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Without cash, gold can have no monetary role

September 24, 2009 1 comment

Cashless Beast

Cashless Beast

Although the topics of the Cashless Society and the Gold Monetary Standard have been discussed previously on this and other sites, we feel that further discussion on these pressing issues is warranted.

The Cashless Society

Earlier we speculated that there might be a glorious return to sound money, such as a precious metal standard. But you can forget about gold as a real standard to moderate the issue of money. Not because it’s not a good idea. A gold standard is a fantastic idea, but it will not come about, because the finance industry has something else in mind. We all know it’s coming, but it has been somewhat forgotten as a discussion point. Yes, we mean the Cashless Society. Every monetary transaction is moving to electronic form.

Back in 2007, credit card Visa chief Peter Ayliffe predicted that a cashless society (in the UK) would come into being by 2012. It may not seem like a sure thing, but the timing of such a prediction is worth making a note of. The problems of electronic transactions at the moment are that financial institutions are making too much money from surcharges and fees, keeping cash as a more attractive way to buy small to medium priced products than plastic. During the current artificially created economic crisis, there has been a contraction of credit, but the idea of eliminating cash is still high on the agenda, even at the UN. The impediments to a universal cashless system can be removed overnight: remove fees on electronic transactions, and impose unreasonable fees on obtaining or depositing cash. Within a couple of years the system will be locked in, and nobody will take cash any more.

Introduced as part of the national e-Governance initiative, the e-Purse, embedded on national ID and resident cards, is the first of its kind in the region. Implemented by the Royal Oman Police (ROP), in association with the Information Technology Authority (ITA) and BankMuscat, the national e-Purse project will revolutionise cash transactions.

“Being an identity card, the e-Purse always remains with citizens and residents. Whenever e-Purse is used, the identity of the user is verified and the government can track each transaction. The support from ITA to the e-Purse project is in line with the directive of His Majesty Sultan Qaboos bin Said to enhance e-government services in Oman,” [Dr Salim Al Ruzaiqi, chief executive officer, ITA] added.

The cashless society is a government’s dream. Tax evasion becomes practically impossible, resulting in substantial gains in tax revenue. In theory, the purchase of dangerous substances and weapons becomes more easily traceable to individuals, making criminal activity increasingly difficult. Except for bartering, which is difficult to conduct on a large scale, the economy becomes completely accountable. Not a cent is lost, and society becomes unable to avoid policy changes. No more armoured cars, bank robberies, muggings, bribes, illegal drugs, and so on. All of this has been claimed by proponents of the cashless society. They tend not to mention certain other obvious points which might coincide with this phenomenon, such as the storage of personal information together with the electronic money devices (be they cards or some other form of identification), such as medial information, license details and biometric data. They are already being introduced.

The cashless society would likely accompany the introduction of a single world currency. Without the need to exchange physical coins or notes, all money becomes completely arbitrary. All money would reside on computer accounts, can be given any unit value, and can be created or destroyed at will (unlimited credit). Potentially, all money could reside on a single supercomputer, to save energy.

Banks are especially poised to benefit:

“Banks are very excited about replacing cash. Smart Cards give them the opportunity to make some big bucks off interest-free loans from their customers. Once a customer transfers credit to a cash card, the bank can stop paying interest but gets to hold on to the cash until it’s billed by a merchant. If 100 million people used a card with an average of only 10 unspent dollars on it, the banks would reap $1 billion a day of interest-free money to invest.” (Forbes Magazine, 1998)

Then of course is the argument for the implantation of microchips, or some other physical and permanent means of identification. The technology is indeed ready and has reached a mature status. It is only society that is not yet ready.

The truth of the matter is, of course, different. Many of the arguments in favour of the cashless society are false, where the truth in many cases is diametrically opposed to what is claimed. So what problems might exist with the Utopian dream of universal electronic funds transfer?

Most of the logistic problems are covered elsewhere, and can be easily thought about. Aside from the fact that private transfer of money becomes impossible without the involvement of the universal infrastructure, the other problems are identical to those that plague electronic money transfers already. Identity theft is the biggest problem, and it continues to occur as computing systems become ever complex and bug-ridden.

From our point of view there are three major threats to ordinary people arising from a cashless monetary system. Some of these can already be appreciated, if you just imagine your life suddenly without any access to your credit or bank cards.

(Out of) Control

Could it be said that the quality of governance is directly proportional to the likelihood that the governor is deposed should he or she fail to perform? The easier it is to block the government, the better.

The motivations for a cashless society are really those of making the government of the population easier (for government) and not to ‘enable’ or ’empower’ ordinary people. Supposedly, it would cost less to collect taxes, to police fraud, to run after escapees, because all you need to do is look up the individual’s number and instantly you can see practically every interaction the person has had, each hour of each day. Tracking the movements of people becomes a trivial matter. It’s no secret that even the rudimentary magnetic strips on credit cards can be read from a distance, particularly at doorways if the appropriate magnetic coils are installed (which, in most first world retail stores, they are).

Any electronic device designed to act as a portable electronic wallet will also serve as an access key and unique identifier. It is merely natural progression to bundle passport, wallet, driver’s license, medical alerts and personal details into one key, which is synchronized both locally (on the person) and centrally (on the supercomputer). The same can be rigged to allow key-less entry to house, car, workplace, and airport departure gate. The benefits are a seamless, keyless, paperless, and no-touch life from the apartment door, to the secure car-park, into the car, into work, through the shops, to one’s overseas holiday, and all the purchases and movements there, and back. All of this can be achieved with a single microchip, either as a card, embedded in a wristwatch, or implanted under the skin.

The great weakness of a centralized, integrated and unified key system is that people can be ‘unplugged’ instantaneously and effortlessly, even arbitrarily. Physical papers, a wad of cash and a set of metal keys is a robust, low-tech and  redundant way of doing things, yet the tiny gains in convenience of electronic keys (and money) come at great personal risk, because the power is completely out of the hands of the individual. Any failure of the supporting infrastructure is a total failure. It can happen at the hands of a disgruntled or corrupt employee, a hacker or an out-of-control government. The temptation to abuse such a system is immeasurable. If it can happen, it will happen.

