Archive for Government

This I Believe – One Young Economist’s Plea

For centuries, families have come to the United States to enjoy the freedoms and opportunities that cannot be found elsewhere in the world.  Our country’s economic, political, and educational foundations are built on the backs of immigrants seeking to improve their quality of life.

It’s time to recognize that families in the U.S. are more similar than they are different.  Muslim families as well as Christian families want to make a decent wage at a job they are appreciated for.  Democrats, Republicans, and Independents all want to be able to buy or rent a nice house in a safe neighborhood and put food on the table.  Gay and straight partners want their children to get a great education with the hopes that they will go on to get a good job, raise their own families, and live happy, healthy, and successful lives.  Men, women, and transgendered individuals are afraid of losing their jobs, losing their houses, and letting down their families.  Citizens as well as undocumented individuals are here in the U.S. because they share these hopes, dreams, and fears.

As human beings, we are all unique.  We look and act different, we have different thoughts and opinions.  But almost everyone that puts together a list of their dream place to live would write the following:

“Meaningful work, affordable housing, fulfilling education, adequate medical care, a clean environment, honest and accountable government, social and cultural renewal, or simple justice”  (Dumbing Us Down, p. 15).

I understand and recognize the importance of having a federal government.  The government is elected by the people to represent the people and to provide needs that are deemed “the public good”.  We need to continue to reduce the inefficiency and waste of the federal government.  But after reading The Price of Civilization by Jeffery Sachs, I was reminded why a strong government is necessary for a developed country.  It would be foolish to insist that we pay no taxes and allow the free market to take on the public goods.

That said, I believe strongly in the power of a free market system.  Capitalism is the single most efficient method to price goods as they are needed, pay individuals that are hard working or creative, and transfer those goods to the place of their greatest need – anywhere in the world.  But the free market system must be balanced with some regulation by the federal government. Without a mixed economy, the world would be filled with Enron’s and BP oil spills.  Capitalism is great at efficiency and providing short term profits, whereas the government helps to keep the free markets from damaging the resources we need to survive and that we will pass on to future generations.

I believe in sound money and taking the country from a fiat currency back to a currency that is more stable and more difficult to reproduce.  I believe that the time has come to take control back from the federal reserve and to end the abuse of the fractional reserve banking system.  An effort should be made to allow for people to use sound banking facilities where they are guaranteed to be able to withdraw their money at any time.  These banks should protect the hard-earned assets of the average citizen.  As a result, U.S. citizens would be encouraged to save for their future and future generations.

I believe that corporations are corporations.  They are not people, and they are a foundational part to what has made the U.S. a great nation.  In order for the free market system to function, corporations must be allowed to fail.  Our country becomes stronger because businesses and individuals can take risk and go bankrupt.  No company should ever be declared “too big to fail”.  Any company that does this imposes a risk to the entire system and should be immediately divided and sold off as smaller companies.

Just because the wealthy may create jobs doesn’t mean they shouldn’t pay their fair share of taxes. I believe that everyone in this country should be thankful for the opportunities that exist here.  The Bill Gates and Warren Buffets of the world should recognize that their money comes from the pockets of working Americans.  Being wealthy is okay and should be encouraged.  Hoarding money and finding loopholes to prevent paying taxes hurts everyone – both the rich and the poor.

In a country as powerful and full of opportunity as the U.S., healthcare should be a basic human right and not a privilege.  A universal healthcare system should be developed that would:

  • Provide basic healthcare insurance for everyone that includes access to a primary care physician, access to preventive care, and basic coverage for most major diseases.
  • Make healthcare costs more clear to the consumer and allow a combination of public and private services to provide these options.
  • Make it cheaper for qualified doctors, nurses, and healthcare professionals to access training.
  • Move to an electronic records system similar to other developed countries
  • Limit litigation and damages that healthcare workers face to keep costs down.

The U.S. has over 3 million people incarcerated.  This is a tremendous burden on the taxpayer.  Anyone that is incarcerated for using or selling marijuana should be released.  Alcohol is a much more dangerous, addictive, and debilitating drug than marijuana.  Prisoners that desperately need psychological help should be provided the treatment they need, as well as the prisoners addicted to drugs, or victims of violence.

