WSO Axioms

WORK SAVE OWN AXIOMS

ax·i·om 'ak-sE-&m noun: an established rule or principle

SAVING

Saving is the “quantum leap” activity that propels you out of a subsistence financial life.

You must overcome Parkinson’s Law (expenses rise to equal income) by learning to save

BORROWING

When you borrow, make the term as long as possible, but plan to repay the loan as soon as possible.

Borrow to multiply assets, not to gratify consumption desires.

Structure your saving so that you can “borrow” from yourself, and pay yourself the interest that would have been paid to lending institutions.

FINANCIAL LITERACY

Understand the difference between assets and liabilities. Acquire assets.

Besides analyzing the benefits, you must understand the full cost of your financial decisions, including the opportunity costs.

The most effective financial planning results come from controlling or eliminating Expenses (transactions that deliver no control or financial benefit) rather than chasing a higher rate of return.

Control is an intangible but invaluable aspect of every financial transaction.

You should have two businesses – the one where you earn money, and the bank where you keep it.

WEALTH

Work and Assets are inextricably linked in the formula for wealth. First you work to acquire assets, then you work with your assets.

The greatest returns are achieved when an individual concentrates his/her work, savings and control in one enterprise.

It is not necessary to invest in the stock market in order to become wealthy.

Concentrate assets for greatest growth, diversify for preservation.

INSURANCE

Whenever possible, look for ways to self-insure some of your financial risk, especially if your financial program is large enough to function “multi-generationally.”

Life insurance is different that all other forms of insurance. With life insurance, the question is “when,” not “if.”

Term life insurance may be an affordable way to meet a current need, but the long-term financial ramifications are very expensive.

For banking purposes, the objective should be to get as much money as possible into a policy with the least amount of insurance instead of trying to put as little money in and provide the greatest amount of insurance (initially).

(Nelson Nash)

REAL ESTATE

Unless your personal residence generates an income (via rent, property leases, etc.) your home is not an investment. Most home ownership is really a form of subsidized renting.

In considering real estate for investment purposes, one key issue is whether or not this property has reached its “end use.” Another is who has control (through zoning, covenant, contract, etc.) over changing the use of the property.

Now is not the time to pay off debt faster

Now is not the time to pay off debt faster

I’m sure there’s a politician somewhere who can spin the information to arrive at a different conclusion, but most of us are dealing with the following financial realities:

• Property values are down.
• Interest rates are down.
• The stock markets are down (then up for a while, and down some more).
• The US dollar is down – and the cost of living (especially fuel) is up.
• Our US economy is down (due largely to the real estate and financial crises).

As a result, many Americans are worse off than they were a year ago. Given these negative financial circumstances, where many people have less money and are less inclined to takes risks with it, I am reading commentary from financial “experts” saying the prudent thing to do now is to re-direct saving and investment dollars to pay off debt.

I’m all for eliminating debt. Debt is a financial millstone around the necks of most Americans, and it is debilitating, financially and psychologically. But while I’m sure many of these financial experts are well-intentioned, I would argue now is not the best time to pay off debt. Rather, now is the time to save money. Let me explain:

The argument that most pay-down-your-debt advocates make goes like this: If you don’t think you can earn above-average returns in stocks, and interest rates are low in guaranteed vehicles (like Treasury instruments, Bonds, CDs and Money Market accounts), then why not use your investment dollars to pay off high-interest (and usually non-deductible) debt? After all, if your credit card company is charging you 15-18%, making extra payments on the balance is “like earning 15-18 %.”

Superficially, this argument makes sense. Mathematically, you can “prove it.” But while this strategy is logical, it neglects some of the financial realities. Let’s use a hypothetical “real-life” example to illustrate.

Suppose you decide to follow the advice of the pay-down-your-debt gurus. Instead of saving or investing in your 401(k) or some other accumulation vehicle, you commit an additional $200 each month to paying off credit card debt.

If you make an extra $200 payment on the credit card, will you still have a payment due next month? Yes. Will the monthly payment be significantly less than the month before? Probably not. There may be some decrease, depending on the size of the balance, but especially if your balance is high enough that it would take a year or more of extra $200 monthly payments, the monthly decrease isn’t going to be that great. So while you technically “earned” the interest you saved, you don’t have more money in your pocket, and you still have a financial obligation next month.

