Posts Tagged ‘economics’
Small Is Good…
OK, you wonder what I mean by “Big Is Bad.” I’ll start by telling you that “Big Is Bad” isn’t a moral judgment. “Big Is Bad” is a logical conclusion drawn from observing economic and social—especially governmental—reality. “Big Is Bad” describes what happens when an entity grows too large.
Examples of Big is Bad…
Big–>Bad for the Auto Industry…
· TheAmerican auto industry—its management and its unions—grew rapidly after WWII. The companies and the unions became Behemoths.
o The survivors destroyed their American competitors and then GM and Chrysler destroyed themselves.
Big–>Bad for the Housing Industry…
· President Carter presided over the passage of the misguided Community Reinvestment Act. This act made owning a home contingent upon the largesse of the government and the granting of immunity from risk to mortgage lenders. The financial stability of the buyers became an afterthought.
o Fannie Mae and Freddie Mac grew like an unchecked cancer, became bloated Behemoths, and destroyed themselves and the equity of millions of Americans.
Big–>Bad for Investors…
Wall Streetas once the investment capital of the world. Today it’s the bailout capital of the world. In 1999, the US Congress—with its perennial lack of foresight and wisdom—repealed the Glass-Steagall Act of 1933. They replaced it with the Gramm, Leach, Bliley Act, which changed the law to allow banks, insurance companies, and investment firms to mix and match the services they provided to their customers.
o Wall Street firms like Lehman Brothers, insurance companies like AIG, banks like Wachovia, and hundreds of lesser-knowns became Behemoths—too big to fail said the Dolts in DC. They failed anyway and damaged the personal economies of all 303 million Americans in the process.
Big –>Bad for American Governence…
· The Fifty United States—thirteen originally—are the founders and owners of the government in Washington DC. They established the federal government to serve“We the People…” and to protect our rights from those who would ignore or abuse them. The role of the federal government is not to provide for us or to replace our personal decision-making with imperial fiats. However, in the past few decades the federal government has become the Behemoth of the Behemoths, has ballooned into a giant Pillsbury Dough Boy that usurps many of the rights of the Fifty United States and of “We the People…”—not to mention a boatload of our money.
o The federal government consumes or controls over one-half of the American economy directly and affects almost every aspect of the economic life of every individual and business in the country. The federal government’s financial house is a complete disaster with deficits running in the trillions—that’s thousands times billions. Unregulated czars and anonymous bureaucrats are adding hundreds of billions more to the expenses of American businesses and families. The Congress is corrupt beyond measure. Lobbyists like AARP win favors for the few at the expense of—you guessed it—“We the People…”–especially we the older people.
Big–>Bad for the Dollar…
· Finally, there’s the Federal Reserve Bank, which—by the way—is not a part of the federal government, has no reserves at all, and is not a bank. The Federal Reserve Bank—the FED—is a private enterprise. The FED controls the currency of the United States of America. The FED is not accountable to anyone—least of all to “We the People…” In other words, their own interests motivate The FED’s owners. The FED gets to print as much of our money as it—not the government or “We the People…”—wants and manipulate the economy at its whim.
o No comment is necessary.
How to Survive Big…
EUREKONOMICS™ is a personal economic and financial management model based on principles and practices that are embodied in the Declaration of Independence, the US Constitution as interpreted by the Founders, and treasured works like Ben Franklin’s The Way to Wealth .
EUREKONOMICS™ allows individual Americans and their families to escape BIG or to at least insulate themselves from the impact BIG has on their everyday lives by giving them a well established set of economic principles and financial practices upon which to base their personal economic decisions.
 Get a full PhD in the FED in 42 minutes at http://video.google.com/videoplay?docid=6507136891691870450#
EUREKONOMICSTM is based on investment principles that are as old as money and as current as the 21st century.
Benjamin Graham, the Dean of Wall Street was Warren Buffett’s mentor. Graham stated this principle in one concise sentence in his classic works, Security Analysis (1934) and The Intelligent Investor (1949)…
“An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative.”
When look at the meaning of this sentence within the framework of EUREKONOMICSTM you discover that…
- EUREKONOMICSTM relies on the promise of safety of principal as the primary consideration when it comes to investing the money that enters your life
- The EUREKONOMICSTM‘ corollaries to the promise of safety of principal are…
- whatever you think of as a satisfactory return has support that basic premise
- an investment that doesn’t is not really an investment; it’s a speculation-in simpler terms it’s a gamble
Graham’s Promise of Safety of Principal…
The the professionals in the insurance and financial services industry that act on your behalf tend to seek out the wealthiest Americans as clients. That has an unintended consequence. It creates a view of personal economics that applies mostly to the small percentage of the population that have already created family wealth.
That perception pervades the part of the industry that creates products as well, especially among financial businesses that create investment products and insurance products that have an investment component. As a result, many products that are called investments actually fall into the group that Benjamin Graham describes as speculative. They offer neither safety of principal nor a satisfactory return.
There’s another issue. You can project a satisfactory return on an insurance or investment product by using higher than realistic interest or growth assumptions. However, for many of the financial products available in the market today the facts surrounding the real returns of actual investments held by everyday Americans do not support a claim to safety of principal and satisfactory returns.
Take mutual funds as an example. No registered representative would dare promise-as Benjamin Graham’s definition suggests-that an individual mutual fund could promise safety of principal and a satisfactory return. If they did, the regulators at FINRA would likely bring the advisor making such a claim before a disciplinary board to be tarred and feathered-figuratively of course.
However, financial advisors often suggest that hypothetically and “over the long term” this fund or that or some combination of funds assure safety and returns. Based on guidelines from the SEC and FINRA, as long as you complete a suitability form and a risk tolerance questionnaire, which protects the advisor and his or her firm from the overreaching arm of regulators in the event an investment fails, the safety of principal and satisfactory return promise requirement has been met.
Take a look at the performance of these types of investments and the losses Americans have suffered over the past decade. The tremendous American families have experienced have led to only a few disciplinary actions-and those mostly for thieves running ponzi schemes.
The Promise Fulfilled…
Insurance and financial advisors are not in any way irresponsible or engaging in deceptive practices. The problem is that most of the insurance and investment products that are available in the marketplace are designed to serve the needs of investors and speculators that can afford to take risks-and losses. These financial products are not designed to help the vast majority of Americans seeking to attain wealth regardless of what the manufacturers of these products would have us think.
It’s easy to recognize the truth of this assertion. Look at your own financial progress. I’ve been practicing for almost forty years and have met only a handful of people that started out with wealth. Most Americans have gained wealth by struggling for years to…
- educate ourselves about saving, investing, risk management, etc.
- build equity in
- our homes
- our businesses
- our insurance policies and savings accounts
Almost every person and every insurance and financial advisor I have met can relate to this idea. Why then would anyone suggest that everyday Americans follow any other path to wealth? I’ll leave that answer up to each individual to discuss with their insurance and investment advisor.
However, I caution you…conventional wisdom-which is not wisdom at all-will rear its ugly head and suggest that advisors are fools if they rely for wealth creation for themselves and their clients on…
- financial education
- building equity in prosaic things like…
- savings accounts
- whole life insurance policies-especially whole life insurance policies
- a strongly rooted recognition that their clients deserve nothing less
The Final Word
There is no financial product that will make you wealthy.
There is, however, one financial product that guarantees that you will have more money in it at the end of each year than you had at the beginning of the year and that should be the foundation for your successful personal economy.
That product is participating whole life insurance from a mutual insurance company.
It’s only money…
How many times have you heard someone say, “Let’s buy it! It’s only fifty bucks. We’ll save twenty-five dollars!” Good Grief! There is no “only” when you are dealing with your money. Moreover, savings are only savings when you put them into an account that you control.
If, instead of spending it, you put your fifty bucks in your family bank–regardless of the form that bank takes–it would compound to nearly $300.00 in 30 years at 6%. If you add the 25 bucks you saved, you’d have over $450.00 from a single decision to not save by buying something.
Americans make those kinds of savings decisions frequently – say 12 times a year. Compound those dollars over a few decades and the total is over $5,000.00. Do it every year for 30 years… you’ll be a lot closer to fifty grand than fifty bucks.
“Only” fifty bucks? It’s self-deception. The old adage “every penny counts” is still in common use because it’s true. We all tend to convince ourselves that our buying decisions are wise regardless of the reality those decisions impose on us when it comes to our money. It’s one of the oldest tricks in the world to tell ourselves “It’s only…”.
“Human felicity is produced not so much by great pieces of fortune that seldom happen as by little advantages that occur every day.” Benjamin Franklin
The next time you think you are saving money buying any product–on sale or not–ask yourself if the product you are buying and the money you are “saving” is really worth it. Often it will be. EUREKONOMICS™ does not espouse a life of deprivation. Americans have the most enviable lifestyle in the world and it’s not a sin to maintain and improve that lifestyle.
EUREKONOMICS™ does espouse the economic principles and financial practices that the Founders and Builders of America and its economy paid forward to us. These principles and practices have been twisted and manipulated by the Behemoths–big government, unions, banks, investment firms, etc.–to serve their aims and not those of the American people.
Remember – only money is money. For everything else–your 401(k), IRA, mutual funds, investments, and so on–you have to spend your money, and worse, relinquish control of that money to strangers. When you’re closer to pushing up daises than doing fifty push-ups, having money instead of the stuff you bought will be a blessing.
This isn’t a new idea. Tennessee Williams expressed it over half a century ago:
“You can be young without money but you can’t be old without it.”
PS – There is one purchase that Americans can make to assure their money is safe, grows tax-free every year, never incurs a loss, and is accessible at all times without penalties or restriction: participating whole life insurance from a mutual company.
America and the world have received a legacy of wisdom and wealth but have squandered it as pointed out in this post from HubPages.com…
Shakespeare, Franklin, and Stanley Johnson
Neither a borrower nor a lender be;
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.
This above all: to thine own self be true,
And it must follow, as the night the day,
Thou canst not then be false to any man.
William Shakespeare, “Hamlet”, Act 1 scene 3 – Greatest English dramatist & poet (1564 – 1616)
“But, ah! think what you do when, I you run I in debt you give to another power over your Liberty.”
Benjamin Franklin, Poor Richards Almanac, c. 1758
“…How do I do it? I’m in debt up to my eyeballs. I can barely pay the finance charges. Somebody help me.”
It seems Stanley Johnson–and the rest of America, including the Dolts in DC–paid little attention to the wisdom that Shakespeare and Franklin bequeathed to us centuries ago as a legacy.
Instead, Stanley was seduced by the Siren Song composed in the late 20th Century by the Wonks of Wall Street and the Wannabes in Washington. The lyrics go something like this:
Get stuff you don’t own.
Borrow to buy it.
That proves your true worth.
Debt’s a good diet.
“Invest” - do not save.
