Archive for October, 2012

The Greatest Transfer Of Wealth Ever

A vast number of people think that what we’ve been through during the last four years is just another episode in the economic crises history of the United States.  They believe a president has the power to continue the trend or reverse it.  So they put their faith in the next presidential elections.  They think their favorite candidate, whether Romney or Obama, will bring about the change they wish for.  So they go and vote.  Then, if their candidate wins they expect miracles from their leader until yet another economic event hits them and the dream fades away.  And so it goes every four years while the giant Titanic is sinking.

The reality of it all is that it matters little whether Obama or Romney becomes the president. Why?  Because – contrary to what we’ve been told – since 1913 the president or congress has had no control of our monetary policy.  The central bank has such powers.

During the last four years Mr. Obama has followed the policy of the Federal Reserve.  His major campaign contributors during 2008 elections are listed here.  If he wins, he will continue the same policy.  If Mr. Romney wins he will take over the torch because the money that funded his presidential campaign accepts no opposition.

I bring this up not to be political but to demonstrate to my readers that our next president won’t have the ability to fix the economic crises.  Therefore we should not rely on the government to make our lives and/or our children’s lives better. It is up to us to learn, assess, and prepare for the future by making educated decisions, while we still have the ability to do so.  Let me explain.

Sound monetary policy is vital to the economic recovery.  That is because it is the bad monetary policy that caused the problem, not once, not twice, but throughout history according to the Austrian School of Economics.  Asset bubbles form due to artificial expansion/inflation of money supply.  This is the key, this is the underlying cause.  When newly created (by the Fed) money – out of thin air – finds its way in the economy it flows into assets such as real estate, commodities, or securities.  The result is artificially inflated assets.  This is not sustainable.  If it was we would be trading houses today in the millions of dollars. It is not sustainable because in such a scenario the market forces would lead to a currency collapse.  If the bad monetary policy continues we will eventually end up with a dollar not worth a continental.

Since the real estate bubble burst there was no good monetary policy.  Money supply is still being expanded via bailouts and QE’s.  There was no good policy before either.  Such policy helped to induce the bubble.  A good monetary policy means stopping the creation of new money.  It means stopping the Fed’s printing pres, which in turn would cause the interest rates to go up.  Corporations would go bankrupt.  People and the government would be forced to live within their means.  Produce a lot, spend a little, and save more.  It would be painful.  Even though it would be temporary it would be necessary for a healthy recovery.  But again, it would be painful.  It means experiencing the withdrawal symptoms after years of addiction.  No politician wants to have that happen on his term.  Thus, the politicians will continue to kick the can down the road.

The question is what could potentially happen as a result of the failed monetary policy?  At least two problems.  Currency collapse and/or astronomical rise in the interest rates.  Both are conducive to loss of purchasing power for the average man.  Both require a pro-active approach in lieu of the common reactionary one.  I would not expect such approach from the government.  So, it is up to the average Joe to take the matter of his finances in his own hands.

I titled my article “The Greatest Transfer of Wealth” because such event is ongoing now.  Bad monetary policies destroy the working middle class.  It happened to the Romans leading to the collapse of the empire.  It happened to Weimer Republic in the early 1920’s leading to the rise of Hitler.  It happened to France, China, Russia, Argentina, Mexico, and most recently to the wealthiest country in Africa, Zimbabwe.  For a history on money and governments out of control read Daily Reckoning’s “Fiat Currency: Using the Past to See into the Future“.

Still not convinced?  Consider your net worth during the real estate boom and before the 2009 collapse of the stock market.  If your net worth is higher today you deserve to be congratulated.  You are in the 5% bracket.  If your net worth is lower today then you’re in the 95% bracket.

Within a few short years there’s a reasonable likelihood that the middle class will only keep its name.  In real life it will be partially or fully dependent on the government.  Being dependent on the government comes with strings attached.  Working a 9 – 5 job will not make the average Joe independent.  To get in the 5% minority bracket one must be truly visionary.  He must live his life unlike the 95% majority.  He must think like a contrarian and he must invest like a contrarian.

Because I spend my time helping people finance commercial property I get to be exposed to unconventional ways to increase wealth.  Whether they are in real estate equities or debt, in commodities or the stock market, the driving criteria is to buy when the majority is selling and to sell when everyone else is buying. There is an incredible opportunity today to buy quality real estate at extremely low prices.  Yet, the real estate market activity is supported mainly by investors.  Part is domestic and part being the citizens of other countries.