Let’s inject a little more “reality” into this scenario.

Assuming you have used your “extra” $200 for the past few months to pay down your credit card balance, how will you pay an unexpected but necessary expense, such as an $800 automobile repair? If you don’t have any liquid savings, most likely you’ll end up using the credit card. If you do, your outstanding balance is goes back up, and so does the interest charge.

Here’s another “reality” situation. In the next few months, what happens if you lose your job, or have to take a pay cut? If you don’t have as much income (or no income) and no liquid savings, the likelihood is there’s not going to be a payment to the credit card company. And more than likely, one late payment will trigger a higher interest rate (along with fees) on your card – and your credit score is going to take a hit as well.

One of the reasons most people have high-interest credit card debt in the first place is because they haven’t learned the discipline of saving. They haven’t developed the habit of living below their means and paying cash for big-ticket purchases, vacations, emergencies, etc. In fact, the only saving many people do is through their retirement plan, where money is withheld from their paycheck. Thus, their default budgetary model is “if it’s in the account, I can (and will) spend it.”

Of course, this approach is ill-equipped to deal with unexpected expenses or large purchases, so borrowing becomes the other default action in their financial lives. There’s always the intention of paying the credit card off next month, but a few years later, unpaid credit card balances are a permanent part of their budget. Five years later, the monthly payments are putting a strain on current expenses. Consolidation may temporarily relieve cash flow pressures, but because the underlying behavior hasn’t changed, it isn’t too long before the balances are going up again.

If you really want to fix your debt problems, start saving and stop borrowing. Building a pool of savings (call it your emergency fund, rainy day fund, save-to-spend account, whatever) will keep you from going back to the lending trough. Having savings will keep you from missing payments if your employment situation changes. Having $10,000 in a liquid, safe account will change your life.

By the way, even if you already have $10,000 or more set aside, and have a very secure employment situation, I would still recommend saving instead of extra payments on debt, even credit card debt. The better approach is to make the scheduled payments each month until your savings balance is large enough to pay the outstanding debt in full.

Part of this is a matter of control. If Visa is satisfied with $100/mo., why send them $300? Keep your money under your control, and when it suit you, pay the balance in full.

The other reason for saving instead of paying off debt is that the math isn’t as favorable as you might think – even if there’s a significant different between the rates of return on your savings and the interest charged by the credit card company. For an eye-opening illustration, check out this article on www.worksaveown.com.

Saving money is not the same as paying off debt. Saving money is a behavior that leads to financial control and freedom. Paying off debt, even at a faster pace, may help relieve some financial pressure, but it doesn’t move you forward. If you don’t establish the saving habit, you will always be at risk of going back into debt. Bad habits not only need to be avoided, they need to be replaced.

With all the uncertainty surrounding the present economic situation, the best financial decision is to save.

Ladder To Prosperity – First Podcast

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Economic Stimulus Checks: Bread and Circuses

As the ideals of the Roman republic were eroded and displaced by the politics and tyrannical rule of the Caesars, governing parties realized that an oppressed citizenry could be pacified with food and entertainment. Thus, the government became the provider of bread and circuses (panem et circenses), an ancient Roman metaphor for people choosing food and fun over freedom.

 

The issuing of Economic Stimulus Checks is a straightforward application of the bread and circuses philosophy. Yet curiously, I haven’t heard much dissent regarding this approach. It seems there should be quite a bit of outrage.

 

First, if our elected officials see fit to “give back” some money, why did they take it in the first place? If they believe returning money to the citizens will help the economy, then it’s reasonable to suggest that taking it was harmful to the economy. (It’s a pretty twisted scenario where someone creates a problem so they can fix it, but that’s one of the essential illusions of government: create a problem so you can put forward your party and your policies as the solution.)

 

Second, where is the money coming from? We hear constantly of the ballooning federal debt and the lack of funding for government programs. How can an organization constantly in need of money afford to hand out $600 to every qualified taxpayer?

 

In the best Keynesian tradition, our government has either decided to borrow more to encourage spending, or to authorized its central bank (the Federal Reserve) to print more money. Either way, taxpaying citizens get stuck with the bill; in one scenario, the federal deficit grows larger, in the other, the value of the currency gets smaller. Thus, your $600 “rebate” results in higher taxes or less spending power.

