Is it just me or do you get the feeling that the feds rewrite their money policy almost on a daily basis? It seems reactionary at times, but it’s the reaction caused by a previous policy blunder that creates a different reaction and a different blunder to follow….it’s a vicious circle!

So what do the feds actually want? It appears now that they want INFLATION! What? I thought inflation was bad. Well it is if it takes off at ground level, but the economist say we are now experiencing deflation, so the feds need inflation to compensate.

Maybe a short economics discussion is in order. Let’s look at the variables in very basic terms.

M=money supply – how much money is available

V=Velocity of money – how fast money moves through the system

P=Price of money – either inflation or deflation

Q=Quantity of Production – GDP

If you reduce V velocity (which is happening today) and if you don’t increase the M supply of money, you are going to have deflation. We are watching the velocity of money slow. People are getting nervous, they are not borrowing and spending as much, either because they can’t or for obvious reasons are using discretionary income to pay off debt or increase their savings. You would think this is a good thing for the family, reduce debt and save more, but not if you’re the government. This entire economy has been based on credit, borrowing, and spending…..velocity….which increases GDP, but this growth has been fictitious because we weren’t spending our money, we were spending our future earnings through debt. You knew it was just a matter of time before we would “max-out” our borrowing power.

The probability of deflation is ever increasing. When we increase M the supply of money and V, velocity stays the same, and if GDP does not grow, that means we’ll have inflation. More money chasing fewer goods…..it’s the old supply and demand equation.

As I said earlier we currently have slower velocity of money and thus slower growth of GDP. Keep this in mind: earnings equal growth. Without spending companies have little to no earnings which results in slower or stagnant growth or what we are experiencing now…..deflation. This scares the FED, so what is there answer? They have to keep printing money M until V velocity kicks in and we begin to see inflation. The feds are calling it “quantitative easing.” They announced $300 billion of easing last week. This will happen every quarter, $300 billion, $500 billion etc….until their achieve their desired result…..inflation. This could become a really big number and a side effect may be another asset bubble in the stock market. One economist said it may take $2 trillion of “easing” to achieve the desired result. However, will this cause the pendulum to swing in the opposite direction and double digit inflation will rear its ugly head? There has to be such a supply of cheap money to encourage lenders to lend and borrowers to borrow to induce a spending to produce inflation. This could take years to accomplish……and I don’t think we’ve hit bottom yet. Bill Fleckenstein is a very famous short trader. He closed a short fund a couple of months ago. He says he doesn’t have as many good opportunities, and basically he’s scared of being short with so much stimulus going on.

Another unintended consequence of printing so much money will be a weaker dollar…..this is an entirely different discussion but can we afford to have a weaker dollar globally? Who will buy our debt?

The real answer is staring us in the face, but we seem to overlook it. We have to get the FED’s out of the equation. Let the markets dictate interest rates, velocity, price, and growth. We can’t keep manipulating the country’s economy. It doesn’t work, hasn’t worked and will not work long term. This stimulus “fix” will probably end up being more of a disaster and make for a harder landing then would have otherwise been by letting the markets run their course. We will experience deflation followed by inflation followed by more manipulation so put on your neck brace because this economy is going to make your head spin!

Most of us are hearing about the government spending a Trillion Dollars, but to the average American it’s just a word.

Some of you may have seen these graphics floating around the internet lately, but if you haven’t you need to take a visual look at a Trillion dollars.

First off a Trillion is a 1 with 12 zeros, it looks like this: $1,000,000,000,000. Okay, so it’s a big number, but let’s put it into perspective.

Before we get to what a trillion dollars looks like visually, here are a couple of interesting statistics:

1. If the printing presses ran from 8-5 every working day, 5 days a week, it would take 72 years to print 1 trillion dollar bills.

2. Stacked on top of one another a trillion dollar bills would be 70,000 MILES high.

3. If you could have spent 1 million dollars per day since the birth of Christ (2009 years ago) you would still need another 740 years to spend a Trillion dollars.

4. One million seconds ago was 10 or 11 days ago
One billion seconds ago was during the Nixon administration
One trillion seconds ago was 30,000 years BC…..wow!

5. To count out One Trillion ($1,000,000,000,000) dollars nonstop without sleeping or eating it would take Thirty-Nine Thousand (39,000) years.

6. If your annual salary or wage is $50,000 it would take you 20 million years to earn a trillion dollars.

7. We could wrap the earth about 4700 times with a trillion one-dollar bills laid end to end around the globe.

8. Assuming there was a roll of 1 trillion – $1 dollar bills, it would take a military jet flying at the speed of sound, reeling out dollar bills behind it, 14 years before it reeled out one trillion dollar bills.

So there’s a little “Trillion Dollar Trivia” for you!

Okay, now let’s look at a Trillion dollars visually.

Here we have a man standing next to 1,000,000 (1 million bucks!) You could put a million in your backpack and have lots of fun!

Notice how small it is compared to an average man.

Next we have $100 million dollars. This can be neatly stacked on a pallet about 4 feet high.

Now we have $1 Billion dollars. This is 10 pallets of $100 million each. This used to be a lot of money…..but to congress a billion dollars falls out of Uncle Sam’s pockets like change.

Although a billion would be a lot of fun to spend……how does it look compared to 1 trillion?

HERE IS 1 TRILLION DOLLARS!

Look at this……what we have here is 10,000 pallets (double stacked so they are about 8 feet high) and each pallet has 100 million dollars on it.

Can you see the little man now in the bottom left corner?

