So, I am getting my masters in economics. Let's just say I've learned a lot. I'm not negating everything I've ever said, but I definitely see things in a new light. For example, Keynes wasn't crazy. Gov't spending stimulates the economy. However, his model is based on numerous assumptions and definitely does not hold in an open economy. So what we are left with is a bunch of economic tools in our tools box, and problems that are still not clearly defined by modern economics.

With that being said there are some things that are pretty clear. Inflation is a big one. We know what causes it and it's not printing money. Well, the money supply is a factor, but not the largest. We also know how to control it and the cost to control it.

Also, sticky wages. The reason why I give Keynes any credibility is because I believe that prices are sticky (ie they take time to adjust). This is probably the most defining, but definitely not the only, difference between Austrian Economics and Keynesian Economics. I also don't believe that people act rationally, another important difference. Despite my beliefs there is ample data to support Keynesian economics, and it seems to me that Austrian Economics basically tries (stretches sometimes) to explain the differences.

Some have mentioned that maybe I've been brainwashed by my professors. Well, I'M NOT A LEMING! What the hell! Seriously? Actually my professors have been very good at presenting all sides of the argument. I even tested some of them by arguing the liberal point of view and I got squashed.

To sum everything up, calm down. There will be more financial crisis in the future, but it's not the end of the world. Do the "rulers" have everything under control? Of course not. Do they tell us all the truth? Of course not. But it's still not the end of the world.

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Dave Ramsey Epic Fail: IRA Tax Savings!

This morning I heard a Dave Ramsey moment on the radio. Dave said that a fully funded IRA, after 20 some odd years would amount to some $9 million. Ok, that's fine. We can assume the stock market never crashes and you earn Dave's token 10% rate for enough years to accumulate $9 million. That's not what I had a problem with. Every finance guy likes to tout his latest variable as if it is a fixed number.

Dave then went on to tell us that if it was a normal IRA it would all be taxable, but if it was a Roth it would be tax free! What a miracle! WHAT A LIE!

Let's compare the two. I'll make it super simple. Let's assume we invest $100 for one year and it earns Dave's famous 10%. That means at the end of the year we'd have $110. What Dave said was that if it was a traditional IRA we would owe taxes. Assuming 30% tax rate, that means $77 would be ours. However, if we had used a roth IRA it would be $110 tax free.

Where Dave EPICLY FAILS, is the assumption that we would have the same amount of money to invest in a Roth and as a Traditional IRA. Truthfully, if we had invested the $100 in a Roth IRA, that means we paid taxes on the money in the year that we contributed it. Essentially, we would have contributed $70 and paid $30 in taxes, assuming our 30% tax rate. After our year of magic 10% Dave earnings, we would have... *drum roll please* $77.

Just to recap: Traditional IRA $77, Roth IRA $77. Uh, Dave? Roth and traditional IRA are NET TAX NEUTRAL!!! Even if we still contributed the max to either account they have different maximum allowed contributions to accommodate this. Uncle Sam has to get his and ROTH vs TRADITION ARE NET TAX NEUTRAL!!!

The real questions for Roth vs Traditional are; will you be in a higher tax bracket now or later? Do you expect tax rates to be higher now or later? Do you want to owe taxes to the government or pay your tax debt now?

I'm a fan of the Roth IRA, but as I've said many times before; the real problem Dave has is that there is no one size fit's all answer.

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Creature From Jekyll Island by Edward Griffin Review

No this isn't a fiction book. Parts of the history of the Fed seem like fiction, but they are not. In fact, if you're not into history and finance parts can be a bit boring. However, this book is very well organized and very well written.

The Fed was not the first federal bank. In fact it was the third. Each of the previous two had disastrous results in so much that it took secret planning and two attempts to sneak the Federal Reserve into reality. It's not conspiracy theory. It's a well documented conspiracy fact!

This book gives you the basics of banking, the history you need to understand the Fed, a realistic picture of the Fed, an idea of where we are headed if we stay on our current path and how to fix it.

Nothing about the fed is good. It is the largest and most powerful cartel in the world, built on the backs of the tax payers, and created to protect the rich bankers. The stated mission is to protect the economy from wild economic swings, but as we all know, EPIC FAIL!

This is the BEST BOOK ON THE FED I'VE EVER READ!  It is absolutely a must read for every Financial Survivalist. I wish everyone knew this stuff.

