The fact that the market needs to be saved should raise concerns on what the costs are and why are we trying to save it? Unfortunately, the costs most likely compounded to a point where civilizations are at stake.
Thursday, April 10, 2014
Yellen saves the day
The market rallied again on Federal Reserve Chairwoman Janet Yellen's comment on keeping 0% interest rate a little longer. For those feeling compelled to join the rally, ask yourself, why did the market sell off? Were you able to profit before it occurred? How long until Janet Yellen saves the market again?
Saturday, March 8, 2014
How capitalism began and why it matters
Capitalism is an economic system in which individuals choose to engage in productions for private profits. To fully understand its benefits, one can look at history for answers.
In the 18th century of England, society was based on feudalism in which peasants serve and produce for the nobles. If man was born as a peasant, then he will remain a peasant, and if he was born rich, then he will always remain rich.
As the population of peasants increase, problems arose as nobles did not know what to do with them. They were simply outcasts and the numbers continue to grow. In addition, raw materials became scarce, and the nobles could not find a solution.
Out of the crisis, some outcasts began organizing shops to produce cheap goods not for nobility but for everyone else. This innovation marked the beginnings of capitalism; mass production satisfying the needs of the mass. The people who produced the goods are also the consumers of the goods. It is a cycle that increased living standards that did not exist before.
In today's world, people lost sight of what capitalism is, such as misunderstanding that consumers are different than the producers, when in fact they are one and the same. There is also criticism that capitalism is evil, but fail to realize that it enabled the increase of living standards and population growth. Take away capitalism and we will go back to what it was before- peasants serving nobles, and low living standards.
Unfortunately, capitalism also lost the conditions that allow it to succeed as well. Originally, producers had the benefits of producing and consuming. Those in power interfered heavily through market regulations and taxation. This created an environment similar to peasants serving nobles, in which all the efforts of the producer were indirectly being stolen to benefit those in power.
In the 18th century of England, society was based on feudalism in which peasants serve and produce for the nobles. If man was born as a peasant, then he will remain a peasant, and if he was born rich, then he will always remain rich.
As the population of peasants increase, problems arose as nobles did not know what to do with them. They were simply outcasts and the numbers continue to grow. In addition, raw materials became scarce, and the nobles could not find a solution.
Out of the crisis, some outcasts began organizing shops to produce cheap goods not for nobility but for everyone else. This innovation marked the beginnings of capitalism; mass production satisfying the needs of the mass. The people who produced the goods are also the consumers of the goods. It is a cycle that increased living standards that did not exist before.
In today's world, people lost sight of what capitalism is, such as misunderstanding that consumers are different than the producers, when in fact they are one and the same. There is also criticism that capitalism is evil, but fail to realize that it enabled the increase of living standards and population growth. Take away capitalism and we will go back to what it was before- peasants serving nobles, and low living standards.
Unfortunately, capitalism also lost the conditions that allow it to succeed as well. Originally, producers had the benefits of producing and consuming. Those in power interfered heavily through market regulations and taxation. This created an environment similar to peasants serving nobles, in which all the efforts of the producer were indirectly being stolen to benefit those in power.
Thursday, February 6, 2014
Introduction to Supply and Demand
Supply-and-Demand is a concept to represent the amount of supply and demand for a good or service.
Its main purpose is to seek equilibrium to maximize profit. To clarify, see the graph below:
There are 4 components in the Supply-and-Demand graph: Price, Quantity, Demand, and Supply.
The graph shows that supply is greater in quantity than
demand. In other words, a surplus of unsold goods or services, which results in less sales.
What if price of an item was set below equilibrium; green line below.
The graph shows that demand is greater in quantity than supply. This resulted in a shortage; or lost opportunities as there were extra demand.
These are the very basics of Supply-and-Demand. In the real world, it is much more complex as things change constantly. The basic model is to help simplify how economics typically work.
Its main purpose is to seek equilibrium to maximize profit. To clarify, see the graph below:
There are 4 components in the Supply-and-Demand graph: Price, Quantity, Demand, and Supply.
