The American Dream Has Changed. Have You?
by Bill Sardi
Recently by Bill Sardi: Modern Medicine Needs To Abandon Many Ineffective Therapies; Example– $25Billion of Heart Drugs Don't Prevent Cardiovascular Death!
If this sounds like I'm re-beating a drum I've already played, it is. I've learned Americans need to hear a message a few times over before it begins to sink in.
The dream of coming to America – the land of freedom – to live in your own home, to send your kids to school to get a college education, to have opportunity that does not exist elsewhere, for kids to live better than their parents – that WAS the American dream. The American dream is now living in the past tense.
Today anyone buying a home in the suburbs is purchasing a depreciating asset. Yes, the interest rate on home loans is lower than ever, but if you need to move any time in the first 15 years after buying a home and prices continue to decline, which they will, you will surely be left holding a half-empty bag.
There is a shadow inventory of 4 million homes that will be dumped onto the market as foreclosures in the next four years. Greater supply and stagnant demand = lower home values. Better to buy agricultural property that is rising in value. Farms are rising in value on land that was once planned for housing tracts. The residential real estate market isn't going to return to normalcy till 2023.
Today any young person taking out a student loan is not likely to find a job to pay it back. Today a college education may not be worth the money and effort put into obtaining a paper diploma. You didn't notice that billionaires like Larry Ellison, Bill Gates and Steve Jobs never finished college?
Immigrant families are especially lost in a time lag, still believing the American dream exists. That is the very reason they came to America.
If America continues to outsource its labor overseas and automates many other jobs out of existence (look at what email did to the post office), the conclusion is that jobs may not be more than low-paying and part-time in the service industry as manufacturing jobs are in decline. Your children can look forward to a career as a part-time massage therapist, big-box store greeter or street sandwich-board advertiser.
What can we learn from the wealthy?
So how do Americans escape serfdom? Surveys show wealthy Americans made most of their money by starting companies that sold or by having investments that produced capital gains or stock dividends. If you want to escape the inevitable serfdom that most Americans face today, you had better find a way to enter the "investment class."
Now that does not mean day-trading on Wall Street. That is gambling. Nor does it mean investing in Wall Street at all as the stock markets are so manipulated today that it is nearly impossible for an individual investor to profiteer in a rigged market.
Your eroding nest-egg
Are you holding a small nest egg in the bank? It is eroding in value by ~10% a year (the real rate of inflation according to ShadowStats.com). Recall that banks are offering less than 1% interest on your banked money. So in five years your $50,000 savings account will have the purchasing power of ~$25,000.
Don't believe it? Go to Tom's Inflation Calculator, click on options and select the ShadowStats.com estimated rate of inflation, then type in the amount you had in the bank in let's say 2007 versus today (2012). Using that calculator, you lost ~$30,000 in the past 5 years. In the next five years you will lose even more.
The vanishing 401k plan
Maybe you intend to tap into your tax-free 401k account when you retire. But did you read where the agents for these 401k plans have swiped about 30% of your money in management fees. Add that to the 35% decline in their value over the past five years. Yes, some of those losses were regained, but you are back where you started five years ago and that 10% inflation calculator is running.
Do you even think your 401k plan will be there when you retire? It's likely to be confiscated in some manner and merged with the Social Security fund to make up for shortfalls in that government retirement plan.
Whatever retirement plan you have, it must make 7-10% earnings annually to keep up with inflation. The nation's largest pension plan, CALPERS, just announced it could only achieve a 1% return on its investment. It needs a 7% return to make good on its promise to provide pension checks to its contributors. You should plan on pension checks that are ~25% less than promised.
Americans gained and lost wealth in real estate
Unless you bought your home decades ago, and haven't taken out a second mortgage, you have likely lost a great deal of wealth in the past five years.
It was author and real estate entrepreneur Robert Kiyosaki who over a decade ago wrote a best-selling book entitled RICH DAD, POOR DAD, which essentially said Americans will just make just enough money from their primary job to pay their bills and gain wealth by buying homes with a down payment and letting renters make the monthly mortgage payments. Unfortunately, those days are over. Americans have lost about 40% of their wealth with the collapse of the real estate market.
So now what?
So have I led you to a dead end? Real estate, stocks, 401k plans, even savings plans are all off the table.