In essence, by “holding” all of an individual’s money for him, the electronic monetary system robs the individual of all of his power. This is the ultimate form of population control. In particular, since populations now live in cities and are totally dependent on common infrastructure for their survival, the cashless society permits any kind of political and social change to be effected with no way for people to resist effectively, nor to organize against the system without being found out at a very early stage. The cashless society has the potential to transform what today appears to be a free society into a prison that is tighter and more oppressive than has existed in any totalitarian system in the past, including the Soviet Union under Stalin.

Black Box Economy

It is already problematic that the vast majority of money that is “out there” exists in the form of electrons on magnetic and solid state devices, and not as tangible wealth. We read in the news about billions of dollars being “wiped off” stock markets, and trillions of dollars sitting “on the sidelines”. All of it is meaningless sensationalism, and only illustrates the absurdity of fiat money. The fact that central banks can magic trillions of dollars of new funds into the economy in the space of a few seconds, and that the supply of credit is limited only by people’s willingness to borrow, means that the number that represents your life savings can be wiped out in seconds, by the sudden dilution of the global money supply (to name but one example). The fact that company shares are mostly traded by computers, with the value of shares fluctuating every millisecond as a result of computer algorithms and not human decision making, makes the whole business of market investment a farce.

There is no way of being certain, in an electronic economy, that anything is real. There is not necessarily any paper trail to account for the volume of transactions that exists, and a corrupt elite (which, conveniently enough, already exists) can line its pockets with limitless money, with no way of detecting or proving the crime. Forensic information can be planted or removed all too easily. Without cash, there is no way for an individual to opt out of the system by holding his money in physical form. In a cashless society, there remains only one certainty: hard assets. Everything else will have made the full transition to becoming make-believe.

In many ways, the electronic economy reflects the modern approach to morals. There is great emphasis on civics, and on the conduct of individuals in public (looking good in public), but there is no emphasis on personal moral integrity and the proper conduct of thoughts and deeds in one’s private realm. Modern society encourages personal moral depravity, and teaches a perfect hypocrisy, whereby people in public behave impeccably, yet frequently their private lives are as corrupt and vile as can be imagined. An electronic economy looks squeaky clean on the outside, but there is no telling what manipulation, corruption and wholesale theft is going on beneath. There is also no way to trust the individuals maintaining and governing the monetary infrastructure, since they are as likely to be soulless, amoral and opportunistic as society itself has become.

The Apocalyptic Vision

It is easy to laugh at religious zealots when they harp on about St. John’s Apocalypse, on things such as the Mark of the Beast, and so on. In their rush to sell a message they don’t understand, they undermine the value of the Sacred Texts, leading others to miss out on the wisdom contained therein. We quote the passage that appears to be relevant to the idea of the cashless society:

And he shall make all, both little and great, rich and poor, freemen and bondmen, to have a character in their right hand, or on their foreheads. 17 And that no man might buy or sell, but he that hath the character, or the name of the beast, or the number of his name. Here is wisdom. He that hath understanding, let him count the number of the beast. For it is the number of a man: and the number of him is six hundred sixty-six.

These dramatic passages are full of symbolism and, to some extent, allegory. Throughout the last two millennia, people have tried to torture the words to fit the situation of the day. The lesson we draw from the passage is that the restriction to trade, imposed on individuals because of a religious or political attribute, is always a bad thing. The point to be taken from the Apocalypse, however, is that the predictions apply to the entire world, not just the situation in one or another country at a given time. The point of our article, in part, is that the cashless society is a phenomenon which is capable of being imposed globally, perhaps over the space of a decade or so.

If the G20, for example, met for another “crisis meeting”, and decided, once and for all, to coalesce their currencies, they may simultaneously claim that it is cheaper not to issue any notes or coins, but to issue electronic keys, as described above. Once some heavyweight economies adopt the idea, all else will follow, or face the sword. The scenario is plausible, even though in 2009 it still seems like a pipe dream.

It ought to be noted that think tanks that guide global policy have attitudes which resemble those described by St. John.

In the closing plenary session of the [San Francisco, 1996] forum, philosopher/author Sam Keen provided a summary and conclusive remarks on the conference. Among the conference participants, said Keen, “there was very strong agreement that religious institutions have to take primary responsibility for the population explosion. We must speak far more clearly about sexuality, about contraception, about abortion, about the values that control the population, because the ecological crisis, in short, is the population crisis.

Cut the population by 90 percent and there aren’t enough people left to do a great deal of ecological damage.”

It’s had to imagine just how so many people could be killed without leaving the planet itself uninhabitable, but there is no limit to human ingenuity. There is also, clearly, an insanity at work that makes Nero look like a dull boy.

Gold Has No Place

To go back to material matters, we think once again of gold. Even if a single world currency is purportedly based on a precious metal, because this currency is likely to be cashless, the metallic standard is nothing more than an empty promise. You are trusting the same men in the same suits who are this very day swindling the planet without rest. Just as there is no living soul within the body of the modern man (in a suit), there can be no golden heart to an electronic currency.

We conclude that whatever actions can be taken to limit the progression towards the elimination of cash, should be taken. More importantly, however, it behoves every person to consider the implications of such a system coming about, and to have contingencies in place (a topic in its own right).

No Hope, Only Certainty for World Economy

The Deluge - Paul Gustave Doré

The Deluge - Paul Gustave Doré

The past week saw some important stories break on the mainstream media, including revelations of an explosion in funding of intelligence services in the UK, which reportedly are poorly run, targeting the innocent more often than the guilty. Clearly, the perception of the British Government is that the massive funding boosts are necessary in anticipation of coming major developments around the world.