 

Furthermore, government officials have the temerity to tell us how to spend it! They didn’t want us to use to pay off debt, or put it savings. No, they told us the best thing we could do was to spend it! The truly patriotic would use their “windfall” to buy a plasma TV, take a weekend ski trip, make a down payment on an new car, or visit the Caribbean. (It was a nice, benevolent touch when President Bush finally acknowledged it would be okay to spend the checks on necessities as well; you know, things like rent and gasoline.)

 

It’s absurd. They take your money, expect your gratitude for giving a fraction of it back – and then they want to tell you how to spend it! The arrogance is breathtaking. But nary a soul is demanding accountability for these actions – because they’re getting a check back! Not that you should sent your check back. From a purely pragmatic point of view, any money in your hands is better than leaving it under government control.

 

But instead of just accepting the scraps, why isn’t someone asking for more? Americans have become a docile populace, conned into believing that dependency on government hand-outs and consumer debt are necessary for survival. The collective mindset has such low expectations that many can’t imagine anything better than watching “American Idol” on a new TV (courtesy of your congressman!) Bread and circuses, indeed.

 

 

Making Atlas Shrug

I read Ayn Rand’s Atlas Shrugged for the first time when I was in high school, and more than thirty years later, it has remained one of the most influential books in my life. I have seen reviews that dismiss the literary merits of the book, and those criticisms may be valid. The power of Atlas Shrugged is not in its prose, but in its ideas.

Atlas Shrugged is a novel in which “men of the mind” become so disgruntled with socialism and elitism that they quit; the productive members of the society (industrialists, innovators, technologists, etc.) simply “resign” from their work and emigrate to a secret enclave where they re-establish a world based on personal liberty, free-market capitalism and merit. These producers “disappear” through a technology that allows them to live unseen behind a “force field.” It’s like a magician’s trick that makes the elephant disappear – it’s there, but you can’t see it anymore.

As this “brain drain” occurs, it is as if Atlas – the mythical titan who carries the world on his back – has shrugged, relieving himself of the burden of the non-productive parasites of society (especially governmental and media figures) who provide no value while taking as much as they can through political power and social pressure. When the “men of the mind” quit, they leave politicians and other non-producers nothing to commandeer. Slowly, inexorably, the stability and progress of society begins to disappear.

Just from this brief overview, many readers won’t understand the conflict in Rand’s story. They don’t see government or “social activists” as enemies of productivity or freedom, and they won’t understand why anyone would want to “quit” being productive. But if you read the book, you’ll get it. Of course, the book is over 1000 pages, so for those who can’t handle the volume, here’s a summary of the essential conflict of Atlas Shrugged:

“When the minds of men are free and the resources of the world are apportioned under free enterprise, those who rise to leadership are those who combine original thought, resources and strong work ethics. In a shackled society, those who rise to leadership are those who use their minds to enslave and control others. The latter people fear men who can actually make things and do things, and they work constantly to maintain control over them.”

The preceding was a quote from a September 2007 article from Access to Energy, a “Pro-Science, Pro-Technology, Pro-Free Enterprise Monthly newsletter.” I don’t think you can find a better three-sentence summation of the conflict between producers and controllers, between freedom and socialism, between an ethic that produces wealth and one that wants to seize it.

For Rand, it takes a fictional contrivance to free productive human beings from those who would attempt to control them and subordinate their productivity. In real life, it’s hard to escape the clutches of greedy governments and envious individuals. But that doesn’t mean productive people can’t effectively “shrug” off some of the parasites that beset them. Sometimes, quitting is a very effective response to controlling individuals and organizations. From personal experience, I have found the Atlas Shrugged approach to be effective in some situations, although it may require to taking steps backward in order to go forward. As an example:

For past five years, I was very involved in a non-profit organization. Not only did I volunteer my time, but the bulk of my charitable giving went to the organization as well. Over the course of my involvement (including a stint as treasurer), I became increasingly aware of some negative actions on the part of the organization’s leadership. Several other individuals shared these concerns. After further investigation confirmed the detrimental behaviors, we attempted to correct and improve the situation. When these efforts were rebuffed, we withdrew our financial support and left the organization.

