Journal of a Wayward Philosopher Archives - Page 31 of 33

Crafting a World-Class Education

submitted by jwithrow.

Journal of a Wayward Philosopher
Crafting a World-Class Education

January 9, 2015
Hot Springs, VA

The S&P opened at $2,063 today. Gold is up to $1,214 per ounce. Oil is still just under $49 per barrel. Bitcoin is flat at 287 per BTC, and the 10-year Treasury rate opened at 2.00% once again today.

Keep an eye on the oil patch – that’s where the interesting action will be as we move into 2015. Losses will start to crop up if the price of oil remains flat for any extended period of time. Most of the U.S. shale boom has been financed by debt, not equity. We can expect some of these losses to show up in the bond market as repayment becomes difficult at current prices.

But it won’t be quite that simple. Financing oil exploration also involves swap contracts and derivatives which are then packaged, moved, and sold. This means that some losses may not be borne by the oil companies but rather move over to the bank. But the banks are just middlemen so many of the swap contracts very well may have been sold to institutional investors such as exchange-traded funds. No one knows exactly where the risks are so discovering where the losses pop up if oil remains flat will be much like playing whack-a-mole.

Yesterday we discussed why the public school system fails and we decided the best thing for a concerned parent to do is opt out.

But then what? Most of us have gone through the public school system so we are accustomed to the rigid top-down model of education.

Do we look to private schools? Some of them probably offer a service that is superior to the public school system but they are still based on the authoritarian “gymnasium” model and they probably use the same politically-correct textbooks. And they are expensive! As mentioned yesterday, the Sudbury Valley Schools are an exception as they do not employ the “gymnasium” model. If you live close to one of these schools then that may be a great option.

For the rest of us, we are on the frontier – it’s up to us to craft a world-class homeschool program. To do so we must first understand what education is. The word educate stems from the Latin word ‘educo’ which means “to bring up; to draw out”. You see, education is not about teaching; it is about learning. There is only learning. We’ve had it backwards for quite some time now.

An individual’s education actually begins the moment they are born; and maybe even the moment they are conceived. At birth, infants are completely helpless. Within twelve months’ time they have learned to follow objects with their eyes, move their appendages, hold their head up, coo and chuckle, roll from side to side, grasp objects in their hands, laugh, sit up, play with multiple objects, crawl, stand, and maybe even say a few words.

Within twenty four months’ time that same infant has learned to walk and play, climb stairs, color with crayons, use gestures, and use several words together intelligibly.

Within sixty months’ time the infant has learned how to move freely throughout the house, use sentences with nouns, verbs, and modifiers, recognize colors, recognize his or her own name, age, and gender, play with other children, communicate with adults, write his or her name, and to feed him or herself.

That is an amazing amount of development within a short period time! And guess what? There is no system in place mandating or forcing the infant to absorb any of this. The infant learns all of these essential items on his or her own with the guidance of parents and trusted adults.

In crafting a homeschool program it is important to allow this natural education to continue uninhibited. The curriculum chosen should supplement this natural education; it should not take the place of it.

The development of technology has, for the first time in history, made access to quality supplemental curriculum free to everyone with a computer and an internet connection. One can go online and read essays or view lectures on any subject imaginable. There are millions of articles and countless books available to read online at no cost to you. The Ludwig von Mises Institute’s web site offers the entire manuscript of many great books in the fields of Austrian Economics and the philosophy of Liberty absolutely free. The Ron Paul Curriculum offers K-12 curriculum completely online including a platform for students to interact with each other.

This type of technology is unprecedented in human history! Technology is not only liberating education from the confines of centralized authority, but it is doing so at a greatly reduced cost. It is completely possible for enterprising parents to supplement their child’s natural education with a world-class curriculum for pennies compared to what the public school system costs.

If you venture down this path be sure to familiarize yourself with the Homeschool Legal Defense Association as well as your state’s laws regarding homeschooling. And always keep the big picture in mind.

Education is not about indoctrinating children to think the same things we think. It’s not about taking up all of a child’s free time to keep him out of trouble. It’s not about “beating” other countries on standardized tests. It’s not about setting a child up to get into the best college or to secure a high-powered desk job.

Education is individual in nature. Children, free to discover and pursue their own passions, will learn so much more on their own than they ever could in a classroom. And they will grow into self-governing and self-driven adults capable of thriving in an ever-changing world.

More to come,

Joe Withrow
Wayward Philosopher

For more of Joe’s thoughts on homeschooling and educational alternatives please read “The Individual is Rising” which is available at http://www.theindividualisrising.com/. The book is also available on Amazon in both paperback and Kindle editions.

Why the Public School System Fails

submitted by jwithrow.

Journal of a Wayward Philosopher
Why the Public School System Fails

January 8, 2015
Hot Springs, VA

The S&P opened at $2,036 today. Gold is checking in at $1,212 per ounce. Oil opened just under $49 per barrel. Bitcoin is trading hands at 286 per BTC, and the 10-year Treasury rate opened at 2.00% today.

The markets have kicked off 2015 with some healthy volatility! The S&P has dipped as low as $1,985 only to bounce back up. Oil has drifted as low as $47, bringing energy stocks down with it. The 10-year rate has dipped below 2% and threatened to drift lower. Bitcoin has fallen below $300 for the first time since 2013 and gold has climbed as high as $1,221.

