The Disparity Between the Rich and the Poor

Recently one of my Shakaama Live on youtube viewers asked me about the disparity between the rich and the poor and how my explanation about the Austrian Business Cycle could help people understand.  Below fine my brief response to him.

The Problem

One of the key aspects of the founders of the fed was to make sure no one knew who actually founded it; take over public education so that everyone was dumbed down; and make people completely dependent on the banking system.

Before,  people nor businesses took out loans.  AT ALL!  For any reason!  Imagine for one second, no car loan; no home loan; no school loan!  If you wanted it, you saved and bought it.

Fast forward about 50 years after the creation of the Federal Reserve Bank, no one saved any more.  Everyone was now in debt.

This is what happened.  It’s not just about abolishing the Fed, it’s about returning the American way of life.   Remember the saying “pull yourself up by your own boot straps”.  That’s because if you wanted something, you worked hard, saved your money and got it.  THEN, no one could take it away from you; not your land; not your car; not your furniture.  There was no repo man.  He didn’t exist.  There was no such thing as credit.  Credit was for rich people, and i mean the filthy rich people.

As wall street became more and more successful at their game of putting people in debt, the middle class began to slip into poverty.  Imagine people with no self restraint.  Why save when you can buy on credit, when you can take out a loan.  When you take out a loan and buy on credit, not only do you not own the thing, you also owe all your money to someone else.  You are basically working for them.  People throw around the words “modern day slavery”, but it’s actually true.

The Solution

The first lesson any of these get rich quick people tell you or those motivational speakers say is “get out of debt first”.  Why?  Because then you own yourself.  They say, pay off your credit cards, pay off your loans.  That’s the first step.  Now, if even the motivational speakers all agree on this, it should dawn on people what’s going on.  To a man they all agree on this notion.  And, this is from nearly every monitary speaker, or economic salesman with a book.  They know that at the very least, if their plan to market whatever they are personally selling, they will be 70% ahead of the game if they get everyone out of debt that they are selling to.

Mine you I am not calling any of those people wrong or am I lambasting them.  I’m simply saying that whatever their formula is -> over there, they know that <- over here you have to get out of debt just to start to get ahead.  So if even the best and worst of the bunch, even the charlatans agree on this simple principle and they are not tin foil hat, conspiracy theorist, abolish the fed, libertarians, there must be something at the core foundation of sound money that says, get out and stay out of debt.

Even in the old testament, and a lot of my Jewish friends ascribe to this, never put yourself in debt to anyone.  In fact this is repeated in the new testament where it basically says, go pay off all your debts first then come to your brother or father or enemy and have a reasonable discussion among equals. Once again you see that notion of the the disparity between rich and poor stripped away, simply by paying off your debts.  Even some versions of the Lord’s Prayer has it as saying “forgive us out debts as we forgive our debtors“.  You might be reading this and be atheist, but the wise man takes advice from every possible wise source, even if he doesn’t believe in the source.  Good advice can be found in fools at times.  [don't prejudice yourself against something simple because you don't like the package]

Get out of debt and stay out of debt.  Throw away and destroy all credit cards.

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Obama’s Economic Address At Georgetown University: Heavy on rhetoric light on solutions

THIS IS HOW LIBERTY DIES, WITH THUNDEROUS APPLAUSE!

Obama's Economic Speech

In the end the crux of his speech centered around one word:  government, Government, GOVERNMENT!  Of course he promised hope for the economic future; investment in our education; getting green jobs; free health care  for everyone; and university tuition relief [which was met with thunderous applause at the university]

The constitution is clearly dead.  Due to the actions the congress has recently taken, Obama assumes in his speech that government should be the ultimate authority for the private sector.   Many times he alluded to the totally assumed fact that government should be the ultimate authority when it comes to determining fair wages, bank lending, lines of credit, investments for renewable resources.  At no point did he ever mention that he would be taking a backseat and applauding the private sector for taking initiative, without government intervention.

- On entitlement: the largest expenditure admittedly in the governmental budgeting, proposes entitlement reform supposedly but then he turned around and pushed for universal health care reform, not real entitlement reform.  In fact he was so dastardly that he said he would push for universal socialized health care reform this year.

- On financial planing: Again he totally assumed that government should oversee retirement.  [ I am not making this up ]

- On military spending: He went off on a tangent about a suggestion made about military overspending.   He then went into rhetoric about how we have spent so much in military spending and are yet “no closer to be safer”.  However, he did not mention removing troops from any foreign soil, the single most largest expenditure in the governmental budget.

