Hope to Prosper » Economy

Exposing Government Scamflation

Bret — Thu, 17 Jun 2010 06:25:22 +0000

Scamflation (n) - 1. Erosion of our purchasing power by devaluation of the dollar 2. Printing vast amounts of money to cover deficit spending 3. Manipulating the inflation rate to avoid increases in bond interest

Inflation’s Harsh Reality

I read an interesting post over at the OnlineInvestingAI blog, where George reviews a book called How to Profit from the Falling Dollar. And, it got me all upset once again about the state of our economy.

Image by Pete Bakke

Even though corporations are profiting handsomely from the high productivity (i.e. layoffs), our economy is under attack from the reckless spending by our government. Our national debt now stands near 85% of GDP and unless this changes quickly, we could exceed 100% within a few short years. Then, we will be in the same financial trouble as most of Europe. Below are three of the ways I feel our government is scamming the American public.

Scam 1 – The Shell Game

The scam is very subtle and most Americans aren’t aware of it. Government economists quietly changed the way they calculate the rate of inflation in 2000. In my opinion, this was done to reduce the appearance of inflation. The obvious reason is the interest payable on trillions of dollars of U.S. Treasury bonds. A small percentage increase for these bonds adds up to hundreds of billions of dollars in interest costs per year. Another reason is that automatic increases for entitlements (COLAs) are tied to inflation. That’s why people on Social Security didn’t get a raise in 2009.

What this means to you is that you can expect your standard of living to quietly erode, unless your income and investments are outpacing the true rate of inflation. This is why there are so many working poor and working homeless in America right now. Wages aren’t keeping pace with the real cost of living. And, basic services, such as health care and education, are rapidly outpacing inflation. So, workers are getting squeezed from both ends.

Scam 2 – The Currency Switch

The Federal Reserve is immensely powerful and virtually unaccountable to the American taxpayer. Sure, they testify in front of Congress regularly, but they talk in riddles, while operating in secrecy. I suspect huge sums of money are flowing to banks and financial institutions from our Treasury, when they should be used to fund social programs and infrastructure.

Secrecy never benefits anyone, except those keeping the secrets. In this case, it’s the banks and financial institutions, which have recently proven they cannot be trusted. These are the reasons Andrew Jackson closed the National Bank way back in 1832. Coincidentally, that’s the last time our federal government operated without a deficit. We need a central bank to operate, but it should be open and accountable to the public.

Scam 3 – The Ponzi Scheme

Most of the government entitlement programs, such as Medicare and Social Security, are just big Ponzi schemes. They are paying out benefits as fast as they are collecting the taxes. The reserves for these programs were swindled away to fund the deficit spending. Pensions for government employees are also in trouble and in my opinion the next big crisis. Despite assurances from unions and pension managers like PERS, a number of economists have recently stated these programs are dangerously underfunded.

What this means to you is retirement benefits won’t be able to keep pace with inflation. Workers and employers can expect big increases in payroll taxes, while retirees can expect cuts or freezes in benefits. The retirement age will be raised again to offset the flood of retirees. France just raised their retirement age to 62 today, because they have come to realize their deficits are unsustainable. The Fed is making similar comments about our deficit this week. I expect big changes coming our way, right after the election.

Five Simple Solutions

The Federal budget must be cut ASAP in order address the deficit.
We need an immediate independent audit of the Federal Reserve.
We must have an honest plan to save Social Security and Medicare.
Pension laws must be strengthened for solvency and transparency.
Annual benefits for government pensions must be capped at $100K.

The Bottom Line

The bottom line is the government has a lot of sneaky little tricks up their sleeves. We have just witnessed how the last crisis unfolded in 2008. And, if we aren’t careful, the next big crisis may be coming along shortly.

“By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”

John Maynard Keynes – The Father of Modern Macroeconomics

Day of Reckoning is at Hand

Bret — Sat, 08 May 2010 16:37:04 +0000

As Greece denigrates into murderous rioting and the rest of Europe braces for an ever-widening bailout, the day of reckoning is finally at hand. Governments around the world are finally starting to realize what American consumers discovered a couple of years ago; there is no long-term solution for spending more than your income. Creative financing will only get you so far. At some point, you have to pay the piper.

