Zero Return

Deflation. (Imported from China.)

Low returns. (Janet and posse.)

Capital preservation. (Bunds. And now treasuries by the looks.)

Unhinged borrowing. (Hyundai car payments for 72 months? Srsly?)

More unhinged borrowing. (US federal govt.)

Yet more unhinged borrowing. (Student loans.)

Low labor participation. (94,000,000 people in the US not working.)

Low wages. (We’re back at 1977 folks. Saturday Night Fever.)

Tax. (US highest worldwide corporate tax rate.)

Yeah. It’s all peachy.

Stealth Funds

They’re a socialist idea that cannot exist without capitalism. Sovereign wealth funds are their name, a fancy title for state-owned investment pools. They come in various shapes and sizes, created by countries as different as Norway and Qatar…which actually aren’t as dissimilar as you’d think.

The leftist plan for sovereign funds is pretty simple: take cash-flows that the state controls and instead of spending it immediately – hello USA congress – invest it in real assets or with asset managers. Sounds good, right? If you do this consistently over years,  you end up with something like Singapore’s fund, which is worth around a third of a trillion dollars. That puts it in the top ten.

One presumes that eventually the nut will be large and stable enough that the return on the investments will yield cash back to the people. If this reminds you of the oil royalty system for Alaskan residents, it should. The difference lies in the direct connection between oil out of the ground and a check in the mail. In Alaska, there is minimum government interference in that process. Everywhere else, layers rule.

The disconnect lies in philosophy. Governments do not create anything, and the least thing they create is wealth. Their only income derives from taxing, regulating for fee and forced usurpation of the fruits of capitalism. Adding value, increasing productivity, creating goods and services for which people pay money is neither a socialist nor a governmental function. But the money governments require to support themselves must come from somewhere. Hence their parasitic nature.

The SWF is then just another way of governments controlling what belongs to you. They think that it’s their money to invest, and, even if the idea sounds reasonable, I disagree. They money still belongs to me. Why would I cede responsibility for investing money beyond what the government needs to that same government? Why not return that money directly to me, or just not take it in the first place?

Reality is more nuanced, but not much. Most SWFs are based on the money obtained from resources, mostly oil. That’s the common denominator of Norway and Qatar. Because the oil technically belongs to all citizens (or subjects) the justification for these funds is that it’s the best way to manage the wealth so derived for everyone.

Except. Except that without capitalism, that oil stays in the ground, useless. And when it is recovered, the Alaskan model shows a better way. From an oil reservoir deep underground, via enormous investment, to the end user, from whom the royalty is paid yearly to the owners. No socialist goals. No mandated investment guidelines. No bloated fees. No third-party decisions about how the profits are used.

We’re Screwed

My philosophy of economic prosperity is summed up thusly:

+ I am responsible for my own welfare

+ I change the world for the better by not being a burden on my neighbor

+ Earned income, passive income, savings and investment are the cornerstone of my financial wellbeing

+ Debt reduces my freedom, my power and my options

+ Compounding works, but requires patience

+ Financial independence is the gateway to independence from governments, and therefore to freedom

That’s close enough. But if you believe in these tenets like me, we’re screwed. Central banks have removed many of our tools for economic freedom, and big governments everywhere are filling the freedom void with…well, more government.

For instance, can you remember the last time you were paid any significant interest on your cash? In Europe now, REAL negative and nominative rates of interest are here. It’s basically the same in the US. If we don’t earn money from lending it to banks and governments, there is no compounding. Saving actually costs you money. Strike one.

Taxes are high everywhere, especially here in the US if you are self-employed, or own a corporation. Government mandated health insurance is just the latest awful impost. I see from this article that new businesses are endangered, which tells you that lots of people see it ain’t worth the effort. Strike two.

Because governments manipulate people into thinking of them as providers of last – and even FIRST – resort, fewer folks look to hard work as the way to freedom. We saw this in Greece this weekend, where the socialists were swept to power. Mind you, the absolute ferfidy of pro “European” politicians and the central bankers who carry out their orders is responsible for this idiocy – the one result of central planning being a passive populace. Strike three.

I am angry. I am angry that we allowed bureaucrats and slimewad politicians to act completely in their own interest. And I fear it all might be too late.

The Price of Cheap

Color = healthy.
Color = healthy.


Question: Is it better to buy one beach towel that lasts ten years, or ten beach towels, one per year, because they fall apart after a few washes?

I had the misfortune of dealing with WalMart today. I had found an item I needed – a specific cellphone accessory – and ordered it with the store pickup option. I wanted to avoid shipping costs, and, given that I drive past a WalMart every day, figured it would be easy enough to collect my item personally.

Suffice it to say that the item was not in the store when I turned up.

It’s not a big deal, and it was a failure of an individual, not WalMart’s system. But it got me to thinking about the value of this retail behemoth. The free-market argument goes along the lines of, well, WalMart allows folks the best possible price for the biggest possible range of merchandise. In that way, I could argue that America’s middle class is expanded by the stretching of their dollar. If you can have two televisions instead of one, you’re richer, right? Buying giant containers of apple juice and bags of chips for knock-down prices improves your overall standard of living, yes?

That’s fine as far as it goes. Cheap (non-nutricious) calories, cheap (poorly made) clothing, throw-away household items…this is the triumph of feeling like you have it all. And yet…

And yet walking around that store today, I was uneasy at the sight of all that crap. What happened to the idea of striving for quality rather then cheapness? Don’t get me wrong, I’m as thrifty as the next tight-wad. But WalMart doesn’t offer a decent compromise of quality for a reasonable price – it offers low price for whatever quality that gets you. Cheap as opposed to inexpensive.

Yes, this might appear to be an elitist argument. Who am I to look askance at someone buying gallon-sized containers of candy for a few dollars? I’m no-one. But I can’t help but feeling that WalMart customers are being short-changed. Someone convinced the public that a giant portion of poor quality food is better than a small portion of higher quality. Over years, the toll on our bodies of this enormous cult of consumption must take effect. If you feed yourself a diet of canned soup each night, will you be more or less healthy than the person who makes soup from scratch, even if it costs a few cents more?

Behind all this empty buying is the “I want it NOW” mentality. Delayed gratification is an archaic concept thesedays. Why wait (and save) to buy a dining table and chairs that will last a lifetime when you can have one delivered this evening? Of course, the cheap piece will collapse in a year or so, but hey, then I’ll go buy another one.

What I’m fumbling towards here is the notion that cheap isn’t cheap when you look beyond the bar code. Price is only part of the cost. Buying low cost might well carve a chunk out of some other part of your life that will take a lot more to fix later on.

Just a thought.