As I hear more and more about the topic of health care reform, this video I came across a while back comes to mind. It cuts through the bull. The political version of the state of health care and the real version are not the same. The huge leap of progress is a matter of facing the truth: the problem is not as the politicians make it out to be.

Check it out.

Finally, it’s here! Amazon won’t have it in stock for another 2 to 4 weeks, but you can use the buy now button above to order the book and I’ll ship it directly to you immediately. (If you’ve already ordered one, it’s going out to you today.)

If you’re reading my blog, I assume you want to take control of your finances and your life. Get the book to find out…

• Why  a rising stock market steals from us
• Why savings accounts don’t save
• Why you’re on track to working harder for longer for less
• An action plan for escaping financial slavery
• 5 simple steps to freedom

Here’s the official synopsis:

What if everything you’ve been told about personal finance leads you to working harder for longer and for less? Conventional wisdom says to spend less than you earn and dump the rest into the stock market or a savings account. If you follow this plan, you won’t know that you’ve been stolen from until it’s too late. Even a rising stock market steals from its investors. 5 STEPS TO FREEDOM offers a way out.

Nabers and Chongchua reveal illusions that create an invisible bondage that stands in our way of being able to keep what we have and live the life we want. One illusion comes from measuring all things in dollars. Consumer price inflation is a hot topic and 5 STEPS TO FREEDOM gets to the root of the matter: the dollar is an inconstant unit of measurement. Nabers and Chongchua warn, “Each time you look at any dollar-based bank statement, portfolio statement, or any chart or graph and assign meaning to it, you are being misled. You can’t win a game if you can’t see the real score board.” A more effective way of measuring value and avoiding unpleasant surprises is detailed in this groundbreaking blueprint for freedom.

Putting a stop to the silent erosion of your investments and savings is crucial. If you are looking to go a step further and regain your losses, 5 STEPS TO FREEDOM can be customized for rapid wealth growth. Over a dozen real-life case studies are examined to show the patterns of success and failure. Reclaiming individual freedom is integral to the larger struggle for freedom amidst an expanding government and the elitist favoritism practiced between politicians and their corporate friends. This book is your weapon to escape financial slavery and parlay your personal freedom into making our country great again.

Get it today!

What is inflation?

I believe this is the most important financial question a person can ask. I am constantly on a trek to better understand money and wealth. Here is some of what I’ve learned thus far:

Per its original meaning:

• Inflation is not a rise in prices
• Inflation is a rise in the money supply

I have a 1920 Webster’s dictionary that says inflation is a rise in the money supply. I have a 2006 Webster’s dictionary that says inflation is a rise in consumer prices. From this point forward, I will use “inflation” for its original definition (an increase in the money supply) and I will use “price inflation” to refer to a general increase in  prices.

How did this “Newspeak” happen?

Inflation is harmful because it leads to a rise in prices. When everyone’s expenses are rising faster than their incomes as a result of the actions of the government and banking system, it is like a tax on the American people.

With the harm being a rise in prices, the focus on the topic of “inflation” shifted from the cause (inflation) to the effect (rising prices). And so, over a period of decades, everyone (news media included) shifted into speaking about inflation as a rise in prices.

Why don’t inflation and price increases correlate directly anymore?

You can take simple economic examples and draw a direct correlation from increasing the money supply to a rise in prices not complemented by a rise in incomes. These are usually fictional stories of a group of people being stranded on an island and creating their own economy. They will illustrate with great clarity that increasing the money supply takes from the regular person and gives to the banker or his friends (such as the government).

Now apply those concepts to our current economy and you will be so confused, it will be easy to surrender to saying, “Gosh this stuff is for super-geeks to figure out and I’ll just go with whatever is reported to me.” Of course, we’ve learned that following the crowd and getting your information from normal reporting sources is a sure way to be led off the edge of a financial cliff.

Why do these simple concepts work in simple, theoretical economies and not our real economy? Why can’t we draw a direct correlation between inflation and price increases? We are on a trajectory away from a free market. Our country started with a 6 page Constitution. People and businesses were once operating in a free[er] market. We developed our understanding of the economy based on a free market. Today we have over 100,000 pages of laws and regulations. And each year we add to the pile. Almost every law interferes with the way things occur naturally. And almost every law takes us one step further away from a free market.

