We Get What We Ask For

An alternative title for this blog is Visualize World Peace. Many of us hate war, poverty, hunger, waste, paper money and taxes. Depending on our particular emphasis we pick one or more of these to actively oppose. We become anti war or anti poverty or tax resisters. Most of us probably wonder why if we want peace we still have war. Especially when most people agree with us. There is a clear majority in America for peace. There is a clear majority in the American Congress for peace. Around the world there is a consensus that peace is better than war. Yet war persists. American defense expenditures are more than the all rest of the world collectively spends. What's wrong with this picture?

The same can be said for the other issues listed above as well.

The reason is that by being anti war or anti tax we buy into the reality of war and the reality of tax. Being opposed to something locks us into the reality in which that which is opposed must necessarily continue to exist to facilitate the opposition.

Thus neither the War on Poverty nor the War on Drugs can ever be won. When bad economic policies precipitate a crash, it makes no sense to repeat those policies with even more money to alleviate the crash, yet that is what has happened in the past few weeks.

To attain world peace or anything else we must move beyond war. Resistance is futile. If we want change we must, as Gandhi said, "Be the change."

This is why The Rainmaker boldly predicted that regardless of the outcome of the upcoming election, nothing much will really change.

A Slow Day in Arlington, Virginia

Today while walking to the market to provision for the weekend your faithful Rainmaker witnessed a fascinating episode. Wilson Blvd. is a one way street passing through the Roslyn neighborhood in Arlington, Virginia. Some poor soul had apparently gotten discombobulated and driven the wrong way on that street. Her car headed east on the one way west bound bound Wilson Blvd., was pulled over to side of the road at about the 1600 block of Wilson adjacent to the Red Hot and Blue restaurant. Obviously this was a major infraction for the driver who appeared to be a soccer Mom (sans lipstick) had the attention of two police cars, a fire truck and ten "public safety employees" who parked their vehicles helter skelter across the street slowing rush hour traffic. While one of their number, obviously the one with the least seniority, wrote the hapless soccer Mom a ticket the other nine guardians of public order and fire protection stood around having an obviously grand old time discussing who knows what but probably "life, love and the neon rainbow."

Walking back from the market almost 25 minutes later the situation remained unchanged. The Rainmaker recognizes that in the wake of the 9/11 events it is impossible for local governments to rein in these police and fire fighters, heroic paragons of America's first line of defense in the neverending "War on Terror." Nevertheless the deployment of resources witnessed in the 1600 block of Wilson Blvd. this afternoon gives pause. Obviously there wasn't much going on. If 10 public employees respond and nine spend at least 30 minutes watching the tenth write a ticket then there must be a lot of excees capacity in the system.

The Rainmaker focused on this minor traffic accident for two reasons. First, the dissproportionate resource allocation, sending 10 officers/firefighters to deal with a non injury traffic infraction. It must have been a slow day in Arlington, Virginia. Second, this seemed a perfectly good example of what in part caused the typical small town such as Vallejo, California to declare bankruptcy last year.

It turns out that Vallejo has a police and fire force that can earn (or rather collect) over $300,000 each in a give year for keeping the city safe for democracy, truth, justice and the "American Way." In Vallejo, 74% of the city budget was devoted to providing "fair" compensation to the public safety sector of teh town's budget. A police officer or fire fighter can earn $300,000 annually in Vallejo.

The Rainmaker wonders how much longer these inequities can continue before the system finds itself in a state of collapse.

Where the Jobs Are

Have you ever read Ayn Rand's "Atlas Shrugged?"



It's an amazing book about the productive members of society becoming discouraged and fed up as their labor is appropriated to carry the rest of society.



There are interesting aspects of our society today that indicate we are getting closer to the reality Rand found so disturbing that she wrote a book about what might happen if the producers who earn their way decided they have had enough.



Eventually the producers withdraw from society and move to Galt's Gulch, founded by the infamous John Galt, one of Rand's heroes in "Atlas Shrugged." Remember the graffiti from a few decades ago asking "Who is John Galt?" Others wrote "Where is John Galt?"



As Wikipedia describes Rand's social commentary:



"Rand's heroes must continually fight against the 'Parasites', 'looters', and 'moochers' of the society around them."



"The looters are those who confiscate others' earnings "at the point of a gun" (figuratively speaking)--often because they are government officials, and thus their demands are backed by the threat of force."



Yesterday the Washington Post carried a story describing the increasing levels of unemployment in virtually every productive sector of the economy as reported by the Bureau of Labor Statistics. It's not a pretty picture on the whole.



For example in July of 2007 there were 7.63 million Americans who earned a living through construction, but in July of this year only 7.17 million jobs were available in that sector. The total employment declined 6% in one twelve months.



In the manufacturing sector the total employment declined 2% from 13.8 million jobs in July 2007 to 13.5 million one year later.



15.3 million Americans worked in the retail sector this July, down 2% from the 15.48 million who had jobs a year earlier.



Only 200,000 Americans lost their jobs between July 07 and 08 in the transportation industry; a mere 4/10 of 1% decline.