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How to do a Home Inventory for Insurance

Whether it's a fire or a burglary, stuff happens. However, if your belongings are not properly documented they may not be covered by your insurance. I have a friend who was burglarized and he soon found out that most of his things were not covered.

It is extremely important that you have a home inventory. It is the only way to be fully insured and to quantify your loss in the event of a disaster. Do it today. Even if it's a bad attempt, it is better than nothing and you can improve as you go along. Ask your agent if he needs a copy of your inventory and if he has any specific instructions for you. All Insurance companies are different.

So how do you do an inventory of your stuff? There are 3 main ways: Video, Photos, and Documents.

Video

A video inventory basically involves you walking around your house with a video camera taking video of everything you own. You also need to note serial numbers etc. I find this is probably the easiest method, but make sure it is a good video. Also, I found it difficult to get everything into one cut, so it may take a few tries and or some editing.

Photos

Same thing as a video, but still shot. I like this method because you can take pictures of things like serial numbers and certificates of authenticity. I'm also not very good at video editing.

Documents

All of your important documents, receipts for electronics and jewelry, ownership tittles etc. Scan them and save them together.

Appraisals

Some extremely rare or valuable items are not covered by normal insurance. Sometimes you need to get a certificate of authenticity and appraisal, and specific insurance coverage.

How to Store Inventory

Store your inventory online. I keep mine as a series of emails to myself.

Free Inventory Software

http://www.knowyourstuff.org

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Do I Need Insurance? Insurance Amounts and Types

Money Monday

Types of Insurance

Types of Insurance

Home Owners Insurance (HOI) - insures a property against fire, wind, theft, vandalism etc.
Flood/Hurricane Insurance - insurance home and property agains flood/hurricane damage.
Health Insurance - insures against health care cost
Renters Insurance - insures renter's belongings against fire, theft, damage etc.
Accidental Death and Dismemberment - life insurance if death is unnatural
Disability Insurance - insures against lost income due to disability
Long Term Care Insurance - insures against assisted living and nursing home costs
Auto Insurance - insures you against auto damage or theft and liability for property and injury
Life Insurance - insures you against death
Dental - insures agains dental care costs.
Optical - insures against optical care costs.

Do I Need It?

HOI - if you own a home. I recommend a high deductible to save money on insurance.
Flood/Hurricane Insurance - if you need it then it is probably prohibitively expensive. You would be better off storing your equity in a different place than your home. See "To Pay Extra or Not..." Another option is moving.
Health Insurance - If you are alive. I have a friend who was diagnosed with Lymphoma at 24. If your employer doesn't provide it then get a high deductible plan and supplement it with an accidental policy. See How to Save Money on Insurance.
Renters Insurance - If you rent. It's super cheap and many policies cover accidental damage and loss of electronics (ie phone, iPad, laptop, camera etc). I would probably get a small deductible on this one. Make sure to document all your valuables properly or they will not be covered.
Accidental Death and Dismemberment - Worthless. The conditions upon which you must die for this to pay out are ridiculous. If you really want this coverage, add it to your normal Life Insurance Policy.
Disability Insurance - If you are an income provider and your income is dependent upon you working. According to DisabilityCanHappen.org, just over 1/4 of people will experience a long-term (> 3 months) disability before they retire. Make sure you get Long-Term insurance. Short-Term should be covered by your emergency fund.
Long Term Care Insurance - If you are 55 or older. The sad part is many of us are no longer insurable by that age. You can get it a early as 45, but that's pushing it considering most of these costs would be covered by proper health and disability insurance.
Auto Insurance - If you have or drive a car.
Life Insurance - If you have a spouse, I recommend you have life insurance. If you have children, your children demand you have life insurance. It is your responsibility.
Dental - if it's provided by your employer. It usually doesn't cover more than good price comparisons can save.
Optical - Same as dental.

How Much Do I Need?

Home Owners Insurance (HOI) - enough to rebuild your home.
Flood/Hurricane Insurance - none
Health Insurance - $2 million or unlimited life maximum.
Renters Insurance - enough to repurchase all your stuff.
Accidental Death and Dismemberment - none
Disability Insurance - up to 75% of current monthly income
Long Term Care Insurance - get a policy that covers an acceptable amount of services
Auto Insurance - at least liability coverage of 250/500/250. Glass and comprehensive depends. See "How to Save Money on Insurance."
Life Insurance - 10-15 times annual income or total assets.
Dental - minimal. Two cleanings per year should be covered. Good hygiene prevents most tooth decay.
Optical - minimal. Glasses and contacts prices vary greatly. Just shop around. Your check ups should be covered though.

