What will it take to see real wage increases?

Here we are in 2011. Unemployment is high. Real wages are down. Way down. According to Bill Bonner and Addison Wiggin, the average man earns less per hour worked now than he did in the Carter years. You add inflation and taxes to that and it is no wonder people have a hard time making ends meet. To fuel our nation's woes even more, we have the highest unemployment rate since the great depression. Things are not looking good. Workers are are wanting, nay, demanding higher wages. The call for more unions and higher taxes on the rich are now in vogue. Many people like the idea of the "stimulus" programs implemented by the government, a la work programs of the last depression. Can it work? Will all of this prevent us from another depression? What really leads to higher real wages?
Bill Bonner and Addison Wiggin address this issue in their book, "The New Empire of Debt, second edition".

Real wage increases require three things: First, the society must save money so that it has the capital to invest. Second, it must invest the savings into profitable businesses. Third, these capital investments must result in increased productivity.

So how are we doing on these three fronts? Again, Bill and Addison explain:

Alas, none of these things happened. Instead, these three critical things began trending in the wrong direction. National savings-including public savings-fell from 7.7 percent in the 1970s to only 3 percent by 1990. Business investment fell from 18.6 percent of GDP in the 1970s to 17.4 in the 1980s. And productivity? In the 25 years after World War II, output per employee had risen at average rate of 2.8 percent a year. During the 1980s, this rate fell to less than 1 percent.

I want to add more to these insights. By the 2000s, the savings rate went into the negative. Obama and the current administration put into play the stimulus package that cost over $700 billion so far, and he has plans for more. Setting aside why this happened (a lot had to do with manipulated interest rates, the federal reserve, and government policies; all of these topics are for other blogs), we have made poor decisions regarding our finances.
So where does that leave us? In trouble, that's where. Before we can even consider increasing wages, we have to increase production. Before we can increase production, we have to increase savings.
Right now our GDP is made up of only 30% production (making more "stuff") and 70% consumption. 70%! How can we do this if we have lower real wages and high unemployment? We can't...unless we go into debt to pay for it. This we have done. Since we went off the gold standard in 1971, we have been living beyond our means (once again, we did this both individually and as a nation). This lavish living caught up to us. We are starting  to see it in lower real wages and the loss of employment.
Debt doesn't build wealth. It does not build capital. It ultimately acts as an anchor on any individual, business or nation that wants to increase growth.
As near as I can tell, the policies we need to follow to get us out of this slump are not being done. We are still spending way too much. We are not saving. The United States is looking for a quick fix to solve the problems, when what we really need is to get back to work, even if it means accepting lower wages for now, save, reinvest the savings into capital goods (manufacturing), and work toward the future. If we do what is required, we will head the right direction...but it will take time. It will take years if we start now. Every month or year we put it off, the longer and harder it will be.
       

   



            

Moral Hazard and the Taxpayer

Moral hazard refers to a situation in which a party makes a decision about how much risk to take, while another party bears the costs if things go badly, and the party insulated from risk behaves differently from how it would if it were fully exposed to the risk.                        Wikipedia

In a free market capitalist economy, greed is counterbalanced by fear. Everybody is greedy (we all want to improve the quality of life for ourselves, our family, and close friends), and most of us do it by working for an income, getting an education in a trade or skill to get better pay, by starting a business that produces what people want to buy, or investing in an enterprise that can pay back interest. All of these endeavors ultimately improve the quality of life for everybody. The problem arises when this greed is not counterbalanced with fear. It would lead individuals to take on riskier, often fraudulent activities. Let me use an example to explain my point. Suppose an individual had $10,000.00 to invest. He would be cautious who he would lend it for he could be devastated financially by losing all of his investment. He would do his due diligence to see if the borrower had a good business plan, reserve cash or assets for collateral, was credit worthy, and the lender would charge an appropriate amount of interest associated with the risk he would be taking on by lending his money to this individual. He most likely would invest in a pretty sure thing, and will most likely get a conservative rate of return for his investment. Now let's add another factor. Let us assume that the investor has a rich uncle who tells him "If you lose the money you invest, don't worry about it. I will pay you back the $10,000.00 you lost".  How would the investor behave now? He would most likely take a bigger risk chasing a bigger reward. He would be less likely to do his due diligence on the creditor. He would increase his probability to lose all of his investment. After all, it doesn't matter if he loses it. He still has his $10,00.00 one way or another. His uncle, on the other hand, will most likely lose his money (that crazy uncle). The fear of loss is taken out of the equation for the investor, and greed plays a bigger role in his decision. The scale of greed/fear is out of balance. Greed goes on a tear.
So what does this have to do with the recession (great correction) and the wealth inequality unfolding in the United States today? Plenty. It is giving capitalism a bad name. It is privatising the big gains made by financial companies while socializing the losses to the taxpayer. What is worse, it is happening to the tax payer without him having any say about it. Unlike the rich uncle in the above example, the taxpayer is not rich, nor did he choose to have his money used through moral Hazard.
The New American has a story on how it happened in 2008.

The Federal Reserve Bank committed some $7.77 trillion in funds to major Wall Street banks during the height of the 2008 financial crisis, according to a report published by Bloomberg News November 28 through a Freedom of Information Act request.

Got that? 7.77 trillion loaned to Wall Street, courtesy of the Federal Reserve. Why? Because these big institutions made risky loans and needed to be bailed out or the whole financial system will fail (so they say). Where does the Federal Reserve get the money? It prints it (more on that in another blog). Who ultimately pays? The tax payer, both through inflation and taxes. This is moral hazard. The article goes on:

Bloomberg noted that most of the major banks receiving the below-market-rate loans made billions in profit from the Federal Reserve policies. The Federal Reserve Bank loaned funds to major Wall Street banks at rates of between 0.10 percent and 0.25 percent and at the same time banks were encouraged  to purchase U.S. Treasury bills. Two-year Treasury bills the federal government was selling were fetching more than one percent interest. The deal — borrowing at a discounted rate from one agency of the federal government and taking loans earning interest at a higher rate from another agency of government — amounted to a cash transfer from the federal government to the big banks that Bloomberg estimated netted the banks some $13 billion in profit.

