GuidoWorld

Everyone Loses: Stock Market 101

Since the 1970’s the percent of people and stock trade activity which is involved in mutual funds and index funds in particular has mushroomed. While the frequent day traders have become more active, the typical non-professional as well as professional trader still engages in the buy and hold strategy advocated by market experts since there has been a stock market.

The goal of this post is to point out that the buying and holding of index funds in particular is seldom a winning proposition and very likely a sure way of slowly losing almost all your assets. Let me use this year as an example. I will attempt to use enough math examples to prove my point without traumatizing or boring those who are math-o-phobic.

Any fund that adjusts itself on a daily basis is almost inevitably going to lose value over time. This is true of all index funds and to my knowledge a great deal of mutual funds that deal with the bundling of several stocks.

Okay this is how it works (or doesn’t work for the investor). For convenience sake I’ll use nice round figures.

Let’s say that I have $100,000 invested long in the Nasdaq 100 (top 100 technology companies). Long means the standard way of trading in which I’m hoping for the market to go up. On my first day the Nasdaq rises from 2000 to 2060 an advance of 3%. To make the numbers big enough to quickly show what happens let’s say that I owned a fund such as RYVYX an ETF which doubles the movement.

So, in effect the market went up 6% and after one day I made a quite impressive $6000. Let’s say the next day the market gave back all it had gained and the Nasdaq returned to 2000. The drop from 2060 to 2000 comes out to a 2.9% drop. So, while yesterdays gain was 3% a drop of only 2.9% gets us back to even. Yet, while this sounds like you actually would have made a little money or stayed the same the actual math will show that you surprisingly lost some money.

Since you started the day at 106,000 you lost 5.8% of 106,000 which you get by multiplying .942 of 106,000 which comes out to 99,852. So during your two day round trip you actually lost $148.

Rather than give you a host of mathematical examples let’s take a look at what happened this year. The Nasdaq 100 began the year at 2218 and ended the year at 2278. This means that the Nasdaq 100 went relatively nowhere this year and if you owned an ETF or mutual fund on this index you would expect a modest gain of 2.7%.

In the example above I used a fund which doubled the movement of the index. Well if you wanted the maximum amount of potential gain you can own funds which triple the move of the index such as TQQQ for the Nasdaq 100. In owning the TQQQ then you would anticipate a gain of near 8.1% for the year (2.7 x 3). Yet, the actual performance of this ETF is quite different.

TQQQ ended last year at $73.94 and closed yesterday at $67.99. Therefore instead of gaining the expected 8.1% the fund logically would produce by its tracking the Nasdaq 100 it actually lost a hair over 8%. This means that due to how the index fund tracks the fund on a daily basis that the markets ups and downs caused the fund to deviate significantly to the downside.

In essence if you started the year with $100,000 you would currently have about $92,000. So while the market went up and you should have gained over 8%, you actually lost $8,000.

Now, as many of you know you can buy index funds which “short” the market. So, instead of you making money when the market goes up, you make money when the market goes down. The ETF SQQQ is the short version of the TQQQ which means that it should do the exact opposite.

If you owned the SQQQ for the entire year you would expect that since the market went down 2.7% that you would have lost 8.1% for the year. So, your $100,000 would be right near $92,000.

Well, let’s look at the actual numbers for SQQQ. The SQQQ ended last year at $31.18 and ended this year at $19.69. Okay, so $19.69 is only 63% of of $31.18. So instead of losing an expected 8% you would have in fact lost 37% of your money. Your $100,000 would have shrunk down to $63,000.

Okay, to review, despite the fact that the market went up a mere 2.7% for the year you would have lost money through the buying and holding of index funds whether you played the market to go up or down. These popular index funds were a lose/lose proposition.

Many studies suggest that over 80% of investors lose money. These studies fly in the face of market “experts” who claim that statistics show that despite setbacks even dramatic ones, that those long term investors who patiently buy and hold will typically find their money double every 8 to 10 years.

As you can see from the above example, which is more common than uncommon, the long term buy and hold approach may not be a wise one for most investors.

There are probably those out there who may object that the above example does not include the “dollar cost averaging” strategy of “experts” who advocate investing money into stocks at set intervals. The logic behind this is that pouring money into stocks when they are cheap (stock market has gone down) will just give you more shares and have your money earn more as the market recovers.

I became suspicious of this tendency for everyone to lose in the long term holding of index funds a few years ago. And over the past year ago I’ve factored in the use of “dollar cost averaging” on a monthly and quarterly basis without seeing any significant benefit to ending or even easing the steady erosion of wealth of index investing.

I’m not saying that successful index investing is impossible. I’m only pointing out that the practical and mathematical reality of this style of investment is rife with obstacles and complications, and that investor caution is more than warranted.

Jim Guido

As a veteran of so many social movements since the 60’s I view the recent efforts in Arab nations, the US Tea Partyers, and the #OWS (OccupyWall Street) with a mixture of hope and skepticism. My hope is small in comparison to my skepticism because like previous social movements I think they underestimate, what they are up against. Too many people trust in the purity of entities such as alternative and social media.

After personally observing how the student revolutions were infiltrated, corrupted, and finally co-opted by the corporate/military/industrial complex I am aware of how the integrity of a noble cause can be not only destroyed, but end up serving the long term interests of the establishment (the 1% in today’s lingo).

There were many other movements that have and are suffering the same fate as the anti-war student movement of the 60’s. In fact the majority of the others fared much worse than the students movement. A short list would include the civil rights and women’s movements, the ecological movement, and the anti-war movements of both Gulf Wars.

Please read the following quote numerous times. In fact make a copy of it and put it on your fridge, on a home wall hanging, or any place where you will see and review it often.

“The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society. Those who manipulate this
unseen mechanism of society constitute an invisible government which is
the true ruling power of our country. …We are governed, our minds are
molded, our tastes formed, our ideas suggested, largely by men we have
never heard of. This is a logical result of the way in which our
democratic society is organized. Vast numbers of human beings must
cooperate in this manner if they are to live together as a smoothly
functioning society. In almost every act of our daily lives, whether in
the sphere of politics or business, in our social conduct or our ethical
thinking, we are dominated by the relatively small number of
persons…who understand the mental processes and social patterns of the
masses. It is they who pull the wires which control the public mind.” – Edward Bernays – Propaganda – 1928

Look at the year that was stated. Almost a century ago our world was already dominated by perceptual managers. Mr. Bernays was not heralding a new strategy, but a science of social psychology which had developed to the point where he could confidently identify propaganda as the most powerful and pervasive ingredient of maintaining a democracy. In fact, Mr. Bernays and his ilk did and do believe that the very survival of democracy is dependent on the successful control of the public mind.

In my previous post What Money Can Do, I mentioned amongst other things the fact that the wealthy can and do employ some of our greatest minds to insure and expand their power, wealth and control. There is no social movement that will not be monitored, infiltrated, corrupted and influenced by the perceptual managers and PR minions of the wealthy.

Every day the techniques and strategies of social influence and perceptual management are being refined, honed and expanded upon in the practical laboratory we call modern society. The sophisticated techniques used by our intelligence and military agencies in torture, propaganda, brain washing, and removing resistance are being adapted and deployed domestically by the wealthy to further their agenda and to insure their continued dominance.

Just as our government gathered and employed some of the best physicists for the Manhattan Project for the atomic bomb, the military industrial complex currently employs geniuses in the realm of social psychology. Terms such as spin doctors greatly downplays the sphere of influence of the perceptual managers who are working around the clock in their devotion to win our hearts and minds and make us dependent on those who are exploiting us and attacking our standard of living and quality of life.

All those who are feeling that the internet and social media are the tools of the next revolution should keep in mind that the internet was originally a pentagon project, and its main goals and objectives in terms of global and domestic surveillance and influence are still in tact. I see no indication that “they” have lost control of their project. In fact each day I see more and more signs of how they are once again successfully co-opting and incorporating all these Arab, European and domestic social movements into assets of their social engineering.

