Walmart: What’s so Bad?

Walmart Store
Walmart – American Success Story

I was thinking, for some inexplicable reason, about those who protest against Walmart and their employee pay scale and benefit package, or lack thereof. And then I thought, why don’t we protest against all businesses that aren't Walmart?

Here’s my reasoning; tell me where I’m wrong.

forced to shop at walmart?
Have all these people been forced to shop at Walmart?

Walmart doesn't force anyone to work for them. Slavery was abolished in the nineteenth century. I can only reach the conclusion that everyone working at Walmart is doing so voluntarily and because employment there is better than the next best option available to them. In other words, Walmart is offering each person who works there better pay, better benefits, or a better overall situation, all things considered, than any other option that person has.

The only conclusion I can reach, given that logic, is that every employer other than Walmart is offering less to potential employees and we should do something about it. I say we go through the Yellow Pages, starting with A, and protest every business that refuses to hire a Walmart employee for more pay and better benefits.

Walmart protesters
Target would love to see Walmart raise wages to $15 an hour for entry level employees.

Who’s with me?

Financial Tyranny Looms in the United States

The downward spiral continues. Americans are in danger of losing the remainder of their financial independence as the president has nominated an avowed enemy of cash, economist Marvin Goodfriend, to the Board of Governors of the Federal Reserve.

Marvin Goodfriend
Marvin Goodfriend, no friend of freedom

Goodfriend has written and has said in speeches (2016) that the existence of cash hinders the ability of the Federal Reserve Bank (a private corporation) to “lower interest rates to less than zero,” which is nothing more than a euphemism for charging a fee for bank deposits (and, of course, paying no interest).

Tho Bishop from the Mises Institute says, “Given his radical views on monetary policy, it’s not hyperbole to suggest that Goodfriend’s nomination would represent a genuine danger to the economic well-being of every American citizen—or at least those outside of the financial services industry (emphasis added).” (reference) Goodfriend has also suggested lowering the value of printed money compared with its electronic equivalent. So in his plan, a ten-dollar bill would purchase less than the use of a debit or credit card for the same amount.

If you choose to deposit your cash in a bank and accept that the bank is going to charge a fee for safe storage, that’s your business. But Goodfriend’s idea of devaluing cash compared with electronic funds, encouraging people to stop using cash altogether, is an attack on financial freedom. As J.D. Tuccille said, “Cash means freedom, which is why so many [government] officials hate it.”

Kenneth Rogoff
Kenneth Rogoff, Goodfriend supporter

Harvard economist Kenneth Rogoff, a supporter of Goodfriend, said, “I believe that within a decade, all the world’s major central banks and treasuries are likely to have taken the simple steps necessary to create the foundations for effective negative interest rate policy in deep recessions or financial crises.” (reference)

Goodfriend believes, correctly, that the use of cash makes lowering interest rates below zero more difficult. And why would he want to lower interest rates below zero? As he has said, “In the next crisis the Fed might want to push interest rates into negative territory to prod people to stop sitting on their money and do something with it, such as consumption or investment that would get growth going again.”

As we’ve stated before, one of the ways a business acquires funds for startup or expansion is through borrowing. Borrowing from whom? From a bank. People don’t “sit on their money,” as Goodfriend has said. He knows very well that banks lend money to fund business expansion as well as to finance (unfortunately) consumer spending with credit cards and home equity lines of credit and myriad other forms of debt. There is no lack of consumer spending just because people use cash.

What he really wants is nothing more nor less than the ability to track and control all financial transactions. The advantage of cash isn’t just its convenience for relatively small, day-to-day expenses. The use of cash provides a shield between us and those in government who would like to track everything we do in order to ensure they mulct every tax penny out of us that they can.

To the extent that we are able to use cash our financial privacy is protected. If you choose to use your debit and credit cards and automatic payments for all expenses that’s your business. Government forcing you to do so is nothing less than financial tyranny.

How The Federal Reserve Affects Interest Rates

Former congressman Ron Paul for several years introduced legislation requiring an audit of the Federal Reserve Bank. Every other corporation in the country is expected to undergo regular audits to ensure investors that they are being managed according to normally accepted financial principles and that the financial statements they publish are true and accurate.