So, not only did the banks get bailed out from making risky bets through moral hazard, they then turned around and bought Treasury Bills from the same government for profits of 13 billion plus. It sure is a nice gig if you can get it, but it is fraud, pure and simple. The precedent for this type of moral hazard, in which the government bails out financial institutions can be traced back to at least the Savings and Loan scandal in the 1980's. The came along Long Term Capital Management in the 90's, and finally sub prime mess. Another factor that loosened up the purse strings for big bankers is the fact that the big wigs alternate between working for the big banks and working for the government, kind of a revolving door policy. A very clear conflict of interest.
One of the problems I have with big government is exactly this. Moral hazard that cannot be kept in check. When we get taxed, we lose control of what we want to do with that money. It no longer is ours. We have no say. We are supposed to live in a representative democracy, and with that people assume taxes collected upon the citizenry will be used for the "public good". The call for more taxes because we need them for social programs, to protect our country, etc...pull on our heartstrings, but is it really for our best interest? Can it ever be for our best interest? What if, instead, we were only taxed 5% of our income and that is all we can be taxed? What if we had a sound money system that did not allow for the printing of money out of thin air? Well, we would be able to say no to the big banks. I do not want to bail you out. You are financially insolvent, and I don't want my money to be wasted to keep you alive. The banks then would have to behave differently. They would have to be more fiscally responsible with the money they do get. They need to have a positive cash flow statement and strong balance sheet, or they would go out of business.
This is sound business. Everybody would benefit. The banks would practice sound money storage and lending, our money would retain it's value, and more importantly, big bankers could not fraudulently make profits hand over fist on our dime with us taking on the risk. The greed/fear scale would be in balance.
Moral Hazard is pervasive, both in the public and private sector. The difference lies in the fact that in the private sector, moral hazard can be detected sooner and rectified easier. The investor simply can stop investing with the organization in question (as a matter of fact, this is the primary reason for bank runs. Bank runs, or the threat thereof are actually a good thing. It keeps bankers honest more so than regulations ever can). In the public sector, not so much. The politicians can override the wants of the majority (and often do).
The Occupy Wall Street movement is right in that the bankers are to blame for the mess. They did get the bailouts. But the solution they want is for more regulation and taxes. The OWS don't realize that the government played a big role in this form of moral hazard, and that the solutions they propose will not change that. The best thing we can do is fight for sound money (getting rid of the Federal Reserve), free competition with banking (for example, we can have state banks and private banks that offer their services on the open market along with the federal banks and other financial institutions), and roll back taxes to a reasonable level. This gives people more freedom to choose where to store their wealth. These measures, although will not completely eliminate moral hazard (nothing can), will keep it in check. There would be better prosperity for all.
For reference, here is the article in The New American.

The Cash Flow Statement: An Examination

     The example above is a basic cash flow statement. All businesses have one. It reveals the bottom line. In essence, what works...and what does not (as a side note, a state, nation, and individual has a cash flow statement and balance sheet that follows them wherever they go...whether they realize it or not). So let's take a close look at what the businessman uses as a tool to guide his decisions, shall we?

1. The sales. This is money coming in from the selling of the product or service that the business offers. This is where the individual (read consumer) has the most power. If he or she does not buy the product, the company goes out of business. In a free market, this company has to woo the customer to buy...and keep buying. The organization has to keep improving it's product or service to stay in business. Many factors come into play. A competitive price, quality, better service, a specialty serving a niche, etc... They all play a role in better sales.
2. Expenses. As you can see, there is a laundry list of expenses. The common term is "the cost of doing business". Expenses add up. A little here, a little there. The next thing you know, there is not much left. I'll break these down a little later.
3. The profit...the bottom line. This is what is left after income minus expenses. This example shows a profit of 5% for the month, and a profit of 10% for the year. The profit is what goes to the owner(s) of the business as dividends. 

     For starters, a business has to run at a profit. If it does not, it has to close the doors. This is so important, I'll say it again. A business has to run at a profit. If it does not, it goes out of business. If it has a cash reserve or a line of credit, it can run in the negative for a while. But it cannot do that forever. Sooner or later, it has to run at a profit. Most businesses in most industries run between 5% to 10% profit over a long period of time. In other words, for every dollar a business brings in, 10 cents is what the owner(s) keep. So let's play with the balance sheet above to see what a business owner has to do faced with certain situations.
     Let us start with payroll. This cash flow statement shows wages paid out for $10,000 of sales at $2,500.00. Along with that, the business had to pay payroll taxes of $600.00. This makes it a grand total of $3,100.00 for the business owner to pay for labor on $10,000.00 of business. Let us assume that the owner has 2 employees working for him. The numbers will break down as follows:

• Monthly take home pay  $1,250.00 per employee.
• Taxes.
• Social Security taxes paid by employee: $87.50.
• Social Security taxes paid by employee on behalf of employee: $87.50.
• Other employee taxes: $112.50.

     I want to point something out here. The total taxes paid per employee is $462.50. This total comes from the sales brought in by the company. It does not come from the profits of the business. Remember, it is part of the expenses of doing business. So in this case, taxes taken out from the business could have gone somewhere else if, say, he did not have to pay Social Security taxes. He could have (and most likely would have) paid his employees more in wages for the labor performed. If you add in the 15% total the employer had to pay SS to bottom line wages, the business owner could pay his employee an extra $350.00 a month. Let me ask you, would you make better decisions with what you would do with your money than the government with the S.S. mess we have today? Would it be easier for you to save for your own retirement than what S.S. is doing with your "retirement?

     Let's take the tax situation further. Progressives call for more taxes on corporations. They think businesses are "too greedy", so they need to pay. Well, let's look at the cash flow statement again. This particular example does not show the business paying corporate taxes, but they do. Right now, the corporate tax rate in the United States is 35% (by the way, that is the second highest corporate tax rate in the world. Japan is the first). To veer off course a little bit, I need to clarify between a sub S corporation and a C corporation. A sub S corporation is usually used for a small business in that both the personal and business taxes run straight through to the bottom line. A C corp is set up to where you have share holders, and because of the arrangement (a C corp is usually formed for a big business), the corporation pays it's taxes, and then the shareholders get taxed on dividends. In essence, the owners get taxed twice. Now let's take a look at what happens to the cash flow statement. After all the expenses it takes to run a business, the company now has to pay 35% from the profits. In this case, the bottom line profit is $500.00, so 35% of that is $175.00. This leaves a total profit of $325.00. In this example, after all expenses are paid...and taxes...and working to bring in sales (and most likely the owner working long hours), he gets to keep $325.00. Tell me, how motivating is that?

     Now let's examine minimum wage requirements on the cash flow statement. Once again, progressives make a strong case that a business must pay a "living wage", whatever that is (mostly determined by bureaucrats that have no business sense). In this example, the 2 employees are earning $12.91 an hour (assuming they work a 30 hour week). Admittedly, this is a reasonable wage, but let us say that the powers that be decide that each worker now must be paid $15.00 an hour. What would happen? This:

• Total wages paid would be $3,600.00.
• Total Social Security paid would be $540.00. 7.5% from the employee, 7.5% from the employer.
• Total taxes now paid would be $765.00.

