What GDP really tells us

(What is really scary is that the chart above stops in 2005..)

Written by: Joshua Gayman

Gross Domestic Product(GDP) is the sum of all final goods and services produced within a nation’s borders for a given period(year). GDP is made up of only 4 different factors:

1. Personal Consumption Expenditure: The amount spent by individuals on goods and services.

2. Private Investment: Private investing into things such as factories, equipment, and residential/non-residential buildings.

3. Net Trade: The amount the US exports minus the amount it imports.(This is currently a negative number, hence the term: “Trade Deficit.”)

4. Government Spending: Doesn’t matter if it is buying Barbies, war tanks or investing in medical research. It has the same effect on GDP.

In 2011, the United States’ GDP was $15,000 billion.(NOTE: 1,000 Billion = 1 Trillion. This really puts the $16 Trillion national debt into perspective doesn’t it..) Of that $15,000 Billion, Personal Consumption accounted for 71% of GDP. Private Investment accounted for 13% of GDP. Net Exports is a negative number because we import more than we export. You could say it accounted for -4% of GDP. Finally, Government Spending(federal and state levels) accounted for 20% of GDP.

Let’s take a closer look at these four factors of GDP:

1. Personal Consumption: At 71% of GDP, this factor is by far the most important. The amount that individuals spend is determined by two factors: how much money they earn and how much money they can borrow. These two factors are also the most important factors for 2.Private Investment, because business investment and residential construction both are driven by consumer demand, which is driven by the ability for the consumer to take on more debt.

The expansion of debt owed by the individuals in the United States was the strongest factor driving the economy from the early 1990s up until the economic crisis of 2008. In 1993, the total debt of the household sector first topped $4 Trillion. This number peaked near $14 Trillion in the 3rd quarter of 2008. At that point, the donkey collapsed from too much debt on it’s back when individuals could no longer afford the interest payments on their loans and began to default. (From 2002-2007, the household sector increased its borrowing by an average of $1 Trillion per year.) It was all of this debt that funded personal consumption and therefore GDP.

When loans began to default in 2008, the banks refused to lend the household sector any more money. With credit cards and Home Equity Lines of Credit(HELOCS) getting cut, people were forced to spend less money. With personal consumption contracting, private investment began to contract even more. The result of this was a STEEP decline in US GDP in the 4th quarter of 2008. During the same quarter, unemployment shot up to 10%. At this point, the US Government began to spend much, much more. Had it not done so, the economy would have collapsed into a Greater Depression. It’s just math:

Personal Consumption + Private Investment – Net Trade + Government Spending = GDP

3. Net Exports: This number really comes down to the competitiveness of the country’s goods and services in the global economy. Since this number is negative in the US, it is obvious that we consume more than we produce. We offset this number by holding Reserve Currency status and printing money. Luckily for us, the system will collapse when the world no longer buys American debt, therefore the financial system is doing whatever they have to do to keep the dollar alive. This of course is not a good thing if you are a saver.

4. Government Spending: In the United States, government spending is supposed to be determined by elected officials in response to the demands of the voting public, but the voting public is gaining an increased awareness that government spending is actually determined by the demands of corporate donors.

All of these numbers and stats for me to point out one simple thing: Debt is more important to the United States than production. If it weren’t, we would stop taking on debt, stop paying for unfunded liabilities, and start competing to produce and sell in the global economy(export). it is much easier for us to simply take on more debt, as long as the world will buy our bonds and allow us to print dollars.

On facebook?

China Pushing to Replace Dollar with Yuan as Reserve Currency of the World

More and more countries are moving away from the dollar and trading using the Yuan, as China continues to make their push to replace the Dollar with their currency as the Reserve Currency of the World

 

Nixon

SCREW THE ULTRA RICH, WORLD BANKS, AND FED

By Joshua Gamen

This post is about a History lesson not taught in schools. For almost a century many things about money have been concealed, it is part of my mission to help spread the truth to as many friends and fellow good people as possible. I dedicate this post to the following people:

First off, my father, Brent Gayman, who with his life showed me that it is critical that anyone who wants to be free, must mind their OWN business. You can not be free working for another man, period. He may not be the wealthiest man on Earth, but he has always stayed free. I have always admired how he could be there at all my  sports games, field trips, doctor visits, etc – because he always controlled his own schedule.