The desire for the powerful and ambitious to control and exploit the masses is not new, and as Bernays points out, it has a privileged role in democratic systems. Even in the earliest social democracies that existed over two thousand years ago the benefits of mechanisms such as bribery, corruption, deceit and torture were generally known by those in power. In the earliest democracies oratory was heralded and many politicians adopted the skill set of the conman.

Yet, over two thousand years the level of sophistication of propagandists, conmen and perceptual managers has mushroomed. One could say the effectiveness and knowledge of the techniques of persuasion and influence have grown geometrically with the birth of the sciences of social psychology and public relations.

Anyone who truly yearns for lasting and meaningful social change must understand and fully appreciate how potent are the forces able to corrupt, co-opt, redirect, or envelop any social movement. Everything said by or about a movement is monitored and analyzed and processed by perceptual managers. Every word uttered is an opportunity for the spin doctors and propagandists to find a point of entry into joining or redirecting the movement. Every moment new ways for a movements words to be reinterpreted or emotionally experienced are pondered. Without even knowing it followers of a social movement may be straying from the original intent into a version which is being promoted by the establishment.

The problem is that the average person does not have the time nor energy to sift through all of the words being said and have sufficient vigilance to keep their support of the movement pure. Movements themselves and their spokesman often do not see how subtle changes in language or in acceptance of minor ways their ideas are being framed by outside influences (media, splinter groups, etc.) are not only undermining but often altering the core issues of the movement. oftentimes altering the very proposals which have the most potential for dramatic social change. That level of thought and vigilance is more realistically able to be accomplished by the perceptual managers and their employers.

Significant, lasting and beneficial social change is still possible. Our desire to create harmonious and humane societies is a valid one. The goal of constructing societies which improve the quality of human life is not unrealistic or even idealistic. Yet, it is not the direction in which we are moving and until we fully recognize and divorce ourselves from the mechanisms of power, fear and hatred which are the basic tools of social engineering we will have a difficult time not falling prey to the agenda and dominance of perceptual managers who convince us that the elite are too big to fail and our very survival depends on their continued imbalanced success.

Jim Guido

Whether wealth be of an individual, a corporation, or a cartel of like minded individuals their is much one can do to further their interests. If the primary goal is financial there are many things wealth can do to protect itself, increase its dominance and significantly expand its relative worth.

One of the most sure methods of slanting the playing field in your favor is to maintain or create laws which maximize your legal and commercial advantage. The more wealth has influence and control over the political arena the easier it becomes for wealth to maintain and increase its position.

Though wealth can use its resources to increase and better its position in almost any political system we will focus on the tools and strategies wealth can use in democratic governments. Since politicians need to get elected they are very dependent on money, media and public relations to insure their attaining the office they desire.

In many ways we could make the argument that campaign contributions is wealth’s best friend. First you could make the size of your contribution dependent on the candidates promise or active promotion of the passage of a bill from which you will directly benefit. Second, you could tie your contribution into the securing of a position for yourself or a minion that provides you with an undisputed current or future business advantage.

To insure that your money is not being wasted betting on a losing horse, you can always wait to commit yourself to a candidate until the polls are giving a nod in one direction. In such a case the size of your contribution would need to be sizable to establish the politicians dependence on your continued and future support.

Yet, true wealth is free to contribute to as many candidates as is thought prudent. Betting on more than one horse in a race is fine and often one does not have to feel constrained by party affiliation. Cartels functioning as voting blocks can funnel their contributions through an individual regarded as a Republican or Democrat in a given situation to avoid appearing contradictory or disloyal. If profit is your main motive than policy is much more important than party affiliation, and the goal is for your contribution to go to a winning candidate who will feel indebted to you and your support.

Once elected a politician is in constant need of funding for re-election and political power. So even if you weren’t a big contributor during the campaign, you can buy yourself support and friendship through contributions of almost any elected official. In such a situation those of wealth can donate money to a politician’s pet project in exchange for their support of passage of any legislation which enhances their business needs.

In the realm of political influence by the wealthy we are all very familiar with the power and influence of lobbyists. The wealthy have long realized the pampering of and pandering to politicians is a very wise investment. The money spent is but a fraction of what it can generate.

The history of capitalism is full of stories where a corporation or business cartel pushed through legislation which gave them an unfair advantage or actually destroyed their competitors. The joint efforts of construction, the automotive and related industries did a fine job of passing laws which undermined the survival of the electric trolley, as well as a budding electric train industry. When I was young there was an electric train line that ran from Chicago to Milwaukee that despite a loyal passenger base could not survive the onslaught of being legally handcuffed and marginalized.

When the US was young its economy thrived and became competitive by passing laws which protected it from the monetary and technological advantages of British mega-companies. Yet, once the US formed its own economic elite the laws have changed giving back all advantage to the wealthy. The major reason why “free trade” is so popular amongst our largest corporations is that it takes away all protections from smaller businesses and allows big business to dominate every region both domestic and international.

Misleading titles such as “free trade” seduce the population into handing over their last remaining hopes of ever competing against the wealthy. If you are wealthy you can use “free trade” and “free market principles” to simply buy out any competitor, underprice them through volume or even taking a temporary loss through low prices to force them out of business. In return for your political donations you can get government (tax payer) subsidies, low interest loans, and favorable tax laws making it almost impossible for any competition to arise in the first place.

In business perception is everything, that is why so much money is spent on advertising, public relations and on perceptual management. Knowing this wealth is able to invest huge sums of money into creating consumer loyalty and demand. The wealthy can hire the best minds in the fields of social psychology, public relations and neuropsychology to best understand and influence the public at large.

Yet, for the wealthy such moves are only preparing the soil for their public opinion commercial farming. Even the least innovative or ambitious tycoon can place beneficial news stories, use their role as advertisers to influence what a paper says or doesn’t, and pressure the media to print favorable stories. Yet, the wealthy need not stop their, for they can actually own media or become part of a conglomerate that does.

The truly wealthy can not only own media and publishing houses, but fund or own universities, research organizations, think tanks, or control education policies and curricula. The truly wealthy can reinterpret if not rewrite history giving them and their projects a heroic and revered image. The wealthy can write the scripts that the average person takes as historical and modern reality.
The wealthy can fund or create non-profit groups which appear to be philanthropic or humanitarian and which function as tax shelters and attack dogs. One of the possible explanations of why the world’s most renown economists can be wrong so often yet remain revered is that the wealthy control the title of respected and famous economists. The wealthy have created a world where the only sanctioned “schools of economic thought” are those generated by its think tanks, universities, and businesses which protect and further their interests.

The wealthy can and do increase their net worth while being the world’s most prolific philanthropists. Through their non-profit foundations, charities, and humanitarian projects even retired billionaires find ways of using these havens to increase their overall wealth. In essence, the wealthy are able to use philanthropy as a commercial boon, which protects them from the IRS and has them become the heroes and idols of the very populace which are becoming relatively poorer through their apparent generosity.

The wealthy can also create socially conscious non-profits who promulgate their economic and ideological message. Oftentimes this can be done with the public believing its a grass roots organization. The wealthy can also infiltrate or contaminate any existing socially conscious group or movement. The wealthy can usually corrupt a well intentioned union, or move astray from its original purpose.

The wealthy can and have taken a non-violent movement and make it militant. The wealthy can create a bogus ecological entity whose extreme views and actions discredit or destroy the public support of a legitimate group whose public backing is interfering with the business profits of the wealthy. The wealthy can create or incite a war which will either add to their coffers or divert the public’s attention away from their malfeasance.

The wealthy can do pretty much what it imagines, and can hire people who can imagine for them. This is not to say that the wealthy has to do these things. It is only to point out that they can, and that to the extent that profit is their guiding force, that it is logical that they do such things. It is also important to point out, that those of wealth who do not do these things will be at a disadvantage to those with wealth who do these things, and therefore, will likely lose to the more ambitious and self-serving in then long run.

