Wealthology

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by Akinaw Bulcha


  You can see that same look on the faces of people standing in unemployment lines. Millions of people have this feeling of complete disorientation, not knowing what will happen next or why things have happened. It‘s a horrible feeling—especially when it comes to money, business or investing.

  About a year ago, I remember talking to a business owner who began to cry in the middle of our meeting because she didn‘t know why business slowed so much, why costs were increasing and when things would turn around. She didn‘t feel like she was in control. She had no context.

  Without context, there‘s no meaning and in the absence of meaning, anxiety always fills the void. Being able to understand our economic system gives us a sense of control and the peace of mind that we‘re doing the right thing with our money.

  Realizing big dreams requires big courage. You can‘t go for gold without nutconomic education.

  “With confidence, you have won before you have started.” ~Marcus Garvey.

  My Lack of Economic Literacy

  When I first decided to become a career entrepreneur, around the age of 19, I was reading Forbes and other financial publications from cover to cover. I started working with Primerica Financial Services, the marketing branch of Citigroup. By the time I was 23, I was enrolled in an MBA program with an emphasis in financial services.

  I quit my MBA program a third way through for spiritual reasons and instead, finished a Master‘s degree in a program not directly related to business.

  Throughout my educational odyssey, I experimented with different business ideas. I didn‘t fully embrace any of them except for real estate. After receiving my M.A., I went into the real estate business full time and did fairly well for a number of years until the crash was under way in late 2007.

  It wasn‘t until this crisis that I realized I‘d been floating along on incomplete economic ideas even though I‘d been learning financial concepts since I was a teenager.

  I understood what financial commentators were saying in articles, but now realize, I didn‘t fully understand why they were saying it. Professionals in the real estate and financial industries just operated on widely held assumptions because they‘re salespeople. They don‘t get paid to accurately know how much things are worth. They‘re not there to educate investors.

  “A hallucination is a fact, not an error; what is erroneous is a judgment based upon it.” ~Bertrand Russell.

  Where’s the North Star? We didn‘t know that we didn‘t know because there were no competing economic ideas. We didn‘t have a way to ―judge the economic judgers‖ so to speak. It looked as if economists made random predictions from the same murky pool of economic theory.

  At least in the court of law, legal judgments are based on something higher and above the court itself, to which any citizen can appeal in self defense. In the U.S., the Constitution and prior court decisions are appealed to as the ultimate basis of judgment.

  If something is unconstitutional, no amount of maneuvering or complicated legal arguments could make it constitutional.

  Making a good financial decision depends on something higher than finances, just as a legal decision depends on a higher legal code or a Constitution. I understood financial principles and terminology better than most people but I didn‘t get that financial literacy was useless without something else—economic literacy.

  Economic literacy helps us know if our financial decisions are wise or not. Economic literacy is to financial decisions what a rudder is to a ship or the North Star was to the old navigators. It tells us if we should trust the proclamation of financial priests. When it came to financial matters, most people didn‘t have a way to check the soundness of ideas they‘d heard on television or in print.

  All around the world, masses of people grovel at the altar of the high priests of finance situated in government or banking positions, taking it for granted that they‘ve really heard the voice of God, that they‘re speaking the economic truth and that they have the people‘s interest in mind.

  I saw something in the real estate crash—a clue that showed me something wasn‘t right if only very few economists were able to predict what was to happen. Our omnipotent Federal Reserve with its staff of 400 plus economists didn‘t see the collapse coming. Why?

  How could so many professional forecasters and analysts fail to predict a recession of this magnitude? Why didn‘t I see this impending doom? To be fair, some economists were predicting a recession but only a handful (literally) predicted an economic catastrophe.

  “Get your facts first, then you can distort them as you please” ~Mark Twain.

  The Priest Have No Robes

  The only conclusion I could come up with at first was that most economists are wrong most of the time. In fact, if you listened to what most economists were advising, even after the financial meltdown was under way, you‘d be in a bad position today.

  Even after the economic crisis was under way, I remember hearing economist Ben Stein (among others on a CNBC panel), tell viewers that financial companies like Bear Stearns and Merrill Lynch (which were about to go broke), looked like good buys! Unbelievably, he‘s out with a new book called ―Bulletproof Investing.‖

  When you get to the U.S. Kidus, remember that the ―economic priests have no robes.‖ They have no real credit although they‘re back in the limelight as if nothing happened. Most economists belong to a school of economics called ―Keynesianism‖, an ideology that‘s partly to blame for America‘s massive debt. Before the housing bust, economists from this school were telling us that if Americans owned their own homes, they didn"t need a retirement account!

  They preached the ridiculous idea that a home was a good investment, when it‘s really a luxury. They also believe that higher asset prices means there‘s more real wealth in the economy. By that logic, Zimbabweans are the richest people on earth since it takes $500 billion to buy a loaf of bread.