Not so with the Federal Reserve Bank (the Fed). This private corporation, chartered by the U.S. Congress, the only institution allowed to create and destroy money, exercising greater power over the national economy than any other entity, is left to its own devices to remain completely private and un-audited.

In a previous article I gave a brief explanation of how the Fed creates money. In this installment I’ll address how the Fed influences (some might say manipulates) interest rates and why that matters to you.

First, let’s define some terms

  • Federal Funds rate: the interest rate banks charge each other for overnight loans to meet reserve requirements.
  • Discount rate: the rate of interest paid by banks and other financial institutions within the Federal Reserve System to borrow overnight reserve funds from the Federal Reserve.
  • Prime rate: the rate of interest charged by lenders to their most credit-worthy customers.
  • Reserve requirement: the amount of money the Federal Reserve requires banks and other financial institutions to hold, expressed as a percentage of total deposits, at the end of each business day to ensure bank liquidity.

By changing these rates the Fed affects the availability and cost of credit within the entire economy. Money, as a commodity, has a price, called interest. When the price and availability of money are changed, the public’s willingness and ability to pay for goods and services is subsequently changed.

The amount of money that circulates in the U.S. economy increases or decreases when the Fed purchases or sells government bonds and other securities. This affects the federal funds effective rate. The Fed can also influence this rate by raising or lowering the discount rate. Further, by changing the reserve requirement the Fed can influence the amount of money member financial institutions have to lend.

Why it matters

Since the economy virtually runs on borrowed money (business loans, home loans, auto loans, credit cards, etc.), the power to affect total lending affects the economy in a significant way.

The Fed Board of Governors believes itself wise and prescient enough to evaluate American and even world economic variables and make decisions on interest rates and money supply that will maintain a smooth-running, predictable economy, supposedly with the interests of the American public in mind. We won’t go into whether your and my interests are actually what they are concentrating on, but setting financial conditions that affect the billions of decisions made by hundreds of millions of Americans and even billions of the planet’s citizens is a fool’s errand by any calculation.

The Fed affects wages and jobs by manipulating the Federal Funds rate. Increasing the rate tends to slow the economy, which in turn negatively affects hiring. Employees also have reduced leverage to demand increased pay.

Predominantly, credit cards charge variable interest rates based on prime rate, which, in turn, is based on the Federal Funds Rate. Higher credit card rates, especially in an economy so dependent on their use negatively affects consumer spending.

Banks pay interest on deposits, and pay a higher rate of interest if the depositor agrees to leave their money on deposit for an extended length of time. Longer time periods normally result in higher interest. Certificates of deposit are are long-term deposit instruments that many people rely on for interest income. Their rates for the most part are determined by short-term interest rates that track the federal funds rate. But if that rate is kept extremely low, as it has been by the Fed for the last decade, CDs will pay so little as to make them virtually worthless as sources of interest income.

The federal funds rate mainly affects short-term interest rates, but it also affects medium-term fixed loans, such as auto loans. Most auto loans are tied to the prime rate and the auto industry is a major driver of the U.S. economy; increases or decreases in the Fed funds rate, which affects the prime rate, can have a major effect on the financial state of the nation.

So it is with mortgage rates. The real estate industry is as much a mover of the economy as autos. A slight change in the Fed funds rate, which affects the prime rate, which in turn is the main index of mortgage rates has a huge influence on economic activity.


That the Fed has never been audited in its 105-year history is a travesty. That the United States even has a central bank, owned by private shareholders for their own benefit, that has such an overarching effect on the entire nation and influence on the planet should be seen as criminal.

We have been led to believe through government education that there is no alternative to the existence of a central bank. Ron Paul explains why this is not true in the book linked below.

End the Fed by Ron Paul

How the Fed Creates Money From Nothing

Let’s set the scene with

The Private Business Method

Acme Widget Corp. wants to increase its manufacturing capacity but doesn’t want to use its available cash reserves (money) or sell more shares of the company (i.e., dilute its ownership). The only other option? Borrow.

When a business wants to borrow money it can go to a bank or to the public. When they borrow from the public they issue bonds. Let’s say, in our example, Acme issues ten-thousand $10,000 ten-year bonds—they borrow one hundred million dollars from investors. If the interest rate is 5%, Acme will have to pay $500 annually on each bond, and then will have to pay off each $10,000 bond at its ten-year maturity. Acme, hopefully, has calculated correctly that the hundred million dollars they have borrowed plus the interest they paid for those funds is less than the profit generated from the investment.