Both the financial sector (banking/real estate) and professional services sector (lawyers, managers and administrators) had an even smaller relative decline of 2/10 of 1%; losing 120,000 financial services jobs and 400,000 professional jobs and ending up at a total employment of 8.21 million and 17.91 million respectively. Perhaps Bear Stearns really was an anomaly.



There was however some good news, at least if you aren't an Ayn Rand aficionado. In the 12 months ending July 2008 four of ten sectors experienced job growth according to the Bureau of Labor Statistics:

• The biggest percentage gain--4%--was in Education, gaining 120,000 jobs and ending at 3.08 million workers.


• Next in job growth performance during the year was the health care sector with a 3% gain, ending July with 370,000 new workers for a total workforce of 13.33 million Americans.


• The government sector (federal and local) hired an additional 350,000 Americans, realizing 2% job growth.


• The leisure and entertainment sector, which includes hotels, also posted a 2% gain. As of this July 13.68 million Americans work in this sector, 210,000 more than last July.

So why would Ayn have a problem with 1,050,000 new jobs? It's simple really, except for the 210,000 new hires in leisure and entertainment, the other 840,000 lucky new hires in the remaining three growth sectors don't really produce anything.

Ayn would call them parasites, looters and moochers. All these areas (even the medical sector due to Medicare and Medicade) are highly dependent on tax transfer payments from the working stiffs, entrepreneurs, investors etc. who cause real growth.

Ayn presumably wouldn't have a problem if the taxes paid by the construction workers, manufacturers, retailers, transportation workers, financial workers and professionals paid their taxes voluntarily, but of course that isn't the way the world works. She would also have problems with the fact that the benefits, especially retirement benefits accorded government workers (think: Thrift Savings vs. Social Security, retire after 20 years vs. retire after 45+ years if ever, etc.) are so much better than what the rest of society can expect. But, that's another story.

If you want to know where the jobs are, there is the answer. The bottom line is you are less likely to get laid off if the paycheck is funded by taxes collected, as Ayn would say, at the point of a gun.

The Times They Are a-Changin'

When Bob Dylan wrote the words "The times they are a-changin'," he was of course writing about the cultural mega shifts of the sixties. But these words are more applicable today than most of us realize. However, the application has shifted from the forty+ year culture war to the economy.

Why?

Because the United States' economy is about to undergo huge changes due to three overlapping factors:

• Rising inflation;
• The long term continued decline of the dollar; and,
• Entitlement reform.

What do these changes mean? How will they effect each of us? What personal decisions provide the most protection, the lowest risk and the greatest opportunity?

In ancient time inflation usually involved monarchs shaving coins or dilution the precious metals from which those coins were cast. Nowadays, it's much easier because the United States has delegated management of its money to the Federal Reserve (FED), a privately owned bank. The FED can issue money at will with a few computer key strokes.

What does this mean?

It means that the purchasing power of a dollar today is about the same (actually a bit less) than the purchasing power of a nickel back in 1914. 1914 is about the time the U.S. monetary system was privatized and turned over the FED. The same can be said for the Euro, the Yen, British Pounds and other paper currencies around the world. Interestingly the purchasing power of gold in the past 94 years is virtually unchanged. According to the World Gold Council, no paper currency (FIAT currency) has existed longer than a human lifespan and the Federal Reserve Dollar is already a Methuselah at 94 years. I guess we're lucky life expectancy has been climbing.

Why would the FED allow this to happen?

Because the crushing pressure of debt service on the $40 trillion to $60 trillion in unfunded liabilities of Social Security, Medicare, Pensions, the "on budget" National debt, business debt, consumer debt and other costs such as the Iraq war makes it easier to repay that debt with cheaper inflated dollars. Our national policies and spendthrift politicians are debasing the dollar.

However, that's not the whole story. The dollar is also under inflationary pressure because of rising commodity costs. The people of China, India and Brazil all aspire to the "American lifestyle." Energy, metals, food and transportation are becoming scarcer and therefore more expensive.

The situation is unsustainable, eventually forcing whoever serves as President and in Congress to act. What can they do? There are only four alternatives: raise taxes, cut benefits, borrow more or inflate the currency in cooperation with the FED. At the rate the United States economy is deteriorating borrowing may not be an option much longer. Raising taxes is never a popular alternative. And cutting Medicare and/or Social Security benefits is rightfully called the "third rail" of American politics. It's not good for the proverbial political career to take expected benefits away from the electorate.

Regardless of how bad the situation may become, the questions remain about how best to deal with it personally. Obviously it is impossible to offer specific management or investment advice that means anything to you in this post. But in general three observations can be made and a couple of questions can be suggested for you to consider during your next meeting with your investment advisor.

The initial observation is: Although it's clear that something has got to give in the United States when it comes to entitlement reform, don't bet that reform will solve issues confronting successful people. Generally it's easier for politicians to adopt the "Robin Hood" approach and take from the deep pockets to give to the poor and middle class. If you work in a profession (law, medicine, architecture, investment banking), own your own business, or make more than $150,000 a year your pockets are perceived to be deep. You might plan accordingly to protect your assets, your income stream. Remember the old truism: "There is no limit to the good that do-goodees will do with other people's money.

