Wealthology

by Akinaw Bulcha

  In my view, America‘s magnificent inheritance is a chance at being free from delusion and ignorance. Others aren‘t so lucky. Millions of people in North Korea wake up every day to worship a little tyrant. Some Americans wake up to worship their own tyrants—fear and cherished superstitions. But unlike our North Korean friends, we don‘t have to. We have a chance to live in truth if we choose to do so. The only tyrant we ought to have is our conscience. Ghandi put it best: ―The only tyrant I accept in this world is the ‗still small voice‘.‖

  My feeling is that millions of people can identify with Pinocchio when he said, ―I want to be a real boy.‖ People are tired of the lies, misrepresentations and confusion that plague their minds. Well, in order to be a real boy or girl, to grow up, to have a mind of our own, we must start admitting the possibility we can be wrong. I‘ve done it, it‘s doesn‘t hurt as much as you may think. There are big financial consequences of failing to accept reality as it is.

  “Our intention creates our reality.” ~Dr. Wayne Dyer.

  We Know What We Know We can all intuitively understand economics. In fact, we know a lot more than we think we do. Intuition is what gives mothers the ability to know when their kid‘s lying. They can get past dad with something a little better than, ―The cat peed on my broccoli‖, even if you don‘t have a cat. But the crap stops with mom. She just knows.

  This internal way of knowing is the only thing that fear can"t exploit. It‘s an immediate awareness of things as they are. Christians can relate to this idea in the following way. When the Apostle Paul wrote, ―You have the mind of Christ‖ and then added, ―Therefore, you do not need a teacher‖, he was saying that believers have immediate access to truth without an intermediary. He was saying there‘s no barrier between man and God.

  In ancient Israel, there was a barrier between God and man. If Jews wanted access to God, they had to go through a priest. But Paul was saying the priests are now out of business. There are no gatekeepers.

  I‘m saying the same thing about economics. The priests have failed and our foreign policy has also failed. It‘s time to fire the economic priests. The experts have secretly run the economy and our foreign policy for 100 years— and they‘ve messed it up in ways they don‘t even understand. They then repeat certain phrases until we believe it (i.e., ―credit is the lifeblood of the economy‖). We don‘t need to listen to them. They have no credibility.

  If we can add and subtract, we can understand economics—like Pinocchio, we can be a real person. All the graphs, charts, studies and different types of economic schools just show us that economists have a hard time grasping or accepting reality.

  In any case, I"ll close by saying that non-interventionism is the biggest barrier and obstacle of accepting the only true theory of economics—Austrian economics. Don‘t be a statistic. It‘s why most people haven‘t heard of this school of economics. Truth doesn‘t appeal to fear. Cowards always want more control, more force, more guns, less freedom, more wars and higher taxes.

  All our problems stem from cowardice, not tyranny.

  “An economist is a man who states the obvious in terms of the incomprehensible.” ~Alfred A. Knopf.

  Conclusion

  We conclude, then, that without economic literacy, we cannot make responsible financial decisions. We can see that there can‘t really be different schools of economics for much the same reason that we don‘t have different schools of adding. True economic literacy can only be learned by studying the so called ―Austrian school of economics.‖ You can start by reading Henry Hazlitt‘s, Economics in One Lesson.

  I‘ve shown some of the reasons why they‘re able to predict future economic events so well. You can use these same principles to predict future events. Remember, based on 100 years of evidence, as long as the government does anything, we can predict it will mess that thing up. Knowing this one fact can help us profit by betting against what government does or at least, we can avoid its consequences. And if you haven‘t noticed, it‘s easy to do Austrian economics because one idea leads to another. It is causal, connective and rational:

  1. For example, since the U.S. government has the ability to print money without taxpayer consent, then it will print too much.

  2. If it prints too much, then the national debt will continue to rise and the value of the dollar will fall.

  3. If the value of the dollar falls, then prices will continue to increase.

  4. If the government pumps too much money into the economy to ―stimulate it‖ then an asset bubble will form.

  5. If an asset bubble forms, then we‘ll have a bust.

  In closing this letter, I‘ll quote one of my favorite writers, C.S. Lewis. He once said that, ―…if we admit God, must we admit a miracle? Indeed, indeed, you have no security against it. That is the bargain.‖

  In the same spirit, I‘d like to add the following: ―If we admit government intervention, must we admit economic demise? Indeed, indeed we have no security against it. That is the bargain.‖

  There are no surprises.

  Your Loving Uncle, Akinaw.

  Making Money With Economic Literacy

  Dear Kidus,

  By now, you may realize economic literacy isn‘t hard to master if we can find the courage to put aside assumptions and prejudices. Even if we don‘t want to become economists ourselves or manage our own money, we can at the very least, judge the credibility of financial advisers we may want to hire. Living with the financial confusion that plagues billions of people around the world is a choice.

  My intention in this letter is to sharpen your economic mind a bit more before moving on to capital management—the third principle in the money making process. We‘ll look at practical examples of what‘s happening right now in the global marketplace and see how we can take advantage of it.