The U.S. education system is broken.  But it’s not because there aren’t great teachers.  Teachers need fewer standardized tests and more freedom to use their passion to teach.  Technology will provide the data and allow teachers to identify and reach out to students that are struggling.  Schools should be re-engineered as learning centers for the community, and parents and professionals should all play a role in helping young minds explore the wonders of the world we live in.

If I was president, I would encourage every young person that graduates high school to commit to 2 years of service to the country:  armed forces, Peace Corps or AmeriCorps volunteer work, Teach for America, or other volunteer work.  Our citizens should be happy to “pay it back” and help other Americans live better lives.

I would also reign in the military spending and close many of the military bases that exist around the world.  Limits to Medicare and medicaid would have to be made in order to provide this service to our children and our grandchildren.  We don’t need to pay back the 15 trillion dollars we owe, we just need to pay some of it back so our economy can be strong again and the world can trust that we are fiscally responsible.

I believe that I can be proud of the United States of America again.  I believe that my future children will have clean water to drink, national parks to visit, and a great education provided to them.  I believe that my shaken faith in the United States is only temporary.  I believe that I am a change agent and that I can help this country remain great for future generations.

~Nick, January 28, 2012

$6 Million Bucks of Nothing

Photo courtesy of dawgsports.com

I wish I raked in a $6 million annual salary.  (That’s almost $3,000 an hour if you work 40 hour work weeks!)

The only people that make that kind of dough are successful inventors, high level execs at prestigious firms, or… college football coaches.

You read that correctly.  College coaching is paying more than ever before, and I’ve got a problem with it.   In a previous blog post, I wrote that the costs of higher education are unsustainable, and this article is a follow-up piece.

 

I took over 200 credits during my undergraduate years (and still managed to graduate without student debt), and almost 30 credits for my master’s program (still no debt!).  I attended, at most, maybe ten football games and a handful of other athletic events.

Funny, because I paid around $80 per semester in student fees, which adds to over $1,100.  With a little digging, I found that the actual definition for this athletic category reads as follows: “The revenue from this fee enables free access to sporting events by all students at the U. Money also supports non-revenue sports and marching band.”

You see why I’m mad?  Even my on-campus gym and intramural sports weren’t covered in this fee (those fees are filed in the ‘recreation’ student fee).

If you’ve read my previous article, you’re probably wondering why I’m continuing to beat this dead horse.  It’s because I just finished watching a video that got me all riled up again!

The National Inflation Association produced a documentary called College Conspiracy, and it’s actually quite good.

One fact that I never realized in this education bubble is that when it pops, the market will contract.  The NIA predicts that 30% of colleges and universities will close as the population recognizes that a college degree does not equate to a high-paying job.  College prices will come down and brick-and-mortar schools are going to be stuck with their crazy glass buildings (here, here, and here) they seem to enjoy.

I encourage you to watch the video for yourself and leave your comments.  Here’s mine: I want my $1,100 bucks back.


~Nick, the Self-Taught Economist

 

PS:  For those of you following my journey away from W-2 salary into self-employment, I may have news for you soon.  I can’t really discuss at this point, but I’m hoping I can announce in a week or two!

 

Could the U.S. Be Held Hostage By China?

I decided to have an educational movie night and rented checked out I.O.U.S.A from my local library.

While things (mostly economic things) have deteriorated terribly since the film was produced in 2008, one short segment of the film stuck in my mind:

If we journey way back in time to 1956 (I wasn’t even born, and I definitely didn’t learn about this in history class), there was a hostile little scuffle called the Suez Crisis.  Here are my shorter-than-CliffsNotes. (If you like the full thing, read a book.  Or search it on Wikipedia.)

Location:  The Suez Canal is a waterway (mostly manmade) from the Mediterranean to the Red Sea through Egypt.

Aggressors:  France, the U.K., and Israel

Defender:  Egypt

Spectators (the angry, belligerent kind):  Soviet Union and the United States

Context:  The aggressors weren’t stoked that the leader of Egypt (Nasser) nationalized the canal at a time when Britain was trying to maintain strategic control of this valuable shipping way for oil and goods.