It was difficult to leave behind friends, and walk away from the personal and financial investments we had made in the organization. Further, I know our collective departure immediately impacted the financial well-being of the organization, which has made it harder for the good people still there. And since I am committed to charitable involvement, I’m faced with the task of looking for new places to invest my time, energy and dollars. Initially, leaving was a step backward.

But continuing to stay in the organization (and continuing to fund it) would have enabled the leadership and allowed the procedural problems to persist. Ultimately, our departure spurred direct action from the remaining members, exposed some of the issues to a wider audience, and prompted an oversight committee to be brought in.

SHOULD ATLAS SHRUG AT THE VOTING BOOTH THIS FALL?

As it has been for the past century, the focus of the upcoming 2008 presidential election will be on the Republican and Democratic candidate. But what if you don’t particularly like either one? What’s the value of voting for someone who doesn’t remotely represent your perspectives?

The problem here is that both the parties and the media frame the election discussion as an exclusive contest between the two parties. Everyone in America has to choose between red and blue; there are no other options.

For the pundits, not voting is considered an act of treason, and voting for anyone other than the two major party candidates is a waste of “your precious vote.” But the logical consequence of this you-must-vote-either-Democrat-or-Republican perspective is to support someone you don’t like who will probably deliver some things (via taxes, legislation and the bully-pulpit) you don’t want. Is this a win-win arrangement? I don’t think so. Continuing to vote for unacceptable candidates because you see them as the “lesser of two evils” only allows the evils to be perpetuated.

If enough people stopped voting, it is much more likely that better candidates and better ideas would come forward. Instead of seeing their chances as almost nil because of the two-party monopoly, the number of non-voters would be great enough to convince third- or fourth-party candidates that they had a real chance at winning. And knowing there exists a sizable number of potential voters which could remove them from office, the two dominant parties would have to seriously consider adjusting their policies as well.

All governments, even repressive ones, know the power of their citizens. If the populace is against you, your regime cannot last. In repressive political systems, the tipping point comes when the people’s dissatisfaction overcomes their fear of punishment. In democratic societies, political parties lose their power when people stop voting for them. As long as people keep voting for one of the Democrats or Republicans, they continue to give the two parties power and relevance.

Of course, the short-term consequences of a non-voting approach could initially make things worse. If the only remaining voters are “true believers” who support the principles and candidates of the two dominant parties, their zeal might embolden them to more aggressively pursue their agendas. For either the Republicans or Democrats, this will mean more governmental control and less personal freedom. The apologists for the current two-party system will say “If only you had voted! Your vote, and others like yours, could have been a moderating influence and lessened the damage.”

Perhaps. But continuing to vote for organizations and individuals that don’t represent your views or values may only prolong your problems. And it will almost certainly never solve them. (Do you really think either the Democrat or Republican parties are on the verge of repudiating their current policies and returning greater economic and personal freedom to the citizens?)

If there isn’t a candidate worthy of your vote, then voting for the lesser of two (or more) evils only enables bad candidates to believe they are worthy. Maybe it’s time for the American voter to shrug like Atlas.

 

“I, Pencil” – A Free-Market Classic

The inspiration for this post comes from a December 9, 2006 “Evenings with FEE” speech,  by author George Gilder. FEE, the Foundation for Economic Education, posts “classics” in the sidebars of its daily “In Brief” commentaries on current events.

As prologue to his speech, Gilder made reference to the writing that most influenced him to embrace libertarianism and Austrian economics. It was I, Pencil, written by Leonard Read.

Gilder called this short work of fiction about the making of a pencil “the single most important essay of liberty ever written,” and “an inoculation against Socialism.” He added that once you read I, Pencil “you just can’t believe in massive government planning…it becomes evident that people who imagine that whole economies can be planned are just imbeciles.”

Gilder is right. I, Pencil is a brilliant piece of writing. The logic is tight, and so are the conclusions.

For a short, yet effective dose of free-market clarity to counter the fog of government-think, click to here to retrieve I, Pencil from our reading room.

In the End, Socialism Breeds Barbarians

(Note: As I mentioned in the previous post, the Wall Street Journal is a newspaper for adults. Thus, some of what follows is Rated PG-13, at least)

I mentioned I often find good reading in old Wall Street Journals. In one of my “reading binges” to clear out the backlog in my office, I came across a book review about a topic so powerful that it has stayed with me since I read it more than a month ago. The review also convinced me I will never buy the book.

