Ballooning Debt Obligations

I've compiled the debt obligations for the US in the past 14 years using 'official' numbers (off-balance-sheet figures are far worse). The spreadsheet shows, at the end of each year, the debt outstanding for the following year. Debt obligations due in 2013 is not fully compiled yet. Only debt accumulated up till Aug 2012 is shown.

Notable World "reserve" currencies:

Currencies that circulate outside its issuer's borders:

5th century BC: Athenian drachma (silver)
1st century BC - 4th century AD: Roman aureus and denarius (gold and silver)
4th - 12th century: Byzantium solidus (gold)

13th - 15th Century: Florence fiorino (gold)
17th - 18th Century: Netherlands gulden (gold)
18th - 19th Century: Spanish peso de a ocho (silver)
19th - 20th Century: British pounds (gold to fiat)
20th - 21st (highly likely) Century: US dollar (gold to fiat)
21st - ?? Century: Chinese RMB?? (fiat to gold/silver ???) --(or some form of a world currency, eg. IMF's SDR)

Modern PhD vs ancient Kings

Think modern central bankers and economists and PhDs are better managers of our money than their counterparts who lived 2000 yrs ago? Think again. I have compiled a few examples. It's difficult to get data from ancient times but what I got so far is striking. 

(rough estimates of currency value vs real goods):
US Fed -> 1913-2011 (abt 100 yrs). The USD has lost over 95% of its value 
Singapore MAS -> 1970-2011 (abt 40 yrs). The SGD has lost over 90% of its value 

UK BOE - 1900-2011 (abt 100 yrs). The GBP has lost over 98% of its value
Swiss SNB - 1945-2011 (abt 60 yrs). The Swiss franc has lost over 65% of its value

Info on ancient price systems are hard to find, but here're 2 of them:

Roman Republic - 3rd century BC-1st century BC (over 200 yrs). The Silver Denarius maintained 100% of its value.
Byzantine Empire - AD 498 - AD 1030 (over 500 years!). The Gold Solidus maintained 100% of its value.

Of course, eventually, these currencies also failed, for the same reasons as all currencies after that: Debasement.

In our modern world, it's called Money-printing (or more euphemistically - "Quantitative Easing", "Operation Twist", "Lowering the interest rate", "Currency devaluation to help exports", etc). Why debase money? Politicians over-promised and overspent (along with other reasons due to the intricacies of the modern monetary system).

The Education Bubble

When will the US higher-education bubble burst? I wish there is a way to short-sell the education bubble. Is there a way to short the colleges? Or maybe a way to short Sallie Mae?

The students have more than $1 trillion in debt. Several well-known institutions have bad balance sheets - Harvard, Princeton, Stanford. Their financial woes are compounded by inflation, pensions and bad bets in the financial market. They are likely to go bankrupt, and maybe get bailed out. Even their absurdly high tuition fees are not going to help.

And talking about tuition fees, even sub-standard colleges charge absurd tuition fees. How is this possible? 

One of the main reasons is Govt-guaranteed student loans. When the politicians started politicising education a few decades ago, with their 'no-child-left-behind' mantra, that's when education costs really went up. It used to be that people can work summer or part-time jobs and pay for their tuition fees. But today, this is impossible.  Absent these student loans, tuition fees would have been very low. Colleges will be forced to slash costs and compete with each other based on costs. But because of these government-backed loans, colleges simply jack up tuition fees year after year.

In Singapore, we see similar things happening. I was rather appalled when I go back to NUS from time to time to see the kind of renovations that they've put up to make it all look nice and dandy. All these while, the tuition fees have been increasing. I'm lucky that I wasn't employed into NUS' fundraising department a few years back. I think one of the interviewer was visibly annoyed when I attacked the banking system, and that could have cost me the interview.

With today's technology, education should be very cheap. It is now so much more easier to learn compared to just a few decades ago. Information is so freely available on the internet. But guess what, governments force us to attend their public schools, paid for by taxpayer money, and force their one-size-fits-all education program down our throats.

From my experience as a private tutor, I see more and more students getting desperate. More and more students complaining to me that the lessons in school are sub-standard and don't interest them.

When I look around at university programs, we're made to take courses that don't matter to our studies. A lot of undergraduates try to take courses that require minimal effort. A lot of undergraduates do enough just to get by. We are kind of forced to pay so much money for it, but the services are bad. All those money goes into fancy buildings and projects. Under a free-market education system, this kind of problem will not be so widespread! Without government monopoly rules, colleges will spring up everywhere and compete for students. There will be colleges specialising in different fields. Students will be studying what they really love, and take courses that really matter to them.

Oh, Warren Buffett

Finally finished the hefty 710-pages biography of Warren Buffett. Didn't quite like him at first but I thought it would be good to read up about him. A great personality with great passion, drive and focus. One can only dream to be 10% as hard-working as he is. I gained more respect for him as a person after reading the book. However, it's unfortunate that his calls for the 2008 $700 billion bailout of failed financial firms and his distaste towards gold will be his biggest mistakes in the later part of his life. The worst thing is that many people who look up to him will be affected following these 2 advices. I've seen videos of congressmen quoting him so that they can push their bailout and spending agendas. It's not easy to have such great power I guess.

If competition in currency is allowed

This is a topic which I've talked about before, but I would like to put it on record.

We are born into a world of fiat money, a world where governments or the central banks have complete monopoly over the nation's money. The IMF prohibits member nations from backing their currencies with gold. We are forced to use these paper money because governments declared it to be 'legal tender'. Court settlements, fines, and taxes can only be settled in these monopoly money. Taxes are slapped on other monetary alternatives such as gold or silver. These leave people with little choice but to use the monopoly money.

What if we can repeal this legal tender law? What if competition in currency is actually allowed?

