The Global Economy: A True Catch 22

The force behind the Global Economy

The force behind the Global Economy

Every economist worth a dime knows that “Without growth you can’t pay your debt and with too much debt, you can’t grow.”

My jaw permanently dropped when I read the Wall Street Journal reporting several days ago that American’s wealth hit the highest level ever, last year, cleverly reflecting a surge in the value of stocks and homes that has boosted the most affluent US households, primarily or better yet exclusively created by the Feds pumping $20 trillion into US households since 2009, which of course makes this whole sordid record surreal.

Why? Because we all know that wealth cannot come from nothing. Wealth is a process of work, timing, luck, knowledge but mostly EFFORT. Greek philosopher Parmenides in the 5th century BC used the phrase “Out of nothing, nothing comes”, and even Thomas Aquinas, the 13th Century friar and philosopher as well as St. Augustine, the patron saint of brewers, later used this axiom to prove that the universe needed a “first mover,” to get things going.

So, where is all that ‘new’ wealth coming from. Some may say from the hand of the Almighty, as in Manna from Heaven of course… I prefer to leave the Almighty out of this however, seeing that his philosophy embraced the interpreted expression that: “If wealth rises, all should benefit.” Well, clearly that is not the case here.

We are led to believe that the Federal Reserve’s policy mission is designed to produce a general prosperity; the Fed claims to keep rates near zero so the entire economy benefits. But it isn’t true. Only some prosper.

For the less fortunate, all the stimulus makes money ‘worthless’. A retirement saver 30 years ago would easily get 8-10% on a CD (certificate of deposit). But that was 30 years ago, before world regions such as North America, Europe and Asia were “changed” into a global economy by the multi national corporations of this world. This movement has put global trade and financial interdependency on a course with the future never experienced before. Because large international corporations forced the Western World to open their doors to world trade, we now have a “Global Economy” and the West is no longer isolated from the poor workers of Asia, Africa and Latin America.  Mobile phones, motorized vehicles and refrigeration are available in every corner of the globe these days, providing the basic tools for rapid progress.

But this development has also led to an interdependence of all regions and countries. If Europe experiences hiccups and the US economy stalls, a domino effect will affect the exports of China and Japan and they, in turn, will start flounder. Now the big problem has become that the entire West (US and Europe) built its economy on borrowed money and with global debt numbers reaching $100 trillion, there are no realistic means today of repaying those loans, even if we would have a growth economy.

Hence, the West faces the hard task to either curtail its living standards for the greater good, leading to unemployment and recession, or accelerate development of growth markets in previously under developed nations to catch up with our standard of living. Option 1, curtailing standards of living will hurt Asia’s growth as Asia cannot survive alone. Playing catch up by the world’s poorest nation requires a tricky strategy, considering how wealth seems to embrace their own opulence. In any case what we are facing for the next 3 or 4 decades is a global equalization of living standards, where ultimately Westerners no longer have a reason to have a higher living standard than any other country. Cheap energy and technology supported a higher Western living standard but is now available across the Globe. A potential debasement of the Western living standards may cause a lot of mental and even physical pain in the West, if not anticipated correctly.

The Fate of the Baby Boomer Retiree

Thirty years ago a $200,000 nest egg ( for example a home) could generate up to $20,000 a year in interest payment without ever touching the principal. Retiring was an easy decision. Today’s potential retiree stays in the workforce as long as possible, clogging up the natural pipelines because, interest paid on a CD today is not even enough to keep up with the official inflation rate.

As it becomes increasingly clear that he Fed’s activist policies distort and corrupt the economy we learn that prices are bent. Next, taking their cues from bad prices, bad decisions are made and before you know it, everything is twisted in one direction or another. Low rates and rising prices tricked Americans into believing that the more house you had, the more money you would make.

Well to tell you the truth, the $20 trillion in new wealth is in the hands of America’s winners. It added little to US GDP… or to Americans’ incomes. It was merely another transfer of wealth. Owners of stocks and houses got richer. Wage earners and savers got poorer.
I would suggest to those who got richer to start taking the money off the table, but I know many of them are driven by greed, so the loss of their wealth is inevitably etched in their DNA.

Equally inevitable in repeating itself over and over again, is the human trap that lead to the 2008 great recession. Dave Ramsey probably described it best: “We buy things we don’t need, with money we don’t have, to impress people we don’t like.” I think the current reincarnation of that reality started with Malcolm Forbes who coined: ““He who dies with the most toys, wins,” a opulent lifestyle choice rapidly adopted and popularized in the 1980s by the yuppie generation.

Poisonous Wieners

After 25 years of increasingly believing that debt trees could grow infinitely, the first cracks appeared in the weakest part of the debt structure: US subprime mortgages. Around that time the Feds philosophy became firmly anchored in a belief that Money should cost nothing and Chicks were for free, at least if you were a Wall Street insider.

Greed created a global demand for mortgage-backed securities, a toxic sausage of Wall Street manufactured products that cleverly concealed, with the tacit backing of the ratings agencies, the junk hidden beneath the surface.

When it all collapsed in the demise of Bear Stearns, followed by Lehman, the feds rode in on a white horse with every quack cure they could think of. Bailouts, cash for clunkers, ZIRP, QE – one estimate put the total cost at more than $10 trillion, or about three times the cost of World War II.The crisis was caused by too much debt. And all the feds had to offer was… more debt. As Bloomberg reported last week global debt has grown to$100 trillion plus and since debt is an obligation laid upon the future, the future becomes more and more a harder thing to happen.

The Catch 22

The larger debt growth, the harder it becomes for the future to happen. There is a natural correlation between extreme levels of public debts and low economic growth and that is the catch 22. Without growth we cannot pay off our debts and creating money out of nothing to add more debts, will ultimately explode into deleveraging and debt deflation.

St.Augustine, yes the Saint, not the city to the south of us, said: “There is no advantage to being near the light, if your eyes are closed.”
Maybe we should heed that implied warning before it’s too late.

Eight in 10 Uninsured Latinos may Qualify for Medicaid

Eight in 10 Uninsured Latinos may Qualify for MedicaidA new report issued by the Department of Health and Human Services (HHS) finds that that nearly 8 in 10 uninsured Latinos may qualify for Medicaid, the Children’s Health Insurance Program (CHIP), or lower costs on monthly premiums through the Health Insurance Marketplace. If all states took advantage of new opportunities to expand Medicaid coverage under the Affordable Care Act, 95 percent of uninsured Latinos might qualify for Medicaid, the Children’s Health Insurance Program (CHIP), or tax credits to help with the cost of premiums in the Marketplace.

“The health care law addresses longstanding inequalities that have affected minority communities across the nation, including lack of access to affordable health insurance coverage,” said Health and Human Services Secretary Kathleen Sebelius. “Thanks to the Affordable Care Act, 10.2 million uninsured Latinos have the opportunity to purchase quality, affordable coverage through the Marketplace, and as many as 8 million of those could get a break on costs.”

According to the report, 1 in 4 uninsured individuals who are eligible for the Marketplace nationwide are Latino (10.2 million out of 41.3 million individuals). The majority (62 percent) live in California, Texas, and Florida; about half (4.6 million or 46 percent) are between the ages of 18 and 35.

Among those Latinos who are eligible for Marketplace coverage nationwide, about 3.9 million may be eligible for lower costs on monthly premiums, and 4.2 million may be eligible for Medicaid or CHIP. The report details uninsurance rates by state and provides several examples of what premiums might look like for Latinos living in major metropolitan areas. For example, a 27 year old with an income of $25,000 living in Miami, Florida could pay as little as $87 for a bronze plan. In Houston, Texas he or she could pay as little as $99 after factoring in premium tax credits.

The majority (63 percent) of uninsured Hispanic Americans who are eligible for coverage in the Marketplace either speak English as a first language, or “very well” as a second language. About one-third (37 percent) rely on Spanish, and 27 percent live in a household without an English-speaking adult present. This is why from the beginning HHS’s outreach has been a bilingual effort. Since October 1, the diverse Latino community has had access to multiple resources to help with enrollment in the Marketplace, including applying by phone with trained call center staff offering bilingual help, or in person with trained specialists in local communities.

Latinos can enroll in Spanish through where consumers can create accounts, complete an online application, and shop for health plans that fit their budget and needs. now supports a more robust window shopping experience. Consumers can see detailed information about each Marketplace health insurance plan offered in their area before they apply. They can compare plans, covered benefits, physician and hospital networks, and plan prices based on household information they supply, all without a login or application. Consumers will still need to complete the application to find out how they can get lower costs.

Enrollment in the Marketplace is open until March 31.

Available tools for enrollments include:
-Online through or in Spanish at;
-Over the phone by calling the 24/7 customer service center (1-800-318-2596, TTY 1-855-889-4325);
-Working with a trained person in your local community (A Find Local Help section is available on both and;
-Submitting a paper application by mail.

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The Age of Improv Monetary Experimentation

And absolutely nothing will change preventing the dollar's deterioration

The torch has passed and Janet Yellen has taken off where Ben Bernanke left off. She calls herself a sensible central banker, but reserves the right to ignore sensibility, transparency rules and economic formulas in favor of improvisational monetary experimentation.

As a consequence of her debut appearance on Capitol Hill earlier this week, Congress voted to raise the debt ceiling…until next year…without quibbles or conditions.

And frankly why would they quibble or protest. They have little to no knowledge of economic or monetary policy and have only experienced since 2008, that slow deleveraging of a huge bubble can be manipulated without chaos and blood in the streets.

In order to do that Washington and Wall Street had to circle the wagons and create an insider vacuum that exorcised transparency, equality and accountability. The financial system almost collapsed but none of the perpetrators was ever sent to do time in federal penitentiary. Au contraire, they were allowed to pay themselves huge bonuses for circling the wagons and kicking morality to the curb.

As the Fed fuels “excess funding” of America’s credit needs… this excess funding drives the stock market beyond any real market value.

The Fed source of funding is like manna from heaven to the 1%. No calloused hands earned it. No drop of sweat stains it. No furrowed brow figured out how to make it. Just turn on the printing presses.

Five years ago, we were certain the Fed could not expand its balance sheet to $4 trillion without grave and ghastly consequences. But month after month goes by with no such consequences showing up on the horizon as we are searching for a sign that show at least the top of their masts. So what are we to think?