Why I’m telling this story:  The U.S. didn’t really want to get involved, but finally Eisenhower threatened to cut off financial support to Israel and also threatened to sell of the U.S. Government’s Sterling Bond holdings.  This would have caused Britain’s currency to fall, sending them into Depressionville.  Basically, financial pressure from the U.S. caused three powerful countries to back away from a highly valued prize.

——

Flash forward to present day.  The U.S. is in a tremendous amount of debt (duh).  For the first time EVER, 32% (4.45T) of the total debt ($14.1T) is owned by foreign countries.  Everyone knows who owns the majority.  Of course that would be China with 36% of that $4.45 trillion.

Dear reader: You should be reading between the lines and already cursing under your breath at the ridiculousness that the tables of turned.

Pretend for a minute that the Chinese (for any reason) don’t play nice with the U.S.  Let’s say, for example, that they’ve been growing their naval fleet (true!) and decide to take control of the Suez Canal tomorrow.

The U.S. immediately reacts and pulls out our fighter planes, nukes, drones, invisibility cloaks, and whatever else we’ve been buying with all of our military spending. But China isn’t concerned because they’re one step ahead of our awesomely expensive attack methods.  They threaten to sell off the $4.45 T worth of U.S. bonds they own, effectively collapsing the dollar.

Uh oh.  Goodbye U.S. dollar.  Think of the currency crash we would experience.  Think of the global repercussions, since the U.S. dollar is the reserve currency of the world.

The euro’s not doing so hot right now. We can use Swiss francs or Chinese yuan.  Hate to say it, but the world’s probably gonna look at the currency that can actually support global trade.

——-

Anyway, I don’t really know the full repercussions, but I just wanted to touch on the point that the U.S. in a very dangerous position.  Let’s show some fiscal responsibility and put joint bills together.

Insert Personal Bias Here: There are two ways to balance a budget: spend less or make more.  Anyone that takes one of those options off the table (I’m talking to you Tea Party) without negotiating shouldn’t be in Congress.

I’m just sayin’.

This has been another fear-instilling (thought-provoking?) article from

~Nick, the Self-Taught Economist

 

Another Sign We’re in Crazy Town Looking Over the Ridge into Depressionville

The markets are shifting back and forth so fast that day traders are foaming at the mouth, and the average person is getting whipsawed like a kid’s head on one of those old, rickety wooden roller coasters.  But if you step back and look at the big picture, it’s a scary sight – especially for Europe.

 

What am I talking about?  Anyone that follows the news has heard of the countries on the euro that haven’t been playing nice.  Here’s a list of the 23 countries that use the euro as currency, and the ones on the verge of default are designated in red.

1) Andorra
2) Austria
3) Belgium
4) Cyprus
5) Estonia
6) Finland
7) France
8 ) Germany
9) Greece
10) Ireland
11) Italy
12) Kosovo
13) Luxembourg
14) Malta
15) Monaco
16) Montenegro
17) Netherlands
18) Portugal
19) San Marino
20) Slovakia
21) Slovenia
22) Spain
23) Vatican City

Interestingly, when the euro was introduced in 1999, the economists that put this idea into action had the sense to require a few stipulations for the countries that wanted to join:

  • A budget deficit of less than three per cent of their GDP
  • A debt ratio of less than sixty per cent of GDP
  • Low inflation
  • Interest rates close to the EU average.

But (not-so-wisely), the economists never wrote into the agreement what would happen if countries moved away from the euro.  Now, with countries as big as Spain and Italy having trouble staying solvent, it’s not unlikely that countries with strong economies (i.e., Germany and France) would have voters that want to avoid getting dragged down with the whole ship.  To read more about the sovereign debt crisis, click here.

The other whacky thing that’s happening in Europe is little Switzerland.  The little Swiss franc has become the strongest currency in the world because investors are scrambling to find a safe place for their money.  Besides gold, the Swiss franc is one of the best options.