I do not think it is human nature or inevitable for successful or ambitious people to act in this way. Yet, I don’t think it is paranoid to assume or anticipate that economically ambitious people are and will do such actions which increase and protect their wealth and privileged position.

The problem is not in human nature or in the desire to be successful. The problem is constructing a social and economic system that rewards and fosters this style of being in the world. We have choices, but much money and energy is bering spent trying to convince us through fear and deception that there is nothing inherently wrong with a profit based capitalistic society, in fact we being told that our problems are due to the fact that we have never had a truly free enterprise system.
We’ve never had and never will have a totally perfect any kind of system. Yet, I have no doubt that we can create a system and a social structure that is far more humane and far more successful at reducing human suffering while improving the quality of life for the majority of those on the planet.

Jim Guido

Anyone who has ever taken out a loan knows the importance of interest rates. Whether the loan be for school, home, car or business  “a good rate” can make all the difference. Even though much has been made of the high debt load of the US our historic low interest rates hovering near zero have made it serviceable. If interest rates were to rise even a little bit, our debt load would quickly become unmanageable.

Almost immediately after the S&P downgraded the US from its AAA rating the markets began to plummet. In essence that was like the entire nation getting a lower credit score and a signal that higher interest rates for our national debt were on the way. All eyes were on the Fed to see how it was going to respond. The Fed surprised a lot of people and said little in direct response to either the market, quantitative easing or the integrity of US debt, instead the Fed pledged to keep interest rates at near zero till at least 2013.

Historic low rates and floods of easy money have been behind the stock markets meteoric rise over the last two years despite a moribund rebound in the consumer economy. The Fed’s assurance of low interest rates through the middle of 2013 along with the rising of the debt ceiling through the same time period should give an all clear to the stock market if the European financial systems can avoid a meltdown.

Though the pledge of low interest rates may reassure the wealthy that debt won’t kill the flow of easy money, it will force many safe investors on a fixed income into the risky casino of the stock market. The certainty of low interest rates means that those with conservative safe investment and retirement portfolios may not be able to live or survive on the interest alone, thereby resulting in their putting larger portions of their retirement and pension funds into stocks in search of income to maintain their life style or avert the possibility of their outliving their savings.

For a more in depth analysis of the ways in which the Fed and our economic policies are making life miserable for retirees read the following:

BERNANKE PLEDGES TO SCREW YOUR GRANDMOTHER FOR AT LEAST TWO MORE YEARS

 http://www.theburningplatform.com/?p=199…

The market pundits and media could put up a rather convincing argument that the recent “crash” has already “priced into the stock market” a European financial meltdown and the prospect that “we’ve already entered a double dip recession”. Any data or announcements which indicate that Europe and the US economy are not as bad as recently advertised could result in a market rally and the official proclamation that the “economic soft patch” is over and the recovery is back on track. In that case a quick and strong market surge could begin which along with the dashing of any hopes of higher interest rates for those on a fixed or limited income, could entice/force those who have been risk aversive back into the stock market.

Then, soon as any recession data returns or another round of financial issues surface the stock market will tank even quicker and stronger than the last few weeks, resulting in a return of the bear market begun in 2007/2008. In this very likely scenario those coaxed and forced back in the stock market will be devastated. This means that not only will granny lose her last pennies, but those who missed out on the last stock market rally and who have been coaxed back in by the Fed’s last move will once again see half or more of their savings/investments evaporate.

Making matters worse is the likelihood that the last two year rally will prevent them from selling as the market goes down, for they won’t want to miss the next rebound. The problem is the rebound may not come this time. The same thing happened during the last great depression. The stock market crash of 1929 was not when most people lost their money, but after the rebound in the early 30’s followed by the real prolonged crash of the market.

So, those on a fixed income will lose their remaining money either through not receiving interest they are depended on, or in the stock market where they are attempting to make modest gains to supplement their lack of interest. Those who aren’t retired but are below or near where they were before the stock plunge of the 2008 recession, will either continue to stay out of the market or get in and get mauled in the next leg down in this bear market.

The transfer of wealth from the many to the few is about to pick up momentum. The coming deflationary depression will accomplish much of the same as the depression of the 30’s. A few entities will win the great game of monopoly and but up every thing at much lower prices. The great majority of people will be wiped out and be struggling to get by for decades while the handful of winners make the current billionaires look like paupers.

The common man will have no recourse. Very little of the money which was taken out of their paychecks for social security and medicare will be returned. Workers rights through the decline of unions and collective bargaining will be hard to rekindle. The great war machine of the military-industrial complex will continue to centralize power and wealth, and make most forms of protest or political discussion illegal and punishable.

Those who own debt such as the Fed and other central banks will not likely ever be repaid, but when the smoke clears they will own most assets, real estate and businesses around the world. At some point they will probably give up the ghost of trying to get loans paid off and find some way to forgive all debt. This has been done numerous times throughout history and even has a name for the occasion (Jubilee). After all is said and done money is an abstraction, but ownership is true wealth, and those who own the debt own the assets behind the loan.

Could I be wrong. Of course, I could be wrong. Yet, from a historical point of view this script has played out a number of times, and we all know the folly of thinking “this time is different”. The only way it will be different is if we make it different. Yet, at this moment I do not see any sign that we have the courage or insight on how to alter the unfolding script.

The combination of technology and globalism make it possible that this depression could be the most intense and severe of any on record. Will we end up in a return to Feudalism, or in a world similar to Brave New World or 1984? Perhaps.

Each previous global empire has fallen, and each previous monopoly game has resulted in new societies being formed in which the game begins again. Yet, sometimes there can be lost decades or even centuries before a revival. The scariest thing of this monolith is how efficient is its ability to monitor, survey, and shape perception.

Yet, the obvious question most of you are asking is what can be done? Well, we have missed a myriad of opportunities over the last few decades. Since the coming deflationary depression is weeks or months away from taking hold of the global economies there is almost nothing to do in  terms of prevention. The snowball is already careening down the hill, and the best we can hope for is not to be in its direct path.

Okay let’s take a look at what you can do in the short and long run to help yourself not only survive but actually improve your situation in the coming economic tsunami.

If possible get out of debt or at least continue to pay down your debt
On a political level stand up for the rights and freedoms of the little guy
Let Godzilla and King Kong do battle, but don’t get to close, or choose sides
Get out of the market and go to cash

To expand on the above points I’ll just say the following. People who own your debt own your possessions, rights and control your future.
On the level of regaining our rights and freedoms read my post 2nd Bill of Rights, or Google FDR’s second Bill of Rights. This would be a good start in terms of making sure that all citizens are treated with respect and dignity and not punished if they are not gifted, ambitious or ruthless. There is safety and power in numbers so embrace the little guy even if he’s a tad flawed or obnoxious.
Since so much wealth and power is at stake as the titans clash, it is best to get out of the way when untold trillions of dollars get lost and ownership goes to the last man standing.
Probably the last of my four recommendations is the most important. During a deflationary depression a great portion of money disappears as unserviceable debt gets wrung out of the economy.
In deflation wages and prices plummet kind of like what is happening on a relatively small scale in the housing market. During this time the buying power of money increases dramatically, whereby a thousand dollars today will buy 6 to 10 thousand dollars of goods then. A person worth $200,000 who keeps his money safe and out of risky investments will be able to live the life style of a person with assets over a million today. In other words as the money pool shrinks the relative worth of those not losing money skyrockets.

Let me address two other popular options often given to people looking to be winners during a severe economic downturn. One recommendation is to take advantage of a falling market and to short stocks. The second is to own gold, which is and has historically been viewed as real money.

An investor “shorts” a stock or the market when they feel the stock price is going down and not up. Since stock markets often go down faster than they go up, a good timer of the market can make substantial amounts of money in a very short period of time. Yet, shorting the market is highly dependent on smaller time frames and money made can be wiped out completely if the market has a rebound within the context of its overall decline.