Last month we contemplated raising children in the modern world and we decided compulsory education was not, in our humble opinion, in the student’s best interest. We reckoned that for any real learning to occur the student would have to be free to engage a topic of their own choice and then have the space to inspect, poke, jab, nudge, kick, and maybe even dance with that topic on their own timeline. Of course this method is the exact opposite of what is employed by the compulsory public school system that says the student must learn this topic in this way on this timeline with this grading scale and he better not interact with his neighbor while doing so.

As always, it is a minority position we take on the important matters of child-rearing and education. Perhaps this is why we had such an affinity for “Don Quixote” as a youngster. While the public school system is accepted as “normal” today, it is important to understand its origin.

The current public school system model was founded in Germany in the 1800s. The Germans called their model the “gymnasium” system and it was organized in part by the German military. This system separated students by grade and limited their interaction with students of differing ages. The intent was to foster a robust bond between the boys for they would be expected to train and fight together in the military as adults. Sure enough, this system created fiercely loyal soldiers.

Meanwhile, across the Atlantic in America, students were either educated at home or in small groups that were not separated by age. Individualized education in America was less geared towards memorizing facts and figures and more geared towards fundamental reading/writing/arithmetic, common sense, and self-confidence.

Age diversity helped older students develop responsibility and leadership skills by guiding the younger students along. Younger students got the benefit of both adult tutelage and guidance from the older kids. While seemingly a small point, having two distinct perspectives on the same topic goes a long way towards fostering critical thinking. Peter Gray, in Free to Learn, discussed this very dynamic as he observed students in Sudbury Valley School.

America began moving towards the German “gymnasium” model after the Civil War with the political class using force to move the shift along. Massachusetts passed the first compulsory school attendance law in 1852 and all states had compulsory school attendance laws on the books by 1918. Reading the work of John Dewey, one of the leading educators in 20th century America, provides troubling insight into why the shift was facilitated.

“The mere absorbing of facts and truths is so exclusively individual an affair that it tends very naturally to pass into selfishness. There is no obvious social motive for the acquirement of mere learning, there is no clear social gain in success thereat.”

The political objective was the centralization and control of education in order to reduce the American spirit of individualism and make students more malleable and group-oriented. John Taylor Gatto expanded upon the political shift of American education in his books Dumbing Us Down: The Hidden Curriculum of Compulsory Schooling and The Underground History of American Education: A School Teacher’s Intimate Investigation Into the Problem of Modern Schooling.

History and political motives aside, Gatto also outlined and then expanded upon several points that demonstrate how the public school system is “dumbing us down”. They are as follows:

1. It confuses the students. It presents an incoherent ensemble of information that the child needs to memorize to stay in school. Apart from the tests and trials that programming is similar to the television, it fills almost all the “free” time of children. One sees and hears something, only to forget it again.
2. It teaches them to accept their class affiliation.
3. It makes them indifferent.
4. It makes them emotionally dependent.
5. It makes them intellectually dependent.
6. It teaches them a kind of self-confidence that requires constant confirmation by experts (provisional self-esteem).
7. It makes it clear to them that they cannot hide, because they are always supervised.

Gatto’s points refer to the public school system itself; not to the individuals working within the system. Most school employees at the local level are well-intentioned and work hard to improve the quality of their school. But they are forced to operate within the confines of the gymnasium system and they are forced to use government-approved politically-correct textbooks. More money will not change this dynamic, it will only further empower the Department of Education and impoverish the public.

So what is a concerned parent to do? Opt out!

Until the morrow,

Joe Withrow
Wayward Philosopher

Of Gold, Energy Stocks, and Bitcoin – Opportunities for the New Year

submitted by jwithrow.

Journal of a Wayward Philosopher
Of Gold, Energy Stocks, and Bitcoin – Opportunities for the New Year

January 2, 2015
Hot Springs, VA

Welcome to the first business day of 2015! The S&P opened at $2,055 today. Gold is down to $1,171 per ounce. Oil is down to $52 per barrel. Bitcoin remains rather flat at $315 per BTC, and the 10-year Treasury rate opened at 2.20% today.

We spent our time yesterday going over how fiat money enslaves society and we agreed that this was critical to understand if we are going to have a chance at being financially independent. Wife Rachel said it was a rather dreary journal entry so today we will endeavor to be more positive.

Let’s take a look at some of the financial opportunities we have for 2015.

First, the precious metals are as cheap in dollar terms as they have been in several years. Gold and silver could still drift lower in 2015 but the fundamental case for owning them is as strong as ever. This is a great time to pick up some ounces if you are a little short on your precious metals asset allocation.

Over in the equity markets, energy stocks of all sorts have taken a beating with plummeting oil prices. Fund managers accentuated the crash in energy stocks as they sold at a loss for tax purposes and to show little exposure to the sector at year-end. This is a great opportunity for a contrarian to add some energy exposure to his or her portfolio. It is advisable to be very diligent in this endeavor, however, as marginable producers will be squeezed if oil prices remain this low for an extended period of time. Be sure to go with the companies that can survive at current prices, keep position sizes reasonable, and stick to your stop-losses.