     With the new, higher wages added to the expenses, the total expenses now paid is $10,000 for the month. Since the increased wages did nothing to improve the bottom line (in essence, the workers get paid more for the same amount of production), the owner now makes no profit at all. He breaks even for the month. Suppose that the following month he only sells $9,500.00 worth of goods. He will lose money, but because of the new law he still has to pay his employees the same wage. It becomes very evident that this cannot continue. What are the choices for the business owner? He can fire a worker and try to get by with less help. He can try to increase sales, but that would come with extra costs associated with it. He can try to raise prices on his product. That's about it. If he raises prices too high, consumers will go somewhere else or stop buying the product altogether (or cut back on the amount he or she buys). If he cannot make the necessary adjustments and run again at a profit, he will close up shop. After all, nobody wants to work for free, and just as importantly, investors do not want to lose money or take big risks to break even.     

      Next let us examine the effects of government regulations on the cash flow statement. We'll use just one example. Let's say the EPA (Environmental Protection Agency) determines that to produce the widget this company sells causes a lot of pollution. The cash flow statement above shows purchases made, meaning this organization sells the final product. It does not make it. The EPA then imposes strong pollution requirements on the company that produces the widgets that it has to meet. By doing so, the cost to produce the widget goes up from 20 cents to 50 cents. Here is what would happen. Since this particular company buys the finished product to sell at the retail level, the outcome will be as follows:

• Before the price increase the company can buy 15,000 widgets for $3,000.00
• After the price increase, the company must pay $7,500.00 for 15,000 widgets.

     Back to the cash flow statement. If it now costs $7,500.00 (up from $3,000.00) for the same amount of widgets and the total income sales is still $10,000, then the company will run at a loss of $2,500.00.
As noted above, how long can a company run at a loss? Who would want to invest in a company that runs at a loss? The only thing the company can do (and hope to still  have customers), is to raise the price. It is passed onto the consumers. 
     These are just a few examples. A real business has to deal with much more, such as workman's comp, unemployment insurance, occupational "privilege" tax, and so on. Every time the government adds more regulations, taxes, and any other such demands, it makes it more difficult for the enterprise to keep going. If these restrictions get too strong, the business cannot continue. That means jobs are lost. That means there are less products or services offered. It means a lower standard of living for everybody. Personally, I believe that this is the main reason the United States is losing it's manufacturing base. The labor unions, although they did much good initially, pushed for too many benefits for the employees. The United States government in an effort to improve working conditions and lower pollution output went too far. Both of these actions over time has changed the employment landscape in the United States. I am also afraid that it would be difficult to reverse it. It would take concessions in wages and benefits, along with a roll back on regulations to bring it about. In short, people are going to have to be willing to roll up their sleeves, accept that they will have to be paid lower wages for work performed, work hard and save more than they spend to rebuild our nation's capital base. Our manufacturing base can then be rebuilt and we can finally see an improvement in wages and our quality of life. This will take time. A lot of time.

Fiat Money: A Critique

Now let's examine Fiat Money. Let us compare it to the five traits of sound money:

1. Divisible. Yes. It is denominated in pennies, nickels, dollars, 5 dollars, etc..
2. Portable. Got that too. Mostly paper and light.
3. Durability. Sketchy there. Made of paper. It can easily get torn, burned, etc.. 
4. Recognizable. Absolutely. The dollar is known around the world.
5. Scarcity. Oops. Not here. The government can print as much as it wants, or lately just hit a button on a computer.

Fiat is a Latin word meaning "let it be so". In other words, by government decree. This is not free market money (more on that below). By law (legal tender law), the dollar is supposed to be used for trade and to pay taxes (in other words, the government does not accept, say, gold or silver for payment), nor can there be competing monies. By doing so, the government actually has, by decree, created a money monopoly. From this monopoly, the Federal Reserve (which is privately owned, by the way), creates dollars and charges interest to the government. Say what? I know. It sounds crazy, but it is true. For the most part, the system seems to work well. After all, the United States is the wealthiest country in the world, right? That is debatable (and a blog for another day), but here I want to focus on the unintended consequences of Fiat Money. What does Fiat money do?

• Increase the welfare, warfare state. Since fiat money is created out of thin air, the government can have as much produced as it wants (it claims it needs). Government representatives get elected on promises to it's constituents, who always want something from the government. Be it big military contracts or social programs, they all want something from their congressman.
• No accountability. These programs cannot come into being, or if they do, get out of hand if we had to pay from them from the collective labor and wealth of the citizenry. In other words, the government would have to prioritize where to spend it's limited funds.
• An increase in the rich/poor gap. The people and organizations that are closely connected to the money supply get first dibs before the new money circulates in the economy. They get to buy the goods and services before the prices go up to reflect the new money. The ones further down the money spigot have to pay higher prices before they get the increased money. In many cases, wages do not keep up with the inflation. And those on fixed incomes? They are the worst off. Their incomes do not go up, but prices do. This leads to a lower quality of life for all except the well connected. Who are they? Bankers, big corporations, politicians, and big contractors that bid for government work among others.    
• The business cycle. The "elastic" money we have is the primary reason for our booms, recessions, and depressions. It is called "the business cycle". I will devote a full blog on this in the future. 
• Ultimately, I believe, we will see a collapse of the financial system, dragging the economy (and the middle class) with it. 

Every single one of these problems are the cause of inflation from the fiat money system we have now. Fiat money, since in my opinion it does not store value, is not money, nor should it be called money. It is a currency. It works as a medium of exchange, but it is so flexible you cannot count on it to store your wealth long term.

The use of fiat money has problems. Big problems. So far the powers that be have been able to kick the problems created by fiat money down the road. The problems did not disappear. They are bigger. They are like a wave that keeps getting bigger and bigger. Eventually it will it us, and there is nothing that can stop it.


What do I mean about "free market" money? easy. It is money that comes into use organically by people in the market. In other words, the state does not create nor own it. It is what we choose is money. It would show the five traits listed above, and most importantly, it cannot be created out of thin air. It would represent the true value of stored labor that can be used for capital formation (more factories and better tools for use in production), and sustainable economic growth.

Here is a 5 minute video that explains what fiat money is very well. I encourage you to watch it.

FIAT MONEY

What is sound money?