Yet, even a vigilant and talented market timer can be thwarted by new rules and bans which are often enforced during “volatile” and turbulent markets. History has shown that the majority of market timers who have shorted the market have lost much more than they gained, and that during prolonged market declines bans and rule changes regarding shorting have made it almost impossible for the little guy to beat the odds.

I’ll have to admit that gold does have an allure, and one does feel a bit good about supporting a form of wealth and value that is tangible, and not completely arbitrary like fiat paper money. Yet, when I think about it and look at the historical record an investment in gold doesn’t seem as good as advertised. First, gold is both a commodity as well as “real money” and all commodities go down in a deflationary depression. Now, one could make an argument that gold goes down less than other commodities and largely be defended by historical record. Yet, during a deflationary depression the value of money is actually increasing so why hold have gold which is decreasing in value?

In answering my own question I could state that gold, having tangible real value, is an insurance policy against an arbitrary thing like the dollar. I could also state that since gold has real value one could always use it commercially even if the dollar were to fail. These arguments are valid in some contexts but fall short of supporting me recommending buying gold right now for the following reasons.

First, though gold is tangible and real, in dire times I distrust its functionality. I cannot picture a time in which my dollars would be worthless, but I could go into a local grocer and he would give me basic food stuffs in exchange for a fraction of an ounce of gold. When we all are in need, we need to barter need for need. If I were to getting tangible things to prepare for such an environment it would be amassing things like can goods, water, etc. for which I could barter. In a  depressed world of need, what can someone do with a bit of gold?

Second, if we use history as our guide we would notice that the ownership of gold was prohibited during the Great Depression of the 30’s.  The government banned private ownership and demanded all gold be handed in to banks which would give you something like $35 an ounce even though its stated worth was much higher. Now some people hid their gold and did not turn it in, but of course, they still couldn’t use it.

In today’s world of global tracking and surveillance it would even be harder to hide one’s gold than it was in the 30’s. Yet, your hiding of the gold would be in violation of the law, and therefore punishable if found out.

Since gold and gold stocks will most likely go down in the coming deflationary depression, it would make sense to me to wait on the purchase of gold until the bulk of the deflationary depression is over and the stock market has bottomed.

Currently the US dollar’s role as the reserve currency of the planet is viewed as being in jeopardy. Foreign nations threatening to stop using dollars as the currency of commerce are met with quick and strong political, economic and often military reaction by our government. Our political and economic leaders are very determined to keep the dollar’s role as reserve currency intact.

Many of the countries threatening to decouple themselves from the US dollar are increasing their storehouse of gold, and making efforts to replace the dollar with gold bullion. The nations most determined to get free of the dollar are or are quickly becoming our enemies and their actions and ambitions are labeled as terrorism. Therefore, it would not surprise me in the least if the US were to once again ban the ownership of gold for all US citizens and if they treated anyone who disregarded this ban as a terrorist or at least an abettor of terrorism.

In my post Communists, Terrorists, Charity and Compassion  I discussed a recent case in which something called the liberty dollar was being used locally in a transparent and open way as a form of barter/commerce. As far as I had known it was a very small economy agreed upon by a small number of merchants and was never misrepresented as actual US currency. So, in essence what you had was some actual silver being used similarly as gold advocates propose gold being used if our economic situation were to continue to worsen. Well, as you can see by the quote below the government came in and treated this practice as a form of terrorism.

“Attempts to undermine the legitimate currency of this country are simply a unique form of domestic terrorism. While these forms of anti-government activities do not involve violence, they are every bit as insidious and represent a clear and present danger to the economic stability of this country”
-Anne M. Tompkins, U.S. Attorney, March 18, 2011 [von NotHaus trial]
Wouldn’t the government respond to the use of personal un-minted gold in the same manner?

One last thought before ending. Even the most doom and gloom conspiracist always talks about how the everyone including the Fed, central banks, government and financial elite are opposed and afraid of a deflationary depression.

The fact is that the majority of mega-wealth and power that these entities wield was created during and because of the Great Depression. Many of these same entities are well positioned to have another quantum leap of wealth an power due to an increase in the percentage of ownership in assets around the globe.

I find it hard to believe that the Fed and the financial elite are afraid or opposed to increasing their marketshare in their businesses or the percentage of global wealth they hold. The trend has been more and more money in fewer and fewer hands, is their a better or more complete example of how that takes place than in the aftermath of a deflationary depression?

Do we truly believe that those who most stand to benefit by the financial demise of the lower 99.9% of the populace are really working and making decisions on our behalf?

Jim Guido

I am fascinated by the number of people who continue to debate whether or not we are going into a “double dip” recession, and who forever talk about and question the overall “strength of the recovery”. This debate runs opposite but parallel of the debate we had some years back when people asked if there was a housing bubble with some claiming that the housing market would never go down.

In terms of the housing and stock market bubbles we went from denying its possibility to almost instantaneously being deeply mired in a historically severe recession for months. I remember reading articles proclaiming the health of the economy and real estate market in newspapers and magazines and within a few weeks having the same periodicals bewailing our being mired in a bear market for months. Even this year I continue to find articles which continue to push back the origination of the housing and economic downturn further and further back.

All of this is done with no mention that their publications had previously characterized much of that same time period as part of a raging bull market, adamantly denying and showing statistics demonstrating the health of both housing and the economy. Time periods with graphs documenting the continued rise in house sales and prices have been replaced with current graphs stretching well back into the same years showing dramatic declines in house price and sales.

Now, the entire discussion regarding the possibility of a double dip recession is just as bizarre as the roaring bull market articles during the housing and stock market busts. The earlier recession that almost was never admitted has mushroomed into a lengthy one of some 18 months and is now unanimously viewed as ending in June of 2009 by all mainstream economists.

The stock market bottomed a few months before the official end of the recession in March of 2009. Historically it is normal for the stock market to begin its rebound in slight anticipation of the general economy. So, if the recession ended in mid 2009 how can we be in danger of a double dip recession in mid 2011.

Almost everyone who has any even the most casual knowledge of the economy has heard of the business cycle. The standard business includes periods of growth and decline, of expansion and contraction. The time in which the economy contracts is referred to as a recession. In typical length of a recession is typically 3/8 or about one third as long as the period of economic growth.

Over the last few hundred years there have been a few rather lengthy business cycles which have raised the overall average up a tad. What this means is that is not unusual for a business cycle to complete in less than four years. Since the average business cycle lasts between 4 and 5 years, the average recession, therefore, lasts between 12 and 15 months.

With the above information in mind lets take a look at the concerns about a double dip recession and a fear of the strength and sustainability of the recovery.

We are now entering the 26 month since the end of the last recession. Even if we were to begin to be in a recession right now and it lasted the standard length (1/3) of the period of economic expansion our current business cycle would have ended after a 3 year life span. Though this is a bit short for a business cycle it would not be unheard of. Short business cycles have a tendency to be a little bit bubbly with quick frenetic growth followed by a sharp contraction.

The purpose of the above paragraph was to point out that it is impossible to have a double dip recession after two years. By definition a double dip recession would have to occur a business quarter or two (3-6 months) after the previous recession, not over two years later.

Now lets address the second piece of crap being hurled at us by the economic media and that is the concern regarding the “strength and sustainability” of the recover. Okay, since the recession concluded over two years ago I would consider it foolish to question its sustainability. The recovery has already lasted much longer than the recession and is nearing the typical expansion time frame for the average business cycle, not much question that it has survived and lived an acceptable life span.

Two paragraphs back I mentioned that most short or truncated business cycles have sharp bubbly inclines and rather intense downturns. So, lets now look at the “strength” of this recovery. From a financial and stock market perspective this current business cycle has been one of the strongest cycles on record.

The economic glory years of the 90’s were led by the great technology boom which revolutionized and continues to revolutionize modern life. When we think of change and the future we still think of the global possibilities offered by the internet and related communication technologies. When one thinks of technology one has to look at the Nasdaq and in particular the Nasdaq 100.

