California Pension Crisis

I made the point a while back that if you know what's going on, you can do something about it.

Today, the difference between what all California government agencies have set aside for pensions and what they will eventually owe amounts to $241 billion, according to the state controller.

Maybe not.  Another thing is people know perfectly well what is going on, but go along for the rid, for the alternative is inconvenient, and well, they feel lucky.

The pension fund has not been able to catch up, even though financial markets eventually rebounded. That’s because during the lean years, older employees kept retiring and younger ones continued to build up credit toward their own pensions. Pay raises and extended lifespans have magnified the impact of the sweetened benefits.

OK, so it is impossible.  But for now, it looks good, and I can have car, house vacations, easy work...  why not get in for the ride?

One of the few voices of restraint back in 1999 belonged to Ronald Seeling, then CalPERS’ chief actuary.
“There was no real taxpayer representation in that room,” Seeling, now retired and living in a Dallas suburb, said in a recent interview. “It was all union people. The greed was overwhelming.”

Sure, anyone in on the deal knows it is unsustainable.  But the people benefiting from making the deal will be gone by the time the trouble arrives.

Davis, who was elected in 1998 with more than $5 million in campaign contributions from public employee unions, says that if he had it to do over, he would not support the pension improvements.
“If you’re asking me, with everything I’ve learned in the last 17 years, would I have signed SB 400…. no, I would not have signed it,” Davis, now 73, said in a recent interview at his Century City law office.

Oh Puhleeze...  if I knew all about unfunded pension liability as a manager of a tiny import export house in 1982, the Governor Gray Davis knew about it in 1999.  This fellow is so odious even California voters could not stand him, and threw him out of office in a recall.  He was replaced by the Governator.  He was bought and paid for, and paid off s required.

Now for the sheer delusion:

State pensions are funded by regular deductions from workers’ paychecks and contributions from the state. CalPERS invests the money to cover future benefits.

Hmmm...  think for a minute.  Where does the state get the resources to fund state employee paychecks?  Those resources, what are they?  Well, of course, taxpayers fork over every cent of a state employee's paycheck.  Every cent, for even "user frees" paid ultimately come from an end user, those too are just another name for a tax.  So when a state employee "contributes" to a plan, that very contribution came from the taxpayers to begin with.  So no state employee has ever contributed anything himself.  Next, what is being contributed?  Well, it is ex nihilo credit tally.  Since no one is using money anymore, and all is being tallied in the media of ex nihilo credit, its all just claims on a  balance sheet.  If you read the article in full, you'll catch that people game the system to get as much as possible, so their claims are bigger, and their pensions make them millionaires.  A further idea is when this crashes, as all know it will, pain will be prorated.  Not so far in Dallas.

Union leaders say their generous pensions are preserving the middle-class dream of a comfortable retirement.
“People should not have to work their whole life and never be able to retire,” said Dave Low, executive director of the California School Employees Assn.
“We need to fix the system … but fixing it doesn’t mean taking secure retirements away from the last people who have them.”

Does people who start working for the state at 30 and retire at 50 constitute working "their whole life?" What about how the middle class dream for someone who puts in 20 years in a state job is the middle class nightmare for the private sector person who has to "to work their whole life and never be able to retire" to pay for the state retiree?

The enhanced benefits stand in stark contrast to the financial insecurity facing most Americans in retirement. The vast majority of private sector workers have no pensions and very little retirement savings, and will depend largely on Social Security payments, which average about $16,000 per year.

So the Russians stole the election for Trump.  The 50 year old retirees squirm while they go over "if only" scenarios...  "if only we had no electoral college..."  Never mind half of the voters said the policies in which they are the losers hurt too much.  It does not matter who won.  Hillary would burn the pensioners too, to get re-elected.  The jig is up.

A side note.  I teach at various schools in California.  The model I negotiate with the schools is I get 1/2 the gate, meaning we count the enrollees and multiply by the course fee, and then split the revenue.  When I teach, necessarily the school makes income, meaning the taxpayers benefit when I teach.  I refuse to work on a flat rate because the taxpayers are at risk if the enrollments are low, or hourly because with the 50/50 split risk I always make more.  If people can't make money with me, I don't want to work with them.  Having said all that, even though I bring money to the schools when I teach, some schools from time to time pay me in warrants. That is to say they do not have any funds to pay me, so they write an IOU.  Now since this is a state entity, the banks will accept them, for complex reasons, but if any element of those complex reason prove false, then I am holding an IOU.  At that point, it is get in line behind everyone else.

Back in 1982 I realized, during the negotiations with the Longshoremen, that working for anyone else would be a dead end.  We on the management side won the fight, but I could see we would lose the war.  Self-employment is not just an option, it is the only path.

Where activities are usually completely state-controlled, like an avocation I have, teaching, you can get around the trap of "benefits" of employment through that old free-market mechanism of contracts.  "Let's make a deal:  I bring you money, you give me half..."

Starting your own business, I truly don't care what it is, will be doing well while doing good for the next 40 years.  Whatever you do, forget about your ephemeral  pensions or social security.  fighting over that will be like pigs at a trough.

If your business plans run to International trade, there are some links to classes I teach on the upper right of this blog.

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Best Economic Essay in Ten Years

What have I been saying?  After delineating good and bad credit, finally someone in academia is saying it!

Only then can we understand how the bubble economy’s pseudo-prosperity was fueled by credit flows — debt pyramiding — to inflate asset markets in the process of transferring ownership rights to whomever was willing to take on the largest debt.

Again and again I have pointed out the winners only had to be willing to take on the most debt.  I thought I was the only person pointing this out.  Comes now a couple of professors who explains well why if you have paycheck, property or pension, for the next forty years, you're toast.

That is what makes the seemingly empirical accounting format used in most economic analysis an expression of creditor-oriented pro-rentier ideology. Households do not receive incomes from the houses they live in. The value of the “services” their homes provide does not increase simply because house prices rise, as the national accounts fiction has it. The financial sector does not produce goods or even “real” wealth. And to the extent that it produces services, much of this serves to redirect revenues to rentiers, not to generate wages and profits.

Some will argue, all those tellers and loan officers and Vice Presidents and janitors and rent-a-cops are certainly being paid wages generated and stockholders and Presidents get profits.  No.  They are just minion-rentiers who are tossed some redirected revenues for making actual the redirection in toto.

Here is an important point, upon which I will intrude...

Economic theory today is in some ways a step backward by expunging the nineteenth-century view — and indeed that of medieval economics and even of classical antiquity — with regard to how banking and high finance intrude into economic life to impose austerity and polarize the distribution of wealth and income.

How is this distribution of wealth effected?  Titles.  Ex nihilo credit is available to borrowers from hegemon-chartered entities.  People who are wholly engaged in loaning credit, something from nothing, are able to attach at least a partial lien, if not a clear title, to at least a portion if the means of production and real wealth such as homes.  A slice here, a chunk there, it can add up.  Their slice is purely inflation, but since all loan-involved investments are marginal, and the lender's title is superior, when the economic actor is overwhelmed in his measure, all spoils go to the lender.  It is a neat trick.  Wait a minute.  It is just the pigeon drop scam!