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Dave Ramsey Epic Fail: Whole Life VS Term Life Insurance

Dave Ramsey Epic Fail

Anyone that listens or follows Dave Ramsey knows that Whole Life Salesman are the "scum of the earth." Pretty harsh words coming from a self described God fearing man. WL salesman are just as likely to be scum as any Financial Planner or Advisor. In fact, they are no more likely to be scum than a loan officer or real estate agent or RADIO HOST at that matter. WL salesmen simply have a different point of view of investing.

So what do you do when the WL salesmen say Dave is ignorant and Dave says they are scum? Simple. Educate yourself and make your own decisions. The #1 thing I don't like about Dave is that he has a "one size fits all" strategy. In reality every person's financial situation is different, and there is no "one size fits all" answer.

Term Life Insurance

• inexpensive
• no cash value
• limited coverage time frame

Whole Life

• tax deferred growth
• tax free withdrawals (if done correctly)
• lenders count CV (cash value) as an asset
• IRS does not count CV as an asset
• CV is protected against law suits and bankruptcy
• expensive at first
• death benefit for life
• CV can be used to pay premiums temporarily or indefinitely
• additional contributions are required to maximize CV growth
• CV can be used as collateral for a loan

You might be wondering if I am a WL salesman? I am not. I simply have done my research. Term and WL insurance have their uses. In order for Whole Life to be used correctly it must be designed correctly. I have to admit that most agents don't understand how to properly design a policy. If interested I can provide some references.

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How to Save Money on Insurance

How To Tuesday

How to Save Money on Insurance

Insurance is a unilateral contract that transfers risk from you to the insurer. It's hard to know how much insurance is enough and which type is best. However, it is essential that you and your family do not maintain excessive risk. The following are some tips for several different types of insurance.

Terms:

Insurer - the company issuing the insurance
Insured - the person buying the insurance
Deductible - the part of any claim that you are responsible to pay and must be paid first. The purpose is for the insurer to minimize risk of the insured filing small and common claims.
Premium - the cost of the insurance that the insured pays.

Deductible


Higher deductibles mean lower premiums. If you have your Financial Survival Kit, specifically your emergency fund, this will allow you to pay higher deductibles. To know how high your deductible should be ask yourself a few questions.

1. If you had $500 in damages, would you file a claim? For example, you bump a car in the parking lot with your car. The small dent would cost $500 to fix. If you report the claim your premiums will be raised, so most people would just pay the $500. If you would pay it yourself, why would you have a $250 deductible? Raise it to whatever you would report to your insurance.

2. How much will it save you? If over 6-12 months you will save the same amount that you raise the deductible, then it might be smart to do that and add the saved money to your emergency fund.

Comprehensive Auto Insurance VS Liability Only

How much is your car worth?
How much will you save?

In this example we'll say the car is worth $4,000. If you can save $1000/year by doing liability only, then if you go for 4 years without an accident, you can save enough money to replace your car. Now your savings might not be that extreme, but chances are you won't total your car very often. Just figure out how much you can save and decide if it's worth the risk.

Health Insurance

If your job doesn't pay for your health insurance, then you do. Health issuance isn't so you don't have to pay for the doctor visit when you have a cold. Health insurance is to keep you from going bankrupt if you get cancer or need emergency brain surgery.

Get a high deductible policy with a $3,000-5,000 deductible. Then get a supplementary accidental policy, so that if you break your arm or need to go to the emergency room, you don't have to pay for that expensive bill. You can also use a Medical Savings Account to help pay for your medical costs with pre-tax money. BUT be careful because some MSA will take leftover money at the end of the year.

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Money Monday: The Fiat Bubble

The Fiat Money system is a currency system that is supported by nothing but a countries promise or law. Every dollar you hold in your hand or bank account, represents a dollar of US debt backed by nothing but the countries promise to pay back the debt. The big question is with what will they pay back the debt? More dollars backed by more debt?

As you see in the chart above, the world GDP stars to increase with the creation of industry, world trade and other innovations. However, as the world started to adopt a fiat money system the GDP really took off. All other increases in wold GDP pale in comparison to the advances made since the implementation of a world wide fiat currency system.

