tent, they are not going to willingly give up their power. When it comes to inflation and deflation by government and the FED, you must remember that Ben Bernanke has said that he will not allow deflation to occur if it means he would have to throw money out of helicopters. That is a frightening thought that the man in charge of our money value believes this.
There is a storm coming that will make this last few years look like the good old days if we don't regain control over our government's spending habits. I believe we have this next election to either save our nation, or it's over as we know it.
Government's role passed onto us by our founders was to protect us from a big government foreign or domestic. Our founders wrote our Constitution in fear of government, and terrified of democracies. That is why they gave us a Republic. Democracies are mob rule.
James Madison said, "Hence it is that such democracies have ever been spectacles of turbulence and contention; have ever been found incompatible with personal security or the rights of property; and have in general been as short in their lives as they have been violent in their deaths. Theoretic politicians, who have patronized this species of government, have erroneously supposed that by reducing mankind to a perfect equality in their political rights, they would, at the same time, be perfectly equalized and assimilated in their possessions, their opinions, and their passions." Federalist No. 10
We have a chance of turning this around, but it will depend upon us to do so. Then if we do, to educate our children, and ourselves what got us here, to make sure we don't do it again.
America, you have been conned. Let's discuss the history of money and see how we have arrived where we are. It isn't so much that we as Americans do not know a lot about our economy, our history, and our government, it is just that like Ronald Reagan once said about liberals, we just know so much that isn't true.
Money was, and has always been, something we have agreed upon to be money. Early on it could have been shells or stones or sheep, later we started using precious metals, like gold, silver, copper and others, mostly gold. This was the basic means of exchange for around six thousand years until 1971 when our money was taken off the gold standard.
When we used gold, there were businessmen known as goldsmiths. These goldsmiths were the bankers of their day, so you wouldn't be in danger of being robbed of your gold, you could deposit it with a goldsmith who would issue you paper receipts or scripts to be able to come back and redeem your gold as you needed it. This evolved to a point where the goldsmith's scripts could be exchanged for purchase and the person you gave it to could redeem it. Soon the goldsmiths realized that only a fraction of the gold they held on deposit ever was redeemed at any given time, so they started printing more scripts against that deposited gold than their was gold held on reserve. This was known as fractional reserve banking, we are still using that same program in our banks today.
Genghis Khan came to the decision that he wanted to use paper money, he had the most powerful and ruthless army on the planet so he enforced that what he said was money was, if you disagreed you died. When Marco Polo explored Asia he came back with stories of this Khan money.
Then in 1715-1720 we saw the impact John Law had on money. A Scot, and son of a banker, John Law was famous for his talents with the ladies. This ended with Law killing a jealous husband in self-defense. He had to leave England and went to France. There at the death of King Louis the 14th, the heir a seven year old Louis the XV inherited the three billion livres of the old king. The currency was devalued by 20% which did no good, those who were accused of hoarding were arrested. John Law showed up with an idea of Fiat money. It was paper money issued by the government secured by land and Royal revenues. He wasn't done yet, he started issuing paper money against land in France's holdings in America, capitalizing on the speculative frenzy the New World held. This created a massive boom the French saw their standard of living escalate as never before known. Many no longer worked, they became full time speculators buying and selling this new paper. Then an angry Prince de Conti arrived and brought wagon loads of this paper and wanted to cash it in for gold. When he did, they gave him his gold, but it caused others to do the same, crashing the bubble.
Law gambling his remaining authority he abolished coin as a medium of exchange, and then in February 1720 declared it illegal to own more than the tiniest of sums in gold in any form. Then he closed the borders, and sent instructions to all coach-houses to refuse fresh horses to anyone travelling to foreign lands until an inspector had examined their baggage. The substantial fines imposed were shared with the public spirited individual who filed the report.
By August of that year it was all over, and John Law was the most hated man in France. Fortunately he was living in Venice. Like all good gamblers he had gone on to the next game, by which means he continued his existence for another 9 years. Much of the money he won at this time would have been that which had earlier escaped him in the capital flight which he had outlawed.
This is truly a story of Booms and Busts, or otherwise known as Inflation and Deflation.
Inflation is not, as most believe, rising prices, demand can cause prices to rise. It is when the money supply is increased too large for demand. It causes prices to go up two ways, one by lowering the value of the money you are using. The other is that those selling goods see an opportunity to raise prices when people have a lot of money in their pockets.
Inflation is actually a secret tax, governments love inflation, and do it intentionally. Inflation is a tax on the people that is hidden, it is actually a reverse graduated tax because it hits the poor and middle class harder as a much higher percentage of their money is used for consumption. It shrinks the buying power of your savings, and as Americans have had repeated attacks on the value of their money for most of their lives it has trained them to not save money.
However, again governments love it, they get to see increased exporting of goods since foreign currencies can buy our goods cheaper than we can. Further it allows them to pay back the massive government debt with cheaper devalued dollars. If wages increase, it will push people into higher tax brackets again raising taxes without the political hit of a tax increase.
Deflation is the opposite, this is the thing governments fear the most. It is caused with the shrinking of money supplies and causes real prices to drop. If you lost your job and then had your one hundred thousand dollar home foreclosed where it resold for fifty thousand, what happened to the other fifty thousand dollars? It is simply gone, it is out of the economy, and the economy was deflated of that purchasing power. Prices going down is good for buying food and energy, but bad if you bought something speculating it would go up in value.
Today the value of the dollar is imaginary and in the hands of the Federal Reserve who manipulates it by pouring money into the market or not. We no longer have a stable money tied to gold or anything else.
How did we get here?
Our founders gave Congress the power to declare what money would be, they only gave the states the power to coin money. The founders had already had an experiment with paper fiat money called the Continental. They printed this paper money to help pay for the war, it wasn't tied to anything of value other than the new government said it was money. It devalued so much that no one would take it, even today we sometimes hear the phrase "It isn't worth a Continental" used.