Give us all your money.
Become our good slave.
Your life will be sunny.
Having stuff you don’t own and “owning” investments you don’t control is a sure road to servitude, poverty, and the loss of liberty. It is devoid of common sense and lacks an economic foundation.
This is conventional wisdom and I call it The Debt Paradigm.
The problem here is that true intelligence–common sense–sees all sides in a debate. On the other hand, pseudo-smarts embrace a theory, elevate it on an ideological altar, and protect it by demonizing anyone that interjects a competing or alternate view.
History abounds with examples…
- The Romans of Caligula’s reign
- Crusaders that ravaged both the Jews of Europe and the Muslims of Arabia
- Nazi Germans
- Modern day Islamic fanatics that demonize Jews and Americans equally
- Crazed religious fanatics of Iran
- Corrupt unions like the SEIU
- Misguided ACORN workers
- The list could be endless and include every religion and government
There is only one way to deal with ideologies that demand absolute adherence–and the Debt Paradigm is such an ideology–and that is to get real , challenge the assumptions, prove the alternatives, wake up the ideologues to the untruths that are leading them where the LEADERS want them to go.
There are strategies that allow you to personally escape The Debt Paradigm and gain control of the money that flows through your life. One source of information about a unique approach to this dilemma of the 21st Century is found in the life-changing book Money for Life. I encourage you to read it.
EUREKONOMICS™ is the unique 21st Century system for creating personal wealth and managing personal finances that the book Money Now, Money Later, Money for Life! How to Thrive in good Times and Bad describes in detail.
The EUREKONOMICS™ Promise…
Freedom from debt
Ready cash to deal with life’s surprises
Income you don’t have to work for and you can’t outlive
A legacy to pay forward to those you care about
The Etymology of EUREKONOMICS™…
o gets its pizzazz from EUREKA—an exciting Greek word made famous by the scientist Archimedes who ran naked through the streets of Athens exclaiming EUREKA! (“I found it!”) after figuring out a particularly thorny scientific problem while bathing
o gets its power from economics— a discipline that creates wealth but falls short on the excitement meter and sends people running—for a different reason.
When these two words combine into EUREKONOMICS™ they bring new excitement to the process of creating personal wealth and new science to managing personal finances.
The “WHY?” of EUREKONOMICS™…
For the past few decades, the pundits, the government, Wall Street, and popular economists have narrowly defined Americans as mere consumers. To their way of thinking, Americans are pawns in an economic system that the Behemoths—big government, big financial institutions, big unions, big lobbyists like AARP, big community organizations like ACORN—designed to make Behemoths wealthy and powerful while restricting everyday Americans and their families to the role of consumers.
EUREKONOMICS™ changes all that. EUREKONOMICS™ teaches financial literacy, economic principles, and financial management practices and guides Americans on a safe and easy path to prosperity.
EUREKONOMICS™ re-endows the individual and the American family with the economic power and pizzazz to re-take control of the money that flows through their lives and re-invigorate the simple and powerful strategies that the Founders and Builders of America paid forward.
There is much talk in Washington suggesting that the Federal Government should take over businesses and social programs based on the assumption that…
- equality of results is essential to the success of everyday Americans
- equality of opportunity – “the pursuit of happiness” – is inappropriate for the 21st century
An economics professor once faced a group of students that insisted that equality of results, not equality of opportunity, would create a better society and economy. They insisted that an economic model of big government, big union, and big bureaucracy for redistributing wealth, like the one the Obama administration seems to be promoting, would work better than and that promoted by the Founders. They believed that such a model would create a society where no one would be poor and no one would be rich – a great equalizer.
The professor then said, “OK, we will have an experiment in this class based on a plan by which big government redistributes the wealth of the country to create equality among its citizens. In this class – our country for this experiment – grades are the wealth. We will average all of your individual grades and everyone will receive the same average grade. You will all be equal. No single student will fail.”
The class agreed to the experiment. After the first test, the professor averaged the grades of all the students and everyone got a B. The students who studied hard were somewhat upset while the students who studied little were happy. However, all of the students accepted the outcome and felt the experiment proved the case for redistribution.
As the second test rolled around, many of the students who studied little studied even less and the students who studied hard decided they wanted a free ride too so they studied less. The second test average was a C-!
No one was happy. Doubts about the efficacy of the program crept in.
When the third test rolled around, the class average was F. The scores never increased after that. Bickering, blaming, and name-calling created hard feelings. The professor was demonized. The students, disincentivized to achieve at a high level, would not study for the benefit of everyone else. Every single student failed.
The professor demonstrated to the students that redistributing wealth – grades in this case…
- failed to create benefits for any individual student
- penalized every student
The experiment demonstrated that a socialist society would also ultimately fail. We have seen the results of these kinds of governments many times over during the past one hundred years in failed socialist countries around the world. When the reward is great, the effort to succeed is great.
“When government tries to make everyone equal instead of assuring that everyone has equal opportunity, government imprisons individual liberties, shackles incentive, and no one can succeed.”
- Dr Agon Fly
As the late Adrian Rogers said, “you cannot multiply wealth by dividing it.”
EUREKONOMICSTM rests on the solid principles laid down in the Founding Documents and the two hundred fifty years of the demonstrated success of free enterprise that transformed America and other free societies into economic, social, and moral leaders.
These principles have endured, successfully overcome abuses along the way, and currently recognize the failures in the system that need attention…
- Some businesses grew and prospered on the backs of slave labor but failed for the same reason.
- Some businesses abused capital and took advantage of workers, and free enterprise America corrected for these errors by creating competing businesses that honored the work of their employees.
- Unions began as advocates for employees and morphed into empires that exploit their members.
- Groups like Acorn and AARP masquerade as advocates for members but act in their own interest or as the pawns of political groups.
- Elected officials seem to lose their moral and ethical compasses as well as the memory of who elected them once they achieve office.
There are few economists and economic writers that can clearly articulate complex economic concepts as well as L. Carlos Lara and the other members of the United Services & Trust Corporation. Here is an historical and factual discussion of…
In-Depth by: L. Carlos Lara | Friday, February 5, 2010
My thoughts on the subject of sound money, of course, are not original. They have been guided here by my own private study of writers of a unique school of economic thought. These great thinkers, to whom I refer, can be traced to Salamanca, Spain as early as the 15th century. Later they were found in Austria, but now are centrally located here in the United States. These economic theorists have at their core of thinking the principles of scarcity and choice. More importantly, they believe that economic value is subjective to the individual. These concepts, when used in the thinking process, provide the ability to see the world and especially the market economy in a uniquely different way from all other schools of thought. What becomes apparent by utilizing this way of thinking is that an idea has crept into our world that is destructive. Ludwig von Mises, one of the greatest of these economists, believed that this idea was evil and that no one should give in to it. He felt, as most Austrian economists do now, that fighting against this idea was a responsibility each one of us had to society because the stakes are extremely high. They are nothing less than the future of human freedom. (1.)
Young or old, our own education is where our fight must originate. However, learning how the world works according to this manner of thinking is a different type of education not earned in the classroom. In fact, this type of education is an individual endeavor and each of us must decide when we really want to take it up in earnest. What most disappoints us is that even after we decide to take up this intellectual battle sometimes our understanding comes slowly. Painful experiences, for example, can be some of our greatest teachers, however, it is not until these experiences are combined with a sound body of knowledge and historical evidence that an epiphany occurs. As for me, I am “too soon old, too late smart.” (2.) Nevertheless, it is never too late to begin.
To understand what is meant by sound money, we need to examine a bit of history. There are a few unique characteristics about money that I suggest we revisit in order to obtain a full perspective on this matter especially in light of our current economic environment.
The Genesis of Money
First of all, money did not come into being by some sort of agreement, or social contract. Money comes into being freely in the market place by trial and error. This happens as individuals begin to facilitate the process of exchanging goods with one another.
In the days of bartering (what economists refer to as “direct exchange”), problems arose when people attempted to exchange two different commodities. For example, if you had butter to exchange for beef, but no one wanted your butter, then you obviously had a problem without a solution. This exchange problem, because it came up quite frequently, forced society to search for a commodity to serve as a temporary exchange, or what economists refer to as an “indirect exchange.” Obviously, the commodity society ultimately selected for the indirect exchange had to be highly marketable. It may have been eggs, milk or bread, but, whatever it was, society eventually employed it as money.
Over the course of time the one medium of exchange that won over all other forms of money has been gold. Why gold? Because it has features no other commodity has. For example, it is divisible. Imagine trying to divide butter to pay for something. Gold, on the other hand, can be cut up into tiny pieces while retaining its prorata value so that money calculations can be made. By making gold in either bullion bars or coins, it becomes very portable and very convenient to use.
There is also the fact that from time immemorial gold has been valuable as jewelry principally because of its decorative beauty. In addition to this, we must not forget that gold is limited in its supply. It is mined from the ground at great expense in order to get more of it. But that is not all; gold is extremely durable and non-perishable. It can last for centuries. And finally, gold is homogeneous. It can be made to look exactly like another of its kind, as in gold coins. For these reasons it is not surprising why historically gold has been the money of choice. No doubt, gold is sound money.
This brings up two extremely relevant questions.
What is the right quantity of money? How much should it grow?
These questions have been asked by economists for centuries. The struggle continues. As we well know, there has been an astronomical increase of the money supply by the Federal Reserve Bank during the last four decades and especially last year. The general public, I believe, innately knows that all this new money creation is not a good thing for society. I also am also convinced that only one man in a million knows how it is done and why. To help understand this and know for certain what the right answers to these two questions are, we need to try asking ourselves this question: What should the optimum amount of canned peas be in society? Or, what is the optimum amount of fresh turkeys, or watermelons, or cattle, or whatever commodity comes to mind. The point is that the more consumable goods we have in society the better it is for everyone. In fact, more goods in the market help bring down prices and our standard of living goes up. However, this is not the case with more money. An increase of money provides no social benefit whatsoever.
Why no benefit? Because money cannot be eaten or consumed. Money, remember, is used for exchange purposes only. Once a commodity is in sufficient supply as money, no further increases are needed. Any quantity of money is optimal. The more mining of gold for uses other than money, such as jewelry, is perfectly fine, but more gold as money is not needed. An increase in money only dilutes its value. And, it is this last point–dilution–that represents the sum total of our money problems today.