Several notable analysts expect the Fed to launch QE4 the moment the S&P starts to tumble which would send stock prices soaring even further. Some of these analysts think this will occur in 2015. The Day of Reckoning will eventually come for the current fiat monetary system as the Great Reset continues to unfold, but that day is not here yet. 2015 may provide an opportunity to capture gains in the market and convert those gains into hard assets.

Even more speculative is Bitcoin which plummeted from a 2014 high of $939 in January all the way down to its current price of $315 over the course of the year. Maybe $315 is a good entry point, I don’t know. Of course Bitcoin opened 2013 at $13 so maybe it is still reverting back to the mean.

Personally, I am not sure what to make of Bitcoin. Free market advocates are die-hard in their belief that Bitcoin has the potential to rid the world of fiat money by eliminating the need for any middlemen and thus eliminating transactional friction. Free market detractors are pretty adamant in their belief that Bitcoin is a pump and dump scheme that will not be relevant for long because it does not meet all of the standard qualifications for hard money.

I am in the middle somewhere – Bitcoin’s functionality fascinates me but I don’t think it eliminates the need for precious metals within the monetary system. I think a small dollar-cost-average approach may be a reasonable method of testing the Bitcoin waters.

Of course there is no room for speculation until you have built a sensible level of resiliency and have a sturdy asset allocation model in place. Having debt cleared out, cash on hand, precious metals for insurance, a back-up energy source, and some food and wine stored in the cellar will insulate you from any storm that comes your way, regardless of how your speculation works out. Throw in good family and friends and you will be in great shape no matter what happens in 2015 and beyond.

What else could you ask for?

More to come,

Joe Withrow
Wayward Philosopher

For more of Joe’s thoughts on the “Great Reset” and the fiat monetary system please read “The Individual is Rising” which is available at http://www.theindividualisrising.com/. The book is also available on Amazon in both paperback and Kindle editions.

How Fiat Money Enslaves Society

submitted by jwithrow.

Journal of a Wayward Philosopher
How Fiat Money Enslaves Society

January 1, 2015
Hot Springs, VA

Happy New Year!

The markets stayed in bed today nursing their hangovers so we have no updates for you. Check back with us tomorrow for market updates.

We have recently been discussing the difference between fiat money and real money so I thought it would be prudent to kick off 2015 by discussing how fiat money enslaves society.

I know, nobody is walking around in shackles and chains – the slavery is much more subtle than that. But I firmly believe this is the single most important issue of our time. You cannot understand finance and economics unless you understand how fiat money operates. And you cannot become financially independent unless you understand finance and economics.

So here’s how it works:

Government creates a currency and decrees it money. Being the narcissist institution that it is, Government usually prints faces of past government officials on the physical currency. Next Government creates a central bank and declares that the central bank will issue and manage the currency. Government then implements an income tax to supplement the other taxes in existence and decrees that all taxes must be paid with the government’s currency. Government then passes legal tender laws requiring citizens to accept its currency as payment for all private debts as well. The penalty for not paying taxes or for not accepting government currency as payment is jail.

In this way the government/central bank alliance has effectively created a situation where everyone under the government’s claimed jurisdiction is forced to use its fiat money. There is no way to completely opt out; at minimum everyone has to acquire enough fiat money to pay taxes or else they will be thrown in jail. And we’re not talking about one or two little taxes; we are talking about taxes on all income earned, taxes on all investment gains earned, taxes on all real estate owned, taxes on all vehicles owned, taxes on all gas purchased for those vehicles, taxes on all food and goods purchased, and taxes on any inheritance received. Virtually everything you do is taxed!

Add up all of the taxes across all levels of government and it is very likely you are paying out 50% of what you earn in taxes, especially if you live in a major metropolitan city. That means you are working six months of the year just to pay the government.

But wait, it gets even better!

The central bank is free to issue as much new fiat money as it pleases and the record clearly shows that all central banks very much enjoy creating lots of new currency. The law of supply and demand tells us that each unit of currency will be worth less as new currency enters the economy – this is intuitive. What’s less intuitive is something called the Cantillon Effect.

Classical economist Richard Cantillon noticed something very important about inflation back around 1730 in France. Cantillon observed that the original recipients of newly created money enjoyed much higher standards of living at the expense of later recipients. The reason for this, Cantillon noted in his economic treatise Essai, is because of the disproportionate rise in prices as a result of inflation; prices do not rise until after the first recipients of the new money spend it into the general economy.

What this means is the very act of creating new money from nothing effectively steals purchasing power from everyone except those who first receive the new money!

So who first receives the new money? Why, governments and their favored institutions of course! This is how governments and their favored institutions grew to be so fantastically large in the 1900’s – they steadily picked the public’s pocket for an entire century!

To tie it all together: Government creates currency from nothing and forces you to use it by levying all manner of taxes on you that can only be paid with the government’s fiat money. Then Government’s buddy, the central bank, inflates the money supply which depreciates the value of the currency you are forced to use and transfers that lost purchasing power from you to Government. This makes it very difficult for you to save money because the money constantly loses value over time. The result is you have to work harder and harder just to pay off Government lest it throw you in jail. And that is how fiat money enslaves society.

This process is why you could drive down Main Street in Small Town USA back in 1950 and see bustling storefronts and a vibrant economy. Drive down that same Main Street today and you will probably see empty buildings and boarded up windows. You just can’t earn an honest living as a small proprietor or shopkeep anymore because you are Cantillon’s last recipient of new money in those businesses. Decades of unrestricted inflation has destroyed the value of the money to the point where small proprietors cannot earn enough of it to keep up with rising prices. Fiat money has hollowed out Middle America to the point where there’s not much of it left. This is exactly what has happened throughout history where fiat money has been implemented – the middle class is destroyed.