We then went to a Gold/Silver standard and the nation's money was stable for years. Then another expensive war came about with the Civil War, and we printed money again to pay for it. We also had an Income Tax imposed and a way of collecting in with the IRS in 1862. The income tax was declared Un-Constitutional in 1894, but the IRS remained.
Then the Panic of 1907 came about. Speculation still contends it was done intentionally by a group of big bankers did it on purpose to cause panic and give them and the government the opportunity to "fix it." What we do know is that it started with a failed attempt to corner the copper market. The stock market crashed by 50% in a year, and banks across America failed. It was likely it would have been much worse if not for J.P. Morgan pledging vasts sums of his own money to shore up the banking system. At the time America didn't have a central banking system to shore up the system in crisis. We had two National Banks earlier both highly unpopular with the American people. The last one was the singular purpose of Andrew Jackson to remove. Senator Nelson Aldredge was given the task to find a way to "fix this."
In 1910 there was a meeting on Jekyll Island Club off the coast of Georgia. Aldrich convened a secret conference with a number of the nation's leading financiers to discuss monetary policy and the banking system. Aldrich and A. P. Andrew (Assistant Secretary of the Treasury Department), Paul Warburg (representing Kuhn, Loeb & Co.), Frank A. Vanderlip (James Stillman's successor as president of the National City Bank of New York), Henry P. Davison (senior partner of J. P. Morgan Company), Charles D. Norton (president of the Morgan-dominated First National Bank of New York), and Benjamin Strong (representing J. P. Morgan), produced a design for a "National Reserve Bank".
Forbes magazine founder B. C. Forbes wrote several years later:
Picture a party of the nation’s greatest bankers stealing out of New York on a private railroad car under cover of darkness, stealthily riding hundreds of miles South, embarking on a mysterious launch, sneaking onto an island deserted by all but a few servants, living there a full week under such rigid secrecy that the names of not one of them was once mentioned, lest the servants learn the identity and disclose to the world this strangest, most secret expedition in the history of American finance. I am not romancing; I am giving to the world, for the first time, the real story of how the famous Aldrich currency report, the foundation of our new currency system, was written.
The final report of the National Monetary Commission was published on January 11, 1911. For nearly two years legislators debated the proposal and it was not until December 22, 1913, that Congress passed the Federal Reserve Act. President Woodrow Wilson signed the legislation immediately and the legislation was enacted on the same day, December 22, 1913, creating the Federal Reserve System. At the time it was a secret national bank.
The Federal Reserve is not Federal and it has no reserves.
1913 was maybe the most pivotal year in our economic and Republic's history since it's founding. Also in 1913 the Income tax was brought back, even after it had been found Un-Constitutional twenty years earlier. The government needed to pay the 6% interest to the Federal Reserve. One congressman filibustered on the floor of the House trying to stop the income tax, he said that there could come a time when it would be as high as 20%, the other congressmen laughed him off the floor as a radical an extremist, and an alarmist.
Now the government doesn't take need to take away liberty and freedoms by force, they know that they only have to get the camel's nose into the tent. 1913 was that year. Another gem brought to us in 1913 was the 17th Amendment where unlike the Founder's intent of the Senators being selected by the State representatives of each state to represent the state's interest, they became popularly elected making them part of that buying the constituency vote as well as the House.
1913 was the Birth of an Empire and death of the Republic.
Now, we hear a lot about the Federal Reserve, but do you know how it works?
Basically it is like this. The government sells a bond to the Federal Reserve, the Reserve hands a check to the government written on an account that doesn't exist. The government then deposits that check into an electronic account and the money appears out of thin air, and the Federal Reserve holds the Bond. Every time the Reserve buys bonds from the government money flows out and increases the supply causing inflation and lowering interest rates.
Wars are expensive, they are golden opportunities for government to print more money. W.W.I comes along, Wilson and the Fed pumps money into the supply, inflation and devaluation come right with it. After the war, the soldiers come home, need to find jobs, war machines are no longer being made, and we see a recession. France is demanding gold to pay back our debt to them, so what do we do? Pump more money into the system creating inflation, and the Roaring 20s, everyone had money, life was good, people started speculating in the market that was booming until... Herbert Hoover was hinting about something called the Smoot Hawley Tariff. Just the talk about it caused businessmen to start pulling in their resources, this caused the stock market to crash.
Of course you have heard about the stock market crash, how the market crashed, people committed suicide, and no one had any money for a long time, right? Wrong.
Very few committed suicide, just one year after the crash the market was back where it was before. (Sound familiar) However, this was a perfect crisis for the government to "do something" and they did.
The reason the market crashed is that when businessmen heard, and believed, the government was going to impose tariffs they knew it would be destructive to business and they pulled in their capital.
The government did something:
1932 the Smoot Hawley Tariffs were imposed creating a trade war pushing the recession into the Great Depression.
1934 the Gold Reserve Act made it illegal for any American to own gold, this lasted until the mid 70s.
1935 the Wagner Act gave us unions and collective bargaining. While some of this was needed at the time, we see today how it has become a destructive monster to our Republic and our freedom along with our economy.
1935 the Unemployment Act brings us unemployment insurance.
1937 the Social Security Act, the largest Ponzi scheme in history. This is nothing but a giant pyramid scheme and would be illegal if not run by the government. There was never any money set in reserves in it.
1938 brought us Fannie Mae, the government took started carrying the notes on our mortgages.
If 1913 under Wilson the Camel's nose got under the tent of our freedom and Republic, in the 30s the camel got inside. If our Republic died in 1913 and the Empire was born, the Empire was wearing big boy pants now.