To put my points into perspective, imagine a free market economy where gold is the money. In such a society one can acquire the gold in one of three ways– mining, selling, or as a gift. In each one of these methods of acquiring gold, the principle of private property is strictly honored. However, let’s suppose an individual decides to take advantage of gold’s homogenous feature and creates an enormous amount of counterfeit gold coins for himself. This act will create a permanent destructive rippling effect throughout society. In addition to its fraudulent method of acquiring the gold and undermining the foundations of morality and private property, the counterfeiter will also increase the money supply substantially when he spends the money in the marketplace. With more money in supply, its value will necessarily decrease and drive up prices on all goods. This, of course, is price inflation. It is very destructive because it impoverishes the whole of society, while the counterfeiting continues. The counterfeiter obviously benefits immediately by getting the money first, as opposed to the later recipients of the money, or those who never get the money at all…usually the average hard working citizen. These good people wind up paying dearly because they are left to deal only with the increased prices on all the goods in the market place. For them the cost of living simply rises year after year, and no one can provide an explanation as to why it happens. For this reason, Austrian Economists have always said that the inflation process (the increase of the money supply), is a form of indirect or invisible tax on society. This entire counterfeiting scheme is cleverly hidden.
We are fortunate that private counterfeiting has really never been much of a problem in modern times. The shaving of the edges of gold coins, the customary method of counterfeiting, ceased when milling was developed. However, when counterfeiting is mandated by government, when it is legalized, we have a serious economic and moral problem for all of society. Historically, there have been two major kinds of government mandated counterfeiting-(a) Government paper money and (b) Fractional Reserve Banking. This is precisely what we have today in our United States, but not just here-now it is all over the world.
“There is in all of us a strong disposition to believe that anything lawful is legitimate. Thus, in order to make plunder appear just and sacred to many consciences, it is only necessary for the law to decree and sanction it.” (3.)
The American public, in just this past year, has become increasingly more informed in the absurd concept of printing dollars on a printing press, and then spending them as a solution to stimulating the economy. They realize that a flood of dollars into the market only devalues the currency. However, a much more insidious and camouflaged feature of our banking system is Fractional Reserve Banking. If you have the time, you can learn how that works by watching this educational video “The Mystery of Banking.” In the meantime, the most important thing to comprehend and remember is that so long as government paper money is redeemable in gold, it is as “good as gold” and can be said to be sound money. Our paper money, however, has not been linked to gold since President Roosevelt made that linkage illegal in 1933. Since that time, the continuous expansion of the money supply, mandated by government through its Federal Reserve Bank, has devalued our money by 97%. There seems to be no end in sight.
Message of Hope
Obviously, we must re-link our dollar back to gold. By doing so, we would all own, by assignment, property rights to a unit weight of gold. If our dollars are redeemable in gold, all banks would automatically be 100% reserve banks. More importantly, inflation would stop because gold cannot be inflated.
Next, we must privatize all banking, thereby abolishing government’s monopoly over our money. If step one and two can be accomplished, then there would be no need for the Federal Reserve. Step three would be to close it down. If that happened, the size and expense of government would decrease immensely; our taxes would go way down, our savings-which fuel investment-would go up.
Think this is too big to accomplish? You would be amazed at the literally hundreds of thousands who support this solution. This support has been fueled in large part by the Mises Institute, the Foundation for Economic Education and other such private institutes, funded with no connection to powerful elites. These centers of education have become the places for learning the economic principles that our children and grandchildren need to be taught. They continue to fan the flame of liberty by publishing articles, scholarly journals, books, by holding conferences, and teaching students. Because of their efforts spanning more than 60 years here in America, there is faith, hope and expectancy at these independent scholarly institutions that a dramatic change in the political and social landscape is right around the corner, a belief that a great change can take place overnight when the ideological conditions are right. These institutions continue to provide the educational fuel to keep the fire burning. Every conscientious citizen should join and become a member of one.
Remember, we do not need to convince the entirety of the United States. With only 10% of the population supporting this solution, public policy can actually change. In the end, all economic policies are ultimately dependent on the views of the general public and our choice is final! America was founded on the principle that the masses, the people, determine the course of our history, but this movement for change must start with the individual–that means you and me.
L. Carlos Lara is President of United Services and Trust Corporation, a Management Consulting Firm specializing in Business Consulting, Corporate Trust Services, Corporate and Private Seminars including Speaking Engagements.
1. Special credit to Ludwig von Mises, Austrian Economist born 1881 Lemberg, Austria-Hungary, died 1973 New York City, NY. Noted for Praxeology. The Science of Human Action. Also, special credit given to Murray N. Rothbard, Austrian Economist, 1926-1995, student of Mises, for all information in this article.
2. From the title of the national best selling book Too Soon Old, Too Late Smart, Thirty True Things You Need To Know , by Gordon Livingston, M.D. Copyright 2004 by Gordon Livingston published by Da Capo Press
3. Frederic Bastiat 1801-1850, The Law-the classic blueprint for a just society. Republished by the Foundation for Economic Education, Irvington-on-Hudson, New York
Copyright © 2009-2010 United Services & Trust Corporation. All rights reserved. Repreinted with permission.
The Certified Financial Planner Board of Standards stated mission is “to benefit the public by granting the CFP® certification and upholding it as the recognized standard of excellence for personal financial planning.” The CFP Board’s web site discusses and defines financial planning as “the process of meeting your life goals through the proper management of your finances.”
Here’s the contradiction. Planning is one thing. Management is another thing altogether. Planning may be a prerequisite to managing personal finances but it is not the process itself.
Planning is a map-making process. Map-making is done from an aloof and uninvolved position using esoteric engineering tools to describe real terrain in abstract terms. Managing is what you have to do when you come to the river on the map and discover that there is no way to cross the turbulent waters at that particular point because last week’s flood washed away the bridge on last month’s map.
Financial planning, as described and defined by the CFP® training program, is akin to map-making. The planner is not actively involved in the “the process of meeting [a clients] life goals through the proper management of [their] finances.” The planner’s role is to recommend and sell financial products and advisory services that may or may not actually support the goals of the client during the management phase.
There are, of course, ethical standards to which each CFP® must adhere. There are also practice standards that the Certified Financial Planner Board of Standards, Inc. and other regulatory powers impose and enforce. Add to that the burden of the standards and rules of conduct imposed by bureaucratic regulatory agencies such as FINRA and these collectively impose a set of “established norms of practice” on the planner that often restrict the options the planner may present to the client.
The restrictions may not overtly deny a client the best option, but often direct the options along the “established norms of practice” and thereby deny the possibility of any other better-suited alternatives.
None of what I wrote above intends to demean either the designation or practices of those who legitimately profess themselves to be financial planners. It does intend to clarify that the entire process of planning and managing personal finances is shrouded by an imposing oversight structure and that this structure does not always provide Americans with the most appropriate personal financial advice or products.
Case on Point…
Over the past decade, I have met with and trained hundreds of insurance and financial advisors in life insurance and Series 6 pre-licensing, and a wide variety of continuing education topics including ethics.
- Almost every one of these professionals assumed that investing is an appropriate – perhaps essential – part of every American’s personal financial program – an idea that Behemoths in government and on Wall Street slowly injected into the American psyche over the past 30 years.
- One-hundred percent of them assumed that contributing to a 401(k) or its equivalent was the starting point for every personal financial management program – another idea that slithered into our collective psyche in just the past 20 odd years.
- Fewer than one in ten of these – ahem – professionals (not referring specifically to CFPs®) understood the most basic concepts relating to participating whole life insurance, mutual insurance companies, or even the life insurance products they sold most – universal life insurance.
- Only a handful understood the most elemental economic principles that clearly indicate that participating whole life insurance is the best and safest foundation for virtually every personal financial management plan.
One can more easily grasp the reasons for this strange set of facts when one reviews the history of personal financial management in America since 1974, a history that illustrates the slow erosion of control of personal wealth from the pond of individuals to the oceans of government and Wall Street.
I am often accused of being “down on” financial planners. Not true. I am down on lemming-like robotic adherence to “established norms of practice” that have misled Americans into a financial swamp that consumes both their money and their liberty while denying the validity of more conservative and viable financial management strategies.
Financial planning is an oxymoron when it denies the use of planning tools and strategies at the expense of individual wealth and liberty.
by Jeffrey Reeves youBEthebank.com
Myth…No. 6 – My Financial Advisor Knows
This may be the biggest myth of all. Some of my best friends and clients are financial planners and advisors. They perform a valuable service, especially those who are specialized and focused on one particular aspect of the market and have an open mind toward the processes that you and I go through. I frequently refer clients to these professionals when the clients are in a position to use their expertise and services.
The general public, however, continues to support the myth that big companies with famous names (I call them Behemoths) automatically provide quality financial advisors. Recent history shows just how false that assumption is. Quite the opposite is true. Many of the well-known financial firms recruit anyone who is willing to endure their training and who can obtain the licenses required to sell financial products. A large percentage of those recruits fail within one year.
Moreover, these so-called financial plannershave very little leeway in terms of the planning they actually perform. Compliance Nazis severely restrict what these advisors can discuss with their clients and computer programs generate most of the charts, graphs, and spreadsheets that they call a plan. In addition, the Behemoths structure the outcomes in great part to assure the selling organization that the planner (aka sales rep) highlights company products and does not present anything to you that might land the firm in court.
Many – if not most – of the “plans” that these programs regurgitate are not plans at all. They are nothing more than sales presentations that encapsulate and perpetuate the conventional wisdom embodied in the myths we are discussing.
It’s a Stepford World and the well known financial planning firms see you as the Stepford Client of a Stepford Planner.
Myth…No. 7 – I’ll Never Quit Working
I actually believed this at one point in my younger life. It’s true in a way. It’s true if you mean that you will always pursue life goals. It’s not true if you mean that you will always work to earn an income to support yourself.
Ask any of the thousands over fifty who have had to find a job after a layoff if the work they were able to find was in fact equivalent in either pay or satisfaction to the work they had before. You discover that most of the time it is not.
You will also find out that many of those folks are trying to find ways to retire. They do not want necessarily to quit doing useful things. They just want to be able to spend their time and their lives doing something valuable to themselves and others – whether or not it produces income.
Consider another case. Sally was a successful consultant with a Fortune 500 company. The company put her on a highly sensitive and visible assignment that required long hours, extensive travel and intense focus. Long months into the project the 16 hour days, restless nights, bad diet, stress and physical exhaustion claimed Sally physically, mentally, emotionally and spiritually. She crashed.
At age 56, she is unable to work and is limited to her Social Security disability income of less than $1,500.00 per month. The bear market in 2001 and 2002 decimated her retirement funds and her prospects for any kind of future work are minimal at best.
The myth is that we will have an ability to find work or even to do work in the future. It is naïve at best to be unprepared for the probability that we will be challenged in some way in this regard.
Afterthought…The Seven Myths Are Wealth Destroyers
“Bad thinking creates bad habits” – Dr Agon Fly
Myths result from consistent bad thinking. Bad thinking transmutes into bad habits, which in turn fortify the myths. It’s a destructive and mind numbing cycle.
America’s understanding of personal economics today is as unsophisticated as the understanding of disease was a hundred years ago. You may question whether some or all of the myths are valid or whether or not they apply to you. It is more difficult to question the facts that surround and support them:
- Americans are addicted to debt; they have come to believe that credit is more important than savings. Proof? Americans have a lot more debt than they do savings.