The second observation is: Inflation in the United States is likely to become worse as time goes on. It is simply irresistible for politicians and bankers to avoid paying the price for their past sins as long as possible by using cheaper dollars to pay off old debt. Additionally, every time the FED encounters a financial crises its knee jerk reaction is to soften the blow by injection huge amounts of money into circulation to maintain liquidity. The broadsest measure of money is known as M3 and it's been growing at an annual rate of about 14%. That number is harder to pin down because in March of 2006 the FED decided to stop reporting M3. I suppose it became something of an embarrassment. In 2008 the FED has continued its practice of bailing out the economy by injecting vast amounts of cash for such worthy efforts as the Bear Stearns, Fanny Mae and Freddie Mac "bailouts." In a couple of years Medicare will begin to experience a huge cash flow crunch and one must wonder at whether even the FED can bail out that entitlement. Then in 2018 Social Security will experience its own cash crises.

The final observation is: The dollar is probably about to stabilize at least in the short term. The dollar will probably reach equilibrium at least relative to the Euro because the the Euro is beset by generally unrecognized structural problems such as unsustainable entitlement and tax policies that are actually worse than those facing the dollar. Asian countries artificially maintain cheap currencies relative to real dollar exchange values to facilitate exports to the United States. If those policies change due to the perceived credit risk of American debt and/or the increased ability of Indians, Brazilians and Chinese to consume their output, then all bets are off and the dollar could go into free fall.

Here are a couple of starter questions that you might want to consider asking when you next meet your investment advisor:

• First, with Medicare set to go cash flow negative in 2011 according to the Trustees Report issued last spring, does it make sense to pour a lot of capital into your business? Since medical care is such a huge part of our economy this applies across the board, but especially if you are in the medical professions?
• Second, with the upward pressure on commodities and downward pressure on the dollar does it make sense to increase the percentage of retirement portfolio invested in commodities, precious metals and companies that provide those, while seeking instruments in other currencies?

One final word of caution: However tempting it might be to give up the day job and invest in commodities, currency or anything else full time, it is strongly advised not to attempt this at home. Investment advisers who do this for a living may cost some management fees, but that is a small price to pay for avoiding undue and unknown risks in areas about which you have too little knowledge to even identify those risks.

Although the situation appears critical, a well prepared and fully informed investor can prosper even in the worst of times. It's time to do your homework, consult with your investment advisor and devise a prudent strategy to preserve your capital! "The times they are a-changin'!"

The Way Things Are

Not good, that’s the way things are. But, things are not so bad either. Things could be a lot worse. If you are reading this a mile wide asteroid probably has not struck us. Things could be a whole lot worse.

The grass still grows. The sky is blue. The wind blows. People fall in and out of love, or at least lust. There is food to eat and water to drink. Most of us are clothed and housed. The television can be ignored mostly. We have music and movies and books and sports and the Internet to entertain us. Our children are above average. Our spouses and significant others still speak to us for the most part.

Of course the politicians still lie. There is crime and too many people are locked up for things that only harm themselves. Taxes are high. The money isn’t worth the paper it’s printed on and can’t be trusted. People die. But, in the grand scheme of things how much does any of that really matter to most of us.

If any of it really matters to you, get a life. Enjoy a good meal, listen to some good music and chill out.

Why ask why? Go ahead and order a Bud and forget about it.

That’s right, ignore the politicians. Live your life here and now. Tell the truth and be truthful. Pay the taxes you can’t avoid. Put your paper money into real assets. Laugh a little, hopefully a lot. Chill out. Ignore the politicians.

It is time to launch the Second American Revolution.

This Revolution isn’t to be fought with guns and bombs. This is a nonviolent revolution. Well, it will be nonviolent on the part of the revolutionaries. There are no guarantees what the government will do or how it will react. The soldiers in this revolution are all of us who have had enough and are voting with our feet. Opt out. Or, put another way, “Tune in, Turn on and Drop out!”

Why not? Do we really care who the President sleeps with? Do we really want to participate in a system that stations troops in more than 140 countries around the world? Do we think it’s right for those troops to be teaching military and police in those countries to torture and maim and kill the people living in those countries? Do we think our government should really be creating a series of trade agreements to make it easier of multinational companies, especially the “fortunate five hundred” to become the ultimate welfare recipients as they are subsidized in their export of American jobs? Do we believe we really need over 1,200 SWAT teams in communities across the country from Maine to Maui? Do we really want the FBI and the Department of Homeland Security to be able to listen to every phone call and read every email message we send? Do we believe it’s the job of the national government to decide what we teach our children? Do we really have to be forced to save for our retirement? Do we require the national government to tell us what is or isn’t clean air or water? Do we really need the national government to run our lives? Are we really that stupid?

If you answered yes to any of those questions that’s fine. But you might not enjoy this blog.

Some will say, “Do we really need a national government at all?” Yeah, we probably do. That government should provide for the common defense, assure the availability of sound money (not just paper backed by debt instruments), protect civil liberties and maintain a judiciary to resolve disputes. But, “The Nanny State,” as we know it, is obsolete and didn’t work anyway.