Where did the one hundred million dollars come from for those bonds? It came from the savings of investors. Each investor sometime in the past created more value, produced more, than he consumed and saved the difference. Let’s say one of those investors owned a grocery store. Over some period of time he sold a million dollars’ worth of goods, paid $600,000 in operating expenses, spent $100,000 on his own living expenses, and saved $300,000, which he then had available to invest in Acme’s bonds. The important point is the store owner created something of value for which he was paid, and which he did not spend but saved.

Remember we said in a previous article, money, real money, is only a representation of production. It is an accounting method for value produced.

That’s our background information.

The Government Method

Let’s say the government wants to pay Boeing Airplane Company to build a tanker airplane. The government doesn’t create anything to sell; it only has two sources of income to pay Boeing for this airplane. It can take money from citizens in the form of taxes, imposts, duties, and various fines, or it can borrow the money. Ignoring for now the process of taking from citizens, which as everyone knows doesn’t pay for anywhere near what the government purchases from Boeing and other suppliers or give as transfer payments to citizens and non-citizens alike, the only other option is to borrow the money. This the government does through issuing treasury bills, notes, and bonds.

The government can offer these to the public and does, but it’s not always willing to pay the interest rate required to sell all the bonds needed. So, to whom does the government sell bonds?

You guessed it – the Federal Reserve Bank. Notwithstanding its name, the Federal Reserve Bank is not a government institution. It is, in fact, a private corporation with private citizen owners who profit from its operations. It is, however unique among all other incorporated businesses in that it can create money. Let’s repeat that: it is UNIQUE in that it is the only entity in the world that can CREATE UNITED STATES MONEY.

Let that sink in.

When the U.S. government needs money it doesn’t have, it creates a bond, a promise to pay someone at some future time. The government can sell those bonds to the public, which it does, but unlike a business, the government is ASSURED of a buyer for all the bonds it cares to sell. Who is the buyer? The Federal Reserve Bank. Where does the Federal Reserve Bank get the money to purchase government bonds? With a keystroke on a computer keyboard. The “money” comes from nowhere. There is no production, no value behind it. Its only value is in the fact that an agreement between the government and the Fed says that money now exists. The treasury may print paper currency to represent some of the money just created, but they probably won’t. Most “money” in circulation today exists merely in electronic format, as ones and zeros in computers that track the supply of cash and deposits in the nation’s banks.

Let’s imagine for a moment that the increase in “money” exactly coincides with the increase in national production. (Money defined as coins and notes in circulation and other money equivalents that are easily convertible into cash, short-term time deposits in banks and 24-hour money market funds, short-term repurchase agreements and larger liquid assets, plus longer-term time deposits and money market funds with more than 24-hour maturity. That’s M0, M1, M2, M3, and M4. Next time someone tells you the money supply is under control, ask them exactly which definition of money they’re talking about. Most likely you’ll get a blank stare.)  If that were the case, the Fed would be doing a good job and the inflation rate of prices of goods and services would be zero.

Sadly, this has not been the case. Since the creation of the Federal Reserve Bank the dollar has lost over 97% of its value. You’ll hear that the Federal Reserve Bank is not influenced by political concerns. You’ll also hear that the tooth fairy will bring you a quarter if you’ll leave a tooth under your pillow and Santa Clause keeps a list of who’s naughty and nice. Adults know better.

I’ve gone past my normal blog length, so I won’t go into a proof that the Fed is anything but apolitical. The Federal Reserve Bank is in cahoots with the government and big business interests, especially (surprise!) big banking interests.

In the next installment of this series we’ll discuss how the Fed manipulates interest rates and why this matters.

Wishing you well,


What the H*ll is Money, Anyway? Part 2

Let’s back up a little from last week’s article and get back to the definition and history of money. The most basic definition of money is a medium of exchange and a store of value. Before money was barter: You have something I want; I have something you want, and so we exchange. But the problem is clear and apparent; if A has something B wants, but B doesn’t have anything A wants, they cannot trade. Possibly B can find C, who has something A wants and if C has something B wants the three of them may be able to trade among them. Clearly, this is not a viable solution to trade within even a small tribe, much less in a complex national or world economy.