Sound (or honest) money have 5 characteristics. They are;

1. Divisibility
2. Portability
3. Durability
4. Recognizability
5. Scarcity (high value in relation to volume and weight)

The first one, divisibility, is important as a unit of account. You need to count things. "It takes 5 of these to get one of that, etc". Portability is for convenience. If it too big or hard to carry, it loses some of it's appeal. Durability is also a necessity. It if wears out or rots, for example, you would have to keep replacing it. Recognizability plays a role in that it is something usable that everybody understands. Let's say someone wants to pay you for your service in a special colored stone from Russia, how much value does it have? Would somebody be willing to trade you his car for it? It needs to be recognizable. The final feature that money needs is scarcity. Why? Quite simply due to supply and demand. The more there is of an item, the less it is worth. As an example, if we as a society decide to use rocks for money, anybody can just pick up a bunch of rocks whenever he wants to buy something from someone else. It does not have value. It is easy to find and use. It would disrupt trade. These are the five characteristics make up sound money.
Why is this important? Because free trade, the division of labor, personal wealth accumulation and higher standards of living count on it.


A little history:


Primitive society started more or less on a barter system. If a hunter landed a buffalo and had more meat than he needed, he could trade a portion of it for some fruit another tribe member collected. Other members may have been better at building housing or clothes, or maybe performed the function of collecting berries. They would trade with each other and with other tribes. This is the beginning of specialization of labor. Some would be better than others at certain tasks. While trade and bartering took place, there were certain items that began to be used as a medium of exchange, thus the first forms of money. The more successful forms of money displayed the 5 traits listed above. An important intrinsic feature of sound money is it's value. It is a way for an individual to save more than he produces for his own use either now or in the future. What was used? Money took many forms. Sea shells, salt, cattle, bear claw are some examples. The most common and enduring forms of money have been gold and silver. These precious metals best displayed the aforementioned five traits of sound money.


And Now?


Now we have what is called a fiat currency. It is paper notes printed by the government and decreed by the government that it is money. At one point, paper money used to represent sound money in that at any time, you can turn in the note to a bank and get the note's  value paid to you in gold or silver. In other words, it was backed by something other than the good word of the issuing government. Is a fiat currency good? No. It has plenty of flaws that lead to big economic problems. That, however, is a blog for another day...

The primary cause for the rich/poor gap? Fiat currency

The fact that the richest 1% of the population is getting richer while the middle class and poor are losing ground is becoming more obvious. The disparity is blamed on capitalism and greed. Some of the solutions proposed to bring things back into balance are:

• Higher taxes on the rich
• Raise minimum wage requirements
• Stricter regulations on businesses
• Tariffs and trade wars

Implementing any of these ideas will lead to unintended consequences. If you tax the rich, they will take their businesses and capital offshore which will lower employment. Raising minimum wage requirements will also lead to lower employment. Stricter regulations will lead to fewer start ups to challenge the big corporations which will lower employment too. Tariffs and trade wars often times lead to real wars. None of these solutions will deliver the promised outcomes. Why? The main problem has more to do with the elastic money supply than anything else. When the dollar (or any printed money for that matter) is backed by a tangible item, meaning the currency can be traded in at any time for a comodity such as gold or silver, it limits how much can be printed. It has value. It can't be printed on demand. When Nixon took the United States off the gold standard, it set up a system of credit expansion whereby those that owned wealth producing assets (stocks, businesses, etc..) saw their wealth grow dramatically. The working class on the other hand had stagnant wages and borrowed (because of easy credit) to finance their lifestyle. Bill Bonner explains:

 The post-1971 US dollar-based monetary system permitted an explosion of credit, which naturally favored the credit industry directly, and the entire financial asset-holding investoriat, indirectly. At the expense of the middle and lower classes. In other words, the expansion of credit, caused by a flexible, expandable money regime, set the whole economy ablaze. The middle and lower classes went deeply into debt to buy things. The “rich” — or at least those who owned stocks and bonds — got richer, as consumer spending lit up the business world, and particularly the financial industry itself. Profits from the financial industry were only about 10% of the total profits on Wall Street in 1970. By the time the credit bubble blew up in 2007 they had grown to 40%. Wages for working stiffs were flat for 40 years. But earnings on Wall Street soared. In 1970, the typical salary in the financial industry was about the same as for equivalent positions in the rest of the economy. But, by the 21st century, Wall Street salaries were nearly twice as high.
People who complain about “greedy” executives and rich people miss the point. People — rich and poor — are always greedy. But they don't always have a monetary system that encourages debt and favors investors over working people. This money system was created in 1971 by the Nixon Administration, which probably didn't know what it was doing...and it was later perfected by subsequent Federal Reserve chairmen.
In addition to stretching the gap between rich and poor, the non- gold monetary system had one other notable consequence. It undermined the working classes' ability to compete in the modern world. This it did by moving more and more production to the emerging markets. In pre-1971 days, nations had to settle up on their trade balances. That is, when one nation sold more to a neighboring nation than it spent with it, the nation in surplus ended up with an excess of the neighbor's currency. This surplus currency was then presented to the deficit country. The accounts were settled by transferring gold — the monetary system's reserve at the time — from the deficit country to the surplus country.
As the gold left, it had a chilling effect on the deficit nation's economy — either because investors caused interest rates to rise or because the central bank pushed them up. This resulted in slower economic growth and less spending, thereby correcting the outflow of funds to the neighbor.
It was precisely this self-correcting mechanism that the feds were determined to stop when the Nixon Administration “closed the gold window” at the Treasury department in August of 1971. The US had spent too much on the Vietnam War. French banks, which were still very active in Vietnam, tended to be the recipients of the money...which flowed to the Bank of France. The French, anticipating a problem with the dollar, wanted to exchange dollars for gold. This was the proximate cause of the Nixon Administration's reaction — an actual default on its financial obligations. It was also the cause of the subsequent run up of the price of gold...which was followed by a bust in gold...and thereafter, a huge boom, in which ordinary Americans were lured into debt and coaxed towards poverty.

Isn't that something. Nixon took us off the gold standard in 1971 so we wouldn't have to pay France the gold they wanted for the dollars they owned. Why? Because we were already bankrupt as a nation! In 1971!

But I digress. By closing the gold window, Nixon opened the door to the wealth disparity between the rich and middle class (and the poor as well), and the eventual loss of manufacturing from America to China and elsewhere.
One other problem the middle class face due to a fiat currency: building their own personal wealth. The middle class typically builds their wealth from producing more than they consume and saving the difference. With a deflating dollar, they can never keep ahead of inflation...and when they retire, their savings do not last long.