Secondly, the NBA great Travis Outlaw – for it was at his condo my senior year of high school, where I first picked up off his coffee table the book “Rich Dad Poor Dad”(written by Robert Kiyosaki), while kicking his butt at Knockout Kings on Playstation. This book opened my eyes to what they do not teach in schools.

Benjamin Ficker, who loaned me a stack of books written by Robert Kiyosaki, including the book “Retire Young, Retire Rich,” before I departed on a vacation to Maui, Hawaii with my friend Sean Stamm, where I read this book – and my mindset forever changed. I went home from that vacation and made over $8,300 that month – at age 21, solely credited to this new mindset.

And Aaron Niehuser, who wrote me an email today, asking me questions which led me to write this blog post, and see more clearly my vision for the future.

MY FORMAL EDUCATION

My formal education was short. After high school, I went on to play junior college football in Northern California, where I started at fullback. The following year, I transferred to Southern Oregon University, where I redshirted due to bad grades in the classroom from my freshman year in junior college. I lasted one football season and term at SOU, before flunking out of school.

In high school, I got by in the classroom solely so that I could play sports. My parents never rode me very hard about my grades, I was usually a B student, mixed in with some A’s, and some C’s. I really didn’t care much to learn about biology, literature, an obviously manipulated history curriculum, or much else that was taught. I knew I was not going to make my money as a teacher, but rather as a businessman of some kind, owning my own business.

After college, I began my real education: SALES. I enjoyed it from the beginning, and have never looked back. While learning how to sell, I spent many slow afternoons at the car lot reading books on sales, financial literacy, accounting, and economics. I now control my own schedule and my own destiny, owning 50% of a real estate business that operates in both Phoenix, Arizona and Portland, Oregon.(Thanks again to friend and business partner Benjamin Ficker.)

HISTORY LESSON

This lesson begins in the year 1903, when the US Education System was taken over by the General Education Board – founded by John D. Rockefeller. That year, the influence of education was taken over by the ultra-rich.(Sound like a good idea to you???!!!)

When I first learned of this, it finally clicked why formal education was never for me. Though passionate about playing football, I was never motivated enough to sit through 8 hour days of lecture about subjects which did not show me a personal benefit, followed by more wasted hours studying textbooks in subjects I would not apply. (I’m not saying I NEVER enjoyed a lecture here or there. And I must give some credit to math in school, and also to my Freshman Economics Teacher Shawn Abbott.) But primarily, what I know I have picked up on my own education venture.

FAST FORWARD 10 YEARS

A decade after the rich took over our education system, the Federal Reserve(FED) was born in 1913. Created by a group of ultra rich businessmen and bankers at Jeckyll Island off the coast of Georgia, by names including JP Morgan(JP Morgan Chase…), and to no surprise, John D. Rockefeller. The Federal Reserve was created in a deal struck between bankers and the US Treasury. It is not federal, not American, has no reserves, and is not a bank.

GREAT DEPRESSION

In the year 1929, the United States entered into what is known as the Great Depression. During this depression, many government agencies were born, including the Federal Deposit Insurance Corporation(FDIC), the Federal Housing Administration(FHA), and Social Security. Through this time period, the government took MASSIVE control over our lives via taxes. Many of these agencies are responsible for the mess we are currently in(See: FHA, Fannie Mae, Freddie Mac). The problems those 3 agencies are responsible for will be DWARFED by the unfunded time bombs of Social Security and Medicare, which are estimated to be $50-$60 TRILLION DOLLAR bombs! The largest demographic in our population is the Baby Boomers(the people born from the World War II generation), and are currently RIGHT NOW beginning their entrance into retirement. Uh oh….

