Wealthology

by Akinaw Bulcha

  In the past, the government has resorted to increasing the Social Security tax in order to keep this Ponzi scheme going. In 1950, the Social Security tax was 3%, then moved up to 6% in 1960, 8.4% in 1970 and finally reached 12.4% in 2008. We have all the reason in the world to believe these continual tax increases on the worker will continue into the future. That they have no problem printing money should also be obvious from our recent history.

  “If we become increasingly humble about how little we know, we may be more eager to search.” ~John Templeton.

  What This Means for Workers There‘s a reason Social Security creates a net negative return for recipients. If inflation is really 6 to 9%, but the government indexes your payments to a phony 3% rate (which is a tax to begin with), you‘re being cheated of a big portion of your Social Security benefits.

  The myth put out by the government is that Social Security payments are indexed for inflation. Well, it works great if you can pay for inflation and have the exclusive power to determine the rate of inflation. Obviously, ponzi schemer, Bernie Madoff would see how extremely convenient it must be for the government to referee its own game.

  As government continues to print money to pay for its deficits, the value of Social Security benefits will be greatly diminished because recipients are paid in dollars. In addition to entitlement programs, just the federal budget deficit alone will get up to $23 trillion according to figures released by the Obama administration.

  As the government uses inflation to manage its Ponzi scheme, Social Security recipients won‘t be able to keep up with rising costs.

  “God grants liberty only to those who love it, and are always ready to guard and defend it.” ~Daniel Webster.

  Should’ve Would’ve Could’ve Think about how much more we can all have if we invested 12.4% of our incomes into emerging market economies every year for the next 20 years instead of U.S. Treasuries. Instead of trading 12.4% of our wages for higher taxes in the future, we could earn 200 to 400% in the next 10 years if we were free to do so. Here are some recent facts (2003 until 2009) that indicate what workers are missing out on by not having the opportunity to invest in emerging markets:

  1. Since 2003, Brazil‘s currency alone has appreciated 80%.

  2. Since 2000, India‘s stock market has returned 136%.

  3. Brazil has returned 314%.

  4. Russia has returned 689%.

  5. China has returned 100%.

  This kind of ―once in a lifetime‖ growth story is what wage workers won‘t be able to see. This is how most welfare schemes always end—by destroying the livelihoods of the very people it seeks to help.

  “If you do not expect the unexpected you will not find it.” ~Heraclitus.

  The Workaround Obviously, where there‘s a will, there‘s a way. Workers must take things into their own hands since the government is not really restricted by a constitution anymore—they can do what they want. My recommendation is the following:

  1. If you must work as a wage or a salaried employee, do so as little as possible. Your goal should be to live off of capital gains, dividends and interest. In that way, you won‘t have to pay social security taxes. You save an automatic 12.4% per year you‘ll be able to invest for a positive return.

  2. Barter as much as possible and invest the taxes you would‘ve paid into emerging markets.

  3. Become a minister—they don‘t have to pay into the system.

  4. Reduce your expenses as much as you can. Downsize or move out to the suburbs to save money on housing. With the advent of the internet, you can do business anywhere.

  5. Your goal is to cash flow in as many ways as possible. But you can‘t expect to do that in an economy that‘s both wasteful and burdened with debt. Emerging markets are a path to economic salvation for various reasons but one the biggest is that there‘s so much opportunity in these places, companies are even offering double digit dividend yields.

  6. Some people should consider retiring early in order to exchange their dollars for foreign currencies while the dollar has some value left. Retiring or living abroad on the cheap is coming to an end for Americans.

  7. I know this one sounds extreme: Young people should consider renouncing their citizenship and working abroad where opportunities exist. It‘s not extreme when we consider that young people are inheriting $108 trillion of debt. Anyway, Western trained people are in demand in these emerging economies. Moving your citizenship and your money may be impossible to do in the future. Our government is taking steps to close that door (or at least, make it very expensive to do so).

  a. The U.S. is the only industrialized nation that taxes the earnings of its citizens living abroad. If you‘re an American working in Brazil, you must pay taxes twice (in Brazil and the U.S.). To avoid this double taxation, many expatriates have been forced to renounce their citizenship. There has recently been a big spike in the number of American citizens renouncing their citizenships.

  b. In 2008 Congress passed the HEART ACT which made changes to expatriate taxation, making it harder for Americans to renounce their citizenship and protect their assets if the American empire begins to crumble. Under the new tax rules, if your income in the last five years was over $124,000 or your net worth is more than $2 million, you‘ll be liable to pay income on all foreign income earned for 10 years after you‘ve renounced your citizenship!

  But let‘s imagine you get to renounce your citizenship without a tax penalty. You‘ll still need a good tax attorney to plan your visits to the U.S. If you come back to the U.S. and stay for at least 30 days, you‘ll once again be taxed on your worldwide income.

  The part that most upsets me is if an expatriate comes back to visit a friend, intending to leave before the 30 day tax trap, and happens to die on day 15, all of his or her worldwide estate will be taxed by the U.S. government.

  Remember that to guard your capital is to guard your financial freedom. You must always understand how your economic and political system is structured in order to protect what you‘ve earned. It‘s only through awareness that we either compound our financial successes or failures.