Financial Collapse in Europe

Photo by Piazza del Popolo

As I watched news footage of Greek protesters burning their cities and holding communist signs near the Acropolis, I was surprised at the angry response to the austerity program. With the Greek deficit approaching 120% of GDP, something has to change. The public pensions and holiday bonuses have to be cut and taxes have to be raised. Casting stones and firebombing buildings isn’t going to change the reality of deficit spending. It has to end.

In my opinion, Greece is very lucky they are tied to the Euro. If they were still trading drachmas, I believe they would have slim hopes of receiving a bailout from France and Germany. Their riotous behavior hasn’t helped their cause, nor have the high profile antics of the Greek Communist Party. I doubt they would receive much help from their comrades in North Korea, who just re-denominated their currency or from Cuba, who is facing a shortage of rice. Communism has failed for a reason.

More ominous, are the precarious financial conditions of Spain, Portugal and Ireland. Although their economies are in slightly better shape than Greece, these countries have a much larger GDP. And, a financial bailout would have a much bigger price tag, for the rest of Europe. At what point are the EU and IMF unable to rescue member nations? What will happen if countries have to rescue themselves? Europe is headed into uncharted waters.

Political Turmoil in the USA

Here in the good old USA, we tend to be pretty arrogant. Our success has reinforced our feelings of superiority and we always seem to know what is best for the rest of the world. But, how far are we from becoming the next country in crisis? The last time America was a solvent nation, Andrew Jackson was president. We have expanded our government, increased our spending and piled onto our deficit at an alarming rate. Foreigner investors hold most of our sovreign debt. And, Americans feel entitled to services our government can’t afford to provide.

Is this a recipe for disaster? I think so. And, so do many Americans. There is a rift between those who want a wider range of social programs and those want a return to smaller government. Although there are credible arguments on both sides, I am on the side of smaller government. I have never seen a government program run as efficiently as it would be in the private sector. And, I have never seen a government agency that hasn’t quickly become a target of special interests. I believe we need to initiate our own austerity program, before we end up in the same boat as the Greeks. Do we really want to be forced into solvency by the Chinese and other treasury bond holders? This is not as unlikely as it sounds. Global financial malaise spreads quickly.

Bankers Face the Music

Meanwhile, bankers face their own day of reckoning. Congress has been busy crafting the latest financial reform bill. And, it doesn’t look as though reform will be too watered down by the special interests. The Republicans have abandoned their stall tactics and the Democrats have stripped their bailout clause from the bill. It appears that we will finally have real financial reform that will shift the cost of bank failures from taxpayers to shareholders. And, the days of bankers fleecing their customers and floating unregulated derivatives, may be coming to an end.

With Goldman Sachs appearing in front of Congress and SEC charges hanging over the investment banks, lobbyists have quietly begun using the back door. The elections are going to be brutal this year and no politician can afford to be seen as banker-friendly. Voters are still furious with the bailouts, bonuses and lack of reform. It is undeniable that Wall Street has swindled Main Street. And, our politicians were accomplices to this con. The question of the year is what is going to be done about it? Are we finally going to audit the Federal Reserve? And, will this information become public?

The Bottom Line

The bottom line is that global finance will never be the same. We are headed into dangerous territory, where countries will have to reduce their deficit spending, instead of refinancing. The sovereign credit cards are all maxed out and now it’s time for each country to pay their bills.

“The budget should be balanced, the treasury should be refilled, the public debt should be reduced and the arrogance of public officials should be controlled.”

H. Ross Perot- Texas Billionaire & Entrepreneur

Hopeful Predictions for 2010

Bret — Sat, 02 Jan 2010 07:05:51 +0000

Happy New Year!!!

Photo by Optical Illusion

Here is to a wonderful 2010. I read an article on Yahoo that most people considered 2009 a very bad year for America. I was fortunate in that I had a great year, both personally and financially. I am looking forward to 2010, with many exciting challenges and opportunities. And, I wish all of you a healthy and prosperous new year. May you be blessed with an abundance of success and happiness.