We found out this week that those calling the latest stock market rise a “sucker’s rally” were right. The pessimists are back in business, with predictions of a fall in the Dow Jones Index to 2,000. It’s a big deal, as the conditions for such a fall in stocks are unlikely to be imaginable for most Americans, even now. Yet two groups in America are conscious of the possibilities: the Government (which has been quietly expanding its prison system and domestic law enforcement) and civilians who are arming up and buying ammunition. But to say that this is merely an American problem would be very narrow minded. Indeed, some of the greatest shifts in economies around the globe are outside the US, such as Japan, having just recorded a record 4 percent contraction in the first three months of 2009.

To that end, the week also marks the shift away from the US currency by Russia as a reserve currency, as well as moves in the same direction by China, a thing that in the past has triggered wars:

In a G2 world (the United States and China), he who is the piper calls the tune, and China holds a US$2-trillion mortgage on the United States and is not happy. This country, along with others that lend money to the United States, such as Saudi Arabia, will determine the value of the U. S. dollar and gold. And they have spoken. They are not buying more U. S. treasuries and are buying gold as a new asset class.

It’s estimated (by John Ing) that the gold price will reach US $9000, which is not a reflection of a meteoric rise in the value of gold, but a total debasement in the value of the American economy. The unmentioned and possibly unmentionable thing in all this is that such a debasement in US currency cannot occur without a significant change in the global military balance. Indeed, if this change is not taken into account, assessments tend to conclude that China (and others) will not recover quickly to take the global lead away from the US. The same degree of extreme economic instability is forecast (and is already coming) for the UK (and other first world countries), although it will likely take different forms. The interesting thing is that talk of conspiracies of world government and globaly tyranny, once only conducted in hushed tones by people suspected of having paranoid delusions, is now the stuff of the regular press, making simple arithmetic easier than ever. Perhaps this is because the notion of coming social upheaval is now a foregone conclusion, making it an acceptable thing to discuss in the public arena.

On a cultural level, the undermining of British social structure appears to be complete, with the sexual equality war now having been lost well and truly in favour of Feminism, where it is reported that advertisers now consider mocking maleness as an advantageous strategy. The significance of advertising trends should not be underestimated, since it is one field where sciences of psychology and sociology are applied effectively, where the current status of a society is accurately assessed. It marks a total disorientation in British society from what could be termed a natural social order.

There is very little left in Western society that reflects the biological realities of being a human being. The lives of men and women are distorted, artificial, medicated. This false way of life guarantees their unhappiness and vulnerability to social pressures. As such, Western society is weaker than it was during the first Great Depression, which is likely to make matters much worse in coming years. Even if people woke up to these facts tomorrow morning, it would take generations for them to relearn what has been lost. It’s unlikely that this will occur, in any case. That particular civilisation has passed its turning point.

There isn’t much anyone can do now to avoid the problems which will arise in the next couple of years. If this were to be compared to the story of Noah and his Ark, then the time now would be that of the first rains of the coming deluge. That  said, the people of the world who have been quietly preparing themselves, mentally, spiritually, and materially, are in a position of great advantage. This “advantage” is not the kind that is understood by opportunists or materialists. Indeed, those who only view current events as a way to make some money are going to be rather surprised.

Piggy Swine Flu and The Dreaded Lurgi

April 28, 2009 7 comments
Spike Milligan, Harry Seacombe, Peter Sellers

Conspiracy Theorists: Spike Milligan, Harry Seacombe, Peter Sellers

You dirty rotten swine flu!

It’s not even been a week and the Swine Flu epidemic/pandemic hysteria has already taken an unbelievable hold in the minds of people everywhere, from Mexico City, New Jersey and New York to London, Paris and Calcutta. The BBC reports:

“Containment is not a feasible operation” – Dr. Keiji Fukuda (WHO)

So now it’s time for everyone to run under a rock until the Dreaded Lurgi passes, because, of course, we’re all gonna die! Just over many many years and not all at once (but why spoil a good story with the truth). What is amazing is that a virus can affect people who have never been in contact with it, as Spike Milligan so cleverly observed:

Moriarty: …And now, my friend, to business. My name is Count Moriarty. Have you ever heard of Lurgi?
Seagoon: There’s no one of that name here
Moriarty: Sacristi Bombet! Listen to me while I tell you a tale. In 1296 on the Isle of Ewe
Seagoon: Where?
Moriarty: Isle of Ewe
Seagoon: I love you, too. Shall we dance?
Moriarty: I don’t wish to know that. On the Isle of Ewe the dreaded Lurgi struck. In six weeks, in cinq weeks mark you, Lurgi had destroyed {Silence Please} Lurgi had destroyed the entire population.
Seagoon: What a splendid story
Moriarty: Oui
Seagoon: Have you heard the story about the man who didn’t marry Rita Hayworth
Moriarty: Impossible
Seagoon {Snigger}
Moriarty: As I was saying, Lurgi, Lurgi could easily destroy the entire human race.
Eccles: Then I’m okay, fellers.

In the above quoted episode of the Goon Show, the Dreaded Lurgi strikes Britain, but, mysteriously, it was observed that none of the victims played in a brass band. Needless to say, the British parliament was advised that four million E Flat trombones, three million Euphoniums, and four million Saxophones…in all, fifty million brass band instruments should be purchased at once in order to save the nation. The thing was, though, that Count Moriarty just happened to be a brass instrument dealer and was ready to take orders in bulk. Soon enough, thousands of aircraft were in the air delivering vital instruments to Great Britain. In the end, however, it was revealed that there was no such thing as the Dreaded Lurgi.

Sadly, the World is not an episode of The Goon Show, but merely a cheap imitation. Swine Flu exists, of course, but it hasn’t reached Spanish Flu proportions yet, and it isn’t 1918 either. A vaccine against the organism is not yet available, but in a panic, the authorities will hand over samples of the virus to any company that claims it can come up with one. Baxter pharmaceuticals put their hand up first, claiming that they can achieve a result in as brief a period as two weeks. We’ll see who gets the contract.

Economic effects of even a sniff of a pandemic can be astronomical. It’s said that SARS (which was very much a Dreaded Lurgi that never eventuated) cost the Asian economy $40 Billion. Estimates of the cost of Swine Flu are given as $3 Trillion worldwide. That is $3,000,000,000,000.00 (about 8 Sydneys). Of course, it won’t really cost that much money, because at that point money is a meaningless measure of anything, even economies themselves.