The article is “Witness to Horror,” by Omer Bartov. Published on January 22, 2008, it is a review of “The Unknown Black Book,” a compilation of eyewitness and survivor accounts of the Nazi genocide of the Jews in occupied portions of the Soviet Union. According to the article, “‘The Unknown Black Book’ is the first publications of materials excluded for political reasons from ‘The Black Book” a collection of survivors’ testimony that ran afoul of the Stalinist regime.” The Soviets suppressed the book because it revealed that in many cases Soviet citizens were enthusiastic and willing accomplices in the Nazis’ systematic extermination of the Jews.

Even the few excerpts briefly recounted in the article are hard to read.

“When the Germans began murdering Jews with gas vans, as extra entertainment ‘young women had their hair tied to the axles of the vehicles in such a way that they were dragged alive through the city’ while ‘the killing by gas of those who were inside the mobile vans was being carried out.’”

“Toward the end of the month, all the male Jews, numbering some 5,000, were first subjected to prolonged torture and humiliation and then murdered. ‘The earth on top of the pits was heaving the entire time, since many had been buried alive. For an entire week after this, blood burst from the pits like a fountain.’”

The review includes several other excerpts, equally as graphic. As Bartov says, the “few examples provide an inkling of the nature of the material.” For me, an inkling was enough.

“”The Unknown Black Book” records that while many Soviet citizens, and even German soldiers, were appalled by these atrocities, a substantial segment of the Soviet population participated side-by-side with their Nazi invaders, raping, killing and looting with gusto. Yet surprisingly, one group of Russians is recalled with almost uniform respect: the peasants. The poorest members of Stalin’s communist society were the ones most likely to offer sanctuary for hunted Jews.

Maybe it’s because I’m older (I have children and grandchildren), but even the brief descriptions of barbarity horrified me. I was almost physically ill by the time I finished the article. The cruelty and savagery were incomprehensible.

As I shook my head in disbelief, two questions came to mind:

1. How could human beings act this way toward other human beings, particularly non-combatants, and innocent women and children?

2. What can be done to keep history from repeating itself?

I think the first question is relatively easy to answer. There is evil in the world. And unrestrained, there is almost no limit to the depravity and cruelty of evil men. As Proverbs 25:26 says: “A righteous one who falters before the wicked is like a murky spring and a polluted well.” Absent the influence of righteous men and women, Nazi Germany and Soviet Russia were two regimes of unrestrained evil, and neither party recognized any moral authority other than the power of an almighty state. And their evil polluted entire generations.

The areas overrun by the Nazi in 1941 had already been brutalized by Stalin in the 1920s and 1930s. As a result, anyone with courage and a moral conscience – members of the clergy, party idealists, or private citizens – had been either purged or pummeled into servile obedience. The rest of the masses could see the price of resistance. Seeking to survive, they pragmatically chose to align with their oppressors. Thus, by the time the invading Germans arrived, the Soviet citizenry didn’t see them as true enemies, just new dictators. In this type of amoral environment, evil becomes commonplace, even exalted.

So how does one stop the spread of such evil? That’s a tougher question to answer.

There is an obvious need for moral instruction, teaching that argues right and wrong from an ethical perspective instead of a power perspective. Even for people who don’t want a “religion” forced upon them, the tenets of the Ten Commandments (especially the last five) are ones that most of us intuitively agree with. We know it’s wrong to steal, lie, cheat, murder and covet.

If the prevailing cultural norm defended its citizens from theft, murder, adultery, false witness and coveting – and the government provided enforcement – I’m pretty sure most citizens would refrain from evil. But beyond instilling a solid moral ethic in society (and hoping that some people become “true believers” instead of simply avoiding prosecution), I think there’s another element that must be present in order to keep evil from proliferating. I think it’s necessary to allow citizens personal and economic liberty.

Granting personal and economic liberty provides strong incentives for cooperative and peaceful behavior. The observance and execution of a strong moral code provides restraints and punishments for evil behavior, but personal and economic liberty offers rewards for productive “good” behaviors. When it is possible for individuals to lawfully become what they want, earn what they want, and live the way they want, they are less likely to resort to evil means.