As for America, I think it was definitely a bad year. The problems that surfaced in our economy have exposed our Government as corrupt and incompetent at all levels. And, our very way of life is threatened, if the Government continues to mismanage our country’s finances. I’m not just blaming the current administration for this problem. The integrity and effectiveness of our government has been deteriorating for decades. I sincerely hope we can change this course and restore the courage and glory that America has demonstrated to the rest of world.

Without any further delay, here are my predictions for 2010.

Housing will Recover Slowly

Despite the artificially low interest rates, housing still isn’t affordable in many inflated areas, for working class people. Where I live in San Clemente, Ca, entry-level houses still cost over $500K and condos cost almost $400K. This is way out of whack with real wages, which have been flat for years. Young couples simply can’t afford half million dollar houses and people who can afford them are looking up the food chain. Add to this, skittish banks, high unemployment and a lot more foreclosures hitting the market and all signs point to a slow recovery in housing.

Obviously, geography plays an important role. And different areas have a different outlook for recovery. Although housing has recently become more affordable in bust areas such as California, Nevada and Florida, banks are strict with lending in these areas. Other states, such as Ohio, Michigan and upstate New York have lost so many jobs that housing may never recover.

Another consideration is the shifting demographics of America. First, there are millions of Baby Boomers, who are retiring and down-sizing. And, there are fewer new families coming up to purchase those homes. Second, most of the growth in American population will come from immigrants and minorities, who may not generate the income levels needed to qualify for expensive housing. These two changes will influence pricing to the downside.

The Stock Market is Headed Up

I am looking for another 15-20% gain in the stock market. Even though the economy isn’t out of the woods yet, companies are making profits from the recent layoffs and high productivity. This supports higher stock prices, based on the P/E ratio. And, if the economy does come roaring back, look for companies to squeeze out as much profit as they can from the improving economic conditions. With interest rates low, inflation down and an eager supply of labor, companies should have a great year.

Another important consideration is the pent-up demand. Consumers have delayed big-ticket purchases during the recession, such as appliances and automobiles. And, they will be compelled to make these purchases as the economy improves and their existing items wear out. These industries are considered cyclical and the cycle will turn positive at some point.

Incumbents will get Voted Out

I have never seen voters so angry with our politicians. First, there was the bailout of the financial institutions, who are feasting on bonuses, while sticking it to their customers. Then, there were the stimulus programs, which frittered away billions of dollars, with dubious results. Finally, there was the health care reform that most voters hate with a vengeance. In all three cases, voters wishes were completely ignored, while companies aligned with our politicians pocketed money our government doesn’t have.

I’m not sure how many incumbents will get voted out in the 2010 election, but I’m hoping for at least 20% of open seats. That would send a clear message to our elected officials that voters can’t be ignored for the sake of generous lobbyists. There is an ugly mood on Main Street right now and voters are well aware they are not being represented by their elected officials. I look forward to the 2010 election. It will be interesting to see what transpires.

Electric Cars will Spark Change

I have posted on the subject of energy before. But, 2010 will mark a very important beginning for electric cars. The Nissan Leaf and Mitsubishi iMiEV will be released in 2010. The Ford Focus BEV will follow in 2011. And, there are dozens of EV concept cars from virtually every manufacturer. If EVs start to sell well, look for other manufacturers to release EV models. Nissan already claims 20,000 people are lined up and waiting to purchase a Leaf. Although it will take a while before EVs replace the millions of gas-burners sold each year, 2010 should be a solid start.

If the price, weight and range of EVs can be improved, they will become a solid seller, based on their low maintenance and operating costs. Once people get a taste of driving around for pennies per mile, they will be happy to say goodbye to $3 gasoline. And, they will be happy to say goodbye to oil changes, tune ups and smog checks. Obviously, electric cars won’t be practical for people who have long commutes. But, for most people, this will become a very attractive option.

The Bottom Line

The bottom line is, no one really knows for certain what the economy, housing and stock market will do in 2010. But, there are many historic patterns and indicators that can be used for an educated guess. My guess is, unless we have an unforeseen catastrophe, 2010 should be a pretty good year.

“I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.”

Thomas Jefferson – Founding Father of America

The Economics of Energy

Bret — Thu, 15 Oct 2009 08:00:19 +0000

Blog Action Day

This post was created in participation of Blog Action Day 2009, which is focused on Climate Change.