The direct effects of the virus (perhaps in numbers of deaths) are likely to be much smaller per head of population than Spanish Flu, which was estimated to have affected 20% of individuals worldwide, with a mortality of 3% of the world’s population. India’s population sustained a loss of 5%. In Fiji, 14% died. In Australia, only 12,000 died. These are interesting statistics, and they reflect the underlying health of nations at the time. However, a worst case scenario of, say, 5% deaths globally from Swine Flu means a staggering figure of 300 million deaths (most of them in second and third world countries). That ought to make the depopulationists happy.

A bit of a Google search (just for fun) of Spanish Flu reveals hundreds of websites and blogs which claim that it was man-made, and there is a long history of distrust of (forced) vaccination programmes. Even stronger is the suspicion now that the Swine Flu could have also been non-accidental. Spanish Flu has been intensely studied recently, with attempts to recover its RNA, and claims of success in 2005. Since Swine Flu contains elements in common with the Spanish Flu virus, there is fertile ground for sensationalism and suspicion. Stranger things have happened in history, so the possibility of foul play cannot be ruled out. Sorry about the irresistible SARS pun, by the way.

So, as the death toll rises, as the fear spreads and the international flights get canceled, let’s pause for a moment to think about our own mortality. And then let us also pause and realize that the chance of dying of Swine Flu in Australia is at worst around 2 in a thousand (probably much less), given a full-blown epidemic, much less than the underlying death rate. Not as exciting as it could be, is it?

Never the less, if Swine Flu inspires people to think of how short life really is, that they should make friends with their Maker, go to Mass, go to Confession and be nice for a change, then at least something good might come of all this. Life is short. Hell is forever. Maybe that is why people are so worried.

See also: Swine Flu Got Legs

Swine Flu got Legs

April 25, 2009 1 comment

Swine Flu

Swine Flu

This could be the big one.

(See also: Swine Flu and the Dreaded Lurgi and Swine Flu Less Scary Than Expected)

Health alerts have spread through Australia’s government institutions, in particular hospitals, advising of the risk of Swine Flu. It affects young adults, has a high probability of mortality, and is described by the World Health Organization as an emergency having the potential to reach pandemic proportions rapidly. In Mexico, it is said that over 1000 people at the present time have been infected, of which over 60 (27/4/09 – now 80) have died – a fatality rate of (roughly) 6%. Schools, museums and other public gathering places have been closed to try to prevent further spread. The virus has already spread to California, Texas, with at least seven confirmed infections.

The number of fatalities outside of Mexico currently equals 1, a 23 month old in the US.

Specifically, the virus belongs to the H1N1 group of influenza A viruses. This particular strain is novel; its discovery occurred as recently as 2 days ago (23/4/2009). Its genetic profile is such that the conventional flu vaccines offered to hospital workers and the community are unlikely to offer protection. It is said to be sensitive to the drugs zanamivir (Relenza, owned by GSK) and oseltamivir (Tamiflu, owned by Roche). Supplies of this drug in Australia are probably adequate to manage the early stages of an outbreak, but clearly, in developing countries, this is definitely not the case.

The lethality of this infection is similar to that during the Spanish Flu pandemic (1918-1920) which had a mortality rate of 2 to 20%. It too was a subtype of the H1N1 influenza A virus.

One of the most common questions being asked by the public are about the presentation of the illness and how to avoid getting infected. In general, the symptoms and signs of the infection are nothing out of the ordinary. They include:

  1. All the usual flu symptoms, such as fever, lethargy, lack of appetite and coughing (respiratory tract), sometimes runny nose and sore throat.
  2. Other body systems can also be involved, such the gut (nausea and vomiting, diarrhoea)

These are the same symptoms that can happen in pneumonia, the common cold, even urinary tract infection in some people. This is not very helpful, because it can now be expected that, very often, a person with even the slightest runny nose, or food poisoning or whatever, will think he or she has swine flu. The rule of thumb is, if you are more sick than your usual, see a doctor. If you have a reason to avoid being sick at all (such as being on drugs which decrease your immunity), see a doctor.

As for avoiding infection, well there are more myths than facts around. If you managed to avoid catching a cold over the last five years, then you are doing something right, but the fact is that most people are forced to go to public places, shop, go to school, work and so forth. Like every virus, the flu will have an incubation period (even if it’s just a couple of days) where a person is infected, is infectious, but is feeling perfectly well.

Of the few things that have been proven to work, careful and consistent hand washing after human contact, isolation of the sick, vaccines (by no means a panacea), and being otherwise healthy, well slept and well fed, are the best thing. If you are worried about dying, but smoke, drink too much, go to fast food restaurants and drive too fast, then fix those before you worry about the flu!

The coming weeks will reveal whether this virus manages to spread faster than the ability of researchers to design a vaccine in order to produce herd immunity, especially in major cities. In the meantime, governments around the world will be placing their institutions on alert for symptoms and putting in place treatment protocols and the like. There is no doubt that everybody will do whatever is feasible to curtail the spread of this organism.

There are oddities about this organism, however, as reported in the Wall Street Journal:

The flu virus mutates promiscuously, and this strain is no exception: Officials said that, in addition to genetic material associated with North American swine flu, the strain has gene segments associated with European and Asian swine flu, North American avian flu and human flu.

Most surgical masks do not offer protection.

Most surgical masks do not offer protection.

Three strains in one! It’s not unreasonable to ask questions about just how probable (or improbable) such a mutation is in the wild. In laboratories, however, mixtures of multiple viral RNA fragments can be combined to yield a successful result. Biological weapons research has not ceased either, but has continued quietly out of the public limelight. We can expect to hear of many different explanations about this particular virus.

It is useful to keep an open mind about the outbreak. It is currently assumed that the virus is a natural occurrence. Indeed, there have been warnings about this for years now. The thing is, though, that warnings do not change the probabilities. Many people are rightly wondering whether the virus was engineered in a laboratory or is merely a coincidental mutation among a herd of pigs. If it is a man-made virus, then its release into the wild could represent the greatest act of mass murder in history. This question, therefore, is not to be shirked at and must be answered.