The global financial crisis introduced an politician’s nightmare as it required deleveraging by paying down, defaulting on, writing down and writing off debts. This would be long and hard, we reckoned. And when that task was done, we would run into a period of inflation, maybe even hyperinflation depending on how monetary policy would be executed.

Responsible scenario: with deleveraging completed, people will begin to borrow and spend again. The Feds would facilitate this by increasing the money supply – possibly virulently, with ultra-low interest rates – and drive up consumer prices.
Irresponsible scenario: desperate and impatient to revive the go-go days before the crisis began, the Fed might resort to direct monetary stimulus (Helicopter Ben anyone?).

The US, and many Federal Bankers around the world, decided to keep on partying like it’s 1999 and simply change the formulas to reflect growth and give the appearance that we’re on a slow turn to financial normalcy, rather than living high on the hog as if ‘apres nous le deluge’ was monopolized by the French revolution, never to be repeated again.

Janet Yellen stated clearly on Capitol Hill that she would continue making policy up as she goes along, centering her efforts around the official unemployment numbers. Never mind that the Bureau of Labor Statistics in its current 6.7% unemployment estimate has eliminated almost 17% of the American workforce.

The key to understanding unemployment rates is the Labor Force Participation Rate—meaning the percentage of the population that’s officially employed. When the BLS calculates the unemployment rate, it doesn’t consider a person whose unemployment benefits have run out and is no longer looking for a job to be unemployed. With no jobs available many workers go into the black market as handymen, seasonal workers off the books etc. etc.

Current policy means if everyone quit looking for a job, the unemployment rate would be zero? The large drop in the number of unemployed mostly reflects people that have becoming ‘discouraged’ and are being statistically removed from the headline labor force, instead of finding jobs and returning to work.

Previously 6.5% unemployment was the Fed’s benchmark for raising interest rates and tapering off financial stimulus. That position is now retracted and Quantitative Easing can go on and will probably become a major Fed instrument from here on, to avoid a necessary currency collapse in the threat of social chaos.

And since we’re all still more or less and alive and struggling forward since the 2008 almost collapse there is something to be said for this approach. BUT ONLY if cautious action is taken to repair the economy and avoid uncontrolled excess for the future. But in the words of John Popper, we should all be aware: “There is a price to pay”, when the Feds announce that the age of Improv monetary experimentation has arrived.

Capitalism under Pressure of Inequality

Searchamelia presents capitalism as savior

Capitalism is the first clearly defined puzzle piece to the future.

With so much emphasis on the term “Inequality” these days, it’s time to clarify a bit the issues at stake and the lies or inaccuracies behind the movement.  Oh I know. For all those friends and foes out there who have always seen me as a closet democrat or at least liberal to some degree, the following may come a bit as a surprise. The following is purely based however on historical facts anyone with a keen interest in economic history can detect; the real history that is, not the crap they feed you in school. Capitalism has successfully put under pressure by a global trend towards socialism, even though capitalism is the only truly open road to the future.

Over the years I have added some salt and pepper to the glamour stories presented to us by the ‘winners’ and mixed and matched real facts with close observations of human behavior. My end conclusion about human history so far can be broken down in two distinct episodes: The time Before and after Civilization; civilization to be defined as the moment somebody “mumbled” an insulting word instead of throwing a rock to settle a dispute.
The Before represents 200,000 years of pure survival in nasty, brutishly barbarian circumstances while the After gave way to a somewhat civilized evolution (albeit with regular global and regional relapses into barbarian behavior).

Even though we can piece large parts of the puzzle together, concerning the real early days of human evolution, we don’t really know since we weren’t there. So let’s take a more or less educated guess based on human nature to look at what happened many thousands of years before “civilization” first appeared in India and China, Egypt, Ethiopia and Kenya, Turkey (Gobekli Tepe), and Mesopotamia.

The Quest for Prominence is an Essence in the Human Nature

Everybody wants to get ahead – by getting more wealth, more power and more status than his “neighbors”. In today’s world, you develop the software for a killer online game or phone app! Or you set up a hedge fund. Or you write a best-selling novel or excel in a popular sport. You can compete by trying to achieve something important or if you lack those talents, you can run for Political Office and hope for the best.

But how could you get ahead in the days before agriculture, the industrial revolution and Facebook? What could you invent? A sharply pointed rock or twig, bow and arrow, a spear? Nothing was really scalable into large numbers. There was so little old technology in use that there was almost no room for new technology. No wheels. No power. No electronics or mechanics. Daytime was consumed by finding food (hunting), eating, finding safe shelter and sex. The progression from hunting to farming took thousands of years. But before farming there was no social structure, no settlement however temporary, no hierarchy of power. The strongest, quickest and smartest one was the survivor, until he  faced a better one.

Success in business or investment? Forget it. Entrepreneurship was non-existent and Capitalism was not even embryonic.
Art? Music? From what we’ve seen on the walls of caves, art reflected life but was very primitive and mostly lacked a medium for durability. For most of the time on earth – about 200,000 years – man lived so on the edge of survival that there was little surplus available to support the arts or an elaborate culture. Until after the last ice age, there were no known musical instruments, unless you consider a conquered victim’s skull a rhythm instrument; there was no writing of any sort either, and no sophisticated tools.

How then did men compete for the spoils of life?

How did they show each other who was boss? Again, even though we don’t really know, it seems most likely that in tribal format they competed at hunting… and ceremonial fighting. A primitive man could really only gain an advantage by killing something – just like any predator in the animal kingdom.

I have to interject here that I think that many interpretations of Jean Jacques Rousseau’s idea of the noble savage were self serving illusions.
Rousseau, a deteriorationist, proposed that, except perhaps for brief moments of balance at or near inception when a relative equality among men prevailed, human civilization has always been artificial, creating inequality, envy and unnatural desires.
Studies of pre-civilized tribes suggest that a man gained the most status by killing another man. Tribes living on the American plains, the Australian Outback or removed islands continued this custom until only about 150 years ago, taking the scalps of their slain enemies as proof of their “achievement” or using enemy bones as decorative trophies. Besides that, they practiced or at least experimented with polyandry models of multiple wives as war trophies.

Remember that even in the time of the Roman Empire’s civilization, the highest honor a Roman general could receive was for killing an opposing general in personal combat! Those who possessed superior intelligence combined with great strength and physical ability, would be placed on a pedestal or throne and handed the key to the kingdom. That’s how every ancient kingdom arose.

How to Get Rich, Influential, Powerful

With some important exceptions of discovery or birth right, there was no way to get rich in the ancient world, except by taking someone else’s property. This is what people did… or died trying to do.
Until the advent of capitalism, it was the only way to get ahead materially. You took someone else’s land, his wives and his family – turning as many as possible into slaves or servants. In North and South America, for example, until deep into the 19th century, native tribes typically killed their male enemies… and took their women and children into captivity.
In supposedly civilized communities, too, slavery was popular. Owning slaves was not only acceptable, it was a mark of superiority.
The more slaves you had, the higher your social rank. Slave-holding was so much a part of life that even Christ – who preached “love thy neighbor” – made no mention of it, let alone discouraged it.
And the US Constitution – truly a blueprint for the most civilized political system yet designed – also “tolerated” slavery by omission.
Today, the pay-off from slavery and murder is questioned even though we still put deer heads on our walls and award medals to particularly good soldiers.

But… we now live in a society that has at least embraced basic elements of civilization.
And in a civilized world, killing other people is generally frowned upon, if not censured, proscribed and punished. Slavery has been abolished in most of the world. We still have wage slaves… and tax slaves. But chattel slavery has largely disappeared in western and eastern societies. But we need to realize that this was the result of not needing slavery for wealth any longer, because Wealth was no longer a zero-sum game. Capitalism had given it a win-win option.

Today, we channel our competitive urges into many different activities. Some people drive expensive cars. Some build mega-mansions. Some buy islands to form their own kingdoms. We have team sports such as Rugby or American football, in which one team acts as though it were trying to kill the other. Brutal, but not nearly as brutal as the historic form of modern day soccer called Calcio Storico, that was prominent during the Greek and Roman empires, when kings and emperors came up with violent sports for their enjoyment and to calm the population. Gladiators in Rome and La Pelota in Mayan Central America. France’s Henry III said of Calcio Strico: “Too small to be a real war and too cruel to be a game”

Keen observation shows these days that TV now puts a claim on an entire weekend by broadcasting high school football on Friday Night, College Football on Saturday and Pro-football on Sunday and Monday Night. That is 4 out of 7 days a week!!! Our society is starting to resemble the old Roman Empire more and more as each year passes. But that’s for another story and another day.

The good thing is these days that it is in business, careers and investment that the majority of people find competition most rewarding. Artificially tanned traders on Wall Street talk about “ripping the faces off” their rivals. Ambitious entrepreneurs read the works of military strategists Sun Tzu and Carl von Clausewitz for hints on how to come out on top every time a campaign goes to the battlefield.

In terms of civilization however, thanks to modern capitalism, you actually can get wealthy without taking anything away from others. Wealth is no longer a zero-sum game. The world’s wealth can be increased by hard work, saving, innovation and investment. Because of the US Constitution, the country became the attraction point for anyone in the world, who had the ambition to make it. Supported by the Constitution it became obvious that capitalism gave the opportunity to gain wealth without needing to demolish someone else.

People who succeed at capitalism gain wealth and status. They not only make themselves rich… they enrich their neighbors in the process as well.
It’s not (yet) a perfect system which is why inequality is these days “buzz word”. But it works remarkably well … if left alone or at least with a minimal amount of supervision.  But of course that’s where the world breaks into two squarely opposing fractions.
That’s why the word INEQUALITY is now used as the battle cry in our seemingly inevitable global trending toward socialism.
Pope Francis in the Eternal City… Bill De Blasio in the Big Apple… President Obama in the White House…
From the pulpit to the Oval Office to City Hall – capitalism is coming under attack in 2014.

And frankly in the present circumstances, the inequally poor have a legitimate beef. Unfortunately what they don’t understand is that this is in no small part a result of the manipulation initiated by Washington, the financial policies of the Federal Reserve and the media portraying of the stock market. It is not advanced economics to realize that at a rate of GDP growth of 2% a year, the US economy adds in reality about $350 billion in wealth in 2013. US stockholders however gained $3.7 trillion compared to the beginning of the year. Money provided to them by the Feds’ easing policies. They gained $3.35 trillion more than GDP growth in 2013.