But the 95% doesn’t get it. They continue to keep their retirement with their stock broker.  They would rather have their hard earned money invested in the artificially inflated stock market.  They are now comfortable that the Dow Jones – and their retirement account – is getting close to the levels pre-2009.  Never mind the cost of living jumped up.  Never mind that there are investments in hard assets today which are considered by a few (the 5% bracket) less risky than the stock market.  Never mind that such assets produce a monthly stream of income better than most of the dividends paid by corporations. They won’t take the risk, or at least this is what they think.  In reality the risk is in following the conventional wisdom and maintaining the status quo.  American writer, Lillian Smith once said “When you stop learning, stop listening, stop looking and asking questions, always new questions, then it is time to die.”  So will be the faith of the average retirement account.

My goal is to share economic news with my readers.  Then, present them with possible solutions. Please note that any type of investment represents a risk.  It is your responsibility to research, learn, and evaluate whether any investment presented on my site is right for you.  At your request I put you in touch with the representatives of the companies I promote.   You should evaluate the company, the projects, and ask questions.  You should visit the property.  You should also seek advise from your accountant and/or a professional you trust before investing in any of the investment opportunities offered on my site.

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My Warning to Women: Get Your Questions Answered Before the Crisis Hits

By Gary North

In the United States, women outlive men by at least four years. In most cases, wives are several years younger than their husbands are. Combining these two statistical facts, we reach an inevitable conclusion: today’s wives are likely to spend more than half a decade as widows.

The reality of widowhood is that a woman will become dependent on somebody other than her husband unless she is fully in control of her faculties and her finances.

A woman who wants to remain independent in widowhood should understand from the day she gets married that she must learn the basics of family finances. The better she gets at handling money, and the better she gets at making money, the more likely she will retain her independence during the inevitable years of widowhood.

The problem is, people discount the future. They assume that the future will take care of itself, and that the future will be mostly positive. The trouble is, the older we get, the less likely that our future will be positive. The clock is ticking.

It is common in the United States for women to control the household budget. Couples should work together to establish spending and savings, although I don’t think this is as common as we like to believe. These days, programs like Quicken make it relatively easy to budget and to track a family’s spending patterns. It is easier than it was 20 years ago, and surely easier than it was 30 years ago. It is common for wives to handle the Quicken accounts. The question is this: Do wives have equal input on how the money comes in, and do they have equal input on what should be done for the long-term support of both of them in their retirement years?

We think that people act in their own self-interest, but we find that people prefer to defer. They prefer to kick the can down the road. They prefer to imitate Congress. The trouble is, the decision of Congress to kick the Medicare can down the road guarantees that the vast majority of women who are alive today will spend their final years as complete dependents on their children, and that they will probably be destitute.

There really is no escape from this statistically. We know the Medicare system is going to bankrupt the government, and therefore we know that the Medicare system will be modified so as to break the promises the politicians have made regarding the last years of our lives. There is no escape from this. It is going to hit every Western industrial nation. No one who looks at the numbers expects anything else.

Nevertheless, the vast majority of wives in the United States and the West do not begin to assert co-authority over the spending patterns of their households, despite the fact that they will be alone in their final years. They refuse to make decisions today that might give them a degree of protection in their old age.

One of the reasons why I favor the purchase of investment real estate is this: in people’s old age, the houses are owned free and clear, and the rental money is gravy. A person who owns half a dozen homes free and clear is going to make enough money to have a comfortable middle-class lifestyle in retirement. I realize that not everybody can own half a dozen homes, but everybody who subscribes to this website can.

One way or the other, wives are going to have to make decisions over where the money goes. They can begin to make these decisions in joint consultation with their husbands today, or they can wait until their husbands are dead.

Twenty-five years ago, Mark Skousen’s wife JoAnn published a newsletter for women. It focused on investing. The newsletter did not gain enough subscribers to stay in business, and so she ceased writing it. It was a very good newsletter. It was quite relevant. It didn’t matter, because she couldn’t get enough women to subscribe.

