Monday, February 28, 2011

History I Missed in School - US Confiscates Gold from its People

Ok, I have the right to be random, it's my blog.

Anyway, I got a history lesson tonight that blew my mind.  Took me quite a while to verify this with many sources, but all accounts point to the unthinkable.

In 1933, during the great depression, our government decided it was in the "public interest" to confiscate all of the privately-held gold of US citizens in exchange for paper dollars.  Immediately after paying out $20.65 per ounce of gold to the people, the government arbitrarily changed the value of gold to $35 /oz.  This resulted in the immediate asset devaluation of 40% to the people - and a 40% profit to the government.

Oh, forgot to mention that this came after FDR shut down the banks and forbade them from honoring their commitments to their depositors.  FDR ordered that the banks cease redeeming dollars for gold because of this "national emergency".  So, it goes like this:

Banks: you can't give out any more gold to the people you owe it to.
People: give us all your gold - or else.
Slight pause . . . . .
Oh, sorry, gold is worth a lot more now, too bad you don't have any.  And those paper dollars we forced you to trade your gold for?  They're worth a lot less.  Now run along now and spend your paper.

Talk about a raw deal.  I turn in my gold for your dollars, and you turn around and arbitrarily set the value of those dollars to 60% of what they were worth when we made the trade -- overnight!


An interesting aside - Gold is currently trading around $1,400 USD per ounce.  In 1933, it was bought by the government from the people at $20.65 per ounce.  That is a simple annualized rate of return in excess of 84% over the past 80 years, or a cumulative ROI of more than 6,500%.  Too bad home values didn't go up 84% per year for the past 80 years, eh?  Coincidence?


I could not believe that the US government would so damage its citizens in one fell swoop.  The truth is that it did happen, exactly as described, by executive order 6102.  Issued by Franklin D Roosevelt, this illegal, unprecedented violation of the personal property rights of the citizens illustrates the grim reality that our government will stop at nothing to preserve itself in an "emergency".  Subsequent executive orders modified the confiscation provisions, however they retained the general premises that owning gold was not permitted, and acquiring gold was something only the Federal Reserve was authorized to do.

It remained illegal for private citizens to own gold in any significant quantity until 1974.  Yes, 40 years later.  You would think that gold is a drug in this country the way it is so actively controlled and guarded by the economic powers that be.

We are on a perilous path.  Our dollars are worth nothing physical or tangible.  The value of the dollar is actively manipulated by a small handful of academics in a board room (Federal Reserve).  The debt is staggering.  Soon will come the day when the US is not able to meet its financial obligations to the countries around the world who are lending us trillions of dollars to fund our excess.  It doesn't take a genius to figure out that you can't spend more than you make every year and never have to face the music.

When (not if) the dollar faces total collapse due to our inability to fund the debt and entitlements our government has promised, there will be little of real value other than gold.  Just don't let the government find out you have it.  If they want it, they obviously are willing to take it from you.

People need to wake up in this country.  We need to teach our kids the real lessons of history, how governments throughout history have mistreated the public, mishandled the economy and driven the people into unimaginable debt.  Stop pretending that it can't happen again.

Friday, February 25, 2011

David Letterman is an Idiot

How did I get on this economics kick?

Anyway, David Letterman had Senator Rand Paul on the program last night.  Other than being outright rude, condescending and dismissive, Dave said some things that were outright moronic.

I was appalled.

Firing off comments like "Those numbers just don't seem right to me".  Well, Dave, they don't seem right to me either, but they are facts.  Just because you don't like the facts doesn't mean they can be dismissed out of hand with an "I don't know why, but they just don't seem right" remark.  Yes, Dave, it is true that the top 1% of taxpayers pay nearly 1/2 (actually between 38 and 40% from 2006-2008) of all of the income taxes received by the treasury.

Oh, another funny number that doesn't seem right.  32% of tax filers had zero income tax liability in 2006.  But I digress.

Nobody likes the idea of cutting federal spending if it means laying off teachers, firefighters, police or other middle-class public employees.  Let's face it, though, the United States can only afford about 1/2 of what it spends annually. The proposed 2011 budget is $3.69 trillion in spending with a projected deficit (difference between income and expense) of $1.65 trillion.  That's exactly like spending $37,000 per year on a salary of $16,500.  How long  can this possibly last?