- Most Americans are naïve when it comes to personal economics. Proof? Americans have a lot more debt than they do savings.
- Most personal economies are in a shambles. Proof? Americans have a lot more debt than they do savings.
- Americans save too little, invest too much, and often do both in the wrong places. Proof? Americans have less than a month or two of cash to cover budgetary needs and most have lost over half of the money the invested in their retirement accounts.
- All investment markets are based on pure unrelenting risk. Proof? None needed.
- Most financial plans are actually nothing more than marketing materials individualized to support a sales effort. Proof? Think about it.
- Most Americans are unprepared for their future – especially if it is not the future they planned. Proof? In addition to the above: Inadequate life insurance, disability insurance, long term care insurance, wills, trusts, guardianship for children…need we go on?
In the next part of this series, we will look at the Seven Mysteries that are wealth creators. I hope that they help you debunk and replace the Seven Myths.
by Jeffrey Reeves MA, youBEthebank.com
 An elderly client of mine was allowing her daughter and son-in-law to live with her. She asked me to counsel the young couple on building a personal economy. After several months it became apparent that both were unwilling to deal with the issue. They refused to balance their checkbooks (they each had one), formulate and live on a budget or curtail their spending (they were spending all of their money and nearly $3,000.00 of mom’s money each month) so I withdrew my support. The daughter was hired as a “financial planner” by one of the Behemoths just a week before I withdrew.
Myth No. 2 – “My Home Will Keep Me Secure.”
Let me tell you a story. Abigail had been in the military for 19 years when a stroke put her out of commission at the age of 52. She only qualified for a small military pension and a small monthly Social Security disability/retirement income.
“But,” she thought, “all is well. I own my home in a very nice neighborhood in a very nice city and my small income is more than I need for food clothing, entertainment, church and my VA benefits take care of my medical expenses.”
Fast-forward from age 52 to age 72. Abigail’s home is still in one of the nicest neighborhoods and is quite valuable but the myth is shattered. Her home is in need of significant repair. However, it had a $60,000.00 first mortgage on it that she borrowed to pay bills, make prior repairs, purchase a handicap-equipped car and pay off her credit card debt. The mortgage payment consumed over half of Abigail’s monthly income so she skimped on everything else and ran her credit cards up again. Her security – not to mention her comfort and peace of mind – were at risk and the picture wasn’t very rosy.
Fortunately, I was able to introduce Abigail to an ethical reverse mortgage specialist who helped her obtain a reverse mortgage. She paid off the $60,000.00 first mortgage, funded the needed repairs and freed up her entire retirement income for monthly expenses. She was also able to leave over $40,000.00 in the reverse mortgage for future emergencies and opportunities.
Now we have to wait and see if she outlives this strategy, which allows her a modicum of security. If Abigail lives beyond age 84 or 85 she may be right back where she was when I met her in 2004, and may not have the equity in her home to support a refinance of the reverse mortgage.
Abigail is not an exception. There are hundreds of thousands of older Americans who have homes that are paid for (some say as high as 77%) but little or no monthly income to pay for essentials. So, the equity to debt cycle continues for them. Eventually these brave Americans, who have given their lives to their families, churches and country either find a compassionate and informed advisor who guides them out of their turmoil or they end up discouraged, disparaged and depressed welfare wards of the state.
Many Americans had foresight enough to anticipate the possibility that a paid-for home would continue to be an expense and put aside extra money to deal with that reality. They were Savers.
Myth No. 3 – “I’m a Saver.”
“That’ll never happen to me,” you say. “I’m a saver and have money in CD’s and other investments.”
Meet Edgar and Edith Smith. Edgar had worked for decades and saved a part of what he earned every paycheck. He did not have a retirement plan because the small company he worked for cancelled it years earlier and, although he received a small settlement amount at that time, he and Edith were receiving no significant income from it.
Edith was a stay at home mom and had never worked outside the home so she did not have her own retirement or social Security. Even so, the Smiths were doing OK on Edgar’s Social Security and the earnings off their CDs – or so it seemed.
Then Alzheimer’s Disease attacked Edgar. In less than two years the savings were gone as was the income from the savings. Within another year, Edgar was in a nursing home on welfare and Edith, who had never had to deal with money issues or home repairs and certainly not with a completely debilitated Edgar, was herself in serious condition from stress, depression and near poverty.
Events that happen to people every day destroy the myth that savings are in some way secure: illness, uninsured losses, the needs of children and grandchildren, and the ravages of addiction to alcohol, gambling or drugs that afflicts people of all ages, both genders and every social condition.
Savings are also subject to market risk. Interest rates like those we experienced in the past few years (1999 – 2004) dropped from about 7% to as low as 1% and decimated the income derived from savings. Folks who were used to getting about $600.00 per month from their savings ended up with less than $100.00.
The savings rate in America in December 2005 was a negative .05% of net earned income. It doesn’t take a genius to realize that such a low rate of savings will never equate to some sort of future security. Even careful savers who might exceed the average could never accumulate enough money to offset the unrelenting onslaught of inflation and unforeseeable events.
 I’ve used aliases in all stories to protect the privacy of the subjects. The stories are all true and accurate in every detail.
Setting the Stage…
The men that came together in Philadelphia to craft the Declaration of Independence in 1776 were, for the most part, ideologues. Thomas Jefferson, John Adams, Benjamin Franklin, Roger Sherman, and Robert R. Livingston were on the committee that drafted the Declaration of Independence.
Adams and Jefferson in particular were at different points on an ideological spectrum. How was it, then, that they wrote a document that emancipated not only the United States of America but also millions of people since, based only on its content?
The answers are many, but one can sum them up in two words: ideas and ideals.
Benjamin Franklin was the third major force on that committee. Franklin was not an ideologue. Quite the contrary. Benjamin Franklin was a man of principles just as John Adams and Thomas Jefferson were. His principles were not, however, motivated by ideology but by ideas and ideals.
Both Adams and Jefferson were intimately familiar with Franklin from years of interaction. They each respected his sagacity and insights. They, too, were men of ideas and ideals. They willingly laid down their ideological swords and took up the battle for American Independence with ideas and ideals as their primary weapons.
James Madison, George Mason, Alexander Hamilton, George Washington, Benjamin Franklin, and about fifty other new Americans met in Philadelphia in 1787. Their aim was to debate and draft a new constitution for the fledgling United States of America.
Almost every participant offered a warring ideology about what the US Constitution should end up looking like. Over an arduous two years (1787-1789) of clashing ideologies and heated debate, ideas and ideals won over ideology and young America adopted the greatest governing document ever devised along with the first ever Bill of Rights guaranteeing individual rights over government control of individuals’ lives and activities.
History clearly demonstrates that Ideologues claim leadership by self-reference and by demanding rigid adherence to their own dogmatic declarations. These pseudo-leaders do not encourage ideas and ideals; they discourage and sometimes even punish them. If you aren’t convinced of this premise by the history of 20th century Europe, Russia, China, Japan, South Africa, Afghanistan, etc., etc. etc., remember your high school and college reading: 1984 by George Orwell and Lord of the Flies by William Golding.
Ideologies and the ideologues that promote them only masquerade as leaders. They are not interested in your wealth and well-being. They are absorbed and governed by a slavish adherence to a set of principles regardless of how their ideology affects the rest of the world. They aim to accomplish their goals just because they are their goals.
Act I – Enter The Federal Government
The National debt is approaching twelve trillion – that’s 12,000 x 1,000,000,000. There are about 306,000,000 Americans; about 100,000,000 American families. My calculator doesn’t have enough digits to even figure out how much each American individual and family owes based on these numbers. You can find out at… http://www.bigredcalculator.com/index.html
It is the adoption and slavish adherence to an ideology based on profligate spending in Washington DC and the abandonment of the American ideas and ideals expressed in the Declaration of Independence and the US Constitution that created this massive debt. Our government is corrupt. Our representatives are more interested in the accretion of power and the accumulation of personal wealth than they are in the wealth and well-being of Americans.
Only American citizens and citizen families can resurrect those ideas and ideals and reinstate them as the foundation of their personal economies and our country.
Act II – Enter the EUREKONOMICS™ Model of Personal Economics…
The EUREKONOMICS™ Model for creating and managing your personal economy does not aim to rehabilitate the power and money addiction of the Federal Government, the Executive Branch and the US Congress in particular. Political action will ultimately dethrone the self-appointed gods of government.
Instead, The EUREKONOMICS™ Model empowers you to thrive regardless of the antics in DC by teaching the 13 Immutable Laws of Personal Economics and guiding you in the practice the 7 Essential Steps for Creating and Managing a Successful Personal Economy.
Act III – Americans Take Action
The EUREKONOMICS™ Model is over one hundred years old. Millions of Americans have tested it and proven that it works in good times and bad. There are currently several hundred advisors all across the US that have studied this personal economic model and have adopted it for their own and their clients personal economic structures.
I encourage you to contact one of those advisors. They are listed on www.youBEthebank.com
Knowledge, understanding, and wisdom are complimentary and synergistic. However, it should be clear that only wisdom embodies the qualities of all three. It is possible to have an abundance of knowledge, deep understanding, and a complete lack of wisdom.
NAZI Germany (and successors totalitarian governments around the world today) demonstrated this gap most shockingly when it applied knowledge of what is required to sustain human life and understanding of how to eliminate those requirements to annihilate six million Jewish and other human beings. Wisdom was absent.
When discussing knowledge, understanding, and wisdom as they relate to personal economics, considering the role of education is essential. 21st century Americans do not understand money. One of America’s leading commentators on money, wealth, and business in general said this:
“In most cases, when people make more money, they get deeper in debt.” – Robert Kiyosaki
These folks have knowledge and understanding but a serious deficit in wisdom.
Nonsense from VP Joe Biden and Others
Our educators, legislators, unions, big businesses, and government bureaucracies have led Americans down a similar path to financial ruin. Many Americans’ personal economies are already broken and the US government is following a fools path to financial ruin with its insistence that “We the people” need more debt.
“Now, people when I say that look at me and say, ‘What are you talking about, Joe? You’re telling me we have to go spend money to keep from going bankrupt?’. The answer is yes, that’s what I’m telling you.” – VP Joe Biden
Debt Equals Loss of Liberty
The foundation for a personal (or national) economy is money that you control. Debt is money that others control. Worse still, it is money that you actually pay those others to control. You give up your libertyand pay others to do so as if it were a privilege.
Alternative to Debt
EUREKONOMICS™ teaches that money serves you in four – and only four – ways.
- It serves to eliminate debt and regain control of money that was previously ceded to others.
- It serves as ready cash to deal with life’s surprisingly unsurprising surprises – unexpected expenses and opportunities.