But the rich are not only ahead in capital gains, they are also kicking butt in every other income category.
Only the top 10% of households made any real income gains over the last 10 years. All the rest lost ground. And the top 1% has done even better – thanks largely to the big increases in stock and real estate prices.

So what? What’s wrong with that?

Nothing in my opinion. Except when it happens through underhanded conniving by the feds giving tax payers money to its Wall Street cronies. That is giving capitalism a bad name. It’s not the capitalists who have gotten the most loot from the feds’ bailouts, ZIRP and QE. It’s the cronies.

Too bad, but people think the rich are capitalists and that capitalists are rich. Not so. A real capitalist takes losses as well as gains. He makes mistakes… and pays for them himself. He is also the one who creates jobs.
Often it’s not even about the money. Often, he doesn’t know how much he’s got… and doesn’t care. It’s the journey he likes, the destination he often finds boring.

Capitalism is misunderstood. It is not so much a system; it’s the anti-system, it is what happens when there is no system. It is what people get up to when they are left to their own devices.  It’s what pushes us forward in technology, medical progress, social acceptance and ultimately quality of life.

Good or Bad?
I don’t know… but it’s better than being told what to do by some jackasses with their own agenda.

2 New Year’s Resolutions You can Take to the Bank

2 New Year's Resolutions You can Take to the BankHere are two New Year’s resolutions you can take to the bank.

1) Make sure that your bank and/or credit union is strong
2) Ensure that your CDs are earning as much as possible.

Keeping both these resolutions won’t cost you a penny and is as easy as visiting

Based on BauerFinancial’s independent analysis, over 70% of the nation’s federally-insured banks and credit unions are currently earning recommended ratings (5-Stars or 4-Stars). While the numbers vary by state, fewer than 10% nationwide are “Troubled or Problematic” (rated 2-Stars or below).

Some states were hit particularly hard by the “Great Recession” and have not turned the corner quite as quickly. This makes checking your banking relationships even more important. (You know who you are.) Even so, there is a large pool of recommended institutions from which to choose. And it’s simple!

Just click on “Bank Star Ratings” or “Credit Union Star Ratings” at, select your state and choose from the abundance of recommended institutions. (All institutions rated by BauerFinancial are federally insured.)

While you’re on the site, click on “CD Rates”, then select “Consumer CD Rates”. You will see some of the best consumer CD rates in the country. You can choose to open a CD with any of the banks listed there, or use the page as a negotiating tool to get a better rate locally.

Two painless resolutions that will help you sleep better and help your wallet get fatter. And both are absolutely FREE.

…because peace of mind matters.

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I Take Only What is Mine

This Hangs on the way to my bathroom. I see it several times every day

Entitlement is in the news, income inequality is in the news. Obama calls it “the defining challenge of our time” and all the internet search engines comply and rank his words number one in a search, as if this was never said before.

Actually he did so himself in a December 2011 speech when he  painted the 50s and 60s as a cherished time of value in America. Those who grew up in those years can challenge this perception of the truth by only reminding us of the treatment of blacks, women and migrant workers in those decades. Calling them a period of value is grasping at political straws.

In my all-time favorite Elton John song “Indian Sunset”, Bernie Taupin wrote: “I take only what is mine Lord, my pony, my squaw and my child.” On the wall in my music room hangs a painting I got for Christmas last year from the youngest daughter. It says “I take only what is mine”. I cherish that “home made” gift beyond any amount of money, because it has over the years become my life’s guiding principle. And no I don’t intend to get all political on you when I remind you of last year’s campaign fallacy when Obama preached the words “you didn’t build that”. I built whatever I built the hard way, the smart way and sometimes the ignorant way. And yes, every effort was supported by a facilitating infrastructure, and sabotaged by ever strangling government regulations and barricades.

As a generation we (the boomers) sold out for the “ignorance of greed” that we started adopting in the early 80s and have now perfected into a lifestyle of deserving. If you want to get a glimpse of what will come out of that attitude then watch this rather disturbing video where the woman portrays a real life poster model for the Age of Entitlement. Apparently by virtue of the fact that she vehemently believes it is her God-given right to be served Chicken McNuggets at 10:30 in the morning and, when disappointed in her demand, almost literally turns into a crazed zombie, singlehandedly making sure that the next chapter  for all drive-thru windows anywhere is going to include a taser under the counter.

And that over a fast food product that recently came in the news for containing less than 50% chicken meat while the remainder was a concoction of fat, blood vessels,nerve, connective tissue and ground bone.

Inequality Goes Viral

I know, like most of us, that politicians use, borrow or steal any good line or expression to make them look good in the eyes of the people but  with a substantial dose of irony I think this time Obama is trying to ride on the coat tails of an increasingly popular Pope in the Vatican, who addressed something similar several weeks ago. Good man that Pope, no doubt full of good intentions, but also barking up the wrong tree. Contrary to popular belief these days, I do think that capitalism is the only saving grace for humanity. I will need to explain that statement and I promise I will in a near future blog, but for the pope to use the words “the tyranny of capitalism” makes me want to point out that at the end of his reign, history will judge him only on the challenge to keep Roman Catholicism a world religion, not his record for political grandstanding on topics like income equality.

And Obama…oh he is probably just thankful that several shifts on other hot issues have taken the focus away from the “Affordable Care Act website debacle” for awhile and who knows maybe the next debt ceiling debates, Chinese airspace incidents or Syria compromises. Clear is by now that Obama’s presidency is over the board with no clear focus on dealing with a concentrated issue, work up a solution and then move on to the next. When writing this down I had to think about this wonderful video that shares not only talent and perseverance, but above all it embodies total focus and a paced yet determined execution of the process.

Lack of Focus however is not Obama’s personal problem; it is America’s problem.
It is the Culture of Entitlement that has caught this nation and much of the western world in a death knell of gigantic proportions, only covered up by the greatest debasement of a currency ever.

These days everyone is somehow entitled to something or another. And because everyone feels that their contribution to society and human progress is invaluable, an entitlement is justified over and above another person. And that how we as a nation, or if you will western society, have ended up eating our children and grandchildren’s lunch and dinner.

An entitlement comes in different shapes and forms and when contractually stipulated, an entitlement is absolutely and morally correct, albeit not always collectible! A lot like a judgement that is not collectible. Circumstances vary.
There are numerous songs, books, poems, movies that all play with the assumption that life is not necessarily fair, yet entitlements over recent decades have turned into something that apparently is written in blood; and in our current state I would say, with the blood of our children and their born and unborn children.

Over the ages financial and/or power status implied some entitlements.  Entitlements are often natural forms of respect, admiration or simply consideration. Getting up out of a seat for an older person in a train or bus is usually a consideration. Expecting to be served first because your car is the only $100,000 plus car in the parking lot cracks my facade. While I begrudge no one their wealth, per above, when someone begins to confuse wealth with entitlement, I have a problem… and so do they.

That said, I have come across any number of wealthy individuals who enjoy nothing more than lording their good fortune over the rest of humanity. More often than not, the wealthy who fall into this subset made their fortunes by being in the right place at the right time, for example dot-com millionaires and especially members of the lucky-sperm club.

In earlier sidelines of my life, I spent a fair amount of time hanging out with mirror on the wall street types, pseudo artists, purchased nobility and nouveau rich with a tendency to get coiffed in scented salons by people named Oscar at $500 a go.
In way too many cases, the source of their wealth could easily be traced back to university connections that landed them in the upper echelon of the equivalent of a pyramid scheme where, with hardly having to lift a finger, a fraction of a fraction of billions of dollars in transactions flowed daily into their Bond Street custom-stitched pockets.
I’ve learned that the inflatable wealthy not only expect full value for money, they want everyone to walk in their shadow to be of service and to cater to their every whim. Failure to show proper appreciation that you are in their company will, as sure as January 1 will ring in 2014, get you a dismissive sniff or, if it’s a bad hair day, a proper dressing down or worse

So where do we start with addressing entitlements. Where do we start telling President Obama that enough is enough, inspite of his new-awakened passion to alienate the wealthy into picking up their stretchers and move out in larger numbers than they already do these days. Well here is a rundown of what can be called today’s Entitlement Classes and their positions in the conflict.

Politicians are most definitely an entitlement class all by themselves. If you have any problem accepting that then it’s time to understand what you pay Washington for the pleasure of being your elected leaders. They make exemptions in hated laws to benefit their own and once they decide that politics is no longer their passion they are a class of individuals entitled to a long list of benefits. Including—should they rise high enough within the political machine—ready access to private jets and a lifelong pension.

On a lower level, while lifelong pensions have all but disappeared in the private sector, by virtue of just showing up at the office each day for a few years, many bureaucrats become entitled to the equivalent of tenure and, upon concluding their “public service,” a comfortable pension.

Remember the term coming into existence in the early 1980? My God I had just landed in the US, ready to take on a new chapter in my life and the first words I heard a crazy twenty-something woman utter in a whiney voice at the luggage inspection was : “But I deserve it!” After the initial shock I quickly learned to find it entertaining when observing the yuppie’s antics as they attempt to argue a plane back on schedule, or explain to a hotel manager that they deserve entitled treatment. Of course it becomes human greed that supports this entitlement attitude after a $20 bill quickly changes hands.

In my opinion, and yes I could be wrong, this sense of yuppie entitlement comes from the near certainty that never before in the history of the world has there been a generation that has had things as soft and sweet as the yuppies/baby boomers.
I remember a colleague in my real estate company who had just received his first Diners Club Card sometime in the mid 1970s. He actually waved the card under the maitre-d’s face when walking into a restaurant to impress his importance!

Most of us have had a lifetime of prosperity and peace – at least no wars in the calibre of World War II)

We got to go to college if we were so inclined, and we were pretty much ensured gainful employment whether we went to college or not. Unfortunately, a large number of yuppies don’t fully appreciate what an historical rarity such a long period of peace and prosperity is. They will be in for a rough awakening as Pax Yuppie is rapidly coming to an end. Their future expectations, understandably based on past experiences, are likely to be somewhat disappointed .