The Nasdaq 100 bottomed at 1019 in March 2009. Since then the Nasdaq and Dow have had meteoric rises which are truly amazing. In as little as 21 months the Nasdaq 100 stood at 2400. Which means in less than two years the 100 stood was 235% higher than it as at its low. Though the Dow and S&P did not double during this time frame they incurred gains that haven’t been seen in over 60 years.

At the end of 2010 corporate America were able to declare record profits. And while the pace has slacked off, the profits of corporations continue to rise. Therefore, according to the stock market and corporate America one can not doubt the “strength” of this recovery. Hell, this hasn’t been a recovery, it has been an epic boon for corporations and the stock market demonstrating almost unparalleled strength.

I know many of you reading this are almost screaming at the screen, “wait a minute, I haven’t seen any improvement or growth. It still feels like we are in a recession.” Some of you are even going further noting, “how can we have high unemployment and a decrease in the standard of living and not be in a recession, or at least be in a slow and stagnant recovery?”

Well if you take some time to read my other posts on the economy you will fully understand how we can be in a financial and corporate boon while the standard of living of most of us is in escalating decline. Here is the short answer.

Giving you a job adds to a corporations expenses and such overhead eats away at their profits. In addition, due to inflation the cost of materials and energy needed to produce goods is rising and therefore increased production would also add to their overhead.

So, those of you still reading this may wonder how a company can manage record profits in spite of the fact that expenses of production and materials have risen significantly over the last couple of years.

Here again is the short answer. Corporate America is not dependent on you as a consumer of their goods, in fact most of their profits do not depend on revenue through sales and business expansion. Their profits are mainly generated through financial instruments that not only are not dependent on a strong economy but are maximized when the economy is struggling.

First, most industries don’t even need cheap labor, they can pretty much have the majority of their products made by automation and their business run by computers. The only need they have for workers is for you to have enough money to buy their product. Yet, now that they do business throughout the world, they now have over 7 billion potential customers, and they can thrive even as their customers are poorer. Like Walmart, they make money on volume of sales rather than high prices.

Second, and more importantly is that as long as the economy stays weak the interest rates will stay low. With low interest rates they can borrow money at almost no additional cost and buy stocks, foreign bonds, CD’s, etc. for a substantial profit. It’s a version of flipping that was happening in the real estate market. Here you can purchase (borrow) a million dollars at .1% interest and flip it by investing that same money in something in which they will give you 3, 5 or even 8% for the exact same time frame.
This scam can continue as long as interest rates stay lower here than in other nations. In this new economy the majority of us aren’t needed as consumers nor workers. We are just observers and non-participants of the greatest transference of wealth ever recorded.

Will it ever end? Probably, just like the housing bubble ended though their were plenty of flippers.

How will it end? Another financial crisis will likely be the culprit.

The current debt ceiling debate is more drama than reality. Fleecing the average American of his remaining resources and services is the common goal of all the plans on the table.

Yet, at this point there is no true motive to truly reduce debt, because cheap debt has become the best and most efficient way of making money in our country. More debt at low interest rates is the goal, not the problem. The problem is debt with high interest rates because then you actually have to pay off your debts without being able to make more money with that debt in other debt markets.

The only thing preventing interest rates from climbing are the underlying deflationary tendencies of our struggling economy. If this economy were to actually begin to expand the debt bonanza ends and the big boys will start to really feel the pain. In the meantime their continued record profits are dependent on our being patient with our decelerating standard of living. It depends on are still choosing sides between Democratic and Republicans and viewing each other as stupid or mean spirited.

Even when this business cycle goes crashing down like the previous one, another economic phoenix will rise out the ashes with even less people participating in its wealth and glory. The only way we will be able to participate is if we demand it and stop believing in false prophets spouting forth change, hope or reform. The other way to participate is to become one of the soulless shysters who has no problem owning everything while the masses suffer.

Jim Guido

President Obama ran on a campaign slogan of Hope and Change. At the time it was a call for optimism and reform. Yet now for the majority of Americans the campaign slogan can now be reframed as:

I hope I still have some change in my pocket!

I’ve never had a bumper sticker. But the above phrase along with a photo of the President might be worthy of finally giving in to pop culture.

To say that the campaign was a misrepresentation and that the President’s actions since he took office are a betrayal is an understatement. Hardly a day passes in which our nation makes a decision, law or statement which doesn’t cause me to be more afraid and embarrassed. I often feel I should go around the world and say to almost everyone, I’m sorry I really don’t hate you or believe you are evil.

I have not voted in the last few elections, not because I’m lazy or apathetic. I haven’t voted in the last few elections because I haven’t found a candidate whose value system I can stomach, let alone appreciate. I am truly a voter in search of a candidate.

Ralph Nader was the last person whose value system seemed to be worthy of a vote. I was a little tempted to vote for Ron Paul because he seemed honest and sincere, yet in the end his policies were a little out of date and dangerous even though well intentioned.

If the richest and most powerful country in the world cannot afford to be kind or share, than who possibly can?

I look around the world at the people our government hates the most and I’m a little more than confused. Chavez, Gaddafi, Castro, etc., reads like a list of those who do the most to benefit the standard of living and quality of life of their citizens. I’m not saying these guys are sweet hearts, or aren’t power hungry. But statistically the economic, social, educational and medical growth fostered under these leaders are near the top for nations of their size and type. People such as Nelson Mandela, Desmond Tutu, and other icons of freedom and social justice praise these leaders and consider them friends.

Our government has become famous for doing terrible actions such as torture, war, assassination, occupation and the illegal use of banned weapons all in the name of the good. Our government does terrible things for good reasons and noble intentions while our enemies such as the one’s listed above often do good things for bad or evil reasons.

The Iranian president’s offer to have a media covered open discussion with Mr. Bush and now Mr. Obama is labelled a clever publicity stunt, as is Chavez’s providing free heating oil for the poor and elderly in many nations including our own. Similarly Cuba’s long history of providing free medical care and disaster assistance for people around the globe is considered to be a PR campaign to distract people from the atrocities he commits.

While our government claims to be spreading freedom and democracy around the globe we have the highest prison rate in the world, and are steadily losing our constitutional rights, often due to the noblest intentions of winning the war on terror. Yet even pointing out these inconsistencies is something I do with great reluctance as it could cause my government to view me in a negative light.

I am a simple man whose major ambition is to be a good person and enjoy life. It pains me to see others suffer or to have their lives be dominated by fear and hatred. I know that it is possible to improve one’s world through being a good person doing good things, and that fear and hatred are seldom effective tools for positive change.

Maybe it would be more accurate for our next president’s slogan to be Fear and Hatred, rather than Hope and Change. That honest slogan may win the election, but it won’t get my vote.

09 Polylogue 1  http://guidoworld.com/music/zephyr/polyl…

Jim Guido

Most living things need air, water and food in order to survive. This is definitely the case for human beings. Yet, if you look at how we live and the decisions we make as a planet you would be hard pressed to conclude that life’s basic essentials are a high priority.

In the US the wealthiest, most powerful and advanced society the world has ever known a significant percent of drinkable water is wasted, polluted, used inefficiently or unnecessarily reprocessed. Much of the infrastructure of the US is in a severe state of decay. This is surely the case with the American water system and its aging water lines.

Over 17% of the treated water in the US is lost by leaks in the system, in some cities the estimates are as high as 50% of the water entering the water lines is lost through leakage. Instead of using tax payer money to update and improve the water system and make it efficient, citizens end up paying for water that is lost in the system through their water bills.

In essence we are treating and purifying water for human consumption and than allowing between and 1/5 and a 1/6 of it to be lost in faulty water lines. Yet, this lost water does not include the other ways in which we undervalue and abuse this essential ingredient of human life.