- It serves to deliver inflation protected income at a time of your choosing that you don’t have to work for and you can’t outlive.
- Finally – in every sense – your money and your wisdom about money allow you to deliver a legacy to those you care most about.
Debt is financial death and the death of liberty. Presidents, Vice Presidents, legislators, union bosses, big business execs, and individual Americans that fail to recognize this fact lack knowledge, understanding, and wisdom.
Ron Jennings, a successful Money for Life Guide in West Chester, Ohio, emailed this Adrian Rogers quote. While you are reading it, reflect on the policies and practices of the federal government during the Great Depression.
“You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity.
What one person receives without working for, another person must work for without receiving.
The government cannot give to anybody anything that the government does not first take from somebody else.
When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is the beginning of the end of any nation.
You cannot multiply wealth by dividing it.”– Adrian Rogers, 1931 – 2005
The most prosperous decades in American history for the common citizen occurred in the late 20th century when the Federal Government reversed the policies of the Great Depression and reduced its meddling in the personal economics of the American family.
Unfortunately, those also turned into the decades of the greatest financial frauds in American history. Not the least among these frauds (but the least recognized and reported) are the pork-barrel projects of the power and money hungry Dolts in DC.
The problem we Americans face today is that our personal economies are being attacked by the cons in Congress and White House Wonks. Their attack is based on the false premise that Adrian Rogers stated so clearly just a few years ago (above). The saddest aspect of the current attempt to reduce the individual liberties of every American by a small majority of committed liberals is that it failed in the 1930s and it won’t work today. Moreover, the elitists in Congress are unwilling to apply to themselves the same standards they want to apply to unsuspecting Americans – that includes you and me.
The greatest attack on your personal economy comes from the proposed National Health Insurance plan. The simple reality is that the “plan” is more complex and convoluted than even Medicare and Medicaid – both of which are riddled with fraud and neither of which has reached a level of fiscal discipline needed to become a model for all of America.
Even worse, the “plan” favors big unions, big business, big government, and big bureaucracies at the expense of everyday citizens and small and micro businesses like the Avon lady, the child care center, the local independent insurance rep, small manufacturers and distributors, the local plumber, electrician, and heating contractor, and too many others to mention.
The greatest fraud, however, is that there is not a single congressperson that has read and evaluatedthe several 1,000+ page bills that are being bandied about the halls of the Capitol; nor will they. They plan to lift our liberties right out of our pockets and they don’t care enough to know all the details.
By Jeffrey Reeves, MA
Going Broke in Style
While the Chinese, Middle Eastern, and Indian economies achieve new levels of diversity based on productive labor, America’s economic charm seems to lie in the misguided and misanthropic measures flowing out of the US Congress at the behest of President Obama. America is putting on heavy chains of debt, locking it in for decades and giving the keys to foreign governments that have our demise as one of their primary goals.
Where Is The Fourth Estate?
Don’t the successless sychophants in the mainstream media recognize that the Federal Government is following precisely the same path illustrated in the famous (or perhaps infamous) Stanley Johnson commercial? The Congress and the President have us up to our eyeballs in debt, and it’s debt to the wrong people.
What does that mean for your personal economy?
- It means that money that you have faithfully deposited into retirement accounts is at great risk.
- It means that every penny of debt you have personally, compounds the debt you have as a US citizen.
- It means that the advice you received over the past thirty years is wrong.
- It means the rules have changed, or at least reverted to the more sensible guidlines that allowed our forebears to live and die comfortably without relying on debt-to-others.
- It means – most of all – that those who change their way of creating and managing their personal economies and personal wealth will have a much better chance of escaping the swamp into which our “leaders” are guiding us.
Keep Your Eye on the Prize
Personal economics is like a jigsaw puzzle. If you don’t know what the final picture looks like, you’ll have a great deal of difficulty solving it. Americans have lost sight of the end result - creating and managing their personal economies – and have been deluded into thinking that the pieces of the puzzle – investments, mortgages, IRA’s, etc. – are what’s truly important.
The problems in DC and the problems in your household are the same. The pieces make up the puzzle, but no one piece is the solution. Instead, we recommend that you find a “soulution” that fits you and your family.
by Jeffrey Reeves MA, EUREKONOMIST
Originally posted on July 24, 2008 and worth repeating…
Americans have been bamboozled into thinking that they can get rich and retire comfortably by putting their money in the hands of people whose only aim is to move money from your pocket into some Behemoth’s accounts; IRA’s, mutual funds, variable annuities, variable insurance policies, ETF’s, and on an on.
Here’s a simple rule to apply to your personal economy: invest from savings, not from income; speculate only with money you expect to lose [if you win add the winnings to your savings.] If you never develop a savings program, you can’t recover by ‘investing’ unless you are just plain lucky. Why? Because most ‘investments’ are actually speculative.
Benjamin Graham, The Dean of Wall Street, and Warren Buffett’s teacher, taught that an investment has two characteristics: safety of principle and a reasonable return. Hmmm! Honestly evaluate what Wall Street calls an investment today.
- Is it really an investment or is it speculation?
- Is your money safe and secure?
- Are you getting a reasonable rate of return?
- Is it enough to be re-assured that all will be well “in the long-term”?
Guess what? The answers are all NO. You don’t live in the long-term. If you are losing money today, hoping that tomorrow will produce better results is foolish at best. Properly saved money guarantees a reasonable rate of return in the short-term and is safe for the long-haul. Once you have money in hand, and enough money in hand to care for your personal needs, then you can consider investing.
Consider this: many Americans take money directly from their pockets [payroll deducted in many cases] and place it in accounts that produce unpredictable returns for them but assured profits for the Behemoths. Not only that, at the same time they borrow from credit cards and mortgage companies at rates that are guaranteed to be higher than their ‘investment’ account returns. Go figure…
Imagine how much better off these Americans would be if they put their money into financial products that fit the definition of Benjamin Graham referenced above.
It’s time to shift paradigms, to change models; save first, invest later, speculate never!
by Jeffrey Reeves, MA
The sum is sometimes greater than the total of all of the parts. That isn’t so when it comes to economics.
I rarely quote an entire entry from another source. This is one of those exceptions. R. Nelson Nash, one of the clear thinkers in the area of personal economics, contends that macroeconomics are irrelevant. John Mauldin’s preface to an article by Louis Gave reinforces this idea.
Your personal economy is all that really matters. If you manage it well you will be financially stable in good times and bad. Bubbles bursting, markets crashing, Wall Street acting like Dull Street – none of that matters when you have control of your money.
by Jeffrey Reeves
Where Will the Growth Come From?
February 9, 2009
One of my most significant learning experiences came from a basic forecasting mistake. Back in 1998, I looked at 40 years of documented evidence that 50% of all large programming projects ended up coming in late. That set of data was consistent over all industries and over decades. I checked it out with industry experts. I really did my homework. And thus I said that the Y2K bug would be a problem, as a sufficient number of corporations around the world would have bugs that would create supply and management problems, which would slow the economy down. I did not suggest that we would see blackouts or major problems, just enough to slow things down and, when coupled with other macro issues (like the tech bubble), could trigger a recession. We had the recession, so my investment advice actually turned out to be right (lucky?), but it was not caused by Y2K.
Almost 100% of the Y2K fixes came in on time. From a metric that said 50% was the norm, we went straight to 100%. What caused the change? I had a debate with (my good friend) the late Harry Browne, who many of you will remember as a very wise investment counselor, multi-book best-selling author, two-time presidential nominee of the Libertarian Party, gold bug, and from the school of Austrian economics. He said that Y2K would be a non-event. When presented with my marshaled facts, he said, “John, each company will figure out what it has to do to survive. That is the way markets work.” And sure enough, faced with extinction if they failed, it seems that CEOs found ways to get the programmers to meet a very clear deadline. Besides knowing they fudged deadlines in the past, we now know if you hold a gun to their heads and give them resources, they can in fact perform.
Why this comment to open today’s Outside the Box? Today we read a piece sent to me by my friend Louis Gave of GaveKal (and who will be at my conference in April). It is entitled “Where Will the Growth Come From?” It reminds us of the lessons that Harry gave me. Each person and company is responsible for their own part of the recovery. You can’t rely on mass statistics, or you miss the important lesson in individual responsibility.
I don’t think anyone can accuse me of being bullish the past few years. Interestingly, I get a lot of emails from people telling me the end of the world is coming, and deriding my longer-term optimism. They are convinced we are going into some deep national morass worse than the Great Depression (and such deflationary times will somehow make their gold go to $3,000!?!?). Yet they are working to make sure their own personal worlds are covered. I get no letters from people who are simply giving up. What company will keep a CEO who does not work hard to figure out how to keep the company alive? If you lose your job, do you not try and get another one or figure out how to make ends meet? Do you not put in extra hours to try and make your personal life or business or job better? Even if it is terribly difficult, the very large majority of people don’t throw in the towel. Each of us, in our own way, gets up every morning to fight the good fight, even when the swamp is full of more alligators than we ever counted on. We just pick up a baseball bat, wade into the swamp, kill as many alligators as we can in one day, and then go home to get ready to fight the next day.
The lesson from Harry is the same as it was in 1998: It is the individual working to get his or her own house in order that will help us all collectively get our national house in order. This is not to diminish the Herculean tasks we have in front of us, collectively. We have dug ourselves into a very deep hole of credit and leverage. It is going to take lots of time. The way back is not entirely clear at this point. This is not an ordinary business-cycle recession. But each of us will do what we can to make our small corner of the world better. And in the fullness of time, we will collectively get back to trend growth and a rational market.
Of course, we will then find we have other problems to face. There is no nirvana. There will always be more problems. But that’s what a free-market collection of motivated individuals does: We face problems and solve them to the best of our ability. And as a group, the clear path for centuries is one of growth and progress. Cautious optimism is the proper long-term stance.
So, today Louis speculates about what sectors might come back first, and offers a good lesson in economics along the way. I think you will enjoy this Outside the Box, unless you just want to believe in the end of the world.
John Mauldin, Editor
Outside the Box
“Starting today, we must pick ourselves up, dust ourselves off, and begin again the work of remaking America.” President Barack Obama’s Inaugural Address, January 20th, 2009
Dear Mr. President,
There are among us hundreds, perhaps thousands of dedicated, intelligent, passionate people that have been diligently working for decades at “remaking America.” One group of professionals in particular has helped a multitude of American families and small businesses escape the dungeon of debt that has become the resting place of millions of their fellow countrymen.
These professionals have helped their clients build personal economies that are thriving today while most other Americans bemoan their losses. You might ask how they helped their clients build economies that thrive in good times and bad. If you were to ask that question you would discover that there is one consistent answer.