But even so there is a vague awakening about life’s realities, they continue to feel entitled to a life path free of serious bumps, though the unnerving sound of footsteps approaching down the empty hallway scratch at the edge of their collective consciousness.

Old People
Over the last century, responsibility for the care and feeding of the elderly has been steadily transferred from families to society at large. This alteration of the social contract, though likely springing from good intentions, is manifested in the widespread attitude that the state should provide at least a baseline level of support for the elderly, even if the state can’t actually afford it.

This sense of entitlement is underscored each election day when the oldsters turn out in droves to reward politicians who confirm them in their benefits, and punish those that even hint at curtailing same.

The Poor
Like the elderly, over the past century the social contract was redrafted to include a long list of benefits for individuals who steadily fail to achieve a certain income threshold. Collectively, the number of programs and their reach is staggering. To provide just one example, upwards of 50 million people in the United States are now entitled to purchase their daily bread using debit cards linked to the public treasury.

And then there are the special groups of Entitlement Classes and yes I realize I will offend a bunch of people in the various societal groups that need to be addressed but I would love to bring your attention to your fellow citizens who use their specialness to demand special rights and entitlements even though we all seem to at least get a sense of where this all his heading. The following entitlement solicitors only represent a handful in a society that has turned entitled, no matter the financial consequences. Here are just a few…

For example, though at its peak only 8% of American families owned slaves and the practice was terminated by constitutional amendment almost 150 years ago, many descendants of the slaves continue to believe they suffer trans-generational trauma and are entitled to government remediation programs without end. Entitlements here stretch into linguistic political correctness, but at least that usually does not carry a public price tag.

The forms the entitlements to minorities take vary from cold cash to preferential treatment in college admissions and a broad rainbow of other perks. Why, about a group of university graduate students consisting largely of people “of color” who apparently believe that their special status entitles them to be able to submit university-level work riddled with grammatical errors, protesting that being graded on grammar contributed to a “toxic racial climate.”

Sexual Orientation
A fairly substantial subset of the populace seem to want to define themselves based on their sexual preference. Live and let live, I say. But why it is that some think their sexual orientation entitles them to special treatment. Frankly that is something of a mystery to me. My close friends Ray and John who recently went to Massachussets to get married because Florida is such an ass backward state, once confided: We don’t want entitlements, just be treated like normal human beings with regards and respect.

In the absence of the draft, no one is forced to sign up for military duty, yet upwards of 180,000 young men and women do each year. Yet once they’re no longer needed or decide to follow other pursuits, they remain entitled to certain benefits for life. Not particularly large benefits, mind you, but special hospitals and a variety of programs to provide support need to be staffed and kept in place to provide this at a substantial cost to the tax-payer, because it’s free to them.

And then of course there’s the top brass who are cosseted in a system of institutional sycophancy replete with nervous salutes from the rank and file, and wining and dining by members of the military-industrial complex. The generals feel entitled to their billion-dollar toys and, mostly, they get them.
Does anyone ever wonder what the dozens of helicopter rides between Mayport and Kings Bay cost and even more importantly if we’re looking at necessity or entitlement when they incessantly come whopping over our beach with doors open and cameras ready on a sunny summer’s day?

Pretty Much Everyone Else.
Unlike earlier eras when self-reliance was a highly valued character trait, these days the vast majority of people in the US and other developed countries expect the government to provide benefits and services to cure all that ails and then some. From housing subsidies, to cash for clunker programs, everyone is entitled.

Off the top of my head just a few examples:

• The government’s exertions to keep our borrowing affordable by suppressing interest rates.
• The provision of free education and subsidies for college.
• the creation of enormous bureaucracies dedicated to ensuring the safety of everything from cars to drugs to food.
• And, increasingly, widespread medical coverage, including cheap medicine.
• Artists, musicians, farmers
• Prisoners of certain crimes
• Paid leave for government workers

Of course I could go on for days, because the list of entitlements is nearly endless as they are directly connected to interest groups. Again, I’m not taking a position on the merits of specific programs, simply pointing out that they exist and have grown far out of proportion over the years. Taken collectively, they have created a self perpetuating culture of entitlement. In my mind I often compare it to a Website I innocently subscribed to several years ago called They originally hooked me with a request to help out in animal abuse cases. I detest animal abuse and the people that practice it, so I was an easy subscription target. Over time, and that is the quintessential word, this website turned into a “take-a stance-on-everything-but mostly-liberal” website without any consideration for financial responsibility, asking me to support their opinion on about everything mankind can screw up or have a skewed opinion on, often drooling with ignorance and presenting entitlement as a god-given right.
Let me make this clear: In my book we are entitled to nothing other than what we have worked for and saved.

How and where to go from here?

If you accept that live has been immersed in an Age of Entitlement — which is not only widespread but ultimately unaffordable and, therefore, entirely consists of undeliverable promises, benefits, services, etc., then you may want to start imagining a glimpse of what lies ahead. And if you think in terms of the Hunger Games, then you’re still daydreaming in terms of entitlements. So be forewarned when I fear that the following will be the guaranteed reactions of the previously introduced entitlement classes.

The Politicians.
In an attempt to remain in power and to protect their own entitlements, the politicians can be expected to strike an increasingly populist tone—it’s always been that way. In time, pushed by the entitled masses to do more than just talk, expect the politicians to take off the gloves and begin instituting every manner of harebrained scheme to milk any group of taxpayers lacking the numbers required to provide political cover come election time.

The Yuppies.
Given that this demographic group is now heading toward the pasture and have been scared stiff by the slow-motion collapse under way, they’re going to do everything in their power to ensure their entitlements stay intact. Which is to say they won’t show up to vote for any party that pledges, upon being elected, to cut said entitlements. Ironically, they will be voting for the very politicians who, as a core reelection strategy, will demonize them and seek to clean them out of a good percentage of whatever net worth remains to them.

Old People.
Old people vote in droves, and so they count to the politicians… at least for the time being, which means there will be no serious attempt to reduce the massive entitlements they now enjoy.

The Poor.
Given the proven political efficacy of populist appeals, the odds of any (successful) politician thumping the podium in favor of cutting welfare, reducing food stamps or school lunch programs, etc., is approximately zilch. Far more likely is that the politicians will try to shove the financial implications of additional entitlements onto the backs of businesses. Which, in turn, will result in those businesses buying robots and deploying software to reduce their workforce. Just think how many transportation workers will become unemployed when Amazon starts delivering 86% of their sales (packages 5 Lbs and less) with drones.

Meanwhile, encouraged by the politicians, the nation’s poor will be emboldened in demanding more… or else. For the record, the official poverty level in the United States, which is defined as being the amount of money needed to buy a “minimally adequate” basket of goods and services according to the living standards of the 1960s, is currently set at $11,720 annually for a single person, $14,937 for a two-person family, and $23,492 for a family of four.

The latest data show that about 46 million US citizens fall below those levels, the largest number since records first began being kept over 50 years ago. Tellingly, that’s a 36% increase since 2000.

And who makes up the “poor” in the United States? Minorities!
For obvious reasons, the minority population now reflexively votes against the party of Lincoln. In the last presidential contest, a whopping 83% of minority voters cast their votes for the Democrats. This sort of political base is to be catered to, and so it will be. No cuts in entitlements here.

Sexual Orientation.
Likewise, those who favor being defined by their sexual preference prefer the Democrats by approximately a 3-to-1 margin. Given the Democrats are fully on board with populist, progressive legislation, expect no demands from this subset for reduced entitlements.

Cut military benefits? Weaken the military’s ability to respond? You must be joking! No one on either side of the political aisle would be stupid enough to advocate either. In time, the military budget will come under pressure—but only until someone in the military-industrial complex finds an excuse for a new war or, failing that, conjures up an imminent threat that must be countered.

…and then of course
The Wealthy.
Should the wealthy—those with feelings of entitlement or not—come to the conclusion that they’re going to be called upon to carry ever more water for rest of the citizenry, they will react just as they always have. Namely, by hiring the best tax lawyers and accountants possible and exploiting every available loophole (and there are always loopholes). And/or they’ll vote with their feet — moving themselves and, if push comes to shove, their businesses to friendlier shores.

In other words, there is no popular or political will to do anything other than maintain the status quo in this Age of Entitlement. Given that stark truth, all we as individuals can do at this point is sit back and watch the slow-motion train wreck unfold—which, for the record, I’ll be doing from afar. Avé cesar morituri te salute.

Supermarket Shelves Reflect Paycheck-to-Paycheck Society

The Beauty of the Midnight Sun

Dear Readers. Today in this weekend bulletin I was going to talk a bit about ‘the dos and donts‘ with crypto currencies such as Bitcoin, why gold is still being kicked in the balls by an stupendously exuberant Wall Street and why you should consider having your website hosted in an overseas territory, considering all the limitations and restrictions to be expected out of Washington. But after reading that Norway’s Army is battling Global Warming by going vegetarian, while the GOP is planning to cut alternative energy subsidies in half, I figured that it is all hog wash anyway. And if you don’t think so you should read Hugh Gusterson’s insightful article about “Which Drone Future Will Americans  Choose?” and still believe that we actually do have a choice.

So instead I decided to talk about reflections from my 3 times weekly grocery trips as well as some Festive information about the Holiday Season and some Sunday Morning Humor.

A Paycheck to Paycheck Society

As we are going into the last four week dash of grocery shopping and gift hunting, I would like to share a little secret with those of you, who always shy away from buying the larger bottle of ketchup in favor of the smaller one because of cash flow considerations. American grocery stores offer interesting reflections of financial irony, enticing (allowing) the poor to buy higher priced smaller packaged items, while the more prosperous among us take the advantage of buying those same products in larger volumes, but at substantially lower prices. Is this news to you?

There’s some real irony in this as often the stereotype of someone making bulk purchases is a person down to his last penny and watching every cent. But in reality, larger purchases at discounted pricing are for the better off; while buying the tiny packages at higher pricing is for the poor.

Of course I’m familiar with the economic law that states “the more you purchase of a product, the better the price you purchase at.” What rational person would prefer to pay more for a product when the same product in a larger packaging is staring them in the face for 30% less? But that’s only one side of the equation. The other side presents a real economic conundrum.