Many reports over the last decade show that Americans eat out an average of four to five times a week. In most US eateries it is a primary duty of waiters and waitresses to keep your cup or glass of water, tea, soda, coffee or any other water based beverage full at all times. What this means is that most people end their meal with a full or partially filled beverage cup which, of course is wasted water.

The list of ways in which we waste water and use it inefficiently would include lawn care, livestock, ornamental water devices and gardening just to mention a few. This is not to say a portion of this is not necessary and beneficial but only to point out that we aren’t actually being frugal with probably the most precious and valuable resource for human existence.

Water we are told is essential for life, and the essence or life. When you consider that any planet without water is considered incapable of sustaining life, it seems odd that we take such a cavalier attitude towards its usage. When you consider that the major portion of our planet’s water is not fit for human consumption it seems unfathomable that we would degrade, pollute and contaminate such a high percentage of our “fresh water” that remains which is suitable for consumption for the billions of people around the globe.

The situation regarding food is just as appalling. Each year the amount of land suitable efor farming is decreasing due to drought, urbanization, industrial expansion and practices to acquire other resources such as wood, coal, oil and various minerals. Yet, despite this, globally we produce around 8.7 trillion pounds of edible foodstuffs. Despite this ample amount of food we live in a world in which 925 million people suffer from hunger.

It is often said that when it comes to food we do not have a supply problem, but one of distribution. Yet, the problem isn’t only about distribution, it is also about waste and lifestyle. Like water, we often do not treat food with the respect it deserves, we do not treat food as an essential aspect of human existence.

According to the UN an astounding 1/3 of all food around the globe is wasted, spoiled or never used. In underdeveloped nations the problem is often of storage, distribution and political conflict. Yet, in the industrialized nations it is mostly a matter of wasteful habits, market practices and economic forces (profit considerations).

According to the report published in early May of this year in industrialized countries, the issue is more about “retailers and consumers throwing perfectly edible foodstuffs into the trash.” The report found that in Europe and North America consumers wasted between 95 and 115 kilograms (209 and 253 pounds) of food every year.
The report found that in the retail industry there was an “over-emphasis on appearance”. “Consumers in rich countries are generally encouraged to buy more food than they need,” it said, giving as an example oversized ready-to-eat meals produced by the food industry and fixed-price buffets in restaurants.

The waste habits and practices of the industrialized west cause food prices to rise all over the globe. This often makes the prices of staples and basic food stuffs unaffordable to a growing number of people. The recent food riots in numerous countries around the globe have been the public reaction to the strain of food prices on a growing percentage or the populace.

A vast amount of edible food is thrown out of restaurants and grocery stores on a daily basis. Waste and destruction of food is significant in almost every phase of the restaurant businesses. At the preparation phase any food that is not visually pleasing is discarded even if it is perfectly edible. Likewise many perishables are discarded if they are not ordered by customers in a timely basis.

Oftentimes meals contain edible foods which are used more for presentation than consumption with the result being they are left unconsumed and thrown away. It is rare that patrons of restaurants eat all on their plate, or take all leftovers home for later consumption. Restaurants are embarrassed when they run out of anything offered on their menu. This results in owners preventing this occurring by over stocking on a daily basis and ending each day with unused food needing to be tossed.
Grocery stores often toss perishables rather than sell them at reduced prices as they near spoiling to protect their profit margins. Waste and reduced prices are all part of the profit equation, and it is often more profitable to throw food away than sell it at lower prices.

Along with food and water man needs to breathe. A man not breathing is a man not living. Though it seems we can breathe air that is far from perfect or even fresh, the truth of the matter is that our survival depends on a relatively narrow band of air quality. Yet, like water, we have adopted many practices which degrade, degrade and contaminate the air we breathe.

The statement that we need air, water and food is simple and basic. It is a statement of fact, that few if any would contest. Yet, our behavior seems to suggest that either we have other priorities we deem more important than existence, or that in the long run, we really don’t care about being alive or the quality of our life.

I personally have a difficulty considering any human society advanced or civilized which does not make basic survival a high priority. It would appear to me that providing all with food, water and healthy air is job one. This is not about politics, ethics or morality, it just about making sense and acting in a sensible way.

Jim Guido

The last few posts have been dedicated to my explaining the type of people who frighten me and make me feel unsafe. What started out as an idea for a post of two has festered into a series. I hope to conclude this entire foray into my social demons in the next post.

In this blog I hope to quickly expand on my observation last time that “through taxing corporations, and the wealthy, cutting back military expenditures, and having prisons house only those that are truly a threat to the welfare of others we could quickly balance the budget and significantly reduce national and global debt.”

Okay, let’s start with taxing the wealthy and corporations. Our corporations are taxed at a historically low rate which comes in at a little more than 1% of GDP. If we were to temporarily raise it to a more normal 4% we would stand to gain between 500 and 700 billion dollars.

Individual tax rates for the wealthy are likewise at historically lows rates. In 1918 the top tier’s tax rate was 77%. From 1918 till 1964 the top tax rate went from as low as 63% to a high of 94% in 1945. The rate stayed above 90% from the mid 40’s till the 1964, almost two decades. In tax rate has drastically come down since the 80’s where it has languished to under 30%.

Just by raising the tax rates of the top 1% to a historically modest 50% we could easily raise an additional 50 to 70 billion in revenues. Therefore, through returning tax rates to rates more in line with the historical norm we could raise between 700 and 800 billion dollars. Compare that with the paltry 38 billion that Democrats and Republicans argued over to within an hour of a governmental shut down.

The revenues by taxing the wealthy are more than matched by the savings one could acquire by making cut backs to our defense budget and military operations. The following is from an article from the nation.

Dreyfuss writes, President Obama’s own National Commission on Fiscal Responsibility and Reform(NCFRR) pointed out the $80 billion the U.S. spends on military R&D alone “surpassed China’s entire military budget by more than $10 billion.” Overall, Dreyfuss writes, the U.S. spends as much on military “as the rest of the world combined.”
What’s more, the Pentagon’s trillion dollar spending spree exceeds the general funds of all 50 U.S. states combined, which, says the National Association of State Budget Officers, will come to about $636 billion in 2011. Translation: Pentagon spending for war is greater than all public outlays for all purposes by all states. And while hard-pressed states wallow in debt and lay off teachers and police, “defense” contractors enjoy record or near-record profits.

Couple these disturbing and obscene facts with the following data by Dana Visalli from Global Research.

Global Research, April 18, 2011
A recent study indicates that 62% of soldiers returning from the war in Iraq have asked for mental health counseling, with 27% showing dangerous levels of alcohol abuse. Suicide rates among soldiers and vets have increased dramatically in recent years. Over 100,000 Vietnam vets have now killed themselves, far more than died in the Vietnam War. More than 300,000 veterans of the U.S. military are currently homeless, another study reveals.
The total cost of all military expenses for 2012 is estimated to be $1.2 trillion dollars, one-third of the total federal budget. It is the U.S. military that is driving the U.S. itself into bankruptcy.

The above article also points out that the US has over 1000 military bases spanning the globe.

I entitled this post Over Kill in homage to our defense budget and its global ambitions. We are years if not decades ahead of any other nation on earth. China who is second in the world in terms of military budget spends around 1/10th on defense as does the US. Even if we were to cut our military budget in half we would still be spending 5 times as much money on defense as any other nation. By cutting our defense budget it would still be more than we were spending on defense a decade ago, when we were still the world’s military superpower with no equal.

Since the military is 1/3 of our budget cutting the defense budget in half would reduce our budget by anywhere from 15% to 20%. Yet, cutting back on the military would reduce so many other national and international costs.

I included the stats regarding suicide, mental health and substance abuse to highlight some of the hidden costs both human and financial to our current military. One could also add on to this list, physical disabilities, rape and violent crime, medical care as well the costs of all the damage done to land, crops, buildings and infrastructure caused by bombs, chemical agents, tanks, guns, disease and all the other accouterments of warfare and military maneuvers.

