MyRA-QE Taper Connection

submitted by jwithrow.Government Help

We have a question for you:

Is it a coincidence that the government has introduced the “myRA” plans just as the Federal Reserve has begun to taper its quantitative easing programs?

Let’s think this thing through for a minute.

We know:

  • China is now a net-seller of U.S. Treasuries so the Federal Reserve has had to step in and purchase U.S. Treasury Bonds in increasing quantities to support government spending.
  • The average American saves for retirement in a qualified retirement plan focusing primarily on mutual funds, exchange traded funds, and stocks with bonds comprising a small portion of the allocation.
  • The proposed myRA plans are designed to focus on U.S. Treasury Bonds.
  • The Federal Reserve’s quantitative easing programs have pumped massive amounts of liquidity into the system which has resulted in a broad increase of stock prices across the board.
  • Tapering QE will withdraw liquidity from the system which will almost certainly result in a broad decrease of stock prices across the board and quite possibly a severe stock market crash.
  • A falling stock market would likely cause many Americans to seek investment options that they deem “safer”.
  • The government is already hard-selling their myRA plans stating that there is “no risk to lose what you put in”.

Hmm.

Maybe our benevolent bureaucrats really do think that myRA plans will help the common man.

But we hold dearly to a personal mantra:

Maximize Capital,
Minimize Crap,
Never Trust the Government.

With that mantra echoing in our mind, we can’t help but be a little suspicious – something funny seems to be afoot.

What do you think?

Minimum Wage Cannot Fool the Free Market

submitted by jwithrow.Fed Printing

An important facet of a dynamic market economy is a flexible pricing system where prices can freely adjust in response to changes in supply and demand.

Wages are no exception to this rule. You see, wages are simply the price of labor and this price fluctuates with supply and demand in the marketplace – just like any other price.

When it comes to the jobs market, employers seek to hire employees at a wage which will allow the employer to profit on an employee’s labor. As such, the employee’s salary must necessarily be priced lower than the total value of his or her production. Otherwise the employer would not have a need for the employee’s services.

If this seems callous to you then please ask yourself a question:

Are you willing to pay someone $100 to do a job that is only worth $50 to you?

Well most employers aren’t either.

So, employers are willing to offer a salary within a specific value range according to the nature of the job function. The employee may be able to negotiate a higher salary but only up to the employer’s ceiling price beyond which the employer would not be able to justify the hire.

Minimum wage laws, however well-intentioned they may be, have no place within a free market system. Minimum wage laws distort the market pricing system and they fail to achieve their stated intent – they serve only to increase unemployment. Employers will trim their workforce to account for forced wage increases and individuals who would otherwise be willing to work for pay beneath the minimum wage will be priced out of employment.

What’s lost in the clamor for an increased minimum wage is the fact that wages are not the common man’s problem in the first place. U.S. median household income in 1970 was $7,651. It was $22,109 in 1985. And $41,262 in 2000. And median household income in 2012 was $50,099.

Wages have skyrocketed!

But wages don’t buy nearly as much as they used to, do they? Sounds to us like inflation is the common man’s biggest problem – let’s pass maximum inflation laws!

Or better yet, let’s End the Fed and get back to Sound Money.

Sound Money

submitted by jwithrow.CurrenciesinGold100years

The most important facet of free market capitalism is sound money. If you don’t have sound money then you don’t have free market capitalism – you have something else.

Sound money is simply money that serves as a reliable store of value. Put another way, sound money is money that does not constantly lose its purchasing power. Sound money affords one a reasonable expectation that one unit of money today will buy the same amount of goods and services as one unit of money tomorrow. And next month. And ten years from now.

What a novel concept!

Anyone who has taken a finance course is familiar with the time value of money principle. In finance class, we learn to discount our money over time based on the inflation rate. We are taught, correctly, that present dollars are worth more than future dollars.

What we are not taught is that this is a deformation of free market capitalism!

The general market has chosen gold and silver to serve as money throughout most of history because the precious metals are particularly well suited for this purpose: they are limited in supply, they have functional utility outside of the monetary system, and, unlike our money today, they cannot be created from nothing.

Make no mistake about it, that’s where our money comes from today: nothing. It is created from nothing and then loaned into existence at interest. See the Hidden Secrets of Money video series for a more thorough examination of our money.

You see, money should not be a function of government nor should it be a function of a central bank behind closed doors. And it certainly shouldn’t be created from nothing. This is why the U.S. Constitution only authorizes gold and silver as legal tender; the Founders knew well the virtues of sound money and the dangers of fiat currency.

Did you know that the U.S. dollar was defined by the Coinage Act of 1792 to be 371.25 grains of fine silver? This act set the standard weight and measure of the dollar in terms of silver and individuals in the market were still free to accept or reject coins of differing weights and measures as they saw fit.

But we digress.

Here is why sound money is important to you:Thomas Jefferson Money Quote

Every dollar to your name is constantly losing value and there is no way for you to predict how much value your savings will lose over time.