- The Demand curve shows that as prices falls, then quantity rises. This is true as more people will buy when prices are low.
- The Supply curve shows that as prices falls, then quantity falls. Again, more people will buy when prices are low, which will diminish the supply.
- The equilibrium is the point where both the demand and supply curve meets. It is ideally the point in which the greatest profits can be achieved.
What if price of an item was set below equilibrium; green line below.
These are the very basics of Supply-and-Demand. In the real world, it is much more complex as things change constantly. The basic model is to help simplify how economics typically work.
Thursday, January 30, 2014
The U.S. roadmap to Income Inequality and how it will end.
The pursuit of economic growth and inflation has always been part of the practice in achieving 'Income Inequality'. It was an idea conceived long ago when the U.S. Government enacted The Federal Reserve Act of 1913-The easiest way to make money is to 'make money'. 100 years later we now see the plan coming into fruition, and they sure are reaping what they sow.
For those hoping for better days, there is light at the end of the tunnel. It will be a train wrecking calamity. The following will occur in months to come:
1. Corporate profits will decline dramatically. There's a point where the lower and middle class will run out of money to support this charade.
2. Stock markets will fall accordingly from missed expectations and lower guidance.
3. Bankruptcy filings will appear in droves.
4. Government will react by saving Too-Big-To-Fail with bail-ins and bail-outs using whatever wealth that the lower and middle class still has.
5. Violence erupts in the masses. Worse case scenario is war.
There are no 'happily ever after' in this scenario as long our government continues to support the practices we have today.
For those hoping for better days, there is light at the end of the tunnel. It will be a train wrecking calamity. The following will occur in months to come:
1. Corporate profits will decline dramatically. There's a point where the lower and middle class will run out of money to support this charade.
2. Stock markets will fall accordingly from missed expectations and lower guidance.
3. Bankruptcy filings will appear in droves.
4. Government will react by saving Too-Big-To-Fail with bail-ins and bail-outs using whatever wealth that the lower and middle class still has.
5. Violence erupts in the masses. Worse case scenario is war.
There are no 'happily ever after' in this scenario as long our government continues to support the practices we have today.
Tuesday, January 28, 2014
Income Inequality and Wealth Transfer Simplified
Let's begin with the catchphrase, "The rich gets richer and the poor gets poorer." We all hear this at some point or another, but never really took the time to understand why. In basic economics, it is referred to as 'Income Inequality', a widening gap in wealth between the rich and poor. Today's world, it is caused by the transfer of wealth from the poor to the rich. To solve a problem such as this, we must identify the root cause by going to the fundamentals of money creation.
Money Creation via Currency
Imagine a scenario when money must first be created. First, the money printer prints $200, and gives it to 2 people. They both hold $100 each, which they both hold 50% of the money supply. The $100 bill is quite valuable as it is only 1 of 2 in the entire world. They both use it to trade for goods and services from each other.
Transfer of Wealth via Money Creation
The money printer creates $100 and gives it to Person A. This time Person A holds 2/3rd of the money supply! Suddenly, that $100 that was worth 50% is now worth 33.33%. Person B is now at a disadvantage, since he only holds 1/3rd. The creation of a $100 dilutes the value in terms of basic 'supply-and-demand'. Person A is now richer because he was the recipient of the extra $100.
Income Inequality via Transfer of Wealth
Person A sees the benefits of transferring wealth from Person B, and asks for money from the Money Printer. There is now $400 in existence, and Person A holds $300 ( 75%) of the wealth. Person B is still holding the same $100, but it is only worth 25%. By continuing to dilute the money supply, the gap in wealth continues to widen.
Real Life Scenario Comparison
The story sounds ridiculous but this is essentially what is occurring in the world. Each country has a Central Bank that creates new money and charges interest. The interest payment goes to the owners of the Central Bank. The more money the Central Bank creates, the more interest payment they get. Private Banks benefit from this as well as they are the recipient of the printed money. This is simply a wealth transfer by dilution of the money supply. Those that are able to gain easy access are the ones that benefit. A scheme such as this is only possible when government mandates it, and the people accepts it.