Of course the event that brought us out of the Great Depression was W.W.II. What happens during war? We pump more money into the system devalue the dollar with inflation, and away we went. Then in 1944 there was a conference held called the Brenton Woods Conference. This was the birth of the International Monetary Fund and the World Bank, even though it didn't become fully operational until 1959. This was just the ticket for the Fed and the government, the U.S. Dollar became the reserve currency for world financial markets. This way the U.S. government could dump trillions of dollars into the IMF and the world without causing the massive inflation it would have caused if dumped in the United States economy. This system has worked for years, but have you heard recently that there i growing talk of removing the dollar as the reserve currency? If that happens, and it is actually very possible, the Housing Bubble Pop will look like a blip on the economy compared to the Dollar bubble pop that would surely follow.
Have you heard about government's Guns and Butter Programs?
What were they? They were 1. The Kennedy Space Race, 2. LBJ's Great Society, and 3. Vietnam. All very expensive, all great opportunities for government to pump more money out.
In 1965 we added Medicare and Medicaid along with Freddie Mac in 1970.
With our government's habit of manipulating the money supply to keep driving down the value of our dollar to pay back debt cheaper, the Arab Oil states revolted at selling us oil with dollars that gave them less than they bargained for. Now we have skyrocketing prices as they would no longer sell to us, we would buy it through other countries who bought Arab oil and resold to us taking out middleman pricing.
American voters said "Do Something" Nixon wanted to be reelected he did something. He gave us price controls, this created shortages and producers refuse to produce if they can't make a profit. So to fix this let's add tariffs, they worked as well this time as before.
Now in 1974 we add the ERISA laws, this is where our retirement plans were changed from defined benefit plans to defined contribution plans or IRAs, 401ks, and other deferred tax plans. What we did was take the little guy and put him in the stock market. Of course we didn't teach him what to do when there. Now the big banking system not only got to create our money, they now held our savings as well. The little guy got slaughtered.
In 1979 we got a short reprieve. Paul Volker started pulling money out of the system and brought back some value to our dollar. Then Ronald Reagan dramatically cut taxes, and between those two things it created the greatest economic boom we have seen and sustained longer than any in any of our lifetimes.
However, Alan Greenspan took over the Fed in 86 changing our monetary policy once again. Then in the 90s we had the technology boom, money was flowing, people started day trading, Wall Street was rewarding short term profits not long term manufacturing gains, this drove our manufacturing base out of America. Then it turned to 2000 and Pop goes the Tech Bubble.
When the Tech bubble burst the herd starting looking for the next big thing, the next fix, the next easy short team profit. It found Real Estate. Boom Baby, off they went buying, flipping, refinancing, using their home like a ATM machine to buy cars, jewelry, electronics, vacations, and more Real Estate to flip. The hot market towns in the Sun belt had entire subdivisions purchased by those who had no intention of ever living in the home, but just flipping it. When the bubble burst we heard the sad stories of the people losing their homes, but the media didn't talk much of the novice speculators who took out 125% loans on their homes to buy several others to flip and then lost them all after the bubble burst in 2008.
Okay, now we know how we got here. What do we do about it?
There is a three step process we must do to save things.
1. We need Stable Money, be it back to the Gold standard or something else, it must be stable.
2. We need to lower taxes, we must reward, not punish the producers. Last year 50% of Americans did not pay Federal Income taxes. When that number reaches 51% the game is over.
3. We must deregulate, reduce the amount of laws and rules on businesses.
Government will kick and scream about those three ideas. They now have an entire herd of camels in the tent, they are not going to willingly give up their power. When it comes to inflation and deflation by government and the FED, you must remember that Ben Bernanke has said that he will not allow deflation to occur if it means he would have to throw money out of helicopters. That is a frightening thought that the man in charge of our money value believes this.
There is a storm coming that will make this last few years look like the good old days if we don't regain control over our government's spending habits. I believe we have this next election to either save our nation, or it's over as we know it.
Government's role passed onto us by our founders was to protect us from a big government foreign or domestic. Our founders wrote our Constitution in fear of government, and terrified of democracies. That is why they gave us a Republic. Democracies are mob rule.
James Madison said, "Hence it is that such democracies have ever been spectacles of turbulence and contention; have ever been found incompatible with personal security or the rights of property; and have in general been as short in their lives as they have been violent in their deaths. Theoretic politicians, who have patronized this species of government, have erroneously supposed that by reducing mankind to a perfect equality in their political rights, they would, at the same time, be perfectly equalized and assimilated in their possessions, their opinions, and their passions." Federalist No. 10
We have a chance of turning this around, but it will depend upon us to do so. Then if we do, to educate our children, and ourselves what got us here, to make sure we don't do it again.
Saturday, April 30, 2011
Let's Not ReWrite The History of Our Constitution.
The Tea Party Movement is a force to be reckoned with, it will be a major player in who will be nominated to office as well as win in the fall of 12. This is a wonderful change from the apathy that has plagued most Americans about the political world going on around them for decades.
I do have some concerns though. One of them is that, while I am thrilled with the new embrace of history, our founding, and our Constitution that is burning like wild-fire through the Tea Partiers, I am concerned about who is teaching them. Or at least who they might be hearing explain it. Most people do not read for themselves, the average American man reads less than one book a year. That means they "learn" from being told by others, who likely learned from being told by others, and on and on, like looking into a old barbershop mirror.
When this is the method of disseminating information, it can be twisted, and perverted to the point of destroying that they hope to protect. Have you ever played the telephone game? A friend of mine, who was a surveyor, explained it to me this way. If you are surveying land, you start at the known point and then measure to where you are going. If you get off just a hair at the beginning your final measure can be off by miles. That is exactly what is happening with so many factions in the movement. One of which is the Ron Paul following who are, like so many others, trying to co-op the movement for their own purposes.
Ron Paul's teaching of the Constitution is close, but then veers off to the point that it doesn't even resemble the original document or intent of our founders. Listening to Ron Paul reminds me of the speeches of Clement Vallandigham, one of the main Copperheads during the Civil War.
The more I think about what I am hearing from the Paul followers, and far too many of the Tea Partiers is a strictly Jeffersonian version of the founding. While Thomas Jefferson was one of the great leaders and key players in our founding, he was not the only voice heard. The Constitution is not reflective of the Jeffersonian view, in fact Thomas Jefferson was anything but a fan of the Constitution he thought it was tyranny. He advocated a revolution every twenty years, than no generation should be bound by the former generation's laws.
