PRIVATE
CLIENT LETTER
This letter is intended only for accredited investors who are clients of either Blackburne & Brown or C-Loans, Inc. Today we'll discuss the dangers of now trying to balance the budget.
Joke
Du Jour
"If recent polls are correct and Democrats win back control of the House and Senate, President Bush's administration will be transformed into an early lame duck. Worse, Cheney will then shoot it." -- Seth Meyers
Danger of Balancing the Budget
My attorney and dear friend, Ron, is a Democrat. With the Democrats poised to take over Congress, Ron talks a lot about how the Democrats will restore fiscal responsibility. They will balance the budget again, Ron asserts, and this will be good for both the economy and the country.
There is a major problem with this plan - the debt. Now I am not just referring to the national debt. I am also referring to the state debt, the municipal debt, corporate debt and consumer debt. Estimates place the total U.S. debt as on the order of $33 trillion. This debt requires interest payments. At least $2 trillion dollars gets sucked out of the money supply every year in order just to service this debt.
Think of the U.S. money supply as the water in a swimming pool. Folks, the obligation to pay $2 trillion in debt service payments every year is like leaving the pool drain open. Unless a pretty thick hose is constantly injecting fresh water (new money) back into the pool (money supply), the pool will empty in short order. Deficit spending by the Federal government is how new money is created. It's the big ‘ole garden hose that keeps the pool from emptying overnight. If our new Congress decides to turn off the garden hose ...
Water Joke
In an underdeveloped country, don't drink the water. In a developed country, don't breathe the air.
Reminder About First Trust Deeds
If you see a first trust deed investment from Blackburne & Brown that looks interesting, please remember that it is up to you to either call in your order or to send in your order by email using the order link. We recommend that you start out with just a $5,000 initial investment, until you get comfortable with the system. It should reassure you that Blackburne & Brown has been in business for over 26 years.
Tickets Joke
Sarah was reading a newspaper while her husband was engrossed in a football game on TV. Suddenly, she burst out laughing. "Listen to this, there's a classified ad here where a guy is offering to swap his wife for a season tickets." "Hmmm," her husband said, not bothering to look away. Sarah said teasingly, "Would you swap me for season tickets?" "Absolutely not," he replied, "the season's more than half over."
Hottie Rents Herself Out for Tickets
What I am about to tell you is true. An attractive 38-year-old divorcee just auctioned herself off on eBay in return for World Series tickets. She is a die-heart Tigers fan, and she auctioned her companionship off (along with a Detroit Tiger's banner) for 99 cents, plus one World Series ticket. She stressed that there will be no touching. A recent widower (with a very high eBay satisfaction rating) won the bidding, and the couple is scheduled to go to the second game. It would be a great story if they fell in love.
More on Danger
"Yeah, yeah, every month, George, you write about the same thing - the great risk of deflation. I've read it all before."
Okay, here is an assertion that may wake you up a little bit. If Congress passed a law forgiving two-thirds of all U.S. debt - and the total debt owed by Americans was suddenly reduced to just $11 trillion - and then we collectively tried to pay off the remaining debt over, say, seven years, the resulting economic contraction would throw this country into a devastating depression.
Not only would the money supply collapse like a black star, but also the velocity of money (how often it changes hands) would slow to a crawl. Tens of millions of people would be unemployed. Demand for almost all products and services would collapse. Because money is debt (I'll explain this in a later newsletter), we must not try to reduce our debt too quickly. We must not try to balance the budget. It's far too late for that. We are way, way past the point of no return. Economic historians will not be kind to Alan Greenspan.
Parker Pen Joke
When Parker Pen marketed a ballpoint pen in Mexico, its ads were supposed to say "It won't leak in your pocket and embarrass you." However, the company's mistakenly thought the Spanish word "embarazar" meant embarrass. Instead the ads read, "It won't leak in your pocket and make you pregnant."
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Chicken Joke
Chicken-man Frank Perdue's slogan, "It takes a tough man to make a tender chicken," got terribly mangled in another Spanish translation. A photo of Perdue with one of his birds appeared on billboards all over Mexico, with a caption that explained, "It takes a hard man to make a chicken aroused."
Better Solution
"Okay, Mr. Smarty-Pants, what do you think we should do?" In the early 1960's, John F. Kennedy mobilized Americans with a commitment to put a man on the moon before the end of the decade. America needs another national mobilization to end our dependence on foreign oil.
The $20 trillion cost of this program, however, should not be financed through Federal borrowing. Instead the money should simply be created by the Treasury. This new money that will be injected directly into the economy will serve as the big ‘ole garden hose that will keep our money supply from collapsing.
At the same time, the reserve requirement for banks must be quadrupled. Right now our banks maintain reserves that are less than 1% of deposits. As a result, if a bank makes a new loan, the money supply, because of fractionalized banking, increases by a factor of 20. If we slowly increase the reserve requirement, we can slowly reduce the amount of bank loans (and credit card debt) outstanding. We slowly need to replace this debt with newly-created Treasury money.
At the same time, the word "thrift" needs to ring forth from every classroom, pulpit, and politicians podium until the virtue of thrift and saving is restored to American culture. The expression credit card needs to become almost a vulgarity.
Ten Commandments Joke
A Sunday school teacher was discussing the Ten Commandments with her adult's class. After exploring the commandment to "honor thy father and thy mother," she asked, "Is there a commandment that teaches us how to treat our spouses?" Without missing a beat one older man answered, "Thou shall not kill."
Land Investments
Here is the case for land investments.
Coast Guard Joke
A lady officer wrote: "I overheard my father telling a family friend about my newly-assigned mission in the U.S. Coast Guard. I work on a cutter that escorts cruise ships and international vessels under the bridges in California's Bay Area. But what my father told his friend was, "She's involved in some sort of escort service."
Finale of Danger
"Are you crazy, George? Creating $20 trillion would be incredibly inflationary. The dollar would collapse. My savings would be wiped out. My social security check wouldn't buy a cup of coffee."
If the Treasury creates $50,000 in new money, but at the same time a new $50,000 factory machine is manufactured and installed, the net effect on inflation is nil. Inflation only occurs when money is created at a rate faster the creation of new goods and services.
Imagine new Schools of Energy being founded at all of our major universities, turning out energy production engineers by the tens of thousands every year. Scores of new coal gasification plants could be constructed across the country, thereby guaranteeing that even in a Middle East war over oil that our ships, tanks and trucks would have the fuel to secure our oil lifeline.
Most experts agree that more than a hundred new nuclear power plants will need to be constructed, perhaps using the new Chinese pebble technology which promises to reduce the risk of nuclear meltdowns and exposure to terrorist attacks. Maybe they will line the Mohave Desert and the roofs of every Sunbelt home with solar panels. New generation wind turbines almost make economic sense right now, and with Federal subsidies massive wind farms could someday contribute 3% of our energy needs. It is even possible to drive a turbine using the differences between the surface temperature of water and the temperature of water 500 feet below the surface.
America is a nation of scientists, inventors and entrepreneurs. Can you imagine if we became an energy production powerhouse that supplied energy to the world? Our credit is still good enough. The dollar is still strong enough. If the world realized our newly-created money was pouring into energy research and production, I think the U.S. could enjoy an economic renaissance. It sure beats a depression because a well-meaning Congress decided to try to balance the budget with $33 trillion in existing debt outstanding.
New York Joke
"New York is a great town, though. If you're here and you want a one of a kind souvenir, be sure to take home the police sketch of your assailant." -- David Letterman
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