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What Made America Wealthy

What Made America Wealthy

In order to grow wealth one does need to live in a society that values personal responsibility, property rights and equal protection under the law. Of course if one is fortunate enough to be born into an elite ruling class or a wealthy family that isn’t necessarily the case.

The United States of America was a country that made more wealthy people than any other up to that point was because the majority of people in the United States, among other things, valued personal responsibility, property rights and equal protection under the law.

It wasn’t because the United States had any special divine right, or “manifest destiny.” There wasn’t anything exceptional about the skin color of it’s residents or that the average person there was exceptionally smart.

There are certain values and principles that enable wealth creation and the United States adopted many of them.

Unfortunately many in the United States no longer hold those values. There is the attitude that the United States is inherently rich. “It’s the richest country in the world!” And that whatever financial decisions the US makes is good because it’s the US.

This nationalistic hubris has resulted in poor decision after poor decision by political leaders and the decline of the wealth of the US. Sure, there are wealthy people in the United States and the average person in the US is much better off than the average (or above average) person in the Somalia. But the debts, the decline in life expectancy (albeit small), the failed and pointless wars in Iraq and Afghanistan, the insolvency of states like Illinois and the collapse of the value of the dollar are all indicative of the decline of the United States.

Spending Like a Drunken Sailor

Both of my parents were in the Navy and exemplars of sobriety, so please forgive the analogy, but the United States has a huge spending problem.

The biggest and most entrenched are: Defense, Social Security, and Medicare.

I quote from Simon Black of Sovereign Man:

…just between those three programs, plus paying interest on the debt, the US government already spends MORE than it collects in tax revenue.

In 2016, for example, the government spent $2.87 trillion on Defense, Social Security, and Medicare, plus an additional $433 billion paying interest on the debt.

That totals over $3.3 trillion, which is more than they collected in tax revenue.

In other words, they could cut EVERYTHING ELSE in government: Homeland Security, national parks, funding for the arts, the Department of Energy. Everything.

And there would still be a budget deficit.

Source: sovereignman.com/

There is no mainstream US politician that discusses cutting defense spending. There is no mainstream US politician that discusses cutting Social Security spending. There is no mainstream US politician that discusses cutting Medicare. Politicians on the American “left” don’t cut defense spending. Politicians on the American “right” don’t cut defense spending.

Independence Day

Many in the United States celebrate Independence Day today. Ostensibly celebrating fireworks, food and America. Originally the celebrating was to commemorate the Declaration of Independence of 13 British colonies.

Dependence on Debt

However, the colonies that would become states that would become the United States have become enslaved to debt. This debt is a problem. A large problem.

The debts owed by the United States certainly won’t be repaid honestly. The United States could default on it’s debt, which would be the honest thing to do, or it could monetize the debt by printing the money the repay the debts. This has and will continue to destroy the dollar.

High taxes and regulations are also a crushing burden on the productive capacity of the United States. Honest productive business that bring valued goods and services to consumers are most hurt by this, while politically connected businesses with powerful friends benefit from unequal enforcement and cronyism.

The United States became an economic superpower because people who created value were rewarded. People who took calculated risks to bring value to others were able to reap the benefits. Capital was allocated not by government ministers or overlords but by private individuals closest to the decisions being made. People worked hard and smart and those that didn’t work hard and smart had to suffer more negative consequences than they do today.

The United States has strayed far from those principles that made it successful but the 4th of July celebration of this country goes on.

Illinois: Microcosm of the United States

Illinois: Microcosm of the United States

When an entity has no savings and the entity spends more money than it gains in revenue it must be going into debt.

This basic truth applies to people, households, businesses, governments and any other organization.

Many people and most governments don’t particularly care about this fact. Spending today and paying for it in the future is more politically popular than saving and fiscal discipline.

A great example of this recklessness and the ensuing crisis is Illinois. But the dire warnings aren’t coming from some fringe blog or conspiracy theorist. They come from Illinois Comptroller Susana Mendoza.

