Category Archives: Politics
This has been an idea brewing in a lot of people’s heads lately. These two movements just seem to come together naturally.
And I am excited to say that today two of the leaders of their respective movements came together to talk about how these two huge ideas merge.
Jack Spirko hosted Robb Wolf on his Survival Podcast and it was a great show. Here is the link…
They start out with some of the low level stuff and get to the “30,000 feet level” pretty quick, as Robb puts it.
I love thinking about how we can make our lives healthy and sustainable. And I think these two big concepts get the majority of things right.
We are all still learning how to best optimize our lives, but I think anyone can benefit from learning about these two big concepts. Enjoy!
The U.S. Congress sets a federal budget every year in the trillions of dollars. Few people know how much money that is so we created a breakdown of federal spending in simple terms. Let’s put the 2011 federal budget into perspective:
· U.S.income: $2,170,000,000,000
· Federal budget: $3,820,000,000,000
· New debt: $ 1,650,000,000,000
· National debt: $14,271,000,000,000
· Recent budget cut: $ 38,500,000,000 (about 1 percent of the budget)
It helps to think about these numbers in terms that we can relate to. Let’s remove eight zeros from these numbers and pretend this is the household budget for the fictitious Jones family.
· Total annual income for the Jones family: $21,700
· Amount of money the Jones family spent: $38,200
· Amount of new debt added to the credit card: $16,500
· Outstanding balance on the credit card: $142,710
· Amount cut from the budget: $385
Credit: DAVID THOMAS
Chief Executive Officer
Equitas Capital Advisors LLC
August 2nd 2011 just became a significant day in U.S. history. The day that the U.S. Congress and the President decided to make a hard deadline for coming to an agreement on a spending bill.
Unfortunately I fear that this will be more business as usual in Washington.
We failed to see any type of balanced budget amendment. However, it seems good that any increases in the debt ceiling are now linked to similar spending cuts.
The problem is that they created a significant loophole for the President to increase the debt ceiling without Congress approval if they fail to come to a compromise on a budget by the end of next year.
As I said before in Will The U.S. Ever Pay Off Its Debt, I fear that the U.S. will keep increasing the size of their debt hoping that inflation will help to mitigate some of the downside of that debt.
And we will all be poorer because of it. Especially the poor and middle class, but nearly everyone will suffer from it in the future.
Here’s to hoping we get our strategic finances figured out, and position ourselves for a better future…
What many people have been talking about for years is finally making the mainstream press. Politicians are starting to talk about it. Michael Moore even made a movie about it…
Debt is power for the one who loans the money, not the debtor.
Any debtor that can not pay back their debts will eventually go bankrupt. The trend for many years has been that the U.S. pays past debts by creating new debts. Will this game continue as it has? It’s probably not sustainable, but so far it has worked. What you need to be afraid of is not how it will stop working, but when…
The answer is that the U.S. does…
Currently the U.S. holds about 50% of its own Treasuries to help pay for entitlement programs such as Social Security and Medicare.
Foreign Governments, with Japan and China being the largest, own about 25%.
Institutional and Individual investors make up the the other 25%, with U.S. state and local governments making up the majority.
With governments owning most of the U.S. debt, why should it be such an issue? Why is it such an issue that foreign governments own so many U.S. Treasury bonds?
Ask yourself why they buy them in the first place and you will have your answer…
They buy them so that they will have a secure revenue stream in the future. If returns are guaranteed then governments are better able to budget in the future. They will better be able to still provide government services even if their tax revenues go down.
This is why China doesn’t want to let their currency inflate against the dollar and why the U.S. wants it so badly. All their investment in U.S. Treasuries won’t count for much if they make less than what their inflation rate is.
So why does the U.S. sell so many Treasuries?
For the opposite reason from why other government buy them. Because they don’t currently have enough tax revenue to pay for everything they want. (i.e. a large technologically sophisticated military, big government pensions and payrolls, social security/medicare allowances, etc.)
The U.S. federal government is betting on inflation, while other governments are betting against it. If the dollar continues to inflate then U.S. debt will be washed away. All those dollars of debt will seem small years from now as inflation grows. (Think of the cost of goods 50 years ago…)
Maybe other governments aren’t necessarily betting against inflation. They are betting that the interest rate they get on their loaned money would at least beat inflation. (i.e. They get an interest rate of 4% while inflation stays at 3% or less.)