So I'm exasperated when I present the idea of entering "the investment class" to my financially struggling friends and associates by suggesting they save a few thousand dollars and buy stock in a private venture, for example, like a company that is just now beginning to produce and deliver a revolutionary type of power cable, or another private company that is looking to raise money for a new and novel prescription eyeglass technology.
My friends look at me like they are in a complete state of paralysis, like they have tetanus toxin. They are hemorrhaging money from their savings accounts, watching their home values tumble further than they already have and can't imagine their 401k plan is being pilfered by fund managers, but elect to stand on the proverbial railroad tracks and wait for the next train to run them over.
Some guy once said: tell you the first time how someone is defrauding you and "shame on them" (the defrauder). Tell you a second time, and "shame on you."
Most of my friends and associates are so un-savvy about investing their own money they can't see an opportunity when it is presented to them. That is just the way the elitist bankers want it – a naïve consumer class that has plenty of ideas on how to spend money but no idea how to multiply it. Enter modern serfdom.
The greatest bank robber of all time: inflation
Ben Bernanke, chairman of the Federal Reserve Board, is intentionally destroying the savings class via inflation while allowing banks to offer dividends to their stock holders. This is unconscionable. Any real President would have taken bold action to put an immediate stop to this.
Mr. Bernanke is making it difficult for the little guy to hold onto his money and forcing savers to put their money at risk on the stock market to help his buddies prop up their casinos on Wall Street. If Americans elect to leave their saved money in the bank and not buy stocks, they are capitalizing the banks at a personal loss.
American banks hold about $10 trillion in savings accounts that lose about 9% of their purchasing power annually, or aggregately about -$900 billion a year, and Americans stand and take this loss without a whimper of protest. If I told Americans they face a $900 billion tax increase they would rebel. Inflation is the politically acceptable way of fleecing the public of even the small amount of wealth they have left.
This is because the real rate of inflation (~10%) is not publicized and the numerical value of your savings account appears about the same. You can't easily visualize inflation as the greatest bank robber of all time.
Will you be working for a living in the future?
Not knowing what to do, many Americans find ways to qualify for the public dole. There are now more Americans joining disability than the number of Americans finding jobs. However, don't count on a work-related backache making for your early retirement. The Social Security Disability Insurance program is set to soon become the first big federal benefit program to run out of cash.
The American dream has morphed into a future where your family will likely receive Food Stamps, you will live in government-subsidized housing, you will be forced to use public transportation, your kids will be fed a government-approved breakfast and lunch at a school cafeteria and largely raised by surrogate parents, and you will be working for the government part time. About 50% of American families are already on the public dole.
James H. "Smokey" Shott, writing in the Bluefield (WV) Daily Telegraph, in an article entitled: "My Country Tis Of Thee; Land Of Dependency," cites an April CNN Money report that more than 148 million Americans lived in a household that received a government check. How did early Americans traveling in prairie schooners ever make it across the country without a government subsidy?
What is the alternative? I am trying to inform my friends maybe there will not be near-full employment in the future. Look how the wealthy escaped serfdom. Maybe in the future Americans won't work for a living, they will have to do what the wealthy did, which was build and sell a company or invest and derive dividends and capital gains by holding or selling stock. In my mind it is the only way out of the mess that the American economy has become.
Learn the difference between a gamble and an investment
I keep emphasizing that any investment opportunity must demonstrate a value-added proposition, otherwise it is a gamble, not an investment. For example, if you take resin and carbon and process it through a machine that turns it into a power cable, that is value added. If you fabricate a spectacle lens in a novel way, that is value added. We have become so used to the chicanery of speculative profits on Wall Street that we can't discern gambling from an investment any more.
Search for the right venture
Search for a private venture that is not in its early start-up phase and is ready to go to market, where financial returns will be sooner than later. If it has already sold a few widgets, all the better. Search for private ventures that others can't copy easily. Patents may or may not be required (example: McDonald's doesn't own any patents, it just makes hamburgers, fast.) Try not to enter a flooded market where there are already too many brands or choices. Look for an inventor with management skills who doesn't expect a company car, where chandeliers aren't hung in the offices, where the income taken by founders of the company is limited, and where a handsome profit margin makes up for the level of risk.
