Reality Check Q&A, #5

Gary North

Sept. 25, 2009

PRICES

Ok, so how long can we continue with money being the only means of survival? Money devalues constantly (more so than going the other way); money makes more money than humans physically can so, if you aren't born with it, very few people "make it rich." We make a little more in salary, but then the cost of living rises. Can there ever be a ceiling, or an end to rising costs? I did better in 1970 making $2.50 an hour than I do now making $20.00. What will things look like when poverty level is $200/hr or less?

You have spotted the problem. People did do better in 1970 at $2.50 an hour than they do today at $20. They are now in a higher tax bracket: higher percentage of extraction. They pay more into Social Security and Medicare. Prices have risen to match the increase in the money supply. Expect more of the same.

Some things are cheaper. Food, computers, communications, and everything digital are all cheaper. For me, it's better than in 1970. I live by what I write. I write in terms of research. The Internet is a near-miracle for me. For you, maybe not.

There are always costs. We want more than we can afford. But if people are allowed to be free, they will find ways of producing things more inexpensively. Economic growth makes us richer over time.

The problem is taxation, which includes inflation taxation. This expands the extraction of wealth by the state, leaving us with less. For this, the ceiling is imposed either by a tax revolt or the breakdown of society. The state will lose its tax base in either case. Until the state reduces its extraction of wealth from the public, there is no ceiling on costs. This cost keeps rising, even though other costs are falling.

CAREER

I'm 58 years old
I have a nine month old baby girl
I have a one year supply of stored food
A bib Berky filter
ammunition
snares
heirloom garden seed
my retirement fund has lost 50% of its value
My business has 4 to 6 week periods of unemployment that is eating away my capital. I can no longer get a surety bond because of this.
I have refurbished all of my trucks and equipment.
I bought one of my core employees a whole setup, including the chicks to raise pastured broilers.
My wife has a magistrate's job which is secure. Am I doing something wrong?

Personally, you are doing better than most people. You do not appear to be in debt. This makes you mobile. You are storing up back-up supplies. This reduces your vulnerability to economic crises. If you know how to use the ammunition, seeds, and snares, you are way better off than most. I am assuming that you don't live in downtown Detroit.

Your problem is your business. You are at the end of your career. Your source of income is in trouble. You have improved your capital -- trucks -- but they are not generating income. I don't think this is going to change over the next two years.

So, you have a big decision. Should you stay in your business? From the sound of it, the answer is no.

Then the other question arises: What else can you do? Retirement is not an option.

Look at your total capital base: trucks, business contracts, experience, and retirement portfolio. If you sell the equipment, cash in your pension, and put your business skills to work, what could you do that will not eat up your capital?

If you were 25 with the capital you possess, what would you do? Do it.

MELTDOWN

age: 55
Location: Texas
Occupation: health care
Retirement date: 20 yrs
#1 goal in life: Financial security/stability
Deadline date: 6 months CD coming due

There appears to be phenomenal uncertainty and instability as never seen before ... not just in US but globally, and while multi-factorial, what is the probably of a complete global financial melt down and hyper inflation . . . and in what time frame in the future, devaluing any monies in a CD's.

There are lots of meltdowns available. There is a financial meltdown, like the one described by Thomas Woods in his book, "Meltdown." That one tanked the markets. Cash was king. Then there is a currency meltdown. Cash is doomed.

You must decide which one faces us next. Then decide which one follows the next one.

There will not be one meltdown. There will be a series. They will be the reverse of each other. The financial meltdown leads to monetary inflation: Federal Reserve policy. The currency meltdown will lead to monetary stabilization, rising interest rates, and depression. You know: what we came close to a year ago.

I think the next meltdown will be currency-related. That is several years away. Until then, the economy will bump along. The recovery will be weak. The less weak it is, the more likely banks will start lending. That will speed up the return of monetary inflation, then price inflation.

If I were you, I would start buying investment homes. Use John Schaub's techniques (www.JohnSchaub.com). Texas will be a good place to own real estate, no matter which meltdown we get. Buy it from desperate sellers.

CAREER

I work for a privately-owned commercial real estate developer in Atlanta. Should I consider pursuing other opportunities at this time or stay put in hopes that conditions will improve?

For a better career with greater promise, paint a "Will work for food" sign and stand on any major street corner.

Get out. It's dead. It will stay dead. Banks are sitting on top of half a trillion dollars in bad commercial real estate. Georgia is the worst state in the union in terms of overleveraged banks.

INVESTING

We rent in San Diego and own a home (rented out now-retire later) in the Caribbean. Our savings are in cash. Inflation is coming. What is the most prudent investment to make to stay ahead of inflation? Should I be asking a different question?

It is a good question.

A home in the Caribbean is probably good, depending on which island. If it is a safe island, where the crime rate is comparatively low, that property should appreciate. If you plan to retire there, fine. I assume you have lived there for at least a year and did not suffer from island fever. Most mainlanders do.

If you are not sure where you will retire, I suggest making this decision now. If you want to stay in the U.S., trade or sell the Caribbean home for income-producing real estate in the location where you want to spend your retirement years. Visit the place. Get to know the locals. This is crucial. They must trust you. You had better trust them.