But if there were something that lots of people wanted, something that most people would readily trade of their surplus goods, maybe that could be used as a standard currency. Let’s say everyone wants corn. If that is the case, you could produce an excess of goods from your talents and then trade the excess for corn, which you could then trade for something else of need. If you are very productive you could amass a huge amount of corn that could be used for future needs.

The problem with this scenario is easy to see: corn does not last very long. Soon your storehouse of corn is full of bugs and mold and no longer usable for consumption, and therefore not usable for trade.

How about this. Everyone wants water, so why not use that as a medium of exchange? You could build a storage tank and exchange your excess production for water. But water is heavy and a person requires, on average, about three gallons per day for various uses. At ten pounds per gallon, transportation is a serious problem.

We could use glass beads as money, but they can be created in virtually infinite amounts. One-hundred billion glass beads in circulation this year could become 200 billion next. Without a doubling of goods and services desired by all participants in the economy, the price of products would increase in proportion.

We could use sea shells as money, but they have very little intrinsic value; there are only so many things you can do with sea shells.

We could use tree leaves, but they’re not in limited supply. In fact, every fall they increase by the trillions. They’re divisible, but they’re not durable. A few transactions, a few weeks in someone’s pocket and they would be crumbling, brown dust.

In fact, just about anything you can imagine has severe limitations when it comes to being used as a common medium of exchange.

Only rare metals have stood the test of time as currency. Only gold and silver have been accepted as money over virtually the entire span of human existence since the discovery of the process of smelting.

Why have gold and silver become the go-to substance to use as currency for thousands of years?

  1. They are durable, not susceptible to rot or decay.
  2. They are scarce, but not so scarce that there cannot be a sufficient supply for world trade. Scarcity ensures that the supply won’t outstrip the production of products and services for which it is exchanged. Availability, even after thousands of years of mining, assures that there will always be enough to accommodate trade.
  3. They are divisible. Various size coins easily represent different values. Furthermore, the purity is readily discernable so users need not be concerned with whether they are receiving the genuine article.
  4. They are portable. The high value of a single gold coin enables a person to easily carry a large store of value.
  5. They are highly valued for purposes other than money; they both have intrinsic value.

In response to those who say that gold and silver are just relics of an ancient world, no longer applicable to modern society, I would respond, so is gravity. Yet, we still have to live with it. Not that the use of gold and silver as currency has anything to do with physical laws of the universe, but practically speaking, if we can observe that gold and silver have maintained their value throughout history about as consistently as gravity has maintained its effect on us, then it seems fruitless to try rationalize our way out of recognizing that these two metals will continue to be used and trusted regardless of man’s laws. Politicians can make rules and regulations saying gold and silver have no value for trade, as they can make laws saying gravity has no effect. Neither attempt at controlling nature and natural man will be of any use in the real world.

There are those who also say there is no difference between precious metals and the U.S. Dollar; both have value only because a large number of people say they have value. If anyone says this to you I suggest you turn around and walk away. Someone that crazy is not to be trusted with life or property.

It’s true, gold and silver are normally stored in secure locations, and receipts for that metal were traded as if they were gold and silver because the receipts represented something real and tangible that satisfied the five requirements for money.

The dollar, on the other hand, represents nothing without confidence and trust in the government that issued it. So consider this: A dollar bill your great-grandfather had in his pocket in 1913 (the year the U.S. government gave itself the ability to create money out of thin air) is worth less than three (3!) cents in 2018. As we mentioned in our last article on this topic, an ounce of gold in your great-grandfather’s pocket still has the purchasing power today that it had in 1913.

Today, money is created for political expediency. The fact that a dollar in 1913 is worth less than three cents today is representative of the decrease in the confidence and trust in the government over that period.

It’s only a matter of time before the remainder of that dollar is reduced to zero. We can thank Congress and The Federal Reserve. In the next installment, we'll look at how the government, in cahoots with the Federal Reserve (a private corporation) creates money out of nothing.

What the H*ll is Money, Anyway?

Today I want to begin a multi-part discussion of money–what it is and what it isn’t.

Imagine yourself on a remote island with tropical fruit growing all around you and more fish swimming along your shores than you could eat in a lifetime. The weather is warm all year-round and there are no mosquitoes. What a life!