The influenza viruses, however, are known for their unstable genetics and rapid rate of mutation, hence the tendency for new strains to emerge each year, and even during a seasonal outbreak. It would be interesting to tease out the probabilities that this particular strain would have spontaneously emerged. Also, we can expect this outbreak, if it does spread as predicted, to rapidly mutate into multiple strains, making containment even more difficult.

On the topic of containment, it needs to be said that ordinary surgical masks do little to prevent the spread of influenza. It’s all just for show. During the first few minutes of wearing a surgical mask, the device performs to manufacturer specifications, but after that the mask is damp and warm and cannot offer the same protection. A paper mask cannot form a tight seal around the face so that air is always entrained on inhalation. If you are sneezed on, or are in contact with an infected person, you are going to get infected. Mask wearing is by and large a waste of time – as good as placebo. But people will do it anyway, of course.

Whatever its origins, this virus is already showing an ability to spread extremely rapidly. Within days we will know whether this is indeed the flu pandemic of the century.

Housing as an Investment

April 19, 2009 1 comment

Housing is still good as an investment vehicle, especially as part of a retirement plan. The trick to making it work is buying at the right time. That time may soon be coming.

Most People Do This

The housing market is more complex than most people realize. The prices of housing and rent are determined by more factors than simple supply and demand, but are affected by government policy,

manipulation by the banking industry and the effects of the broader economy. House prices fluctuate from area to area, depending on local employment conditions, for example. Nonetheless, housing should not be looked upon as a foolish or overly risky investment, since, as we have said before, it is one of the few things which most people can invest in that are tangible and directly controllable.

Nouveau riche

The term Nouveau riche refers to people who have become wealthy during their own lifetime from a prior state of relative poverty. Usually it refers to these people’s inability to handle their newfound affluence. There are good reasons for the new rich to appear to be mishandling their new wealth. Of course, there are bad reasons too.

People who come into money without having worked for it, without having appreciated its value, tend to waste it. Nothing else needs to be said there.

People whose income rises sharply for whatever reason will want to improve their living standards. For many, this means being able to go out more, drink in coffee shops, own the latest gadgets and so on, but there are physical limits to this kind of activity. A person can only wear one pair of shoes at a time, for example.

These two aspects of the ‘new rich’ are what makes many of them a laughing stock of the older and wiser among the wealthy, as they are seen as wasteful. Indeed, many people automatically adjust their expenditure to match their income. They never think to just live as they are and use the extra to lower their costs down the track.

Contrast this to old money. Over generations, the wealthy have accumulated land and houses. The houses are furnished with the highest quality, durable furniture, carpets, fittings and so forth. When the next generation grows up, there is no need to save for a deposit on a house, no need to buy beds, tables, cutlery, crockery and so forth. Gardens are geared to food production, fruit trees are mature and have generous yields, and so forth. There is plenty to inherit. No debts, only wealth. It can even be the case that the base cost of living for these people is much lower than the average for a given community.

Yet this situation of established wealth does not require incredible amounts of money, but it can take a lot of patience, especially if debt is to be avoided. It can be achieved on a relatively humble basis if people work together and set realistic standards of living. It does require conscious resistance against the prevailing winds of consumerist opinion that constantly beat against the brows and ears of the public. Living without a television is probably a prerequisite if such a lifestyle is ever to be maintained for a prolonged period.

The Myth of Home Ownership

In the Economist is an article entitled “Shelter, or burden?” in reference to owning a house. There is a view held by many that where a person lives is unimportant, and that this part of life should be looked at purely from an economic standpoint. The Economist article makes a case that renting is usually cheaper than the cost of ownership (when all expenses are taken into account), plus it offers more flexibility. It’s a particularly easy case to put, given how poorly real estate has fared recently with regards to price. However, the article does not make a clear distinction between those who buy, largely with cash, but often with a small loan intended for a short (eg: 5 year) purchasing period, and those who buy with as little as 5% deposit cash, becoming indebted with the rest. They equate that with home ownership.

Mister Housing Bubble

Being in debt is the same as being a slave. You cannot run away, you are forced to work hard and cannot take a break when you want, and if you fall, your master is ready to punish, to take away what little you have. For this loss of freedom, however, one is permitted to put nails in the walls, dig up the garden, renovate the kitchen and so forth, but if a repayment is missed then reality hits – the real landlord is still the bank. In many cases one is not even permitted to conduct major works on a house without the bank’s permission, so the situation can be eerily similar to renting. The number of people who own their house outright is somewhere around 40%, and less than that in Australia. Therefore, most people are really renters.

Owning a house only occurs when there is ownership of title. In many cases the tenant of a rental property is really paying the bank interest on the house via the supposed ‘landlord’. In fact, the tenant is merely abrogating himself of the risk of repossession. In such a scenario it is better to rent and not to own, all else being equal. However, there is the niggling fact that housing prices tend to rise and fall, sometimes rapidly, such that it may seem that, by not buying now, one will never be able to hop onto the ‘home ownership’ bandwagon and forever be a renter. It needn’t be so.

Different Kinds of Investment

Investment is the buying of something for the purposes of generating a profit. The idea is to have more money at the end, but this needs to be differentiated further.

On the one hand, ‘more money’ can be seen as nothing more than protection against inflation. That is, getting out of cash and into asset ownership (such as a house, or gold bullion) might be seen as a way to avoid one’s savings from being whittled away by the rise in the cost of living and taxes. Alternatively, investment may be a means to generating an income, so that eventually the investment can obviate the need to work for a living.

All investments have aspects of speculation and earnings.