We need to get back to sound money somehow. Most likely massive defaults will happen; a write down of unpayable liabilities (social programs, U.S. Treasuries and other bonds), and a re balancing of assets and liabilities. Then some kind of sound money system. What is sound money? I'll explain in another blog.


For the full article written by Bill Bonner, click below.


Appetite for Wealth Destruction        

Are we a Fascist State?

America is supposed to be the land of the free...and the home of the brave. It is hard to imagine that we live under a tyrannical rule, but we do. There are more and more encroaching rules and regulations on businesses, employees, and individuals themselves. As the state expands, individual freedom contracts. The U.S is an empire, along the lines of Great Britain and imperial Rome before then. We have military bases around the world, and we have an ever expanding welfare state. How can we have freedom with an environment like this?
What is Fascism? Lew Rockwell describes it well:

Fascism is the system of government that cartelizes the private sector, centrally plans the economy to subsidize producers, exalts the police State as the source of order, denies fundamental rights and liberties to individuals, and makes the executive State the unlimited master of society.

Scary, isn't it? Tell me, where is freedom in that? The freedom to do as you choose with your money, business, and time? Lew goes further. He describes the "Eight Marks of Fascist Policy" that John T. Flynn writes about in his book "As We Go Marching", along with his comments regarding the current state of the United States:

Point 1. The government is totalitarian because it acknowledges no restraint upon its powers.
This is a very telling mark. It suggests that the US political system can be described as totalitarian. This is a shocking remark that most people would reject. But they can reject this characterization so long as they happen not to be directly ensnared in the State’s web. If they become so, they will quickly discover that there are indeed no limits to what the State can do. This can happen boarding a flight, driving around in your home town, or having your business run afoul of some government agency. In the end, you must obey or be caged like an animal or killed. In this way, no matter how much you may believe that you are free, all of us today are but one step away from Guantanamo.
As recently as the 1990s, I can recall that there were moments when Clinton seemed to suggest that there were some things that his administration could not do. Today I’m not so sure that I can recall any government official pleading the constraints of law or the constraints of reality to what can and cannot be done. No aspect of life is untouched by government intervention, and often it takes forms we do not readily see. All of health care is regulated, but so is every bit of our food, transportation, clothing, household products, and even private relationships.
Mussolini himself put his principle this way: "All within the State, nothing outside the State, nothing against the State." He also said: "The keystone of the Fascist doctrine is its conception of the State, of its essence, its functions, and its aims. For Fascism the State is absolute, individuals and groups relative."
I submit to you that this is the prevailing ideology in the United States today. This nation conceived in liberty has been kidnapped by the fascist State.
Point 2. Government is a de facto dictatorship based on the leadership principle.
I wouldn’t say that we truly have a dictatorship of one man in this country, but we do have a form of dictatorship of one sector of government over the entire country. The executive branch has spread so dramatically over the last century that it has become a joke to speak of checks and balances. What the kids learn in civics class has nothing to do with reality.
The executive State is the State as we know it, all flowing from the White House down. The role of the courts is to enforce the will of the executive. The role of the legislature is to ratify the policy of the executive.
Further, this executive is not really about the person who seems to be in charge. The president is only the veneer, and the elections are only the tribal rituals we undergo to confer some legitimacy on the institution. In reality, the nation State lives and thrives outside any "democratic mandate." Here we find the power to regulate all aspects of life and the wicked power to create the money necessary to fund this executive rule.
As for the leadership principle, there is no greater lie in American public life than the propaganda we hear every four years about how the new president/messiah is going to usher in the great dispensation of peace, equality, liberty, and global human happiness. The idea here is that the whole of society is really shaped and controlled by a single will – a point that requires a leap of faith so vast that you have to disregard everything you know about reality to believe it.
And yet people do. The hope for a messiah reached a fevered pitch with Obama’s election. The civic religion was in full-scale worship mode – of the greatest human who ever lived or ever shall live. It was a despicable display.
Another lie that the American people believe is that presidential elections bring about regime change. This is sheer nonsense. The Obama State is the Bush State; the Bush State was the Clinton State; the Clinton State was the Bush State; the Bush State was the Reagan State. We can trace this back and back in time and see overlapping appointments, bureaucrats, technicians, diplomats, Fed officials, financial elites, and so on. Rotation in office occurs not because of elections but because of mortality.
Point 3. Government administers a capitalist system with an immense bureaucracy.
The reality of bureaucratic administration has been with us at least since the New Deal, which was modeled on the planning bureaucracy that lived in World War I. The planned economy – whether in Mussolini’s time or ours – requires bureaucracy. Bureaucracy is the heart, lungs, and veins of the planning State. And yet to regulate an economy as thoroughly as this one is today is to kill prosperity with a billion tiny cuts.
This doesn’t necessarily mean economic contraction, at least right away. But it definitely means killing off growth that would have otherwise occurred in a free market.
So where is our growth? Where is the peace dividend that was supposed to come after the end of the Cold War? Where are the fruits of the amazing gains in efficiency that technology has afforded? It has been eaten by the bureaucracy that manages our every move on this earth. The voracious and insatiable monster here is called the Federal Code that calls on thousands of agencies to exercise the police power to prevent us from living free lives.
It is as Basiat said: The real cost of the State is the prosperity we do not see, the jobs that don’t exist, the technologies to which we do not have access, the businesses that do not come into existence, and the bright future that is stolen from us. The State has looted us just as surely as a robber who enters our home at night and steals all that we love.
Point 4. Producers are organized into cartels in the way of syndicalism.
Syndicalist is not usually how we think of how our current economic structure. But remember that syndicalism means economic control by the producers. Capitalism is different. It places by virtue of market structures all control in the hands of the consumers. The only question for syndicalists, then, is which producers are going to enjoy political privilege. It might be the workers but it can also be the largest corporations.
In the case of the US, in the last three years, we’ve seen giant banks, pharmaceutical firms, insurers, car companies, Wall Street banks and brokerage houses, and quasi-private mortgage companies enjoying vast privileges at our expense. They have all joined with the State in living a parasitical existence at our expense.
This is also an expression of the syndicalist idea, and it has cost the US economy untold trillions and sustained an economic depression by preventing the post-boom adjustment that markets would otherwise dictate. The government has tightened its syndicalist grip in the name of stimulus.
Point 5. Economic planning is based on the principle of autarky.
Autarky is the name given to the idea of economic self-sufficiency. Mostly this refers to the economic self-determination of the nation-state. The nation-state must be geographically huge in order to support rapid economic growth for a large and growing population.
This was and is the basis for fascist expansionism. Without expansion, the State dies. This is also the idea behind the strange combination of protectionist pressure today combined with militarism. It is driven in part by the need to control resources.
Look at the wars in Iraq, Afghanistan, and Libya. We would be supremely naive to believe that these wars were not motivated in part by the producer interests of the oil industry. It is true of the American empire generally, which supports dollar hegemony.
It is the reason for the planned North American Union.
The goal is national self-sufficiency rather than a world of peaceful trade. Consider, too, the protectionist impulses of the Republican ticket. There is not one single Republican, apart from Ron Paul, who authentically supports free trade in the classical definition.
From ancient Rome to modern-day America, imperialism is a form of statism that the bourgeoisie love. It is for this reason that Bush’s post-09/11 push for the global empire has been sold as patriotism and love of country rather than for what it is: a looting of liberty and property to benefit the political elites.
6. Government sustains economic life through spending and borrowing.
This point requires no elaboration because it is no longer hidden. There was stimulus 1 and stimulus 2, both of which are so discredited that stimulus 3 will have to adopt a new name. Let’s call it the American Jobs Act.
With a prime-time speech, Obama argued in favor of this program with some of the most asinine economic analysis I’ve ever heard. He mused about how is it that people are unemployed at a time when schools, bridges, and infrastructure need repairing. He ordered that supply and demand come together to match up needed work with jobs.
Hello? The schools, bridges, and infrastructure that Obama refers to are all built and maintained by the State. That’s why they are falling apart. And people don’t have jobs because the State has made it too expensive to hire them. It’s not complicated. To sit around and dream of other scenarios is no different from wishing that water flowed uphill or that rocks would float in the air. It amounts to a denial of reality.
Still, Obama went on, invoking the old fascistic longing for national greatness. "Building a world-class transportation system," he said, "is part of what made us an economic superpower." Then he asked: "We’re going to sit back and watch China build newer airports and faster railroads?"
Well, the answer to that question is yes. And you know what? It doesn’t hurt a single American for a person in China to travel on a faster railroad than we do. To claim otherwise is an incitement to nationalist hysteria.
As for the rest of this program, Obama promised yet another long list of spending projects. Let’s just mention the reality: No government in the history of the world has spent as much, borrowed as much, and created as much fake money as the US. If the US doesn’t qualify as a fascist State in this sense, no government ever has.
None of this would be possible but for the role of the Federal Reserve, the great lender to the world. This institution is absolutely critical to US fiscal policy. There is no way that the national debt could increase at a rate of $4 billion per day without this institution.
Under a gold standard, all of this maniacal spending would come to an end. And if US debt were priced on the market with a default premium, we would be looking at a rating far less than A+.
Point 7. Militarism is a mainstay of government spending.
Have you ever noticed that the military budget is never seriously discussed in policy debates? The US spends more than most of the rest of the world combined.
And yet to hear our leaders talk, the US is just a tiny commercial republic that wants peace but is constantly under threat from the world. They would have us believe that we all stand naked and vulnerable. The whole thing is a ghastly lie. The US is a global military empire and the main threat to peace around the world today.
To visualize US military spending as compared with other countries is truly shocking. One bar chart you can easily look up shows the US trillion-dollar-plus military budget as a skyscraper surrounded by tiny huts. As for the next highest spender, China spends 1/10th as much as the US.
Where is the debate about this policy? Where is the discussion? It is not going on. It is just assumed by both parties that it is essential for the US way of life that the US be the most deadly country on the planet, threatening everyone with nuclear extinction unless they obey. This should be considered a fiscal and moral outrage by every civilized person.
This isn’t only about the armed services, the military contractors, the CIA death squads. It is also about how police at all levels have taken on military-like postures. This goes for the local police, State police, and even the crossing guards in our communities. The commissar mentality, the trigger-happy thuggishness, has become the norm throughout the whole of society.
If you want to witness outrages, it is not hard. Try coming into this country from Canada or Mexico. See the bullet-proof-vest wearing, heavily armed, jackbooted thugs running dogs up and down car lanes, searching people randomly, harassing innocents, asking rude and intrusive questions.
You get the strong impression that you are entering a police State. That impression would be correct.
Yet for the man on the street, the answer to all social problems seems to be more jails, longer terms, more enforcement, more arbitrary power, more crackdowns, more capital punishments, more authority. Where does all of this end? And will the end come before we realize what has happened to our once-free country?
Point 8. Military spending has imperialist aims.
Ronald Reagan used to claim that his military buildup was essential to keeping the peace. The history of US foreign policy just since the 1980s has shown that this is wrong. We’ve had one war after another, wars waged by the US against non-compliant countries, and the creation of even more client states and colonies.
US military strength has not led to peace, but the opposite. It has caused most people in the world to regard the US as a threat, and it has led to unconscionable wars on many countries. Wars of aggression were defined at Nuremberg as crimes against humanity.
Obama was supposed to end this. He never promised to do so. But his supporters all believed that he would. Instead, he has done the opposite. He has increased troop levels, entrenched wars, and started new ones. In reality, he has presided over a warfare State just as vicious as any in history. The difference this time is that the left is no longer criticizing the US role in the world. In that sense, Obama is the best thing to ever happen to the warmongers and the military-industrial complex.