1933 – President FDR(Franklin Delano Roosevelt), asked all Americans to turn in their gold coins. The government paid the people of the United States $20.22 per ounce of gold. Then, FDR immediately raised the price of gold to $35 per ounce. The government cheated Americans out of about $15 for every ounce of gold turned in. What a cash heist! If anyone was caught holding gold coins, the punishment was a $10,000 fine and 10 years in jail. I believe the reasons behind this were: 1) To get the people used to paper money as the only currency of the world, and 2) Because the government was already broke. They had already allowed the FED to print so much paper currency, that they could not back that currency anymore with the amount of gold they had.

TAKING ADVANTAGE THROUGH WAR

In 1944,  the Bretton Woods agreement was made, with the illusion that it was to smooth out the economic conflict resulting of World War II. In effect, this made the US dollar the reserve currency of the world, requiring other nations to peg their currency to the dollar, which was pegged by gold. This international currency agreement created the World Bank and the International Monetary Fund(IMF). This replicated the Federal Reserve system globally. This act lasted through 1971.

1971

In 1971, President Nixon severed the link between the dollar and the gold standard, for good. Nixon realized that the link between gold and the dollar was draining our central banks of their gold reserves, so he cut the ties. With one stoke of his pen(with no permission from Congress), the global economy was forever changed. This led to one of the greatest economic booms(if not the greatest), in the history of the world. Now the Fed could print as much money as they wanted, turning the US dollar into Monopoly money(the bank never goes broke!) The World Banks now had a monopoly on currency, and the economy shifted from operating on money, to operating on debt. After 1971, the US economy could only increase by increasing debt, and that is when the bail outs started.(They were nothing new by 2007!!!) In the 1980s, the bailouts were in the millions. By the 1990s, they were in the billions, and today they are in the trillions and growing. This change in the rules of money, may be the biggest financial event in world history, allowing the United States to print money at will by creating more and more debt, cleverly disguised by what is known as US bonds. Never before this, had the world’s money been backed by one nation’s debt, a giant IOU from United States tax payers.

That year, the dollar stopped being money, and became a currency. The word currency is derived from the word current. A current must keep moving or it loses value. This is why today, savers are losers. To retain any value, a currency must move from one asset to another(IE:  Stock market to real estate to precious metals). Thus, people who parked their money in the stock market or a savings bank lost money. Debtors become winners as the US government prints more and more money, increasing debt and inflation.

In theory, if people payed off their debt, modern money would disappear.

Then in 1974, the US Congress passed the Employee Retirement Income Security Act(known as ERISA, or as called today, 401K). Before ’74, a company’s pension plan provided a paycheck for life. After 1974, defined benefit pension plans shifted to defined contribution retirement plans. This means they had to save their money for retirement. Another cash heist was created by millions of people being forced to shove their money into the stock market and savings accounts, for mutual fund managers and bankers to play with until the workers retired. If the pension plan runs out of money or a stock market crash occurs, the people are SOL(out of luck and on their own).

2007

In 2007, when sub-prime borrowers could not pay their mortgages any longer, the expansion of debt stopped and the debt market collapsed. This led to the financial crisis we are in today.

The United States has financed it’s insane debt by selling the debt to Europe, Japan, and China. If these countries lose confidence in our government and currency, another financial crisis will occur. And this is now starting to happen, as there is global talk of China trying to replace the dollar with the Yuan as the reserve currency of the world.(I don’t see this happening, at least anytime soon – but there’s talk about it – google it…) If you and I stop buying homes and using credit cards, the crisis gets worse, and as you probably know, it is very difficult right now to obtain a mortgage or get a new credit card or an increase in your credit limit. If you already have a mortgage, try getting a home equity loan…

SILVER LINING – CONCLUSION

All of this does create an oppertunity for ANYONE who is willing to invest in their financial education and benefit from the circumstances. Assets are cheap. It is now more important than ever to invest in a financial education centered around leveraging good debt(debt used to buy assets that put money in your pocket), and cash flow(money that comes to you monthly over and above what you are paying as a price for the debt). I have talked a lot about silver and gold lately, and while they are a great hedge against inflation, it is important to also invest in assets like businesses and real estate, which will put money in your pocket. In the event of hyperinflation(which we will see, just like Germany did pre-World War II), precious metals will have a HUGE dollar amount pegged to them, but remember, dollars will be worthless. You will be able to trade them for other assets like food, real estate, etc, but it is important to have assets that provide you cash flow. Even if the cash is not in the form of US dollars. A good business provides REAL value, so you will always get something in return for what you are providing.