Still, you have catch the fish and harvest the fruit. You also have to have shelter from the wind and rain. Even a warm rain is pretty miserable when you’re trying to sleep.

Imagine also there is one other person on this island. You both have the same needs for food and shelter but your friend is better at fishing and climbing orange trees; you are better at building sturdy huts and implements to make them. Naturally, then, using your competitive advantages to improve your lives, your friend will gather food and you will build shelter, and each will share the fruits of his production. Isn’t life grand?!

In exchange for fish and fruit, you agree to build your friend a hut. You get to eat; your friend doesn’t have to sleep in the rain. As long as all needs are taken care of with this simple arrangement, there is no need for money.

Money is, and is only, a means of tracking the value of production. If we expand our example to include a hundred people on the island, each with abilities and talents that give him or her a competitive advantage in the production of some good, whatever one person produces in excess of his or her needs can be traded for something that someone else has produced in excess of their needs. Initially, twelve bananas might be traded for three fish. The exchange rate, at least for those specific people is 4 bananas to 1 fish. I’m sure I don’t have to outline the problems with this barter economy in a complex society. Suffice to say that at some point, something of value to everyone, something that is not readily duplicated, something that holds its value, something that is easy to transport, and something that does not rot away with the passage of time will come to be used as a standard unit of trade.

The important thing to note, as far as we’re concerned today, is that this thing, money, is only a representation of the value of production, production of goods that are desirable by the people in the economy. One person could dig holes and fill them in all day, working incredibly hard, sweat profusely, but if no one desires that holes be dug and filled in, nothing is being produced and there is no value to it. The person digging holes cannot, at the end of the day, tell the person who has been fishing all day that he is owed three fish for his labor. In the same way, if the economy has developed pieces of copper as the medium of exchange, or money, the hole-digger cannot claim any amount of copper coins for his work, as he has produced nothing of value.

Money is only a measure of production.

The other important thing to note is that if all the people within the economy of our desert island circulate 1,000 copper coins to trade goods among themselves, increasing that number to 2,000 copper coins results in only one thing: the doubling of prices of everything being traded. If anyone was hungry before the increase, he will still be hungry after. If anyone had to sleep in the rain before the increase, she will have to sleep in the rain after. Pumping more currency into the economy does absolutely nothing to increase the production of goods. No one is any better off.

Only more production can increase the wealth of the people within our little island economy.

The U.S. economy has grown since 1913 when the Federal Reserve was created. But consider this: our standard of measurement, an ounce of gold, in 1913 could purchase a tailor-made men’s suit. Today, an ounce of gold will purchase a tailor-made men’s suit. But our current unit of measure, the dollar, has been devalued so that what $35 purchased in 1913 (e.g., a men’s tailor-made suit) today costs $2,000. The wool for the suit is now easier to acquire and less expensive. The machinery available to make the suit enables the tailor today to make a suit in half a day rather than a week. By rights, the suit should be less expensive, not more. But the effects of dumping money into the economy only serves to increase prices. The government and those with first access to the increase (government and the well-connected) are able to benefit from the increase while diminishing its value to everyone else.

We’ll talk more about that in future newsletters.

But, however, with that said (any way you want to introduce a different direction to the essay), don’t fall for the non-sequitur, “The American dollar is a worthless piece of paper.” If you really think that I’ll let you know where to send all your useless paper. I’ll even pay for shipping.

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Beware the Pump and Dump

In the old days, way back before Al Gore invented the Internet, stocks, shares of company ownership, were sold through brokers. They had nice offices in A-list business-district buildings. Stock brokers wore suits and ties. They sat behind walnut desks and smoked expensive cigars (Yes! Even in the office!). Clients would meet with them face to face, shake hands, get to look ‘em in the eyes.

A business “going public,” making its Initial Public Offering (IPO) would hire the services of a respected brokerage house to “make a market” in its stock. The brokerage house would evaluate the company and determine whether the brokerage wanted to lend its reputation to the new company. If so, their analysts would determine a reasonable IPO stock price, and release the shares of stock for sale first to the brokerage house’s best (wealthiest) clients, then to the public. Depending on the accuracy of the brokerage’s financial analysts in determining the initial stock price, the value of the stock would remain relatively stable or rise or fall within a small range when offered for sale. Supply and demand of the market worked its magic to find the correct price, given the knowledge and mood of millions of buyers and sellers.