As for the right in this country, it once opposed this kind of military fascism. But all that changed after the beginning of the Cold War. The right was led into a terrible ideological shift, well documented in Murray Rothbard’s neglected masterpiece The Betrayal of the American Right. In the name of stopping communism, the right came to follow ex-CIA agent Bill Buckley’s endorsement of a totalitarian bureaucracy at home to fight wars all over the world.
At the end of the Cold War, there was a brief reprise when the right in this country remembered its roots in non-interventionism. But this did not last long. George Bush the First rekindled the militarist spirit with the first war on Iraq, and there has been no fundamental questioning of the American empire ever since. Even today, Republicans – except, again, Ron Paul – elicit their biggest applause by whipping up audiences about foreign threats, while never mentioning that the real threat to American well-being exists in the Beltway.

Sounds like Fascism to me. What can we do? First of all, don't believe the illusion that we are free. Then we can take action. Ironically, I am not talkning about revolution. That takes force which ultimately leads to the same ends. It is better to rebel. Here are some ideas:

• Join forces to end the Federal Reserve.
• Always push for lower taxes...and a large reduction of the welfare/warfare state.
• Rebel against laws that make no sense.
• Use other forms of money for a meduim of exchange and as a store of wealth, such as gold, silver, and maybe copper.
• Barter.
• Keep as little money as you can in the banking system. This difusses the money expansion scheme they use.  
• Discuss and promote ideas about true freedom and peaceful cooperation.