In the end, the debtor always loses…
By taking on so much debt the government almost forces itself to cause inflation as best they can. They continue to borrow money, dump it into the economy in the form of stimulus, keep interest rates low, and everything else within their power to do, just to keep inflation going, so they can keep borrowing more.
It is a cycle that is hard to escape without changing the whole system.
“Why pay for something now, that you can pay for later?” Simple and easy, yet morally wrong, is the way I would put it.
So will the U.S. ever pay off it’s debt?
The short answer is… No, not in total.
The long answer is… Yes, if it want to keep paying for all the government services that it provides.
Many people think that we are near our max on the credit card, and spending has to be cut. The question is, will our leaders have the fortitude to make those cuts now, or will they be forced to in the future?
Or, will inflation save the day? And we can keep spending like none of this matters?
I fear it’s the third idea that is in too many of our leaders heads. And its a risk I wouldn’t want to take. Would you?
Our leaders are hoping that the American culture will continue to support that idea, and so far it has. People keep spending with no end in sight.
Money is power.
And he who has the money makes the rules.
Fun times for us all to be living in. Wouldn’t you agree?
To QE or not to QE, that is the question…
As many of you know the U.S. Federal Reserve has been kicking around the idea of doing a second round of Quantitative Easing… Scratch that… Its a done deal…
In simple terms, this just means increasing the money supply so as to artificially create inflation. This is one of the main weapons the Fed has to use in a deflationary environment…
In an inflationary environment the Fed often raises interest rates to help slow inflation. By raising interest rates they make it less preferable for businesses to borrow and thereby artificially slow growth.
Currently, we have interest rates that are practically ZERO and we are still precariously close to a deflationary environment. Why? It’s not that people can’t borrow, its that they don’t want to…
When we have high inflation it encourages people to borrow more because they can pay of the debt in the future when their money is worth more. When there is deflation it destroys people with debt because the money they have now is worth less then when they originally borrowed it. They essentially are losing money on the deal, regardless of the interest rate they borrowed at.
Think about it. If you borrow money at 4% and inflation is moving along at 3-4% then inflation quickly overcomes anything you might lose through paying the interest. Assuming you are still making money at today’s inflated rates.
“Deflation benefits low debt consumers and those on fixed incomes, because they receive a fixed number of dollars but can buy more with each dollar.” – InflationData.com
All these things go hand in hand…
U.S. citizens went from a negative savings rate to a savings rate as high as 6% because they were hedging their bets against inflation. If you have high inflation it makes no sense to save money that will simply be worth less in the years to come. However, if deflation is occurring the money you save now will be worth more in the years to come.
Back to QE2… Why is it happening? What does our government have? LOTS of debt! What environment benefits debtors the most? An inflationary environment. What does QE do? It puts more money into the money supply thereby creating artificial inflationary pressures. Therefore, it is pretty safe to say, the U.S. will continue to do everything it can to create inflation.
Now let’s look at China real quick…
They don’t want to let their currency appreciate. Why? They are the savers of the world. They will benefit more by keeping their money supply where it is at rather then letting it appreciate. All the money they have saved and invested will be worth less if their currency becomes inflated.
It is a financial war that is going on not unlike the Cold War. Except this time it is a war over who has the most money stockpiled rather then nuclear arms. The U.S. has always won this game by creating inflation. Will China bend to their will or try to play the game on their own terms?
Time will tell, but for now, I would certainly say that inflation will continue and we should plan for it…
Last night I had the privilege of watching a live teleconference with The U.S. Ambassador to China, Jon Huntsman, and hear Sidney Rittenberg speak live courtesy of The National Committee on United States-China Relations.
Rather then offer up my own opinions on the evening, I will just list some of the major points made by both parties.
- The U.S. debt to China has never really played into the trade discussions he has with China.
- Since China has allowed the their currency to float (reference), we have seen on average a 1% appreciation of the Yuan per month.
- With the 2001 entry into the WTO China has started to go by the rule of law, instead of the rule by man. They are using the current laws to help establish their case in many instances.