There were at that time people who attempted to manipulate information and thus the price of stocks. If they could somehow make the buying public erroneously believe the stock was undervalued, causing the price to rise, they could purchase at the lower price and sell at the artificial high price before the scam became public knowledge. It would work just as well in the reverse by publishing false, damaging news about the company and purchasing shares at a low point, before the fake news was dispelled and the price recovered to its correct level. Once the stock price recovered, the scam artist would sell and take his profits.

Before the days of the Internet, spreading all that disinformation was a relatively slow and expensive process.

Not so today. Today there is an entire cottage industry of scam artists with access to email addresses of millions of people. They can and do spread disinformation minute by minute to tens of millions of unsuspecting people who hope to become wealthy on a trade of a stock selling for pennies that suddenly becomes the next

This is what’s known as “Pump and Dump.” Pump up the supposed value of a little known company trading on the penny stock exchanges, wait a few days while the public bids up the price based on the fake news, then dump, sell the stock and make a huge profit on nothing but the hopes and greed of thousands of unsuspecting people. There’s no broker sitting in a high-priced office behind a sumptuous desk risking his personal reputation on a financial recommendation. For all you know, the guy behind the pump-n-dump email is sitting in his shorts in a beach bungalow in Maui sipping on a Mai-tai, all paid for by the losses of the people he’s previously scammed.

This can be done with stocks in any industry, with companies anywhere in the world, as long as they’re traded on an exchange easily available to the general public. The scam artist might promote a silver mining company in Bolivia. According to the scammer’s newsletter, secret, inside information is about to be released by a geologist reporting on a new discovery of largest vein of silver in the history of South American mining. The stock, presently trading at 23 cents is sure to rise to at least $15 per share. Buy it now before anyone else finds out!

Here’s what you have to remember: There are people—hundreds, maybe thousands—who do nothing all day but monitor the Bolivian mining industry to ensure their investment clients have the most accurate, up-to-date information possible. Their clients have portfolios in the tens of millions of dollars to watch out for. These analysts get paid big bucks to do nothing all day but keep an eye on what’s going on in their respective industries in their corner of the world. If a geologist has any information that would affect this company’s future earnings, you can bet the farm that these guys know about it and the stock price will have already adjusted to reflect the expected future value of the company before the guy on the street hears anything about it.

Is that to say that no one has ever made a killing in a Cinderella penny stock? No. But your chances of making big bucks are better with lottery tickets.

The Spanish Empire Redux?

One of my hobbies is reading, and specifically reading history. I find the parallels of historical events to life in today’s world fascinating. We’ve all heard that history repeats itself. Others say it doesn’t exactly repeat, but it rhymes. Either way, there is nothing new under the sun and we can better understand our own world by educating ourselves about the world of our predecessors.

Paul Volker, in a lecture he gave in the 80s spoke of the Spanish Empire in the 16th century and the easy money train they had coming from South American gold and silver. He said that although it seemed to create great wealth it also made for a false economy in Spain. In addition to creating price bubbles, the Spanish did not use it to build much of anything other than big villas, built by itinerant foreign labor by the way, so when the gold and silver flow slowed when the biggest mines were effectively depleted, their economy crashed so hard that it never recovered, even up to today. We see that exact scenario playing out again in the United States, with the difference being, instead of great quantities of gold and silver we have even greater quantities of fiat money propping up every segment of our economy.

Tom Luongo says, “…banks are getting nervous, emerging market central banks are positioned for radical currency defense. Rates are rising and dollar liquidity is falling. Bitcoin and gold are screaming this. If there was ever a time to get to cash it’s now.”

But wasn't Ben Bernanke saying in 2010, “Higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle will further support economic expansion”?

So I would say, how’s that been working for you?

According to the Bureau of Labor Statistics, real average hourly earnings increased 0.8 percent from January 2017 to January 2018. (Reported 02/20/2018). While this is dismal, it doesn’t reflect the majority of American’s experience, as the averages are skewed by those at the very top whose earnings increase dramatically, while the guy in the middle of the pack sees no growth, or even a loss after accounting for inflation.