Our understanding about economics and money is based on the past, but we are in the present. In the case of inflation and price inflation, manipulations make the connection difficult to see. In a free market, inflation would create  price inflation clearly and directly. But in our economy, the government has already tinkered with prices in countless areas. There are subsidies, tariffs, minimum price mandates, maximum price mandates, etc, etc. The buyers and sellers of the market don’t come together to determine price. They come together to try to transact within the confines of the 100,000 pages of laws and regulations that the government imposes. Within that system the price of one thing may skyrocket while other things stay the same.

What does monetary inflation do today?

In the case of the housing bubble, the Fed created tons of money through interest rate manipulation. In a free market that new money would have gone everywhere and prices of everything would rise. In our actual market, Fannie Mae and Freddie Mac (government-sponsored enterprises or GSEs) then attracted mortgage borrowers in ways that non-GSEs private businesses couldn’t. That directed all of the new money into real estate and took its prices to the moon and then back down to earth. Now we all have whiplash and lighter pockets.

Meanwhile, the government organization that measures price inflation (BLS) has found that reporting price inflation (through CPI, the Consumer Price Index) is quite challenging. “Man, what do we do?! The prices of certain things are moving erratically!” thought BLS. They (and other governments) decided to make many adjustments to not count things rising rapidly in price. Through many phases of altering their calculations and adjustments, CPI charts have effectively become pieces of art with the economic utility of a Jackson Pollock piece.

The other day, somebody sent me a link to this chart and asked me what can be drawn from it. I replied that data was gathered, processed and reported differently from one decade to the next. It would be like taking the price of apples in the 50s, bananas in the 60s, oil in the 70s, cotton in the 80s, and wheat in the 90s. Now put that onto a chart. What does it mean? Nothing. Just like price inflation. CPI didn’t report the same thing 20 years ago as it does today, and putting the different reports on a chart and connecting dots with lines is almost as arbitrary as children’s connect-the-dot puzzles.

The difference is the child knows it’s a meaningless game. With our arbitrary line graph puzzles, we make big decisions based on them. Ouch.

You can’t pick up a newspaper today without hearing bad 401(k) news:

• Companies have cut their 401(k) matches, lessening incentives for employees to make contributions.
• 401(k) fees are confusing and exorbitant.
• Employer-sponsored plans are filled with nothing but dog investments packaged for layman investors.

With the glory days of the conventional 401(k) coming to an end, it’s no wonder that many investors have ditched or are considering ditching the 401(k) altogether.

But I ask, is the end of the 401(k) – as we know it – a bad thing?

I’m sure people like Suze Orman would say you have to keep pouring money into your 401(k) if you ever want to retire.

But the truth is that there are a variety of ways to build wealth that don’t keep us dangerously dependent on untrustworthy Wall Street execs.

For example, what’s so bad about using your 401(k) savings to invest in real estate? The self-directed IRA and Solo 401(k) let you do this, yet most employer-sponsored plans keep us handcuffed to investing only in securities.

If more investors looked into investing outside of Wall Street and realized that real investing doesn’t solely involve stocks, they would see that there is a world of investment opportunities awaiting them.

So I say, let companies cut their 401(k) matching incentives because this only enables more investors to see the conventional 401(k) for what it really is – nothing more than a way to make our Wall Street “friends” richer – not us.

The U.S. House is going to debate the “Audit The Fed” bill. I don’t pay close attention to what’s being debated and passed on the floor of the Senate of House of Representatives because what’s usually written up, sponsored, and voted on isn’t even read by our Congressmen.

This Audit the Fed bill is a different story. It’s sponsored by a Congressman who some call the only honest politician left… Ron Paul. He’s often called “Dr. NO” because he is a medical doctor and he regularly votes against any bill for which the U.S. Constitution doesn’t give Congress the power to pass, no matter how seemingly good the benefits are. Suffice it to say that when Ron Paul votes “yes” on anything, it is a rare occasion.