  Your Loving Uncle, Akinaw.

  Quigley’s Prophecy: China Inc. vs. the U.S.

  Dear Kidus,

  One of the most interesting ways to understand the importance of capital management is to see how it plays out in the rise and fall of nations.

  A Cosmic Transformation

  It‘s amazing how fast things change in the world. When I came to the U.S. in 1986, the Soviet Union was still a feared superpower, John Paul II was the Pope, the Euro and the European Union didn‘t exist, the national deficit was only at a couple trillion and America‘s economy had no direct competition. We didn‘t have eBay, Amazon.com, the internet, Brittany Spears, Beanie Babies and Michael Jackson was still black.

  But in the short span of 20 years, the entire world completely changed. It feels like just yesterday I was sporting braces and jamming to Boys II Men on my Sony Walkman.

  We wake up the next day and billions of people have been integrated into the capitalist world after being released from the iron grip of communism. And strangely enough, the one noteworthy Communist state left has become the world‘s best capitalist. In those same 20 years, the United States, once the world‘s biggest creditor, became the biggest debtor.

  Who would‘ve thought China would be America‘s creditor? How did the world get turned upside down almost overnight? It has been turned upside down in subtle ways that the man on the street may not understand. We don‘t understand what‘s happened because we underestimate the importance of capital as a weapon in global politics.

  Squirrelmericans don‘t understand the incredible power the Chinese have over the United States. Other nations are able to influence our foreign policy because we‘re indebted to them.

  “The rich rule over the poor, and the borrower is servant to the lender.”~Proverbs 22:7.

  The Hidden Danger of Debt

  I‘ve never had anything
positive to say about debt. Politicians, I‘m afraid, may not understand the role debt plays in destroying empires. After a certain amount of debt has been incurred by any state, it takes a small trigger or catalyst to push it into an abyss.

  It‘s been said, for example, that Ronald Reagan used debt to push the Soviet Union into bankruptcy. Reagan, seeing the economic weakness of the Soviet Union, dragged them into an expensive military spending contest because he knew they couldn‘t keep up. Now, if Reagan proved huge military budgets can bankrupt empires, maybe Squirrelmerica can learn from his experiment.

  Regardless of how it‘s created, debt is always the ―straw that breaks the camel‘s back.‖ If we keep adding endless amounts of debt to our national ledger, we may wake up to find the entire system has cratered under that weight. We never know when that day of reckoning will be.

  Let me illustrate the hidden danger of debt through a story I saw on the news. On July 1st 2009, 911 emergency responders in Sumter County, Florida got a call from a sobbing dad. ―She got out of the cage last night and got into the baby‘s crib and strangled her to death,‖ he cried.

  When police and paramedics showed up at the house, they found a dead 2 year old girl that had been strangled to death by a pet Burmese python. The python and a second snake were kept in the house. It had somehow gotten out of its cage the night before, silently slithered into the baby‘s room, slid into the crib and crushed the little girl to death.4

  Every night the little girl was put to bed, tragedy was just around the corner—the snake was just down the hall. But the danger was unrecognized for two reasons. According to Fish and Wildlife Conservation spokeswoman, Joy Hill, no Floridian had ever been killed by a non-venomous snake. But it still happened. Another factor that made the tragedy so unlikely was that the snake was probably well fed. But the tragedy still occurred.

  Our federal debt, like the python, is always on the verge of breaking out of its cage and destroying the prosperity of current and future generations of Americans.

  Some people may object to such a comparison. ―How can you compare something as sterile as debt with a heartbreaking story of a toddler being strangled to death?‖

  4 http://www.foxnews.com/story/0,2933,529835,00.html But we must remember that it was something as lifeless as a German currency crisis which paved the way for Hitler to assume power. This led, in turn, to the deaths of fifty million people.

  It was our Federal Reserve Bank‘s irresponsible actions that caused flesh and blood to jump out of New York skyscrapers during the Great Depression. And more recently, as an indirect result of the Fed‘s same money policies, a very desperate, angry man flew his single engine plane into an IRS building in Texas.

  One of the scariest aspects of human behavior is a complete lack of causal thinking. The temptation is always to think, ―Well, that can‘t happen here.‖ My point is, ―Yes it can…it can always happen.‖ Germany was one of the most cultured civilizations in Europe but the Nazis still rose to power. It was so cultured and advanced, in fact, it alone accounted for over a quarter of all Nobel Prize winners prior to the start of World War II.

  People are not as alarmed as they ought to be about the hidden consequences of debt.

  “Blessed are the young, for they shall inherit the national debt.” ~Herbert Hoover.

  The Debt Weapon

  As I said, the Chinese are becoming much more powerful than we want to acknowledge. In some ways, we‘re at their mercy. First, China or Big Daddy (as I like to call it) can cut off our credit card or reduce our credit limit. Consider the consequences. If the Chinese don‘t show up to buy more Treasury notes at our monthly ―auction future generations into slavery‖ events, our fragile economy may collapse. It would collapse because our interest on borrowing money would skyrocket if Bid Daddy doesn‘t increase our credit limit; without access to more credit, our government would grind to a halt.