Obama's Economic Speech

At one point Obama quotes the scripture of the Wise man that build his house on Rock instead of sand, but then equates it to complete government oversight, trouncing the constitution in the meantime.  He said it only to put forth the idea that the government will NEVER AGAIN allow this crisis to happen.   This completely ignores the business cycle.  In fact most economist has state [who are not kenesian whack jobs] that there never was a crisis.  Corporate bailouts of wall street commercial banks is not a proper indicator of a nationwide economic crisis.  Housing ARM mortgage rate adjustments for individuals who were over leveraged is not a proper indicator of nationwide economic crisis.

The final straw was when he was again stepping all over the constitution and taking the lead from congress recent bill passage which specifically taxed wall street executive who took bailout money at 95% on their bonuses, in direct contravention of the constitution…. I mean he says it right in the constitution “thou shall not pass taxes targeting specific people”.  *sigh*  Obama said “we will implement rules that makes sure you get paid the correct amount for work that you have done” …….. since when did the government dictate salaries?  This congress is out of control and this presidency is not far behind it.  Bush laid the foundation for this debacle.

We’re in a crisis alright.   A crisis of the constitution going under and government taking over all of our civil liberties.  It won’t be long now that the gestapo will be goose stepping down the street demanding to see how much you make and how long you worked.  It won’t be long now that you’ll receive your weekly stipend from the government and the rest will be set aside for retirement and non existant social security and medicare.   It won’t be long now that the government will seize your bank and tell them they are paying their sales people too much in commission checks and that they are outselling their nearest competitor.   It won’t be long now that the police will knock on your door and demand to see your guns and ransack your house for contraband.  [they already do it to poor Black people I know, just kidding]

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Obama's State of the Union Address

Market watch: Uptick Rule Banning Short Sellers / The Government Doesn’t Want The Bailout Back

Bad Shorts

SEC Chairman Mary Schapiro

The S.E.C. announces the reimplementation of the uptick rule. The uptick rule had been in place for over 70 years. It was removed two years ago in 2007. At the time everyone was amiss as to why the rule was removed. But, now the indication is that they want to implement it, to punish or get rid of naked short sellers, or short sellers in general. commission chairman Mary Schapiro says she’s feeling the heat from investors, exchanges and companies about short sellers. The staff are discussing five different short selling proposals, two versions of the uptick rule was discussed. There will be a period for them to vent the discussion amongst investors to get feedback on the rule. They unanimously decided to put them out for public comments up for 60 days.

The uptick rule was implemented back in 1929 along with the rule to separate investment banks from commercial banks. The bank rule was dismantled in 1999 and the uptick rule was taken away 2 years ago. It is very telling that both these rules, along with others were removed and here we are back in a position similar to 1929.

Stock Market

Discussion on MSNBC pointed out that credit default swaps will do the same thing as short selling anyway, so the uptick rule will not do anything to circumvent or punish short selling in general. They think that the uptick rule will restore confidence, if nothing else for psychological peace of mind. But, you can connect a credit default swap, with out of the money puts, and then short without the uptick and drive the stock down. So the credit default swaps, synthetics, derivatives, exchange traded funds which are all forms of shorting. Clearly this uptick rule is not the magic bullet, but it will be for the S.E.C. to decide along with the investors they listen to.

Lehman was called when they were bubbled up.  AIG was called well before it was even thought to be falling.  Shorters serve a purpose just as traders do.

To Detarp or Not Detarp

The treasury department is refusing large banks to pay back their tarp money. Some of the major banks have asked to de-tarp themselves. There is some debate if the government would accept it. They think that if one of the large banks paid their Tarp money back, the other ones would feel pressured to pay back theirs.

Lehman Brothers

The debate is if they pay it back and come back six months later, we are in the same position as we were before.  The rational issue then is should we let them fail if they pay the money back and then come back six months later.  If not you there goes the government inflating to running companies even more so.  We would have the government firing CEOs, guaranteeing lube jobs for your car from GM, handing out toasters at the local bank.  It’s as if America is sleeping and the government is in fact become a George Orwellian big brother.

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AIG to Washington

What Planet is Warren Buffet On?

The Oracle of Omana Warren Buffet

Recently Warren Buffet has been appearing on the national scene, moreso than before.  He is now the darling of both the press and Washington.