Bringing Change

In my opinion, the best way to help the environment is to change the cost and economics, so that it favors clean sources of energy. For example, people will start buying electric cars when they are priced roughly the same as gasoline powered vehicles. And, they will convert to wind and solar power when it becomes price competitive with utility power. Until then, people won’t convert en mass to green energy, because most people can’t afford to.

The Monopoly on Energy

Currently, our choice is limited to gasoline vehicles and utility-based energy, because they have a government sanctioned monopoly. Starting way back in the 1800s with Standard Oil, energy producers have always found a way to limit our choices and avoid competition. Even though Standard Oil was broken up by the Supreme Court in 1911, Exxon and Mobil have since merged again. Refinery capacity has been consolidated and this appears to affect gasoline prices, which no longer follow the prices of crude oil.

The monopolistic practices also continue on a local level. Oil companies are quietly taking over gas stations, so they can control pricing at the retail level. I know someone who has owned a gas station for decades who has recently been forced out by the oil company. They were told their contract won’t be renewed, which allowed the oil company to take over their station. This has been happening quietly throughout the country for years, which is another reason gasoline remains expensive, even when oil prices drop.

Renewable Energy

The biggest problem with renewable energy is that it can’t be sold, taxed and controlled. That’s why we don’t have it available. Energy providers cannot afford to lose control of their monopoly. The Government doesn’t want us to have energy sources that are freely available and cannot be easily taxed. There are some issues related to cost, storage and efficiency. But these could easily be overcome by commercialization and mass production.

If you follow the development of electric cars, they are being created in partnership with utility companies. Utilities stand to make huge profits in our shift from gas to electric cars. The effect of these partnerships is that none of the electric cars under development contain a solar panel. (I don’t count the Prius, which only runs a cooling fan.) If you ask auto makers why a solar option isn’t available on their new electric car, they will give you a vague answer. The real answer is they don’t want to lose funding from utility companies and the DOE.

Personalizing Energy

My vision of the future of energy is very positive. I foresee a revolution unfolding much like it did in the computer industry. Once people got their hands on a personal computer, it empowered them with innovative and creativity new technology. The Internet allowed virtually unlimited communication, connections and resources. Mass production of computers drastically reduced costs and improved technology. Most important, knowledge and power shifted from the few to the many.

Energy Independence

One thing holding back renewable sources of energy is a suitable energy storage device. People still need energy after the sun goes down and the wind stops blowing. And, battery technology is expensive, caustic and inefficient to run a business or a household. Fortunately, there is a lot of research being conducted in this area. One potential solution is being studied by Dr. Nocera at MIT. It is similar to a hydrogen fuel cell, but it mimics photosynthesis and uses non-toxic materials. This discovery could revolutionize the storage of energy.

The Bottom Line

The bottom line is that we have been manipulated, polluted and cheated for far too long. And, we are never going to get a fair break from energy providers, because their business model relies on keeping us dependent on them for energy. We need to seize control of our energy resources and demand products that are powered by nature. And, we must demand that our elected representatives respect our wishes for clean and renewable energy. Until we take control of energy, we are at the mercy of those who poison our world for a profit.

“Competition is a sin.”

John D. Rockefeller – Chairman of Standard Oil

The Dangers of Derivatives

Bret — Fri, 31 Jul 2009 04:49:57 +0000

Risky derivatives and leveraged securities were the primary cause of the Global Financial Crisis of 2008. It’s no coincidence this happened after Congress repealed provisions from the Glass-Steagall Act, which was created during the Great Depression to protect depositors. Without this protective legislation, banks were free to create and sell these types of securities, which later became known as ”Toxic Assets”. The bad news is that we are all still at risk from these securities.

Size of the Problem

The notional amount of outstanding positions in the derivatives market was almost $700 Trillion in 2007. That’s about 11 times the combined GDP of every country in the world. I don’t know how others feel about this, but it seems pretty irresponsible to me. The recent explosion in the volume of derivatives highlights their profitability, but it also creates a lot of risks.