I know I sound like a broken record, but the only solution for the average American (or Brit or Australian or anyone else for that matter who has access to a relatively free capitalist economy, is to diversify his or her income.

There are numerous ways for a person to start a business without massive amounts of startup capital and without having to devote full time to the project. You can keep your job and put in a few hours a day developing a business that will, if not replace your employment income, at least provide another source of revenue for you and your family for savings or investment in other opportunities that do require more capital.

Over the course of many years I tried network marketing, real estate investment, import/export, drop shipping, and an Amazon affiliate store. None of these provided me with the income I needed to make the investment in dollars and time worth the effort. Others do well with these businesses, but they didn’t suit me.

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Hard (harder) financial times are coming. If you’re in the majority of the U.S. population experiencing hard times now, just wait—it’s going to get worse. There’s a saying,

“Life is hard.

Life is harder if you’re ignorant.”

We could replace ignorant with broke.

Even in the Great Depression, times weren’t tough for everyone. People who had all their money tied up in financial instruments suddenly found themselves in dire straits. But those with lots and lots of cash suddenly became wealthier as the general price levels dropped through the floor.

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Dig Your Well Before You’re Thirsty

It’s back to financial and economic news today. Maybe I should say money news—economics is boring but everyone likes money. Paul Krugman said in a recent column that he’d like to hear some major apologies from all those politicians and economists who predicted massive general price increases from the inflation of the money supply since the Great Recession of 2008. As if there were no appreciable price increases to be seen.

Since the government controls how general price increases are calculated, the rise in general market prices the government deigns to report is relatively small, though we’ve mentioned in a previous newsletter that even the Federal Reserve’s target inflation rate of 2% will cause extreme hardship within ten years by those living on a fixed income and the general labor force whose wages have been stagnant for over 20 years. But using traditional calculation methods, inflation is much worse, as a great portion of the American populace can attest.

All this ignores the fact that there has been significant price inflation, but it’s been concentrated in the financial markets. All those hundreds of billions of dollars the Fed has been creating out of thin air have to go somewhere, and where they’re going is into stocks and bonds. Stock prices have been steadily increasing without any real business justification since 2008, and bond rates have been kept artificially low for the same period. (When bond prices are bid up, the effective interest rates they pay are lowered.)

Asset management firm Crescat Capital reports the current cyclically-adjusted price-to-earnings ratio is already at one of the highest levels ever for the current level of interest rates. In fact, in order to get back to the long-term average CAPE ratio for the 2% interest rate level, the S&P 500 Index would have to decline 50% from today's levels.

Peter Schiff says, “The bad news is, we are going to live through another Great Depression and it’s going to be very different. This will be in many ways, much, much worse, than what people had to endure during the Great Depression [of the 20's and 30's]. This is going to be a dollar crisis.

“These hot inflation numbers that we’ve been getting are going to get a lot hotter…all this inflation that has been in the financial markets, in the stock markets, in the bond market, in the real estate market, everybody loved inflation when it was making you rich…the problem is going to be when it makes you poor. That’s when it starts showing up in the cost of living; all the things you need to buy end up being a lot more expensive.” (Peter Schiff)

“The Fed thinks they create economic growth…by [saying] ‘let’s jack up the stock market and then the economy’s going to grow and people are going to go out and spend more money.’ It’s actually doing damage. If you create a bunch of phony wealth [QE1,2,3,4,etc.], and people end up spending money that they otherwise would have saved, you are undermining economic growth.

“Everything the Fed has done has undermined real economic growth, that is why this coming collapse is going to be so devastating.”

Peter Schiff correctly predicted the economic meltdown of 2008 while being literally laughed at by mainstream economists and prognosticators.

James Kunstler reports, “The financial markets wobbled and puked on Wednesday and Thursday of this week, finally mirroring the tremendous stresses in our politics. They’ve been every bit as jacked on unreality as the two major parties for years now. The markets, after all, are not the economy itself, just indices of the supposed values of things, stocks, bonds, gold, soybeans, etc., and the Federal Reserve has been jamming hallucinogens down their craw since the last little seizure in 2008. Absolutely nothing Powell’s [new Federal Reserve chairman] Fed might try will work. In fact they will only make the cratering indices fall deeper and harder, along with the value of the US dollar. Interest rates can’t go any higher, anyway, without blowing up half the paper obligations on earth. Businesses will be terrified to transact. You can’t do much with a crippled financial system. The authorities and the news media will call it a “recession” but a sore-beset public will know it is the start of something a whole lot worse. (James Kunstler)

So what’s the bottom line?