  You‘ll learn there‘s a process to investing profitably in the marketplace. Many people who are struggling in this economic environment want financial freedom but may not know how to create it. Unfortunately, a lot of financial books and commentators tell us what needs to be done but fail to show how to do it. They hardly ever encourage in-depth economic thinking based on good assumptions.

  Rich Dad Mania

  One of the most popular financial books of all time is Rich Dad/Poor Dad. It has sold more than 25 million copies to date. The author‘s main point is that people need to accumulate assets instead of liabilities. Assets put money in your pocket while liabilities take money out. On that basis, he showed that a home isn‘t an investment because it takes money out of your pocket. To be rich, you need to buy assets and get rid of liabilities. The book‘s main value is that it accurately shows Squirrelmericans why their financial lives suck.

  Although I enjoyed the book, I felt it was incomplete. It didn‘t teach people when and how to accumulate assets. It also made the asset accumulation process look easier than it is. Accumulating nuts takes focus, courage, accurate nutconomic knowledge and energy.

  More importantly, people need economic education more than they need financial education because financial decisions depend on economic reasoning. In other words, you must be able to interpret the handwriting on the wall—not just know that something‘s been written.

  Kiyosaki made a wonderful case for financial literacy, but a better case can be made for economic literacy. We must go a little deeper.

  “Ask and it will be given to you; seek and you will find; knock and the door will be opened to you.” ~Matthew 7:7.

  Our Dogmatic Slumber In any event, it feels like Americans have woken up from a very long sleep. We feel much the same way philosopher Immanuel Kant did when he famously said that he awoke from his ―dogmatic slumber‖ by reading the writings of David Hume. We‘re also waking up from our dogmatic slumber by reading the economic facts that confront us.

  Our biggest assumptions are being tested. Maybe spending doesn‘t stimulate the economy. Maybe printing money won‘t bring us economic salvation. We‘re finding out we have a
lot of catching up to do in educating ourselves. It‘s only then that we can make things right in our financial lives.

  When I was in seminary, my roommate had left the TV on one Sunday afternoon. A local preacher in the Los Angeles area was talking about people who have chaotic lives.

  ―Chaotic people don‘t have chaotic lives‖, he said.

  I said to myself, ―I thought that was the point of the sermon?‖ He continued, ―Chaotic people have chaotic minds. If we don‘t have

  order in our minds, in here [pointing to his head] we can‘t have order out there in our physical world. In order to have the life that you want, you must have the mind that can produce that life.‖

  In a similar fashion, the Western world has created a very chaotic economic climate because our thinking has become clouded. We must clear up the fog 100 years of bad economic thinking has imprinted on our collective consciousness.

  We‘ve got confused states of minds because we see profit in self delusion. I believe every man on the street knows the grave economic danger of allowing our government to run the printing press but he secretly wishes it to continue in the hope of increasing his own credit line. We‘ve seen the fruits of bad economic thinking—it‘s time to start over.

  “Tis this desire of bending all things to our purposes which turns them into confusion and is the chief source of every error in our lives.” ~Sarah Fielding.

  The Logic of Investing We can find a great deal of clarity about how to think about investing by using an analogy from the world of physics. If we understood just one law of physics and applied it to our investing decisions, we would start building wealth at a much faster rate because we‘d be able to make responsible choices with our money. At the very least, we would be able to avoid disastrous financial mistakes.

  The law of physics I‘m referring to is Sir Isaac Newton‘s idea that every action has an equal and opposite reaction. Married men understand this law very well. They know the equal and opposite reaction of forgetting to leave the toilet lid in the down position.

  Here‘s how it applies to thinking about money. Whenever you make a financial decision that you do see (you take an action), you automatically make another decision that you don‘t see (reaction). When you spend all your money today, you‘re also choosing not to invest in a lucrative business idea that could come your way tomorrow.

  One of the most common expressions you hear from people who have missed out on a great opportunity is, ―But I didn‘t have the money to invest at the time.‖ That‘s not exactly true. A more accurate statement is this: ―I spent the money I could‘ve used to invest on other things like alcohol and parties.‖

  Just because you can‘t instantly see the consequences of your financial decisions doesn‘t mean they don‘t exist. When you think about the effect today‘s financial decisions have on your life tomorrow, you‘re thinking like a good economist.

  If Newton was an investor, that‘s how he would‘ve looked at money: ―Think Isaac, think….what‘s the equal and opposite reaction of what I‘m about to do with my money right now?‖

  When he looked at the world of physical motion, he said something so simple and so obvious that it‘s a surprise you can become famous for doing so. Does it really take a genius to see that if something happens, something else must‘ve happened first?

  Can making a good investment be that easy? Can understanding the economy and the financial markets be that simple? Yes. If you can understand cause and effect, you‘re on your way to a lifetime of financial prosperity. That‘s the art of economic thinking.

  It‘s a lot like the discipline of mathematics. It wasn‘t until college that I learned why I was learning math. Math just helps us learn how to think. Every answer to an equation is actually given in the problem. One side of an equation must equal the other.