“I don’t know what part of ‘We are in massive crisis mode’ the General Assembly and the governor don’t understand. This is not a false alarm,” said Mendoza, a Chicago Democrat. “The magic tricks run out after a while, and that’s where we’re at.”

Source: http://www.seattletimes.com/business/official-warns-illinois-finances-in-massive-crisis-mode/

As of today the state of Illinois has a payment backlog of $15.1 billion. It’s not because the state isn’t making the payments fast enough. It’s because the state of Illinois doesn’t have the money to make the payments.

Source: http://ledger.illinoiscomptroller.gov/

Illinois hasn’t had a budget in 2 and a half years. The state’s debt has the lowest credit rating of any of the United States.

It’s also very telling what “solutions” are being proposed. Raising taxes and printing money.

Mendoza channels her inner Yellen stating: “Once the money’s gone, the money’s gone, and I can’t print it.”

The answer is never that there has been financial recklessness and irresponsibility. The answer is never that spending should be reduced. It’s borrow more, print money and raise taxes.

Illinois is a preview of the United States

The borrow, print and tax is a tired set of plays from an old playbook that doesn’t work. But I think it’s the same set of strategies the Federal United States government has been and will continue to use. The main difference is that the Federal government has a virtual printing press and can monetize the debt. Illinois doesn’t have it’s own currency that it can create more of out of thin air.

When the US Federal government has a debt that is due, they can issue more debt (US Savings Bonds, Treasuries, etc) and they find a willing buyer in the United States Federal Reserve as well as private investors and other governments.

When the Federal Reserve buys US government debt it is very harmful to the economy and it’s the reason why the US dollar has lost most of it’s value.

But knowing the playbook the government uses allows you to pick appropriate defensive plays. Insolvent governments try to raise taxes so investing in tax advantaged retirement vehicles is smart.

The government inflates the money supply so invest in assets like gold and silver that can’t be devalued by money printing.

Some folks like Simon Black even recommend US citizens getting a second passport so that if things get really bad, one can simply leave the country.

I’ll be keeping an eye on Illinois. It’s a example of how a government will react when it’s insolvent. I think it will look very similar to what the US will do when it’s debt problem hits the fan. The X factor is that Illinois does not have a printing press, so the effects of fiscal recklessness are much harder to paper over (pun intended). But the printing press only delays the inevitable. If a government could print wealth then Zimbabwe, Venezuela and Weimar Germany would be the richest countries in the world.

No, Even with ETH at $2 Gazzillion, Ethereum Cloud Mining Isn’t Profitable

I think the vast majority of my readers get it. I think my readers are smart, critical thinkers. However, I’ve gotten a few comments from people who somehow think that because ETH is now trading upwards of $300 that somehow my article Ethereum Cloud Mining is Not Profitable is no longer valid.

I’ll make myself clear. It does not matter how high ETH goes, Ethereum cloud mining was not profitable for me.

Did I make more money as a result of Ethereum cloud mining compared to simply holding onto the $561? Yes. But the fact remains that the Ethereum cloud mining contract was a slow, expensive way to acquire ETH.

Owning ETH was profitable. I made money on the appreciation in dollar value of ETH. I would have made more money if I had bought ETH directly, versus Ethereum cloud mining.

I wrote this very clearly three months after I purchased the Ethereum Cloud Mining contract from Hashflare.io:

I would also be better off if I had just bought ETH.

If I bought $561 of ETH for $9 (where it was trading when I started mining). I would have 62 ETH…

Through Ethereum cloud mining I mined 41.27 ETH.

I would rather have 62 ETH immediately than wait a year to get 41.27 ETH. The cloud mining contract increased my cost basis.

Now, if I could buy hashing power at a low enough cost Ethereum cloud mining could have been profitable. If mining difficulty went down over time, Ethereum cloud mining would be more likely to be profitable. However, mining difficulty has consistently gone up and the cost of cloud mining contracts is too high.