Hard financial times are coming. If you’re in the majority of the U.S. population experiencing hard times now, just wait—it’s going to get worse.

Which brings us to the title of this newsletter: Dig your well before you’re thirsty. There’s a saying, “Life is hard. Life is harder if you’re ignorant.” We could replace ignorant with broke.

Even in the Great Depression, times weren’t tough for everyone. People who had all their money tied up in financial instruments suddenly found themselves in dire straits. But those with lots and lots of cash suddenly became wealthier as the general price levels dropped through the floor.

Build up your cash. Diversify your income sources. As I’ve said before, one of the ways you can do that is to leverage the power of the Internet and become an affiliate marketer. A very small investment in dollars and time can result in a substantial increase in your earnings—earnings that can be put away for hard times to come, or maybe just a vacation to Bali. This $7K in 7 Days Blueprint is an excellent way to get started. And if you haven’t downloaded this free guide to Internet marketing, it’s still available for all my newsletter subscribers here.

What’s Wrong with Capitalism?

I had a question from a reader the other day. You may have thought the same thing. To wit, “You say you're an unabashed capitalist, but your articles pan the financial industry and the way business operates in these United States.” What's up with that?

I'm glad you asked.

Before any large enterprise can begin, there needs to be some financial support, capital, that provides for startup costs and allows it to operate until revenue can pay those costs. A person may homestead a property and work the land until he has a surplus he can offer for sale, but if he didn't need any funding before he created the surplus, then he was an entrepreneur and a pioneer, but he was not a capitalist and his business, the sale of surplus crops or wagon wheels or whatever is not a form of capitalism.

Capitalism, and I'm not relying on any dictionary for this so this is just a basic definition, is a system of economic development and business that relies on some quantity, sometimes a huge quantity, of money, or capital, to begin.

Imagine you want to build airplanes to compete with Boeing and Airbus. Years before you sell a single airplane you're going to have to acquire land, build manufacturing facilities, purchase raw materials, and pay a large, skilled labor force. Billions of dollars are going to flow out into the economy before a single dollar flows into your airplane business.

Where does this money come from?

Let's go back to our farmer. He cleared land, built a place to live from trees he cut down to make room for crops. He planted, cared for, and harvested crops to feed himself and his family. He built the implements required to care for the land and animals. At some point, with skill and hard work, he may produce more than he needs for his own sustenance. He can sell this surplus for money that he can save for later use. This farmer can put the cash in a mattress, or he may choose to put it in a bank, or he may lend it directly to a person or business.

If he puts the money in a bank, the bank may have an agreement with the farmer that his money will not be available for some specified period of time. If the farmer does not put his money into a demand deposit account (where his money is available any time upon demand) but puts it in a timed deposit, with the agreement that the bank will have use of the money for some specified period before he may withdraw it, the bank, then, can lend that money to the airplane manufacturer as startup capital.

The farmer also may directly lend the money to the manufacturer. If he does so, he becomes a capitalist. He has become part of the capitalist business system. If he puts his cash directly into the hands of the manufacturer he can either purchase a part of the enterprise and become a part owner — a shareholder — or he can lend the money to the manufacturer and become a bond holder. Either way, he is providing capital for an enterprise and is a capitalist as much as the person who has started the manufacturing company.

I, personally, find nothing wrong with this setup. In fact, allowed to work, it creates a sound economy and wealth for a large portion of the populace.

The problem enters the equation when the political process gets involved. This is better called “crony capitalism.” Now laws and regulations are created to benefit politically connected people and other entities that skew the orderly working of the capital markets.

People make financial decisions based on information at their disposal. Available information should concern the ability of the business to turn a profit, pay interest or dividends as the case may be, and to continue doing so into the future.

But when secret deals are made behind closed doors by people who hold the power to make laws that force others to do what they would not, or not do what they would, and when the rules of the game may change at the will of a very small number of persons who have the power to help themselves to the hard-earned wealth of others through the machinations of unaccountable government, then crony-capitalism becomes a blight on society.

Crony capitalism is what we live with in The United States.