Wednesday, July 21, 2010

Quote by Thomas Jefferson

I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property - until their children wake up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people where it properly belongs.

- Thomas Jefferson, 1802

This is so true of our world today. Nowadays, only the politicians and bankers have control of the currencies. The population is at the mercy of these people. I believe every country will end up this way. It is only logical: Print money --> middle class (and the poor) loses purchasing power and wealth --> Demise of the middle class --> chaos. It has been happening in the US since 1913 when the Fed was first created. Here're some statistics: 

Wednesday, July 14, 2010

Government is a necessary evil

I like this quote:

"Government spending does not create prosperity. Government is an expense to any nation, it is a necessary expense when it is confined to its legitimate role of simply protecting natural rights from legitimate foreign and domestic enemies, but when it ventures beyond this role and takes on the powers of economic manipulation, it destroys wealth which is the basis of prosperity. Instead of making us richer, it actually makes us poorer for it."

Government is a necessary evil. We can't do without government, yet the flaw of democracy is that govenment is always allowed to grow too big. Eventually it will burden a nation so greatly that it will break down. This is what has been happening for years in US, some European countries, and Japan. The breaking point will be pretty soon.

Saturday, July 3, 2010

What's next for US?

The US is bankrupt. What will the US do next?

More wars? More resource-stealing?

Or like Jim Roger says, print money until the world runs out of tree?

Thursday, July 1, 2010

Why Miners/Farmers/Fishermen should earn more than Bankers (Real Goods Production Vs Service sector)

Today, many developed nations have a large chunk of their economies dedicated to the service industry. We see huge payouts for bankers and the financial services industry, for example. The US, for one, has become a service economy (Note: Service jobs can range from burger flippers to bankers). But should a healthy economy really be this way?

My simple answer is no. Here is my case for it:

Let's go back to ancient times, when barter trading was the norm and money as we know it still doesn't exist. Let's say I am a cow breeder and you are a fisherman. Every week, I will walk my cow 1 km to your place to trade for some fish. I have purchasing power in terms of cows. Now to get more fish, or in other words to increase my purchasing power, I have to produce more cows. This is the same for our world today. If you want to consume more, you have to produce more. Sadly, this is not the case for the US.

Back to the illustration. So to increase my purchasing power, I breed more and more cows. I became so busy that I had to hire an errand boy to walk my cows 1km to your place every week, while I stay back and tend to my cows. This errand boy can be categorised as a service industry worker. To reward him for his work, I pay him, say, 1 cow for every 10 cows he trades for fish. For every 10 cows traded, his purchasing power is 1 cow, my purchasing power is 9 cows. 

Fast forward to today's economies of the Western world. It seems like the errand boy (the service sector worker) is now earning 20 cows of purchasing power, while I, the real-goods producer, is earning say 5 cows (Sorry, I'm lazy to dig out the figures that I have in my research, so I'll just use some random figures. Do some googling I'm sure you can find some data). How can this type of economy be sustainable in the long run?

Sure, the US politicians and economists would have you believe that the budget deficit is actually a good thing. For even though they have a monstrous trade deficit, they have a capital account surplus. Well, the term surplus does have a nice ring to it. They argue that foreigners are still pouring capital into US, investing in US assets. But what they fail to mention is that the US has to give something in return in the future. Foreigners may be buying US treasuries, but alas this money sure doesn't make the US rich. Instead, they have a liability to repay this money some time in the future, plus interest. And furthermore, foreigners are waking up and realising that the US treasuries will no longer be a safe haven. They are not gonna lend as much to the US. Sovereign bonds are the next big bubble.

And what is the US doing with all these borrowed money from abroad? That's right, they spend it all!! Instead of investing in productive capacity to produce more cows, the government is just hiring more and more errand boys (for eg, they recently hired hundreds of thousands of census workers, and this number greatly skewed the jobs figure (which is manipulated, of course). Again, I forgot the figures, but search online, you can find it pretty easily). See, governments can create jobs, right???

The US has no means to repay the borrowed money, other than printing money and repaying in cheaper dollars. In other words, for every cow that I produce and lend to the US, I can expect to get back 2 cows - 2 very skinny cows, that is.

And don't forget that they are not just borrowing. They are printing money like mad. The whole world is printing money like mad. They are printing cows out of thin air. As a cow breeder, my purchasing power is being diluted like mad. All currencies are falling in value. I'm not talking value relative to other currencies, but value relative to real tangible goods. 

Buy gold and silver. I for one, am borrowing money to buy. The returns will be phenomenal.

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