Governments have experimented with fiat money all through history and the most recent monetary model is the most deceptive to date. Fortunately, a fiat monetary system always sows the seeds of its own destruction and cannot last forever. In the meantime you can employ some basic financial strategies to protect yourself once you understand how the fiat money system works. We’ll look at some of those strategies in a later entry.

Until the morrow,

Joe Withrow
Wayward Philosopher

Capitalism and Creditism and Corporatism, Oh My!

submitted by jwithrow.

Journal of a Wayward Philosopher
Capitalism and Creditism and Corporatism, Oh My!

December 26, 2014
Hot Springs, VA

The S&P opened at $2,084 today. Gold is flat around $1,198 per ounce. Oil is still checking in at $56 per barrel. Bitcoin is at $326 per BTC, and the 10-year Treasury rate opened at 2.24% today.

All is quiet in the markets this holiday season. We may look back on this time period in a few years and say that we were presented with a tremendous opportunity to buy beaten down energy and commodity stocks during the tax-loss selling season of 2014. We probably will say that we had a great opportunity to accumulate some gold throughout 2014 as well. Just be sure to follow your asset allocation model if you decide to capitalize on these opportunities.

Yesterday we examined our current economic circumstances and realized that we were employing capitalism but we had no capital! Today we must ask the question: How can you have capitalism without any capital?

The obvious answer is you can’t. It’s like making potato soup without potatoes – try as you might it just won’t work.

So if we don’t have capitalism then what do we have? My answer is that we have some weird blend of creditism and corporatism. Governments have colluded with large corporate interests, especially in the commercial banking sector, to rig the economy in their favor.

Though we could go back further, let’s start our story (from the American perspective) at the end of World War II. Prior to the war governments didn’t think they could do everything they wanted due to financial constraints. That didn’t stop them from doing half of what they wanted to do but it forced them to make a choice. Did they want guns (warfare) or butter (welfare)?

The U.S. came out of WWII looking like gold… literally. The U.S. economy was the least damaged by the war which ravaged Europe and it came out holding the world’s largest stash of gold reserves. This relative economic strength gave U.S. politicians the wrong idea: they started to think they might not need to make any choices. Then President Lyndon Johnson came along and he wasn’t shy about it – guns and butter it will be!

So we got the Vietnam War and the Great Society together! And gold steadily flowed out of the U.S. Treasury until President Nixon pulled the switch-a-roo in 1971 and closed the gold window. All of a sudden the international monetary system became elastic. With no more gold restraint, dollars and yen and pounds started to pile up as central banks and commercial banks discovered they could conjure money into existence largely at will. But this was a different kind of money than the gold-backed variety – it was credit-based.

This credit-based money was extremely popular and the money supply grew 50-fold between World War II and 2008. Everyone got used to a constantly expanding money supply and now both the economy and asset prices are dependent upon it. It is the expansion of credit, not real capital, that supports all of the federal spending programs, all of the wars in the Middle East, the mass imports from China and Vietnam, the new housing developments and shopping malls in Middle America, the massive car lots across the country, most of the skyscrapers dotting the city skies, and current real estate and stock market valuations.

Here’s a fun example: do you know how much debt is still owed on the tax-funded Meadowlands Sports Complex in New Jersey? I’ll tell you: more than $100 million is still owed on the facility. Oh, and I am talking about the old Meadowlands Stadium that was closed and demolished in 2009 to make way for a new $1.6 billion facility now known as MetLife Stadium. New Jersey taxpayers are still on the hook for $100 million on a sports complex that no longer exists! New Jersey built the stadium, used the stadium, and demolished the stadium but never bothered to pay for it.

Such nonsense can only occur in a world of ever-expanding credit-based funny money.

This applies to the massive bank bailouts and banker bonuses that one side of the fictitious aisle rails against just as it applies to the massive welfare programs that the other side of the false political-divide takes issue with. None of it exists without perpetual credit expansion; none of it exists without creditism and corporatism.

Capitalism would have nothing to do with any of it.

It is important to understand that we have only seen one side of the credit cycle within the current monetary system. Credit has been expanding constantly for more than forty years now. But if we look around our world we can clearly see that nothing expands forever. Waves rise then fall. Trees grow then mature. Balloons inflate then pop.

One day credit will have to contract; it is inevitable. What happens when that day comes? Ludwig von Mises, the late Austrian School economist, offered some insight:

“There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved.”

Was he right? Time will tell.

More to come,

Joe Withrow
Wayward Philosopher

Capitalism Without the Capital

submitted by jwithrow.

Journal of a Wayward Philosopher
Capitalism Without the Capital

December 25, 2014
Hot Springs, VA

Merry Christmas!

The markets are closed today in honor of this wonderful holiday so we have no updates for you in this entry. Check back in with us tomorrow for market updates. We do have an important entry for you today, however. It’s not nearly as important as spending time with your family on Christmas Day but, since you are here nonetheless, we will carry on.

