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.

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?

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.

Europe Debt Crisis

For the past few weeks, the media has been focusing on Greece and its sovereign debt problems. It seems like the mainstream media has finally caught up with the trouble in Europe.  

As expected, the politicians succumbed to printing money and borrowing and bailing Greece out. It would have been a wise option to let Greece go bankrupt, because this will give a signal to investors that the EU is serious about building a strong Euro currency. But of course, politicians always don't like this option.

Now that the EU (the US is gonna join in the bailing too) is bailing Greece out, there will be more countries asking for assistance - Portugal, Spain, Italy and Ireland. 

Investors have been getting out of Euro into the perceived safe haven of USD, but they will soon realise that the US is in worse shape than Greece. The USD has been strengthening against the Euro, but people are mistaking this for a real strength in USD. If the USD is fundamentally strengthening, gold price would have been dropping. Gold price has held steady around the $1100 level for the past few months, and it breaks $1,200 a few days ago.

The entire world is in debt, and it will never be able to repay all its debt. NEVER. It is just mathematically impossible. Our debt-based monetary system has eventually shown its fatal flaws. The weakest link falls first, and then there will be a cascading domino effect on the other nations. 

This whole system will implode on itself spectacularly. The question is whether we can position ourselves to profit from this. In a few years' time, there will be a huge transfer of wealth from currency holders to those holding real assets such as precious metals, especially silver. So, be prepared for it!

Well done Obama

The feel-good president just passed the Healthcare bill. Well done, another mind-boggling crazy spending program. The US cannot afford it. This is irresponsible and immoral, because ultimately the public, both current and future generations, will have to pay for it.

Well, on the brighter note, this will accelerate the collapse of the USD. And hopefully the people can understand the flaws of the currency quickly and move towards a sounder currency sooner rather than later.

So much stupidity is going on that I am just too lazy to explain them all.

Economic Warfare

We are now witnessing the opening salvos of an economic warfare between the US and China. Whether politically-motivated or just trying to err on the side of caution, China is declaring that it will start selling off the riskier US-denominated debts - those not guaranteed by the US govt/treasury. 

So the US still thinks that it can dictate what China should do. In reality, they should be very afraid of China, and listen to what the Chinese has to say, and pay attention to what the Chinese can do. The Chinese can easily screw the US by mass-selling their US-debt holdings, and stop buying US debts. It is already happening. China's US debt holdings have begun to drop last year. And now the Chinese government is getting its people to sell off more US-debts.

What this means for US: More and more dollars flooding the market (as if Helicopter Ben is not enough), and a real chance of hyperinflation. Well, even without this Chinese action, Helicopter Ben will make sure that hyperinflation happens.

Today, I read in the papers a comment by an economic Nobel Laureate Joseph Stiglitz that people are over-reacting to US debts, that the US can easily avoid debt-default just simply by printing money. Is he nuts? This is exactly the kind of Keynesian garbage that 99% of the earth's population has been brain-washed into believing. This guy is missing a point here. Sure, the US can print and print, but by doing this, they are still going to default: through inflation. Their currency will be so worthless by then.

The US will default at current trajectory. It has defaulted before. The most obvious in recent history being the default in 1971, when the US told the world that the USD is no longer redeemable for gold. The world has trusted the USD to be as good as gold, which is why they allowed the Bretton Woods system to exist in the first place. But alas, things are not to be.

The recent focus on Greece is just a distraction. Soon, people will start noticing that the US is in an even bigger hole.

China, for one, has already noticed this long ago. And they know they have the economic trump card to make US bleed massively. After such a long time, they finally declared the obvious: sell US debts.

And so it begins..

I'm a farmer!

Just started work in an aeroponics farm today! It's a great chance to study agriculture.

Next 10 years = years for precious metals and agriculture commodities! The bull run should last even longer for agriculture.

I am also in the process of setting up a company dealing with silver bullion, with a friend. Our website - in addition to silver bullion products - will contain educational information on what money really is, how money comes about, and what the banks and the governments around the world are doing to our money in the modern world. More details will be posted later!

On another note, I've recently watched Obama's State of the Union address too. It's the same old stuff. No fundamental changes to the way the economy functions. Only on-the-surface changes which he thinks are real changes. And then he outlined some contradictory plans too: Ever-increasing spending, tax cuts for the majority of the nation, more borrowings, and at the same time talking about getting the budget deficit under control.

The US can only fund its $3.8 trillion in spending plans for this year with $2.4 trillion in tax revenues. Where will the other $1.4 trillion come from? From foreign lenders, and from the printing press. But with China already scaling back in their lendings (and starting to sell US denominated debts), and other nations following suit, the printing press will become a much more viable option.

Note that I use the word 'spending', because the US are not investing their money.

This is the madness of Keynesian Economics. Spend your way out of trouble! Too bad they will soon realise that a national budget is no different from a household budget.

It would be interesting to watch his State of the Union address again one year from now and see what he has to say.