If we all do this, the state loses power and influence. We can gain freedom. The empire will fall.


Here is Lew Rockwell's article. The Fascist threat.

Is Social Security a Ponzi Scheme?

The controversy surrounding Social Security is reaching a fevered pitch. It is becoming clear that there are not enough funds to keep Social Security solvent much longer. Something has to be done. But what? Those on the left want to see higher taxes, especially on the rich to keep Social Security going. Those on the right would love to see it privatised, fully or partially.  A question that needs to be addressed is if Social Security is a Ponzi Scheme. If it is, it would be a difficult program to maintain indefinitely. If it is not, then a more sustainable solution can be proposed. So is it?
Walter Williams has some insight on this:      

 The very first Social Security check went to Ida May Fuller in 1940. She paid just $24.75 in Social Security taxes but collected a total of $22,888.92 in benefits, getting back all she put into Social Security in a month. According to a Congressional Research Service report titled "Social Security Reform" (October 2002), by Geoffrey Kollmann and Dawn Nuschler, workers who retired in 1980 at age 65 got back all they put into Social Security, plus interest, in 2.8 years. Workers who retired at age 65 in 2002 will have to wait a total of 16.9 years to break even. For those retiring in 2020, it will take 20.9 years. Workers entering the labor force today won't live long enough to get back even half of what they will put into Social Security. Social Security faces Ponzi's problem, not enough new "investors." In 1940, there were 160 workers paying into Social Security per retiree; today there are only 2.9 and falling.

This is clearly a Ponzi scheme. Just based on demographics, there will be for the foreseeable future less workers contributing to Social Security than retirees taking out benefits. That is only one problem. The other one is the mismanagement of Social Security funds by the government. Over the years, the bureaucrats have borrowed from the Social Security trust fund and replaced it with Treasury notes. In other words, I.O.U's from the government. At present it seems to be a "safe" investment, but if the U.S. debt keeps growing and Mr. Bernanke keeps running the printing presses (or digital accounts on a computer), those Treasury notes become less valuable...just pieces of paper and government promises. I ask you, do you want to trust your future to these promises?   
Back to the main point: is Social Security a Ponzi scheme? Yes, only worse. It is compulsory. You or I have no choice but to participate. I see it as a Ponzi scheme, but I do not have the choice to "opt out". At least with Mr. Ponzi, once people catch on, they can stop contributing.
Something does have to be done. Right now there are three choices:

1. Raise taxes. That always happens. This process never stops. My question: When is enough, enough? Nobody has a clear answer to that, so we see "tax creep" .
2. Lower benefits. Bummer. I paid all these years into Social Security (maybe even more taxes) and I get less back than my grandparents?
3. Print more money so the government keep the Social Security checks coming. Alas, this always happens as well. The bad thing about this is your check stays the same size, but the dollars you get have less purchasing power. 

This is not promising. Much worse is my concern for my kids. Increasing their taxes and lowering their benefits will make it harder for my kids to build a good life for themselves.
What about a solution? Somehow Social Security needs to be dismantled. Once again, Walter Willams has a partial solution:
 

 I believe that a person who is 65 years old and has been forced into Social Security is owed something. But the question is, Who owes it to him? Congress has spent every penny of his Social Security "contribution." Young workers have no obligation to be fleeced in order to make up for the dishonesty and dereliction of Congress. The tragedy is that most seniors just want their money and couldn't care less about whom Congress takes it from.
Here's what might be a temporary fix: The federal government owns huge quantities of wasting assets – assets that are not producing anything – 650 million acres of land, almost 30 percent of the land area of the United States. In exchange for those who choose to opt out of Social Security and forsake any future claim, why not pay them off with 40 or so acres of land? Doing so would give us breathing room to develop a free choice method to finance retirement.

It is just one idea, but I think he is on the right track.


For reference, here is his whole article.

Feel free to comment.   

To be, or not to be, a gold (and silver) bug

Looking at the monetary system we have at present through the lens of the Austrian perspective, one tends to want to invest in precious metals and hold them for a long time. For example, since the inception of the Federal Reserve in  1913, the dollar lost 98% of its value. This is compared to an ounce of gold. Most people don't realize it, but this is a direct outcome of inflation. In 1913, a dollar and an ounce of gold would buy you a nice suit. Today, an ounce of gold will still buy you a nice suit, but a dollar will buy you a candy bar. Inflation makes it very difficult for a middle class family to save money for their retirement. We have to stay ahead of inflation, which means we have to invest our savings instead of just saving it for a rainy day. It means we have to be speculators exposing our personal wealth to the risk of loss. Personally, I think it is the main reason people do not save. They know they had better spend it now before it loses value than to save it. Behavior like this over a long period for a family or nation eventually leads to a lower quality of life. Understanding this, I took on the strategy of buying silver every month to accumulate my "savings". I figure that both gold and silver will maintain their value relative to the dollar or other fiat currencies over time. I assumed that this is a way to save my capital against inflation without the risk of investing. However, I could be wrong. Yesterday I read an article by technical investor that has made money by shorting silver and believes that being a gold or silver bug is not a good strategy. He also expects silver to go down much farther yet as well.

His article is here.    

Admittedly, this article concerned me. Maybe I am taking the wrong strategy. Maybe I should be more aggressive and use options and short term trading to get ahead. I really do not want to do this, because I would rather focus on my core business (my fitness studio), than to spend time on studying the markets. Ironically, I read another article today that expresses my views and the rationale behind my strategy. It put me a bit back at ease.

Here is this article.

I am sticking to my original strategy. I don't feel comfortable investing in this climate. I feel the stock markets are too manipulated, bonds are too dangerous (too much debt-investors sooner or later will take a haircut), and real estate needs to correct another 20 to 25% before I would even consider getting back in the game. As per Bill Bonner, I think we are in the midst of a "great Correction" that may take years (decades?) to get back on track.

What do you think? 

What about a collapse?

    What if the Sovereign debt levels are too high? What if a collapse eventually is the only thing that can happen? Will it all be bad? Or can there be some good to it?
    Politicians, bankers, and everybody else for that matter are afraid of collapse or default. We all think life will be awful, that we would go back to pre-industrial age living.
   I don't think so. Not any more. Actually, I think it would be better. Debt would be forgiven, "zombie" institutions would be eliminated (no money or credit to support them), a new monetary (hopefully sound money) would be introduced, and the world can get back to producing wealth. Would there be financial pain? Yes. Things are out of balance and people would suffer. The problem now is, these same people are suffering anyway, albeit at a slower, more drawn out way. Inflation is eating away at savings for retirees and Social Security recipients, along with the middle and lower class having a harder time saving and paying bills with devalued money. Clearly things will get worse for them over time.
  We have hard times one way or another. I say let's "reboot" the system and turn things around. Bill Bonner wrote about that recently. His ideas make sense to me.