So to see him sponsoring a bill that is getting attention is even rarer. His objective to audit the Fed is a just a stepping stone to ending it. One CNBC commentator agrees that the Fed would be shut down if audited.

In fact, that’s the reasoning behind the opposition to the bill: if we knew what the Fed was actually doing we would have no confidence in it. Wow. That’s not a very good argument to get us to stop wondering what they’re doing over at the Fed.

See more at http://digg.com/d1tbIf

While everyone argues about what the government should be doing, 2 very fundamental factors are ignored.

In this video I discuss those factors. One thing I didn’t include in the video…

You may say “Jeff, you can’t say that government doesn’t do some good.” You’re right I can’t. I will address that in a soon-to-come post.  Check it out; comments encouraged   :-)

After reading an advance copy of Jeff Nabers’ new book, I learned more about the concept of “The Greater Fool.”  This theory says that people buy things thinking that it will go up in price and value and that a “greater fool” will come along and buy the thing for more.
We have never seen this theory more in practice than of late – as everyone was buying up real estate thinking it would go up in price and a greater fool would come along and spend more for that piece of property. The fact is that they bought overpriced pieces of property that didn’t cash flow and they were stuck with mortgages they couldn’t pay.  Indeed, no greater fool came along to rescue them.

This whole theory got me thinking about if I was the ”greater fool.”

For many years I had been investing in a variety of mutual funds that seemed to always be going up in price.  I was putting more money into these mutual funds thinking I was being smart about saving.  But the truth is that these mutual funds were not going up in value – they were just going up in price and I was buying artificially inflated mutual funds that cost more than they ever cost.  I was, in fact, the greater fool because after awhile, the prices on my mutual funds sank and I lost almost half of my savings.

But so much has changed in the last year.

I’ve taken much of retirement savings out of the Wall Street machine.  I’m buying a property that is going up in value and cash-flows well without depending on a greater fool to come along and buy it from me and fatten my pocket.  I’m fattening my pocket on my own. In fact, I’m finally investing, not speculating.  I’ve finally wised up.  I’m no longer the greater fool.

Mature investors close to retirement age are likely kicking themselves wishing they had pulled their money out of the market while they had the chance.

But too often these investors were told to “stay the course” and that “the market will come back.”  Truth be told, no one knows for sure what the market will do.

But we do know is that you still have time to recover your losses – as long as you don’t just sit back and “hope” the stock market will recover.  You have to do something about it.

Real estate can be a wonderful option for someone nearing retirement. With depressed housing prices, you may be able to find a home that offers positive cash-flow so that it provides a healthy monthly income.  When the market recovers, you can consider selling the property only if the numbers add up and you will benefit from appreciation.  If not, you can continue to cash-flow the property and create income for yourself for a long time.

So the point is that you’re never too old to consider alternative investments. A diversified investor is a smart investor at any age.

Here are a couple highlights for a recent post over at Daily Reckoning regarding the bank stress test results.

• Banks need about $75 billion to reach “adequate capitalization”
• “Adequate capitalization” is when common equity equals 4%
• Common equity being at 4% means a debt-to-equity ratio of 25-to-1
• The current bank needs do not factor in the potential for bank assets to lose their value
• The current bank needs are based on a rosy worst case scenario of a 3.3% drop in GDP this year and unemployment of 8.9%
• The government’s latest understated unemployment data is already reporting unemployment at 8.9%, so the government is trying to convince us that the worst case scenario is unemployment stays the same

Additionally, here are what some of the larger banks needed according to the stress tests:

• Citigroup $5.5 billion
• Wells Fargo $15 billion
• Bank of America $34 billion

Keep in mind that these are the amounts of money that must be given to the banks now in order for the banks to get themselves UP to a 25-to-1 leverage ratio. Also, while Citigroup appears to be less incompetent than Wells and B of A, a recent article in Time magazine says that Citi “got credit for a capital conversion it has yet to complete. Strip that out, and the amount of capital Citi needs balloons to nearly $63 billion, more than any of the other banks tested.”