What you don't know at this point is that your new acquaintances are running a scam, and you're the target. The first stranger earned your confidence, so that when the second stranger presented a moneymaking opportunity, you had someone you trusted telling you that it was a good idea. The first tip-off to the pigeon drop, then, is when you find yourself with a new friend, followed soon after by a chance for the two of you to cash in with the help of a third person.

Your new acquaintance is a real estate broker who instills the confidence, and the second stranger is the banker, who can make a money maker happen, a home (or a job ((a degree)) or a car...  you name it.)  It's the same set up over and over, but it is legal.  There is nothing in the bag of value, except what money or title obligations you put in.  Later, you realize you got nothing, they got the titles.  Titles to your future income stream. Except no one hides this, because it is enforced by law.

For example, in one instance, as homes are sold and debt is assigned, who has the title to the goods?  Well, you, as long as you can make payments and pay taxes. But one gross distortion is since the 1980s in USA you cannot get a mortgage without very special circumstances (maybe farmland).  Now you get a deed of trust, which allows banks to fast track foreclose, so they can get the home resold faster.

Onward,

James Tobin already in 1984 worried that “we are throwing more and more of our resources, including the cream of our youth, into financial activities remote from the production of goods and services” (Tobin 1984, 14)

Yes, a specialty retailer who had a storied life was closing down and lamented we lost two, maybe three generations of entrepreneurs.  They went instead for the skim.  After noting a business loan is paid for out of the proceeds from the new means of production created, home loans must be paid out of the current income of the borrower.  The house itself provides no income.

Mortgages are also special in that real estate assets have grown into the largest asset market in all western economies, and the one with the most widespread participation. Following classical analysis, if every real estate asset bought on credit skims off the income of the owner-borrower, then the rise in home ownership since the 1970s has sharply increased rent extraction and turned it into a flow of interest to mortgage lenders. 

Everything changed in the 1970s.  When Nixon took us off the gold standard (lite).

Bank credit to the nonbank “asset” sector (mainly for real estate, but also LBOs and takeover loans to buy companies, margin loans for stock and bond arbitrage, and derivative bets) does not enter the “real sector” to finance tangible capital formation or wages. Its principal immediate effect is to inflate prices for property and other assets. Recent econometric analysis confirms that mortgage credit causes house price to increase (Favara and Imbs 2014) — and not just vice versa, as in the demand-driven textbook credit market theories.

Any real estate agent in the 1990s could have told you that if you could afford a $200,000 house at 9% interest, you can afford a $300,000 house a 6% interest.  Academics figured this out only in 2014? So, when the interest rates dropped from 9% to 6% did people trade up to more or better homes?  No way.  A $200,000 house at 9% interest becomes a $300,000 house at 6% interest.  Imagine how overpriced the homes people are getting now at 4%.  That $200,000 house is now priced at $600,000.  If and when the economy crashes, wages, income, etc goes back to at least lower, one way or another.  But the nominal debt stays at $600,000.  Because of your marginal exposure, Warren Buffett picks it up for pennies of ex nihilo credit on the dollar for Berkshire Hathaway, and you must at best bankrupt your "loss."

How does this asset-price inflation affect the economy of production and wages and profits? In due course this process involves increasing the debt-to-GDP ratio by raising household debt, mortgage debt, corporate and state, local and government debt levels. This debt requires the real sector to pay debt service — a fact that prompted Benjamin Friedman (2009, 34) to write that “an important question — which no one seems interested in addressing — is what fraction of the economy’s total returns … is absorbed up front by the financial industry.”

Yes.  Good question.  And the follow-up question would be, to whom does it go?  The answer will be, the 1%.

To ignore this rising fraction is to ignore debt and its consequence: debt deflation of the “real” economy. Of course, the reason why debt leveraging continued so long was precisely because credit to the FIRE sector inflated asset prices faster than debt service rose — as long as interest rates were falling. The tidal wave of post-1980 central bank and commercial bank liquidity drove interest rates down, increasing capitalization ratios for rental income corporate cash flow.

He is hitting on something here... credit inflation, debt deflation.  Two sides of the same coin? I'll have to turn that over in my mind.  And this is good stuff:

A debt-leveraged rise in asset prices has a liability counterpart on the balance sheet of households and firms. Homes, commercial properties, stocks, and bonds are loaded down with debt as they are traded many times by investors or speculators taking out larger and larger loans at easier and easier terms: lower down-payments, zero-amortization (interest-only) loans and outright “liars’ loans” with brokers and their bankers filing false income declarations and crooked property valuations, to be packaged and sold to pension funds, German Landesbanks, and other institutional investors. Each new debt-leveraged sale may bid up prices for these assets.
But the credit can be repaid (with interest) only by withdrawing payment from the “real” sector (out of profits and wages), or by selling financialized assets, or borrowing yet more credit (“Ponzi lending”). The rising indebtedness approaching the 2008 crest was carried not so much by diverting current income away from buying goods and services or by selling financial assets, but by loading down the economy’s balance sheet and national income with yet more debt (that is, by borrowing the interest falling due, for example, by home equity loans). What kept the “Great Moderation” income growth and inflation levels so “moderate” was an exponential flood of credit (i.e., debt) to carry the accumulation and compounding of interest. It was like having to finance a chain letter on an economy-wide scale, with banks creating the credit to keep the scheme going.

And this...  well, it also constrains the creation of means of production the would generate a surplus from what it produces.  What cannot go on will end at some point.

This is the institutional reality behind the negative correlation coefficient of credit and income growth, reported in the previous section. In fact, to assess credit for its income growth potential is to miss its true function in the rentier economic system. The FIRE sector’s real estate, financial system, monopolies, and other rent-extracting “tollbooth” privileges are not valued in terms of their contribution to production or living standards, but by how much they can extract from the economy. By classical definition, these rentier payments are not technologically necessary for production, distribution, and consumption. They are not investments in the economy’s productive capacity, but extraction from the surplus it produces.

Now this needs a bit of explication.

Financial markets can grow sustainably — that is, without rising fragility — only when loans to the real sector are self-amortizing. For instance, the thirty-year home mortgages typical after World War II were paid over the working life of homebuyers. The interest charges often added up to more than the property’s seller received, but the loans financed about two million new homes built each year in the United States in the early post-war decades, creating enough economic growth to pay down the loans.

Things were very different then. Home loans were for mortgages, not deeds of trust, financed largely by Savings and Loans and Credit Unions in which the interest rate, about the same today, 4.75%. in 1955, barely covered the costs of administration of the loan.  The loan was against money,  the cash in the pay envelope deposited on the first Friday of the month into the S&L or CU, backed by gold and silver.  And the loan terms were usually 20 years, because that is all it took to comfortably pay off a note.  There was no Freddie Mac to create inflation by vacuuming up as much paper as anyone could generate.  That would not come until... wait for it... the 1970s.  But there were assumable loans, meaning instead of flipping homes and inflating values, I might get a job offer in another town and just pass my mortgage onto someone else who continued the payments.  The S&L just wanted its money back, could care less from whom.  So yes real estate markets can grow sustainably, but nothing we have today resembles when last we had a sustainable market.

