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The Great American Bubble Machine

Gold Thoughts: Arnold Bock

The following is Copyright © 2009 Arnold Bock and can be found over at Financial Sense.

So why am I so optimistic about the eventual price of gold?

It is because an affinity for and an understanding of the political mindset causes me to understand what decision makers will do…and why. Because a politician follows the political calendar, s/he only concerns himself/herself with the time horizon leading to the next election.

Anything requiring decisions beyond the date of the next election will be the responsibility of whoever is on the next watch. If the politician in office today is in office after the next election, a shrug of the shoulder indicates that worries of that kind can be dismissed for now to be dealt with later.

So major and difficult, but necessary, decisions are inevitably deferred. In their place spending money gives the appearance of concern and of doing something to fix the apparent problem. Aren’t those elected officials doing what we elected them to do? It certainly looks as if they are.

More cynical observers would characterize these actions by the political class and their senior bureaucratic minions as buying time hoping that something positive might magically emerge.

Those who are super cynical would even conclude give-away programs are designed simply to bribe the voters in order to curry goodwill for another term at the levers of power.

What all this means is that there is no discipline or inclination to do anything of real value in fixing the core economic and financial problems. That being the case, new programs, more spending stimulus and money creation will always be the order of the day. Hence the currency will devalue and investors will find gold as their best safe-haven refuge.

The dollar will devalue because massive dilution caused by incessant money creation allows future obligations to become more manageable – for government – because it is the only way that it can meet its future obligations for employee pensions, accumulated debt, Medicare and social security.

A nominal dollar which buys much less in the future than it does today is still a dollar. Unfortunately the holders or recipients of those devalued pieces of paper will find they are essentially fraudulent promises.

These realities make gold the closest thing to a sure-bet investment. They are also the reasons why gold will go much higher than most of us allow ourselves to contemplate.

Buckle your seatbelts and enjoy the ride ahead!

I still think Gold is overbought, it is always a good reminder to keep myself honest by reading stuff like this. I have a lot of events coming up this year wedding, honeymoon, trying to buy house, etc...With all these I am going to need liquidity and not sure holding on to bullion is going to be my best option. I am looking to buy some on the dip (if that ever happens) think I might as well get into som Sliver and Oil.

Cash For Clunker Revisited

If you traded in a clunker worth $3500, you get $4500 off for an apparent "savings" of $1000.

However, you have to pay taxes on the $4500 come April 15th (something that no auto dealer will tell you). If you are in the 30% tax bracket, you will pay $1350 on that $4500.

So, rather than save $1000, you actually pay an extra $350 to the feds. In addition, you traded in a car that was most likely paid for. Now you have 4 or 5 years of payments on a car that you did not need, that was costing you less to run than the payments that you will now be making.

But wait, it gets even better: you also got ripped off by the dealer.

For example, most dealers in LA was selling the Ford Focus with all the goodies including A/C, auto transmission, power windows, etc for $12,500 the month before the "cash for clunkers" program started.

When "cash for clunkers" came along, they stopped discounting them and instead sold them at the list price of $15,500. So, you paid $3000 more than you would have the month before. (Honda, Toyota , and Kia played the same list price game that Ford and Chevy did).

So lets do the final tally here:

You traded in a car worth: $3500

You got a discount of: $4500

---------

Net so far +$1000

But you have to pay: $1350 in taxes on the $4500

--------

Net so far: -$350

And you paid: $3000 more than the car was selling for
the month before

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Net -$3350

We could also add in the additional taxes (sales tax, state tax, etc.) on the extra $3000 that you paid for the car, along with the 5 years of interest on the car loan but lets just stop here.

So who actually made out on the deal? The feds collected taxes on the car along with taxes on the $4500 they "gave" you. The car dealers made an extra $3000 or more on every car they sold along with the kickbacks from the manufacturers and the loan companies. The manufacturers got to dump lots of cars they could not give away the month before. And the consumer got saddled with even more debt that they cannot afford.

Your government convinced the consumer that he was getting $4500 in "free" money from the "government" when in fact Joe was giving away his $3500 car and paying an additional $3350 for the privilege.

When will we wake up?

Bribing an Adult Kid

So I was reading in Money magazine this article about how to bribe a adult kid who is unenthusiastic about having a job and living at home. The goals are “to get him off his butt and into a job, and to get him to move out”

They mention a MIT economist that said that bribery works best when there are two parties involved. Suggesting that you offer the “Adult kid”,$50 for every $100 he earns at his job, citing it encourages success, not failure? It goes on to say that “IF” your child prospers, that the co-payment will help him make the rent on his own apartment and goes as far to suggest the parents putting down the rental deposit if the kid moves out.

I don't know if I agree with some of the authors solutions. I would think that teaching these “Adult Kids” actually how to manage their money and give them a sense of responsibility would be a better way of handing this. If one day, I have a child that doesn't have an ambition to make a living and get out on his own these would be a few of the steps that I will take.

• I would let them know the rules of the house and tell them if they didn't take it seriously that they would have to go mooch off a friend or another relative.
• I would show them tough love by being harder than any landlord they would ever have. They would have to respect the rules of my house. This gives them incentive to move out, not paying them…that's still free money at the end of the day.
• They would be responsible for paying rent to me and making sure it was paid in full on the first of each month. No five day grace period here…the first or late fee added.
• He would still have chores around the house and he wouldn't get paid(let's say home owners fees). Once again if they got out on their own they would not have to worry about this they could do what they wanted and I wouldn't say anything to them because they are an adult.
• They would pitch in for bills, food, or any other expense the household needs.
• I would give them their own space…probably their room and would not bother them, after all they are renting that space in my house. But they would not be sprawled out on the couch when I come home or feel like the whole house is theirs for whatever.

This wouldn't be me just being mean, I would sit down with them and figure out a game plan to get their budget, finances in order to move out. I would help them in anyway they would need to move to that next chapter in their life. Remember that I plan on paying for his/her full college tuition, allowance, except the summers, for four to four and half years. Which at that point I will have very high expectations from them and in return, want them to have high expectations to the point they will not want to move in unless they have to.

Once they decide to pick up and move out on their own, I would help them get established and the very last thing I will do is give them back all the money that they have been paying me for rent, bills and etc…back to them as a starting point. (I would put all that money that they were paying me in a high-yield savings account.) This would teach them responsibility and its still rewarding them but without them knowing.