Earlier this month we watched as the U.S. national debt came up behind $18 trillion, whipped into the passing lane without signaling, and sped off into the distance. Where is the national debt going in such a rush? I’m not sure, but I’d wager it’s someplace not worth going to.

As the national debt raced past we noted that total credit market debt has ballooned up to 330% of GDP with considerable help from the Fed’s efforts to pump in $4.3 trillion worth of hot air.

The television analysts accept it all as normal but we must ask the question: How in the world did we get to this point?

Much of the apparent prosperity we have enjoyed over the last several years has been borrowed from the future. The world’s three major central banks – The Federal Reserve, the European Central Bank, and the Bank of Japan – have each been engaged in an outrageous financial experiment; they have been creating massive amounts of currency out of thin air to purchase government debt by the boat-load.

Remember, debt is nothing more than a promise to pay for present spending with future earnings. These central banks, in collusion with their respective government, are really engaged in a scheme to transfer massive amounts of wealth from the public in the future to themselves in the present. There will be serious consequences to this madness.

It is important to realize that none of this chicanery has anything to do with capitalism… there’s no capital even in sight! The money created by the central banks of the world may act much like real capital, but it is just a clever impersonator.

Capital, according to the Ludwig von Mises Institute, is defined as the goods that were produced by previous stages of production but do not directly satisfy consumer’s needs. In short, capital is real savings and real resources.

Capital formation is actually quite simple – just save more than you consume and you will have capital.

We are currently doing the opposite – we are consuming way more than we produce. That’s how you end up with debt piled to the ceiling. This is true on the macro level (governments, multi-national corporations, etc.) and it is true on the micro level (individuals, local communities). The credit-based money and the massive debt have driven capital into hiding… we suspect for fear of being called a greedy capitalist.

And that, in a nutshell, is the answer to our question: we got to this point by embracing central banking and fiat money thus abandoning capitalism and its sound monetary system.

Sound Money once kept debt and the central planners at bay.

What was the secret?

Sound Money was like your grumpy friend that just won’t ever agree to do anything. You ask him to go to the movies and he says nope. You ask him to go to the ball game and he says he’ll watch it on T.V. You ask him to go to the bar and he says he has beer in the fridge at home already. Eventually you learn there’s nothing you can talk him into doing so you stop trying. That’s why governments and central banks hated Sound Money; it would never agree to any of their best laid plans.

You see, Sound Money could not be infinitely printed by governments or central banks. Originally, before governments got into the money business, money could not be printed at all; it had to be dug out of the ground and then minted into a coin. Later, governments took it upon themselves to stockpile gold in a vault and create paper currencies 100% backed by the gold. Always one to offer something it doesn’t have at a price it cannot sustain, Government reduced the gold backing of its currency over time and then, in 1971, it cut ties to gold altogether. That was the requiem for Sound Money and ever since then there has been absolutely no limits on the amount of currency central banks can create. Which means there has also been absolutely no limit on how much debt governments can rack up.

So here we are.

But just because there have been no limits to all of this economic madness in the short run does not mean there will never again be any limits. History shows that market forces cannot be perpetually suppressed and distorted – eventually the market will win out. The Day of Reckoning will come.

Until the morrow,

Joe Withrow
Wayward Philosopher

Raising Children in the Modern World

submitted by jwithrow.

Journal of a Wayward Philosopher
Raising Children in the Modern World

December 17, 2014
Hot Springs, VA

The S&P opened at $1,972 today. Gold is back down to $1,198 per ounce. Oil is down to $56 per barrel. Bitcoin is down to $322 per BTC, and the 10-year Treasury rate opened at 2.08% today.

Both oil and the 10-year rate are closing out 2014 at price levels much lower than most analysts anticipated which sets up for an interesting 2015. Will crude prices remain at current levels and put the squeeze on the U.S. Shale revolution? Will interest rates remain low and complicit in enabling the Treasury to service the $18 trillion national debt without much fuss? We shall see.

As for the S&P, it has been 6 and a half years since it experienced a correction of 10% or more. But markets cannot go in one direction forever – that 10% correction is coming. I have seen some predictions of a major 10%-plus correction sometime in the spring of 2015. It may be more like 50% if the correction is coupled with the fiat monetary crisis that is on the horizon but I think we may still be a few years away from that one. Instead, it is more likely that a major stock market correction will spur the Fed into QE4. Either way, it is advisable to be very vigilant if you have money in the equity markets.

Shifting gears, I have been thinking quite a bit about child-rearing given the arrival of Maddie Lynn eight weeks ago. I have come to the conclusion that our culture today has become much too rigid and regimented when it comes to raising children in our fast-paced modern world.

School days have gotten longer, homework loads have increased tremendously, grades are now emphasized heavily, standardized testing has been implemented and enforced across the board, the number of adult-organized activities for kids have exploded and, as a result, childhood stress, worry, and fear have increased dramatically.

Studies conducted by Jean M. Twenge at San Diego State University suggest that youth anxiety and depression have been trending higher rather sharply over the last fifty years. Perhaps more troubling, Twenge’s research suggests a shift in motivation amongst kids from intrinsic to extrinsic values; kids now tend to be more motivated by popularity and money than self-acceptance, moral character, and community.