And this too:

Many U.S. students could not attain a college degree without student loans.

 Not true, false dilemma. The fact is EZCredit is merely more attractive, buy-now pay-later, than a pay-as-you-go degree, granted that ex nihilo credit woefully overpriced an ever degraded degree.

In addition to showing that the financial industry accounted for 7.9 percent of U.S. GDP in 2007 (up from 2.8 percent in 1950), they calculated that much of this took the form of fees and markups — the quintessential transfer payments. 

OK, useful figure, let's call it the 5 point growth.  That 5 point growth generated, as this essay demonstrates, a false economy, unreal GDP proportion reported as GDP. So then we must ask, what per cent of 5 point growth is of the distortion of reported GDP, generated by financial engineering?  And better yet, net of false economy FIRE financial engineering portion, to what does the "7.9% of GDP" truly amount?

This raises a vital question for today’s economies. Can debt-financed rising asset prices make economies richer on a sustainable basis? If the aim of raising asset prices is to increase the capitalization rate of rents and profits by lowering interest rates, can pension funds, insurance companies, and retirees save enough for their retirement out of current earnings, or can they live by capital gains alone?

As for today's economies, the question is moot.  Retirees are being "sicked-in" to hospices, shaken down for all of their assets, and dispatched at necessary rates to help maintain balance.  So the question is not vital for today, today's retirees are being queue'd up for extinction in this Darwinist polity.  The question is vital to whomever makes it through the progressing disintegration.

Financial and other investors focus on total returns, defined as income plus “capital” gains. But although the original U.S. income tax code treated capital gains as income, these asset-price gains do not appear in the NIPA. The logic of their exclusion seems to be that what is not seen has less of a chance of being taxed. That is why financial assets are called “invisibles,” in contrast to land as the most visible “hard” asset.

Yes, as I have been saying here, when we switched from vendor-financing for industry and commerce to bank finance starting in the 1970s, that which was near impossible to tax for the impracticality of it, such diffuse records, now became easy to tax with ex nihilo credit ascendency since the records could be found in one place: banks.

That this was a conscious agenda item is revealed in the fact when the FED was first set up back in 1913, the FED engaged in an intensive campaign for business to switch from vendor financing to Trade Acceptances ostensibly to improve commercial efficiency.  "Let the banks process your receivables for you."  It did not work, USA business did not fall for that ruse.  But with ex nihilo credit after 1971, it worked like a dream. No a ten cent retail purchase can be tracked and taxed.

Here again, as perspicacious as this essay is, it is prolegomenous.  It will be interesting to know what the prescriptions are, just how to save the Hegemon's system from its greediest outliers?  Sure, whoever borrowed the most won for a while, but not any more.  They are dropping like flies.  Now let's discover what the sustainable limits are in the pigreon drop scam.

It is an economy where resources flow to the FIRE sector rather than to moderate-return fixed capital formation. 

Yes, to what I have referred here elsewhere on the blog as "exceptional wealth."  the 1% did not earn their exceptional wealth, in a free market.  They stole it fair an square, legitimately.

Should it be redistributed?  No way!  Simply delegitimize charging interest, that is deregulate finance at least as far as making interest a non-enforceable contract item, just as gambling debts are non-enforceable in USA, and watch the "wealth" first deflate as it is marked to market, and then redistribute perfectly as the accumulators lose the wherewithal to ever corrupt more and more players: economists, politicians, professors, Wall Street actors, industry, religion, law, ad nauseum.  Delegitimize and redistribution happens automatically and fairly.  Will capital fly?  Sure, when it is that light, ligher than air, mere notional, it sure will.  But where?  "I have $10 billion tallied in ex nihilo credit obligations due me, will you give me refuge in Switzerland?"  "Convert it to gold first, then show up in our airport.  Good luck."  Good luck indeed getting away from the Hegemon with that.

Such economies polarize increasingly between property owners and industry/labor, creating financial tensions as imbalances build up. It ends in tears as debts overwhelm productive structures and household budgets. Asset prices fall, and land and houses are forfeited.

A good portion of it forfeited to the state, hence its recurrence.  The Hegemon could care less if this is unwound rationally, fairly peacefully, or if there is a world war.  Note when the Soviet empire crashed, existentially ended, all of the previous players remained at the top. The gentle unwinding process of eliminating the legitimization of interest (for without it ex nihilo credit will disappear too) would be acceptable to the hegemon, just as the surprise insurgency of a Donald Trump is acceptable (and the moment he is not acceptable, he'll get a serious headache, like a Kennedy).

The summary is excellent, I recommend highly clicking on the link up top and reading the whole thing.

Somehow, I haven't figured it out yet, and apparently no one else has either, if ex nihilo credit and negative interest rates are correlated, and the significance thereof.  There may be a clue in ex nihilo credit inflation/price deflation. I dunno. Whoever figures this out will be so far ahead of everyone else.

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Before You Kill Yourself - Dealing With Suiciders

White males 45-64, already a large group of suiciders, has grown nearly 50% in 15 years.

Men aged 45 to 64 had the highest increase in suicide rate among all groups, rising from 20.8 per 100,000 in 1999 to 29.7 in 2014. 

We live in a regime that believes there are too many people already, so there is not much support for people who are suicidal.  That far more soldiers kill themselves in USA than die in battle is an indication of this fact.  White males 34-64 are owed massive portion of the unfunded liability, so their misery and self-elimination is desirable to the Hegemon.  Both figure out they were lied to. Let the suicides multiply! Bring on the "refugees" to whom nothing is owed!

I've met doctors who care about suicide, and they say you can pretty much ignore chatter about suicide.  We all consider it occasionally, and who would not, given the world we are in?  Where you can pay attention is when the suicider starts talking specifics:  "I've researched shotgun suicides, and people often survive birdshot, but not buckshot, so I got buckshot shells when I bought a shotgun to kill myself."  Now that's serious.  A buddy of mine told me he had been saving up the parts of a speedball to go out wheeeeee!  That's serious planning.

What to do if your buddy is serious about checking out?  Don't argue with him, because it is none of your business and no reflection on you if he kills himself.  With my buddy, I simply noted his life was unique, and he should write it down before he killed himself.  This way you do not get in a pointless argument with him about whether he should kill himself, which would be tedious, but you do note killing himself before telling his story (or doing something valuable) would be wrong.  My buddy took eight years to write his book, it is not a bestseller, but he now says he never felt better, and is considering a second book.  Sometimes I wonder if I went too far.

So if you have a serious suicide on your hands, tell them before they waste themselves, you need a favor.  You are starting a business, and you need someone to make some sales calls, help you out with some rather tough steps, finding a customer.  Tell them not to worry, it cannot be screwed up, since this is start up, but it could be a huge help either way, in discovering market.  If your business gets going and when you are thriving, they can always ice themselves later.  But the least they can do before ending a miserable life is to help you out.