What is a Bubble? A price level that is much higher than warranted by actual fundamentals.

A good example a classic bubble is the tulip bubble featured in the chart above.

Federal Spending Bubble: $1 of ever $4 spent in the U.S. economy is direct spending by the Gov't.

  

Debt Bubble: $1 of every $3 spent by the Gov't is a borrowed dollar.

I believe we are in a Fiat Bubble. Our economy is artificial. We hardly export anything anymore, but we are not the only ones. The Fiat system has taken hold in many advanced economies. Our Fiat spending has also helped fuel growth in emerging markets. It cannot continue.

This has happened over the last 40-50 years and will take a few years to top out before it crashes. Bubbles always last longer than you think and crash faster than you can imagine. But when the bubble does finally pop, it will happen fast, and we will experience recession and depression like never before. I promise one thing, The Fed will do everything in their power to keep this system going. The crash will likely be triggered by high inflation caused by desperate attempts of the Fed to "save" us.

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Non-Fiction Friday: FDIC Fraud

FDIC Fraud

It's so crazy you'd think it is fiction. However, the FDIC is full of fraud and backed by facts. Note: this is not a book review.

What is FDIC?

The FDIC is the Federal Deposit Insurance Corporation. They are the ones that are supposedly keeping your savings account safe in the event that the bank goes bust.

Moral Hazard

Moral Hazard is when something makes the event against which it insures more likely. The FDIC insures our deposit accounts (checking, savings, etc) against bank failure. The banks pay a premium for this insurance (from our deposits) and transfers risk of failure from the bank and it's depositors to the FDIC.

Banks must take advantage of this "free" risk in order to maintain competitive edge. If they don't others will and they will fail. This means that because the banks transfer the risk of failure to the FDIC, they can and will be more risky in their investment and lending decisions, therefore increasing the likelihood of bank failure.

Under Funded

The FDIC is required by law to maintain cash reserves equal to or greater than 1.15% of it's liabilities (insured deposits). Durring the financial crisis this ratio fell to a low of .27%. That means for every $1 million of deposits insured by the FDIC, they had $2,700.

The biggest problem here is the fact that our financial systems is by design forcing us to put more and more deposits in the same place. That is, banks are getting bigger and bigger. As of 2009 Bank of America held more than 12% of national deposits. However, at the low, if a bank holding .27% of the nation's deposits failed, the FDIC would have gone bankrupt.

But wait! Would the Fed ever let the FDIC go bankrupt? No. Most premiums, paid by banks from deposits, are immediately invested in treasury bonds and spent by congress. The majority of the FDIC's assets are government debt. So, in the event that the FDIC ran out of money, the fed would just print more for them. Essentially, your deposits are protected by inflation. If they need to, they will just inflate your deposits back to you. It's all a perception play. They need you to think your money is safe.

Private Insurance Alternative

The answer to most big government problems is privatization. A private deposit insurance company could asses each individual bank's risk of default and charge an appropriate premium. Then depositors would know immediately how risky it is to deposit their money with that bank. If they decided to deposit money at that bank, they would also have the option to opt out of the deposit insurance.

This would allow prudently managed banks to thrive. They would also be able to pay higher interest rates, because of lower deposit insurance premiums. This system would reward wise management decisions. It would reduce the likelihood of a financial crisis or bank failure. It would actually do what the FDIC is suppose to do.

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5 Essential Precious Metal Questions

Buy it. Sell it. Wear it. Own it. Melt it. Mine it. Eat it. Drink it. You can do almost anything with gold. Everyone has seen advertisements to buy or sell it. Anyone that is concerned about their financial future has likely asked themselves, "Should I Buy Gold?" However, Gold is not the only PM (precious metal) and more recently I have seen increasing advertisements for Silver, Platinum and Titanium.

5 Essential Precious Metal Questions

1. Should I Buy PMs?

This question could also be "Why should I buy PMs?" Just because everyone else is doing it? After all, it's gone up for 10 years in a row. So what! The stock market did too, right before the Dot com Bubble burst.

What would be your reason to buy PMs? Investment? Wealth creation? Wealth protection? Inflation hedge? By readying "Should I Buy Gold?" you will get a good idea if you should. I only recommend physical PM's for wealth protection. There are better ways to protect from inflation and economic collapse, and there are more secure investments.