The Constitution was probably not 100% loved by any of the founders who fought and debated throughout that hot summer in 1787. The final product wasn't any one man's, but a truly compromised document to get while not total support by any, enough support by all to pass it. The result of this Melting Pot of ideas was a recipe for the greatest nation in the history of mankind.
When I hear the Ron Paul followers, and some of the Tea Party folks, parroting the purity of Jefferson and the evil of Adams, and Hamilton it is scary. Thank God, we don't have a nation designed exclusively by any of them, but a compromise of those different views.
For a point of order, Thomas Jefferson and John Adams were no where near the writing of the Constitution. Both were overseas that summer, Jefferson as ambassador of France, Adams as same for England. Alexander Hamilton was not happy with the Constitution he wanted a much stronger document, but realized quickly it was the best he could hope for at the time and became head salesman of it writing most of the Federalist Papers, along with James Madison, and John Jay.
There were very many different views, different understandings, different experiences that were involved in that room creating this magnificent document. It was those differences that made it great. We were blessed by God that these brilliant men, the most educated men who may have yet ever filled our representatives, were able to work past those differences to create our Republic. Two of the most key men in getting this done were Benjamin Franklin, who didn't write much, debate much, but was able through the respect the others held for him to get them back on track when needed. The key was the presence of George Washington, the least educated man in the room, but whose larger than life presence and perfected leadership skills, and quiet demeanor was able to keep all the competing factions working toward a common goal.
We do not want to re-write the Constitution in Jefferson's image as Ron Paul and his followers do, we don't want Hamilton's, or any one's, we had the greatest mastermind meeting in history, why just take one.
I do have some concerns though. One of them is that, while I am thrilled with the new embrace of history, our founding, and our Constitution that is burning like wild-fire through the Tea Partiers, I am concerned about who is teaching them. Or at least who they might be hearing explain it. Most people do not read for themselves, the average American man reads less than one book a year. That means they "learn" from being told by others, who likely learned from being told by others, and on and on, like looking into a old barbershop mirror.
When this is the method of disseminating information, it can be twisted, and perverted to the point of destroying that they hope to protect. Have you ever played the telephone game? A friend of mine, who was a surveyor, explained it to me this way. If you are surveying land, you start at the known point and then measure to where you are going. If you get off just a hair at the beginning your final measure can be off by miles. That is exactly what is happening with so many factions in the movement. One of which is the Ron Paul following who are, like so many others, trying to co-op the movement for their own purposes.
Ron Paul's teaching of the Constitution is close, but then veers off to the point that it doesn't even resemble the original document or intent of our founders. Listening to Ron Paul reminds me of the speeches of Clement Vallandigham, one of the main Copperheads during the Civil War.
The more I think about what I am hearing from the Paul followers, and far too many of the Tea Partiers is a strictly Jeffersonian version of the founding. While Thomas Jefferson was one of the great leaders and key players in our founding, he was not the only voice heard. The Constitution is not reflective of the Jeffersonian view, in fact Thomas Jefferson was anything but a fan of the Constitution he thought it was tyranny. He advocated a revolution every twenty years, than no generation should be bound by the former generation's laws.
The Constitution was probably not 100% loved by any of the founders who fought and debated throughout that hot summer in 1787. The final product wasn't any one man's, but a truly compromised document to get while not total support by any, enough support by all to pass it. The result of this Melting Pot of ideas was a recipe for the greatest nation in the history of mankind.
When I hear the Ron Paul followers, and some of the Tea Party folks, parroting the purity of Jefferson and the evil of Adams, and Hamilton it is scary. Thank God, we don't have a nation designed exclusively by any of them, but a compromise of those different views.
For a point of order, Thomas Jefferson and John Adams were no where near the writing of the Constitution. Both were overseas that summer, Jefferson as ambassador of France, Adams as same for England. Alexander Hamilton was not happy with the Constitution he wanted a much stronger document, but realized quickly it was the best he could hope for at the time and became head salesman of it writing most of the Federalist Papers, along with James Madison, and John Jay.
There were very many different views, different understandings, different experiences that were involved in that room creating this magnificent document. It was those differences that made it great. We were blessed by God that these brilliant men, the most educated men who may have yet ever filled our representatives, were able to work past those differences to create our Republic. Two of the most key men in getting this done were Benjamin Franklin, who didn't write much, debate much, but was able through the respect the others held for him to get them back on track when needed. The key was the presence of George Washington, the least educated man in the room, but whose larger than life presence and perfected leadership skills, and quiet demeanor was able to keep all the competing factions working toward a common goal.
We do not want to re-write the Constitution in Jefferson's image as Ron Paul and his followers do, we don't want Hamilton's, or any one's, we had the greatest mastermind meeting in history, why just take one.
Wednesday, April 27, 2011
Obama's Easter Sermon, What Was He Learning?
On Easter Sunday the Obama family went to church at Shiloh Baptist Church to hear a sermon by Pastor Wallace Charles Smith. Pastor Smith has a record of pushing a very race baited agenda. During his sermon, Smith chose to attack the original Constitution of the United States, and our founders. He spoke of the 3/5th person classification in the Constitution for slaves.
One of the biggest problems we have in trying to learn our American history is the lack of knowledge and understanding of the broader story surrounding the topic. This one issue has been lifted out by so many with agendas to promote. Most people know very little about what actually happened in any historical context.
Let's take a look at this one issue, but let's not look back with our own current understanding and experiences and try to project them on those debating the draft of that Constitution that hot summer of 1787. The slave debate was already between the North and the South was already under way, it had been 168 years since slavery began in America in 1619. Keep in mind it was deeply entrenched long before the idea of a free Republic was even dreamed of.