As an aside, if you read that article, and see where it notes our elders are not killing themselves as often as they used to, I'd just say because the old folks homes are killing them off before they get depressed.  I could not over-rule my siblings and my mother, but I could go in practically every day and see how even the most elite homes actively pursue homicide, by the book.  My mother caught on too late, but by then my brother and I had the 50 staff members treating her like Queen Victoria and utterly terrified of not making her the happiest broad money can buy.  I could walk in the kitchen and order a fruit compote (what is that?), explain it, and it would be delivered in minutes. Doctors and nurses nearly bowed when we walked the halls.  If your mom is in Bide-a-Wee Acres on the Termination Plan (do these homes have any other?), go in and show you care.  No one will mess with her.

Also, I have found this video a comfort whenever I was considering suicide, share it with the serious:



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Self- Incriminating Pension Shortfall

It was way back in 1982 while negotiating the longshoreman master contract in San Francisco on the management side of the table (I am sooooooo mercenary!) that I first heard the term "unfunded pension liability".  It was the strike issue.

Well, can't squeeze blood out of a turnip, and there was just no way promises made could be kept.  Slowly but surely, and I believe Hoffa was murdered to make the point labor was not to push this, one labor group after another folded.

Anyone who entered into pension agreements of any sort should have noticed they were not being honored.  For the last 35 years.

To the degree to which anyone believed that a pension would await them is guilty of self-delusion and willful ignorance.  One would have to assume the economy of the last 40 years was rational, just, fair, and equitable.  The the degree one is so self-deluded is the degree to which they will engage the fight for scant resources and massive unfunded liabilities.  It is gaining momentum...  quarter million truckers will see pension cut 23%..

More than a quarter of a million active and retired truckers and their families could soon see their pension benefits severely cut — even though their pension fund is still years away from running out of money.
Within the next few weeks, the Treasury Department is expected to announce a crucial decision on whether it will approve reductions to one of the country’s largest multi-employer pension plans.

We all believe we will be exempt, we all have special pleading ready.  And this ignores the fact that at zero and negative interest rates, there are countless pensioners right now suffering want.  They all expected promises to be kept. Now to whom can they turn?  They no longer produce anything, who will champion their cause?  Whatever you do, make sure you are paying taxes until the day you die, or you'll be a liability, not an asset.

The great default is already underway, and the suffering is real, but just beginning.  People will vote for one of the above, simply because they believe they have a case.    But to vote for any of the above is to admit you believe you have no other option but to fight over the diminishing asset base.

O well, you'll just work at Starbucks?  Good luck.  You'll be far better off starting your own hole in the wall coffee stand.  Don't let the hegemon hear he is your only hope.  Abandon your pension claims and pick another battle.

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Teamsters To Cut Pension Benefits

I recall as a negotiator at the 1982 Longshoreman's Master Contract negotiations the strike issue was fully funding the unfunded pension liability.  The Longshoremen won.  The air traffic controllers union had just been busted (end of pensions) and later in the 1980s with trucking deregulation countless teamsters got screwed out of their pensions.  In the 1990s it was the pilots turn to get screwed.  Not one single riot.

Here we go again.  The teamsters are getting screwed by the teamster leadership, only possible since Hoffa was murdered.

The cuts were made possible after the lame-duck Congress late last year passed the Multiemployer Pension Reform Act (MPRA), enabling any multiemployer pension fund to cut benefits to workers and current retirees if the plan is underfunded by at least 20 percent.

Expect no riots.  But do expect fewer dollars chasing the same amount of goods and services, as more and more people realize they will be getting fewer and fewer dollars.  By definition, this is deflation.

“Baby Boomers are retiring in record numbers and the union workforce has been steadily declining for years. As a result, the Fund currently has more than three times as many retirees as active members — so, fewer contributions are coming in than benefits being paid out. To put this into perspective, for every $3.46 that the Fund pays out in pension benefits, only $1 is collected from contributing employers, which results in a $2 billion annual shortfall. Clearly, that math will never work,” the letter said.

Same with your pension.  The powers that be want inflation, but will get deflation.  Deflation benefits small business.

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So What Are You Going to Do?

The top advisors see it is over -

But I can think of no event since Bretton Woods comparable to the combination of China's effort to establish a major new institution and the failure of the United States to persuade dozens of its traditional allies, starting with Britain, to stay out.

And

The US spends three times more than China on “defense.” Advantage: Pentagon. But as the Persians discovered in their wars with the Greeks, having the biggest, best-funded army does not necessarily give you an edge. Instead, it can invite sluggishness, complacency and overreaching.
The US military is the fattest, most zombie-infested bureaucracy in the world. It suffers from an overabundance of resources. It supports troops (at a cost of $1 million per soldier per year) all over the globe.
It builds weapons systems that are often obsolete before they are put into service. It coddles armies of lobbyists, contractors, consultants, retirees, hangers-on and malingerers.
Like all bureaucracies, it looks out first and foremost for itself. Looking out for the security of the nation is a distant second.

And having humiliated the USA hegemon over the AIIB, the Chinese are taking a victory lap and inviting the USA in as a junior partner in Asia.

Washington's new attitude, though far from enough, is a good beginning. As the world's sole superpower, it too shoulders its own responsibility to usher in a better global lending system as well as a better world through cooperation with others.
Washington's blocking of the AIIB has proven of little avail so far. The sensible next step would be to continue bridging the gap with China and find itself an appropriate role in the new initiative.

Further, whereas in capitalism big business writes the rules that advance the program of "get big or get out", China is forbidding the kickbacks, bribes, graft etc that is legal in the USA system for big business.

China does not pursue protectionism and it will continue encouraging the inflow of foreign investment. The establishment of the China (Shanghai) Pilot Free Trade Zone, the decision to set up free trade zones in Guangdong, Tianjin and Fujian, and ongoing efforts to push forward the Silk Road Economic Belt and the 21st Century Maritime Silk Road all mean that China is opening wider to the outside world.
Yet that does not mean indiscriminate acceptance of foreign investments. China welcomes investments that can benefit its green, healthy, sustainable development while keeping those that do the opposite. The anti-monopoly campaign is aimed at creating a healthier environment for foreign investments, not to discourage them.

China has massive problems.  But a small, viable drug company has a better chance in this world in China then USA.  Yes, so does a snake-oil company, but the Chinese will weed out the bad ones eventually.

Two fellows are hiking in the woods, when they see a bear cub on the path ahead of them.  Uh-oh.  Where is the she-bear?  Bad news, behind them, they are between the she-bear and her cubs.  One hiker drops down, pulls off his hiking boots, and proceeds to put on his Nikes.  The other says, "Are you kidding, you cannot outrun a she-bear in the woods..."  The fellow putting on the Nikes replies, "I know, but I only have to outrun you."

The Chinese need only be a little bit more attractive than USA, and right now, they are way more attractive, according to the last world vote.

