Wednesday, January 20, 2010

More on Inflation...

Perry keeps up with Phil Town, who is an ex-Green Beret, former river guide, self-made millionaire several times over and America's most widely sought-after speaker on investing.  Perry emailed me his blog post for today.  It goes right along with the conversation we've been having...

This post was copied from here

 

That 70’s Show (continued)

In my last post I wrote about how there is a parallel between government policies in the late 1960’s and early 1970’s and now.  And that I believe there will be a similar stock market reaction to those policies. And since money to pay for these entitlement and international programs doesn’t come out of thin air, the way politicians try to have their cake and eat it too is predictable: Tax the rich and print the money.  In the last post I tried to show you how taxing the ‘rich’ predictably reduces jobs and stops the stock market in its tracks.  No new jobs and no stock market movement is a bad thing for getting re-elected so politicians will try to reduce the impact of taxation in a time-honored bit of incredible stupidity.  They will go for Door #2 - Print money.

The Federal Reserve Bank can do this legally.  This new money will have a brief positive impact as it rolls through the economy.  It makes people believe for a time that things are okay.   I give it 3-5 years max before the positive impact evaporates and prices begin to rise on commodities like gas and food.  Higher prices in commodities come from less production due to less investment and higher demand due to increased cash in the economy.  So they will print more money to ‘help’ people deal with price increases and that will cause prices to increase even faster.  In Zimbabwe, it only took a couple of years to inflate prices so much it now costs 15,000,000,000 Zimbabwe dollars to buy a loaf of bread because the government policy unintentionally discouraged the producers of wheat while increasing the production of paper money.

But wait!  There’s more! Inflation makes lending on a long term basis very risky.  You lend $1 million of
buying power today but are paid back in five years with $500,000 of buying power plus some interest.  That doesn’t work for lenders so they either stop lending or they charge more to make a business loan.  We are seeing the effect now of massive government borrowing essentially mopping up all the bank liquidity and driving up rates to business borrowers.  In five years, expect 20% or 30% or 100% interest per year. Lending stops.  Businesses can’t borrow so they can’t grow.  If they can’t grow, their stock prices go down.
Income taxes and printing money.  What we should do is stop taxing productivity (income and capital gains taxes) and begin taxing consumption (national sales tax – see fairtax.org).  We won’t, but we should. Instead we’ll keep electing people who are all about getting us entitlements and we’ll be stuck in stagflation land until we get so sick of it we elect people who have an economic brain.

Next:  How to profit from the stupidity of our fellow Americans

Now go play.

Phil Town

Tuesday, January 19, 2010

Whatever Happened to Penny Candy?



Something to think about...

"When crooks expand the money supply, this is called counterfeiting.  When governments do it, it is called 'monetary policy,' but it is the same thing, inflation.  In both cases it causes falling money and rising prices.

 Few governments want us to understand what they are doing.  Most have redefined inflation to mean rising prices.  This draws attention away from the money supply."  ~ p.136 of Whatever Happened to Penny Candy


I must admit, Economics is usually a pretty boring subject.  And it will stay boring unless your eyes are opened to how it can be applied to your life.   Perry and I have slowly been reading through Whatever Happened to Penny Candy by Richard J. Maybury at night before we go to bed.  It is actually one of Daniel's old homeschool books that I've always wanted to read.  It has brought up many interesting conversations about economics and how it relates to everything that is going on in our world today, and even more interesting - how it relates to us, our family and our friends.

Did you know that inflation has already destroyed three different United States dollars?   The Continental Dollar, The Civil War Greenback and the Confederate Dollar.

Does anyone know how the Federal Reserve Dollar is doing right now?

 We would love to continue this and other conversations with others who are interested.  I have provided a link below to purchase the book from Amazon, but I'm sure you could also find it at your local library.

Please share your thoughts...

~Erin

Monday, January 18, 2010

The Beginning...

Cultivating Critical Thinkers. This idea has been rumbling around in my head for a long time. And, now I am creating a blog in a very spontaneous move to bring my thoughts to life.

Here is a quote that will help set the stage...

"I have never let my schooling get in the way of my education." ~Mark Twain

Perry and I have been blessed by many people along the way who have challenged us to be critical thinkers. We have made that a mission to pass that on to our kids, and consequently we do many things with our children that other people do not do with theirs. I am wanting to inspire other people in the world to something that is out of the ordinary for most people - especially Americans.

Think for yourselves. You may be surprised what happens.

Until next time,
~Erin