Imagine finding yourself in the condiments row of a supermarket where you notice that two bottles of ketchup – one larger and one smaller, same brand-name with the per-ounce price of each clearly labeled for the shopper. After doing some quick math in your head, the bigger bottle turns out to be about 30% cheaper than the small one per ounce of product. You quickly verify that you’re “comparing apples with apples” and this isn’t some special sale, but just the normal price, the only difference being packaged in a different size. According to any financial markets theory, this opportunity shouldn’t exist.

Designed Around Paycheck to Paycheck

Yet, whether it’s ketchup or just about anything else at the grocery store, one can save money by simply purchasing a larger package these days. And no I’m not even talking about bulk discount retailers like Costco, Sam’s Club or Restaurant Depot, but just your regular neighborhood grocery store. For people like me this advantage is in reality an earning, rather than a saving, but for the average American in the grocery store, the sad truth is that the pricing system of our entire society is based on people living paycheck to paycheck. It is designed around shoppers with near zero dollars in their checking accounts and that is why there are so many people buying the smaller packaged quantities? For many Americans the difference between a weekly $100 grocery bill and a $200 bill is enormous, which directs not only the purchase behavior from brand-name to store brand, but also the packaged sizing of products purchased.

I had a friend down in St.Maarten who bought a pack of cigarettes every day. Cost $2. A carton of 10 packs was only $12 or $1.20 per pack. $0.80 savings per day is $5.60 of earnings per week, had he bought a carton. Per year he would have had earned $292 in risk free income. His reason for purchasing one pack a day was: “Maybe I quit tomorrow.” He never did.

Next time I’m going to the grocery store and earn 5% to 10% riskless return on my groceries I know it’s great for me, but it’s disheartening to know that these savings are essentially the result of a paycheck-to-paycheck society. Either people can’t afford to make their ends meet with their paychecks, or they have completely lost control of their spending. But then again, there is something virtuous about these prices as well. In the free market, the price system actually rewards one for earning a greater income by offering cheaper prices for larger purchases. The same is true of other pricing as well. With a bigger down payment and more income, one pays lower interest rates on the mortgage – again, a reward for doing better. When it comes to government however, it’s the complete opposite. We are actually punished for earning greater incomes by paying higher taxes. Funny, isn’t it?

And while talking about government, here is a WARNING

After a recent wave of identify thefts, the FBI estimates there are over 500 fake ACA (Obamacare) websites set up for the sole purpose of stealing your personal information. So protect yourself and remember: the real one is the one that doesn’t work!

Restaurants Open on Thanksgiving Day

Courtesy of the Amelia Island Tourist Development Council

Following Restaurants are open and take reservations for Thanksgiving:

• Amelia Island Coffee – 207 Centre Street – (904) -321 2111

• Barbara Jean’s – 960030 Gateway Blv – (904)-277 3700

• Café 4750 (Ritz Carlton-Amelia Island) – 4750 Amelia Island Pkwy – (904) 277 1100

• David’s Restaurant – 802 Ash Street -(904) 310 6049

• Horizons – 4828 First Coast Highway – (904) 321 2430

• Huddle House – 1855 South 8th Street – (904) 261 2933

• Jack and Diane’s – 708 Centre Street – (904) 321 1444

• Marché Burette – 6800 First Coast Highway – (904) 491 4834

• Merge – 510 South 8th Street – (904) 277 8797

• Pablo’s Mexican Grill – 12 North 2nd Street – (904) 261 0049

• Slider’s Seaside Grill – 1998 South Fletcher Ave – (904) 277 6652

• Salt – (Ritz Carlton – Amelia Island) 4750 Amelia Island Pkwy – (904) 277 1100

• The Surf – 3199 South Fletcher Ave. – (904) 261 5711

• The Verandah – 6800 First Coats Highway – (904) 321 5050

Some Sunday Funday Impressions

Hunting Season has started here in North Florida so I thought you might like this one:

Click on Photograph for 360° tour

Daily I receive loads of great stories and beautiful pictures, but I was very happy to receive one last week with a 360° photograph one of our guests at the Amelia Oceanfront B&B took last June. Amazing technology. If you’re interested in finding out more about this contact Suburban Video directly.

In Closing for Today I’ll leave you with some of my favorites for this week. Click on them to enlarge.

This is a tattoo I would wear


COA Meets Budget Challenges with Resolve

Nassau County FLorida Council on Aging Executive Director Janice Ancrum

Council on Aging Executive Director Janice Ancrum

Faced with a potential loss of non critical services as a result of Federal Funding delays, Nassau County’s Council on Aging managed to meet challenges heads on and with resolve.

For the last 30 years, the Council on Aging of Nassau County (COA) has been serving as the primary means of public transportation for disadvantaged seniors and Medicaid patients who require medical treatment at numerous facilities throughout Nassau County.  This long term transportation service has been one principle mainstay of the COA’s overall mission.

In recent years, the COA has expanded their services to seniors and other citizens in the transportation sector to include COA Transit, which is similar to a public transportation bus system. For a small copay, anyone can ride a COA bus between Fernandina beach, Yulee, Callahan and Hilliard even to downtown Jacksonville.  This “Transit” service is for non-medical, non-emergency destinations only and represents a small percentage of the COA bus ridership which numbers more than a thousand individuals a year.

Another group of seniors regularly ride the COA buses at no cost to and from two local Council on Aging Senior Centers in Fernandina Beach and Hilliard. This service is partially funded by the Department of Elder Affairs.

Due in part to the government sequestration earlier this year and most recently the federal government shutdown, two grants which help partially fund COA’s transportation services have been delayed. These delays have challenges not only at the local COA but COAs throughout the state of Florida.  As a non-profit organization, COA of Nassau County relies on these grants, some of which are matched by funds from the Fernandina Beach city and Nassau County Board of Commissioners to underwrite the various COA services and programs.
The grants were submitted months ago and approved, but the impact of not having them executed on the usual schedule put the COA and Janice Ancrum, the Executive Director, in a potentially difficult position.


“As a non-profit organization, we are not able to operate outside of our financial boundaries,” Ms. Ancrum explained.
While the Transportation Disadvantaged and the Medicaid Transportation programs were never on the table for possible cutbacks or temporary suspension, one of the areas where some cutbacks could be made with minimal impact was in the area of COA’s Nassau Transit operations.

In order to save the remaining transportation funds until the federal grants are executed, a plan to temporarily suspend scheduled trips to non-medical facilities was proposed.  According to COA’s Operations Manager, this scenario would have impact on 30-50 individuals who participate in the COA Transit program.

A short notice about a possible suspension of some COA Transit trips was issued and distributed to a small group of COA Transit riders.
Earlier this week, Ancrum made a decision based on information she received from State Department of Transportation in Tallahassee. The decision was made to avert the threat of suspending COA Transit service and keep the buses running on schedule.

“Based on the latest information, these grants will most likely be executed in November even though we felt compelled to warn a small group of our riders about a possible suspension of the non-medical, non-emergency bus trips.

It’s important to realize this is potentially a Florida-and Nationwide problem and not a Nassau County COA problem,” Ancrum added.
As the COA approaches its fortieth year of services to the seniors of Nassau County, the original mandate to provide real and compassionate care to the seniors in our county remains intact but under increased pressure.
The Council on Aging is a 501(c)(3) non-profit agency, the highest level of charitable organization.  We cheerfully deliver critical services to Nassau County seniors in five categories including Meals on Wheels, COA Transportation, In-Home Care, and Adult Day Health Care, while operating two senior recreation centers.  We are funded by donations from private individuals and limited government grants.

Fake Halloween Zombies Are Exposed as Real

Uncover the real zombie underneath the fake zombie

Imagine going to a Halloween Party and ending up in the following, admittedly one-sided conversation with a Dress Up Zombie.

You: “So, you work in the House?”

Zombie: “Yes, I have been on the Ways and Means staff for about 15 years.”

You: “What do you think will happen in January…when they take another swipe at budget control?”

Zombie: “Oh, you know…it has nothing to do with budget control. This is pure politics. Posturing. Posing. For many of them it was just an opportunity to get their names in the paper. I don’t think it turned out the way they planned.

You: “But there are some real believers in the group too. And I don’t think they necessarily lost as badly as the press reported. They’ll be back. And we’ll have another show.

Zombie: “The real issue, or the real problem for all these guys, is that they are elected by the average voter. And the average voter hasn’t gotten much out of this administration or this Congress. The average voter has gotten poorer. His family has less disposable income. His children have a harder time finding jobs. His cost of living is rising faster than his income. He looks around and he sees Iraq reverting to a bloody mess. He tries to sign up for Obamacare and the website won’t work. He reads the paper and he discovers that US students rank last among developed nations in math and sciences – despite spending a lot more on education.

And he sees too that he spends twice as much as other people on health care – and dies earlier.

And now, the economy has become arthritic too. The rate of new business start-ups has fallen…people are afraid to switch jobs…and indicators of social mobility show us less dynamic than Europe. That is, if you’re born poor in America, you’re more likely to stay poor than you are even in Europe…where nothing ever changes.
He looks at all this…and the voter gets fed up. And I think that’s what’s really behind this Tea Party vote. They’re not really for freedom… or in favor of less government spending. They just think something is wrong with the whole system. They don’t know what to do about it…except to try to stop government, and even that they don’t know how…

And that’s when you realize dear reader, that you’re looking at a fake zombie, camouflaging the real zombie underneath.

And for your own Halloween fun ask yourself this question: In the absence of government would people still willingly give you money to do whatever you do or don’t do? If the answer is no or not likely, then you are probably a zombie and your contribution to society is at least non-essential, and maybe even counter productive.

Five Days Left to Federal Default

Welcome through Lens of a Baby Boomer Sunday Musings

In spite of the government shut down, at least one important White House decision was made in the past week: Janet Yellen , who had been earmarked as the successor of Ben Bernanke at the Federal Reserve, considering she has been his right man woman for most of his tenure, was officially selected head of the Federal Reserve when Bernanke retires in January 2014. For America and the debt ceiling that implies stimulus continuation in the area of $85 billion or more a month or add another trillion to the national debt in 2014.

And as we are counting down the days to a major Federal Default on October 17, the nation is still divided on the consequences (or just ignorant) of such a move. Well for as much as my contribution counts, the default effects could have been much worse if timing would have been different. And having said that, I actually do believe that this default was somehow planned inside of a rather precise scenario.