The last costly sector I mentioned in the previous post was in imprisonment and corrections. Even though a disproportionate percentage of violent crime is performed by veterans who are suffering from PTSD or have other issues making their reintegration into civil society difficult, the overall rate of violent crime has been coming done over the last few decades. The overwhelming majority of people imprisoned today are for non-violent crimes such as recreational drug usage, vandalism and petty theft. The costs to the economy that these people pose is often times far less than the amount of tax money involved in the costs of imprisonment (i.e: food, shelter, clothing, correction buildings, supervision, health care, assistance to families, lost productivity, etc.).

In a previous post Need A Job – Get Arrested I discussed the underground economy of prison labor and its growing role in taking away jobs and reducing the wages for those of us not in prison. Prison labor is one of the hidden costs to the average tax payer in that work done for 25 cents an hour takes away jobs for some and reduces the wages for others who work for companies having to compete with prison labor.

In expanding on the social costs of the military one could add the dollars lost due to the mental and physical disabilities of a sizable percentage of veterans. In an aging population an increasing economic burden is placed on our youth to be more productive. Yet, for those struggling with war injuries both mental and physical the reality is that they find consistent employment hard to accomplish.

In review we found that substantial but safe and not historically harsh cuts in the military and taxes of corporations and the top 1% could total some 1.3 to 1.5 trillion dollars. In other words just those two action on a one time basis could balance the budget and probably begin the process of paying down the debt. If you were to raise the taxes on the 10% or make our defense budget only two to three times other nations we could stop all the talk of the need to attack social security or other obligations that workers pay has been used for.

The savings acquired by reducing a sizable portion of our non-violent prisoners and the positive impact reducing our military forces would have on employment, mental health, violence, crime and stable marriages for those not traumatized, killed, or debilitated by exposure to war, would probably be more than the 38 billion dollars that almost brought our government to a screeching halt.

Some may argue with my numbers. I myself could make a case both for higher and lower numbers on what I’ve suggested. Some also will try to say that these suggestions are reckless and would destroy our economy and our safety. First I would strongly disagree with these objections and consider them self-serving for the perception managers whose wealth depends on the status quo. Second, I would want to point out that we could always repeal these measures if they started to manifest any unforeseen complications or downside. Yet, in the short run we could finally put on the table some solutions that could actually have an impact on the sort of deficits and financial imbalances which we now face without a need to punish the already overwhelmed and underpaid 95% of US citizens.

Jim Guido

I have lived a frugal life, making little but spending even less. I never incurred debt other than a mortgage and I paid that off as quickly as possible. My wife has been a good bread winner and “went without” a number of years to help us stay out of debt and save for the future. Though we saved we still are far from being able to retire comfortably even if we were to receive the majority of what we paid into social security.

Our long term retirement plan has suffered due to a lengthy restriction on the average person’s ability to save money. The game has changed drastically over the last few years as we see our relative wealth diminish on a daily basis.

A little over a decade ago my wife and I felt we were in great shape. We had paid off our mortgage in about 1/3 of the time it was suppose to take, saving us hundreds of thousands of dollars. (When we realized that the interest on our 30 year mortgage would have caused us to pay over $400,000 for a 130,000 home we payed it off as quickly as we could, thereby, paying about 150,000 instead of 400,000).

After paying off our mortgage we continued to put all we could afford into savings and retirement plans. Soon, we got to a point where through the miracle of compound interest we could basically stop saving and just let our “equity” build through interest. During my life bank and CD rates generally ran between 5 and 8% with peaks of near 18% and lows down to about 3%. Due to this historic range we made our plans based on expectations of averaging a modest 5% per year.

Around this time our son started college and we did our best to pay for his education without borrowing money or taking money out of our nest egg. Yet, towards the middle of his college years and since it has been impossible to save money due to the historically low and historically prolonged low interest rates. This has caused our nest egg to stop growing and linger at a range far below what we need to retire on.

Like many American’s our retirement needs have kind of forced us into taking money out of CD’s and money markets and into the stock market. Statistics show that over 80% of the people who actively invest in the stock market lose money. Considering this recent fact of the stock market of the last decade or so, we have done well to stay at or slightly above the flat line.

Wealth is relative, and a hundred dollars today is worth far less than a hundred dollars of a couple of decades ago. Therefore, due to inflation, unless you’re net worth is increasing you are becoming poorer. Yet, in today’s economic environment we are dealing with more erosion to our wealth than standard inflation.
When trillions of dollars are being printed and entered into our economy we either get our portion of that money or we are becoming poorer. Since the Federal Reserve is not sending you a check every day they print money you can safely assume you are getting poorer.

The truth of the matter is very few people are getting any part of the trillions of dollars being poured into the economy. In theory, the printed money is supposed to go to banks and businesses who will use that money for loans and businesses expansions leading to more high paying jobs which will “stimulate” the economy and the additional wealth will “trickle down” to the majority of people in society.

The majority of newly printed money going to banks is not being lent out to the average citizen who is finding it harder and harder to get a loan. And the majority of businesses who are getting this money through bailouts or loans are not using it to create new jobs or expand their operations. Businesses are reluctant to increase production or raise inventories when consumers are in debt, bankrupt and in danger of losing their homes.

Well then, you may ask, where are these mind boggling amounts of money going? There are a number of huge corporations and billionaires who are reportedly hoarding or “sitting on” cash. Yet, despite a slow growth economy with a high unemployment rate how are corporations claiming record profits?

Here is one possible explanation. Okay, lets start at the beginning. If I am a bank or a large corporation I can borrow money for shorter durations at anywhere from 1% to as little as 1/4 of 1%. Even for loans of a year or more I can borrow it at ridiculously low interest rates.

Now, I can take that money, and use it up by expanding operations and hiring workers, or I can use that money to buy other nations bonds that are paying 5% for the same amount of time that I’m borrowing it at around 1%.

Okay, so if I expanded my business and hired additional workers I would increase my overhead and would be in danger of losing money or failing if the economy didn’t pick up or if people chose to pay off their debt instead of buying my products. So, unless the entire economy picked up, I would probably stand to lose money and not be able to pay off my loan even considering its low rate. And, if most people except the biggest corporations are being denied loans then I can be reasonably assured the general economy is not going to bounce back, and I will not get a return on my investment.

Yet, if I take a loan for 1 million at 1% and I use it to buy a bond for the same duration earning 5%, than I can use the 50,000 of interest to pay off the 10,000 of interest I got from the bank, and claim the remaining 40,000 as profit. Like a good shampoo, you can lather and rinse over and over again. As, long as there are countries with higher interest rates than the US I can borrow money from the US and buy other nation’s or even businesses bonds and make a sizable profit.

Summarizing this process so far, by borrowing money at low rates and buying financial instruments with higher interest rates I can generate a significant profit margin. During this time I can keep operations relatively flat, keeping overhead down by producing the same amount of products with the same number of workers. So, despite no actual growth in business I can make greater profits.

Yet, for a corporation willing to do this, the good times don’t end there. Shortly before I announce my excellent rise in profits to the media, I can increase the number of shares I own and sell those shares soon after the market’s positive response to our business growth. I can explain this growth through some obtuse combination of increased foreign consumption, stealth growth in the local economy, and some good news in “the pipeline”.

In a world of low interest rates, mounting consumer debt, and the practice of trying to avert recessions and financial crises through the endless printing of money, it becomes possible and even logical for businesses to seek to remove consumers from the business equation. For those of you skeptical that what I’m describing is happening, I would encourage you to look back at the performance of the stock market on days in which the Fed made statements inferring that low interest rates were continuing or that data came out showing a need for low interest rates.

My theory also could end the confusion of you market watchers who have been baffled by how often the market skyrockets on the day real poor economic data is reported. Interest rates will stay low as long as the economy struggles. Oddly enough a true economic recovery would probably destroy the impressive stock market rally that has been occurring over the last two years since the “economic crisis” was “solved” by the beginning of bailouts and “quantitative easing”.