Economies built on capital [I like to think of that as money] that is controlled by the individual as opposed to the banks, investment houses, government, unions or any other Behemoth remain solid in all economic conditions. Economies like America’s in the late 20th and early 21st century are based on debt. The reliance on debt is based on the faulty notion that debt trumps capital in the national economy and in personal economies.
Look around you, Mr. President. Is there a single institution, business, government, of family that has an economy based on capital that is in serious trouble. No. On the other hand, every economy that is based on debt – especially the one you just became responsible for – is failing and needs to pick itself up, dust itself off and begin again.
Pelosi’s Pork Barrel adds nothing to the economy. It adds immensely to the debt. It doesn’t pick us up. It drives us further down. It does not help us begin again. It forces America to continue its downward spiral. It creates no new jobs but assures cronies are paid off. It moves the economy backwards as it elevates political hacks.
Pelosi’s Pork Barrel would prove a black mark on the start of your administration, President Obama. Looking forward, accepting the Pelosi Pork Barrel would be a terrible mistake for the economy, for you presidency and – most imprtantly – for America.
By Jeffrey Reeves
My apologies for such a long absence.
YouBeTheBank.com is launching its new web site. Although it is fully functional, there are more than a few additional capabilities that are being developed and added daily and weekly. It’s a time and energy consuming project.
The turmoil in every market: real estate bubbles bursting, the motgage mess, bank failures, GM/Chrysler/Ford facing bankruptcy, and on, and on…all are the result of a failed paradigm that convinced Americans to delegate their own wealth creation and money management to the Behemoths -
the Dolts in DC who manage to increase their own wealth by taking more of yours,
mutual fund managers who don’t know what they don’t know,
investment advisors who have only the minimal registrations and licenses to compliment the brainwshing they receive from their Behemoth bosses,
union leaders who see their RIP engraved on history and scheme to keep alive a system of relating to capital that can only be described as self-serving,
banks and credit card grantors that have manipulated the Dolts in DC to serve them instead of American citizens.
I’ll write a book about this someday but for now here’s an article from InvestorsInsight that articulates a piece of the problem.
“Buy-And-Hold” Bites The Dust – Now What?
by Gary D. Halbert
November 11, 2008
IN THIS ISSUE:
- Economic Overview
- The Conventional Wisdom Was Wrong
- The Shortcomings Of Index Investing
- Are Low Fees The Key To Investment Success?
- Risk Management Is Crucial
In the newsletter business, it’s rewarding to see market action reinforce the advice you have been giving in your publication. Ever since I started writing this E-Letter, I have warned of the perils of passive “buy-and-hold” investing in general, and “index investing” in particular. While adherents to these strategies like to trot out long-term charts and graphs supporting their case, I have always warned that passive investing can result in major losses at just the wrong time from the investor’s perspective.
Elijah…The Value of a Penny
Elijah inherited 64 acres of prime farming and ranching land from his industrious parents. Elijah, however, didn’t appreciate the value of owning the land outright and applying himself to working the land raising crops and livestock for his family and for the market. Over the years Elijah raised money to support his family by selling off three fourths of the land in 16 acre parcels to his cousins Zachary, Mordechai, and Luke – more about them later – so that by 1968 each of the four owned equal amounts of land.
Elijah’s parcel sat on the eastern slope of Shelby Mountain. Although the land was mostly mountainside, about five acres lay on flat land, bordered on the east by Possum Creek and Possum Creek Road. The family home his parents had built and the four or so acres Elijah used for raising crops and livestock for personal consumption were separated from his cousins’ land by this border.
Just as Elijah was wondering how he could keep all that he had remaining of his parent’s estate, there was a knock on the door; enter The Mighty Coal Company. Jacob Ebenezer of The Mighty Coal Company wanted to buy a right of way across Elijah’s property to construct a railroad spur line, which, he explained, would carry coal from the rich Anglican Mine across Shelby Mountain to a rail line that would bring the coal to market.
Jacob offered Elijah two options. The first option was that The Mighty Coal Company would pay Jacob and his heirs a royalty of one cent per ton of coal that was carried over his land for as long as the Anglican Mine [or any other mine for that matter] used the spur line. If Elijah chose this option, The Mighty Coal Company would pay Elijah $1,000.00 up front and begin making royalty payments to Elijah as soon as the coal cars started rolling over the tracks carrying what the locals called “black gold.”
The Mighty Coal Company, explained Jacob Ebenezer, was still negotiating with other landowners on the route, and would likely be opening the spur line within five years if they could come to terms with the one hundred or so remaining landowners along the route. Elijah could keep the $1,000.00 if The Mighty Coal Company failed to complete the project.
The second option offered by Jacob Ebenezer was $10,000.00 cash up front. Elijah would receive no royalties and would not have to return any of the $10,000.00 if The Mighty Coal Company was unable to complete the project.
$10,000.00 was a lot of money in 1968 in Appalachian coal-mining country. Elijah thought it through this way. He could support his family in the family home for nearly another five years using the $10,000.00 from the sale of the right of way, the occasional sale of produce and livestock, and doing a few odd jobs when he must.
Elijah reasoned that if he took the $1,000.00 offer, he may never see another penny and, even if he did, it wouldn’t be for five or more years. Moreover, winter was coming and although he could use the extra money to get the family thru until spring, he’d be in limbo waiting for over four years for royalties.
Elijah took the $10,000.00.
The rest of Elijah’s story goes something like this. Elijah eventually sold all of his land and an option on his house to the man who owned the land that bordered his on the south. His neighbor had chosen to take the royalties.
Elijah died penniless and his neighbor took his land and house as agreed. Although Elijah was never a financial success, he remained a beloved character in the small Possum Creek community. His children, however, all left coal country for the big cities and there are no longer any remnants of his immediate family in Possum Creek.
Fast forward to 2008; every month since September of 1972 – 36 years; 432 months – The Mighty Coal Company has shipped an average of 100 coal cars carrying an average of 90 tons of coal each over Elijah’s property every day. That would have created $2,700.00 per month in royalties. That’s $1,166,400.00 in royalties never received. The Mighty Coal Company expects to be running coal over those tracks for decades to come.
A penny is an amazing thing.
I regularly receive questions that reference The Infinite Banking ConceptTM of R. Nelson Nash. The Money for Life Model of Financial Management guides its adherents on a path similar to the one Mr. Nash suggests.
A visitor to our web site recently submitted a series of clear and precise questions about three of the core concepts found in both programs; the Paid Up Additions Rider, guaranteed cash values and policy loan interest. The complexity of each of these makes sense to well-informed agent/advisors, but may befuddle a consumer – or as the questioner puts it a “normal guy.” [Hmmm! Does that mean those of us who call ourselves advisors are "abnormal guys?"?]
The questions and comments of the visitor who wrote to me are indented and in quotes.
“The first thing I am interested in is a “normal guy’s” explanation of a Paid Up Additions [PUA] rider. I cannot believe all the stuff that has been written about Infinite Banking that is lacking a clear explanation of just how it works.”
A reading of Money for Life…How to thrive in good times and bad would help clear up some of the ‘normal guy’s” questions you have.
“There are certain questions I have:
What is a PUA?”
A PUA has a variety of names. Basically, a paid up additions rider is a single premium insurance policy that is purchased with separate premium contributions in excess of the premium required by the base policy to which the PUA rider is attached. A PUA generally has minimal cost associated with it [commissions, policy issue fees, etc.], which makes it a most efficient way to increase both the death benefit and the cash value available for use as your ‘bank.’
There are wide varieties of restrictions and limitations on this rider form by different companies. Some of these riders lapse if they are not exercised, which means that you have to contribute each year or you forfeit the option to contribute in any subsequent year. Others allow partial contributions or include ‘catch-up’ provisions in case you miss a portion or even all of one year’s deposit.
Purchasing paid up additions using the PUA rider may put a policy in jeopardy of becoming a modified endowment contract [MEC]. This would result in the policy losing the benefits that make cash value life insurance so powerful and flexible as a cash accumulation and cash management tool.
“What does it mean that the policy is ‘engineered to increase in value every year.’?”
Whole life contracts are designed to guarantee an increase in the basic cash value each year. In the early years of most policies, the cash value increase is minimal due to the structure of the policy issue process, the long-term cash accumulation strategy, and the commission program.
The policy that I most frequently recommend is specifically designed – or engineered – to create cash value in the first year. This policy guarantees that about 90% of the base premium is credited to the guaranteed cash value in the first year and nearly 100% or more of the base premium in every year thereafter. The annual contribution of the PUA contributes 93% of the annual premium to guaranteed cash value every year it is paid.
“When I take a policy loan, do I or do I not have to pay the insurance company interest? If yes, then does this interest go into my cash value or go somewhere else?”
It depends on the company, but generally it works something like this; interest on policy loans is always assessed. If you fail to pay it, the outstanding interest and the policy loan itself are liabilities against both the cash value and the death benefit. Most policies, however, continue to pay the guaranteed internal interest rate when a loan is outstanding.
In effect this means that the interest you pay the insurer is a refund of the interest the insurer credited your account while the money in your account was on loan to you. The rate the insurance company charges you is generally a bit higher than the internal rate. This is to make sure each policy owner covers the cost of managing the loan and other policy owners are not subsidizing loans in which they have no interest.
Loans and interest are often described using reference to the ‘banking’ process for simplicity. It’s important that each advisor explain how it works with individual policies and loans. It makes a great deal more sense when the policy owner can see the actual results.
Whole life insurance, used as a fundamental component of your clients’ personal economic structures, is an extraordinarily powerful and flexible tool. It is the Swiss Army Knife of financial products.
Over the past three decades or so the financial community’s understanding of whole life insurance has diminished dramatically. Whole life insurance has been misrepresented by those who can’t or won’t sell it.
The financial mess in America today is the direct result of the failure of the financial community to support the traditional financial values, practices, and products that made America the greatest economy and country in history. The greed on Wall Street jeopardizes our wealth and well-being as a nation and the wealth and well-being of “we the people.”
It’s time to again reclaim those values, reinstitute those practices, and recognize those financial products as essential to every successful personal economy.
If we fail at this we will fail completely.
U.S. Takes Over Mortgage Finance Titans
WASHINGTON — The Bush administration seized control of the nation’s two largest mortgage finance companies on Sunday, seeking to shrink drastically their outsize influence on Wall Street and on Capitol Hill while at the same time counting on them to pull the nation out of its worst housing crisis in decades.
The plan represents a cease-fire in a decades-long ideological battle over the proper role of the companies. Free-market conservatives see the companies as extensions of “big government,” while Democrats have protected them as the main vehicle to promote affordable housing for middle- and lower-income people.
This post is longer than normal. It deals with an issue that does not lend itself to easy explanation. Lost opportunity cost deserves closer scrutiny than most because it is fundamental to understanding, building and maintaining a successful personal economy. In addition, since it’s difficult to address the topic piecemeal, it demands a single post rather than a series of shorter entries.