Wall Street is exuberant, as long as the can can be kicked a couple miles further down the road and cheap loans stay available to them. So is the IMF and I estimate Europe as well, at least for now.

Because the Europeans have other problems, now that on a couple of diplomatic occasions Washington has hinted that it can not carry 75% of NATO’s budget much longer. And for the first time in more than 5 years, the leaders of the European Union’s member states will at their summit in December need to address questions about the EU’s defense and security.

And while the United States is pressing EU states to spend more on defense, claiming that it cannot continue to cover 75% of NATO’s costs, analysts argue that the strategic case for EU-level defense co-operation has never been stronger, while military planners are worried that austerity is aggravating long-standing weaknesses in Europe’s military power. So the Hawks in Europe are awaking again, supported by greatly exaggerated claims from Washington.

Reflecting these anxieties, Herman Van Rompuy, the president of the European Council, has described December’s European Council as no less than a summit about the state of defense in Europe.

But the European Union is not comfortable with being seen as a military alliance, even though that is, slowly, what it is becoming. At least, it is now an economic and political alliance that has defense and security obligations.

One of the lessons learned by the European Union from the Balkans wars of the 1990s was that the EU needed to develop its hard power. In the space of a few years when security issues were on the agenda of many EU summits, national leaders gave the Common Security and Defense Policy (CSDP) a political and institutional momentum that it had previously lacked. However, the development of the CSDP has so far apparently not lived up to the ambitions of its hawkish architects.

Anders Rasmussen, NATO’s secretary-general, says that when an EU-led coalition intervened in Libya in 2011 to effect regime change, it could not have succeeded without backing from NATO – and, more specifically, the support of the Americans. Nor could Rasmussen envisage a NATO operation without US participation “in the foreseeable future…because Europe does not have the necessary capacity”.

There is many-sided unhappiness at this. The US says it cannot continue covering 75% of NATO’s costs. The United Nations wants Europe to provide troops for its peace missions. Dependence on the US is becoming a constraint as the practical implications of the US administration’s ‘pivot’ to Asia are becoming increasingly clear, European diplomats and officials say.
In addition, cuts to national defense budgets of about 15% in recent years now threaten whole military capabilities, generals say. Meanwhile, military analysts contend that the violence in the EU’s southern neighborhood is a growing threat to stability.

Now, after five years of behind the-scenes clamor, Herman Van Rompuy, the president of the European Council, has put security and defense up for discussion at an EU summit. He has signaled that the debate at December’s European Council should be ambitious: it will be about “the state of defense in Europe”.

Denmark’s former Prime Minister Rasmussen suggests the stakes are global. “If the trend continues, Europe will not be able to participate in international crisis management. And who will fill the gap? It will be the emerging powers because they are investing more and more,” he said. And with that the Military Industrial Complex is expanding its influence dramatically.

Understanding Geo-Politics

The emerging powers have been identified as the BRIC countries, i.c. Brazil, Russia, India and China and to a lesser degree Indonesia and Turkey. While China actually is turning into an absolute world power and the only one with a positive and large trade surplus, the other participants in the emerging power line up are stuttering a bit economically. Not nearly as much as however the mainstream Western media want you to believe, mainly because they still are wearing the wrong geo political glasses.

I do agree however with the New York Times and Wall Street Journal  that a large part large part of the recent economic boom of emerging powers was financed on the back of cheap Fed loans in dollars. I disagree however their assessment that this was an unintended consequence of the financial stimulus program by the US Federal Reserve after 2008. It is pretty much a proven fact that emerging powers have benefitted more from the stimulus programs than the US itself, because it was intended by those in charge. Call it a variant on the post World War II Marshall Plan.

Some liberal academics claim that Western Society used cheap money to lure emerging economies into thinking they were on a take over path from Western centric economic designs, but the real truth is that by playing it the Wall Street diversification way, two objectives were accomplished : emerging economies were introduced to the power of the Global Western Bank system and who controls the powers. Emerging economic sentiment may have shifted in recent months, but there is no longer a fear for structural economic collapses as was usual in previous encounters, because the big banks have for now taken control using cheap American Stimulus dollars.

Yes, emerging world economies are seeing slowing growth relative to the heightened rates of recent years, and yes, the shift to domestic demand-driven economic activity is not easy. But that is not the same as re-writing the script of the past decade and turning the achievements of many of these countries into a fata morgana .

When it comes time to write the story of the first years of the 21st century, the global narrative will not only be the struggles of the United States to adjust to a world of diffuse power, or the rise of China and the decline of Europe. It will be the way that substantial portions of the planet emerged from agrarian poverty into the early stages of urban affluence. It will be the way the Internet and the mobile revolution anchored by the rise of China began to reshape the vast regions of sub-Saharan Africa; how India’s middle classes started to redefine that country, and how millions in Latin America sloughed off decades of authoritarian incompetence and began to blossom. Never in human history have more people become more affluent more quickly than in the opening years of the 21st century.

As a consequence, the fundamental logic of the need to reform global governance structures remains sound. For policy makers in Europe and the United States, engaging emerging powers is the only way of assuring that international institutions remain functional once the traditional powers are no longer in control. The difficult process of adapting to a new reality has just begun. In the coming years and decades, far more extensive reforms – in the World Bank, the IMF and the United Nations Security Council –  will have to be implemented if these institutions are to maintain their legitimacy in the twenty-first century.

Because even if there is a temporary economic slowdown in the Global South, it will no do away the historic advances emerging powers have made, especially during the past decade, which has seen an unprecedented degree of emancipation of the Global South – including the African continent. The lull in the emerging world does not alter long-term predictions that China will overtake the U.S. American economy. Despite current problems, India is set to become a major pillar of the world economy in the course of this century. The world economy will not return to the distribution of power of the late 20th century.

And with that opinion I end today’s Life through the Lens of a Baby Boomer, who over the course of the last 50 years has seen time and again that the energy water needs to find its way downhill is negligible compared to the effort it takes to being pushed uphill.

Weekend Funnies

Here are some of the greatest repartees in modern history.
Brilliant Repartees
1. Thomas Reed  vs. Henry Clay
2. Winston Churchill vs. Lady  Astor
3. NYC Mayor Ed Koch vs. Andrew  Kirtzman, after the reporter insisted on pressing a point about a statement Koch had made
4. Groucho Marx vs. a contestant  on “You Bet Your Life,” after the contestant revealed that  he was a father of  10
5. Abraham Lincoln vs. Stephen  Douglas, after Douglas called him “two-faced” during a  debate
6. Pierre Trudeau vs. Richard  Nixon, upon hearing that Nixon had called him an asshole
7. Oscar Wilde vs. Lewis Morris.  Morris had just been passed over for the Poet  Laureateship
8. Miriam Hopkins vs. an  anonymous  singer
9. James McNeill Whistler vs.  Oscar Wilde, after Whistler had made a particularly witty  observation
10. Senator Fritz Hollings vs. Henry McMastor, when challenged by his opponent during a televised debate to take a drug test
11. Clinton vs. Dan Quayle, after Quayle revealed that he planned to be “a pit bull” in the 1992 campaign against Clinton and  Gore
12. Reverend Edward Everett Hale  vs. the U.S. Senate,  when asked if he  prayed for the  Senators.
13. Edna Ferber vs. Noel  Coward. Coward was remarking upon the  fact that Ferber was wearing a tailored  suit
14. Henry Clay vs. Massachusetts  Senator Daniel Webster after seeing a pack of mules  walk  by
15. Winston Churchill vs. a  Member of  Parliament
16. Calvin Coolidge vs. some  random lady at a White House  dinner
17. Wolfgang Amadeus Mozart vs.  an  admirer

Another Way How Government Facilitates Wealth Transfer

A Bear in Teddy Clothing

Beware When the Real Bear Chases the Bull Away

I hate to be the turd in the punch bowl, but all this over the top spin-doctored crap about real estate being back in full swing, needs to be exposed for what it mostly is; some Wall Street players itching on a large stack of “hot money” buying up everything that can be converted into a massive rental REIT structure.

Oh sure on the local level there are many opportunities to purchase or sell to both parties’ satisfaction. A good realtor can make a great living right now and probably for the foreseeable future of 2-3 years, if well connected and hard working. Actually if you are in the end phase of a lifelong Real Estate  career, you are ‘awarded’ this time period to conclude your interests and get out.

The 2008 crash scared the bejesus out of many people while causing millions of homes to end up “under water” and countless millions of personal bankruptcies. Main Street Market investors lost their life savings and the aftermath of the bust and the ensuing great recession strangled the popular demand for housing to almost zero. But now five years later there is of course a slightly propped up demand from first time home buyers who desperately want their shot at the “Dream”, as population growth and family development cannot be put on hold forever. Combine that with another Federal Reserve promise to keep the interest rates historically low, and you have to see some excitement popping up in selected markets.

After the boom/bust however it pays to stay vigilant and realize that despite recent rip-roaring price action, the national average home price is still 21 percent below the 2006 peak.

Signs of Excess Popping Up Again

I was watching a HGTV House Hunter episode the other night, which conjured up images of 2005/2006 in my paranoid mind. The scenario unfolded around a single man who was looking as first time buyer to purchase a home in the $350,000 price range. He found a home that needed substantial TLC and close ups of the roof showed severe signs of wear and tear. A “professional” was called in for his opinion, which declared that the roof was still good for 8-10 years. With my layman street smarts, I would say the roof was dead but nobody had written the obituary yet. The whole scene reminded me of the “golden years” when bank appraisers enticed purchase with 125% of the purchase price, just to clinch the deal!. This guy on HGTV reportedly bought the house for $344,900 with $12,000 down and a mortgage payment of $2,300 a month!! That and other examples like the one below, tell me that we’re back at our old tricks of packaging loans that nobody can afford the moment interest rates go up a couple of points. And that they will go up…is inevitable!

Downside to Reversed Mortgage

The Federal Housing Administration FHA announced the desperate need to ask Uncle Sam for help to the tune of $1.7 billion to shore up its insurance fund. The hole in the FHA reserves comes entirely from losses in the agency’s reverse-mortgage program, a relatively new real estate product to accommodate seniors.