Bonner has it right (above) the problem is our military and our bureaucracy.  We cannot support them and rebuild our economy.  What needs to be done is really quite simple, freedom, but what we choose to do is massive "urban suppression" exercises on how to crack down on dissent.

We have what it takes to win, the right ideas, but people in power never want the right ideas, they want the self-serving ideas.

And sheriff's deputies told the Houston Chronicle they would ensure residents living near where aircraft were slated to create disturbances and drop soldiers, civilian and military vehicles will barrel through and where blank rounds would be fired.Jim Stewart with the Brazos County, Texas Sheriff's Office told the Chronicle that such exercises are far from anything new. 'Special ops for years have trained off-post for years, where they go out and have folks that are role players out on the economy,' said the Army intelligence veteran. 'They'll have a scenario they'll be following and they'll interact with these role players as if they're in another country.'

Oh.  Training soldiers to interfere in the economy and act as though they are in a foreign country.  How about end the banking regulations that destroy small business, or end Big Pharm monopoly, or separate state and education...  so many things would revive USA as powerfully as the internet revolution that came from telephone deregulation, but no.  What we will do is play theatre with military practicing special ops in USA.

Start your own business, it is the only life raft left.  If you have paycheck, property, portfolio or pension, you are a sitting duck.  Those soldiers need to be paid, and sitting ducks will pay them.

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Alibaba Serves Up Another 48 Million Shares to Insiders

After your pension paid $90 a share of alibaba, alibaba issued another 48 million shares the following Monday, at $68 each.

In particular, it was reported by CNBC that numerous hedge funds were allocated miniscule amounts of Alibaba Group Holding Ltd (NYSE:BABA) stock in comparison to the amount requested. Instead, preferential treatment seems to have been given to investors that had longer ties with the company, including early backers, who were given larger dollops of shares as a reward.

So now those insiders will sell out and pocket the difference between their $68 price and whatever your stock falls to before the insiders can unload and book profits.  The Chicom press gives a more fair view:

"As the irrational passion for short-term trading gains dies down, Alibaba's share price will adjust and recede to around $80," said Hong Hao, the chief strategist at Bocom International Holdings, to China Daily online, adding that a new round of investors will digest the stock and seek buying opportunities in the secondary market.

The USA stock exchange is supposed to be about wealth creation, but clearly it is about wealth-transfer.  These guys came to USA because we allow front-running and regulators captured by the regulated.  It astonishes me to hear people say "we need more regulation!"  There is no field more regulated.  The trick is to get rid of the regulators, then the regulated have no one to pretend to be in charge.  That's right, then you'd have to develop your ability to judge.

Check your pension statements to see how much BABA they bought at what price.

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The Alibaba Heist

Those outside of China who ever heard of Alibaba are probably familiar with the "trade lead" site where buyers and sellers can "hook up" internationally.  I've always advised against "trade lead' sites, even before the internet in their newsletter versions, because they are usually people with no customers talking to people with no supply, with a large contingent of scammers standing by.  I've characterized it as trying to drink from a fire-hose of sewage when all you want is a sip of clean water.  What I learned long ago was to work directly with that sip of clean water (the best suppliers and customers) and ignore the trade leads.  Indeed, one of the myriad steps in due diligence is to make sure a supplier or a customers is NOT on alibaba.com, for a busy, top company would not bother with that desultory exposure.

Alibaba also once had a JV going with Yahoo.com that gave alibaba.com some stature in USA, but that was severed when reputation issues where hurting Yahoo.com.

Today Alibaba is ebay, youtube, paypal, einsurance, google, sprint, geico, fedex, twitter, facebook, amazon, and everything else all in one. Is that a good idea?  Think management issues.

As a side note, I do like the idea of an economy that is so integrated and comprehensive that it acts in the place of any government.  Alibaba.com would be an example of what comparative law theorists call "private law."  It would be, except it is an invalid instance: private law grows organically along anarchistic lines, it is not a plot hatched by a few dozen people and financed by Goldman Sachs.

I've been looking for a reason why Alibaba would be a good buy, and about the most significant explicator I can find is here:

Michael Tudor, founder and CEO of New Jersey-based Ripen eCommerce, said small- to mid-size businesses can look at Alibaba as a shortcut to reaching the massive Chinese e-commerce market.
"Tmall (one of Alibaba's marketplaces) is a particularly brand-friendly marketplace for a number of reasons, including small commission rates and the fact that it doesn't sell merchandise of its own, unlike Amazon," said Tudor. "At the same time, Alibaba.com is a business-to-business site that connects manufacturers with retailers around the world. No other site has been able to streamline the connection between manufacturers and buyers."

Delusional, or fraud.  First, Alibaba can do nothing about physics, the cost of moving goods.  You can get $150 for a live Dungeness crab in Beijing.  But you have to get it to Beijing.

The fact that amazon.com does compete against its clients is the reason, albeit counterintuitive, that Amazon.com took the lead.  The lack of exclusivity allows the best to rise, not all too often crowd them out.  Alibaba.com may have eschewed a critical factor.

Second, what does a $20 billion (or whatever) flow out of USA pensions into Chinese tallies do for the USA small to mid-size businesses (not to mention the pensioners)?  Alibaba has been around since 1999.  There is nothing that will be improved in the next year that was not available in the last year.  At no time did Alibaba have any advantage that was not otherwise available in the last fifteen, nothing in the next fifteen that will be unique to Alibaba.  So where is the advantage in having moved $30 billion tally in pretend pension contributions onto Alibaba's books, in exchange for stocks held by pensions?

Third, what's for sale?  Let's read the prospectus:

(alibaba is) the largest online and mobile commerce company in the world in terms of gross merchandise volume in 2013, according to industry sources.

What industry sources?  No telling...  and a company in China that is "all-in-one" is likely, should be, the largest in the world.

Now what is for sale with this stock is a couple of websites... alibaba.com, taobao, etc...  all those other functions are part of the alibaba.com "ecosystem" -

Given the scale we have been able to achieve, an ecosystem has developed around our platform that consists of buyers, sellers, third-party service providers, strategic alliance partners, and investee companies. Our platform and the role we play in connecting buyers and sellers and making it possible for them to do business anytime and anywhere is at the nexus of this ecosystem. Much of our effort, our time and our energy is spent on initiatives that are for the greater good of the ecosystem and the various participants in it. We feel a strong responsibility for the continued development of the ecosystem and we take ownership for this development. Accordingly, we refer to this as “our ecosystem.”

So all those Chinese third party providers, strategic alliances, investees, are not part of what one is buying, but they all benefit from you buying the stock.

And what is Alibaba's China market penetration?

Well, their graphs are selective, but in mobile they claim a 76% market share in China online sales. Wow.  In a country, China, where 7.9% of retail sales is online.  Wow!  That is about 20% more  internet market penetration total in China than internet market penetration in the USA.  In USA only about 6% of retail sales is online.  When I ask in classes what per cent people think occurs online in USA, usually they offer a figure say 50% or higher.  They are astonished to learn it is so little.  And then I go on to say "why is it not higher?  There is nothing to keep it from having gone higher yet, and maybe it will get to 8% (where China is) but I doubt it will ever go above that. " (Back in the 1980s when every was a sure most retail took place out of catalogs, then too in boom, penetration never got about 8%.  There are rational limits.)