  They say other crazy things like ―deficits don‘t matter.‖ But as the legendary investor, Marc Faber pointed out in a recent presentation to the Mises Institute, one of these Keynesian economists said deficits don‘t matter a week before the Greek debt crisis.

  You don‘t need intermediaries, priests and oracles; what you need to do is go directly to the Source yourself. That Source is a system of sound economic ideas—a deep pool of wisdom—from which you can draw out and apply sound financial principles by the bucketful.

  This Source is your ―think tank‖ that‘ll guide your entrepreneurial life. And, remember that there‘s no other way to build a prosperous life than by being an entrepreneur in some capacity.

  I‘ll introduce you to this Source in our next letter.

  Your Loving Uncle, Akinaw.

  The Few Economists You Can Trust

  Dear Kidus, Bill Cosby once said something that‘s helped people accept the fact that they‘re getting old: ―When you become senile, you won‘t know it.‖ There‘s some consolation in that.

  But there‘s no consolation in not knowing your own economic environment and how it works. You‘ll be conscious of the fact you don‘t know what you‘re doing when you lose money. In this letter, I will introduce you to a group of economists that know what they‘re doing. Their ideas have been tested; they‘ve repeatedly been found to be right about almost everything.

  The Few, the Proud, the Austrians So, how do I know that the economic ideas you‘re about to learn are not theories but the truth. Well, if we revisit what we learned in 7th grade science class about the scientific method, we know that a hypothesis is only true if it has the power to predict.

  If a scientist makes a statement that‘s contradicted by experience, then we know that it‘s false. In the same way, if an economist makes a false prediction, his economic theory is false.

  My principles of wealth creation are partly based on a theory that‘s best predicted economic events accurately from the Great Depression of the 1930s to the current Alan Squirrelspan recession.

  Economists of this scho
ol are kind of like the nerds of the economics profession. They‘re unpopular but they‘re always right. You want to sit next to them in class. They‘re unpopular because they‘re truthful and non-ideological. Nutconomists usually sell their souls and brain power to one of two ideologies: a warfare state or a welfare state.

  Being an Austrian economist is, in my opinion, almost professional suicide because it‘s completely non-ideological—exactly why we should listen to them. Not surprisingly, many people haven‘t heard of them.

  What‘s called ―Austrian‖ economics is really the only true science of economics. If you want to understand economics, study their works. This knowledge alone will save you a lifetime of confusion and financial heartache. It‘s called Austrian economics because the founder of the school, Carl Menger, was an Austrian.

  Once again, I know this theory is true because their predictions are always correct. And if you want to be a good entrepreneur, if you want to make money and hedge your bets carefully, you must listen to what they"ve got to say. Their ideas will make the road to riches much less risky. If you read their works, you‘ll have a whole new world opened up to you; you‘ll feel as if you‘d just woken from a long nutconomic dream.

  And, as I‘ve shown, what most Squirrelmericans think they know about nutconomics is merely propaganda because various organizations have an interest in our ignorance. It should, for example, be obvious that we can never stimulate an economy through spending because the money for the stimulus must, of necessity, come from the very economy we‘re trying to stimulate.

  Below is a summary of the most important and practical ideas these honest economists have contributed.

  “An honest answer is the sign of true friendship.” ~Proverbs 24:26.

  Two Economists Two Austrian economists, Ron Paul and Peter Schiff, have recently gained some notoriety for being able to predict the current crisis in detail. I‘ll introduce you to this school of economics through the views of these two men.

  “Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway.” ~Warren Buffett.

  The Alien Congressman

  One of the few politicians who truly understands how the economy works is one of my heroes—Congressman Ron Paul. I admire him because he‘s a weirdo. I mean, not only is he an incredibly honest politician, he also has a first rate economic mind. You‘d see he ‗gets intellectual with it‘ if you get to know the brainiac behind the public veneer. If you hear him speak, you‘d recognize he doesn‘t have a lying bone in his body and he always appeals to the best in us. Honesty goes a long way with me because I realize that most professional economists, squirreliticians, political commentators and presidential advisers simply lie and appeal to the worst part of us to get ahead.

  He‘s never taken a bribe or a government loan, he didn‘t allow his children to take out student loans, and he‘s one of only two public officials not participating in the lucrative Congressional pension program. He even gives part of his salary back to the Treasury every year. He also wants to preserve the wealth of younger generations—right down my alley.

  As an investor, I"m really interested in what he"s got to say because he"s always right about the future. And unlike other Austrian economists, he‘s understandable to the average squirrel.

  His uncanny predictions are one of the reasons I call him the alien congressman. He‘s either an alien or, just happens to know the right economic recipe. We can learn quite a bit about his economic method by looking at his predictions.

  “Honesty is the cornerstone of all success, without which confidence and ability to perform shall cease to exist.” ~Mary Kay Ash.

  2008 Crash His most recent prediction was made during the 2007 presidential primaries when he warned we were on the brink of economic collapse—something he‘s been warning about since 2003. No one listened. After all, people don‘t enjoy facing the reality of impending doom. Denial is always a stronger motive than realism.