Aging celebrities like Fred Thompson (stack-em, pack-em and rack-em) and Henry “the Fonz” Winkler tell retiring baby boomers that the average reverse-mortgage borrower can obtain $130,000 in tax free cash with a government-insured reverse mortgage and use it to live the retirement of their dreams. A great way to make sure we do not outlive our money, isn’t it?

Well there is an interesting psychological downside to this reversed mortgage phenomenon which American Banker explains as follows:

Many seniors who received the loans in a lump sum were later unable/unwilling/uninterested to pay taxes and insurance, resulting in a wave of defaults. The reverse mortgage program was projected to have a $5.2 billion deficit this year.” A report issued last November from an independent actuary projected losses for the agency over the next 30 years that will put it $16 billion in the red.
Despite the housing market’s selective improvement, the FHA’s serious delinquency rate is still a whopping 8.47%. The agency insured 27 percent of all mortgages last year, and along with Fannie Mae and Freddie Mac, dominates mortgage finance post-crash.

At the end of the second quarter this year, nearly 24 percent of homeowners were underwater. In parts of Nevada, California, and Florida, the percentage is more than double that.

BUT, Wall Street is in love with Main Street’s houses again.

Not fancy structured financial products stuffed with mortgages of various quality this time; that would not fly too well.

This time, companies like Blackstone Group LP’s (BX) Invitation Homes are buying up homes by the dozen. Invitation has purchased 32,000 homes in 13 markets in recent time, focusing on locales like Phoenix, Las Vegas, and Orlando.
The company has invested $6 billion into single-family detached rental homes that it plans to sell when the market recovers. Blackstone believes housing prices are 22 percent below the 48-year trend line between 1951 and 1999. As William Cohan writes in the Atlantic, “It’s as if the run-up in the 2000s never happened.”

And that is an interesting trend as up until now, the landlord business has always been a mom-and-pop industry. Blackstone counts on technology to professionalize the business into predictable matrices, by for example offering excellent customer service such as 24-hour on-call maintenance. Of course that is not nearly enough for this venture to guarantee success.

Yesterday I wrote about the fact that late 20th and early 21st century governments have assumed and executed with great success their true reason for being (raison d’etre): Facilitating a massive wealth transfer from the Middle Class to the Ruling Elite. In 2008 that process was hugely expanded by “too big to fail” bank rescues. Since then enormous amounts of very cheap money have been pushed to Wall Street, so much actually that over time the money reserves have created an urgency called HOT MONEY, money with a time restraint, which now has made this rental proposition compelling for Wall Street, while tight money for everyone else has cleared the playing field for the big players.

Rental REITS have become a public trading attraction

In normal times, two-thirds of real estate activity is organic, as in people buying homes to live in them. Today, that ratio is reversed: more than two-thirds of all real estate activity in the country today is by either investors or first-time homebuyers. And friends that’s not a recovery of any healthy kind.

The statistic that investors and first-time homebuyers are driving two-thirds of all real estate activity is crucial, and here’s why: homeowners who actually live in the homes they own offer mental and physical support to the real estate market in tough times. They may improve and expand their home if real estate prices take a dip, but wouldn’t tell the wife and kids to pack up their things because they’re selling the house. Price bumps are largely irrelevant to organic owners.

Contrast that with an investor who views a house as a financial asset, like a stock. As long as prices are rising, he’s happy. But when prices take an inevitable dip, investors offer flimsy support to the neighborhood, because they’re the first to flee. You own next door to an investor’s property, the value of your property depends largely on the investor’s price moves when times get hot.

If you’re in the market for a home and your rationale for buying includes “riding the wave” of recovering home prices, put down the pen and step away from the mortgage application. The sturdy base of homeowners that historically supported US real estate ain’t what it used to be. Until the majority of homes are back in the hands of the families who live in them, there’s serious downside price risk. And if you’re ready to ride that train, a little excitement can lift life’s dull moments after all, be prepared for it to become another roller coaster in the next 2-4 years.

No Way Gamblers Can Walk Away from A Winning Table

Party Like it's 1999; just keep an eye on the exit doors!

Remember Prince’s hit song ‘1999’, which opens with a slowed-down voice, reassuring the listener “Don’t worry, I won’t hurt you. I only want you to have some fun,” and then invites everyone to party with complete abandon, because it’s 1999…and 2000 may never come. Well it’s a lot like that in the stock market these days.

To use another metaphor we are quite familiar with here in Florida. When a hurricane threatens an area, it’s always amazing to see how many people decide to leave last minute, causing traffic jams and inevitably delaying their flight to safety. And that’s also the case in stock market investing because when the Feds and the media create euphoria, investors move in herds and if danger is on the end of the move, panic will follow because so many inside of the herd don’t see the end of the cliff until it’s too late. Having said that, let me explain what happened last week and why I think we’re entering the endgame of the economic crisis that started in 2007.

Feds Rang the Bell for the Last Round

Last week the Feds moved away from an earlier announcement that stimulus in the form of QE Infinitely would slowly come to an end (they called it tapering down), as the US economy showed signs of strengthening… in their spin doctored opinion. After all, since 2009 Bernanke’s crew added $3 trillion in cash and a smidgen over $23 trillion in credit guarantees to restart the economy after it crashed in the fall of 2008. That’s $26 trillion or 26 with twelve zeros and let’s face it, that money had to have gone somewhere in the last 5 years. Well we all know it didn’t show up in the trailer parks of America, nor did it show up on Main Street. Hourly wages are not higher, middle class household incomes have fallen back to 1984 levels and once again, no-one is saving. So where did it go? Well stocks went back up from around 6,000 during the depth of the financial crisis to 15,258 this Friday afternoon at the closing or 2-1/2 times what it was 5 years ago. Hmmm that’s what I’d call sky-rocketing. And guess what…over that same time period there is a near-perfect correlation between a higher S&P 500 and the expansion of the Fed’s balance sheet. Coincidence? Don’t think so.

So when the financial stocks in the StockMarket instantly lost momentum (some called it nose diving) almost immediately after the Tapering announcement, Bernanke’s wise men and women, decided they’d made a mistake to be so open about it and went into damage control mode to rectify that statement after the weekend and reassure the market’s stakeholders, that they would stimulate with QE Infinite until the economic numbers become satisfactory for economic growth.  And of course with a little sputtering the market stabilized nicely during the week.

Now since investors, at least some of them, are not completely given to rational idiocy, some looked up long enough to realize that the real economic output and unemployment figures indicated, that just maybe the economy was not really picking up steam. After all it’s pretty safe to say and widely accepted that unemployment numbers are so politically massaged that these days a father of 4 with a 10 hour per week job is now counted as fully employed in the numbers from the Bureau of Labor Statistics. This has created a certain reluctance to get back into stocks, so time for some extra political reassurance in the form of the election of Bernanke’s successor as Chairman of the Federal Reserve in January. More on that below as it shows the incestuous relationship between Washington and Wall Street.
So what are the consequences we’re looking at as a result of the announcement that the Feds will continue to pour $85 billion in cash and/or guarantees into the economy every month?
No don’t worry, no sermon here. I have given up on talking hyper inflation in our future or protection in the form of precious metals. If you haven’t seen that picture yet, you haven’t been to a grocery store in the last 12 months or read about how Chinese Women are buying up the world’s gold reserves, while the prices dip.

Enlarge Click

No, what we’re really looking at is that Wall Street is following the road where politics went over a decade ago. To explain: At one point in our democratic history, politics was a tug of war to keep the balance of various lifestyles in check with humanitarian progress principles. Every political denomination would get some of their wishes fulfilled over time. Excessive swings to one side were unacceptable as a norm , so new leadership usually corrected excess often quietly, without too much fanfare. Those were the decades that this country was widely admired and respected in the world for its ability to create prosperity, liberty, progress and some semblance of justice.

However, since the Bush the Younger era of “if you’re not with us than you’re against us‘ – a stance effectively adopted by Obama’s Demopublicans as well, things have changed dramatically. Politics now operate openly without any consideration for the well-being of the constituents. Take the current Stand-off between the White House and The Republicans on as a blatant example of this.

Wall Street, never having displayed too much consideration for Main Street America or the middle class is now doing the same in disregarding us and without any consideration for economic principles. Well, maybe I should put a bit more nuance into that statement. Wall Street and Washington now openly profess their incestuous relationship based on greed and gluttony, and I hate to say: Get away with it! One definition of an Incestuous Relationship reads: “being so close or intimate as to prevent proper functioning”, in essence an incestuous relationship between ‘organized crime’ and government.

Why this comparison?

Is there anybody out there who has followed the fiscal policy dealmaking recently in who’s going to follow up Ben Bernanke as the chairman of the Federal Reserve. If so then you would have noticed how frontrunner candidate Larry Summers threw in the towel this week in favor of current Vice Chairwoman of the Feds, Janet Yellen. Besides the fact that this was an obvious smokescreen orchestrated by Wall Street, I’m not going to bore you with all the pros and cons, or even why I didn’t consider Summers a stellar candidate either, but if you’re interested in the markets or have a need to protect your nest eggs, you may want to Google the names and learn a bit more about what they stand for.

For starters, on Wall Street Yellen is considered a “dove”, who’s fiscal policies will strongly focus on stimulating employment, no matter the continual erosion of the Dollar. In other words she will pretty much guarantee a continuation of Bernanke’s ‘stimulus until the bitter end‘ plan.

Car Salesmen or Economic Indicators?

No surprise therefore that under these conditions many investors smell a bull market so alienated from real life economic values, that it will blow-off its top at some point, but without having a clue when exactly that will occur. Betting on a bullish run is betting that:

1. there really is no significant economic recovery,
2. consequently the Feds will keep stimulating at the rate of $1 trillion or more a year, money that is produced out of thin air
3. All this cash becoming available will go to speculation (as it has in the past 5 years) and
4. the ultimate summit of speculation is the Stock Market.

So, the bullish bet is now expected to get larger than life. It becomes a huge gamble and gamblers need to know when to get in the car and get out of Dodge, before they’re overrun by the ensuing panic. Compare it to Russian Roulette or imagine yourself on the wrong end of Dirty Harry’s .44 Magnum when he queries: “Do you feel Lucky? Well do ya punk?”

To phrase it in my own beach bum lingo: “Are you on crash alert or is the wind blowing through your hair so fierce that it impairs your hearing and causes a blurred vision?”