Online sales has maxed out its viability, and has yet to prove profitable. Apparently so does Amazon, who is yet to turn a profit with online sales, offers seminars on what may work to make online sales profitable  (who knows, it's never been done), and at the same time is trying to get into industrial supplies sales online.  (It usually costs more to attract a customer online than the profit from a sale.)

That Alibaba "76%" is GMV.  Gross merchandise volume.  That is, including returns and dissatisfaction. That 7.9% is entire China....  Hmmm....  AS one day google took over the search from yahoo, and Apple took computing away from Microsoft, is it possible there is something preferable to alibaba.com?

For a company of this size that made only $1.6 billion net before taxes and payouts FY 2013, and that if only

Non-GAAP MeasuresWe use the non-GAAP financial measures of adjusted EBITDA, adjusted income from operations, adjusted net income and free cash flow in evaluating our operating results and for financial and operational decision-making purposes.

Strikes me as rather tight, even if whimsical.   And if they are turning such a profit, why go borrow $3 billion in August from the very bankers who are underwriting the September IPO?  Although no reason is given for the $3 billion dollar loan a month ago, perhaps it was a down payment on the fees the banks will make, $3 bil being about 10% of the IPO.  Prepaid in case the coming crash comes before the IPO?  In any case, the price surged 40% on top of the richly priced $68.00.  No crash yet. Ka-ching.

Why USA?  Why is a Chinese website raising its IPO money in USA?  There is a perfectly good stock exchange in Shanghai, but China tends to shoot people who do very big fraud.  I have no idea if this compelled the Alibaba crew to seek money elsewhere, but Hong Kong turned Alibaba.com down too.  Are you kidding?  No place that values the rule of law, peace and prosperity would ever allow a website like Alibaba.com to do an IPO on the HKEx.  So what does that leave?  O yes, USA!

No matter what happens, the usual suspects made a killing off fees and fast-trading:

Six firms were listed as Alibaba’s lead underwriters, listed mostly in alphabetical order: Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Citigroup. They emerged as winners for the honor of running an I.P.O. that could ultimately end up raising more than $20 billion.

The alibaba.com offer is for a scope and scale that is unmanageable, the model is false-economy based, the content is apparently maxed out, and the funding is pension's desperate need for yield.  It's Enron on 'roids.  It may be crazy, but it is tradable.

On the other hand, had dim sum yesterday with a rep of a freight forwarder firm based in Chile.  He laid out the strategy and tactics on building new markets for their business by assisting certain segments of markets in various countries.  It all made sense, they'll make money, business will grow.  The "get big or get out" thing has failed.  The pendulum is swinging back.  There is money to be made at the small business level.  It is people with real products selling to people with real customers that is real economy based.  These people are why there are clothes on you back and food on your plate.  Nothing terrible exciting, but it's a lifestyle.

 Alibaba has nothing to offer those people.  But it is a way for a few people to become billionaires, and others to imagine they could, if that is your definition of wealth.

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Microsoft Layoffs - Two Steps Forward, One Back

For Microsoft, a company of 180,000 to lay off 10% of its workforce is news.  But wait, 12.500 of those 18,000 come from the just-acquired Nokia company.

The cuts will begin with a first wave of 13,000, with the vast majority of employees whose jobs will be eliminated being notified over the next six months, according to a memo from CEO Satya Nadella.

Well, so in essence about 5500 Microsofters are actually out.  some will get rehired, some will start companies.  Those who start companies will benefit the rest of us as opposed to remaining redundant at Microsoft.

What strikes me as Human Resource Madness is to announce the jobs will be eliminated "over the next six months."  No!  You give people their severance checks at 4:59 pm Friday night, tell them to clear out their desks, take away their keys and have security escort them to the door.  Have a nice weekend!

Then at 5:01 pm you send out a press release.  Done!

I though Microsoft had world class human resources folks.

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This Pope On Politics and Economy - What To Do

Right wing and anarcho-capitalist (internal contradiction) Catholics are criticizing this Pope for most of what he says on economics.  It is unseemly, like the demons who screamed in fear as Jesus approached.

“Our world economic system can’t take it anymore,” says the Bishop of Rome in an interview with La Vanguardia. “I’m no illumined one. I didn’t bring any personal projects under my arm.” “We are throwing away an entire generation to maintain a system that isn’t good,” he opines with respect to unemployed youth.

Yes, capitalism is over, done with, like the Soviet system, and yes, we have thrown away two generations of entrepreneurs.  The people who depend on new business to have their sinecures funded, social security, pensions, etc, have denied the formation of the economy that might have funded the promises made.  Sort of condign punishment coming, slow motion.

As opposed to the Pope, I have a plan, a personal project.  As I survey the working parts of the economy, the imbalance between small and big business is a clear manifestation of the damage done by the federal "get big or get out" mandate.  Small business needs to be promoted, but this cannot be a Government project, for the Government has already done to small business what it has done to the American Indian and "health care."  Although I am not going to worry about that, I do advise we collective elect to end all that.

For my part, my classes have always been focussed on start-up and small business.  Over the last 30 years what I have seen is the atrophy of the innate sense to trade small and grow, and the learned skill of selling.  So my curriculum is beginning to emphasize these two points:

1. The MOQ FOB - it has always been in my curriculum, but what was once a reality noted is now an imperative to be restored, a lack to be addressed.

2. Trade Show Booth Management - the trade show is the World Cup of the business.  The booth is the match.  The business activity is directed to the upcoming show, and capitalizing on lessons learned from the last show afterwards.  There is so much to this, it is often farmed out to experts at the small business level. But to farm it out, to farm anything out, you must be a good consumer of that which you wish to farm out.  If you know nothing about trade shows, you can hardly judge anyone who is running trade shows for you.  And people who are working for you without any standards come back from trade shows with a stack of business cards and call those "trade leads." So I am cobbling together several start-ups ready, willing and able to sell worldwide into one trade-show-booth-as-working-seminar, this one the first:  http://www.johnspiers.com/Export_Agriculture/Advanced.html

The result - supply for nascent demand, the means to discover new markets, to grow a small business.  The bad news is we are imbalanced as to small business vs large, the good news is a start-up is automatically leveraged, has exponential value since it is rare.  The payoff will come with the changes apres-deluge, when property "values" drop to zero, and taxes go to 90%.  Those were the golden days of small business last century. They are coming back.

The Pope goes on, after decrying fundamentalism (extremism), and lauds radical (roots) revolution:

 For me, the great revolution is going to the roots, recognizing them and seeing what those roots have to say to us today. There is no contradiction between [being a] revolutionary and going to the roots.

See, when your education includes vocabulary, you can communicate ideas.  We pay more for an education for each American in the USA than it cost to educate this Pope, but we get miserable results.  But back to the point, radical and revolution.  So far so good.