Real Life Solution
The only solution is to replace the current monetary system that is not inflationary by design. There are no exceptions. It is a system rigged to benefit those that are in control of the monetary system.
Money Creation via Currency
Imagine a scenario when money must first be created. First, the money printer prints $200, and gives it to 2 people. They both hold $100 each, which they both hold 50% of the money supply. The $100 bill is quite valuable as it is only 1 of 2 in the entire world. They both use it to trade for goods and services from each other.
Transfer of Wealth via Money Creation
The money printer creates $100 and gives it to Person A. This time Person A holds 2/3rd of the money supply! Suddenly, that $100 that was worth 50% is now worth 33.33%. Person B is now at a disadvantage, since he only holds 1/3rd. The creation of a $100 dilutes the value in terms of basic 'supply-and-demand'. Person A is now richer because he was the recipient of the extra $100.
Income Inequality via Transfer of Wealth
Person A sees the benefits of transferring wealth from Person B, and asks for money from the Money Printer. There is now $400 in existence, and Person A holds $300 ( 75%) of the wealth. Person B is still holding the same $100, but it is only worth 25%. By continuing to dilute the money supply, the gap in wealth continues to widen.
Real Life Scenario Comparison
The story sounds ridiculous but this is essentially what is occurring in the world. Each country has a Central Bank that creates new money and charges interest. The interest payment goes to the owners of the Central Bank. The more money the Central Bank creates, the more interest payment they get. Private Banks benefit from this as well as they are the recipient of the printed money. This is simply a wealth transfer by dilution of the money supply. Those that are able to gain easy access are the ones that benefit. A scheme such as this is only possible when government mandates it, and the people accepts it.
Real Life Solution
The only solution is to replace the current monetary system that is not inflationary by design. There are no exceptions. It is a system rigged to benefit those that are in control of the monetary system.
Monday, January 27, 2014
Overview of Asset Classes for Investments
Asset Classes are a group of securities that can be invested for the purpose of profits:
The most common and popular choice is stocks (equities). Stocks require minimal amount of starting capital, and could potentially return the greatest. Stocks perform exceptionally well when governments/central banks impose inflationary policies though money printing. However, the risks are very high and prices can go to zero.
Bonds are essentially loans charging interest payment until maturity. Upon maturity the loan is paid back at bond value (par value). The value of the bond changes according to interest rates. If interest rates rises, then the value of the bond declines. This could potentially cause losses, especially if the bond issuer defaults (bankrupt). Ideally, bonds returns the greatest gain when interest rates are high and trends downward before maturity.
Perhaps the most lucrative investment are Real Estates. Limited land and rising population are favorable condition for owning land. There are typically 2 ways to profit from real estate: leasing or selling. A critical mistake often made is using debt to finance the purchase and calling it an Asset. Unless the debt is paid in full, it can not be considered an Asset.
Commodities can range from a wide variety of items such as goods, services, natural resources, and precious metals. These are the least sought investment as the value generally rises during times of currency inflation or fear. Historically, commodities retain their value and do not succumb to default or going to zero in price.
- Stocks (Equities)- shares of ownership in a company
- Bonds- lending money to an organization to earn interest
- Real Estate- physical property for leasing
- Commodities- natural resources and precious metals
The most common and popular choice is stocks (equities). Stocks require minimal amount of starting capital, and could potentially return the greatest. Stocks perform exceptionally well when governments/central banks impose inflationary policies though money printing. However, the risks are very high and prices can go to zero.
Bonds are essentially loans charging interest payment until maturity. Upon maturity the loan is paid back at bond value (par value). The value of the bond changes according to interest rates. If interest rates rises, then the value of the bond declines. This could potentially cause losses, especially if the bond issuer defaults (bankrupt). Ideally, bonds returns the greatest gain when interest rates are high and trends downward before maturity.
Perhaps the most lucrative investment are Real Estates. Limited land and rising population are favorable condition for owning land. There are typically 2 ways to profit from real estate: leasing or selling. A critical mistake often made is using debt to finance the purchase and calling it an Asset. Unless the debt is paid in full, it can not be considered an Asset.