Part I – The Myth vs. The Reality of Lost Opportunity Cost
There are hundreds of money myths that make bad decisions feel good. Most are propagated by popular pundits on TV and radio whose main credential is that they are smooth talkers or enthusiastic preachers of their unique financial management gospel.
One of the most deceptive and destructive of these money myths is that ‘paying with cash’ is always better than any other alternative. This erroneous belief ignores a basic economic principle: lost opportunity cost.
According to the Merriam-Webster Dictionary, Lost opportunity cost is the value of what is lost when you choose between mutually exclusive alternatives. This value can be estimated before the fact but is determined more accurately after.
A simple explanation of lost opportunity cost, and a statement of the benefit that you gain from understanding lost opportunity cost comes from R. Nelson Nash, author of Becoming Your Own Banker.
“Any time that you can cut out the payment of interest to others and direct that same market rate of interest to an entity that you own and contol…you have improved your situation.” Third edition, p40
If you borrow the money to buy something, you repay principal and pay interest to another.
If you pay cash to buy something, you give up both the principal and the earnings it would have brought you.
The only way to win is to borrow from yourself so you recover the money you borrowed – your capital – and the interest too.
Part II – Money is Capital Too!
Understanding the fact that money is ‘capital’ is key to understanding lost opportunity cost. For example, it’s easy to see that a person who owns a 160 acre parcel of arable land, holds that land as capital. The owner might consider these optional uses of that capital; plant one or more cash crops each year, convert the parcel to a tree farm, subdivide the land and sell off the lots, or sell the parcel outright. Each of these four mutually exclusive options would produce a different result both in terms of money and time.
- Cash crops promise an uncertain but probable income each year and preserve the basic value of the capital asset.
- A tree farm might produce a greater income at a much later date and, perhaps, enhance the value of the capital.
- Subdividing the land and selling off the lots would eventually reduce the value of the asset to zero while proportionately increasing the owner’s cash account.
- Selling the parcel outright transfers the asset to a new owner and produces immediate cash.
Money in the form of cash is capital too…
In commercial banking, cash contributes to the tier one capital that determines the stability rating a bank receives from regulators. Corporate balance sheets include cash holdings among their capital assets. Your personal economy runs almost exclusively on its capital holding of cash.
Why, therefore, is there the modern day myth that paying cash for everything is always the best choice? Why the insistence that you deplete one of your most valuable assets on a regular basis? Is it, perhaps the very fact that it’s a myth that serves the interests of those who propagate the myth rather than your interests?
The cash you give away when you pay with cash increases the cash account of the entity that receives your money…
- What do you lose when you pay cash?
- Should you consider just the cash in your decision?
- Is there a benefit you might receive from using your cash differently?
- Where is the cash coming from?
- Is what you give up when you use cash worth more than what you gain by doing so?
- Are there alternatives to cash that you should consider?
Part III – The Role of Debt-to-Others vs. Debt-to-Self
The always-pay-cash mantra is usually chanted with an ‘all debt is bad debt’ chorus. The purveyors of this myth seldom, if ever, consider a third, fourth or other alternatives. I’m not suggesting that debt is good. It’s easy to justify paying cash in lieu of putting your purchases on a credit card that you may take years to repay. It may make sense for some to pay off a mortgage early to save thousands in interest.
But debt may also give you leverage in certain situations. More importantly, debt to yourself can create wealth more readily than other more risky systems and paradigms.
Consider these common strategies used in the retail business. Here are three ways to use cash to pay for a $24,000.00 car.
- Cash, which you take from a $24,000.00 savings instrument. You also earn a $2,000.00 discount off the purchase price. This leaves you with $2,000.00 to put into a CD at 4.15% that yields $2,450.90 during the 60 month finance period. (If you were to leave the money in a five year CD paying 4.75% it would mature to a value of $27,745.52.)
- Borrow $22,000.00 from your credit union at 6.5% (you still get the dealer discount for cash) and withdraw the $430.46 per month payment for 60 months from your $24,000.00 savings instrument. You end up repaying $25,827.37 including interest and have just over $2,400 left in savings.
- 60 months of interest free payments of $400.00 per month to the dealers finance arm taken from your savings plan would reduce the $24,000.00 to about $2,000.00.
Does it surprise you that leaving your CD intact, borrowing from the credit union or taking the zero interest option all produce about the same result? It shouldn’t. In each of these cases, you effectively pay cash. When it’s all over you have depleted you savings, have very little money and a five year old car that is worth virtually nothing.
Imagine instead that you had borrowed the money from your own “bank” and repaid yourself? At the end of the 60 month payoff period you’d have both the principal and interest returned to your account…and you’d still own the five year old car.
Part IV – The Fallacies
Here’s the fallacy in the myth. The myth assumes that the payments you don’t make on the auto are going to be used to either increase savings or to pay off other debt. In this example (using numbers from BankRate.com and in order to be honest and fair in our presentation) we took the cost of the purchase from the same source in each case and did not replenish the savings.
If we factor in a monthly payment of $430.46 being made to replenish the savings plan – or in the case of the credit union loan, leaving the money in the savings account and making the loan payments to the credit union – and calculate the results for each approach, the results in each case are, again, similar. You would replace the money you spent on the car plus a little interest. The auto dealer is still the one that made a profit from the transaction while you lost the earning power of your money for a net two and one half years.
This uncovers the second fallacy in the always-pay-cash myth. The myth assumes that there is only one instance of the transaction type that is discussed or illustrated; one car, one refrigerator, one vacation, one of anything. The reality is that you will have to buy many cars, refrigerators and vacations. The always-pay-cash myth doesn’t address this issue. It relies, like most other shallow financial paradigms, on a snapshot in time that captures a scene that ceases to exist the instant it is taken, and is immediately at odds with your current reality.
This leads us to the third and most compelling failure of the always-pay-cash myth. Since the myth relies on creating support for its proposition, it consistently represents unrealistic results for both its positive effects and the negative results of not following its rigid mandates. It compares apples and elephants as if they were of the same species. It discounts any alternative that does not support its position – or improve the ratings of the pompous pundit that promotes it on radio or TV.
When investments are recommended – and they usually are – an unrealistic rate of return is illustrated. While the “market” has delivered a hypothetical 12% year on year return, investors have averaged only 2.9% gross and less than 1% adjusted for inflation and taxes.
If a savings plan is suggested, little or no consideration is given to the surprisingly unsurprising surprises that life delivers on a daily basis and that create the great sucking sound that decimates your reserves.
One Final Thought and a Conclusion…
What’s a person to do?
First, recognize that the concept of lost opportunity cost is, at best, misunderstood by the celebrities and pundits who promote their personal form of mucked up economics on radio and TV shows. (I am uncertain how I would fare if ever I had my own radio or TV show. I’d hope to emulate Ben Stein, who is fearlessly well informed and honest.)
Second, recognize that the vehicles you choose to consider when making a lost opportunity cost decision will determine the validity and outcome of your decision. If you rely on hyped up hypotheticals with 6% or higher assumptions, your choices will eventually destroy your financial foundation and your house will fall. If, on the other hand, you choose a more conservative and realistic approach that is based on guarantees and high probability returns, your financial foundation will rest on rock solid ground and your framework will strengthen.
Recall the thought early in this discussion that you can estimate lost opportunity cost before the facts are in and determine the actual results later.
· Like the country-western song says, “You gotta know when to hold ‘em, know when to fold ‘em, know when to walk away, know when to run.”
· And don’t forget what Will Rogers cautioned; “I’m more concerned about the return of my money than I am about the return on my money.”
Lost opportunity cost is one of the most powerful tools you have to evaluate financial opportunities. EUREKONOMICS Model incorporates this tool into every aspect of its approach to helping you build a successful personal economy that lasts ‘in good times and bad.
The Money for Life Plan
America is addicted to investments they can’t control and debt they may never repay.
As you will see shortly, T. Boone Pickens has committed $58,000,000.00 to promote a plan to wean America from foreign oil in ten years.
The Money for Life Plan weans individual Americans from the Debt Paradigm almost immediately. [It's not as expensive.]
In both cases the process begins when a person – or in the case of the Pickens’ Plan – when a country changes its mind.
The Money for Life Plan lets YouBeTheBank and gain control of the money that flows through your life. It relies on the individual family re-thinking what works and what doesn’t regardless of the “conventional wisdom” that the Behemoths – large government, unions and business – want you to believe.
The Pickens Plan flies in the face of the “conventional wisdom” of Washington DC. The Pickens Plan aims to keep American money in America by converting electric power generation from natural gas to power generated by wind and solar, then converting petroleum driven vehicles to natural gas.
Both plans rely on the same principle.
The Pickens Plan believes that it’s essential for our nation to regain control of its energy and stop sending $700,000,000,000.00 of our wealth oversees every year.
The Money for Life Plan believes that it’s essential for individual American families to stop putting their money into investments they don’t control and debt they may never repay.
Below is a detailed description of the Pickens Plan. I encourage you to read it, recognize the wisdom it contains, and sign on to support it. It is worth your time and attention.
I also encourage you to visit www.YouBeTheBank.com and learn about The Money for Life Model. I don’t have $58,000,000.00 to promote this idea and the book that describes it Money Now, Money Later, Money for Life! How to thrive in good times and bad so I’m hoping you’ll discover some value there and tell a friend.
The Pickens Plan
America is addicted to foreign oil.
It’s an addiction that threatens our economy, our environment and our national security. It touches every part of our daily lives and ties our hands as a nation and a people.
The addiction has worsened for decades and now it’s reached a point of crisis.
In 1970, we imported 24% of our oil.
Today it’s nearly 70% and growing.
As imports grow and world prices rise, the amount of money we send to foreign nations every year is soaring. At current oil prices, we will send $700 billion dollars out of the country this year alone — that’s four times the annual cost of the Iraq war.
Projected over the next 10 years the cost will be $10 trillion — it will be the greatest transfer of wealth in the history of mankind.
America uses a lot of oil. Every day 85 million barrels of oil are produced around the world. And 21 million of those are used here in the United States.
That’s 25% of the world’s oil demand. Used by just 4% of the world’s population.
Can’t we just produce more oil?
World oil production peaked in 2005. Despite growing demand and an unprecedented increase in prices, oil production has fallen over the last three years. Oil is getting more expensive to produce, harder to find and there just isn’t enough of it to keep up with demand.
The simple truth is that cheap and easy oil is gone.
What’s the good news?
The United States is the Saudi Arabia of wind power.
Studies from around the world show that the Great Plains States are home to the greatest wind energy potential in the world — by far.
The Department of Energy reports that 20% of America’s electricity can come from wind. North Dakota alone has the potential to provide power for more than a quarter of the country.