  Paul‘s predictions were fascinating for two reasons. First, he didn‘t have anything to gain personally from what he was saying. Second, I noticed during the course of my research, that he‘s predicted another crash years before it occurred.

  “All this worldy wisdom was once the unamiable heresy of some wise man.” ~Thoreau.

  1987 Crash If you go on Youtube.com, you can see that Paul even predicted the stock market crash of 1987 during a debate with a Federal Reserve Bank governor in 1983.

  Maybe the more surprising thing about that debate was that a congressional official knew enough about the economy to publicly debate an economist. Most politicians don‘t even understand basic economics.

  “Common sense in an uncommon degree is what the world calls wisdom.” ~Samuel Coleridge.

  Fannie Mae/Freddie Mac Back in 2003, Paul also predicted that Fannie Mae and Freddie Mac (our government backed mortgage providers) would help create a mess in the mortgage market. He said that by guaranteeing mortgages, the government is attracting more money into the housing market, thereby making the bubble even bigger.

  In other words, government was encouraging over-investment in housing. Congress, according to Paul, was adding fuel to the fire: ―Ironically, by transferring the risk of a widespread mortgage default, the government increases the likelihood of a painful crash in the housing market. This is because the special privileges of Fannie, Freddie, and HLBB have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive use into housing. This reduces the efficacy of the entire market and thus reduces the standard of living of all Americans.

  However, despite the long-term damage to the economy inflicted by the government‘s interference in the housing market, the government‘s policies of diverting capital to other uses creates a short-term boom in housing. Like all artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing.‖ ~Ron Paul Sept. 10, 2003.

  “The man of knowledge must be able not only to love his enemies but also to hate his friends.” ~Friedrich Nietzsche.

  Housing Bubble As you can see in the 2003 address above, Paul was one of the first to predict that there was a housing bubble underway when hardly anyone else saw it. What‘s more remarkable is that he doesn‘t say that the real estate crash wouldn‘t occur if the government hadn‘t created programs to subsidize housing. He‘s merely saying the inevitable losses ―will be greater than they would have been had government policy not actively encouraged over-investment in housing.‖

  In other words, he knew that 1) there was a bubble, 2) it had more than one cause, and 3) one of them was Fannie and Freddie. I‘ve not heard another politician ever make such a subtle differentiation of economic facts.

  “The difference between stupid and intelligent people—and this is true whether or not they are well-educated—is that intelligent people can handle subtlety.” ~Neal Stephenson.

  Iraq War

  Paul‘s economic education has also helped him predict the outcome of events not even related to the economy. In the run up to the Iraq War, for example, Paul predicted it would be longer and more costly than what was being projected. He said Iraqi tribal disputes would make governance unmanageable and that more troops would be needed to secure Iraq than what officials were suggesting.

  Others said it would be quick, we‘d be welcomed as liberators, we had all the troops we‘d need, and oil revenues would pay for the cost of the war.

  We now know that Paul was right. We say that hindsight is 20/20 but for this strange Congressman, foresight seems to be 20/20. How did he know all these things? What economic ideas gave Paul the ability to predict the future out
comes of all these different events?

  “Never was so much false arithmetic employed on any subject as that which has been employed to persuade nations that it is in their interests to go to war.” ~Thomas Jefferson.

  Decline of the Dollar Paul also predicted the deterioration of the dollar‘s value. And he‘s been right about this too. From 2002 until 2010, the dollar has lost about 35% of its purchasing power (its value). That means that the total value of our savings, nutchecks, homes, stocks and everything else, has also declined by 35%.

  This government created dollar devaluation is one of the biggest reasons people should be investing in foreign companies that earn money in appreciating currencies.

  “A dollar saved is a quarter earned.” ~John Ciardi.

  Peter Schiff’s Predictions A lot of Peter Schiff‘s predictions are similar to Paul‘s in substance but wider in scope. Interestingly, just like Paul, his predictions were made years before people even began to get that there was a problem.

  Schiff predicted the real estate crash, the wider recession, the financial collapse, the decline of the dollar, the rise of commodity prices such as gold and oil, the strength of commodity rich nations such as Canada, New Zealand and Australia, as well as the depth and even the length of the Squirrelspan Recession. Both Paul and Schiff were laughed at for their predictions.

  “Business more than any other occupation, is a continual dealing with the future; it is a continual calculation, an instinctive exercise in foresight.” ~Henry Luce.

  Why Predictions Matter: The Cash Value Predictions are lifelong silent partners that help us avoid mistakes and ensure we reach our goals. Men have certain instincts that they‘ve genetically received that help them avoid doing some things because they can predict negative consequences.

  One of these instinctual rules was summed up by Tim Allen: ―Never comment on a woman‘s rear end. Never use the words ―large‖ or ―size‖ with ―rear end.‖ Never. Avoid the area altogether. Trust me.‖

 

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