Why this is Risky

There are way too many complex derivatives products and they are often used to gamble for profits, instead of being used responsibly for hedging. Another problem is that over-the-counter trading is non-transparent and poorly regulated. Also, there are some highly leveraged and naked securities, which have such a high loss potential they never should have been legal in the first place.

The only reason this is allowed to go on is because bankers and brokers are making a fortune off of these products. In case anyone thinks I’m overstating this problem, here are some examples.

High-Profile Failures

AIG Bailout - Taxpayers are painfully aware that over 100 billion dollars was spent to bail out AIG. What most taxpayers don’t understand is why. AIG was engaged in the selling of Credit Default Swaps, which exposed them to total losses of around $100 billion. Since they weren’t properly reserved or hedged against these losses, the Government stepped in to bail them out, with our money.

Bankruptcy of Orange County - In 1994, Orange County, CA was bankrupted by Treasurer Robert Citron. Citron purchased derivatives called Inverse-Floaters that were tied to interest rates. When interest rates rose, these securities lost two billion dollars in value and the county was forced into bankruptcy. Citron plead guilty to six felony counts, but never spent a day in jail. Orange County taxpayers were stuck with the tab and 3,000 public employees lost their jobs.

Long-Term Capital Management - LTCM was a high-profile hedge fund, which failed in 1998. LTCM engaged in various leveraged trading strategies, including Fixed Income Arbitrage, Interest Rate Swaps and Pairs Trading. The East Asian Financial Crisis and a Russian Bond Default caused liquidity problems for LTCM, resulting in $4.6 billion of losses. The Federal Reserve engineered a bailout by a number of large investors to avoid further disruption to the financial system.

Failure in Regulation

Bank regulators don’t seem to have learned anything from their continuous series of failures, except how to unload the losses onto taxpayers. Speculation-based bank defaults date all the way back to the Great Depression and the Bank Panics of the 1800s. Yet, we seem no better protected today then we were back then. Even as the Federal Reserve grabs for more power over our financial institutions, it has become obvious they are a source of the problems.

New Laws on the Horizon

According to Reuters, Congress is considering curbs on speculation in the Credit Defaults Swaps markets and they may ban naked swaps outright. Congress also wants to shift oversight from the Federal Reserve to the Securities and Exchange Commission (SEC).

The Obama administration wants to curb over-the-counter trading, by forcing these derivatives through a clearinghouse, if they are not traded on an exchange. This would make these trades more transparent to regulators. The White House is expected to release this proposed legislation sometime today.

The Bottom Line

The bottom line is that financial institutions can’t be trusted when profits are at stake. And, our banking systems will never be secure as long as high leverage is allowed for speculation. Until we get some real oversight and practical limits on leveraged securities, we will all be at risk of more banking failures in the future.

We can’t allow bankers to regulate themselves.

“In gambling, the many must lose in order that the few may win.”

George Bernard Shaw – Irish Playwright

The Great Recession

Bret — Tue, 13 Jan 2009 21:47:49 +0000

I’m seeing a lot of comparisons in the news between the current recession and the Great Depression of the 1930s. There are lots of comments such as, “This is the highest number of foreclosures since the Great Depression”. And, “The banking system may fail and then money will become worthless”.

Pundits & Profiteers

The first thing to consider is that the media profits from spreading fear and uncertainly. It’s bad enough to be a victim of the economy. Don’t become a victim of the media. Ignore the fear-mongers and turn off the news. If they had any useful or important news, they wouldn’t be chattering about the past. Everything on the news right now is just conjecture and speculation. The media is about as clueless as our politicians, when it comes to the economy.

Why this is different.

People are losing their homes and jobs in this recession and that is a terrible thing. The reason this isn’t like the Great Depression is because they can usually rent an apartment and buy something to eat. There are better social programs in place to ensure that no one starves. This recession is bad, but it’s not even on the scale of the Great Depression. I just watched a TV show on the Great Depression called “Black Blizzard” and I felt so bad for the people who lived through it. There is no comparison to anything happening today.

When will it end?

Nobody knows how deep this recession will go or how long it will last. My prediction is that a recovery is still at least a year away for the credit and job markets. It’s a well-known fact that businesses use a recession to keep costs low and squeeze productivity from existing employees. So, companies won’t be on any hiring binges until a recovery is well established. The credit markets are anyone’s guess. Our politicians continue to flail, while the banks are hoarding the cash windfall from the bailout. Maybe the Obama administration will right the ship. But, it may take a while for him to put anything together.