This is a direct result of the monetary system that is in place whereby central banks create money from nothing and then lend that money to governments and to commercial banks at interest. That money then enters the economy when governments spend it and when commercial banks lend it out to customers. This is done constantly and it is why your money constantly loses value. Such a system has a profound impact on people from every walk of life.

How can we accurately plan for anything long-term if our money is constantly losing value? We can only guess.

What we do know from history is that sound money leads to a stable economy while fiat money leads to booms and busts.

The general market prefers the former while big government prefers the latter.

For more information on the sound money principle see the article links below. For a lot more information on sound money and monetary history see the book links below.

The Principle of Sound Money

The Simplicity of Sound Money

An Introduction to Sound Money

Money is an Illusion

submitted by jwithrow.Money Illusion

Currently we use fiat currency as money… But it’s just an illusion.

If you doubt this then ask yourself the question: What is money?

Yes, you know what money does – it buys things. But what is it?

Is it a green piece of paper with numbers and words and some symbols printed on it? Is it a card with your name, a string of numbers, and a bank logo on it?

Or is that just a piece of paper and a piece of plastic?

Fiat money is not wealth. That runs contrary to everything our society has told us, but it is the truth.

Fiat money is simply a medium of exchange which can then be used to acquire wealth… But the money itself is nothing more than a tool.

Historically, we have used gold and silver, and notes backed by gold and silver as money.

Our fiat currencies today serve the same purpose as gold and silver money… But there is one major difference. Fiat currencies can be created arbitrarily from nothing. And the central banks of the world create their fiat currencies out of thin air in massive numbers.

That’s the biggest secret of the 1% – fiat money is an illusion that is available in abundance.

While fiat money can be created out of thin air, the value of existing money necessarily falls as new money enters the economy. That’s just basic supply and demand economics. All things equal, value goes down as supply goes up.

Basically, the new money steals value from the old money. The old money can buy less and less over time. It loses purchasing power.

And that means they poach value from your bank account every time they pump a little more money into the system.

As a result, our cost of living rises over time.

Because of that, the key to financial success is not to hoard money. It’s to use money to acquire assets… Assets that rise in value over time because of all the new money being created from nothing.

The truth is, money is little more than an idea. It is an illusion… And it is only valuable as long as it is perceived to be valuable.

So if you think of money as an idea and not as a tangible asset, you will see that it takes nothing but an idea to obtain more money. But that money must then be exchanged for assets in order for it to be converted into wealth.

P.S. My Finance for Freedom course series pulls back the curtain on how money and finance really work. And it covers expert financial strategies to increase income, build wealth, and shatter the glass ceiling forever. Learn more at newly revamped https://financeforfreedomcourse.com/.

Nominal Income vs. Real Income

submitted by jwithrow.

US Dollar Purchasing Power

Most of us understand that inflation is a given in our world today… But not too many of us think about how inflation affects our income.

We tend to think of our income in nominal terms rather than in real terms because that’s what we can see. We can see the numbers. After all, nominal income is our income defined only by its dollar amount.

While this just seems like common sense, it’s not the real story.  You can expose the flaw of nominal income when you compare it over periods of time.

Think about this. What if our income goes from $48,000 last year to $50,000 this year? That’s a 4% raise. Not too bad, right?

Well, let’s look at our income in real terms. Real income is income defined by its purchasing power. It is nominal income adjusted for inflation.

What if inflation rises to 4% this year?

Well, the means our $50,000 salary this year will have basically the same purchasing power as our $48,000 salary last year. In other words, we didn’t get ahead. Our raise wasn’t actually raise. That’s because our income did not go up in real terms… even though our paychecks were bigger.

That’s why it’s so important to see income in terms of purchasing power… Not in terms of nominal dollars.

The real story is that the American middle class has been stuck on a giant hamster wheel for decades now. Their paychecks keep getting bigger… But their purchasing power is destroyed by inflation. They are stuck.

This is why the Austrian School of Economics views inflation as an insidious tax. If nominal income kept pace with inflation then it would not be so bad. But wages have struggled to keep up with inflation since the early 70s.

Now, wages have done a decent job of keeping up with the Consumer Price Index (CPI). But this index has been adjusted several times to ignore food and fuel price increases. They fudge the numbers to make the CPI look better.

By the way, Social Security promises cost of living increases tied to the CPI… Retirees are getting a raw deal there.

This concept also exposes the retirement folly pushed by the financial services industry.

Have you seen those commercials about your “magic number”? They say you need a certain amount of dollars saved up for retirement to live securely off the income.

But if you think in terms of real income and purchasing power… It is impossible to pinpoint a magic number. Inflation will constantly eat into it. That’s why their magic number is just a carrot on a string.

So, the only way to truly take control of your own financial destiny is to think in real terms… And to recognize the nominal view of money for the illusion that it is.

P.S. Our Finance for Freedom course series pulls back the curtain on how money and finance really work. And it covers expert financial strategies to increase income, build wealth, and shatter the glass ceiling forever. Learn more at newly revamped https://financeforfreedomcourse.com/.