Recently by Gary North: Sovereign Debt, Sovereign Bank Runs
I have kept my mouth closed on Dave Ramsey for years, but no longer. I have finally had enough.
In a January 23, 2008 phone call, he excoriated Peter Schiff’s book, Crash Proof, after telling the caller that he had never heard of the book or Schiff.
This was unconscionable. The rule is simple: if you attack a book, read it first.
The caller, a young woman, said that her father was worried about a coming stock market crash. He was buying gold and foreign currencies. Ramsey said this advice was “absolutely ludicrous.”
On that day, the Dow was at 12,270. Gold was at $880.25.
On Friday, September 2, the Dow closed at 11,240. Gold closed $1,884.50.
You tell me: Ramsey or Schiff?
But it gets worse. Ramsey’s off-microphone research man told Ramsey that Peter Schiff is Irwin Schiff’s son. Ramsey then went into a tirade over the father’s tax protest advice. He then said this: “This kid’s dad is a nutburger, which probably means the kid is a nutburger.”
No, it means that Dave Ramsey is a disgrace. He verbally tarred and feathered Peter Schiff for a position Schiff personally opposes: the tax revolt.
The “kid” is three years younger than Ramsey. He runs a business. And, just for the record, he has never declared bankruptcy. Ramsey did – and has become a multimillionaire by parleying that act of contract breaking into an anti-debt career. He is like the reformed alcoholic who says no one should take a drink. For the record, I hope he has long since repaid all of his former creditors with interest. “The wicked borroweth and payeth not again.” (Psalm 37:21a).
On Irwin Schiff, I have been clear. I was clear in the mid-1970s, when Schiff began his crusade against paying income taxes. I published R. J. Rushdoony’s 1975 article, “Jesus and the Tax Revolt,” in the Winter 1975/76 issue of The Journal of Christian Reconstruction, which I edited. The article was a refutation of the tax protesters. This was when Schiff had just begun his crusade. I knew who he was, and I joined with Rushdoony to oppose what he and others like him were doing.
In 1975, Dave Ramsey was 15 years old.
Watch the video. Then I will comment on Ramsey’s pathetic track record as a financial adviser.
He bullied that young woman. He was contemptuous of her father’s advice. He made it appear as though her father was a gullible victim of a charlatan.
Charlatan is as charlatan does.
The phone call came in January 2008. Remember what happened next – an event that Schiff had called perfectly? There was the worst stock market meltdown in modern times. The entire financial structure was changed. The government nationalized Fannie Mae and Freddy Mac. The Federal Reserve gave secret loans of $1.2 trillion to big banks.
Was the advice that the woman’s father received from Schiff accurate? Yes. Was the advice from Ramsey accurate? No. Yet he came on like a know-it-all expert. He showed her!
Then the stock market showed him: the worst crash since 1932. Unemployment remains above 9%.
In Texas, they would say that Dave Ramsey is all hat and no cattle. They would be wrong. He is all hat and diseased cattle.
He tells people to buy no-load stock mutual funds.
The longer your money stays invested, the more it can grow. Over the last 30 years, the S&P 500, a standard measurement of stock market performance, has averaged a 12% growth rate.
Conclusion:
Put your retirement money in growth stock mutual funds with a track record of at least five years of consistent returns (12% average). Divide your portfolio equally among growth, growth and income, international and aggressive growth funds.
He posted this on March 22, 2010. On that day, the S&P 500 closed at 1166. Ten years earlier – March 22, 2000 – the index was at exactly 1500.
Let’s see: that’s a loss of 22%.
But wait! There’s more!
Using the inflation calculator of the U.S. Bureau of Labor Statistics, we learn that the dollar lost over 21% of its purchasing power, 2000 to 2010.
So, combining these figures, the investor who bought a no-load index fund of the S&P 500 and held it for a decade lost almost 40% of this investment.
Ramsey never discusses the retirement-destroying rate of return that American stocks have produced since early 2000. It has been 11 years of false hopes.
Dave Ramsey is a purveyor of false hope. He never changes. He never learns.
For the record, I warned my Remnant Review subscribers in February 2000 and again in March that the price/earnings ratio was too high, and that a market decline was imminent. It began in mid-March. In terms of purchasing power, it has never recovered.
COGNITIVE DISSONANCE
He offers his desperate listeners the dream of riches. But they must do it Dave’s way. We read on his site:
A research study conducted by Dr. Thomas Stanley and Dr. William Danko revealed this fact in their book, The Millionaire Next Door. The findings by the two researchers support what Dave has said for years: your biggest wealth-building tool is your income. It almost sounds too simple, but it’s absolutely true!
Right now you might be saying to yourself, I work hard and have a steady income. Why am I not a millionaire? The answer might be that you spend more than you make. If that’s true, you’re essentially giving your money to someone else so they can become rich while you live paycheck to paycheck. If you want to be a millionaire, you need to change your lifestyle to mimic most millionaires.
Did you take special notice that most millionaires invest their money? It’s not enough to live below your means and save money; you must invest that money. Dave recommends you invest in mutual funds because they offer several advantages over individual stocks. Here’s a quick breakdown of his suggested investments:
* 25% in a growth mutual fund* 25% in a growth and income mutual fund* 25% in an aggressive growth mutual fund* 25% in an international mutual fund
What’s wrong with this rosy picture? This: the book describes self-made rich men, and almost all of them made it by starting a business. What’s more, most of them declared bankruptcy once. Some did it repeatedly. They lived in terms of debt. They stiffed their investors, their bankers, and their relatives. Starting a business is risky. They passed to others as much of this risk as they could.
In the book, we learn that 85% of them had started businesses. To start a business, you must adopt one or more of these options to fund it: (1) borrow money from friends and relatives; (2) borrow money from a bank; (3) borrow money from customers (e.g., cash up front for a subscription); (4) put up your own money for a cash-only business (exceedingly rare the first time you start one); sell shares in your firm (even more rare). Once the business is profitable, you borrow money more to grow it. This is “the millionaire mind.” the authors’ title for their other book.
September 6, 2011
Gary North [send him mail] is the author of Mises on Money. Visit http://www.garynorth.com. He is also the author of a free 20-volume series, An Economic Commentary on the Bible.
Copyright © 2011 Gary North