Ethereum cloud mining was not a good investment for me. I would have been better off simply buying ETH directly. This is true regardless of how high the price of ETH goes.

Building a Boat in the Desert

Building a Boat in the Desert

There is a story in the Old Testament (or Torah) in which a man named Noah was instructed by God to build a large boat (called an Ark) in order to save himself, his family, and a lot of animals from a flood that would cover the entire earth.

Although it’s not clear exactly where Noah resided before the flood, and he must have had access to large quantities of lumber, there is reason to believe that he lived in a rather arid environment. We’ll call it the desert.

Put simply Noah was building a giant boat, on land, in the desert. He must have looked rather foolish. But Noah had good reason to believe building the Ark was a good idea and he built it in spite of what I can imagine would have been a lot of derision and mockery from his contemporaries.

Now, I’m not saying for a minute that the next financial crisis is going to be a biblical, extinction level event equivalent to the great flood in the bible. There are a lot of enterprising folks around the world and if the economy crashes and the government stays out of the way, entrepreneurs will be able to provide solutions to whatever problems ensue. Life will go on, even if it is painful for some or even many people.

But the point is, it sometimes takes courage to go against the common wisdom of the day and make some prudent preparations. If other people knew what Noah knew, I’m sure they would have been building boats as well.

As I’ve said before it’s important to have some moderation. After all, the excessive debt, spending, and general recklessness has gone on for some time, and could continue for some time to come. There is no reason to panic or go live in a bunker.

But some day, there will be a point in which governments will no longer be able to borrow and spend money beyond what the economy is producing. The United States in particular cannot continue to borrow money at low interest rates forever. When the marketplace equalizes and goes back to a normal level, a lot of the wealth people thought they had will no longer exist.

That’s why it makes sense to take some steps to consider building your own financial ark. I’ve written about various ways to do this, such as gold, value stocks, holding some cash and maybe even taking a chance on some cryptocurrencies, even though right now they are at the high side of their historic ranges. Silver, which I don’t write about that often, is also significantly undervalued in my opinion.

Some people will say owning gold is crazy. They’ll say cryptocurrencies are a large bubble or ponzi scheme (they could be right about that). They’ll say that buying stocks at all time highs is the only way to go. They’ll say that bonds are safe. They’ll say it’s impossible to beat the market and that if a stock is undervalued there is a good reason for it. They’ll say the dollar will always be relatively strong and that the US debt is manageable.

But that is head in the sand thinking. It’s dangerously naive. Being aware of the risks is important and it’s also important to take some practical steps to protect yourself.

Some people may think you’re silly for building an ark in the middle of the desert, but when the waters start rushing in, you’ll be glad you did.

US Economic Fundamentals are not Strong

Some people think the United States economy is doing well. The unemployment rate is low. Major US stock indices continue to rise.. There has not been hyperinflation of consumer prices.

So one might be tempted to think the economy is doing pretty well and everything is good and normal. I don’t think this is accurate but I think it is important to look at some of the measures that do seem to support the view that the US economy is on strong ground.

The following are some facts that people will point to when they say that everything is fine.

The “Good”

Stocks are Up

US Stock investors have been handsomely rewarded since the lows of the 2008 financial crisis.

Led by darlings such as Apple, Alphabet (Google), and Amazon, the NASDAQ composite has reached new all-time highs.

The S&P 500 has been on a tear, also making new highs without any significant corrections.

The Dow Jones Industrial average is also making new highs.

The Dollar is Relatively Strong

Despite unprecedented central bank intervention and record US debt the US Dollar Index is holding.

US GDP Continues to Rise

United States Gross Domestic Product continues to climb.


source: tradingeconomics.com

Low Unemployment

The unemployment rate is below 5%.

Source: https://data.bls.gov/timeseries/LNS14000000

The Bad

But if you look a little deeper than the headlines there are systemic problems in the United States economy.