I know that something could happen to me, but it’s in the hands of God. I remember that in Brazil they had prepared a closed Popemobile for me, with glass, but I couldn’t greet the people and tell them that I love them from within a sardine tin

And something probably will happen to him, because such voices don't get the mic long.  And the next Pope will go back to the bullet-proof security.  The blood of martyrs, etc...

Now to his views on economics, that sends the right wing crazy:

It’s proven that with the food that is left over we could feed the people who are hungry. When you see photographs of undernourished kids in different parts of the world, you take your head in your hand, it incomprehensible. I believe that we are in a world economic system that isn’t good.  ...
The economy is moved by the ambition of having more and, paradoxically, it feeds a throwaway culture. Young people are thrown away when their natality is limited. The elderly are also discarded because they don’t serve any use anymore, they don’t produce, this passive class… In throwing away the kids and elderly, the future of a people is thrown away because the young people are going to push forcefully forward and because the elderly give us wisdom. They have the memory of that people and they have to pass it on to the young people. And now also it is in style to throw the young people away with unemployment. The rate of unemployment is very worrisome to me, which in some countries is over 50%. Someone told me that 75 million young Europeans under 25 years of age are unemployed. That is an atrocity. But we are discarding an entire generation to maintain an economic system that can’t hold up anymore, a system that to survive must make war, as the great empires have always done. But as a Third World War can’t be done, they make zonal wars. What does this mean? That they produce and sell weapons, and with this the balance sheets of the idolatrous economies, the great world economies that sacrifice man at the feet of the idol of money, obviously they are sorted. This unique thought takes away the wealth of diversity of thought and therefore the wealth of a dialogue between peoples. 

Whew!  Exactement!  Today all famine is state-sponsored, the desired result of state interventionism.  Young and old are thrown away, exactly, I've been watching the last two generations be sucked into FIRE (Finance, Investment, and Real Estate), in essence pointless rearranging of the deck chairs, and the computer "revolution" in which massive resources are martialled to keep straight who owns what chairs and where the are located, on the Titanic.  And a war based economy is exactly right: droning wedding parties to terrorize people into giving up their resources is necessary to fund USA empty pensions.  And this regime crowds out the division of labor that would emerge if we did not cheer on the human sacrifice of the war economy (thank you for your service!).

Bankrupt balance sheets, division of labor, proper definition of wealth, wow...  someone else out there thinks like I do.

Well understood globalization is a wealth. Poorly understood globalization is that which nullifies differences. It is like a sphere in which all points are equidistant from the center. A globalization that enriches is like a polyhedron, all united but each preserving its particularity, its wealth, its identity, and this isn’t given. And this does not happen.

Whoa...  spot on!  Then he is asked about independence movements -

All division worries me. There is independence by emancipation and independence by secession. The independences by emancipation, for example, are American, that they were emancipated from the European States. The independences of nations by secession is a dismemberment, sometimes it’s very obvious. Let’s think of the former Yugoslavia. Obviously, there are nations with cultures so different that couldn’t even be stuck together with glue. The Yugoslavian case is very clear, but I ask myself if it is so clear in other cases. Scotland, Padania, Catalunya. There will be cases that will be just and cases that will not be just, but the secession of a nation without an antecedent of mandatory unity, one has to take it with a lot of grains of salt and analyze it case by case. 

Exactly.  Why should Ireland fight for freedom only to return to under the British boot?  I am keen on Scottish independence, but the pro-independence people seem to have a program of "worse than English" rule.  If Scotland were to be emancipated from England, then they would have free markets and grow in peace, prosperity, wealth.  But no one is talking freedom as a part of Scottish independence.

And on participation in politics -

Maybe they talk about the same problems but with a new music, and this I like, this gives me hope because politics is one of the more elevated forms of love, of charity. Why? Because it leads to the common good, and a person who, [despite] being  able to do it, does not get involved in politics for the common good, is selfish; or that uses politics for their own good, is corrupt.

Ouch.  As an anarchist, this is challenging.  But anarchy is politics, too.  I myself refuse to participate in politics because I am one of those who would use politics for my own good.  I am no better than the criminals we have in office, except that I know better than to claim looking out for #1 is holy.  Anarchy keeps people like me out of power, and we are legion.

I wonder if the Pope is warming up to condemn interest?

Here is the Pope's dive, Mina Mazzini -


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King Credit and Tombstone #3

At about page 110 in Author Yang's Tombstone, the story of the great Chinese famine of 58-60, the Cult of Personality, referring to Mao emerges.

If one will step away from the ideological nonsense around one -ism is superior to another, the parallels are amazing.   A leadership that knows nothing of economics, punishment for truth telling, all assets being aggregated into ever fewer hands, omnipresent surveillance and unspeakable violence, what is of value is exported and empty stores are reckoned overflowing.  News black-outs. Anything Yang mentions we have our version over here.

We are careful not to have a Chairman Mao, yet, but one can see all of the elements in place where a Mao could emerge.

Estimates are rough, but some 30 million people are said to have starved to death those years.  Probably 100 million had a very hard go of it. That leaves about 450 million who got along just fine.  And that is the problem with these things, the vast majority gets along just fine.  Problem?  What problem?

USA has been all about collectivization the last 70 years, and especially the last forty.  Get big or get out.  Well, I advise getting out of the collective.  Members of collectives had it the worst in Mao's China.

Make business. not quota.  Expand production, and invest profits in the means of production, but have zero debt.  You will be paid in credit, not money in USA.  So convert what you believe to be "retained earnings" ie, money, into expanding means of production, so when the crash comes you don't have you financial assets wiped out (because you have none.)  Rent, don't own for now, because land prices will fall, and when they do, it will be easy to buy dirt cheap.  And if you can, warehouse out of the cities for now.  Have zero debt, because when credit fails debt payment taken in credit will be demanded in money, in which your credit will be denominated.

Right now farmland is "worth" more than can be made on it.  Bad food crowds out the good.  Few farmers will pass on the farm to the family, but inheritance tax will wipe out any attempt anyway.  So older farmers sell out for 5 million, and watch a millionaire tear down the farmhouse and build a tax-deductible winery.

Mao assumed the lead in a system where an elite lived exceptionally well while masses starved.  We have all of the working parts in place, and paltry check on state extremism.  Just add Mao.

Tombstone: The Great Chinese Famine, 1958-1962

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Taxing Government Pensions

The time will come when it is necessary to renege on the pensions promised to government workers.  This is no problem conceptually, because governments regularly renege on everything.  And as a matter of justice, there is no issue reneging on a conspiracy wherein two parties agreed to ripping off a third party, who had no idea what was going on.  No one who is paying for these pensions agreed to these pensions.  Before we adopt Mish's proposal

I propose something along the lines of "taxing pension benefits above a specified amount at 80%, taken straight out of the check". The "specified amount" would be determined based on what it takes to make the system actuarially sound in a reasonable timeframe (say 15 years).