Normally, a strong currency is good.  But Switzerland is too small a country to have the world’s investment dollars poured in.  As the value of the franc goes up (because increased demand = increased price), it is impossible to export anything out of the country.  Here’s the 18-minute radio story if you want to hear more about this.

So the funny thing is, the Swiss government is considering tying the Swiss franc to the euro to bring it’s value back into check.  What a huge friggidy-freakin’ mess!

So what does this all mean for the U.S.?  It means that the road to recovery is not likely coming in the next five years.  I can’t wait to listen to the President’s speech tonight to see what he has to say about the forecast.  Watch it tonight, Sept. 8, 2011 at 7pm Eastern.

Okay wise reader, how do you think the Eurozone crisis will affect the U.S.?

 

~Nick, the Self-Taught Economist

 

Think My Predictions Are Crazy? Listen to This…

Think my predictions the other day about an economic calamity are facetious?

Listen to this podcast developed by Planet Money of NPR and hear the similarities (except they’re talking EU and I’m talking US).

It frightens me to think about how likely much more likely the situation seems to me.  Everyday it seems to becoming more and more real…..

Enjoy.

<<< click here to link to the podcast >>>

~Nick, the Self-Taught Economist

Economic Calamity

If the economy was a female, she's probably do something like this...

This article will either scare you stiff or make you laugh because you’ll think I’ve lost my marbles. But either way, hopefully you will think about the “what ifs” associated with some kind of economic calamity.

To give you some context, it’s not like I’m any sort of conspiracy-theorist, whacko, or maniac. I’m a level-headed guy. I studied biology and Spanish in college and I had to learn to question everything.  I read the newspaper.  I don’t live under a rock nor do I take any medication for any tendencies.

Even before I started studying economics seriously, I wondered how everyone could trust that a one dollar bill (U.S. dollar) was worth one dollar if the government could just print as many as they wanted. The more I learn about the current U.S. economic situation, the more fearful I’ve become. The following is my best prediction for a worst-case scenario in 2012 or 2013:

1.) The stock market crashes, losing 95% or more of it’s value. This would be exactly as some experts (most of which are smarter than me) predicted, known as the “dead cat bounce” after the last crash in 2007-2008. Precious metals and treasuries rally during the crash, but eventually top out and crash as well.

2.) Banks fail. First the investment banks beg the U.S. government for additional funding, but there will be no money to give (was there ever?). The elected officials want to do another bailout, but the American people erupt in chaos and demand that the companies fail.  No matter how many banks fail, credit seizes and any size loan is virtually impossible to obtain.

3.) The ripple effect of the banks hits Europe, China, and other creditor countries especially hard. This starts the erosion of the major currencies. The dollar and the euro inflate rapidly and investors jump to safer currencies.

4.) Meanwhile, U.S. companies contract along with the credit and are forced to lay off hundreds of thousands and then millions of workers.  Companies that rely on sales of middle class luxuries (lattes, massages, fancy clothes) shutter their doors.  Companies that sell to the upper classes will be affected, but not as dramatically.  A massive lower class is created, and without federal aid, is unable to survive.

5.) The housing market continues to fall into a giant sinkhole. Recent college graduates are burdened with student loan debt and families are unable to afford assisted living centers for older family members. Families move in together, with multiple generations living under the same roof. Many homes are boarded up or burned for insurance money.  The value of real estate dwindles.

6.) Americans continue to be scared of the U.S. government and corporations.  When individuals try to withdraw cash reserves at their local banks, they are told to come back later. This quickly hits the news and mass panic ensues.

7.) Rioting occurs throughout the country, mostly in large cities.  The national guard is called to maintain control of the bigger cities.  The presidential administration is forced to withdraw troops overseas to serve as peacekeepers within U.S. borders.

8.) The U.S. continues to operate, but at a different capacity than the one we’ve all been accustomed to since World War II. The U.S. will no longer be able to “police” other countries. Military spending is cut drastically and America is unable to provide significant protection to ally countries.  By now, most of the wealthy class has moved their money to international opportunities like Japan, Brazil, and other developing nations.