2. Which One Should I Buy?

There are many PM's to choose from, but many have strong ties to industry because of our technological advances. That means when industry (ie economy) collapses, so will the price of those PM's. The PM with the weakest tie to industry is GOLD. GOLD also has a historical and sentimental history as store of wealth greater than any other. The best PM for wealth protection is GOLD.

3. How Should I Buy?

Physical, Mutual Funds, Exchange Traded Funds, Stocks, Sector Exposure, etc. The list goes on. I'll make it really simple for you; physical gold for wealth protection, ETF's for anything else.

4. Where I Should Buy It?

If buying physical gold I would recommend an online dealer like APMEX.com. They are reliable and will give you a good price. If not buying physical gold, I would recommend ETF's through your brokerage.

5. When Should I Buy?

For wealth protection it doesn't matter too much. Buy on a dip in price. There will be a dip. There always is. For investment, speculation or a hedge on inflation, I cannot tell you. It depends so widely on your unique strategy. Therefore, the answer would be just as unique.

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The Iraqi Dinar: Scam or Scoop?

What is the Iraqi Dinar?

The Iraqi Dinar is the currency being used in Iraq. There are heavily circulated rumors that after the war comes to an end the IMF will revalue the Dinar. If you buy a bunch of Dinars then when they revalue, those Dinars would be worth "millions." There are several websites "selling" Dinars.

The people that buy into this idea are very adamant about it. It seems to be in close nit groups like MLM (multi lever marketing) groups. Many of them bet every cent they own on this idea, and whether or not it is a scam is a very dangerous topic to discuss with them.

How does the IMF play a role?

The IMF (International Monetary Fund) often puts a hold on currency exchange with a country that is at war. This is so surrounding countries and currency traders do not take advantage of their currency. If no hold is placed on the currency, then currency traders and the surrounding countrys can make millions or billions, but in doing so absolutly destroy the country's economy.

This means that a guy in rural America, siting at his computer buying dinars is probably not buying actual dinars. Sometimes they get a certificate, but to remove the currency from the country for purposes of currency exchange would be illegal. In order to exchange your dinars you would have to physically be in Iraq.

How does revaluation of currency work?

Let's assume someone was able to get their hands on some Iraqi Dinars. The whole idea is that when the war is over the IMF will revalue the Iraqi Dinar and suddently their briefcase of foreign currency will be worth 1000x their original investment.

The problem is that these people don't understand how a currency revaluation works. When a currency is revaluated, there is essentially a new currency created. That currency (the new Dinar) will have an exchange rate for the old dinar. The old dinars will be just as worthless as they were before. If the "investor" is lucky they might be able to get back part of their original investment, but that is only if they actually have Dinars. I doubt they do.

Financial Survivalist Rule 27: If it sounds too good to be true, it probably is.

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Non-Fiction Friday: The Cheapskate Next Door

A "Cheapskate" is not a coupon cutter, bargain hunter, or a hotel towel theif. A cheapskate is simply someone that is happy with less. They don't lower their standard of living, they live below their means and are happy with a "lifestyle of less that feels like more."

I rarely watch tv because I don't have cable. However, I'm traveling on business this week and after work I started flipping through channels. I found a show about cheapskates. It interested me because I was in the middle of this book. Sure enough Jeff Yeager showed up on the screen. Not as a host, but as the "ultimate cheapskate."

At one point Jeff Yeager rode his bike around for hours looking for lost change. I have to admit he is a professional change finder. He managed to dig up (yes, dig) just over $7. He used that $7 to buy two goat heads at a butcher shop. He bought the goat heads to "save money," and cooked them for dinner.

First off, you can buy two decent stakes on clearance for $7. How is eating goat heads saving him any money? The meal still cost him $7.

Second, he spent almost all day looking for change. How is that any different than someone searching all day for the right coupons? How is it any different from someone that spends all day sifting through junk at garage sales to find a cheap dresser? Which, by the way, Jeff says is not something a "cheapskate" would do.

All in all the book is a decent book. It makes some good points and has some great ideas. I love the idea of a fiscal fast, recommended for one week a year by the author, I would recommend one day a month at least.

It is essential that a financial survivalist lives bellow their means. However, the author seems to say one thing in his book and portray another on tv. I'm pretty frugal, but instead of picking up change all day in order to pay for one meal, I'll work all day and pay for all the meals the entire week. My time is too valuable to spend it combing the grass near pay phones.