A lot of People Aren’t Working

Labor Force Participation is at levels not seen since the 70s. And no, it’s not because of baby boomer’s retiring. Labor force participation from those age 25-54 has dropped from 82.8% in 2004 down to 80.9% in 2014. Participation from those age 65 and older has increased from 14.4% in 2004 up to 18.6% in 2014. Source: https://www.bls.gov/emp/ep_table_303.htm

Just because the unemployment rate is low doesn’t mean people aren’t unemployed. If someone is unemployed for long enough, they simply drop off. If someone is fired from a good paying salaried position, and they get two new part time jobs, that is considered a net job gain.

United States GDP Growth is Slowing

The growth rate of US GDP has been trending down.


source: tradingeconomics.com

US Debt is Growing

US National debt is up to nearly $20 trillion, not counting the unfunded liabilities of Social Security and Medicare. Source:

It is politically impossible to cut spending. As Simon Black recently pointed out:

In 2016, for example, the government spent $2.87 trillion on Defense, Social Security, and Medicare, plus an additional $433 billion paying interest on the debt.

That totals over $3.3 trillion, which is more than they collected in tax revenue.

Source: https://www.sovereignman.com/trends/and-now-for-the-bad-news-21884/

In other words all spending on the department of energy, education, homeland security, everything else besides defense, social security and medicare could be cut completely and there would still be a budget shortfall.

I believe it is politically impossible to cut social security, medicare or defense spending in the United States.

The Debt to GDP is Rising

The debt to GDP ratio is at levels not seen since the United States was fighting a World War in the 40s. Source: https://en.wikipedia.org/wiki/File:Public_debt_percent_of_GDP.pdf

State Pension Funds are Underfunded

The majority of State Pension funds are underfunded.

Source: https://taxfoundation.org/state-pensions-funding-2017/

Social Security and Medicare are Underfunded

This isn’t some alarmist drivel. The people in charge of the Social Security and Medicare Trust Funds are issuing statements like following:

“Both Social Security and Medicare face long-term financing shortfalls under currently scheduled benefits and financing.”

Source: https://www.ssa.gov/OACT/TRSUM/

As well as statements like:

Under the intermediate assumptions, DI Trust Fund asset reserves are projected to become depleted in the third quarter of 2023, at which time continuing income to the DI Trust Fund would be sufficient to pay 89 percent of DI
scheduled benefits. Therefore, legislative action is needed soon to address
the DI program’s financial imbalance. The OASI Trust Fund reserves are
projected to become depleted in 2035, at which time OASI income would be
sufficient to pay 77 percent of OASI scheduled benefits.

Source: https://www.ssa.gov/OACT/TR/2016/tr2016.pdf

I haven’t even touched on consumer debt, state debt, low home ownership, and low savings per capita.

The US Economy isn’t Fine

So despite headlines like the low unemployment rate and stock markets making new highs that seem to indicate a recovery from the 2008 financial crisis there are systemic issues in the US economic system. I don’t think that the United States will be able to continue to borrow and spend without consequences. The fact as the United States has a printing press and the world reserve currency doesn’t mean it can borrow and spend forever.

There are ways to protect yourself but you have to be aware of the problems.

Sanity in an Insane World

Sanity in an Insane World

I’ve written about problems with the United States dollar and the US economy.

I’ve been influenced by folks like Peter Schiff and Simon Black. To say the least these guys are not bullish on the US economy. I think they’re right and I think it’s wise to listen to what they say, be aware of the risks, and determine what course of action makes sense for your unique situation.

But while things aren’t great, particularly for those on fixed incomes without assets or investments, there hasn’t been a significant stock market correction and the US dollar is still relatively strong. Does that mean that people like Peter Schiff or Simon Black are wrong? Does that mean I’m wrong?

Things aren’t getting better. The underlying problems remain and only get worse. Governments have tremendous debt, interest rates are distorted, governments continue to spend recklessly, central banks are out of control and asset prices are inflated.