Frankly it was a miracle that the many diverse interests in that room were able to create a brand new nation, birthed the most successful Republic in the history of man that summer. There were large states and small, heavily populated and sparsely populated, there were business driven states, and agrarian driven, and of course slave states and free states, all who demanded that their interests were considered and protected.
The Senate was created with two Senators who would be chosen by the States to represent their own interests. Since these men would be chosen by the States and appointed to the Senate, they knew that they would be men of means and stature in their states. So the Senate was designed to give the small states equal say since all would have two votes. It was also created as a voice for the wealthy of the nation.
The House was created with a representative for up to thirty thousand citizens. So this was a nod to the large or heavily populated states since they would dominate the votes in the House. Each state was only guaranteed one Congressman for those small states. The House was generally considered a place for those who were not necessarily of wealth, thus the People's House.
Now at first glance the idea of only classifying men and women as only 3/5ths of a person sounds like the result of glaring racism. However, as Paul Harvey would say, the rest of the story. Why did this 3/5ths rule come about?
The Southern, slave holding states, wanted to have each slave counted as a person. This was because at that time there were more slaves in the South than there were free men. By counting the slaves for the House Districting would guarantee the South would dominate the House of Representatives and would be able to push through whatever agenda they wanted.
Most of those from the North in that room were either outright anti-slavery, or leaning strongly that way. What they didn't want was giving the South a free hand in being able to vote every new state that would be added later as a slave state. They hoped to limit the growth of slavery, or even eliminate it. The hostility between the representatives from the North and South during this debate was so hot that they realized it was going to kill the Constitution before it began. To keep the Constitution alive they had to actually write a rule that the very word "slavery" would not be allowed to be spoken during the rest of the Constitutional Convention or in the House or Senate for the next twenty years. They were terrified that if it was spoken the debate would get so hot that the South would pull out and no longer join the new Republic.
The 3/5 rule was a final compromise to keep the Southern Slave states from forever controlling the House, but it gave them a dominant position at first, creating a situation where the Southern States would actually ratify the Constitution and make The United States of America a reality.
The irony, what appears to cast the U. S. Constitution a racist document by classifying African Americans as 3/5ths of a person was actually designed to ultimately keep slavery from spreading and growing in America. Those who held slaves, wanted to continue and grow it as an institution wanted each slave counted as a full person. It was those who wanted to end slavery and curtail it's growth didn't want to count them at all, but settled on 3/5ths.
For us to understand our history, we need to learn more about it than the headlines.
One of the biggest problems we have in trying to learn our American history is the lack of knowledge and understanding of the broader story surrounding the topic. This one issue has been lifted out by so many with agendas to promote. Most people know very little about what actually happened in any historical context.
Let's take a look at this one issue, but let's not look back with our own current understanding and experiences and try to project them on those debating the draft of that Constitution that hot summer of 1787. The slave debate was already between the North and the South was already under way, it had been 168 years since slavery began in America in 1619. Keep in mind it was deeply entrenched long before the idea of a free Republic was even dreamed of.
Frankly it was a miracle that the many diverse interests in that room were able to create a brand new nation, birthed the most successful Republic in the history of man that summer. There were large states and small, heavily populated and sparsely populated, there were business driven states, and agrarian driven, and of course slave states and free states, all who demanded that their interests were considered and protected.
The Senate was created with two Senators who would be chosen by the States to represent their own interests. Since these men would be chosen by the States and appointed to the Senate, they knew that they would be men of means and stature in their states. So the Senate was designed to give the small states equal say since all would have two votes. It was also created as a voice for the wealthy of the nation.
The House was created with a representative for up to thirty thousand citizens. So this was a nod to the large or heavily populated states since they would dominate the votes in the House. Each state was only guaranteed one Congressman for those small states. The House was generally considered a place for those who were not necessarily of wealth, thus the People's House.
Now at first glance the idea of only classifying men and women as only 3/5ths of a person sounds like the result of glaring racism. However, as Paul Harvey would say, the rest of the story. Why did this 3/5ths rule come about?
The Southern, slave holding states, wanted to have each slave counted as a person. This was because at that time there were more slaves in the South than there were free men. By counting the slaves for the House Districting would guarantee the South would dominate the House of Representatives and would be able to push through whatever agenda they wanted.
Most of those from the North in that room were either outright anti-slavery, or leaning strongly that way. What they didn't want was giving the South a free hand in being able to vote every new state that would be added later as a slave state. They hoped to limit the growth of slavery, or even eliminate it. The hostility between the representatives from the North and South during this debate was so hot that they realized it was going to kill the Constitution before it began. To keep the Constitution alive they had to actually write a rule that the very word "slavery" would not be allowed to be spoken during the rest of the Constitutional Convention or in the House or Senate for the next twenty years. They were terrified that if it was spoken the debate would get so hot that the South would pull out and no longer join the new Republic.
The 3/5 rule was a final compromise to keep the Southern Slave states from forever controlling the House, but it gave them a dominant position at first, creating a situation where the Southern States would actually ratify the Constitution and make The United States of America a reality.
The irony, what appears to cast the U. S. Constitution a racist document by classifying African Americans as 3/5ths of a person was actually designed to ultimately keep slavery from spreading and growing in America. Those who held slaves, wanted to continue and grow it as an institution wanted each slave counted as a full person. It was those who wanted to end slavery and curtail it's growth didn't want to count them at all, but settled on 3/5ths.
For us to understand our history, we need to learn more about it than the headlines.
Sunday, April 10, 2011
Can You Believe The Federal Government Turning Down Money?
It is hard to believe that there could have ever been a fight about the Federal Government accepting a gift of money, but here is a story of one of those times. Of course in the end they did take it, and anyone who has ever gone to Washington has benefited from it.
A British chemist died in 1835 and willed his fortune to the United States government to "increase the knowledge among men." This estate came from James Smithson, the illegitimate son of the Duke of Northumberland. Smithson's legacy was about a half million dollars, the equivalent of more than ten million dollars today.