The housing bubble is neither bad nor good. It represents a speculative cycle for housing as a market. As a speculative item, the inflated prices of housing several years ago were still a good buy, given that one sold at the peak of housing prices a year or so ago. Now, owning houses looks like a terrible idea in retrospect, especially for anyone who bought at the top and is now thinking of selling. However, when someone buys a house, they need to have in mind that thousands of people out there are riding the market movements, purely from a speculative standpoint. The housing crash was largely due to these speculators exiting the market in a mad rush. Just like in a stock market, the buyer needs to be mindful that, at a given part of the housing cycle, the seller might be a profit taker, taking money from suckers who have no idea about markets, least of all housing markets.

From an earnings point of view, housing can only make sense if the amount of money that the house generates (rent) less expenses is positive. If one wishes to compare this to renting, then the cost of ownership can be compared with renting to work out the balance. No better place is there than bubblepedia.net.au, to learn about this comparison in the current context. In the larger cities of Australia, for example, it is decidedly cheaper to be a renter currently. In some cases the difference can be so extreme that one has to read the text twice to confirm that one is not fooling one’s self! The point is not that housing should never be considered as an investment choice, but that now is simply not the right time to go in.

But home ownership, in the true sense of the word, should not be discounted altogether. A time is very likely to come when the price of buying and holding a house is close to that of renting in the long term. At that point, houses become a worthwhile investment as an alternative to more abstract financial instruments such as superannuation funds. There are several ways of deciding if it’s a good time to buy. If one considers the price of a house to be a certain multiple of one’s regular income, then considers the rent that is expected to be generated from the house as a fraction of one’s income, then one can estimate how many houses are needed to be bought over a given number of years to match one’s current income.

Amount of ‘House’ to Buy ($) = [ Current Pre-Tax Income $’s ] / [ Annual Rent ($) per $ of house bought]

It might mean that, to generate an income of $1000 per week, one will need to buy houses to the value of about $1,000,000, given a 5% return (a realistic and actually fairly decent amount). That’s a lot of savings, and unachievable by most people individually, since too much of their income is spent on ongoing living costs. This point illustrates, not the extreme price of housing, but the very high costs of living as brought about through high taxes and high expectations. Nonetheless, this kind of investment should not be considered unreasonable.

Housing as a Retirement Scheme

While it might take someone with one income 50 years to save a million dollars (assuming $20,000 savings per annum), it would take two people twenty five years, or three people 16 or so years, given a savings goal of 20 or so thousand per annum. Three families could save this much money to buy enough houses to provide a pension for their common parents, for example, and would have gone a third of the way already to providing for their own pensions, which their own children could contribute towards. The advantage of such a pension scheme is that it does not cease generating income after the people have died. Also, because the houses need not be owned in the pensioners’ names, the pensioners may be able to continue receiving income from other sources (such as the aged pension or their own superannuation fund).

When costing and planning a retirement scheme, it soon becomes clear that the banking industry is best avoided if at all possible. Excessive cash savings are also a liability, since fluctuations in inflation rates can quickly evaporate much of the hard earned savings. Therefore, on the way to making a cash purchase on a house there is the need to pool resources and invest in smaller things (possibly shares) to protect against inflation, but this needs to be done with utmost caution.

One stumbling block to commencing this kind of investing scheme is that many people are already indebted to a bank, and are fixated on paying off their loans first. This is a trap, because, unless their interest repayments are substantially less than rent, they are merely benefiting the bank and not themselves. One way of looking at it is to say that if one cannot afford to buy a house outright before leaving their parental home, then they should consider living in with other people for a time to minimize costs as far as possible, until they have the required savings and until the housing market is at the lower end of its cycle.

Conclusion

The cost of financial independence may seem prohibitive in the short to medium term, but if one were to do the sums, it becomes very clear that this freedom is bought for much less than the total cost of lifelong, trans-generational slavery to banks and government aid programs. The dividends of making good decisions now have pay-offs that can potentially last for many generations after you are dead. Since housing is a tangible, directly manageable asset which can generate a steady and reliable income, it should still be taken seriously as a way to save for retirement.

Truth in Paradox – AIDS in Africa

April 11, 2009 4 comments
AIDS Patient

AIDS Patient

The AIDS pandemic in sub-Saharan Africa is said to currently afflict around 22 million people, which is roughly 5% of adults. This value is now lower than was previously quoted, yet it is by no means a sign of an improving situation. There are critics who cite many problems associated with the collection of statistics and their interpretation. Confounding factors such as selection bias (non-random sampling) and elements of corruption on the part of governments in order to obtain foreign aid have been identified. The lower values are probably truer values and show that in the past, the degree to which AIDS has affected Africa has been overstated. It’s still a pandemic. It’s still extremely big, but it means that tracking the progress of AIDS in Africa is proving to be very difficult and gathered information unreliable. It means that any claims to success on the part of the World Health Organization in combating AIDS through the distribution of condoms cannot be easily verified, since we really cannot trust the statistics, especially if the methods of data collection are changing.

It is on this background of unreliable, untrustworthy information on AIDS and HIV prevalence that Pope Benedict XVI and now Cardinal George Pell make claims that, paradoxically, condoms are making matters worse rather than better, through encouraging promiscuity among young adults. Cue the canned laughter from western media outlets.

The thing is, moral arguments aside, they might just be right.

First of all, the research that has been conducted on the efficacy of condom usage in the prevention of sexually transmitted diseases has largely been conducted in the first world, where quality control procedures are excellent, the general health of adults is good and compliance rates are high. Under these circumstances there is no question that the spread of HIV (and other diseases) has been mitigated by the use of condoms. Companies and organizations advocating the use of condoms in the Third World wave their research papers at governments and tell then that the evidence is overwhelming. It sounds plausible and reasonable, all else being equal, but all else is not equal.

The patterns of sexual activity in Africa cannot be assumed to be the same as those in Western countries, yet people in the debate assume this none the less. The situation in Africa is very complex and it is difficult to exclude environmental factors such as changes in demographics, social habits and culture over time. War, extremes of climate, social upheaval, famine and terror inevitably affect things like the reliability of supply routes for condoms and peoples’ sexual behavior. Conducting good quality medical research in such an environment would be very difficult indeed. Results coming from studies in Third World countries cannot be considered to be of high reliability, as the degree of transparency and peer review is not equivalent to that in richer countries. Even some randomized, controlled trials in Western countries (on unrelated areas of medicine) have been shown to be completely fraudulent, making a mockery of the notion of “evidence based medicine” being the infallible guide to medical decision making.