The reason for this shift is rather clear to me: American childhood is now more about meeting adult expectations and less about personal growth and development. Observe the parents at a youth sporting event and see if this statement isn’t true. Now the parents mean well, don’t get me wrong. But too often they think their child’s future depends exclusively upon performance in school, performance in athletics, performance in extra-curricular activities, or some other external measurement of performance so these things are all pushed on kids to the point where their own interests and talents are subordinated.

Studies by Peter Gray show that childhood free time has been declining steadily since the 1950’s including a decrease in free play as well as time spent talking to others at home. Meanwhile, time spent on homework has increased 145%.

The government school system equates more homework with more learning. In reality, homework serves only to replace students’ individual interests with the Department of Education’s mandated curriculum. At best students memorize the mandated curriculum long enough to pass the standardized test and then they let it go. At worst they think the curriculum is useful and they retain it at the expense of pursuing their own passion. The truth is memorization is not learning; it is a waste of time and energy.

Real learning can only occur when the individual has an interest in the topic and is free to explore that topic in his or her own way. Children need to be free to make mistakes, analyze those mistakes, and then attempt to correct the mistakes. Instead, the current model of education teaches children that they will be judged and punished if they make a mistake so students learn to fear mistakes above all else. This mentality has the potential to set them up for a very restricted adulthood in which they shy away from opportunities for fear of making a mistake.

Ultimately we need to ask ourselves what is truly important for our children. This will be different for each family and that should be embraced, not ridiculed. There is no reason to think everyone must adopt the same parenting style or that every child must receive the same education. In fact, a free society requires diversity and the sharing of unique ideas in order to thrive.

So what’s really important for our children?

Good grades and getting into a good college? This looks like an outdated model to me – it is exclusively designed to produce good employees. But we are moving away from a ‘jobs’ based economy and the availability of traditional full time employment with comprehensive benefit packages will continue to diminish over the coming years and decades.

Becoming a superior athlete? My observations suggest that youth athletics are much more important to the adults – school employees, coaches, parents – than they are to the kids. Too often youth sports are a chore rather than a joy.

Participating in as many extra-curricular activities as possible? Again, these are often more important to the adults than the kids. Children should certainly be free to participate in whatever groups or activities interest them but too often they are pushed in the adult’s favored direction instead of their own.

I am convinced that a childhood free to grow and develop in a unique way is the most important gift parents can give their children. I think children need more guidance and less teaching; they should be encouraged to discover and pursue their own passions and interests without the pressure of forceful expectations. Pair this method with sound financial education and an IBC insurance policy that has been capitalized for 18 years and I think you have the makings of a creative, self-driven adult capable of thriving in a rapidly changing world.

Of course these are just this philosopher’s humble opinions.

More to come,

Joe Withrow
Wayward Philosopher

For more of Joe’s thoughts on the “Great Reset” and the Infinite Banking Concept please read “The Individual is Rising” which is available at http://www.theindividualisrising.com/. The book is also available on Amazon in both paperback and Kindle editions.

Debt as Far as the Eye Can See

submitted by jwithrow.

Journal of a Wayward Philosopher
Debt as Far as the Eye Can See

December 9, 2014
Hot Springs, VA

The S&P opened at $2,056 today. Gold is up around $1,218. Oil is still floating around $64 per barrel. Bitcoin is down to $347 per BTC, and the 10-year Treasury rate is 2.21% today.

In other news, U.S. national debt has now eclipsed $18 trillion. That’s: $18,000,000,000,000.00. Debt to GDP is now around 99%. To put this in perspective, U.S. national debt stood at $398 billion back in 1971 – 34% of GDP – when Tricky Dick put the “Out to Lunch” sign up in front of the international gold window.

Even more startling, total credit market debt now checks in at 330% of GDP. Mr. Market has been trying to wind down the credit market bubble for some time now, but the Federal Reserve has been fighting tooth and nail against him. The Fed’s weapon of choice: funny money! The Fed has purchased more than $4.3 trillion worth of bonds since 2008 in an effort to prop up asset prices and strangle interest rates.

Where did the Fed get this $4.3 trillion? As we pointed out in last week’s journal entry, the Fed got this $4.3 trillion from the same place it always gets money… it conjured every dime of it from thin air!

Still, the economists pretend like this is all normal. Some of them say that the Fed should have bought fewer bonds; $4.3 trillion worth was too much. Other economists say the Fed didn’t buy enough! So they write their articles and conduct their interviews and everyone sleeps sound at night. I can’t help but wonder – do they think this can go on forever? Do they think the Fed can reverse course whenever they darn well please? Do they think at all?

I don’t know if mainstream U.S. finance really is arrogant enough to think there are no consequences to all of this financial chicanery or if they are just playing a big sleight-of-hand game, but the world seems to slowly be waking up to the fiat monetary system that has allowed debt to pile up faster than 5:00 Beltway traffic.

Though the Swiss Gold Referendum didn’t pass last month, it does suggest a change in the financial wind. The initiative would have prevented the Swiss National Bank from selling any of Switzerland’s gold reserves and it would have required a 20% gold backing to the Swiss Franc. The fact that this initiative made it to a vote indicates a growing apprehensiveness towards the international monetary system.

This apprehensiveness is not limited to Switzerland. Germany, France, Belgium, and the Netherlands have each expressed interest in repatriating their gold reserves held in foreign central banks. Additionally, both China and Russia have been buying gold hand over fist. The Russian Central Bank bought nearly 20 tons of gold in October alone. We don’t know exactly how much gold China has been buying – they haven’t reported their full reserve numbers in several years. China and Russia aren’t alone; global gold demand now eats up more supply than miners can produce at current prices.