As for a housing recovery in the bubble markets, I suspect it will take another couple of years and another 20% reduction in price. Even though prices dropped significantly last year, affordability is still the issue. Young couples, even with two incomes, can’t afford half-million dollar homes. There is no bailout or government intervention that will fix this problem. Housing has to become affordable, before it will start to sell again.

What should you do?

If you are gainfully employed, you can take advantage of the current market conditions. You can purchase stocks and real estate for pennies on the dollar. If your employment situation is shaky, you need to prepare for the possibility of a lay-off. These both add up to the same thing:

1. Save money, save money, save money

2. Stop wasting money and buying junk

3. Stop accumulating debt

Why this is so important.

In tough times, you should consider money as your life blood. If you are bleeding cash you need to stop this immediately. Cash is one of the very few things that can cushion a financial disaster, such as a layoff or a medical problem. Now, more than ever, “Cash is King”. So, treat it like royalty.

If you have the discipline to control spending, you can use your excess cash to purchase assets. If you have the courage to invest in a shaky market, you could take advantage of the low prices to create or improve your portfolio. Even if you have recently lost a house or a job, you can mitigate that loss by managing your income wisely.

The Bottom Line

The bottom line is that there is opportunity even from the worst of circumstances. Now, is not the time to run and hide. It’s the time to step up and take control. The path to wealth is never easy, but the direction is always clear. Spend less than you earn and put the rest to work for you. Recessions will come and go, but good financial planning will last a lifetime.

“The Great Depression, like most other periods of severe unemployment, was produced by government mismanagement rather than by any inherent instability of the private economy.”

Milton Friedman – American Economist

Bailing Out the Rich

Bret — Mon, 06 Oct 2008 23:13:57 +0000

I had put off writing an article on the bailout up to now; because I wanted see how it would shake out. Now that the bailout bill has been signed into law, it’s time to weigh in. Like many Americans, I feel that we have been sold out by our Government. The very people who are responsible for this catastrophe are proclaiming to lead us out of it. Their incompetence is mind-numbing.

The Sudden Crisis

One thing that really stinks of coercion is the sudden nature of this crisis. From out of nowhere, the President is on TV telling Americans that if we don’t cough up 700 Billion dollars the financial system is going to collapse immediately. There’s no time for debate, no options or clarification. The world is going to end right now unless we give the Treasury Secretary everything he wants. By the way, don’t ask what they are going to do with all of that money, because they don’t really know. They just need it now.

Our Future at Stake

I’m no economist, but I just don’t believe the banking system would have failed. Despite all of the scare-mongering, most banks would find a way to survive in business, without a bailout. If the bailout got voted down, the strong banks would buy up the weak banks and adjust their business models. The tight credit markets are definitely affecting the economy, but that would recover as well. As long as there is money to be made, banks will go after it. And, if we are stupid enough to give them Trillions of dollars to expunge their past greed, they will happily take that as well.

The Blank Check

What I hate the most about this poorly conceived plan is that it is open-ended. There is no way to estimate how much the “toxic” securities are worth. And there is no guarantee that by accepting this liability, the banking system will recover. Basically, the plan is to shift a massive amount of bad loans onto taxpayers and hope for the best. If it all goes according to plan, the banks will benefit and taxpayers will get stuck with the bill. And, if it all goes badly, expect the banks to want more money.

What about Main Street?

Friday, I was talking to a friend of mine who had just lost her house. Their mortgage had skyrocketed up to 12% and they couldn’t afford the payments. They tried to deal with the bank in good faith, but the bank refused to lower the interest rate back to anything reasonable. And of course, the foreclosure will cost the bank a small fortune, which will be passed on to taxpayers.

So, how is this bailout plan good for Main Street? How are we helping by foreclosing on people who are willing to pay their loans? Why are we bailing out banks, when they are burying homeowners with exploding interest rates? Shouldn’t we demand fair mortgage rates as part of any bailout plan? Shouldn’t we mitigate foreclosures to help the recovery?