9.) The U.S. people will go through years of electing political candidates that promise “better business sense for the government” and “fewer taxes”.

10.) The U.S. president who finally starts to turn things around will be the president (hopefully a woman) that instills pride in the American people and does what’s best for the people, not what’s best to be re-elected.

11.) The U.S. will go through a long (decades) period of growth and development, but not as the world’s superpower.  Families will reflect on the breakdown of the U.S. government and Wall Street stealing money from the American Dream.

 

Scared?  Laughing this off as irrational? That’s okay.  Even if I’m way off-base, it’s nice to think about this ahead of time, right?  Use your own brain to think about what will happen and how your family will react and adapt to the changes.  If you’d like to learn more about this topic, I suggest The Great Depression Ahead by Harry Dent.

What do YOU think the future has in store?  What did my scenario get wrong/right?  I’d love to hear your comments.

~Nick, the Self-Taught Economist

 

 

The Self-Taught Economist Coming to You From a New Locale!

Greetings to the one or two diehard folks that continue to check up on me here at SelfTaughtEconomist.com!  I had an epic adventure driving across the U.S. to my new home here in Rochester, New York.  After 4,000 miles and 14 states, I promise not to neglect STE for two weeks ever again!  (Well, at least not until we drive back to Utah in three years.)

A lot has happened since my last post.  While daily news isn’t really all that important in the grand scheme of things, the cumulative effect provides significant information about the trend of the economy.  Here’s a brief review and my take on things:

    1. On Friday, August 5th, the U.S. credit rating was downgraded by Standard and Poor’s from AAA to AA+ and with a negative outlook for the future.  This is the first time in history that the U.S. has been considered anything but a bulletproof investment.

Frankly, the downgrade surprised me because I thought the rating agencies were far too corrupt to actually go through with a downgrade.  If the rating agencies were truly unbiased and objective, they would have downgraded the U.S. a long time ago.  But, low and behold…they come up with a downgrade despite a 2 trillion dollar mathematical error on their part.

2.  As a result of the downgrade, the stock market has become incredibly volatile.  In the past two weeks, there have been wild swings both ways (insert joke here), but the Dow has lost nearly 5.5% since August 8th.  Personally, I feel I made the right decision in April when I decided to sell the majority of my portfolio except for a small index fund.

3.  Gold continues to break records and everyone acts surprised, which amuses me.  Silver has superseded where it was when “the bubble popped” and lost a good 30% of its value this summer.

I have significant investment in these precious metals and I will continue to invest in these areas until I trust the U.S. government will stop printing currency and start getting its act together OR I feel that the real estate market or stock market are a better place for my money.

I just watched a scary video today.  Scary because it was honest and scary because it foretold of dark days ahead.  I happened across this video at one of my favorite blogs about money and the economy, SunnahMoney.com.  It’s long (1.5 hours), but I promise it’s worth your time.

Mark Mahoney clearly knows his stuff and this video is only one part sales video for every ten million parts truth about how the economy is headed for major change in the upcoming years.

I would love to have more of you quiet readers leave feedback and comments on this site about what you see!  And as always, thanks for reading today.

 

~Nick, the Self Taught Economist

 

 

Alright Fellow Economists – A Homework Assignment

Last night I tossed and turned and eventually laid awake wondering what was wrong with me.  The clock blinked 4:32 AM.

Succumbing to sleeplessness, I switched on the light and started browsing a few of my favorite personal finance blogs.

While reading Wealthrat, I came across an article that mentioned Chris Martenson‘s “Crash Course”, and I clicked on it.

I was immediately drawn to the message that this man preaches.  There are 20 chapters (short videos) that vary between 3 and 20 minutes in length.

I encourage everyone that is interested in learning about economics to watch all twenty segments of this video series (Yeah, I watched all of them because I was wide awake).

There is so much information that I will be returning to write about the topics in future blog posts on SelfTaughtEconomist.com.  You can watch all of the video clips by clicking on the link below:

——Watch Chris Mortenson’s Crash Course——

~Nick, the Self Taught Economist

PS:  Regarding my self-employment situation, today I secured a part-time consulting job with my former employer.  I’ll write more about this in another post, but I’m thrilled to get paid to do my favorite part of the job and it will look great on my resume.