In Singapore, banks like UOB, DBS, OCBC, Maybank, etc etc will start issuing their own notes. They may come up with something like "UOB Dollar", "Maybank Ringgit", or whatnot. To instil public confidence in their currencies, they may back it with something tangible, such as precious metals.

In light of the rampant fiat monetary inflation around the world today, I - after doing some due diligence - will be among the first to convert some of my money into these notes. I will then post on FB: "I've put my savings in UOB Dollar, and it's backed by gold. Have you?"

I imagine some people will start to do the same. Pretty soon, people will flock into these bank notes. If this happens across the world, we will see many national currencies self-destruct, because they are backed by nothing but its government's promise to maintain its value, and because they are printing them at record rates.

MYTH: "There is not enough gold for world trade"

A $100 reward for anyone who can dispel the logic in this article.

I've heard this argument time and again: There is not enough gold in the world for trade. So, I would attempt to show why this is not the case in one single post, in the hope that I do not have to repeat myself again :)

I start with an excellent quote by James Rickards from his book "Currency Wars: The Making of The Next Global Crisis":

"Statements like this illustrate one of the great misunderstandings about the role of gold. It is misguided to say that there is not enough gold to support world trade, because quantity is never the issue; rather, the issue is one of price. If there was inadequate gold at $35 per ounce, the same amount of gold will easily support world trade at $100 per ounce or higher... If the price of gold was too low, the problem was not a shortage of gold but an excess of paper money in relation to gold."

I'll try to explain:

James Rickards said this statement in the context of the 1960s, when the popular notion was that there wasn't enough gold for world trade, and when gold was still artificially priced lowly at $35 per oz. The government had printed too much USD paper money, and was unwilling to adjust the price of gold upwards in reflection of this new supply of paper. As a result of this monetary inflation, prices of goods soared, and naturally, trade priced in terms of dollars went up too. When people take a high world trade volume (priced in terms of USD) and compare it with the $35/oz gold, the natural instinct is to think that there wasn't enough gold to support the trades. If the government had been honest and devalued the USD relative to gold, the price of gold would have soared, and people would have realised that the quantity of gold is not the issue.

Even if the amount of gold in the world today is cut by half, there will still be more than enough gold. With the advance in measurement and digital technologies, we can even measure the amount of gold using 'atoms of gold' rather than 'oz of gold'. There is more than enough gold!

Is there the other side of the coin on this issue? Well, as always, there is. The kicker is that the 'there-is-not-enough-gold' crowd will be right -- IF, say, an alien came to earth and stole all the gold, and left us with only 1000 atoms of gold. In that scenario, yes, there will not be enough gold to go around for world trade.

Even so, even if we take all the gold away from the world, and all the paper money away, trade will still go on. There may be some short term consequences, but the market will find a new form of money to use, if the government does not interfere in this natural process.

One must remember that money is a means, not an end. It is a medium of exchange, which we use to exchange all our real goods with each other. It's the exchange of real goods. It's not about export vs import, or buy vs sell. Export is essentially the same as import. To export is to import. To buy is to sell. The only reason why a nation exports is to import. Think in terms of 'exchanging goods' rather than 'export/import'!

Creating more unites of a medium of exchange (money) only stimulates price inflation.

Fed to disappear?

At the rate they are going, the Fed is going to disappear within the next decade... They will then become the 3rd Central Bank to disappear in US history.

QE3 is officially here

And so, QE3 has been announced officially. $40billion a month. Doesn't mean much though. Those who have done their research knows that the Fed has been printing all this while, regardless of whether they announce QE3 or not.

Back in 2010 I posted about how QE2 was another nail in their coffin. I don't know how many more nails need to go into securing the coffin, but I guess it won't be long now. QE3 is open-ended, meaning it will last till as and when the Fed pleases. They have also announced that they will keep rates low till 2015. This can only be done by money-printing. I await 2013 and 2014 with anticipation. The US has to repay tons of debt in the coming months. I wonder how they are going to do that.

Less than 3 weeks ago, I started longing gold on forex, in anticipation of this announcement. I don't like to do short-term trading, but I might as well do it since the price is going up. Although traders will say that the market has 'priced in' this announcement in the weeks leading up to today, I doubt that they 'priced in' the fact that the Fed will keep on printing indefinitely. I think we will see more traders coming into the gold market again because they did not anticipate that QE3 will be 'open-ended'.

While some of us are having fun here, this is very sad news for the US citizens. The Fed's actions over the past few decades have destroyed the saving class. As always in history, this is how an empire ends.

Inflation

In a free society, jobs are abundant, contrary to the belief that jobs are scarce. According to MOM, as of March 2012, there are 46800 job vacancies in Singapore. The problem is that most people don't want these jobs, because they are 'low-paying'. A more accurate description would be 'these jobs give low-purchasing power'. Why is that? Money-printing (inflation) is why.

I have my own index, called the kopi-index (rough-estimates). In 1970s, a fresh-grad can probably earn about $1400. A cup of kopi costs $0.20, so one's salary gives a purchasing power for 7,000 cups of kopi.

Today, a fresh-grad earns about $3k (looks like a 4x increase from the 1970s! Good!). A cup of kopi costs $1. One's salary gives a purchasing power for 3,000 cups of kopi.

Feeling wealthier?

Purchasing power has been diminished greatly by money-printing.
Inflation gives the illusion of wealth. This is the real and most significant reason behind the growth in the rich-poor gap (it's not caused by greedy businessmen), the widespread phenomenon of the dual-income family, and low birthrates.


Our grandparents talk about how prices keep rising over the past few decades. Their grandparents, however, would have talked about how prices kept falling in their era (during the gold standard).

Moral of the story: protect yourself!