Today’s wind turbines stand up to 410 feet tall, with blades that stretch 148 feet in length. The blades collect the wind’s kinetic energy. In one year, a 3-megawatt wind turbine produces as much energy as 12,000 barrels of imported oil.
Wind power currently accounts for 48 billion kWh of electricity a year in the United States — enough to serve more than 4.5 million households. That is still only about 1% of current demand, but the potential of wind is much greater.
A 2005 Stanford University study found that there is enough wind power worldwide to satisfy global demand 7 times over — even if only 20% of wind power could be captured.
Building wind facilities in the corridor that stretches from the Texas panhandle to North Dakota could produce 20% of the electricity for the United States at a cost of $1 trillion. It would take another $200 billion to build the capacity to transmit that energy to cities and towns.
That’s a lot of money, but it’s a one-time cost. And compared to the $700 billion we spend on foreign oil every year, it’s a bargain.
An economic revival for rural America.
Developing wind power is an investment in rural America.
To witness the economic promise of wind energy, look no further than Sweetwater, Texas.
Sweetwater was typical of many small towns in middle-America. With a shortage of good jobs, the youth of Sweetwater were leaving in search of greater opportunities. And the town’s population dropped from 12,000 to under 10,000.
When a large wind power facility was built outside of town, Sweetwater experienced a revival. New economic opportunity brought the town back to life and the population has grown back up to 12,000.
In the Texas panhandle, just north of Sweetwater, is the town of Pampa, where T. Boone Pickens’ Mesa Power is currently building the largest wind farm in the world.
In addition to creating new construction and maintenance jobs, thousands of Americans will be employed to manufacture the turbines and blades. These are high skill jobs that pay on a scale comparable to aerospace jobs.
Plus, wind turbines don’t interfere with farming and grazing, so they don’t threaten food production or existing local economies.
A cheap new replacement for foreign oil.
The Honda Civic GX Natural Gas Vehicle is the cleanest internal-combustion vehicle in the world according to the EPA.
Natural gas and bio-fuels are the only domestic energy sources used for transportation.
Natural gas is the cleanest transportation fuel available today.
According to the California Energy Commission, critical greenhouse gas emissions from natural gas are 23% lower than diesel and 30% lower than gasoline.
Natural gas vehicles (NGV) are already available and combine top performance with low emissions. The natural gas Honda Civic GX is rated as the cleanest production vehicle in the world.
According to NGVAmerica, there are more than 7 million NGVs in use worldwide, but only 150,000 of those are in the United States.
The EPA estimates that vehicles on the road account for 60% of carbon monoxide pollution and around one-third of hydrocarbon and nitrogen oxide emissions in the United States. As federal and state emissions laws become more stringent, many requirements will be unattainable with conventionally fueled vehicles.
Since natural gas is significantly cleaner than petroleum, NGVs are increasing in popularity. The Ports of Los Angeles and Long Beach recently announced that 16,800 old diesel trucks will be replaced, and half of the new vehicles will run on alternatives such as natural gas.
Natural gas is significantly less expensive than gasoline or diesel. In places like Utah and Oklahoma, prices are less than $1 a gallon. To see fueling stations and costs in your area, check out cngprices.com.
Natural gas is our country’s second largest energy resource and a vital component of our energy supply. 98% of the natural gas used in the United States is from North America. But 70% of our oil is purchased from foreign nations.
Natural gas is one of the cleanest, safest and most useful forms of energy — residentially, commercially and industrially. The natural gas industry has existed in the United States for over 100 years and continues to grow.
Domestic natural gas reserves are twice that of petroleum. And new discoveries of natural gas and ongoing development of renewable biogas are continually adding to existing reserves.
While it is a cheap, effective and versatile fuel, less than 1% of natural gas is currently used for transportation.
We currently use natural gas to produce 22% of our electricity. Harnessing the power of wind to generate electricity will give us the flexibility to shift natural gas away from electricity generation and put it to use as a transportation fuel — reducing our dependence on foreign oil by more than one-third.
How do we get it done?
The Pickens Plan is a bridge to the future — a blueprint to reduce foreign oil dependence by harnessing domestic energy alternatives, and buy us time to develop even greater new technologies.
Building new wind generation facilities and better utilizing our natural gas resources can replace more than one-third of our foreign oil imports in 10 years. But it will take leadership.
On January 20th, 2009, a new President will take office.
We’re organizing behind the Pickens Plan now to ensure our voices will be heard by the next administration.
Together we can raise a call for change and set a new course for America’s energy future in the first hundred days of the new presidency — breaking the hammerlock of foreign oil and building a new domestic energy future for America with a focus on sustainability.
You can start changing America’s future today by supporting the Pickens Plan. Join now.
Generally this blog deals with issues relating to money, saving, investing and the general economy and how that relates to your personal economy. Today’s blog digresses a bit from the norm but not really too far. It recounts a story I’ve heard several times about how one man used some of the money in his personal economy with great results. It inspires me and perhaps it will inspire you too.
I was at the corner grocery store buying some early potatoes. I noticed a small boy, delicate of bone and feature, ragged but clean, hungrily apprizing a basket of freshly picked green peas. I paid for my potatoes, but was also drawn to the display of fresh green peas. I am a pushover for creamed peas and new potatoes. Pondering the peas, I couldn’t help overhearing the conversation between Mr. Miller (the store owner) and the ragged boy next to me.
‘Hello Barry, how are you today?’
‘H’lo, Mr. Miller. Fine, thank ya. Jus’ admirin’ them peas. They sure look good.’
‘They are good, Barry. How’s your Ma?’
‘Fine. Gittin’ stronger alla’ time.’
‘Good. Anything I can help you with?’
‘No, Sir. Jus’ admirin’ them peas.’
‘Would you like take some home?’ asked Mr. Miller.
‘No, Sir. Got nuthin’ to pay for ‘em with.’
‘Well, what have you to trade me for some of those peas?’
‘All I got’s my prize marble here.’
‘Is that right? Let me see it’ said Miller.
‘Here ’tis. She’s a dandy.’
‘I can see that. Hmmmmm, only thing is this one is blue and I sort of go for red. Do you have a red one like this at home?’ the store owner asked.
‘Not zackley but almost.’
‘Tell you what. Take this sack of peas home with you and next trip this way let me look at that red marble’, Mr. Miller told the boy.
‘Sure will. Thanks Mr. Miller.’
Mrs. Miller, who had been standing nearby, came over to help me. With a smile said, ‘There are two other boys like him in our community, all three are in very poor circumstances. Jim just loves to bargain with them for peas, apples, tomatoes, or whatever. When they come back with their red marbles, and they always do, he decides he doesn’t like red after all and he sends them home with a bag of produce for a green marble or an orange one, when they come on their next trip to the store.’
I left the store smiling to myself, impressed with this man. A short time later I moved to Colorado , but I never forgot the story of this man, the boys, and their bartering for marbles. Several years went by, each more rapid than the previous one.
Just recently I had occasion to visit some old friends in that Idaho community and while I was there learned that Mr. Miller had died. They were having his visitation that evening and knowing my friends wanted to go, I agreed to accompany them. Upon arrival at the Funeral Home we fell into line to meet the relatives of the deceased and to offer whatever words of comfort we could.
Ahead of us in line were three young men. One was in an army uniform and the other two wore nice haircuts, dark suits and white shirts…all very professional looking. They approached Mrs. Miller, standing composed and smiling by her husband’s casket. Each of the young men hugged her, kissed her on the cheek, spoke briefly with her and moved on to the casket. Her misty light blue eyes followed them as, one by one, each young man stopped briefly and placed his own warm hand over the cold pale hand in the casket. Each left the Funeral Home awkwardly, wiping his eyes.
Our turn came to meet Mrs. Miller. I told her who I was and reminded her of the story from those many years ago and what she had told me about her husband’s bartering for marbles.
With her eyes glistening, she took my hand and led me to the casket.
‘Those three young men who just left were the boys I told you about. They just told me how they appreciated the things Jim ‘traded’ them. Now, at last, when Jim could not change his mind about color or size….they came to pay their debt.’
‘We’ve never had a great deal of the wealth of this world,’ she confided, ‘but right now, Jim would consider himself the richest man in Idaho’.
With loving gentleness she lifted the lifeless fingers of her deceased husband. Resting underneath were three exquisitely shined red marbles.
The Moral : We will not be remembered by our words, but by our kind deeds.
Life is not measured by the breaths we take, but by the moments that take our breath away.
Wishing you Health, Abundance, Love and Light…
“Go ahead, make my day.” Sudden Impact, 1983
It’s the 4th of July weekend and I’m getting pretty darn mad at the 535 Cowards in Congress. We Americans are willing to follow leaders who look out for us and the country but are tired to the bone of the Dolts in DC who spend most of their time and much of our money trying to damage the opposition and get themselves re-elected.
Gas prices are going through the roof. Food from afar – and every other item that arrives in a truck, plane, train, or automobile – is going up because gas prices are going up. Iran is threatening to squeeze the supply routes and put severe economic pressure on the world. Saudi Arabia refuses to increase production. Hugo Chavez is a fruitcake in a bowling shirt and wants nothing more than to prove that socialism is somehow better than democracy, state run everything is better than liberty and watching America suffer is better than TV.
The world – not just America – runs on oil. America currently consumes more oil per-capita – than any other country, but that is rapidly changing. China and India are increasingly demanding more oil and putting serious pressure on the supply and demand equation. Europe wants to become the dominant economic power in the world and needs an ever-increasing supply of oil to do that. Developing countries want and need more oil to build their economies.
So, here are the oil producing countries staring down America and Americans – and the rest of the world too – and threatening us with subtle and not so subtle “Make my day” threats while Congress debates and discusses what the rest of the world has proven;
nuclear energy works safely,
deep water drilling is economical and safe (Katrina proved that),
shale oil is extractable economically and ecologically,
ANWAR can be explored and could produce enough oil to take care of America for the decades it needs to develop alternatives that are less invasive – and fund the salvation of the polar bears in the process if that’s truly needed
and, finally, if we have leaders with the will, America will rise to the occasion and become the world’s leader in those alternative forms of energy
What does all that mean for us? American’s are going to suffer economic hardship in the short term because of the inaction and ineffectiveness of the Cowards in Congress. This problem’s been with us since the 1970′s and the Dolts in DC could have solved it ten times over if they had the courage to do so.
There’s darn little that individuals can do about it in their personal economies other than adopt a conservative financial strategy that cuts back on
consumer goods spending for cars, furniture, and luxuries
- saving money
- buying a house
- paying off the mortgage
at the top of the list, while other costly practices like
· investing in maybe-it’ll-grow mutual funds,
· the latest “Whatever 101″ miracle money making scheme,
· can’t-lose annuities that tie up your money for years, if not decades,
move to the dustbin.
Remember, when times get rough you need ready cash money and not the maybe-money from investments that guarantee only that they guarantee nothing.