So maybe now we can get a glimpse of the burden government is putting on us in terms of long term debt for this “stimulus” package. Anyone want to run a credit check on the borrower? Oh I forgot, most of the borrowers aren’t even born yet!

Ever wonder where your investment dollars end up? Jack’s story reveals some very interesting truths about your investment dollars.

Jack is a middle aged guy who works hard to make a living. He is happily married to his wife, Jill, and they have 3 children. They live in an average home, with an average income; they have 2 cars, and some consumer debt. Jack and Jill are who you would call the average American family.

Every other week when Jack gets paid he automatically deposits 300 dollars into his savings account. After a couple years of saving, Jack and Jill decide that it’s time to do some investing; they’ve grown a substantial amount of money, and want to put it to use. They sit down with a financial planner to discuss what they should do, and he points out that there are some mutual funds he knows of that are doing very well. He also indicates that “diversification” is key, and suggests bonds as a great place to allocate some dollars. Does this discussion sound familiar?

Following their meeting with their financial planner, Jack and Jill are convinced that “diversification” is what they need, it makes them feel all warm and cozy inside, as if nothing could ever go wrong. Now instead of getting sidetracked here, discussing the absolutely incorrect principles of traditional financial planning based on “diversification,” “buy and hold,” or “dollar cost averaging,” and their false sense of comfort, let’s realign ourselves with the story at hand, following Jack’s dollars. We will discuss these issues at another time.
Jack and Jill find that they are getting 5-6% returns on their mutual funds (again, a discussion for later on the realities and falsehoods of this generous assumption), coming out to 4-5% after taxes. Not bad right? Something in those mutual funds is producing some strong growth for Jack and Jill’s future retirement. Jack, being very curious, decides to investigate a little more into these mutual funds, and recognizes the two following investments as a substantial part of these funds:

• HSBC Finance Corp
• Bank of America Corp

This find has left Jack a little perplexed, and even more curious, so he decides to further his investigation. He pulls out his bills for the month, and finds one of his credit cards. He reads through the fine print and realizes that he has been paying almost 11% interest on his debt, which doesn’t surprise him, until he realizes why he was so intrigued with the two finds in the mutual fund portfolio… He makes his payments to HSBC! He’s been paying 11% to get 5%!

But it doesn’t end here, Jack still has his car loans to look over. He looks at his payments and finds that he has been paying 7% interest on those loans… to Bank of America! He has been paying 7% to get 5%! What a rip!

Hundreds and thousands of people do the exact same thing as Jack on a regular basis. After all, what are a large majority of the investments out there anyway? Someone else’s debt… or our own! Many search for investments when they have most of the investments they will ever need in their very own financial situation. They risk their money, hoping others will make debt payments in order to satisfy these investments, they get smaller returns, or losses, and in economic times such as these, they lose both money and sleep.

Continuing the story…

Jack realizes that he has a problem. He has created unnecessary middle men in his financial plan. He pays
fees, taxes, and incurs risk unnecessarily. So Jack decides to investigate a little more into his situation, and realizes that if he would eliminate the middle men, invest his money directly into his own personal debt, he will substantially increase his rate of return, never incurs taxes on that growth, eliminate risk, and be in complete control of his money. He seriously thinks it over and wonders why he never realized this before… Have you?

Upon finding more information about the best way to become his own banker, Jack learns that there are also particular vehicles that will allow him to create a pool of money in which he will have additional growth, tax benefits, and the ability to pass on wealth in a most efficient manner.

Jack and Jill now have the relief of knowing they are in complete control of their money, because they are their own bankers. They are at peace knowing that the market environment will not affect their financial future.

Understanding true principles of money is very important when making preparations for your financial future. Wealth is not a product, but is a process. Please be sure contact us for more information about these concepts.

You can fill a bucket with holes one of two ways. You can add more water to it, faster than it loses it, or you can plug the holes, add the water, and watch it overflow. Which does your financial advisor have you employing in your financial plan?

What would you consider to be the biggest factor in creating wealth?

Many would have 3 words in mind, rate of return, but is it?

NO!

The biggest culprits to not creating wealth come in the form of the following:

• Debt
• Interest
• Taxes
• Opportunity Cost

The amount of money that flows away from your circle of wealth is immensely larger than the amount you will ever flow into it by focusing on rate of return.

The average American spends 34 cents of every dollar on interest alone, another undetermined, yet substantial amount on taxes, and saves less than 1. But generously we will take an unaverage American and say he saves 10 cents on the dollar. If he makes 100,000 per year, invests 10,000 and is able to come out with 8% (not calculating taxes), he will have grown an additional 800 dollars. Great, right? Not fully, he is still losing 34,000 dollars to interest alone, making his gains seem insignificant, he has a bucket with holes in it. So what does he do? Does he put more water in? or does he fix the holes first? Is your financial advisor telling you to add more money to your investment pool by reducing your lifestyle, or is he finding money that you would have otherwise lost to contribute to your investment pool? If our unaverage American were able to save merely 1% of his income he would have increased his wealth much more than the rate of return produced, and he would have taken no risk to do so. It would be the easiest money he ever made. What if he could recover 2%, or 3%? What effect would that have in his financial situation?

Patching the holes is the part most advisors miss. By using different techniques and strategies to patch these holes, you could learn how to redirect all the interest back to your circle of wealth by paying yourself that interest, save thousands on taxes, put yourself in control, absolutely eliminate risk, and leave a legacy to pass on to future generations.

So now what if we fill the bucket while the holes are plugged? We are going to need a lot more buckets! Becoming wealthy is not a product, is not based on rate of return, but it is a process, based on controlling the most money you can within your circle of wealth.

Make sure to watch our free video about filling the holes.