Yet, even if my theory is a bit off or its use exaggerated, there is no doubt that the bulk of the money being printed is finding its way into the hands of a very small fraction of the populace, who already own a disproportionate percentage of our nations wealth. It is also safe to state that this money is not filtering down to the rest of us. In fact, it is safe to say that each day the gap between the rich and poor is widening, and that the American middle class is shrinking and we are fast becoming an economy which we would have previously considered to be third world.

We, the majority of Americans, are truly becoming poorer by the day.

In my next post I’ll combine these ideas with the previous two posts regarding people who scare me to describe why I think we need to look at systemic change that needs to look beyond the Democratic/Republican theater which is being used to distract, divide and confuse the populace.

Jim Guido

Recently I saw the Michael Moore documentary “Capitalism: A Love Story” and was shocked to see footage of FDR outlining a Second Bill of Rights during his State of the Union Address in 1944. How could a president have proposed this and I never heard of it?
Here is Wikipedia’s summary of this proposed legislation.

The Second Bill of Rights was a list of rights proposed by Franklin D. Roosevelt, the then President of the United States, during his State of the Union Address on January 11, 1944. In his address Roosevelt suggested that the nation had come to recognize, and should now implement, a second “bill of rights”. Roosevelt’s argument was that the “political rights” guaranteed by the constitution and the Bill of Rights had “proved inadequate to assure us equality in the pursuit of happiness.” Roosevelt’s remedy was to declare an “economic bill of rights” which would guarantee:

Employment, with a living wage,
Freedom from unfair competition and monopolies,
Housing,
Medical care,
Education, and,
Social security

Excerpt from President Roosevelt’s January 11, 1944 message to the Congress of the United States on the State of the Union[1]:““It is our duty now to begin to lay the plans and determine the strategy for the winning of a lasting peace and the establishment of an American standard of living higher than ever before known. We cannot be content, no matter how high that general standard of living may be, if some fraction of our people—whether it be one-third or one-fifth or one-tenth—is ill-fed, ill-clothed, ill-housed, and insecure.
This Republic had its beginning, and grew to its present strength, under the protection of certain inalienable political rights—among them the right of free speech, free press, free worship, trial by jury, freedom from unreasonable searches and seizures. They were our rights to life and liberty.
As our nation has grown in size and stature, however—as our industrial economy expanded—these political rights proved inadequate to assure us equality in the pursuit of happiness.
We have come to a clear realization of the fact that true individual freedom cannot exist without economic security and independence. “Necessitous men are not free men.”[2] People who are hungry and out of a job are the stuff of which dictatorships are made.
In our day these economic truths have become accepted as self-evident. We have accepted, so to speak, a second Bill of Rights under which a new basis of security and prosperity can be established for all—regardless of station, race, or creed.
Among these are:

The right to a useful and remunerative job in the industries or shops or farms or mines of the nation;
The right to earn enough to provide adequate food and clothing and recreation;
The right of every farmer to raise and sell his products at a return which will give him and his family a decent living;
The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad;
The right of every family to a decent home;
The right to adequate medical care and the opportunity to achieve and enjoy good health;
The right to adequate protection from the economic fears of old age, sickness, accident, and unemployment;
The right to a good education.
All of these rights spell security. And after this war is won we must be prepared to move forward, in the implementation of these rights, to new goals of human happiness and well-being.
Americas own rightful place in the world depends in large part upon how fully these and similar rights have been carried into practice for all our citizens.
For unless there is security here at home there cannot be lasting peace in the world.”

If you go to You Tube you can see the footage and hear the address for yourself. This footage was supposedly lost for a number of years and was only recovered in 2008.

In my last post I discussed the significant role perceptual management has played in the US over the last 100 years. The desire of our government and corporations to persuade us to act and think in ways which preserves and enhances their power and wealth may help explain the fact that though I was born a little more than 11 years after this address, I never once heard of it during all my years of education.  Anyone saying these words today would be labeled a socialist or communist and could easily be labeled a terrorist and an enemy of the state.

Our perceptual managers lead us to believe that the American middle class has been the envy of the world for generations. Yet, the reality of the fact is that the American middle class is (was) a short lived phenomena with the bulk of American economic history having almost all of its wealth hoarded by a privileged few. Our current disparity of wealth and the destruction of the middle class has been the norm and not just a recent occurrence.

Here is an excerpt from, “The Global Economic Crisis: The Great Depression of the XXI Century” by Andrew Gavin Marshall which I read today @ the Global Research on line at http://www.globalresearch.ca/index.php?c….

Throughout much of the 1800s and into the 1900s, the United States suffered several economic crises, one of the most significant of which was the Great Depression of 1873. As Howard Zinn explained:

The crisis was built into a system which was chaotic in its nature, in which only the very rich were secure. It was a system of periodic crises – 1837, 1857, 1873 (and later: 1893, 1907, 1919, 1929) – that wiped out small businesses and brought cold, hunger, and death to working people while the fortunes of the Astors, Vanderbilts, Rockefellers, Morgans, kept growing through war and peace, crisis and recovery. During the 1873 crisis, Carnegie was capturing the steel market, Rockefeller was wiping out his competitors in oil.[32]
Massive industrial consolidation by a few oligarchic elites was the rule of the day, as J.P. Morgan expanded total control over railroad and banking interests, and John D. Rockefeller took control of the oil market, and expanded into banking. Zinn explained:
The imperial leader of the new oligarchy was the House of Morgan. In its operations it was ably assisted by the First National Bank of New York (directed by George F. Baker) and the National City Bank of New York (presided over by James Stillman, agent of the Rockefeller interests). Among them, these three men and their financial associates occupied 341 directorships in 112 corporations. The total resources of these corporations in 1912 was $22,245,000,000, more than the assessed value of all property in the twenty-two states and territories west of the Mississippi River.[33]
In the early 20th century, European and American banking interests achieved what they had desired for over a century within America, the creation of a privately owned central bank. It was created through collaboration of American and European bankers, primarily the Morgans, Rockefellers, Kuhn, Loebs and Warburgs.[34]

US history shows a marked tendency towards the systematic fleecing of all wealth from its citizenry to the economic elite than towards a spreading of the wealth and standard of living for a growing middle class. The short lived gains in the standard of living enjoyed by a burgeoning middle class can be explained by two factors.

Initially the middle class was formed as a beneficiary of the incredible wealth and power the US acquired as a result of the two World Wars. A temporary rise in wealth, opportunity and education engendered the necessary loyalty and productivity required to build the most powerful empire the planet has ever known. Second, the creation of a consumer class was needed to fuel the continued growth of industry and technology allowing the military/industrial complex to thrive and police the entire globe.

Yet, the actions and decisions of both the government and corporations shows that they never truly planned on honoring their contracts with the American middle class (i.e.: pension funds, social security). The role and need of the consumer age is on the decline. In its current phase the role of the American consumer is being diminished as the role of the global consumer increases. Yet, in a nanotechnological global economy dominated by artificial intelligence, virtual reality, and increasingly abstract financial instruments the need for actual consumption becomes less important to power and wealth.

My read of history is that the American middle class was largely created and exploited for the purposes of empire building. My read is also that the American and European middle class has largely served its purpose and is no longer necessary. No longer needed as consumers we are being prepared to return to our historical role as serfs and slaves.
If my gut is right on this, we should be very close to the next Great Depression which will attempt to ring the middle class out of all societies throughput the globe and consolidate all international wealth and ownership to a frighteningly small number of individuals.

Perceptual management is a science and a fact of modern life. Yet, the gift of perceptual managers is their ability to divert people’s attention from what is really going on. The talents of perceptual managers and propagandists is evident in the fact that most people still believe in the American dream and the integrity and honesty of government and business.
In our perceptually managed society anyone asking questions or making logical conclusions that pose a threat to the heart of their deception will successfully be labeled a conspiracist or an extremists. Yes, I know extremists and conspiracists are real, but so are spin doctors, propagandists and perceptual managers.

Jim Guido