President Andrew Jackson and many other American politicians were not in favor of accepting a gift from the son of a British nobleman. It was less than twenty years since the British army had burned Washington D.C. during the War of 1812. The Star Spangled Banner war. Senator John Calhoun spoke for many when he said is was "beneath the dignity of the United States to receive presents of this kind."
However, there was one very prominent American statesman who stood up to advocate acceptance of the gift. Former President John Quincy Adams, son of second President John Adams. He was currently serving as a Congressman from Massachusetts. Through much of his career, Adams had advocated government support of the arts and sciences. He said the country had "an imperious and indispensable obligation" to put Smithson's money to good use. Adams eventually convinced a reluctant Congress to accept the grant, and spent years making sure it was put to good purpose.
After the money was accepted it there was a nearly ten year battle over how to spend it. During that time the government invested it in a shady Arkansas land deal, much of the money was lost, but Adams forced the Congress to replace the fund, thus preserving Smithson's request.
John Quincy Adams may have been the most prepared man to ever fill a post in the government. For those who say that the founders didn't believe in career politics, even looking past that every one of the founders continued in the service of government most of the rest of their lives, no one more so than John Quincy Adams. he started his career in public service at 14 when he was his father's secretary in Paris, then again in Holland. From Holland he was hired away from his father by the Ambassador of Russia and became his secretary. Of course he was the first son of a former president to follow in his father's footstep into the White House. He later came back as a Congressman until he fell to a stroke on the floor of the House. But maybe his greatest legacy is his stewarding of James Smithson's gift, The Smithsonian. You can see James Smithson's tomb today inside the Castle of the Smithsonian on the National Mall.
A British chemist died in 1835 and willed his fortune to the United States government to "increase the knowledge among men." This estate came from James Smithson, the illegitimate son of the Duke of Northumberland. Smithson's legacy was about a half million dollars, the equivalent of more than ten million dollars today.
President Andrew Jackson and many other American politicians were not in favor of accepting a gift from the son of a British nobleman. It was less than twenty years since the British army had burned Washington D.C. during the War of 1812. The Star Spangled Banner war. Senator John Calhoun spoke for many when he said is was "beneath the dignity of the United States to receive presents of this kind."
However, there was one very prominent American statesman who stood up to advocate acceptance of the gift. Former President John Quincy Adams, son of second President John Adams. He was currently serving as a Congressman from Massachusetts. Through much of his career, Adams had advocated government support of the arts and sciences. He said the country had "an imperious and indispensable obligation" to put Smithson's money to good use. Adams eventually convinced a reluctant Congress to accept the grant, and spent years making sure it was put to good purpose.
After the money was accepted it there was a nearly ten year battle over how to spend it. During that time the government invested it in a shady Arkansas land deal, much of the money was lost, but Adams forced the Congress to replace the fund, thus preserving Smithson's request.
John Quincy Adams may have been the most prepared man to ever fill a post in the government. For those who say that the founders didn't believe in career politics, even looking past that every one of the founders continued in the service of government most of the rest of their lives, no one more so than John Quincy Adams. he started his career in public service at 14 when he was his father's secretary in Paris, then again in Holland. From Holland he was hired away from his father by the Ambassador of Russia and became his secretary. Of course he was the first son of a former president to follow in his father's footstep into the White House. He later came back as a Congressman until he fell to a stroke on the floor of the House. But maybe his greatest legacy is his stewarding of James Smithson's gift, The Smithsonian. You can see James Smithson's tomb today inside the Castle of the Smithsonian on the National Mall.
Sunday, April 3, 2011
Each Election Has Long Term Impact.
As we suffer through one of the worst presidents and administrations in generations, if not ever, we hold out hope to throw them out in 2012. I recall conservative friends of mine who didn't believe Obama could cause much damage in one term. I wonder how many think that now?
Each election has consequences, presidential elections have long term consequences long after new administrations have taken their place. Let's look back to Jimmy Carter and his administration that lasted from 1977 through January of 1981.
Jimmy Carter's deficit spending caused the Fed to have to monetize (print) 13% more money to cover it. That 13% when velocitized (put in the market) created 12% inflation, a very high number in American history. This caused Paul Volcker to raise interest rates to 21% to stagnate the economy, pull that extra money out of the marketplace and slow down the inflation. This was all part of the term stagflation where inflation sucked up your buying power while people were out of work or incomes remained flat at best.
During Carter's years the very fabric of life for American families changed forever. Just look at housing prices. In 1975 the average price home in America was about 25,000.00 just slightly higher than they had been since 1960. From 1975 until 1980 the average price went from 25,000.00 to about 50,000.00. The price increases have not slowed down until 2008. Game changer. Let me ask you a question, did the price of real estate skyrocket, or did the value of money shrink? For those who didn't buy and ride the inflation train it was devastating to their net worth. For those who did, they were able to keep more value to their earnings. Just in the last twelve years statistics show that the average homeowner has between 31% and 46% more net worth than does the average renter. Further it is cheaper to own than rent like homes in three quarters of all American cities. So those who didn't own and didn't have that vehicle to stay even with inflation took huge economic hits.
When you have inflation your cost of living skyrockets. To combat this families changed their lifestyles. Mothers who had children at home who went to work to help support their families went from 37% in 1975 to over 70% in 1980. After factoring in the costs of supporting another person working outside of the home, child care, auto costs, clothing, etc. most of the income went to pay the increased taxes on the family. The percentage went as high as 77% but dropped for the first time in 2004 to 73%.
So now we have most children in day care, parents schedules stressed, to pay for more expensive housing along with everything else. If you run studies of pricing, you will see that most of America's inflation started during Carter's years, and we are still paying for it.
Now we have Barack Obama and his Administration, who have increased deficit spending during the first 18 months that has required the Fed to monetize (print) 120% more money, it is just now starting to velocitize to the market place, and we are all seeing almost all of our commodity purchases skyrocketing in price. Who knows were it will go. I have no idea what to tell you do to hedge against this coming inflation, other than if it repeats Carter's history housing might be the best hedge long term.