  As the economist, Henry Hazlitt said in his great little book, Economics in One Lesson, the art of economic thinking is not just looking at the immediate but also the longer term effects of any act or policy. Economic thinking is involved in tracing the consequences of our actions.

  Another way to put it is that for every Yin, there‘s a Yang. This is the sum of economics. If you have too many Yins per Yang, then a problem will result. It‘s a matter of ratios (this is why government policy is very useful in predicting future outcomes—government action always messes up the ratio by adding to many Yins to Yangs).

  When I first read Hazlitt‘s book, I had the feeling that things were finally ―adding up.‖ I had a deep knowing that what I was reading was true.

  “Against logic there is no armour like ignorance.” ~Laurence J. Peter.

  Learning to Trace

  So how do we use the art of economic thinking to our benefit? It‘s really a matter of tracing consequences. Every day, money can be made by simply looking at the longer term, secondary, unseen effects of the market‘s decisions. To illustrate how this works, I‘ve first listed some economic facts we do see and have then traced secondary consequences we may not see.

  1. China"s currency is undervalued. What‘s the secondary effect? If China‘s currency is currently under-valued, then we can expect it to rise at some point. If China‘s currency rises by 5-10% in the coming year, any investment in the Chinese economy would return at least that much even if there was no real growth in price of the underlying stock.

  We can take this line of reasoning one step further.

  If the currency appreciates 5 to 10% in the next 12 months, then a super smart thing to do is buy Chinese companies that pay dividends. The logic for doing so is that the dividends (paid in the Chinese Yuan—its currency) will also appreciate. If we earn dividends in the Yuan, we can, therefore, add another 5 to 10% to the equity growth in our stocks. Pretty simple right?

  Well, why stop with China‘s currency? What about the dollar? The value of the dollar has dropped 35% over the last seven years or so. This means that any dividends paid in dollars will depreciate. That 35% deprecation is just the market‘s opinion of the value of the dollar. Remember that inflation is also eating away 6 to 9% of the value of dollar denominated dividend payouts.

  2. Chinese Worker Salaries are increasing. What‘s the secondary effect? As hundreds of millions of Chinese workers start getting paid more for their labor, their domestic consumption will increase because they‘ll have more money to spend. China, then, will be able to buy more stuff from the rest of the world. But as Chinese consumers begin to spend more, Squirrelmericans will no longer have the advantage of having cheap Chinese exports subsidize their standard of living.

  One way to take advantage of this fact is to invest in Chinese companies that are ready to feed growing domestic demand. Find out what Chinese citizens have a taste for that they can‘t yet afford. Luxury goods makers with the most exposure to the Chinese market are good bets. If there‘s anything I know about the New Rich, it‘s that they want to enjoy the things they once couldn‘t afford.

  As China‘s domestic demand grows, their imports will also expand. The price of natural resources and energy will also rise as hundreds of millions of people start to consume much more than they are now. China is already the largest consumer of energy.

  3. U.S. States, the Federal Government and Municipalities are raising hundreds of billions of new capital by selling more bonds to pay for their debts. What‘s the effect? First it means that our debt ridden state and federal administrations are competing with businesses and citizens for loans. That, in turn, means that the price of loans for Squirrelmericans will be more expensive.

  There‘s only a limited amount of capital in the marketplace. Our government is competing with its citizens to get its hands on that credit.

  If the government was not in marketplace competing for loans, the supply of available credit would increase and loan costs for businesses and individuals would go down. An increased supply of funds and a lower number of borrowers will lower costs.

  The irony is that you hear city, state and federal officials
call for more credit for the private sector even while they make the credit problem worse. This is a real, unseen tax on the private sector.

  Generally, the American public doesn‘t realize the massive amount of taxes they pay because they don‘t see all the different ways in which they do so. Higher loan rates are just one example. But there are other ways. Our standard of living is also taxed when government competes with businesses for loans because capital will be diverted from more productive uses in order to pay interest on government debt. We‘ll have less to invest in other things like better food, better roads, medical cures and better education as a result.

  4. The U.S. government is continually running huge deficits. What‘s the effect? Based on this fact, I can predict first that by 2013, the U.S. government will lose its AAA credit rating. After that happens, the cost of borrowing money will increase.

  As the rest of the world becomes less dependent on the U.S. economy, and sees other safer places to invest, capital will flee to foreign markets, thereby aggravating the credit problem even further.

  In order to fund its debts, the government will print a massive amount of money and increase taxes significantly. This printing of trillions of dollars, in turn, will lead to massive inflation and civil unrest (we‘re already seeing this).

  As this happens, the government will come up with new, ingenious ways of raising money (through some form of taxation)—but it won‘t reduce its size or expenditures, it‘s looking for unconventional ways to raise taxes. The U.S. is the only industrialized nation that taxes the incomes of citizens living abroad. Citizens living abroad will be forced to give up their citizenship to avoid this double taxation (Google ―Time.com Expat‖ to see a Time Magazine article about this fact). We‘ll see more people renounce their citizenship as a result.