Commodities can range from a wide variety of items such as goods, services, natural resources, and precious metals. These are the least sought investment as the value generally rises during times of currency inflation or fear. Historically, commodities retain their value and do not succumb to default or going to zero in price.
Tuesday, January 21, 2014
U.S. Monetary History says gold is a good bet
Monetary History
Since the Coinage Act of 1792, the United States was functioning under a bimetallic standard: gold and silver. Until 1873, the German empire dropped the coinage of silver causing a downward pressure in value. This prompted the United States to fully embrace gold. By the end of 1870s, all other major countries switched to the gold standard, and began what was known as the Classical Gold Standard.
Since the Coinage Act of 1792, the United States was functioning under a bimetallic standard: gold and silver. Until 1873, the German empire dropped the coinage of silver causing a downward pressure in value. This prompted the United States to fully embrace gold. By the end of 1870s, all other major countries switched to the gold standard, and began what was known as the Classical Gold Standard.
By 1914, the standard came to an end as World War I broke
out. Countries abandoned the gold standard in order to finance the war. The
year prior, The Federal Reserve Act of 1913 created the nation's central bank in
an attempt to curtail economic fluctuations, This gave the Federal Reserve Board the power
to issue new currency called Federal Reserve Notes.
From 1925 to 1931, another gold standard was brought back- known as the Gold Exchange Standard. The primary reserves were held as dollars, pounds, or gold. The standard was short-lived due to Britain’s departure from gold in 1931, which sought the ability to pursue inflationary practices.
From 1946 to 1971, the U.S.and most countries were tied to a partial gold standard known as Bretton Woods system. Countries currency's were tied to the U.S. dollar, which in turn is tied to Gold. Persistent U.S. inflationary practices reduced confidence in the U.S. dollar. As a result, countries began redeeming the dollar for gold. By August 15, 1971, the United States declared the ineligibility to redeem U.S. dollar for gold.
Analysis
In the 1870s, we see how competing nations can force the U.S. to adopt the gold standard or be left behind. Then in 1931, Britain left the gold exchange standard- pressuring others to follow. Finally, on 1971, we see how dwindling confidence can cause a run on the reserve currency. There are two observations one can safely make:
1.) It is without a doubt, that the U.S. again, will be forced by the external markets to adopt a new monetary standard.
2.) More importantly, anyone holding onto a paper currency and gold from 1914 would find that only gold still has value.
A final word in regards to investing, one could stand to benefit greatly if they got in before the masses. The masses have yet to participate.
Michael D. Bordo, "Gold Standard." The Concise Encyclopedia of Economics. 2008.
From 1925 to 1931, another gold standard was brought back- known as the Gold Exchange Standard. The primary reserves were held as dollars, pounds, or gold. The standard was short-lived due to Britain’s departure from gold in 1931, which sought the ability to pursue inflationary practices.
From 1946 to 1971, the U.S.and most countries were tied to a partial gold standard known as Bretton Woods system. Countries currency's were tied to the U.S. dollar, which in turn is tied to Gold. Persistent U.S. inflationary practices reduced confidence in the U.S. dollar. As a result, countries began redeeming the dollar for gold. By August 15, 1971, the United States declared the ineligibility to redeem U.S. dollar for gold.
Analysis
In the 1870s, we see how competing nations can force the U.S. to adopt the gold standard or be left behind. Then in 1931, Britain left the gold exchange standard- pressuring others to follow. Finally, on 1971, we see how dwindling confidence can cause a run on the reserve currency. There are two observations one can safely make:
1.) It is without a doubt, that the U.S. again, will be forced by the external markets to adopt a new monetary standard.
2.) More importantly, anyone holding onto a paper currency and gold from 1914 would find that only gold still has value.
A final word in regards to investing, one could stand to benefit greatly if they got in before the masses. The masses have yet to participate.
Michael D. Bordo, "Gold Standard." The Concise Encyclopedia of Economics. 2008.
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