History generally supports this observation. Dictators start wars and seize the resources of others. Free societies form economic and political alliances, and exchange resources in open trade. Oppressive governments literally imprison their citizens; not only do they restrict their travel, but many actively prevent them from leaving (think of the Berlin Wall). In contrast, free countries allow citizens great latitude in where they live, inside or outside their country of origin. Personal and economic liberty is a powerful agent for cultural stability and good behavior.

This is not to say that a strong moral code and individual liberty eradicates evil. Even in free societies there are plenty of incidences of evil. There are senseless acts of cruelty and violence. But in almost every instance, there are also individuals, groups or governing bodies that step in and say “stop it! You’ve gone too far, and you must be reined in or removed.” In both Germany and Russia, no one dared to say “stop it.”

In light of this idea that a strong moral code and individual liberty prevent the spread of maximum evil, it’s sobering to consider how the United States government has systematically restricted personal and economic freedom over the past century. Today’s US citizens enjoy far fewer liberties than an American at the beginning of the twentieth century. We are more taxed, more regulated, more compelled to be politically correct – supposedly for our own good.

In response to this diminished personal freedom, more and more citizens seek to use government as their “power tool” to get what they want; special legislation, favored status, tax breaks, grants, etc. Instead of cooperation, there is legislation.

And as our society becomes progressively less free, the power of the government assumes the mantle of the moral code as well. The determiner of right and wrong is what the government allows or disallows. As a result, there are already instances in our society when what most people would consider atrocities (such as partial-birth abortions) have become “legal,” and accepted. The United States may be freer than many societies and mightier than any, but the path we are traveling is still very much the “Road to Serfdom” articulated by Frederich Hayek 60 years ago.

When I look down the road, I don’t want my children and grandchildren to be either the victims or participants in genocide. Individually, I cannot change my government or my culture. But I can articulate the solution. All concerned individuals should constantly argue, vote and contend for strong individual and cultural morality, as well as personal and economic freedom. These are the only proven antidotes to evil.

The Road To Serfdom

Why I Read The Wall Street Journal

I didn’t start reading it religously until I was about 40, but I love the Wall Street Journal. I’m sure many people who read the Journal see it primarily as a newspaper with a strong financial emphasis, which is true. But the thing I like most about the Journal is the way its editorials and columns connect financial and economic news to a social and cultural context. I like that the Journal allows space for long articles include explanations as well as statements. Explicitly and implicitly, the Journal presents coherent world-views along with its news. You might not agree with every point of view, but I find the perspectives are much more on display and under debate in comparison to most newspapers or magazines. The Journal does more than inform; it gives you some insight into the thoughts of the people who present the information.

It’s because of the unique connection of news and ideas that unread Journals pile up around my office. Even if I’m not using the Journal as a source of current news and information, there are still great pearls of knowledge waiting to be discovered. That’s why I try to give every issue a once-over, regardless of the date, because I know there’s probably something worthwhile in every issue. It might be in the letters to the editor, a piece on the Opinion page, a book review, or a comment in the Houses of Worship feature that appears every Friday. I don’t know what, but usually I find something.

 The other day, I pulled up a stack of Journals still wrapped in the protective newspaper baggies (that’s how they come delivered to my mailbox). They were more than a year old. “Aww, maybe I should just pitch ‘em,” I thought. “After all, if I hadn’t read them in the past year, any thing I’ve missed hasn’t made a difference.” But I’m one of those people who’s a compulsive reader. If it’s printed, I’m reading it – back of the cereal box, nutritional label, junk mail, fine print on the menu, anything. So, of course, I sat down to read. A half hour later, I still have three issues left to scan, but I’ve also found a couple of new ideas for my newsletter, plus an article to show my wife. In addition, skimming old news gives me the chance to see whether the financial and political prognostications were accurate (the sub-prime crisis was on the radar, but the magnitude of the problem wasn’t seen, Obama and Hillary yes, McCain no, and boy did Mitt Romney implode).

 I know some of my older peers, particularly those who have more money and grew up on the East Coast, prefer Investor’s Business Daily or the New York Times, but for my money the Wall Street Journal is best newspaper in America – although it took me almost 20 years to arrive at that conclusion.