I’ve also had some requests for advice on real estate investing, so an article (or video?!) should be coming up in the next couple of days.  Keep the suggestions coming!

 

One of the Many Reasons the US Economy is Sunk

As I walked up the hill on my way to work today, I laughed out loud, shook my head in disbelief, and smiled grimly.  No, I wasn’t involved in a blistering debate about politics, religion, or why Michelle Bachman is running for president.  I was listening to my favorite NPR podcast, “Planet Money”.   The reason for my abnormal reaction was this:

In 2005, Congress passed a law called the “Presidential $1 Coin Act of 2005”.  The idea for the bill was based on the 50 state quarter program that had proved to be incredibly successful.  The new program would mint all of the US presidents on dollar coins, to be released periodically from 2007-2016.

Have you seen these presidential $1 coins?  Probably not, unless you are a coin collector or work at a self-serve car wash.  I guess what I’m trying to say is that the presidential coins are nowhere near as popular as the state quarter program.

But as a result of the Presidential $1 Coin Act, every year between 200-250 million $1 coins are minted.  But because there is no consumer demand for these coins, about 40% of them wind up in government vaults across the country.  Currently, there is approximately $1 billion dollars in storage, and by the time the Presidential $1 Coin Act ends, $2 BILLION DOLLARS will be in underground vaults!  Technically, this isn’t even “money”, because it hasn’t been requested by a bank.  It’s just shiny metal.

So why does the government keep minting coins? There are two reasons, both of which are found in the 2005 Bill:

1.) “…Adequate supply of $1 coins is available for commerce and collectors.”

Banks request a certain amount of these coins, but inevitably most of them are spent and businesses return them to the Federal Reserve. Unlike the quarter program, consumer demand is not expanding.

2.) “The Secretary annually shall mint and issue such Sacagawea design $1 coins for circulation in quanties no less than 1/3 of the total $1 coins minted.”

Independent of demand, the fed has to make Sacagawea coins based on the total production of $1 coins. This is in spite of little or no demand for Sacagawea coins! That means there are more Sacagawea coins than any other coin, because every time you print a new President, you rev up the Sacagawea mint!

The government passed this law this to make money.  And the coins that make it into circulation make 70 cents profit (it costs 30 cents to make each dollar coin). 60% of the coins minted make it into circulation, but $300 million has been wasted from the 40% of coins that are stored in vaults.  And because the program is scheduled to run until 2016 (we’ve had a lot of presidents!), another $300 million is on track to be wasted as well.While the government provides many wonderful services that are crucial for our safe, thriving, and functioning society, here are my complaints:

There is no competition. The US government does not have any pressure to prevent wastefulness.  When the Coca-Cola company developed “New Coke” in 1985, everyone hated it.  Because Coca-Cola was competing with Pepsi and other soft drink companies for market share, it quickly reverted back to “Classic Coke” and prevented further losses.  The US government has no pressure to quickly respond to consumer demand.

There is no accountability. While there are plenty of government employees, efficiency in the workplace isn’t tied to employee compensation. Politicians like positive media attention, especially while they are in office.  Most of the bills passed (and there are many) go unchecked in the years after the the bill is passed.

Click to See # of Government Employees Across Past 10 Presidential Administrations

There is no common sense. I guess the most saddening part is that there isn’t anyone to stop and ask the tough questions.  Storing a billion dollars in underground vaults seems crazy – and I’m no Darrell Issa sitting on the Oversight Committee to prevent wasteful spending.

The US is a great country.  But the US government needs to be run more efficiently – and start running a budget surplus instead of a deficit.  This is just one example that shows why our government is in the current situation it’s in.

I hope this article gets you shaking your head in disbelief just like it did mine.

~Nick, the Self Taught Economist

 

You can listen to the Planet Money episode by going on iTunes and searching Planet Money.  The free podcast was released on June 24, 2011 and is titled “Wasting Money Making Money.”

 

photo credit: NPR Planet Money website, graphic from the Huffington Post