The best news from the Carter years is that he wasn't able to appoint any Supreme Court Justices, because those judges push agendas for decades to come. Unfortunately Obama has already put in two highly politically active judges to promote his ideology for at least a generation or two. Just one more area of great damage we will have to over come.
If nothing else, hopefully, more Americans will start to understand that Presidential politics are not only for four years, but for generations each.
Each election has consequences, presidential elections have long term consequences long after new administrations have taken their place. Let's look back to Jimmy Carter and his administration that lasted from 1977 through January of 1981.
Jimmy Carter's deficit spending caused the Fed to have to monetize (print) 13% more money to cover it. That 13% when velocitized (put in the market) created 12% inflation, a very high number in American history. This caused Paul Volcker to raise interest rates to 21% to stagnate the economy, pull that extra money out of the marketplace and slow down the inflation. This was all part of the term stagflation where inflation sucked up your buying power while people were out of work or incomes remained flat at best.
During Carter's years the very fabric of life for American families changed forever. Just look at housing prices. In 1975 the average price home in America was about 25,000.00 just slightly higher than they had been since 1960. From 1975 until 1980 the average price went from 25,000.00 to about 50,000.00. The price increases have not slowed down until 2008. Game changer. Let me ask you a question, did the price of real estate skyrocket, or did the value of money shrink? For those who didn't buy and ride the inflation train it was devastating to their net worth. For those who did, they were able to keep more value to their earnings. Just in the last twelve years statistics show that the average homeowner has between 31% and 46% more net worth than does the average renter. Further it is cheaper to own than rent like homes in three quarters of all American cities. So those who didn't own and didn't have that vehicle to stay even with inflation took huge economic hits.
When you have inflation your cost of living skyrockets. To combat this families changed their lifestyles. Mothers who had children at home who went to work to help support their families went from 37% in 1975 to over 70% in 1980. After factoring in the costs of supporting another person working outside of the home, child care, auto costs, clothing, etc. most of the income went to pay the increased taxes on the family. The percentage went as high as 77% but dropped for the first time in 2004 to 73%.
So now we have most children in day care, parents schedules stressed, to pay for more expensive housing along with everything else. If you run studies of pricing, you will see that most of America's inflation started during Carter's years, and we are still paying for it.
Now we have Barack Obama and his Administration, who have increased deficit spending during the first 18 months that has required the Fed to monetize (print) 120% more money, it is just now starting to velocitize to the market place, and we are all seeing almost all of our commodity purchases skyrocketing in price. Who knows were it will go. I have no idea what to tell you do to hedge against this coming inflation, other than if it repeats Carter's history housing might be the best hedge long term.
The best news from the Carter years is that he wasn't able to appoint any Supreme Court Justices, because those judges push agendas for decades to come. Unfortunately Obama has already put in two highly politically active judges to promote his ideology for at least a generation or two. Just one more area of great damage we will have to over come.
If nothing else, hopefully, more Americans will start to understand that Presidential politics are not only for four years, but for generations each.
Saturday, April 2, 2011
What's Truly At Stake On Budget Battle
As the politicians in D.C. debate budgets, fighting over a few billion here and there, we here from one side that anything more than a ten billion dollar reduction would cause starvation and draconian consequences. The other is trying for one hundred billion reduction. Both are silly, inconsequential numbers against our 1.7 trillion dollar deficit for just this year.
We are hearing from the Republicans that we will be seeing real deep reductions across the board, not just in discretionary spending in their new budget they will be proposing yet this month. We better hope that they are serious. One thing or sure the Democrats and Unions will be going full court press fighting every dime planned to be reduced.
It is past time for a drastic life saving diet for our Federal government. The patient is critical and without a massive change may well be terminal.
Where are we financially? Is it our national debt, or entitlements that are about to kill us?
Federal Debt: 9.1 Trillion.
Unfunded Social Security: 7.9 Trillion.
Unfunded Medicare: 22.8 Trillion.
Medicaid: 35.3 Trillion.
75% of the budget is non-discretionary and entitlement based.
Just with Medicare, Medicaid and Social Security we have $1 trillion deficits. Once dominated by defense spending, these three categories now account for 44% of total Federal spending and are steadily rising. Even after defense and interest payments on the national debt are excluded, remaining discretionary expenses for education, infrastructure, agriculture and housing constitute at most 25% of the 2011 fiscal year federal spending budget of $4 trillion. You could eliminate it all and still wind up with a deficit of nearly $700 billion! The only chance of recapturing our budget is through entitlement reform.
If we pretend that the $65 trillion of entitlement liabilities were fully funded in a “lockbox,” much like Social Security is falsely thought to be. Actually,then the interest expense on the $75 trillion total debt would equal $2.6 trillion, close to the current level of entitlement spending for Social Security, Medicare and Medicaid. What do we pay now in interest? About $250 billion. Our annual “lockbox” tab would rise by $2.35 trillion and our deficit would be close to 15% of GDP!
The assumption that we can grow our way out of this debt burden, might be possible if it was only the $9.1 trillion in Federal debt. That would be 65% of GDP and well within reasonable ranges for national debt burdens. However others such as Pete Peterson of the Blackstone Group and Mary Meeker, have shown, the true but unrecorded debt of the U.S. Treasury is not $9.1 trillion or even $11-12 trillion when Agency and Student Loan liabilities are thrown in, but $65 trillion more! This country appears to have an off-balance-sheet, unrecorded debt burden of close to 500%of GDP!
In an article titled "USA Inc" by Mary Meeker, and recommend by Paul Volcker and Michael Bloomberg, said if the USA were a corporation, then it would probably have a negative net worth of $35-40 trillion once our “assets” were properly accounted for. However closely estimated that number might be, no lender would lend to such a corporation. Because if that company had a printing press much like the U.S. to print more money at will, that lender/saver would have to know that unless there were massive entitlement cuts that the loan would be defaulted in at least one of these ways:
1) outright default.
