Paul Montgomery ([info]paradox0220) wrote,
@ 2008-07-15 16:38:00
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PLEASE watch this video
Seriously, it may be one of the most important things you ever watch. "Money as Debt":
http://video.google.com/videoplay?docid=-9050474362583451279

Some things that stand out which may not be intuitive:
* Banks create money out of thin air through loans of money they don't have (the example shows roughly $1,000 growing into $99,000 of money that doesn't really exist; all legally)
* There is no way all debt can be paid off, there isn't enough money to do so; the only way the system can continue is by creating more debt in an exponential fashion
* Less than 5% of the money is printed by the mints (95% is by bank loans)
* Watch for the quote by President Woodrow Wilson near the end where he laments that he doomed the US by allowing the banking system as it exists right now
* Also watch for the quote from world bankers where they thank the press for keeping their empire building secret long enough to become so established that they publicly talk about how world rule by banks is better than any form of government

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[info]moonwick
2008-07-15 09:51 pm UTC (link)
Yup.

Only bad thing about that video (if it's the one I remember) is that it's done by a socialist concern so their motivations aren't in the right place... but still, the content is on the ball.

That being said, I don't disagree with fractional reserve lending, but we need to keep a tighter rein on it than we have this last decade...

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[info]paradox0220
2008-07-15 10:01 pm UTC (link)
Hrm, this may not be the same video from some of your comments or I just viewed it differently. I think the gist was that fractional reserve lending or profiting from lending (interest) will eventually lead to a monetary breakdown.

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[info]moonwick
2008-07-15 10:02 pm UTC (link)
There's nothing inherently wrong with it as long as the reserve ratios that the banks are required to keep are sufficiently low that the money supply doesn't grow out of control (like it did these last few years).

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[info]cowbert
2008-07-16 06:52 pm UTC (link)
Banks are faith-based essentially :) But it's what makes the world corporations go 'round and 'round.

And then there is ongoing bankers' joke about liabilities as assets and assets as "liabilities" :)

Useful References:
  • Galbraith, JK; Money: whence it came, where it went
  • Grieder, W; Secrets of the temple: how the Federal Reserve runs the country (a bit too on the conspiracy theory side, but still informative)
  • Quigley, Carroll; Tragedy and Hope: A History of the World in Our Time

Galbraith's book is probably the most authoritative/neutrally-biased of the 3 if you want more reading about the way the money system works|ed since its concept existed, but the other ones shed some interesting light on what is done with all these IOUs.

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[info]paradox0220
2008-07-16 07:43 pm UTC (link)
Cool thanks man! I'll have to see if I can download those on my Kindle tonight. :)

I'm pondering buying a bit of gold actually and just want to make sure it is the relatively safe path.

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[info]decibel45
2008-07-17 05:30 am UTC (link)
Gold is a horrid investment, and if you're looking to hedge against a declining US dollar you may have already missed the boat...

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[info]paradox0220
2008-07-17 03:52 pm UTC (link)
Please explain more; I'm very interested in this kind of thing. Here are my thoughts:

Last I looked gold was $900 or so. Some doomsday scenario people expect $5,000+ if a complete meltdown occurs (unlikely). Nothing I know of will suddenly generate more gold in the world to devalue it and basically everything I read says that the amount of gold in the world is generally fairly stable. My personal take is that the dollar won't appreciate in value overall in the foreseeable future. So the price of gold vs the USD should go up right? Plus, gold must have some inherent value to governments as a lot of them (US included) tend to horde gold. I'm told gold quality is relatively easy to test (especially if it is in coin form to avoid lead filling) which is another attractive property.

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[info]decibel45
2008-07-20 05:23 pm UTC (link)
Over the long term (5+ years), gold basically exactly matches inflation. Makes sense, since everyone pretty much still references their money to gold. So at best, 'investing' in gold means your money won't devalue.

But investing now will lose you money, because the market is afraid of the dollar exploding, so demand for gold is way up. The same is actually true of all commodities.

While it is true that there's issues facing the US economy as well as the dollar, but the market always over-reacts to bad news. And then there's people who are foolishly investing in things like oil, strictly because "OMG we're running out the price is going nowhere but up!" That has the effect of over-valuing oil, which in turn devalues the dollar.

Now, let's talk expectations. On an investment of over 5 years, the S&P 500 historically returns ~12%. It's the easiest well-performing long-term investment you can possibly make. Just buy ticker SPY and you're done (of course remember you shouldn't put money into the stock market that you might need in less than 5 years).

If you're concerned about the US economy, there are global investing funds you can invest in, though I don't have any to recommend.

If you're concerned about the dollar, you're kind of in trouble at this point, because everyone's worried about it which has pushed the price on pretty much anything you'd use as a hedge against the dollar way up. Personally, I think if you're going to try and hedge against the dollar, it needs to be with actual physical commodities that you have in your possession, because the only thing to worry about is the actual collapse of the dollar (which I find to be highly unlikely). If that actually happens, I'll bet that you'll have serious problems actually getting to any virtual assets, which is what buying gold would be unless you actually had the gold in-hand. If you wanted to hedge against a declining dollar I think you've missed the boat. Yes, gold might well go up in the short term, but long term it's going to come back down until it again matches the inflation curve. Unless the economy melts, the S&P will outperform gold.

Personally, I'm glad everyone's running terrified from stocks right now... I've finally gotten to the point where I can start putting serious money into the market, and now there's tons of stuff on sale.