About that time, I interviewed Charlotte Foehner. She was the author of a very good book called The Widow’s Handbook. Her targeted audience was women like herself. Her husband had died unexpectedly, and she knew virtually nothing about investing. She had enormous responsibilities, and these responsibilities hit in a time when she was most psychologically vulnerable. Her husband was dead, and she had to put his affairs in order. He should have done this before he died. She should have insisted that he do it before he died. He didn’t, and she didn’t.

Answers can be painful. Answers increase the level of personal responsibility. Nobody can claim ignorance if someone has answered a major question. People think that they are better off by remaining in the dark, because they assume the problems are not going to hit them, and they might as well not think about it.

This is the attitude of the vast majority of Americans today. If they had any idea of what will happen to them, statistically speaking, more of them would start asking questions. But they don’t know, and even if they did, they would not like the answers. The answers would force them to restructure their lives. Answers would force them to restructure their dreams.

The fact that women become dependent on their husbands early in their marriages, because women have to take care of the family, gets them into a mentality of dependence. It is easy to become dependent upon the husband’s decisions. This has been the traditional approach throughout most of history. But with the vast increase in the division of labor over the last century, and with the increased life expectancy of women, this tradition is now a liability for women.

A woman has got to face statistical reality. She is going to be a widow in the final decade of her life. She is going to have to make her own decisions, and if she is incapable of doing this, either mentally or financially, somebody else is going to make her decisions for her. Traditionally, this has meant her oldest son and her daughter-in-law. She may trust her oldest son, but she has to face the reality of potential vetoes by her daughter-in-law.

A woman who is determined not to be dependent upon the judgment of her daughter-in-law should face reality early. She has got to have an independent stream of income, and she has got to have somebody other than her daughter-in-law making the decisions about how this stream of income is going to be allocated, and by whom.

Anyone who does not have an independent stream of income is inevitably going to be dependent. Any woman who does not want to be dependent upon another woman, especially a younger woman who resents the added expense of a mother-in-law, had better take great care in building a separate estate for herself in her old age.

Look at the median net worth of American families. Adjusted for inflation, it has not risen in 20 years. Most of this wealth was in the family’s home. That’s why it peaked in 2007.

This includes all age groups. Older people have more money. Whites at age 65 probably have about $225,000 in net worth. It was higher in 2007. Then the housing bubble popped.

http://www.agingstats.gov/agingstatsdotnet/Main_Site/Data/2010_Documents/Docs/OA_2010_Updates_123010.pdfThis is the measuring rod. Each family should assess its net worth.

How long will you last in retirement? In calculating this, add to expected expenses the replacement of Medicare, which on average pays $900 a month per household member. That was in 2009. It’s higher today; medical costs keep rising. Figure $1,000 per person per month. Two members means $2,000 a month. That is what it will cost to stay alive and healthy after age 65 when Medicare goes bust, which it will.

Who will be able to afford this? For how long?

If a person sells his home to pay for medical costs, where will he live? Add another $1,000 a month for rent. But medical costs will not decline.

Preparing for retirement is not easy. It involves asking questions. Any woman who does not ask questions is basically saying that she is content to live under the jurisdiction of her daughter-in-law in her old age. She had better have a financially secure daughter-in-law, and that daughter-in-law had better have her mother-in-law’s best interests at heart.

It is better to ask questions now than to be told what to do later.

Note:  Gary North is one of the most brilliant men I know.  He is a virtuoso in the field of economics and investing.  Check out his website at http://www.garynorth.com/.   Also, if you’re thinking of investing in real estate click HERE to read the criteria for my Turnkey Real Estate program.

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Ron Paul: Gold is good money so let it compete

GATA

U.S. Rep. Ron Paul today explains (again) why gold is good money and why his legislation to facilitate competition in currencies is necessary to defend the people against the government.

“Earlier during this Congress,” Paul writes, “I introduced the Free Competition in Currency Act (H.R. 1098) to permit people to use gold as money again. By eliminating taxes on gold and other precious metals and repealing legal tender laws, people are given the option between using good money or fiat money. If the government persists in debasing the dollar — as money monopolists have always done — then the people would be able to protect themselves by using alternatives such as gold that are both sound and stable.”

Paul’s commentary is headlined “Gold Is Good Money” and it’s posted at the congressional Internet site here:

http://paul.house.gov/index.php?option=com_content&view=article&id=2016:…

Buy the book “Money, Sound & Unsound” by Joe Salerno

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