2013 was a record setting year for precious metals purchases from the U.S. Mint and 2014 sales are on pace to surpass that record. The U.S. Mint sold 3,426,000 ounces of silver in November alone. Perth Mint sold 851,836 ounces of silver in November. India imported 169 million ounces of silver through the first ten months of 2014. The precious metals are clearly being viewed as a life-boat in a sea of rising debt.

In addition to the precious metal rush, several major U.S. financial firms have been using depressed interest rates to gobble up real assets recently as well. The Blackstone Group has been buying domestic real estate like it was last call and Berkshire Hathaway acquired Burlington Northern Santa Fe Corp (BNSF) – a railroad company. Shrewd analysts suggest Berkshire’s purchase of BNSF was a hard asset play to mitigate expected inflation; railroads are nothing but hard assets hauling other hard assets around the country.

Are all of the precious metal purchases and hard asset acquisitions just a coincidence?

Maybe deficits really aren’t that big of a deal. Maybe the Fed really can navigate through the uncharted waters of debt and derivatives. Maybe the fiat monetary system really has supplanted Mr. Market’s choice for good. Maybe financial asset prices really can go to the moon and never come back down.

But I wouldn’t bet on it.

More to come,

Joe Withrow
Wayward Philosopher

For more of Joe’s thoughts on the “Great Reset” please read “The Individual is Rising” which is available at http://www.theindividualisrising.com/. The book is also available on Amazon in both paperback and Kindle editions.

Image Source: WilliamBanzai7 – Zero Hedge

Real Money

submitted by jwithrow.

Journal of a Wayward Philosopher
Real Money

December 4, 2014
Hot Springs, VA

The S&P is buzzing around $2,069, gold is back up over $1,210, oil is checking in just under $67 after OPEC announced that they would not cut production, bitcoin is hanging around $373, and the 10-year Treasury rate is checking in at 2.29% today.

How about those prices at the pump, huh? Some resource analysts think that oil won’t remain this low for long. They point to the fact that several OPEC nations are dependent upon high oil prices to run their social welfare states and suggest that, coupled with increased demand over the coming winter, oil will be forced to climb back up the ladder. Other analysts suggest there are numerous oil companies still profitable at current price levels thus supply will remain strong and oil will hang around current prices for longer than expected.

We can’t know which analysts are right and which are wrong but we do know that numerous well-run resource companies have seen their stock price hammered as a result of oil’s decline while the S&P has continued to escalate up its stairway to heaven. Speculators may see this as the best opportunity to get into resource stocks since 2009. Natural resource prices are especially cyclical – low prices drive marginal producers out of business which reduces supply and leads to higher prices which attract marginal producers back to the industry. Booms lead to busts which lead back to booms. Those disciplined enough to buy the bust and sell the boom tend to do well in the resource sector.

Speaking of natural resources, it is the rejection of real money backed by precious metals that, more than anything, has led to the disturbing macroeconomic trends we have been analyzing recently.

In October we examined fiat money and realized that it has always been a major drain on society when implemented throughout history. We agreed fiat money is any currency that derives its value from government law and regulation and we noted that legal tender laws are what force the public to use the government’s money rather than the market’s money.

The academic economists would have you believe we have a complex and sophisticated monetary system. They would suggest that you cannot possibly understand it so you may as well leave it to the experts. The economists will use strange terminology when discussing the economy in newspapers and on television in order to confuse and bore you. Want to know their little secret?

Our economy operates mostly on fake money.

I know, it sounds ridiculous. How is it fake money if you can spend it? That’s exactly what makes the fake money so insidious – you can’t tell that it’s counterfeit.

I will attempt to explain myself by asking a simple question: where does our money come from?

Take your time, I will wait…

If you said “from thin air” then you are the winner! For the last forty years or so our money has been loaned into existence. The Federal Reserve loans new money to its member banks and to the U.S. Treasury and the new money then eventually finds its way into the general economy. Where did the Fed get this money to lend? It created it! From nothing. Ex nihilo nihil fit.

But wait, it gets better. This same process takes place every single time a bank originates a new loan. Say you go get a mortgage to purchase a new home. The bank supposedly lends its deposits to you at interest to finance your home. But this isn’t entirely true. First, the bank is only required to have a fraction of the loan in reserve – roughly 10%. So if your mortgage is $100,000 the bank is required to have at least $10,000 in deposits to support the loan. But does the bank actually take that $10,000 and give it to you? Of course not! That $10,000 in deposits stays right where it is. It could be spent tomorrow if the depositors took a trip to Vegas. So where does the money come from to finance your home?

Hint: it’s the same answer as above.

So you get $100,000 in fresh new money and give it to the seller in exchange for the house. The seller uses your new money to pay off his mortgage and often there is a little bit leftover. The seller calls this profit and puts it in his account and the economy’s money pool gets a little bit bigger: there is now more money in the system then there was before you financed your house.

The economists use terms like ‘M1’, ‘M2’, and ‘money multiplier’ to make this seem like a complicated system but as you can see it’s pretty simple. It’s just a journal entry and a few clicks of the mouse and… PRESTO!