You should definitely snoop around http://fool.com. My investment program for money outside my 401k actually involves just following the investments that they're making in a number of their investment newsletters, most of which exceed 30% APR. I'm actually losing a bit right now, but that's just because I've only been investing since January or so. Whenever the market comes around I'm looking forward to some serious gains, though even then it's unlikely to matter since the companies will likely still be great investments in their own right, meaning I'll just hang onto them.

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[info]paradox0220
2008-07-21 07:27 pm UTC (link)
Please don't take this the wrong way but my boss (who is -way- more educated on all of the financial situation than me) read what you said and disputed it on several points. I always love to find two people on basically opposite ends of the spectrum to hear the discussion back and forth (helps me learn a lot quickly). :)

What he said in quotes:
"Sounds typical of many. I can’t say I think much of his supporting data though, it seems to be mainly gut feeling which I highlighted in red below [PM: I can point this out if you care to see]. Also, he has some logic issues with gold and commodities, they are not the same. Commodities are self limiting in price, gold is not. Gold is just another currency, like the euro, etc. but without the inflation. He also shows no real historical perspective (the 12% per year thing is a myth if you actually look at the data instead of listening to pundits), mentions nothing about what is driving inflation, no understanding of charting, no mention of Fannie, Freddie, derivatives or even that the S+P is a PE of 20 right now while paying a historical low of 2% dividends. I wonder what his 401k looks like these days. For my part, I have avoided a 22% haircut by avoiding common logic. I suspect by the time this is over I will have avoided a 70% haircut or more.

I guess we will just have to see. Nobody can say FOR SURE that x or y is going to happen by z date. He does have one thing right, if you are going to hedge against a dollar collapse, do it with physical metal, not shares of gold funds."

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[info]decibel45
2008-07-21 09:48 pm UTC (link)
He's welcome to produce data that shows the performance of gold as well as the S&P500. I will say this... I remember $500 per oz gold and the S&P at ~$500. Now gold (according to you) is at $900 on a runup and the S&P is at ~$1200 on a decline. Certainly looks like the 500 is a better investment than gold (note the word investment... if you're looking to do something besides invest then it's a different story).

It also sounds like he's awfully risk-adverse, which is fine. In fact, since he's your boss I'll venture that he's probably a lot closer to retirement than you or I are, which means he should be a lot more risk adverse. I on the other hand don't have any plans for pulling money out of my investments for years, so I have no concern about short-term 'haircuts'... in fact, I look forward to them because it means I get to buy equity while it's on sale.

Of course, if you're lucky, you can time the market and move stuff around to avoid the downturns while not missing the big gains... but a big chunk of the gains to be had in the market have occurred on a very small number of days; so by pulling out you run a big risk of missing the gains.

Finally, to an extent investing is like dieting... the program that's right for you is the one you can stick with. I'm sure I could do better than I have if I put a lot more time and effort into it. I'm not interested in that time or effort, so I just stick with the simple things such as following the newsletters.

FWIW, my 401ks are different... in those cases I look mostly at 5 year returns and look for funds that beat the 500 (apparently 80% of the fund universe doesn't). In some of my 401ks I'm actually directly invested in the 500. At some point I'll probably consolidate all of them into an IRA where I can actually make individual investments, depending on the results I actually get by following these newsletters.

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[info]paradox0220
2008-07-22 02:29 pm UTC (link)
He sent this before he saw this response from you so I'm sure there will be more (I'm enjoying the conversation):

"From my research over the past 9 months I can say that Roubini has been predicting the future quite accurately for at least the past 2-3 years. While nobody knows everything, when we find a person with a track record like this who also provides good reasons to back it up his thinking in advance of events taking place then we have to give credit that he understands the nature of the beast. If we believe that then greatly discounting or ignoring him is high risk IMO.

http://winnipeg.indymedia.org/item.php?18440S

http://en.wikipedia.org/wiki/Nouriel_Roubini"

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[info]decibel45
2008-07-22 06:17 pm UTC (link)
I'll note that 2-3 years is only a fraction of a cycle for the US economy.

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[info]paradox0220
2008-07-22 07:54 pm UTC (link)
Him:

"Kind of a waste of time to go back and forth. He believes that nothing fundamental has changed and that we will get through this rough spot and be off to the races. I believe this is more like 1929 Dow or 1990 Nikkei and that we will see a severe crash which will not return us to the highs of Nov 2007 for at least a decade, perhaps more like 20 years. He believes the dollar is sound, I think it is a worthless rag and that everyone is waking up to the fact.

I short into every rally and then cover when we reach the bottom of the channel. I am up nicely this year and the real fun hasn’t even started yet because the elections and gov’t intervention in the markets are propping them up. He is down a bit so far but remains optimistic he will be able to make big profits on a turnaround."

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[info]bonlynne
2008-09-02 02:57 pm UTC (link)
You'd have a lot to talk about with my other half! He's done alot of research into it too. The thing that sucks is coming to the realization that they are above the government, and the government answers to them. They've sponsered all the wars. Both sides. amongst other things.
It doesn't make sense when you really think about everything does it? They are nothing more then banksters. Pay up or else. I wish we all went back to free trade. Where everyone used their own skills, abilities and talents!
I read that your boss is also a conspiracy person! I promised Jason that I would no longer "talk" about it on his journal. But if you want other directions to the truth, I can ask Jame. All I can say, is trust your Intuition, and listen! It NEVER lies!
And that's just my opinion thus far, and putting it out there so mankind come together and thus escape this darkness that seems to have taken over this world.

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