When a "cheapskate" buys a couch/car/dresser, they are buying a depreciating asset. If you buy an antique, you buy an appreciating asset and therefore a better investment. So, though it may be a larger "investment", buying an antique dresser is a better invesment than going to a garage sell and buying a dresser that is falling apart.

All hypocracy aside, this book does hold some valuable nuggets of knowledge, though reading it may remind you of looking change in the grass. What a financial survivalist needs is to be a smart consumer. If you have some time, this book can give you some inspiration.

I'll give it 6.5/10

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Financial Survival = Emergency Prep

My Thoughts Thursday

I was thinking this morning and I asked myself, "What is Financial Survival?" As I continued my thought, I realized that financial survival often looks like emergency preparedness. The reason why is that many emergencies are financial emergencies. Even if they don't start as a financial emergency, they can have financial consequences.

EXAMPLE: House Fire. If your house catches fire, the emmediate emergency is the fire, but it will deafinately have financial concequences.

Emergency Preparation that doubles as Financial Survival:

Proper Insurance - as in the example above, the proper insurance will mediate the financial disaster

Food Storage - Losing an income can be devistating. One of the biggest expenses for a family is food. Being able to rely on food storage durring this kind of emergency can be invaluable.

72hr Kit - Your 72 hour kit should have a decent amount of cash in small denominations. For me, some of that cash is junk silver which gives me US currency AND silver in an emergency.

As you can see there are several way that preparing for an emergency already makes you a financial survivalist. There are many more not listed here. If you prepare, you will not fear.

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How to Make Money from the Crash

How To Tuesday
How To Make Money From the Crash

Millions of people lose millions of dollars when the stock market crashes. But a few make millions. How do they do it? The simple answer is called a short.

Sorting is essentially selling borrowed stock, hoping the price falls so that you can repay your borrowed stock for less.

For example, borrow from an institution Stock A, sell it immediately for $100. Then the price for Stock A falls to $75 and you buy it back. Then return the Stock A you borrowed from the institute. You make $25.

Actual shorting is a little bit more complicated and there are many ways to do it. In my opinion the easiest way to do it is through ETF's (exchange traded funds) that are designed to short the market. They trade just like a stock and increase in value when the underlying assets decreases.

Proshares has a good list of ETFs and a filter to sort out the ones that short the market. Next time the market crashes, maybe you'll be one of the few that make millions.

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How to Open an IRA

How To Tuesday

How To Open an IRA

1. Decide If an IRA is REALLY What You Want

Read why my wife and I DO NOT have an IRA or 401k. Ask yourself why you want an IRA? Usually for tax benefits. However, with all the liquidation and investing limitations I seek tax benefits elsewhere. Yes, there are Alternatives to Traditional Retirement Accounts.

2. Find a Provider

I prefer Sharebuilder.com or Zecco.com. It depends on how envolved you want to be and how often you will make trades. Sharebuilder has $4 stock trades IF you have an automatic investing plan (you have an auto transfer to sharebuilder with an auto purchase set up). Zecco has $5 stock trades both ways (buy and sell), but takes a little more time to transfer money to and from your account.

3. Decide How Much You Want to Contribute

For 2012 you can contribute a maximum of $5000/year, unless you are older than 50. Then you can contribute $6000/year. Luckily, you can still contribute for the year 2011 until you file your taxes.

4. Fund It

Fill out the forms on the chosen website. Select your funding option. You can transfer a different IRA, rollover a 401k, or just contribute cash. Connect an account, wire the money, or send a check. You can even call a previous provider and have them send a check directly to your new provider.

5. Pick Your Investments

I can't help you too much with this one. I can say that I like ETF's. Mutual Funds cost too much and have to many downsides to them, like you can owe taxes even if you've lost money. Good Luck.

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Money Monday: Largest Ponzi Scheme in History

Money Monday

Largest Ponzi Scheme in History!

A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from any actual profit earned by the individual or organization running the operation (Wikipedia).

Essentially investor A is paid "returns" from investor B. There is no actual investment, and new investors are required to pay fictional returns to previous investors. Eventual the number of new investors is insufficient to pay the returns to previous investors. The Ponzi Scheme implodes.