He figured prominently during the bailout talks when he invested $5 billion in Goldman Sachs.  There was a proverbial gasp heard

The Warren Buffet Way Click Here

round the investing nation at the time because everyone knew the financials were in trouble, in general, banking in specific.  But, let’s look at his deal.  At the time the stock seemed like a steal.  In fact, many thought he was taking advantage of the venerable bank.  For Berkshire Hathaway, it bought a US$5 billion equity stake in the dominant player  of the industry, and for its money receives a guaranteed dividend of 10 per cent a year on its perpetual preferred shares.  On top of that Goldman’s gave Berkshire 5 year warrants which give Berkshire the right to buy 43.5 million common shares of Goldman Sachs at a strike price of US$115 at any time before 2013.  However, banking stocks tanked, the crisis deepened, Goldman shares hit a low of US$47.41 on November 21st. After writing an op-ed piece for the New York Times on why he buys America, Mr. Buffet came in for criticism.

However, we are talking about Warren Buffet.  I’m often reminded of the movie “Wall Street” when i think of him.  Anything he purchases will sooner or later gather stragglers, who mistrust their own investment skills.  Goldman shares have doubled since November, closing at $111.93 last Monday.

“The Investment bank has had to change its business model, and reduce the amount of leverage it carries on its balance sheet, but some business areas are positively on fire with flow or client driven trading benefiting from wide spreads being charged and really bringing in the moolah.” [what a shocker, that actually works]

Benjamin Graham Click Here

For every silver lining however there is a cloud.  The GE deal Berkshire got, with those same warrants, don’t look so delicious.  The warrants were for an aggregate cost of $3 billion @ $22.25 per share.  Ge closed at $10.43.  Yeah, not so much.

Warren Buffet Click Here

Which brings me to the next point.  Disciples of the value strategy, like Berkshire Hathaway’s Warren Buffett, focus on the long-term intrinsic value of a company, hoping to buy shares in good companies at reasonable prices.  For financial stocks—some of which haven’t or won’t survive the crisis—it’s nearly impossible to identify the long-term value, whether through profits, cash flow, or other measures.

But what are companies worth these days?  What is the value of a company that accepts TARP money?  Hard isn’t the proper word for what investors are up against when trying to figure this out, impossible is more like it.  And these atrocious bailouts and stimulus packages flowing out of Washington and the Federal Reserve [secretly, psssst hey AIG, come here in the alley i got some more money for ya] are only hurting the situation.  In the mean time Buffet is seen publicly on T.V. talking about he praises Obama for his efforts and he’s optimistic for the long term.  Was that on a Hallmark card Warren?  “Get Well Soon America” from your buddy Warren.

Bull Moves by Peter Schiff Click Here

He’s lost it.  In fact if you go back and look at Berkshire Hathaway’s performance versus the dow over the past 20 years, it has underperformed. GASP!!! Not the sage of Omaha!!!  Oh brother.  Yes he’s lost it.  Hell, he got lucky in the first place.  He never “had” it.  A study was done once, some university economists [this is no joke, this is serious research here] wallpapered their class with the Wall Street Journal [yay free plug WSJ] blind folded several students, gave them darts and had them throw them.  They picked the stocks they landed on and invested.  [don't try this at home kids, these guys have PhDs]  Every single student’s stocks out performed the DOW.  GASP!!! [and i would have gotten away with it if it weren't for you meddling kids]  Apparently they did this study for years.  They concluded that the big performer investors are simply lucky and actually have no “magical skills” to predict good stocks.  [ha what do those snotty nosed professors of economics know]

So Warren [we're on a first name basis] says he’s optimistic for the economy and Obama’s the bee’s knees.  Wellllllllll Peter Schiff, Ron Paul, Lou

Crash Proof by Peter Schiff Click Here

Rockwell, Judge Napolitano, Glen Beck [I had to mention him so people who Google his name read this blog teehee], all say the exact opposite.  And, I agree with them [but who listens to me *sigh* I need a hug].  Can vultures pick up the pieces Warren Buffet leaves behind?  Sure, mull over the carcasses of the straggler investors who follow him blindly.  But, be wary and trust your own learning.  Read Adam Smith.  Be an “Austrian” school of economics disciple.  These Keynesian economist are the darlings of Washington right now, since they chant spend, spend, spend.

Jim Rogers

For the rest of us, invest in gold.  Buy dividend paying stocks OVERSEAS.  Stay away from cash and the dollar.  When this hyper-inflation hits, [oooooh boy don't you dare argue with me there] and it will hit, all of your cash is going to go up in smoke.

How many billionaires…. were removed off the Forbes Billionaire list.

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