In the face of these problems I think there are two mains risks when it comes to behavior that fall on opposite ends of a spectrum. To willfully embrace either of these mindsets and their resultant behavior is, I think, crazy.

The First Kind of Insanity: Doing Nothing

Proud as a Peacock

On the one hand there is a person who does not take the risks seriously because they don’t think there are any significant risks.

People with this mindset believe that the United States can manage it’s debt. They laugh at anyone who suggests the recovery isn’t real or that the stock market growth isn’t based on sound fundamentals.

Subscribers to this attitude think the United States is the richest and freest and greatest country in the world and that $20 trillion in debt and trillions in unfunded liabilities is not a problem. They think the US government can just print money or increase taxes or grow the economy and everything will be fine.

Folks with this type of attitude hold their savings entirely in dollars and US-centered assets. They are comfortable being heavily invested in US stocks. They believe that government promised programs will be there for them when they most need them.

They can’t envision a world in which the United States isn’t the dominant world superpower. They can’t imagine the US dollar not being the world reserve currency.

This mentality is common in those who are blissfully unaware of the lessons of history and the facts of math.

This is the peacock mentality. People with this mentality strut around and deny there are any problems and so do nothing to protect themselves.

An Ostrich Hiding

Similar to the peacocks of the world there are people who realize there are problems with the economy but still choose not to do anything about it. Maybe they think there isn’t anything they can do about it. They think if the dollar falls and the stock market crashes then they have no choice but to go down as well. They’re either unwilling to learn about alternatives or simply don’t think alternatives exist.

They also might willfully ignore anything suggesting there are problems. If pressed they would concede that another 2008 or 2000 crisis are possible and that government debts won’t be repaid, but they really don’t want to think about it.

People with this type of attitude don’t have the misplaced confidence of the peacocks but they make the same choice not to take any decisive action to protect themselves.

They stick their head in the sand. This is the ostrich mentality.

A Second Kind of Insanity: Living Life around Anticipation of Crisis

But at the same time I think there is a risk of having a bunker mentality. This attitude that crisis is imminent and the sky will fall any day now. Individuals who think this way might go 100% into cash. Or go 100% into gold. Or go 100% into guns and food. Or they take huge risks trying to short the stock market.

A Turtle in it’s Shell

But I think this attitude of going into one’s shell is not particularly helpful. It’s hard to accomplish anything or live a fruitful life when you’re hunkered down and metaphorically looking over your shoulder all the time. This is the turtle mentality.

The Golden Mean

Aristotle and the ancient Greek philosophers spoke of a golden mean. The idea that the correct course of action or virtue is the middle path between two extremes. For example, courage is the golden mean between recklessness and cowardly inaction.

The key to sanity in an insane financial world is decisive, measured and purposeful action when it comes to preparation. Two extremes when it comes to investing would be on the one end of the spectrum shorting the S&P 500 with one’s life savings. On the other end would be buying a 3x bull S&P 500 ETF.

But just because I believe US stocks are in a bubble doesn’t mean I’m going to go with the extreme of shorting the market. It does mean that I’m going to limit my exposure to US stocks and be very selective about which stocks I own.

When it comes to dollars the two extremes would be 100% in dollars or 0% in dollars. But just because I think dollars are overvalued and will continue to lose value doesn’t mean I have to go to the extreme of 0%. It doesn’t mean I go 100% into gold or I only own precious metals and cryptocurrencies. I actually advocate holding some cash. Emphasis on some. I also earn money in dollars and invest in value stocks.

This applies to attitude as well. Being negative and pessimistic isn’t going to do anyone any good. Thinking everything is awesome and always will be isn’t a very good approach either. But there are still many great businesses in the US and there is lots of opportunity in the United States and in the world.

The United States has problems. Lots of economies around the world have problems too. There are going to be winners and losers. Many promises that have been made will be broken. But in the midst of all this there is tremendous opportunity. The important thing is to remain calm, take some practical steps to protect yourself and live your life.