No one noticed a little extra money sneaking into the system here and there at first. But the rate at which new money entered the system increased dramatically as the money supply grew. Forty years later we are starting to see the ill-effects of exponentially expanding credit-based money. This credit expansion has distorted all aspects of the economy because money is half of every transaction. Financial planning and analysis is extremely difficult if no one knows what one unit of money will be worth from one year to the next. It’s always apples to oranges.

So where did our money come from before the fiat money explosion? Money has taken on many different shapes and sizes throughout history but if you go back just a little bit in modern history, say to the mid-19th century, you will probably find yourself using the market’s choice for real money – gold and silver. A little bit later – the late 19th century or so – governments muscled their way into the money business and, instead of just minting gold and silver coins, they created national currencies but they fully backed these currencies with gold or silver. While fully convertible, the currencies operated much like real money but it didn’t take long for governments to reduce the real money backing. They found this so pleasant, they eventually got rid of all currency ties to real money altogether!

One of the big advantages to using real money is that it tends to maintain purchasing power over long periods of time. You can expect real money today to be roughly as valuable as real money ten years from today. You could actually save this real money if you wanted to! Saving leads to capital formation which can drive steady economic activity without the need for massive credit expansion which always results in booms and busts.

There are numerous other advantages to using real money but wife Rachel will fuss at me for making this post long and boring as it is so we will have to come back to them in a later entry.

More to come,

Joe Withrow
Wayward Philosopher

For more of Joe’s thoughts on monetary history and real money please read “The Individual is Rising” which is available at http://www.theindividualisrising.com. The book is also available on Amazon in both paperback and Kindle editions.

The First American Socialists

submitted by jwithrow.

Journal of a Wayward Philosopher
The First American Socialists

November 25, 2014
Hot Springs, VA

The S&P is hanging around $2,070 today. Gold is checking in at $1,196. Oil is floating around $76 per barrel in anticipation of OPEC’s big meeting on Thursday. Bitcoin is still at $380 per BTC, and the 10-year Treasury rate is 2.30% today.

All remains quiet in the financial markets as we turn our attention to the wonderful holiday season upcoming. Thanksgiving is a day of family, food, and fellowship in honor of the legendary first American Thanksgiving celebrated back in the 17th century.

Most Americans are familiar with this story of the Pilgrims and the Indians sitting down together for the first Thanksgiving, but did you know the Pilgrims were the first American socialists? The Pilgrims’ original financing contract stated that all colonists would get their food, clothing, and provisions from the colony’s “common stock and goods” and any profits would go into the “common stock” for the first seven years. The agreement required each person to submit his production to the common stock and the governor was to distribute provisions out to each family according to need. There was to be no private property for at least seven years.

The Pilgrims landed in America on December 21, 1620 and the first winter wiped out half of the population. The following harvests of 1621 and 1622 were miniscule. Governor William Bradford documented the problems stating that the hardest working men found it unjust that they received no more food than the weakest workers, the young men resented working without compensation, and the wives resented doing household chores for other men who were not their husband. How dare them!

The Pilgrims wised up in 1623 and abandoned the socialist model. Governor Bradford documented the transition stating that families became very industrious once they were required to grow their own food with women and children taking on significantly more responsibilities for the family unit. Three times the amount of corn was planted once socialism was abandoned and the colonists actually exported a substantial surplus in 1624. The Pilgrims thereafter purchased back all of the colony’s stock and completed the transition to private property and free markets.

How fortunate we are that the Pilgrim’s experiment with socialism was largely forgotten over time!

What if Woodrow Wilson understood the Pilgrim’s story? There would be no Federal Reserve System, no
income tax, and no centrally planned war-time economy!

Imagine if Franklin Delano Roosevelt had been familiar with the story. Why, Americans would have gotten no New Deal! There would be no Public Works Administration, Resettlement Administration, Rural Electrification Administration, National Youth Administration, Forest Service and Civilian Conservation Corps, Tennessee Valley Authority, Agriculture Adjustment Administration, Federal Crop Insurance Corporation, Farm Security Administration, Federal Housing Administration, Homeowners Loan Corporation, Federal Deposit Insurance Corporation, or Works Progress Administration. There would be no food stamps, no Social Security, and probably no labor unions. Americans would have to settle for the old deal where they had to work hard, make their own decisions, provide for their own financial security, and save with gold coins instead of paper bills. Who wants to do that?

Of course there is a big difference in scale between the first American socialists and the newer variety. The Pilgrims’ experiment was limited to a small colony so when the model failed the damage was limited to the tiny colonial economy. The ill-effects of the newer forays into socialism modeled after Wilson and FDR’s examples are not contained within a tiny economy – they run rampant through a massive modern economy consisting of hundreds of millions of people.

We never seem to learn the lesson today, either. The Pilgrims abandoned the socialist model when the results clearly indicated failure. Today we implement a new public policy when the results indicate failure. We are always just one public policy fix away.

As we discussed last week in our journal entry examining macroeconomic trends, the sustainability of Pax Americana based on socialist programs is likely coming to an end. Will a transition back to free markets and private property be the solution?

More to come,

Joe Withrow
Wayward Philosopher

For more of Joe’s thoughts on the “Great Reset” and regaining individual sovereignty please read “The Individual is Rising” which is available at http://www.theindividualisrising.com/. The book is also available on Amazon in both paperback and Kindle editions.