Arguments against the use of condoms in Africa have included claims that the latex used in them is porous and permits the passage of intact virus through the membrane, or poor manufacturing and inadequate storage and transportation conditions resulting in failure of the device, and issues with compliance. These are all plausible, but they do not carry weight against the fact that, in Western countries, they do not seem to have a high failure rate at all and no class actions have been made against manufacturers for a spate of unexpected pregnancies (or HIV infections) due to failure of their product. It sometimes seems that, in this debate, once the Pope makes a pronouncement, the Catholics go out and try to find any conceivable defense of his views (not merely a moral one) to achieve compliance with Catholic teaching among Catholics (and others). They often go out and argue the case without having fully understood the contrary view. As such they have scored many an ‘own goal’ when the arguments backfire.

The AIDS problem in Africa is a behavioral and moral issue, as well as an epidemiological and medical one. Promiscuity, although a thing lauded in the First World in its music videos, movies, magazines and television programs, is the fundamental reason for the spread of sexually transmitted disease. It is the underlying cause. Secondary to this is that coexistent disease, such as malnutrition or pre-existing sexually transmitted infection, magnifies the risk of contracting or disseminating HIV. Condoms attempt to address the secondary problem. They require strict compliance in a subgroup of the population which is probably less compliant than the average.

Western AIDS campaign not addressing promiscuity

Western AIDS campaign not addressing promiscuity

Abstinence programs were hailed by fundamentalist Christians as the answer to the teen pregnancy and sexually transmitted disease problem in the USA, but have shown to make no significant difference to either. One reason is that there are much bigger, more effective “education programs” at work there which promote extramarital sexual activity. The media is an incredibly powerful social force in the First World. This is not the case in the poorer areas of Africa where AIDS is most prevalent. The population does not undergo the same sexualization from infancy that occurs in the West. Therefore the failure of education programs in Western countries cannot be used as an argument against a similar effort in Africa. It is not correct to assume that human sexual behavior is unmodifiable. It has certainly been possible to increase the sexual activity and decrease the age of first intercourse in the First World. Why would the opposite effect be unachievable in Africa?

The AIDS problem in Africa has not been solved by Western civilization because its industrialized, technologically advanced and, dare I say it, morally bankrupt culture is not compatible with life in Africa. The imposition of Western solutions on African culture is an obviously flawed idea, yet it is exactly what continues to occur. The rampant spread of HIV in Africa can be largely attributed to the displacement of working men. Foreign industry set itself up in the cities, attracting poverty stricken farming men to find work and food for their families in the cities. Their wives and children remained in the villages. Additionally, major social upheaval in the form of civil wars, the break-down of Apartheid in South Africa and massive population shifts due to famine have resulted in the disruption of the family unit on a massive scale. Many of these disasters were brought about by the direct (albeit covert) actions of Western powers. These events create situations which make promiscuity easy, stress levels high and the likelihood of compliance with any kind of behavioral intervention (including condoms) low.

It is no surprise that the AIDS problem is nowhere near an end in Africa. The “scientific” approach to the solution through medical aid has failed. Perhaps the Catholics were right. Staying with the one sexual partner (one’s spouse) and staying with one’s family costs nothing, requires no technology and makes a society strong. Families exist because they work, because over the eons they have allowed human beings to survive hardships which would otherwise have wiped them out. Encouraging this kind of responsible behavior should be at the forefront of every intervention in the African continent, regardless of who is carrying it out. This means that trends which favor the destruction of the family unit (such as industrialization) need to be curtailed or at the very least changed so that the family unit is guaranteed to remain intact.

The paradox may very well be true, that the exact opposite approach taken in First World to counter HIV/AIDS is the correct one for sub-Saharan Africa.

Analyzing Risk for the Average Joe

March 29, 2009 Leave a comment

Modern Day Swindler in a Suit

Modern Day Swindler in a Suit

Do it yourself, because no one else will do it yourself.

Risk analysis, when it comes to finances, can be confusing and it is no wonder that whole industries and academic specialties have evolved around it. It has its own terminology, making it even more unreachable to the average person. However, to avoid making the mistake of a lifetime (such as when you buy a house), it is extremely important to manage your risk yourself.

This article should not be taken as anything but tongue-in-cheek. Lawyers will tell you that you should get professional advice when it’s needed. Do that. This is not professional advice, even in the slightest.

We assume that you will be buying a house, but all investments need to stand up to the same general scrutiny.

Crap and Clay

The first thing needed to assess risk reliably is knowing the truth. The problem is, there is so little of it around, as everybody is out to make his own fortune and keeps all the useful stuff to himself. Most people rely on bluff and lies to achieve advantage. Some people are very good liars and most are less honest than you. The secret to working fact out from fiction is humility. Know your limitations and you will come some way to knowing theirs!

  • Don’t believe anything you hear and only half of what you read. Whatever a person tells you that is not on paper is complete rubbish until proven otherwise. This is an eternal truth that nobody seems to remember. Actually, you’re better off believing less than half of what you read. The sad thing is, most paper has so much crap written on it that it can’t even be used as toilet paper.
  • Don’t trust people from a culture you don’t understand. No, this does not mean racism (although it exists, for some reason), but knowing the limitations of your insight. In your own culture you will have a reasonable understanding of the kinds of people that are typical swindlers, the usual lies people tell and so on, but other cultures will have their own set of tricks, coated in smiles and politeness. Instead, get to know the culture beforehand, or at least assume the other person is a lying, scheming scoundrel and then be pleasantly surprised. Industries have their own “culture” too – be warned.
  • Corroborate any factual claims. When reading anything, separate fact from opinion. When reading product information (such as for a home loan, or a brochure advertising an investment strategy), underline what you would consider factual, and ignore the rest. Then go and find the same information by another route, such as at a competing institution or the Internet. If you don’t believe me, then go check yourself!
  • What’s the catch? Everything has a catch. If you there is no catch, it means you haven’t looked hard enough.
  • Get some kind of independent opinion. Get a market valuation of the property if you can afford it, or find out how professional investors find out what things are really worth. Don’t trust anything that comes for free and be careful what you pay for. If you don’t think it’s worth doing, then the property you are considering isn’t worth buying. Don’t forget that most people just fly by the seat of their pants and in many cases nobody does proper “due diligence”, even the investment companies with the glossy brochures. In most situations (not just investing), everybody assumes that everybody else checked. That’s why things go wrong. When you read an appraisal, again, underline the facts and discard opinion.
  • The secret of a Ponzi Scheme is getting out of it before everyone else does. Better still, recognize ponzi schemes (and schemers) by reading about them so that you don’t get involved in the first place.