I strongly suggest, encourage, and recommend that you verify everything you see and read. Form your own opinions, but I sincerely hope these facts help shine some light on the truth for you.

-Josh



Blowing Bubbles

by: Joshua Gamen

WOW!

Have you seen the price of gold or silver lately? If this is not something you track, change that. Here is why: As gold and silver go up in value, the cash in your wallet goes down in value. Literally speaking, the value is transferring from the paper dollar to precious medals. And FAST!

Gold went up roughly $60 in the month of September. As of today, in the past year gold has gone up $300. In the last 2 years it has gone up roughly $430.  PAST 5 YEARS = up $845 dollars, nearly tripling it’s value in dollars.

In October 2005, gold was worth a spot price of $466 dollars. Right now, I am currently looking at the up to minute price of gold at $1,314. Gold has nearly tripled in value. Conversely, the dollar is worth roughly 1/3 of what it used to be worth versus gold.

PARADIGM SHIFT

At first it is a bit tricky to think about the economics of financial value. But let me attempt to break it down for you.

Everything has value. A gallon of milk is worth something, a question answered is worth something, gold is worth something, a stake in something is worth something, clothes, automobiles, paper, everything has a value. Part of the reason we are in the mess we are in right now economically, both nationally and globally, is that the government has manipulated the value of the US dollar so that it had more value than it should.

This started when President Nixon took the dollar off of the Gold standard in 1971, in an attempt to CREATE more money for circulation to make everybody do and have more, and thereby get people doing more and making more happen(a good economy). The US dollar is the reserve currency for the world, and so as it corrects itself to being back to what it was originally worth(about the same as a napkin), the world suffers economically.

Going back to the beginning of time, gold and silver have always been used as money. Every civilization that has ever printed or made some kind of currency, and not had anything tangible backing that currency, has ended up with a worthless currency. Currency is only worth as much as people think it is worth. If people don’t think paper bills will be worth as much as other items in compared to trading(ie: gold, silver, diamonds, oil, clothes), then paper bills will become worth less and less. Google: Hyperinflation, Germany.

VALUE

Value is always value, and it shifts to things of which men(and ladies 😉 perceive to have it. 5 Years ago real estate was believed to have a lot of value. The thing is, a house is a house just like it was 5 years ago. The difference is 5 years ago people thought that a house had a high amount of financial value strung to it, now people are seeing it for what it is, a shelter from the weather, warmth, etc.

For most of our known lives, we have thought of the US dollar to carry extreme value. I was in my early 20’s before I every grasped the concept of currency as opposed to money.

MY TAKE

The dollar is crashing, hard and fast! Since the early 70’s, the government has been printing more and more money, in an attempt to keep everyone engaged in more commerce. As the government prints more money, the money in circulation is worth less. The government is now pumping more US dollars into the economy than ever before, and at a more rapid pace than ever before as well! US trade is down, we export significantly less than we import. So where is our value? It’s leaving fast! The good news is now is the time to position yourself to get as much things that have value to you as possible, with a declining dollar. If you can invest in a few pieces of gold or silver here or there, do it. You will get more and more for your gold and silver in the future.

The population is gradually having a paradigm shift themselves, from value being in the dollar, to value being in precious medals. As the people catch on to the idea that their money(US currency) is becoming worth less and less, they will flock to precious medals in an attempt to keep any tangible belongings they have.

The currency bubble that has been inflated for the past 4 decades is popping fast, while the precious medals bubble is just blowing up. Expect gold and silver to rapidly gain against the dollar in the next couple years, as the value of the slutty dollar shrinks, and the value of real estate continues to fall do to the number of bad mortgages adjusting, and rapidly increasing payments along with foreclosures.

Most importantly, get and stay financially educated. Knowledge is the new money 🙂