  Here is his article.  


Feel free to comment.
   

Will the dollar (and other fiat currencies) die?

I am concerned with the prospect of not only inflation, but hyperinflation. Ever since the sub prime crisis in 2008 and the remedy by the government of bailing out the big banks, to the tune of trillions of dollars, I wondered how it will play out for us, the little guys. I wanted to know how I can prepare, and what to expect.
Doug Casey is a highly renowned investor and speculator. He has plenty to say on the subject. He has a remarkable insight on not only economics and markets, but philosophy and history as well. Whenever I can read or watch anything from him, I make it a priority to do so.
In this interview, he says that the dollar will die, and how to prepare for it. He also thinks we are in a depression that started in 2007. He calls it "The Greater Depression", and for good reason. The dollar collapse will have a big impact not only in the U.S., but throughout the world because the dollar is the world's primary currency. How can nations conduct trade without it? What will happen?


Here is the link to his interview.

Feel free to comment.  

Are we in a depression?

The last post I did was on an article written by James Altucher who feels the economy is not going into a depression. He says that we should not operate in fear. Today I am going to feature an article written by Bill Bonner. As an investor an author, he takes the Austrian perspective on the economy. He thinks we are in a depression. He calls it the "Great Correction", meaning that the fiscal and monetary policies followed by the Federal Reserve and the U.S. government is so far removed from sound economic principles that it will take a long, long time to get healthy. Part of the reason that it will take so long is because the debt is so bad, and the governmental policies that made the mess are still being done. An example is the continual printing (or these days of striking a key board) of money and credit. To the tune of Trillions of dollars!!! The other point he always eludes to is the government debt. There is no accountability from the president and congress to keep spending under control. These actions make things go from bad to worse. This is consistent with my view. As mentioned before, I feel the Austrian perspective best sums up how a healthy economy works and what happens when we veer from these principles.

Without further ado, here is one of his recent articles. I think you will find his insights fascinating. 


Feel free to comment.  

Dow 7,000 or 20,000?

Bulls and bears always go back and forth about what is happening in the economy. Their views depend in large part on their ideology. These days, investors who subscribe to the Austrian school of thought (an economic study founded in large part by Ludwig Von Mises) think things are looking bad for the next few years. They generally expect a continuing recession or depression. Those that follow the views of Keynes (an economist during the great depression), who believes that more government debt, money creation, and "stimulus" is what it takes to get the economy out of the doldrums and back on track, believe that the economy can be turned around by adding more money.
The Austrian investors I follow think that the stock market will go down, along with consumer spending and higher unemployment. Some thinking the stock will go down as low as 7,000, or more. James Altucher, on the other hand, thinks otherwise. He sees a boom coming and is more worried about a bubble in 2013. James has an interesting point of view. He is an entrepreneur who started several businesses and has worked for a hedge fund. If anybody would have a good perspective, he would be a good one. He thinks we will see the Dow at 20,000 in the next 12 to 18 months.  

Here is his article in full.

He cites factors such as QE2 filtering through the system by the end of 2011, along with big stock buy backs from the big corporations. He also talks about the multiplier effect (when you buy something, that person is able to turn around and buy something else, etc..), and that large companies are hiring temp workers at a good pace. He says this usually means that companies will soon start hiring full time workers.
He has a few other points as well. I encourage you to read the article.
This is good. Maybe things will get better soon. I do have my concerns though:
Any time more money is introduced through the system, it lowers the value of other dollars. This leads to inflation. People who don't get that stimulus first have to pay higher prices for items with the same amount of pay. It puts a real squeeze on most workers and retirees. It also makes it harder for the middle class to accumulate savings, and when they do, it has lower purchasing power later.
Is it good to have the Dow at 20,000? It seems to me that it may go to 20,000, but if it is due to more money in the system, it does not mean there is more value to them. It would be a wash.
If there is excess money and credit in the system, productivity will certainly increase to meet demand. But too much credit means extra debt. Sooner or later that needs to be paid off. When people concentrate on paying that down, it would lead to a contraction. Less buying of stuff. This would fit in with his concern about a bubble in 2013. If so, there would certainly be a contraction then.
This is interesting to see. I am going to watch and see what comes to fruition.
Dow 7,000, or Dow 20,000. What do you think? 

About me

My name is Gregg Hoffman. As of this moment, I consider myself to be a free market, anarcho-libertarian. This blog is set up as an outlet for me to express my political and economic views. I will link to other articles, you tube videos, and other sources related to such topics. As time goes on and I become better versed on these subjects, I will also write articles and blog my thoughts.
Up until 9/11 happened, I really did not pay much attention to politics, nor did I do any serious study of economics or monetary policy. I devoted my energy to my career as a personal trainer. When 9/11 happened, I owned a personal training studio that was cash flowing over $30,000.00 a month. Literally money coming in hand over fist with this type of business. I had plans of expansion as well. After 9/11, business slowed down. It dropped 50%. Still thinking about "growth" and building other cash flow businesses, I opened another studio and trained a couple of trainers to manage the locations. I also started buying rental properties and houses for fix and flips (all with 100% financing). I also started a real estate business with my future wife. I never felt on top of the world while juggling all of these enterprises. I had to take from "Paul to pay for Peter" to keep things going. I also finagled up to $200,000.00 of credit from many different banks in an effort to keep the balls up in the air. 2008 came along and the sub prime crisis hit. I knew I was in trouble. I still was not cash flowing from my personal training studios, and my rental properties all were negative cash flowing. To pour salt on the wound, I lost $20,00 on my first fix and flip. I knew I had to learn some lessons. I did better on my second (profiting $1,800.00. Not a lot, but at least going the right direction...or so I thought). Things went from bad to worse. The negative cash flow and accumulating debt crushed me. I filed for bankruptcy. Even though I was depressed, I still had high aspirations for building wealth. I devoted time to studying economics in general. Of all the schools of economic thought available, I found Austrian economics to best tell the story of what works, what doesn't, and why.
Through studying Austrian economics, my political beliefs went through a transformation as well. When I wasn't paying much attention, I leaned toward a more liberal/progressive outlook (needles to say, I voted Democrat). While building my business, I shifted to a more Republican view. But as I learned more about how free markets really worked, I realized that an anarcho-libertarian philosophy and form of governance leads to the best prosperity and freedom for all.
This is my journey. This is what I will share.