  A simple announcement of a Chinese boycott of Treasury auctions would be enough to cause an economic crisis.

  Secondly, China has another weapon they could use.

  They could decide to dump the hundreds of billions of dollars of Treasuries they own, at which point, our entire economic system would collapse. Fear would drive people to dump the dollar and hyperinflation would follow. This threat wouldn‘t exist of course if, like the Chinese government, we had trillions of dollars of budget surpluses.

  “Debt is the fatal disease of republics, the first thing and the mightiest to undermine governments and corrupt the people.” ~Wendell Phillips.

  New Definition of Power How did it all happen so fast? We‘re watching a transformation in the structure of global power that‘s very fascinating. By far, the shift is going to be the biggest in recorded history. Why is it happening? Why is it happening so fast?

  The shift in global power is taking place at an alarming pace because China has discovered what the famous historian Carroll Quigley has called ―an instrument of expansion.‖ It‘s a much more efficient way to expand and the Chinese have been using this secret weapon for awhile without our noticing.

  China is using capitalism as their instrument of expansion; and interestingly enough, it‘s a weapon that gets bigger and bigger the more it‘s used. In other words, making money and compounding their economic growth is a far more efficient way to gain global power than war or making enemies. The more China saves and invests, the more it has, and the more it has, the more it can save and invest in itself.

  We live in a much more competitive world. The nations which can attract the most capital will win the race for global power. Russia understands the importance of capital. Recently, Russian president Dimitry Medvedev urged his countrymen to abolish capital gains taxes on direct foreign capital investment. Russia is playing by the new rules of global capitalism. They tried the old path of global militarism and bankrupted themselves.

  China learned from Russia‘s experience and they too were on the verge of social unrest when they decided to liberalize their economy. Since allowing direct foreign investment into its economy and freeing the private ambitions of its people to meet their own ends, they‘ve grown at a rate of almost 10% per year. China is a Communist nation in name only. They don‘t have property taxes or the social safety nets like Social Security or Medicare that we have. That lack of a safety net encourages Chinese citizens to save, invest, and be productive.

  Even though its citizens only have a yearly income of $3,600, they have more money saved up than any other economy in the world! Their high savings rate partly explains their sudden rise to power because they have more investable funds to expand their capitalistic empire. It‘s been said the pen is mightier than sword. In the next 100 years, we‘ll be saying, ―Money is more powerful than the guns.‖

  “Rather go to bed without dinner, than rise in debt.” ~Benjamin Franklin.

  How Empires Grow and Why They Fall Every major empire has used some method to expand. In the days of the British Empire, a method Britain used to expand was its Navy‘s absolute power over international seas.

  It was as much a force for expansion as it was a deterrent. The Royal Navy was, for example, the only thing that kept Napoleon, history‘s greatest general, off Britain‘s shores. Napoleon once said, ―If I could master the English Channel for six hours, I would master the world.‖ But he couldn‘t get across that channel.

  The tool of expansion (Royal Navy) that worked to the advantage of the Brits in protecting their shores, didn‘t work for other purposes. Unfortunately for the Brits, they had to fight the American War of Independence on the ground, not on the sea. Their instrument of expansion didn‘t work on land.

  The process by which the U.S. is slowly disintegrating was predicted by Carroll Quigley in his book, ―The Evolution of Civilizations‖ (he also predicted the fall of the Soviet Union). He came up with his theory after studying 4,000 civilizations.

  His theory was that whenever a civilization expands, it uses some method of expansion. But, that method ends u
p turning into the very thing that brings about its destruction once it becomes bureaucratized or institutionalized.

  “Every revolution evaporates and leaves behind only the slime of a new bureaucracy.” ~Franz Kafka

  The Pre Civil War American South Let‘s take a look at slavery as an example of this process. Before the Civil War, the American South used slavery to expand its power and influence. It worked for awhile but once they began to depend on slave labor, it became an institution. When that happened, they stopped coming up with new, more productive, efficient ways to produce agricultural output. They were, therefore, slowly digging their economic graves. Quigley says somewhere that industrial progress was ―deplorable‖ in the South. So even without the Civil War, the South would have eventually destroyed itself for lack of imagination, inventiveness.

  “If everyone is thinking alike, then somebody isn"t thinking.” ~George S. Patton.

  America’s Rise and Fall (?) In the same way, the U.S. has institutionalized its instrument of expansion— capitalism. I know what you‘re thinking: Isn‘t that what China‘s using? Yes, China is using capitalism, but it‘s doing so to expand, it hasn‘t become an institution yet. We no longer use capital to expand.

  If we don‘t use capitalism to expand, we have a problem: If we eat up all our nuts, the forest‘s ecosystem will collapse. We must plant new trees but we‘re not doing it. So the thing that gave America its advantage is destroying it because it‘s being used for consumption purposes (through the institutions of welfare and warfare). It‘s as if we‘re falling on our own sword after we had used it to win the battle.

  We see the symptoms of Quigley‘s prophecy in our economy. His theory predicted all the symptoms (and implications). That Professor Quigley‘s theory could‘ve predicted that America would collapse under a burden of debt is fascinating.