 My introduction to the Journal came in my sophomore year in college. I took an economics class taught by a distinguished older professor who had been a frequent economic policy advisor for the Johnson, Nixon and Carter administrations. One of the requirements for his class was every student had to subscribe to the Journal for the entire semester – and learn how to read the paper. This meant scanning the “What’s News” section (at that time it was once column on the front page), checking the editorials, and reading articles from the business and investment section. I shared a subscription with another student in my dorm, and made half-hearted efforts to read it according to the professor’s instructions, but never really got it. There wasn’t anything that resembled a sports page, no comics, and I just didn’t have the educational background or life experience to tackle some of the editorial perspectives.

 It wasn’t until I was about five years into my career in the financial services field that the Wall Street Journal became relevant. And it wasn’t just the financial stuff that grabbed me. It was the human interest stories of business, the political commentaries, the historical perspectives, the sophisticated entertainment reviews. It seemed like every section had something I wanted to read.

 I know the non-reading, give-me-streaming-video younger demographic probably doesn’t have the same affinity I have for newspapers. I know USA Today has its niche as “McPaper,” something that’s quick to read and easy to digest. But I appreciate the Journal’s depth, and the time it takes to read it. I think the best way I can describe it is that the Wall Street Journal is a newspaper for adults. From my experience, reading the Wall Street Journal is one of the ways you know you’ve become an adult. I was 35 when the Journal started making sense to me, and that’s about the time I finally “crossed the line” into adulthood.

 I hear stories about the decline of newspapers and other print media. A lot of the blame for this demise is placed on television, the Internet, and the fast pace of life. On one hand, I can see the connection. Most local daily papers aren’t much more than print versions of national wire stories and local TV news reports – received a day later. It’s more convenient (and more current) to click on the news scroll running across the top of my computer screen when I’m online.

On the other hand, when newspapers like the Wall Street Journal suffer circulation declines, I’m more inclined to think the problem isn’t competition from the Internet and Action News. The reason fewer people read the Wall Street Journal is because they simply aren’t as many adults in America as there used to be. There’s a lot of people over the age of 18, but not many adults.

 

 

Why You Need To Meet Murray Rothbard

Question #1. Ever heard of fractional banking?Question  #2.Did you know a bank can legally lend up to 10 times more money than it has in deposits?Question  #3. Did you receive a government-sponsored “public” education?(Best guess: If you answered “no” for Questions 1 and 2, you answered “yes” for 3. If you answered “no” to 1, 2 and 3, you probably over-paid for your private education.)

The ignorance of the general public about the negative economic impact of fractional reserve banking is enough to make one seriously consider whether public education isn’t some form of mind-control conspiracy. When what would be considered theft or fraud in any other business transaction is completely ignored simply because it bears the stamp of government approval, you have to wonder if the absence of outrage isn’t due in part to a deliberate campaign to obscure or hide the truth.

Which is why I love Murray Rothbard and his book The Case Against the Fed (Click here to purchase it). In 150 pages, Rothbard takes a subject (banking) that is almost unintelligible to the average American and makes the essential elements crystal clear. And when the scales drop from your eyes, two items stand out:

1. Fractional banking isn’t much different than counterfeiting. The government gives one institution (the central bank) the authority to print paper money – out of thin air – and then requires that it serve as “legal tender” for all financial transactions.

1. Governments cannot help but love fractional banking because it gives them economic power over the citizenry. The first party to obtain the use of counterfeit money is the government, and the government is the only party that benefits from the introduction of it into the economy. After that, all others suffer because the excess paper money creates an imbalance between the cost of goods and services and money that can be used to purchase them. This inflates prices. Real people, working for real money, must now pay more for the same loaf of bread or automobile.

 According to the bio on the back of his book, “Rothbard (1926-1995) was dean of the Austrian School of economics and America’s foremost scholar of central banking.”

America’s foremost scholar of central banking. There’s an obscure distinction. (Who would want to put “scholar of central banking” on their resume? The fact that we would ask that question is indicative of how little we know or understand about how central banking distorts every economic action in the United States.)

But read this brief comment from Rothbard:

“…if the public knew what was going on, if it was able to rip open the curtain covering the inscrutable Wizard of Oz, it would soon discover that the Fed (i.e., the Federal Reserve Bank, the central bank of the United States), far from being the indispensable solution to the problem of inflation, is itself the heart and cause of the problem.”