My Predictions

Housing won’t recover for another two years. Real wages, adjusted for inflation, haven’t gone up in decades. This bailout plan counts on housing recovering quickly and that isn’t going to happen. When housing becomes affordable to average Americans and there are reasonable loans available, then housing will start to sell. Until then, don’t expect a housing recovery from any action by our Government.

This bailout will cost taxpayers a couple of Trillion dollars. This will be added to the existing 9 Trillion in debt, which will substantially weaken America’s financial standing. Other industries, such as automakers, will also expect bailouts. Worse yet, there won’t be any lasting and meaningful reform of the mortgage and banking industries. So, banks will expect another bailout during the next economic downturn.

The Bottom Line

The bottom line in America today is the rich keep getting richer, with help from our Government. I’m a capitalist and I don’t believe in the redistribution of wealth, in either direction. When our Government takes money from Main Street to give to Wall Street, this is a crime against the American taxpayer. We are bankrupting our children’s futures to further enrich the wealthy.

“Government is not the solution to our problem, government is the problem.”

Ronald Reagan – 40th President of the United States

10 Million Millionaires

Bret — Sun, 13 Jul 2008 20:57:38 +0000

According to the Associated Press, the World now has 10 million millionaires.

Growth Stats

The great news is that there has been a 6% increase in the number of millionaires worldwide and their wealth increased by 9%, last year. Whatever your opinion on the morality of accumulating wealth, the fact that wealth is increasing worldwide is of benefit to everyone. Wherever wealth is created, jobs are created and opportunities are created. To believe otherwise, is to contradict thousands of years of human history.

Developing Countries

The number of millionaires from developing countries, such as China, India and Brazil, has increased by 23%. This is a very positive development, because opportunities for the working-class in these countries have been very limited in the past. Although the standard of living hasn’t increased radically in most developing countries, there is definitely a growing middle class. This has fueled a surge in international demand for products and services from Europe and North America.

Here in America

Despite all of the doom and gloom about the American economy, we are doing quite well. One third of the world’s millionaires come from the U.S., despite the fact we represent less than 5% of the world’s population. And, the wealth of our millionaires is increasing, despite the recent economic slowdown, the real estate crash and the shaky financial sector. The American working-class may feel left out of the boom, but the future of our economy appears to be robust. So, opportunities will continue to be available to most who apply themselves. The wealth disparity will also continue to exist, as it has for centuries. Hopefully, it will begin to shrink, instead of continuing to grow.

The Bottom Line

The bottom line is that dynamic companies and individuals create wealth. That is how America became the wealthiest country in the world, in a very short span of history. And, wealth itself is not the only benefit. The products and services created by the wealthy are the other. Think about life today without electricity, TVs, computers, automobiles, supermarkets, etc. From the “Millionaire Next Door” plumber or electrician, to the billionaires such as Sam Walton and Bill Gates, the wealthy often give a lot for what they receive.

Inflation Highest in 17 Years

Bret — Sat, 19 Jan 2008 20:02:35 +0000

The Big Squeeze

The Consumer Price Index rose 4.1% in 2007, which was the biggest increase since a 6.1% jump in prices in 1990.

Average weekly earnings, after adjusting for inflation, dropped by 0.9% in 2007, the biggest setback since a 1.5% fall in 2005.

Economics are Boring

Let’s face it, Economics are boring. They are boring to me. They are boring to you. In fact, the only people they aren’t boring to are Economists. I don’t know any Economists personally, but I would suspect that they are very boring people. My Economics Professor took a stab at some jokes in class, but he wasn’t headed for Comedy Central.

If you ever go to a party and start a conversation about the Economy, you will be sitting by yourself within about 10 minutes. So, I understand if you don’t enjoy these posts and I promise to move on to a more exciting subject.

Why You Should Care

Unfortunately, the Economy is your future. Not just the recessions and the interest rates, but more importantly, the inflation rate and the currency devaluation. If you plan to retire with a million dollars and are saving toward that goal, then you should be fully aware that a million dollars will only be worth around a couple hundred thousand in 20-30 years. So, you really need to save around four million in order to retire a millionaire, in today’s dollars.