2) By accelerating higher inflation.
3) By a declining dollar, which is happening in front of our eyes.
4) By manipulating policy rates and Treasury yields far below historical levels.
William Gross, founder and manager of PIMCO who manages over 1 trillion dollars in securities has advice for Americans below.
“I sit before you as a representative of a $1.2 trillion money manager, historically bond oriented, that has been selling Treasuries because they have little value within the context of a $75 trillion total debt burden.
Unless entitlements are substantially reformed, I am confident that this country will default on its debt; not in conventional ways, but by picking the pocket of savers via a combination of less observable, yet historically verifiable policies – inflation, currency devaluation and low to negative real interest rates. Our clients, who represent unions, cities, U.S. and global pension funds, foundations, as well as Main Street citizens, do not want to be shortchanged or have their pockets picked. It is incumbent, therefore, in order to preserve the integrity of the U.S. Treasury market along with its favorable global interest rates, and to promote a stable U.S. economy, that entitlement spending be reduced, and that future liabilities be addressed in terms of healthcare and Social Security cost containment. You must attack entitlements and make ‘debt’ a four-letter word.”
William H. Gross
The Republicans promise us that they are going to be serious in reducing or entitlement spending on the budget we will see next month. First of all, let's pray that they are serious. Second, we must all get behind them and help champion these cuts to everyone we know, family, friends, and coworkers, because everyone will have things removed that they want to keep. If the Republicans are defeated, or frighted off from trying to gain control of our deficit spending, our out of control budget, then all will be lost.
This is going to be our generations American Revolution, we are fighting a monster who wants to eat us, we must defeat it and push the debt down.
We are hearing from the Republicans that we will be seeing real deep reductions across the board, not just in discretionary spending in their new budget they will be proposing yet this month. We better hope that they are serious. One thing or sure the Democrats and Unions will be going full court press fighting every dime planned to be reduced.
It is past time for a drastic life saving diet for our Federal government. The patient is critical and without a massive change may well be terminal.
Where are we financially? Is it our national debt, or entitlements that are about to kill us?
Federal Debt: 9.1 Trillion.
Unfunded Social Security: 7.9 Trillion.
Unfunded Medicare: 22.8 Trillion.
Medicaid: 35.3 Trillion.
75% of the budget is non-discretionary and entitlement based.
Just with Medicare, Medicaid and Social Security we have $1 trillion deficits. Once dominated by defense spending, these three categories now account for 44% of total Federal spending and are steadily rising. Even after defense and interest payments on the national debt are excluded, remaining discretionary expenses for education, infrastructure, agriculture and housing constitute at most 25% of the 2011 fiscal year federal spending budget of $4 trillion. You could eliminate it all and still wind up with a deficit of nearly $700 billion! The only chance of recapturing our budget is through entitlement reform.
If we pretend that the $65 trillion of entitlement liabilities were fully funded in a “lockbox,” much like Social Security is falsely thought to be. Actually,then the interest expense on the $75 trillion total debt would equal $2.6 trillion, close to the current level of entitlement spending for Social Security, Medicare and Medicaid. What do we pay now in interest? About $250 billion. Our annual “lockbox” tab would rise by $2.35 trillion and our deficit would be close to 15% of GDP!
The assumption that we can grow our way out of this debt burden, might be possible if it was only the $9.1 trillion in Federal debt. That would be 65% of GDP and well within reasonable ranges for national debt burdens. However others such as Pete Peterson of the Blackstone Group and Mary Meeker, have shown, the true but unrecorded debt of the U.S. Treasury is not $9.1 trillion or even $11-12 trillion when Agency and Student Loan liabilities are thrown in, but $65 trillion more! This country appears to have an off-balance-sheet, unrecorded debt burden of close to 500%of GDP!
In an article titled "USA Inc" by Mary Meeker, and recommend by Paul Volcker and Michael Bloomberg, said if the USA were a corporation, then it would probably have a negative net worth of $35-40 trillion once our “assets” were properly accounted for. However closely estimated that number might be, no lender would lend to such a corporation. Because if that company had a printing press much like the U.S. to print more money at will, that lender/saver would have to know that unless there were massive entitlement cuts that the loan would be defaulted in at least one of these ways:
1) outright default.
2) By accelerating higher inflation.
3) By a declining dollar, which is happening in front of our eyes.
4) By manipulating policy rates and Treasury yields far below historical levels.
William Gross, founder and manager of PIMCO who manages over 1 trillion dollars in securities has advice for Americans below.
“I sit before you as a representative of a $1.2 trillion money manager, historically bond oriented, that has been selling Treasuries because they have little value within the context of a $75 trillion total debt burden.
Unless entitlements are substantially reformed, I am confident that this country will default on its debt; not in conventional ways, but by picking the pocket of savers via a combination of less observable, yet historically verifiable policies – inflation, currency devaluation and low to negative real interest rates. Our clients, who represent unions, cities, U.S. and global pension funds, foundations, as well as Main Street citizens, do not want to be shortchanged or have their pockets picked. It is incumbent, therefore, in order to preserve the integrity of the U.S. Treasury market along with its favorable global interest rates, and to promote a stable U.S. economy, that entitlement spending be reduced, and that future liabilities be addressed in terms of healthcare and Social Security cost containment. You must attack entitlements and make ‘debt’ a four-letter word.”
William H. Gross
The Republicans promise us that they are going to be serious in reducing or entitlement spending on the budget we will see next month. First of all, let's pray that they are serious. Second, we must all get behind them and help champion these cuts to everyone we know, family, friends, and coworkers, because everyone will have things removed that they want to keep. If the Republicans are defeated, or frighted off from trying to gain control of our deficit spending, our out of control budget, then all will be lost.
This is going to be our generations American Revolution, we are fighting a monster who wants to eat us, we must defeat it and push the debt down.
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