Got that? The Fed, now led by Ben Bernancke, formerly under the direction of Alan Greenspan, is the cause of inflation. And because the Fed is the cause of inflation – which progressively diminishes the purchasing power of our hard-earned dollars – it can never be the solution.

The irony is that 170 years ago, the citizens of the United States understood the impact of a central bank – and they voted to close it. The first “Fed” was called the First Bank of the United States (catchy title). It was authorized by Congress in 1791 and “retired” 20 years later when Congress declined to renew its authorization. A Second Bank of the United States was chartered in 1816, but 20 years later, its charter was not renewed either. From 1836 to 1913 the United States did not have a central bank.

A major plank of Andrew Jackson’s presidential campaign in 1832 was his opposition to the re-chartering of the Second Bank of the United States. Can you imagine a sound byte today from McCain or Obama or Hillary that promised to “rid us of the scourge of central banking?” (Hmmm…that sort of sounds like Ron Paul, doesn’t it?)

Two final comments:

Every citizen who cares about their financial future should understand fractional reserve banking and the role of the Federal Reserve in the economy. Rothbard’s book is a good place to start, but any education would be helpful.

The opposition to central banking and the economic abuses that result is not new. As far back as Biblical times, Solomon warned that “dishonest scales are an abomination to the Lord, but a just weight is His delight.” (Prov. 11:1). Government-authorized counterfeiting might be legal, but it is dishonest – every new piece of paper distorts the value of our work and our assets.

Not Yours To Give

Not Yours To Give

You can’t believe everything you read on the internet. (But even the lies and half-truths can provoke some interesting thoughts.) If you want to get the whole story here, take the time to read everything – because I saved the best for last.

On February 18, 2008, I received an e-mail about taxes, which included the following excerpt:

The next time you hear a politician use the word “billion” in a casual manner, think about whether you want the “politicians” spending YOUR tax money. A billion is a difficult number to comprehend, but one advertising agency did a good job of putting that figure into some perspective in one of its releases.

• A billion seconds ago it was 1959.
• A billion minutes ago Jesus was walking the streets of Jerusalem.
• A billion days ago no-one was around.
• A billion dollars ago was only 8 hours and 20 minutes, at the rate our government is spending it.

 While this thought is still fresh in our brain, let’s take a look at New Orleans. It’s amazing what you can learn with some simple division…

Louisiana Senator Mary Landrieu (D), is presently asking the Congress for $250 BILLION to rebuild New Orleans. Interesting number, what does it mean?

1. Well, if you are one of 484,674 residents of New Orleans (every man, woman, child), you each get $516,528.
2. Or, if you have one of the 188,251 homes in New Orleans , your home gets $1,329,787.
3. Or, if you are a family of four, your family gets $2,066,012.

Washington, D.C .. HELLO!!! … Are all your calculators broken??

Interesting statistics, right? They really help put the concept of “billion” in perspective. And wouldn’t it be nice to be a New Orleans family of four in line for more than $2 million in federal money. Except…

Senator Landrieu isn’t “presently asking Congress” for $250 billion. She asked for it in 2005, right in the midst of the all the “we’ve-got-to-do-something” hysteria about Katrina. After further review, it was fairly obvious the $250 billion figure was overkill. So while the billion info is interesting, the “outrage” is over something that didn’t happen.

However…

Skip the math. There’s another issue here. It’s the assumption that government should be involved in providing “relief” through disbursement of public funds. I know it may sound like a noble undertaking, but is there any rational economic or social justification for having FEMA or any other government disaster relief agency?

This is not meant to be cold-hearted or mean-spirited. Helping those is need is certainly one of the primary virtues of a healthy society. But strong, logical arguments can be made against using government as an instrument of social mercy. In fact, the more likely by-product of government-sponsored social relief – even in emergency and disaster situations – is greed, corruption and waste.

Almost 20 years ago, a mentor gave me a booklet entitled “Not Yours To Give” which convincingly explains why charity should not come from government coffers. The story features an incident in the life of the legendary Davy Crockett during his service as a Congressman. To read the full story – and to fully understand why government should not be in the social relief business, clink on this link “Not Yours To Give”