So Called Largest Ponzi Scheme

Bernard Lawrence "Bernie" Madoff, born April 29, 1938, is a former American businessman, stockbroker, investment advisor, and financier. He is the former non-executive chairman of the NASDAQ stock market, and the admitted operator of a Ponzi scheme that is considered to be the largest financial fraud in U.S. history. The amount missing from client accounts, including fabricated gains, was almost $65 billion. The court-appointed trustee estimated actual losses to investors of $18 billion (Wiki).

The U.S. Government spends a ton of money. I mean trillions! That money enters the economy in the form of wages or profit and is taxed. That tax income is used by the federal government as further spending. As the money moves through the system, without private sector growth, the tax income shrinks and the government is forced to used borrowed money to continue the ponzi scheme. At this point the scheme can only continue while the public accepts the increase in government debt and taxation.

The United States Government IS the Largest Ponzi Scheme in world history. In 2011, the U.S. Government received about $2.56 trillion in tax revenue spent (paid out) $3.83 trillion! That means that the U.S. Government expects to show it's investors almost 50% returns that are completely, 100% fake. Fabricated from thin air, the U.S. Government will pay earnings from additional investors investments (ie more taxes) (wiki).

How Long Can It Continue?

The U.S. Government has an interesting and unique position that it can print it's own money, and that it's currency is the world standard or reserve. This allows the U.S. Government the ability to pay fabricated gains with printed money as well as new investor deposits (tax income). This allows the U.S. and the Federal Reserve (not a part of the gov't) to propagate and continue the ponzi scheme as long as the world accepts it. Government spending is already 1/4 of U.S. GDP and will continue to grow until the Ponzi scheme is stopped and or exposed.

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My Thoughts Thursday

My Thoughts Thursday: A day for me to share with you whatever has been on my mind.

There are times that I sit down at my keyboard and just want to write. This is one of those times and Thursday is a perfect day for it. I am traveling today for business, as I often do. It seams to me that many people are begining to feel better about the economy, like we will recover and all will be well. It is stupid to think that their will not be another recession, though I believe most people realize that these last few years may one day be relived once more.

I have seldom thought the same as the masses. I have always thought differently, and more often than not, seem to see things others cannot. I would not be suprised if our economy did recover. The lengths that the Federal Reserve and U.S. Government will intervene seam to have no limits. However, this recovery will be short lived in the view of history. The attempts to save are fiat system are in vain.

Financial systems, as well as societies, have life cycles and ours is nearing it's end. I believe within my life time I will see the failure of the representative republic known as the United States of America. Our current form of government will be replaced by a more controlling form. I also believe that this change may be brought on by the failure of our fiat money system. A system that is already on the birnk of collapse.

I do not write this so that you may dispare. I write so that you may prepare. No matter what the future holds, if you prepare, you shall not fear. As always, be smart and thrive.

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United Socialist States of America

A while back my father gave me a t-shirt as a gift that said, "Fight Socialism." I wore that shirt today and at the pet store the cashier commented on my shirt. She asked me where I got it and I told her. Then I added that I wore it because we live in a socialist nation and we need to stand against socialism.

She asked, "How is the United States a Socialist Country?" I quickly answered:

1. 1 of every 4 dollars spent in the economy are directly spent by the U.S. Government.
2. Freddie Mac & Fannie Mae
3. Auto Bailouts
4. Bank Bailouts
5. Department of Energy
6. Medicare & Medicaid
7. Food Stamps
8. Social Security
9. Department of Education
10. Department of Agriculture
11. Federal Drug Administration

This list of government intervention and attempts at social planning goes on and on. How could we think anything different?

She said, "That's and interesting perspective." I shook my head and said "Good day."

Then, walking out of the store I thought interesting perspective? I'm not some right wing nut job. I have a finance degree. I am well read politically and economically.

People need to wake up. Socialism is not an on/off switch. It's a sliding scale and a slippery one at that. Freedom is a constant uphill battle and the moment we stop fighting for economic freedom we start sliding downhill. 

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Aesop's "The Grasshopper and the Ants"

The other night my wife asked me, "Why do we live our lives worrying about all these "what if's? What if there's a flood, earthquake, government coup? That's no way to live!" My answer was, "If we prepare, we shall not fear."

I believe that in my lifetime, I will experience the end of the fiat financial system and the end of our current government in the United States. Societies have life cycles just like businesses. All the great societies have gone through the same stages, and the United States has entered it's decline. Is it physically possible to break this cycle? Yes, but it is against human nature to do so.