This is not political, it's simple economics.  Budgeting 101. The stuff you should know as a prerequisite for graduating high school.  You can't borrow your way to prosperity.  Even Carlton Sheets should know that at this point, after the housing bubble collapsed.


Dave's solution is a popular one - tax the rich.  I mean, they don't need the money anyway.

For reference, the top 1% of income earners includes those with an annual household income greater than about $380,000 (2008).

So the top 1%, paying roughly 40% of all income tax collected breaks down like this:

Total income tax collected by the Treasury: 1.455 Trillion
40% of total income tax collected: $582 billion
Total households in America: ~115 million
1% of households in america: ~1.15 million
So, on average, a top 1% household currently pays $582b / 1.15m, or $506,086 dollars in federal income tax.

Seems fair.

So now, on to Dave's solution - fill the budget deficit by taxing the rich.

Total deficit: $1.65 Trillion (1,650 billion)
1% of households: 1.15 Million (0.00115 billion)
Additional taxes paid by the wealthiest 1% annually to fill the deficit per household: $1,434,782.
Add that to the $506,086 they already pay on average for an annual tax liability of $1.94 million.

Simple.  If you make over $380,000, we quadruple your average income tax liability.  Of course, there is also Social Security, Medicare, and State tax you also need to pay. We can probably leave those alone though, until we recognize that they are insolvent.  With this simple quadrupling of the income tax on the richest 1% of Americans, we can afford to pay for our government - this year.

I wonder how many jobs this new tax policy will create. . .

Don't get me wrong, I'm a long way from being in the top 1%, and I don't think it's time to cut taxes on the rich.  The point here is that the hole in the budget is just too large to fill by taxing the rich.  We need to address the issue from both sides - revenue (taxes) and spending.  The problem is too big to tackle from either side alone.  Just as many businesses and households have had to adjust to their own financial crises, our government needs to do the same.  Cut spending & increase income.  It's the only way out.

Even if we can solve the giant financial hole in our annual spending, that doesn't even begin to start reducing into our national debt, which is approaching $18 Trillion.  This amounts to about $90,000 per household in America.  The only larger debt most Americans will ever know is their mortgage - but that is the subject of another post.

If you believe in the philosophy that the debtor is servant to the creditor (as I very much do), you will be happy to know that at least 25% of our national debt is owned by foreign countries.

Chief among our creditors are: China, Japan, the UK and Oil Exporting countries (Saudi Arabia, Venezuela, Libya, Iran, Iraq, the United Arab Emirates, Bahrain, Kuwait, Oman, Qatar, Ecuador, Indonesia, Algeria, Gabon, and Nigeria).


Sweet dreams!

Thursday, February 24, 2011

How a Small Change in Home Prices Destroys Wealth

I generally try to keep these posts related to technology, gadgets and the like, but I couldn't resist a little delve into economics.

A couple of days ago, it was announced that home prices fell 4% nationwide in 2010. Better than some years, worse than others, but it occurred to me that a lot of people fail to realize the practical implications of a decline in home values.

It goes without saying that most people in America don't own their homes, their banks do.  If we actually owned our homes, we would not have had the subprime mortgage crisis at all, or the government bailout of Fannie, Freddy, AIG and scores of other banks.  This is important to keep in mind.

So, if we accept that banks own the homes, and "Homeowners" have "equity" in their homes of say, 20% for sake of argument.  Let's see what happens when home values go down by 4% in one year.

Home value at the beginning of 2010: $200,000
"Homeowner's Equity" at the beginning of 2010: $40,000 (individual asset)
Bank receivable (mortgage) at the beginning of 2010: $160,000 (bank asset)

So, in 2010, home value drops by 4%, or $8,000.  Assuming no repayment of mortgage principal, and neglecting the cost of taxes, insurance, interest and maintenance, here's where you end up.

Home value is now $192,000
"Homeowner's Equity" is now $32,000 (individual asset)
The bank receivable (mortgage) remains $160,000 (bank asset).  The mortgage is not devalued at all, you still owe the entire amount, regardless of what your home is worth.

So the "Homeowner" has lost $8,000 on their original cash investment of $40,000, or a whopping 20% in one year.  The bank hasn't lost a thing, but the wealth of the individual "Homeowner" has taken a very serious hit.

Maybe this is perfectly obvious to everyone, but for some reason, I just don't think it is.  Unless you actually own your home, the loss on the asset is magnified by the leverage (mortgage) employed to acquire the asset.  The "Homeowner" takes the loss on the entire asset while "owning" only a small fraction of that asset.  It is the American people who bear the risk in this transaction.