With the Feds unfolding a new safety net under the market, you may want to party like it’s ‘1999′, but remember that when the lights go out (and they will) everyone will be rushing for the exit doors where body piles of early victims will make it impossible for you to get out.

In closing consider this: The more the Federal Reserve intervenes, the more dependent the economy becomes, and the harder it gets to exit. The Feds say they will head for the door when the numbers improve… but that has now been revealed as unrealistic, because as soon as they make a move to the exit, the numbers will collapse.

And that’s pure human behavior, just ask croupiers and dealers in Las Vegas. Gamblers do not walk away from a winning table. They stay at the table… and go right to the end… from the blow-off to the blow-up.

What You Would Cut in County Budget Shortfall?

What You Would Cut in County Budget Shortfall? The AIFBY Chamber’s Government Affairs Committee is inviting Nassau County residents and business owners to take a survey about the projected Nassau County budget shortfall for FY 2013-14.

This survey presents a variety of proposals to close a projected $11.7 million budget shortfall in Nassau County’s FY 2013-14 budget and asks respondents which proposals they would select to close the funding gap.

Overall responses will be shared with elected county representatives. All respondents will remain confidential. While not by any means a scientific poll, the Chamber’s Government Affairs Committee feels this is a useful tool, particularly for those who cannot attend the budget deliberations, to share their thoughts.

CLICK NOW to participate:

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Taxable Values Continue to Decrease for Most of Nassau County

Taxable Values Continue to Decrease for Most of Nassau CountyNassau County, FL – The Nassau County Property Appraiser’s Office recently released the 2013 estimated preliminary tax roll and the initial numbers show a slight increase in just value and a slight decrease in taxable value for most areas.

On May 30th, Property Appraiser Mike Hickox released the estimated preliminary values to the Nassau County taxing authorities, citing a stabilizing market in the local economy for the 2012 calendar year.

The 2013 estimates for the county’s just value increased due to improved market conditions, however, due to corrections to the tax roll, taxable values decreased just under 1 percent.

Nassau County’s taxable value is estimated to be over $6.1 billion, compared to a little more than $6.2 billion in 2012.

The City of Fernandina could see the taxable value fall to $1.5 billion, a decrease of over 2 percent.

The Town of Callahan is estimated to have a slight decrease in their taxable value to over $66 million, down almost 2% from last year.

The Town of Hilliard is expected to see a slight increase of 1.5 percent, bringing their taxable value to over $72 million.

The taxing authorities will use these estimates to determine the tax rate and to help them prepare the upcoming budget.

Hickox explains that inconsistent units of measurement needed to be corrected throughout the county prior to releasing the preliminary tax roll. “Corrections needed to be made in order to show consistency in appraisal methodology.” He continued, “My first priority was to have a fair and equitable tax roll for all property owners.”

The official preliminary tax roll is expected to be released to the taxing authorities and the Department of Revenue by July 1st.

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The Survival of Crypto Currencies

The Market Madness in its Comic Reality

Click to enlarge: The Market Madness in its Comic Reality

At first I wanted to just write a comment to Mark Dennis’ article yesterday about Bitcoins and Tulips, but as I started hammering away on the keyboard, I realized that a comment would not suffice because there is so much more to consider when talking about the Bitcoin effort to pull currency transfers away from direct government control into cyberspace.

For example there is a lot of confusion out there about money supply and inflation/deflation. There is also the diminishing role of the US dollar as the global reserve currency. Then there is inflation and deflation and the notion that the Feds are printing money, which in reality is probably not the case, but since their operations are so murky and contradictory that not even congress gets an honest answer, rumors accelerate among hoi polloi – since this term was officially used in the hit TV series “The Big Bang Theory” by Sheldon Cooper’s character- I can now safely use it to better describe the populace than the somewhat degrading word ‘sheeple’.

So before turning to Bitcoin and its, in my humble opinion at least, inevitable demise and subsequent replacement by a better protected e-currency option, I would first like to address some of the currency concerns that have surfaced in the past five years or so.

First the money supply issue and the Federal Reserve

For a long time I walked in the camp that professed that the Feds were printing money in such absurd quantities that it would ultimately bankrupt us all into Armageddon. By applying logic however and some hints from a top banker friend in London I am now inclined to think that “the Fed is printing money” is a broad misconception and that the Fed doesn’t really have control over growth in the money supply.

Mind you there is no disagreement that the Fed controls the monetary base, though it is important to distinguish the difference between the “monetary base” and the “money supply.”

The monetary base increases when the Fed buys government securities (like in the various QE programs) increasing the nation’s debt by letting government indiscriminately borrow for programs we cannot afford. This process creates currency units in the form of bank reserves that have the potential to be loaned out. However, this does not translate into an increase in the money supply until these new bank reserves are actually loaned out. And here is a major confusion embedded in people’s thinking: stimulating economic growth requires financial injections on the work floor (Main Street), but that is not happening, except for some very limited bubble niche markets.

So the next debate is centered around whether or not the Fed controls the money supply. One side claims that the Fed does not control the money supply, but rather banks and their customers control it since their actions are the ones that determine whether the new bank reserves created by the Fed get loaned out and added to the money supply.

The other side however argues that the Fed does indeed control the money supply by paying higher interest on the currency unit reserves that commercial banks keep on deposit with the Fed. Remember, it is these reserves that are created when the Fed buys government securities, but which don’t become part of the money supply until they are loaned out by the banks. By paying the banks a relatively high interest rate on these reserves, higher than what they can get from us, the case can be made that the Fed is in fact controlling the money supply through incentives to the banks to keep this cash on reserve and not loan it out – because if loaned out, it would cause an increase in the money supply, thus inflation and the likes.

What’s important to remember here is that we’re talking currency units, just like bitcoins. The US dollar currency unit is only as good as our Government’s promise to back it. It has no gold reserves or anything of value or than a promise backing it. Whose promise however is not quite clear, as your dollar notes clearly state on the top FEDERAL RESERVE NOTE, and the Federal Reserve is NOT an electable government function. The Federal Reserve is not a US Government institution but a private banking initiative.

The diminishing role of the US dollar as the global reserve currency

Something very interesting happened two weeks ago. Japan, the world’s third largest economy, sold off more than 7% off its market in one day, a fact that had virtually no impact on the US markets. In 2008, during the crash and afterward, it seemed that all of the world’s economies were joined at the hip – the slightest disturbance in even a peripheral country such as Greece or Iceland would send markets around the world reeling.

Analysts were delighted by this as it seemed that the US markets were more defined that day by the Federal Open Market Committee comments than by Japan’s drop. Wrong way to look at it in my opinion, it’s not that events in Japan don’t matter anymore in the US market, it’s more that the rest of the world including Japan are in the process to become much less dependent on the US currency.

Traditional investors still think that the USD is the ultimate safe haven, but a rapidly growing number of contrarians are moving cash and assets into diversified international markets and currencies, which is one of the reasons Bitcoin all at once became an investment option, rather than just a digital currency exchange. Another reason was probably that many Liberty Reserve users saw the writing on the wall and moved into Bitcoin, suddenly making it a household word to at least financial insiders.

What is Bitcoin?

In its simplest explanation it is electronically exchanged money – an e-cryptocurrency, backed, like the US dollar, the Euro, the Yen, by an authority’s promise to uphold the value. Many E-currencies have been developed, tested and most often discarded since the Internet changed the financial playing field. Some of the more prominent ones are Webmoney, Moneybooker , SolidTrustPay, Okpay, Cosmic Pay, Egopay, Instaforex funds , C-gold and of course Bitcoin. The problem governments have with Cryptocurrencies is that they are generally designed to have no inflation (once all the currency has been produced), in order to keep scarcity and hence value. Cryptocurrencies are also designed to ensure that funds can neither be frozen nor seized. Existing cryptocurrencies are all pseudonymous, and Bitcoin additions such as Zerocoin which employs cryptographic accumulators and digital commitments to eliminate trackable linkage in the Bitcoin blockchain, which makes Bitcoin anonymous and untraceable.

And yes Mark Dennis is his article points at the fact that Bitcoin works in favor of money launderers and criminals as a negative side effect. But to be honest, the biggest criminals in history usually had and have their own banks and transfer systems.

Having said that, as a true libertarian who endorses the “keep government out of our lives” mantra, I am fairly certain that the next phase of government control will see government do everything in its power now to crush Bitcoin as part of deterring the average person from wanting anything to do with Bitcoin, or, for that matter, any other non-sanctioned e-currency. The snag here of course is that Bitcoin, contrary to Liberty Reserve is a massively distributed system with no obvious individuals readily available for perp-walking. This fight will probably rally around scaring away heretofore vocal and visible champions of a new e-currency, who helped Bitcoin gaining rapid market share.

So while cyberspace is continually developing new and improved currency structures, the scenario on the ground is that the government is preparing to wage war on Bitcoin for some of the right and all the wrong reasons.

For now this war will scare off merchants who accept Bitcoin, or who were contemplating it. And while individuals may be able to fly below the radar, merchants who need to advertise their willingness to deal in bitcoins offer up a fixed target.

It has been the experience in all my years and travels that any government – not just the American government – will simply do whatever it thinks it needs to do to keep the status quo intact, with no moral or ethical considerations.

For now fate for e-currencies, especially Cryptocurrencies, is pretty much defined by how much time it will take technology and the internet to break the status quo dictated by the past, and the inevitability of new paradigms to be implemented. I give it no more than 5 years.

But for more perspective I’m closing with the words of a good friend: “While it’s hard to tell how Bitcoin will ultimately fare… I think the right questions we as possible consumers of the e-currency have to ask is, (a) whether its value is intrinsically linked to its ability to operate in the open, and (b) whether it can withstand a full-on government assault.
And never for a minute lose sight of the fact that the government defines the rules. If your permanent government file might be amended to flag you as a possible anti-government revolutionary solely for visiting a Bitcoin-related website, would you take the risk?
Though I certainly appreciate the effort to launch an alternative, anonymous currency – I see Bitcoin as Prototype 1 in that regard and very much susceptible to being mugged by the monetary mafia (Federal Reserve) that came into power exactly 100 years ago,
Maybe I would buy some for entertainment purposes, but for anything resembling real value, I’ll take things more tangible”.
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