I have another idea, which covers a problem Mish does not mention.  Those people who double and triple dipped into the system.  Sticking with the 80% tax on anything above a living wage, something these folks are always talking about, and a 100% tax on all other pensions a person might have, let's leave in a proviso that allows them to invest this money in a business, under the current IRS rules.

I am reminded of how George McGovern, upon opening a Bed & Breakfast in his retirement, was astonished at how pointlessly difficult the state made life for small business.  So upon retirement, the people who made life difficult are obliged to join us or lose it.

This new army would be spending their pensions directly with other business people who were providing the businesses with goods and services.  Two things would happen, these people would communicate to their past minions how horrible life is after retirement in which you actually have to serve other people.

In the parable of the rich man and Lazarus, the dead rich man wanted to warn his fellows, but it was too late.  Right now we could set up a system where the use-it-in-business-or-lose-it pensioners were communicating in a direct and lively manner the problems we face given the "get-big-or-get-ut" imperative policy at all levels of government.

We then would no doubt see another parable play out, where the abusive task masters in government would be busy going around and rewriting codes to make life easier for them when they meet their pensioned fate.

The pensions are now forfeit, since they cannot be met.  The question is how to creatively renege on the false promises.

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Wealth And Money and Currency

Anonymous, the most prolific writer in history, has visited my blog and left a question:

Is it best to hold our wealth in metals (gold or silver) then?
We live in an imperfect world, but what is the best currency then to store some wealth in? Hong Kong dollar?

And a trick question at that.  "Is it best to hold our wealth in metals...?"

But the definition of wealth is what range of goods and services is accessible to how wide a range of demographics with their own money.  Weal, the root, means common good, well-being, prosperity, and wealth being the state thereof, and commonwealth is a group sharing in that.

And as I have pointed out elsewhere, the root of the word prosperity is "spe" or hope.  Prosperity is not what you have, but that your hopes can be met.

Have metals entered into the discussion yet?

Money, those metals, are a medium of exchange and a store of value.  No mention of wealth in that definition.  Your wealth is the degree to which you contribute to the commonwealth.  You wealth is your contribution along with all of the others which collectively creates wealth.  The paradox is no wealth for you if you do not contribute, your claim on wealth is the degree to which you have built up the means of production to serve others.  The irony is you can live off others if you do not contribute.

The idea that wealth is what you can stash away for a rainy day has been odious throughout history.  Today it is celebrated, and a key element of all celebrities is they are rich in the sense of metal stored away, and contribute little if anything.

That money is a medium of exchange is only in the service of exchange, that is facilitating the commonwealth and prosperity (and the peace that attends the provisions against want.)  That it is a store of value is a consequence of the medium of exchange coming from a commodity, and necessary for those who need to store up money to meet the EOM commitments.

No where is money to be used for anything else, or something absurd, like retirement, an idea some cracker named Otto came up with as a solution to too many old people.  This idea, like police departments, is about 150 years old and utterly destructive.  As long as a person is alive, he has something valuable to contribute.  Anyone who insists he is no longer necessary, and may retire, may find his argument convincing to people who want to eliminate the cost of paying for the retirement.

But that is just for the future.

So wealth by definition is not metal in a safety deposit box, but a pizza oven or a laboratory putting out bacteriophages, or clinic on a corner that cleans teeth.  Money is necessary to these people as a medium of exchange, and since they need to hold on to it for EOM needs it also works as a store of value, but its purpose is in serving the commonwealth, not to escape responsibility for participating in the commonwealth.  Once you imagine money is wealth then you have deluded yourself and denied yourself the good of contributing to true wealth.

Take those metals and start a business.  Consider your retirement plan an event where you grab your chest, gurgle, and drop dead mid-sentence while making a sale.  "Tag 'em and drag 'em."

To consider money as wealth is to invite very unhappy results.

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Detroit, Unfunded Pensions, and You

The judge overseeing Detroit's bankruptcy has restated both the law and the obvious, and that is pensioners are unsecured creditors.  That means the banks and the providers of goods and services are paid before the pensioners are paid.  Or, in other words, pensioners will be lucky to get pennies on the dollar, if anything.

Oct 21 (Reuters) - The federal judge overseeing Detroit's bankruptcy filing called the city's pension funds "unsecured creditors" and stated that any special protections for them would violate federal bankruptcy law.

Someone signing up for government work in say 1950, or 1960, or 1970, or 1980, or 1990 or any time could easily have seen this coming.  There has been no time since the 1950s in which is was not common knowledge that there was no way that the pension schemes could work out.  Nonetheless union leaders brought back pretend gains from negotiations, and the politicians pretended to give concessions that could not be fulfilled.

This bankruptcy was inevitable and the good that comes out of it will be that no government worker can depend on his pension.  That introduced into the calculation will assist in re-allocating resources.  Right now wages are too high as employers compete with government for workers, and employers are obliged to overcharge to satisfy the taxes to cover the wages of the government workers.

Further, the existence of the state itself inhibits the freedom to contract and freedom from force and fraud that denies us to some extent to discover the unseen opportunities.  Bankruptcies clear the deck of bad investment.

Anyone who believes the pensioners will eventually somehow be paid has not paid attention to history. The Roman clerks, the Chinese eunuchs, even the Samurai, when they are no longer of service, they are cut loose mercilessly.

What makes it merciless is the lack of hope for any alternative.  In Moscow I saw men guarding very many empty buildings.    I suppose that is a job.    The military is not looking like a good option since we have an unbroken record of losing every war we start going back to the 1950s.  And all other fields are rather moribund due to taxes and regulation.

All this leaves in terms of opportunity is the unseen.  That can only be brought forth in freedom.  But the problem is whoever was busy gathering up 70 million French phone calls one month is now coming back home, to do what?  I guess gather up 70 million USA phone calls.

As with Obamacare, we are paying too much for a state that does too much.  I talked to a women who is building a market for gluten-free mixes from her kitchen table, organizing production in one state and sales in another.  She is finding customers that were not there before, the unseen.

We need to get away from the bad idea that there may be something to learn in snooping on others, and celebrate the discovering the heretofore unseen.

Retired cops are going to have an especially hard time converting their habits and inclinations into a job more than watching an empty building in Detroit.  To get out of this mess will take personal transformation.  Business start-up includes an element of personal transformation.

Don't wait to be told what you can know right now: your pension is unfunded, and no one owes you anything.

Update:  If you are in the SF Bay Area late February, I'll be Foothill DeAnza College is hosting an all-day import-export startup course.

Class Description Come learn the strategies those thriving in small business international trade use to grow and build their business. You will be guided through selecting products, finding customers, working with governments, licensing, bankers, brokers, carriers, financing, costing, pricing and gaining orders for your products, all from a practicing professional. Highly rated by students for content, pace and humor. Recommended textHow Small Business Trades Worldwide by Instructor is available at on Amazon.com.  Class ID: 2907 Saturday, 9:00 am - 5:00 pm; 1 session starting February 22, 2014, ending February 22, 2014 Course Fee: $89.00 Instructor: Spiers Location: De Anza College, G Building , Rm. G-7       Map

You may enroll here....

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