Home ownership is identical to purchasing stock on margin.  Few people have the risk tolerance or sophistication to sell uncovered options or buy stock on margin.  How is it that home ownership somehow persists as a cornerstone of the "American Dream"?

If you ask me, home ownership is indentured servitude taken to a whole new level.  It is a huge fraud perpetuated on the American public by the financial establishment.

Wednesday, February 16, 2011

Life with Apple TV - Episode 4

What a difference the right equipment makes.

Today, a Qwest tech came out and immediately noticed that the modem sent to us less than 6 months ago was - in his words - "a relic".

Apparently the device we were sent was not capable of the 7mbps service by design.  No wonder AppleTV doesn't work.

So, 15 minutes and a new modem later, our internet is usable - so time to test out the AppleTV again.

First test: Netflix streaming.  Within 45 seconds, the movie started, and 10 minutes in, there was no jitter or chop.  Looking good.

Next test: Rent a movie from iTunes.  Immediately after purchasing the rental, I went to play the film.  AppleTV reported that the movie was loading.  After a minute or so, it reported that it would be ready to play in 1 hour and 1 minute.  About 5 minutes later it was ready to play.  Shortly after (within 5 more minutes) I started the movie, which began to play within a few seconds of me starting it.  It was only an SD (standard definition) movie, and not HD, it played flawlessly for my 10-15 minute test period.  I'll watch the whole film later tonight, but I highly suspect that it will run flawlessly.

Final test: Search, navigation and general usability.  The iTunes store implementation on the AppleTV is a pleasure to use.  Much like all Apple products, it is intuitive and responsive.  Reviews and recommendations come up very quickly and look great on the 42" LCD TV that I have connected.

All told, today is a complete 180 for me on AppleTV.  I'm glad we stuck with it and got the internet connection up to speed.  If you have good, fast, reliable internet, the AppleTV is quite a nice device that is super-easy to set up, reasonably priced and performs well on a good connection.  I'll be doing some more tests over the next week or so, but tonight was a good night for AppleTV.

Monday, February 14, 2011

Google Says I'm Right

So, if you remember back on December 29, 2010, I wrote a short piece about how the huge selection and relatively high quality software available through the AppStore was a major advantage for the iPhone over Android.  (more)

Today, I read that Google is hiring mobile app developers for Android, presumably to do something about it.  (more)  I can only surmise that they read my blog post and were convinced of the urgency of the problem (haha).  In any case, it looks like Google is taking the issue seriously, and is willing to put their seemingly limitless resources to work on it.

The problem I see is this:  Apple has created a machine whereby they actually charge developers to join, then they scrape off a healthy 30% of gross revenue for all apps sold.  Google, on the other hand, is now going to pay talented engineers ($$$) to create apps for Android (cashflow negative) which they may or may not actually charge for.

Don't get me wrong, I'm in no position to criticize Google's business model.  If they can deliver ads in the apps they develop and give away for free, it's quite possible that they can make a serious endeavor of it.  The problem is that like most of Google's "open" projects (Android, iGoogle Gadgets, etc), few developers outside of Google ever get into the game.  Google becomes essentially the only user of their own APIs.  The jury is still out on whether that is good or bad, but it is certainly different than the road Apple has taken, and so far, Apple's been doing quite alright with it.

Why not post a comment and share what you think about Google's move to bolster the Android app market.  Will this be the end of Apple's supreme reign on the handheld?

Friday, February 4, 2011

Life with Apple TV - Episode 3

Honestly, the title of this series should be changed to "Life With a Shitty Internet Connection".  I don't think I can expect any network streaming device to work on a connection that consistently delivers < 500kbps.

The good news is that Qwest will only charge you for 10x what they actually deliver.  They're billing department is very reliable.

Adding insult to injury, they have an engineer working on the issue, and it should be fixed in 1-2 weeks.

Yes, weeks.

In case you don't recall, the problem became very evident back on January 21, which was 2 weeks ago.

So, pay for 5,000, get 500.  We'll "probably" have it "fixed" within the next 2 weeks, which makes 4 weeks since my original complaint.

Maybe I'll get to paying my bill 3-4 weeks late, see how that works out.

Checking into alternative providers this weekend, then perhaps I can make a fair evaluation of the AppleTV that's mostly collecting dust at this point.