My point is that my life brings many uncertainties, and life is to precious to worry about all the unknowns. That means you can ignore them, or prepare. I choose to prepare. Instead of spending money on jewelry, cars and nice clothes, I spend it on preps and investments. The following is a short, but to the point story about why "it is not what you spend, but what you save that matters."

Be Smart and Thrive

The Grasshopper and the Ants In a field one summer's day a grasshopper was hopping about, chirping and singing to its heart's content.  A group of ants walked by, grunting as they struggled to carry plump kernels of corn. "Where are you going with those heavy things?" asked the grasshopper. Without stopping, the first ant replied, "To our ant hill.  This is the third kernel I've delivered today." "Why not come and sing with me," teased the grasshopper, "instead of working so hard?"

"We are helping to store food for the winter," said the ant, "and think you should do the same."  "Winter is far away and it is a glorious day to play," sang the grasshopper. But the ants went on their way and continued their hard work. The weather soon turned cold.  All the food lying in the field was covered with a thick white blanket of snow that even the grasshopper could not dig through.  Soon the grasshopper found itself dying of hunger. He staggered to the ants' hill and saw them handing out corn from the stores they had collected in the summer.  He begged them for something to eat. "What!" cried the ants in surprise, "haven't you stored anything away for the winter?  What in the world were you doing all last summer?" "I didn't have time to store any food," complained the grasshopper; "I was so busy playing music that before I knew it the summer was gone." The ants shook their heads in disgust, turned their backs on the grasshopper and went on with their work.

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What is Retirement to You?

Because of relatively recent financial events, there are an incredible amount of middle aged Americans who are no longer sure when or if they will be able to retire. I fear that by the time I reach "retirement age" retirement as we know it may no longer be a likelihood.

Our financial world is changing rapidly and doing so in stealth. Most people don't realize the significance of the current financial events or their long term concequences. Financial rules are being rewritten, and my children will learn a difference set of rules than I.

Luckily my definition of retirement is different than most people's. For most people retirement means you work until you have enough money to do what you really want to do. However, my definition of retirement is financial independence; when your passive income surpasses all your living expenses. This means your financial situation is such that you don't have to work if you don't want to.

Do What you Love

The first and most important step of a smart retirement strategy is never planning to retire. "If you do what you love you will never work a day in your life." I don't think that's true, because even if you love it you often must work very hard in order to be successful. However, the point is that if you are happy and enjoy what you are doing, then in a worse case scenario, it won't be so tragic if you cannot retire.

One of the sadest retirement strategies is working a job you hate hoping that one day you won't have to, and THEN you can enjoy life. Life is too short to spend it doing something you hate. I'd rather be poor and happy than rich and miserable.

Earn Passive Income

The whole goal of retirement is reaching a financial point in which your passive income surpasses your living expenses allowing you to no longer work. Most strategies are saving as much as you can until you have enough money to live off the interest. This strategy seldom works the way people hope, and even when it does it takes most of a person's life to save enough money.

This strategy is also designed around the financial industry. Most people in the financial industry are not paid by how well they invest money, in fact almost no one is. Most financial professionals are paid based on "assets under management," that is the ammount of money you have invested. They get a percentage of this amount every year no matter how much money they make or lose for you. It is in their best interest to convince you to invest all the money you can, and even when you are retired to keep it invested.

My strategy is to create passive income through cash flow. It doesn't matter if my net worth is $10 million or $0; if my passive income is more than my living expenses I have reached that "retirement goal." I have become financially independant.

My preferred way of creating passive income is real estate. Real estate is unique in that it uses other people's money to create passive income. There are plenty of hoops to jump through, and it is difficult to make it happen, but if you are successful it is worth it. Real estate also has many other financial advantages including tax advantages and inflation protection. My goal is to do this by the end of 2012, and significantly pass it by my 30th birthday (two years).

Invest in Yourself

"When it comes to economics, the majority is wrong 99% of the time." Rather than buy into the hype and follow the croud into a failing system, educate yourself. It is well worth it to take the time to financially educate yourself. Make yourself a better steward of your finances than some guy with a fancy title and an expensive conflict of interest. There are numerous places to put your money other than an IRA. Read Alternatives To Traditional Retirement Accounts. Be Smart and Thrive.

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