- We only got to see about 15 minutes of the telecast because the uplink from China died, but the moderator happened to mention that he thinks we might see Jon run for president eventually. (sidenote: Jon has already served in numerous government positions, including Governor of Utah, so this could very well prove true.)
- Sidney is probably one of the only Americans left alive who has met every Chinese leader since Mao Zedong.
- His take on yuan appreciation is that it doesn’t matter a whole lot. And that more jobs depend on trade with China then in putting tariffs up.
- He states that China is much better off today then when he was because of the new regime. He states that your average person in China used to have a life expectancy of 32 years, but today life expectancy is 73 years old.
- He cited Colin Powell as saying, “There system (China’s) works better for them then our system works for us.” I haven’t been able to find a published source of this. His main point here was that we shouldn’t assume we know what’s best for China.
- 800 million cell phone users, 400 millions internet users, something to think about.
- China has to figure out how it will switch from government investment to capital investment.
- China also has to find ways to allow for more free speech and freedom of the press. He says that this is the valve that lets off the steam in any country. They are better off letting this go. He says any young Chinese person can find out anything they want to on the internet anyhow.
- Government must also protect whistle blowers to help end the corruption.
- There is a great disconnect between central government policy and it’s execution in the local governments.
- Most Chinese aren’t worried about the central government as they are about getting the local despots off their backs.
- Chinese have a lot of freedoms. The only freedom they don’t have is the ability to criticize the government. Local government despots are the biggest violators of human rights. Not the central government.
- Quotes Wen Jiabao as saying that political reform has to come before economic reform. Told a story of how Wen Jiabao was traveling through the countryside with the local officials and said he had to get out to “commune with nature” He then used the opportunity to run over to the local village to get the true story from the villagers. He asked questions like were they receiving payments for the fact that their spouse died in the war, etc…
- General consensus in China is that Tibet is ungrateful for all the investment China has put in Tibet. The Dalai Lama has stated that the 17 point agreement they worked out with China would work if everyone followed it.
- Law now requires 2 companies, a foreign and a domestic one, to audit a Chinese company. Deloitte is one of the biggest companies doing this now.
- If you want to find a Chinese partner to do business with look for the 3 C’s: Character, Competence, and Connections. Do your Due Diligence.
- Recommended books on doing business in China: Jim McGregor’s One Billion Customers, Mr. China by Tim Clissold, and Beijing Jeep by Jim Mann.
- Mentioned that Christianity is welcome in China because Christians tend to be good law abiding citizens.
Most of Sidney’s remarks revolved around the idea that we need to cooperate with China and find common interest through dialogue. And that we should avoid all the press that attempts to demonize China.
With China gaining power and influence over the world, it pays to keep abreast of current events going on. I will continue to talk about some of the more interesting things happening in China so please subscribe to keep updated. Thanks!
I just wanted to take the time to mention a very intriguing new website I found.
It is called Sovereign Man and it is written by a guy named Simon Black who does a daily report from the field (currently Nigeria) about economics, investing, and international business.
I love the site, and I have subscribed to it.
It is a whole let better than reading the normal international business news sites like CNN.
It is a much more intimate look into what’s happening in the local economies of a bunch of different countries and it is well worth the read if you are doing any kind of international investing at all.
Check it out, it’s well worth the visit…
I just read a great interview of Wen Jiabao in the latest Time Magazine.
It offers a lot of insight into the man who is in charge of China’s economic policy.
The best question the interviewer asked was what books does he enjoy…
I may be wrong about this, but I tend to believe a person can be judged by what they read. One of the first thing I look at when I am invited into people’s homes is what books they have on their bookshelf.
Wen Jiabao first states that he enjoys reading histories, both of Chinese history and world history.
He mentions at the end that he does not read memoirs because he believes there are too many of those written.
What is most interesting is that he actually names two books by name that he reads when he is traveling.
The first one is The Meditations by Marcus Aurelius.
The second is Theory of Moral Sentiments by Adam Smith.
I’ve read the Meditations but not the Theory of Moral Sentiments. I’m actually going to order it here on Amazon soon after I catch up on my current reading list.
It is my belief that reading the classics will always be best, even if I do read a lot of up to date books.
I recently read this again somewhere and it is a good reminder…
You are what you read, you are what you listen to, and expose yourself to. Choose wisely what you read because it becomes you.