Modern Day Scientific Fraud

Modern Day Scientific Fraud

The Money

Secondly, work out how much you can gain, how much you can lose and how much you can afford to lose.

  • Family budgets are overrated. Sure, go ahead and do one, but chances are you already know what you need to know. It’s easier just to look at your bank statements. If you are saving a hundred or two hundred dollars a fortnight, then that’s where you’re at financially. If you say to yourself “I’ll give up smoking and save $50 per week” you are kidding yourself. Sitting down and going over earnings and spendings will show up a few embarrassing truths, but expecting yourself or others to make major lifestyle changes to save money is just not going to happen, at least not easily. Try to save money, but assume that you will fail when doing calculations. The cost of making financial sacrifices can be greater than it’s worth. Being too much of a Scrooge will ruin your marriage.
  • Assume that your income will not rise. If you make purchases on projected income (even if it’s part of a contract), you are taking an unreasonable risk. You might be wise to make contingency plans in case your current income falls, even to zero. Everybody is an optimist and it’s always someone else who has the accident and ends up disabled. Sometimes all you will be left with is first dibs on parking spaces if you don’t plan ahead.
  • Assume interest rates will rise. Take the record highest interest rate for your country for the last century (something like 20%) and add a couple of percent. That’s how much interest you have to be able to pay, if you wish to take out a loan. When banks raise interest rates, they are going in for the kill, at which time they have no intention of letting you off the hook, even for one missed payment. If you think you can trust your bank manager, be assured, they will have replaced him in time to fleece you. Baaaaaa!
  • Assume your asset won’t appreciate. It probably will, but it might not. Things which can cause this to happen include closure of nearby industries, discovery of toxins in the soil, some kind of disaster not covered by insurers, war, etc. Therefore, think carefully about these kinds of bad luck beforehand. Depressing, isn’t it? The good news is that most things with a real meaning (such as a roof over your head) keep their value over time. If the rent that is collected on a house pays a food bill, it probably will keep paying a food bill a generation or two from now.
  • Never take risks on top of risks. If you borrow to buy a house, then use the house as collateral against more borrowings, you are crazy. There is no limit to the imagination when it comes to these things, but watch out for them. People do this more often than they care to admit. Even banks do it, as it happens. But they are stinking, scheming, lying, shifty and crazy.

At this point, calculate for a given purchase (assuming a house), how much you can afford, given your existing budget, your existing income and the worst imaginable interest rates. It has to be said that you do need to look at all the extra costs associated with the asset beforehand too, such as land taxes, council rates, insurance, cost of maintenance, repainting, repairs, etc. It’s probably a lot more than you anticipated.

Then calculate how much you can earn from the investment. Houses bring rental income. Farmland needs to be worked and this is a big undertaking, but fields of grass can be let out to other farmers. Other investments such as shares earn very little for the amount of money put in them and, contrary to popular belief, they are not “easy” and in most cases are the same as betting on horses. Most people believe that the money in shares is made by buying low and selling high. The problem with this assumption is that there is nothing behind it apart from “market sentiment”. Unless you have insider information, you are ultimately going to be one of the people who loses his money so that some faceless Madoff-type gets rich. Of course before that you will get a few winnings yourself, just like at the casino, until you lose sight of the shore of sanity and one day go in all-or-nothing.

Calculate how much you can lose. Houses can burn down (and the insurer will never give you back the real cost of rebuilding), land can be “compulsorily acquired” to build a highway, and companies on the stock exchange can evaporate overnight. With houses, having people inside means that someone other than yourself stands to lose by burning it down, plus you can put in safety equipment and do other things to reduce the risk. It’s a very rare event. With land, a bit of research and getting to know people at the local council can make it a very safe way of investing. With shares, there is basically no way to assure that you won’t be left totally broke.

Make plans to manage the risk. Do not let the total destruction of your main investment be the undoing of you. Diversification is generally a stupid thing to do because you end up putting money all over the place and having no idea of the risks you are taking. Better to do one thing and do it well. Better still to do two things and do them well. Then you are actively managing your risk. It can be as simple as having two houses from which you draw rent instead of one, as long as they are in different parts of town, or different towns.

Making the Decision

Before making any decision on finances, a few things need to be satisfied:

  • You need to be sure of how much you don’t know. If it’s too much, then delay your decision.
  • The investment has to be better than shoving money into a mattress. In some cases, depositing money in a bank account is worse than shoving it in the mattress.
  • You need to be ready to make the maximum estimated loss and have a plan in case this happens (and it can’t be suicide).
  • Your decision has to be morally upright. Usury is usury. Theft is theft. Cheating is cheating. Wrong is wrong, so don’t do it.
  • You must not rely on tax laws for the viability of your investment. The tax laws change and, just like interest rates, are a trap. Just take Superannuation as an example. The right path is often the most difficult one.

After all of this, it can become quite clear that investment is not easy. Most people work extremely hard to get very little out of life, and there is a small percentage at the top who get rich without appearing to do any work at all. They will probably all go to Hell when they die, and as such their life was not worth living. There is a group in the middle though, which takes what is seen as the conservative path:

Be humble, earn an honest living doing honest work, save your money, invest in real things that people need, have realistic expectations and prepare for the worst.