If you are older and closer to retirement, then you may not be so concerned. But, you still have to consider that your retirement may last 20-30 years. So, inflation is still a huge factor in your future. Do you suppose rent and medical costs will only go up 2.5% per year ?

I like to use 5% as a realistic annual inflation rate in my financial planning.

Inflation and our Government’s Big Lie

The Consumer Price Index, the Core Rate of Inflation and other Government indicators are not useful in measuring inflation. These numbers are, in my personal opinion, being purposely understated because our Goverment can’t afford to pay higher interest rate on the Treasury Bond debt. Nor, could they afford to pay the automatic cost-of-living (COLA) increases for welfare, Social Security and other social programs. So, retirees get squeezed, because their cost-of-living is going up much faster than their Social Security benefits.

Even scarrier than the real rate of inflation is the rapid slide of the Dollar. Government economists like to tell us that the weak Dollar is good for the economy, because it increases exports. But, in my opinion, this is a scam. The weak Dollar is purely a symptom of our Government printing ever increasing amounts of money to cover their deficits. This is simply a convenient way for our Government to steal from everyone who owns a Dollar.

Foreign investors have caught on and are now starting dump our Dollar. That’s definitely not good for America because everyone’s savings are quietly being swindled by the devaluation.

The Bottom Line

American’s are getting squeezed. High inflation, lower Dollar and lower wages. With a recession likely ahead, our free-spending politicians have left hard-working American’s in a real bind. No politician is going to mention this in the debates, because they have real no solution.

Rough Start to a New Year

Bret — Thu, 03 Jan 2008 21:42:43 +0000

Well, it was a rough start to 2008.

The new year was ushered in with a big drop in the Dow and a rise in oil prices up near $100 per barrel. Although the first day shouldn’t be taken as a harbinger for the entire year, it wasn’t a welcome nor a pleasant way to start off a new year.

The Underlying Problems

As I stated around Christmas, I suspect their are too many negative forces for the American economy to sustain its recent momentum. In addition to the terrorist attacks around the globe, that are pushing up oil prices, there are many domestic factors weighing on the economy. The deficits, the loss of high paying jobs overseas and our government’s shameless affinity for wasting our tax dollars are all bad signs for things to come.

Most important, is the constant slide of the dollar. This hidden form of inflation is undermining the average American’s ability to afford their current lifestyle. Since housing, food, energy and other service and commodity prices are rising much faster than real incomes, our purchasing power is eroding and our ability to keep up is diminishing. The recent response has been to make this up by accumulating debt, but our ability to borrow beyond our means is quickly coming to an end.

According to basic economics, the decreased demand should cause prices to fall and the market forces should correct the problem. Unfortunately, the harsh reality is that America is increasingly competing for resources with the rest of the world and their demand may keep the prices rising beyond our ability to compete. So as long as the dollar keeps falling, Americans will continue to lose purchasing power to those living in countries with stronger currencies.

The Future of Your Money

One of the scariest facets of this dollar erosion, is the fate of current and future retirees. If you retire or plan to retire with a certain amount of assets and income, but find out they are both worth much less than you had anticipated, there is no practical way to make up the difference.

Retirees counting on stable prices and inflation may be in for a real shock, if the costs of living keep spiraling upward. The Government is doing America a big disservice by publishing an inflation rate that is so clearly disconnected from reality. They can call it the “Core Rate” and use whatever clever devices they choose to fudge the numbers. But, don’t count on the Government economists to publish an accurate rate of inflation. They couldn’t afford the increased costs of debt service payments and the automatic cost-of-living adjustments, if they did.

Tough Solutions for Difficult Problems

I don’t pretend to offer any magical solution to these problems, because there aren’t any. If you have ever tried to climb out of your own personal debt of a couple thousand dollars, then imagine owing trillions of dollars, like our Federal Government. And, there are no easy solutions to our jobs going overseas and our massive trade deficits. Most Americans will still choose the $2.00 Chineese item at Walmart, over the $5.00 item that was made in America. In five years, our markets will be flooded with cars, and other big-ticket items, made in China and India.

The only useful advice I have to offer is to save more money than you think you will need. Because, in the future, you will probably need a lot more money than you think.

Hope to Prosper » Economy

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